Bill Requires Bankrupt Auto Makers to Reimburse Dealers from Federal Funds

This posting was written by John W. Arden.

A bill to require bankrupt automobile manufacturers that receive funds from the federal government to use such funds to fully reimburse dealers for inventory of vehicles and parts has been proposed in House Bill No. 1256.

The measure—proposed as the Auto Dealers Assistance Amendment (#1270)—would require manufacturers to use any funding received from the U.S. Treasury while in bankruptcy to:

(1) Fully reimburse dealers rejected in bankruptcy for the cost of all parts and inventory in the dealer’s possession on the date of the bankruptcy and all other obligations owed under franchise and dealership agreements, and

(2) Provide dealers rejected in bankruptcy with at least 180 days to shut down their businesses and sell off their inventories through a “wind down period.”

The amendment further specifies that a bankruptcy court may not allow a bankrupt dealer to obtain access to debtor-in-possession funding unless the credit agreements expressly provide for reimbursement and wind-down as provided by the measure.

U.S. Senator Bob Corker (R-Tenn.) introduced the amendment on June 4.

“We continue to receive assurances from Chrysler and GM that their dealers across Tennessee and across the country will be treated fairly,” said Corker. “We understand that a bankruptcy is inherently painful and our efforts aren’t to interfere.

“We filed this amendment to apply pressure on the automakers to keep their word to rejected dealerships and fully reimburse them for their inventories of vehicles and parts,” he continued. “We hope Chrysler and GM will take these appropriate actions and make this amendment unnecessary.”

A statement by Senator Corker and text of the amendment appear on the Senator’s website.