House-Passed Appropriations Bill Includes Measure to Resurrect GM, Chrysler Franchises

This posting was written by John W. Arden.

The U.S. House of Representatives yesterday passed a general financial services and appropriations bill that includes a provision attempting to restore automobile franchises terminated pursuant to the bankruptcy plans of General Motors and Chrysler Corp.

The Financial Services and General Government Appropriations Act, 2010 (H.R. 3170) cleared the House of Representatives last night by a 219 to 208 vote.

Appended to the general appropriations bill were two provisions (Sec. 245 and Sec. 246) that:

(1) Prohibit the use of any appropriated funds to obtain a financial interest in an automobile manufacturer “that deprives an automobile dealer of its economic rights under a dealer agreement” and does not assume each dealer agreement that is valid, pre-existing, and not lawfully terminated and

(2) Require bankrupt automobile manufacturers in which the federal government has an ownership interest—and their successor companies—to enter into a new dealership agreement with dealers having a valid agreement at the time of the bankruptcy filing.

White House Opposition

The dealership measure, authored by U.S. Rep. Steven C. LaTourette (R-Ohio), was left in the bill, despite strong opposition from the White House. In a July 15 statement of administrative policy, the Obama Administration supported passage of the bill, but “strongly opposes the language in the bill that attempts to restore prior Chrysler and General Motors (GM) franchise agreements.”

According to the statement, “the decision by Chrysler and GM to rationalize their dealer networks was a critical part of their overall restructuring to achieve long-term viability in order to save jobs in the long run, and to improve the prospects for the company’s repayment of the substantial taxpayer investments. Without the significant steps these automakers have taken to revamp their operations, the companies would have failed—imperiling ever GM and Chrysler dealer in the country.”

As previously reported, GM plans to reduce the number of its dealerships by 2,641—from 6,246 to 3,655—by the end of 2010. The U.S. Bankruptcy Court for the Southern District of New York ruled on June 9, 2009, that Chrysler could immediately terminate 789 Chrysler, Dodge, and Jeep franchises—about a quarter of its dealership base.

Job Losses

In a July 16 news release, Rep. LaTourette criticized President Obama’s Auto Task Force for encouraging automobile companies to terminate dealers, stating that the closure of GM and Chysler dealership would cause the loss of approximately 200,000 jobs.

“Under these policies the only jobs that will be stimulated will be clerks at the unemployment offices in the country,” said LaTourette.

The representative cast doubt on the financial necessity of closing dealerships. “The auto companies have never been able to demonstrate that the dealers are a drag on their bottom line,” he remarked. “I think many agree that the tramping of state franchise laws is wrong and many have no stomach for the way these dealers were treated.”

Further details regarding H.R. 3170 appear here at the Library of Commerce’s Thomas web site.

Agreement with State Attorneys General

In a related matter, the attorneys general of 30 states reached an agreement with GM regarding protections afforded under state laws to dealers and consumers. The attorneys general had filed an objection to the GM’s termination of 2,641 dealers in U.S. Bankruptcy Court for the Southern District of New York, contending that the bankruptcy plan would permit GM to ignore state motor vehicle anti-termination statutes.

The agreement, which was formally ratified by the bankruptcy court on July 5, required New GM to comply with state franchise and dealership laws going forward, honor warranties and comply with state lemon laws, and honor product liability claims for acceding involving cars sold before the bankruptcy. (See Trade Regulation Talk, July 8, 2009).