As discussed in more detail later in this report, the dealer franchise system emerged as a way for the automakers to market, finance, and service motor vehicles. Auto Dealers as an Economic Force

The nation's auto dealers are a significant economic force in the U.S. economy. First, the recession and the elimination of a large number of GM and Chrysler dealers are changing the balance of dealerships. This trend accelerated in 2009 and into 2010 with the closure of over 2,000 GM and Chrysler dealerships and the sale of GM's Hummer and Saab divisions and their corresponding dealerships. In June 2009, NADA estimated that the recession would have prompted the loss of about 1,200 dealers and that the GM and Chrysler reductions will double or triple the number of dealers who will have changed hands or gone out of business. These statistics are in sharp contrast to auto and auto parts manufacturing employment, which dropped by 21% between 1990 and 2008, declining from 1.1 million to an estimated 880,000. In return for the U.S. Government recapitalizing GMAC, the U.S. Treasury now owns approximately 56% of the company, while Cerberus owns 15%, third party investors own 12%, General Motors owns just under 7%, and a blind trust owns nearly an additional 7% of GMAC. This facility has had limited success. Consumer Assistance to Recycle and Save Act of 2009 (CARS Act; P.L. U.S. GM and Chrysler have gone through bankruptcy; Chrysler is now managed and partially owned by Fiat, while 72.5% of GM is owned by the U.S. and Canadian governments. The viability plans submitted by GM and Chrysler in February 2009 were rejected by the Administration at the end of March 2009 as inadequate. The Chrysler and GM proceedings went swiftly. A new entity, formed in part by Fiat, purchased most of Chrysler's assets in mid-June and then changed its name to Chrysler Group LLC. The new automakers are smaller companies that have fewer plants, workers, and, in some cases, brands than did the former GM and Chrysler. Terms of Restructuring Affects Dealer Networks

As part of its restructuring plan, Chrysler terminated 789 of its 3,200 dealers in June 2009, and General Motors announced that it would reduce its dealerships from over 6,000 dealers to 3,600 when contracts expire in October 2010. Chrysler and GM have argued that reducing the size of their dealer networks will be a key ingredient in the success of the new automakers. Dealers presented their cases before the U.S. Bankruptcy Court judges who are adjudicating the Chrysler and GM bankruptcies, asking the court to alter the dealer terminations planned by both companies. As part of its bankruptcy proceedings, Chrysler rejected contracts with 789 dealers. GM and Chrysler leadership faced off against auto dealers and the NADA. There are cost savings from the dealer reductions . A larger number of dealerships will lead to more sales of GM and Chrysler products. The dealers have been loyal partners with the automakers and many dealerships have been family-owned for generations. Therefore, few savings are likely to be generated from dealer reductions." Legislation in the 111th Congress

		Congressional Hearings Held

After the mid-May 2009 announcement by GM and Chrysler that they planned to close approximately 2,000 dealers between them, many Members of Congress began to hear from dealers in their districts and states who were slated for termination. On July 7, 2009, the House Appropriations Committee adopted by voice vote an amendment offered by Representative LaTourette that would require automobile companies that receive federal funds and are partially owned by the federal government to reinstate agreements with franchise dealerships to the extent that a valid dealer agreement existed prior to a Chapter 11 proceeding. GM and Chrysler opposed the amendment. The House passed the Financial Services and General Government Appropriations Act, 2010 ( H.R. 111-117 ). Under this provision (Section 747 of the Consolidated Appropriations Act), GM and Chrysler must provide each terminated dealer by mid-January 2010 a letter explaining why it was terminated and a summary of this new arbitration process. Other legislation addressing dealer concerns includes:
H.R. Its companion bill is H.R. 2751 . H.R. H.R. H.R. H.R. 2750 and H.R. H.R.
As Chrysler and General Motors (GM) moved toward and into bankruptcy, they received permission from the U.S. Bankruptcy Court to terminate about 2,000 contracts with auto dealers. Many of the dealers want their contracts reinstated and have sought relief from Congress. This report examines the changed economic landscape facing the auto sector, automaker arguments in favor of dealer reductions, and dealer counterpoints. It also highlights recent legislation introduced to address dealers' concerns.
Chrysler and GM have emerged from bankruptcy as significantly smaller companies, reflecting the end of a multiyear restructuring process for both companies. Chrysler is controlled by the Italian carmaker, Fiat, while GM's majority owner is the U.S. government. GM, which in 2008 operated 47 assembly, powertrain, and stamping facilities, will operate 34 plants by the end of 2010 and 33 by 2012. The number of hourly employees will have declined from 78,000 on December 31, 2007, to 62,200 at end-2008, to an estimated 40,000 in 2010. By way of contrast, GM had 304,000 hourly workers in 1991. GM also discontinued two brands (Pontiac and Saturn) and is to sell Hummer and Saab. The new Chrysler reduced its number of production facilities from 25 to 17 as part of its restructuring. The company employed 45,000 hourly U.S. employees in January 2008 and 27,000 in February 2009. For the first time, GM and Chrysler are not owned by private investors; rather, the UAW's retiree health trust owns 17.5% of GM and nearly 68% of Chrysler; the U.S. Treasury owns nearly 61% of GM and 10% of Chrysler and the Canadian and Ontario governments own nearly 12% of GM and about 10% of Chrysler. In addition, bondholders and creditors own 10% of GM. Fiat holds a 20% stake in Chrysler.
The auto dealership network, a critical intermediary between automakers and final consumers, has not escaped this turmoil. Auto dealers are independent businesses with contracts with the automakers. Most of the approximately 20,000 U.S. auto dealers are family-owned and have been in business in their hometowns for decades. As with all stakeholders in GM and Chrysler, the dealer owners are faced with stark choices as the automakers downsize and seek a more competitive business model. As part of their restructuring, Chrysler cut 789 dealers immediately and GM is to eliminate more than 1,300 when the dealer's contracts expire in October 2010.
While dealer reductions of this magnitude would not have been possible in the normal course of business, the bankruptcy court approved both the Chrysler and GM requests to terminate dealerships as part of larger processes that have allowed a new GM and a new Chrysler to emerge from bankruptcy with many fewer assets and liabilities. Of the roughly 2,000 affected dealers, many oppose the changes and took their battle against GM and Chrysler to Congress. Congressional hearings were held and a number of bills to restore the dealer terminations were introduced, including H.R. 2743, H.R. 2750, H.R. 2751, H.R. 2793, and H.R. 2796. In July 2009, the House passed the Financial Services and General Government Appropriations Act, 2010 (H.R. 3170), which included a committee-approved amendment that would require automobile companies that receive federal funds and are partially owned by the federal government—that is, GM and Chrysler—to reinstate agreements with franchise dealerships that had a valid dealer agreement prior to Chapter 11 proceedings. This provision was modified significantly during a conference with the Senate and ultimately included in the FY2010 Consolidated Appropriations Act (P.L. 111-117). The new law provides a binding arbitration process for terminated GM and Chrysler dealers who would like to be reconsidered and reinstated. Other legislation affecting dealers includes H.R. 1606, H.R. 2224, H.R. 3088, S. 1253, S. 247, and S. 1135. This report will be updated as necessary.