Yesterday, the House Judiciary Committee’s Subcommittee on Commercial and Administrative Law concluded its series of hearings on the ramifications of auto industry bankruptcies. Testifying before the committee were:
- Louann Van Der Wiele, Vice President and Associate General Counsel, Chrysler Group LLC
- Kevyn Orr, Partner, Jones Day
- Michael J. Robinson, Vice President and General Counsel of North America, General Motors Company
- Harvey R. Miller, Partner, Weil, Gotshal & Manges LLP
- Douglas G. Baird, Harry A. Bigelow Distinguished Service Professor, University of Chicago Law School
- Daniel J. Ikenson, Associate Director, Center for Trade Policy Studies, Cato Institute
- Richard E. Mourdock, Indiana State Treasurer
- Jeremy K. Warriner, Crash Victim
- Jack Fitzgerald, Owner/Dealer, Fitzgerald Auto Malls
- Jim Tarbox, Owner, Tarbox Motors
- Gregory Williams, President, Huntington Chevrolet
- Robert G. Knapp, President, Knapp Chevrolet
Ms. Van Der Wiele and Mr. Orr testified together on behalf of Chrysler. Van Der Wiele praised the carmaker’s restructuring, noting that Chrysler Group will employ 30,000 workers nationwide and spend approximately $22 billion on supplies this year and that “liquidation would have been far worse.” Van Der Wiele credited the U.S. Treasury with enabling Chrysler Group to provide customers warranty protection for Chrysler vehicles purchased before the restructuring, claiming that the product warranty guarantees provided by Treasury during the restructuring eased “potential customer concerns.” She also explained that the reduction in the number of Chrysler dealerships was necessary, with projected sales of 10.1 million new vehicles in 2009, down from 16 million per year between 1990 and 2007.
Mr. Robinson, testifying on behalf of GM, echoed Van Der Wiele’s sentiments on the necessity of dealership closings after GM’s restructuring, arguing that “a strong dealer body is vital to the enterprise.” “In recent years, many GM dealers could not earn enough profit to renovate their facilities and retain top-tier service staffs. At the same time, the company sustained very substantial costs to support an uncompetitive network.” He also defended the use of Section 363 of the Bankruptcy Code to protect the GM purchaser from successor liability, arguing that through the restructuring, all creditors benefitted. “To permit such claimants to also pursue the purchasing entity would, in effect, require the purchaser to pay twice, to the benefit of a single class of creditors and to the detriment of all others.”
Mr. Miller concurred with Mr. Robinson regarding the closure of GM dealerships. Acknowledging that “Chapter 11 is not a painless process,” he stated that a “leaner, more profitable dealer network with higher annual vehicle sales per dealership was critical to … creating an economically viable New GM.”
Professor Baird offered a gloomy outlook to the subcommittee, noting that “even with a substantially reduced debt burden, the challenges General Motors and Chrysler face are far from over” and that “There is no guarantee that either will survive.” He also expressed concern over the speed of the restructurings, arguing that the sale process involved in large Chapter 11 cases should be “conducted in such a way that ensures that the firm is sold for top dollar.” “The judges could have done more to test the waters” for other bidders.
Mr. Ikenson cautioned that the emergence of GM from bankruptcy was “the end of the first chapter of what is an evolving cautionary tale about the triumph of politics over markets and the rule of law.” Ikenson harshly criticized the Bush Administrations extension of $13.4 billion in loans to the automakers, as well as the federal government’s role in the sale of the companies. He questioned the possibility of the companies’ producing green vehicles while maintaining profitability, noting that American automakers “have had their greatest success” in the less fuel-efficient larger vehicle market.
Mr. Mourdock discussed his state’s appeal of the Chrysler sale. He complained that “the bankruptcy court judge seemed interested only in ratifying the government’s preferred plan as quickly as possible and failed to even address the merits of the many legal issues we raised.” Mourdock agreed with Baird on the “crisis mentality” behind the sale.
Mr. Warriner testified on behalf of 1,300 products liability plaintiffs with pending claims against Chrysler and GM before the restructuring. The automakers were relieved of most of these claims through the bankruptcy process. Warriner, who lost both legs in an automobile accident, argued that “if Chrysler and GM will not accept responsibility … then a jury must weigh each case and make that decision for them.” Criticizing the process, he noted that “in an effort to stabilize these companies, our tax dollars have been used in a manner that prevents injured tax payers from exercising that right.” Warriner supported the passage of H.R. 3088, which would require the automakers to purchase liability insurance to cover current and future claims. Alternatively, he also advocated a congressional relief fund for the victims.
Mr. Fitzgerald testified on behalf of the Committee to Restore Dealer Rights, representing many of the dealerships facing closure. Fitzgerald stressed the impact that the closures will have on automobile servicing, noting that “there are nearly two domestic vehicles on the road for every one import vehicle.” He accused the automakers of “vastly exaggerating possible savings and underestimating the adverse impact of closing dealerships and ceding market share.” Fitzgerald argued that customers are “more loyal to the dealership than the brand,” a problem that could potentially impact GM and Chrysler profits.
Mr. Tarbox testified on the loss of his Chrysler dealership, which he said was one of the highest volume Jeep dealers in the Northeast. “My dealership has exceeded sales goals and performed above and beyond any expectations set by Chrysler. It certainly begs the question, if not for performance, what was the criteria for closure?”
Mr. Williams, whose Chevrolet dealership is facing closure, echoed the sentiments of Tarbox. He asked Congress to “prevent the manufacturers and banks who received TARP funds from enforcing personal guarantees upon the dealers.” Williams also suggested the appointment of an independent committee to review the closure of affected Chrysler and GM dealerships.
Mr. Knapp, whose Chevrolet dealership is also scheduled to be closed, criticized GM’s Wind-Down Agreement for not reimbursing the dealerships for its losses associated with the forced closure. He supported the passage of H.R. 2743, the Automobile Dealers Economic Rights Restoration Act of 2009 to address the problem.