WASHINGTON -- General Motors Co.'s and Chrysler Group's dealer cuts will erode the companies' market share in small- and mid-sized markets, an automotive-industry researcher told federal auditors last week.
David Cole, chairman of the nonprofit Center for Automotive Research in Ann Arbor, Mich., said he was interviewed Tuesday, Oct. 27, by the special inspector general's office for the federal bailout.
Cole said he told auditors that the automakers are cutting into their strengths, which are in rural areas and modest-sized markets rather than large metropolitan areas.
“These cuts didn't make any sense to me,” said Cole, whose research specializes in auto manufacturers and suppliers rather than dealers. “By pulling out, GM and Chrysler are giving a beachhead to Ford and some of the imports.”
Cole added that he had no quarrel with the dealer reductions in metropolitan areas.
He wrote a letter to the Obama administration's auto task force this month making similar points and calling for a review of dealer cutbacks.
“The dealer is the face of the manufacturer to the average customer,” his Oct. 12 letter said. “I would suggest that the distribution network for these manufacturers be revisited by the automotive task force.”
Cole said he didn't know if the call from the inspector general's office, led by former prosecutor Neil Barofsky, was triggered by his letter to task force chief Ron Bloom.
Cole said he has no research expertise or experience with dealers, but that his personal interest in the issue was piqued and that he has spoken with a number of dealers and GM executives. He is the son of former GM President Ed Cole.
Kris Belisle, spokeswoman for the special inspector general for the Troubled Asset Relief Program, did not immediately respond to a request for comment, nor did task force spokeswoman Amy Brundage.
GM and Chrysler have said the dealer cuts are necessary to reduce costs and align the size of the dealer network with reduced market demand.
Chrysler terminated 789 dealerships earlier this year as part of its bankruptcy. GM, which has also emerged from Chapter 11 protection, plans to shut 1,350. The reductions account for about a quarter of each company's networks. GM has restored about 70 franchises that had been slated for cancellation.
GM has estimated that its reductions will save $2 billion in direct support or subsidies for weaker dealers, and $415 million in gross fixed cost savings.
“These cost burdens are just not sustainable,” Michael Robinson, GM general counsel for North American Operations, told a congressional panel in July.
GM spokesman Greg Martin declined comment. Chrysler spokeswoman Linda Becker did not respond to a request for comment.
Barofsky, who was appointed by President Barack Obama and confirmed by the Senate, is examining dealer reductions by GM and Chrysler. His staff has already interviewed employees of the National Automobile Dealers Association and dealers at the Committee to Restore Dealer Rights, which represents rejected dealers.