Report: U.S. Ignored Impact of Shutting Auto Dealerships

The Treasury Department neglected to consider the potential job losses and economic impact when it pushed General Motors and Chrysler LLC to step up plans to close dealerships as part of their government-funded restructurings, a federal watchdog said.

A report by the Special Inspector General for the Troubled Asset Relief Program that handled the federal bailouts said the Obama administration's auto industry task force wasn't focusing on the savings for the automakers either when it pushed them to shut dealerships faster, reported The Detroit News.

"The fact that Treasury was acting in part as an investor in GM and Chrysler does not insulate Treasury from its responsibility to the broader economy," said the audit by Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, the $787 billion stimulus program known as TARP.

"Job losses at terminated dealerships were apparently not a substantial factor in the Auto Team's consideration of the dealership termination issue," it said.

The Auto Team is part of the Treasury Department, which objected strongly to the report and denied pushing GM and Chrysler to single out dealerships in March of 2009 when it asked them to revise their restructuring plans.

In a letter attached to the inspector's report, a senior Treasury official said the restructurings required "deep and painful sacrifices" from all stakeholders.

"The Administration's actions not only avoided a potential catastrophic collapse and brought needed stability to the entire auto industry, but they also saved hundreds of thousands of American jobs, and gave GM and Chrysler a chance to re-emerge as viable, competitive American businesses," said Herbert Allison, assistant secretary for financial stability at the Treasury Department.

Administration officials said it was easy in hindsight to question whether things could have been done differently. The report "takes the situation dramatically out of context," one administration official said.

Two of Detroit's three automakers were on the verge of extinction, the official said. "Over a million jobs were saved by virtue of saving GM and Chrysler."

While the report focused on job losses at dealerships, more were lost in other parts of the industry, another administration official said. Since June 2007, the number of jobs in auto manufacturing has fallen 30 percent, compared with an 18 percent drop in auto retailing jobs.

In March of 2009, after the Auto Team rejected the restructuring plans submitted by GM and Chrysler along with requests for aid, the companies revised their plans. Chrysler said it would terminate 789 dealerships by June 10, 2009, and GM announced plans to close 1,454 dealerships by October 2010.

The terminations remain an issue, with some dealers still appealing the decisions while automakers find they need some of the stores.

The report also stoked political differences over the government's role. "This sobering report should serve as a wake-up call as to the implications of politically orchestrated bailouts and how putting decisions about private enterprise in the hands of political appointees and bureaucrats can lead to costly and unintended consequences," said Rep. Darrell Issa, R-Calif., ranking member of the House Committee on Oversight and Government Reform.

GM said that it was showing "substantial progress" a year later. "The events depicted in the report have since been overtaken by a new GM and a stronger dealer network to match," it said.