Shoddy Reporting Concerning Closed Chrysler Dealers:What the TARP Inspector General Report Does NOT Say.

The TARP Inspector General’s office, SIGTARP, recently released a report entitled, “Factors Effecting The Decision of General Motors and Chrysler To Reduce Their Dealership Networks“.  This report set off a firestorm of shoddy reporting, which, if left unchecked, will confuse those familiar with the Chrysler Dealers’ pending litigation on appeal in federal district court.  This blog posting has been designed to educate the public as to the truth of the SIGTARP Report.

My assertion of shoddy reporting is levelled specifically at The New York Times, the AP, and unfortunately also at Michelle Malkin who has been a staunch supporter of the dealers throughout.  Regardless, her recent discussion of the SIGTARP report is fundamentally flawed and damaging to the case we have brought in our federal appeal to the Southern District of New York (where a Court ordered oral argument is scheduled for July 28, 2010, a fact the media doesn’t seem remotely interested in mentioning).

Malkin specifically urged her readers to read the entire SIGTARP Report, but it appears she failed to read the full report herself since she erroneously reported:

“The independent review of how and why the Obama administration forced Chrysler and General Motors to oversee mass closures of car dealerships across the country reveals grisly incompetence, fatal bureaucratic hubris and Big Labor cronyism.”

Nowhere in the SIGTARP Report does it say that the Government “forced” (as Malkin put it) Chrysler to reduce its dealership network. As to GM, yes the Government did specifically urge dealership reductions, but as to Chrysler the Government did not.  The SIGTARP Report is very clear on this point.

The GM Bankruptcy was a vastly different beast than the Chrysler Bankruptcy.  And the SIGTARP Report stresses this point in multiple citations throughout the 45 page document.  It is repeated multiple times that the Government did not insist upon dealer reductions for Chrysler.  For example, on pg. 5, the SIGTARP Report discusses the pre-bankruptcy viability plans offered by both GM and Chrysler, stating:

“In contrast to GM’s plan, the Chrysler restructuring plan did not contain any specific details about planned dealership closures, such as how many dealerships would close, or what factors would be considered in deciding which dealerships to retain.  However, the plan referred to Project Genesis, an ongoing Chrysler effort to reduce the number of Chrysler dealerships…”

The “contrast” between GM and Chrysler was entirely skipped over by Malkin and the rest of the media reports.  Chrysler was already reducing its dealership network years before the auto industry crisis hit, years before TARP even existed.

On pg. 7 of the SIGTARP Report, it lists five key factors the Government told GM to focus upon when submitting their updated viability plans.  Accelerated dealership restructuring was listed as one of the five factors stressed by the Government for GM to accomplish if it expected future financial assistance.  However, in contrast to GM, the five factors the Government stressed for Chrysler’s viability – listed on pgs. 7-8 of the SIGTARP Report – do not include dealership reduction at all.

In fact, on pg. 13 of the SIGTARP Report, it is unequivocally stated that in contrast to GM’s situation, the Government’s analysis of Chrysler’s viability did not address dealership reductions:

“GM was given 60 days to submit a ‘more aggressive plan’ overall, including planning for their dealership terminations, and was provided an additional $ 6 billion of TARP funds…Treasury also listed five challenges for Chrysler in a separate viability determination…The Viability Determination for Chrysler did not address dealership terminations.” (Emphasis added.)

The SIGTARP Report acknowledges that the concepts behind dealership restructuring were openly discussed by GM, Chrysler and the Government.  It’s no secret that the Obama administration’s Auto Team were in favor of restructuring GM’s dealership networks and so they insisted upon it.  As to Chrysler, the SIGTARP Report only mentions that the Obama Auto Team encouraged a continuation of the pre-existing dealership restructuring Chrysler had begun years before.

There’s a huge difference between suggesting/encouraging a course of action and forcing a course of action.  As to GM, the Government forced dealership reductions.  As to Chrysler, the Government did not force or insist upon dealership reductions.  The SIGTARP Report is very clear about this issue.  If one reads the entire 45 page report, one understands this important distinction.

But let’s not lay the blame entirely on Malkin, who has certainly proved to be an ally of the Chrysler and GM auto dealers.  The New York Times and AP also printed stories pertaining to the closing of the auto dealers which highlighted the SIGTARP Report.  Unfortunately, these reports have also created a false impression.

The AP was misleading in the following statement, “The Treasury Department failed to consider the economic fallout when it told General Motors and Chrysler to quickly shutter many dealerships as part of government-led bankruptcies, a federal watchdog found.”   Again, the SIGTARP Report makes it clear that Chrysler was never ordered to “shutter many dealerships”.

Nick Bunkley of the New York Times published the following on July 18th: “President Obama’s auto task force pressed General Motors and Chrysler to close scores of dealerships”.  Bunkley also failed to mention the important contrast between GM and Chrysler laid out in the SIGTARP Report.

WHY THE CONTRAST IS SO IMPORTANT TO FORMER CHRYSLER DEALERS

Nothing in the SIGTARP Report nor in the underlying record of the bankruptcy case supports Old Chrysler’s decision to cut the dealership network once bankruptcy was filed.  Old Chrysler had no sound business purpose in doing so.  The bankruptcy court records are very clear and the SIGTARP Report includes nothing to counter the underlying record of the case.  SIGTARP actually confirms our position.

The Bankruptcy Court records, including thousands of pages of hearing transcripts, clearly establish that Old Chrysler made the decision to cut the dealers on their own with no insistence or pressure by the Government or Fiat.  Old Chrysler’s CEO and Chairman, Robert Nardelli,  testified on May 28, 2009 as follows (at pgs. 389-390):

Q. And approximately fifteen days later, on May 14th, Chrysler filed a motion to reject approximately 800 dealers, is that correct?

A. That’s correct.

Q. So prior to — the deal originally with Fiat would have been Chrysler bringing in 3,200 dealers into the alliance; however, now Chrysler is giving only 2,400 dealers to the Fiat alliance; is that correct?

A. That’s correct.

Q. Who asked for that change?

A. Well, as we looked at filing bankruptcy, and knowing that being over-dealered has been an issue for Chrysler for some time, and it has been a process that was there prior to me in trying to get dealer consolidation, not only in Chrysler but in the industry, it presented an opportunity to accelerate the plan.

Q. Did the UAW ask for this dealer reduction?

A. No.

Q. Did the American government ask for this dealer reduction?

A. No.

CEO/Chairman Nardelli clearly stated that the Government did not ask for Chrysler dealer reductions.  Furthermore, every piece of testimony in the case confirmed this to be true.   For example, review key Fiat executive Alfredo Altavilla’s May 27, 2009 testimony on this point:

Q. To your knowledge, in any of your discussions with the United States Treasury, has the United States Treasury requested or demanded any reduction in the dealer network?

A. U.S. Treasury has never demanded such a restructuring, at least in presence of Fiat.

Q. Are you aware of any request by any government agency, including the Auto Task Force, that has demanded a reduction in Chrysler’s dealer network?

A. We have never been part of a discussion in which the Treasury has requested the restructuring.

Peter Grady was the Chrysler executive in charge of dealer restructuring, who testified as follows (May 28, 2009 transcript at 517):

Q. At whose request was this done?

A. At whose request what was done?

Q. The rejection? The idea to reject all these dealers?

A. Well, it’s after consultation with our attorneys. And we had an opportunity to restructure the network.

Q. Was this brought up in connection with any meetings — I believe you testified that you attended some meetings with the Treasury Department?

A. I was on some conference calls and one meeting with the U.S. Treasury — the auto task force.

Q. Now, did they insist that this process be carried out?

A. What they insisted was that we restructure our business in total back in December or February when we originally put forth our viability plan.

Q. Well, my question goes to the more specific point of whether or not the task force instructed Chrysler in your presence to reduce the number of dealers –

A. No.

All of the sudden concern with dealer closings in the press has the appearance of providing a counter-point to the issues we have raised in our appeal to the Southern District of New York.  These media reports appear to provide a basis by which Old Chrysler would have been under pressure by the Government to cut the dealership network, a position which, as we have demonstrated in our filings (by testimony as quoted above) is not supported by the record.

The rejected Chrysler Dealers’ current appeal relies upon the fact that Old Chrysler was not under forced pressure by the Government as lender, or Fiat as purchaser, to cut the dealership network.  Without forced pressure, Old Chrysler’s decision to cut 789 dealers does not stand up to scrutiny and should not have been approved by the Bankruptcy Court.  These erroneous media reports are having the effect of revising history and confusing the issues.

The SIGTARP Report does say that decisions of the auto task force led to thousands of job cuts, and that is what we have said all along as well.  But this goes back to the use of TARP funds by the Government to enter the private sector as pseudo venture capitalists.  That decision was the general decision that ultimately caused the auto industry to be restructured, but the specific decision to cut the dealership network – according to key Chrysler executives Grady and Nardelli, was Chrysler’s decision alone.

And if that were not the case, Mr. Nardelli and Mr. Grady might be subject to perjury charges.  But that won’t happen because the record and the SIGTARP Report are clear and consistent; the Government did not order Chrysler dealerships to be shut down.  Only the media is confused.

Michelle Malkin finished her piece with a quote from the SIGTARP Report which highlights a response by Ron Bloom, the key bankruptcy expert employed by the Obama Administration’s Auto Team to oversee the auto industry restructuring:

“…[W]hen asked explicitly whether the Auto Team could have left the dealerships out of the restructurings, Mr. Bloom, the current head of the Auto Team, confirmed that the Auto team ‘could have left any one component (of the restructuring plan) alone,’ but that doing so would have been inconsistent with the President’s mandate for ‘shared sacrifice.’ ”

The term “shared sacrifice” with regard to Chrysler had nothing to do with dealer reductions.  Instead, that term concerned expectations by the Government and Old Chrysler that the Chrysler Dealers would – in order to help Chrysler avoid bankruptcy – take on additional inventory in buying more cars and parts than they normally purchased.

The testimony offered by Chrysler CEO/Chairman Nardelli in the Bankruptcy Court hearings (pgs. 195-196) established that the dealers rose to that challenge of shared sacrifice by taking on extra inventory in the hope of saving Chrysler from bankruptcy.  Nardelli testified that right up until the evening before bankruptcy was filed, April 29, 2009, “the dealers certainly responded in kind“.

Meanwhile, unbeknownst to these dealers who were valiantly buying up extra inventory, Old Chrysler was concurrently contemplating kicking them to the curb with no obligation to buy back the extra inventory which the rejected dealers – post rejection – were forbidden from selling to the public.

That’s the dirty little secret of the so-called “shared sacrifice” mentioned by Herr Bloom.

Frankly, I don’t appreciate the timing of these shoddy news pieces concerning the SIGTARP Report.  But if any media outlets are truly interested in the cause of justice here, they ought to mention that 82 rejected Chrysler dealers will have their day in court on this very issue before the Honorable Judge Alvin K. Hellerstein – who ordered oral argument sua sponte – on July 28, 2010 at 12:30 PM in the Southern District of New York, 500 Pearl Street, New York, N.Y.

I also encourage the media to read the entire SIGTARP Report and to provide an accurate assessment of the issues discussed in this post.

by Leo Donofrio, Esq. for the law firm of Pidgeon & Donofrio GP

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