2nd UPDATE:GM,Chrysler Executives In Congress Again To Defend Dealer Cuts

Top executives at General Motors Corp. (GMGMQ) and Chrysler LLC appeared in Congress for the second time in two weeks Friday to defend plans to cut dealers from their retail networks, dismissing criticism from lawmakers that they have treated the dealers unfairly.

"A strong dealer body is vital to GM's success," GM Chief Executive Frederick "Fritz" Henderson told the House Energy and Commerce Committee's subcommittee on oversight and investigations.

He said the planned closing of nearly 2,600 dealerships by fall 2010 will save the company $2.5 billion annually, including $2 billion in direct payments to dealers. The remaining savings will come from expenses associated with local advertising, training and vehicle service, Henderson said.

Henderson said GM currently has 6,000 dealerships compared to 1,240 for Toyota Motor Corp. (TM). A large dealer network forces dealers of the same brands to compete against each other, he said, often forcing them to reduce prices on GM vehicles, eroding the cars' "residual" value.

Henderson said 96% of about 1,350 dealers on the company's list of closings have signed "wind-down" agreements to shut their dealerships by October 2010. The company also expects to lose hundreds of other dealers through attrition.

Chrysler LLC President James Press reiterated that the average Chrysler dealer loses money.

"Without profits dealers can't invest in people, training and facilites," Press said. "As a result, sales and customer satisfaction suffers."

Chrysler this month closed nearly 800 dealerships, about a quarter of its retail network.

Lawmakers voiced skepticism of the rationale behind the dealer closings.

"I can think of few subjects that have brought the ire of so many members" of Congress as the dealer closings, said Rep. Bart Stupak, D-Mich., chairman of the subcommittee.

"How is it pro-customer to reduce competition?" asked Rep. Greg Walden, R-Ore.

Walden said that the planned closing of a GM dealership in Oregon will force residents to travel 136 miles to the nearest GM dealership for service.

-By Josh Mitchell, Dow Jones Newswires; 202-862-6637; [e-mail]