WATCHDOG FAULTS U.S. GOVERNMENT FOR PUSHING TO SPEED DEALER CLOSINGS

Washington- The Obama administration's push to accelerate General Motors and Chrysler dealership closings, aimed at helping the companies compete, may not have been necessary and added to unemployment, a government watchdog says.

The Treasury Department should have considered whether speeding up the closings was worth the potential loss of tens of thousands of jobs, according to a report released by Neil Barofsky, special inspector general for the Troubled Asset Relief Program. The federal government had rejected reorganization plans from the carmakers in March 2009, in part citing a "slow pace" for GM to scale back its dealer network.

"Such dramatic and accelerated dealership closings may not have been necessary and underscores the need for Treasury to tread very carefully when considering such decisions in the future," Barofsky concluded in the report released Sunday.

The report may prompt congressional criticism of the administration's handling of the automaker bailouts. Lawmakers have already complained about the job losses in their districts from dealership closings and the process by which retailers were selected for shutdowns.

"This sobering report should serve as a wake-up call as to the implications of politically orchestrated bailouts," Rep. Darrell Issa, R-Calif., the ranking member on the House Committee on Oversight and Government Reform, said in a statement.

The Treasury Department, which has spent $80.7 billion on auto assistance under the TARP program, criticized the inspector's audit and said without government aid both companies faced failure and possible liquidation.

The department's autos task force in early 2009 found GM's plan for closing 1,650 dealers by 2014 too slow, according to Barofsky's report. In response, GM identified 1,454 dealerships to be shut down by October, Barofsky said.

Chrysler, which planned to shut almost 1,200 dealerships by 2014, instead decided to immediately close 789 in bankruptcy, after Treasury's urgings, according to the report.

The Treasury Department, using advice received from industry experts, had encouraged smaller dealer networks to help the carmakers boost sales and better compete with Toyota and Honda, according to the report.

GM, which later moved to trim the closures by about half, said in a statement that events described in the report "have since been overtaken by a new GM and a stronger dealer network to match."

- Bloomberg News

The statement added, "The new GM is also moving forward to improve dealer relations and has already reinstated several hundred."

Chrysler's "optimized dealer network is already contributing to improved vehicle sales for Chrysler and will be a vital part of the company's success as we continue to deliver outstanding products," the automaker said in a statement.

Dealer complaints about closures prompted lawmakers including Sen. Jay Rockefeller, D-W.Va., to ask Barofsky to investigate.

"There is substantial confusion, even among dealers themselves, as to how GM and Chrysler selected dealerships for termination," Rockefeller, chairman of the Commerce, Science and Transportation Committee, said in the letter to Barofsky.

The report found that Chrysler, which made decisions on a case-by-case basis, followed the criteria for targeting dealers for termination. GM was inconsistent and retained more than 1,300 dealers who would have been shut based on sales, consumer satisfaction and profitability, according to the report.

"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," Barofsky said. "Treasury should have taken special care given that the auto team's determinations had the potential to contribute to job losses."

Herbert Allison, assistant Treasury secretary for financial stability, said in a letter included in the report that the restructuring process "was not easy" and required "deep and painful sacrifices" from all parties. "We strongly disagree with many of your statements, your conclusions and the lessons learned," Allison told Barofsky.