New GM's First 'Board' Meeting -- in D.C. - TheStreet

If you want to look inside the boardroom of the new

General Motors

(GMGMQ)

, the recent Senate Commerce Committee meeting is a good place to start.

The committee met Thursday to consider the question of whether

Chrysler

and General Motors are mistreating dealers they have targeted for termination -- 1,100 by next year at GM and 789 by next week at Chrysler.

Both companies, operating in bankruptcy, are welcoming government ownership -- 60% at GM and 8% at Chrysler -- and both have taken dramatic steps to rid themselves of dealers they consider extraneous to their new, slimmed down, hopefully profitable models.

This seems a normal pursuit for a troubled business. Not to say that the process by which a bloated company slims down is fair: it most certainly is not. All too often, the obsequious remain while the proficient depart. This is a syndrome that many boards of directors abide, in the interest, hopefully, of improving a company's financial performance.

But not these directors.

Rather, committee Chairman Sen. Jay Rockefeller (D., W.Va.) kicked off the session by declaring dealer closings to be "a nationwide tragedy that a lot of us feel strongly about, something that should not have happened and can be corrected."

The hearing consisted of expressions of support for auto dealers by about two dozen senators; remarks by three dealers, GM CEO Fritz Henderson and Chrysler President Jim Press, and then questions from each of the two dozen senators.

As Sen. John Thune (R., S.D.) told Henderson, "You find yourself with a board of directors of 535 members. We are partners, and as partners, these are the types of questions you get to answer." Many of the questions were tinged with outrage, as Sen. Jim DeMint (R., S.C.), noted, "I'm just outraged out."

No doubt, much of the outrage seems justified. The three dealers who spoke appeared as honest, hard-working, charitable types beloved by their respective communities -- all small and rural. One was Clinton, Iowa, population 28,000. One was Mineral Wells, Texas, population 17,000. One was Spencer, W. Va., population 3,800.

The sampling is not necessarily representative of the dealers slated for termination. GM, for instance, has said that most of its closures will be in urban and suburban areas, where all too often its dealers compete with one another. However, the demographics that guide Congress do not always match up with the demographics that shape business.

By the way, in 1955, GM had 20,547 dealers -- enough to fill one of those small towns. It has 6,246 today and plans to reduce the number to 3,605 by the end of 2010. "This is our last chance to get it right," Henderson said. State franchise laws make it difficult to close auto dealerships, but bankruptcy law trumps state franchise law.

On Thursday, in a New York bankruptcy court, Judge Arthur Gonzalez said Chrysler has a good case to terminate dealers: then a parade of dealers took the stand to plead for retention.

As far as the information offered at the Senate hearing, some was contradictory. For instance, dealers complained they are being stuck with cars, parts, and property they can no longer use and must sell at distressed prices. But Press said Chrysler has commitments to buy 91% of the vehicles and 51% of the parts and intends to purchase much of the rest.

Perhaps the most egregious facts, largely uncontested, were that Chrysler in February implored dealers to buy more cars to enable it to survive, that company representatives told dealers their actions would be remembered, that many dealers stepped up to buy as many as they could, and that some of those dealers who stepped up now face termination. Sure, business is business, but at times even corporate boards need to taste the outrage.

Ultimately, Congress' ability to function as a board is limited. As the session concluded, Sen. Mike Johanns (R., Neb), told Henderson and Press, "I think you're going to walk out of this hearing today, and 95% of what was decided before this hearing isn't going to change." Then he asked: "In the end they're going out of business, aren't they?" And both Henderson and Press responded: "Yes, sir."