(Reuters) - General Motors Corp and Chrysler aim to drop as many as 3,000 U.S. dealers and are expected to begin sending notifications as early as Thursday, three people briefed on the still developing plans said.
GM, facing a U.S. government-imposed deadline of June 1 to restructure or file for bankruptcy, is expected to send termination notices to up to 2,000 dealers -- a third of its roughly 6,000 U.S. dealers, the sources told Reuters.
Chrysler, which filed for bankruptcy on April 30, will also tell up to 1,000 of its 3,189 U.S. dealers it is terminating their franchise agreements, according to the sources who asked not to be identified because the controversial closure plans have not been yet announced.
The moves to shut down auto dealerships underscores how the economic pain caused by the downward spiral of both automakers -- now operating under U.S. government oversight -- is spreading beyond their home base in Detroit.
The development comes as dealer representatives have stepped up lobbying in Washington to try to slow down closures they estimate would cost 200,000 dealership jobs.
The involuntary terminations are also widely expected to prompt a legal challenge from dealers who are independent retail networks protected by state franchise laws.
Chrysler spokeswoman Kathy Graham said the automaker had not announced its dealership closure plans.
"We have not announced anything at this point," she said. "We are not done with our process at this point."
A GM spokesman was not immediately available for comment.
More than 100 members from the National Automobile Dealers Association, a group representing the country's 20,000 new car dealers, met members of the House of Representatives and Senate in Washington on Wednesday, asking them to intervene with the Obama administration's autos task force on planned reductions.
"A rapid cut of dealers is a bad idea," NADA Chairman John McEleney said in a statement.
McEleney said his organization does not oppose dealer consolidation, but believes the administration and the companies are moving too fast.
NADA leaders are scheduled to meet the U.S. auto task force on Thursday.
The task force, headed by former investment banker Steve Rattner, is driving the restructuring of both companies, which are planning to close plants, cut jobs and restructure dealer lineups to establish viability.
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Wednesday, 13 May 2009
U.S. regulators seek OTC derivatives crackdown
(Reuters) - The Obama administration moved on Wednesday to exert more control over the shadowy over-the-counter derivatives market, now closely linked to the global credit crisis.
Federal regulators proposed subjecting all over-the-counter derivatives dealers -- whose trades are not made through an exchange, making them hard to monitor -- to "a robust regime of prudential supervision and regulation," including conservative capital, reporting and margin requirements.
The plan, sketched out by Treasury Secretary Timothy Geithner and top regulators at a news conference, marks a big step in the administration's push to rewrite rules for banks and financial markets in response to a credit crisis that has sent economies around the globe reeling.
U.S. officials have pumped billions of dollars of taxpayer money into banks and automakers to try to stem the crisis. Last week, they wrapped up "stress tests" at the nations 19 largest banks and told ten of them to raise a combined $74.6 billion.
The Obama administration is now aiming to bolster regulatory oversight of the financial system.
Over-the-counter derivatives are presently difficult to monitor and supervise. Billionaire investor Warren Buffett has called derivatives "financial weapons of mass destruction."
Under current law, they are only loosely policed.
"We're going to require for the first time all standardized over-the-counter derivative products be centrally cleared," Geithner told the news conference.
EXPLOSION IN TRADING
Trading of OTC derivatives, instruments that derive their value from other assets, exploded in size in recent years, with many large firms -- such as mega-insurer American International Group (AIG.N) -- charging into the burgeoning market.
The global market is pegged at about $450 trillion.
When the U.S. real estate bubble burst, firms such as AIG were left with mountains of complex, hard-to-sell financial instruments on their books.
In the United States, four large banks control over 90 percent of the derivatives market: JPMorgan Chase & Co (JPM.N), Bank of America Corp (BAC.N), Citigroup Inc (C.N), and Goldman Sachs Group Inc (GS.N). All have received taxpayer aid.
Officials did not make clear which agency would be in charge of the crackdown. They said they would work together to prevent "forum shopping" for weak rules. Lawmakers disagree over which agency should oversee OTC derivatives clearing.
Laws enforced by both the Securities and Exchange Commission and Commodity Futures Trading Commission would have to be amended by Congress to accommodate the administration's plans.
Read more here
Federal regulators proposed subjecting all over-the-counter derivatives dealers -- whose trades are not made through an exchange, making them hard to monitor -- to "a robust regime of prudential supervision and regulation," including conservative capital, reporting and margin requirements.
The plan, sketched out by Treasury Secretary Timothy Geithner and top regulators at a news conference, marks a big step in the administration's push to rewrite rules for banks and financial markets in response to a credit crisis that has sent economies around the globe reeling.
U.S. officials have pumped billions of dollars of taxpayer money into banks and automakers to try to stem the crisis. Last week, they wrapped up "stress tests" at the nations 19 largest banks and told ten of them to raise a combined $74.6 billion.
The Obama administration is now aiming to bolster regulatory oversight of the financial system.
Over-the-counter derivatives are presently difficult to monitor and supervise. Billionaire investor Warren Buffett has called derivatives "financial weapons of mass destruction."
Under current law, they are only loosely policed.
"We're going to require for the first time all standardized over-the-counter derivative products be centrally cleared," Geithner told the news conference.
EXPLOSION IN TRADING
Trading of OTC derivatives, instruments that derive their value from other assets, exploded in size in recent years, with many large firms -- such as mega-insurer American International Group (AIG.N) -- charging into the burgeoning market.
The global market is pegged at about $450 trillion.
When the U.S. real estate bubble burst, firms such as AIG were left with mountains of complex, hard-to-sell financial instruments on their books.
In the United States, four large banks control over 90 percent of the derivatives market: JPMorgan Chase & Co (JPM.N), Bank of America Corp (BAC.N), Citigroup Inc (C.N), and Goldman Sachs Group Inc (GS.N). All have received taxpayer aid.
Officials did not make clear which agency would be in charge of the crackdown. They said they would work together to prevent "forum shopping" for weak rules. Lawmakers disagree over which agency should oversee OTC derivatives clearing.
Laws enforced by both the Securities and Exchange Commission and Commodity Futures Trading Commission would have to be amended by Congress to accommodate the administration's plans.
Read more here
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