updated 7/22/2009 5:55:45 PM ET 2009-07-22T21:55:45

General Motors and Chrysler defended their plans Wednesday to eliminate about 3,000 dealerships, calling it a vital piece of their strategy to rebound from government-led bankruptcies.

“This is a painful process that spares no particular group,” Michael Robinson, General Motors Co.’s vice president and general counsel, said to critics in Congress.

Chrysler warned that a House-approved plan to reinstate dealers shuttered by the bankruptcies threatened their new partnership with Italian automaker Fiat Group SpA.

Louann Van Der Wiele, Chrysler’s vice president and associate general counsel, said the restoration of nearly 800 shuttered dealers would “simply take Chrysler back to the future that (the old company) faced not long ago, without the option of a purchaser for substantially all of its assets. Complete liquidation, with all of its dire consequences, could follow.”

In the second day of congressional hearings, lawyers for GM and Chrysler said the dealership closings were among the traumatic but necessary concessions from unions, bondholders and retirees needed in the swift bankruptcies. The only alternative, they said, was liquidation and massive job losses.

But lawmakers said hundreds of profitable dealerships received little warning of the closings, accusing the companies of turning their back on dealers and the communities they serve after receiving billions in federal aid.

“In the blink of an eye, American icons were turned into American tragedies,” said Rep. Trent Franks, R-Ariz.

Several auto dealers told the panel how the auto industry decisions were wrecking their lives. Auto dealers estimate that nearly 200,000 jobs could be lost in the dealer consolidation.

“If my dealership is not restored, we will lose everything — including college savings for my children — and my home,” said Jim Tarbox, a former Chrysler dealer from North Kingstown, R.I.

The House approved a measure last week that would force GM and Chrysler to restore the dealers expected to be shuttered by late 2010. The Senate has not yet considered the plan.

Ron Bloom, the leader of the Obama administration’s auto task force, urged a Judiciary Committee panel on Tuesday not to meddle in the dealer closings. Bloom said the plan would set a “dangerous precedent” and could jeopardize taxpayer recovery of billions in federal aid to the car companies.

Rep. John Conyers, D-Mich., the committee’s chairman, urged the auto company lawyers to find ways of providing a “cushion” to dealers, accident victims and others who have opposed the bankruptcy provisions. “We’re trying to save a noble and important industry but what we’re also trying to do is to create as much cushion as we can,” Conyers said.

People who have sued the car companies in auto accident cases have objected to bankruptcy plans that would free the new auto companies from liability for people injured by a defective vehicle prior to the bankruptcy filings.

GM is reducing its 6,000-dealer network by about 2,400 dealerships by the fall of 2010 by not renewing franchise agreements next year and winding down stores with outgoing brands. Chrysler closed 789 of its dealers as part of its bankruptcy, reducing its dealer count to about 2,400.

Robinson said GM’s dealer restructuring would save the company $2.5 billion in annual costs, but noted the company was providing nearly $600 million in assistance to dealerships being phased out. About 1,300 dealerships who have signed “wind down” agreements with GM will receive the aid, which includes $1,000 per unsold vehicle and eight months of rent assistance, GM spokesman Greg Martin said.

Chrysler’s Van Der Wiele said the company has “worked hard to assure a soft landing” for its outgoing dealers, arranging for the redistribution of inventory, parts and tools.

Chrysler emerged from bankruptcy in June and GM exited bankruptcy on July 10, helped by about $65 billion in federal aid. The government now owns nearly 61 percent of GM and 8 percent of Chrysler.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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