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Treasury fires back: In a letter Treasury said it “strongly” disagrees with the reports findings.

A letter from Herbert Allison, the Assistant Secretary for Financial Stability at the Treasury, to Neil Barofsky, said that without the administration’s help, GM and Chrysler “faced almost certain failure and liquidation, which would have resulted in the loss of hundreds of thousands of American jobs across multiple industries.” The Treasury said it would follow up with a more detailed response later.

The audit report from SIGTARP agreed with Treasury that the administration’s response was critical. The oversight report from SIGTARP, however, argues that dealerships did not have to be closed in such numbers and with such speed.

“No one from Treasury, the manufacturers or from anywhere else indicated that implementing a smaller or more gradual dealership termination plan would have resulted in the cataclysmic scenario spelled out in Treasury’s response.”

The report points to the fact that hundreds of dealerships were later reinstated as evidence that the initial whack at the dealer count was too severe. In response to dealer outrage and political pressure, GM and Chrysler launched an arbitration process to hear the cases of dealers who felt they were unfairly closed.

Dealerships weren’t axed to save money: The audit also found that dealerships weren’t axed for the sake of saving money but for “far more amorphous reasons.”

“Key members of [Treasury's] Auto Team stated … that they did not consider cost savings to be a factor in determining the need for dealership closures,” the report said.

Only after the closure notices were issued did GM and Chrysler issue any savings estimates, in response to a request from Congress.

The two companies had radically different cost estimates. GM said that the dealership terminations would save as much as $2.6 billion, or $1.1 million per dealership. Chrysler estimated that the closures would save $35.8 million, or $45,501 per dealership.

Dealers were outraged by the terminations and many shuttered auto dealers felt they were closed without legitimate cause. The audit by Barofsky’s office found that GM was not consistent in applying criteria for closing dealerships, and it didn’t document the process properly.

GM responded that it was operating under extreme circumstances. “The GM which existed at that time did its best to develop and implement an objective dealer consolidation process under extraordinary circumstances,” the company said in a statement released Sunday. “Business conditions required GM to undertake difficult and urgent actions that would require sacrifice among all stakeholders.”

Chrysler said it wasn’t ready to comment on the report, but defended its shrunken dealer count. “The rightsizing of Chrysler’s dealer network contributes to more profitable, better performing dealers and better customer service.”  To top of page