Obama Administation Allowing GM, Chrysler to Blackmail Their Dealers
Why are GM and Chrysler being allowed by the Administration to very publicly blackmail their dealers through their very-probable bankruptcy filings?
While GM and Chrysler have apparently reached the "acceptance" stage as far as their now-probable bankruptcies, they are also explicitly threatening their dealers by stating they'll use the bankruptcy court's unique "nuclear option" to clear their dealer rolls without compensating their franchisees, something which can only be approved by a bankruptcy judge, effectively allowing the car-makers to ignore the powerful franchise laws which have protected car dealers for almost a century.
Given that, why does the Obama Administration seem so intent on supporting the two companies into bankruptcy, without protection for the dealers?
Here's how we see it:
Just a few weeks ago, the Administration said the feds might guarantee factory new-car warranties if GM or Chrysler file bankruptcy; that was a nice gesture on the part of the White House (though little more has been heard about it as crunch-time is upon us).
The Administration could make a similar promise to dealers in danger of losing their life-time investments, these businesses which they have planned to be part of their families for generations to come.
President Obama could still encourage the bankruptcies for GM and Chrysler, but should also order bankruptcy judges to not let the companies avoid their responsibilities to their franchised dealers.
As we've written here before, thousands of towns and cities across the nation will be devastated by the loss of these dealerships and the tax dollars which come from them and make-up significant parts of local budgets, not to mention the hundreds of thousands of dealership employees who will lose their jobs and the effect of that on their communities.
Chrysler EcoVoyager concept from 2008; Fiat's Cinquecento, their latest 500 model, the Italian company's version of the Mini which they want to build and sell in the US - with Chrysler's help
A deal announced Tuesday by the Treasury Department which will have Chrysler's biggest creditors accept cash instead of equity is a critical hurdle and could help Chrysler merge with Italian automaker Fiat.
On that possible "merger," Fiat vice chairman John Elkann said Tuesday that the viability of an alliance between Fiat and Chrysler won't be known until Thursday, the U.S. government's deadline for Chrysler to wrap up a deal, Italian news agencies reported.
Until then, sit tight.
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What part of "bankrupt" does the author and the dealers and their lobbying group not understand?
Their is no guarantee a business model -- franchised dealerships protected by state laws -- will survive an economic reshuffling. Yes, it sucks to be a town that loses sales tax revenue, or to be one of the folks working at one of those dealerships. It sucked to be an Olds dealer, and it sucked to be a Studebaker dealer, and now it sucks to be a Hummer or Chrysler dealer. Some diversity of brands and pushing the manufacturer to make something other than the most profitable behemoths might have been a good idea for the dealers five or ten years ago.
And when you think about it, if there's a competition for the least sympathetic victim award, most people would have a difficult choice amongst car dealers, stock brokerages, and bankers.
These folks are the "TARP wives" of the auto industry, who just don't get it.
-dB
See Steve Parker's Profile
If this market is going to determine anyone's success or failure, then let me off the ship. It's proven it doesn't have the ability to do so, fairly or otherwise. The 'market' is only as good as the people in it, and now we know that their abilities have been far outstripped by technology - simply put, no one can "keep up" with the market anymore.
Just look at those idiots at CNBC - you want THEM determining YOUR future? Or even making recommendations about it? Seriously?
Not to mention too many of these Masters of the Universe have no ethics or morals.
I read where they're doing a remake of WALL STREET with Michael Douglas reprising his Gordon Gecko character. Timely, huh?
Steve
In what Bizarro Universe does the President have any authority to "order" federal bankruptcy judges to do anything? Separation of powers anyone?
See Steve Parker's Profile
The president doesn't have the power (and couldn't, anyway) to order the bankruptcy judges to do anything --- they already have that power.
Sell GM to China?
The 1867 Alaskan Purchase known at the time as Seward's Folly or Seward's Icebox cost the US about $0.02 an acre and was easily paid for by the 1897 Klondike Gold Strike. Years since, resource rich Alaska has paid for itself many times over. I propose the following:
1. China buys GM from the GM stock and bond holders. They pay the US government for all Patent rights. They pay the local cities and towns for environmental clean up and zoning released on which the plants sit.
2. US workers pack up all things GM and ship them to China.
3. China picks up all the dealer contracts in exchange for the warranty obligations and ships all unsold inventory to China.
4. China can import GM cars to the US only by paying all former GM owners for pain and suffering on existing GM products.
5. China signs an agreement to put pollution controls on all cars sold in China or any where in the world.
6. The top management either ships out to China to help run the plants or they are banned from ever holding a management position in a US corporation.
7. Line managers go to China to make sure the transferred factories are set up.
8. Money received from the sale of GM helps balance the trade deficit. Half is used for retraining and half as annuities for GM union workers.
Our economy needs a complete overhaul. People potentially will be holding on to their vehicles for longer periods of time and the whole industry needs to be re-tooled. Dealers will suffer indeed but they will not be alone in their pain. I don't often say this but the market will determine their fate. As gearhead stated most dealers are strong supporters of right wing politics.
Unions are strong supporters of left wing politics and are suffering according to the market as well.
Really dealers are an overly protected class, as anyone who has shopped around for a car extensively should know. If you go to 4 or 5 dealers in a given area (even a well developed area like the Orange County/LA area in which I live) you will find a huge disparity between good and bad dealerships. The idea that bad dealerships with low sales, poor customer service scores and small scale should be kept alive artificially on life support via either the governments dime or GMs just seems silly.
GM will not make it impossible to get a GM car, they have no interest in that. They will not close all the dealerships in any given areas. What they will do is look at the two dealerships in Long Beach, CA and close one, most likely the smaller of the two where noone seems to know (or care) about cars because the turn over rate is so high.
Who loses there? GM saves money by not keeping the bad dealership alive (but sells almost as many cars; how many people decide they want to buy a Malibu, then find out they have to drive 4 miles instead of 3 to a dealer ship and say "eh, forget it, thats too much of a pain"?), customers benefit by having a better buying experience then they would at the closed dealership and better selection since the sales would be consolidated.
See Steve Parker's Profile
Good points all!
Dealers are just another area where the car-makers didn't pay much attention to negotiations or take serious looks at the future; as in their dealings with the UAW, times were so good for so many years that all Detroit was concerned with was: Where do we put all this damn money we're making? Give the dealers what they want, Detroit said, give the union what they want - the last thing we want is any trouble in making or selling cars. As Lee Iacocca pointed out in his 1984 autobiography, any problems with making or selling cars would have held-up his annual bonus!
Now we're stuck with the results of all that greed and short-sightedness.
Steve
Steve, too many dealers and too many brands have been a major part of GM's problem. As a group, these dealers have blocked the Detroit firms from rationalizing their retail networks to keep up with changing times. Do you think it is reasonable for GM to lose more than half its market share in 15 years but not be able reduce dealers? Hourly employment has certainly declined to accomodate this change. Similar sacrifices have been made by salaried employees, suppliers, stockholders and bondholders. The dealers have so far escaped this because state franchise laws are so onerous, but that time is now near the end. Most small communities will not lose their dealers, and in fact the Detroit firms count small rural dealers as an advantage. The majority of the cuts will be in "overdealered" urban areas. And while most dealers are great commuinity citizens, most are also bedrock supporters of local conservative politics, so I say adios!
See Steve Parker's Profile
Dealers played by the rules - and by the money. Their trade group, as you know, is one of the wealthiest, smartest lobbying groups in the world. NADA has focused all their efforts on those state franchise laws and it's paid-off for them.
But like Iacocca says in his 25-year old autobiography, to paraphrase, "All we were concerned with in management, whether dealing with the UAW or dealers, was to not let sales slow down, to keep the factories open, and to not lose our bonuses."
I hope you're right about the lost dealers being the urbanized, redundant ones, but I think that's just part of the story. We're looking at 2,600 Pontiac dealers gone in one fell swoop (just like the 2,800 Olds dealers killed the past decade). These dealers are all over the map, too.
Had lunch today with the editor of the Santa Monica, CA newspaper I write a weekly column for www.SMDP.comm). He told me that the local Infiniti dealer had just closed and the city budget people were going nuts. Many, many cities and towns just won't be able to absorb the unemployment and the lost tax revenue which is going to result from so many dealers closing all across the US and almost at once.
This is another part of the story which won't be fully told for several years yet.
Steve
The whole mess is unbalanced in every aspect. The Obama administration is not treating the car companies fairly no matter what Gibbs is saying. Wall street gets a walk and the car companies get the boot up their collective butt. The rank and file union member is demonized as over paid, under skilled and lazy. The administration does little more than give lip service to the stress that they are putting the entire industry under. The flip side are the companies themselves that wasted far to many opprotunities to move forward with better more fuel efficient cars. They zeroed in on dollars and forgot quality, they forgot reliability, they forgot inovation, and now all that has come home to nest. Throw in a crumbling economy and it is disaster time. Chysler might be saved by Fiat, GM might be able to hang on, Ford touting it's ability to move forward without Gov help is only temporary. Sales are not in the basement, they are under the basement.
See Steve Parker's Profile
Read (or re-read) Lee Iacocca's 1984 autobiography. I just did over the past three days and feel re-enlightened.
Same exact issues as today, same exact industry - just not as close to Armageddon. I've known Iacocca was something special, and have had the pleasure of interviewing him many times, but reading this book - from 25 years ago - reality demonstrates his genius and his (yes) humility. Sure, he rants against "over-regulation" but I don't think he ever believed that mandated airbags allowed the Japanese car companies to beat-up Detroit.
Reading Lido's book again reminded me that socially, politically and culturally, there's nothing new in the car business, either. It's all been done and said before, and we still haven't really learned our lessons.
And the book is also a good primer on what a bastard Henry Ford was -- ALL of them! It tells why Iacocca was fired after 32 years at Ford and eight years as its president - because a brusque, straight-talking Catholic immigrant named "Iacocca' was never going to make it to the top - to be the CEO - of the Ford Family Business (the company went public in 1956, but still no one doubts who owns the place). The Ford men were the worst examples of good ol' American-style in-breeding, racism and anti-Semitism.
Steve
Huffington has some weak blogs but this is the worst. You have a company going bankrupt and that has a big impact in Detroit, and you're worried about the dealers? They could have seen this coming awhile ago. I'm not sure exactly why they would be compensated particularly in large amounts. Suppose you give them 1 million dollars. Who gets this money, the owner? So the taxpayers are supposed to pay some businessman a million dollars because he made a bad investment? As to your comments about Ford, it's well known Iacocca had a fued with them and they fired him. If he was so great how come Chrysler is going bankrupt and not Ford? My dad actually worked for Iacocca and couldn't stand him. He worked on the Mustang and always said that Iaccoca had very little to do with it. He was responsible for the Pinto though. From my own perspective it seems Iaccoca's brand of salesmanship was a big con-job that played a big role in where America is today. "If you find a better car buy it!" That's the biggest con ever. The K car was crap.
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