THE BLOG
08/24/2009 05:12 am ET | Updated May 25, 2011

Should Closed Car Dealers Be Re-Opened by Congress?

The recent forced closing of thousands of new-car dealerships across America, most of them General Motors and Chrysler stores, has prompted strong protest from Washington. Congress claims that some 170,000 people will eventually be unemployed by the closings.

Apart from these huge numbers of people -- real people -- added to the unemployment rolls throughout the country, car dealers are often the largest single source of tax revenue for local, county and even state governments.

In California, for instance, which only today came up with a budget, some seven months late, to address a $27 billion deficit by taking money from local coffers, the loss of dealerships will be devastating for local governments.

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Above, a typical modern dealership; below, the image in many minds of what will greet them during a trip to the local car store

In Santa Monica, CA, the closure of a single Infiniti store, certainly not the city's largest car dealer, reportedly had city employees talking quietly in City Hall corridors ... shocked and frightened by the possible repercussions for the beautiful by-the-sea city.

The Detroit News reports that ...

The chairman of the Senate Commerce Committee asked the special inspector general of the $700 billion Troubled Assets Relief Program on Friday to review the methodology of General Motors Co. and Chrysler Group LLC's decisions to terminate more than 2,000 dealership franchises.

Sen. Jay Rockefeller, D-W.Va., in a letter to Neil Barofsky, the TARP inspector general, urged him to review closings.

"In light of the impact that these dealership terminations will have on communities throughout the United States, as well as the fact that both companies have received billions of dollars through the Troubled Asset Relief Program (TARP), I believe that taxpayers deserve a thorough review of these decisions," Rockefeller wrote in a letter released by his office today.

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Artwork for a planned modern dealership interior in Canada

Rockefeller wants Barofsky to review how much the automakers will save from the closing, how the criteria were applied and to closely review the selection process.

GM has said it will save $2.5 billion from the closings, while Chrysler warned it could be forced to liquidate if the closed stores were reopened. Chrysler Deputy CEO Jim Press said last month that the automaker will save $33 million in administrative costs and $150 million in marketing and advertising as a result of the closings.

Dealers say that automakers will save little -- if anything -- from closing outlets.

On June 9, Chrysler closed 789 dealers out of its nearly 3,200 dealers.

GM has sent wind-down agreements to 1,300 dealers and all but 40 have signed them. GM is paying the closing dealers, which will close by the end of 2010, about $600 million.

GM expects another 1,250 dealers to voluntarily close by the end of next year and expects to eventually have between 3,500 and 3,800 total dealers, down from 6,100 earlier this year.

Both GM and Chrysler have laid out the criteria they used to select dealers for closing at hearings in Congress. Last week, the House approved a spending bill that includes a provision seeking to reverse the dealer closings.

A separate bill in the House has 264 supporters, while a Senate version has 31 supporters. Rockefeller became the 31st supporter signing onto the bill on Thursday.

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At the Tesla EV dealership in West Los Angeles, CA - it's the company's first and still-only store

In spite of their often poor reputations, car dealers are often heavily-involved in private and civic charities, using their facilities to hold fund-raising events for these groups, and always in the lead when it comes to sponsoring local sports teams like the Little League and even adult bowling leagues.

Those dealers forced to close will be missed.

Or will they? Did GM and Chrysler do the right thing, or did they simply do what was necessary, what they've wanted to do for years, but did it the wrong way? Was using Bankruptcy Court to rid themselves of these dealerships, about the only way a franchise agreement can be broken, unfair in any way? What will cities, counties and states do about the lost revenue? Some of the closed dealers might have been small-volume sales points, but any loss in tax revenues can be devastating these days ...