Facing a House vote tomorrow on legislation that would repeal GM and Chrysler’s dealer cuts, President Obama is urging congress to not interfere with his auto industry restructuring. Automotive News [sub] quotes an Obama statement calling the cull “a critical part of their overall restructuring to achieve long-term viability.” The Obama statement alleges that “it would set a dangerous precedent, potentially raising legal concerns, to intervene into a closed judicial bankruptcy proceeding on behalf of one particular group at this point.” Because intervention on behalf of one particular group may only be done during a bankruptcy, by the government. Rep Steven Latourette, one of the bill’s sponsors, predicted that his legislation would pass the House “by a wide margin.”
“There is bipartisan sentiment that auto dealers got trounced when the Auto Task Force micromanaged an effort to save Chrysler and GM with billions of dollars of taxpayer help,” LaTourette said in a statement. “This was a chance for Congress to say you don’t get to crush state franchise laws, and you don’t get to put thousands of dealers out of business because you feel like it.” If the measure passes, it will move to the Senate, where a similar measure has 24 sponsors and co-sponsors. The battle rages on . . .
If dealers had any respect for contracts then they would live by their original contracts with the manufacturers.
Instead, they lobbied state legislatures to re-write their contracts with the manufacturers, giving dealers rights that they never bargained for in their original contracts.
The contract rights that the dealers basically stole for themselves using state legislatures to rewrite their contracts made it so expensive to shut down a dealership that it could only be done in bankruptcy.
Hopefully this indicates that there will be a veto, and hopefully it won’t be overridden.
Otherwise there will just be one more reason to boycott GM and Chyrsler dealers, no reason to be ripped off in person by the same asshole that stole your tax money.
Before the election, I thought most of the B&B agreed that GM had too many dealers.
It seems to me this brings about the result that virtually everyone in the know realizes needs to happen.
It pains me to admit it, but I gotta go with the Prez on this one.
Ahhhh. Politics. Was there ever any doubt that this would happen? Money talks and local car dealers have paid their various Congress critters to play. Obama can squander some more of his quickly dwindling political capital to derail this train, but I guarantee that every “Fast Eddie” and “Honest Uncle Bob” in every small town across this country is on the phone every night to their respective Representative Billy Joe Jack, reminding him just who it was that wrote that first $500 check when he ran for Assistant Dog Catcher twenty years ago.
It’ll clear the House, and die in the Senate. On the local level it’s got enough support, State level, forget it.
Before the election, I thought most of the B&B agreed that GM had too many dealers.
It seems to me this brings about the result that virtually everyone in the know realizes needs to happen.
Of course. But now with Obama as president, the right-wing politicos are looking for wedge issues that allow them to critique the administration.
If the situation was exactly as it is but we had a Republican president, you’d have an entirely different group of politicos and bloggers complaining about it. For that crowd, the dealers are just a device for achieving a political end.
The bellyaching is being led by those who have something financial to gain from the outcome. The rest are just along for the political ride.
Hope he wins, but he’s urging Congress not to fund the F-22, and that’s not going anywhere either. He also urged the House to have the cap-and-trade allowances auctioned off.
I’m in on the side of keeping the dealers. let the market decide who plays, not the government. too many were sent wind downs for no apparent reason (politics?).
Before the election, I thought most of the B&B agreed that GM had too many dealers.
It seems to me this brings about the result that virtually everyone in the know realizes needs to happen.
I think the idea was to cull the weak from the herd. From what I’ve read it seems like some criteria other than performance was used. Several killed dealers have pointed out they were doing pretty well, even better than some that were allowed to remain open.
Yes, GM and Chrysler needed fewer dealers but a market-oriented determination would be better than what seems to be a political determination.
Is it too late for an amendment to cull Bob Lutz?
The legality of the bankruptcy proceeding was tested in the U.S. Supreme Court and the government’s position was upheld.
Probably passes the house… Then dies in the senate. The house reps need to be able to say that they tried hard and did something for the little guy…
My comment to any dealer that bitches…
“You lived on government welfare from Sept 2008 until you were shut down. Your damn lucky Bush didn’t let GM & Chrysler liquidate back in 2008. The next time you see a taxpayer, say thank you.”
“The legality of the bankruptcy proceeding was tested in the U.S. Supreme Court and the government’s position was upheld.”
Not so. The Courts decision not to take jurisdiction is neither precedent, nor law of the case.
The real irony is that so many people, who when talking about buying a car, will excoriate car dealers, but now complain that the dealers got screwed. Me, I hate the dealers and have no sympathy for them even though they did get screwed.
LW:
My comment to any uninformed poster is that if taxpayer dollars go to eliminating the private property and jobs of private citizens, then there should be a fair and logical process.
What you fail to grasp is that the dealers don’t want my, your or anyone else’s tax dollars. They want their lives and livelihoods back. There is an enormous difference between the two.
If you took a few minutes to browse some of the posts on this site, you’d quickly learn that industry types like Buickman and others know that the terminations frequently had little to do with fairness or economic logic. They were often paybacks by lower level factory types against dealers who had otherwise provided representation and solid service to customers for decades.
I’m in a very small town in the Midwest tonight. There used to be three dealers for Chrysler: two brothers who had Dodge and Jeep in an auto mall with imports, and a Chrysler dealer. They all were terminated. Chrysler is now trying to auction the franchises off to the same parties they terminated!
Oh, and the 40 years of customers in the installed base? How about an hour’s drive to the closest dealership?
This is the kind of ugliness that’s going on all over the country.
Dukeboy01
The pols may listen to the dealers, but it’s the townspeople who really have their ears. In the small towns where the terminations are hitting the hardest, there isn’t the ability for the labor market to absorb the lost jobs. The former employees are now current unemployment recipients.
The property tax base is also taking a hit. Car dealerships have one of the highest tax assessments of any commercial property. These are single purpose facilities, and the real estate market isn’t setting the world on fire in small town America these days. Empty property equals eventual bankruptcy equals delinquent taxes and declining property values.
If the point of the bailouts (particularly for Chrysler) was to prop up the economy and labor markets…how does the immediate termination of tens of thousands of workers across the country help?
Just like there is an excess of production capacity within the auto industry there is an excess of dealers. I’d be way happier if we could keep factories rolling more than dealerships.We need to be making product in this country as to support the economy.That should be the focus of the whole bankruptcy filings to try and keep all of us afloat.If we had more people who could afford new cars, would this subject even exist?
Regarding Motownr’s comment:
“I’m in a very small town in the Midwest tonight. There used to be three dealers for Chrysler: two brothers who had Dodge and Jeep in an auto mall with imports, and a Chrysler dealer. They all were terminated. Chrysler is now trying to auction the franchises off to the same parties they terminated!”
1st off, I think it’s crap that any dealer was shut down.. If the argument is that too many dealers lower the prices of vehicles and cost the company too much $$ to support, GM and Chrysler should raise their wholesale vehicle prices and franchise fees and let the free market cull dealers as needed.
However….
Without a government bailout of GM and Chrysler, 100% OF CHRYSLER AND GM dealers would have been LIQUIDATED in 2008. PERIOD. END OF STORY.
Sure the dealers are good people.. Sure they worked hard for generations…. but when YOUR SOLE SUPPLIER OF PRODUCT liquidates, you liquidate.
If this passes Obama should tell the dealers that he’d love to sign the bill, but he’ll have go over and check it with his manager first.
Then he could tell the dealers that the manager told him to sign the “deal” only if they agree to donate 50% of their future revenue to local governments. When the dealers protest, Obama can remind them that the government wouldn’t set these markups if they didn’t believe that someone, somewhere was willing to pay it. The government has to feed their families too you know.
And hey, if they don’t like those kind of tactics, the dealers don’t have to accept the “deal”. They are always free to walk and shop with another government.
If that sounds fun, just wait until Biden comes in to tell the dealers about the super specials the government is running this month on brick waterproofing and extended linoleum floor warranties.
Anyone who believes that having too many dealers comes at no cost should read this: https://www.thetruthaboutcars.com/is-chyrfi-playing-silly-buggers/
This is the end result of what happens when car companies produce too much inventory. Those incentives have to be paid for by someone, and with the bailouts under way, that someone is us.
GM and Chrysler need to cut production, and get the dealers whom they have left to sell cars more quickly, so as to reduce the finance companies’ capital burden and reduce exposure.
The dealers’ interests are not aligned with those of the manufacturer, so they don’t get it. When cars don’t move quickly enough, the dealers fill the gap with incentives from above. These days, the taxpayer is covering those incentives.
It is quite possible to run a dealership that is profitable to the franchisee while simultaneously being a drain on the automaker. It’s the automaker’s profits with which we’re concerned, not those of individual franchisees whose interests may conflict with those.
The dealers are subsidized by the bailout, even if they deny it. Their floorplan comes from finance companies that were capitalized with taxpayer money, and had there been no bailout, the automakers that supply them with inventory and incentive payments would have already all failed.
there should be a fair and logical process.
There is. It’s called Chapter 11, and the Supreme Court has already ruled that contracts can be terminated in bankruptcy. The dealers had no special rights to keep their franchise agreements in place, and the court had every authority to cut them loose. Not everybody likes how bankruptcies play out; that’s why they get filed, because not everybody can get a payday at the end of it.
LW:
But when the government elects to step in and prevent a liquidation….does that validate predatory behavior on the part of the recipient? Are you excusing the terminations based on the fact that without our taxpayer dollars (never to be repaid), there would be no dealers?
I’ll give you another nice little anecdote–I’ll stick with Chrysler. Another town in the Midwest…on one side, one dealer has a heavily remodeled current image store selling exclusively C/J. The D guy down the road is dualed in a 1960s era store with an import. The exclusive dealer is well funded, the competitor thinly capitalized. Both are about equal in CSI/Sales.
One of them sued Chrysler for predatory behavior in the past…and won.
Guess who got terminated?
It gets better…on the other side of this town is a CJD dealer who Chrysler gave–gave!–over $1MM in cash to help build a new store with Chrysler Realty backing. Losing money hand over fist. Horrible reputation with customers.
Guess who now is being hardballed by Chrysler to enter into agreements that almost assure that this CJD dealer isn’t the high cost provider in town? You guessed it…the poor SOB who DIDN’T get terminated.
It’s this kind of conduct that made Jim Press parse every word during his congressional testimony. He knew that there were people in the room who knew what’s going on with my and your tax dollars.
Of course. But now with Obama as president, the right-wing politicos are looking for wedge issues that allow them to critique the administration.
Pch101, your political bias is so over the top.
PCH:
We’ve discussed this at length in other forums on this site. You have the facts completely, absolutely, and incontrovertibly wrong when it comes to how the industry works.
I’m not a lawyer, and won’t pretend to be one here. IF the taxpayers are going to prop up ANY industry, shouldn’t we demand that our dollars don’t go toward singling out individuals for retribution?
Congress held a special session for the heads of GM and Chrysler to explain how their decisions had any kind of basis in either economics or equal treatment. I’ll leave it to you to decide if anyone in the audience thought they met either hurdle.
“The Courts decision not to take jurisdiction is neither precedent, nor law of the case.”
GM followed the script as it applied to Chrysler. I call that precedent.
You have the facts completely, absolutely, and incontrovertibly wrong when it comes to how the industry works.
Thanks for the slam, but you are simply taking a dealer-centric approach that shows no grasp whatsoever of how the burden of carrying the production and financing of your inventory burdens the parent company.
I know that you want to view yourselves as an asset, but guess what? That’s right — those who take the big picture view know better, which is why they wanted to cut the dealers in the first place. There is a reason that this is happening.
If cutting dealers wasn’t a necessary component of downsizing the business and its overhead, then we wouldn’t be having this discussion. This is happening because those who know how the pieces fit together understand that it is necessary.
This isn’t about a dealer-centric view. It’s someone who knows the industry and knows the specific facts of many of the terminations trying to convey to you and others who have an open mind that this is not an economic or rational process in the interest of the taxpayer. Regardless of whether you do or do not favor the bailouts of the autos, this specific issue is going to cost all of us as taxpayers even more. It’s bad economics.
It’s someone who knows the industry
So, you’re basically arguing that only dealers know the industry, and that those who are trying to deal with fixing the automakers know nothing.
If the dealers were such an asset, then they should have found a way to save the industry without us. The people who actually did the work apparently are all morons, and it’s the dealers who have the whole thing figured out.
“it would set a dangerous precedent, potentially raising legal concerns, to intervene into a closed judicial bankruptcy proceeding on behalf of one particular group at this point.”
Yes, no one should be allowed to intervene in a bankruptcy unless your name is Obama. The hubris just keeps on coming, as does his hypocrisy.
I almost miss Bush when I hear the crap that comes out of Obama’s mouth (or that of his spokespeople). On second thought, nah. They are both arrogant tools who have supporters that absolutely ignore the issues they both have.
The dealer cull was a huge mistake, and Congress isn’t going to buy this bullshit. If a dealer can survive in the free market, there is no valid reason for GM or Chrysler to put the dealer out of business. If the market determines there are too many dealers, and dealers fail, then the market has spoken. Having more dealers who can survive is a strength, not a weakness.
If the dealers were to stay, the manufacturer would still have to allocate reduced amounts of product covering fewer brands to the same number of dealers. So they would “favor” certain dealers with product, and starve others. The starved dealers would take the manufacturer to court. The manufacturer would spend the money meant to repay the taxpayer loans on legal wrangling in hundreds of lawsuits, and make no headway. The manufacturer would run out of money – repeat bailouts as required.
Lawyers would win, though.
After mulling it over, and realizing that the Detroit Three’s big advantage is that they are represented in every small town in America, I have to change my mind about closing down all of these dealers. Because, I also thought the Detroit Three had way too many dealers, compared to Toyota. But, Toyota has a different business model.
Think of it this way. (I’m specifically talking about what the “coasties” describe as “flyover country”. You know, the part of the country which FEEDS these betterthanthou types on the ocean).
The United States is a seriously large country. Folks who have never been here have no frickin’ idea.
We picked up one of my wife’s British friends in Detroit, years ago, at the airport. We got into our car and had 5 1/2 hours drive to home. We didn’t even get past the thumb before she was saying “aren’t we there yet?” “NO. We have 4 hours drive to go.” “Uh, you’re joking….”.
She didn’t believe me. England is approximately the size of MICHIGAN. Europe could be dropped into the midwestern US and it’d only inconvenience the farmers a bit.
Small town America has usually got at least one of the Detroit Three dealers within 10-30 miles, which for country folks, is not a bad drive.
Now with this cull, it will often mean 50-70 miles for many folks, to get to a dealer. That’s taken away Detroit’s ADVANTAGE over Toyota, Nissan, Honda, Hyundai and Kia. In fact, the smarter players (such as Kia) are snapping up ex-Saturn dealers left and right.
If Toyota, Nissan, Honda and Hyundai are smart, they’ll start dropping new car franchises into small town America, using disgruntled ex-Detroit Three dealers as a spring-board for doubling the size of their dealer network.
Sure, it won’t result in a doubling of sales, because the small town dealers won’t sell as many cars. But guess what? There are an awful lot of pissed off people in what I call Real America right now, who won’t be looking at GM or Chrysler, and a good number of them haven’t been pleased with Ford (or they’d have been buying Fords, wouldn’t they?) They want another choice and are pretty well aware that Toyota, Hyundai, etc., manufacture a lot of cars and trucks IN THE UNITED STATES.
Once a lot of these folks taste Toyota reliability, how many will go back to GM or Chrysler CRAP?
Add to that, the fact that I believe the definition of a merger of Corporate and Government interests, is the definition of Fascism – and that I am therefore politically adverse to the government interference. In fact, I believe that had GM and Chrysler been abandoned by Bush in late 2008, they would have had to declare Chapter 7 bankruptcy – HOWEVER – it would seem to me that breaking up the two automakers and selling off the profitable bits, would have meant that there would have been far less political wrangling; and people with intelligence and sufficient money to see the thing through would have decided to take an entrepreneural chance and buy up brands, factories, etc., and “have a go”; plus would have been able to clear out the debts in a manner more aligned with proper bankruptcy law instead of politicalization of the process as now, by effectively nationalizing the companies.
So, Obama appoints people who were experts on derivatives last month and the next day they are experts on the auto industry. They buy that thousands of dealers with millions of dollars invested and tens of thousands of employees need to go away and many of the SHEEPLE on here agree. Based on what I must ask?
Many of these guys don’t really want to continue under the new deal. They just want back the millions they spent on facilities, special tools, and advertising the boy geniuses dictated over the last five years while trying to make it look like all the problems were the dealer’s fault and not inept management.
Of course. But now with Obama as president, the right-wing politicos are looking for wedge issues that allow them to critique the administration.
You do realize that HR 2743 has 242 co-sponsors in the House, and one of the supporters is House Majority Leader Steny Hoyer (D-MD), right? Here’s more by Majority Leader Hoyer.
It’s not just right-wing politicos. In fact, more of the co-sponsors are Democratic Party members than Republicans, 141 Democrats to 101 Republicans, though certainly it’s bipartisan. The Democrats include both conservative Democrats (Heath Shuler, John Murtha), and liberals (Rush Holt, Sheila Jackson-Lee, Maurice Hinchey of Ithaca, etc.)
You’re undoubtedly right that more Republicans, and fewer Democrats, are fighting the dealer cull because Obama is President than would be if Bush were President. But even given that, there are proportionately more Democrats than Republicans sponsoring this bill than the ratio of Democrats to Republicans in the House. If Bush were President, presumably the bill would be more overwhelmingly Democratic sponsored.
Jacad is correct: many dealers of Chrysler and GM are no longer interested in being partners with these automakers.
Take away the spin/political hype, and there seems to be more red ink to come at nearly every level of the industry. An ugly bottoming process that will take years.
It’s ironic, but the government has unintentionally driven many dealers toward selling…IMPORTS.
I don’t think the actions of Congress are so much a left/right thing as much as a “people who show up at my fundraising barbecue are complaining” thing. He (or she) who pays the money and eats the bad fried chicken is definitely calling the shots.
The media coverage (and blogosphere hysteria), though, is definitely showing the left/right split.
The Obama statement alleges that “it would set a dangerous precedent, potentially raising legal concerns, to intervene into a closed judicial bankruptcy proceeding on behalf of one particular group at this point.”
Bwaaaaahaaahaaaha!
That is hilarious. I think he left out the part, “unless it’s the executive branch of the government.”
“This was a chance for Congress to say you don’t get to crush state franchise laws, and you don’t get to put thousands of dealers out of business because you feel like it.”
Yes, defenders of the poor and downtrodden. I haven’t seen that much manure since the last time I was at a dairy farm.
The media coverage (and blogosphere hysteria), though, is definitely showing the left/right split.
Not the Washington Post article I linked, nor the Congressional Quarterly article I linked. Both of them clearly focused on the Members of Congress who matter, like Majority Leader Steny Hoyer (D-MD) being for it, and Senate Majority Leader Harry Reid (D-NV) being against it. As noted, that (and the number of co-sponsors) means that it’s likely to pass the House and fail in the Senate.
I’m sure that more of the blog and smaller newspaper craziness comes from those on the right, because those on the right are more likely to be opposing this just because it’s President Obama. (And the reverse was true with the left and Bush.) Whereas OTOH opposition from Democrats is presumably overcoming their general like of President Obama and is less likely to express anger or derangement. (Again, vice versa with things with Bush.)
All that to me still means that, as an independent issue, rejecting the dealer cull is more attractive to Democrats and the left. Were a Republican President, opposition would be quite overwhelmingly (but not entirely) Democratic; with a Democratic President, opposition is bipartisan but possibly very slightly tilted towards Democrats, judging by the House bill.
We right-wing commenters here are mostly agreeing with Obama about the dealer cull, although attacking him for hypocrisy and opening the door to this process. The government did intervene in the bankruptcy process to upset the normal order. That helped ensure that politics would play a role. Just like how when Bush and Obama bail out some companies, everybody wants a bailout. (And not that Bush and Obama are all that different when it comes to these bailouts, either, despite the heated rhetoric.)
jacad’s statement is somewhat correct.
Many of these guys don’t really want to continue under the new deal. They just want back the millions they spent on facilities, special tools, and advertising the boy geniuses dictated over the last five years while trying to make it look like all the problems were the dealer’s fault and not inept management
Most who were culled want the opportunity to decide for themselves if they will stay in biz or not. And if they decide to close they want the proper termination $$’s not the pennies that were offered. Its all about what is fair. GM used Bk to cull their less favorites and to screw them. However the elected Congress won’t stand for this.
Most who were culled want the opportunity to decide for themselves if they will stay in biz or not.
Right. The dealer wants the unilateral right to force a company to sell it products at wholesale prices AND get 100% financing for the purchase AND to get incentive payments if the inventory doesn’t sell in a timely manner.
It’s sort of obvious why a dealer would like this arrangement. It should be equally obvious why this might not be so great for an automaker that is cash-constrained and trying to downsize.
And in this case, a failure to effectively downsize will be paid for with tax dollars. So if the automakers stay too big, I’m paying to keep you in business. That’s a pretty good business: You get to take my money, even if I don’t buy from you.
If you can’t beat ’em, join ’em. Sign me up: I want a dealership, too.
Hello PCH101.
It is totally obvious to all of us here that you are not a dealer….what interest are you working for.
I respect your opininons….I diagree with them…won’t say they are wrong but won’t say they ar correct.
I once again publically ask you your profession.
I’ve seen this tactic on other car forums, too — dealers on the defensive try to avoid addressing factual points by making the discussion personal, in the hopes that they can avoid the subject matter.
Address the topic, instead. Give us some good business reasons why a company that has limited cash and that is trying to downsize would find it appealing to be forced to loan you money, and to then pay you even more money if you can’t sell the inventory.
That is the issue here that matters, and the one that you are trying to sidestep.
PCH101, you are way off with your theory that the manufacturer has some sort of disadvantage because their former subsidiaries finance inventory. Floor Plan financing has in the past been both very competitive and lucrative for the supplier. GMAC and Chrysler Credit both, with the aid of the respective manufacturer, placed such onerous terms on the dealers as to virtually force them to use their companies. Often when other sources offered far better terms. This only changed when their source of funds dried up.
As a dealer, I would publicly apologize to you. It seems very obvious that some dealer took advantage of your lack of knowledge of the industry to do you wrong sometime in the past.
PCH101.
I once again respect your opinion but I can’t argue with you any longer. You are so far off the reservation.
Stop hiding and tell us who you are.
I once again respect your opinion
If you respect my opinion, then answer the question: Explain why a company that has limited cash and that is trying to downsize would find it appealing to be forced to loan you money, and to then pay you even more money if you can’t sell the inventory.
Floor Plan financing has in the past been both very competitive and lucrative for the supplier.
In the past, when the manufacturers could borrow money in the free market for less than the cost of loaning it to you, that was true. They could make spread on the floor plan.
But today, that is not true. The only reason that the captives can borrow money at anything below junk bond rates is because of the taxpayer propping them up. They are capital constrained. Lenders that run out of capital stop making loans.
Meanwhile, they need to produce fewer cars. That means that the retail network is currently too large, given their inventory burden.
You guys are behind the times and just don’t get it — the world is a different place, and there’s not much place for you in it.
Perhaps that’s why you’re stuck in your position, because you were under the mistaken impression that the automaker could fail without taking you down with it. Sorry, but that was only sustainable over the short run, and not possible over the long run. Reality bites, I guess.
Give us some good business reasons why a company that has limited cash and that is trying to downsize would find it appealing to be forced to loan you money, and to then pay you even more money if you can’t sell the inventory.
Of course there’s no reason that the company would want to do that. Just like we can assume that the companies would want to sell some cars direct to consumer, since there are laws preventing that in all states too.
They did have a franchise agreement, though, even if signed partially at government gunpoint. It’s a little reminiscent of the original Coca Cola franchise agreements, which were indefinite term and made Coca Cola Company sell the syrup at a fixed price that varied (if at all) only with the price of sugar. When originally signed, that was almost all the cost, and inflation was low. Years later, inflation made the other ingredients cost so much that the Coca Cola Company was killing themselves and the franchisees were doing great. The Coca Cola Company was only a syrup seller. It nearly went bankrupt (and the franchisees were willing to let it do so and pick up the pieces) because of this. It’s an interesting story how Coca Cola maneuvered out of the agreements (partially by buying up some bottlers), but they did manage to do it without bankruptcy.
Certainly agreements get torn up in bankruptcy, but it’s a bit rich to pretend that this was a normal bankruptcy without political involvement in the settlement. This is just (more) political meddling. The earlier meddling invited more. But certainly I agree that continued survival means abrogating these contracts, and it would have happened in a bankruptcy.
A majority of House Democrats sponsor HR 2743, pch101. (And a majority of House Republicans.) To the extent that we grant your position that the Republican opposition is simple opposition to President Obama, that means, conversely, that defending the dealers on the merits is a Democratic position. Conversely, if defending the dealers is a bipartisan stupidity that’s only about local clout, then the Republican legislators are no more driven by animus towards President Obama than the Democrats.
PCH101, you are way off with your theory that the manufacturer has some sort of disadvantage because their former subsidiaries finance inventory.
Oh come on. If the manufacturer didn’t have a disadvantage, wouldn’t the manufacturer want to continue the relationship? I realize that GM and Chrysler make bad management decisions, but surely their desire to end these agreements indicates that they think the agreements are bad for them.
GM and Chrysler certainly wanted to modify these agreements before, just as they wanted to modify union contracts.
it’s a bit rich to pretend that this was a normal bankruptcy without political involvement in the settlement.
It these been “normal” bankruptcies, there would have been Chapter 7 filing, because there would have been no DIP lender. All of the dealerships would be out of business and the Chrysler bondholders would have made even less money.
So this is a considerably better outcome for the dealers than it would have been otherwise. The survivors should be thankful that the government saved their bacon.
To the extent that we grant your position that the Republican opposition is simple opposition to President Obama, that means, conversely, that defending the dealers on the merits is a Democratic position.
Maybe in your universe, but that’s an overly simplistic way to look at it. Anyone with a good business sense can see that there are too many dealers, given the circumstances.
My previous point, which was apparently missed by those of you who tilt rightward, is that the political blogosphere comments are being driven by politics. You should notice that I stated that I believe that the dealers would be a liberal cause celebre were there a Republican president.
Those of us who understand finance can see why trimming the dealers is important. There is a reason why the automotive task force believed this to be important — they didn’t just make the whole thing up. The bloggers made it politcal; for those of us who know better, it’s about cash and inventory management.
The bloggers made it politcal; for those of us who know better, it’s about cash and inventory management.
No, the government made it political when they got involved. Bush kicked it off with what amounted to a bridge loan, then Obama orchestrated a rebirth of Chrysler and GM with the government having a large stake in both companies. Now Congress is openly getting in on the act.
Ah, the hipocracy of it all! Let’s see, the president is calling the cull “a critical part of their overall restructuring to achieve long-term viability.”
So culling weak dealers is critical? Can’t the same be said for culling weak auto makers?
What was the point of this exercise again?
Bush kicked it off with what amounted to a bridge loan
Bridge to where?
Bush didn’t have the stones to tell Detroit to PO&D after they failed to convince (a Dems dominated) Congress of the need for intervention. Twice.
Suddenly the previous free market disciple feared that the free market might soil (what was left of) his legacy.
If only he was a Decider, this would be water under the bridge by now…
Engineer: Suddenly the previous free market disciple feared that the free market might soil (what was left of) his legacy.
Let’s be fair here…if he HAD let them fail, then Democrats and the UAW would have been running around squawking that Bush killed the domestic auto industry.
Even though he had nothing to do with it…last time I checked, he wasn’t running GM or Chrysler while they were racking up billions in losses.
101, you seem to ignore that having more dealers means having more customers with more potential spaces to fill to keep the dealers stocked. An inventory advantage rather than your misunderstanding of it being a disadvantage.
You also seem to choose to ignore the fact that floor planning of dealers is a fragmented market and the manufacturers have absolutely no obligation to any of their dealers to supply it. They are far from controlling 100% of that market.
I do though think 101 is having a bit of sport with us. Nobody with his obvious talents of conversation could entirely believe his espoused theories despite known facts. You need to evolve your argument from one of a weak financial one to one of substance. You are beginning to sound like the automotive executives who appeared before Congress telling them cutting dealers would save a $1,000 per unit. They were able to justify about $75!
you seem to ignore that having more dealers means having more customers with more potential spaces to fill to keep the dealers stocked.
You have it backwards. You seem to think that there is benefit in volume.
The domestics have too much volume. They need to reduce volume, and create margin instead.
They don’t need the number of dealers that were required to sell market share that they no longer have. They would be better off focusing on having units concentrated on fewer lots, so that they don’t end up with random stock outs because the inventory had to be spread too thin.
You also seem to choose to ignore the fact that floor planning of dealers is a fragmented market and the manufacturers have absolutely no obligation to any of their dealers to supply it.
Well, you should tell that to Automotive News, which said in February that “GMAC continues to floorplan more than 77 percent of GM’s North American dealerships.” (Don’t worry, I obviously paid them to write this: http://www.autonews.com/article/20090209/ANA06/902090345/1142)
Nobody with his obvious talents of conversation could entirely believe his espoused theories despite known facts.
Of course, you’re right. After all, I managed to fool Automotive News AND the presidential task force. It’s not every day that someone can do that.
@ menno :
July 16th, 2009 at 9:14 am
Think of it this way. (I’m specifically talking about what the “coasties” describe as “flyover country”. You know, the part of the country which FEEDS these betterthanthou types on the ocean).
Just for the sake of being factual, California produces more food than any other state.
CA accounts for almost 20% of the nations’ milk. CA passed WI as the the top milk producer in ’93. CA also accounts for 75% of lettuce production, 75% of tomato production, and more than half the other veggies, half the fruit and half the nuts. Aside from milk production, California has been the leading Ag state for about a half century. Just thought you’d like to know who really feeds who. It’s difficult to exist solely on a corn diet.
Now with this cull, it will often mean 50-70 miles for many folks, to get to a dealer. That’s taken away Detroit’s ADVANTAGE over Toyota, Nissan, Honda, Hyundai and Kia. In fact, the smarter players (such as Kia) are snapping up ex-Saturn dealers left and right.
I looked at several states when Chrysler did it’s culling, and I found that in very few cases was it necessary for someone to drive more than 25 miles to get to the next nearest dealer. Quite often it was less than that.
If Toyota, Nissan, Honda and Hyundai are smart, they’ll start dropping new car franchises into small town America, using disgruntled ex-Detroit Three dealers as a spring-board for doubling the size of their dealer network.
No, that’s what they’ll do if they are dumb.
If anyone really believes that the factory termination list was much more than an ‘enemies list’ that will ultimately end up costing all of us taxpayers more money, a nice GM example:
In SW Michigan, there is now one–one–Cadillac dealer remaining. The rest? Terminated. GM is effectively walking away from the entire luxury market, as the installed customer base of the terminated dealers falls outside a one hour drive to the remaining dealer.
To give an idea of the economic impact, unemployment is now officially over 15% in the state, and the figure counting those who do not make the formal count is over 20%. The number of lost jobs runs easily into the hundreds if not thousands.
As taxpayers, what have we lost? The luxury share of the markets, to be sure, but also the CPO sales which typically exceeded new sales by a considerable margin.
In one specific case, GM terminated a well known dealership whose facility may rank as one of the nicest of its kind in the country. Guess who now has the showroom? Honda.
Cue the music and voiceover to “Real men of genius.”
On inventory control –
Look at it this way.
You have Dinkyville Dodge, and 15 miles away you have Smallville Dodge. The 2010 (that magical year) models come out in Sept. Both these dealers will need, let’s say, 30 vehicles on the lot to satisfy the differing vehicle needs in their small communities.
This means Chryco has to produce 60 various Dodges to stock both these dealers. The cars sit on the lot an average of 4 months before being sold.
If Dinkyville Dodge is culled, Smallville Dodge can serve the same geographical area, with the same inventory – 30 cars. Of course, if we assume they both sell all the cars ordered (a big assumption) and Smallville Dodge is going to take up all the slack, then Smallville Dodge will have to turn the cars twice as fast – e.g. every 2 months instead of 4 months.
What this means for the dealer is obvious, and dealers not being culled should get down on their knees and thank the Chapter 11 Gods for making their life better.
What it means for the manufacturer is this – less production all at once – e.g. no need to produce 60 cars for Dinkyville/Smallville, only 30 will do. Over the course of a year, they’ll have to build the same number of cars – assuming Smallville really does sell twice as many with Dinkyville out of the way – but they won’t have to have the huge initial inventory. They won’t have dealers complaining that they have too much metal and can’t move it fast enough. They won’t have to offer as many incentives, or as big incentives to help their dealers move the metal. They won’t have to give away as much of their profit margin as before, in order to get the dealers to the point where they are ready to order more cars. They also won’t have the spot shortages – remember the trouble Chevy had getting the new ‘Bu to the dealers?
It makes a big difference to the manufacturers.
The business model which the D3 have chosen is this – make cars less desirable than the competitions’, give up the profit margin in the form of incentives in order to move the metal, and still watch their market share dwindle. This is not a sustainable business model, and too many dealers is a big part of the problem.
I’ll let someone else go into the intricacies of floor planning and interest rates, but it should be obvious that this is a tremendous favor to the remaining dealers – assuming they can maintain market share.
The idea that the retail market should decide how many dealers exist is silly – the manufacturer is wholesaling, and they should determine how many outlets they need.
I laid down the positions in the case pretty clearly here:
https://www.thetruthaboutcars.com/feds-set-to-pay-billions-to-axed-gm-and-chrysler-dealers/
Note the dealer(s) have ran out of arguments. Basically they just want more taxpayer money to go away, not unlike the non-tarp saviors of capitalism. Except these guys have more political clout, enough to change laws apparently.
Proof of this in this very thread:
jacad:
Many of these guys don’t really want to continue under the new deal. They just want back the millions they spent on facilities, special tools, and advertising the boy geniuses dictated over the last five years while trying to make it look like all the problems were the dealer’s fault and not inept management.
—
So, Obama appoints people who were experts on derivatives last month and the next day they are experts on the auto industry. They buy that thousands of dealers with millions of dollars invested and tens of thousands of employees need to go away and many of the SHEEPLE on here agree. Based on what I must ask?
Since folk here are such fans of capitalism, these “experts” you speak of are private equity fellows who are the acknowledged masters of shady capitalism.
Rant against them at your own risk of upsetting all the devout capitalists here. LOL
===
We right-wing commenters here are mostly agreeing with Obama about the dealer cull, although attacking him for hypocrisy and opening the door to this process. The government did intervene in the bankruptcy process to upset the normal order.
It would seem the only thing right-wing commentators have shown to do reasonably well is repeat statements that have been proven again and again to be lies because that seems to work well on their audience.
We’ll already gone through this once, but maybe this time you’ll have understood what a S363 sale means and can come with some new arguments. Not doing some basic reading on the actual laws and still insisting they were violated was pretty hilarious.
Tho to be fair, johnthacker is the one and only commenter to even attempt pointing at an actual law, however inapplicable.
dynamic:
Respectfully, your example isn’t even close to reality.
You don’t hold share with fewer dealers–you wind up with less. How much less depends on numerous variables, but it’s always less.
The Big 3 spent literally billions over the years modeling ways to increase sales and share. Each of them wound up with the same strategy, based on the data: more dealers equal higher sales and share. In fact, this saturation strategy is largely why state franchise laws exist–without restrictions on predatory behavior, the domestics would happily put competing dealerships of the same brand on opposite corners like gas stations or Starbuck stores. This would hurt the dealers, but not the factory.
Take the same strategy and play it in reverse, and you’ll see the fallacy of your example on matter of sales. Your example also omits the fact that the remaining dealer won’t be able to handle required inventory, service stall, and facility requirements. Not even close.
Another shortcoming: CPO is a money maker for the factories, and fewer dealers in any given market ultimately results in fewer certified sales and lower revenue to the factory. Which, ultimately, is going to cost us, the taxpayer, even more.
One final point: fixed cost coverage for the factory decreases under your example. It still requires the same rep to cover that remaining store.
Hope this helps.
You must really take us to be dumb like the D3 instead of smart like the transplants.
They need fewer, higher quality dealers in the coming times, unless you figure the dealerships are just places to park all their unsold cars. This is a pretty classic case of competition that’s become a drag/spiral in a down economy.
But hey, free taxpayer money for the owners, why not?
You don’t hold share with fewer dealers–you wind up with less.
Sorry, but this is incorrect. Dynamic is right on the money.
At the beginning of the year, GM had about 6,400 dealers; Toyota had about 1,400. They each sold about the same number of vehicles last year. How did that happen?
http://www.usatoday.com/money/autos/2009-02-09-auto-dealers-decline_N.htm
GM has long carried far higher days of inventory than Toyota. That slower turnover increases costs, as it ties up more capital and requires higher production capacity in order to serve it.
General Motors carries inventory for 70 to 75 days, while Toyota, with better management of its supply chain and production system, typically has 35 to 45 days’ worth of inventory. If General Motors could attain the same efficiencies, Cachon says, the company would save about $4 billion.”If GM had been able to reduce inventories in the past, they wouldn’t be caught in the downwind and would have had more working capital … to ride out the storm.”
General Motors is also hampered by a need to feed a large network of dealers that tend to be located in older, slow-growth areas, Cachon adds. Toyota, which built its dealer network decades after General Motors, has fewer dealers, but they are generally in areas with stronger population growth.
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2155
(Actually, don’t believe any of it, I made it all up. I bribed Automotive News AND the automotive task force AND the Wharton professor AND USA Today. It pays to have cash.)
The Big 3 spent literally billions over the years modeling ways to increase sales and share. Each of them wound up with the same strategy, based on the data: more dealers equal higher sales and share.
If I may inject just a little reality here – the D3 have been watching their market share decline for four decades. Mercury, to take just one example, will sell fewer cars in 2009 than in 1960. Obviously then more dealers don’t mean more sales and definitely not higher market share.
Real world data tells us that the D3- collectively- now have less than half the US market. GM used to have half the US market all by itself, with Ford and Chrysler taking most of the remaining half.
Analogously, what you advocate would be similar to this – Suppose MickyD’s over then next several years looses half it’s current share of the burger market. Would they have to close any restaurants? You’d say no. Most people would say yes. Do you want to keep all the drive in move theaters open as well – on the assumption that drive in movie share will go up if they remain open? Perhaps you think that buggy whip makers should remain in business too?
The reality is that the D3 have lost half their market. They simply don’t need as many retail outlets as they once did. It’s really quite straightforward. Nothing political about it.
PCH:
You once again are confusing issues. Respectfully.
Few dealers results in more profitable remaining dealers, but lower total share. Why? Partly due to convenience, partly due to dealers not having to give away merchandise due to local same brand competition.
Again, play the old factory playbook backwards: one reason the states had to implement franchise laws was that the factories were delighted to slaughter dealer margins to gain share via more and more dealerships in a given market area. (You can save your bribe money on this issue, as our firm was involved in one of the landmark cases that ultimately resulted in the current ‘crow flies’ distance standard).
You ask how GM and Toyota can have similar sales yet widely different numbers of dealers. The articles pretty much have it right–it’s partly due to GM’s legacy market share of 60%+, and partly due to Toyota’s keen understanding that fewer, more profitable dealers tend to ultimately serve customers and the factory better.
The issue with the terminated dealers is that they believe that the free market should ultimately decide which dealers survive–not favoritism. A key distinction. The old saw is that all dealers agree that fewer dealers are needed–but nobody wants to hand in their shingle. So…the only fair way has been to let the free market decide.
That’s the issue with the PTFOA plan–it frequently is dumping the LEAST competitive dealers on us as our best hope to repay the bailout bucks. Who do you want to bet on–the factory backed stores that can’t pay their bills, ….or local entrepreneurs who have taken care of their customers for decades and survived every kind of war, economic decline, etc. the market has thrown at them?
At the end of the day, this matter boils down to a rather simple issue–do you favor a free market solution…or a government sponsored one?
At the end of the day, this matter boils down to a rather simple issue–do you favor a free market solution…or a government sponsored one?
Such irony for a group looking to the government to create a new law to protect them from a business decision.
Dynamic:
I’m in favor of the market efficiently allocating resources, whether it’s car dealerships or fast food franchises.
The distinction is between a company closing an outlet that they own…and terminating the investment of a private individual that they have a contract with.
Obviously, given the context of the bailout and bankruptcy, the contractual issue changes. What does not change, IMO, is the need for logical, even standards of conduct. Favoritism, cronyism, and bad math-ism shouldn’t be tolerated.
At the end of the day, this matter boils down to a rather simple issue–do you favor a free market solution…or a government sponsored one?
The reality is -for better or worse- that we have a govt. sponsored solution. That’s a given. No need for an academic debate on the subject, the govt. is in it.
Another bit of reality is that there is no reason that the retail market should be able to dictate to manufacturers how many sellers there are. What’s in the interest of the culled dealers is not in the interest of the manufacturer. If the manufacturer goes bust, so do the dealers anyway, so it’s easy to see who should be saved and who should be sacrificed.
agentex:
The majority of dealers don’t want cash–they want the free market to continue to allow business decisions to be made in accordance with the free market…not contrived justifications for the confiscation of private property.
Dealers are the spotlight group, but if you look at why the legislation is bipartisan in the House, you’ll find that it’s because the real losers in this matter aren’t the dealers–it’s the employees that can’t find new work, the customers who can’t get service without an hour long drive, and communities who have lost major corporate taxpayers and charity sponsors.
Few dealers results in more profitable remaining dealers, but lower total share.
You need to read what I told your brother-in-arms, because you are making the same error:
You seem to think that there is benefit in volume.
The domestics have too much volume. They need to reduce volume, and create margin instead.
Let’s think about this for a second. It doesn’t make any sense whatsoever for the manufacturer to increase volume if the sales generate a loss to the manufacturer!
It might make sense for **you**, because as Buickman tells us, they actually pay you money for the slow movers: https://www.thetruthaboutcars.com/buickman-new-gms-incentives-are-nuts-again-still-only-more-so/
But that money that they pay comes from somewhere. And guess what? Right now, that’s coming from the taxpayers. Which means we’re paying you when you can’t sell cars.
Now, I don’t blame you for the cars being difficult to sell; the cars are hard to sell because they suck. The customer has spoken, and nobody bothered listening.
But that doesn’t mean that there aren’t too many dealers, given present circumstances. There are too many dealers and too many workers, and even if it isn’t their fault that things got this way, they still need to go because they are no longer needed. Them’s the breaks.
You ask how GM and Toyota can have similar sales yet widely different numbers of dealers.
To be fair, I didn’t ask, but used that to point out that increasing the number of dealers does not help to sell more cars. It should be obvious that the domestics are on the low end of the scale, and we should not be using them as benchmarks of what to do, but as bare minimums to be avoided. They need to be students, not teachers.
But again, you need to figure out that selling more cars at a loss is not a benefit to the company that makes them. You are less motivated because you get incentives when things move slowly, but now you’re talking to people — ordinary taxpayers — who have the pleasure of paying to you the extra cash that you get when your sales are slow.
Dynamic:
Congress is trying to address perceived shortcoming in what we agree is reality–governmental control of an enormous percentage of GDP (automakers, banks, finance companies, etc.)
My position is that without drawing some limits around what the government has allowed the factories to do, the cost to us as taxpayers is going to be far in excess of what the pols have tried to sell us as the end cost.
I posted informal July sales numbers on another thread for Chrysler–if you rough pencil the numbers, you’ll see what RF and others have feared from the beginning–the bailout ‘overrun’ costs are going to dwarf the projections…and they may fail to prevent the collapse of at least one of the recipients.
The majority of dealers don’t want cash–they want the free market to continue to allow business decisions to be made in accordance with the free market…not contrived justifications for the confiscation of private property.
This really has come full circle to become just like the Non-Tarp holdout leeches.
Nobody is taking physical property away. Only your contracts got nullified in bankruptcy court. Taxpayers are being generous by already giving some money so you don’t go away mad. Only a few dealers were initially going to hold out, unless I guess they figured they can take the taxpayer’s company hostage for more cash.
All the government-spending wingers should be on these guys. Where are they when real money is on the line??
—
Dealers are the spotlight group, but if you look at why the legislation is bipartisan in the House, you’ll find that it’s because the real losers in this matter aren’t the dealers–it’s the employees that can’t find new work, the customers who can’t get service without an hour long drive, and communities who have lost major corporate taxpayers and charity sponsors.
Yeah right, because those free-market owners wouldn’t drop kick every last employee when the gov ponies up the cash to the owners.
You are right though that those political contributions sure paid off this time.
The majority of dealers don’t want cash–they want the free market to continue to allow business decisions to be made in accordance with the free market…not contrived justifications for the confiscation of private property.
AS a dealer I don’t want any cash…just my store.
Plain and simple
I think it’s time to wrap up my participation in this thread.
My points are as a taxpayer who happens to be a part of the industry. I’m not looking for a single red cent from my government, or from any of you as my fellow taxpayer.
I do think the facts matter, be they the fact that the termination issue was often a payback/payoff scheme, or the fact that the prospects for the surviving companies are based on some pretty flimsy scenarios.
I think many of you have bought into downright falsehoods you’ve been fed by various sources. You can choose to believe what you’d like to believe, but I don’t really have much of a vested interest in the situation. I care more about the principles than the principals. And the truth is not what you’ve been lead to believe.
I’ve given you a few real-world examples, and can probably go on at length with more. What’s going on with our tax dollars is ugly.
Best wishes. See you on the next thread.
I’m not looking for a single red cent from my government, or from any of you as my fellow taxpayer.
Yet the irony is that this is exactly what the bill is designed to do. It’s the typical leverage for a cash grab dressed in the language of “free-market” economics.
Cutting the dealers is a business decision plain and simple. The exact same thing would’ve happened if private owners took over (hell, they used private equity managers). Thus casting the “government” as the villain is an attempt to confuse simpletons.
Remember, only some dealers are being cut, just as some plants and workers. These guys are obviously marketing themselves better. Imagine the mayhem if the UAW pushed congress to enact a law that made their contract immutable.
I’m not a Glenn Beck fan, and this is only tangentially related, so I hope the admin and mods will let it slide, but I have to post this for all to see – it’s simply awesome, and has to do with Goldman Sachs relationship to government and the bailout/let fail phenomenon:
An amazing theory
An amazing video
regards.
The problem with listening to crazy people is that they tend to mix the crazy in with the facts.
The really funny part is that wingers like beck are generally always for policies that give the GS’s of the world more power.
Rants like that one do tend make you wonder whether he knows he’s getting played. But all in all you have to applaud the fact that they finally figured out what “investment banks” do now that the guy they don’t like is in office.