Auto dealers vs Treasury, part 322

By Felix Salmon
July 21, 2010
Jim Surowiecki 3didn't even scratch the surface when it comes to the power of auto dealers in general, and Big Three auto dealers in particular. They're grossly inefficient, as this chart from Monday's SIGTARP report on them shows.

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Jim Surowiecki didn’t even scratch the surface when it comes to the power of auto dealers in general and Big Three auto dealers in particular. They’re grossly inefficient, as this chart from Monday’s SIGTARP report on them shows.


Despite this, their political clout is enormous. When Treasury insisted on closing many dealerships as part of its restructuring of GM and Chrysler, the auto dealers went straight to Congress and managed to get more than half the 1,100 closed dealerships reinstated.

Treasury, failing to learn its lesson, then insisted that auto dealers wouldn’t get a carve-out from consumer financial protection laws. It failed there, too.

And now the auto dealers have managed to slam Treasury one more time, via the SIGTARP report, which the Washington Post describes as “mostly a rehash of familiar dealer complaints about the supposedly unfair process by which the companies selected dealerships for closure”.

In this case, however, I think that Treasury’s argument is weak. Herb Allison, the Treasury official in charge of such things, just says that closing some dealerships was obviously better than closing all the dealerships, which would have been the outcome if GM and Chrysler had been liquidated. Well, yes. But as the report responds, “this is a false dilemma with no factual support”. Keeping more dealerships alive would not have killed the entire restructuring.

A stronger argument, I think, is that the combination of Ron Bloom and Steven Ratner went in guns blazing with a strategy of getting as much pain as possible out of the way as quickly as possible — not only with respect to the dealers, but even more with respect to the bondholders as well. If you’re going to declare bankruptcy, get as much benefit as possible out of it and make it quick. And that’s exactly what they did.

So yes, with hindsight, it might have been possible to cause less pain. But the task facing Bloom and Ratner wasn’t to do the perfect restructuring, it was to get something done at all. And Ratner, in particular, has a big ego and is unlikely to have taken the dealers’ complaints seriously: I absolutely believe that he ignored them and felt quite proud of the fact that he was taking advantage of bankruptcy law to get a lot of them out of the way.

As such, the SIGTARP report — which was authored I think mainly by Kurt Hyde rather than Neil Barofsky — is worth listening to, rather than simply railing against in Treasury’s knee-jerk fashion.

A more realistic response from Treasury would be simply that the deal was rushed by necessity and that no one had the luxury of time to make sure that everything was optimal; what’s more, the dealers, once they knew that a deal was on, had everything to gain by being obstructive and could not easily be trusted in what they said: they were fighting for their very livelihoods, and would say anything to keep them.

Still, that’s no reason to ignore them completely and the Auto Task Force would have done well to task one of its own members with crunching the dealers’ numbers in good faith. I think that Ratner sometimes forgot that he was working for the nation as a whole and that every extra unemployed former auto dealer was an outcome best avoided if possible. Or maybe it wasn’t yet clear just how bad the national unemployment situation would get. I do think that he failed to give the dealers a fair shake; I understand why that would be the case; and I think that it behooves Treasury to learn from its errors, once in a while.


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Huh? I thought the US was a Free Market Economy where if a company made mistakes it failed and politicians had no part in business strategy whether or not a bunch of redneck dealers selling miniscule amounts of vehicles per year could twist the politicians’ arms. Small backwoods auto dealers are of course predominantly Republican.

I also found out recently that the US subsidises factory farming methods which feed the obesity problem and thereby increase the cost of healthcare. Farmers of course are predominantly Republican.

Maybe it’s time to write that book: America: Corruption of a Nation

Posted by FifthDecade | Report as abusive

That book has already been written – and well – by Dean Baker:

Posted by Suncaked | Report as abusive

“What’s good for GM is good for America” isn’t just an Eisenhower-era punchline. I don’t begrudge individual businesspeople, or groups, the right to promote their interest. But I have spent most of my life in and around various aspects of the auto business, and have also done my share of work with the likes of (e.g.) Silicon Valley, Hollywood and Wall Street; while each of those three groups has its share of fits-the-stereotype a–holes, as a group none exhibit the overblown sense of entitlement that auto dealers and manufacturers do, especially those from the Big Three.

Posted by 77SunsetStrip | Report as abusive