Editorial: Maxine Waters is Insane

In the House Financial Services Committee hearings on loans to the auto industry, Rep. Maxine Waters hectored the CEOs of Chrysler, Ford and GM. The California democrat attacked the execs on behalf of “small” independent auto dealers on “Main Street.” “Is there a commitment by any of you to give support to these small independent dealerships that include a lot of minority dealerships that are going to close down?” Never mind how they replied. Implied but not stated: The Big Three are guilty of, at best, racial insensitivity. At worst, racism. It’s untrue, unfair and outrageous.

Rep. Waters is upset that GMAC, Ford Credit and Chrysler Financial Services are calling in notes– as opposed to perpetually extending credit– to minority car dealers. In the interests of fairness, let’s keep in mind that this is the same Congresswoman who, in 2003, informed us, “We do not have a crisis at Freddie Mac, and in particular at Fannie Mae.” So no surprise that Waters’ tirade about the domestics’ dealer reduction and consolidation plans misses the entire purpose of exercise: reducing surplus dealers to survive.

Once upon a time, Chrysler, Ford and GM owned the U.S. market. There were domestic dealerships and then there was… nothing. Minority dealer programs were first initiated by Henry Ford II because he thought it was good business and the right thing to do, not because of pressure from activists. Be that as it may, special considerations were extended to minorities. Through financial incentives and active recruitment, they were encouraged to own stores and train members of their community.

That was then. This is now. As the domestics’ market share has steadily decreased, the domestics’ dealer count became a gigantic anchor tied around their collective necks.

It costs a lot of money to supply and support all those dealers. Inter-dealer competition drives down average transaction prices, yielding lower average vehicle sales per dealer. And pandering to the plethora of stores has lead to the brand-diluting practice known as “badge engineering” resulting in yet further intra-store competition.

For example, at the moment, GM’s eight domestic brands account for 24 percent of the U.S. market. The General has well over 6k dealers. That’s down from the nearly 8k dealers back when GM’s brand portfolio accounted for over 35 percent of the U.S. market. But it’s still well over 4k more dealers than Toyota.

There is an upside to the domestics’ ubiquity: they are far better represented in rural areas and small towns than Toyota, Nissan, Honda, Hyundai and the rest of their transplanted competition.

Reading between the lines of Ford CEO Alan Mulally and GM CEO Rick Wagoner’s testimony in the hearings, both domestics [rightly] view their small town dealers as a strategic advantage. During his testimony, Mulally referred to Ford’s small town dealers: “We are woven into the fabric of every community that relies on our cars and trucks and the jobs our company supports.”

All of which means that Chrysler, Ford and GM are closing/losing proportionally more dealers in big cities than smaller cities and towns. Ford CEO Alan Mulally’s prepared remarks to Congress admitted as much, revealing that Ford has reduced dealers by a greater percentage in “large markets.”

There is no getting around the fact that the vast majority of minority-owned car dealers operate within large, urban markets. While there’s no reason to believe that minority-owned dealers are any less well-managed than other dealers, and many are indeed profitable, there’s also no reason to suggest that the domestics are targeting minority-owned dealers for closure. They’re simply in the wrong place at the wrong time.

To satisfy Rep. Waters’ desire to protect African-American dealers, to exempt them from the inevitable cull, Chrysler, Ford and GM would have to discriminate against both rural dealers and well-managed non-minority-owned urban dealers.

Of course, that’s exactly what Rep. Waters wants. She wants to make any loans to the domestic automakers contingent on their continued support of dealers that are part of their problems in the first place. “Do you believe that if we are to rescue these big automobile manufacturers we should insist or include in our language support for the small independent dealers?”

If there was a time when the automakers could afford to cater to the concept of political correctness, that time is past. In their fight for survival, to meet their obligation to return taxpayers’ money, the domestics’ must ruthlessly “right size” their operations. The bottom line is all.

The Detroit automakers are among the biggest private employers of minorities in the country. A larger number of minorities in the auto industry work within the domestics’ organizations than without. Rep. Waters needs to understand that if the Detroit automakers don’t consolidate their dealer networks, the automakers will not survive and a lot more African-Americans, Hispanics and other minorities will lose their jobs.