By on July 14, 2009

As our previous story on New GM’s dealer oath indicated, New Chrysler and Government Motors are fighting a desperate battle to head-off H.R. 2743. The bill—which has cleared committee and continues to gather steam amongst the axed dealers’ political allies— would require the former bankrupts to take back thousands of terminated franchisees. “We’re open to a non-legislative solution,” Chrysler spinmeister John Bozzella told Automotive News [sub]. “We’re interested in a non-legislative solution,” GM spokesman Greg Martin echoed in an e-mail. Although the automakers’ media mates are happy to parrot the euphemism, let’s call this for what it is: a pay-off. Price tag? The two automakers sliced 2,789 dealerships. Even if you figure a paltry $1 million each, that’s a $2.789 billion fate-thee-well. Compared to the $70 billion to $100 billion-plus that Uncle Sam’s plowed into the zombie automakers, it’s a pittance. But the actual retail price of the showcase is likely to be . . . much more. Watch this space.

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27 Comments on “Feds Set to Pay Billions to Axed GM and Chrysler Dealers...”


  • avatar
    bevo

    Risk for no one! Bailouts for everyone!

    Good to see this administration is ignoring rule of law as well as the last administration.

    Hope and change we all can believe in as in I hope I get some (government) change if my employer fails.

  • avatar
    charly

    Obama will veto it because it is good politics

  • avatar
    lw

    Paying billions to shut down functional businesses in a depression?

    BRILLIANT!

  • avatar
    Robert Schwartz

    My my my.

  • avatar
    BuzzDog

    All of these government handouts are driving me crazy!

    Hmmm…crazy…I wonder if that would qualify me to collect my Social Security disability benefit?

  • avatar
    motownr

    The reason they’re getting politicians on both sides of the aisle is that the actual data–not the factory/White House spin–clearly shows scores being settled at the expense of private citizens.

    One nice little anecdote: Over the past year, GMAC and CFC have selectively been seeking personal guarantees on loans to dealers for factory-mandated upgrades to facilities. Guess who is now foreclosing on dealers who have had their franchises terminated?

    You guessed it. GMAC/CFC…while at the SAME TIME GM and Chrysler are negotiating the terms of conveying the terminated dealers’ assets to other dealers.

    Of course, the fact that the dealers who were terminated just happened in many cases to have previous legal cases against the factory is just a coincidence.

    The prevailing thought is that a negotiated payout has ALWAYS been in the cards. By now negotiating a deal post bankruptcy, the factories get to pass along the costs to the taxpayers.

  • avatar
    King Bojack

    The real problem is that somehow dealers managed to get enough laws/clout that something like this is even considered.

    Inability to have authority over their dealers was and apparently will continue to be a huge domestic hassle.

    One can expect similar shit as certain Toyonda etc. dealers get lazy with any success unless they some how managed to set up their dealers differently from the get go.

  • avatar
    PeteMoran

    The dealership model has helped perfect an adversarial customer relationship chain.

    The manufacturers fight with the dealers then the dealers fight the used wholesalers and then with the customers.

    A culture that encourages each one to try to screw the other has developed. Until someone turns that on it’s head, there will be no change.

    Maybe the idea of “dealerships” has run it’s race. For new cars at least.

    Direct selling anyone? and your old car into the classifieds/trading-post.

  • avatar
    rpol35

    Strictly trivial pursuit, but the picture that you used is of the former Delaney Lincoln Mercury in Timonium, Maryland, I believe. It went away quite a while ago. As you can imagine being just a Lincoln-Mercury dealer with noting else is a tough roe to hoe.

  • avatar

    Let’s saddle New GM and New Chrysler with a bunch of unnecessary debt. What could possibly go wrong?

  • avatar
    superbadd75

    So why is it that a bankruptcy, used to get out of bad debt, has only shifted all of that debt to taxpayers? Everyone with any political influence that whines is eventually going to paid off. Meanwhile the investors and taxpayers are getting drilled in the ass. 4 years of this administration is going to be extremely painful.

  • avatar
    johnthacker

    Apparently the bill has 240 co-sponsors, including House Majority Leader Steny Hoyer (D-MD). The Administration may well veto it, but hasn’t explicitly promised to yet.

  • avatar
    gslippy

    Better to pay them off than to keep anchors in tow.

  • avatar
    motownr

    Gslippy:

    Pretty hard to find any independent evidence that dealers of any kind–import or domestic, terminated or otherwise–are ‘anchors’ as you suggest.

    The distribution system in the industry saves the factories from capital needs in the tens of billions of dollars.

    Whatever payout may come will not come close to addressing the true financial damage done, either to the dealers, their employees, or their communities, just as the Olds termination didn’t fully address the costs to those impacted parties.

    What the legislation does attempt to do is partially mitigate the damage already done, and prevent further predatory behavior. Chrysler in particular is a rudderless ship right now, and given the chance, the parties who are temporarily in charge will continue to create further liabilities to taxpayers by abusing the system and impairing the distribution network of the company.

    Again, for those who wish to become informed–as opposed to simple knee jerk posting–the internet is filled with solid anecdotal evidence of what can only be described as malicious behavior in numerous cases.

  • avatar
    motownr

    For all of those who think haphazardly shrinking the dealer network via anything other than free market economics is cost-effective–a data point:

    As of today, month sales for Chrysler are horrific. Partially due to a lack of popular inventory (vans, wranglers), partially due to GMAC’s unwillingness/inability to provide competitive financing, volumes are of by staggering percentages OVER LAST MONTH. One dealer who retailed 200+ last month is currently at 26; another who RDR’d 40…is at 2.

    Obviously, the business model for the large, new construction Taj Mahals that the New Chrysler is obsessed with having dealers build cannot work at these revenue levels…meaning that ongoing shrinkage in the distribution network is all but assured.

    The more the distribution network shrinks, the more it’s going to cost the taxpayer in the long run.

  • avatar
    gslippy

    @motownr:
    Your argument confuses me. I agree that free-market economics should drive the dealer culling. But free-market economics no longer govern Chrysler’s and GM’s actions (they’e now politically-driven), and free-market economics did not cause them to cull their dealer network long ago as they should have.

    However, your argument implies that having more dealerships would be better. This is obviously not the case, hence my use of the word “anchor”. I think GM has twice the dealerships of Toyota, which is crazy and expensive. The federal push for the manufacturers to cull dealerships has the right end in mind, and is happening only because the manufacturers wouldn’t do it themselves.

    Paying to cut them is cheaper than the perpetual load they apply to the taxpayer-owned manufacturers.

  • avatar
    motownr

    gslippy:

    It’s an incorrect assumption that’s confusing you.

    “Paying to cut them is cheaper than the perpetual load they apply to the taxpayer-owned manufacturers.”

    Being Detroit based for decades, I’ve yet to meet a factory executive who thought that dealers were an expense to the factory. If you are familiar with the multi-levels of fees and expenses that dealers pay to the factory, you’ll intuitively understand this. The idea that factory reps don’t pay their freight is a laugher as well–good luck finding a rep in recent times.

    The concept of ‘dealer burden’ is simply a convenient fabrication to justify channeling dealers without compensation. The PTFOA didn’t really care if it was true or not, as the dealers were not a DNC constituency. Who cares about them?

    Re free market efficiencies: the number of dealers has been declining steadily for years. Given the enormous costs involved to transition out of single use facilities, it’s inherently a slow process. But, over the course of a century, it’s proven to work.

    Your reference to the dealer numbers of the imports actually proves the point: they’ve been adding dealers steadily to address their growing share.

    As a taxpayer, I’m against the Chrysler bailout. However, IF BHO is going to throw tens of billions at this industry, the process needs to have some logic and fairness to it. The punitive terms of the terminations lacked both of these elements. Which is why you’re seeing the threat of congressional action.

  • avatar
    at40

    motownr:

    Your logic is sound and works for me. AS of today the Obama administration has come out against the Legislation and now is talks of deals.

    Why would a dealer want to accept 50 cents on the ddollar for a foraced termination when he can get a$1.00 for $1.00 in a real termination and for those who choose to stay in biz have the opprtunity to continue to succeed…its the American Way

  • avatar
    agenthex

    As a taxpayer, I’m against the Chrysler bailout. However, IF BHO is going to throw tens of billions at this industry, the process needs to have some logic and fairness to it. The punitive terms of the terminations lacked both of these elements. Which is why you’re seeing the threat of congressional action.

    It’s pretty funny people hate dealerships and bailouts, but apparently obama even more.

    The logic here is hilarious poor. Here’s the sequence of events for the confused: 1. Bankruptcy court allows cutting the dealers. 2. Dealers whine to their congressfolk who they’ve been paying and sponsor a bill (ie new law) to reverse this. 3. There may a settlement to pay off said dealers instead.

    So either you’re on the admin’s task force’s side and don’t want to bail out the dealers, or you do by paying them off one way or another to go away. Note here that most dealers have already accepted the termination agreement (with a lower payoff), and this is a low-life group of leeches not unlike the Non-TARP saviors of capitalism.

    The funny is all these people jumping to the defense of dealers they were ranting on not long back and cheering to pay them with tax dollars just so they can pretend to spite obama. If it’s one thing these leeches are good at, it’s taking advantage of misplaced anger.

    Hilarious.

  • avatar
    motownr

    agenthex:

    Your sequence conveniently fails to address a key fact–namely, that with bailouts underwritten by taxpayers, there is inherently a political context.

    In this case, the dealers were the only group that clearly was outside the interests of the DNC and White House.

    Moreover, the legislation has a biparisan element to it that you ignore. You’re missing the unnecessary economic penalty to GDP and us as taxpayers that’s a big part of these terminations: the loss of these dealerships has a negative income effect on numerous communities across the country. Terminating them hurt tens of thousands of ordinary, innocent workers WHO PAY TAXES. Using their tax dollars to allow nitwits in corporate America to punish a few outspoken dealers isn’t just a fairness issue, it’s an economic one as well.

    One final point: the dealers don’t want a bailout. They’ll probably have to settle for one, but they certainly don’t want one. They (and their employees) want their lives and livelihoods back. A huge difference.

    It’s pretty apparent that you are not a part of the industry. I am. Take my word for it when I tell you that there’s an ugliness to this issue that escapes you. Our own government enabled companies that the taxpayers rescued to use taxpayer dollars to hurt ordinary citizens. Strip away all the after-the-fact contrived explanations, and that’s the heart of this issue.

    Think about that for a bit before you tell us how hilarious all of this is to you.

  • avatar
    agenthex

    You seem to be implying that ALL dealers being cut. Only a part of the network is, just like other parts of the auto manufacturers (workers, plants, etc).

    What it comes down to is how much they’re going to get paid off to go away. There is a current offer, and the dealers want more (and presumably not just to pay their employees better severances), thus the law-making attempt to improve their bargaining position.

    People should realize how the game is played instead of falling prey to the rhetoric for rubes.

  • avatar
    motownr

    What’s the current offer?

  • avatar
    agenthex

    You should know. What’s in your wind-down agreement?

  • avatar
    gslippy

    There seems to be agreement that some dealers need to be axed. But no dealer will admit they are an appropriate candidate. I assume C/GM aren’t stupid enough to axe dealers that are profitable to the mothership and have therefore selected the biggest losers to walk the plank. And sooner rather than later – bankruptcy demands swiftness, sort of like a triage center in a hospital – you can’t wait for some wounds to heal on their own.

    The Plan is severely undermined when local politicians can muster enough whining power to say that their dealerships are the wrong ones to go.

    Will we see this next with the factories and suppliers? If so, what is left to distinguish the new GM from old GM?

  • avatar
    at40

    The offers on the windown agreement are pennies to the dollar. Even if you got the most possible $ 1 million it pales in comparison to the investment of parts, tools, and real estate. Notice I didn’t say inventory because GM was kind enough to let us sell the units retail.

    Give us a normal termination or leave us alone. That is the only acceoptable terms

  • avatar
    agenthex

    Even if you got the most possible $ 1 million it pales in comparison to the investment of parts, tools, and real estate.

    And what is that investment making now? Oh that’s right, not much.

    All the physical assets are still yours. If they’re not worth anything for starting a service shop or whatever, then that’s only more evidence of the worthlessness of the business.

    The current offer is the legit legal consequence of BK, the dealers are essentially looking to change the law to get more taxpayer $, and for a dealer going away anyway, I can guarantee it’s not going to the employees.

  • avatar
    PHYL46

    gslippy

    Let me give you some real facts about how stupid GM is when it comes to closing dealerships. I know from first hand esperience that they have sent “wind-down” letters to profitable dealerships in my area and if it is happining here then it is happening all over the country.

    1) the dealership in my area that is slated to close has extremely high customer service satisfaction numbers, and I thought that is what the “New GM” was going to be all about “Customer Satisfaction”.
    2) They are consistently in the top 100 of dealerships for new car sales volume in the country for their car line. And while the nationwide average for new car sales at GM dealers are down 38 % my area dealers sales are only down 19 % switch shows a high degree of customer loyalty (isn’t that what GM is looking for?).
    3) This dealership has been rated profitable and well-capitalized by national organizations.

    So don’t tell me that these dealership closings aren’t political or that GM isn’t stupid. Why else would they close dealerships that are making the parent company money? As my grandmother used to say “that would be like cutting off your nose to spite your face”.

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