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Our view: Bid to save auto dealers threatens new GM, Chrysler

Tag:car auto dealers car dealers | 18 Viewers| saab-autonews 2009-07-21 08:44:10 Publish:

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Our view on the car business: Bid to save auto dealers threatens new GM, Chrysler Congressional meddling undermines efforts to recoup tax dollars.

When General Motors and Chrysler each emerged from bankruptcy reorganization in less than 45 days, they did what few people thought possible. GM, in particular, has undergone a remarkable rebirth, shedding debt, dealerships, pension obligations, product lines and, most impressively, the sense of denial that permeated its culture for decades.

Edit21grf All of this has been an eye-opener for skeptics, this page among them, who've expressed doubts about massive government intervention in the two ailing automakers. It remains uncertain whether either, or both, will survive. But Congress appears out to prove that government will mess things up in the end.

Last week, the House passed a measure that would reopen, or bar from closing, the GM and Chrysler dealerships eliminated in their restructurings. In June, Chrysler closed 789 dealerships. GM is in the process of shutting some 1,300. (Another 700 or so would also go as the result of attrition and the spinoffs of Saturn, Saab and Hummer.)

If Washington forces the automakers to keep dealers they don't want, it will make it harder for the reorganized companies to succeed and to pay back the more than $60 billion federal investment that went into them. Congress did not mandate that bailed-out banks retain particular branches; it should not tell car companies to retain dealerships. If this measure reaches President Obama's desk, it deserves to be vetoed.

Decades of declining market share have saddled both GM and Chrysler with struggling dealerships that weigh on their brands. The average Toyota dealership, for instance, sells about four times as many cars as the average Chevrolet dealership. That's additional money that the Toyota dealer can use to hire the best mechanics and sales agents. It also removes much of the temptation that a struggling dealer might have to cut corners.

GM and Chrysler could make the greatest cars on the planet but will fail if car buyers are not confident in the service they get. This plan all but ensures that they won't be.

At least that is what the legislation would do as written. Within the industry, it is widely believed that politically influential dealers are simply out to get Congress to give them better termination terms than they were able to get in bankruptcy court.

A bankruptcy restructuring is always cruel and sometimes seemingly arbitrary. Jobs are lost. Contracts are voided. And creditors are forced to accept a fraction of what they are owed. It is tolerated when the stakeholders conclude that a going concern is more valuable than a bunch of assets sold at auction. Virtually no one comes out of either deal happy.

But to undo what has been accomplished so quickly in bankruptcy court would threaten the future of these companies and set an awful precedent. GM is now mostly owned by the government, so anything the dealers can get out of the company would come from taxpayers' pockets. A new deal for Chrysler dealers would come at the expense of taxpayers and the company's new principal shareholders: Fiat and the United Auto Workers.

Congress should have one overriding concern: to make sure that taxpayers get as much of their money back as possible. Meddling on behalf of unwanted dealers is a good way of undermining that goal.



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