“What seemed to be an
obvious move to reduce the size of the American auto industry got screwed up
when the government over-pressed on the closure of dealerships. If the
government could not get the downsizing of the auto industry right, how are
they going to get the upsizing of the healthcare industry right?”
The Office of the Special Inspector General for TARP has
released a controversial report on the Obama Administration’s pressure to close
many dealerships in order to back GM and Chrysler during their 2009
bankruptcies. The
entire 45 page report can be read here.
I found several things interesting in this report:
1) I
could not copy and paste quotes from the report to give an accurate account of
what the investigation found. The
document was purposely set up to make copy/paste functions virtually
impossible.
2) The
Treasury Department “strongly disagrees” with the results of the study. Apparently, it knows the situation better
than the “key officials inside Chrysler and GM, auto industry experts, and auto
dealers” who were interviewed by the inspectors. I find the fact that the Treasury finds
itself smarter than all those folks a strong sign of a Central Planning
authority.
3) Instead
of sticking to its original plan to close around 1,500 dealerships by 2014, GM
announced the closure of all of these dealerships by 2010 as the federal
government announced the original plan was “too slow.” (See page 11 of the
file).
4) At
the bottom of page 11 (marked pg 7), the TREASURY
identified the keys of viability for General Motors and Chrysler. One such characteristic for both companies
was “improving product mix and moving towards fuel efficient vehicles.” Clearly, this is a central planning mentality
as the government is telling these two companies what to produce if it wants
its loans. This is especially ironic considering
SUV and pickup truck sales are beginning to rise. I guess when it comes to consumer versus
government, we should listen to what the government has to say. (By the way, Ford was a huge winner according
to the above article).
5) The
original dealership closing plan “assumed” that the number of cars sold per
dealership would rise for GM and Chrysler in proportion to consolidation. I guess that means that the hundreds of
thousands of people put out of work were going to continue to buy the brand of
vehicle that put them out? And, they
would continue to show the same positive enthusiasm for these brands with
friends and family? This section of the
report should have been entitled “Why Ford Sales Were Boosted by the Auto TARP
bailouts.”
6) Chrysler
opposed the dealership strategy outlined by the Auto Task Force because it was
trying to hard to replicate the foreign car dealerships business models. Toyota and Chrysler were two different
companies with two different brands and two different target markets. The Chrysler executive likened it to “turning
our sons into daughters.” The Obama Auto
Task Force’s desire to take the Toyota model and cookie-cutter it across
America is very simple-minded.
Standardization was also a very popular Central Planning technique.
7) An
internal Auto Task force memo acknowledged that terminating such a large number
of dealerships was “the greatest challenge to the current plan.” To me, this dramatic of an undertaking with
this supply chain actually increased the
risk for default between GM and Chrysler.
8) Profitability
was weighted as 10% of one of two components GM used to close dealerships in
2008. Sales volume and customer
satisfaction accounted for 80% of that same component. This means that a dealership with mediocre
customer service, high sales, and no profitability likely beat out a dealership
with a slightly better customer service ranking, low sales, and high profitability (See page 21 of the PDF form).
9) The
report (see page 22) and an interview with a car dealer on FOX News on July 19th
(I wish I could find the video) hint that the companies violated franchise laws
in several states then hid under the guise of bankruptcy in order to avoid
being sued for violating such laws. We
should thank the President once again for his task force aiding in
circumventing the law.
10) General
Motors created an appeals process for dealers set to close, but did not
document the process (criteria, rationales, etc). Why have accountability when you are
receiving a government backstop?
I believe that the findings of this report speak to the true
abilities of the government to manage anything in our economy. It was absolutely clear that Chrysler and GM
needed to reduce and make “lean” their dealership networks. However, the Task Force made huge errors in
the method and speed for which these are to be done. If our government cannot get the simple
economic issues of the day right, how are they going to handle the complicated
ones?
