So. Why Is It that the Administration Is Closing Down Chrysler Dealerships?

by Little Miss Attila on May 26, 2009

After all, the company is in financial trouble, and the dealers are a source of revenue.

I truly hope that those who speculate that this is to punish people who contributed to the “wrong” politicians are wrong. But irrespective, it’s yet another way that Obama and his cronies are undermining the rule of law and changing the meaning of contracts in terribly destructive ways.

{ 6 comments… read them below or add one }

Christophe May 26, 2009 at 1:33 pm

OK, just for a moment, I’m going to assume that you really mean this, and this is not some kind of subtle joke that I’m not getting (always possible).

No, not every dealership is a net source of revenue. A dealership that sells, say, six cars a year will not be profitable, and it makes much more sense to close that dealership, even if only (say) three of those sales move to another, more profitable dealership.

Companies close underperforming outlets for their products all the time, for sound business reasons. I assume we’re not trying to blame Obama for Starbucks shutting down all those stores.

Every single one of the major US automobile manufacturers has had a too-large dealer network for years. The question isn’t why they are closing them; the question is, what the hell took them so long?

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Little Miss Attila May 26, 2009 at 1:40 pm

Two differences: 1) Starbucks wasn’t selling francishes. These were retail outlets run by the actual company that closed them down, rather than independent businesses that bought coffee from Starbucks at the risk of the individual businessperson.

2) Starbucks made those decisions on its own, rather than having them dictated by the Federal government.

3) Starbucks wasn’t simultaneously looking around for franchisees to replace the proprietors of the closed-down shops.

I believe those are material differences, without even getting into the odd pattern of campaign contributions that makes the Chrysler move look hyper-political.

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Christophe May 26, 2009 at 1:52 pm

Starbucks wasn’t selling francishes.

Distinction without a difference. All companies make sure that their vendor network stays profitable, because a vendor going under is a huge problem for them. This happens all the time. Apple yanked the resale agreements with hundreds of stores when they opened their own retail stores, just for example.

Starbucks made those decisions on its own, rather than having them dictated by the Federal government.

What has allowed Chrysler to break the dealer contracts is entering bankruptcy, which is one of the things that Chapter 11 is for. If Chrysler would have kept a huge pile of unprofitable dealerships open except for the nasty ol’ Federal government, all that proves is the Feds understand business better than Chrysler management (which, based on Chrysler’s history, is possible true).

Just about every person with a pulse who has examined the US car industry for the last ten years has noted that the US auto manufacturers have had an unsupportable dealer network. The inability of them to take action on this was yet another one of their long string of bad management decisions.

In any event, GM is being even more aggressive about shutting down dealerships than Chrysler, and has needed no prod from the Federal Government (except, perhaps, being told that the spigot has been turned off) to do so.

Starbucks wasn’t simultaneously looking around for franchisees to replace the proprietors of the closed-down shops.

Starbucks opened about 1,600 stores in 2008, so, yes, in fact, they were opening new stores to replace the underperforming ones.

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Little Miss Attila May 26, 2009 at 2:31 pm

1) I’m seeing no evidence whatsoever that the dealerships that are being closed down are “underperforming,” or in danger of “going under.” Some of them seem remarkably strong, and poor candidates for being cut off.

2) I remain unconvinced that “an unsupportable dealer network” has been a problem for Chrysler to the same degree that, say, the unions have been.

3) I’m uncertain that the way the shutdowns is being handled is, in fact, in accordance with the law, any more than shafting Chrysler’s senior creditors was. Putting junior creditors ahead of bondholders is an unorthodox use of Chapter 11, and a bad idea if American companies want to attract capital.

4) The declaration that GM is doing the same thing, so the Feds therefore aren’t leaning on Chrysler, is quite unconvincing. For obvious reasons.

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Christophe May 26, 2009 at 2:51 pm

1. No doubt each and every dealer being cut has a great case for why they are unique, special and a jewel beyond compare. If I were one of those dealers, I’d be screaming raw bones and bloody murder, of course, and marshaling all my facts to show that Chrysler made a stupid decision. Anecdotes, however, are not evidence, and if you have actually taken the dealer list and done an independent analysis on it, lay it out. My hearts go out to the dealers being axed (truly), but that doesn’t mean that it wasn’t a good business decision to cut them. Creative destruction, right?

2. The size of their dealer networks is not their only problem, but who is claiming that it is? Businesspeople do not have the luxury of sorting their problems in order and saying, “Well, we’re not going to touch the dealer network until we have the perfect union contract, as we bleed money until we’re white.” In fact, one of the strongest arguments in favor of a chapter 11 for GM and Chrysler was that it gave them the ability to cut franchises.

3. If you have an actual case that terminating the franchises is not legal under chapter 11, lay it on. I certainly know of no such impediment, and the bankruptcy judge agrees, since the court’s approval is required to do the terminations. Reordering bondholders is not common in chapter 11, but it’s not unheard of, either. It’s not the apocalypse.

4. Just observing that one does not need conspiracy theories to explain what is a long-postponed rational business decision.

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Mike February 22, 2010 at 6:21 pm

Most all of you are very wrong. The dealerships selected to be closed were selected because the ownership had contributed to the Republican Party. This will all come out in time. The main media will delay as long as they can but it will soon be common knowledge.

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