Told you so: Closing auto dealers cost jobs without saving GM any money …

Punch line: A government watchdog slammed the Obama administration’s handling of auto dealer closings that were pushed through last year to speed the bankruptcy proceedings of Chrysler and General Motors.

This is neither new news, nor surprising.

HomaFiles reported on these dealer closings when they were going down.

A local dealer told us at the time:

  1. There would be no savings to the car companies since the bulk of their dealer support costs are variable costs, e.g. cooperative marketing programs
  2. In fact, the companies would lose “floor plan” inventory – the cars that dealers have to buy, finance, and keep on their lots.  Fewer dealers translates to fewer cars on lots.
  3. The major criteria for closing were political … dealers who opposed Obama’s plan were warned … and if they continued to make waves, they were put on the “to be closed” list.
  4. Surviving car dealers might become more profitable since fewer dealers means less price competition
  5. The biggest impact of dealer closings would be the dealerships’ employees.  As the guy told me:
    ”I’ll still have my foreign nameplate stores … may have to sell one of my beach houses … but that’s no big deal.  I worry about th 50 to 100 employees per store … some have been with me for 30 years …  I can’t absorb them into my other stores … and I don’t think any surviving dealers will pick many of them up.

* * * * *

Excerpted from Dow Jones: Watchdog Criticizes Treasury’s Role In Auto Dealer Closures, July 18, 2010

The decision by Treasury’s auto task force to reject the companies’ plans for gradual dealer closures in favor of an accelerated process may have exacerbated job losses in the midst of a recession.

The office of special inspector general Neil Barofsky, set up to monitor the $700 billion financial bailout known as TARP, took the administration to task for failing to sufficiently oversee the closures and weigh the broader economic impact of its decisions.

“Treasury made a series of decisions that may have substantially contributed to the accelerated shuttering of thousands of small businesses and thereby potentially adding tens of thousands of workers to the already lengthy unemployment rolls — all based on a theory and without sufficient consideration of the decisions’ broader economic impact.” 

The audit said “only time will tell” whether the accelerated closures will help the companies’ profitability. But Treasury should have “taken every reasonable step” to ensure the closures were necessary and that the benefits to the companies outweighed the economic costs of “potentially tens of thousands of accelerated job losses” 

But many dealers and their congressional representatives said the process by which GM and Chrysler chose which dealerships to cut was arbitrary.

Full article:

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