Friday, May 29, 2009

Car Dealers, Unemployment, and Politics--Oh My!

First, thank you for reading past the title. Many folks see the word politics and keep moving. Second, I acknowledge that I am not a politician, not proficient at macro-economics, and have limited experience with business. So basically, my opinion on this matter doesn't matter much.
But I will express my opinion anyway and the beauty of a blog is that you can choose to read and agree or read and disagree or just not read.

The question driving this post is this; "How does closing multiple automotive dealerships help Chrysler and General Motors reach their goal of profitability?"

Again, I confess ignorance of the structure of franchise agreements between manufacturers and dealers. More knowledge there might answer some questions. If GM owned the dealerships and the costs of keeping one open were higher than the gross profit, then closing would make sense. But GM does not own the dealerships so even if a dealer is loosing money every year, how does that hurt GM? GM does not pay the utilities for that dealership and whether it takes the dealer 3 days or 27 months to sell a car does not matter much to GM--except selling faster means ordering more sooner. All that is not even relevant though, because most of the dealerships that are being closed are, in fact, profitable. Many have been owned by a family for generations and those families have made a comfortable living. Why then would you want to close thousands all at once? Some fuzzy math has been proposed by those who desire to follow the model "foreign" auto-makers use. Toyota, Nissan, and Honda all have fewer dealers and sell more cars per dealer. Toyota is nearly four times as many per dealer. If you have driven cars a few decades, you don't need an MBA to realize those numbers are not a result of dealer density nearly as much as quality and price considerations. The big three have come a long way in quality and service--because they have been forced to by the imports. Of course, imports are not imports any longer. They are now made in the USA because it was cheaper to build factories here and pay higher wages here than to pay the outrageous taxes levied on imports to protect the big three. Again, you don't have to be a Political Science major to know that the big three spent lots of money to get politicians to pass legislation to "level the playing field". That means we paid more for Toyota's, etc. but were willing to buy them anyway because they were just better for years.
So how does that connect to the dealer closings? Follow the money. The big three charged more for cars because the cost to build them were higher. The cost were higher because of three words--UNITED AUTO WORKERS. Yes, I know the executives make crazy salaries and get all the press. But blue collar workers are making six figure incomes--not just for high skilled labor, but for operating a fork-lift or cutting grass. Why does this continue? Follow the money. The UAW learned long ago that money spent on congressional candidates--almost always democrats--was money well spent.
Now this disturbing information is coming to light;
This link is to a lengthy article with links to other related articles that paint a frightening portrait of a national government taking control of the largest industries in the nation and forcing them to close dealerships based on.................political affiliation? Can that be true? There will certainly be much, much more written on this topic and clarifying details will emerge over time. Granted, the fact that 90 % of the dealers marked for closure contributed to republicans does not itself prove anything. Likely, 90 % of these and other small business owners contributed to republicans--which would mean that probably a similar portion of those remaining open did as well. Maybe. But there is more. When you add that the "car czar" Steve Rattner is married to Maureen White, former national finance chairman of the Democratic National Committee the direction of flow begins to become more apparent. The reality that no politician will touch is that the UAW has something like 120,000 working members and nearly half a million retired workers. The benefits, especially health care for these retirees are a staggering cost that dwarfs the salaries of executives. What is happening to these companies is coming to Social Security and other areas of our economy based on simple math. To force others in the industry into the unemployment line will not help. One more fact from the linked article; RJL-McLarty-Landers has a chain of dealerships, none of which are being closed while their local competitors are being closed. So what? These dealerships are owned by three men; Steve Landers, Thomas "Mack" McLarty, and Robert Johnson. McLarty is the former Cheif of Staff for President Clinton. Robert Johnson is the founder of Black Entertainment Television and owner of NBA's Charlotte Bobcats. McLarty campaigned for Obama in 2008 and Johnson has contributed boatloads of money to democrats. Coincidence?
Does that sound like crazy, conspiracy talk to you? Fine, then you explain how closing these dealerships and reducing the retail outlets that spend their own money to advertise, sell, and service cars will help GM and Chrysler? And why doesn't Chrysler and GM just tell the dealers and the public the criteria used for determining which dealerships will be closed? I heard Susan
Shines interview on radio yesterday and she certainly is not happy with the forced closing. Her family has made money for years with a large dealership and she would like answers.
It certainly appears that the strong-arm politics of Chicago have arrived in Washington. And just because closing dealerships does not affect you directly, don't think the next wave will not.

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