Talk Back Tuesday: Are Car Dealers the Saviors or Slayers of Chrysler and GM?
According to John McEleney, the National Automobile Dealers Association's (NADA) chairman, "Cutting dealers at this time would do absolutely nothing to make GM or Chrysler more viable."
When one considers the level of political clout commanded by the U.S. dealer body it shouldn't be surprising that they don't want to lose any of that power by losing dealers. And yet, I was still surprised by such a blatantly ridiculous statement. There's political posturing, and then there's just plain lying. If you're thinking the two have become one in the modern world...well, I won't argue the point.
But I would argue that if Obama wants to call out "speculators" as the evil doers of the Chrysler bankruptcy he might also consider turning that judgmental eye on the dealer groups forcing bankruptcy on Chrysler and GM.
"But Karl, why and how would Chrysler and GM dealers want those corporations to go bankrupt?"
Why? Because they want money -- a lot of money -- to give up their agreements with Chrysler and/or GM (sounds sort of like the bondholders, no?). Demanding that money is how they would have made a non-bankrupt Chrysler too expensive to save, and it will ultimately be the factor that forces GM into bankruptcy. This, by the way, is a good thing.
See, if those evil Chrysler speculators hadn't held out for a higher pay-off the company might have, technically, avoided bankruptcy. But then Chrysler (and Fiat) would have had to figure out how to jettison some 800 Chrysler dealers without the protection of bankruptcy. That would have required a lot of time and a lot of money from a Chrysler than has neither to spare.
As GM lurches toward the inevitable I wonder who Obama might pin the blame on this time, but as with Chrysler the real issue will once again be dealers (around 2,600) that are simply too expensive to unload outside of bankruptcy.
Remember, it cost GM somewhere between $1 and $2 billion dollars to kill Oldsmobile. And the majority of that cost was? You guessed it -- dealer payouts. This for a brand that wasn't nearly as costly to GM then as Hummer, Pontiac, Saab and Saturn are today.
I would suggest that when it costs too much money to kill a clearly money-losing aspect of your company, something is more than a bit out of whack. Have we really gotten to the point where a modern automaker can't realistically shed more than a handful of dealers without using bankruptcy protection? I fear the answer may be "yes."
Regardless, even without Obama's evil speculators Chrysler couldn't have righted itself outside of bankruptcy because of the dealer pay-off costs. GM is even more overburdened by excessive dealer count, so the endgame is all but decided (no matter how creatively Frtiz Henderson tries to describe his company's options).
Ironically, if you think bankruptcy is a good thing for Chrysler and GM (I do) then these dealers are actually heros by forcing the matter. But for some reason it's difficult for me to characterize them as such...
What say you? Are dealers at the heart of the problem or are they a key to the solution for Chrysler and GM?
- Posted by
- Karl Brauer May 12, 2009, 6:00 AM
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Interesting post. However, I'm still sympathetic to any creditor who feels that their contracts should be honored. I don't like the idea of using govt intimidation to alter contracts after the fact. "The economy is tough, so we're gonna have to screw you guys to save our own butts. Sorry."
They aren't the heart of the problem, but the dealer network is part of the solution. Unfortunately, the car manufacturers can't sell cars directly, so that means they have to rely on dealers to move the iron.
However, the issue is that there are too many dealers for the size of the market. As any successful retailer will tell you, too many stores can be a bad thing. Starbucks can serve as a an example of sorts (although selling coffee is different than selling cars). They have far too many stores, and as a result, have hurt their brand. This has resulted in them having to try to expand the product line beyond coffee (further muddying the brand), offer discounts to move product and have changed the customer experience negatively (sound familiar?). You end up competing with yourself (extreme examples include 3 Starbucks within 100 ft of each other in some cities).
My city is a good example of excessive dealerships. GM and Toyota move about the same number of cars in a metro area of 1.2 million people. Toyota has 5 dealerships that accomplish this, and all are steady and profitable (albeit with the Toyota Sales Experience, which is tolerable but not great, your experience may vary :-)). GM has 14 dealerships, some of which are in good shape (both physically and financially) but most are not doing well at all. They end up having to chase a smaller slice of the pie, and competing with each other as a result. They end up relying hefty rebates paid for by GM to help move product and at least try to break even on a sale. Fewer dealers won't make the rebates go away entirely, but it would reduce the internal competition within the brands, and might allow the rebates to be reduced.
Right now, dealerships are a fact of life, given the current state laws about car sales. The idea that "more is better" is patently absurd, and retail history has shown that more is not better. Too few would be bad too, the question then becomes how many is "just right" to move enough product, improve the brand and ultimately get to a profitable state.
Speaking of poor economic decisions...
Lutz and his fellow stooges unloaded a chunk GM stock. Yeah even though these tools presided over one of the biggest Auto meltdowns ever, they're still walking away with cash in hand:
http://www.autonews.com/article/20090512/ANA02/905129997/1197
Too bad it was all legal. 80k shares of GM was once worth over 5 million clams.
"The economy is tough, so we're gonna have to screw you guys to save our own butts. Sorry."
Isn't that the essence of bankruptcy?
Where have we gotten this notion of entitled employment from? Should everyone be guaranteed a job?
"Where have we gotten this notion of entitled employment from? Should everyone be guaranteed a job?"
What are you talking about?
"Too bad it was all legal. 80k shares of GM was once worth over 5 million clams."
Same with you. Stock options are common for execs. Why would it be illegal to sell them? Especially when they aren't worth much.
"Where have we gotten this notion of entitled employment from? Should everyone be guaranteed a job?"
A guaranteed job is the least of the expectations many people have today. Guaranteed health care, free medicine, a four-bedroom house, full citizenship and stocks that only go up in value is the new expectation.
And the government (regardless of cost and budgetary limitations) better damn well provide it all, too!!!
"Same with you. Stock options are common for execs. Why would it be illegal to sell them? Especially when they aren't worth much."
I was hoping he was pulling a Martha Stewart. I've read interviews with him, seen him interviewed and consistently he comes off like an entitled, self-absorbed, out-of-touch, chauvinistic, blame-shifting frakking dinosaur.
The solicitation of stock is always an iffy move by execs. It's not flagrant insider trading (it's easy to say you sold based on public knowledge) but it's close.
Please excuse my Taoism, but every coin has 2 sides. For every positive there is a negative. In a free market, every individual acts out of their own self interest (so says Adam Smith). The trick is to use those self interests to your own advantage. In Chrysler's case, that means using the momentum toward bankruptcy to achieve your own goals. By pandering to those who hold power over them, Chrysler achieves what it really needs, and that's bankruptcy protection.
I think once everyone realizes that Chrysler's dealers won't get squat out of this deal, GM dealers will be a lot more resistant to the notion. It's possible the same could be in store for the UAW.
"It's possible the same could be in store for the UAW."
Wishful thinking. The UAW will be owning the store and possessing a majority interest in Chrysler and GM (effectively). Obama has made it possible to even trump bankruptcy protection for the companies by bringing the political power of the purse to bear.
The government will only fund continuing operations IF the UAW are given concessions strongly outweighing the value of their creditor status.
Plus Obama is prefering their unsecured debt to the secured debt of the "speculators." PLEASE.
This is just classic Chicago THUGGERY. And the UAW will be in the catbird seat. Neither Chrysler or GM will have to compete in the market for at least the next four years and Ford will be dragged down in the morass. How can Ford compete with a fully subsidized US auto industry without submitting to the same shackles?
We now do not have an "American" auto industry, we have the "Proletariat Motors" with a side of demogogary from the Thugs in Washington.
"And the government (regardless of cost and budgetary limitations) better damn well provide it all, too!!!"
When people arent happy they vote to change the direction of the country and for new policies. If they liked the old way so much they would've elected people who believed in the status quo as you do. Get over it. I would submit the majority of people dont wan the government to guarantee them a job or healthcare. They just want to believe that if they are responsible citizens they should be able to find a decent job and afford healthcare. When those things dont happen people start looking for some help- in this case hte government. The concept of lifetime employment and job security in the US has been gone for decades. It still exists in those countries that make all the cars you love so much.
"It still exists in those countries that make all the cars you love so much."
Delusional as always. The Japanese thought they could do this until the 1990's hit. Mazda, Toyota, Nissan, and Honda got rid of their full lifetime employment plans.
Same thing from the German manufacturers. Your idea of what can be accomplished by the government is inflated. Your idea that it is simply another vehicle to the same end, in this case health coverage or employment, is dangerous to our long term health and prosperity.
But you will have it your way for the time being and then we will have to pick up the pieces once again.
You would think the implosion of Detroit would demonstrate the stupidity of thinking you can maintain employment and benefits that are unresponsive to market conditions. I guess some people need to be shown on a grander scale before reality becomes real.
Don't worry Brett. Remember, we've been told "Change is coming"
On that particular point I agree 100% with the current administration...