POLITICS

Furor grows over partisan car dealer closings

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Politics,Beltway Confidential,Mark Tapscott

 

Evidence appears to be mounting that the Obama administration has systematically targeted for closing Chrysler dealers who contributed to Repubicans. What started earlier this week as mainly a rumbling on the Right side of the Blogosphere has gathered some steam today with revelations that among the dealers being shut down are a GOP congressman and closing of competitors to a dealership chain partly owned by former Clinton White House chief of staff Mack McLarty.

The basic issue raised here is this: How do we account for the fact millions of dollars were contributed to GOP candidates by Chrysler who are being closed by the government, but only one has been found so far that is being closed that contributed to the Obama campaign in 2008?

Florida Rep. Vern Buchanan learned from a House colleague that his Venice, Florida, dealership is on the hit list. Buchanan also has a Nissan franchise paired with the Chrysler facility in Venice.

"It's an outrage. It's not about me. I'm going to be fine," said Buchanan, the dealership's majority owner. "You're talking over 100,000 jobs. We're supposed to be in the business of creating jobs, not killing jobs," Buchanan told News 10, a local Florida television station.

Buchanan, who succeeded former Rep. Katharine Harris in 2006, reportedly learned of his dealership's termination from Rep.Candace Miller, R-MI. Buchanan owns a total of 23 dealerships in Florida and North Carolina.

Also fueling the controversy is the fact the RLJ-McCarty-Landers chain of Arkansas and Missouri dealerships aren't being closed, but many of their local competitors are being eliminated. Go here for a detailed look at this situation. McClarty is the former Clinton senior aide. The "J" is Robert Johnson, founder of the Black Entertainment Television, a heavy Democratic contributor. 

A lawyer representing a group of  Chrysler dealers who are on the hit list deposed senior Chrysler executives and later told Reuters that he believes the closings have been forced on the company by the White House.

"It became clear to us that Chrysler does not see the wisdom of terminating 25 percent of its dealers. It really wasn't Chrysler's decision. They are under enormous pressure from the President's automotive task force," said attorney Leonard Bellavia.

RedState.com's Josh Painter has a useful roundup of what has been found so far by a growing number of bloggers digging into what could be a very big story indeed. Also, see my column on this issue and how it fits into the larger context dubbed by the Examiner's Michael Barone as "gangster government."

As part of Chrysler's bankruptcy agreement with the White House, the company plans to close roughly a quarter of its 3,200 dealerships.  Lists of the dealerships being cut and those retaining their Chrysler franchises can be found here in pdf format. Many dealers contend the criteria being used to determine which dealerships survive is not clear and that many of those that are being closed in fact are profitable businesses, despite the current recession. 

UPDATE: Auto Prophet says wait just a minute

The Auto Prophet - an anonymous engineer working for one of the Detroit automakers - is skeptical of the suggestion that political considerations are playing a role in White House car czar decisions on which Chrysler dealers are to be shuttered.

A more likely explanation is simply the fact that more Chrysler dealers in general are likely to be Republican contributors, which would mean more of the closed dealers would be seen to be GOP supporters than Democrat supporters: "My hypothesis is that Chrysler dealers, being small businessmen, are more likely to donate to Republicans than Democrats, for predictable reasons. Like any small businessmen, car dealers want lower taxes, a lower minimum wage, fewer regulations, etc."

I have been reading The Auto Prophet for years and consider him to be among the most credible of bloggers on automotive issues. On this issue, I agree with him to the extent that a definitive, statistical analysis-driven conclusion is not possible until all contributions by all Chrysler dealers is completed.

But two points should be noted here. First, even if we accept the proposition that most car dealers are more likely to be Republican than Democratic donors, there would still be a "disparate impact" from closings on one class of dealers, compared to the other. When the federal courts see a disparate impact on racial groups, the policy or action in question is typically held to be inappropriate.

Race and car dealer closings, of course, aren't analogous. But the lesson remains that when government makes economic decisions that ought to be left to the private market, it is impossible to avoid disparate impacts. And there is always the question of would the Obama White House be so quick to close hundreds of dealerships if the owners of those dealerships were predominantly Democratic donors?

Second, since neither Chrysler, nor the White House have made public the criteria used to select dealers for elimination - and because a significant number of those being closed were profitable - the only way to resolve the inevitable controversy about political considerations in political decisions is to make the criteria public and allow independent outside observers to assess how those criteria were applied.

I'm not holding my breath on the likelihood of that happening any time soon.

UPDATE II: White House car czar married to Democratic fund raiser

Maybe it's significant, maybe not, but a colleague here in the Examiner newsroom just reminded me that White House car czar Steven Rattner is married to Maureen White, the former national finance chairman of the Democratic National Committee. And let's not forget that before Rattner became a Wall Street mover and shaker, he was a New York Times reporter. Check out the Wiki bio here. 

UPDATE III: And if most Chrysler dealers are Republicans, what then? 

Excellent post up by Nate Silver on Huffpo making the argument that nobody should be surprised that lots of the Chrysler dealers getting the axe are GOP contributors because car dealers as a group are overwhelmingly Republican. Says Silver:
 
"It shouldn't be any surprise, by the way, that car dealers tend to vote -- and donate -- Republican. They are usually male, they are usually older (you don't own an auto dealership in your 20s), and they have obvious reasons to be pro-business, pro-tax cut, anti-green energy and anti-labor. Car dealerships need quite a bit of space and will tend to be located in suburban or rural areas. I can't think of too many other occupations that are more natural fits for the Republican Party. Unfortunately, while we are still a nation of drivers, we are not a nation of dealers."
 
That's true, of course, but I'm not sure that it ends the discussion. In fact, it may even make the discussion of possible partisan considerations behind the closings even more relevant.  Think of it this way: If 88 percent of all car dealers were Democratic contributors, rather than GOPers, how likely is it that the Obama folks would be delivering such an egregious economic blow to the group, a blow that put thousands of people out of work and deprives hundreds of Democratic donors of their means of making contributions?
 
More likely, the Obama White House would be doing everything possible to avoid closing Chrysler dealerships, especially since the argument for closure has nothing to do with whether any particular dealership is profitable, but whether it is one more than somebody thinks Chrysler or GM should have in order to spread sales like Toyota does it.
 
If you think I am kidding, let's do a quick review of recent automotive industry history. People in Detroit, the automotive media - and on Wall Street where White House car czar Steve Rattner made his fortune - have been debating for years about the Big Three's need to reduce their dealership count in order to become more like Toyota.
 
Remember in the late 1970s when Chysler almost went bankrupt the first time? And did you know all that kept Ford afloat in 1980 was its foreign sales? But despite those jolts, Detroit still didn't resolve the issues presented by serious foreign competition.
 
Instead of directly confronting the main source of their problem - over-priced labor that put the Big Three at a major disadvantage on costs - Big Three executives tried other approaches to manage what was sometimes called the "over-capacity problem." 
 
Too many dealerships was only a minor part of the over-capacity problem, which at its most fundamental level consisted of having  too many factories making far more vehicles than consumers wanted to buy. The ideas was that if they cut back production capacity to match sales, everything would be fine.
 
That thinking obscured the fundamental problem - too few sales of vehicles that were too costly to build and that increasingly consumers rejected. Detroit has still not solved this problem, although GM got it half right in the last decade by revamping its product line and substantially upgrading its assembly and reliability scores. But GM still hasn't been able to penetrate the UAW's lock on production costs. Ditto Chrysler, which suffers the additional fact of a product line that is in most respects at best merely adequate.
 
The Japanese automaker's U.S. sales strategy has long focused on having fewer dealers selling more cars per dealership than any of the Big Three. The thinking is that each dealer will make more money and be financially stronger as a result. The traditional Detroit strategy before Toyota came on the scene was the opposite - the more opportunities potential customers have to buy our products, the more likey they are to buy it.
 
But Toyota's strategy would be worthless if its products weren't sought after by consumers. Dealer count is a secondary issue, product appeal is the key to sales, which are the key to manufacturer profitability.
 
The tale is told in the numbers, as usual. Check out this excellent analysis by Bloomberg's Katie Merx and Keith Naughton on the math behind the dealer closings. Here's the key passage:
 
"Average new-auto revenue was $14.3 million for GM dealers and $12.8 million for Chrysler last year, compared with $40.9 million for Toyota, based on data from auto-research company Edmunds.com. Dealers also make money on used vehicles, parts and service.
 
"Each GM store averaged 444 new-auto sales, while Chrysler had 405, according to consulting firm Grant Thornton. Ford Motor Co. was similar, at 483. Japan’s three biggest automakers dwarfed those totals, with 1,200 for Toyota, 1,150 for Honda and 764 for Nissan Motor Co., Grant Thornton found.
 
"Shrinking GM’s dealer ranks to about 3,600 would push the automaker’s retailers to an annual average of 750 sales, said Paul Melville, a Grant Thornton auto-retailing analyst in Southfield, Michigan.
 
"'It’s heading in the right direction, but it’s still only 65 percent of where Toyota is,' Melville said. 'They’ll still have a lot of low-volume stores.'"
 
So, closing dealerships isn't what will restore Chrysler or GM to profitability. Which raises an interesting question for the White House: If getting Chrysler and GM back to profitability is the goal, why force any dealership to close?
 
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