Sunday, July 25, 2010

Dropping Dealerships A Dumb And Damaging Move

Back when the government took over General Motors and Chrysler, it inexplicably insisted that the companies drop hundreds of dealers -- it really made no sense. We were told, over and over, that this move would save the companies money, but no one ever explained how.

Now, finally, a federal government inspector general is questioning the move.

Barofsky says the administration insisted on the closings even though a GM official told him

that GM would usually save 'not one damn cent' by closing any particular dealership. ... Furthermore, a GM official stated that removing a dealership from the network does not save money for GM -- it might even cost GM money -- and that savings cannot be attributed or assigned to any one dealership.


Car dealers are independent businesses. They buy cars from the manufacturer and attempt to sell and service them at a profit. How could shutting them down save the manufacturer money? Simple. It couldn't.

I suspect this is just one more example of the Obama team's complete ignorance of how business works. To them, a bunch of small-town dealerships with relatively low sales must be a drag on the corporations' performance, though, in reality, they could only help.

Those rural outlets helped maintain American market-share because there are few foreign dealers in small towns; and they had the extra fringe benefit of creating well-paying jobs, something increasingly lacking in rural areas. And something Obama's stimuli haven't been able to accomplish.

In addition to killing jobs, the closings will have resulted in the destruction of tens of millions of dollars of capital. Buildings will sit empty and specialized tools and equipment will be worthless. Skilled mechanics will have to commute to larger towns for work now and parts houses, accountants and advertising firms will have lost an important chunk of their business.

All for what?

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