• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Government Plans for Political Interference in GM, Chrysler

    When the government bailed out General Motors and Chrysler, part of the necessary, painful road to recovery was to cut unnecessary dealerships. Before the cuts GM and Chrysler had over 9,000 independent dealerships in the United States. To save costs, GM and Chrysler cut 1,300 and 800 dealerships, respectively – still leaving them with many more dealerships than the likes of Toyota which only has 1,240.

    Both closed dealerships and some lawmakers have complained that the decision to close certain dealerships was politically motivated. But the reality is the choices made were purely economic and the only reason it became a political issue is because the government interfered with bailout cash in the first place. But Congress still isn’t satisfied, saying terminated dealerships should get a second look:

    Auto dealers shed during the bankruptcies of General Motors Co. and Chrysler Group LLC would have the chance to appeal their terminations under a $447 billion year-end spending plan released yesterday by Democrats.

    The legislation, which provides funding for hundreds of government programs, includes provisions to establish a binding arbitration process to determine whether dealerships ought to be reinstated. Those dealers who sold discontinued brands wouldn’t be eligible.”

    This is the first time we see the government putting its political foot in the door of GM and Chrysler with actual legislation since the bailouts. Ever since American taxpayers unwillingly invested over $80 billion in auto industry, allowing the government to take a 61 percent stake and a 10 percent stake in GM and Chrysler, respectively, the government’s involvement has been somewhat unclear. Take the resignation of Fritz Henderson from the CEO position at GM. Similar to finding out how many licks it takes to get to the center of a tootsie roll pop, the world may never know what happened. This, on the other hand, is clear and direct political interference.

    Cutting costs is hardly ever an easy process but a necessary one if those costs are unsustainable in the long run. Excess dealerships was only one of many problems GM and Chrysler faced before restructuring under bankruptcy, but it was indeed a problem. If terminated dealers want arbitration, that should be their prerogative, not the government’s. This is one of the large, underlying problems of government-funded bailouts. Problems that are economic in nature inevitably become political when in fact political involvement will not lead to a solution or make matters worse.

    Posted in Economics [slideshow_deploy]

    3 Responses to Government Plans for Political Interference in GM, Chrysler

    1. FaithCowboy, Mid-Wes says:

      Socialism is socialism. We've seen it raise it's head now several times since the end of WWI. Every time the Free Capitalistic System goes through a natural readjustment, the Industrialized Nation's Governments have lept into Socialism; while at the same time going to War against other Socialistic/Communistic Nations. This time, though, the Law Makers don't have simple Democratic/Socialists in the Executive Branch, but rather; those who have studied and even confessed in written documents, and in dialogs with other Nation's Leaders, the view that a "Single Party~Socialist/Communist System is their desired end." Yet, while they "Talk" unity, they are of a Political Party which History Clearly has recorded, was from it's beginning, the Party of Controlling the minority races in the USA. While at the same time; attacking the Political Party which from its birth, worked repeatedly thru history to bring full equality for ALL. That is what Socialists always have been found to do, all around the World.

    2. Pingback: Democrat really don’t like capitalism.A… « Legislative Aid

    3. Clarifier, Midwest, says:

      Auto Dealerships are not owned by Auto (manufacturing) Companies. They are the customer of Auto Companies. They do not cost the manufacturer anything, they are a source of revenue. Auto Dealerships are "small businesses" that have made significant investments based on contractual obligations (by the manufacturor) to provide product for which they are charged the full cost of (and then some). Whether there are too many or too few is a moot point in Bankruptcy since thier elimination will not save the manufacturor any money. This is not to say that manufacturors do not come up with varying plans (which change with the weather or whoever happens to be in charge of that department at the time) for how they might like thier product represented. The problem is it is the dealer who bears the cost for these plans, not the manufacturor. When, for whatever reason, the dealer will not go along with thier requests (like building a new multi-million dollar facility, for example) they get mad and pout like babies, and throw fits, make it difficult to get the cars you order–anything they can get away with, to coerce the dealer into compliance…but I digress.

      I could elaborate or back up any of the issues I've mentioned but from what I've heard, read, etc., I'm wasting my breath (or fingers). The misunderstanding about the true nature of the contractual relationship between the dealer and the manufactor is so profound and widespread that even the great intellectual think tanks (Heritage, Cato, etc.) seem to get it wrong

      The point is, Auto Dealerships do not cost the Auto Companies anything so thier elimination will not save them anything and it is an abuse of bankruptcy law to allow them to default on this type of contract since it will not improve thier solvancy, reduce thier expenses, or improve thier chance of recovery or viability.

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.