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Government Plans for Political Interference in GM, Chrysler

Posted By Nicolas Loris On December 9, 2009 @ 4:27 pm In Economics | Comments Disabled

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 [1]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]1,240.

Both closed dealerships and some lawmakers have complained [2]that the decision to close certain dealerships was politically motivated. But the reality is the choices made were purely economic [1]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 [3]:

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.


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URL to article: http://blog.heritage.org/2009/12/09/government-plans-for-political-interference-in-gm-chrysler/

URLs in this post:

[1] had : http://www.heritage.org/Research/Economy/bg2296.cfm

[2] complained : http://www.reuters.com/article/idUSTRE5B758L20091209

[3] get a second look: http://www.bloomberg.com/apps/news?pid=20601103&sid=ayM.a2EXjytk

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