Is Obama closing GOP-leaning car dealers?
By: Mark Tapscott
Editorial Page Editor
May 27, 2009
There appears to be a side to the Chrysler bankruptcy that has the look of an ugly partisanship not seen in this town since Tricky Dick Nixon was in the White House composing his enemies list and checking it twice every night while watching the evening TV newscast.
Bloggers on the Right side of the Blogosphere are up in arms over data suggesting that President Obama’s White House auto industry potentates are targeting for closure Chrysler dealers with records of contributing either to Republicans like John McCain or to other Democrats in the 2008 presidential primary.
Posts at RedState, Reliapundit, American Thinker, Gateway Pundit, Joey Smith and Doug Ross pointed intitially at the remarkable number of closed Chrysler dealerships whose owners happen to have been contributors to Obama opponents, mainly Republicans.
But those observations were all couched with important qualifiers, particularly that all conclusions were necessarily preliminary, pending completion of a comprehensive analysis of the political contributions by all closed Chrysler dealership owners, and a comparison of those results with contributions by dealers who are not being closed.
That said, when multiple dealers who have been closed are found to have contributed millions to Republicans and mere hundreds to Obama, the serious number-crunching cannot be completed too soon.
Then there is the Reuters report quoting a lawyer representing dealers being closed who came away from a deposition of a senior Chrysler executive with the distinct impression that the company is simply following orders coming from 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.
Bellavia zeroed in on the fundamental problem with Obama’s takeover of two of Detroit Big Three – something is terribly wrong when the government tells corporations who to hire and fire, what products to sell and who will be their dealers.
"What is the next task force? Shoe stores? Pizzerias?" Bellavia said. "The problem we have is the free enterprise system is not run by the government, it's run by business entrepreneurs. The dealers themselves will decide if it's not productive to go forward."
In view of these facts, when is the mainstream media going to challenge Obama to explain why he thinks he can do a better job running car companies than can the shareholders, bondholders and dealers? And where in the Constitution does it say the president has such authority in the first place?
More to the point, when is the mainstream media going to start calling what Obama is doing what it is, which at the very least is a crude kind of South American crony statism. Given the Chicago roots of Obama and his chief of staff, the phrase used recently by the Examiner’s Michael Barone is probably most accurate - “gangster government.”
If you doubt the accuracy of Barone’s formulation, check out another recent Reuters report, this one on a recent study by the California-based bond strategist Christopher Garman. Garman compared “spreads, or bonds' extra yields over U.S. Treasury yields, for companies with collective bargaining agreements with the high-yield bond market as a whole.”
And guess what? According to Reuters, Garman found that spreads for unionized companies were 11 percent higher in February than those without collective bargaining agreements, and the gap has remained, measuring at nine points this month.
In other words, companies that want to prosper in the anti-capitalist world Obama is creating in America will first have to make their peace with Big Labor before heading to Washington hat-and-checkbooks-in-hand to seek favor from the strong men in the White House and their enforcers in the Treasury Department and elsewhere in the executive branch.
Obama calls it “change we can believe in.” Vito Corleone called it “making them an offer they can’t refuse.”
Mark Tapscott is editorial page editor of The Washington Examiner and proprietor of Tapscott’s Copy Desk blog on washingtonexaminer.com
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 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 Steven 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. So both were sitting ducks when the bottom fell out of the market last fall. Ford, which had prepared for the rainy day, is also paring its dealer count, but far more judiciously and methodically. And without government assistance.
Toyota'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 source of 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?
