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Dealergate 10: The cost of closing dealers

No need to guess who will pay the bill.

The closing of Chrysler and GM dealerships is going to be an expensive process for Americans. The taxpayers have already been fleeced of billions of dollars to put Chrysler and GM under the thumb of the federal government, but it will be difficult to estimate the additional costs of closing 789 Chrysler and 1200 GM dealers.

The most obvious costs will be those incurred by job losses at the auto outlets which are being forced to give up their franchises. The National Automobile Dealers Association (NADA) estimates that 40,000 people employed by Chrysler dealerships will be out of work, and another 60,000 former employees of the closing GM outlets will lose their jobs. That’s about 100,000 paychecks that will not be deposited in banks and will not be spent in towns and cities across America. It will have an impact on thousands of grocery stores, discount stores, restaurants and other local businesses. Those former dealer employees who do not quickly find other employment will not only be tightening their belts, but many will be applying for benefits which tap funds already hit hard by Obama’s record unemployment numbers, the worst this country has seen since Ronald Reagan cleaned up after the unnatural disaster that was Jimmy Carter.

Local businesses will also suffer from the loss of direct business that resulted from trade with the doomed dealerships. Office supply stores, for example, provide auto dealers with printed forms, letterhead, such big items as top-of-the-line copiers and such small ones as paper clips. Entrepreneurs who had contracted with the auto outlets to support computer software and hardware will be hard hit. Companies which supplied and cleaned uniforms and shop towels for the dealers will lose some of their best customers. Vendors who sell specialty promotional items with the dealers’ names on them like license plate frames, dealer badges and ball-point pens will lose business. Other affected enterprises provided janitorial services, mowed the grass, serviced the vending machines, cleaned the windows and hauled away the many gallons of used motor oil for recycling. Also feeling the pinch will be auto parts stores that depend on new car dealers for a significant portion of their commercial sales. Hurt especially hard by the closings will be local newspapers, television and radio stations. Car dealers are the among the major advertisers for these media outlets. Expect the Sunday classified section in your local paper to be thinner. Many affected businesses will raise the price of their goods and services to try to compensate for their losses.

The intrusion by the federal government into the car business will have a substantial negative impact on state, county and municipal government also. States will lose licensing fees, while cities and counties will notice a decrease in tax revenues. Business taxes, property taxes, sewer taxes, etc. will all be affected. City-owned utilities will be impacted, as dealerships are good customers for electricity and water. Many municipalities and counties will try to make it up by increasing their tax rates, not a popular proposition in these tough financial times.

Local clubs, schools, charities and other organizations will lose a source of their revenue. The local car dealer could always be counted on to buy an ad in the high school newspaper and yearbook, purchase a sign for the fence at the Little League ball park, sponsor a sports team, furnish a shiny new convertible or two for local parades and help raise funds for numerous charities. The Rotary Club, Lions Club, Optimist Clubs and Chambers of Commerce will miss these dealers also, as their owners and many of their employees were not only members of these organizations, but conspicuous among their leadership as well.

We have discussed some of these costs in our previous posts on the closings of car dealers, but there’s one huge price we have not yet addressed, and that’s the cost to consumers. According to a recent report, auto companies and analysts agree that consumer prices on some models will increase by several thousand dollars simply due to the paring down of the car dealer networks:

Remaining dealerships will be able to charge more for cars, analysts say, because fewer dealerships make it harder for buyers to spark bidding wars. And as auto companies scale back factory production, heavy discounts and dealer incentives will dry up.

Tom Wilkinson, a GM spokesman, said once the “current glut” of car brands disappears, prices for GM cars will increase anywhere from $2,000 to $6,000 for a new vehicle.

Chrysler expects to see a price increase on new cars in the range of $1,000 to $2,000 over the next year or two, said Kathy Graham, a company spokeswoman.

New cars and trucks, which will already have higher list prices thanks to Obama’s much more restrictive fuel economy and emissions (CAFE) standards, will have their sticker prices bumped even higher thanks to the smaller number of dealers which will result from his auto task force’s insistence that GM and Chrysler close a large number of their existing dealerships. As other installments in this series have shown, the process of deciding which dealers stay and which ones go shows evidence of being influenced more by political considerations than by economic factors.

Meanwhile, the dealers, with NADA’s backing, are fighting back. The U.S. Supreme Court, which needs time to consider creditor concerns, has stayed the deal which would hand over a considerable share of Chrysler to Italy’s FIAT. Thanks to Justice Ruth Bader Ginsburg, the dealers get at least a brief reprieve.

Congressional scrutiny of the Obama administration’s intrusion into the auto industry is also growing, and the concerned congressmen are Democrats. Reps. Frank Kratovil Jr. of Maryland and Dan Maffei of New York introduced the Automobile Dealer Economic Rights Restoration Act Monday afternoon. House Majority Leader Steny Hoyer and Maryland Rep. Chris Van Hollen are co-sponsors of the measure, which would restore “the economic rights” of the dealers as they existed before the automakers filed for bankruptcy protection. It would also require the automakers to reinstate franchise agreements for those dealers who request it.

All it took for the congressmen to get into the fight was the considerable influence of Jack Fitzgerald, who owns 13 dealerships in Maryland, Pennsylvania and Florida. Mr. Fitzgerald got double-tapped on the dealer closings because he sells both GM and Chrysler brands. The Maryland mega-dealer has characterized the dealer terminations as “one Wall Street crowd taking care of another Wall Street crowd. It’s big capital beating up on little capital.”

In the Senate, meanwhile, Lamar Alexander (R-TN) has authored a bill to turn over control of two of the three Detroit automakers to the 140 million Americans that filed tax returns last year. The stock certificates would be “redistributed” once GM and Chrysler emerge from chapter 11 bankruptcy. Joining Alexander in sponsorship of the measure are Minority Whip Jon Kyl (R-AZ) and Sen. Bob Bennett (R-UT). Alexander, who is Chairman of the Senate Republican Conference, says his bill would prevent government intervention in day-to-day business, while quickly returning the companies to the marketplace.

Now all three branches of the federal government are involved in Dealergate. You know Obama and his auto task force have overreached when members of his own party in Congress start to put up a fight against him. Will the legislative branch Davids be able to knock the executive branch Goliath off his feet? Will the judicial branch relent and allow the sale of Chrysler to an Italian company? Perhaps we will have an answer when Dealergate 11 is written.

Closing Footnote: Did we mention that FIAT, the company the Obama administration pushed Chrysler into a hastily-arranged shotgun marriage with, has the lowest owner satisfaction scores in all of Great Britain? Just another brilliant move by our genius president. Quality control and owner satisfaction issues are partly responsible for Chrysler’s predicament, and FIAT, which many unhappy owners say is an acronym for “Fix It Again Tony,” seems an unlikely partner to help Chrysler improve in that department.

Watch this space. Things are bound to get, as Alice once remarked, curiouser and curiouser.

Update: SCOTUS, without dissent, has cleared the way for the Chrysler deal to go through.

- JP

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