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Dealergate II

This morning brings news that Penske Automotive Group gas reached an agreement to purchase Saturn from the bankrupt General Motors. Yesterday I posted a sworn statement by a shuttered Chrysler dealer, Ethel Cook, that raised some interesting questions about the decision process used by the Obama Auto Task Force and Chrysler to close certain dealers and allow others to remain open.

As the testimony makes clear, one of the dealer groups that seem to have fared quite well in the closings was RLJ, a dealer group with well established Democrat connections:

Having reviewed the pattern of assumption and rejection of dealers throughout their region, I have detected a pattern: In every market where there is a dealership connected with former Penske Automotive executive Steve Landers, or his new automotive partnership [RLJ] with "Mac" McLarty (former Chief of Staff for President Clinton) and Robert L. Johnson (majority owner of the Charlotte Bobcats), the competitors are rejected.

Given the hand wringing and hysteria that Democrats and the legacy media have shown in the past for possible conflicts, collusion and favoritism between elected politicians and private industry (I'm talking about the famous Cheney/Halliburton relationship that consumed the Left media during Bush's term), it would seem that some enterprising reporter at the New York Times or the Washington Post would want to determine if there are dots to connect on Dealergate. There's certainly a plethora of information that begs for such an analysis if the Cheney/ Halliburton standard is still operative.

For example, is there a connection between former Penske executive Landers et al (the mega Chrysler dealer) and his former employer, the new owner of Saturn? Were the Chrysler closing decisions in any way influenced by the impending acquisition of Saturn by Penske? A skeptic might ask if the Chysler dealer markets were cleared of competition to not only make way for the Landers led Chrysler group but also to give the new Saturn owners (Penske) a better foothold in the market. I'm confident that these questions are foremost in the minds of Chrysler and Saturn competitors. This may indeed be the first salvo in leveling the playing field.


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Comments (27)

Nothing to see here. Ignore... (Below threshold)
epador:

Nothing to see here. Ignore the man in front of the Sphinx.

There's certainly a plet... (Below threshold)

There's certainly a plethora of information that begs for such an analysis if the Cheney/ Halliburton standard is still operative.

Hahahahahahahahaha! Good one! Hoo-boy, that made my morning. As if those "old" standards apply. Why, it's a brave new world, didn'tcha know? Stop looking backwards!

Unless you need to blame Bush for something, natch.

One vital fact that is ofte... (Below threshold)
Paul Hooson:

One vital fact that is often skirted in any discussion about this auto dealership controversy is that the number of American car dealerships are far in excess compared to their actual market share. For example Toyota has around 1,400 dealers, yet sells about as many cars as does GM with 7,600 dealerships, or far more than the 3,800 Chrysler or 3,000 Ford dealers do. Even Hyundai sells a great deal of cars with only 695 dealerships. The fact of the matter is that the American car dealership market is far in excess of their actual market share. Yet some still want to drag in foolish discussions blaming political donations or some other nonsense to explain an obvious problem with way too many dealers splitting a shrinking market share so small that not all can even make a profit.

Paul, your point is correct... (Below threshold)

Paul, your point is correct in that there is a glut of dealers for domestic auto makers. And these days, it seems that every major city has at least one "mega dealer" - here in Oklahoma City, the Bob Howard Auto Group sells Ford (Lincoln, Mercury), Chrysler (Jeep, Dodge), GM (GMC, Pontiac, Buick, Chevrolet), Toyota, Honda, Nissan, and Acura.

But you are missing the forest for the trees. It's not the number of Chrysler dealerships being cut, it's which ones. It appears that dealerships whose owners have financial ties to the Democratic Party are being spared, while the dealerships that are in direct competition with those Democrat-affiliated dealerships are more likely to be cut loose, especially if those dealerships are owned by Republican party donors.

During the Halliburton "no-bid contract" stink a few years ago, conservatives legitimately asked, "What other oilfield service company can do what Halliburton can do, on the scale it can do it, and for less money?" But that standard doesn't apply here. The Democrat-affiliated dealerships aren't being spared because they are the only ones capable of performing well enough to turn Chrysler's sagging sales figures around.

If the dealer cuts were spread evenly and included a proportionate number of Democrat-affiliated dealers (I believe that's called "fairness") then this would be a non-issue.

Paul,You are complet... (Below threshold)
Staylor:

Paul,
You are completly missing the point. These excess dealerships are not being closed by market forces but by government fiat. Even if you are comfortable with the government being able to decided which businesses will be closed or not (which I am not), the slightest chance that the gov is acutally using this power to reward political contributers should be very troubling.
You are right the there was an oversaturation of dealerships in the marketplace; but that does not effect this issue in the slightest. An oversaturation could have been handled by market forces not government interference.

Paul,Yet ... (Below threshold)
Mac Lorry:

Paul,

Yet some still want to drag in foolish discussions blaming political donations or some other nonsense to explain an obvious problem with way too many dealers splitting a shrinking market share so small that not all can even make a profit.

You missed the point. It's understood that there are too many dealers and some must be closed. The point is there's a pattern as to which dealers are being closed and that pattern appears to have political linkage. As pointed out in part 1, some of the best located dealers are being closed while ones on the outskirts of major markets are being kept open because of what looks like a political connection. That connection is the subject of Hugh's story. Got any insight about that?

Paul, I don't disagree with... (Below threshold)
Eric:

Paul, I don't disagree with you that the Big Three have too many dealerships. If whittling down the number of dealerships will help the companies, then it should be done. The question is what factors were actually used to close those dealerships.

Is politics a legitimate factor?

With a current ratio of 42 to 1, where for every 1 dealership closed that donated to Democrats, there are 42 dealerships closed that donated to Republicans. That seems to be an extreme ratio.

Also, it turns out that wife of the head of the Auto Task Force is the former National Finance Chair of the DNC. Coincidence? She would have access to donor lists.

The other week you surmised that dealerships that have cash flow/credit problems were bound to be dealerships that get closed.

Look at this page and read Item 6 concerning Dealmaker Auto Group in Watertown, NY. Which was fined by the NYAG just 2 months ago for deceptive business practices for the second time in a year. Yet they were not cut by Chrysler.

Is it merely a coincidence that they are also donate to the Democrats?

Hello Michael, Staylor and ... (Below threshold)
Paul Hooson:

Hello Michael, Staylor and Mac. I suppose as a business manager I keep viewing this entire auto dealership issue in terms of cold hard market facts, and I tend to reject implausible discussions that tend to blame factors that I don't view as having any actual bearing on the issue. For example, the cold hard market facts are that all three American auto brands have dealer networks far in excess of their actual market share compared to an import brand such as Toyota which nearly matches GM in sales, or easily outsells either Chrysler or Ford.

I also know that the White House or the Federal bankruptcy court involved the actual bankruptcy proceedings does not choose which actual unprofitable or marginally profitable dealers affiliated with GM or Chrysler must be axed, that remains an internal matter for both companies to decide, yet some myth still continues to float, mainly among a few bloggers of an Obama White House conspiracy in the matter despite a complete lack of supporting evidence. With the complete absence of both smoke and fire evidence, the conspiracy myth still thrives. Why? That part is incomprehensible for me.

I also understand that Chrysler is expecting all dealers to be large enough to bring all three brands, Chrysler, Jeep or Dodge vehicles to sold under one roof with all dealers. And that dealers being axed, are generally one's that cannot meet that standard. And probably, many GM dealers will be under a similar standard, by bringing all surviving brands under one roof or by being major dealers for particular brands as well.

Where is a single document or piece of tangible evidence available to state the opposite case, that the closings of GM or Chrysler dealerships is due to political considerations or such? So far no evidence trail exists, yet this myth continues to survive among some bloggers. That's my discussion point here. Just because some might believe something to be true, despite a supporting evidence trail is a fairly poor evidence standard in my view.

The more obvious answers here are that the three American auto brands have excessively large dealership networks, scavenging each other for a shrinking market share and that Chrysler if not GM intends for dealers to handle all products under one dealer roof. Further, both GM and Chrysler are interested in making business decisions for the survival of their respective companies, not for any political reasons.

Hello, Paul.Goodbye,... (Below threshold)
Oyster:

Hello, Paul.
Goodbye, Paul.

Paul "missed the point"? No he didn't miss the point. The "point" has been spelled out quite clearly. He hasn't missed it.

He has ignored it.

A coincidence here and there is one thing, but a whole string of them? And then topped off with this purchase? Something's rotten in Demark.

88% of auto dealers support... (Below threshold)
JC Hammer:

88% of auto dealers support the Republic Party, 12% supported the Democratic Party. Simple math would show that yes, more of the 88% would be cut than the 12%.

Therefore, more Republic Party supporters lost their dealerships.

Paul, I don't know about a ... (Below threshold)
Eric:

Paul, I don't know about a lack of smoke. There are plenty of odd coincidences here.

1) The number of Democrat donors who were closed vs. Republican donors.

2) The wife of the head of the Auto Task Force was former Finance Chair of the DNC.

3) Several dealership groups owning 40 different dealerships that are big Democrat donors no only get to keep all of their dealerships, they gain dealerships and all of their competitors are closed. There is no indication of the same thing happening with any dealerships that gave to Republicans.

How can we ever be sure there is no conspiracy if no one bothers to investigate?

Three simple facts:<p... (Below threshold)
_Mike_:

Three simple facts:

(1) The Obama Auto task force is responsible for choosing which dealership will be closed.
(2) The Obama Auto task force has refused to publish the criteria that was used to make the aforementioned decisions.
(3) It appears that when the choice was between closing an RLJ owned dealership and a competitor, the competitor was closed.

It's certainly plausible that the task force gave preference to RLJ dealerships. Given that it was a politically appointed group that has refused to divulge the basis for the decisions, it's also plausible that the decisions had political influence.

Paul, the dealerships in Ho... (Below threshold)
WildWillie:

Paul, the dealerships in Houston that were closed handled all Jeep Chrysler models. I used this dealer numberous times over the past 30 years.

My sons best friend works there and tells me there sales are always off the charts. There is something hinky here. I say investigate. They wasted a lot of time on Haliburton, now it is Dealershipgate time. ww

88% of auto dea... (Below threshold)
Eric:

88% of auto dealers support the Republic Party, 12% supported the Democratic Party. Simple math would show that yes, more of the 88% would be cut than the 12%.

Therefore, more Republic Party supporters lost their dealerships.

88% vs. 12% is a ratio of 7.3 to 1, which means there are 7.3 Republican supporting dealerships for every Democrat supporting dealership. So one would expect if politics played no part, then the numbers of dealerships being closed should track with that ratio. 1 Democrat dealership for every 7 Republican dealership.

The problem is that a review of the closed dealerships shows that the ratio of R to D dealerships getting closed is more like 42 to 1. For every 1 D dealership, 42 R dealerships are getting closed. That ratio is off by a factor of 6.

So what else would account for that disparity?

Hello Wildwillie. Congress ... (Below threshold)
Paul Hooson:

Hello Wildwillie. Congress did hold hearings this week about the dealer closings issue, where both the auto executives, dealers and public have all been invited to testify. So far as I know, nothing in the way of scandal such as some bloggers seem to have suggested has been entered into evidence. I don't know how much longer these hearings will continue. But with no serious evidence of wrongdoing presented, GM and Chrysler plans to close many dealers will probably proceed in most cases.

Nothing does prevent dealers from seeking to align themselves with Hyundai or some other brand that is working to build a larger dealer network. Going out of business doesn't have to be a business option for any business with good enough of finances to continue to operate.

Two quick observations:... (Below threshold)
engineer:

Two quick observations:

1. "Where is a single document or piece of tangible evidence available to state the opposite case, that the closings of GM or Chrysler dealerships is due to political considerations or such?"

Gee, if I'm going to do something illegal, do you think I'm going to leave a paper trail?

2. Since "we" the American people are the owners of GM & Chrysler, as "stockholders" we have a right to know what criteria was used to terminate a dealership. And dealerships should also know the reason that they were terminated, not just a "pink slip".

Paul, remember your cash fl... (Below threshold)
Eric:

Paul, remember your cash flow/credit theory for why dealerships were getting closed by Chrysler.

...Chrysler needs to trim costs by cutting dealers with big inventories with no means to pay back the credit they owe.

This is the testimony from one of those dealers at this week's Senate Commerce Committee Hearing.

We are NOT a cost to Chrysler. We pay for everything we use, and we take all the risk. We are Chryslers' customer. In a typical month we pay Chrysler over $2500 in "fixed expenses" alone, plus all the parts, and vehicles, which are paid for, in full, up front.

According to him, he pays for all of his inventory up front. So your cash flow/credit theory seems to have some holes in it.

In fact it seems that your theory is 100% backwards as it is Chrysler that is unable to pay back credit to the dealerships. According to the testimony, dealerships who do warranty work on cars are supposed to be reimbursed by Chrysler and with the bankruptcy the dealer are left holding the bag. Also, Chrysler told them for months to buy inventory to help out Chrysler.

Over the past 3-4 months we were practically forced to order heavy inventories. We were told, "Chrysler has no cash-flow", that they "Rely on the dealers", and that if we do not order vehicles "we will all be out of business". We were also told they "will remember who did not help".
Hoosan, Not to punch... (Below threshold)

Hoosan,
Not to punch a hole in your balloon full of
superlative hot air, many of the smaller car
franchises are merged with one of the 3 major
American made car franchises.
Oh, I forgot, you only operate environmentally
friendly two wheeled human pedal pushers.
/sarcasm

Hello Eric. Thanks for thos... (Below threshold)
Paul Hooson:

Hello Eric. Thanks for those interesting details from the testimony that I missed. Every company works a little differently,and that franchise model is far different than one I was aware of with 90 or 120 credit contracts for fleets of vehicles.I knew of a Ford dealer who got themselves into trouble under the old model by buying a huge fleet of those EXP cars and other vehicles that they couldn't sell for over 120 days. But I do know that surviving Chrysler dealers must be large enough to house all three product lines as well as parts and service.

I know there are several different models for franchises or for credit buying. When I was in the record business I had a maybe a $30,000 30 day credit line to get me through a few weekends with store product, while some other stores got the distributor in trouble by taking out a few hundred thousand dollars of product on credit and not paying for it. And there was a co-opt fund for radio ads run by Capital Records, Warner Bros. and other labels as well, equal to a few percentage points of product costs as well. So I got radio ads every time I accrued so much in funds. I'm unsure how the Chrysler advertising fund works, but that could an area where Chrysler is looking to cut costs. Radio, TV and print ads are plenty expensive these days, probably lots more than the old $500 slot of a few radio ads that I know about from my record store days.

I'm gearing up to take over that grocery store business right now, so I just use existing business card accounts, although some distributors have different programs where you can get a company credit line payable in 30 days, etc. So that industry has their own way of doing things as well.

I wish a car dealer would comment sometime on what's going on with their industry. The inside information details would be interesting.

Mr.Hoosan, Does th... (Below threshold)

Mr.Hoosan,
Does this mean we'll be seeing less of you
posting at Wizbang since you'll be so busy
stocking groceries? :P

Maggie, no, because I've go... (Below threshold)
Paul Hooson:

Maggie, no, because I've got minimum wage kids I can hire as cashiers. You've got any extra time on your hands to work? But seriously, I've got rental homes, etc., and that hasn't stopped me from blogging so far.

Mr.Hoosan, That's t... (Below threshold)

Mr.Hoosan,
That's too bad, I surely thought since you
are new to the grocery business I expected you'd
be wise and start from the bottom. You know
trickle up economics.
Thanks for the offer, you can't afford me.

Ah, to have a trust fund wi... (Below threshold)
SCSIwuzzy:

Ah, to have a trust fund with which to run businesses into the ground...
How long before John Kerry get bored with the ketchup heiress and decides he want the love that dare not speak its name... look out Oregon!

"...because I've got minimu... (Below threshold)
engineer:

"...because I've got minimum wage kids I can hire as cashiers. "

What? That's not a livable wage. They need to unionize and demand a decent wage. $20.00/hour should be about right. Darn conservative capitalists.

Oh wait....

From _Mike_:"(3) ... (Below threshold)
Oyster:

From _Mike_:
"(3) It appears that when the choice was between closing an RLJ owned dealership and a competitor, the competitor was closed."

RLJ owns six dealerships. All six were spared (one had only been open for a few months) and instead 13 others in the immediate surrounding areas were shuttered. And this is just in regard to RLJ.

There's a strong pattern here and Hooson just keeps making excuses and formulating lame reasons for it.

Good point, engineer. Will... (Below threshold)
SCSIwuzzy:

Good point, engineer. Will Paul Mart care more for it's workers than the evil Walmart?

Let's look at this from a l... (Below threshold)
24usmcr:

Let's look at this from a little different angle...HOW EFFICIENT are all those GM, Chrysler, and Ford dealerships if they can sustain that level of market coverage while carrying the burden of higher labor costs and staggering retiree benefits?

Just imagine how the market share would shift if they had been able to declare bankruptcy and reduce those burdens.

Then, for good measure, suspend the government imposed CAFE standards and and allow off-shore drilling.

The American Automobile Industry, et. al., would blow their competition out of the water (and quite possibly, out of the country!!!)




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