Sunday, November 30, 2008

The automaker's dilemma...

One thing that often goes unmentioned in the lively debate over whether to bailout the Big Three, is the peculiar institution of auto dealerships - about which I knew very little until recently.  Thanks to state laws dating back to - well, the Great Depression, some of the most important and helpful steps automakers could take to get their finances in order are all but impossible.
Car dealers, with their low-production-value TV commercials and glad-handing tactics, seem like the archetypal small businessmen, and it’s hard to believe that they could sway the decisions of global corporations like G.M. and Ford. But, collectively, they have enormous leverage. Dealers are not employees of the car companies—they own local franchises, which, in every state, are protected by so-called “franchise laws.” These laws do things like restrict G.M.’s freedom to open a new Cadillac dealership a few miles away from an old one. More important, they also make it nearly impossible for an auto manufacturer to simply shut down a dealership. If G.M. decided to get rid of Pontiac and Buick, it couldn’t just go to those dealers and say, “Nice doing business with you.” It would have to get them to agree to close up shop, which in practice would mean buying them out. When, a few years ago, G.M. actually did eliminate one of its brands, Oldsmobile, it had to shell out around a billion dollars to pay dealers off—and it still ended up defending itself in court against myriad lawsuits. As a result, dropping a brand may very well cost more than it saves, since it’s the dealers who end up with a hefty chunk of the intended savings. [More]
I have been worried about our own small dealerships in Chrisman, and I have know the people involved all my life.  But while concern about the actual businesses being open is still pertinent, maybe my worries for the owners at least are overblown.

In fact, the end of some GM brands could represent a singular opportunity for small dealers to get some value for a business with a questionable financial future. In fact, under these rules, it appears to me that a GM bankruptcy would be the real nightmare, unless the dealership laws grants dealers a superior position in the credit line.

We are going to have fewer brands and fewer dealers, especially in rural America.  Which means to me the number one quality for my vehicles will be reliability.  But as we have become adapted to machinery dealers an hour or more away, perhaps this too is an adjustment we can make more easily than we think.

No comments: