Posted by: David Welch on June 4, 2009
It’s obvious that government ownership of General Motors and Chrysler is going to bring up all kinds of thorny issues and unwanted pressure on how the companies will be run. But the feds haven’t even acquired their shares yet and already the two companies are getting heat from Washington.
At Senate hearings yesterday, GM CEO Fritz Henderson and Chrysler President Jim Press had to justify why they plan to cut 1,100 and 789 dealerships, respectively. West Virginia Democrat Jay Rockefeller said, “I don’t believe that companies should be allowed to take taxpayers dollars for a bailout and then leave local dealers and customers to fend for themselves with no real notice and no real help,” according to USA Today.
This whole issue is wrongheaded on so many levels. First and foremost, the advisors hired by the Treasury Department’s Auto Task Force told both companies that they had too many dealers. The outsize retail networks are expensive to support. By fighting over a shrinking number of customers, many of the dealers that some in the Senate hope to save weren’t profitable. Money losing dealers can’t keep top sales people and managers, nor can they go the extra mile for customers. Retail is like ground war and the Big Three (yes, Ford, too) have been losing it for years. A smaller but healthier retail network will make them stronger.
Even worse than that, with the opponents of government ownership crying “socialism” without the lease bit of prompting, we have members of Congress saying that the companies should preserve dealers that don’t fit the new business plan just because GM and Chrysler are getting government funds. Well, President Obama has been pretty clear. Helping these two automakers will preserve jobs, but not every job. Keeping dealers afloat because the companies received government funds is tantamount to putting them on the dole. It’s bad business.
If GM and Chrysler relent to Congress and preserve some of the dealers that they intend to cut, it will set a terrible precedent. What happens if they want to close a plant? Will senators and representatives complain to the White House or the carmakers to preserve jobs in their locales? It’s very possible. Having the government, union and bondholders all owning a piece of these companies is complex enough. The future boards and management teams of these two companies need Congressional interference in running their businesses like the government needs more debt. It’s time to back off.