Even before the federal auto bailout, critics of the Detroit automakers — especially of General Motors — were saying the companies had too many dealerships. The word “bloated” was used a lot.
Once the bailout happened, the views of the critics became powerful.
When President Barack Obama embraced his predecessor’s bailout — and ultimately enlarged it — he felt he had to show that he was not simply throwing good money after bad. He had to foster dramatic change in the auto industry: fewer dealerships, fewer models, better gas mileage, better deals with unions, more economy generally.
Now GM has targeted 1,300 mainly unidentified dealerships for elimination by late next year. Ohio has 79 of them, more than any state except Pennsylvania.
Chrysler is on a faster track, having notified hundreds of dealers that it is no longer dealing with them, including Salem Chrysler Jeep, one of 47 in Ohio.
Strong as the case is that there are too many dealers, however, the case is stronger that the marketplace should be allowed to do the sorting out over time, rather than having every case decided from above this year and next.
GM has already lost about 2,000 dealerships in this decade, though it still has far more than anybody else, at about 6,000. Ford is also dropping gradually; it has 3,700. Chrysler had 3,200 before its bankruptcy.
Chevrolet alone has about three times as many dealers as Toyota, but sells roughly the same number of cars.
The dealerships argue that they don’t actually cost the auto companies serious money. The dealers buy their cars, own their property and pay their own overhead. So why worry about there being too many dealers?
The auto companies now say — along with their critics — that GM dealers end up splitting the GM market too much and having too little money. A GM vice president said that a typical dealer for a foreign competitor “has more money to invest in their facilities, in their people, in training, in the customer, in advertising, and that puts us at a competitive disadvantage.”
Often left unspoken is that competition among dealers tends to reduce prices that customers pay, if only a little.
By the same token, though, the competition — which results in much advertising — should result in the sale of more cars overall, at least theoretically.
All things considered, the case is not compelling that auto industry survival depends upon sudden elimination of thousands of dealerships.
Moreover, closing dealerships will add to the short-term problems of the economy. Many thousands of people will lose their jobs. Governments will lose revenue. Communities will lose the involvement of the dealers. (And, it should be noted, newspapers — and other media even more so — will lose advertising revenue.)
If the dealership network of GM is “bloated,” that’s substantially GM’s fault. The company is now taking advantage of government pressure — and looming bankruptcy proceedings — to get out from under its own mistakes.
Some industry analysts say it must do that, because auto dealers have major political power at the state level. Ohio is among the many states that protect various kinds of franchises. In some places, closing a dealership can cost an automaker $500,000. Federal proceedings can be the way to get around state protections.
Now the issue is being thrashed out in Congress.
With dealerships disappearing anyway, the best course now — the best bet for a relatively painless transition for communities around the country — would be to neither prop up the dealers artificially at the state level or put them out of business artificially.
Best, in this case, to let economic nature take its course.
— Cox News Service
