May 31, 2009

Who Is Getting Bailed out?

The federal government’s move to bail out ailing automakers Chrysler and General Motors is being portrayed as a move to save jobs, but some observers are wondering if it is simply designed to save the United Auto Workers union. As the federal “task force” has attempted to apply a tourniquet to the automakers, it has seemingly given unionized auto workers preferential treatment without caring too much about those who work for auto dealerships. Among its recent moves designed to put Chrysler back on its feet, the task force orchestrated the sudden cancellation of almost 800 Chrysler, Dodge and Jeep franchises, and that move is predicted to cost some 50,000 jobs. The forced closure of more than 1,100 General Motors dealerships could easily cost 50,000 more, according to estimates from the National Automobile Dealers Association (NADA).

“It is reckless for Chrysler, with the approval of the auto task force, to shut down almost 800 dealerships with barely more than three weeks’ notice and then refuse to buy back vehicle and parts inventories,” NADA said in its statement on this issue. “Forcing these dealers to liquidate their vehicle inventory and parts supplies before June 10 and requiring them to lay off their employees in a careless and disorderly manner will cause additional economic harm both locally and nationally.”

NADA asked for a congressional hearing on the actions, calling the forced closures “unnecessary and reckless.” In its statement, NADA said that dealerships create revenue to manufacturers, not costs. The franchise-dealer network was created to outsource virtually 100 percent of the cost associated with selling and servicing cars, so a rapid reduction in dealer numbers would further cut manufacturer revenue and market share and do nothing to improve the manufacturer’s viability, the association said. Certainly it is not good news for Chrysler as it tries to emerge from bankruptcy.