I don't much blog the auto industry because it is so depressing. But this passage, from Francis Cianfrocca, today caught my eye:
Today, the President of the United States is expected to make
significant announcements about GM’s warranty policy. No, that’s not a
typo, and yes, it’s remarkable. I didn’t say the President of General
Motors, I said of the United States.
This bit was interesting too:
Many of GM’s dealers will receive lavish buyouts as an inducement to
close their doors, for a total cost in the billions of dollars. That’s
disgusting, but it’s required both by GM’s contracts with them and by
the welter of state laws that protect the dealers. (If you want to know
who the political power brokers are in any given city or town, look for
the car dealers.)
This is going to be kept scrupulously out of the news, because car
dealers contribute huge sums to every last man and woman in Congress
and the Senate. The public was ready to torch the private residences of
AIG executives, but they won’t make a peep about paying billions of
their own hard-earned dollars to provide a cushy retirement for
thousands of already-rich auto dealers.
The post is interesting throughout.
How about this comment from Obama today:
“I am absolutely committed to working with Congress and the auto companies to meet one goal: The United States of America will lead the world in building the next generation of clean cars.”
The government isn’t interested in cars being produced that people actually want to buy, rather the Obama administration just wants to shove their ideological agenda — “clean cars” — down people’s throats. President Obama — who has never worked a day in his life in the auto industry — is deciding what cars we can buy.
Ironically, November will mark the 20th anniversary of the fall of the Berlin Wall.
anon,
Well, if the policies were underwritten by AIG, we already were.
This is going to be kept scrupulously out of the news, because car dealers contribute huge sums to every last man and woman in Congress and the Senate.
Since when do the folks in Congress get to decide what is or isn’t reported?
Ridiculous. This is as bad as the retention bonus contracts for the AIG people. Contracts seem to be the main reason to let business go bankrupt and avoid these stupid government bailouts and takeovers.
Really, I was having a good day until I read this post.
Depression Watch Threat Level: Mauve
We all warned you, Tyler… we warned you that Obama was a socialist.
Did you listen? No.
Look, this will only get worse, they are already looking for powers to nationalize any financial business (which is still undefined, remember GM was legally a financial business) which “could harm the economy.”
Third world style socialism/crony-capitalism has now come again to the US.
The first part sounds like the behavior of any large creditor who is going to build-out into DIP financing. It’s odd that the creditor is the Treasury Department, but for the Paul-Buchanan melange saying that Obama is ending freedom, this was first done by Hank Paulson and Bush.
Is it possible that the administration is claiming it will honor any warranties from GM as a matter of show more than anything else?
Companies are supposed to keep warranty reserve funds in order to pay out claims on products already sold. Granted, this supposedly depends on the company keeping its books properly, so who knows, but unless there is a total liquidation, the warranties should be backed up.
The question is, does the public know any of this? If not, is it that terrible if the administration makes a promise it will never have to fulfill?
A post that is “interesting throughout”? You are kidding right. Cianfrocca’s post is misleading at best, idiotic at worst. Two examples. Seriously, a 9-10 million a year build rate is what is expected? That gets us a fleet turnover rate of somewhere in the range of 20-25 years. [http://www.calculatedriskblog.com/2009/03/vehicle-sales-in-january.html]. And he contrasts that “The public dollars committed in support of those entities have been going onto bank balance sheets. The public has been buying stock in those banks, and you expect to get your money back out when you buy stock.” Right. Unless the banks turn out to be insolvent and end needing to be nationalized — which is certainly not off the table. These are technically loans to the automakers and you certainly “expect” to get your money back when you make a loan. Obviously, in this case, we might well not. But to just assert that the much larger infusion to the bankers is a good investment and certainly not down a rat hole (would Ken Lewis steal from us?) is just misleading crap.
the welter of state laws that protect the dealers.
Time to wake up the dormant Commerce Clause?
“Normally when a dealer closes up shop, the manufacturer only re-purchases their inventory which is then resold to other dealers. Is anything more being done in this case?”
That’s when car dealers go out of business for economic reasons. GM and Chrysler will pay a pretty penny to buy out their dealers’ contracts. GM spent more than $1 billion just to close down its Oldsmobile dealerships.
There are tons of state laws about auto dealerships. That is why Detroit automakers have so many more dealerships than foreign automakers, because coming later the foreign companies avoided spreading themselves too thin – the laws keep Detroit from closing down excess dealers.
Virginia’s legislature has approved bills that would require that automakers guarantee the value of a dealership under a brand scheduled to close, and pay an affected dealer’s rent or mortgage for up to three years. It would allow dealers to combine brands in the same store, moves automakers frequently block.
Then there is the The Automobile Dealers’ Day in Court Act, a federal statute which provides that a dealer may sue to recover damages and costs of suit due to the failure of the manufacturer to act in good faith: (1) “in performing or complying with . . . the terms . . . of the franchise; or (2) “in terminating, canceling, or not renewing the [dealer’s] franchise.”
http://www.mobar.org/ef836665-bde5-4eb1-95e4-1b085ee5fef7.aspx
There is an Arizona statute that bars manufacturers from marketing directly to consumers – not only vehicles, but also parts, services, and financing. There is case law upholding state statutes that prevent manufacturers from selling vehicles directly to consumers, but it is something else to extend the ban to all of these ancillary activities. The Arizona law also prevents manufacturers from “influencing” retail sales prices.
http://www.ftc.gov/speeches/leary/learystateautodealer.shtm
General Motors still has 7,100 dealerships. Toyota has 1,215.
In Texas and Florida, among other states, dealers have the right to block any new or relocated store within 20 miles. When there’s a conflict, it’s referred to a state motor vehicles board, a place where relocation deals often go to die.
http://www.forbes.com/forbes/2006/1016/050.html
I’m bothered by the idea that the President gets to pick the CEO of General Motors.
On the other hand, if I were personally making a major investment in GM, I’d want Wagoner out. He has failed to address the most critical problems GM faces.
Still, it would have been better for Obama to say to the GM board, “You still haven’t shown me a reasonable plan for survival.” And wait for the board to realize that a major change is needed.
The biggest concern I have, is in the dangerous precedent set by the administration, in the case of AIG, as well as GM. With the past AIG situation, as a taxpayer and part time humanist, I do not like the thought of large bonuses going to executives that were responsible for billions of dollars in losses. However, the bonuses were legitimately promised to them by way of legal contract. With this aside, the attempt by the administration to put into legislation, a law taking away a substantial amount of the bonuses is an overextension of their power. Government involvement with companies and economics on this level is a dangerous precedent. With this new GM situation it is incredible to me that the President of the USA believes it is in his power, as well as his duty, to intervene in the affairs of corporations. The administration’s powers in dealing with economic affairs should stop at taxes. I do not support financing for the failure of businesses in a CAPITALIST system, and neither do I support substantial bonuses to CEO’s (let alone CEOs that don’t deserve it). The more important issue in my eyes is the overstepping of bounds and power that the administration is personally taking. We have a system of checks and balances in place for important reasons.
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Jloomp is right, there are enough poor people in the US who struggle and pay taxes and too many reach people who recieve money for nothing.I don’t understand how this happens although I might have an idea or two about the corruption.donate car
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