No Runny Eggs

Most of my friends are seizing on the wrong aspect of the report on Government/UAW Motors’ closing of dealerships from TARP’s Special Inspector General. Private (or putatively private) enterprise, especially one in such bad financial shape that it is in bankruptcy, does not have a responsibility to be an employment-for-all agency. Indeed, government has neither the responsibility nor the authority to be an employment-for-all agency.

Rather, it’s the processes used by Government Motors and UAW Motors to shut down certain dealers, and the acceleration of the shutdowns ordered by the Obama administration’s Auto Team, that bear scrutiny. The report noted that the Auto Team ignored advice given by both the companies and outside experts that a rapid shutdown to match foreign car companies’ models might not be appropriate, “particularly in small markets in which the U.S. companies currently have a competitive advantage.” Indeed, both Chrysler execs and at least one outside expert told the Auto Team that shutting down dealers in the middle of a recession could hurt sales even worse and in such a way that it would take years to recover.

The report also noted that in the wake of legislated arbitration applying to both Government Motors and UAW Motors, a senior GM official stated that the final number of dealerships wouldn’t affect the recovery of GM. Taken together with the 216 GM dealerships restored (out of 1,454 cut) and 50 UAW Motors dealerships restored (out of 789 cut), the report “suggests, at the very least, that the number and speed of the terminations was not necessarily critical to the manufacturers’ viability.” At the same point, the report notes Ford Motor Company is closing dealerships at the rate GM had wanted to in its Treasury-rejected February 2009 restructuring plan.

Along the same lines, the report states that the lead advisors for the Auto Team, Ron Bloom and Steven Rattner, did not consider cost savings to be a factor in determining the need for dealership closures. You heard right – there was no business case made by the Auto Team to close the dealerships that were closed. Indeed, it was only after Congress demanded a cost-savings analysis that GM ginned one up out of whole cloth.

While UAW Motors appeared to follow its set of guidelines, the report noted that those guidelines included subjective elements such as choosing which dealers get to add product lines they previously did not carry and whether the market served was a “desirable” one as part of an implementation of Project Genesis (a pre-bankruptcy plan to have every Chrysler Group dealership carry every Chrysler Group brand). In at least one unnamed market, subjectivity cost the top-performing Jeep dealership its franchise in favor of a slightly-lower-performing Dodge dealership in the same market, with only the explanation that UAW Motors wanted the Dodge dealership and a pair of poorer-performing Chrysler/Dodge dealerships, to sell Jeeps.

Further, UAW Motors didn’t include an appeals process for those dealers axed. The stated reason was they wanted to be rid of those 789 dealers by the time they exited bankruptcy.

As for Government Motors, while the purported criteria for selecting their wound-down dealerships were all objective, the report noted that undeterminable factors outside those measures were used to wind down dealerships, including at least two dealerships who otherwise would not have been wound down. GM did not document why some dealers that met wind-down criteria were wound down while others were not, nor did they have complete criteria data for 308 of their then-5,591 dealerships.

While GM did have an appeals process for dealerships selected to be wound down, it was a criteria-free process. GM did not provide guidance for the data dealerships were to submit as part of their appeal, did not establish criteria for the review of the appeal, and did not document the reasonings behind the decisions to either grant or deny the appeal.

All in all, the report leaves the possibility that the closure of dealerships was, at least partially, driven by politics and especially the donation records of the principals of the dealerships, wide open.