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“Obama revenge” theory debunked by Press (update)

by David Zatz on

Dozens of blogs have reported that President Barack Obama forced Chrysler to remove franchises from 789 dealerships for political reasons. On June 2, Jim Press testified that not renewing franchises for these dealers was necessary for corporate profitability. The 25% of dealers being dropped accounted for 14% of Chrysler’s overall sales; but sales are not the entire story, because many of the dealers are competing directly with other Chrysler dealers (e.g. a Dodge dealer literally across the street from a Chrysler dealer). Much of this is a legacy of the days when Chrysler-Plymouth, Dodge, and, in particular, AMC/Jeep sold largely unique product lines.

Jim Press said that American dealers, on average, sold 525 vehicles in 2008, with a profit of $279,000. Chrysler dealers sold just 405 vehicles and lost $3,431. Toyota and Honda dealers tend to sell more than twice as many cars and have much higher profits, allowing them to invest more in training and equipment, and to be less aggressive in sales.  

The dealers whose franchises are being dropped sold, on average, 163 vehicles last year, losing an average of $73,000. The group staying open sold an average of 640 vehicles.

According to Chrysler, 83% of the dealers losing their franchise sell more used cars than new cars. In addition, 44% hold other companies’ franchises (e.g. Kia), so the dealerships may be converted to competing brands. 80% of the remaining dealerships will sell all three brands; and in some cases owners are having one franchise revoked and another retained.

While Obama is being charged with forcing the closure of Chrysler dealers who contributed to the Republican Party, the chairman of the new Chrysler Group was a member of George W. Bush’s election organization and has consistently contributed to Republicans running for Congress and the White House.  The source of this accusation appears to be a Republican dealership-owning Congressman whose franchise is being pulled, whose evidence is a quote from a Republican lawyer for the dealers who are losing their franchises.

Originally, the story claimed that all the 789 dealers losing their franchises were owned by Republican Party donors. The story quickly changed to all-but-one. One blog, which repeatedly made reference to “Chicago politics,” posted that just eight of 39 dealership owners who had made donations that appeared in public databases had donated to Democratic candidates. If true, it would mean that, of the closing dealerships, a higher proportion of Democratic owners exists than in the ones remaining open.  Past Automotive News polls have shown that an overwhelming majority of car dealer owners are Republican.

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One dealers pointed to as proof that Obama is behind “revenge closings” is Florida representative Vern Buchanon, who has been linked to fraud and sleazy business practices.

No analysis has examined the politics of the dealers who remain open vs those who are closing. None of these sources have mentioned Republican campaign worker and contributor C. Robert Kidder’s appointment to be chair of Chrysler Group, or his choice of a Republican congressman to be the new secretary of the U.S. Army.  The “news sources” reporting a political bias invariably refer to “Chicago politics,” and tend to claim Obama to be a communist, call the move “income redistribution,” and frequently use derogatory terms such as “Lord Obama” or “Comrade Obama,” indicating that remaining bias-free is not a priority. 

Chrysler stated that the dealers were evaluated using a “thorough, rigorous process that used a data-driven metric.” Factors included new car sales (with a minimum that eliminated some dealers known for their good service ); local share; customer satisfaction with sales and service; the facility itself (capacity and meeting new standards); location; and being paired with a competitor.

Chrysler has, since before the current arrangement with the Treasury, already discussed the need to reduce the number of dealers, and has been pressuring dealers to sell all three brands since Daimler was in charge.

It should also be noted that while some are charging that Obama is breaking the law by having the government interfere with private industry through the Chrysler deal, the franchises were probably only intact up to this point because of state governments’ franchise laws, which protected “bad” dealerships.

David Zatz founded Allpar in 1998 (based on a site he had begun in 1993-94), after years of writing reviews for retail trades. He has been quoted by the New York Times, the Daily Telegraph, the Detroit News, and USA Today. Before making Allpar a full-time career, he was a consultant in organizational psychology. You can reach him by using our contact form (much preferred) or by calling (313) 766-2304


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