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Politicians demand government intervention

by David Zatz on

Republican and Democrats alike have led the charge to have the government override private industry’s decisions as 202 Congressmen cosponsored a bill which would prevent GM and Chrysler from dropping dealers while in bankruptcy. In Chrysler’s case, the dealerships have already lost their franchises and some have closed.

The proposal would overrule bankruptcy law, judicial decisions, and theories of capitalism often espoused by anti-regulatory politicians.

In Chrysler’s case, dealerships were especially likely to be targeted if they appeared to be selling Chrysler vehicles only as a means to pushing customers towards imports, another domestic brand, or used vehicles. Some dealerships were reportedly dropped due to poor service or sales ratings by customers (or, presumably, frequent botched repairs). Others had very slow sales due to poor locations or other factors. Yet others may have been dropped for other reasons, e.g. not wanting to sell additional brands or, some have alleged, political struggles within Chrysler.  A small number of people whose words were reprinted in dozens of blogs suggested that Obama was taking revenge on certain dealerships, but the evidence cited for this turned out to be incorrect.

Lawmakers showed ignorance of the industry as they claimed that having more dealers did not impose any costs on manufacturers.

GM’s terms for dealerships losing their franchise are generous in time and financial support; Chrysler provided dealers with very little time, no appeals route, and only some support.

Ironically, while some politicians have opposed Obama’s rescue plans for the two automakers because it would involve government being involved in business, they are supporting the plan to have government overrule the loss of franchises.

White House economic advisor Larry Summers was quoted as saying, “We’ve been very clear that companies needed to be run commercially, rather than politically.”

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