Car makers in a muck

Sunday, May 17, 2009

Once upon a time in America, business decisions were made by private entrepreneurs. If they made good decisions -- what products to manufacture and sell, how much to charge, what service to offer, which parts to stock -- they could make lots and lots of money. If they made bad decisions, they went out of business.

The end.

Wait. Not so fast. If this is the way free enterprise works, why is the U.S. auto industry in the tank? And why is government making crucial business decisions and running banks and auto manufacturers?

And what, exactly, is the thinking behind the government-mandated, bankruptcy-laced, customer-be-damned decision to sever the relationship between automakers and thousands of independent franchise car dealerships?

Disclaimer: My wife and I -- of our own free will -- own and operate a Chrysler and a Saturn. So excuse me if this column is a wee bit huffy.

The owner of the Saturn franchise here, who owns similar franchises elsewhere, made a business decision to close. But the decision by Chrysler -- and a similar decision from GM -- to cut off hundreds of franchise dealers nationwide was pressured by bureaucrats in the federal government.

My guess -- and your guess is as good as mine -- is that none of these federal bureaucrats knows a gosh-darn thing about running an automobile dealership.

Breaking off these franchises will come at significant cost. Guess who will pay. Compensating dealers for losing their franchises could run into the billions of dollars.

So how will auto manufacturers benefit from fewer dealerships? Basically, they won't. But it looks good in a bankruptcy filing. It looks like you're doing something to ameliorate a problem that has no solution.

Let's take a look through the other end of the kaleidoscope. What you see here is car buyers paying more for the vehicles of their choice because of decreased competition among dealers.

Ka-ching! for the extra cost of franchise settlements.

Ka-ching! for decreased competition.

Another factor in the "Saga of the Making of a Modern American Automaker" (Gilbert and Sullivan would have a field day with that) is the impact on the hundreds of communities that are either losing a valued business operation or watching dealerships lose a chunk of their product lines. In some news reports, the specter of lost sales-tax revenue on car sales also has been raised.

That both is and isn't a significant impact here.

First, sales taxes on autos sold in Missouri are collected based on where the buyer lives, not where the dealership is. A car purchased in Cape Girardeau by a Cape Girardeau resident generates the same sales-tax revenue for Cape Girardeau as a car purchased in Perryville by a Cape Girardeau resident.

However, parts or service are a huge part of any auto dealership's taxable revenue stream. And without parts and service, many car owners will seek service elsewhere -- and elsewhere is where the sales-tax revenue will go.

OK. So reducing the number of franchises isn't going to save the auto industry. What will?

There are all kinds of things automakers could have done. Like pharaoh, they could have given people what they wanted instead of enduring the plagues brokered by Mr. Moses. U.S. automakers have, for the last 20 years or so, settled for plagues.

For one thing, some of the brands engineered by U.S. automakers should never have left the drawing board. At the same time, putting different logos on basically the same vehicle has made sense only to Madison Avenue, which gets its cut by ginning up marketing for consumer goods that have no business being for sale in the first place. So automakers have had a plague of brand glut.

But if too many models is one extreme, the other is having the government tell you what you can produce -- even if it's under the guise of politically correct environmental directives. Telling U.S. automakers that their future lies in green vehicles -- which helps the government placate environmental special interests -- ignores the fact that Americans may not -- most likely will not -- want to buy the reduced-emissions electric hybrids with zero comfort and the cargo space of a Ziploc bag. Or at least not buy enough of them to keep the U.S. auto industry afloat.

Meanwhile, foreign automakers are watching the American mess unfold while their clever designers are taking stock of the American marketplace and developing cars U.S. consumers will purchase.

Hey, that sounds like good old American free enterprise. Who do those foreign-car moguls think they are?;

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