It was relatively easy for the Obamastration to dispense with a band
of rogue hedge funds that were worrying the impending Chrysler-Fiat
alliance. Once the names of the holdout creditors were made public,
their revolt was crushed by public opinion. They used to be so, so
cool, but we all hate hedge funds now.
It’s going to be trickier to solve the looming problem of Chrysler’s
and, pretty soon, General Motors’ (GM) dealers. Both carmakers support
over-large dealer networks, and both have been instructed by the Auto
Task Force to reduce them drastically. Reports indicate that Chrysler
will slash 800 dealers tomorrow; over the next few days or weeks, GM
will explain how it’s going to go from more than 6,000 dealers now to
just over 3,500 by 2010.
Remember when we used to hate car dealers? They were all those …
guys … who just wouldn’t let us off the lot … without … buying … a car!
GM invented Saturn specifically to deal with this hatred. Of course,
our conventional targets of consumer hatred have been revised since the
onset of the financial crisis. The slick dude trying to sell you a
Chevy looks like a moral paragon next to the mysterious, hyper-moneyed
gent from Greenwich with his fancy dancing-number screen, his clever
math, and his insatiable appetite for leveraged plunder. Besides, car
dealers are often pillars of their communities, lest we forget. They
sponsor little league teams. I’ve bought two cars from a dealer who’s
considered a hero of the people in Eastern Europe.
The question is: Will the dealers who are about to lose their
dealerships merit greater sympathy than Chrysler’s laggard creditors?
The National Automobile Dealers Association thinks so. The organization
has begun a PR and lobbying campaign to demonize the planned dealer
Dealers are protected by federal and state franchise laws. However,
it’s widely assumed that Chapter 11 for Chrysler and (probably) GM will
enable these agreements to be terminated with no recourse for the
dealers. For GM, with its vast dealer network, this would be a huge
plus. When the company killed Oldsmobile in 2004, it had to shell out
more than a billion in dealer payouts. Some industry observers see this
as an opportunity to completely change the way that new cars are sold,
upending decades of franchise statutes.
The renegade Chrysler hedge funds took their whuppin’ and slinked
off with their sullen losses. In less than a month, GM’s bondholders
may follow suit. Your friendly neighborhood car dealer may not do the
same. And it’s worth remembering that in a few years, U.S. carmakers
may once again be able to easily obtain loans. But will they be able to
convince people to sell their cars?