Among the flood of outrageous acts* from the Obama White House, the government has pretty much taken over Chrysler and General Motors, two ailing auto manufacturers, stolen whatever value is left from the individuals who worked for, financed, and earned that value, and given ownership to the government and the United Auto Worker’s union. This raised fears of partisan favoritism in the conduct of business, fears which are today being amplified.
About 2 weeks ago, Chrysler filed Chapter 11 bankruptcy and announced a plan to close roughly 25% of its dealerships that were “just not pulling their weight in terms of sales.” The dealerships selected to be closed, allegedly based on sales and service records, were to receive notice and be given a chance to appeal, and the final evaluation of the bankruptcy filing was to be heard by US Bankruptcy Court in New York on June 3.
In the past two days, bloggers reviewing the list of closings have reported a deeply disturbing pattern. It appears that of all the franchisees who have been selected to close, virtually none are Obama supporters, but lots and lots are major Republican donors. From yesterday’s WorldNetDaily article:
WND reviewed the list of 789 closing franchises and databases of political donors and found that of dealership majority owners making contributions in the November 2008 election, less than 10 percent gifted to Democrats while 90 percent gave substantial sums to Republican candidates.
The listed franchise owners contributed at least $450,000 to Republican presidential candidates and the GOP, while only $7,970 was donated to Sen. Hillary Clinton’s campaign and $2,200 was given to Sen. John Edwards’ campaign.
Obama received a combined total of only $450 in donations – $250 from dealer Jane Baldock in Wenatchee, Wash., and $200 from Waco, Texas, dealer Jeffrey Hunter.
Ten percent to Democrats makes it seem slightly less suspicious… until you realize that all the Democrats were Obama’s adversaries.
Doug Ross has been leading the charge on the research (here Monday, here Wednesday,) and other bloggers have been tracking the political angle as well, including this one dedicated solely to tracking political donations of the Chrysler franchisees. It’s not proof positive, but it’s awfully damning.
The bankruptcy filing makes sense — Chrysler’s been in trouble for a while — but closing dealerships does not. Chrysler dealers are franchised, which means they don’t cost the company anything besides administrative costs at the home office, and those are nominal. The franchise buys the cars from the manufacturer and pays for them immediately; the cars that you see on the dealers’ lots are already revenue to the Chrysler Corporation, and are assets owned by the franchisee. In one sense, it pays Chrysler to have as many franchises open as it possibly can. It would suit them if there was a franchise on every block. They sell more cars that way, and what do they care if the franchisees can’t make any money because there are too many Chrysler dealerships?
They care because they can’t get good dealers unless the dealerships are profitable. For this reason, franchise agreements usually include market protection clauses, that say, for example, that Chrysler will only permit so many dealers per 1,000 population in a given area, or that no other franchisee will be authorized within a certain county, or some such. This is done to protect the franchisee, and smart franchise buyers check market protection clauses carefully before investing their money to buy the franchise.
So, while revoking the franchises of non-performing dealers perhaps streamlines an administrative task for the home office, and (if done fairly) might improve dealer relations, it’s not the first move one would expect a company to commence when filing for bankruptcy, nor the second, nor the third. This is not where the company needs to restructure.
It makes sense, though, as part of a partisan move to reward political allies under the cover of bankruptcy proceedings. Chrysler is most decidedly not playing fair; it’s playing hardball with the franchisees. In many states laws protect franchise owners from suddenly losing their franchise rights without compensation, and forces the franchisor (Chrysler, in this case) to help the franchisee recoup losses — buying back parts and inventory, for example. Not this time, though. From a Gannet story describing a lawsuit being filed by cut dealerships:
Chrysler’s request goes far beyond just ending dealer contracts. It would bar an affected dealer from selling any Chrysler vehicle or part under warranty after June 6. Any payments or damages from ending the contract would be left with the “old” Chrysler whose liquidation won’t cover the liabilities it assumes.
And Chrysler wants to block dealers from appealing the decision with state authorities, and asked U.S. Bankruptcy Judge Arthur Gonzalez to rule that federal bankruptcy law supersedes all state laws over dealer contracts.
Under the laws of most states, if Chrysler wanted to end a dealer contract it would have to give the dealer several months to wind down its business, offer to buy back vehicle and parts inventory and, in some cases, offer reimbursement for a number of costs, such as remodeling.
But in bankruptcy, Chrysler contends it can avoid any such liabilities as part of the case.
Take note of that phrase, “payments or damages from ending the contract would be left with the ‘old’ Chrysler.” Since Chrysler is filing bankruptcy to protect itself from creditors, this means that the franchise owners who are being shouldered out can’t obtain satisfaction from a lawsuit; they might win, but they’d have to wait in line for payment out of whatever is set aside to satisfy creditors, usually a long, drawn-out repayment process that returns pennies on the dollar.
In short, the dealers who are being cut, are being ruined financially. They’re suing based on a 5th Amendment complaint; they’re being deprived of property without due process of law, and without just compensation, by the government.
Anecdotes are surfacing suggesting that some of the cut dealers are high performers. Others complain of grossly unfair practices, like this dealer who had just finished a company-mandated facelift for his dealership when he received his cut notice. Writes Josh Painter at Red State:
Some of the dealers chosen to be terminated were among the more successful outlets in the Chrysler dealership network, and many of them had been loyal Chrysler and Dodge agents who had maintained an excellent working relationship with the Detroit automaker for decades.
Some dealers who got a thumbs down from Obama’s automotive panel told compelling stories about their situations that raised doubts about the process of selecting them for closing. One example, a dealership in Alvin, Texas, had increased its new car sales by 50% in the first four months of 2009, while other MOPAR dealers’ sales were in the tank. Another in Melbourne, Florida, had, at Chrysler’s insistence, totally renovated its facility financed by incurring millions of dollars of debt in the form of a bank mortgage.
Adding fuel to the fire, a lawyer for the excised dealers deposed Chrysler’s chief executives, and reported that it was his impression that cutting dealerships was not favored by Chrysler’s board, but was in fact the result of pressure from the Obama administration’s auto czar. The Chrysler Corp’s official statement denies this, but do we believe it?
Doug Ross claimed yesterday he has statistical proof that the closings were selected by political donation, calculating that the probability of the pattern he’s detected is roughly 1 over 1 billion. In fact, this does not prove that the complaint is true — the sample of closed dealerships is not a random sample, and correlation does not prove causation — though it does suggest it strongly.
But proof hardly matters. What matters is the perception.
Last year about this time, Kenya erupted into violence because of a national election that many perceived was rigged. Hundreds died, and hundreds of thousands fled their homes in fear. Have you ever wondered why that does not happen in the US? It’s because here in the US, losing an election does not usually mean you won’t be able to feed your family or keep your business; in Kenya, it does, because the elected officials hand out huge favors to all their political backers, normally members of their own tribes who help keep them in power. Patronage here in the US has been chicken feed by comparison — until now. Now, we’re beginning to perceive that the government is choosing winners in the economic lottery by which party they’ve donated to, and which candidate. If people begin perceiving that losing an election means they’re financially ruined, we’re on the road to civil war, and the US becomes Africa.
This cannot happen if the government stays out of private business, and remains relatively small. The reason we don’t have Africa’s level of political violence is not that we’re better people than they are, it’s that we’ve by and large kept government out of private business, and kept patronage to a minimum. As strange as it may sound, we Americans have had relatively little at stake from the outcome of political fortune, compared with the rest of the world. President Obama seems intent on changing that.
The investigation of this matter should continue, and if it turns out that the Obama administration is deliberately ruining private businesses along partisan lines, I will call for his impeachment. This is completely unacceptable in the United States. The government must be kept out of business, because an economy ruled by political self-interest is never preferable to one ruled by economic self-interest.
*The flood of outrageous acts is a tactic, designed to prevent any individual act from getting the attention it deserves. I would say that President Obama learned it from President Clinton, who used the same tactic, but it appears that both learned it from Saul Alinsky.