Squaring the Culture




"...and I will make justice the plumb line, and righteousness the level;
then hail will sweep away the refuge of lies,
and the waters will overflow the secret place."
Isaiah 28:17

05/28/2009 (9:32 am)

DealerGate, or Why Government Should Never, Ever, Ever Get Involved in Private Business

dealership

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?

090527-lees-summit-mo1They 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.

politicskenyastyleLast 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.

« « The Gay Gene Theory is Dead | Main | What Can We Do? » »

9 Comments »

May 28, 2009 @ 10:57 am #

Saul Alinsky, Francis Fox Piven, Richard Cloward, Frank Marshall Davis (has his son stuck his head in here to comment yet?) and the list goes on and on. And the difference between the lessons learned by the Clintons versus those learned by Obama is that the Clintons never hated their country. It is quite apparent that the central goal of the Obama administration is the utter destruction of the American republic – nothing less, and leaving nothing to hyperbole.

If, and that is a very big if, we ever emerge from this tragedy we need to look seriously into a Constitutional amendment forbidding the Federal Government from owning any stake in any company. That would include entities like Freddie and Fannie.

I am beginning to think that there is merit to just letting this mess go, allow it to crash and burn, and start all over again.

*sigh*

May 28, 2009 @ 1:11 pm #

Merit or no, this is most likely what is going to happen.

May 28, 2009 @ 5:28 pm #

Certainly the Obama administration has demonstrated clearly that their political philosophy is not that the free enterprise system and individual consumers should choose who is successful and who is not, but that government should ultimately be the “decider”. At this point I simply do not think anyone literally worth having a dialogue with can really dispute this.

We can argue about whether he is trying to make us socialists, or whether he feels he is doing what has to be done in an emergency situation. But we are pretty far down a path of little return.

The problem is that once government gets its foot firmly in the door, there is almost no way to get them out. Government involvement and growth almost never retrenches, but rather expands whether growth is needed or not.

Economic decisions which in most cases reward the most productive will instead reward those who have access to government levers either by immense political and economic power or by the mantle of victimhood.

Admittedly, I’m biased in favor of small business, having owned the same one for over 25 years, and having worked only for small businesses before then. The ones I’ve been associated with and known (many) typically try to avoid the political minefield at all costs and simply focus upon what they do best. The results usually pretty much correlate with how hard the people work and how good they are at what they do.

I don’t know how far down the political grease pole will reach (small business people tend to keep a fairly low profile and spend time working or with families as opposed to demonstrating). But when you’re talking about car dealerships being singled out for survival or not depending upon political considerations, that starts to get pretty close to the nub of things.

Will there be Obama designated enterprise zones in the cities that reward connected property owners and proprietors of corner stores who belong to the right political party and contribute to it?

This is the direction we are headed, and it’s not one I thought the American people would have wanted to take. But with 40% of people paying no taxes, I’m not so sure this ISN’T what a lot of people would like to see. It’s always easy to reach into someone else’s pocket when there is no cost for doing so.

May 28, 2009 @ 7:01 pm #

My biggest question at this point is what the heck do we do?

I have only been paying real attention to this since 9/11/01 and have been reading the blogs and political books for about 2 years, so I would really like to know how we fight this.

Between what I hear on talk radio and read, I feel as if our hands are tied. I have called Congress a few times to give my opinion and to ask my reps not to vote a certain way, but I am at the point where I don’t think it helps. The elected class seems to vote how ever they feel.

I want to do something, but don’t know what. I will be attending the TEA party, but there has to be more. I am sick of watching that self-righteous, statist plowing right along destroying us from within and does the media bring any of this to our attention? NO. They cheer him on.

Phil, anyone, there has to be something we can do. I have worked very hard to get to where I am today and I still have a long way to go. I want my children to have the same freedoms we have and the freedom to choose for themselves.

One question that I don’t know the answer to is why is it that once government owns it is it hard to get them out? Please explain this to me.

Also, why can’t we sue the government? Aren’t they trampling over the Constitution?

May 28, 2009 @ 7:49 pm #

Marc,

I wish I had a bushel basket full of sage advise to impart to you but, alas, I do not.

I think that we live in a time much like that of our founding fathers. They at first realized that they were the victims of a tyrannical rule and only after much trauma were moved to action. We can take some solace that the events of our Revolution took many years to transpire and that we are only a few steps into this morass.

Go grab a copy of Common Sense – its free on the internet – and marvel at how what he wrote could have been composed yesterday.

May 29, 2009 @ 6:34 am #

Marc,

Phil is much better at breaking your type of question down, but I thought I would chime in MHO. As always, this is simplistic and there are exceptions, but…

I believe one key reason is simply the basic nature of government versus free enterprise, as well as the nature of people who are attracted to both these systems as a career.

Again, using small business as an example, the people who operate and work in them are interested in making money and will work hard and long to do that. If an employee does not contribute to that effort, he or she is gone. You may choose to expand your business to increase its profitability, or you may retrench if that is the prudent decision.

But government trades in power as opposed to cash. Cash is a means to an end – power – rather than an end in itself. They expand their base not by productivity such as opening a new store or inventing a new product, but by expanding their regulatory power base.

As they expand, more and more workers are added to assist in the regulatory process, and the ‘boss’ increases his grip. These workers are normally protected by the barnacles of union rules (AFSCME) and trade off some possibility of financial reward for job security and benefits.

Asking government to decrease its role is like asking the scorpion not to sting you. As businesspeople, we wouldn’t shut down an operation that was making us money unless we were forced to. Asking a guy who runs a branch of a government department to close his ‘shop’ and get rid of the workers who assist in running his fiefdom is like asking us to shut down a store that was making money hand over fist.

And they can’t be forced out. The political parties may change but the departments and apparatchiks don’t. What’s more they don’t really have to worry, heck, they are operating on our money, not theirs. We’re pretty much either victims or revenue streams to them.

Let’s take the government department head who has a $200M budget who spends only $150K by December 1? Is he going to say, “Gee, I really didn’t need all that money, my budget can decrease next year, I can let some people go who aren’t contributing to the bottom line.”? Or does he ‘find’ some ‘neccessary’ programs to spend that money on so he doesn’t get edged out of his share of the budget next year? While knowing that if he does the right thing, ‘his’ share of the budget will simply be reallocated to someone who pays the government game a little harder?

Anyway, this is very oversimplified, but it’s at least one of the factors.

I was watching two shows last night with my son: “Wrecked”, about a guy who has an industrial towing business; and “The Deadliest Catch”, about the crab fisherman who fish the Bering Sea. These guys work incredible hours in amazing conditions to get their job done. They could care less about the race, sex, or creed the person next to them has. All that matters to them is how much that person can contribute to getting that job done.

Now Phil will probably burst my bubble by telling me that the “Wrecked” guys have a patronage system right out of Blago’s notebook (they are from Chicago). And that the fishermen are tightly wrapped up by the unions and that being a fisherman is as much about politics as ability.

But at that moment when they are desperately bringing in another load of crab after 36 straight hours of work, or listening to a radio broadcast about how a boat of their brother fishermen went down, or working 10 hours in a storm as a team to get a truck out of a ditch, they are driven by excellence. What is motivating them to do this is NOT created or helped by government. Government (ideally) can regulate for safety, and to make sure that the system is not doling out fishing routes or towing calls based on how much political clout they have. Political involvement beyond that can only corrupt and warp the system and what makes these people drive themselves.

Also caught part of the Cavaliers/Magic game. Kobe Bryant and LeBron James could care two #@&$… about what race or sex the person on their team is. If he can help us win better than the other guy, we want him, pure and simple. If not, move him on out, we have business to do. Pure Darwinism, the best survive and thrive, others go by the wayside. Now that is a pretty rarefied totem pole admittedly, but to me, it sounds corny, but it is so American to go all out to be the best you can be, to give it your best shot.

Government involvement and interference is totally counter to that ethic.

Sorry to be so verbose, but this is a topic that hits very close to who we are as people and our identities. I suspect this is true for many of the readers of this blog.

May 29, 2009 @ 7:18 am #

Marc –

I’ve chosen to answer your question in a more general way in today’s blog article. I hope you don’t mind. I have a few specific comments:

why is it that once government owns it is it hard to get them out? Please explain this to me.

Government attracts people who love power. When did anyone who enjoys power ever willingly give it up?

This is why the authors of the Constitution wrote what they did; they knew that governments tend toward increasing power, and they wanted to keep it wrapped up in chains. Our government has long since loosened the chains of the Constitution — most of what’s bloating the deficits are things not permitted the government by the Constitution — and now it’s a beast, feeding itself on ever-increasing power. That’s why turfmann and I are thinking “burn it down and start over.”

why can’t we sue the government?

I’ve been asking this myself. I think the banks won’t sue because they’re anxious to survive, and really don’t care about politics. I think GM and Chrysler won’t sue because they’re basically out of business, and have no leg to stand on.

The system is broken. Suits can be raised by those directly affected by actors. If you can prove a substantial harm by an unconstitutional government action, you can win. Proving it, though, is difficult, and court actions cost money, and if the government is clever, they win even if they lose. Notice how the car lot owners are suing to stop the government from taking their businesses; and notice that unless they get a court injunction, it’s not going to help them. So what if the government has to compensate them in the end? They’ve still put their opponents out of business in the meantime, and demonstrated that you have to kiss the ruling party’s shoe if you want to stay in business. And even if the owners get the best results, an injunction, what has the government cost itself? There’s no downside for the government; the worst they can do is break even.

The way the system is supposed to work is, a President doing the destructive, unconstitutional things this one is doing would be impeached. That’s not going to work in the short run because the President is popular, and the Congress is comfy. The system does not work unless the people are vigilant to make it work. An indolent people cannot sustain free government.

Some state legislatures are starting to pass measures declaring the government’s actions invalid, and invoking the 10th amendment. This is a good move, and may produce results. Some people are starting to think in terms of secession. This is a better move, IMHO, and may produce fruit eventually. The more of us throw ourselves into such actions, the more likely they are to produce results.

(Author adds long after the fact: Several of the Chrysler dealers whose franchises were closed have brought suit in federal court. You can read about the case at the attorney’s blog, here. The name of the blog, “NatualBornCitizen dot com,” comes from the fact that this attorney is one who brought one of the more reasonable challenges to President Obama’s eligibility to run for office, a lawsuit based on evaluation of the meaning of the Constitutional phrase “natural born citizen.” His contention was that since Obama was both a British and an American citizen at the time of this birth (British by virtue of his father’s Kenyan citizenship) he did not fit the definition of a natural born citizen of the United States.)

May 29, 2009 @ 10:23 pm #

It is time to start talking vigorously about both impeachment and secession. These are the two things we can do, two ideas that we can promote that will do the most to protect our interests at this time.

It is most certainly true that our politicians think that they “know better” than the people who elected them, and they ignore us totally. I have sent countless faxes, etc. to my representatives, and I don’t think I have changed a single vote. They know that they “know better.” They are globalists who believe in world government and all that that entails.

We need to break free from that sort of thinking, by secession if need be, and by throwing Zero out of the White House asap. It can be done if we speak loud enough and urgently enough. Make a lot of noise!

October 23, 2009 @ 7:21 pm #

[...] and find safer havens from which to earn what the market says they are worth. I also noted (here) that partisanship inevitably affects measures controlled by the government, and sure enough, the [...]

RSS feed for comments on this post. TrackBack URI

Leave a comment

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>