Sunday, December 13, 2009

Don't Save The Dealerships


There's an old joke that, had Congress followed its present practices at the time, we would still have (heavily subsidized) local blacksmith shops.

Faced with a sharply reduced market for new automobiles, and creaky, oversized dealer networks that are protected by state franchise laws, one of the key benefits Chrysler and GM sought through their bankruptcies was to reduce the size of their dealer networks. In my opinion the deal was too protective of dealerships. Don't get me wrong - I like the dealership where I last purchased a vehicle (as much as one can like a car dealership), and I like the service I receive at the dealerships where we get our cars serviced. There's value to the brand, and (if they're doing their job) to having the manufacturer protect its brand by requiring certain levels of quality and consistency in the level of service provided by authorized dealers and service centers. But a huge part of the current customer-dealer encounter - most notably picking out (settling for) a vehicle from the lot, negotiating price (and wondering if you were given a reasonable deal) - are relics of an era gone by.

There's no reason why a customer should not be able to customize a vehicle online. In fact, before you get to the dealership and find out that the configuration and color you want aren't "on the lot", pretty much every manufacturer lets you "build your own car" online. Why, as a matter of course, can't you order that car through the manufacturer's website, or get competitive bids from dealers within a specified geographic range? We tolerate what amounts to bad customer service in the sale of new vehicles because we're used to it, but can you imagine a new business that tried to impose a similar model?

Congress, in the manner of the aforementioned joke, wants to take us backwards:
The bankruptcy cleared the way for GM and Chrysler to eliminate more than 2,000 dealerships, with GM estimating that it would save $2 million per shuttered outlet. But on Thursday, the House passed a measure, attached to a must-pass spending bill, that largely undoes this vital reform. Headed for likely passage in the Senate and unavoidable signing by the president, the bill lets dealers threatened with closure take GM and Chrysler to arbitration on terms considerably more favorable to dealers than the companies had previously been willing to accept. The result will be hundreds of time-consuming cases - or demands by dealers that the companies pay them to go away. Either way, the taxpayers, who own most of GM and much of Chrysler, will bear the cost.
I have a great deal of sympathy for dealers who were running profitable enterprises (even if more from the sale of used cars and service than the sale of new cars) who are losing their franchises. Just as I have sympathy for the guy who profitably sold buggies before horseless carriages put him(and the village blacksmith) out of business.

Keep in mind also what this same Congress would do if this were workers asking for job protections - "Don't let GM close our plant. Don't let GM cut our hours." That would be quickly dismissed as interfering with the business strategies and profitability of a corporation. With due respect for Congress's greater sympathy for corporate subsidies (or perhaps it's the greater efficacy... or deeper pockets of corporate lobbyists), this is another side of the same coin.

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