How Obama crushed thousands of auto dealerships

(‘76 Contributor) In 2009, the Auto Task Force under the US Treasury Department and its head, Steve Rattner, Obama’s Car Czar, entered into negotiations with Chrysler and GM (auto manufacturers) to “save” the auto industry. Herein, the auto task force, without inside knowledge of the industry, pressured the manufacturers to reduce the number of dealerships and fast tracked the government-managed bankruptcy to do just that. This did not allow for due process in the bankruptcy court. My personal experience on the receiving end of this injustice lines up with the overall picture as presented by Neil Barofsky, formerly the Special Inspector General overseeing TARP for the Obama administration, in his new book Bailout: How Washington Abandoned Main Street While Rescuing Wall Street. I can offer a firsthand perspective as one of many Main Streeters who got run over in the process.

Barofsky (a lifelong Democrat, by the way) states bluntly on page 201: “As Treasury officials explained, federal bankruptcy had given them a ‘unique opportunity’ to trump the tough and ‘restrictive state franchise law[s]’ that otherwise governed GM and Chrysler’s agreements with their dealers.” In other words, the Treasury Department’s auto task force manipulated the bankruptcy law to allow these actions to be rushed through in an arbitrary and capricious manner. This act was a direct violation of our Fifth Amendment in the Constitution of the United States.

Having received a termination notice for my Chrysler Jeep franchise and a wind-down notice for my GM franchise, I was among a handful of dealers that led the national fight to create legislation to restore dealerships with the Committee to Restore Dealer Rights as well as taking the lead to reform franchise laws in the State of Colorado.

ARBITRARY: DEALERSHIPS AN ASSET TO THE MANUFACTURER

This was an arbitrary act. Although publicly the manufacturers stated these dealers were “poor performers”, indeed they were not. Mine, like many others, were award winning dealers, some in business for decades. For Jeep we were a Five Star Dealer, and for General Motors we were a Mark of Excellence dealer. This was Chrysler’s most prestigious status given to dealers that meet every high expectation set forward to them by the manufacturer, their most prestigious recognition.

Although publicly the manufacturers stated these dealers were “a cost”, indeed they were not. Keep in mind that as an independently operated franchised auto dealer, we are not a cost to a manufacturer. The manufacturer does not subsidize any dealer costs. The dealership bears the burden of costs and expenses including: purchasing of vehicle inventory and parts, purchasing of manufacture approved marketing materials, real estate, show rooms, equipment and tools, employees, software, taxes, etc.

Despite the publicity surrounding the manufacturers financial problems, we, along with 788 terminated Chrysler dealers and hundreds of wind-down General Motors dealers were present with excellent sales records ready to help the manufacturers with their goal of restoring fiscal health, the strategy of the auto task force in revoking franchises that would help them achieve these goals was flawed. Barofsy stated in his IG report to congress “The auto team had no basis for ordering the expedited car dealership closure schedules”: the report went on to say that the acceleration of dealership closings was done without any explicit cost savings to the manufacturers in mind.

CAPRICIOUS: WITHOUT DUE PROCESS

This act was done capriciously without due process. The bankruptcy court was used in a way that manipulated the intentions of the law. Craig Allely, Denver attorney, stated, “The bankruptcy courts permitted the automakers and the task force to accomplish their goals – no matter what laws were stretched to the breaking point for the executive branch. The idea that courts should uphold the law even in times of crisis was ignored” (quoted in Outraged, by Tamara Darvish and Lillie Guyer, page 251). State franchise laws existed to protect contracts of this nature, however the federal bankruptcy proceedings eclipsed these rights and left businesses around the country searching for ways to salvage the remains.

Our asset was taken, but we were left with all of the liabilities. Regarding our Jeep franchise, we were told we would only have several weeks to shut down our complete business, no compensation whatsoever for the franchise or our remaining liabilities, after having just invested millions to purchase it. There was no legitimate business reason, no benefit to the manufacturer, and no phone call from Chrysler, just an overnight termination letter.

OBAMA’S ECONOMICS OF ‘SHARED SACRIFICE’

We were responsible for approximately 40 employees. In our last 3 years of business we invested $5.3 million in the facilities, spent $1.1 million each year in 2008 and 2009 with 120 local community vendors. Additionally, we supported local charities in our areas and participated in the overall livelihood of our communities. I do not understand President Obama’s definition of SHARED SACRIFICE. As a successful businessman I was doing my part. We were successful, paying taxes, and earning profits. Based on the treasury department’s pressure I have been completely wiped out, employees and families livelihoods were at risk, and I have lost virtually everything, even our home is at risk of being taken. If we were a failing dealership the market would naturally take us out, not a manipulated federal bankruptcy process. Our country is founded on the principles of the free enterprise system and the ability for small business to succeed.

I wish our story was the exception, but it isn’t. Thousands of dealerships across our nation closed their doors. Thousands of employees lost their jobs. Tens of thousands of business lost contracts. Thousands of communities lost hope as our economy tumbled while private small businesses across America were closed so Obama could show we “shared in this sacrifice.”

That this was indeed his motive, this and nothing else, is attested in another Barofsky finding as highlighted by columnist Michelle Malkin (Colorado Springs Gazette, July 22, 2012):

In search of the rationale for Team Obama’s bizarre, job-killing exercise of power over thousands of small car dealerships, the TARP inspector general may have stumbled onto the truth from Bloom. On page 33 of his report, Barofsky writes that “no one from Treasury, the manufacturers or from anywhere else indicated that implementing a smaller or more gradual dealership termination plan would have resulted in the cataclysmic scenario spelled out in Treasury’s response; indeed, when asked explicitly whether the Auto Team could have left the dealerships out of the restructurings, Mr. Bloom, the current head of the Auto Team, confirmed that the Auto Team ‘could have left any one component (of the restructuring plan) alone,’ but that doing so would have been inconsistent with the President’s mandate for ‘shared sacrifice.’”

WHERE ARE WE TODAY

Would you consider the auto bailout a success? I can’t, in light of the following:

  1. Chrysler is not an American company anymore. Approximately 61% is owned by Italian automaker Fiat, and 39% is owned by the UAW’s VEBA (United Auto Workers health and pension benefit program).
  2. 33% of General Motors is still owned by the US Treasury. The Treasury needs approximately $53 per share to break even. Currently the stock price is at approximately $19.50 per share with 500 million shares owned by the US taxpayer.
  3. Current projected loss is approximately $17billion. This does not include any of the billions in losses from GM’s previous finance arm under Ally Financial.
  4. As of July 10, 2012, the Inspector General testified before Congress that there is no exit plan from the Treasury Department for either GM or Ally.
  5. In the Treasury Department’s January report to Congress under TARP, they have reserved a little over $23 billion in losses regarding the Chrysler and GM bailouts.
  6. Inspector General Barofksy’s report to Congress regarding dealer terminations stated that there was no empirical data or basis for dealer terminations and that it was based on a theory and not fact.
  7. The Inspector General’s report also showed that there was no consideration for the economic impact that terminating these dealers would have on the communities throughout this nation.
  8. Job losses as a result of the dealership closures could equate to upward of 100,000 due to the mass number of dealer terminations across the nation that affected them and their suppliers.
  9. Auto dealerships are an asset to the manufacturers and not a contract liability.
  10. GM and Chrysler executives testified before Congress that they needed to reduce dealerships across the country to be profitable. In 2011, Chrysler added more stores than any other manufacturer in the United States (strictly Chrysler – not including Fiat).
  11. The Obama Auto Task Force influenced the number of dealers that GM and Chrysler had to cut.
  12. Under the 5th Amendment of the US Constitution the government will not take a person’s property without due process and/or fair and just compensation.

So, in closing, I’d say to President Obama: My partners and I did build this business. I put my home on the line, I worked 14 hours a day 6 days a week, invested hundreds of thousands of dollars and signed up for millions. Our company’s sales generated hundreds of thousands of dollars each year in taxes all for the American Dream. And in the end, Mr. President, your administration not only took my business, but within hours of my House and Senate hearing testimonies against the auto manufacturers and auto task force they reopened my business across the street and gave it to another Chrysler dealer. Mr. President, Please give me your definition of shared sacrifice? With all due respect, my partners and I did built it, and from the ground up, and we were successful.

Over 289 members of our US Congress, both Democrat and Republican, supported our legislation. In Colorado, we successfully passed two state franchise laws with almost unanimous support from both parties. Governor Ritter (D) signed these into law to protect private businesses in our state. I am very thankful for all of the support that we received nationally and locally.

Yale King is a former GM and Jeep dealer in northern Colorado

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