In Rubin’s critique of Romney’s ad, she asks, “Do Republicans actually believe that GM didn’t need to reduce costs and capacity?” She seems to be unaware that dealerships, which basically have franchises from automakers to sell vehicles, impose no direct costs on the car manufacturers. As Obama’s auto-bailout czar Steven Rattner notes in his book Overhaul, “auto companies don’t pay their dealers anything directly.”
So why close so many dealerships so quickly? Rattner argues that “every industry expert agreed that having fewer, more productive dealers results in higher total sales and lower marketing expenses for an automaker.”
But, Barofsky writes, although experts agreed that “dealerships should be reduced over time, there was substantive disagreement about where dealers should be closed and how quickly it should be done.” In particular, he recalls, several experts consulted by his office disputed that any rural dealerships needed to be closed, citing the “distinct advantage that GM and Chrysler had in those areas over foreign competitors.”
Barofsky explains that GM appeared to agree. Initially only 18 percent of the dealership closings it targeted were in rural areas. But “that number jumped dramatically,” he writes, “after Treasury directed it to accelerate the closings, with rural dealerships making up nearly half the dealerships slated for termination.”
Given this evidence, it is correct to argue that many dealers would have fared better if GM and Chrysler had gone through a traditional, court-approved bankruptcy along the lines that Romney advocated in a 2008 op-ed, rather than through the politicized bankruptcy that Obama’s team put together. At the very least, it would probably have given dealers like Zarzour more time to make arrangements with GM’s competitors, minimizing job losses.
Meanwhile, the Obama administration continues to fudge the number of jobs “created” by the bailout, including in its total thousands of jobs added at the domestic plants of foreign automakers like Toyota and Hyundai. Ohio Governor John Kasich points out that, of the 73,000 jobs created in his state since 2011, only 700 were “direct jobs” in auto manufacturing. PolitiFact, which examines campaign claims, largely backs up Kasich’s claim.
And then there are the jobs not created and businesses not opened because of the shabby treatment of GM’s bondholders and Chrysler’s secured lenders. The Obama administration designed a restructuring that disregarded two centuries of bankruptcy precedent to give disproportionate ownership stakes to the UAW and, in Chrysler’s case, Fiat. This was such a seismic shift in contract law that it caused a huge drop in the ranking of the U.S. in the annual “Index of Economic Freedom.”
There are many victims of the government’s meddling in the auto industry, and their stories need to be told.
John Berlau is senior fellow for finance and access to capital at the Competitive Enterprise Institute. Mark Beatty, a research associate at CEI, contributed to this article.
