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The Congressional Oversight Panel Report on Auto Bailouts: Dealer Closures

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I’m reading the Congressional Oversight Panel’s report on the auto bailouts (COP is the oversight entity headed by Elizabeth Warren). I’ll have more to say in a bit, but I did want to point to one of the most coherent explanations for why the manufacturers had to shut down so many dealers.

First, the Chrysler details (footnotes removed):

Chrysler announced that it would retain an “overwhelming majority” of its suppliers and would close 789 of its nearly 3,200 U.S. dealerships. These dealerships employed more than 40,000 people. State governments heavily regulate the relationship between dealerships and automotive companies, usually claiming that close oversight is necessary to equalize the bargaining power of dealerships and automakers. Generally, states only allow an automotive manufacturer to terminate a dealer contract if it has good cause. However, the bankruptcy process provided the automotive manufacturers with greater flexibility in terminating dealership contracts. Congress is currently considering a number of bills to restore the terminated dealers‟ contracts.

Both Chrysler and GM maintain that their dealer networks were oversized and that downsizing was necessary to regain viability. Domestic brands in 2008 accounted for about two thirds of U.S. dealerships, but only 48 percent of new vehicle sales. Chrysler, for example, has less domestic market share than Toyota, but even after its intended closings will have many more dealers [Toyota has 1502 dealers].

In 2008, Chrysler‟s dealers lost on average $3,431. By consolidating dealerships, the companies argue, they can drive more sales through more profitable businesses that can afford to invest in their businesses. The remaining dealers may also be able to negotiate more favorable terms with their floor-plan financers. This may in turn help dealers acquire more stock and sell it to consumers at lower prices, thereby increasing sales and profits for the dealers and for Chrysler and GM.

And here are the GM details:

GM subsequently notified 1,300 of its approximate 6,000 U.S. dealers that they would be closing by year end 2010, aiming eventually to trim its total to about 4,000. GM provided approximately $600 million in financial assistance in return for the dealers‟ selling down their existing inventory over the subsequent twelve months. These payments could vary widely based on each dealer’s situation.

Now, the report misses one key element–the one that dealers complained about constantly when I was doing a US dealer consulting project for an American manufacturer in 2007. If you’ve got a GM Read more →

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Elizabeth Warren’s Not Allowed to Know the Super Stress Test Secrets, Either

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I noted the other day that Timmeh (or, according to other coverage of this, Helicopter Ben) told the banks to keep their stress test results to themselves.

Well, apparently, stockholder and taxpayers are not the only ones left out of the secret. So is Congressional Oversight Board Chair Elizabeth Warren. In fact, she’s not even allowed to know the formulas they used to measuring the banks. (h/t My Philosophy at DKos)

Q: Do you have a clear sense of what the overall TARP plan at this point is supposed to do? Are you capable of summarizing what it’s supposed to be doing?

A: No. And neither is Treasury. Treasury has given us multiple contradictory explanations for what it’s trying to accomplish.

There’s a major problem and a minor problem. The minor problem is documentation. I’ve spent four weeks now looking for someone who can give me the details of the stress test so that we can do an independent evaluation of whether the stress test is any good.

We get: "someone will call [you] right back." Only the call doesn’t come.

Then again, I think it’s clear that Timmeh is trying desparately to prevent anyone from assessing whether the stress tests are worth a damn.

Which pretty much tells you what you need to know about them.

Update: Apologies to selise, whose diary on this I just saw.

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