Federal Intervention In Auto Retail May Be Too Much

Jack Fitzgerald is a good car man.   Dealerships bearing his name can be found in multiple states.  (Disclosure:  my family has purchased multiple vehicles from the auto retailer in the past, and we now drive what Google Maps calls an hour and twenty minutes in traffic so their crack service people can work on our cars.) The company has always run a bit differently from others.   A groundbreaking ISO certification years ago remains intact, and the company is now ISO 14001 certified.

A car seat safety program the company runs has examined more than 30,000 seats to ensure infants and toddlers are safe.  Talking with some of the folks who man that program (Fitzgerald pays for their time) I have learned that more parents need to have someone check that seat before the wrong thing happens. Family and community are important to this company.  They also sponsor child identification programs.

Fitzgerald has been in the car business since the mid 1950s and owned dealerships since the 1960s.    A symbol of stability and forward-thinking initiatives, the business has never laid off employees during 43 years.   Making the rounds of mainstream media, Fitzgerald has appeared on multiple national news programs, including an informative C-SPAN session when he acknowledged that the 32 franchises he runs will lose 5 Chrysler franchises.

But Jack Fitzgerald is more than just another CEO facing government interference in the market.   His dealerships are important advertisers in the market, they employ many people in each market they serve and he is talking a lot of sense. The product is the issue, he says.   And one can’t argue that Chrysler’s senior management over decades has made poor choices. Ford is going to do a lot better, he says.  You betcha.   Because as he says, domestic buyers tend to buy domestic vehicle. The Obama administration doesn’t understand the impact, he says.   Fitzgerald says there are 40,000 Chrysler units at dealers targeted for closure.   Those cars will be sold at a loss. Two-thirds of the cars on the road are domestic, he says.  Then he asks who is going to offer factory-quality parts and support. There are far too many issues to address in a simple blog.

But consider this.    Federal intervention allowed Chrysler and General Motors to circumvent protections in place for these franchisees.   The government didn’t order closures, but as the Bush administration allowed the liquidation of big brokerage houses, the Obama administration is allowing local businesses to be wiped out — many of them community institutions for decades. Fitzgerald (and trade association NADA) claims that dealerships, which finance the vehicles they purchase, will be forced into bankruptcy.   And as with many businesses, the organization’s ownership has likely signed a personal guarantee in these cases.

I spoke with a 20 year industry executive about these developments who agreed in principle with many of Fitzgerald’s comments.  “Detroit has always felt the dealer market was saturated.  The feds being involved simply mean that they can take on the retail franchises and the unions all in one shot.  They’ve never had a chance like this, and they probably never will again.” The upshot:  more personal bankruptcies.  More corporate bankruptcies. The United States has never had a truly free market.   The retail auto industry has often been the beneficiary of strong state and federal lobbying efforts, including trade wars with Asian manufacturers, pushing back on environmental standards and as the birthplace of referring to inheritance taxes as “the death tax”. The knife cuts both ways.

The solution is a painful one that may actually work for the macro economy in the long run.  But until then, expect chaos as dealerships attempt to dump new Chrysler vehicles at a loss and the executive branch promises that all warranties will be honored even as hundreds of places that could honor those warranties are stripped of their ability to do so. An off year for elections, there are still plenty of races being decided and hundreds of House members getting ready to run in 2010.  Consider being an active business advocate and make your views — pro or con — known to candidates and incumbents.  Participate. And if you happen to be looking for a deal on a Chrysler…

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