#DealerNews

It is not at all clear that the greatly accelerated pace of the dealership closings during one of the most severe economic downturns in our nation’s history was either necessary for the sake of the companies’ economic survival or prudent for the sake of the nation’s economic recovery

Whoops! Who could have thought that the biggest political fight of the bailout era was picked over something never really needed to happen. At least, not according to the SIGTARP, the Special Inspector General for TARP, Neil Barovsky. In his latest report on the GM and Chrysler dealer cull [ full document in PDF here], Barovsky explodes a lot of the myths surrounding the move to accelerate dealer closings, and even goes so far as to assign real blame… and not to GM or Chrysler either.

With President Obama set to sign a new financial oversight bill into law on Wednesday, the New York Times has dug into the bill looking for key oversights. Because auto dealers were exempted from the bill (thanks at least in part to their mobilization by the GM/Chrysler dealer cull), auto dealer finance tactics ended up square in the NYT’s crosshairs, and paper’s Your Money blog has a rundown of three of the most heinous of these tactics: the Yo-Yo, the Markup and the Add-On.

After a year of bitter battles with its dealers in the wake of a bankruptcy-era dealer cull, Chrysler is about to do the unthinkable: start a whole new dealer network to sell Fiats built in Italy by its new owner. The Detroit News reports that

existing Chrysler, Dodge, Jeep and Ram dealers will get a chance to apply to sell the Italian Fiats, but they must be able to operate separate facilities with different sales and service teams in order to win a franchise.

Fiat will return to the US by the end of this year, starting with the Mexican-built Fiat 500.

Throughout the debate on Wall Street reform, I have urged members of the Senate to fight the efforts of special interests and their lobbyists to weaken consumer protections. An amendment that the Senate will soon consider would do exactly that, undermining strong consumer protections with a special loophole for auto dealer-lenders. This amendment would carve out a special exemption for these lenders that would allow them to inflate rates, insert hidden fees into the fine print of paperwork, and include expensive add-ons that catch purchasers by surprise. This amendment guts provisions that empower consumers with clear information that allows them to make the financial decisions that work best for them and simply encourages misleading sales tactics that hurt American consumers. Unfortunately, countless families – particularly military families – have been the target of these deceptive practices.

This is what president Obama said just six weeks ago about efforts to exclude car dealership financing from consumer protection measures included in the forthcoming Financial Reform bill. With that bill moving towards Obama’s desk, all that stands in the way of its passage are angry dealers who don’t want to be subject to oversight. And despite the tough talk about standing up to financial interests to pass this reform, it seems Obama has caved to America’s auto dealers.

Thanks to congressional arbitration, GM’s dealer cull has been steadily downsized since The General made the decision to axe nearly 2,000 dealers during last year’s bankruptcy. Going into bankruptcy, GM had about 6,000 dealers nationwide, and it culled nearly 2,00 of them in an attempt to lean out its distribution channels. But now the Detroit News reports that GM’s North American boss Mark Reuss has said that about half of those culled dealers will have been reinstated by this July, bringing GM’s dealer count back to the 5,000 ballpark.

From John Dillinger to Nicolas Cage, the car industry has always needed villains. In fact, one could almost make the argument that the entire top quarter or so of the luxury car market is wholly dependent on scumbags of one kind or another. As Raymond Chandler once noted, there’s no honest way to make a hundred million bucks… and spending millions on cars is a great way to advertise one’s comfort with the moral ambiguities of ostentatious wealth. So when America’s most notoriously crooked car dealer, a certain Denny Hecker, auctions off his personal fleet as part of his $767m bankruptcy (itself triggered by 25 counts of fraud and related criminal charges), you expect to see some good stuff hitting the block.

President Obama has weighed in on a crucial matter facing legislators attempting to overhaul America’s financial system: whether or not auto dealer finance should be subject to regulation by the new Consumer Protection Agency. Unsurprisingly, he has come down on the side of regulation, specifically echoing concerns voiced earlier by the Pentagon. The National Automobile Dealers Association has vowed to fight attempts to regulate dealer finance.

Statement by President Obama on Financial Reform
Throughout the debate on Wall Street reform, I have urged members of the Senate to fight the efforts of special interests and their lobbyists to weaken consumer protections. An amendment that the Senate will soon consider would do exactly that, undermining strong consumer protections with a special loophole for auto dealer-lenders. This amendment would carve out a special exemption for these lenders that would allow them to inflate rates, insert hidden fees into the fine print of paperwork, and include expensive add-ons that catch purchasers by surprise. This amendment guts provisions that empower consumers with clear information that allows them to make the financial decisions that work best for them and simply encourages misleading sales tactics that hurt American consumers. Unfortunately, countless families – particularly military families – have been the target of these deceptive practices.

The Denver Business Journal reports that the Colorado Senate has approved fines of $10,000-$25,000 per day for any automaker that does not comply with its law (HB-1049) requiring reinstatement or compensation of culled dealers. That law was passed earlier this year, drawing a $60,000 vote-no lobbying effort from GM. It also gives culled dealers the right of first refusal for new franchises opened within five miles of their shut dealership within five years, and states that if a franchise has been re-awarded, the culled dealer can demand the return of his franchise. According to the DBJ:

Three terminated Chrysler dealers requested their re-awarded franchises back after the law was signed and said they were told by the company that it had no intentions of complying with it. Chrysler then filed a federal lawsuit on April 23 against Colorado, claiming the new law contradicted terms laid out in Chrysler’s bankruptcy agreement and violates the contract clauses in the state and federal constitutions.

Back in February, we took note of Chrysler’s “principled” stand on new-product secrecy, concluding:

Let’s face it: Chrysler needs buzz, hype, awareness, some kind of excitement surrounding its future generally and its forthcoming products in specific (if only in the irritating “teaser” format) almost as much as it needs anything else. Because as things stand right now,the baseline perception of Chrysler is of a dying company with nothing to offer. In this light, Chrysler’s principled rejection of hype is far more likely to be interpreted as keeping rushed semi-refreshes under wraps so they won’t be mocked to death by the time they go on sale. If that’s not the case, Chrysler has nothing to lose and everything to gain by building consumer awareness of new products. If it is, well, the truth will out sooner or later.

And apparently we’re not the only ones who think so. In fact, if the Detroit News is to be believed, literally everyone seems to think that Chrysler needs to start being more open, not only about its forthcoming products, but at every level of its business.

Automotive News [sub] reports that 19 rejected Canadian GM dealers have been given the green light to sue GM as a class, rather than go through the arbitration process that is being used to resolve dealer cull disputes in the US. The dealers are suing GM for breach of their dealer agreements, and for failing to provide compensation beyond wind-down costs. They argue that the arbitration process would be expensive for dealers, non-transparent to the taxpayers who funded GM’s reorganization, and would put GM at an unfair advantage.

Ever since a debt crisis toppled the already-precarious auto sector into undeniable crisis there’s been a running debate about when US car sales would “return to normal.” By now though, even the most ardent bulls seem to have accepted that 2007’s 16m number will be out of reach for at least several more years. So, how will we know when we’ve hit the new normal? According to Edmunds, at least one statistic roared back to 2006 levels last month: the percentage of sales financed at zero percent.

In March, more than 22 percent of financed new cars were purchased with zero-percent finance deals. Last March the total was just 13 percent. The prior high was 21 percent in July 2006.

The AP [via canadianbusiness.com] reports that two separate bills to make the Corvette Kentucky’s official state car appear to be dead in the state’s legislature. State Rep. C.B. Embry Jr., R-Morgantown, suggests that the failure of these bills would be perceived as a snub by GM, who builds Corvettes in Bowling Green. Not so, say GM reps.

With or without a bill, the Corvette is an iconic American sports car, and we’re proud to build it in Kentucky. It shouldn’t be perceived as a snub, and we don’t take it as that.

But GM’s downplaying of the news hides the possible cause for what otherwise would be a win-win political proposition.

Chrysler’s awkward, year-long fandango with unwanted dealers is poignantly encapsulated in a strange little anecdote hidden in the back of today’s Automotive News [sub]. Headlined, “Rejected-store worker’s chat with Sergio was just smoke,” the piece told of a chance encounter several weeks ago between Fiat/Chrysler CEO Sergio Marchionne and culled dealer Jim Casper, while enjoying a smoke at a seafood restaurant bar.

“Are you a rejected dealer?” Marchionne asked [after Casper introduced himself].

“I work for a rejected dealer,” Casper replied.

“Do you know why you were rejected?” the CEO asked.

“To be honest, sir, we have absolutely no idea,” Casper said.

Now why would Sergio guess that Casper was with a “rejected dealer,” a term used by dealers protesting Chrysler on Youtube? It could have been awkward if Casper were just a good soldier looking for a pat on the back from his CEO. Actually, on second though, it couldn’t have been any more awkward than what (apparently) actually happened.