Raw Deal

The stark reality of the US automaker bankruptcies (Chrysler is being remade as we speak, GM's coming bankruptcy is all but assured now, and Ford's fate is still uncertain) is that anywhere from 25% to as much as 40% of Chrysler and GM dealers are going to lose their businesses. That means thousands of shuttered dealerships nationwide, and hundreds of thousands of additional lost jobs across the country.

This week, General Motors is expected to tell between 1,000 and 1,500 of their 6,200 dealers nationwide that the corporation will not renew their franchise agreements, and Chrysler will notify 25% of their US dealers - 800 out of 3,200 total - that their days as new car dealers are over, too.

As Ken Bensinger, who has been following the dealer crisis for the Los Angeles Times, wrote this weekend, "... it amounts to a blood bath for dealers, who employ hundreds of thousands of people nationwide and pump billions of dollars into their area economies. With dealers unsure whether their names will be called, a pervasive sense of dread has crept into showrooms."

The National Automobile Dealers Association (NADA) and groups of Chrysler and GM dealers are taking various steps to try and stem the tide of forced closings, many involving complicated and expensive legal challenges to the car-makers but some aimed at the general public, too. NADA is taking out advertisements in major publications urging President Obama "to choose Main Street over Wall Street."

The strong state franchise laws which govern the sales ballet and love/hate relationship between car-makers and their dealers (most all written with dealer-only input) are from the same eras when Detroit was concerned with only five things: 1) Making enough cars to fill demand, 2) Avoiding any trouble with unions or dealers which could slow sales, 3) Spending all the money they were making, 4) Protecting executives' annual bonuses, and, in GM's case, especially, 5) Avoiding being labeled a monopoly by Washington and being split into separate companies.

Needless to say, the fight over dealership jobs and UAW jobs is really just beginning. And as more and more Americans lose their jobs, the situation is just going to get more dire for the economy. The legal battles alone may take years, draining both sides of the battle when neither can afford to lose, and neither can afford to win.

Meanwhile, the number of people buying new American cars will continue to fall.