An alarming attack on auto dealerships

When market forces cause a business to close, it's sad. But when the government does it, it's stunning.

By SCOTT LAMBERT

Last update: May 21, 2009 - 7:39 PM

Well, at least we now know what businesses the U.S. government considers not "too big to fail" -- the ones on Main Street.

The Obama administration's auto task force is driving changes well beyond Wall Street and Detroit, and is forcing thousands of new-car dealerships to close.

The failure of any small business is sad, and unfortunately it happens all the time. But the wholesale closing of profitable businesses by our government is disturbing. Unless the task force is stopped, it is about to throw dozens of Minnesota's Chrysler and GM dealerships out of business and put thousands of employees out on the street.

This pain is bewildering. Dealerships impose no real cost on auto manufacturers. We own our own property, carry the mortgage on our buildings, buy the inventory from the factory and pay for our own supply of parts. We even shell out for factory signs and marketing material. It is a cost-free distribution system for Chrysler and GM.

Detroit's problems have more to do with overcapacity of manufacturing, union contracts and legacy costs. The economic calamity we all seem to share is the sudden lack of customers that this new economy has brought us.

But the administration was determined to fill the auto task force with Wall Street turnaround guys, not industry experts. On one level, you can understand that logic. The task force has forced some changes that Detroit couldn't bring itself to do. But in the rush to remodel America's biggest manufacturing industry, with people learning as they go, there are bound to be missteps. The downside is becoming apparent. In the eyes of the task force, everything needs to be smaller, including distribution. But it fails to realize that someone else pays for distribution. And these dealers are ready to continue selling Chrysler and GM products.

That Washington is picking winners and losers in the marketplace, closing working businesses against their will, is alarming. That it's happening in a very nontransparent process is surprising.

In Minnesota, this could result in more than 80 stores being shuttered and more than 3,500 people being laid off from good jobs.

This is especially difficult for rural areas, where dealerships are often among a community's cornerstone businesses. They sponsor the ball teams, provide cars for the July 4th parades, keep good jobs in town and are usually the biggest taxpayers. Once they are shut down, it is unlikely they will reopen as dealerships. The local businesses they support will feel similar pain because of their absence. Customers will have to drive a little further on cold winter mornings for warranty and service work, and the market strength of competition will be surrendered just a bit.

No one denies that change is happening. Last year more than 40 dealerships closed. This year another dozen had already decided to do so. But those were market-driven decisions and were carried out in an orderly fashion. Dealers decided to sell to other dealers. Consolidations of stores and the absorption of employees were easier to accommodate. But most important, businessmen and women made their own choices and decisions. The heavy hand of the U.S. government did not make it for them.

Congress needs to step in and put the brakes on this unnecessary and avoidable destruction of Main Street.

Scott Lambert is executive vice president of the Minnesota Auto Dealers Association.