As the restructuring of the American auto industry proceeds, both Chrysler and General Motors have begun widespread cancellation of franchise agreements with local dealerships. A total of 789 Chrysler dealers were scheduled to close on June 9, with 1,100 GM dealers scheduled for shutdown by 2010.
However, with an estimated 100,000 jobs and many long-established family businesses at stake, allegations have surfaced that political influence may play a role in the decisions of which dealers to retain and which to cast away, and Congress is considering action to prevent the completion of both manufacturers’ closure plans.
Already in progress
Chrysler LLC published its closure list on May 15, citing dealers’ sales performance, customer service, facilities, and relationships with other automakers as the key variables in the decision. The same day, General Motors began notifying about 1,100 dealerships that the company “does not see them as part of its dealer network on a long-term basis.” While the ax fell on Chrysler dealers June 9, GM’s action will take effect at a more deliberate ace as contracts expire.
North Carolina is expected to lose around 30 dealers between the two manufacturers. The total is uncertain because while Chrysler named the 13 dealers set to be shuttered in North Carolina, GM has declined to release information about the franchises on the chopping block. Several online sources, including the Huffington Post and auto consumer site Edmunds.com, are attempting to build a list of General Motors closures from media sources and reader reports. The N.C. Auto Dealers Association has estimated about 20 GM dealers will close here.
Payback allegations
Allegations emerged shortly after the announcements that profitable dealerships were being shut down for political reasons. Rep. Ted Poe, R-Texas, said on the floor of the House of Representatives that large Republican donors with Chrysler franchises were being closed, while Democratic donors were allowed to stay in business. No one in the Presidential Task Force on the Auto Industry, a panel led by Obama administration officials and former campaign aides, would explain the decisions in their restructuring plans, Poe said.
“Are these Auto Task Force tyrants picking the winners and losers based on campaign contributions? Does the administration have a Nixon-style enemies list?” he asked. “All these questions because the Auto Task Force guys aren’t talking and aren’t telling us why they closed down certain dealerships and why they let others remain open.”
This doesn’t seem to be the case in North Carolina. Federal Election Commission records show that most of the affected dealers in the state offered low levels of campaign support. One exception is C. David Johnson, whose Johnson Chrysler-Dodge-Jeep dealership in Durham was closed. Johnson, who owns Johnson Lexus in Raleigh and several other large auto franchises, is a long-time Republican donor. FEC filings show donations to GOP candidates and PACs totaling $100,000 or more over several election cycles.
If Johnson’s case fits the allegations, Reginald Hubbard of Metrolina Chrysler-Jeep-Dodge in Charlotte seems to refute them. FEC filings show that, while not as generous as Johnson, Hubbard has consistently supported Democratic candidates, including U.S. Senate hopeful Erskine Bowles, U.S. Rep. Mel Watt, and former Charlotte Mayor Harvey Gantt.
In fact, much about Metrolina seems inconsistent with Chrysler’s stated criteria for closure. Dun & Bradstreet estimated the dealership’s annual sales in the $60 million range; Hubbard was Wachovia’s 2004 “Entrepreneur of the Year” and was recognized by Black Enterprise magazine as one of the top African-American car dealers in the country. Metrolina was located in a new facility and received Chrysler’s own Five Star rating for excellence in customer service. Still, it joined two other Charlotte-area dealerships, which closed their doors on June 9.
Like many dealers contacted by Carolina Journal, neither Hubbard nor Johnson responded to repeated requests for comment. The state Democratic Party also declined to comment, though Brent Woodcox of the N.C. Republican Party stated, “This is why you don’t want politicians picking winners and losers in business, and it’s why you don’t want private business to be owned by politicians, because you can’t trust them not to make decisions on a political basis.”
Politics pulls both ways
Other politicians have stepped in to block the closure plans. The Automobile Dealer Economic Rights Restoration Act (H.R. 2743), sponsored by Reps. Dan Maffei, D-N.Y., and Frank Kratovil, D- Md., would require Chrysler and General Motors to honor franchise agreements as they existed before bankruptcy proceedings began. The bill is intended “to protect the assets of the Federal Government and better assure the viability of automobile manufacturers in which the Federal Government has an ownership interest, or to which it is a lender.”
Rep. Walter Jones, R-N.C., who voted against the automaker bailout ill, is one of the bill’s 147 co-sponsors. He said through a spokesperson that he is supporting the bill “to protect local auto dealers from opaque government-controlled entities who are making quick (and perhaps arbitrary) decisions — without transparency or oversight — about which dealers will be shutting down.”
North Carolina Democratic Reps. G.K. Butterfield, Larry Kissell, and Heath Shuler are also co-sponsors.
GOP Sen. Richard Burr summed up the controversy, saying, “This is another example of the federal government intervening where it does not belong. The government’s role is to promote policies that create jobs, not eliminate them.” Burr added: “This would have been far better handled had the White House and its Auto Task Force stayed out of the matter and let the bankruptcy courts, free from politics, determine what was good for the companies going forward.”
Hal Young is a contributor to Carolina Journal.