There’s A New Boss In Town

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Steven Rattner, President Obama’s Czar for the Task Force on Autos has resigned from his post of six months after overseeing the Chrysler and GM bankruptcies. Rattner is being replaced by Ron Bloom the number two man on the Auto Task Force. Bloom is also a United Steelworkers union adviser and former investment banker. Bloom has a history of representing various unions. (Source: Reuters)

According to the Wall Street Journal, it was Bloom’s strategy of pressing creditors, reaching concessions with unions and finding new funding sources that has pushed Chrysler and GM through bankruptcy proceedings. Mr. Bloom plans on “monitoring this vital industry and protecting the substantial investment the American taxpayers have made” in the companies.” (Source: Wall Street Journal)

Thus far the federal government has committed over 180 billion dollars to the auto industry (Source: CNN Money). In addition, the feds “invested” an additional 50 billion to GM during its bankruptcy re-organization, resulting in 60% ownership of the new GM.

Mr. Bloom is scheduled to appear before a House of Representatives committee as part of an examination of the Chrysler and GM bankruptcies.

According to a Gallup poll in June, 55% of Americans disapprove of the government investing in GM and becoming the main shareholder. The same poll also showed that only 20% were planning on purchasing a new vehicle from an auto dealer and 49% reported to be less likely to purchase a vehicle from a manufacturer that has declared bankruptcy. (Source: Gallup)

The above public attitudes are not good news for the already struggling auto dealerships and auto industry in general. It is hoped that the new “cash for clunkers” law will buffer some of these negative viewpoints. There are predictions that the law may increase sales by 10%. So far, sales are down approximately 35% when compared to 2008. However, it is expected that auto dealerships will have an increase in foot traffic. (Source: Bloomberg News)

Auto Dealership Closures Continue

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In May, bankruptcy court allowed Chrysler to close approximately 789 or 25% of its authorized dealers. Prior to bankruptcy, there were about 3,181 authorized Chrysler dealerships.  List of Chrysler auto dealer closures

Visteon and Metaldyne, both auto parts manufacturing corporations also  filed for bankruptcy in May.

In June, bankruptcy court approved General Motors plans for the eventual closure of about 42% or 2,600 of its total 6,200 authorized dealers. It is unclear what will happen to approximately 470 Saturn, Hummer, Pontiac and Saab dealers after GM sells off these brands. The company further expects to lose another 10% due to attrition.  List of GM auto dealer closures

Bankruptcy court has made the closure of dealers a much easier process however Ford has also been closing dealerships over the last two years. It is estimated that a total of 600 authorized Ford dealers will close by the end of the decade. Currently, Ford has approximately 3,430 authorized dealers.

American auto manufacturers continue to claim that the closure of auto dealerships will help them become more competitive against foreign brands in the U.S. With an overabundance of dealerships; competition forces dealers to lower prices. Furthermore, dwindling profits have resulted in the inability for many dealerships to make upgrades to facilities and attract quality personnel. For example, Toyota (1,235 dealers), Nissan (1,067 dealers) and Honda (1,030 dealers) have substantially less authorized dealers in the United States.  Auto Manufacturer Information (Source: Associated Press)

It is clear that online marketing will become even more crucial as consumers unable to visit multiple dealer locations within a comfortable driving distance will become even more dependent on third party auto websites for research and dealer specials.

National Automobile Dealers Association and All About Cars Online among others support the bill opposing closure of dealerships (H.R. 2743/ S. 1304). The House of Representatives has inserted language into its annual spending appropriations bill that would “restore the economic rights of the dealers before the bankruptcies, ensure they have the right to recourse under state law and require the two automakers to reinstate franchise agreements before the bankruptcies” (Reuters). The Obama administration has made it clear that it does not support provision and support in the Senate is weak.

The public is encouraged to call their representatives and urge them to support House of Representatives bill 2743 and Senate bill 1304 at (202) 225-3121. The President’s office contact information is (202) 456-1111.   

News Bulletin

1. Cash for Clunkers – the bill was passed by Congress and awaiting President Obama’s signature as of this date. Congress has appropriated one billion dollars for the auto industry stimulus short of its anticipated four billion dollar pricetag. Analysists think that the “cash for clunkers vouchers” will be used long before the November 1st deadline for this program. This means that both consumers and auto dealers must be ready to take advantage of the limited funds immediatedly. The program is expected to begin mid July.

The federal government has created a website with eligibility requirements. Bookmark and check this website often for information: www.cars.gov.

Generally, vehicle purchasers can qualify for a $3,500 to $4.500 credit for car purchases on trade-ins with certain miles per gallon (mpg) criteria. Vehicle mpg can be determined at http://www.fueleconomy.gov/feg/findacar.htm.

Congress estimates that the cash for clunker program could result in the sale of approximately 250,000 units.

Source: Detroit Free Press

2. Automobile Dealer Economic Rights Restoration Act of 2009 – Congressmen Dan Maffei (NY-25) and Frank Kratovil (MD-1) have introduced a bill in the House of Representatives that would:

“restore the economic rights of General Motors and Chrysler car dealers as they existed prior to each company’s bankruptcies, preserve General Motors and Chrysler car dealers’ rights to recourse under state law and at the request of an automobile dealer, require General Motors and Chrysler to reinstate franchise agreements in effect prior to each company’s bankruptcies.”

The bill is supported by the National Automobile Dealers Association and thus far is supported by 101 Democrats and 46 Republicans with increased ongoing support. Other legislative bills are moving through various states and there may be a bill introduced in the senate as well protecting auto dealerships. The constitutionality of such legislation is questionable as federal bankruptcy laws may legally prevail.

The public is encouraged to call their representatives and urge them to support H.R. 2743 at (202) 225-3121.

Sources: Wall Street Journal, National Automobile Dealers Association, and Congressmen Dan Maffei (NY-25)