The First Cut Is The Deepest

Nick Bunkley at NYT:

President Obama’s auto task force pressed General Motors and Chrysler to close scores of dealerships without adequately considering the jobs that would be lost or having a firm idea of the cost savings that would be achieved, an audit of the process has concluded.

The report by Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program of the Treasury Department, said both carmakers needed to shut down some underperforming dealerships. But it questioned whether the cuts should have been made so quickly, particularly during a recession. The report, released on Sunday, estimated that tens of thousands of jobs were lost as a result.

“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,” the report said.

The report does not make any recommendations, and serves more as a review of the process. It does not carry the authority to initiate any corrective action.

But it comes at a politically delicate time for the Obama administration, which is facing skepticism from the public about the strength of the recovery and criticism from Republicans who are seizing on the economy — including the effectiveness of the federal bailout — as an issue heading into the midterm elections.

Mark Tapscott at Washington Examiner:

The SIGTARP report will further contend, according to Rep. Darrell Issa, the ranking minority member of the House Oversight and Government Reform Committee that it is questionable whether the closings were “either necessary for the sake of the companies’ economic survival or prudent for the nation’s economic recovery.”

Issa, who has been a vocal critic of the Obama administration’s handling of the GM and Chrysler government takeovers, said the SIGTARP report should “serve as a wake-up call as to the implications of politically-orchestrated bailouts and how putting decisions about private enterprise in the hands of political appointees and bureaucrats can lead to costly and unintended consequences.”

The California Republican also said the fothcoming report will say “GM did not consistently follow its stated criteria and that there was little or no documentation of the decision-making process to terminate or retain dealerships with similar profiles, or of the appeals process” and that “making termination decisions with little or no transparency and making a review of many of these decisions impossible…”

This doesn’t come as any great shock.  Barack Obama put Steve Rattner in charge of running his auto bailout program, a man who had just as much experience in the auto industry as Obama did: he drove a few cars.  Rattner had to make a quick exit after just a few months when it became known that he was the target of a federal probe into questionable activities regarding the New York pension fund — and his replacement had just as much experience in the auto industry as Rattner did.

What was the main entry on Ron Bloom’s resume?  He was a union negotiator.

Let’s keep this in mind when Democrats insist that government can run industries better than the markets themselves.  Not only did the White House purposely evade bankruptcy laws in cutting sweet deals for unions during the bailout, but they also destroyed jobs in the process out of incompetency.  I’d bet that a number of union members are none too pleased with that outcome, even if the union bosses are.

Jennifer Rubin at Commentary:

You are surprised? Obama’s notion that pristinely apolitical technocrats with great resumes can flip all the switches, turn the knobs, and get the economy purring is exploding before our eyes. The government doesn’t create wealth by massive spending, doesn’t do a better job than the private sector in running industries, and has an agenda based not on economics but on politics (e.g., protecting unions, sparing a vulnerable congressman).

More than the specific maladies of ObamaCare (which are many), this is the core problem with Obama’s great legislative “accomplishment”: it assumes that a centralized bureaucracy can do a better job of containing costs and maintaining quality care than the hundreds of millions of citizens making daily decisions with their doctors. With each revelation — for example, that choice in doctors will be severely restricted – the public gets an inkling that the one-size-fits-all federalized health-care system is going to be every bit as expensive and every bit as objectionable as the nationalized health-care systems that have been tried out in other Western democracies.

All of this is a fine argument for government to do less, not more. Much less.

Moe Lane at Redstate:

The short version?  Having the government do your restructuring for you isn’t necessarily the brightest thing in the world.  Particularly when there’s a variety of conflicting objectives.  At least, if what you’re trying to do is actually create a better version of your company; if your goal is to use government fiat to streamline the operations of your newly government-owned automobile manufacturer it apparently works out just fine.

Nick Gillespie at Reason

Chris Shrunk at Autoblog:

The U.S. Treasury, obviously, doesn’t agree with Barofsky’s assessment. The Detroit Free Press quotes an anonymous source who points out that it was well known in the auto industry that Detroit automakers have too many dealers. Toyota, for instance, has a much smaller dealer body than GM. And the dealers Toyota does have average much higher sales volumes than dealers of domestic products. That theoretically leads to dealers with more marketing muscle in their perspective markets. Not all automaker executives wanted to shrink their dealer networks, either. Some feared the loss of sales that would follow shutting down retail outlets, but the task force reportedly felt those lost sales would be recouped within a few years

But while arguments can be made for or against shrinking the pool of retail outlets around the country, one fact is hard to ignore. A reported 35,000 dealer employees lost their jobs in 2009 and 2010, or over three percent of all dealership employees around the country – roughly equal to the 32,000 jobs lost within the industry.

Barofsky also touched on the process which both Chrysler and GM used to determine which dealers should stay and which should go. The auditor claimed that Chrysler stuck to its plan throughout, which is evidenced by the fact that only 28 dealers won their arbitration cases out of 789 stores that were closed last year. Barofsky claims that GM wasn’t so strict in determining which dealers to cut, and there wasn’t much documentation to show how and why the General cut its dealers. GM has since restated 666 of the 1,454 dealers it cut, though the company gave dealers more than a year to wind down operations, while Team Pentastar cut off its under-performing dealerships almost immediately.

UPDATE: William Tate

Meredith Jessup at Townhall

Advertisements

Leave a comment

Filed under Economics, The Crisis

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s