Re: Big three bailout

Posted by JWL On 2008/12/15 11:08:14

While we are on the subject of a bailout for the Big 3, here are some thought I have on their dealers.

Manufactures are now refusing to provide credit to their dealers for new vehicle orders. I can understand about lack of capital to give dealers credit, but the manufactures saying they need to reduce the number of dealers as part of their reorganizations is, to me, a Red Herring.

The dealers are independent business people. They own or lease the land, build or lease the facilities, hire the personnel, and stock the parts and equipment inventories. When a vehicle is shipped to a dealer, that dealer has bought or financed (floor planed) it. The manufactures are off the hook, except for warranties.

There are laws in each state to protect these dealer businesses from being unilaterally closed by the manufactures. The dealers hold franchises or contracts with the manufactures for a specified period of time, with extension clauses. They need these contracts to assure that there is an obligation for the manufacture to provide them with the goods that they have agreed to sell through their locations.

I understand it cost GM about $1M for each Oldsmobile dealership that was closed when they stopped making the car. By not making financing available to the dealers, the manufactures have neatly side stepped another Oldsmobile experience, and saved themselves the dealer cancellation costs.