Editorial: Automakers need Main Street sales

Plans to close dealerships put profitable small businesses at risk.

Last update: June 7, 2009 - 8:30 PM

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FRANCHISE LAWS

A bill passed by the 2009 Legislature strengthened the state's franchise laws. The sponsor, state Rep. Joe Atkins, DFL-Inver Grove Heights, worked with auto dealers and manufacturers to draft the legislation, in part to help dealers recover fees if manufacturers cancel franchise agreements. But with both General Motors and Chrysler in Chapter 11, Atkins said last week that it's unclear how much the law would help dealers make claims in bankruptcy court.

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Scott Lambert traveled to Capitol Hill last week hoping lawmakers would help rescue car dealers in Minnesota and elsewhere who stand to lose their businesses in the General Motors and Chrysler bankruptcy reorganizations.

Lambert, executive vice president of the Minnesota Auto Dealers Association (MADA), also hoped to hear GM Chief Executive Fritz Henderson and Chrysler Vice Chairman James Press explain how closing what in many cases are profitable dealerships would help the automakers emerge from Chapter 11 as healthier companies. Lambert, a former congressional aide and no stranger to Washington or sales pitches, was not sold on their explanations, even though the executives were pressed by agitated members of the Senate Committee on Science, Commerce and Transportation.

"I sat through a three-hour hearing yesterday, and those guys never fully explained how we cost them money,'' Lambert said last week.

The automakers have talked about efficiency of scale in distribution and marketing, but Lambert has another theory. Echoing a recent opinion piece he wrote for the Star Tribune, he blames the Obama administration for loading up its auto task force with outsiders who decided to model the struggling U.S. automakers after Toyota, which focuses on fewer, highly profitable dealerships, mostly in metro areas.

That overlooks a couple of important points: Toyota lost $4.4 billion in its last fiscal year, and GM and Chrysler still sell a decent number of vehicles in rural areas, often on the strength of small Main Street dealerships that also sponsor the local Little League team and support the local Rotary.

Lambert points out that even if the auto manufacturers were able to make the case that closing dealerships will cut costs, they'll lose distribution points without gaining market share. That formula doesn't suggest a bright post-Chapter 11 future for either company.

At the end of last week, GM planned to pull the plug on 36 of 149 dealerships in Minnesota, and it has asked others to stop selling competing brands, according to MADA. Chrysler plans to end franchise deals with 18 of 78 state dealerships. In total, 2,400 jobs could be lost in Minnesota, depending on how successful some of those dealers are in appealing the shutdowns and whether some stay in business selling other makes or used cars.

The lack of transparency in the decisionmaking process is angering the dealers almost as much as the decisions themselves. Owners are struggling to understand why the businesses they've spent lifetimes building are being targeted during a recession in which profitable small businesses should be celebrated.

We hope Henderson and Press learned something in Washington: They've got a public relations mess on their hands in towns across America that have depended on local auto dealers, especially in rural areas where car buyers are more likely to support U.S. automakers over their foreign competitors.

GM and Chrysler should move more slowly and thoughtfully on plans to shut down profitable dealers, and Congress -- as representatives of the taxpayers who are now major investors in the two firms -- should hold executives accountable for more transparency in those decisions. Auto executives should realize that the anger directed toward them on Capitol Hill last week is increasingly reflected in the mood of consumers on Main Street who hold the key to their eventual recovery.

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