The Perils Of Government Micromanaging The Auto Business

Last Updated Jul 20, 2009 5:55 AM EDT

One of the those oft quoted, untraceable canards about government funding is be careful what you wish for. If you take money from the Federal Government, or states and localities, often there will be catches that come with them. The perils of the U.S. auto industry illustrates that point clearly.

GM and Chrysler accepted funds from Obama and Congress to first stave off bankruptcy, and then just to try and keep them in business. One of their keys to reorganizing was restructuring their dealer networks primarily to reduce their number. The problem the Federal Government and the companies are now facing is interference from Congress and the states.

Most regulation of car dealers is at the state level. The owners of the dealerships carry quite a bit of weight politically and have made it difficult to shut them down or end their franchise agreements. In the past this has hampered attempts by the U.S. companies to set up on line sales for example. Now a group of dealers have petitioned Congress on the supposed unfairness of the Obama plan to restructure the U.S. auto business.

Congress has the ability to write a great deal of laws and attach them to all sorts of other bills. Now they have begun the process to pass a law forcing the companies to reopen these dealerships. The House has pass the bill doing this already. The Senate is now in discussion of how they too can support this bill.
There have been many historical examples of legislation favoring one or more business, even individual companies and persons. The Constitution prohibits passing bill of attainder's specified for one person technically but there are always ways around it if push-comes-to-shove. This illustrates that Obama, GM and Chrysler and their representaives did not do a good enough job of selling the plan to those who mattered - Congress.

If the dealerships remain open it increases the costs and competition for the companies which make it harder for them to stay in business. If they close local towns will see a negative economic effect as the dealers provide jobs and advertising. It hasn't helped the the decisions as to who would close appeared arbitrary. This struggle will continue for several more months.
  • Matthew Potter

    Matthew Potter is a resident of Huntsville, Ala., where he works supporting U.S. Army aviation programs. After serving in the U.S. Navy, he began work as a defense contractor in Washington D.C. specializing in program management and budget development and execution. In the last 15 years Matthew has worked for several companies, large and small, involved in all aspects of government contracting and procurement. He holds two degrees in history as well as studying at the Defense Acquisition University. He has written for Seeking Alpha and at his own website, DefenseProcurementNews.com.

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