Bearish Article

Another good article from Mr. E!! Thanks E!

http://online.barrons.com/article/SB124303129632948467.html?page=2

Car Dealerships

Not my article but worth the read. And there's always 2 sides to every story. 

Future historians might well look back on events of the last week and see a milestone of decline in the waning saga of American freedom.

The bridge between the free market and a command economy was likely crossed when, at government demand, thousands of car dealerships all across the country were put out of business. They were profitable, they were legal, they were useful, and the White House ordered them closed. A presidential panel, comprised of everyone except car-industry experts, demanded that Chrysler and GM cut off a third of their dealers' heads.

Hundreds of thousands will lose their jobs. Thousands of businesses will close. Millions of consumers will be affected.

Because the government said so.

If Chrysler and GM want their mandatory bailout money, they must do what the White House says, and the White House says there are too many car dealers. And so, people's lives will be destroyed, massive investments will be lost, family businesses will be annihilated, the life's work of countless honest American business men and women will be flushed down the toilet.

And barely a whimper of protest is being heard. The crown has spoken and the subjects bow and scrape.

The argument is that, in the shadow of bankruptcy, GM and Chrysler need to shed the deadweight of underperforming dealerships. The problem with that is that dealerships are not a financial liability for carmakers and that many of the dealerships that have gotten the ax are among the nation's most profitable.

One Jeep dealer in upstate New York, for example, sells just over half of all the Jeeps in its region. It not only outsells all of the other Jeep dealerships, it outsells all of the other Jeep dealerships combined.

And it has lost its franchise.

Another false assumption is that dealerships cost carmakers money. They do not. They make carmakers money. Even small, low-volume dealerships are a net financial gain for manufacturers. Dealers not only make companies money by selling their automobiles, they have to pay for signs and pamphlets and displays, all of which can only be bought – at exorbitant prices – from the manufacturers.

Further, it is insane for any business to assume that it makes more money by reducing retail outlets for its products. What did Wal-Mart do to make more money? It built more stores. What did McDonald's do to make more money? It built more stores. What did Starbucks to do make more money? It built more stores. What are GM and Chrysler doing to make more money? The exact opposite.

That might make sense in the anti-car fantasies of the ruling regime in Washington, but it makes no sense whatsoever on the balance sheet. It is pure big-government-knows-everything lunacy.

It is also a disservice to consumers.

The Obama dealership closings gut many rural areas, taking away both sales and service. Buying a car, or getting your car fixed, will now require a trip to some far-off city.

Some argue that with declining sales at GM and Chrysler, it is only natural that there should be fewer dealerships. That is true. Of late, some 400 or 500 American dealerships have gone out of business each year. But that has been a function of the marketplace, not of government dictate. Those who can't keep their heads above water have sold out or shut down.

Those who've kept in the black, who have been able to remain profitable, have stayed in business – until now. But now, profitable businesses, which seemed poised to continue to employ people and stay in operation for years to come, are on the way out.

In addition to the impact on owners and employees, the communities they serve are also devastated. In many areas, in states where sales tax is a major part of a community's revenues, the car dealership was the largest single source of local taxes. That loss is huge for municipal budgets. The same is true for the various charities, United Ways, sports teams and school activities that have long relied on the generosity of car dealers.

In one fell swoop, because the White House said so, that is all gone.

Ironically, the government has decided to decimate the only profitable part of the car industry. Not only are the car dealers not operating at a loss, they are the only part of the car industry that isn't being bailed out. So the government is propping up the part of the car business that doesn't work, and attacking the part that does.

It is morally and legally wrong. This is not the way a free country operates. It is absolutely not the American way. This is the first taste of a command economy, of central-government planning of industry and commerce.

It didn't work in the Soviet Union, it didn't work in Cuba, it didn't work in North Korea, and it won't work in the United States. If their goal is to take private transportation away from Americans – and it might be – this is a good idea.

Otherwise it's a horrible idea.

It is an attack on the free market, on the value of investment, on the ownership of property. It is essentially an act of theft. 

This is change we can believe in, and will come to regret.