Chrysler to Dealers: You're Fired!

Chrysler is killing about 800 of the worst-performing dealerships in its network.  Bloomberg reports that the 25% of dealers it's cutting from the team roster account for only 14% of the company's sales; the nice chap on television added that a considerable number of them sell 100 or fewer cars a year.  Which sort of raises the question:  why do they want to keep the dealership going?  Chrysler might have accomplished the same feat with less trauma by paying a few economists to visit the lot's owners and explain the concept of sunk costs.

This should make for some interesting political theater.  During the Great Depression, auto dealers secured the first in a long series of franchise laws that made it well-nigh impossible to kill off dealerships (in many states, automakers have to pay the owner the entire theoretical sale value of their dealership, even if there's no actual buyer.  Over the years, the dealers have turned into arguably the most powerful state and local lobbying force after the public sector unions.  And why not?  Auto companies are way off in another state, while the dealers are right there, voting and making campaign contributions.  You can expect those dealer networks are on the horn to their congressmen this morning, filling their ears with angry demands for the same kind of help Obama handed the UAW.

The bankruptcy judge does not, of course, have to recognize these demands.  Indeed, I expect he will not.  But meanwhile, there are going to be some very anxious congressmen trying to pull the strings on the government-provided DIP financing.

The bigger problem is how bankruptcy laws interact with those franchise laws.  Ultimately, I don't think that they can push dealer up in line . . . but you can be sure that will be litigated extensively.