Standing Firm on Auto Dealers

by Donald Marron

Thursday, July 16, 2009 at 12:09 AM EDT

Over the past year, the U.S. government has acquired an unprecedented investment portfolio, including a majority stake in GM and a large ownership stake in Chrysler. These investments have raised a plethora of difficult policy challenges. One of the most important is the ongoing risk that private business decisions may get transformed into public policy issues. Or, put more bluntly, that policymakers might use the ownership stakes as justification for and leverage to pursue their own policy agendas, regardless of whether they would be good for the companies.

Yesterday’s newspapers provided an excellent example of this risk. Some lawmakers want to use legislation — the annual appropriations bill that funds financial services and general government — to restore the franchise agreements of several thousand dealers who were terminated as part of the restructuring of GM and Chrysler. It’s easy to see how such a proposal can gain traction in the House of Representatives. Every terminated dealership will get a sympathetic hearing, at a minimum, from their local representative. But such meddling is not in the interests of GM and Chrysler, nor the nation at large.

Happily, the Obama Administration has come out against these efforts. In a Statement of Administration Policy on the appropriations bill released Wednesday, the Administration wrote:

The Administration strongly opposes the language in the bill that attempts to restore prior Chrysler and General Motors (GM) franchise agreements. The auto companies, like many in the country, face difficult economic and fiscal decisions. The Administration shares the Committee’s concern for dealers affected by Chrysler and GM bankruptcy agreements, and has taken steps to help support viable dealerships during this transition. For example, on July 1, the Small Business Administration implemented a new program to provide guaranteed floor plan financing loans. However, the decision by Chrysler and GM to rationalize their dealer networks was a critical part of their overall restructuring to achieve long-term viability in order to save jobs in the long run, and to improve the prospects for the companies’ repayment of the substantial taxpayer investments. Without the significant steps these automakers have taken to revamp their operations, the companies would have failed – imperiling every GM and Chrysler dealer in the country. Under the automakers’ new structure, the overwhelming majority of GM and Chrysler dealers will continue operating with the new companies. The decision to invest taxpayer dollars into these companies required all stakeholders to make difficult sacrifices, and it would set a dangerous precedent, potentially raising legal concerns, to intervene into a closed Judicial bankruptcy proceeding on behalf of one particular group at this point.

This opposition is not as strongly- worded as it could be (a veto threat, for example), but it is a good sign.

P.S. For an example of strongly-worded opposition, see the Administration’s SAP on the annual authorization bill for defense spending. The Administration has rightly drawn the line against unnecessary purchases of F-22 fighters, so it is threatening a veto:

[I]f the final bill presented to him contains this provision [procuring seven additional F-22s], the President will veto it.