Massive dealer eliminations came last year, thanks to General Motors and Chrysler, operating on the odd premise that slashing sales points somehow helps sales.
You could call it desperate auto makers doing desperate things after the jarring experience of going bankrupt. But the federal automotive task force, padded with Wall Streeters who became instant experts on the auto industry, ordered the dealer hits.
After the big dealer roundup of 2009, now comes dealer arbitration.
That's because Congress in December passed a law requiring GM and Chrysler to enter into third-party arbitration with disenfranchised dealers seeking redress.
Capitol Hill seems overly populated with hypocrites, such as politicians who told GM and Chrysler to drop dead but then expressed horror at how closing dealerships would hurt the economy in their states and districts.
Some members of Congress tried to enact legislation to rescind all of the dealership closings. Ultimately, Congress got it right when it ordered the binding arbitration for dealers who want it.
Too many dealers lost their franchises under questionable circumstances. Until Congress stepped in, the original lack of an appeals process smacked of injustice and caused needless ill-will.
The auto makers should have set up their own review process early on. Instead, they waited until Congress got involved — then proposed arbitration administered by them and only if Washington butted out.
One vexed dealer, Tammy Darvish, said she would have called that proposal a sham, but “that is an insult to the word ‘sham.’”
Circumstances required some sort of appeals process from the start, says Mike Jackson, CEO of AutoNation, the nation's largest dealership chain.
“An appeals process means someone can check your work,” he says. “And if you made a mistake, it can be corrected.”
It seems more than a few goofs occurred when GM and Chrysler decided to send out thousands of “Dear Dealer” letters.
Even Fritz Henderson, before he lost his job as GM's CEO, points to flaws in the original process of elimination.
“We made some mistakes because when you look at 1,300 or 1,400 (cases), you are going to make some mistakes,” he told Ward's.
Take the GM dealer whose store was next to the Minneapolis, MN, bridge that collapsed into the Mississippi River in 2007.
Roadwork in front of a dealership can hurt business. A major bridge reconstruction project that blocks customer access to a dealership can kill it.
The Minneapolis dealer saw his sales drop like that bridge. Yet, he survived the near-death experience. Then what happened? Citing poor sales, GM sought to yank his franchise.
To its credit, the auto maker reversed itself on that one and some other dealership cuts that made no sense upon reconsideration.
But as GM cuts its dealership ranks from 6,250 to 4,000, isn't it wise to establish some sort of review process? Was an act of Congress needed to do what seems so obvious?
AutoNation's feisty Jackson is a former auto executive who would never make it in the diplomatic corps because he says what he thinks.
Here is his take on how GM and Chrysler handled those dealership cuts, before the government stepped in: “Chrysler's was the crudest approach,” he says, referring to its effective-immediately stance vs. GM's wind-down policy.
“GM had a better model,” he says at the Automotive News World Congress in Detroit. “But it wasn't handled as skillfully as possible.”
So let the arbitrations begin, as affected dealers prepare to tell their tales of woe. The downside, says Jackson, is that “we'll have to relive these stories.”