Comment by grandalf | Hacker News Reader

Comment by grandalf | Hacker News Reader

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Getting a car dealership franchise in the US is like winning the lottery. There are so many barriers to entry that the dealer is pretty much guaranteed to earn $500K to $1M per year if he/she has halfway decent management skills.

Further, the credit crunch a few years ago would have wiped out enough of the US Auto industry to put a lot more dealers out of business. The rebate bill that was passed was a massive handout to US auto dealers. All those people making $500K to $1m per year owning dealerships are essentially on welfare.

If more of the industry has been allowed to restructure after the credit crunch, Tesla would not have to worry as much about a legal battle. The public would rightly view Tesla as offering an innovative approach that will benefit consumers.

The worst part of it is that the reason the automotive OEMs tried to sell directly a few years ago was to put an end to predatory practices (dishonesty, etc.) by auto dealers. There is no reason car dealerships should quote a price and engage in haggling, etc. Many customers (particularly the elderly and the poor) are the direct victims of these practices, and they are supported by the Federal laws that prop up auto dealers.

The US auto industry _was_ restructured by the government and dealerships _were_ closed. The first link I found with numbers for both said that Chrysler closed 789 out of 3200 of its dealers and GM closed 2600 out of 6246 [1].

[1] http://www.nakedcapitalism.com/2009/05/how-is-chrysler-close...

Compare that to how many would have closed without the massive handout.

Chrysler was able to force some to close by holding over the dealer organizations' heads the threat that the government would not do the bailout and all Chrysler dealers would go away.

Unlike a market-based failure, the government-led restructuring was surely not done fairly and likely some reputable and honest owners were penalized for not being more politically connected.

To be fair, _all_ of them would have closed without the massive government bailout.

If the American auto industry had totally collapsed, there wouldn't have been any cars to sell.

> To be fair, _all_ of them would have closed without the massive government bailout.

There was at least one offer to buy Chrysler (from Penske). I'd be surprised if there weren't any offers to buy GM.

Of course, those offers involved real bankruptcy. The resulting companies wouldn't have kept the UAW contracts and pension obligations and they wouldn't have been able to keep the tax-loss carry-forwards either.

They'd have kept dealers based (more) on economics instead of political pull.

And, the bond holders would have gotten their cut first.

GM makes sense at the right expense point.

I believe the Penske bid was actually to buy the Saturn brand from GM, not Chrysler. Could be wrong, but buying a company the size of GM at the time of the bailout would still have been a very difficult proposition.

> I believe the Penske bid was actually to buy the Saturn brand from GM,

Okay.

> buying a company the size of GM at the time of the bailout would still have been a very difficult proposition.

As you point out above, GM could have been sold in parts. (Some of the brands and models are independent of the rest.)

Basically it would have been a no-reserve auction with the money going to the bondholders. (They'd have taken a loss, but wouldn't have lost everything.) The winning bid is based on what folks are willing to pay, not what someone thinks GM is worth, book value, etc.

There's actually a lot of money available for such deals. Yes, 10s of billions and hundreds for "special" deals.

The potential "collapse" of the entire American auto industry was FUD to get the bailout passed. People need cars. Someone would make them, and sell them.

Maybe Japan, Korea, and Europe would have had most of the business for a while. Ford was already international and didn't take any of the bailout either.

>Someone would make them, and sell them.

Nah. Democrats and Republicans alike would have us all believe we'd be riding bikes and horses to work because, magically, no cars would exist for at least five years.

Total shit.

No, I think their main concern was that it would have put a ton of their constituents out of work, which is, not surprisingly, a major concern for their constituents as well, even those not directly employed by anything auto-related (benefits of having a healthy middle class and all that).

Since these are politicians we are talking about, most likely the main concern was that the UAW wouldn't come out and stump for their candidates in 2012...

Also, if more than one of the companies failed, it would have sunk the PBGC (pension benefit guarantee corporation) which is the insurance policy that protects worker pensions.

The PBGC has been under-funded for a long time (due to crony capitalism and corruption benefiting both parties and the firms, at the expense of workers' security) and the result was that the automakers had a lot of extra leverage in bailout negotiations b/c the alternative for the government was the dissolution of the PBGC and the public realization of the fraud that had been going on.

Bailing out the PBGC would have been far cheaper than bailing out the UAW.

Among other things, the PBGC only guarantees pensions to the tune of $45k/year with no benefits (unlike the UAW pensions).

http://www.pbgc.gov/wr/benefits/guaranteed-benefits.html

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