Race and sex of owners played role in what GM dealerships were shutdown

Well, this is pretty disturbing from the TARP Special Inspector General Neal M. Barofsky. The race and sex of the dealership owner apparently factored into determining whether dealerships would be closed down. First some background. GM and Chrysler were forced by the government to close 2,000 dealerships and putting 100,000 people out of their jobs during a recession. Now it turns out that these closing probably didn't save the car companies any money and it may have even cost them money (p. 30, from the "Factors Affecting the Decisions of General Motors and Chrysler to Reduce their Dealership Networks," July 10, 2010, Office of the Special Inspector General for the Troubled Asset Relief Program).

In fact, when asked by SIGTARP what GM will save by closing any particular dealership, one GM official stated the answer is usually “not one damn cent.”

Furthermore, a GM official stated that removing a dealership from the network does not save money for GM—it might even cost GM money—and that savings cannot be attributed or assigned to any one dealership. According to one GM official, it was a “math exercise” to assign a savings amount to one dealership; it was difficult to estimate savings for a particular dealership because the savings are expected to be achieved when the entire dealership network plan is accomplished.

The report concluded (pp. 28-29, see also pages 11-12):

One, although there was broad consensus that GM and Chrysler generally needed to decrease the number of their dealerships, there was disagreement over where, and how quickly, the cuts should have been made. Some experts that SIGTARP spoke to in connection with this audit questioned whether it was appropriate to apply the foreign model to the U.S. automakers, particularly in small markets in which the U.S. companies currently have a competitive advantage, a concern apparently not substantially considered by the Auto Team when they adopted this theory. The conclusion that the manufacturers should close dealerships more rapidly than originally planned was also criticized as being potentially counterproductive; one expert opined, for example, that closing dealerships in an environment already disrupted by the recession could result in an even greater crisis in sales.

So how did GM determine who to shutdown? (pp. 17-18)

GM determined that dealerships with a DPS Score of 100 were average performers; those below 70 were considered poor performers and would not be retained. SIGTARP noted, however, that GM did not uniformly apply the phase one criteria to the entire network. For example, our analysis found that two of the wind-down dealers did not meet either criterion. Furthermore, we found that, of the dealerships that met only one of the two criteria:
• GM retained 355 (or approximately 41 percent) of the 858 dealerships that had a DPS score below 70.16
• GM retained 9 of the 394 dealerships that sold fewer than 50 new vehicles in 2008.17
GM officials attributed these inconsistencies primarily to a desire to maintain coverage in certain rural areas where they have a competitive advantage over import auto companies that are not typically located in rural areas, although ultimately close to half of all of the GM dealerships identified for termination were in rural areas. Other dealerships were retained because they were recently appointed, were key wholesale parts dealers, or were minority- or woman-owned dealerships.

More than half of the GM dealerships that were identified to be closed were in rural areas (p. 24). Yet, as noted above, this were probably not the best places to shutdown dealerships.

Note that last year that the Obama administration denied that dealerships were being closed based on the political affiliation of the owner.

The White House denied Thursday charges by conservative bloggers that President Obama's Auto Task Force, which is overseeing the restructuring of the U.S. auto industry, targeted for closure Chrysler dealers who have contributed to Republicans.

"We don't make those decisions. Ok?," said White House Press Secretary Robert Gibbs. "Chrysler makes those decisions. So I am sure you can send Chrysler the address of the blog that you refer to. ... We're not involved in making those decisions I would think your question would be appropriately dealt with by the company that is." . . .

I said last year that I didn't believe that there was evidence to support this claim.
John R. Lott, the professor best known for his books, "More guns, less crime: The bias against gun rights" and "Freedomnomics," called earlier this week to talk about the possibility of partisan political considerations in the Obama administration's closing of nearly 800 Chrysler dealerships.
"I just don't see the evidence for partisanship," said Lott, who is a senior research scientist at the University of Maryland. He's prevously held professorships at the Wharton School, University of Chicago and Yale. When this guy has an opinion about an issue that is subject to data-driven analysis, I listen. . . .

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