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TARP Update Says Car Dealer Cuts Too Severe


Remember the hue and cry over all the car dealerships that were forced to close in the wake of the federal government’s involvement in the GM and Chrysler near failures. Not only would little league teams lose their sponsors but the social fabric of small town America would be put at risk. In addition, there would be a big sucking sound that would be all those jobs going to that showroom in the sky.

Guess what? A report issued by the office of the Special Inspector General for TARP (SIGTARP) found that a lot of those doomsday scenarios were very close to what actually happened.

According to CNNMoney the car companies had presented restructuring plans to the Treasury’s Auto Team but they were rejected because they didn’t move quickly enough to shrink their dealer networks. This was seen at the time as job one in making the remaining dealers more profitable and the companies more viable.

Since saving money was not the prime motivation in the closings, it was only after being pressured by congress and after the pink slips were sent out that the two companies came up with estimates for how much each dealer closing would save.

GM said it would save $1.1 million per dealership while over at Chrysler the figure was $45,501. The disparity in these estimates “casts doubt on their reliability’” the SIGTARP report said. In the aftermath Chrysler terminated 789 dealers and GM drew up plans to down size their dealer network by 1,454 dealers by October 2010.

The National Auto Dealers Association (NADA) feels vindicated by the report as Ed Tonkin its chairman told CNNMoney: "The SIGTARP report confirms what was said in NADA's testimony presented to Congress in several hearings and to the Auto Task Force in multiple meetings.” He added that “We do not see how these cuts make economic sense--not for the companies, not for the dealers, not for local communities and certainly not for the struggling U.S. economy.”

The fact that many dealers were reinstated later indicated that the cuts did not need to be so deep the SIGTARP report said. An arbitration process was developed by both companies to address the dealers who felt they were axed unfairly.

For its part Treasury has responded with a letter citing the unprecedented times under which the industry was laboring and the cataclysmic ripple effect its failure would have upon the economy as a whole.  

[CNNMoney]

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