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Report: Government made car dealerships close too fast

John Dimsdale Jul 19, 2010
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Report: Government made car dealerships close too fast

John Dimsdale Jul 19, 2010
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TEXT OF INTERVIEW

Bill Radke: A new report on the financial bailout program says the government pressured car companies to close too many dealerships too fast. The watchdog for the program says those closed dealerships hurt the economy. Marketplace’s John Dimsdale joins us live from Washington. Good morning, John.

John Dimsdale: Hello, Bill.

Radke: What does this report criticize specifically?

Dimsdale: Well the special inspector, Neal Barofsky, blames the Treasury Department for not giving enough attention to the economic fallout to local economies. By ordering these quick dealer cutbacks, Barofsky says the government potentially added tens of thousands of workers to local unemployment roles, all based on a theory that it would help the companies’ profitability.

Radke: Well John, ttake us back, then, to 2009. Why were the car companies getting pressured to close dealerships?

Dimsdale: Well the conventional wisdom at the time was that the failing carmakers had a bloated number of dealerships. So when the government used TARP money to bail out the companies, it rejected GM and Chrysler’s intial plans to gradually phase out around 2,700 local dealerships over five years. So that forced GM and Chrysler to come back with a more drastic schedule, essentially shutting down 2,200 dealers right away.

Radke: And is the government now defending its decision?

Dimsdale: It is. They say this report is too narrow, that it doesn’t factor in the overall effect on the jobs saved by keeping GM and Chrysler in business. Not only did the dealership downsizing save hundreds of thousands of factory jobs, Treasury says that it also stabilized the car parts industry and preserved the savings of millions of retired investors who depend on their stock in GM and Chrysler.

Radke: Interesting controversy. Marketplace’s John Dimsdale, thank you

Dimsdale: You’re welcome.

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