Insurance Law

Another Example of Government Getting Involved In Markets

By The authors are Martin F. Grace and J. Tyler Leverty, professors of insurance and risk management a

to an industry's detriment.

State/Local dealerships laws restrict the ability of GM to relieve itself of inefficient dealerships. (L.A. Times, 4/13).
via Craig Newmark

"The possibility of bankruptcy looms for GM and Chrysler after President Obama rejected their latest financing requests last month and sent them back to the negotiating table. Reducing billions of dollars in obligations to debt holders and unions was singled out as the most immediate goal, and the administration has been working intensively with the automakers to help work out a deal.

Yet the administration has also strongly urged the automakers to come to terms with dealers. And with their coffers all but drained, they have never been less prepared to make their most loyal partners a reasonable offer to get out of the business of selling cars.

State franchise laws make it difficult and expensive for a carmaker to shut down dealers unless they fold on their own -- or the carmaker files for bankruptcy protection. With little leverage and the clock ticking, GM and Chrysler must find a way to navigate the complicated economics of the American car dealer.

"GM and Chrysler have this mandate to get rid of dealers, but the costs and complexity involved are mind-boggling," said Randy Berlin, practice director at Urban Science, which tracks auto dealers. "Bankruptcy might be the only way.""

Full post as published by RiskProf on April 21, 2009 (boomark / email).