TARP Inspector: Auto Dealer Termination Overlooked Job Losses, Cost Savings

The Treasury special inspector general responsible for the Troubled Asset Relief Program got it right in his report saying that the termination of Chrysler and General Motors auto dealerships may have ended up costing more jobs than necessary, the National Automobile Dealers Association said Monday.

The report by SIGTARP Neil Barofsky dated Monday found that "Treasury made a series of decisions that may have substantially contributed to the accelerated shuttering of thousands of small businesses and thereby potentially adding tens of thousands of workers to the already lengthy unemployment rolls -- all based on a theory and without sufficient consideration of the decisions' broader economic impact."

The audit concluded that the decisions by General Motors and Chrysler to reinstate hundreds of terminated dealerships without "any apparent sacrifice to their ongoing viability" shows that "such such dramatic and accelerated dealership closings may not have been necessary" and perhaps could have been avoided.

It warned that Treasury may want to take a more reserved approach before reaching similar conclusions in the future.

After GM and Chrysler announced last year that they were going to go bankrupt, the U.S. government stepped in to bail out the two Detroit automakers -- at a cost of $80 billion to taxpayers. As part of the plan, the car companies were told to streamline their production plants and distribution outlets, and close more than 2,000 dealerships between them.

At the time, many auto dealers asked why they were being told to close when they were still profitable and Congress held hearings about the impact to local communities.

But the automakers continued with their plans at the demand of the administration. They eventually filed bankruptcy months later.

In a statement that followed the audit, NADA Chairman Ed Tonkin said the inspector general repeated exactly what the association argued when it testified on Capitol Hill that the rapid firings were not economically sensible.

"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: '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,'" Tonkin said.

"The report demonstrates what NADA has maintained for many years -- that the franchised automobile dealership is and will continue to be the most powerful job-creating entity on Main Streets all across America," he added.

But in its response to the audit, Treasury Assistant Secretary for Financial Stability Herbert Allison said had the administration not stepped in, many more auto dealer workers could be unemployed today.

"The outcome under the restructuring plans is far better than the likely alternatives had the administration not stood behind the companies," Allison wrote. "The administration's actions not only avoided a potentially catastrophic collapse and brought needed stability to the entire auto industry, but they also saved hundreds of thousands of American jobs and gave GM and Chrysler a chance to reemerge as viable, competitive American businesses."

Barofsky said Treasury's response set up a "false dilemma" by suggesting it was a choice between letting the companies fail and closing the dealerships.

"Indeed, when asked explicitly whether the Auto Team could have left the dealerships out of the restructurings, Mr. Bloom, the current head of the Auto Team, confirmed that the Auto Team 'could have left any one component (of the restructuring plan) alone,' but that doing so would have been inconsistent with the president's mandate for 'shared sacrifice,'" Barofsky wrote.