Of Government Bail-outs, Dealership Closings and Used Car Repairs

The news of auto manufacturers informing large numbers of U.S. dealerships that contracts will not be renewed is not what we needed to hear right now. And while mention is made of the impact of those who will have to close their businesses or re-size their operations by laying people off, the domino effect also needs attention. Each dealership that closes or downsizes means a loss of business revenue for those who serve as vendors to the dealership by providing products, supplies and services. Whether it's oil filters, cleaning rags and toilet paper or newspaper advertising, printing, window cleaning and lawn maintenance, someone else's business is bound to feel the effects when a neighborhood employer shuts its doors or reduces its operations.

Close a business and the impact is also felt by fewer dollars donated to local schools, community groups and religious organizations. Close a business and fewer dollars are spent at restaurants, coffee shops, gas stations, grocers and retail stores located in the vicinity of each dealership. Close a business and the ripple effect, while not immediately apparent, eventually takes its toll in each community that adds one more count to its unemployed population.

When the suggestion of a bailout for auto manufacturers was first discussed at the national level, it was around the time I had to shell out good money for another repair on my used car. Since then, more money has been invested in emergency repairs for my son's car (a costly gift referred to as the car-from-Hell). Earlier this past week, I learned tires bought just two years ago were shot and not covered by warranty, so my old car now sits in the driveway until that time when I can afford to get it repaired... again.

Having significantly reduced my tooling-around-the-town time, thereby having more time to contemplate the state of my business and its (as in my) cash flow, I've thought about the many dollars I've spent on used vehicles during the last decade. And I've come to three conclusions:

(1) Car problems do not occur when it is convenient for one's work schedule.

(2) Car problems do not occur when it is convenient for one's cash flow.

(3) Emergency used car repairs (as in expensive) seldom occur when there are enough funds to repair the car AND put a down payment on a new car. This is known as a "Catch 22".

It's unfortunate the government, when initially contemplating its bailout of the auto industry, simply didn't use some of the bailout funds to buy up the inventory sitting in dealerships across the country. This would have improved the cash flow of the dealerships and given them a reserve to help them weather the tough times and do some retooling of their businesses. It also would have built a demand for the manufacture of new cars (thereby saving some jobs) along with the hope that production planning and sales forecasts would be more realistic the next time around. After all, how many new cars can be bought in a slow economy? And do we really need to produce ANY form of vehicle that is not environmentally friendly?

But what about that new car inventory I thought the government should have bought direct from dealerships?

Well, the feds could have set up a coupon discount or rebate program (similar to that for HD TV converter boxes). And here's how it would have worked. Folks with documentation of used car purchases and repairs would turn their receipts in for a coupon that could be applied to the purchase of a new car (given what I've spent, I'd be getting at least 1 car for free along with a HD TV and enough left over to pay off some debt). Used cars, if repairable, could be donated to charity organizations that have programs for refurbishing cars for those in need. This would have increased the supply and reduced wait times (which currently can be several months). The coupon/rebate program likely would have also reduced the number of people on the charity car waiting list. And how about the cars not worth saving (I have a couple that would meet the criteria)? Strip 'em down and send them off to recycling centers. Or donate 'em to schools that teach auto care and repair.

To be fair, the government would obviously have had to create a similar type of program for other large ticket products that would appeal to those citizens who don't own cars but travel by foot, bike, bus, train or subway (and who are in possession of a large number of receipts for ongoing repair of said items).

Of course, the impact on purchases of new cars (coming direct off the assembly line) would be negligible. Folks who have had the wherewithal to buy a new car or two in the last decade are probably not in possession of several years' worth of car repair receipts...

In my dreams.

Apparently my idea isn't feasible, according to my young adult son (Felix) who is far more knowledgeable about economics than I (i.e., I hyperventilate when I look at supply/ demand graphs and sweat profusely in the vicinity of a spreadsheet). But I have to wonder, when manufacturers produce large numbers of products (that sit on the floors and in warehouses of their distributors) then claim they are responding to the demands of the marketplace -- just who are they talking about?

If there was ever a time for improved forecasting and responsible planning, that time is here. Just ask the employees, business owners and communities affected by the decisions of automaker executives.