naked capitalism

Steve R. Barbour says:

It was once said of communism: “Great idea, wrong species”.

I fear that applies just as well to capitalism. I often despair that individuals engaging in any level of business allow themselves to be lured into ‘feeling’ or ‘acting noble’, such as these dealerships making sacrifices as though hoping that something would be returned.

It happens everywhere, and every sphere of society. From consumers to employees, stores, CEOs, and even hedgefunds all fall victim to this trait. It is human to feel compassion, sympathy, and to try to work together. Even when we know better our fundamental instincts lead us astray.

Unfortunately, it is also just as human to manipulate a system in our favor. We do it to nature and the laws of physics and through this became top of the food chain. We do it to each other and call it business.

I’d probably feel a bit more sympathetic for the dealerships here if I didn’t realize that their kindness only served to further empower worst of humanity while weakening the best. That is always the result of kindness within the realm of business, because capitalism relies on us humans to function as selfish bastards.

And yet, civilization requires a completely different trait.

So I feel for them.

At the same time I don’t.

More importantly, I realize what these dealers seem not to. You can’t extract money or get vengeance on a corpse no matter how hard you try. That and bankruptcy is unforgiving even for those on the top of the food chain (secured creditors anyone!) much less the fellows that let themselves get screwed without collateral.

Warm, Dry and Well Fed says:

I usually edit my posts carefully, but I’m beginning my summer trip this weekend, so this may be a bit sloppy… and is definitely being done in haste.

Last weekend I had a conversation with one source who follows dealership issues. Here is what he said. Chrysler claims it is using a “decision matrix” to determine which dealers will be axed. This claim suggests an objective matrix with weights and values. If so, the axed dealers should be able to require Chrysler to produce the matrix, the weights and the results. My source’s guess is that there is no matrix, or at least a matrix with criteria which Chrysler would prefer not to discuss.

Based on the dealerships he sees being closed, dealer satisfaction does not seem to be a major factor. Neither does customer retention rates. But there are some oddities. Rural and small-town dealers who don’t have all three brands are getting the axe more often than similar urban dealers. New franchises were rarely issued after 1955, but there are a number of relatively new affirmative action ( usually Black) dealerships created since 1968. As far as he can tell none of them have been closed.

Now these patterns could reflect rural/urban issues, discrimination, or possibly something else. Rural Chrysler-products dealers sell cars mainly to older whites, who often bargain carefully and either pay cash or arrange for the loans themselves. These small-town dealers sell trucks mainly to tradespeople, who are also careful shoppers. The urban dealers often sell to poorer, less educated, and more often minority buyers, who are less adept at bargaining, leave more money on the table and are, thus, more profitable. These buyers usually finance and are more likely to have poor credit histories, a second source of profit, which is partly compensated for with a higher loan default rate. So Chrysler Corp. (but not necessarily its dealers) probably has a higher profit margin on urban vehicles while Chrysler Credit (now GMAC) has a higher default rate.

If “dealer competition keeps the prices down” was the issue, then Chrysler could simply have changed the dealer volume rebate structure to disadvantage smaller dealerships in each area. They decided not to go that route, possibly because it would have harmed the struggling minority urban dealerships. My guess is that the company is encouraging urban consolidation via buyout of the weaker dealers.

If, for whatever reason, there turns out to be a significant statistical bias in the ethnicity of the dealers being closed, then Chrysler has two problems. First, the pattern might constitute a prima facie case of discrimination, and the losing dealers could force Chrysler to produce the so-called matrix on which the decisions were based. Second, any suggestion that race played a factor could significantly reduce the value of the Chrysler franchise because the publicity would be an incentive for white buyers to go elsewhere.

And of course if politically well-connected dealerships with low satisfaction and customer retention rates are being kept open…

So my guess is that Chrysler will fight hard to keep its decision process secret.

frances snoot says:

@Barbour:

Interesting, well-thought post. I am confused how men are saved from the “function as selfish bastard” mode through Socialism. I am sure other women would love to know as well.

Jmd says:

Feinberg at Cerberus…the lowest of the low…tried to stiff the workers on his mega-renovation. Represented his firm while I was an associate at a big firm…no moral compass.