On the heels of closing over 800 Chrysler dealerships, with untold numbers more to close once the GM bankruptcy hammer drops on Monday, the Obama administration has announced a brilliant new stimulus plan: Subsidies for auto dealers.
The Obama administration will offer U.S. auto dealerships loans of up to $2 million to help buy vehicles and maintain inventories, the top members of the Senate's Small Business Committee said on Thursday.
The U.S. Small Business Administration's pilot program will provide loans of $500,000 up to $2 million that are repayable over five years and backed by a 75 percent government guarantee, according to Senator Mary Landrieu, the Democrat who chairs the committee, and Senator Olympia Snowe, the top Republican on the panel.
"The SBA's plan to offer floor plan loans to America's dealerships will help small businesses stay open in this uncertain economy," the senators said in a joint statement. "These loans will enable dealerships to maintain their inventory and save jobs."
We've been informed time and again that a major problem facing the Big Three is an overabundance of auto dealers in the chain, auto dealers whose irrevocable (outside the bankruptcy system) contracts forced the auto makers to overproduce; auto dealers who prevented the manufacturers from economizing in supply and distribution chains.
It's a truism that if you reward a behavior, you will have more of it. As the administration now intends to reward the behavior of auto dealers, through subsidies, logically we will have more auto dealers. Oh sure, they'll be Toyota and Honda and Ford dealers, once the government swings the axe on GM, but…
Wouldn't it have been less expensive, and more efficient, to have let the market kill non-competitive auto dealers in the first place?
Via the John Locke Foundation.
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