auto dealers

Automakers Face Potentially Massive Race-Discrimination Class-Action Lawsuit Thanks to Obama Administration

by Hans Bader on July 23, 2010

in Bailout Watch, Economy, Employment, Legal, Nanny State, Odds & Ends, Personal Liberty, Politics as Usual, Regulation, Sanctimony, Zeitgeist

“Decisions on which car dealerships to close as part of the auto industry bailout — closures the Obama administration forced on General Motors and Chrysler — were based in part on race and gender, according to a report by Troubled Asset Relief Program Special Inspector General Neal M. Barofsky: ‘Dealerships were retained because they were recently appointed, were key wholesale parts dealers, or were minority- or woman-owned dealerships.’ Thus, to meet numbers forced on them by the Obama administration, General Motors and Chrysler were forced to shutter other, potentially more viable, dealerships. The livelihood of potentially tens of thousands of families was thus eliminated simply because their dealerships were not minority- or woman-owned.”

It’s likely that these race-based closures of auto dealerships violated Supreme Court rulings like Adarand Constructors v. Pena (1995), which say that the federal government can’t use race except to remedy the present effects of its own past discrimination, as I explain below. What this means is that terminated dealers could bring a billion-dollar class-action lawsuit challenging the use of race under 42 USC 1981 and the Constitution, based on cases like Gratz v. Bollinger (2003) (that Supreme Court decision let white college applicants bring a reverse-discrimination class action over a university’s use of race as a factor in admissions, even though it’s seldom clear in such cases exactly which white applicants would have gotten admitted if race hadn’t been used to admit some minorities).

This is just the latest harm the Administration has inflicted on automakers and dealers.  Its incredibly wasteful Cash-for-Clunkers program cost taxpayers and used-car and car-parts businesses billions, and drove up the cost of car-parts and used cars for dealers and consumers alike.

It doesn’t look like the automakers and the government have a valid defense to any lawsuit over the race-based car-dealership closures. There doesn’t seem to be any pattern or practice of discrimination against minorities in the auto industry that could conceivably have justified the use of race as a remedy under the Supreme Court’s Adarand decision (indeed, the automakers have long had affirmative action programs that provide a leg up to minority businesses), and in any event, the Obama administration doesn’t seem to have had any such remedial rationale in mind for using race. If it didn’t have a remedial rationale in mind for the closures, it can’t rely on one later, according to the Supreme Court’s ruling in Shaw v. Hunt (1996). And it can’t rely on a “diversity” rationale for using race (except in universities), according to federal appellate court rulings like Lutheran Church–Missouri Synod v. FCC, 141 F.3d 344 (D.C. Cir. 1998) and Messer v. Meno, 130 F.3d 130 (5th Cir. 1997). The government may be able to invoke sovereign immunity to limit any such liability to the terminated dealers, but the automakers won’t.

(Ironically, Cash-for-Clunkers, which was designed as welfare for the automakers, actually did virtually nothing for the U.S. automakers it was supposed to help, since it simply shifted auto purchases earlier, encouraging  Americans to buy cars earlier (during the program)  rather than later (after the program ended).  Indeed, it may actually have harmed GM and Ford, since their market share was lower during Cash-for-Clunkers than later on, when car buyers were turned off by Toyota’s safety recalls and bought more GM and Ford vehicles than before.  People who participated in Cash-for-Clunkers bought lots of Toyota vehicles as replacements, which did nothing for the U.S. automakers.)

Billions More for Wasteful Auto Bailouts

by Hans Bader on July 31, 2009 · 1 comment

in Bailout Watch, Economy, Employment, Legal, Politics as Usual, Stimulus to Nowhere, Trade

The auto bailouts keep expanding. Billions more are going to be spent on wealthy auto-dealers, cash-for-clunkers, politically-correct cars few people will buy, and excessive benefits for autoworkers who are richer than the average American.

The Administration’s cash-for-clunkers program has already run out of money, burning through the $1 billion it was supposed to cost. The program rewards people who bought ancient gas-guzzlers, giving them, and not more environmentally-responsible people, federal tax credits for trading them in to buy new cars. The new cars purchased can be almost as gas-guzzling as the ones being traded in, getting as little as 2 miles a gallon more than their old gas-guzzler. The new purchases are supposed to boost the Detroit automakers that the Administration recently bailed out at a cost of $70 billion.

Although the money has run out, the Obama Administration says that it will keep running this wasteful program anyway, at taxpayers’ expense. During the Bush Administration, lawmakers of both parties said the government cannot spend money unless it has been legislatively appropriated, and that such limits are the “tap root of Anglo-American liberty.” But now, with a Democrat in the White House, liberal Congressional leaders are happy to see Obama spending money he doesn’t have, so that the cash-for-clunkers program can continue until Congress gets around to passing a bill that will authorize more spending.

House Democrats hope to vote today on a measure to authorize $2 billion more in spending on the program. But Senate approval isn’t expected soon. So there’s talk of using federal “stimulus money” to pay for cash-for-clunkers. (The $800 billion stimulus package is already full of welfare and waste. It is expected to cut the size of the economy “in the long run.” Although it was supposed to give the economy a short-run “jolt”, it actually destroyed thousands of jobs in America’s export sector, and increased unemployment. It also ended welfare reform.)

Taxpayers and businesses are expected to pay billions as a result of the Obama Administration’s decision to make a federal pension-insurer take over the massive pension liabilities of an auto-parts maker once owned by General Motors, so that General Motors, which was responsible for them, will have more money left over to maintain the extraordinarily generous pension benefits of the United Auto Workers, whose pay is much higher than that of the average American.

Meanwhile, in a move expected to cost General Motors around $2.5 billion annually, “the House has passed a bill reversing GM’s decision to shutter 2,000 auto dealers. Taking advantage of bankruptcy protection, GM undertook the cost-saving measure because state franchise laws had crippled its ability to reduce its bloated, 7,000-dealer network. By contrast, Toyota — with the same market share as GM — has fewer than 1,500 dealers.”

Henry Payne lists some of the many ways that the Detroit automakers have been mismanaged by the federal government “in just the last 90 days” of the bailouts: “At the request of the UAW, the President’s Auto Task Force forced GM to build its new “small-B segment” compact car in the United States instead of in the Far East. This despite the fact that not one manufacturer — not even the Asian companies — builds a small-B in the U.S., due to lack of market demand and high labor costs. GM likely would not build a small-B at all (since companies just emerging from bankruptcy usually try to build profitable products) were it not for the president’s personal distaste for GM’s lineup of ‘bigger, faster’ cars. To correct this, Obama has mandated the cars Detroit automakers “still refuse to make” — that is, a fleet of vehicles that average 35 mpg by 2016. After a one-on-one meeting with Rep. Barney Frank (D., Mass.), GM chief executive Fritz Henderson will delay the closing of a parts-distribution center in Norton, Mass.”

Payne also notes that the cash-for-clunkers program harms the economy by containing provisions that make “used-car and parts businesses suffer.”

The auto bailouts were funded primarily through money contained in the $700 billion bank bailout law passed last year. Diverting money from the bank bailout to auto bailouts was illegal or unconstitutional, agree many commentators, like the Heritage Foundation, Clinton Administration Labor Secretary Robert Reich, and liberal journalist Andrew Sullivan. The bailouts ripped off taxpayers, pension funds for public employees, banks, and non-union retirees, in order to enrich the United Auto Workers Union, whose excessive pay helped bankrupt the Detroit automakers. But the courts have avoided dealing with those serious legal issues by claiming (erroneously in my opinion) that the bailout’s critics were not the correct people to bring legal challenges.

The stimulus package may not be stimulating the economy, but maybe it’s not the economy it was designed to stimulate: “The National Endowment for the Arts may be spending some of the money it received from the [stimulus] to fund nude simulated-sex dances, Saturday night ‘pervert’ revues and the airing of pornographic horror films at art houses in San Francisco.” Meanwhile, unemployed blue-collar workers in construction and transportation were largely excluded from the stimulus package because helping them was viewed as politically-incorrect.