About a year ago, I had a conversation with a bankruptcy lawyer who specialized in corporate bankruptcies. He told me it was absolutely insane that General Motors was able to discharge its debts from the bondholders in the way it did without going through the bankruptcy court procedures. At the time I told the bankruptcy lawyer that I was a former franchisor and I couldn't believe that General Motors and Chrysler were able to discharge their franchisees, and franchise agreements in the way that they did either.
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What is unfortunate is many of those franchisees had all those dealerships for many, many decades, and those businesses had been in their families for generations. They had been good franchisees, although some of them perhaps smaller, especially the rural franchisees, but they were very much part of the Chrysler and General Motors team. Besides that a franchise agreement it signed, and renewed every 5 to 10 years.
Allowing the automakers to simply renege on those contracts goes against everything that franchising is about. If any other franchisor ever did that, they would be sued into oblivion, and immediately catch the watchful eye of franchise regulators at the state and federal level. But all that was streamlined, and all of a sudden the rules did not apply to these companies. Then to make things worse, my taxpayer dollar helped bail out these companies who had been driven into negative liquidity by the unions, and their own bad management.
We live in a great nation, and companies, individuals, and large corporations are able to create vast amounts of wealth, but in doing so there is also a responsibility, and the risk of failure. If we take away those risks and discharge those burdens on to those who have done the right thing, our free-market capitalist system breaks down. If for instance the bankruptcy laws or the franchise regulations are too absurd for a reasonable reorganization, or negotiation with the franchisees, then we need to look at those laws, rules, and regulations and change them.
But let one group off the hook, and violate the laws of business for one company because of their size or political clout, and create a situation where all the other franchisors the country, or all the other automakers have to follow the rules, then all we've done is create a terrible precedence in crony capitalism. That's not what our nation stands for, and it is exactly what Adam Smith warned us about.
Indeed there was an interesting article the other day posted on the Blue Mau Mau Franchising Website titled; "Too Many Franchises Spoil The Brand?" posted by BMM (staff writer Washington D.C.) on May 5, 2011. In the article there was an interesting notation, namely in the opening paragraph;
"As the dust settled, the Obama Administration last summer issued a harsh report that was critical of the aggressive termination of franchises by General Motors and Chrysler during their bankruptcy proceedings. The government report declared that they felt hoodwinked by the franchisors' unexplored management myths: namely, the carmakers' claim that they were hurt by having many franchisees."
Yes, the author of that article pretty much had it correct, and he echoes my concerns exactly. And in addition to this I would like to reiterate what the bankruptcy attorney told me, because it just shows how much these corporations were allowed to do, but no other Corporation has been allowed. We have a real problem in this country when the political will of the leadership is willing to break all the rules, for their own personal political gain in the name of; too big to fail. Indeed I hope you will please consider all this and think on it.
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