The bill stipulates that if an auto manufacturer chooses to discontinue a line of cars, it must then buy back the entire inventory of that vehicle from its dealerships at sticker price.

“SB1410 doesn’t look that harmful on its face. But dive into the bill, and you will be shocked at what one “Republican” is proposing to do to the free market. Basically, the bill requires that if an auto manufacturer decides to stop producing a line of cars, they are required to buy back all of the unsold inventory that dealers have. This bill eliminates all risk for auto dealers- and puts the entire risk on the manufacturers. Why would anyone want to make any business totally risk free? This makes no sense.

So, why introduce this bill now in 2009? That answer is easy. Car makers just received $25,000,000,000 (BILLION) in cash from the federal government. The point of this cash outlay was to give them time to reorganize without declaring bankruptcy (i.e. possibly eliminate some lines of under-performing brands). So this bill is basically a money transfer from the auto makers to the auto dealers should a line of cars be done away with. If every state did this, the entire federal auto bailout would go to car dealerships instead of the manufacturers!! But worst of all IT IS YOUR MONEY that went to the manufactures to save the industry that Norment is trying to grab!!! Will Congress have to pass a SECOND AUTO BAILOUT because greedy state leaders stole the federal cash they got to the manufacturers?“

The bill’s sponsor in the Virginia Senate is also part-owner of a Dodge dealership, Senate Majority Leader Thomas K. Norment, Jr. The bill is opposed by automakers, including Volkswagen, which has its United States operations based in Fairfax County, Virginia.

Norment asserts there is no conflict of interest in his introducing the legislation, since it affects all his competing dealerships as well. His Yorktown, Virginia Dodge dealership has been struggling during the recession. The state overall has 525 dealerships of new cars, with 25 lost during the past year’s economic downturn.

The bill has led to a legislative lobbying battle between auto manufacturers and dealerships, which has mostly stayed off the radar for Virginia taxpayers. The Alliance of Automobile Manufacturers sent a letter saying the terms of the legislation were “protectionist” and would cost carmakers billions. The Virginia Automobile Dealers Association counters that 22 other states have enacted similar legislation. The VADA gave more than $400,000 to lawmakers during the 2007 election cycle.

“Clearly, I don’t have a conflict of interest from a legal standpoint. Perceptually, someone might raise the question that, ‘As a minority owner of a dealership, isn’t there an incidental benefit to you?’”– Thomas Norment, Jr.

Some cities achieve a large part of their tax base from the money generated in sales taxes from each new car purchase; the cities would face a crunch without the sales tax revenue, so they’re loaning the dealerships money in their own version of the federal bailout. For example, Victorville, California extended a $200,000 loan to a local Chrysler auto plaza that generates half the town’s sales taxes (the town doesn’t have a property tax).

In the NPR comment section, Chartreuse Jones of Portland, Oregon notes: “I guess I missed the part of the story where giving the dealerships money somehow means that people will miraculously start buying cars again (and therefore generating sales tax income).”

Victorville City Councilman Terry Caldwell : “How do you say no the next company? If you help one, from a competition standpoint, do you have an obligation to help others?”

City Councilwoman JoAnn Almond: “I voted against it for one reason. There’s so many car dealers and businesses having a hard time right now and I don’t feel it’s fair to give a loan or bailout, so to speak, to one and not to others.”

The owner of the GMC/Pontiac dealership in Victorville said that he had not considered asking the local government for money, and he didn’t like to be in debt.

Councilman Mike Rothschild said he’s against the bailouts on a national level, but he feels that the local city should make an exception in this case.

According to Mencimer, Detroit has been squeezing local dealerships for more profits in recent years, which means that dealerships make their money through their finance divisions, getting car buyers to take out loans provided by or packaged by the dealership.

This extends to the automakers themselves; in 2002, GM, for instance, made 90% of its profits from its finance division, General Motors Acceptance Corp (GMAC). Half of GMAC’s profits, in turn, came from home mortgages and had nothing to do with cars.

How do dealers make their money on loans? They encourage buyers to roll an old loan– worth more than the old car– into a new loan for a new car, and they virtually guarantee this will happen with American-made cars by stretching terms to six or seven years, longer than most cars will last. The companies then repackage those loans, subprime-style, and sell them on Wall Street as securities, making a tidy profit in the process.

“Ultimately, no matter how much money Congress throws at the automakers, it’s car buyers who will rescue them or not.” — Rosemary Shahan, head of Consumers for Auto Reliability and Safety