David Cole, chairman of the Center for Automotive Research, recently expressed doubts about the wisdom of closing GM and Chrysler dealerships in the wake of the Federal bail out of those two companies.

The argument was made that American brands have a far larger number of dealers than foreign competitors such as Toyota and that maintaining that network is costly. Dealers who were considered underperforming were put on notice that their franchises would be discontinued.

Cole argues that, while there may be too much density and overlap in urban areas, cutting dealers would leave too few in the hinterlands where brand loyalty for American cars is the strongest. He has asked the Obama Administration’s automotive task force to revisit the issue.

Cole makes a good point. Selling cars is a retail business like any other. Most retailers look to expand market penetration and market share, not shrink it. GM and Chrysler say that the dealer network is costly to maintain. That may be true, but perhaps the answer is to find ways to reduce the cost of the manufacturer/dealer relationship rather than cede segments of the market to the competition.

--M.D.