You are here

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

"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.)