Chrysler dealers under GM? States would rule
Chrysler dealers under GM? States would rule
Automotive News | October 27, 2008 – 12:01 am EST
If General Motors acquires Chrysler LLC, state franchise laws would impose tight limits on GM’s ability to kill brands or dump large numbers of dealers.
Under those laws, GM would have to honor Chrysler’s dealer agreements and support its brands, franchise lawyers say. And if GM were to eliminate the Chrysler, Dodge or Jeep brands, the lawyers add, it would have to pay dealers for their investments.
One more if: Should Chrysler declare bankruptcy as part of merger proceedings, franchise lawyers say, GM would have more freedom to trim Chrysler’s dealership network.
"You can’t talk about the dealer network until something actually happens," GM spokeswoman Susan Garontakos said late last week. "It’s all speculation right now."
Many analysts predict that if the companies combine, GM would keep the Jeep brand and continue to supply Chrysler and Dodge dealers with vehicles, if only through badge engineering.
GM’s and Chrysler’s U.S. retail networks are low in sales per franchise. The automakers want to reduce those networks but can’t unilaterally do so.
"Dealership franchise agreements cannot be terminated at whim under the state franchise laws," says Mike Charapp, president of the National Association of Dealer Counsel, a trade group for lawyers who work with dealers.
Most state laws prevent automakers from yanking a franchise without "good cause," Charapp says. The laws generally require formal state proceedings when franchises are terminated, he says.
At the same time, Charapp notes: "Bankruptcy law will trump state dealer franchise protection statutes. There is a legal basis in bankruptcy for a franchisor to turn its back on its dealer agreement obligations."
When GM bought most of Daewoo’s assets in 2000, the Korean automaker already had filed for bankruptcy. GM’s purchase did not include Daewoo’s U.S. distribution network. Daewoo’s 501 U.S. dealers were left without product. GM renamed Daewoo models and sold them at U.S. Chevrolet and Suzuki dealerships.
When an automaker eliminates a brand — as opposed to going bankrupt — dealers have more rights.
Dealers’ rights
Jim Moors, a franchise attorney with the National Automobile Dealers Association, says franchise laws in several states address the discontinuation of brands.
Such laws, Charapp says, "generally do not require a manufacturer to replace a brand that’s discontinued. That is the issue we had with both Oldsmobile and Plymouth."
But many state laws require the company to buy back from dealers their new vehicles, parts and accessories, and special tools and signs, Charapp says.
GM and Chrysler franchise agreements with dealers include similar provisions, he adds.
Some states, such as Virginia, require automakers that discontinue a brand to maintain parts inventories so dealerships can continue to make repairs, Charapp says.
When a brand dies, automakers have adopted different compensation policies for dealers. GM paid Oldsmobile dealers when it eliminated that brand. Chrysler did not provide financial aid to dealers when it killed Plymouth.
But Charapp notes that "nearly every Plymouth dealer was also a Chrysler dealer at the time of termination, so they had products made by that manufacturer to sell."
Likely casualties
Still, says Dan Goldberg, a Boston lawyer who represents automakers, most state franchise laws recognize that automakers must be allowed to adapt to changes in the marketplace.
"The purpose of the laws is not to freeze in place existing dealer arrangements and locations as they existed at the time the statutes were enacted," Goldberg says.
Some Chrysler LLC dealers say the Chrysler, Dodge and Jeep brands are strong enough to survive a merger with GM. Others dealers are worried.
"I’m very nervous," says Brian Hamilton, who sells GM and Chrysler brands in Kearney, Neb. "There’s not much you can do when someone goes out of business. We’d all be faced with pretty major losses."
Carlos Hoz de Vila, CEO of Condor Auto Group, concedes that some dealers would go out of business if GM and Chrysler merge. Condor, of suburban Philadelphia, owns eight dealerships, two of which sell Chrysler brands.
Hoz de Vila says a GM-Chrysler merger would warrant federal oversight.
"The government should make sure that the motives are pure," he says. "The merger should allow the companies to build better-quality product and serve the dealers better, not just allow GM to grab cash off Chrysler’s balance sheet."
Adds Hoz de Vila: "If the merger results in a stronger company, then it could be a positive
