GM: Pact trumps franchise law

[Oracle of Delphi]

Jamie Lareau

Automotive News

June 8, 2009 - 12:01 am ET

General Motors, which already has told more than 1,300 dealerships they will be dropped, is pressuring survivors to sign a contract that gives up rights spelled out for dealerships in state franchise laws.

To enforce the deal, GM issued a threat: If dealers don't sign, the company can, in bankruptcy, cancel their franchises now. Dealers must sign by this Friday, June 12, or risk termination.

Such agreements ordinarily could not be enforced because they conflict with state franchise laws, which limit an automaker's freedom to rewrite franchise agreements. But GM is working on the theory that federal bankruptcy law provides the clout to make these changes stick after the company emerges from Chapter 11 reorganization.

Lawyers who represent auto dealers hotly dispute that interpretation of bankruptcy law. Automotive News has obtained a copy of the proposed agreement, which states that GM can require dealers to:

-- Sell substantially more vehicles.

-- Maintain bigger inventories.

-- Eliminate non-GM brands in the showroom.

-- Upgrade dealerships and maintain high customer satisfaction scores.

-- Not protest any new store that GM locates more than six miles away from their dealership for two years.

Various state laws set their own rules to prevent automakers from locating stores too close to each other. The average radius is 10 miles.

In an interview last week, GM sales chief Mark LaNeve said bankruptcy provides GM one chance to create a healthy network of dealerships. He said that the contracts are not intended to be a threat and that GM will work with dealers.

But lawyers who represent auto dealers bitterly disagreed.

"My first reaction is outrage," said Eric Chase, a lawyer with Bressler, Amery & Ross in Florham Park, N.J.

Chase said the proposed agreement gives GM too much authority to override state franchise laws once the automaker is out of U.S. Bankruptcy Court.

"It's overreaching," he said. "What they're trying to do in bankruptcy is go outside of bankruptcy in the future, so the new GM will prohibit the rights of dealers that are otherwise protected by state franchise laws."

Gag order

Lawyers say the agreement tightly restricts dealers.

For example, the dealer must agree not to discuss the agreement with anyone other than employees or business partners. If a dealer wants to talk about it with anyone else, GM must give written consent.

The proposed agreement does not list GM's specific sales goals or other performance targets. Nonetheless, dealers must sign it or GM will terminate their franchise agreements in Bankruptcy Court, according to the document.

One dealer who asked not to be identified said he will sign his participation agreement but only because he believes he has no choice.

"It's terrible because GM is holding you up to a new standard on your sales, which they have not disclosed," the dealer said. "They say we have this great new territory and have to sell more cars. GM can throw you out for any reason at this point.

"I'm hoping for the best — but, you know, they've got me pretty good."

Many states have laws preventing dealers from waiving their rights. But GM takes the position that its continuation agreement would give U.S. Bankruptcy Court jurisdiction to handle any disputes between dealer and factory, even after the company leaves Chapter 11.

"There are no black-and-white answers to these questions yet," said Mike Charapp, a dealer attorney in McLean, Va. "I view these as unusual agreements, quite aggressive agreements by the factory.

"A dealer should not enter them lightly with some assumption that a court will find them inappropriate in the future."

'Not that onerous'

LaNeve said the agreement is "really not that onerous."

"All we want to get across is, 'Here's what we want to get from you in the new GM,'" he said.

LaNeve said the company expects surviving dealerships to sell at least 10 percent more vehicles per store, on average, than they did last year. That's because the stores GM is winding down account for about 10 percent of the company's U.S. volume. If the market improves, LaNeve said, GM might ask for 20 percent.

He said the ban on protesting new dealerships more than six miles away should bother dealers only if GM were to add stores.

"We're taking dealerships out," LaNeve said. "The reason for the clause is because with this dramatic of a reduction not every store will land in the right location. Some of the surviving stores might need to be relocated to get the market mix right.

"If we wanted to terminate them, we'd give them a wind-down letter, not a participation agreement," he added. "These are the dealers we want to go forward with."

Link: http://www.autonews.com/article/20090608/A...paign_id=alerts

[Intrepidation]

-- Sell substantially more vehicles.

-- Maintain bigger inventories.

-- Eliminate non-GM brands in the showroom.

-- Upgrade dealerships and maintain high customer satisfaction scores.

-- Not protest any new store that GM locates more than six miles away from their dealership for two years.

If there's less dealerships this would be a given anyway

• See above
• Doesn't seem right to have a Toyota lineup on the same showroom floor as a Chevy lineup anyway
• Dealerships should upgrade and maintain high levels of customer satisfaction anyway
• I seriously doubt GM would build new dealerships since it's cutting so many in a down market, but evens o, so what if it's more than 6 miles away?