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US dealers go to court

Fighting back: Chrysler dealers have asked the US bankruptcy court to restore their franchise rights.

GM, Chrysler target almost 2000 dealers in US clean-out

Chrysler logo18 May 2009

TERMINATED car dealers in the US are not going down without a fight, with Chrysler retailers mounting a court challenge against plans to axe 789 dealerships by June 9.

The Chrysler national dealer council has asked the US bankruptcy court to grant the dealers the same protection they would have received outside the court, so they could take advantage of state franchise protection laws.

General Motors also wrote to 1124 of its dealers telling them they were considered poor performers and that their franchises would not be renewed after October, 2010.

This was just first tranche of intended GM dealer terminations as the struggling car-maker has indicated to president Obama’s automotive task force that it would cull a total of 2294 dealers to reduce its network to 3600 as part of its restructuring plan.

The Chrysler dealer council indicated in documents filed in the US bankruptcy court that it would argue that dealers generated revenues vital to Chrysler’s future success.

It said that not only weren’t the dealers a burden on Chrysler, but they bore the risk on unsold cars and cars in transit from the factory.

For its part, Chrysler is asking the bankruptcy court judge handling its bankruptcy to allow it to terminate the 789 dealers – about a quarter of its retail network. Chrysler said it would not buy back any inventory held by the dealers.

Chrysler wants other dealerships to buy the stock to prevent it from flooding the auction market and used-car yards, depressing new-car prices.

 center imageLeft: GM vice-president of sales Mark LaNeve.

GM’s vice-president of sales, Mark LaNeve, said GM wanted dealers to sell down their existing inventory, although he admitted GM may have to take some cars back.

He said GM was willing to offer some support to dealers to do this – rebates to enable discounting – as that would be preferable to seeing the inventory dumped on the auction houses.

Mr LaNeve said dealers targeted by GM were responsible for only seven per cent of GM’s 2008 US sales volumes. They also held about eight per cent of inventory.

“We don’t expect there will be much reversing of these decisions,” he told Automotive News. An appeals channel will be available to aggrieved dealers.

The National Automobile Dealers Association said the proposed GM cuts were “drastic and far-reaching” and would affect 63,000 dealership employees.

“We view GM’s action with a profound sense of sadness and disappointment,” NADA vice-president David Hyatt said in a statement.

“GM’s decision comes through no fault of the dealers, who are, in many cases, family-run businesses that have been loyal partners with GM – through good times and bad – for multiple generations.”

Reactions from dealers have ranged from indignation to resignation, according to the executive vice-president of the Nebraska New Car and Truck dealers Association, Loy Todd jun.

“They are saying the same things the Chrysler guys are saying, especially in the rural areas, the old family-owned stores. I have people saying ‘I never cost them a dime. I have made a profit every year for 60 years, served my community and my market. Why me’?” Mr Todd said.

Meanwhile, in Detroit, the sale of GM shares by current and former GM executives including Bob Lutz sparked a plunge in GM shares last week, pushing the share price to a 76-year low.

The six GM executives raised a total of about $US315,000 ($A420,000) by selling their shares about $US1.60.

Mr Lutz, who joined the company in 2002 and would have received shares as a signing-on inducement and as bonuses at times during his tenure, sold 81,360 shares.

When he joined, GM shares were selling at $US37, and his parcel would have been worth a little over $US3 million.

Share analysts in the US cannot understand why GM shares are even selling at $US1.60.

“It’s a lose-lose situation as far as we see it, and the shares kind of seem to have been doing a levitating magic trick and just staying up there in the $US1.50 to $US2 range,” Standard and Poor’s equity analyst Efraim Levy said.

“Given that there is a two-week deadline, there should be more downside pressure,” he said.

This was a reference to the deadline imposed on GM by the Obama automotive industry task force to reach an agreement with its creditors.

If it does reach an agreement, it will issue a massive number of cheap new shares to pay off its $US44 billion of unsecured liabilities. If it does not, it will go into bankruptcy and the shares will likely be worthless anyway.

Read more:

Chrysler set to chop 25 per cent of dealers

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Way cleared for Fiat/Chrysler deal

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