Arbitration for terminated dealers takes twists and turns
Dealers who win in arbitration hearings against auto makers aren't exactly popping corks or celebrating after their wins are announced.
Most play wait-and-see. Waiting, that is, forto issue letters of intent and negotiate the next steps to restart the business.
Most of the arbitration action is in thecourt, since Co. on June 8 announced it was bringing back about 900 once-rejected dealers.
As of June 16, arbitrators ruled in favor of Chrysler in 32 cases, while dealers had won 11, about one-third.
Attorney Allen Press represented Century Motor Dodge-Chrysler-Jeep of Wentzville, MO, in a 3-day arbitration hearing involving Chrysler.
Against the odds, Press' clients, the Mock family that owns the suburban St. Louis dealership won the hearing. They were the first Missouri dealership to win their case against Chrysler.
“It was a happy day in court,” Press says. “The Mocks were vindicated, hopefully completely. The decision to close them was motivated by animus.”
Century was part of 789 Chrysler-brand dealers slated for closure. Century had sued Chrysler several years ago on allocation and sales contract issues, and subsequently was on a black list, the Mock family contends.
Press is hesitant to talk about the future. “We have no expectation that Chrysler is going to voluntarily issue Century a dealer agreement,” he tells Ward's.
Kevin Mock, general manager of the dealership, says justice prevailed for “the American way of doing business.”
Despite their arbitration victory, Mock still expresses dismay over the original closure in May 2009.
The Mocks, including his father, dealer Frank Mock, and John Mock, his uncle and co-dealer, invested about $4 million in the facilities and have been loyal single point Chrysler dealers since 1983. In all, 14 family members worked the privately owned family business.
“We were in the top 10% of sales of Chrysler dealers nationally — and in one of the fastest-growing markets in the country,” Kevin Mock tells Ward's. “As a business person, when the economy is down, you look to your biggest and best dealers to get through it. Why did they cut us loose?”
There's still a lot of worry going on among the 24 Missouri dealers whom Chrysler cut. Very few of them have so far have won in arbitration.
Jack Fitzgerald, head of a major East Coast-based dealership group, won in arbitration against Chrysler for his Fitzgerald Countryside Jeep, Clearwater, FL.
But the multi-franchise dealer isn't celebrating yet. Other decisions are still in process.
“I hope I don't have to do anything more, but these things are not over,” Fitzgerald says. He still had not heard from Chrysler on next steps.
“My customers are the reason I'm back in business,” he says about loyal folks who campaigned on the dealership's behalf. Fitzgerald has major dealership holdings in Maryland, Pennsylvania and Florida as of part of Fitzgerald Auto Malls.
Arbitration dealer attorney Michael Charapp estimates an auto maker has seven business days to act following a decision. The ironic thing is the arbitration ball bounces back to their court for review.
That's what makes dealers nervous. Plus, many are waiting to negotiate new contracts.
As for the GM decision to bring back 900 dealers without arbitration, Fitzgerald says, “GM has taken the high road. I'm very proud of GM — and they will get more sales out of it.”
In a concept called the “repeat player effect,” Cornell University labor professor Alex Colvin extensively studied American Arbitration Assn. outcomes for major employers vs. employees in hearings.
Colvin says he found evidence of repeat-player bias in that arbitrators favored employers or large entities in the vast majority of cases. That's because arbitrators tended to deal more often with employers on a repeat basis than with individual employees on the other side of a dispute in arbitration.
Kevin Mock thinks the repeat-player effect has been on Chrysler's side, based on what he knows about the theory.
Chrysler had four lawyers to the Mocks' one. Some dealers claim they are being “out-lawyered” because of their lack of legal firepower.
Chrysler argues the repeat-player effect doesn't apply to the auto maker, because Colvin's cited effect is based on arbitrations being voluntary, not from an act of Congress, which is the case for the terminated dealer reviews.
Colvin's repeat-player impact “assumes it's voluntary and that a company will use the process again,” says Chrysler spokesman Mike Palese.
“The Colvin analysis relies on arbitrators finding for a company so as not to dampen future business,” he says. “Chrysler does not use the (arbitration) process to resolve dealer matters in the normal course of business.”
“I'm amused by Chrysler's view on the repeat player effect,” says Texas attorney Richard Faulkner, who specializes in arbitration issues. “The prospect of future business (to arbitrators or lawyers) is important. That future business is not limited to the dealers.
“The more likely volume of business is with (auto maker) customers, suppliers and others in the industry. The ostensible fact that the arbitrations are supposedly voluntary is irrelevant,” Faulkner insists.
“The arbitration mechanism was tilted in favor of the manufacturers,” he says.
Chrysler says it is inaccurate to use the term “reinstated” to describe the status of rejected dealers prevailing in arbitration.
Technically, those dealers had sales and service agreements with the former Chrysler organization, pre-bankruptcy.
“These were never dealers with sales and service agreements under the new Chrysler Group LLC,” Palese says. “We were required to restructure our dealer network. We had to right-size it to fit market needs. As part of restructuring, the new company did not assume the 789 dealer sales and service agreements.”
Instead, he says, Chrysler sent 36 initial letters of intent to open-point dealers and 50 to fill points previously in the old Chrysler network.
These dealers were given the chance to join the new Chrysler network if they met certain requirements. Now Chrysler is offering letters of intent to dealers who prevail in arbitrations.
“This is stipulated in the federal legislation and we will continue to fulfill that requirement,” Palese says.
About 400 Chrysler dealers initially opted for arbitration. That number was reduced dramatically as cases were withdrawn, dismissed or settled. Currently, Chrysler has about 70 cases remaining in arbitration, he says. About 130 cases have been dismissed, withdrawn or abandoned, Chrysler says.
Chrysler thinks an extension of the July 14 arbitration deadline is possible. Arbitrators can extend it through the month of July.
In its about-face, GM changed its dealer-arbitration strategy by announcing it would keep open about 900 dealerships.
The auto maker could end up with about 5,000 U.S. dealers, up from original plans for 4,100, says Mark Reuss, GM's North America president.
GM had about 6,000 dealers when it filed for bankruptcy in June 2009.