Auto makers are outscoring dealers in the current arbitration proceedings, leading some critics to cry foul.
Dealer advocates say the arbitration process can be unfair when a small business, such as a dealership, is pitted against a huge company, such as an auto maker.
They say the lopsidedness is coming into play in many of the cases of the 1,573 dealers who are pursuing arbitration againstCo. and Group LLC hoping to get their dealerships restored.
So far, arbitrators more often are siding with auto makers who cut dealership ranks as part of their post-bankruptcy reorganization plans. Reacting to the wholesale dealer closings, the U.S. Congress ordered the arbitrations.
There’s a name for the propensity of arbitration favoring employers and companies. It’s called the “repeat-player effect.”
Alex Colvin, a Cornell University labor professor, coined the term years ago after examining data indicating repeat players have a huge advantage when cases come before arbitrators.
Basically, Colvin examined the American Arbitration Assn. dispute resolution statistics and found evidence of bias favoring employers over employees, especially when the employer had multiple cases pending before AAA attorneys.
Some lawyers say that’s what is happening when an individual dealer goes up against a major auto maker that regards the dealer as yet another arbitration case.
“The effect is the same for any repeat player case, but the AAA is very hostile to allowing anyone access to any commercial arbitration case data,” says Richard Faulkner, a Texas attorney who specializes in representing dealers and others in arbitration.
So far, arbitrators found forin 20 cases, dealers in six. GM isn’t revealing numbers. “I can tell you that we’ve won some and lost some,” says GM spokeswoman Ryndee Carney.
Of the 1,573 arbitration filings by GM and Chrysler dealers, 548 cases were settled or withdrawn by mid- May, the AAA says. The other hearings were still being scheduled with a July 14 completion target.
According to Colvin’s research, employees have a 31.6% chance of winning employment disputes when the employer has no other cases pending before the AAA.
But that slips to 16.9% when the employer has multiple cases pending before the AAA. In such situations, an employee’s chances of winning a case plummet to 12%.
Colvin’s theory? Arbitrator bias stems from the desire of the arbitrator to be selected for the employer's future cases.
Faulkner agrees. “It’s a case of rigging the game against dealers to try to obtain the manufacturer's business again,” he says.
So for a dealer, it’s better to go with arbitrators that do not have multiple cases with an auto maker, he suggests.
An alternative is to have your day in court. Colvin says employees win 36.4% of discrimination cases in federal court and 43.8% in state court, but only 21.4% in arbitration.
And the average monetary award for successful discrimination cases in arbitration is 27% of the average federal court award, and only 18% of the average state court award.
Chrysler attributes its arbitration actions as being in “the public’s economic interests.”
“The actions to reduce the dealer network were a necessary part of Chrysler Group’s viability and central to the interim financing and partnership with(Automobiles SpA), Chrysler spokesperson Michael Palese says.
“The process to determine which sales and service agreements were rejected evaluated dealership performance and market factors using data-driven criteria and was applied to every dealer,” he says.
“The only alternative would have been complete liquidation, which would have resulted in all 3,200 dealers closing, hundreds of thousands of lost jobs and the company defaulting on taxpayer loans,” Palese says.
Chrysler says the number of remaining arbitrating dealers was fewer than 115 on June 3. Chrysler began with 418 cases in arbitration, out of the original 789 dealerships closed or closing.
“Reduction (occurred) because of dismissals, withdrawals, settlements, concluded matters, etc.,” says Palese. “We are not disclosing how many of each, however.” Several lawyers complain that Chrysler will not release performance-related documents to dealers. Similarly, some dealers have complained GM would not comply with requests for documents needed to successfully pursue cases.
GM says it is trying to seek resolutions both in and out of arbitration. “We're working with the remaining dealers to resolve their cases on a mutually agreeable basis,” says Carney who otherwise remains mum on the won-loss record.
“GM is not disclosing the results of individual hearings, because we respect the confidentiality of our relationships with each of the dealers involved,” she says. “The arbitration process is very fluid, and the numbers change every day. So we're not providing regular updates.”
GM has offered to reinstate 661 dealerships of the 2,000 slated for closure by fall. Nearly 500 others are being considered for arbitration settlement, the company says.
Although auto makers are outscoring the dealers, some dealers are emerging from arbitration as winners.
One of them is Century Dodge-Chrysler-Jeep in Wentzville, MO, outside St. Louis.
Kevin Mock, general manager of the family owned store, says the termination notice came even though the Mocks had invested $4 million on a new facility for a dealership that had “impeccable” sales and satisfaction scores.
The dealership’s arbitration win was an upset of sorts. “People are surprised when we tell them we won,” Mock says.
Here’s the Chrysler scoreboard on arbitration cases as of June 3, based on information the auto maker provided:
- Decisions for Chrysler:
- Joe Kidd Dodge (OH)
- Venice Dodge (FL)
- Ganley Dodge (OH)
- Ganley East (OH)
- Livermore Chrysler Jeep (CA)
- Pollard Bros./San Juan Motors (Montrose,CO)
- Wallace (FL)
- Leskovar Jeep (WA)
- Crain Chrysler Jeep (AR)
- Southeast Automotive, Inc. (TN)
- Golick CJ (PA)
- Harper Jeep (CA)
- Bob Taylor Jeep (FL)
- Manuel Dodge (TX)
- El Dorado Chrysler Jeep (TX)
- Hinckley Dodge (UT)
- Tenafly Chrysler Jeep (NJ)
- Midway Motors (MA)
- Montrose Motors, Inc (MA)
- Ganley Chrysler (OH)
- Decisions for dealers:
- Deland Dodge (FL)
- Cutrubus/Layton Dodge (UT)
- Century Motors (MO)
- Zimmer Chrysler Jeep (KY)
- Countryside Fitzgerald J (FL)
- Sowell Automotive CDJ (CA)
– With Steve Finlay