Minority Ex-GM Dealers Sue Auto Maker

It's a lawsuit that could affect the auto industry's minority dealership programs.

An initial conference in the case of Dalton v. General Motors Corp. is scheduled in U.S. District Court in Trenton, NJ.

On one side are lawyers representing four minority ex-GM dealers who are the plaintiffs; on the other side, attorneys representing defendant GM.

A jury trial has been requested. The plaintiffs are seeking class-action status for the case, meaning it would include all current and former dealer-operators in GM's Minority Dealer Development program.

The plaintiffs are James Dalton, Theldon Branch, Chandler Lee and Ricardo Sanchez. They participated in GM's minority dealer program. It puts candidates through rigorous one-year training at the National Automobile Dealer Assn.'s dealer academy.

It includes 45-weeks job training at participating dealerships. Then GM acquires the points that the minority dealer candidates will ultimately own, once they buy out GM's equity stake that normally is 75%-85%.

The plaintiffs entered into equity dealership partnerships with GM and they were all expected to buy GM out in five-seven years.

Dalton held his Trenton Chevrolet point 1996-2004. Sanchez had his Bay City, TX, Chevrolet Buick store 2002-2005. Branch had Auburn (NY) AutoMall 2002-2004. And from 1986-2004, Lee was the dealer-operator of five different GM points.

None of the plaintiffs succeeded in outright ownership. Reasons vary, but in each case GM terminated their equity stakes and each man was also terminated as president of his dealership. That much is not in dispute.

The plaintiffs allege GM withheld critical data about the financial problems at the dealerships they acquired. They claim it is almost impossible for minority dealers to buy out GM's interest in their stores within the stipulated five-seven years.

Also alleged is that the auto maker presented the stores as being profitable when they were actually losing money or in some cases bankrupt.

GM says it tries hard to find viable dealerships for rookie minority dealers to run.

The dilemma is that rarely do strong and vibrant dealerships become available. Several minority dealer candidates have turned around troubled stores. But it's a tall order for any dealer, minority or otherwise, and especially a new one.

The suit also alleges that GM violated franchise laws prohibiting an auto maker from acting as a dealer for more than one year. Also alleged is that GM through its agents actually runs each minority dealership.

The case could get ugly. Branch compared the program to share-cropping because minority dealer-operators had no say in management, had to buy all of their goods and services from GM and had to pay GM the asking prices without any negotiations.

The use of the term “sharecropper” infuriated GM insiders who say their minority dealer program is an ambitious and a bona fide effort.

GM, which has 383 minority-owned dealerships, refuses to comment on the suit's allegations. But Bill Powell, GM's vice president-industry dealer affairs, calls them “typical trial-lawyer hyperbole that we've come to expect in this country.”

He adds: “We will vigorously defend ourselves.”

The plaintiffs seek punitive and compensatory damages.