Lawsuits May Follow Dealer Arbitration

What’s next, now that General Motors Co. and Chrysler Group LLC have completed arbitration hearings with dealers who lost their franchises to consolidation programs?

Possibly litigation, as dealers and their lawyers talk about lawsuits. Of particular issue are the terms regarding letters of intent (LOI) auto makers sent to dealers.

Even dealers who prevailed at arbitration hearings are discussing legal action. There aren’t many of them. The auto makers won the majority of arbitration decisions, with Chrysler at 70% and GM at 62%.

Chrysler has issued letters of intent to 82 Chrysler dealerships, but only 29 have signed them, according to Chrysler spokesman Michael Palese.

The auto maker planned to reduce its dealer network to about 2,000 by 2014, from 3,181 in 2009, according to an audit from the special inspector general for the Troubled Asset Relief Program.

Legislation approved in December and signed into law by President Obama allowed all terminated dealers the chance to seek binding arbitration in an effort to rejoin their respective dealership network.

Arbitrators heard 108 Chrysler cases and ruled for the auto maker in 76 of them.

Mark Schienberg, head of New York dealer association, says many dealers got raw deals.

At GM, the arbitration picture looks different because the auto maker invited back about 700 dealers before the arbitration process began.

In the final tally, arbitrators decided in favor of GM in 39 cases and in the dealers’ favor in 23 cases, according to GM spokeswoman Ryndee Carney, who says all 725 rejected GM dealerships that received LOIs have signed them.

Lou LaRiche Chevrolet in Plymouth, MI, is one of the GM dealerships to prevail in arbitration. When the dealership received the wind-down notice in June 2009, it shocked the staff.

“We thought there was a mistake, because we were well above the criteria set for wind-down dealers,” Scott LaRiche, executive general manager, says of getting the rejection letter.

In June 2009, GM said it had 6,049 dealerships selling eight brands. The new dealer body will be much simpler, with about 4,500 dealerships and four brands: Chevrolet, Cadillac, GMC and Buick.

This provides greater operating efficiencies and increased dealer throughput and profitability, enabling dealers to reinvest in their businesses to better satisfy customers, GM says.

Although GM’s new dealer network is about 25% smaller than in early 2009, it remains the nation’s largest.

The auto maker says many dealers are upgrading their facilities with more than 300 such projects already completed and about 1,000 scheduled through the end of 2010.

GM dealers, like Chrysler’s, must comply with the LOI terms before they can resume normal dealer operations.

And there’s the rub.

Dealer lawyers say some arbitrating dealers are filing suit against Chrysler, challenging the LOI terms and results. Dealers are objecting, in part, to LOI terms that say Chrysler can withdraw its letter of intent if a nearby dealer protests the reinstatement in 30 days.

Mark Scheinberg, president of the Greater New York Automobile Dealers Assn. which represents about 425 dealers, says dealers felt some relief the process had ended. But the bad feelings can’t be quickly erased.

“When you started seeing certain dealers closed and Chrysler opening new points (nearby) you knew dealers were being wronged,” he says. “It was one of the lowest times for our industry to see this happen.”

Chrysler used the premise of its bankruptcy “to get rid of businesses who were able to make payroll, sales and perform service work,” he says. “It was real foul play. It’s not what the free enterprise system is all about.”