Car Dealers Positioning Themselves for D2.8 C11 Payout

When it comes to “why can’t U.S. car companies kill their dead brands?” TTAC has always pointed the finger straight at America’s 50-state patchwork of franchise laws. If GM killed, I dunno, Saab, every Saab dealer in these here United States would drag The General’s ass down to the local courthouse demanding—and receiving—reparations. Lest we forget, Oldsmobile’s termination cost GM a billion dollars back when a billion dollars was a lot of money. If, however, Chrysler, GM or Ford filed for Chapter 11, they could kill brands and dealers at will—without paying ex-dealers anything more than the cost of their inventory. And maybe not even that. Franchised dealers can see the writing on the wall, and they’re not happy. So they’re proactively legislating a new post-C11 deal for themselves—inflating the claims against the automakers’ assets, increasing the likelihood that the D2.8’s bondholders will file for same.

A new Virginia law would require bankrupt carmakers to pay Old Dominion dealers’ rent/mortagage/land value for three years. And get this: provision 1569-5b (Termination Assistance) of the act requires manufacturers to pay “fair market value of the dealership” up to its value two years ago.

In a letter to the Virginia Auto Dealers Association (VADA), Charles Territo, spokesman for the manufacturers’ lobby group Automotive Alliance, points out that the VADA has lost its mind (paraphrasing).

The legislative proposal is akin to consumers saying the housing/financing crisis was not their fault, so the government should reimburse them for the lost value of their 401(k)s in the past year. Furthermore, the fair market value may be significantly higher than any investment by a dealer. Such legislation requiring manufacturers to pay the “fair market value” of dealerships will further exacerbate the plight of manufacturers struggling to stay in business by requiring huge payments to dealers in any necessary contraction of the product offerings.

Territo told TTAC that VA is only the first state making this misguided move. Legislators in Colorado, Indiana, Maine, Louisiana, Maryland, Montana, New Hampshire, Texas, Utah, Virginia, Vermont and Washington are all considering a similar law.

TTAC’s go-to guy on bankruptcy law says the dealers’ claims would never stand up in federal court. However, Mr. Tilton points out that the higher the claims against the automaker, the greater the chances the bondholders will pull the plug to avoid them. Sometimes the road to hell is paved with bad intentions, as well as good.