About two months ago, we heard that Chrysler’s “prototype” Motor Village dealership in the Los Angeles area had been hit with a complaint [PDF] from the California New Car Dealer’s association, arguing that it violated state laws against manufacturer-owned dealerships. The store, a test bed for what Chrysler terms “new retail concepts,” is in fact a partnership between Chrysler and LaBrea ChryslerJeep, making it appear to fit a legal loophole allowing OEM partnerships in retail ventures. But the CNCDA argues that Chrysler is undercharging for rent on the dealership building which it owns, and according to Automotive News [sub], the California Department of Motor Vehicle’s New Motor Vehicle Board just voted unanimously to open a formal investigation into the situation. And the stakes couldn’t be much higher, as AN reports:
If the DMV finds that Chrysler violated state law, the automaker could have its business license in California suspended or revoked.
With Mercury going the way of Olds and Pontiac, Ford has made much of its intentions to turn its struggling Lincoln brand around. Ford has promised a $2b investment in Lincoln’s product line, and is pushing for the closure of 200 or so Lincoln dealers in order to concentrate the brand’s weak sales at its most successful dealers. But that’s not all. Ford is requiring the surviving Lincoln dealerships to invest heavily, as much as $2m per store, to stay on board the Lincoln Revival Express. But, according to Automotive News [sub], the Lincoln dealers are starting to wonder if they’re being asked for too much. One dealer tells the industry paper
They told us there would be no new products for about 24 months. I don’t know how the stand-alone Lincoln dealers are going to make it, especially those dealers who have to spend $2 million on their upgrades.
Ford has offered several Lincoln stores between $300k and $1.5m to give up ideally-located franchises that they refused to upgrade, but it seems that few dealers are simply rolling over. In fact, the dealer who was offered $1.5m rejected Ford’s offer, calling it “very low” for his profitable franchise. And that’s the polite response. A dealer who was offered less tells AN
“Insulted” isn’t a harmful enough word to describe it. It’s asinine. I’m getting my numbers together and going back. I’m not going to accept this.
Ford, for its part, says the “status quo is not an option,” a position that puts the factory and dealers in place for a nice round of brutal negotiations. And since Ford lacks to the tools to force its entire network to update, it will either have to pay up or live with at least a few remnants of the status quo. And as long as Lincoln’s products remain largely status quo, that’s probably the way it should be.
Have we scrutinized all the issues behind what they’re doing? Not really. My feeling is that a manufacturer-owned store as a business model violates the spirit of the state law here. But not a single person is complaining about it, and it’s kind of a back-burner thing for us. I imagine that if we start getting complaints from our membership, we would move it up to a front-burner thing
Tim Jackson, President of the Colorado Automobile Dealer Association tells Automotive News [sub] that Tesla’s non-franchise dealership in Colorado is not a long-term strategy, despite the company’s avowed desire to do without dealers. Well, franchised dealers, anyway (state law allows one OEM-owned dealership, and lots of EV tax breaks). Tesla admits (in its prospectus, no less) that wanting to own its own dealers will cause problems in Texas, but in the unlikely event that Tesla becomes a viable automaker, it’s easy to imagine a number of states putting up barriers to the franchise-free strategy. Especially since what we do know about Tesla’s dealer model plan is… highly irregular.
Automotive News [sub] reports that 19 rejected Canadian GM dealers have been given the green light to sue GM as a class, rather than go through the arbitration process that is being used to resolve dealer cull disputes in the US. The dealers are suing GM for breach of their dealer agreements, and for failing to provide compensation beyond wind-down costs. They argue that the arbitration process would be expensive for dealers, non-transparent to the taxpayers who funded GM’s reorganization, and would put GM at an unfair advantage.
GM’s recent reinstatement of 661 culled dealers has put pressure back on Chrysler to come to arrangement with the dealers it shed during last year’s bankruptcy and bailout. Rep. Chris VanHollen, the sixth ranking Democrat in the House or Representatives, tells Automotive News [sub] that with GM buckling to dealer pressure, the time has come for Chrysler to follow suit. “There’s no quicker or easier way to build this network than to reinstate its terminated car dealerships,” says VanHollen, who drafted much of congress’s dealer arbitration legislation. The Committee to Restore Dealer Rights contacted Chrysler CEO Sergio Marchionne “to discuss the reinstatement of the rejected dealers who had their franchises so abruptly taken and were unfairly terminated.” The response?
We believe that all communications concerning the subject matter of the arbitration should be between counsel and request that your clients follow this procedure in the future. Please ask them not to send such communications to Mr. Marchionne or any other Chrysler personnel.
Oh snap! Chrysler isn’t going down without a fight… even if that means taking on the representatives who have oversight of the government’s eight percent stake in the automaker. (Read More…)
We reported yesterday that GM’s recent dealer cull flip-flop was motivated by Chariman/CEO Ed Whitacre’s desire for increased sales volume. Though that may have been the main reason GM took over 600 dealers back into the fold, there was clearly another, more sinister reason for the move: making an example of dissident, activist dealers. Automotive News [sub] reports that GM has contacted all 661 reinstated dealers, and believe it or not, none of the 7 dealer members of the Committee to Restore Dealer Rights have been contacted. Founding member Tammy Darvish tells AN [sub],
The only thing I’m confident of is that I’m sure it’s not a coincidence
Ya think? GM won’t comment on any of the 499 dealerships that haven’t been contacted, but this sends a clear message: mess with The General and you won’t be part of the new push for volume. Darvish and the other rejected dealers still have the arbitration process, but it seems unlikely that any of them will ever be welcomed back into the bosom of GM any time soon.
The Colorado House’s passage of HB-1049 [PDF here], a bill requiring restitution for dealers culled during the Chrysler and GM bankruptcies, has drawn a $60,000 “no” campaign from General Motors. The Denver Post reports that GM’s ad campaign, which features lines like “we must keep driving forward to repay our government loans,” and “don’t let special interests stick taxpayers in reverse,” has riled up local lawmakers more than ever, drawing such timeless put-downs as: “they must be spending tax dollars on Botox to say that with a straight face.” The bill would require OEMs compensate culled dealers for signs, parts, dealer upgrades and more, as well as offer them the right of first refusal for any new area dealerships.
GM’s newly-permanent Chairman/CEO Ed Whitacre balked visibly when asked following his self-coronation if the dealer cull arbitration process would hurt GM’s chances of success this year. “I’m not sure it will weaken us,” was his half-hearted response. Whitacre’s hesitation was a bit of a surprise, considering that GM is taking a far more tolerant attitude to the arbitration process than Chrysler. But, as Automotive News [sub] reveals, GM’s downsizing was highly focused on its Cadillac brand, and if arbitration results in widespread reinstatement, Cadillac could find itself stuck with a number of small-town dealers it doesn’t want.
Even with a government-mandated arbitration process in place, the battle between Chrysler and its 789 culled dealers is a low-down, dirty dogfight. Last week, Chrysler sent out letters to all of its rejected dealers, in its attempt to comply with the arbitration law’s disclosure requirements. But, dealers tell Automotive News [sub], those letters are justifications, but not explanations. Absent concrete evidence for why their franchises were closed (something GM has provided to its culled dealers), lawyers for some 65 rejected dealers are fighting back.
The prospect of US launches by Chinese and Indian auto brands like Tata and BYD have at least one of the established US-market players in a paranoid froth. Honda VP John Mendel revealed a few of the nightmare scenarios that keep him up at night to USA Today [UPDATE: more on Mendel's fears at Automotive News [sub]]. One, inspired by BYD’s plans for a 2010 US launch without a distribution channel in place, is that newcomers could skip the dealer model altogether. Mendel worries that “warehouse stores or electronics stores” (sound familiar?) could be used to cut dealers out of the loop, “blowing up” business-as-usual for US distribution strategy.
When CEO Chung Mong-Koo told his employees to make Hyundai’s quality world class, their competitors all had a collective laugh. Well, we all know how that ended, so when Chung told his employee to increase sales, the competition should probably heed his words as a warning. The Korea Times reports that Chung Mong-Koo wants the Hyundai-Kia group to increase sales by 17% in 2010, from 4.63 million (2009) to 5.4 million. “Our teamwork helped turn a crisis into an opportunity when the global auto industry was at its darkest,” said Chung Mong-Koo. “Based on our achievements last year, let’s work together to make 2010 a year of writing a new history.” Analysts like Sohn Myung-woo of Woori Investment & Securities sees the goal as achievable, saying “Hyundai will continue its sales momentum in the U.S. and emerging markets such as China and India.” But besides expanding volume, Hyundai wants to use its momentum to continually improve its brand image in mature markets like the US. To that end, it’s paying more attention to how it markets its Genesis luxury semi-sub-brand.
You’d have to be a fairly trusting GM dealer to participate in what The General calls its Essential Brand Elements program. After all, it’s just the kind of dealership re-branding exercise that HUMMER dealers were forced into shortly before the brand was consigned to the ash heap of history. And once again, GM is asking dealers to create ideal showcases for its brands while keeping compensation for the renovations on a highly trust-dependent basis. GM wants brand-specific dealership rebrandings complete within three years, but will only pay for them over the next five to ten years reports Automotive News [sub]. And the payments won’t be fixed either, but will rather be tied to the dealer’s annual vehicle shipments using “a seasonally adjusted formula that takes into account the price of the vehicles sold.” According to Chevy’s Sales Manager Kurt McNeil, those payments could “conceivably” cover the recommended changes over the ten-year period. Are you feeling the trust yet? (Read More…)
Here’s a question: You want to do something, but it’s against the law, what do you do? Abandon the idea? No, if you’re Chrysler you sue the government. Detroit News reports that Chrysler LLC are suing officials from Oregon, Maine, North Carolina and Illnois for laws which “unduly burden New Chrysler with the obligation to provide the rejected dealers with rights that this court determined that the rejected dealers do not have,” as lawyers for Chrysler wrote.
If you haven’t been following the drama surrounding the effort to restore dealers culled during GM and Chrysler’s bankruptcy, you might need to be brought up to speed. In essence both the cut dealers and the automakers have agreed to send create an arbitration process by which dealers could have the decision to cut their franchise reviewed by a neutral third party. The remaining conflict is over the criteria arbitrators should use to judge dealer viability, as the GM and Chrysler proposition would have forced arbitrators to use the same criteria GM and Chrysler did in the initial cuts. That would obviously have yielded the same results as the initial cull, so the dealers pushed for a set of criteria that is more favorable to their interests. Automotive News [sub] reports that a compromise has been reached in conference committee that would allow dealers to present “any relevant information” to make their case. That bill is now been approved by the House [sub] and is headed to the Senate, where its passage is “virtually assured.” But despite having all but guaranteed an independent review, culled dealers still aren’t happy.
As soon as GM and Chrysler agreed to review their dealer cull decisions, the culled dealers in question began complaining that the review would not improve their situations. According to the aggrieved dealers, the new review would be based on the same allegedly flawed data as the initial cull, meaning nothing would be changed. By GM’s own admission, only 39-51 of the over 1,000 dealers cut would even stand a chance at reinstatement. Now, Automotive News [sub] reports that a new measure has passed the House of Representatives which would allow dealers to “present any kind of relevant information during the arbitration.” The measure comes in the form of an amendment to the House Financial Services bill, which is headed to a conference committee in which House and Senate leaders must arrive at a compromise in order to send the bill to President Obama.