By on February 10, 2009

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.

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23 Comments on “Car Dealers Positioning Themselves for D2.8 C11 Payout...”


  • avatar
    bluecon

    If they go CH 11 they also hit the UAW.
    No can do.

  • avatar

    Three years? Uh-oh. I wonder how the automakers can wiggle around that.

  • avatar
    moedaman

    If they file for bankruptcy in federal court, how would state laws even affect them? Am I right in assuming that a federal judge determines the order of who gets paid? Couldn’t a federal judge say that dealers wouldn’t get a dime?

  • avatar
    tom

    So wait a minute…does that mean that we’re beyond C11 now? Is it straight to C7 now? Or is there still a chance for a C11 reorganization?

    Personally, I don’t see why this should prevent a successful C11 reorganization. Compared to legacy costs and wages, the money these dealers would get is nothing but pocket change, is it?

  • avatar
    Lichtronamo

    Moedaman is right – the Federal bankruptcy judge gets to decide who gets paid what (and what debts get voided).

  • avatar
    OldandSlow

    Time to file a Chapter 11 before the new legislation is enacted – Is anyone at Cerberus Chrysler listening?

  • avatar
    Airhen

    moedaman :
    February 10th, 2009 at 12:16 pm

    If they file for bankruptcy in federal court, how would state laws even affect them? Am I right in assuming that a federal judge determines the order of who gets paid? Couldn’t a federal judge say that dealers wouldn’t get a dime?

    Either that, or as long as it takes a court and all of the lawyers to decide who gets what and when, they’ll be long out of business. I’m still waiting for severance from an employer that went bankrupt 18 months ago!

  • avatar
    jpcavanaugh

    Any state law that treads on areas dealth with in the US Bankruptcy Code are of no effect. This is the doctrine of Preemption. It is clearest where the state law contradicts the bankruptcy statute. It can also apply, however, where the state law enters an area where the bankruptcy statute is intentionally silent. The validity of this new Virginia statute would most likely be decided by the Bankruptcy Court.
    From the thumbnail description of the Virginia statute we have been given, I have a hard time seeing how it will survive court review.

  • avatar
    no_slushbox

    The Detroit automaker dealers expect you to bail them out with billions of dollars to GMAC and Chrysler Financial.

    But then they lobby for state laws that will destroy the Detroit automakers.

    The dealers, the UAW and the management do not give a NSFW whether America has an automobile industry as long as they get paid.

    The best way to deal with people like that is to boycott them.

    Next time you go to a Detroit automaker dealer remember that you are dealing with someone that is trying as hard as they can to destroy the US auto industry, and reconsider dealing with them.

  • avatar
    jeremy cohn

    There is a new-ish Hummer store, that looks very much like the one in the picture, located on a busy street in my hometown ‘burb. When they announced that Hummer would die, I wondered what was going to happen to the horrible thing. Within a week, they’d emptied the Chevy store about 500ft down the road and moved the entire operation into the Hummer store. Like hermit crabs, they are. There’s also a bright purple H2 on one of those ramps in the front.

    Also, in the same mile of street, there are now about 5 other abandoned buildings from businesses that have gone under. Major retail operations. America, F Yeah!

  • avatar
    menno

    Well said, no slushbox.

    Perhaps the folks in charge of decision making at a supplier or some bondholders are saying to themselves about now “f-those dealers; we’ll use the sampson option” and go to court to demand a bankruptcy right NOW. Of course, the corporate head honchos can also see the handwriting on the wall.

    Mayhaps it would be time to simply pull the plug and get the zombies off the life-support machine and declare Chapter 7.

    With GeneralMessup and Chry-slur out of the way, there would be some reasonable chance that somewhat healthier companies might survive the big crash / Greatest Depression / next now ongoing recession of 10 years duration or more / whatever you wish to call it.

    Toyota, Ford, Honda, Hyundai, Nissan, Subaru, Kia (soon), BMW, Mercedes-Benz, Mitsubishi, Suzuki (in Canada via NAFTA), Volkswagen (in Mexico via NAFTA/soon in US?) could all be considered “domestic” makes just as in Europe and the UK where Ford and Opel (or Vauxhall in the UK) are currently considered “domestic” in their eyes, even though in reality, the corporate HQ’s are in the states.

    It may be time for a reckoning, here, soon.

    We need to re-adjust our minds around the changing realities.

    These old-line dealers are nuts, by the way!

  • avatar
    no_slushbox

    jeremy cohn:

    Are you referring to Schaumburg, IL?

  • avatar
    mel23

    Allowing for how desperation can cause people to confuse what they want/need with what’s at all likely, I think most dealers understand they won’t be getting bailouts. But what’s to lose?

    A Hyundai dealer near me is shutting down in a few days. They’re in a building that’s 3 years or so old. I’ve heard from two people who should know that the local Toyota dealer will be dead within 60 days. He’s in a huge nearly new setup with a 30-car or so showroom that puts everything else around here to shame. So it seems likely that before the end of this year the only options for buying a new car here will be from a dealership handling the wares of a bankrupt company.

    Then there are the restaurant business, empty stores in the malls, etc.

  • avatar
    Gardiner Westbound

    When you realize automakers are doing to dealers what dealers did to customers for decades, it’s hard to feel sorry for them. E Pluribus Screw ‘Em.

  • avatar

    @ jeremy cohn – Same thing happened with the Hummer store in Mobile, Alabama. The dealer, Joe Bullard, owns dealerships for several GM brands. Last fall he moved Hummer into his Cadillac store, then moved his Saturn dealership into the Hummer building.

    I snapped some photos of the building. It had Saturn banners draped over the Hummer signs and a lot full of Saturns out front. The Quonset hut style building still has the big, stainless steel H on the facade. I was wondering if this could be replaced with a giant S, but then again, Saturn may be gone before this change could be made.

  • avatar
    Luther

    Gimme-Gimme-Gimme-Gimme-Gimme-Gimme-Gimme-Gimme-Gimme-Gimme-Gimme-Gimme-Gimme-Gimme-Gimme-Gimme…..

    Like a bunch of 8 year olds…Forget the adult concept Freedom of Contract.

  • avatar
    beller

    I think that the dealers should get bailout checks directly from the federal government. They are entitled to it. There seems to be a lot of dealer haters in this discussion. My dealer treats me great and he is owed to be paid also

  • avatar
    PeteMoran

    People are scared. If a path through this is to be found, it will require some unique and skillful leadership.

    That’s why I think Reign-Of-Error Bush was utterly contemptuous for issuing ~$17b without the recommended “Car Czar”.

    Having said that, there was (and is) a powerful statute to resolve all this in the US Bankruptcy Codes. Use it.

  • avatar
    MisterB

    A state law should have NO effect in this instance. U.S. Bankruptcy Courts are in the U.S. Constitution. The Bankruptcy Court has almost total control. Someone else pointed out in a different thread that in Chapter 11 the auto company would have a “one-shot” chance to void these dealership arrangements. These relationships an exectutory contracts that can be voided by the company. If the company decided to keep a dealer (on a one-by-one basis) then the existing dealer arrangement INCLUDING the state laws that applied would then continue in effect.

    I agree with the concern about the dealers. What people are saying is F the existing Hummer and Saturn dealers. It’s easy to say this if you don’t own one of these dealerships. On the other hand, we are at the point where that dire event must happen one way or another.

    Here’s another thought: what if GM just said that it was closing these divisions and told these dealers to “get-in-line” to sue them and good luck getting the money.

  • avatar
    Patrickj

    Of course the fair market value of these domestic dealerships is less than zero, since it will cost money to clean up the fuel and oil contaminated soil under them.

  • avatar
    Robert Schwartz

    I thought I heard the captain say
    Pay me my money down
    Tomorrow is our sailing day
    Pay me my money down

    Pay me, pay me
    Pay me my money down
    Pay me or go to jail
    Pay me my money down

    — trad

  • avatar
    timjz

    I’m pretty sure this was the Hummer store in Milwaukee. The dealership has since been totally remodeled & is now a used car center. The funny thing was they put in a Smart car dealership about 100 feet from the Hummer store. This pic was taken before the Toyota(?) dealership was put in (where the trees are on the right side of the pic).

  • avatar
    fallout11

    To effortlessly prune both dead brands AND excessive dealerships, all that is necessary is to do what Chrysler did with Plymouth….stop making any.
    Problem solved. No payouts required. Empty dealerships either go out of business (since they have nothing to sell) or sell other, still-manufactured vehicles.


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