By on May 4, 2010

The Denver Business Journal reports that the Colorado Senate has approved fines of $10,000-$25,000 per day for any automaker that does not comply with its law (HB-1049) requiring reinstatement or compensation of culled dealers. That law was passed earlier this year, drawing a $60,000 vote-no lobbying effort from GM. It also gives culled dealers the right of first refusal for new franchises opened within five miles of their shut dealership within five years, and states that if a franchise has been re-awarded, the culled dealer can demand the return of his franchise. According to the DBJ:

Three terminated Chrysler dealers requested their re-awarded franchises back after the law was signed and said they were told by the company that it had no intentions of complying with it. Chrysler then filed a federal lawsuit on April 23 against Colorado, claiming the new law contradicted terms laid out in Chrysler’s bankruptcy agreement and violates the contract clauses in the state and federal constitutions.

Chrysler’s statement on the matter:

The actions to reduce Chrysler Group’s dealer network were a necessary part of Chrysler Group’s viability and central to the interim financing and proposed partnership with Fiat. The company is confident that we will prevail on the merits based upon federal orders entered by the Bankruptcy Court.

According to Automotive News [sub] though, Chrysler has recently moved away from its combative stance towards culled dealers, and is beginning to offer settlements in some cases facing arbitration.

Four Chrysler dealer lawyers and a dealer activist said they know of about 18 closed dealerships that have received offers since Tuesday, April 27.

Most of these offers have been for $25,000, with the range stretching from $20,000 to $200,000, they said. At least half the Chrysler dealers who received offers have rejected them, they say.

With daily fines for non-compliance in Colorado equaling “most” of Chrysler’s settlement costs, there is a definite incentive for settling these cases. And the price tag certainly just went a little higher.

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7 Comments on “Colorado Senate Approves $25k/Day Fines For Dealer Reinstatement Law...”


  • avatar
    boyphenom666

    It will take the court about thirty seconds to invalidate this and similar laws. New Chrysler is a completely new company that bought the carmaking assets of Old Chrysler. This is a common business transaction and when you buy assets instead of the entire entity, the obligations of that entity don’t go with you unless there are liens on the assets (which were removed by bankruptcy court). The analogy is if you or I were having money problems and sold off all our furniture. Absent fraud, nobody can force the buyer of your furniture to take on your debts.

    Then there is the concept of contractual privity. Since there was NEVER a contractual relationship between New Chrysler and Old Chrysler’s rejected dealers (as their contracts were rejected in bankruptcy), the state cannot force these kinds of requirements on New Chrysler.

  • avatar
    edsullivan

    http://www.pbs.org/newshour/bb/business/jan-june10/dealers_03-08.html
    PBS Jim Leher NewsHour

  • avatar
    ellomdian

    I’ll never understand why my state is always at the head of these weird franchise legislation laws. Seriously, we aren’t all this stupid.

  • avatar
    edsullivan

    Check out PBS NewsHour with Jim Leher: http://www/pbs.org/newshour/bb/business/jan-june10/dealers_03-08.html

  • avatar
    OldandSlow

    Lobbyists for car dealers +1

    State law makers in Colorado -1

    I doubt that this legislation will survive very long in Federal Court.

  • avatar
    daga

    So where is the law requiring all fired employees (without cause, i.e., downsized) be offered first dibs on new hirings? How do these lawmakers actually defend themselves when they do this kind of crap? I’m continually amazed that the press has given dealers a pass on the stuff they are pulling. Most people don’t like car salesmen, they don’t like when groups that give lots of money to lawmakers get preferential treatment and don’t like entitlement arguements. So where are the pitchforks?

    /end rant

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