Could Chrysler Be Kicked Out Of California?

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.

Ruh-Roh!

While suspension or revocation of Chrysler’s California business license would be a huge blow, it’s not clear how likely it is to happen. After all, the dealers who are suing Chrysler say they don’t want to put themselves out of business, and have obvious reasons for not doing so. Says Peter Welch, president of the CNDA:

From our perspective, there’s been a clear violation, and what I heard today underscored it. We obviously don’t want the department to close them down because that would adversely affect our 103 Chrysler dealers, but we can’t have rogue manufacturers not following the law and intentionally trying to circumvent it through sham devices to meet whatever the flavor-of-the-month new marketing strategy is.

But if you dig into the complaint, it’s not at all clear what the CNCDA wants, precisely. Here’s what the complaint requests:

Petitioner is not a licensee of DMV and does not request the Board to refer this matter to a gearing officer or attempt to mediate, arbitrate or otherwise resolve the matter because this Petition does not involve a dispute between Petitioner and Respondent. Rather, Petitioner requests the board itself, both public and dealer members, to exercise its statutory oversight responsibility by considering the herein described acts and practices of Respondent as they relate to the Legislature’s statutory scheme to ensure fair competition and protect the public. After careful consideration, Petitioner respectfully requests:

1. That the Board provide relief available under subdivisions (c)(1) and (c)(3) of Vehicle Code Section 3050 by directing DMV to conduct an investigation of the matters described herein and/or order the DMV to exercise its authority and power to initiate disciplinary proceedings against the motor manufacturer license of Chrysler Group LLC; and

2. For such further relief as the Board deems appropriate.

Turning to the California Vehicle Code, we find that the CNCDA invoked clauses one and three of the following “powers and duties” of the NMVB:

(1) Direct the department to conduct investigation of matters that the board deems reasonable, and make a written report on the results of the investigation to the board within the time specified by the board.

(2) Undertake to mediate, arbitrate, or otherwise resolve any honest difference of opinion or viewpoint existing between any member of the public and any new motor vehicle dealer, manufacturer, manufacturer branch, distributor branch, or representative.

(3) Order the department to exercise any and all authority or power that the department may have with respect to the issuance, renewal, refusal to renew, suspension, or revocation of the license of any new motor vehicle dealer, manufacturer, manufacturer branch, distributor, distributor branch, or representative as that license is required under Chapter 4 (commencing with Section 11700) of Division 5.

What does this tell us? Despite the CNCDA’s insistence that it doesn’t want Chrysler booted from the Golden State, it specifically chose not to invoke the clause intended to “resolve any honest difference of opinion or viewpoint.” Which, if this were a remotely amicable dispute, they would have, as Chrysler’s defense hinges on the exemptions for partnership and dealer training. And, reading through the CNCDA’s conclusions, it’s clear there’s something going on here besides one Chrysler-owned store. This conflict has historical context.

The past three years have been extremely challenging for California Chrysler dealers – more than 30 of them were forced to close their doors due to the collapse of Chrysler Financial and the recession. During that time, and additional 32 California Chrysler dealers were rejected and terminated by Chrysler LLC during its bankruptcy — but not Chrysler-owned LaBrea Avenue Motor Inc! … California’s remaining independently-owned and operated Chrysler, Dodge and Jeep dealers are fierce competitors but they cannot fairly compete against a Chrysler-owned dealership in their own backyard — especially a $30 million plus behemoth operating with little or no rent charge. The Legislature crafted a well thought out regulatory scheme to deal with unfair auto manufacturer competition and Respondent is apparently thumbing its nose at it.

So, this is part complaint, part payback. And remember, Chrysler dealer members of the CNCDA may want to prevent a suspension or revocation of Chrysler’s California business license, but there’s more to the CNCDA than just Chrysler dealers. Meanwhile, the matter is in the hands of the DMV board now… and we’ll be keeping an eye out for their investigation’s findings.