GM Says their New Dealer Agreement Supersedes all State Dealer Franchise Laws

By Brendan Moore

06.09.2009

gm-logo-smallThis should be interesting.

As you know, General Motors is in the throes of bankruptcy and therefore can void all the existing agreements it has with suppliers, lenders and dealers, to name a few.

GM has seized this opportunity to draw up a new dealer agreement with new terms that have infuriated many of their dealers. There are over 1300 dealer principals that have already received news of the death sentence GM gave their dealership, and thus are not involved in this fight, but many remaining dealers are screaming bloody murder.

Adding to their anger is the statement by GM executives that any dealer that doesn’t sign the new agreement by June 12 can be terminated at will. GM can legally terminate the dealers under the existing dealer agreement while in federal bankruptcy proceedings.

Automotive News has come into possession of a copy of the new dealer agreement, which they are reporting contains the following GM requirements:

Eliminate non-GM brands in the showroom

Maintain larger inventories

Sell substantially more vehicles

Upgrade dealerships and maintain high customer satisfaction scores

Not protest any store GM locates within six miles of their store for two years

GM’s lawyers have told company executives that any agreement forged in federal court will prevail over existing state franchise laws, a premise that irate dealers and their attorneys vehemently disagree with. They state that the new dealer agreement being offered by GM is overreaching and cannot trump state laws.

In the interests of disclosure, I have lobbied for changes in the dealer franchise laws previously; you can find a sample of that here.

The new dealer agreement restricts dealers considerably compared to the iron-clad state dealer franchise laws that have protected them in the past. Auto dealers have enjoyed a monopoly on retail vehicle sales for decades, a monopoly propped up with state law. The state dealer franchise agreements also had onerous terms for any vehicles manufacturer wishing to terminate dealers or a brand. So, compared to the bountiful privileges dealers enjoyed in the past, the new dealer agreement from GM must look as if their world is turned upside down.

For their part, GM says their new agreement is not as bad as dealers are making out. Mark LaNeve, head of sales at GM, states that the new agreement is merely letting dealers what is expected from them by the “new” GM.

As to whether or not GM’s legal stance will hold up in court, that is an open question. It’s worth noting, however, that many dealers say they don’t want to have their franchise terminated by GM, and then wait around for a couple of years for the court to possibly decide that GM was in the wrong. They are going to sign the agreement while grumbling loudly.

If GM is successful in overriding state dealer franchise law, it could fundamentally change the way their vehicles are retailed in the US, both short-term and long-term.

It’s a bold move on GM’s part.

COPYRIGHT Autosavant – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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4 Comments

  1. GM needs to figure out a better way to measure customer satisfaction other than the ridiculous coerced survey method they currently use (“you were EXTREMELY SATISFIED, WEREN’T YOU???”) If all car dealers are above average and leaving their customers extremely satisfied, then why are there so many car dealer horror stories?

  2. Wish I could just buy a car direct from the factory. The last four new cars I bought I had to order them, so what’s the difference in wait time? I know what I want which is why I have to order a car each time.

  3. Women hate car dealers, and with good reason. The best dealer I ever used was a Saturn dealership and the worst I ever used was a Toyota dealership.

    They really talked down to me and I was actually glad when my warranty was up so I wouldn’t have to go there anymore.

    I wish the companies that make cars could keep their dealers on a short leash and make them more helpful to their customers.

  4. The post that you link to from this post is excellent and makes a good case for reform of these laws. Kudos.

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