Chrysler Now Considering Legal Challenge to Dealer Arbitration Bill

The new Chrysler versus its old dealers is turing into quite a brawl

By Brendan Moore

12.18.2009

Chrysler logo smallIn yet another twist to the forced closings of dealerships by GM and Chrysler via bankruptcy, Chrysler CEO Sergio Marchionne stated yesterday that Chrysler may challenge the recent legislation mandating arbitration between Chrysler and its terminated dealers as unconstitutional. Chrysler apparently feels that litigation regarding the constitutionality of the legislation holds considerable promise.

Marchionne stated to reporters that Chrysler is considering going to court to prevent Congress from forcing Chrysler into arbitration between it and the terminated dealers, or, forcing the company to reinstate the dealers that Chrysler shed during bankruptcy proceedings.

The arbitration between Chrysler and the dealers it closed is required by legislation passed by both houses of Congress and signed by the president earlier this week.

It also requires GM to do the same; GM has not yet decided what it will do in response, according to GM representatives.

Marchionne said that restoring large numbers of dealerships, many of which ceased business operations sometime ago, could “cause havoc within Chrysler”.

The dealers that Chrysler shut down relish that idea; indeed, many of them are more than eager to share their stories of the havoc that Chrysler’s decision caused for them from both a personal and business perspective. As far as these dealers are concerned, Chrysler needs to feel some pain, and reinstate their dealership as soon as possible, or, pay them a large sum of money for shutting it down.

When these dealers are reminded that many shareholders and companies lost large sums of money when Chrysler declared bankruptcy, and asked why they, as dealers, should be singled out for exemption from the federal bankruptcy provisions, they will tell you that dealers have special “dealer rights” granted to them by the state dealer franchise laws. They will also tell you that, as dealers, they know what is the right thing for Chrysler to do, and simply put, that is to reinstate all the dealers. This argument was shown to be persuasive with Congress, who passed the legislation granting the cast-aside dealers the right to independent arbitration, but convincing federal judges that state law that governs dealer franchise agreements should supersede federal bankruptcy provisions that allow nullification of contracts between the bankrupt entity and its business partners may be a tougher hill to climb.

That aside, there is no doubt that the level of anger among the terminated dealers is very high, and there is no doubt that they feel a terrible injustice has been done unto them by Chrysler. This latest statement by Marchionne is certain to inflame the dealers’ rhetoric to new heights.

And, if GM, who is keeping their plans close to their vest, decides to litigate against the arbitration legislation, they will come in for the same level of heightened vitriol from the displaced dealers. GM’s terminated dealers are almost as angry as Chrysler’s, although GM has provided far more financial assistance to their closed dealers than what many of the Chrysler dealers received.

Chrysler says it seeking advice from legal counsel and waiting to see what GM does before it decides whether to go to court.

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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. They probably should’ve let someone else say that. A foreign CEO invoking the constitutionaliy of something will be noticed and commented on pretty quickly.

    A PR slip-up for Chrysler, imo.

  2. It’s a valid argument and I think Chrysler would prevail in court easily. What Congress did does seem to go against the federal bankruptcy law.

    But, just for the record, Chrysler did treat a lot of those dealers in a shabby manner. Not an illegal manner, but certainly an unethical manner.

  3. The dealers are going to unhappy with the result if they go to court.

  4. It mystifies me why anyone would want to be a Chrysler dealer in the first place. Lousy company, lousy cars.

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