Many GM dealers still don’t know whether they’re staying open
Despite weeks of anticipation since General Motors Co. announced it would keep hundreds of dealers targeted for closure, it is still not clear which showrooms will be granted a reprieve.
The automaker is deep in negotiations with some dealers but is not talking to others, according to attorneys and auto industry executives familiar with the discussions.
Details have been particularly sketchy because GM and the dealers have signed confidentiality agreements. Dealers don’t want customers to know they might close, which could chase away potential buyers of vehicles still on the sales lot, and GM declined to identify dealers, saying it was leaving it up to them to disclose whether they were being reinstated or not.
But individuals familiar with the negotiations said GM was starting to make concessions to keep some of the stores open in an attempt to avoid hundreds ofarbitration hearings nationwide.
This month, GM said it would offer to reinstate nearly 700 of about 1,200 franchises it planned to drop from its network because it feared it could not get all of its disputed closures through arbitration hearings by a congressionally mandated July 15 deadline.
Chrysler Group has about 400 dealers using arbitration to appeal the loss of their dealerships.
“We are seeing positive movement from GM. They want to move on and not be at war with their dealers, but it is just night and day with Chrysler,” said Peter Welch, president of the California New Car Dealers Assn.
Not every GM dealer is getting a reprieve.
Bill Hatfield, owner of Hatfield Buick GMC in Redlands, said he had not heard from GM and expected to go to arbitration.
“We have been here 97 years and we are profitable and we are hoping like heck we can show in arbitration that they need to keep us,” Hatfield said.
Although GM is no longer sending him new vehicles, Hatfield has been able to stay in business by using his contacts in the industry to obtain autos from other dealers, including the new-generation Buick LaCrosse, one of GM’s hotter models.
The automakers sought to shed what they considered to be about 3,000 excess dealers as part of bankruptcy reorganizations last year, an effort to bring their franchise networks into better balance with declining car sales. Closing unprofitable and poorly performing franchises was expected to channel business to the stronger dealers.
But dealers and their supporters complained, contending that such businesses were important to the economies of their local communities. The average dealer employs close to 50 people and pumps $16.5 million a year into the local economy, including payroll, taxes, payments to vendors, advertising and charitable giving, said Paul Taylor, chief economist of the National Automobile Dealers Assn.
Congress stepped in and passed legislation requiring the automakers to set up an arbitration process that would be completed by July 15.
Welch said that about 70 GM and Chrysler dealers in California filed appeals to remain open with the American Arbitration Assn. None of the parties are providing lists of the franchises involved for legal and business reasons, but Welch believes many of the GM dealers are inching closer to new contracts to remain in business. Cadillac franchises and showrooms in rural areas appear to be making the most headway.
A survey of attorneys representing dealers in arbitration found that 22 of 26 of their GM-branded clients had letters offering reinstatement or were close to a settlement agreement with the automaker, Welch said. Four of the cases are still headed for an arbitration hearing.
In several cases GM was offering the franchises an extra payment to close, but in most instances it was making concessions to its previous demands that will allow the stores to stay open, Welch said.
For example, GM had been against allowing dual-branded dealers -- where one of its franchises was paired with a marque from a different manufacturer -- to remain open. Welch said allowing dealers to sell multiple makes was important to stores in rural areas where the population could not support a stand-alone franchise. Now GM appears to be agreeing to arrangements in which its vehicles had a separate showroom but service operations are still combined, he said.
Chrysler is sticking to its plans to shutter showrooms that don’t sell all three of its brands -- Chrysler, Dodge and Jeep. Before its bankruptcy filing, about 64% of its dealers carried all three lines. That’s up to 80% now and headed to 100% by the end of 2011, said Kathy Graham, a Chrysler spokeswoman.
“We want to get the dealer network right, both in terms of location and to get all the brands under one roof,” she said. The automaker’s only concession is that it won’t expand dealers’ lines in a geographic region where another dealer has filed for arbitration.
Welch said that all seven of the California Chrysler dealers that the surveyed attorneys represented were headed for arbitration.
The Committee to Restore Dealer Rights -- a group representing hundreds of dealers slated for closure -- is urging the dealers to continue preparing for arbitration hearings in the coming months even as they negotiate remaining in GM’s sales network.
“There’s just too much risk to stop preparing,” said Tammy Darvish, a spokeswoman for the group and vice president of a family company that owns 26 auto dealerships in the Washington area.
Darvish warned that the dealers had to be cautious about reinstatement talks’ breaking down and not having the backup documentation and arguments ready for an arbitration hearing.
Aaron Jacoby, a Los Angeles attorney representing several dealers, said he wasn’t surprised that GM had backed off on its plans to shrink its sales network.
“They made this decision of who to cut and who to keep very quickly. Some of this was blind guessing to get to a certain number,” he said.
