GM dealer downsizing could lead to barrage of lawsuits
Rock, meet hard place. With General Motors handed a directive from the White House to be ultra-aggressive in its restructuring in order to secure more government loans, the automaker is making cuts everywhere and dealers are far from immune. As reported previously, GM's plan to shrink its retailers from nearly 6,300 to 3,700 by the end of 2010 is going to be as painful as a Civil War amputation. Initially, General Motors will deny franchise renewal to dealerships that don't measure up on metrics such as customer satisfaction, profits, volume, and capitalization. An initial group of 1,200 stores will either have an uncomfortable meeting or get a "Dear John" letter starting this month. Unsold cars will be bought back, but GM hasn't made any intimation that it's interested in compensating for special tools, parts inventory, real estate, and the "blue-sky" value of the outlet. The move to buy back only the unsold cars is likely to lead to legal action on the part of some dealers. The dealers are not only nervous, but they've often leveraged one dealership against their others in order to capitalize their operations. Closing one store that's part of a family of dealerships could start a domino effect for that franchisee, and state franchise laws protect the dealers far more than the automaker. Without filing for Chapter 11, General Motors faces a real fight in its action to pull franchises.
[Source: Automotive News - Sub. Req.]
Reader Comments (Page 1 of 2)
Aprime 3:35PM (5/04/2009)
inb4 government makes a special law.
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dsuupr 3:43PM (5/04/2009)
This could be what puts them in to bankruptcy.
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LMBVette 3:46PM (5/04/2009)
"Without filing for Chapter 11, General Motors faces a real fight in its action to pull franchises. "
GM will be filing for C11....you can bank on it.
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Jruhi4 3:50PM (5/04/2009)
I totally agree. I'll bet that GM is secretly hoping that its smaller bondholders/stakeholders are just as stubborn and combative as Chrysler's and force them into Chapter 11. Then they can do whatever they please with the dealers.
Sea Urchin 4:13PM (5/04/2009)
OK I am not an expert on this but this is why bankruptcy may NOT work for GM.
GM has many secured lenders, meaning, they gave GM money with a contract that says if you miss a payment we will take your assets, sell them and recoup our money.
If in CH 11, these lenders will attempt to sell GMs plants, offices, and everything else until they get their money back. Because we are in this economy GMs plants may not fetch enough to recoup the lenders……they may have to sell every asset GM has and still not get their money back (I believe this is called liquidation)
I don’t think GM will be able to pay the lenders by selling its plants because no one needs auto plants right now, and anyone who will buy one will be buying into a UAW unionized plant.
TigerMil 5:53PM (5/04/2009)
urchin is truly ignorant. C11 protects GM from 'secured lenders' doing exactly what urchin states they will attempt to do.
If GM doesn't file C11 or some other version the secured lenders WILL do exactly that, i.e., collect their pound of flesh. (apologies to Willie F)
Judy Zik 6:14PM (5/04/2009)
Their bankruptcy was guaranteed a long time ago. It has simply been a matter of getting things set up to do it in an orderly way and have a plan to get out fast. The bailouts bought them the time they needed to do this and make sure that if they they didn't take all the suppliers all with them. This is also why Chrysler got to go first. The only uncertain part is if the revised GM and Chrysleriat will be able to bounce back.
tuxchown 10:16PM (5/04/2009)
GM will be bankruptcy lite. You can bank on it.
Smegley 3:48PM (5/04/2009)
LMAO @ the fool who ordered this. Wait - don't tell me - he's a politico with zero real world business experience, right? Yeah ... right. Well don't worry GM; we taxpayers can just pick up the bill because this is change we can pay out the yingyang for.
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Dude 3:54PM (5/04/2009)
But man can he read from a teleprompter.
Jake B 4:10PM (5/04/2009)
Here's hoping for a candidate that doesn't totally suck come 2012.
Gardiner Westbound 3:50PM (5/04/2009)
.
This is a man bites dog story. I doubt many former GM customers will be shedding a tear for the dealers.
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mikemaj82 3:56PM (5/04/2009)
so they'd rather buy back the cars then sell them at a discount and at least get something? wow.
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TigerMil 5:57PM (5/04/2009)
AGREED. GM and Ford fail the basic MBA course on minimizing losses vs maximizing profits.
Same with the dealers...they still don't want to deal on the cars people want.
Go to a Chrysler/Dodge dealer and ask for a deal on a Viper...they'll tell you to go pound sand. Same with Z06 and ZR-1....the dealers are marking them up.
But no matter...a two year old Z06 MSRP'd for 85K...now for less than $55K with 2-3K miles on them. In 10 years parts will be as hard to get as for a Studebaker Hawk.
Mike 4:02PM (5/04/2009)
It's easy to say cut dealerships and the business will go to other still open. That didnt happen when they close the Olds dealerships, they did not get that market share back. GM will cut cost by closing them but it will also cost them market share at the same time.
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Chris 4:12PM (5/04/2009)
Vehicles on dealer lots are not owned by the dealers, they're still owned by the automaker. When GM says it will "buy back" cars from dealers, there is no exchange of money because they always did own them...that's what floorplans are and for GM, it is GMAC that provides the financing for these floorplans. Many have deals like 90 days free and if the cars aren't sold, then the dealer gets charged interest on the cost of the vehicle for keeping it on the lot. Sounds like the small business man is about to take the shaft...
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British_Rover 4:29PM (5/04/2009)
Ehh that is not always correct. Not ever GM dealer floorplans with GMAC. Our one GM franchise does not floorplan with GMAC but another regular regional bank. Also you cannot floorplan a new car forever anymore. Most banks give you a year now to floorplan a car and then they want the balance of the car's cost in cash right away. I am sure with many GM brands there are plenty of cars sitting on the lot that have had a birthday or two and are owned cash by the dealership.
Tourian 4:17PM (5/04/2009)
Or, do these struggling dealers on the verge of being BK themselves really want to get into a protracted legal battle with a company that could go into BK any day now.
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Optimus Prime 4:45PM (5/04/2009)
When will you bitter clowns get over the fact that YOU LOST the election? Why must every damn post be filled with "I hate this Obama guy" rhetoric?
Try articulating a better message for the repugnants
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vic 5:33PM (5/04/2009)
Who knew that last November we were really electing the CEO of America's auto companies? Jeez, I suppose we should all get over it, because after all, this whole "government-dictated automobile industrial policy" thing has nothing to do with President Obama or the decisions he's been making now, has it?
None of which is to say McCain would be any better (he wouldn't, which probably explains his loss in the election), by the way. You're huffing industrial solvents if you think that after the braying donkey show of the past 8 years, the left is in any position to instruct anyone on "getting over it" and "dealing with" the fact that The Won (or anyone else, for that matter) got elected. Fool.