GM Should Not Be Allowed to Avoid Dealership Protection Laws: State AGs

This posting was written by John W. Arden.

Texas and Nebraska Attorneys General are strongly objecting to General Motors’ bankruptcy plans to drastically reduce its number of dealerships in the United States, while avoiding state dealership protection laws.

In its April 27 viability plan, GM has announced an intention to reduce the number of its dealerships by 2,641—from 6,246 to 3,605—by the end of 2010.

On June 12, Texas Attorney General Greg Abbott filed objections in the federal bankruptcy court in New York City, arguing that the bankruptcy plan would allow GM to ignore state statutes that protect dealerships from unfair terminations and other oppressive conduct by motor vehicle manufacturers.

According to Abbott, the bankruptcy plan would allow GM to free itself from laws limiting its ability to terminate or modify franchises, to skirt laws protecting dealers from coercion in the ordering of new vehicle inventory, to deny dealers of their rights to market other brands, to alter dealer rights to relocate, and to limit dealer warranty claims.

The right of states to provide legal protections for dealers has been long established—and was recognized by the U.S. Supreme Court in New Motor Vehicle Board of California v. Orrin W. Fox Co., 439 U.S. 96 (1978)—the Texas Attorney General said.

The attorney general’s objections are scheduled to be considered at a hearing of the bankruptcy court on June 30. A statement on the objections appears here on the website of the Attorney General of Texas.

Meanwhile, Nebraska Attorney General Jon Bruning is promising to take direct action against GM and urging his colleagues to do likewise.

On June 15, Bruning sent a letter to all other state attorneys general, expressing an intention to file suit against the company “to try and put a stop to its illegal tactics.”

“What GM is trying to do in Nebraska and other states is unconscionable,” said Bruning. “That is why I’m leading an effort involving other state attorneys general.”

By ignoring state laws that protect consumers and dealers, GM leaves consumers vulnerable by depriving or deferring warranty service and avoiding lemon laws, said Bruning. This behavior not only violates consumer protection laws, but also may violate antitrust laws, he observed.

Further details on the Nebraska Attorney General’s views appear here in a June 15 news release.