Chrysler Required to Reinstate Dealership Terminated in Network Reduction

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

A balancing of the economic interests of a motor vehicle franchisor (Chrysler), a terminated dealer (Fury), and the public led to the conclusion that the Lake Elmo, Minnesota dealership should be reinstated to the Chrysler motor vehicle dealer network and have its franchise agreements renewed, as prescribed by Section 747 of the Consolidated Appropriations Act of 2010, an arbitrator has determined.

The dealer had been terminated in connection with Chrysler’s reorganization in bankruptcy and sought reinstatement through the binding arbitration procedures outlined in the statute (CCH Business Franchise Guide ¶14,281) that was signed into law on December 16, 2009.

The Act required an arbitrator’s determination as to whether a dealer should be added back to a franchisor’s dealer network to result from a balancing of the economic interests of the dealer, the franchisor, and the public at large.

According to the arbitrator, the factors to be considered in such balancing included:

(1) Chrysler’s overall business plan;

(2) Fury’s profitability during 2006, 2007, 2008, and 2009;

(3) Fury’s current economic viability;

(4) Fury’s satisfaction of the performance objectives of its franchise agreement;

(5) the demographic and geographical characteristics of the dealer’s market territory;

(6) Fury’s performance in relation to the criteria used by Chrysler to terminate it; and

(7) the length of Fury’s experience.

Reinstating Fury would not result in any meaningful harm to the economic interests of Chrysler, the arbitrator decided. Based on all of Chrysler’s dealership performance criteria, Fury scored within the top 29% to 47% of all dealers in the local and national markets during the two years prior to its termination.

The public interest would not be materially affected by a decision to restore Fury to Chrysler’s network, the arbitrator reasoned. There was no material public interest associated with the convenience of having, or the inconvenience of not having, the Fury dealership in Lake Elmo, Minnesota.

There were economic harms to Fury from not being reinstated, but they were not overwhelming. Fury would not fail to survive if Chrysler did not reinstate it; however, it certainly would be more vulnerable. Moreover, Fury would suffer the stigma of being only a used car dealer with no new car franchise.

While those harms were not overwhelming, they were also not trivial and were greater than any meaningful harms to Chrysler, which were largely non-existent, the arbitrator concluded.

A detailed summary of the arbitrator’s determination (Fury Dodge, LLC v. Chrysler Group, LLC, American Arbitration Association, Case No. 65-532 000047 10, June 25, 2010) appears at CCH Business Franchise Guide ¶14,406.

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Motor Vehicle Dealership Reinstatement Measure Signed into Law

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

More than 2,000 motor vehicle dealers that had their franchises terminated in connection with the federal government-funded restructuring of General Motors and Chrysler earlier this year now have an opportunity to seek reinstatement of their franchises under legislation signed yesterday by President Obama.

Under the new law, dealerships that were not lawfully terminated under state laws on or before April 29, 2009, shall be authorized to request reinstatement or continuation of their franchise agreements or to be added as a franchisee to the dealer network of their former franchisor in the geographical area where the dealership was located when its franchise was terminated, not assigned, nonrenewed, or discontinued.

Such an election by the dealership would have to occur within 40 days of the legislation’s enactment.

Those seeking reinstatement or continuation must make a request for binding arbitration. The arbitrator would be required to balance the economic interests of the dealership, the economic interest of the manufacturer, and the economic interest of the public at large and decide whether or not the dealership should be reinstated or continued.

The factors considered by the arbitrator include:

(1) The dealership’s profitability in 2006, 2007, 2008, and 2009,
(2) The manufacturer’s overall business plan,
(3) The dealership’s current economic viability,
(4) The dealership's satisfaction of performance objectives,
(5) The demographic and geographic characteristics of the market territory,
(6) The dealership’s performance in relation to the manufacturer’s criteria, and
(7) The length of experience of the dealership.

The dealership reinstatement measure is contained in H.R. 3288, the Consolidated Appropriations Act of 2010 (Public Law 111-117).

Full text of the reinstatement provision (Sec. 747) will appear at CCH Business Franchise Guide ¶14,281.