GM Reaches Agreement with State AGs Regarding Compliance with State Dealer Laws

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

The attorneys general (AGs) of 30 states have reached an agreement in principle with GM regarding protections afforded under state laws to dealers and consumers. The agreement requires New GM, a newly formed entity created by the U.S. Treasury, to comply with state laws governing the relationships between dealers and manufacturers. The agreement was formally ratified by the U.S. Bankruptcy Court for the Southern District of New York on July 5, and additional states are expected to participate.

The AGs had filed objections to GM’s plan to reduce the number of its dealerships by 2,641--from 6,246 to 3,605--by the end of 2010. The AGs contended that the bankruptcy plan would permit GM to ignore state statutes that protect dealerships from unfair terminations and other oppressive conduct by motor vehicle manufacturers.

Nebraska Attorney General Jon Bruning, who also serves as President of the National Association of Attorneys General, stated about the agreement:

"We are pleased GM was willing to work with the states to resolve our concerns so that consumers, dealers and the environment will continue to receive the protection of state law." The initial positions of GM and the Treasury Auto Task Force would have left thousands of GM customers and dealers without the protections afforded to them under state law. "I’m confident the concessions given to the states, while of great benefit, won’t interfere with the ability of new GM to function as a viable company nor should they add to the burden placed on taxpayers by the Treasury’s purchase of GM."

Texas Attorney General Greg Abbott called the bankruptcy court's decision a significant victory. In a July 6 statement, he added "the federal court ruled that franchise agreement disputes between General Motors and its Texas dealers will be decided by the Texas Department of Transportation, not a federal bankruptcy court 1,300 miles away in New York City."

GM Concessions

Specifically, among concessions sought and received by the state AGs, GM has agreed to:

(1) acknowledge that all dealers staying with the new GM will be protected by state franchise and dealer laws;

(2) accept responsibility for compliance with environmental laws for new company facilities and expand funds available to cleanup sites that will stay with the old GM;

(3) honor express warranties and comply with state lemon laws;

(4) accept responsibility for payment of state tax obligations;

(5) comply with state privacy laws, including state Do Not Call laws; and

(6) honor products liability claims for accidents occurring after the closing date that involve cars sold before bankruptcy.

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.