DETROIT (March 8, 2010 — General Motors Co. said March 5 it plans to reinstate 661 of the 1,160 rejected car dealerships that applied for arbitration to get their franchises back, scrapping a nine-month plan to reduce its showroom network by 40 percent.
The decision to begin settlement procedures as early as this week stemmed from a desire to avoid the rigors of congressionally mandated arbitration, GM executives said.
Letters of intent are scheduled to start going out as early as Wednesday, March 10. The process could take just a few weeks for some dealers and as long as several months for others, they said. GM hopes to have the effort completed by mid-summer.
“By doing this we save a lot of time and energy and dollars,” Jim Bunnell, GM's general manager of dealer network support, said during a conference call with reporters.
Susan Docherty, GM's U.S. marketing chief, said the company decided “it would have been impossible to arbitrate 1,100 cases in a 120-day period.”
A law signed by President Barack Obama in December requires that arbitration be completed by mid-June. Arbitrators have the option of a one-month extension.
Before its bankruptcy reorganization last spring, GM had planned to reduce its 6,150-dealership network to 3,600 by the end of this year.
The company's reinstatement decision could leave GM with 4,500 to 5,000 U.S. dealerships.
The action also leaves Chrysler Group L.L.C. more isolated in its arbitration battles with about 400 of its 789 dealerships that were closed as part of its reorganization.
“We call on (Chrysler CEO Sergio) Marchionne and the leadership of Chrysler to reinstate the rejected dealers who had their franchises to abruptly and unfairly terminated,” said the Committee to Restore Dealer Rights, a group of rejected GM and Chrysler dealerships that praised GM's action.
Chrysler did not respond immediately to a request for comment.
GM used several criteria in selecting the dealers to be reinstated, Mr. Bunnell said. The company considered business measures—such as capital, dealer performance and customer satisfaction. It also considered which dealers were likely to win in arbitration, he said.
The auto maker also took into account the value of settling as many cases as possible rather than trying to arbitrate.
GM North American President Mark Reuss said he expects almost all of the 661 dealerships to satisfy the requirements in the letter of intent and be reinstated. He declined to provide a breakdown by brand.
But Richard Sox, a dealer lawyer in Tallahassee, Fla., said 19 of his clients who own rejected GM dealerships have already been told of GM's desire to settle—and 10 of them are Cadillac dealers.
GM plans to call representatives of all 661 rejected dealerships by late March 8 to notify them of its intent to begin settlement talks, Mr. Bunnell said. It will start sending two-to-three-page letters of intent by the end of next week for dealers to sign and return within 10 days, he said.
Dealers then will have 60 days from the day they sign to send documentation complying with requirements in the letter, such as information about working capital, location, licensing, facilities and floorplan financing.
They also will have to return any wind-down money received from GM as they prepared to close by October. Dealerships received between $5,000 and $1 million in wind-down money, depending on their size, Mr. Bunnell said.
Once dealers comply with all the requirements of the letter of intent, they can start ordering cars from GM, Mr. Bunnell said.
The 500 or so dealers not designated for reinstatement can still ask to be considered for settlement talks, he said. Dealers who prefer financial compensation over reinstatement can request that option, Bunnell said. GM will arbitrate the remainder.
GM's action was hailed by House Majority Leader Steny Hoyer, D-Md., who was instrumental in getting the arbitration law passed.
“It is encouraging news that GM is allowing so many dealerships the chance to reopen without arbitration,” Mr. Hoyer said.
Here's a chronology of the upcoming process:
1. March 8—Each of the 600 dealers designated for settlement will be called.
2. Wednesday, March 10—GM will start sending letters of intent to dealers.
3. Within 10 days of receipt of the letter of intent (LOI), dealers must sign and return it. The LOI will set forth all requirements for purchase of new or existing point.
4. Within 60 days after that: Dealers must send documentation satisfying the criteria for reinstatement. These criteria include capital, facilities, location, licensing and floor-planning. Dealers also will have to return any wind-down money they received.
This report appeared in Automotive News, a Detroit-based sister publication of Tire Business.