When our Chrysler dealer clients first heard that Fiat was not going to provide them with rebadged vehicles but instead offer those vehicles through a separate Fiat franchise, they rightfully felt betrayed. The Auto Task Force attempted to persuade us, as taxpayers, on the idea that Fiat should be handed a large ownership percentage in Chrysler because Fiat was going to import vehicle technology to Chrysler through rebadged Fiat vehicles. In turn, that technology would improve Chrysler’s lineup and allow us to recoup our taxpayer investment in Chrysler. Of course, those of us in the automotive industry understood that this was a questionable proposition. Nevertheless, it didn’t appear that Fiat was keeping its end of the bargain when it required Chrysler dealers to submit proposals to receive a Fiat franchise.
In a somewhat bizarre turn of events, the tables may now be turned on those Chrysler dealers that chose to receive a Fiat franchise in exchange for providing Fiat with an exclusive showroom and other expenses associated with opening the franchise. Now, it appears that Fiat is in fact going to rebadge some vehicle models to Chrysler dealers under one of the Chrysler brands. This may be a good development for Chrysler dealers but it sends off alarm bells for prospective Fiat dealers.
Prospective Fiat dealers should be very concerned that Fiat is attempting to maximize its profits from U.S. operations by placing its exclusive dealers in a position of competiting against Chrysler brand dealers who are selling some of the same Fiat models, albeit badged under a different name. Even if the Fiat models proposed for Chrysler dealers are changed cosmetically we know that customers will quickly understand they are in essence the same vehicle. Ask Oldsmobile, Saturn and Pontiac dealers how well that worked. Those dealers were selling what was in essence the same vehicles as the Chevrolet and Buick brands with just some cosmetic and nameplate differences. Everyone’s sales suffered as a result.
Fiat dealers may want to inquire as to Fiat’s specific plans for sharing vehicle platforms with Chrysler brands before investing in a facility, personnel, equipment, parts and tools for the Fiat franchise. If Fiat is going to keep its word after all and share product with Chrysler then Chrysler dealers may be better off forgoing the separate Fiat franchise.
Will GM enforce restrictions against its dealers?
Over the past 18 months, General Motors has placed a number of restrictions and requirement on its dealers. First, there were the dealers whom GM said they wanted to maintain in the dealer network during their bankruptcy proceedings. Those dealers entered into what was called the “Participation Agreement” to have the privilege of continuing as a dealer with New GM. The most critical provisions of the Participation Agreement were as follows:
- Dealership property must be exclusively selling and servicing GM products by no later than December 31, 2009
- Dealer agrees not to protest, for two years, the establishment or relocation of a same-linemake dealership outside of a radius around the dealership of six miles (note: if notice is given within the two-year period then GM has two additional years to open new location)
- Dealer agrees to comply with the Essential Brand Element facility requirements
Then there was the agreement entered into by dealers who were settling their arbitration actions in exchange for a reinstatement. That agreement, known as the Option Agreement to Resolve Pending Arbitration, required reinstated dealers to agree to the following:
- Dealer must meet at least 85% of retail sales index by December 31, 2011
- Dealer may not transfer dealership ownership until after June 30, 2012
- If dealer fails to meet performance requirements, GM has option to purchase franchise
Interestingly, GM dealers who were reinstated shortly after the arbitration law went into effect as well as GM dealers who prevailed at their arbitration hearings were not required by GM to agree to any of the above restrictions. Instead, these dealers were in essence placed back into the position, which existed prior to their termination. There were no sales performance, no protest or exclusivity requirements placed upon these dealers.
In a prior column, I discussed the issue of whether state franchise laws would trump the restrictions placed upon dealers entering into the Participation Agreement and Option Agreement. Our conclusion is that, depending upon how the state franchise law is written, there is a very good chance that the law will trump these restrictions. However, the new issue which has arisen is whether the new Standard Dealer Agreements recently issued by General Motors to all of its dealers will serve to trump the Participation Agreement and Option Agreement.
We were very surprised to see that GM’s new DSSA, which became effective November 1, 2010, made no mention of these prior agreements with dealers and did not incorporate any of their provisions within the new DSSA. Moreover, the new DSSA, like most dealer agreements, contains what is known as an “integration clause.” In English, that clause states that all of the parties’ agreements are contained within the four corners of the contract and any prior written or verbal promises do not apply going forward. Thus, the argument for dealers who previously signed the Participation Agreement or Option Agreement is that according to the terms of the new DSSA the terms of those earlier agreements no longer apply.
The one hitch to this argument is that many courts have more narrowly construed an integration clause to say that the more recent agreement only trumps the prior agreement when the new agreement specifically addresses a subject contained in the prior agreement. In other words, if there are conflicting provisions then the new agreement controls. Even with this more narrow interpretation of an integration clause, there will still be opportunities for dealers to argue that the terms of their Participation or Option Agreement do not apply. The new DSSA certainly touches on issues related to facilities, transfers, performance and the like. It will ultimately be a case by case situation to determine how strong the argument will be in attempting to overcome the restrictions of those earlier agreements.
If GM moves to enforce a provision of the Participation or Option Agreement against your dealership, you should contact experience motor vehicle legal counsel to assist in determining whether an argument can be made that the new DSSA extinguished GM’s right to seek such enforcement.