About 600 car dealers try to get businesses back
Published: Thursday, January 21, 2010 at 6:01 a.m.
Last Modified: Friday, January 22, 2010 at 1:47 a.m.
DETROIT — Michael Wolf is taking a big gamble that he can convince an arbitrator to give him back his Chrysler-Jeep dealership.
He's among about 600 car dealers nationwide who have signed up to appeal decisions by General Motors Co. or Chrysler Group LLC to revoke their franchise agreements and shut them down.
Wolf and his wife have owned Wolf Motor Car Co. for 22 years in Plymouth, Wis., halfway between Milwaukee and Green Bay. But inexplicably to him, his business was one of 789 nationwide that Chrysler forced to close last June while it was going through bankruptcy protection.
GM wants to close 2,000 dealers by October of this year, but 700 of those will remain open because the automaker allowed them to keep selling some of the company's brands while taking away others.
Both companies say the closed dealers weren't performing well, and they need to make the cuts to keep the remaining ones healthy so they can invest in better showrooms and more advertising to boost sales. Many dealers were in locations away from where customers now shop, work or live.
But the politically connected dealers said the companies unfairly took businesses that were in their families for generations, and they convinced Congress to pass a law requiring binding arbitration. The American Arbitration Association, which will handle the hearings, says 21 percent of the closed dealers filed appeal paperwork this week. The rest have until midnight Monday to file.
When Chrysler took Wolf's franchises in June, his family kept the dealership open by selling used cars and with its repair service. They joined a group of Wisconsin dealers who took Chrysler to federal court, saying that state law protected them from being severed from the company. The appeal is pending in New York.
Now, Wolf will spend anywhere from $25,000 to $75,000 on legal fees in an effort to get the franchises back.
He's not sure if he meets every criteria to win, but he says Wolf Motor Cars has been profitable mainly from repairs and selling used cars, and it invested heavily in a building 10 years ago to upgrade its facilities for customers.
The arbitration association says its people will consider a dealership's profitability, the manufacturer's business plan, the dealership's economic viability, and whether the dealer met objectives outlined by the automaker.
Wolf concedes his new car sales had dropped, but says that's because Chrysler's sales were down nationwide. Last year, U.S. sales dropped 36 percent.
"The last couple of years haven't been terrific," he said. "We're in an area where there have been a number of businesses shut down. There's job losses. These affect business."
But he says he exceeded Chrysler's metrics in other areas including customer service satisfaction, which at times was the highest in Wisconsin or the nation.
"It wasn't because of a poor rapport with our customers or anything like that," he said.
Automakers know that some dealers like Wolf will win, meaning many neighborhood car lots could reopen. GM Chairman and CEO Ed Whitacre Jr. has said he expects hundreds of dealers to get their franchises back during the process, which must be wrapped up by June 14.
India Johnson, an arbitration association senior vice president who is in charge of the hearings, said she expects 700 to 800 dealers to seek binding arbitration before the deadline.
Not all will get hearings, she said. Some filed paperwork to preserve their appeal but may not proceed, while others may settle with the automakers before hearings, she said.
The hearings, which must be held in the dealership's home state, are likely to cost both sides a lot of money. Some dealers may lack cash to pursue them because they've closed their businesses or aren't making as much as they once did.
Wolf said dealers who appeal are gambling the legal fees in an effort to keep franchise agreements that alone are worth $500,000 to more than $2 million.
The nonprofit arbitration association will do all it can to keep costs down, Johnson said. In some cases, dealers may represent themselves without an attorney, and arbitrators in some cases may cut their hourly rates, she said.
Chrysler CEO Sergio Marchionne has said the automaker may challenge the constitutionality of the arbitration law in federal court, but spokeswoman Kathy Graham said Thursday that no decision has been made.
Graham said Chrysler already has had to hire people to handle the paperwork, and it likely will need teams of lawyers and company officials to attend multiple hearings on the same day in different states.
GM plans to have about 4,100 Buick, Chevrolet, GMC and Cadillac dealers in the future. Chrysler had 2,352 dealerships remaining at the end of December.
Although he's pursuing arbitration, Wolf is worried about what he'll get if he wins. Chrysler, he said, has used names from his service database to direct customers to other dealerships.
The automaker also will give him a new franchise agreement with a new set of rules and perhaps tougher goals to meet in the future.
"They can rewrite the whole book," he said.
But he's got a good location on a main highway, and he'd like to keep making a living selling Chryslers and Jeeps.
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