Dealers battle Ford over Mercury termination settlements
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Six months after Ford Motor Co. built its last Mercury, the automaker is still battling with dealers who object to what they call low-ball settlement offers.
Ford says 98 percent of the 1,712 Mercury dealerships in business as of June 2010, when Ford said it would kill Mercury by year end, have signed termination agreements. That leaves 31 that are still arguing that Ford's settlement offers don't reflect the financial damages they've sustained because of the loss of Mercury. For many stand-alone Lincoln-Mercury dealerships, Mercury contributed the bulk of sales and profits.
At least four dealer lawsuits have been filed in federal courts against Ford. Other dealers have filed cases with the motor vehicles departments in their states. Others have simply refused to settle.
"We know we're right," said Pete Adcock, owner of Francis Scott Key L-M Inc. in Frederick, Md. "When you're right, when you've always told the truth and been the kind of dealer you're supposed to be and met Ford Motor Co. at every turn with what they've requested, we don't feel like there's anything here that's complicated for a jury to understand."
Adcock is suing Ford for at least $2.9 million in federal court in Maryland. Ford has presented him with a buyout offer of $181,026, the lawsuit says. Adcock said he spent $5.5 million on a dealership expansion that was completed in 2007.
Liberty Lincoln-Mercury in Clifton, N.J., made an even bigger investment: $7.7 million to build a 90,000-square-foot store in 2004. The showroom holds more than 100 vehicles on its main level alone. Ford's buyout offer to Liberty was $733,575.
"It wasn't a fair offer," said dealer Renee Chirico. She feels like Ford "pulled the rug out from under everyone" when it announced that it would kill Mercury.
Mediation, too
Ford is seeking mediation with dealers who have refused to settle, dealers and dealer attorneys told Automotive News.
One dealer lawyer, Mike Charapp in Virginia, has two clients who will be going through mediation. "There is no real downside to it," Charapp said. "These are continuing dealers who want to keep as good of a relationship as they can."
One of Charapp's clients has filed a case against Ford with the Virginia Department of Motor Vehicles, and Charapp expects the other will follow.
But Richard Sox, a Florida lawyer representing Forrester Lincoln-Mercury of Chambersburg, Pa., in a federal lawsuit filed in Pennsylvania, says his client has declined mediation based on information from dealers who have gone through the process with Ford's outside counsel. "The consistent report we received was there was no give and take," Sox said. "It was just an opportunity for them to browbeat the dealer into accepting the amount previously offered."
On the other hand, another Sox client, Bayway Lincoln-Mercury in Houston, settled with Ford in April after filing a case with the Texas Department of Motor Vehicles last July. A confidentiality agreement prevents Sox from disclosing terms, but "you can presume if there was a settlement, the dealer was satisfied." That implies the settlement amount surpassed Ford's initial termination offer.
Ford declined to comment on mediation.
But the high percentage of settlements indicates that "most dealers have seen what is important and have been able to find a solution together with Ford Motor Co. to settle the Mercury side of the business in a way that's most favorable to them," spokesman Christian Bokich said. "In the end, we're confident we'll find solutions for 100 percent of our dealers."
Dealers and dealer attorneys say there's more to that settlement rate than favorable offers from Ford.
Grab the cash
At the time of the termination, 80 percent of Mercury locations were part of Ford-Lincoln-Mercury stores. Dealers continuing with the Ford brand, which is doing well, are reluctant to rock the boat. The fiercest protests against the termination have come from stand-alone Lincoln-Mercury dealers who have more at stake, sources said.
Plus, many dealers were in such shaky financial straits that they could not afford a legal fight with Ford. The settlement offer presented the chance for some cash at a tough financial time.
Moreover, financial hardship has convinced many dealers to forgo litigation, Sox said. Because the dealers must be able to prove damages in court, they need to show they were profitable. With rocky finances and free-falling sales in recent years, many Mercury dealers would have a hard time proving that, he said.
Some dealers also argue that Ford's Mercury actions may lead to the termination of Lincoln, too.
In Liberty Lincoln-Mercury's case, the Mercury termination makes it hard for the dealership to survive going forward with Lincoln alone, said Eric Chase, the lawyer representing Chirico and her family.
"Lincoln doesn't generate anywhere near the volume that other brands do and nowhere close to Lincoln and Mercury together," Chase said. "So to pay for that overhead that comes with the new building is very difficult."
New Capital Lincoln-Mercury Inc. in Essex Junction, Vt., which is suing Ford in federal court in Vermont, says in its complaint that the Mercury termination effectively destroys the value of the Lincoln brand. Since learning of New Capital's refusal to sign the settlement agreement, Ford has retaliated by severely curtailing allocation and "is putting Capital out of business," the lawsuit argues.
Ford's Bokich said the automaker is marshaling significant resources to ensure Lincoln's competitiveness.
A year or more
Though settlements could happen sooner, dealer lawyers say it will take a year or more for the lawsuits to wind through the court system.
Adcock, the Maryland dealer, says that because of his respect for Ford, he's willing to listen to the automaker and try mediation first. But if he doesn't get what he considers a fair resolution, he intends to pursue his claims at trial -- even if the complaint takes years to resolve.
Said Adcock: "We full and well intend on seeing this through to the Supreme Court if we have to."
Jamie LaReau contributed to this report
You can reach Amy Wilson at awilson@crain.com.
