Facilities fight goes federal
Braman Cadillac accuses GM of illegal 2-tier pricing
Braman: It's time to fight.
The battle over dealership renovation programs has blossomed into a federal case.
A lawsuit in Florida charging General Motors with illegal two-tier pricing because of incentives connected to facility renovations could affect dealers nationwide.
Billionaire megadealer Norman Braman is suing General Motors over the manufacturer's Essential Brand Elements program. Last week in federal court Braman's lawyers amended the complaint, originally filed in Miami-Dade County Circuit Court in January, to allege that GM's program amounts to two-tier pricing in violation of the federal Robinson-Patman Act. Braman also says GM violated Florida law when it stopped paying program incentives to his Miami Cadillac store.
Braman, a longtime dealer and former owner of the Philadelphia Eagles football team, told Automotive News last week that GM is waging war on dealers.
"Are we back to the old philosophy: 'If it's good for General Motors, it's good for the country?'" said Braman, playing off former GM President Charlie Wilson's oft-misquoted 1953 testimony. "That philosophy died a long time ago. This whole situation has just reached a point where dealers have to do something about it."
The Braman lawsuit will be widely watched throughout the industry. It is shaping up to be a test case in at least two ways:
First, do manufacturer facility programs that reward participating dealerships with volume-based incentives result in illegal two-tier pricing?
And, second, has the state of Florida found a way to defuse the tensions that arise between the have and have-not dealers as a result of these programs? If so, other state dealer associations could look to the Florida law as a prototype for their own states.
The 2009 Florida law being put to the test calls for manufacturers to pay a "reasonable" -- presumed to be 80 percent or more -- portion of an incentive to dealers who don't comply with facility requirements if they satisfy other elements of the manufacturer's program. But GM has told dealers in Florida it will only pay 20 percent, said John Forehand, the Florida lawyer representing Braman in the lawsuit.
Limestone too heavy
According to Stanley Krieger, general counsel for Braman Management, General Motors halted Essential Brand Elements payments entirely in 2011 after making payments in 2010. More than $400,000 in incentive payments were withheld, he said, after GM declared Braman Cadillac out of compliance on the program's facility element.
It meant the loss of a per-vehicle incentive of about $700, Krieger said. Braman Cadillac sold 678 new vehicles in 2011.
Braman says he is willing to make major renovations to his Cadillac store. But GM is demanding one change that's impossible without razing and rebuilding his showroom. GM wants the showroom's exterior walls covered with limestone that is too heavy for the building's structure.
Braman has proposed using a lightweight synthetic limestone that he says would be virtually identical, but GM has rejected that option. Braman calls GM's refusal "ridiculous" and "absurd" and says GM is not uniformly requiring other participating dealerships to apply the limestone facade.
"When you reach a point where they're withholding substantial amounts of money from us in direct violation of Florida law, it's just time to bring this into a courtroom to try to stop it," Braman said.
Braman is no shrinking violet. Active in South Florida politics, he spearheaded the recall of Miami-Dade Mayor Carlos Alvarez in 2011.
A GM spokesman said the company won't comment on current or future litigation. When asked about the Florida law in December, GM North America President Mark Reuss told Automotive News: "It's not what we're going to do. It's up to us and the dealer body to get those agreements in place."
GM's March 5 response to Braman's original complaint says in part that the statutory provisions improperly favor dealers and discriminate against manufacturers. GM has not yet responded to the amended complaint on the federal issue filed March 6.
Not just Braman
While many dealers express frustration over manufacturer facility programs and the incentives that go with them, most are reluctant to sue because of hefty legal bills and fear of getting on the wrong side of the factory.
Braman said he hopes his fight against GM emboldens other dealers to stand up for their rights.
Dealer Jack Fitzgerald also is suing General Motors in a Maryland state court over the Essential Brand Elements program. Fitzgerald, who was a leader for the Committee to Restore Dealer Rights, runs Fitzgerald Auto Malls with 31 franchises at 13 stores in Maryland, Pennsylvania and Florida. His stores sold 14,722 new vehicles in 2011.
The Fitzgerald suit challenges the legality of GM's program under Maryland law, which says manufacturers cannot charge different prices for a vehicle, said Forehand, who is handling that case as well as the Braman lawsuit.
In November 2011, GM terminated the eligibility of Fitzgerald's Chevrolet-Cadillac dealership in Frederick, Md., to receive Essential Brand Elements payments, according to the suit. GM then failed to make a $77,000 payment for the third quarter of 2011. Competing dealerships that receive the incentive can offer the same vehicles for $400 less and still have the same profit margin as Fitzgerald, the suit says.
This happened after GM allegedly backed out of a renovation plan that Fitzgerald had arranged with the manufacturer's regional management and its architect, Gensler. The point of contention was a service write-up area shared with Mazda and Volkswagen franchises at the same location.
"They had what my client believed was a deal," Forehand said.
GM also declined to comment on the Fitzgerald suit.
Don Hall, president of the Virginia Automobile Dealers Association, will avidly watch the federal challenge under way in the Braman case. He said he may even file a friend of the court brief in support.
"The real argument is exactly that: This is a two-tiered system," Hall said. "No matter how you sugarcoat it, it's a two-tiered system that's creating a huge gap between the haves and the have-nots."
Forehand said both of his clients, by losing out on the Essential Brand Elements incentives, can be undercut by competitors in the marketplace on price.
"It's the carrot-and-the-stick approach," Forehand said. "It's almost like they've attached the carrot to the stick and they're beating people with it. It has put people in a position of being at a substantial disadvantage."
Hall called for support from the National Automobile Dealers Association in what is likely to be a lengthy and expensive case.
"God bless him for having the courage and wherewithal to really lead the industry," Hall said of Braman. "I hope my national folks will very quickly circle their wagons right in with him and join with what could be and should be the biggest fight in the life of any dealer today out there in business."
NADA spokesman Charles Cyrill said late last week that NADA had just received a copy of the complaint and was reviewing it. The association generally does not comment on litigation between a dealer and manufacturer, Cyrill said.
Braman, who has long been active in lobbying and pushing for dealer protections in Florida, says he's in his fight against GM for the long haul.
"I can afford it," said Braman, who was named No. 273 on the 2011 Forbes 400 list of the wealthiest Americans with an estimated net worth of $1.6 billion. "You still have so many [dealers] out there who have this fear. I don't."
You can reach Amy Wilson at email@example.com.