The Battle for Billings

A Montana dealer fights to reopen his terminated Chrysler-Jeep store

Steve Zabawa, right, and his partner in the five-store Rimrock Auto Group, John Soares, await a ruling on whether they can reopen their Chrysler-Jeep dealership.
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Auto dealer Steve Zabawa believes justice will come his way -- any day now.

Nearly five years after Chrysler terminated his Billings, Mont., Chrysler-Jeep store, along with 788 other dealerships around the country, Zabawa believes he is on the threshold of reopening. If it happens, he will be one of a small band of Chrysler dealers in the country to pass from termination to reinstatement to reopening.

"This is going to be a landmark case for all the other terminated dealers out there," says Zabawa, 56, a partner in the five-store Rimrock Auto Group. "They will be able to say, 'At least we won one case.'"

According to Chrysler, 44 dealerships that were terminated in 2009 have reopened, one way or another, after prevailing in arbitration.

But Zabawa's hoped-for outcome for resuming Chrysler-Jeep sales is far from certain.

He and his business partner, John Soares, are awaiting a ruling from the Motor Vehicle Division of the Montana Department of Justice that will give them a thumbs up or thumbs down on reopening. They have been waiting for that ruling since April 2013.

It's not a simple tale.

A rare victory


Getting to this point required Rimrock to win a rare victory of reinstatement through federal arbitration in 2010. It did so by breaking away from a group of 32 U.S. dealers whose cases were consolidated to be heard in Detroit. Zabawa and his attorney, Robert Byerts of Bass Sox Mercer in Tallahassee, Fla., thought Rimrock would have a better chance fighting in its home state.

That move proved fortunate. Last summer, a U.S. District Court judge in Detroit dismissed the cases of four of those dealers outright and ruled in the cases of the others that winning reinstatement in arbitration would not automatically mean being allowed to reopen dealerships.

But months after winning reinstatement in Montana and accepting Chrysler's letter of intent to reopen, Rimrock found itself blocked. The challenge came from its neighboring Chrysler dealership, Lithia Chrysler-Jeep-Dodge of Billings, owned by Lithia Motors Inc.

In an ironic twist, Lithia's protest required Chrysler to come to Zabawa's legal support because Rimrock's Chrysler-Jeep store had become -- technically -- an approved Chrysler dealership again. Chrysler stepped into the difficult position of challenging Lithia Motors -- a publicly traded company that derives 30 percent of its U.S. sales from Chrysler Group stores -- in order to support a dealership that it once had terminated.

"That was a sweet moment," Zabawa says. "And to Chrysler's credit, they've really stepped up and fought for us."

A Chrysler spokesman said he was unable to comment on the details of the case.

Appeal to state


But Lithia prevailed in the argument. Montana's attorney general ruled that Chrysler failed to prove that another Chrysler dealership was warranted in Billings.

Rimrock and Chrysler appealed to the Motor Vehicle Division. Their arguments have been heard, and Zabawa and Soares have been waiting since last year for a decision.

Lithia, of Medford, Ore., referred questions about the situation to its attorney, Robert Weller of Abbott Nicholson in Detroit. Weller declined to discuss details of the pending case beyond saying: "Lithia's position is that they're entitled to the protection of the Montana franchise law, and that is how they are proceeding."

The legal sticking point is essentially this: Lithia, which owns 96 stores in 12 states, argues that Chrysler is wrong to put another dealership into its market. Billings has a population of 106,954, according to the 2012 census. Lithia says putting Rimrock's Chrysler-Jeep store less than a mile away, as Zabawa has proposed, would overcrowd the market, cannibalizing Lithia's business.

The counterargument from Chrysler and Rimrock is that reopening Rimrock would stimulate the Billings market for the Chrysler brands, giving them more "shelf space" as they compete there against mainly General Motors and Ford Motor Co.

For Lithia, the local business landscape has changed. Five years ago, Lithia and Rimrock operated as friendly neighbors just two blocks apart. Lithia's store was solely Dodge; Rimrock was a Chrysler-Jeep dealership. A second Jeep store, owned by Bill Underriner, who later became the 2012 chairman of the National Automobile Dealers Association, also operated in the market.

After Chrysler terminated Rimrock and Underriner in Billings, Lithia was awarded the Chrysler and Jeep franchises; it now sells both brands from one location. So putting Zabawa's store back in Billings would not return the market to the way it was.

Zabawa estimates that he has lost more than $3 million in the events surrounding his Chrysler-Jeep store since 2009, including $2 million he is out on the real estate alone, plus the write-down in value of the vehicles he surrendered and the discounted sell-off of parts. He has not estimated the resulting income loss.

He also has spent "hundreds of thousands of dollars" on legal fees to get back the dealership.

"In the beginning, my partner, John, asked me if I really wanted to do all this," Zabawa recalls. "He and I have been together since 1987, when we met in our first auto sales training class in Phoenix. He said: 'Isn't this just throwing good money after bad? Shouldn't we just move on?'

"And I disagreed. I said: 'It just isn't right, and we have to stand up for it.'

"I really can't be angry at anyone for what's happened -- not just here but around the country," says Zabawa, a father of seven who calls himself a conservative Republican. "People are doing what they thought they had to do.

"I don't hold it against Lithia for doing what they did," he says of the protest that has held Rimrock's Chrysler-Jeep store in limbo. "They're a publicly traded company and they have to look out for their business interests. They have shareholders they have to report to. I forgive them. Although, I can't help thinking that had they been a local dealer they probably wouldn't have protested."

Zabawa says Chrysler recently tried to resolve the standoff by offering Rimrock an alternative Chrysler franchise in Laramie, Wyo., 423 miles away.

"I don't want to be in Wyoming," Zabawa says. "My home and my family are in Montana."

A Detroit 3 market


Despite Billings' modest size, the city is a regional retailing hub.

In the West, consumers are accustomed to driving longer distances than in the nation's more compact markets. Billings draws a vehicle-buying market of 500,000 people scattered on ranches and little towns within 200 miles. The closest sizable market is Bozeman, Mont., population 38,685, a 146-mile drive to the west. The nearest Chrysler dealership to Lithia's is 87 miles to the south along a two-lane road.

Billings remains a vibrant Detroit 3-dominated market. According to vehicle registration data from Polk, the Detroit 3 captured three-fourths of the Billings market last year. Import powerhouse Honda? Just more than 3 percent; and Nissan, only 1.5 percent.

"This is domestic brand country," says Rhonda Morgan, executive vice president of the Montana Automobile Dealers Association, 240 miles away in Helena. "The farmers and ranchers around here tend to have more of a conservative, buy-local, buy-American attitude. The imports are beginning to grow, but it's still a market for trucks and four-wheel-drive SUVs. And people don't really think twice about driving two or three hours to buy what they want."

Tom Libby, an automotive consultant with IHS Automotive in suburban Detroit, says in such rural markets the number of outlets is the key to market share.

"The Asians are concentrated in the larger metro areas, leaving the domestics by themselves in the smaller, rural areas like Billings," Libby says. "With no Asian competition, the domestics naturally will have higher shares."

All of which makes Zabawa's desire to reopen Billings' second Chrysler store more palpable.

More 'firepower'


In the case before Montana's motor vehicle authorities, Chrysler attorneys argued on Rimrock's behalf that a second Chrysler-Jeep store in Billings would stimulate the market for the brands -- not hurt it.

Zabawa expresses the idea this way: "We'll have two times the firepower on advertising. That's two different advertising voices bringing attention to Chrysler products."

Rimrock has not stood still since the Chrysler-Jeep store was terminated, reinstated and challenged. Over the past five years, Zabawa has taken his children's advice and brought a Volkswagen franchise, a Mercedes-Benz franchise and a Subaru franchise to Billings.

"The manufacturers totally appreciate what this little market is about," Zabawa says. "The imports are coming in. And Chrysler sees the potential for growth here.

"I'm confident things will go our way. Any day now."

Last year, Zabawa joined his fellow Billings dealer and fellow terminated Chrysler retailer Underriner before the Montana Legislature. Their mission: to rewrite Montana motor vehicle law to prevent other dealers from running the same gantlet.

Underriner says he did not square off against Chrysler in arbitration, as Rimrock did, for financial reasons. "I didn't want to spend all that money in legal fees," Underriner says.

"But it was important to address the state law."

Acting as the face of the Montana dealers association, Underriner and Zabawa asked legislators to change state dealer termination laws -- which they did.

In the future, if a Montana dealer is terminated but challenges the termination and prevails in reversing it, he will not have to endure protests from competing dealers in his market.

As Zabawa argues, a dealer in that position would be continuing his business, not entering as a newcomer.

"The new law won't help me," Zabawa says. "But it will help anybody who faces this in the future."

Termination odyssey
Rimrock Auto Group's Chrysler-Jeep dealership in Billings, Mont., was one of 789 Chrysler stores terminated in 2009. Rimrock is still fighting to reopen the dealership.

2009: Chrysler terminates Rimrock's Chrysler-Jeep dealership in Billings.

2009: Lithia Motors' Dodge store in Billings is awarded the Chrysler and Jeep franchises.

June 2010: Rimrock wins arbitration ruling against Chrysler in Montana to restore the dealership. Chrysler issues Rimrock a letter of intent to reopen.

February 2011: Lithia protests the award under Montana's dealer franchise law, which considers Rimrock a new dealership.

April 2012: Chrysler and Rimrock jointly contest Lithia's protest, arguing that Rimrock's reinstatement will benefit the Billings market.

June 2012: Montana's attorney general decides in favor of Lithia.

July 2012: Chrysler and Rimrock appeal the decision.

April 2013: The state reviews the appeal.

Present: The parties await a ruling.

You can reach Lindsay Chappell at lchappell@crain.com.


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