General Motors has cleared a significant legal hurdle in its effort to take control of its local advertising funds.
A federal judge in Minneapolis last week approved GM's proposal to settle class-action lawsuits filed in Minnesota, Pennsylvania and Mississippi by dealers who had objected to the automaker's so-called GM marketing adjustment.
The adjustment - which equals 1 percent of a vehicle's sticker price - was used by GM to fund local ad campaigns controlled by its dealer marketing groups. Still unresolved is a fourth lawsuit by 90 Illinois dealers who object to GM's plans to take control of those ad funds.
In the three settled class-action lawsuits, 800 dealers claimed the marketing adjustment was an illegal advertising fee. GM responded by claiming that the funds never belonged to the dealers.
Federal Judge Ann Montgomery on Wednesday, March 17, approved GM's offer to compensate dealers, clearing the way for GM to eliminate the dealer marketing groups.
A DONE DEAL
The company had announced its proposed settlement in December, pending the judge's approval. Last week's settlement formalizes the deal.
As of April 1, GM will:
Pay each dealer up to $5 for each vehicle sold from 1990-98.
Eliminate the old advertising programs that funded GM's dealer marketing groups.
Allot 1 percent of the sticker price for each vehicle sold to GM's five regional general managers. The regional managers will spend that money on local marketing campaigns.
Launch the GM Co-op, which bankrolls individual dealerships' ad budgets. Dealers may contribute up to an additional 1 percent of the sticker price of each vehicle sold. GM will chip in a donation totaling 25 percent of a dealer's contribution.
GM told dealers about the final settlement in a Thursday, March 18, letter from Roy Roberts, vice president of North American vehicle sales, service and marketing. In the letter, Roberts asserts that GM will be able to implement its local marketing plans.
'The settlement terms do not require GM to change its prices or discounts,' Roberts wrote. 'To the contrary, it specifically recognizes that GM can set them as it wishes.'
The settlement clears a major hurdle blocking the automaker's effort to move ahead with its new local advertising policy.
But GM still must contend with the Illinois lawsuit. Certain aspects of the Illinois case are similar to the three class-action lawsuits. For example, the plaintiffs claim Illinois' franchise law does not allow automakers to force dealers to bankroll local advertising campaigns.
GM replies that money collected from the 1 percent assessment is not the dealers' money. The Illinois Secretary of State has asked the state attorney general to intervene in the case to defend the state's franchise law.