Pre-nuptial agreements are read carefully only during the divorce proceedings. At the start of a relationship, everyone is in love and happy. A new-car franchise is much the same. Dealers don't read the fine print until they are terminated.
My Pontiac franchise was taken back by General Motors in 1995 as part of Project 2000. GM paid me about $500,000 for my 27-year-old relationship, franchise, goodwill and owner and service files. I thought I would have some money left after an orderly shutdown, but I was wrong. I spent almost the entire $500,000 to button up my business. How did that happen?
When a dealership closes, it is a good time to read the fine print in the contract.
For example, the manufacturer doesn't have to buy back your new cars if the cars have been modified. Things like dealer-installed accessories can disqualify a car from being bought back.
Minor lot damage or a few too many miles on the odometer can disqualify a new car from being bought back.
Parts may not be returnable if not in the original packaging, and that packaging may not be mutilated or disfigured.
What about the accounts payable and accounts receivable? GM pays you months later after it is sure you don't owe GM any money. Where is that holdback check? How about the incentive money that the dealership fronted to car buyers? That check is in limbo, too. The float quits, and the cash flow goes negative in a big hurry.
Let's not forget our friends in the state and federal governments. Audits for sales tax and income tax are not uncommon. You can't even go out of business without permission from the state.
In 1995, we helped all our employees find new jobs. But we didn't have to deal with a shrinking market or a recession as dealers do today. What happens to all their employees? There are no industry jobs.
Why terminate dealerships in the first place? They are part of the solution, not part of the problem. Reorganize, yes, but think about it first. Chrysler -- and maybe GM -- is taking advantage of the bankruptcy courts to sidestep all the state laws that were put in place to protect dealers from this kind of abuse.
My heart goes out to my fellow dealers.