General Motors, which already has told more than 1,300 dealerships they will be dropped, is pressuring survivors to sign a contract that gives up rights spelled out for dealerships in state franchise laws.
To enforce the deal, GM issued a threat: If dealers don't sign, the company can, in bankruptcy, cancel their franchises now. Dealers must sign by this Friday, June 12, or risk termination.
Such agreements ordinarily could not be enforced because they conflict with state franchise laws, which limit an automaker's freedom to rewrite franchise agreements. But GM is working on the theory that federal bankruptcy law provides the clout to make these changes stick after the company emerges from Chapter 11 reorganization.
Lawyers who represent auto dealers hotly dispute that interpretation of bankruptcy law. Automotive News has obtained a copy of the proposed agreement, which states that GM can require dealers to:
-- Sell substantially more vehicles.
-- Maintain bigger inventories.
-- Eliminate non-GM brands in the showroom.
-- Upgrade dealerships and maintain high customer satisfaction scores.
-- Not protest any new store that GM locates more than six miles away from their dealership for two years.
Various state laws set their own rules to prevent automakers from locating stores too close to each other. The average radius is 10 miles.
In an interview last week, GM sales chief Mark LaNeve said bankruptcy provides GM one chance to create a healthy network of dealerships. He said that the contracts are not intended to be a threat and that GM will work with dealers.
But lawyers who represent auto dealers bitterly disagreed.
"My first reaction is outrage," said Eric Chase, a lawyer with Bressler, Amery & Ross in Florham Park, N.J.
Chase said the proposed agreement gives GM too much authority to override state franchise laws once the automaker is out of U.S. Bankruptcy Court.
"It's overreaching," he said. "What they're trying to do in bankruptcy is go outside of bankruptcy in the future, so the new GM will prohibit the rights of dealers that are otherwise protected by state franchise laws."