A new North Carolina law protects the dealers rejected in the Chrysler and General Motors bankruptcies from having their franchises handed to a competitor.
The law, signed by North Carolina Gov. Bev Perdue on Wednesday, requires the factories to offer these dealers their franchises back at no cost and under no extraordinary restrictions before trying to give the franchise to another operator.
As an alternative, the manufacturer can reimburse the rejected dealer for the fair market value of the franchise.
This will not unwind deals, said Robert Glaser, president of the North Carolina Automobile Dealers Association. It was meant to add a level of fairness in the event the factories wanted to backfill in the rejected dealers' areas.
Maine passed a similar law in June. And dealers in many other states are considering copying the legislation, Glaser said.
The North Carolina law applies to successor manufacturers -- a motor vehicle manufacturer that succeeds another through a change in ownership, termination of operations, discontinued product line or change in the distribution system. The protection for terminated dealers applies for four years from the date the successor manufacturer takes over the business.
The law bars the manufacturer from offering a franchise agreement to an alternative dealer or relocating a competitor offering the same make to the rejected dealer's territory. It says that to give the franchise to a competitor, the factory first has to:
Offer the right of first refusal to the rejected dealer or the dealer's successor at no charge;
Pay the former franchisee or the franchisee's successor the fair market value of the franchise; or
Prove the former franchisee is unfit to take the franchise back because the franchisee lacks training, experience, capital, good character or competence. The factory also can prove the dealer unfit because of past poor operating performance.
To prove the dealer is incapable of assuming the franchise, the manufacturer must file a petition seeking a hearing on the issue before the state motor vehicle commissioner. The commissioner must try to hold the hearing and make a final decision on the case within 120 days after the petition was filed. The factory can't appoint a new dealer unless the commissioner rules against the original dealer.
Utah is among the states considering similar legislation, confirms Craig Bickmore, executive director of the Utah Automobile Dealers Association. Patrick Painter, whose family lost two Chrysler dealerships and one GM dealership as a result of the bankruptcies, is a state legislator.
Painter is one of the lawmakers pushing for a special legislative session to consider the proposal.
Chrysler has given Painter's competitor, Stephen Wade in St. George, Utah, a letter of intent to acquire one of Painter's Chrysler franchises. Wade, the National Automobile Dealers Association director for Utah, recently resigned from a NADA task force that was negotiating aid for the rejected Chrysler and GM dealers.
He told Automotive News he did so to avoid an appearance of a conflict of interest. Painter was unavailable for comment on the legislative proposal.
His brother, Randy Painter, a co-owner of the rejected franchises, said Chrysler's courting of Wade is just completely wrong.