Editor's note: A reference to Administrative Law Judge Walter Zulkoski's department has been corrected.
The owners of a dealership near New York City have won a legal challenge stymieing General Motors' bid to terminate his franchise, a ruling that could help other dealers targeted by automakers for subpar sales.
GM in June 2013 notified Beck Chevrolet, in Yonkers, N.Y., that its dealer agreement wouldn't be renewed because the dealership's 2011 and 2012 sales fell far short of agreed-to levels.
But on Oct. 6, an administrative law judge at the New York Department of Motor Vehicles ruled that GM lacked "due cause" to terminate Beck. The ruling said that GM's "retail sales index," or RSI, which is used to measure dealers' sales effectiveness, is flawed because it doesn't account for the brand's lackluster appeal in the New York City market or other factors that make it tougher for Beck and other area dealers to hit their targets.
Administrative Law Judge Walter Zulkoski cited "factors that were beyond the control of Beck," such as "stiffer competition from other makes, significant preference for other makes, reduced advertising by GM" and Chevrolet's weak market share in the New York City area.
He also concluded that Beck Chevrolet's owners, operator Russell Geller and his father, Leon Geller, were in effect singled out. Twelve of the other 22 Chevy dealerships in the New York City market had 2012 RSI scores below Beck's, the ruling said.
"All of Beck's other operational metrics were excellent," said lawyer Russell McRory of Arent Fox in New York who handled Beck Chevrolet's case. "So if the only problem is RSI, then maybe the problem is RSI itself, and not Beck Chevrolet."
A GM spokeswoman declined to comment on the judge's decision. She wouldn't say whether GM will appeal.
Lawyers said other dealers facing termination over poor sales scores likely will cite the New York ruling. GM's practice of applying a statewide market share to assess dealers' sales performance mirrors those of other automakers.
"You can bet that in cases where the discussion is about sales deficiency of any kind, this case will be popping up," said lawyer Eric Chase of Bressler, Amery & Ross in Florham Park, N.J.
The ruling calls into question the legal authority of a favorite tool that automakers use to hold sway over dealers, said lawyer Mike Charapp of Charapp & Weiss in McLean, Va., who represents dealerships.
Sales-performance ratings "are done for leverage," Charapp, said. "It gives the manufacturer the opportunity to address issues about which it may not be happy."
Dealers long have complained that automakers' measures of sales performance are faulty because they don't account for market nuances. Beck and other dealerships in the import-heavy New York City market are measured against stores in the Buffalo area, for example, home to thousands of GM factory workers and a market friendly to domestic brands.
In a July 2013 letter to GM, the New York State Automobile Dealers Association urged the company to revise its use of statewide market share averages to assess dealers' sales performance.
The system "makes no attempt to adjust for ... vast geographical and socio-economical differences in the markets," reads the letter, which was included as an exhibit in Beck Chevrolet's case. The result, according to the letter, is "a flawed indicator of sales performance" that "creates unnecessary conflict between GM and its dealers."
GM sets the sales target for individual Chevrolet dealerships by applying the brand's market share in the state for each vehicle segment against the competitive brands registered in each dealer's territory.
A store's RSI is its sales as a percentage of GM's expectation. For example, if GM expects a dealer to sell 100 units, but it sells only 75, its RSI score is 75.
Beck had an RSI of 50.9 in 2011 and in 50.6 in 2012, below GM's targets of 85 in 2011 and 100 in 2012.
But the judge's ruling pointed out that GM's dealer agreement says the company will consider other factors beyond sales performance. Beck Chevrolet's customer-satisfaction ratings, training standards, spending on new-car advertising and working-capital reserves all exceeded the average of other dealerships in its region, the ruling said.
Russell Geller, 48, says he's happy for his 40 employees that the dealership will stay in business. The dealership is on track to sell more than 400 new vehicles this year.
Geller said, "I fought this hard because I love Chevrolet and love being a Chevrolet dealer."