DETROIT -- General Motors is reviewing the way it measures dealer sales effectiveness following last week’s court ruling in New York that deemed the company’s current system unfair, a top executive said.
GM North America President Alan Batey said the company is studying the decision by New York’s top court, which sided with Beck Chevrolet in Yonkers, N.Y., in a lawsuit against the automaker.
The court ruled that GM violated state law by using its retail sales index, or RSI, to measure Beck’s sales performance against a statewide average without taking into account Chevy’s weak market share in metro New York City, Beck’s selling area.
“We were disappointed and surprised, frankly, by the ruling,” Batey said in an interview Wednesday. “We’re going to have to go through it, understand it and then decide, if we’re going to make some adjustments to the metric, what would it look like and how would we uniformly do it.”
Batey noted that most automakers across the industry use a similar metric from state to state to measure dealerships’ sales effectiveness.
Legal experts have said the New York Court of Appeals’ 5-1 decision in favor of Beck could force automakers to reassess the use of statewide averages to rate dealers if they fail to acknowledge local market conditions, such as brand preference or areas heavily populated by factory employees.
The suit was brought by Beck co-owners Russell Geller and his father, Leon Geller, in 2011, who contested GM’s use of RSI to assess the owners’ right to keep the franchise.
Batey declined to comment specifically on the Gellers’ case but said GM’s goal is “to fairly rank and reward our dealers based on performance.”
New Jersey attorney Eric Chase said the impact of the decision should be far-reaching in dealer-termination cases based on sales performance.
However, Chase said the ruling did not explicitly answer the overarching question of whether a manufacturer can lawfully use a statewide average to rate dealers’ performance, which he said by definition lumps half of its dealers into the bad column. The Beck decision addressed only whether certain local-market quirks should be considered when measuring dealers against an average.
“It’s an extremely important win,” said Chase, a partner at Bressler, Amery & Ross in Florham Park, N.J. “But it still didn’t answer the ultimate question of whether the metric of average is a fair cutoff for a franchisor to make a termination decision.”