DETROIT — General Motors isn't in the "dealer termination business." But every so often, the company finds, there's a reason to cut ties with a franchised dealer.
That was the case with Folsom Chevrolet, a dealership in the Sacramento, Calif., area that the company found to be underperforming on several metrics — particularly a widely used benchmark called the retail sales index, or RSI — for several years.
But GM failed to meet the substantial burden of proof for the termination under state statutes that govern the criteria for evaluating dealers, a California agency ruled in upholding Folsom's protest.
The case yielded an in-depth look into GM's thinking on what conditions warrant termination and new insights into how regulators view the industry's use of sales metrics, as well as a road map for other dealers to navigate conflicts with the factory.
And, along with a similar case in New York, it underscores the difficulty automakers face in enforcing strictly defined performance standards across a retail network made up of independent dealers in disparate markets.
On paper, GM appeared to have a strong case for termination. Folsom, GM argued in a hearing before the state New Motor Vehicle Board, had "dismal" sales in relation to its market size and "robbed" its retail inventory to feed its lucrative fleet business.
Folsom's emphasis on fleet sales as its profit engine — including work trucks for commercial customers — often meant that it didn't stock enough vehicles in the colors and trims preferred by retail customers, GM contended.
GM further said Folsom failed to implement a fully functional business development center and "occasionally" failed to fulfill warranty obligations.
As a result, GM said, Folsom was near the bottom of RSI scoring for several years, below average on customer satisfaction indexes and failing to meet other company expectations for customer service.
Four other Chevrolet dealerships within 30 miles, meanwhile, averaged close to GM's expectations of RSI.
In 2014, GM placed Folsom on a "performance improvement plan," a rehab program that included quarterly check-ins with brand representatives, added allocations of vehicles and a recommendation to establish a strong BDC to generate leads.
Folsom adopted some of the recommendations and made management and facility changes. By the time a probationary "cure" period ended in December 2015, Folsom's RSI had improved markedly, but it remained below average, as did its customer satisfaction index scores.
GM issued a notice of termination in November 2016, citing both the RSI and customer satisfaction scores.
"Folsom Chevrolet has been in continuous breach of the sales performance obligations of its [dealer agreement] since at least 2011, and its failures are serious enough to warrant termination on that factor alone," GM contended as part of a termination hearing before the New Motor Vehicle Board.
While several other dealerships ranked lower statewide, GM said Folsom stood out for falling significantly short of expectations over a long period. "We're not in the dealership termination business," testified Ronald Meier, regional director of Chevrolet's Western Region, according to the board's ruling.