General Motors' new 'participation agreement' increases pressure on dealers

The automaker's tough stance represents a new tack in manufacturer-dealer relations, one echoed by GM's smaller rival Chrysler, which has cut ties with nearly 800 dealers. A bankruptcy judge approved Chrysler's shedding of dealerships Tuesday afternoon.
June 10, 2009

General Motors' new 'participation agreement' increases pressure on dealers
Andrew Eder

Want to be a dealer for the new General Motors? Be ready to earn the privilege.

Those lucky enough to remain part of GM's dealer network have had to sign new agreements vowing to hit new sales and inventory targets, meet higher customer-satisfaction goals and maintain facilities that GM judges to be "image-compliant."

That's the upshot of the "participation agreement" sent out last week by the automaker to the dealerships it wants to keep after it restructures in bankruptcy court. Hundreds of other dealers have been told they have no future selling GM vehicles.

For GM dealers who received participation agreements, the onerous terms were still a better deal than potentially losing their franchise in bankruptcy court.

"There isn't any choice," said Mike Uffner, chairman of AutoTeam Delaware, which owns a Cadillac dealership. Uffner received, and signed, a participation agreement to remain part of GM's dealer network.

"I think the dealers who want to stay with the new company are going to sign it," he said, "and they're the lucky ones."

The automaker's tough stance represents a new tack in manufacturer-dealer relations, one echoed by GM's smaller rival Chrysler, which has cut ties with nearly 800 dealers. A bankruptcy judge approved Chrysler's shedding of dealerships Tuesday afternoon.

Although GM clarified and softened its stance in a follow-up letter to dealers, the automaker's move is prompting a pushback from legislators who worry about the economic impact and fairness of dealership closings. Auto dealers are protected under state franchise laws, but those can be superseded in bankruptcy court.

"It's a sea change in the sense that many of the protections that dealers worked for for over 30 years have been set aside," said Frank Ursomarso, president of Union Park Automotive Group, which has a Buick-Pontiac-GMC showroom. "But [GM's] original position has been softened and they've moved toward a more conciliatory approach."

Ursomarso said GM wants to keep Union Park as a Buick-GMC dealer; the automaker is phasing out the Pontiac brand. GM said in a statement that nearly 90 percent of its dealers have signed or verbally agreed to the participation agreements, while almost 75 percent of those targeted for closure have agreed to "wind-down" agreements.

In the letter from Mark LaNeve, GM's vice president for sales, service and marketing, GM also warned that older dealerships that aren't updated could be terminated.

"While most continuing GM dealers operate out of excellent, imaged facilities, there are those that continue to operate out of dated, noncompetitive facilities that do not properly represent GM's brands. This is not good for the dealer, GM or the other dealers in the same market," LaNeve wrote. "If a dealer's facility is not compliant with GM's image, facilities, exclusivity requirements, GM's channel representative and the dealer will meet and agree on the appropriate action to be taken."

GM hasn't told existing dealerships how much their sales quota will increase, but will do so in early 2010.

The automaker has not released a list of the dealers it wants to close, and no GM dealers in Delaware are known to have been targeted. GM, which wants to trim about 2,400 of 6,000 dealers, is giving dealers it wants to shed more than a year to wind down their operations, and targeted owners would likely have an incentive to keep their status quiet.

"I can't imagine that we would go unscathed," said Charles Burton, president of the i.g. Burton group of dealerships and also president of the Delaware Automobile and Truck Dealers Association.

Burton said he signed and returned participation agreements to GM for i.g. Burton's Chevrolet showrooms in Seaford and Milford. He said the agreements were "one-sided," but largely beyond the control of dealers.

"At this point in time, I don't know if anybody has a whole lot of say about anything," Burton said.

In response to protests from the National Automobile Dealers Association, GM said it was sending a letter to its dealers "clarifying various subjects in the Participation Agreement."

Ursomarso said he had not yet received the letter on Tuesday, but was briefed on its contents by the NADA. GM plans to establish new sales and inventory targets with its surviving dealers early next year, Ursomarso said. The automaker is also telling its dealers to stop selling non-GM brands in their showrooms by the end of this year, a requirement that is not expected to affect Delaware's GM dealers.

Meanwhile, the mass closure of Chrysler and GM dealerships is meeting resistance from members of Congress. Two Democratic congressmen — including Rep. Frank Kratovil, who represents Maryland counties on the Delmarva Peninsula — have introduced a bill that would require the automakers to reinstate franchise agreements, regardless of the bankruptcy filings.

"At a time when our nation is reeling from the loss of hundreds of thousands of jobs each month, I can't imagine why we would make the problem worse by forcing hundreds more dealerships to shut their doors," Kratovil said. "Any dealership that is willing and able to fight through this economic gloom deserves a chance to do so."

In Delaware, the Chrysler closings affected only two dealerships in Dover, both of which sell other brands.

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