Business Closures and Automotive and Recession and Auto Dealers and Closing and Economy and Facilities and Finances and Business Topics and Retail and Transportation, Distribution & Logistics

Auto sellers want refuge from industry fallout, but trio of bills have fallen flat at Statehouse

March 30, 2009
Car dealers fearful of losing their flagship brands if auto manufacturers crash and burn aren't getting much help from the Indiana General Assembly.

At a time when dealers are most vulnerable to having their franchises terminated, a trio of bills that would have strengthened state franchising laws failed to emerge from the Senate.

The bills backed by the Automobile Dealers Association of Indiana would have required automakers to buy back cars and parts when terminating dealers and to pay their rent for up to two years.

One measure would have made it an unfair business practice for an automaker to prohibit a dealer from representing more than one brand of vehicles at a site.

As for whether the language could yet be inserted in other bills still on the roll, "We're looking," said State Sen. Randy Head, R-Logansport, who sponsored Senate Bills 497, 447 and 432. He said ADAI lobbyist and former Indiana House Speaker Nelson Becker was trying to work out a deal with manufacturing interests.

"We haven't given up hope," said Marty Murphy, executive vice president of the ADAI, which represents more than 400 dealers in Indiana. In 2007, those dealerships rang up sales of $11.7 billion, or an average of $22.5 million per dealership.

"Everyone knows how important the dealers are to their communities," Murphy added.

The measures were introduced as struggling automakers seek to reduce their dealer networks and shed some brands altogether.

For example, General Motors Corp. is weighing a sale of Hummer and a sale, spinoff or outright elimination of Saturn.

Such moves would have consequences for local dealers who've invested millions of dollars over several decades to pedal metal for the automakers. One local dealer group potentially hit hardest by automaker retrenchment: Lockhart Automotive, which operates three Saturn dealerships and sells Hummer sport utilities. Fortunately for Lockhart, it also sells Cadillac, one of GM's rosier brands.

Lockhart co-owner Lynn Kimmel said she strongly believes automakers should have the right to terminate underperforming dealers. But when it's because the automaker is shedding a brand, "that's an entirely different matter," she quickly added.

"Those circumstances are entirely beyond [dealers'] control," Kimmel said. "Through no fault of our own, we may be in a situation where we are losing four facilities."

Kimmel still hopes for the best. GM has had interest from buyers for Hummer to help perpetuate the line of sport utilities, while talk accelerates about spinning off Saturn, possibly with underused GM plants building vehicles under a contract arrangement.

Saturn still enjoys good will among car buyers for its low-pressure, no-haggle sales environment.

In the past, when a manufacturer discontinued a brand, such as when GM killed Oldsmobile, the automaker had the financial strength to settle with dealers. But with the manufacturer on life support, dealers are more vulnerable.

"Now, with government loans, who knows what they can and cannot do?" Kimmel said.

SB 497 would have required automakers that terminate a dealer to buy back new vehicles with fewer than 300 miles on the odometer.

Automakers also would've had to buy back parts still in original packages and in some cases repurchase for fair-market value special tools, equipment, required computer systems and software.

The bill would have helped dealers recover facilities costs. Dealers who lease a building from someone other than the automaker would be entitled to the lesser of the amount of rent for the unexpired lease term, or two years' rent.

Dealers owning the facility would be entitled to an amount equal to the reasonable rental value of the dealership facilities for two years.

Manufacturers, predictably, are less than enthusiastic about such legislation, which also has been introduced in other states, such as Colorado, Maryland, Montana, New Hampshire, Utah, Vermont and Virginia.

Franchise agreements in many states already ensure dealers of one year's worth of payments for facilities in the event of a franchise termination, said the Alliance of Automobile Manufacturers.

Many of the dealers that would be entitled to additional compensation for their facilities are in locations with high property values that are ideal for reuse, said alliance spokesman Charlie Territo.

"Times are very difficult for dealers and manufacturers, and we believe that rather than trying to seek legislative opportunities to protect [dealerships], that the entire industry's best chance at survival and continued viability is working together."

Territo cited recent projections that the industry will sell 7 million fewer vehicles this year than two years ago.

"There is nothing the industry would like more than to have the sales to support the current dealer network. However, the current economic realities make it very difficult to do so. ... There's no benefit if we create laws that only succeed in making it more difficult for manufacturers to survive."

While some argue that dealers already enjoy strong franchise law protections, even more stringent laws have found strong support in states like Virginia. The Virginia General Assembly passed a dealer protection bill by a wide margin, but it hasn't been signed by Gov. Tim Kaine.

For the most part, dealers work with manufacturers to settle issues such as franchise terminations, said ADAI's Murphy.

But the proposed legislation aims to bring some consistency in how dealers are treated, he said.

"This just kind of goes a step further," he said. "We all read the same trade publications and you hear what's going on in other states."

The legislation backed by the Indiana dealer group also sought to give dealers the flexibility to add other car lines at an existing site.

In other words, if a dealership with 10 acres that sells one line of cars wants to use five acres of that to sell Hyundais, "it should be able to do that without a problem," Murphy said.

Another of Head's bills supported by the ADAI, SB 447, would have made it more onerous for a manufacturer to cancel a dealer contract based on substandard performance. Standards of performance would have to be "statistically valid and reliable and reflect current market conditions," among other factors.

It's the potential elimination of brands that have dealers most concerned. Kimmel's company invested millions of dollars to establish Saturn of Indianapolis in 1990 as one of the nation's first Saturn dealers.

Lockhart spent millions more to open Saturn stores in Greenwood and in Fishers, and added significantly to the cost by continually upgrading the facilities, facades and signage as Saturn evolved.

It might be that a break from GM control could be a good thing for Saturn, Kimmel figures, noting how Saturn initially had separate factories, labor agreements and its own no-negotiating sales policy. Today, the no-haggle policy is about the only distinctive Saturn element remaining.

"We did business completely different," she said. That "is when we were the most successful."

Source: XMLAr00303.xml
ADVERTISEMENT

Recent Articles by Chris O'Malley

Comments powered by Disqus