Arbitration Option for Terminated Dealers Signed into Law

Arbitration Option for Terminated Dealers Signed into Law

President Obama signed legislation this week providing terminated Chrysler and GM dealers with the option to arbitrate the loss of their franchise, but NADA, industry and legal experts suggest that any dealer considering the arbitration route carefully analyze costs involved before proceeding.

According to dealer attorney and WANADA advisor Mike Charapp, there are at least seven questions a dealer should ask before proceeding on with arbitrations.

1. If you seek to be reinstated, will resurrecting your

business genuinely benefit you, your affiliated ventures,

your employees, and your customers? Is there a viable

future for your franchisor in your marketplace?

2. Are you able to resume business or is the business so

degraded as a result of termination that reinstatement is

not realistic?

3. What are the chances of prevailing in arbitration?

4. What will be the cost of the arbitration process?

a. If you choose to use an attorney, you will have to pay for your own attorney.

b. You will have to share the actual costs of arbitration and those can be expensive. Administrative fees are quite substantial, and the fees of the arbitrators generally are in the $300-$700 per hour range. An arbitrator can spend many hours learning about your case, hearing evidence, and making a decision.

c. If you must use the assistance of an expert, that too can be costly. Since the dealers performance must be considered, a dealer may wish to utilize the services of an expert to challenge the manufacturers determinations. Expert fees can be quite substantial for getting up to speed, doing the required analysis appearing in proceedings.

d. Preparation. There may be substantial costs incurred by dealers in pulling together documents, reports and analyses in support of the case.

5. Are you able to cover the cost of being reinstated? Charapp notes that if a dealer prevails, he or she must reimburse any money received. (General Motors dealers have received 25% of the wind-down payments to date.) Then there is the cost of reestablishing the business, reinstating floor plan, restoring inventories, rehiring employees, and rehabilitating customer relationships.

6. Can you live with the new franchise agreement you will be offered? The arbitration right does not specifically discuss the terms that may be imposed by a manufacturer as part of a new sales and service agreement if reinstatement is ordered. Consequently, a dealer may find that the manufacturer is imposing its new criteria for facilities, for signs and other identification, and in other areas that may make reinstatement costly.

7. Can you compete with a new dealer who has been appointed in your market area by the franchisor? If another dealer has been appointed in the market to take the place of your dealership, the arbitrator cannot make that dealership go away.

It is anticipated that only about one quarter of the 2,000 plus dealerships that lost franchises will file for arbitration. Arbitration must be commenced no later than 40 days after the laws enactment, or January 31, 2010 and cases must be resolved within 6 months of initiation, though 30 days can be tacked on for special circumstances.