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Reinstatement may pit dealer against dealer

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Reinstatement may pit dealer against dealer

Neil Roland

and Bradford Wernle

Automotive News -- February 8, 2010 - 12:01 am ET

Arbitration will do more than put some rejected Chrysler Group and General Motors Co. dealerships back in business. In some cases it stands to pit two dealers against each other with claims on the same territory.

That's because after bankruptcy the automakers appointed some new dealers to fill in empty markets.

If existing and reinstated dealers occupy the same territory, Chrysler said it expects "protests to be brought against the reinstated dealers" under state franchise laws that protect dealer rights.

Chrysler declined to say how many new dealerships it has appointed since bankruptcy. In some cases, it issued only letters of intent to provide franchises. The company told dealers last fall that it planned to open about 100 new points.

Of Chrysler's 789 rejected dealerships, 409 filed for arbitration.

Plenty of passion

Ohio dealer Chuck Eddy, who is Chrysler's NADA representative, says the situation is messy.

"That dealer who lost his franchise and has plenty of capital, he's going to be passionate," Eddy says. "Chrysler's going to be passionate about why they don't want that dealer back. The guy across the street who got that franchise is very passionate. Now there's a burden on Chrysler dealing with this [which] they don't need."

The arbitration hearings are expected to start in early March. Under the law signed by President Obama in January, arbitration for rejected Chrysler and General Motors dealerships must be completed by mid-June, though arbitrators have the discretion to extend the process for a month.

The American Arbitration Association, which oversees the process, now is assigning arbitrators for the 1,573 cases.

In some cases, rejected and pro-spective new dealers are already talking to each other to reach a solution.

Bill Wallace, owner of Wallace Automotive Group, is optimistic he will win back his Chrysler-Jeep franchise in Stuart, Fla. He says Chrysler gave a letter of intent to award the Stuart franchise to Jim Arrigo, owner of Arrigo Dodge-Chrysler-Jeep in West Palm Beach, Fla.

Wallace says Arrigo told him he would not exercise the letter of intent until the arbitration process was over. Arrigo could not be reached for comment Friday.

"We have our floorplan line in place," Wallace says. "We have proof that we had multimillions in the bank when this happened, and have more than that. We never had a floorplan problem." His dealership group has 14 franchises.

Execs may testify

Through arbitration, Wallace wants to get to the bottom of why his store was terminated in the first place on May 14. So he has requested testimony from several former Chrysler executives, including co-President Jim Press and Steven Landry, executive vice president of sales.

Press, now working as a consultant and looking for a job, said he had not been contacted by dealers asking him to serve as a witness.

"I don't know what value I'd have," Press said. "I never even saw the final list. I don't know anything about the specific dealer actions. I couldn't really add anything to that. I wasn't involved in individual dealer actions."

GM chose to wind down about 1,350 dealerships through October 2010. It has appointed new dealerships "on a very limited basis," GM spokeswoman Ryndee Carney said. In "select cases," particularly if a dealer is only losing one franchise from a multibrand store, GM has appointed a new dealer in a market in which a wind-down dealer is still open, Carney said. She declined to give specific numbers.

"Our plan is not to re-establish dealers in a vast majority of markets that contain wind-down dealers," Carney said.

Wind-down dealers had the chance to apply for new franchises if GM was opening points in their markets.

While Chrysler terminated its dealers in June 2009, GM's dealers have until Oct. 31 to close. The hope of victory in arbitration has kept many of them open.

Eric Chase, a dealer lawyer in Florham Park, N.J., said the prospect of having rival dealerships wrangling over the same markets gives Chrysler an incentive to settle arbitrations with a cash payment.

Arbitrators can decide only whether to reinstate dealerships, but the automakers can move to settle cases with cash outside of arbitration.

Chrysler acknowledged that arbitration will pose a financial burden but expressed confidence in its ability to defend against the claims. The company declined to say whether it intended to settle or drop any cases.

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