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GM’s review of dealer cuts was a 'sham,' retailers charge

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GM’s review of dealer cuts was a 'sham,' retailers charge

Holdout group suing auto giant says U.S. parent called shots for no reinstatements. But company says process and criteria was fair.

Published On Thu May 27 2010

Tony Van Alphen

Business Reporter

A group of General Motors dealers is charging the automaker’s process of reviewing Canadian store owners’ terminations was a “sham,” skewed by corporate conflicts of interest and directed by the company’s U.S. parent.

In an escalating high-profile legal battle, 20 dealers, who sued GM of Canada Ltd. (GMCL) for allegedly arbitrarily ending their sales and service agreements last year, say one of the company’s own top officials has admitted that the Detroit-based parent prohibited the Canadian manufacturer from reversing any termination decisions.

“GMCL’s management review process was a sham,” the dealers say in their latest court filing in reply to the company statement of defence in the case.

“Not a single dealer has been reinstated. In breach of its contractual and statutory duty of good faith and fair dealing, GMCL permitted the outcome of the management review process to be determined by GM U.S.,”

The submission came after pre-trial testimony from Marc Comeau, GM’s vice-president of sales, service and marketing who said reinstating dealers “was not in the plan.”

In defending the closures, GMCL said the company had to cut its dealership network by 40 per cent or about 250 retailers here to reduce costs under a survival plan that needed the approval of the Ottawa and Ontario governments so the automakers could get billions of dollars in critical public loans and equity investments.

But the dealers counter that the federal and Ontario governments never asked or told the company to terminate dealers.

“The purported terminations were issued by GMCL in compliance with a directive from its parent company in the U.S., ….made without consultation with or notice to GMCL,” the dealers added.

The group also rejected GM’s assertion that the company’s original criteria for closures - including sales effectiveness, customer satisfaction, market share, location, facilities – was fair.

Parent GM used similar criteria in the U.S. but changed it later after acknowledging flaws and reinstated dealers, the dealers noted.

GM disclosed reasons for closures of several dealers suing the company including Robert Slessor Pontiac in Grimsby and Robinson Pontiac in the Guelph area but the group dismissed most of them as “false and irrelevant.”

The dealers also alleged GMCL was in conflicts of interest by retaining several underperforming dealers where the company had a stake or control at the expense of profitable retailers in the same or nearby markets who lost their stores.

In designing and implementing the termination process, GMCL unfairly and unlawfully conferred benefits upon the ‘non-arm’s length” dealers,” according to the holdout group.

“As a result of these economic interests, GMCL did not design and implement a fair evaluation process nor did it apply proper business judgment,” the dealers group said.

GM announced the decisions on closures in May last year and offered partial payments ranging from $115,000 to $1 million for dealers to help them weather the financial blow. About 85 per cent of affected dealers accepted the company’s proposal while most of the holdouts in the group sought reviews..

The company said in its defence that it came extremely close to applying for bankruptcy court protection and that the objecting dealers would have probably received nothing as unsecured creditors. However the group rejected the idea that any rights would have been repealed under a court supervised restructuring.

When the holdout dealer group sued GM for allegedly breaching franchise laws and their sales agreements, the retailers sought an injunction to remain open for at least another five years after expiry of their current contracts at the end of October.

But Jonathan Lisus, a lawyer for the group said GM has offered to extend the agreements until the end of January. A trial is scheduled to start in November.

If the trial continues and there is no judgment by the end of January, Lisus said he would seek a further extension.



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