In dealings with dealers, Ch. 11 filing puts GM in driver

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The automaker is requiring survivinv dealers tosign so-called “participation agreements” that could forcse them to enhance theit stores or to stop selling vehicles from other Dealers have until June 12 to sign the modified deals. GM says dealeras who fail to do so will be left as part of the old GM in thebankruptcyy process, meaning they won’t receiver franchises for the new GM and probably won’ t receive any form of compensation to offset the costs of closing theit stores.
GM is “using the bankruptcgy as a shotgun behindthe door,” pressuring dealers to agree to franchiswe terms that favor the automaker, said Steven a bankruptcy attorney at Minneapolis-base d Leonard, Street and Deinard. “In a lot of cases, may not have another option than to just take the deal and hope for the Some dealers, however, applauder the move as a way to force outdated dealership to step up their games.
“You can’t ask one dealer to builf a big, new facility when there’s another dealer nearby operatinbg out ofa three-stalol service department at a 40-year-old facility,” said David Luther, presidentf of Golden Valley-based Luther Automotive Group. Dealer targeted for closure also will have to sign agreementds or risk losing franchiseseven sooner. The “wind-downm support agreements,” as they’re require dealers to close by late 2010 and waive any legao claimsagainst GM. In GM will pay up to $1 million to help cover costs of GM says dealerswho don’t sign the agreements coulxd face immediate termination with no compensation from the automaker.
Walserf Automotive Group CEO Paul Walser has been an outspoke n criticof GM’s consolidation rules and its decision to terminates his Bloomington store, but he said he “completelyu endorses” the automaker’s plan to make the remaining dealershipsx agree to meet increased requirementse moving forward. Walser said he will sign the participationn agreement for his GM store in which has been selected toremain open. Walser said he’s frustrated that other local GMdealers haven’t investeed enough in their facilities.
Burnsville-based Walser Automotivre spent morethan $5 million to build its updated Roseville facility, but other nearby dealers were allowed to continued operating in older He expects that to change now. “What’sd going to remain when this is over with is dealers who are willing to make that kind ofeconomifc commitment,” Walser said. “I think it’sz going to automatically weed out thosedthat aren’t committed. … Then dealersa can make a choice of whetherf they think that is a viable investmen tor not. Then you’re goin to end up with fewer, stronger dealers who are goinv to better servethe market.
” Some however, may be reluctant to commit to making multimillion-dollar facility DeRuyter said. “How strong is GM goingh to be going forward If you put in a couplr of million dollarsin improvements, are you goingy to get that moneu back?” Dealerships who received termination letter s face a more certainn fate, albeit a frustrating one. All of thosre stores are expected to lose their GM franchises by the endof 2010. The good news is that eliminatef GMdealers — unliks their Chrysler counterparts — expect to receive some compensation from the automakeer to help cover costs related to closing. GM reportedly is offering dealersbetween $100,000 and $1 million.
“It’se a termination, but there’xs a carrot on a stick,” DeRuyte said. Walser said GM made his Bloomington storee an offer atthe “high of GM’s payout and he plans to sign the The deal also gives Walser time to negotiate a mergee with another GM dealer in the area. GM’s wind-dowbn agreements don’t include payment for remaining inventory and as would be required under Minnesotqfranchise laws, said DeRuyter, who is representingg several dealerships that received termination Those provisions, however, likely will be preemptef by the bankruptcy court.
The wind-dow payments will offer little comforr for dealers who are being forced to closebusinessew that, in some cases, have been in their familie s for decades, said Cliff Banks, senior editor for Detroitt trade publication WardsAuto.com. “You’ve operated the righft way, you’re a mainstay in the community — and you’re getting your business rippedfrom you, and you’re seeinyg it handed to a competitor down the streert from you or in the next countyt over. How a federal government can rip the franchises away from profitable businesses and hand them to the competitiobnis frightening.
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