On June 7th, 2009 at 8:40 pm, Rorschach said:

Now THAT I strongly agree with. I think that is probably the big overlooked part of the whole story. The MSM is focusing on the plight of the dealers, probably casting the “little guy” light on them, but the bondholders are actually victims of the Obamachev directive. If anyone deserves a hearing in a high court it’s them.

Even if the wholesale cancellation of franchise contracts is somehow legal (and I strongly suspect it is not, and at the very least needs a hearing in the SCOTUS) the abrogation of the secured debtors holdings in preference to non-secured debtors IS NOT.

On June 5th, 2009 at 11:04 am, kilroyshere said:

GM has become AMTRAK on radials instead of steel rails.

That is the bottom line. No matter what crackpot designed vehicle (the new 2010 Obama SUX?) come out of the Congressional milieu, we will have to subsidize it. Not supply and demand, but legislation and whatever the latest “czar” insists on. Has Geithner got a brother or sister for the job?

Let me amend

I do believe that there are franchise laws that would should protect franchisees and dealerships from such treatment.

I’m smelling that foul odor of corruption over this thing. I could be wrong, of course, but I would bet it will get flushed out pretty well in court, just like the extent of protection the dealers may or may not get.

Yeah, I would bet the usual franchise laws would normally protect them, but with the current climate in our goobermint today, I’ve got my doubts. I know you are generally an Obama supporter, but I smell a rat. In my opinion Obamachev’s moves since taking office have been suspect. One example: when seeking to get the stimulus deal passed, he came right out and said we would not recover if we didn’t act quickly and boldly. To me this is the kind of thing a ‘leader’ says when he wants to ram something down someone else’s throat.

I have a manager like that, one that manages with a club. Given that I believe Obama to be similar, it wouldn’t be out of character for him to support the carmakers in shutting down dealers that maybe he (Obama) wants shut down. (Indirectly, meaning more right leaning than left leaning.)

Like I said, though, we’ll hopefully see when everyone gets their day in court.

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Please note I was only arguing the issue of contract abrogation, not about any of these claims of cronyism (which I am not yet convinced of, nor does Zero Hedge seem to be either). I do believe that there are franchise laws that would protect franchisees and dealerships from such treatment. I guess it would kinda be like at will employment. You can fire someone for no reason at all, but not because that person is black/Jewish/etc…

I don’t know quite as much about contract law or franchise law as you, but I can make a guess about your question:

1. Given that the goobermint is involved, I’d say the carmakers are playing a different game once Obamachev fired Rick Wagoner. Frankly, even the underperforming dealers may not be getting a fair shake in my estimation.

2. When the dealers get their day in court GM and Chrysler just might point out the clauses in the dealer agreements that theoretically give them the power to terminate franchises based on several factors. As I pointed out before, there are certain requirements placed on the dealers which they must maintain in order to own and keep the franchise.

I don’t know if performance alone is one of them, and I would think we agree on the fact that the Chrysler dealer closings stink of cronyism in any event, which (I think) is what prompted this thread.

IF there were a contractual provision for the auto-maker’s action, why do you suppose that NOBODY has referred to it?

Hmmm….????

Your argument is silly.

First off, my argument is not that there is necessarily a convenience termination clause in the contract. My argument is I have zero problem believing there are favorable termination clauses to GM in the contract. And at the very freaking least there are going to be terms (as in length of contract) very probably with mutual renewal clause. As I said, the sample letter I wrote stated that GM chose not to renew the term. Why is this so hard to believe that they have the right to do this?

Your argument that somehow GM must not have a contractual basis for terminating (or not renewing) these contracts based upon, so far as I can tell: 1) the dealers are pissed and want to take them to court (well no crap they are unhappy and we both know you can file a suit with little or no legal basis to stand on) and 2) they did so rarely in the past but are now doing so en masse for some teensy little reason like A FREAKING BANKRUPTCY is what is really silly here.

The assertion is…sorry…stupid.

I do a fair amount of work in small and mid-sized businesses, including franchises. There are various terms that protect the interests of the franchise parent. They all make good business sense, and many of them are mutually beneficial.

Your argument is silly.

Both of us are speculating about what may or may not be in those contracts, but the only person here with any actual knowledge, SHoward, seems to be agreeing with me. You talk about the potential dealer who is investing MILLIONS. Big whoop dee doo that makes to GM, who blows its nose with that amount. Until recently I represented a small to mid sized tech firm that would have MILLIONS invested into a particular contract with Cisco Systems. Do you think that swayed Cisco one bit to amend the terms of their agreement? Nope. Did my client sign the contract anyway? Yep. Cause they had little choice.

And the incentive not to negotiate with something extremely limited, like a franchise agreement, is even more profound. If A refuses your terms, but B accepts, its not like you are losing a sale to A. You sold your quantity.

That term may or may not be a strict “convenience” clause, but you can be damned sure it is pretty favorable to GM. The letter sent out to the affected dealerships said the the contract would not be renewed after the current term. Is it so hard for you to conceive of a contract with a term? What usually happens when one party wants out at the end of a term?

Jeez. You are the one here claiming that there is some sort of breach of contract here, yet have no evidence of such, and are relying on an imagination of a contract that a behemoth like GM would never draft or enter into.

But if the dealership agreement already contained some sort of applicable termination clause, the bankruptcy court’s power would be moot, wouldn’t it?

The dealer agreement in fact contains many ’causes’ for termination, from lack of training attainment to refusal to install proper signage. Some reasons can be easier to enforce than others, of course. None of these provisions have to do with manufacturer’s bankruptcy, so the above statement is absolutely correct. (There are, however, requirements for the dealer to maintain a given level of luquidity.) So are Chap’s other assumptions, in that no manufacturer, especially a big powerful one, is going to overlook protecting itself in the agreement. On the other hand…..

In my experience, I have known of VERY few dealerships that were closed by an auto maker. Wholesale closings ARE unprecedented

This is also a true statement, in general. Dealers that should be terminated often aren’t due to the reason I stated before, it’s too much hassle and money to get rid of them. BUT, wholesale closing hundreds of franchises is usually only done when a car maker goes out of business itself.

Notice one thing: The franchises are the entities being closed, not necessarily the dealership. Many dealers have multiple lines, and they all sell used cars. Many of the underperforming GM or Chrysler dealers may in fact own a profitable franchise as well, and that would remain open.

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