Oldsmobile Dealers, GM Remain at Odds

Some Oldsmobile franchisee-dealers remain dissatisfied with the financial settlements offered by General Motors Corp. (“GM”) as compensation for GM's decision in December 2000 to phase out its Oldsmobile product line. Of the approximately 2800 Oldsmobile dealers who were operating when GM announced its phase out, fewer than 100 have not come to an agreement with GM, according to the automaker. Although numerous lawsuits have been filed in the past 2 1/2 years and some remain active, none have gone to trial so far.

The disputes began when GM announced that it would stop producing the Oldsmobiles, due to declining market share, and offered buyouts to all of its approximately 2800 Olds dealers across the United States. In 2001, GM announced a buyout, called the Transitional Finance Assistance Program (“TFAP”), which would pay most dealers a lump sum equal to $1200 for each car the dealership sold in its best year during the period 1998-2000. For a dealer who had only an Olds dealership, which represented fewer than 150 businesses, the multiple was raised to $3000 per vehicle sold. A few other compensating factors, such as proof that a dealer recently upgraded its showroom, could result in an increased TFAP offer.

Although many dealers complained to the automobile industry trade press that the financial offer was inadequate, most accepted the buyouts. GM spokesperson Rebecca Harris told FLBA that GM has “settled with more than 97% of our Oldsmobile dealers; that is they have already shut their doors or have agreed to shut their doors and selected a date.”

GM produced its last Oldsmobile in April 2004, and it plans to have all Olds dealerships closed this year. Thus, the automaker is trying to come to terms with the remaining dealers.

But resolving disputes with the holdouts is proving to be more difficult. “As a result of GM's conduct, a dealer has lost the complete value of its Oldsmobile franchise,” said Rich Sox, partner with Myers & Fuller, a Tallahassee, FL, law firm that represents many Oldsmobile dealers across the country. “Soon, they will have no Oldsmobiles to sell. GM has destroyed the entire good will and transferability of plaintiff's Olds-mobile franchise.”

Myers & Fuller currently has 13 lawsuits filed against GM on behalf of Oldsmobile dealers, and it has settled 18 cases, about half of which before a court filing was made. Another six cases are now in negotiation, but lawsuits have not been filed, said Sox.

GM has filed for dismissal of the complaints by Myers & Fuller, and it has been successful on removing some counts. But generally, the courts have allowed the cases to move forward on charges of violations of states' dealer protection laws and breach of contract (see, for example, Biddulph Arrowhead LLC v. General Motors Corp., U.S. District Court for the District of Arizona, or Robert Basil Motors, Inc. v. General Motors Corp., U.S. District Court, Western District of New York). Other charges that allege negligent representation, breach of fiduciary duty, and breach of implied covenant of good faith and fair dealing, have been dismissed in many cases.

One thing that is common to many of the dealers who are suing GM is that they spent hundreds of thousands of dollars or more on renovations to their facilities or purchased Oldsmobile dealerships shortly before the shutdown of the Olds line was announced. GM encouraged those investments, said Sox, noting that GM sent out its 5-year franchise renewal agreements on Nov. 1, 2000, and then announced the closure of Olds a little more than a month later. “You can't tell me that a company the size of GM makes a decision to close a 100-year-old product line in 6 weeks,” Sox told FBLA. “They knew they were going to do this … and they did not give dealers advanced warning. In fact, almost all of my clients asked their zone manager [or other GM representative] if the rumors about Oldsmobile were true, and they were told not to worry.”

The disgruntled dealers are asking for significantly more financial compensation for the loss of their franchises, said Sox, though he would not provide details. He said that dealers believe that the $1200 per vehicle sold offer is roughly equivalent to the average annual earnings of an Oldsmobile dealership, though GM has not publicly stated so. Dealerships in the late 1990s usually sold for 2x to 4x annual earnings, he said. “The offer from GM is woefully inadequate to compensate a dealer for his lost profits,” said Sox. “The law gauges lost profit by how much profit can reasonably be projected into the future. Car dealerships stay in business for years; they don't come and go like other businesses … so we think we can demonstrate in court that a dealer could expect to be a going concern for 20 or 25 years.”

GM's Harris said that “many factors were considered in each settlement offer … and each dealer had a GM representative in the field” who understood the unique details of the dealership. GM made sure that a person “who had just spent $500K on a dealership would not be at a loss,” she added.

Sox confirmed that GM offered dollar-to-dollar compensation to dealers who had made significant recent investments, but he criticized the automaker for setting a cutoff date on the compensation for investments after mid-1998. “This doesn't help a dealer who took on debt with a bank or signed a 15-year lease for a showroom and repair facility,” said Sox. “The landlord and banker don't care that the productive life of the dealership has ended, they just want their money, which the dealer is responsible for.”

It is hard to find a direct parallel in terms of legal precedent for the litigation. There are some similarities in a case in which Volvo White Truck Corp. terminated dealerships because it sold its heavy-duty truck business to General Motors. However, in that case Volvo claimed as a defense its “complete market withdrawal” from the heavy-duty truck business. In litigation with its Oldsmobile dealers, GM has so far not made this claim, and Sox said he doubts GM could make the claim stick anyway. “GM is not out of the business of manufacturing mid-size, four-door sedans, which it still has through its Buick, Chevrolet and Cadillac lines,” he said. “Also, we have evidence that GM plans to 're-badge' two of its Oldsmobiles and sell them under other lines.”

Meanwhile, the lawsuits have raised a few lessons that Sox suggests all franchisee attorneys should adhere to: carefully review the restrictions that manufacturers who are franchisors put on the use of property; protect dealers from a termination of a line or make; and make sure that none of the restrictions in the contract apply if the manufacturer unilaterally stops producing a product line.

Some Oldsmobile franchisee-dealers remain dissatisfied with the financial settlements offered by General Motors Corp. (“GM”) as compensation for GM's decision in December 2000 to phase out its Oldsmobile product line. Of the approximately 2800 Oldsmobile dealers who were operating when GM announced its phase out, fewer than 100 have not come to an agreement with GM, according to the automaker. Although numerous lawsuits have been filed in the past 2 1/2 years and some remain active, none have gone to trial so far.

The disputes began when GM announced that it would stop producing the Oldsmobiles, due to declining market share, and offered buyouts to all of its approximately 2800 Olds dealers across the United States. In 2001, GM announced a buyout, called the Transitional Finance Assistance Program (“TFAP”), which would pay most dealers a lump sum equal to $1200 for each car the dealership sold in its best year during the period 1998-2000. For a dealer who had only an Olds dealership, which represented fewer than 150 businesses, the multiple was raised to $3000 per vehicle sold. A few other compensating factors, such as proof that a dealer recently upgraded its showroom, could result in an increased TFAP offer.

Although many dealers complained to the automobile industry trade press that the financial offer was inadequate, most accepted the buyouts. GM spokesperson Rebecca Harris told FLBA that GM has “settled with more than 97% of our Oldsmobile dealers; that is they have already shut their doors or have agreed to shut their doors and selected a date.”

GM produced its last Oldsmobile in April 2004, and it plans to have all Olds dealerships closed this year. Thus, the automaker is trying to come to terms with the remaining dealers.

But resolving disputes with the holdouts is proving to be more difficult. “As a result of GM's conduct, a dealer has lost the complete value of its Oldsmobile franchise,” said Rich Sox, partner with Myers & Fuller, a Tallahassee, FL, law firm that represents many Oldsmobile dealers across the country. “Soon, they will have no Oldsmobiles to sell. GM has destroyed the entire good will and transferability of plaintiff's Olds-mobile franchise.”

Myers & Fuller currently has 13 lawsuits filed against GM on behalf of Oldsmobile dealers, and it has settled 18 cases, about half of which before a court filing was made. Another six cases are now in negotiation, but lawsuits have not been filed, said Sox.

GM has filed for dismissal of the complaints by Myers & Fuller, and it has been successful on removing some counts. But generally, the courts have allowed the cases to move forward on charges of violations of states' dealer protection laws and breach of contract (see, for example, Biddulph Arrowhead LLC v. General Motors Corp., U.S. District Court for the District of Arizona, or Robert Basil Motors, Inc. v. General Motors Corp., U.S. District Court, Western District of New York). Other charges that allege negligent representation, breach of fiduciary duty, and breach of implied covenant of good faith and fair dealing, have been dismissed in many cases.

One thing that is common to many of the dealers who are suing GM is that they spent hundreds of thousands of dollars or more on renovations to their facilities or purchased Oldsmobile dealerships shortly before the shutdown of the Olds line was announced. GM encouraged those investments, said Sox, noting that GM sent out its 5-year franchise renewal agreements on Nov. 1, 2000, and then announced the closure of Olds a little more than a month later. “You can't tell me that a company the size of GM makes a decision to close a 100-year-old product line in 6 weeks,” Sox told FBLA. “They knew they were going to do this … and they did not give dealers advanced warning. In fact, almost all of my clients asked their zone manager [or other GM representative] if the rumors about Oldsmobile were true, and they were told not to worry.”

The disgruntled dealers are asking for significantly more financial compensation for the loss of their franchises, said Sox, though he would not provide details. He said that dealers believe that the $1200 per vehicle sold offer is roughly equivalent to the average annual earnings of an Oldsmobile dealership, though GM has not publicly stated so. Dealerships in the late 1990s usually sold for 2x to 4x annual earnings, he said. “The offer from GM is woefully inadequate to compensate a dealer for his lost profits,” said Sox. “The law gauges lost profit by how much profit can reasonably be projected into the future. Car dealerships stay in business for years; they don't come and go like other businesses … so we think we can demonstrate in court that a dealer could expect to be a going concern for 20 or 25 years.”

GM's Harris said that “many factors were considered in each settlement offer … and each dealer had a GM representative in the field” who understood the unique details of the dealership. GM made sure that a person “who had just spent $500K on a dealership would not be at a loss,” she added.

Sox confirmed that GM offered dollar-to-dollar compensation to dealers who had made significant recent investments, but he criticized the automaker for setting a cutoff date on the compensation for investments after mid-1998. “This doesn't help a dealer who took on debt with a bank or signed a 15-year lease for a showroom and repair facility,” said Sox. “The landlord and banker don't care that the productive life of the dealership has ended, they just want their money, which the dealer is responsible for.”

It is hard to find a direct parallel in terms of legal precedent for the litigation. There are some similarities in a case in which Volvo White Truck Corp. terminated dealerships because it sold its heavy-duty truck business to General Motors. However, in that case Volvo claimed as a defense its “complete market withdrawal” from the heavy-duty truck business. In litigation with its Oldsmobile dealers, GM has so far not made this claim, and Sox said he doubts GM could make the claim stick anyway. “GM is not out of the business of manufacturing mid-size, four-door sedans, which it still has through its Buick, Chevrolet and Cadillac lines,” he said. “Also, we have evidence that GM plans to 're-badge' two of its Oldsmobiles and sell them under other lines.”

Meanwhile, the lawsuits have raised a few lessons that Sox suggests all franchisee attorneys should adhere to: carefully review the restrictions that manufacturers who are franchisors put on the use of property; protect dealers from a termination of a line or make; and make sure that none of the restrictions in the contract apply if the manufacturer unilaterally stops producing a product line.