WASHINGTON — Chrysler Group made the wrong choice in deciding to keep open one New York state dealership and reject another, said an arbitrator who relied on performance data for both stores.
The arbitration for Terry Chrysler-Jeep in Burnt Hills, N.Y., may be the first in which comparative operating data, including sales, was used, said the Terry dealership’s lawyer, John Gentile. The data were unsealed last month by U.S. Bankruptcy Judge Arthur Gonzalez.
However, it won’t be the last such case, as Gentile’s law firm in Mineola, N.Y., plans to introduce performance figures for its clients and their competitors in two other cases. It is encouraging lawyers representing other dealers to do the same, Gentile said.
The arbitrator in the Terry case ruled that Chrysler, which moved to cut dealers last year to match sales with demand, had in effect chosen to keep open a nearby Clifton Park dealership rather than Terry, located outside Albany.
“A review of the criteria used by the covered manufacturer to terminate the covered dealership’s franchise agreement shows that the Terry dealership appeared to be a better candidate to remain an active dealer as compared to the Clifton Park dealership,” the arbitrator’s June 8 decision said.
Better performance
Arbitrator Larry Biblo compared Terry’s performance with that of the other dealer under a number of criteria.
He noted Terry’s superior floorplan status with lenders, its better financial status with Chrysler, its greater working capital and its superior sales performance.
Chrysler had chosen the dealership, eight miles from Terry Chrysler-Jeep, “due to a perceived difference in the demographic and geographic characteristics of the two,” the decision said.
That rival dealership eventually went out of business after Chrysler’s bankruptcy last year, and the location remains vacant, the arbitrator said. Chrysler had hoped to turn the Clifton Park store into a Genesis dealership that sells all of the company’s brands.
“I’m really excited about this,” said Charlie Morris, 40, who owned the Terry dealership along with his mother, Noella. “I look forward to working with Chrysler.”
Chrysler reaction
Chrysler expressed disappointment.
“The decision undermines the federal Bankruptcy Court order that affirmed the rationalization process used to reject the dealership agreements,” the company’s statement said.
Chrysler added: “While difficult, the actions to reduce Chrysler’s dealer network were a necessary part of Chrysler Group’s viability and central to the financing and partnership with Fiat. The only alternative would have been complete liquidation.”
Last month, Gonzalez unsealed data detailing each rejected Chrysler dealer’s performance.
The judge held that each dealer can get copies of the performance charts of rivals that Chrysler considered for termination.
Chrysler said last month it already was producing the data sought by individual dealers, but dealer lawyers said the company was producing only fragments of dealer performance scores in arbitration.
The law firm that secured the Bankruptcy Court order, Bellavia Gentile in Mineola, also represented Terry in arbitration.
“We couldn’t have proved that Chrysler didn’t follow its own business plan in this case without the spreadsheet data,” Gentile said.
Chrysler said it has fewer than 85 arbitration hearings left.
Mark Calisi says he believes he lost his Chrysler-Jeep dealership on Long Island because he irritated a company executive.
Yale King was told that his Jeep and Buick-Pontiac-GMC stores near Denver were no longer wanted, even though he regularly doubled the carmakersÂ’ sales goals.
James Painter and his 10 children cannot understand why Chrysler eliminated the two Utah dealerships they ran successfully for decades, particularly since the company allowed their immediate neighbor to open a new Chrysler dealership this month.
They are among the hundreds of dealers from all corners of the United States fighting to get back their businesses — and in many cases their good names, tarnished by implications of poor performance — through an arbitration process that will begin next week.
Chrysler and General Motors cut loose more than 2,000 dealers last year as part of their bankruptcy reorganization, but Congress is now forcing them to justify the closures after hearing so many stories of devastated families and communities.
G.M.’s top executive, Edward E. Whitacre Jr., recently said he expected “hundreds” of G.M. dealers to be reinstated.“
They’ve taken everything we own,” said Patrick Painter, one of James Painter’s sons. All three of the family’s dealerships — the Chrysler store that three generations ran for 65 years, the Chevrolet-Buick store nearby and the Chrysler store that James Painter opened 200 miles away at Chrysler’s request, spending two years away from his family to do so — were terminated over the course of two days last May, despite being profitable and debt-free.
“My mom and dad want their honor back as much as anything,” Patrick Painter said. “It’s the ultimate showing of disloyalty, after all the years we’ve been loyal to them, to take our stores.”
As of Friday afternoon, 915 dealers had filed to contest their termination, according to an executive with the American Arbitration Association, which is overseeing the review process. More than 400 were filed since Thursday and more were expected before the deadline of midnight Monday.
Leonard Bellavia, a lawyer in Mineola, N.Y., who represents about 40 dealers who have filed for arbitration, said each dealer could expect to spend at least $30,000 challenging the companiesÂ’ decisions unless a settlement was reached before arbitration. The process must finish by mid-June.
Those who lose will be out even more money and will have no further chance to appeal; winners can rejoin a company that didnÂ’t want them any longer.
G.M. terminated about 1,300 dealers, most of which are still open because they were given until next October to wind down operations. An additional 700 dealers lost the rights to sell one or more brands but remain with G.M.
Many have been encouraged by Mr. WhitacreÂ’s recent comments suggesting that the company might have been too aggressive in cutting dealerships and probably made some mistakes in its selections.
Chrysler, though, has taken a much harder line, insisting that large numbers of reinstatements could throw its recovery off track and hurt current dealers.
Chrysler eliminated 789 dealers, about a quarter of its network, and forced them to close last June on about four weeksÂ’ notice. Because the cuts were made in bankruptcy, Chrysler avoided having to compensate those dealers for the franchises they lost, whereas G.M. agreed to pay an average of more than $400,000 to each dealer.
ChryslerÂ’s chief executive, Sergio Marchionne, who was not involved in the company when the cuts were made, nonetheless defended them this month during a speech to an industry conference.
“The decision that we made, I think it was made with diligence, it was made equitably, and I think it was done fairly,” Mr. Marchionne said. “What I cannot do is unwind the last seven months of history, during which Chrysler went on and started rebuilding a distribution network on the assumption that the ruling of the bankruptcy judge was final.”
He added, “My conscience is clear.”
But former dealers hope to show arbitrators that the decisions were anything but fair. Letters that Congress required the carmakers to send dealers this month explaining the criteria used to select them have fueled claims that Chrysler was more subjective, because it provided less specific information than G.M. offered.
Mr. Calisi, who owns Eagle Auto Mall on the east end of Long Island, said he met all of ChryslerÂ’s performance criteria and spent millions of dollars upgrading his building but was eliminated in favor of a Dodge dealer in a much older, more out-of-the-way space nearby.
In bankruptcy court, Chrysler said Mr. Calisi was chosen because Chrysler-Jeep shared his showroom with Kia, Mazda and Volvo. But he obtained internal e-mail messages among Chrysler executives, in which he was described as “too litigious” after a dispute with the company over incentives for advertising.
Mr. Calisi said the loss of Chrysler-Jeep left him unable to make his annual contribution of $500,000 to a local charity that helps mentally retarded children and adults.
“That really hurt me a lot,” he said. “Now they’re hurting innocent people. It’s not adding to the recovery of Chrysler. This was just a vendetta.”
A Chrysler spokeswoman, Kathy Graham, dismissed claims that dealers were singled out for retribution. “This wasn’t easy for anybody, but it wasn’t personal,” she said.
Though ChryslerÂ’s sales plummeted in the second half of 2009, Ms. Graham said remaining dealers reported higher sales and profitability, which helps the company in the long term.
The terminated dealers say they could help G.M. and Chrysler even more by staying open. Mr. King said his Jeep store in Longmont, Colo., was on pace to outsell the nearby Chrysler-Dodge outlet for the year, and his G.M. store still is one of the regionÂ’s top sellers.
“I finished No. 1 in December,” he said, “and I haven’t received a new car in seven months.”
For some dealers, however, the offer of arbitration comes too late to do much good.
“The remedy would have been great back in June, July or August,” Mr. Bellavia said. “But the ship has sailed for many of them. Some have changed careers. Others have lost all their money. Many Chrysler dealers are filing simply out of the need for some personal vindication. Some clients are indifferent about whether they win; they just want their story told.”
For the Painters, who still sell used cars at their Utah dealerships, reinstatement could pose a new challenge. The Nissan dealership adjacent to their store in St. George, on the Arizona border, began selling Chrysler vehicles last week.
Family members, several of whom have had their wedding receptions in the showrooms, are confused as to why Chrysler would do that when it did not want dealers selling rival brands under the same roof.
“We think we deserve it back,” Patrick Painter said. “We’re the ones that took the chance on Chrysler and put up the facilities and gave them a real home in St. George 25 years ago. It’s simply not right to take property from somebody and give it to somebody else. That’s not America.”
In The Wall Street Jounal – WSJ.com: NEW YORK – MAY 26: Leonard Bellavia (R), legal counsel for a group of Chrysler dealers slated to lose their businesses, and James Anderer, owner of Island Jeep in Lindenhurst, N.Y which is scheduled to be closed, look on at a press conference protesting the Chrysler bankruptcy plan May 26, 2009 in New York City. Chrysler faced a court hearing today about its fast-track bankruptcy plan.
NEW YORK, May 26 (Reuters) – A lawyer for Chrysler dealers facing closure as part of the automaker’s bankruptcy reorganization said on Tuesday he believes Chrysler executives do not support a plan to eliminate a quarter of its retail outlets. Lawyer Leonard Bellavia, of Bellavia Gentile & Associates, who represents some of the terminated dealers, said he deposed Chrysler President Jim Press on Tuesday and came away with the impression that Press did not support the plan.
“It became clear to us that Chrysler does not see the wisdom of terminating 25 percent of its dealers,” Bellavia said. “It really wasn’t Chrysler’s decision. They are under enormous pressure from the President’s automotive task force.”
He added the government task force, which he criticized for having no members with retail experience was, in effect, attacking U.S. entrepreneurs.
“What is the next task force? Shoe stores? Pizzerias?” Bellavia said at an event in Manhattan to publicize the dealers’ concerns ahead of a bankruptcy court hearing.
Chrysler [CBS.UL] notified its dealers this month it plans to eliminate 25 percent of its retail showrooms and is seeking permission from a U.S. bankruptcy judge to terminate franchise agreements with 789 of 3,181 dealers as of June 9. [ID:nN25534875]
A spokeswoman for Chrysler said the decision to cut a quarter of the dealers was “not coming from the task force.”
“Our position is that the market can’t support the number of dealers that are out there,” said spokeswoman Carrie McElwee. “This has been our plan for more than 10 years to combine Chrysler, Dodge and Jeep under one roof.”
The decision about cutting dealers took into consideration factors like location, customer satisfaction, and sales potential, she said. Nearly half of the terminated dealers also carry non-Chrysler brands, and most rely on used vehicles for the bulk of their sales.
The dealers will seek to stop the sale of Chrysler assets to a new company — owned by its union, Italy’s Fiat SpA (FIA.MI), and the U.S. government — at the bankruptcy court hearing on Wednesday.
“The problem we have is the free enterprise system is not run by the government, it’s run by business entrepreneurs,” Bellavia said. “The dealers themselves will decide if it’s not productive to go forward.”
Chrysler has more than double the number of dealers of rivals Toyota, Nissan and Honda, which each have about 1,200 retail outlets, while General Motors (GM.N) has about 6,000. But it should be up to owners to decide when to exit the business if there is not enough demand, Bellavia said.
Dealers argue closing dealerships will devastate local communities, with some 50,000 direct job losses nationwide, and as many as 200,000 indirect job losses. Part of their legalargument rests on the Fifth Amendment of the U.S. Constitution, which guarantees due process before government can take away a person’s property.
“We feel there has been a denial of constitutional due-process rights,” Bellavia said.
‘UNCONSTITUTIONAL’
“I think it’s unconstitutional,” said Jim Anderer, owner of Island Jeep in Lindenhurst, New York.
“The Fifth Amendment clearly states you cannot take another person’s property without due process or compensation. Even in eminent domain, there is an appraised price on the property being taken by the state.”
Anderer said he has been in business for 22 years and employs 48 workers. He intends to fight the plan.
“My business is being stolen from me under the guise of the bankruptcy laws, given to another dealer down the street,” Anderer said.
Chrysler has argued it needs a smaller dealer network to return to profitability. In 2008, it sold about 1 million new cars at some 3,300 dealers.
“They’ve given me no time to sell off (my inventory),” said Robert Engel, who runs two dealerships in Tenafly and Wyckoff, New Jersey. Both dealerships, which employ about 60 people, are profitable, he said.
Engel estimates two-thirds of his dealership revenue comes from service, and said he intends to stay open.
“Bankruptcy laws are being manipulated to carry out a marketing plan,” he said. “If they’re going to terminate dealers, it should only be severely underperforming dealers.”
Chrysler wants fewer but bigger dealers in central locations near highways that would carry Dodge, Chrysler and Jeep vehicles under one roof, Engel added, but the decision about who survives was “random” and set a precedent of government interference in free markets.
A Long Island attorney is furiously working on filing an objection to the U.S. government-backed bankruptcy and sale of Chrysler to Fiat.
Leonard Bellavia, of MineolaÂ’s Bellavia Gentile and Associates, said Wednesday that he is finishing up his brief, due by 4 p.m. Thursday, on behalf of 25 dealerships on the east coast, including four on Long Island, to send to Judge Arthur J. Gonzalez, a U.S. bankruptcy judge for the Southern District of New York.
The dealerships Bellavia represents were among the 789 Chrysler announced it was closing.
“We feel all this is happening at lightning speed by design,” Bellavia said. “It is happening before the public becomes aware of the implications. We feel this is more political than legal.”
In his brief, Bellavia said he will argue that the sale to Fiat is not in the best interest of Chrysler and violates bankruptcy law. He said the sale should not be approved because it is being disguised as a company reorganization.
In addition, he said the sale should not go through without the 789 rejected dealerships because doing so would jeopardize ChryslerÂ’s financial success. He also argued that having more dealerships would put the company in a better position when it resurfaces from the sale and reorganization.
The dealerships are all independently operated.
“The dealerships do not represent any costs for the manufacturer,” Bellavia said. “The private dealers pay everything. They represent no expense for Chrysler.”
Bellavia said his brief will be a supplement to an objection already filed by the Committee of Chrysler Affected Dealers , which claims to represent nearly 300 dealers in 45 states. That groupÂ’s objection hopes to delay hearings that would approve the sale and the termination of the dealersÂ’ agreements.
A hearing on the motion to terminate the dealer franchise agreements is scheduled before Gonzalez on June 3.
Bellavia said he welcomes the committeeÂ’s objection.
“The more people objecting to this the better,” he said. “We are not competing with them. Our interests are the same.”
WASHINGTON — Two rejected Chrysler Group dealers plan to ask a federal bankruptcy judge tomorrow to unseal internal Chrysler e-mails that were personally critical of them so they can use the messages in arbitration.
Former Chrysler dealers Jim Tarbox of North Kingstown, R.I., and Mark Calisi of Riverhead, N.Y., said in a motion that the Chrysler managers’ e-mails show that the company closed their dealerships for reasons unrelated to their performance.
They plan to ask U.S. Bankruptcy Judge Arthur Gonzalez in New York to allow them to use the e-mails, which have previously surfaced in the public domain but remain sealed by the bankruptcy court against use in other legal proceedings.
Chrysler filed an objection to the dealers’ request on Monday, citing the sanctity of the bankruptcy court’s seal order last year.
The bankruptcy court “determined that sufficient legal and factual bases existed to establish just cause for confirming the confidentiality of the documents,” the company said.
“Chrysler Group is in full compliance with the permitted discovery provision of the Federal Dealer Arbitration Statute,” Chrysler said in an e-mail to Automotive News today.
The dealers’ lawyer, Leonard Bellavia of Mineola, N.Y., said the e-mails show that the termination process “was nothing more than a backslapping brotherhood of Chrysler executives enjoying two weeks of bankruptcy code power to ‘play God’ with the livelihoods of dealers.”
His April 1 motion asked that all rejected dealers be allowed to use the e-mails in their arbitrations.
A ‘belligerant, combative dealer’
Tarbox, in testimony before a congressional committee last July, quoted from a May e-mail written about him by a Chrysler manager.
The e-mail called him “a belligerent, combative dealer who litigates and protests any new Jeep franchise in the Providence, R.I., area,” Tarbox said.
Chrysler vice president Peter Grady, who runs the company’s national dealer network, told the U.S. Bankruptcy Court last spring that Tarbox was rejected because there were strong dealers nearby. The court said it found Grady’s testimony “credible.”
Bellavia, who represented 31 rejected dealerships at Chrysler’s bankruptcy proceeding, quoted from an internal e-mail while questioning a Chrysler manager in court last May.
The May e-mail was written by Bill Doucette, a Northeastern regional dealer manager, about a conversation he had about Calisi with Grady.
The Doucette e-mail said, “Just talked with Pete, he simply said that the dealer has to go, too litigious, etc., it’s not a performance issue,” Bellavia said last May.
The Chrysler manager questioned by Bellavia, Phil Scroggin, the northeast regional business center director, replied: “All I can tell you is that the e-mail — the words are the words, and there is quite a bit of discussion that went on afterward as it did with all dealers.”
Tarbox, 43, owned Tarbox Jeep in North Kingstown, R.I., and Tarbox Chrysler-Jeep in Attleboro, Mass.
Calisi, 48, owns Eagle Auto Mall in Riverhead, N.Y., which lost its Jeep and Chrysler franchises.
Tarbox’s arbitration hearing is scheduled for June 21-23; Calisi’s is June 7-8.
Sealing documents
During Chrysler’s bankruptcy proceeding last June, the bankruptcy court sealed hundreds of thousands of pages of internal documents, including the e-mails about Tarbox and Calisi.
The court acted at the request of the former Chrysler, referred to in court documents as “the Debtors,” in response to extreme time pressures and the commercially sensitive nature of the information sought by the various parties.
In Chrysler’s objection this week, it seemed to leave the door open to the release of the e-mails to just Tarbox and Calisi.
“While the Debtors and New Chrysler do not believe that Tarbox and Eagle are entitled to these documents, at most, the Tarbox and Eagle e-mails should only be disclosed to Tarbox and Eagle,” the company said.
The e-mails should not be used in any other arbitrations because the arbitration law signed by President Barack Obama in December limits discovery to documents “specific to the covered dealership,” Chrysler said.
