After opening several stores without much pushback, Elon Musk’s ambition to replicate the Apple experience in Tesla factory stores is now facing potential roadblocks. Dealer associations in a handful of states, and state regulators in at least one case, say Tesla’s stores violate state franchise laws that prohibit factory ownership of dealerships. Electric-vehicle maker Tesla now operates 17 stores in 10 states and the District of Columbia, most in shopping malls. Another six are scheduled to open this fall.
As a joint initiative between MarineLab and the Marine Retailers Association of the Americas, MarineLab Warranty Processing was recently launched to meet the growing needs of marine retailers that are looking for a more profitable way to process warranty reimbursements from manufacturers.
On September 27-30, 2012, attorney Leonard Bellavia, of Bellavia Gentile & Associates, will be recapping the efforts and successes in the retail reimbursement for parts that many of our members have established. He will also participate in discussions of the 2013 NMADA legislative agenda that will be pursued in the upcoming legislative session.
Leonard A. Bellavia of Bellavia Gentile & Associates will be speaking about “Dealership Law & Business Operations Compliance” on September 9, 2012.
MARIADA Conference – Dealer Education & Training Conference.
When & Where: Sunday and Monday, September 9 and 10, 2012, at Trump Taj Mahal Resort, Atlantic City, New Jersey.
PIADA is accepting registrations for MARIADA. Call Pennsylvania IADA (“PIADA”) to Register at 717.238.9002 to register by telephone. Ask for Arie or Shannon. For Hotel Reservations: 800.825.8888 Group Code AINDA12. See www.piada.org and www.mariadaconference.org for details.
Janet Reuther-Schopp doesn’t like to remember what happened to Reuther Automotive Group three years ago this week.
Her family’s 53-relationship with the Chrysler and Jeep brands came to an abrupt end during Chrysler’s government-orchestrated bankruptcy. Thinking about it still makes Reuther-Schopp sad and angry, so she’d rather talk about the positive things that have happened since May 14, 2009.
The former new-car dealership in Creve Coeur has remade itself as a used car sales and service business. Reuther has found new sources for financing and parts and has built relationships with nearby employers, which authorize it to pick up employees’ vehicles for service. It also has relied on longtime niche businesses like snowplow maintenance.
The business has 19 employees, down from 100 in the new-car days. “We’re getting by, which is better than some of the dealers in our situation,” Reuther-Schopp says. “I just get up each morning and say, ‘Today is a new day; let’s see where this one goes.’”
Not that she and three business-partner siblings are ready to let go of the past. Their father, Leo Reuther Sr., began selling Jeeps when they were used more as farm trucks than as commuter vehicles, and his children are fighting to be compensated for the loss of that legacy.
Reuther Automotive is one of 140 former Chrysler dealers pursuing a lawsuit against the federal government. They’re relying on the Fifth Amendment, which says private property can’t be taken for public use without just compensation.
Leonard Bellavia, a Mineola, N.Y., attorney who represents the dealers, says his clients lost more than $500 million.
“The government controlled the Chrysler bankruptcy, in that they made the bailout contingent on filing for bankruptcy and terminating 25 percent of the dealers,” Bellavia said. “The government was using Chrysler as its agent to facilitate the governmental taking of private property.”
Many such “takings” suits are thrown out quickly, but a judge has already rejected the government’s attempt to dismiss this one. It’s now in the discovery phase, and Bellavia says he believes that emails and other documents from the federal automotive task force will bolster his case.
He intends to subpoena task force officials, including former chairman Steven Rattner, as he seeks justice for Reuther and the other dealers.
The government’s dealership strategy was “arrogant and uncaring,” Bellavia says. “I don’t want to give you a Fourth of July speech here, but it goes against the idea of working hard and building something that you can hand down to your family.”
Family ties certainly mattered to the Reuthers, but relatives were among those who had to leave the dealership payroll.
“Having a family-run business and having to allow your children to go out and find other jobs, that’s not what we had worked all these years for,” Reuther-Schopp said.
If the Reuthers once felt privileged, with a business they expected to pass on to the next generation, they now feel like struggling entrepreneurs. The inventory of 30 or so used cars looks sparse on a five-acre lot that once held 300 vehicles.
Reuther-Schopp says the family has had offers for the land, and might sell for the right price. The current business might be more profitable on a smaller site, she said.
Usually, though, she doesn’t allow herself to think that far ahead, just as she tries not to dwell on the injustices of three years ago. “You have to keep your thoughts in the here and now,” she said.
PRESENTER: LEN BELLAVIA, ESQ. – PARTNER, BELLAVIA GENTILE & ASSOCIATES
DATE: FRIDAY, JUNE 22, 2012
TIME: 9:00 AM – 12:00 NOON
LOCATION: ROCKY HILL MARRIOTT DOWNLOAD REGISTRATION PDF
In May of 2009 the Franchise Protection Act became law – this act greatly enhances the protections the franchise law affords Connecticut’s dealers. Our law ensures that dealers are properly and fairly compensated by the manufactures for warranty labor and parts work.
This is not a one-off benefit – dealers are allowed apply more than once but no more than twice in any calendar year. Many dealers applied for retail reimbursement when the law was originally enacted but many others did not; and even for those who did we feel that the potential for a significant revenue increase is well worth taking an initial–or another – look at.
To that end we have asked Attorney Len Bellavia of Bellavia Gentile & Associates to come speak to our members on this subject.
The law firm of Bellavia Gentile & Associates is widely regarded as a pioneer in the area of warranty reimbursement at retail and is a nationally known dealer advocacy law firm. Leonard A. Bellavia, Esq. is a recognized authority in this area and has represented hundreds of dealers in obtaining retail reimbursement.
This workshop is designed for BOTH categories of dealers: those who have and have not obtained retail reimbursement under the Connecticut statute.
Attorney Bellavia will explain common mistakes dealers make in applying for retail that cost them hundreds of thousands of dollars in lost revenue.
This workshop will take you through the process step by step while allowing you ample time to ask questions and get all the answers you need to take advantage of our improved franchise laws.
Who Should attend? Principal, General Manager, Service Manager or Parts Manager.
Seating Is Limited For This Workshop So Register Today!
U.S. government bailouts of General Motors and Chrysler became a constitutional battleground when they were pushed through bankruptcy court in 2009.
Turns out the battle isn’t over just yet.
More than 220 former car dealers are pressing their case that the Obama administration violated the U.S. Constitution when the car makers terminated franchise agreements while in bankruptcy restructuring.
More than 220 car dealers are alleging the Obama administration violated the Constitution when their franchises were terminated during the government-brokered bankruptcies of General Motors and Chrysler. Among those dealers is Herb Adcox of Chattanooga, Tenn., shown here.
They are seeking compensatory damages ranging from $500,000 to more than $5 million apiece.
Two claims, initially filed in October 2010 and February 2011, cleared the government’s motions to dismiss in February and are now heading into the pre-trial discovery phase. The dealers’ lawyers are seeking government documents that they hope will show that auto makers had to eliminate some dealerships as a condition of receiving funds from the government’s Troubled Asset Relief Program.
The cases are believed to be the first to test the constitutionality of the federal government’s $80 billion bailout of the auto industry under the Bush and Obama administrations.
Supporters say the actions saved hundreds of thousands of jobs, while critics say they artificially propped up two failing companies, however large.
Herb Adcox of Chattanooga, Tenn., says he just wants a fair price for his car lot, which he valued at some $3 million in June 2009, including property and an inventory of 150 vehicles and parts worth $250,000 when GM terminated its relationship with him. Without new GM vehicles to sell, Mr. Adcox turned to selling used cars and repairs. His sales dropped to 25 vehicles a month from more than 100 a month earlier in the year.
“I lost money in 2009,” he said, declining to provide specific dollar losses.
Mr. Adcox is party to one of two lawsuits now winding their way through the U.S. Court of Federal Claims in Washington, D.C. His case is seeking class-action status, and the plaintiff lawyers behind that case say they hope to include the claims of all Chrysler or GM dealerships that were hurt by the rejections.
The plaintiffs say that the Obama administration violated what’s known as the “takings” clause of the Fifth Amendment.
Originally written to protect citizens from uncompensated government seizure, the takings clause has long been invoked to resist government seizure of private property for large infrastructure projects.
The dealers’ claims may be a long shot because government lawyers are expected to argue that the U.S. didn’t take anyone’s property, and it was GM and Chrysler that legally terminated business relationships with these dealers.
The judge warned in February that “the theory under which plaintiffs hope to recover does not fit neatly” into a normal takings-clause case. The government has until Friday to respond to the complaints.
Some of the dealers also were involved in earlier challenges to the car maker’s bankruptcy proceedings. Government lawyers might argue that the lawsuits are essentially a second bite at the apple for those dealers.
The plaintiffs are arguing that the U.S. government’s involvement, loaning taxpayer money and overseeing GM and Chrysler’s restructuring, perverted the natural course of bankruptcy. U.S. Treasury was not just a lender, but a government actor, they say. Leonard Bellavia, a partner at Bellavia Gentile & Associates LLP in Mineola, N.Y., who is representing 125 former Chrysler dealers, aims to show that terminating the dealership contracts was “a condition of receiving funds” from Treasury.
“When the government decides to intervene in the economy and targets industries for whatever reasons, under the Fifth Amendment it must pay compensation for what it takes or destroys,” says Richard Faulkner, partner at Blume, Faulkner, Skeen & Northam, PLLC, Richardson, Texas, who is representing a group of former dealers.
Franchises, such as the Chrysler and GM dealerships, generally don’t face termination by a franchiser because they are protected by state laws. But those state laws were trumped by federal laws when the auto manufacturers filed for bankruptcy. Federal bankruptcy law gives companies wide latitude to reject undesirable contracts. Some dealers attempted to fight their rejections during the bankruptcies but they didn’t prevail.
Carl Tobias, who teaches constitutional law at the University of Richmond, said he sees the case as a difficult one. He said he doesn’t expect the government to settle because “the stakes are too high.” Apart from the cost to even partially reimburse hundreds of closed dealerships, Mr. Tobias says the government “wouldn’t want to have a precedent that this type of action is unconstitutional.”
GM spokesman Greg Martin said of 6,375 GM dealers in the U.S. at the end of 2008, only 57{f15fad3b04d89020a05738ee85256797e9759bd19fdd229b29bad9398df16913} were profitable. The company has since reduced that number to 4,407, of which 90{f15fad3b04d89020a05738ee85256797e9759bd19fdd229b29bad9398df16913} are profitable, a level the company hasn’t seen in its dealers since the 1970s, he said. “We’re not looking back,” he added.
“Chrysler Group’s optimized dealer network is contributing to improved vehicle sales and customer service and will continue to be a vital part of the company’s success,” said Michael Palese, a Chrysler spokesman. “Plans to place all of our brands under one roof, in well-located facilities, also have resulted in enhanced dealer profitability, and greater investment by existing dealerships.”
Many who lost their franchises were able to sell for other new-car manufacturers, sell used cars, open muffler shops or rental car agencies. Some say they have been struggling since 2009, even if they were able to keep their doors open by selling used cars.
They claim they fell into debt when they lost profit from the vehicles and parts they had on their lots. Many depended on those profits to cover overhead expenses like their dealership mortgages and payroll.
Jim Koehler, owner of Scotia Motors in Scotia, N.Y., and a plaintiff in the Chrysler suit, said he lost about $2 million when his Dodge franchise, started by his father in 1946, was revoked. Mr. Koehler, 67, now runs a used-car sales and service shop with his wife and daughter, but he says the business is not profitable. “I hope we are all made whole,” he says. “This has been the three worst years of my life.”
Rob Engel, 59, and his brother, Richard owned a Chrysler-Jeep dealership in Tenafly, N.J., and a Chrysler dealership in Wyckoff, N.J. They lost their franchises in 2009. The Wyckoff location also had a wholesale parts warehouse.
He entered into arbitration with Chrysler in 2010. Neither dealership was reinstated even though both were profitable, Mr. Engel says, adding that he never found out why his locations were selected.
Mr. Engel estimates he had more than $1.5 million in parts between the warehouse and the two retail locations. “We cashed out our life insurance policies to sustain mortgage payments on both buildings,” he says.
Today, Mr. Engel has a Kia Motors dealership in Tenafly and is renting the Wyckoff property to an auto body shop.
Dave Smith, 58, president of Colonial Chevrolet Company Inc., in Woodsville, Miss., says that in May 2009, GM offered $7,950 to close operations within 18 months. He refused to sign the agreement and his dealership contract was terminated.
“We’re losing money now,” he says.
New car sales used to account for 65{f15fad3b04d89020a05738ee85256797e9759bd19fdd229b29bad9398df16913} of annual profits, with the rest coming from parts and repairs. The business today is focused on repairs and a few used car sales, he says.
It is billed as a one-of-a-kind legal issue, but as with many court proceedings it is becoming one thing after another.
The issue centers on suits filed by Chrysler and General Motors dealers who lost their franchises in 2009.
They contend their constitutional rights were violated when the auto makers dropped retailers as part of a government bailout and post-bankruptcy plan.
The lawsuits contend the federal government violated the Fifth Amendment, which says private property shall not be taken for public use without just compensation.
“This case is unique, one of a kind,” says Richard Faulkner of a Texas law firm representing 96 dealers. “Nothing quite like this litigation has been pursued, because the U.S. government has never stolen people’s property like this before.”
In a dealer-packed courtroom, Judge Robert H. Hodges Jr. recently denied government motions to dismiss dealer cases in the U.S. Court of Federal Claims in Washington.
“Dealers are ecstatic,” Faulkner says of the ruling.
The court on April 12 further denied the governmentÂ’s motion to reconsider the case. This means the government must answer the class action suits, dealer lawyers say.
Meanwhile in Detroit, U.S. District Judge Sean Cox ruled Chrysler dealers who lost their franchises but got them back after winning arbitration cases donÂ’t have the right to reopen at their original locations. He also said dealers were not entitled to financial compensation for damages.
The Texas-based lawsuit seeks up to $4 billion in damages. A New York suit on behalf of 75 dealers nationwide seeks at least $200 million.
Judge Hodges’s refusal to dismiss the case “is an extremely important development,” says Leonard Bellavia, an attorney in the New York lawsuit.
Were it not for that ruling, “the case would be dead,” says Nancie Marzulla, a Washington attorney representing dealers.
She calls the case a first. “It raises the larger issue of who picks up the pieces for the losers when the federal government clearly and explicitly is picking the winners.”
Dealer lawyers expect discovery issues to take most of this year. They anticipate a possible hearing on merits by late 2012 or early 2013.
Win or lose for either side, the case could end up in federal appeals court, says California attorney Harry Zanville, who represents dealers with Faulkner.
Bellavia foresees it ultimately going before the U.S. Supreme Court.
In his ruling, Judge Hodges says, “The question of what constitutes a ‘taking’ for purposes of the Fifth Amendment has proved to be a problem of considerable difficulty.”
He adds, “Plaintiffs should have the opportunity to develop a case that may turn out to be unique.”
As attorneys for marine dealers, the calls we are receiving lately are becoming far too frequent and have a common refrain: “My floor planner doesn’t know it yet, but I am seriously out of trust.”
The good news is that dealers are acting pre-emptively by not waiting to call us until spring when the boats that have been paid for are delivered and the bank discovers the problem. Too many times, dealers contact us after the horse is out of the barn and the floor planner has taken the matter to court.
First of all, it is unfortunate that the economy is presenting challenges, serious ones, to boat dealers. It is more enjoyable to represent dealer clients in times of growth, when they need a lawyer to represent them for expansion, such as buying additional property and acquiring additional product lines.
Boat dealers have not created this economic downturn. They are victims of the housing debacle from subprime loans, escalating gas prices, the economic effects of the war and the various other non-marine industry causes for the slump in boat sales. If there is any correlation at all, it is in the irony that the very lenders who hold their floor plans are the same lenders who issued credit to borrowers who probably should not have been approved in the first place. In a sense, marine lenders were just as liberal as mortgage lenders in granting loans to subprime borrowers.
Why is this relevant?
Simply because these retail lenders, who fund boat loans by allowing the negative equity in a trade-in to be rolled into a brand new loan on a more expensive boat, are sustaining losses because of increased default trends by consumers. Typically, these retail customers were referred to the lender by boat dealers. Consider the substantial savings to banks that issue marine loans by not having to pay millions of dollars on marketing to consumers because a loyal network of boat dealers refers hundreds of millions of dollars of loan business to these lenders. In contrast to home and car buyers, purchasers of boats are generally unfamiliar with specific banks that issue marine loans. They cannot be assured that their own lenders issue boat loans. Consequently, marine lenders have a more genuine basis to refer to boat dealers as “business partners.”
When a downturn in the retail marine industry occurs, as it has, it is inappropriate for lenders to respond precipitously in acting with full legal force against a dealership that has fallen out of trust with its floor planner. To be sure, banks have rights that need to be enforced. There should not be a “cookie cutter” response, however, to each dealer who has fallen behind in floor plan payoffs. This is especially true in a weakened economy, where blame cannot be placed on mismanagement at the dealership level.
The best illustration of an overreacting banking community is to take the scenario of widespread dealer floor plan defaults to an absurd extreme. Imagine the standard procedure of a bank when it discovers an “out-of-trust” situation at one of its dealers. It demands full payment of the unpaid amount within three days. It suspends all drawing privileges on all boats, sold or unsold. If there is no prospect of immediate payment, it goes to court for an order of seizure to repossess the dealer’s inventory.
Now multiply the above procedure by the many dealers who will likely be discovered this spring as being “out of trust.” Consider the value of the new boat inventory. How will the lender dispose of the inventory? Will other dealers be willing to accept these units when they are struggling to retail their own inventories? What impact will forcing a high number of dealers out of business have on future business generations?
After all, haven’t these very dealers been a huge source of profits to floor plan lending institutions over many years, even decades. If a bank has earned $5 million throughout the years from floor plan interest charges, and another $5 million from “interest income” on retail installment contracts, is it appropriate to terminate a relationship because a dealer is $500,000 in arrears on floor plan payoffs? Should losses and defaults in 2008 invalidate the $10 million worth of profits enjoyed by the lender from 1997-2007 in my example?
The answers are simple if the default is isolated to one or two dealers, and for reasons unrelated to the economy. Surely, a lender has the right to cut its losses if a dealer demonstrates an inability to become profitable again. Family issues, gambling problems and illness of a key operator are examples of how defaults can occur.
A sophisticated lender in an industry downturn will not act viscerally by pulling the plug on scores of dealerships. The lender will understand the need to take a huge step back in hard times and analyze the long-term picture, even if it means absorbing multi-million dollar losses in the short-term. This approach is not out of benevolence, but stems from the recognition that dealers are best suited, substantial floor plan defaults notwithstanding, to fetch the highest prices for the bank’s collateral (unsold boats). Of course, the bank must assess whether it is dealing with a “good customer.” Does the dealer have integrity? Has he or she been committed to the business over a long period of time? If so, the lender will likely see the benefit of allowing the dealer to remain in possession of the inventory. Consider the lender’s choice. It could repossess $2 million worth of boats and dispose of them for $1 million, thereby, adding to its losses. If the dealer has personally guaranteed the floor plan and has deep pockets, perhaps the above approach is most sound.
If a lender were to follow its standard protocol of ridding itself of defaulted dealers during bad economic times, it would simply find other, economically stronger dealers to replace them. Good luck. These dealers are economically stronger, in part, because of their unwillingness to expand in a weak market. This brings the banks full circle back to their “business partners,” through whom they have made millions of dollars over the years and know best how to retail boats. Did they suddenly become incompetent in 2008? The moral of the story is that an astute lender will know when to look past a default, however serious, if the essential elements of integrity and a long-term prospect for recovery exist. If GMAC foreclosed on all its “out-of-trust” dealers over the past five years, General Motors would have an even harder time maintaining its market presence.
To the extent a dealer may avoid the most serious consequences of being out of trust, it must act pre-emptively, generally before the lender finds out. Meeting with your franchise attorney and accountant is an essential step. More gets accomplished in a two hour brainstorming session than in months of sleepless nights, wondering what will happen when the weather turns and customers want to “splash” their paid-for boats. The business plan will need to be rewritten and difficult personnel and related overhead decisions made. The process is painstaking, but necessary.
Your advisers will then draw upon demographic data and independent industry projections to help you assess whether the business can enjoy a reasonable return on investment over the long term. If so, a presentation to your floor planner, fully disclosing the loan defalcation, may be appropriate. After the predicable havoc it will create, level heads will eventually prevail. The negotiations will then begin with the lender, your manufacturer, your landlord and others to rebuild this business with certain necessary concessions, commitments and waivers by all concerned.
In those instances where we conclude, along with the client, that there is no likelihood of economic recovery, that realization can be empowering to the dealer. It allows the dealer to come to terms with the end of the business operation, and focus all his or her energies on an exit strategy and a future. The process is cleansing and puts an end to the day-to-day stress, even if it means continuing problems with creditors.
The foregoing is achieved only by advance planning with qualified industry professionals. When dealers turn their problems over to attorneys and accountants, the reduction in their stress levels is palpable, perhaps the most important step in the process.
Founding partner of the law firm Bellavia Gentile & Associates, LLP, Leonard A. Bellavia is a nationally recognized authority in the field of marine and automotive franchise law. Bellavia is endorsed by the Marine Retailers Association of America. He chairs the Litigation Section of the National Association of Dealer Counsel and serves on its board. LBellavia@DealerLaw.com
Originally Posted on 21 April 2008 in Soundings Trade Only Today
Two rejected Chrysler dealerships that won their arbitration cases in 2010 are closer to a trial date in their lawsuit against the automaker.
In a March 9 ruling, U.S. District Court Judge Leonard Wexler denied a Chrysler motion seeking dismissal of the dealerships’ complaint. He told the parties to file their pretrial orders.
Leonard Bellavia, lawyer for the dealerships, said the ruling means the trial should be in 60 to 90 days.
Bellavia declined further comment, other than to say he hopes his clients and Chrysler “can come together and work out an amicable solution.” He wouldn’t say whether there are active settlement discussions.
The dealerships — Eagle Auto Mall Corp. of Riverhead, N.Y., owned by Mark Calisi; and Terry Chrysler-Jeep of Burnt Hills, N.Y., owned by Charlie Morris — sued Chrysler in August 2010, alleging that they received “unreasonable and unconscionable” letters of intent to enter into a franchise agreement after their arbitration victories.
The dealerships, which closed in 2009 as part of Chrysler’s bankruptcy restructuring, sought reinstatement, compensation for lost income and punitive damages.
Two other dealerships — Crossroads Superstore of Atoka, Okla., and Westminster Dodge of Dorchester, Mass. — were part of the original lawsuit but have since settled with Chrysler. Both Chrysler and Bellavia declined to comment on settlement terms. The dealerships did not reopen.
Chrysler’s motion seeking the lawsuit’s dismissal followed a December court ruling in the company’s favor.
In December, the court ruled it did not have jurisdiction to confirm arbitration awards. The court also said the plaintiffs were entitled only to a letter of intent under terms that were “usual and customary” at the time of the offer and not those governing prebankruptcy dealership agreements.
Whether the plaintiffs received such an offer “remained an open question,” the court said. The plaintiffs say the letters were not customary and put onerous conditions on them, such as having to complete a facility renovation prior to reopening.
Chrysler Group spokesman Mike Palese said the December ruling rejected the dealerships’ primary argument that they were entitled to automatic entry into the post-bankruptcy Chrysler’s dealer network.
“As we have contended since the beginning of this process, Chrysler Group complied fully with the letter and intent of the law by issuing its customary and usual [letter of intent] to prevailing dealers, which was the only remedy available under the federal dealer arbitration law,” Palese wrote in an e-mail.
“Chrysler Group will continue to defend this position vigorously and is confident in our position.”
