How much for a (former) car dealership?

The result was a foregone conclusion. The Administration had spent billions and was clear as to what it wanted. So the proceeding the other day in Bankruptcy court was a formality. Even the dealers who were being axed knew there was no hope but that did not stop approximately 25 lawyers representing fired dealers from around the country from pleading their case to Judge Arthur Gonzalez who let the lawyers for the dealers get their gripes on the record, and many pleaded their case for well beyond the time allotted to them.

The takeover by Fiat, a European auto-maker that has been seeking entry into the American market for sometime was basically a shotgun arrangement. The Obama administration essentially told Chrysler that they would not accept business as usual. They wanted more economic, more fuel efficient cars. Chrysler had received billions from the government in assistance but was told that it needed to change its ways. Fiat saw its opportunity. One of its demands was to restructure Chrysler's business by reducing supply. Fiat/Chrysler submitted a list of 789 dealers that would no longer be authorized to sell new Chrysler/Jeep/Dodge vehicles. These dealers amounted to approximately 1 in 4 of all Chrysler dealers in the United States.

Many of these dealers had expended significant sums of money into Chrysler's infrastructure. They not only bought vehicles from Chrysler; but also machinery, tools and parts that were only compatible with their vehicles. All of these materials would now be worthless. They bought into the Chrysler trade associations and the advertising budget on top of the franchising fee and now were being told they had to stop selling cars immediately.

Chrysler did allow these dealers to "reallocate" their unpurchased vehicles to authorized dealers but they could no longer sell new vehicles nor could they perform warranty or repair work as an authorized dealer on Chrysler vehicles.

On Tuesday the various lawyer complained to Judge Gonzalez about the unfairness of the situation. The complaining dealers included a dealership that was “the last of the original dealerships founded by the Dodge brothers 102 years ago.” A dealer who said he recently bought the franchise and spent millions, as required by Chrysler, only to get his franchise yanked. A dealer who said that the rejection of his dealership was retaliatory for an investigation against Chrysler with respect to “wrong-dealing” of which his dealership principal gave testimony. And there was a dealer who said Chrysler made an “implicit promise” that if he bought inventory, his dealership would be retained, he did, and it wasn’t. Although there was another dealer said he was rejected because he refused to make deals with Chrysler although he has the largest dealership in his county in Ohio.

There were dealers who complained that Chrysler's actions impacted minority dealers to a more significant degree, and as a result was biased and discriminatory. There was a dealer who said that Chrysler's plan was a health and safety issue because people living in remote areas serviced by a single dealer could not easily access an authorized dealer at times of recalls--health and safety issues are outside the province of Bankruptcy law. There was a dealer who argued that Chrysler's plan was a violation of due process since Chrysler, by taking billions, had essentially become an arm of the Federal Government and therefore subject to Constitutional laws with respect to eminent domain. There was even a dealer who argued that the proposed Fiat/Chrysler plan was an illegal anti-trust action because it was well known that Fiat had its eyes on the American market and therefore their collaboration was collusion of potential competitors. While some of these approaches were novel, none of them worked.

The main crux of the dealers argument was that Chrysler's decision amounted to poor business judgment since the ousted dealers would still be able to seek redress for their damages and by throwing them out of business Chrysler was putting themselves and their shareholders including taxpayers on the hook for millions of dollars more in damages. Further, they argued, that since warranties and purchase incentives go with the car and not with the dealers, Chrysler was reallocating, but not saving any money, by axing the 789 sellers.

After 5 hours, Chrysler had their turn to rebut with 1 lawyer going against the 25. His argument: Fine lines needed to be drawn. Chrysler understands that dealers are not happy but the purpose of bankruptcy law is not to make everyone happy. He said that the argument has hinged on the rights of the rejected dealers but does not take into account the right of the 2300 continuing dealers who have the right to use the Chrysler name. If other dealerships retain certain rights the value of their intellectual property will be diluted.

Chrysler further argued that it is not for the individual dealers to question Chrysler. Bankruptcy law allows a corporation use its own judgment. There was always a plan to evaluate what was best for the company. The policy has to be looked at as whole, not in 800 some odd individual circumstances. There were some judgment calls made but it was Chrysler’s call to make.

Judge Gonzalez did not seem happy. He asked both the Chrysler lawyer as well as the bankruptcy trustee for options. Chrysler's attorney was clear as to what he wanted. The trustee said that it was the judge's call: keep the status quo, which would result in Chrysler continuing to hemorrhage over $1 million dollars a day, money that belongs to the taxpayer, or allow the application to go forward either by allowing the rejected dealers to continue to do warranty work or not as Chrysler, Fiat and the Federal government all preferred.

In the end the judge signed the order that had been negotiated in advance. The termination of franchises was effective immediately. Dealers, some of whom who have poured their life savings into their franchises, must cease their new car sales, and repairs under warranty effective immediately. And yesterday (June 10, 2009), the sale to Fiat was consummated.

Judge Gonzalez said that he will post a decision along with the order, he has not yet, but I suspect when he does, it will have some sympathy towards the ousted dealers. Likely, they will not be left without any recourse. Chrysler will remain on the hook towards those they left behind. What this means is that we as the public will be paying. The final chapter has not been written and probably will not for years to come. By the way, General Motors is on deck.