Dealergate & Quality Chrysler: Owners May Get Their Dealership Back

General Motors and Chrysler unceremoniously dumped a large number of dealerships last year as a part of their bankrupcy proceedings. Indications of political influence in the selection of which dealers were to be cut off earned the process the name of Dealergate.

I was aware at the time of the numbers of dealers being cut — General Motors cut 1,350 dealerships and Chrysler cut 789 (some accounts said 900). And I knew that Chrysler Corporation cut off the dealers it was dumping on June 9, 2009 — as soon as allowed by the bankruptcy court decision and its review by the US Supreme Court — and Chrysler specified that the auto inventories were to be taken from those dealerships (with Chrysler billing the closing dealership for the "service") to dealerships Chrysler was allowing to remain open. What I hadn't known was that the General Motors dealerships were allowed to remain open until October 2010 to sell their inventories.

Belatedly, at least some of the dealers may be able to have some recourse. Late last year, Congress passed and President Obama signed a law requiring mandatory arbitration for dealers challenging their termination. One dealership that has requested arbitration, according to an article (subscription required) in the Albuquerque Journal, is Albuquerque's Quality Jeep Chrysler — the dealer I wrote about previously.

The DiLorenzo family owned the Quality dealership for 22 years. They have no idea why they were targeted for closure. Annette DiLorenzo Thayer, the dealership's former Director of Operations, described this as "a chance at getting 'a little bit of justice' ".

"We are ecstatic for the opportunity to find out why they would take something from us, steal something from us, and give it to someone else for free," she told the Journal.

The DiLorenzo family wants to get its brand back, and hopes for reinstatement. Chrysler is still considering "whether to challenge the appeals process."

A Dealergate Example: Quality Chrysler

The Albuquerque Journal is following the demise of Quality Chrysler in Albuquerque, one of the four dealerships in New Mexico cut off by Chrysler corporation in Dealergate. A story printed a few days after the cutoff (subscription required) noted the 22 year old DiLorenzo family dealership now exclusively sells used cars.

The article noted that the Chrysler signs were still up. Director of Operations Annette DiLorenzo Thayer said they're not coming down until someone from Chrysler takes them down. "We had the privilege of renting the signs ... Chrysler has to come take the signs," she said.

The article also said a large number of cars bought from Chrysler are still parked on the Quality lot. It said most of that inventory will go to a dealer on the west side of Albuquerque, as Chrysler will no longer allow the DiLorenzos to sell them. Worse, before cutting off all contact with Quality at midnight on Tuesday, June 9, Chrysler made it clear it wants $350 per vehicle from Quality to move leftover inventory to other dealers.

I think the DiLorenzo family is right about the signs. Chrysler took their investment and cut them off. Chrysler made sure the dealership no longer has any relationship with, or responsibility to, Chrysler Corporation. But I would also say the dealership should charge Chrysler rent until the signs are removed from their property.

The matter of the inventory seems to be a bigger problem. The article did not indicate whether Chrysler is reimbursing the dealer for the price paid for the vehicles. But the situation suggests several possible solution elements. One would be charging Chrysler rent — maybe $400 per vehicle — for the time the cars remain on Quality's lots. Or perhaps they should avoid the $350 per vehicle charge entirely by simply driving the cars across the valley to their new destination. Or maybe they should drive the cars across the lot, park them under the used car signs, and advertise them for sale as "like new."

The Obama Administration, Chrysler, and Dealergate

A bankruptcy judge has approved the Chrysler dealer franchise cuts. The 789 dealers being cut cannot sell Chrysler products after today.

Let me expand on this.

Each franchise was purchased from Chrysler for a significant amout of money. These franchises are owned by individuals, partnerships, and companies; they are not owned by Chrysler. Many/most of these franchises are profitable. They do not cost Chrysler anything; they are a source of profits for Chrysler. Yet they are being taken from their owners without compensation (i.e., stolen) and, in many cases, given to others at no cost. This is not a decision any businessman would make — which is part of the reason it's so clear these closures are political and why this scandal is being called "dealergate".

As for the rest of the Chrysler bankruptcy "deal", Justice Ruth Bader Ginsburg had issued a stay on the sale of Chrysler assets to Fiat. The stay was issued so secured creditors (especially state and teacher pension plans) could appeal their legal rights being abrogated in favor of the lesser rights of unions and other unsecured creditors. That stay was vacated this evening, which means the Supreme Court won't consider the appeal and the sale can go forward.

So the Administration gets its way — at the expense of company, investors, and the rule of law.