Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Auto dealer attempts to put the brakes on franchise termination, (Aug 7, 2014)

By Linda O’Brien, J.D., LL.M.

An auto dealership has filed a complaint in the federal district court in Trenton, New Jersey, alleging that franchisor General Motors wrongfully attempted to terminate its franchise in violation of the New Jersey Franchise Practices Act (Straub Motors, Inc. v. General Motors L.L.C., August 4, 2014).

Straub Motors is an automobile dealership holding a franchise to sell and service Buick and GMC vehicles, parts, and accessories manufactured by General Motors.

According to the complaint, Straub entered into a dealer sales and service agreement with General Motors in October 2010. Since that time, Straub purportedly has performed all of the legal obligations imposed under the franchise agreement, including (1) maintaining a facility for sales and services; (2) vigorously promoting the sale and service of General Motors products; (3) maintaining an adequate supply of General Motors vehicles in inventory for sale; (4) maintaining a sufficient staff to meet the needs of customers; and (5) maintaining good customer and community relations.

In June 2014, General Motors notified Straub that it was terminating its franchise on the ground that its sales performance, measured by the Retail Sales Index (RSI), was less than 100—the minimum level of retail sales performance required under the franchise agreement. The RSI is an average of the sales performance of all Buick and GMC franchises in a certain geographic area. To require all franchisees to have an RSI of 100 or above – meaning that 100 percent of all franchisees are in the top half of the average – is a mathematical impossibility. Moreover, a franchisee’s placement within an average does not measure whether the franchise is performing satisfactorily, the complaint states.

According to the complaint, Straub was one of hundreds of franchises rejected in the 2009 bankruptcy proceeding of the defendant’s predecessor, General Motors Corporation. As a result, in 2009 and 2010, Straub was unable to acquire new vehicle inventory from the defendant and lost its floor plan financing, which was vital to maintaining vehicle inventory. After filing for arbitration, Straub was reinstated and was able to secure floor plan financing that was lower than its prior floor plan.

Upon reinstatement, Straub was designated as a small volume (RCC) dealer and was given a sales objective in 2011 and 2012 of 15 to 20 vehicles per month. In both years, Straub satisfied that objective even though its market area was impacted by Hurricane Sandy in October 2012. In 2013, General Motors disbanded the RCC program and put in small volume dealers the same pool as all other dealers.

To secure new vehicles for inventory, vehicles in a dealer’s inventory must first be sold. Thus, increasing sales was a slow process, particularly for a recently-reinstated franchisee that had been part of the RCC program. Nevertheless, Straub increased its floor plan line and was able to increase sales 102 percent overall from 2012. For Straub’s RSI to be 100, its sales would have had to increase by almost 400 percent, the complaint charged.

Straub asserts claims for violations of the New Jersey Franchise Practices Act. The action seeks injunctive relief, damages, pre-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 3:14-cv-04892-JAP-TJB.

Attorneys: Marvin J. Brauth (Wilentz, Goldman & Spitzer, P.A.) for Straub Motors, Inc.

Companies: General Motors L.L.C.; Straub Motors, Inc.

News: FranchisingDistribution NewJerseyNews