General Motors was unable to adequately justify its decision to shut down some of its Canadian dealerships and apparently used an arbitrary measure to decide which businesses to close, a group of dealers alleges.
In an affidavit representing 18 dealerships that are suing the company, one GM dealer paints a colourful picture of the shock and dismay she felt when she was told by GM Canada that her business would be shut down as part of the company’s restructuring efforts.
Our ’partner’ of 45 years, with its total control over our livelihood and the livelihoods of our employees, had become our adversary,” according to the affidavit filed by Cynthia Robinson, owner of Robinson Pontiac Buick Ltd. in Guelph, Ont.
Our franchisor, whose brands we had devoted our lives to building, was now committed to our extinction.”
In the affidavit, filed with the Ontario Superior Court of Justice, Robinson said her dealership — started by her father in 1965 — had been profitable in every year of its existence, including 2009. GM dealers across the country took a beating last year from a 29 per cent drop in sales, the result of the recession and the automaker’s struggle to stay afloat with the help of court-ordered bankruptcy protection in the U.S. and massive government bailouts in both the U.S. and Canada.
But the dealership’s steady record of profitability wasn’t enough for GM, which informed Robinson in May that her dealership would be shut down.
Robinson and the other dealers involved in the lawsuit say the company broke a contract with them that promised to automatically renew their franchises as long as they fulfilled sales and other obligations. The affidavit says none of the plaintiffs in the suit are or ever have been in default of these obligations.
The affidavit also claims the wind-down agreement given by GM Canada to its dealers implied the automaker was being forced by the governments of Ontario and Canada to slash its dealership network as part of its $10.5-billion bailout. But Robinson says she spoke to her MP, who said this wasn’t the case. Another dealer named in the suit says he received a letter from Ontario Premier Dalton McGuinty confirming that the governments didn’t ask GM to reduce its dealer network.
Finally, GM only gave its dealers six days to get legal advice and decide whether or not they wanted to accept the wind-down agreement — not nearly enough time to make an informed decision, they said.
Robinson says that when she and the other dealers named in the suit asked GM for more information, they were met with a stone wall of silence.”
We struggle to come to terms with the fact that we had been deceived and manipulated,” Robinson’s affidavit says. While we steadfastly stood by GM as it negotiated with bondholders, unions, non-union employees and the government, relying on its repeated assurance that it would work closely with us and treat us fairly and with dignity, GM was deploying a small army of taxpayer-funded lawyers and advisers to devise a plan to disenfranchise us and our employees.”
GM Canada spokesman Tony LaRocca said the company has filed a motion to have the case heard by the National Automobile Dealer Arbitration Program, or NADAP, rather than the courts.
NADAP was collaboratively implemented in the mid-1990s by automakers, dealer associations and their representatives to provide a responsive, cost-effective, confidential and binding dispute resolution mechanism and has been used effectively by Canada’s automotive industry ever since,” LaRocca said in am email.
Robinson’s affidavit says NADAP doesn’t allow for group arbitration and therefore leaves the individual dealerships at a disadvantage.
GM will file its response to the lawsuit no later than Feb. 24, LaRocca said. He wouldn’t comment further.
The claim asks for punitive damages of $1.5 million as well as additional damages for loss of profit, loss of goodwill, loss of reputation, loss of business opportunity and loss of market share.”
None of the allegations have been proven in court.
GM intends to eliminate more than one-third of its Canadian dealerships by October 2010 in an attempt to cut costs and streamline its business. The company had more than 700 dealerships in Canada before the closures which were estimated to employ 33,000 people.
GM also said it would close 1,100 dealerships in the U.S., but since then has said it may restore some of those franchises after Congress ordered both GM and Chrysler to set up an arbitration process to reinstate some of their closed dealerships.
Former GM chairman and CEO Ed Whitacre has said he expects hundreds of dealers to win their franchises back during the process, which must be wrapped up by June 14.
In Canada, another lawsuit, this one a class action, has been launched on behalf of 215 Canadian General Motors dealerships whose businesses were closed last year. The lawsuit, which is seeking $750 million in damages, claims GM Canada broke franchise laws by giving its dealers at most four business days to respond to a termination package offered by the company.