January 24, 2009 at 3:52 pm

GM fights dealers over rival brands

Automaker sues, says it hurts sales when retailers sell other makes; dealerships say it's about survival.

NEW ORLEANS -- General Motors Corp. is fighting with car dealers who are trying to survive the worst U.S. sales market in 26 years by selling rival -- even foreign -- brands under the same roof, according to federal court records that reveal the automaker's hard-line stance with struggling retailers.

The battle is brewing as 10,000 dealers and industry leaders converge today in New Orleans for the National Automobile Dealers Association convention, an affair that is expected to be glum -- 900 dealerships closed last year and 1,100 more are expected to shut down this year -- amid an industrywide sales slump. Former Presidents George H.W. Bush and Bill Clinton, Ford Motor Co. CEO Alan Mulally and, fittingly, a motivational speaker who wrote the novel "The Pursuit of Happyness" are scheduled to speak.

Several dealers are anything but happy over dealings with the Detroit automaker. They are trying to boost sales and survive by selling rival brands, in some cases alongside GM vehicles in the same facility, but GM has rejected several recent attempts, saying the moves violate franchise agreements, dilute the brands and would hurt GM sales.

Interviews and U.S. District Court records suggest GM is aggressively enforcing franchise rules that will force some dealerships out of business at a time when the automaker needs to dramatically thin its retailer ranks.

"You've got GM begging Congress and the new president for help to survive and on the other hand they're trying to knock out dealers who are trying to survive the old-fashioned way: without government help," said Sheldon Sandler, CEO of Bel Air Partners, a New Jersey-based financial firm that specializes in representing dealers. "It's unseemly."

GM, which has traded lawsuits with dealers in recent months from the Midwest to the East Coast, says it is merely trying to ensure dealers focus on the Detroit automaker's brands and that introducing rival brands hurts sales and service, compromising GM's ability to survive.

"General Motors is not crazy about foreign brands being in there," said Mark LaNeve, GM's vice president for North America sales, service and marketing. "We highly discourage that."

GM prohibits dealers from selling under the same roof any brand other than what is spelled out in their dealer agreement with the automaker, but that hasn't stopped dealers from asking or trying.

GM has more than 6,400 U.S. dealers and hopes to dramatically slash that number to comply with a $13.4 billion federal loan package that prevented the automaker from financial collapse. The company sees dealership cuts as one way to slash costs and return to profitability, a key string attached to the loan deal.

Eliminating dealers isn't easy. Strong state franchise laws make it difficult because automakers must buy them out. When GM eliminated Oldsmobile, for example, it cost the company about $1.2 billion to settle with dealers.

And, while some dealers are going out of business because of the deep industry sales slump, tight credit markets and a lack of cash for their operations, it's still not happening fast enough. GM wants to eliminate 1,750 dealers within three years. Chrysler LLC and Ford Motor Co. are also working to shrink their U.S. dealer networks.

Dual or multi-brand dealerships are not novel. They once were commonplace, especially in rural towns, until automakers started fighting the arrangement about 10 years ago, Sandler said.

"They've never liked that idea," Sandler said. "And the last thing they want is a weak sister to survive by adding a competitive brand into the showroom."

GM says mergers have produced mixed results.

"Dealers think it's going to be a panacea, but I've never seen where that's helped out," LaNeve said.

Stuart Lasser wants to find out for himself.

Lasser, who owns a Saturn dealership 34 miles west of New York City, sued GM on Nov. 20 after the automaker rejected an attempt to subdivide his showroom and sell vehicles made by GM and South Korea's Kia Motors Ltd., according to federal court records.

"All I'm trying to do is survive here," Lasser said in an interview with The Detroit News. "They're not letting me do that."

Lasser's request would have been unprecedented for Saturn.

Many GM brands are sold under one roof -- Buick, Pontiac and GMC, for example -- but Saturn was established as a stand-alone brand, and there are no permanent Saturn stores in the country where rival brands are also sold, Saturn spokesman Steve Janisse said.

But Lasser said the brand went from being a different type of company selling different types of cars to "just another car company, producing just another car," according to the lawsuit. Lasser, who heads Saturn of Denville, is suing for punitive damages.

As Saturn unveiled fewer exclusive vehicles, dealership sales suffered, according to the lawsuit. Last year, Saturn sold 188,000 vehicles in the U.S., down 21.7 percent.

Lasser said GM is creating a situation that will starve dealers of customers and sales, and force them out of business. GM spokeswoman Susan Garontakos denied the allegation.

"That's his opinion," she said.

In a recent case, GM failed to prevent a dealer from selling rival brands under the same roof.

Michael Brown is a second-generation dealer who until last month co-owned Chrysler and GM franchises in buildings 600 feet apart in Faribault, about 50 miles south of Minneapolis.

In May, he approached GM about merging the Chrysler store with the GM showroom when sales at both locations plummeted.

GM said no in July but Brown notified the automaker he intended to merge the showrooms anyway because the Chrysler dealership was struggling and 19 jobs were at stake, according to court records.

Besides, Brown estimated owners could save $50,000 to $60,000 a month by relocating the Chrysler dealership and thousands more by consolidating the stores.

"Chrysler immediately approved the plan. This is what we needed to do to make the two dealerships viable," Brown said. "And (GM officials) were unwilling to even meet us halfway."

On Sept. 10, GM sued and asked a federal judge to block the merger.

GM's opposition perplexed Brown because there are about 30 dealerships in Minnesota that have received approval to sell GM and other brands.

Brown eventually agreed to hold off on merging the dealerships while both sides negotiated.

Last month, U.S. District Judge John Tunheim refused to stop the merger, saying GM failed to prove it would be irreparably harmed. GM has appealed.

On Dec. 17, a day after the judge's order, Brown merged the dealerships.

While the move is complete, he hasn't built the wall that he envisioned that would separate the two showrooms because he spent the money to do it on legal fees fighting GM in court.

If GM succeeds in undoing the merger, Brown said he might have to close the Chrysler dealership.

Then again, he said, he might keep it and drop GM, depending on the success of Chrysler's new alliance with Fiat SpA.

You can reach Robert Snell at (313) 222-2028 or rsnell@detnews.com">rsnell@detnews.com.