GM drives into challenge over dealer ratings

A New York state auto dealer has won its legal case against General Motors over claims the manufacturer’s system for evaluating its dealers’ sales performance was unfair, in a decision which may have repercussions for the industry nationwide.

Albany-based Beck Chevrolet has been a Chevy dealer since the 1930s, but challenged the metrics used by GM to rank dealers’ efforts. The New York Court of Appeals found that the sales requirements used by the automaker to assess a dealer’s performance were in violation of the Franchised Motor Vehicle Dealer Act, judging them to be unreasonable, arbitrary or unfair”.

In its ruling, the court maintained that the franchise agreements which have been developed over a long course of dealing between the manufacturer and the dealer have reached a point where the dealer has few if any rights in comparison to those of the motor vehicle manufacturer.

This results in an undue imbalance in bargaining power and the dealer is in many cases at the mercy of the manufacturer. In reality, the motor vehicle dealer who frequently has millions of dollars invested in dealership real property, equipment and good will can do nothing to oppose the will of the manufacturer without jeopardizing this substantial investment.

The court stated: “While we recognize that industry norms are important because they express the wisdom borne of experience, and reflect considered thought on the part of industry members, they are not beyond the reach of the statute.

“We are especially cautious in this regard because this is an industry in which the parties hold unequal bargaining positions, and an industry standard may reflect the entrenchment of the very inequality and favoritism that the legislature sought to counterbalance in the Dealer Act. Thus, GM may not rely on a standard that is unreasonable and unfair simply because of its prevalence within an industry the legislature sought to regulate”.

Potential effects of ruling

Law firm Hogan Lovell, commenting on the development, said: “While the decision is controlling precedent only in the State of New York, its importance is likely to be more far-reaching and raises troublesome practical issues for most OEMs.

“As far as we are aware, there is no accepted definition of ‘local brand popularity’ and no accepted way to determine how much of a brand’s below-average performance in a particular market is the result of low ‘brand popularity’ and how much is the result of poor dealer performance. The court’s decision does not address, much less resolve, this difficulty. “