Some Dealers Savor Arbitration Wins, But Concerns Linger

Wednesday, September 1, 2010 | By Lillie Guyer, Ward's Dealer Business

Chrysler Group LLC won a large majority of cases appearing before arbitrators in American Arbitration Assn. hearings.

But in a number of dealer wins, arbitrators looked beyond Chrysler and General Motors Co.'s post-bankruptcy business cases for restructuring their dealer networks.

Considerations of the public interest weighed heavily when an arbitrator in Eagle Auto Mall's termination appeal against Chrysler Group found for the dealer, Mark Calisi.

He won back his Chrysler Jeep dealership in Riverhead, NY, after losing it last year as part of Chrysler's sweeping dealership restructuring plan.

Calisi also operates Chevrolet, Kia, Mazda and Volvo new-car dealerships in Long Island.

A victorious Calisi tells Ward's the arbitrator believed “it was in the best interest of the public to have a Chrysler store right on the main strip of Long Island's” eastern end where there was no Chrysler presence.

Arbitrator Larry Biblo said in his decision, “The best thing for Chrysler and the public is to get Chrysler back to financial stability as soon as possible. This urgency, in the end, was the deciding factor in this case.”

GM has had fewer arbitration cases after agreeing to reinstate more than 660 dealers.

But in a major GM arbitration matter, an arbitrator found for Lou LaRiche Chevrolet, a 40-year store that is the only Chevrolet dealership in Plymouth, MI.

Scott LaRiche, executive manager, believes LaRiche was the first dealership in the U.S. to win against GM.

“At first we thought it was a mistake,” he says of receiving the “wind-down” notice indicating the dealership's days were numbered. “We were well above the criteria set for wind-down dealers.”

In 2008, as other dealers reeled from the worsening economy, the dealership was 97 in sales out of 4,600 Chevrolet dealers nationwide.

Arbitrator Peter Kupelian ruled LaRiche had the resources and past track record to succeed in the upscale to middle-class market it serves.

The arbitrator took into account the dealership's profitability, especially between 2007 and 2009, when the economic crisis was deepening.

Last year, Chrysler closed 789 dealerships, effective immediately, reducing its dealer count to about 2,400, or 25%.

GM announced it was reducing its 6,000-dealer network by about 2,400 dealerships in what it called a “wind down” intended to give affected dealers time to close their stores.

Reacting to the massive dealership closings, the U.S. Congress passed legislation allowing dealers to opt for arbitration hearings.

A recent government report on the termination process says some dealers lost their franchises even though they ran financially healthy businesses.

The report also indicated there was no evidence that massive dealership cuts, prodded by a federal government automotive task force, were vital to the survival of GM and Chrysler.

Further, the report says the dealership closings resulted in thousands of job losses during a recession.

Even in 2009, in wind-down status, the LaRiche Chevy store was 179th in sales among Chevrolet dealers nationwide, LaRiche says.

The store stayed open by getting new products from other dealers. “We were very tenacious,” LaRiche says. “We never gave up hope.”

Motivating him to fight was seeing everything his father, Lou, had worked for in 40 years taken away from him.

Leonard Bellavia, Calisi's attorney in the Chrysler case, says, “The arbitrator saw that it's not about personalities, but about selling cars and trucks. He (Calisi) is a good dealer and needs to recover fast. It's in the best interest of the public and Chrysler to get them selling Chryslers again.”

Bellavia had successfully asked a U.S. Bankruptcy judge to unseal internal Chrysler e-mails for use in arbitration cases involving Calisi and another Chrysler dealer, Jim Tarbox of North Kingstown, RI.

Bellavia said the e-mails between Chrysler field representatives and executives criticized the dealers personally, implying the stores were closed for reasons other than performance.

In the 2009 e-mails, the two dealers were called “litigious,” “combative” and “belligerent.”

“It wasn't a performance issue,” Calisi says.

The stinging emails were introduced as evidence in his and Tarbox's arbitrations. “The defense in these cases is grounded in common sense,” Bellavia says.

“Why did we win?” says Calisi. “Great performance and we were well capitalized.”

He is glad to be back in business as a Chrysler dealer. Now, he says, “Chrysler needs to hit the ground running and start selling cars.”

Tarbox took a Chrysler buyout. Without naming the amount of the settlement, Bellavia says it was “substantial enough” to allow Tarbox to start a new business, possibly a new dealership representing another auto maker.

Another Bellavia client, Westminster Dodge in Boston, won its arbitration case in a July 19 decision.

With Westminster, a mainstay area dealership since the 1930s, Chrysler claimed the dealership was in a bad location.

“It was about 50 feet from a showplace Toyota dealership,” Bellavia says. “How in good faith can you argue that's a bad location?”

The dealership had a “symbolic presence” to people in the area. “We were the only Chrysler representative in the city of Boston. There's been no one representing Chrysler since we were dismissed,” says Bob Bickford, co-owner of the family store that sold used vehicles after Chrysler yanked its new-car franchise.

The mood at Westminster was jubilant after the arbitrator's ruling, but the family has had a long time on the sidelines.

“We've had about 15 months to sit and absorb it,” Bob Bickford says of the initial closure. “But our customer base has been in our corner and very positive.”

Co-dealer Jim Bickford says “We knew we had a strong case with our location and history.”

Despite a high win ratio on its side, Chrysler has expressed disappointment in many of the cases won by dealers.

In the Calisi case, Chrysler says: “This decision undermines the federal Bankruptcy Court Order that affirmed the rationalization process used to reject the dealership agreements.”

Chrysler says “decisions to select dealers for the company's ‘right-sized’ dealer network were carefully considered.”

GM is not commenting on the Lou LaRiche case or others in arbitration, citing dealer confidentiality.

GM sent letters to 661 dealers of the roughly 1,100 dealers who filed arbitration claims, indicating they will be reinstated.

Both Chrysler and GM say they expect the final arbitration proceedings to wrap up by the end of July. Decisions sometimes take several weeks to come down.

Dealers winning in arbitration say their next big hurdle is winning back customers who may have strayed.

“We're excited to be part of the new GM,” Scott LaRiche says. “But I still feel horrible for those dealers who lost and never should have.”




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