Arbitration Fees for Rejected Auto Dealers Could Exceed $100,000

According to attorneys for rejected GM and Chrysler dealers, those dealers will pay a minimum of $12,000 in fees and up to $100,000 if they choose to seek reinstatement.

In a report to Washington-area auto dealer groups, attorney Mike Carapp said that the expenses will arise from filing fees, expert witnesses, attorney fees, administrative costs and arbitrator fees.

He went on to say that the expenses will be spread over the six and a half month arbitration process which will go into effect when President Obama signs the legislation into law. No definitive date for that signing has yet been given.

The cost estimates given by attorney Carapp do not include payments that dealers may have received from Chrysler and General Motors to assist them in winding down their dealerships. Under the new legislation, dealers who are reinstated through the arbitration process will be required to repay those moneys to the automakers.

Cleveland attorney, Chris DeVito, has represented auto dealers in similar relocation and termination cases in the past. He says that some dealers may be faced with repaying tens of thousands of dollars if they prevail in their bids for reinstatement. He says GM assumed roughly 25% of the wind-down costs for dealerships it had targeted for closure by next October.

According to DeVito, “Some dealers may get sticker shock when they consider all these figures. But most don’t understand the arbitration system.”

On Sunday, the Senate approved arbitration for rejected dealers as part of a $446 billion spending bill which the House approved last week. Under the new legislation, as many as 2,150 rejected Chrysler and GM dealerships will have access to neutral, third-party arbitration provided by the American Arbitration Association.

Carapp says that the final dealer cost for reinstatement will depend largely upon what criteria was used by the automakers in selecting their dealership for termination.

Once President Obama signs the legislation into law, Chrysler and General Motors will have up to 30 days to inform rejected dealers of the criteria used in marking their particular dealership for termination. Carapp, who has represented auto dealers in arbitration with customers and suppliers, says that arbitration costs can vary greatly.

Among the factors determining the final cost to dealers are the complexity of the case, how well prepared and organized the dealer is and whether or not they choose to keep their legal representation on retainer for the duration of the arbitration process. He estimates the cost for a simple arbitration of a closure that was based on location or prevailing market issues will cost around $12,000.

Carapp expects many of the cases to involve complex issues arising from questions about the performance and viability of the rejected dealers.

For these complex cases, he advises that the dealers hire an expert witness to buttress their case. These expert witnesses, Carapp says, would typically be economists or accountants.

In addition to hourly rates ranging between $300 and $600 per hour for an expert witness, Carapp warns that these complex cases will result in more billable hours for attorneys and arbitrators as well as higher administrative costs incurred for document preparation and research.

DeVito concurred with Carapp’s cost estimates and overall range of between $12,000 to over $100,000 for rejected dealers seeking reinstatement.

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