New Legislation Provides for Third-Party Arbitration for Rejected Auto Dealers

This past weekend, House leaders cobbled together a new bill that, if passed, will require General Motors Company and Chrysler Group to submit to third-party arbitration in its ongoing disputes with rejected dealers. The bill also stipulates using new rejection criteria that is more favorable to dealers.

According to a House aide, drafting of the new bill was led by House Majority Leader, Steny Hoyer (D-MD) and Rep. Chris Van Hollen (D-MD) and will be provided to Senate leaders for consideration.

Under the new legislation, rejected dealers wishing to appeal their closures would be able to submit “any kind of relevant information during the arbitration.” GM and Chrysler had argued that only certain information be considered in determining whether or not a dealer would be reinstated.

The bill instructs third-party arbitrators to consider a wide array of factors in their deliberations. Among those factors are the rejected dealer’s past profitability, experience, demography and geography of the dealer’s local market and current financial viability.

The bill also seeks to protect the interest of all parties concerned and states, “The arbitrator shall balance the interests of the covered dealership, the covered manufacturer and the public and shall decide, based on that balancing, whether or not the covered dealership should be reinstated.”

NADA spokesman, David Hyatt, said the new legislation will be attached to a financial-services spending bill. That bill will be submitted to a Congressional conference committee that was formed to resolved key differences in the bills under consideration by the House and Senate.

According to a House aide, the goal is to submit the reconciled bill, including dealer amendments, to President Obama for signing before the Christmas recess.

Last Friday, Chrysler and GM presented their outlines for dealing with rejected dealerships and exited the settlement talks that many hoped would resolve differences without the need for new legislation.

Chrysler and GM had agreed to make reinstatement determinations based on their original business standards.

Chrysler has said that it could use the same criteria originally used in determining which dealerships would be rejected to determine whether any of those closures were “arbitrary or capricious.” GM maintains that third-party arbitrators “will expressly be limited to whether GM selected the dealer to receive the wind-down agreement on the basis of its business criteria.”

Following its emergence from bankruptcy last spring, Chrysler closed 789 of its U.S. dealerships and GM has set a goal of closing 1,350 of its stores by next October.

Advocates for the rejected dealers claim that the criteria set forth by GM and Chrysler are unjust and self-serving and warn that, using the automakers criteria, few dealers would be reinstated.

In a statement released by the NADA, the association said of the new bill, “The revisions reflect the goals pursued by NADA for the past several months on dealer rights.” NADA spokesman, David Hyatt, said the organization worked closely with House members this past weekend in crafting the new bill.

Tammy Darvish, who leads an association of rejected dealers hailed the new bill saying, “We want to get dealers back in business, and this appears to be our best chance to capitalize on the efforts of our congressional leaders and all dealers across America.”

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