Economic Development

Franchise Frustration

The recent bankruptcies of Chrysler and General Motors are halting, for now, a furious burst of state legislative lobbying by the nation's car dealers. As...
by | June 30, 2009
 

The recent bankruptcies of Chrysler and General Motors are halting, for now, a furious burst of state legislative lobbying by the nation's car dealers.

As problems worsened for both automakers this spring, dealers set out to win last-minute amendments to their state franchise laws. For decades, the relationship between dealers and automakers has been regulated at the state level. Legislatures decide what restrictions automakers can place on dealers--including what happens when a manufacturer decides to shut down a brand. Auto dealers enjoy a lot of clout in state capitals. They're big contributors to local economies, as well as to the political campaigns of state lawmakers. And as a general rule, state laws have slanted the relationship in favor of the dealers. When GM cut Oldsmobile in 2004, for example, the company paid out more than $1 billion to its dealers in order to satisfy its requirements under state laws.

Much of this year's lobbying was aimed at further protecting dealers when axes began to fall. Virginia passed a law requiring automakers to pay three years of rent support to any dealer that closed because the manufacturer discontinued a brand of vehicle. New Hampshire created new requirements for manufacturers to buy back cars and parts when they close a dealership.

Unfortunately for the dealers, however, the state laws have not been much help in bankruptcy court. Last month, U.S. Judge Arthur Gonzalez gave Chrysler the OK to ignore state franchise laws and close 789 of its 3,181 dealerships. GM wants similar permission to close down 1,100 dealers. In response, the dealers are shifting their lobbying push from the state capitals to Congress. A bill called the Automobile Dealer Economic Rights Restoration Act would override the court and make Chrysler and GM subject to their original state franchise agreements.

Josh Goodman
Josh Goodman  |  Former Staff Writer
mailbox@governing.com

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