Chrysler Dealers Might Seek Remedy Under State Law

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On Thursday Chrysler announced it was trimming its franchise dealer ranks by about 25 percent around the U.S. The cuts affect more than 3 dozen dealers in Ohio. General Motors is expected to make its own announcement of cuts soon. But Ohio dealers may have some recourse under state law.

Keith Whann is a Columbus attorney who specializes in auto industry law. He says state law has a provision known as the motor vehicle dealers franchise act which gives certain rights to local dealers.

“Normally what would happen is if a franchiser – GM, Chrysler, whatever – wanted to terminate an existing relationship with a franchisee, there’s a framework under the franchise act that they would have to go through,” Whann says. “The thing that makes this so difficult and unique is that the trimming of the franchise dealer ranks is taking place in a bankruptcy proceeding.”

But what if a dealer chooses to challenge the manufacturer’s decision? Whann says one of the interesting aspects of the situation will be which law prevails – federal bankruptcy law or the state’s franchise protection law

“I sense what is happening is Chrysler is petitioning the bankruptcy court and telling the court. ‘We need to be able to not only trim the company but to trim the dealer ranks to be able to survive financially and that’s part of our plan.’ So it appears as though they may be seeking the approval of the court to say, You have the authority to terminate these franchise relationships.’”

Is there any recourse for a local dealership?

“Well I think there is recourse. Let’s look at it this way. Even assuming that you have the bankruptcy law that is going to prevail, and say the bankruptcy law gives you the opportunity to trim the dealer ranks, I think a dealer could still attempt to overlay Ohio’s franchise dealer statute and say that the way or the method they’ve done it is somehow in an unfair or uneven way.”

“For example, this dealership is getting terminated and this one is not. What’s the rationale that you used to pick that? So I think that there may be the opportunity to utilize some of the protections under Ohio law but you may have to do it overlaying it on the bankruptcy proceedings as a whole,” Whann says.

Keith Whann is the founder of the law firm Whann and Associates.

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