Monday, June 22, 2009

Ohio Attorney General Objects To GM Sale: "Franchise Contract Changes Are Unlawful"

Trust GM to try to slide a fast one. In an attempt to get all the dealers who did not receive the "thin letter" to get on board with the restructuring process, the bankrupt automaker had sent to the surviving dealers highly secretive amended Participation Agreements (presented below) with extensive "No Protest" clauses, which would require dealers to stock more inventory, stop selling non-GM vehicles and accept new or relocated GM dealerships nearby without protest. Any disagreement with the Agreement, and the dealer would find himself joining the 1,300 dealers already terminated.

However, if GM was hoping this one would simply slide with nobody noticing, it was quite wrong. On Friday, the Ohio Attorney General joined in the objections of several other state representatives, notably the DOTs for Texas and Nebraska, in claiming that the newly enforced requirements. Ohio's AG Richard Cordray, a Democrat, objected to the 363 sale in that the Participation Agreements "unquestionably violate Ohio law and are completely contrary to the purpose of having state franchise laws." The AG objection notes that Ohio laws prohibit manufacturers from forcing dealers to dump other brands or accept inventory that they did not order: a key stipulation of that any continuing dealers have to agree with. According to Cordray, GM is presenting dealers with an ultimatum: "lose the protections of Ohio law, or lose your business."

And while no rational dealers have a desire to sign this agreement, none have elected to voice their displeasure over it publicly over fears of losing their livelihood.

Additionally, as The Plains Dealer points out, other concerns the AG raised in demanding a delay of the sale include:
  • whether GM can dump liabilities under the state's lemon law for bad cars. The state asked for GM to say directly whether it will take lemon law claims into the new company.

  • GM's obligations for extended warranty contracts and the company's possible plans to sell customer data to outside companies.

  • properties GM plans to sell in Ohio. The Ohio Environmental Protection Agency monitors several GM sites for environmental concerns.

  • whether the company that emerges from bankruptcy will be self-insured, like GM, instead of paying into the state's program.

  • GM's request forbidding creditors from withholding payments to GM to offset money the company owes them. The state Department of Taxation wants to hold back tax refunds to offset liabilities.
As Ohio is a major voice in all events automotive, one can only hope Judge Drain has a little more respect for the bankruptcy process than his much more follicularly challenged compadre Gonzalez, who oversaw the joke that was the Chrysler bankruptcy. Zero Hedge is just curious at what point will Tom Lauria emerge on the scene and go for a repeat date with the Supreme Court (which this case seems very much set on repeating).

Representative Participation doc below. Also, here for comparable objection filed by Texas DOT.

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