Jilted auto dealers receive good news

A federal law approved last month allows auto dealers whose franchises were terminated this year to seek arbitration for reinstatement, and that could spell good news for several northern Nevada dealerships.

Ben Scott, owner of Reno's Scott Motors, says he expects to win back his Buick and Cadillac franchises. Scott was notified this year that the franchises would not be renewed, and he was given until October of 2010 to wind down operations.

Scott expects his franchise rights to be reinstated so that GM can avoid the costly arbitration process but he will pursue arbitration if necessary.

"Since it is expensive to go to arbitration, I think GM will say, 'Why don't we just capitulate and save us a lot of trouble.' But they have a strong legal department, and I am sure they are staying awake night trying to figure out how they can twist this."

Scott says the impacts of GM's cuts in its dealer network haven't run as deep as those at Chrysler, and the damage is not irreparable. But with Chrysler the damage is already done vehicles are gone, and in many cases, businesses are shuttered and employees have moved on.

"The way I looked at it from the beginning is that we are not at the deadline, and we don't have all the information, so we will wait and see. A lot of things can change and certainly are changing."

In Carson City, Chrysler's decision to eliminate 789 dealerships effectively halved the potential revenue stream of Carson City Nissan, which carried the Jeep line. Franchise rights for the area were left solely with Carson Dodge Chrysler, which sits just 2-tenths of a mile away on South Carson Street.

Carson City Nissan owner Jeff Woodward, who purchased the Carson Jeep Nissan dealership 11 years ago, is eager to see an arbitration process that spells out why certain dealerships were eliminated. He says his Jeep line was profitable and he also scored in the top 24 percent of all Chrysler dealers for sales and customer satisfaction.

"I'll finally be able to find out what criteria was used by the manufacturers to determine which dealerships were cut," he says. "I'm sitting here six months later and still have never received any indication of why we where chosen."

The net effect of losing his Jeep franchise, Woodward says, is that the federal government and Chrysler took away 50 percent his business without any compensation. Carson City Nissan was unable to sell its new Jeeps it had to unload them to other dealerships and could no longer perform warranty service work on the Jeeps it had already sold.

Woodward says disposing of the vehicles was easy since there was a general shortage of Chrysler vehicles at the time. The issue wasn't about a profit or loss on those automobiles, he says, but rather about the loss of the franchise asset and its value.

"In America this should not have been allowed to happen," Woodward says. "If we had done something wrong I might understand it better, but we were profitable and we took excellent care of our customer base. This has not affected my faith as an auto dealer, but my faith as American citizen. The government took the assets of approximately 3,000 individuals without compensation and in many cases handed those assets to other individuals."

Wayne Frediani, executive director of the Nevada Franchised Auto Dealers Association, says some of the affected dealers may have their franchise rights resorted.

"Enacting the legislation will at least give a number of dealers interested in getting back their franchises a fair and reasonable opportunity to get back in business or stay in business if they are still operating," Frediani says.

Woodward says he didn't have to reduce employment at Carson City Nissan because he'd already cut staff when sales began to slow at the start of the recession.

Frediani says statewide auto sales are down 30 to 40 percent from 2008 numbers, and the state's auto dealers have laid off about 30 percent of their staffs in the last two years.

"I have been representing this industry for 22 years, and this has been the most challenging year dealers statewide have faced," Frediani says.

Don't look for pressures to ease too much in the coming year, either, he cautions. National predictions call for a 10 to 15 percent uptick in auto sales, but those predictions may not hold true for Nevada. The state's high unemployment and foreclosure rates among the highest in the nation may lead to another stagnant year for auto sales.

"The biggest issue affecting the car industry is jobs," Frediani says. "We need to get people back to work so that they can afford to buy a car. We need to get people back to work in Nevada."