Tuesday, June 23, 2009

Bill would give support to GM, Chrysler franchises

For 31 years, the Frostrom family sold Jeeps at their dealership in Pocomoke City.
Not anymore.

On May 14, Chrysler notified the Frostroms that their franchise agreement would be terminated, as the automaker went through bankruptcy proceedings. The local dealership had three weeks to sell off 40 new Jeeps and was forced to eat the cost of parts and inventory it suddenly had little use for, said Christy Frostrom.

"They're taking away your stability as if they want you to close," she said, adding that the business now survives on sales from its lone Subaru franchise.

Frostrom joined the owners of several other local car dealers Monday in a Salisbury news conference orchestrated to drum up support for a bill introduced by U.S. Rep. Frank M. Kratovil Jr. on June 8.

House Resolution 2743 would require Chrysler and General Motors to honor franchise agreements with dealers that bankruptcy rules allow them to vacate. The legislation would restore dealers' rights to levels under state law -- which dealers support, for they say they bear all the cost and risk associated with running their businesses.

"It's putting the pressure on GM and Chrysler to do the right thing; it's simply a matter of fairness," Kratovil, a Democrat, told 25 people -- a group that included Salisbury's mayor and Wicomico County's executive -- that had gathered in the showroom of Courtesy of Salisbury, a dealership that sells Cadillac and Chevrolet models.

So far, 100 Democrats and 62 Republicans have signed on to support the bill, Kratovil said, and a version of the bill was recently introduced in the Senate.

GM and Chrysler have taken different approaches with ending their franchise agreements. Each argue that, as sales of new vehicles have collapsed, they can't afford to spread their supplies of cars and trucks to so many dealers.

GM told 1,100 dealers their franchises won't be renewed when they expire in October 2010. Chrysler, however, nullified 789 of its contracts in one fell swoop.

"I think I have seen more change in the auto business in the past 45 days than in the past 39 years," said Ray Nordstrom, owner of Courtesy.

GM notified Nordstrom they won't renew his franchise come 2010, but Nordstrom immediately appealed the decision. According to Kratovil's estimate, about 60 dealers have successfully appealed GM decisions.

"I had a choice of laying down and potentially losing 45 jobs here, or trying to fight," Nordstrom said.

Even though Midway GM of Pocomoke City will keep its franchise, it will lose its rights to sell Cadillacs under GM's re-structuring plan, said Sharon Worth, an executive administrator.

"There won't be a Caddy dealer from Norfolk to Wilmington. Who is going to buy a Caddy now?" Worth said.

Midway GM -- if it loses the rights to sell Cadillacs -- will only be licensed to sell Buicks, she said. Years ago it sold five brands, she said.

In Maryland, 17 Chrysler dealers have had their franchises terminated and 26 GM dealers were put on notice, said Peter Kitzmiller, president of the Maryland Automobile Dealers Association in Annapolis.

He said Kratovil's bill could face opposition because he believes an auto task force commissioned by the president supports GM and Chrysler's restructuring plan.

Additionally, Kratovil admitted the nature of bankruptcy proceedings allows a company to take the approach of the auto makers.

Yet, it still seemed wrong to Sandy Fitzgerald, a representative from Pohanka Automobile Group of Salisbury.

"How is this legal? How is it American? It doesn't even make sense," Fitzgerald said.

Now without the ability to sell Jeeps, the Frostrom business -- which employs 22 -- must survive on sales from its Subaru franchise. It's a tough formula given the downturn in sales at dealerships across the USA.

"You start off with all the confidence that you're going to fight and get through this, but every day there's a new problem," Christy Frostrom said.


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