Chrysler dealer loses fight to keep Maryland locations open
Monday, July 19, 2010
Bethesda-based auto dealer Jack Fitzgerald has lost the fight to have his four Chrysler dealerships in Montgomery and Frederick counties reinstated. An arbitrator ruled in favor of the automaker, which pulled the plug on Fitzgerald's franchises as part of its bankruptcy reorganization last year.
In his ruling, arbitrator James W. Constable said the business strategy of the dealerships, which sold other brands, conflicted with Chrysler's renewed emphasis on consolidating makes under one roof -- a program known as Project Genesis. The arbitrator cited poor sales at all four sites as the primary cause for termination. Fitzgerald, however, says that the three franchises in Montgomery County were doing relatively well considering the decline of the brand.
A Chrysler dealer since 1966, Fitzgerald says he feels railroaded by the process, administered by the American Arbitration Association, which he thinks allowed Chrysler to delay the hearing until a week before the deadline. Each of the dealerships, Fitzgerald emphasized, was entitled to its own case, but all four were lumped into one hearing that lasted six days. The arbitration association declined to comment on the case because of a confidentiality agreement.
"By stalling, Chrysler was rewarded," said Fitzgerald, who last month won a separate arbitration case to keep the doors open at his Chrysler dealership in Clearwater, Fla. "Frankly, we got outsmarted. We should have gone to court and demanded a hearing."
The conflict came to a head in June 2009, when Chrysler terminated franchise agreements with 789 dealers to improve profitability at the remaining 2,315 dealerships. Outraged dealers protested the decision. Congress intervened six months later, ordering Chrysler and General Motors to offer arbitration to dealers.
GM decided in early March to reinstate more than 660 franchises it had planned to close, while Chrysler allowed 80 dealerships to remain open. "Losing dealerships will put you out of business and GM was smart enough to recognize that," said Fitzgerald, who has a handful of GM franchises.
Meanwhile, 418 Chrysler dealers filed cases, with hearings commencing in May. About 125 of those cases have either been dismissed, withdrawn or abandoned, and 150 have been settled. Chrysler has prevailed in 68 of the 95 decisions handed down by the arbitrators. There is one case still pending, which the arbitration association plans to wrap up by the end of this month.
Locally, more than 15 dealers have been affected by Chrysler's actions. The majority fought the decision and lost. There are now a handful of dealers left in the Washington area. "One of the biggest problems with the dealer network in the past was too many dealers in one area vying for the same customer. It wasn't the most optimal way to face the market," said Michael Palese, a spokesman for Chrysler. "Now, each of the [remaining] dealers will have some elbow room."
Palese said 29 dealers are slated for reinstatement, though he noted that the reopening process is a bit involved. The operators, he said, received letters of intent with a number of sign-on stipulations, including capital requirements and exclusivity agreements. Dealers still face the possibility of having their agreements voided, as some states allow competing Chrysler dealers to try to nullify the opening.
Chrysler has seen marginal gains since emerging from bankruptcy protection and teaming with Italy's Fiat last year. The most recent figures show that revenue in the first quarter rose to $9.6 million, up from $9.4 million in the fourth quarter of 2009. June sales are up 35 percent from the previous year, when the company saw its worst drop in sales.