Lawsuit makes strong accusations against GM
A lawsuit filed by of 17 General Motors’ dealers from the Greater Toronto Area last month could set an interesting precedent in the Canadian dealer world.
The group is seeking $400 million in damages from the automaker claiming that, among other things, the company failed to provide financial support and chose instead to prop up dealers in major U.S. markets.
The accusations laid out in the 33-page statement of claim filed in Ontario Superior Court in late June are detailed and, at times, damning.
The crux of the plaintiffs’ argument is that GMCL breached its duties to deal fairly with dealers and chose instead to prop up GM dealers in major U.S. markets as throughput and market share fell in the GTA.
According to the claim, the dealerships would require a minimum annual throughput level between 700 to 1,000 new units to have a fair opportunity to achieve “a reasonable rate of return.”
The dealers say GM introduced financial assistance programs in the U.S. to support GM rooftops facing similar obstacles as the Toronto-area retail points. The claim went one step further alleging the programs were funded “in substantial part” by bailout monies provided by the Ontario and Canadian federal governments during the automaker’s restructuring in 2009.
“At the same time as they are withholding support and assistance from the GTA dealers, the defendants [GMCL] are demanding, under threat of penalty including termination of their franchise agreements, that the plaintiffs invest millions of dollars in their dealership while market share continues to decline due to the lack of support and assistance,” the claim says.
According to their figures, GM’s market share in the GTA was 12.55 per cent in 2008. That tally has fallen every year since, bottoming out at 5.63 per cent in 2013. That number is lower than Ford, Chrysler, Toyota, Honda and even Hyundai.
Only Chrysler has more rooftops in the GTA than GM (21 compared to 19). Of the eight other brands listed with more than a dozen dealerships in the GTA – Chrysler (21), Honda (19), Toyota (19), Ford (18), Hyundai (15), Volkswagen (15), Nissan (15) and Mazda (13) – GM had the lowest throughput per dealer in 2013 with 531 units. Honda topped the list at 1,194.
Adria MacKenzie, corporate communications manager for GM Canada says the claims are without merit and that the company plans to defend against them vigorously.
“As the matter is before the courts, we cannot provide any further comment,” she notes.
The claim also reveals some interesting details about GM’s Metro Program – a financial program intended to support dealers and bolster throughput in major A markets.
The plaintiffs suggest GM’s Metro Program was instituted in urban centres like New York, Los Angeles, New Jersey and San Francisco to assist with imaging, rent subvention, consolidations and relocations.
GM, they allege, ignored Toronto one of the largest metro areas in North America.
The dealers say when they learned of the program, they approached GM president Mark Reuss to detail how Canadian dealers were suffering financially in much the same was as their American counterparts.
The claim says Reuss acknowledged the similarities but said GM’s first priority in allocating the bailout funds was to U.S. dealers and operations in China, adding that Canadian dealers were “not a priority.”
None of these claims has been proven in court.
