That’s right. GM Canada dealers are suing GM Canada. They are suing to stay in business. The dealerships that are party to the lawsuit received franchise termination notices last May as the automaker approached bankruptcy protection in the United States; a total of 240 North American Dealers were issued these notices.
With their backs against the wall, 12 Canadian General Motor’s dealers are suing the once dominant parent company GM in an effort to keep their dealerships open. Some of these auto dealers have been in operation for over 100 years; surviving the last Great Depression. They will battle it out in Canadian courts.
The court filing received outlines the histories of those dealerships and the details of the extensive renovations that most had recently committed to before receiving their termination notices. Some of these dealers had spent a few million dollars on renovations immediately prior to General Motors downfall.
Each member of the law suit is seeking $1.5 million, an undisclosed amount of compensation for losses of profit, goodwill, market share and business opportunities, and the kicker—an injunction to prevent the application of the termination of their dealer sales and service agreements.
Will the courts uphold GM Canada’s decision to restructure and streamline or can the law force a company to continue operating in a poor manner until it finally has no economic pulse at all? This is the question the courts must deal with.
Sure, these dealers must by pissed, but suing to be able to continue operation, that is in the worst interest of the company and is not going to get you any gold stars. In my opinion GM is lucky to still have any ability to operate at all and spiteful failing elements of the company should not jeopardise the existence of a company that is barely breathing. If the courts were to side with the dealers this would be a huge blow to capitalism as we know it. Let me force you to stay in business and continue to loss money. Do the tax payers of Canada or the U.S. want to encourage this premise since they are on the hook if the company never turns around?
This is not the only major issue occurring at GM right now. Let’s not forget that General Motors was unable to close on a deal to sell Saab recently and restructuring at Opel is still jittery. Sure they were able to off load Hummer, but this company is still on life support.
Let us hope for the sake of the rest of the GM workers still with a job. We don’t want to see this company head straight back into bankruptcy protection after only emerging 6 months ago. It’s not like there is much consumer demand out there, especially since the future demand has already been consumed due to the Cash for Clunkers Program.
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Cash for Clunkers and GM going bankrupt does not apply to the Canadian situation.
I wish both of these issues would have no effect on GM Canada; however, I believe there is a major impact. GM is an international company with loads of production in Canada and the U.S. . When the bankruptcy was announced it truly altered the company’s course: less demand, building inventories, production cuts, employment cuts, and so on. Many of the vehicles sold in the U.S. have components produced in Canada and vice versa.
The Cash for Clunkers program also had major implications for GM Canada. Sure, more vehicles were sold in the U.S., but at what cost? This program gave discounts to anyone that was already going to be buying a new vehicle and ate up the future demand of people that would have been looking to buy a car within the following year; this will result in a slack in demand going forward. How does this effect GM Canada? This means less production required going forward, which will lead to more production cuts throughout North America.
The government of Canada did not participate in Cash for Clunkers programs because they knew it was nonsense. From an economic stand point, you are only shifting demand in the short term and as a result, providing a benefit today comes at a cost to future demand. The estimates released in the U.S. were that around $30,000 per vehicle sold was provided for each extra auto sold that would not have through the course of real demand. Further, GM Canada did not file for bankruptcy protection in Canada because they wanted to see how things went in U.S. first since the bulk of the company’s assets are U.S. based.
From what I gather, GM Canada has no excuse in honouring these dealer contracts since they did not go bankrupt. The dealers in the States don’t have this luxury.
Ed Whitacre disagreed with Fritz Henderson’s decision to terminate dealers. It will be interesting to see if Henderson’s departure makes any difference in this matter.