Termination trauma: Bitter battles split the Chevy family
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Chevrolet dealer Herb Adcox used to have a good laugh whenever the FedEx delivery man showed up at his Chattanooga, Tenn., store.
It was spring 2009. General Motors had been sharpening its ax to cut its dealer network ahead of its June bankruptcy filing. Word had it that wind-down letters were arriving at dealerships via FedEx.
"Every time a FedEx truck would pull up without a letter from GM, I'd say, 'Well boys, we're safe for another day!'" Adcox recalls.
Adcox, now 82, felt secure laughing off the threat. For decades, he had been one of Tennessee's top-selling Chevrolet dealers. Adcox still was selling about 600 vehicles a year -- respectable, though down from his peak sales in the 1990s. His customer-service scores were solid.
The bad news came anyway. Adcox's sales penetration, his letter said, was inadequate. He would get no more new Chevrolet vehicles and would have to wind down operations within 18 months.
"If we couldn't order new cars or parts, we were no longer a Chevy dealer," Adcox says. "That letter was nothin' but a cancellation."
The roughly 2,000 wind-down letters that landed at GM dealerships in May and June of 2009 marked one of the darkest chapters in Chevrolet's history. (GM won't break down the number by brand.) Dealers running stores large and small struggled to grasp the sober reality that Adcox faced.
Some began liquidating their stores immediately. Others, like Adcox, opted to fight. They scrounged cars from other dealers to keep inventory flowing. And they tried to sooth employees' jangled nerves and reassure customers that the stores were there to stay.
"The emotional state of the dealership was in turmoil," says Scott LaRiche, executive manager at Lou LaRiche Chevrolet in suburban Detroit, which received a wind-down letter in June 2009.
Dig in, stay positive
The LaRiches also felt blindsided. In 2008, the store was in the top 100 in sales volume out of more than 4,000 Chevrolet dealerships nationally. It rated solidly on other measures that GM used to determine which dealers should stay or go: profitability, customer service and capitalization.
"We realized we had to be extremely positive through this whole thing," says LaRiche, whose father, Lou LaRiche, opened the store in 1970.
"There was never a doubt that somebody, somewhere, somehow, would look at this situation for what it really was and say, 'Wait a minute ... '"
Still, the LaRiches knew they would need to scramble for inventory. As it turned out, Scott LaRiche says, a "bad business decision" proved critical to the dealership's survival.
A few months before they got the wind-down letter, the LaRiches agreed to take a slug of unneeded vehicles from GM, which was desperately trying to keep factories running and stave off bankruptcy.
The move left the dealership with about 500 vehicles, which helped. But by fall, it was running out of cars. Nearby dealers were in no mood to help a teetering competitor. So the LaRiches coaxed some vehicles out of a few dealers in northern Michigan.
By May 2010, things looked bleak. The dealership had about 35 vehicles on the lot. Employees had bailed in droves, draining the staff from 72 workers to 45. "It was getting pretty dicey," Lou LaRiche says.
Arbitration law brings hope
Salvation came in the form of an e-mail to Scott LaRiche on May 14, 2010. The dealership had won its federal arbitration case against GM.
The right to arbitration was the result of an impassioned lobbying campaign waged by a handful of rejected dealers. The Committee to Restore Dealer Rights, which worked closely with House Majority Leader Steny Hoyer, D-Md., pushed through a dealer-arbitration bill, signed in December 2009.
Tamara Darvish of Darcars Automotive Group in Silver Spring, Md., a committee leader, said the dealer-termination decisions were arbitrary and built on a flawed premise: that dealers are a drag on a manufacturer's bottom line. She mostly blames the U.S. Treasury Department's auto task force, appointed by the Obama administration to shepherd GM and Chrysler Group through bankruptcy.
"If I'm a poor performer, let the market dictate who stays or who goes," says Darvish, who had a Chevrolet franchise targeted for termination that later was reinstated.
Of the 2,064 Chevrolet, Cadillac, Buick and GMC dealers offered wind-down agreements in spring of 2009, about 1,175 of them filed for arbitration to have their dealer rights reinstated.
In spring 2010, GM offered to reinstate about 700 dealers if they agreed to comply with certain conditions, such as sales targets or removing competing brands from their showrooms.
In announcing the reinstatement plans, Mark Reuss, GM's president of North America, acknowledged the "really tough time" that GM's dealerships and their communities had gone through.
In all, GM pared its dealer network from more than 6,000 dealerships in 2009 to about 4,500 today. Some of that came from dropping the Pontiac, Saturn and Hummer brands. It's unclear how many of the dropped dealerships among the surviving GM brands were Chevy stores. But Chevrolet accounts for more than 70 percent of GM's surviving-brand sales, and the Chevy network likely saw far more losses than Cadillac, Buick or GMC.
Wounds still fresh
The wounds remain raw for many. Dozens of dealers still are working under settlement agreements that require them to hit performance targets. Some still are suffering a hangover effect: Because they didn't "earn" enough future inventory while their stores' fates were in limbo, they're still scrimping by with thin stocks.
Nearly 18 months after GM reinstated her dealership, Karen Carlson, dealer principal at Main Motors Chevrolet-Cadillac in suburban Minneapolis, still is struggling to fill her lot.
"We had a huge clientele and a lot of people who were terribly upset when we were canceled," says Carlson, who made multiple trips to Washington in 2009 to lobby lawmakers for the dealer-rights bill.
Carlson expects sales to rebound to about 1,000 new cars this year, including Cadillacs, up from 279 in 2010.
Scott LaRiche says his inventories are slowly recovering. He expects to surpass 1,000 new-car sales this year, more than double his 2010 level. But he knows some customers will never return. He pegs the losses from the wind-down to around $2 million, including lost sales, legal expenses and retraining employees.
Still, he doesn't hold a grudge.
"We're elated to be part of the GM team again," Scott LaRiche says. "We're Chevy dealers. It's in our blood."
'A slow death'
Others aren't so lucky.
Adcox is making a go as a used-car operation. It's a reluctant return to his roots: In 1949, at age 20, he sold his first used car while working as a gas-station attendant. He got his Chevy franchise in 1959.
The transition to used cars, Adcox says, has been "a slow death." He's selling about 15 or 20 used cars a month, compared with the 300 new cars he sold monthly in the heyday of the 1990s. He employs about 15 people now, down from 75 a few years ago.
Adcox figures he could have sold his franchise for more than $2 million in blue sky, or intangible assets, before the 2009 turmoil hit. Now, he's stuck with more than $250,000 in parts that he can't sell.
He has tried to keep his service business going. But without the Chevrolet name, customers just aren't showing up.
"Without that Chevrolet franchise, you lose a lot of good will, the publicity of being the right kind of people to do business with," Adcox says.
"That bow tie means a lot."
You can reach Mike Colias at mcolias@crain.com.
