Automakers Chrysler and General Motors changed the history of dealer relations when they stepped through dozens of state laws and regulations and terminated thousands of long-standing dealers through the power of the Supremacy Clause of the U.S. Constitution and the U.S. Bankruptcy Code. Now that they have emerged from bankruptcy, history remains to be written on the intriguing issues of whether GM will be able to make its new, bold agreement, heavily weighted in GM’s favor, stick in the face of state dealer laws.
Prior to bankruptcy, both carmakers complained that their dealer networks had swollen to the point of being expensive and cumbersome. They wanted fewer, bigger dealers — a trend that has been going on in the farm and heavy equipment industries for years. Dealers, however, were protected by state statutes in all states but Alaska. These dealer statutes typically protect the dealer from termination or non-renewal without good cause (meaning the dealer’s deficiency), prior notice of that deficiency, and a reasonable opportunity to cure. They also protect dealers from unreasonable restrictions on transfer.
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