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Saturday, May 18, 2024 | Back issues
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Dealer Beats GM in Battle Over Franchise Agreement

Hewing to New York’s highest court, the Second Circuit on Thursday revived claims that General Motors has an “unreasonable” system of punishing franchises for low sales numbers.

MANHATTAN (CN) — Posing a threat to the practice of punishing car dealerships for sales numbers perceived as low, the Second Circuit on Thursday ruled for a plucky Yonkers franchise that sued the auto giant.

Beck Chevrolet operated just off the Major Deegan for more than half a century until GM’s system for judging dealerships — known as the Retail Sales Index — almost forced the company to close up shop.

The system divides a dealer's actual total retail sales during a time period by the expected sales.

Local dealerships have complained that this “RSI” fails to take into account realities on the ground such as the popularity of a model in a particular market.

In 2009, Beck challenged the auto giant’s system in the Southern District of New York.

A series of appellate court battles took shape after U.S. District Judge Alvin Hellerstein threw out Beck’s lawsuit three years later.

Last year, the Second Circuit called in New York’s highest court to answer whether GM’s action violated a state law called Franchised Motor Vehicle Dealer Act.

The New York Court of Appeals agreed this past May that GM’s system was “unreasonable and unfair.”

“Once GM determined that statewide raw data must be adjusted to account for customer preference as a measure of dealer sales performance, GMʹs exclusion of local brand popularity or import bias rendered the standard unreasonable and unfair because these preference factors constitute market challenges that impact a dealerʹs sales performance differently across the state,” the Court of Appeals found.

At the time, the Greater New York Automobile Dealers Association hailed the ruling as a “win for all dealers.”

Applying this decision, the Second Circuit reversed for Beck on Thursday.

With the RSI system now found to have violated New York law, the next phase of litigation will determine whether GM has the right change a dealer’s Area of Geographic Sales and Service Advantage.

Beck’s attorney Russell McRory, a partner at the New York-based firm Arent Fox LLP, declined to comment on the ruling because of the pending litigation.

GM did not reply to an email request for comment on its latest major setback in the fight against the Yonkers dealer.

In 2014, an administrative law judge from New York’s Department of Motor Vehicles rejected GM’s attempt to terminate Beck’s agreement in parallel legal proceedings.

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