Minority Dealers May Be Slammed by Closings

Advocates say some could be left holding the bag

gm_carsGregory Jackson, owner of five General Motors dealerships believes that as GM whittles down the number of franchises in bankruptcy “those last men standing should do well.” But when the smoke clears, no one is sure how many minority dealerships will be left standing.

“I would say there is a lot of anxiety on the part of the entire industry,” says Jackson, owner and CEO of Prestige Automotive Group (No. 1 on the 2009 BE Auto Dealers list with $646.2 million in revenues).

The bankruptcy proceedings of Chrysler L.L.C. and now GM could trigger adverse consequences for minority-owned dealers and the communities that they reside in, says Damon Lester, president of the National Association of Minority Automobile Dealers.

If the shakeout at Chrysler is any warning, there could be a disproportionate amount of black-owned franchises closing this year. Of 19,000 new automobile dealerships, less than 1,200 or 5% were owned by ethnic minorities, said Lester in a testimony before the House Judiciary Committee in May. Chrysler’s termination of 800 dealer contracts that month condensed ethnic dealerships by 25%. GM, which had about 40 black-owned dealerships before the closings, says they will reduce their dealer body by about 1400 to 3600 businesses.

While Chrysler sought to close dealerships in less than four weeks, GM will be giving approximately 1,400 dealerships 18 months to unwind and sell-off their inventory and parts. However, GM has not spelled out how much money it will use to assist in the dissolution of dealers, and bankruptcy law gives them the right to reject dealers sooner if they choose to.

“It is very ambiguous,” says Marjorie Staten, executive director for General Motors Minority Dealers Association. “We don’t have the details of whether [GM] will buy back every single vehicle and every single part. [If not] that could leave some dealers exposed.”

Those dealers, whose contracts were not rejected, will fall under the “new GM” during the restructuring process; terminated dealers will remain under the “old GM.” This will produce two classes of dealers that will both continue to operate their companies under extreme duress as they try to sell off a glut of inventory.

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