Dealers mull legal action against General Motors over compensation

Around 70 dealers are planning to visit the firm headquarters in the US to make a representation

Troubled times are far from over for the US-based car major General Motors' Indian subsidiary. After announcing an exit from the Indian domestic market in May, the carmaker has now run into trouble with its 100 odd dealers who are considering moving court against the “measly” compensation offered by the company.

The dealers said they were taking legal counsel in the matter and might initiate action against the company and its subsidiary, Chevrolet Sales India Private Ltd (CSIPL), in a US court, if need be. “GM is a very big international company. We are considering several options. One of them is to file a class action suit against the company in a US federal court. A final decision has not been taken,” said a dealer who operates a chain of showrooms in western India. 

Around 70 dealers are planning to visit the company headquarters in the US to make a representation. 

In May, GM announced that it would stop selling cars in India's domestic market by December 2017 and would use its local manufacturing base at Talegaon, near Pune, to focus on the export markets. The company also said it would continue to support the Chevrolet customers and honour warranties, besides working closely with the affected customers and dealers on a transition plan. The American carmaker felt the domestic operations were not profitable and not in line with the expectations of operating profit margins that it had for the other markets.  

Federation of Automobile Dealers Associations (FADA) sources indicated that a decision was likely to be taken in two to three days. GM was holding one-to-one meetings with its dealers to explain the transition plan. “We are in touch with dealers, and now we are taking feedback from them as to who are happy with the compensation offered, and who are not,” said a FADA source. 

The prime contention on the dealer end is the quantum of compensation. “We have invested more than Rs 7 crore in the past many years to set up multiple dealerships. Now, according to GM's formula, we are being offered around Rs 60 lakh in compensation. This does not even justify the vehicle park at my dealership,” said a dealer, on condition of anonymity. 

This works out to a meagre 8.5% of the investments he has made. For some dealers, the amount is slightly higher at 10-15% of their cumulative investments. 

GM has worked out a compensation formula, which is based on average retail sales in the past two years as well as the age of the dealership. 

A company spokesperson said GM India recognised the strong partnership with its dealers and was meeting them individually and working on a plan to address their concerns. “GM India is working directly with its dealers to transition to authorised service outlets and to recognise some of the investments made in dealerships. These discussions are confidential,” the spokesperson added.

Dealers, however, feel that the decision to exit India and the compensation formula designed by the company are arbitrary. Around 50-60 of them approached the FADA recently, said John Paul, president, FADA. “Many of them were also not our members. We are helping them in this fight. They feel they did not get a fair deal. Their investments were made based on the company's investment announcements and model introduction plans,” Paul said.
 

FADA had written to GM India on behalf of the dealers. The company, however, has responded by saying that they would be dealing with dealers individually. 
 

GM sources claimed that the discussions were going on in an amicable environment and that more than 90% dealers would be accepting the compensation package offered. FADA sources, too, said many dealers were small-time businessmen who did not have the might to take on GM at the international level. 

“Around 50% of them might just settle for the measly compensation offered by the company as they do not have the might to endure a lengthy legal battle with the car major,” said a FADA source.

FADA now plans to discuss the issue with the government as the dealers have been affected financially and an estimated 9,500 jobs are at stake. Most dealers are not open to switch to being authorised service centres for GM India as they do not see business viability in that.