Back in April, a New York court ruled that General Motors’ method of measuring dealer sales performance — was illegal. The decision can have far-reaching consequences not only for GM, but also for the entire auto industry as a whole.
GM uses a scorecard called Retail Sales Index, or RSI, to measure the sales effectiveness of a dealer. The metric stacks a dealer’s performance against a statewide average and is often used to terminate dealers that consistently perform below expectations.
Back in 2011, GM used RSI to evaluate and eventually pull the right of Russel and Leon Geller to keep their Beck Chevrolet dealership franchise in Yonkers, New York. The Gellers brought the suit against GM shortly after, and the New York Court of Appeals ruled 5-1 in favor of Beck several weeks ago.
The court found that in that specific case — officially known as Beck Chevrolet Co Inc v. General Motors LLC — RSI does not consider the weak market share of the Chevrolet brand in the selling area of metro New York City, and is therefore unjust.
For its part, General Motors is looking into whether or not it will make changes to the RSI metric.
“We were disappointed and surprised, frankly, by the ruling,” GM North America, Alan Batey, told Automotive News in an interview. “We’re going to have to go through it, understand it and then decide, if we’re going to make some adjustments to the metric, what would it look like and how would we uniformly do it.”
The (Potentially) Far-Reaching Consequences
Most automakers use a metric similar to RSI in each state to measure the sales effectiveness of a dealership. Since the ruling, various industry insiders and legal experts have opined that the case could cause other automakers to adjust the way they grade dealer performance.
Areas of potential consideration include changing the way statewide averages factor into dealer effectiveness ratings, and whether they fail to take into account local market conditions such as brand preference or geographic areas heavily populated by factory employees.
As such, the impact of the Beck case could be significant in cases involving dealer termination based on sales performance. In speaking to Automotive News, New Jersey lawyer Eric Chase said that the ruling did not specifically answer the overarching question of whether a manufacturer can lawfully use a statewide average to rate dealers’ performance, which naturally places half of its dealers into the underperforming column. He added that the Beck decision only shed light on whether certain local-market quirks should be considered when measuring dealers against an average.
“It’s an extremely important win,” said Chase, a partner at Bressler, Amery & Ross in Florham Park, N.J. “But it still didn’t answer the ultimate question of whether the metric of average is a fair cutoff for a franchisor to make a termination decision.”