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.
The Backstory
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.”
Comments
I would throw out the entire dealership model and start again. I mean is there a person on the planet who enjoys salesmen pressure tactics?
I recently went to my local Chevy dealer to try the new Volt. They wanted my phone number first and I said ‘no way’. The last time I gave it out to a Chevy Dealer I made them promise not to call me. They agreed — and called, called, called. I burned the dealer’s butt on Yelp and they still called.
Only when I spoke with GM directly — pissed the uck off — did they ‘get’ they were alienating a future potential conquest customer.
I’d burn dealerships to the ground.
Pool Man here is the problem most older MFG’s have.
They are in a dealers system they really don’t want. To get out would require a change of law.
Now you are going to say well GM is fighting to keep this law in place against Tesla?
Well yes they are and why because they can not close down dealers or even as you see here enforce the requirements of the franchise laws.
If the law was dropped and GM tried to close down the dealer system every lawyer would have every dealer in court and many politicians will defend the dealers who lobby them with the powerful dealer association.
To buy out dealers would be billions and to close them down if the laws were changed would be billions of dollars. So right now they are trying to keep them in place and trying to gain more power over them.
As for removing the law and letting Tesla sell free and clear is not really a problem as they sell only a fraction of the cars GM and the others do but there are many low cost cars from China that could come here and be sold anywhere if they did not have to have a dealer network giving them a major advantage on profits and pricing.
The present MFG are in a pickle and screwed no matter which way they go.
Now to be fair many dealers are good dealers. The one I have near me tossed me the keys to a Colorado never asked for any info and not even my license. He told me see you in a couple hours. They have always been like that. My GMC dealer also is no games when it is price. They give me the best price first and are very fair.
Now there is another dealer here that is bait and switch and GM has tried to close them down but they have fought them for years as GM has little power due to the laws and as you see here they are being stripped of what little power they have left.
Ford in the areas here has the same issues too. Chrysler you don’t even want to go there.