Cliff Banks - The Banks Report

NY Court Rules GM’s Sales Formula Not Legal

May 10, 2016 –In an intriguing decision last week, the New York’s Court of Appeals determined in a 5 – 1 decision that General Motors’ use of its Retail Sales Index to evaluate its dealers’ sales performance violates state law. The ruling could force manufacturers to change how they measure their dealers’ retail performance.

GM used the RSI In 2011 in evaluating whether father and son co-owners Lon and Russell Geller could keep the franchise, Beck Chevrolet in Yonkers, NY. The Gellers argued  that GM’s use of RSI violates the Franchised Motor Vehicle Dealer Act, a 2008 statute designed to prohibit abusive business practices by auto manufacturers against their local franchisees. The issue, according to the Gellers, is that GM applied the RSI against a state wide average while ignoring the low market representation Chevrolet has in the Yonkers market.

Specifically, the court found GM was using an “unreasonable and unfair” standard against Beck Chevrolet when comparing its sales against the state average instead of average sales in Beck’s local geographic area.

The question is whether the court’s ruling will force automakers to move away from using a state average to measure dealer sales performance in dealer termination cases, or whether specific geographic dynamics will be evaluated on a case by case basis. At the very least, Urban Science, which has played a big role in defining how OEMs measure retail performance, likely will develop a standard that takes into account specific geographic characteristics.

 

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