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Engine Block

GM’s restructuring plan seemed like a sound idea. But that didn’t make the news any easier for 245 dealers shown the end of the road.

By Gordon Green

Paul Burroughs figured the writing was on the wall, even though his long-time City Chevrolet dealership in Hamilton’s lower city was making money, and consistently scoring high on General Motors’ customer satisfaction index.

His 45,000-square-foot building, which has anchored an entire block along Cannon Street in the city’s gritty north end since 1963, had fallen out of favour at corporate headquarters. GM made that clear a few years back when it advised him against spending money to upgrade. All the major carmakers had already moved out of the core, including fellow dealer Mike Dubois, whose Hamilton Motor Products (HMP) dealership moved to a brand-new, multi-million-dollar facility on the city’s East Mountain.

Unlike Burroughs, however, the picture wasn’t so clear for Jerry Gazarek. After nearly three decades running a landmark GM dealership on bustling Kingston Road in Pickering, he wanted to launch his business into the
future, leaving a legacy that would be carried on by son Brent and daughter Lesley.

That’s why he agreed to GM demands in 2005 to upgrade his facility to comply with the latest corporate image standards. Jerry borrowed so he could meet the $5 million
investment required to add 24,000 square feet of space.

All new furniture, a state-of-the-art, GM-specified computer system, a new body shop and more were unveiled to the public in 2006.

The dealership was one of the most modern and complete in Canada—GM drove that home when it brought in television crews in early 2009 to film its latest TV commercials. Jerry was beaming with pride—not bad for a GM factory worker who left the factory floor some three decades earlier, wanting to take a stab at running his own business.No wonder he didn’t see it coming.

As part of its restructuring plan following the government bailout of General Motors, GM announced in February 2009 that in the attempt to get leaner and “repay Canadian taxpayers,” it was closing roughly a third of  its 709 dealerships nationwide. Dealers were told to expect an email on May 20, 2009 at 9 a.m. notifying them if they were among the group being terminated, but Gazarek didn’t sweat the passing of the deadline that morning. “I wasn’t really expecting it because I had been told my dealership was fully imaged.”

Around 4 p.m., Gazarek and his family were caught by surprise when the email arrived. Like Burroughs in Hamilton and 243 other dealers, Gazarek was shocked that his long-time business partner, a 102-year-old company with global sales, would dump him so unceremoniously, “holding a gun to our heads with very little time to figure it out.

“The Wind-Down Agreement,” he says, “was a very complex document, and there was no way we could find a lawyer to decipher it properly before the deadline (six days later).”

Making matters worse, Gazarek contends, was the fact that the dealers’ own representative, the Canadian Automobile Dealers Association (CADA) “threw us under the bridge” in a conference call just two days before the Decision Day of March 26, 2009. “That phone call left us feeling trapped. CADA (and the law firm they hired on our behalf) essentially said we had two choices: ‘Accept GM’s Wind-Down offer with transitional payments, or force GM Canada into bankruptcy and get nothing.’ What would you do?”

Burroughs felt the same way. “The crux (of the call) was clear—you either sign the Wind-Down Agreement or GM will go into bankruptcy protection. If it goes under you’ll probably get nothing. If enough dealers sign, and GM doesn’t go into bankruptcy, at least you’ll get something. Either way, you’re (leaving).”

Burroughs and Gazarek say the transitional payments GM made under the Wind-Down Agreement were completely inadequate. “We barely had enough to pay out the severance packages to our employees,” says Gazarek. “How does it make sense for the Canadian government to give
GM a $10-billion bailout package to save 4,000 jobs, while sacrificing 15,000 or more jobs at closed GM dealerships?”
Doug Leggat, a long-time Burlington GM dealer who lost his two Saturn-Saab dealerships as part of the GM reorganization, doubts anyone will ever really understand the criteria GM used in deciding who could stay and who had to go. Leggat cites the case of Dubois, former HMP owner, who learned he was being discarded just three years after investing millions to build a new facility on Rymal Road and Upper Centennial Parkway (Dubois could not be reached for comment).

“It’s not clear how (GM) made these decisions,” says Leggat. “I have a friend—and I’m not naming names—who invested his life savings in his dealerships; more than $14 million. He had been in business with GM for 52 years, only to be told he wasn’t needed anymore. Everyone has been speculating about how GM made these decisions. Some thought that if you had children who were ready to take over the business, maybe then you were okay. But Dubois had a son ready to step in and run the business, as did other dealers I know.

“In any event, I don’t see how closing dealers is saving GM money—they’ve never paid any of my expenses.”

The first battleground in the dispute will be a Toronto courtroom this December, when Toronto franchise law specialist David Sterns of Sotos LLP spearheads the efforts by his firm, along with WeirFoulds LLP, to certify a $750-million class-action lawsuit on behalf of the more than 200 terminated GM dealers. The suit alleges GM contravened two sections of franchise laws in Ontario, Alberta and PEI, and seeks a declaration that that the Wind-Down Agreements signed by dealers are “null, void and unenforceable.”

In a class-action lawsuit it must be proved that multiple plaintiffs also share the criteria that apply to a single plaintiff. “This will be a major battle, as neither defendant (GM and law firm Cassels Brock & Blackwell LLP) wants to be defending a claim against 200-plus dealers,” says Sterns. “It will be up to a judge to weigh the arguments from each side.”

The 36-page Statement of Claim, filed on behalf of a Toronto-area dealer, sets out a tale of betrayal, intrigue and deception that reads like a Hollywood script. Sterns and his firm have taken the case on a contingency basis, which means they don’t get paid unless they win. (The firm is also leading the charge on a $200-million class-action suit on behalf of approximately 300 former Sunoco dealers, dumped after the company’s merger with Petro-Canada. A class-
action certification hearing for Suncor dealers will be heard in mid-November.)

“This (GM case) is a hugely important one that raises critical issues regarding franchise law,” says Sterns. 

While there are differences between the GM and Suncor cases, Sterns says the actions in each followed major corporate reorganization. “When these types of restructurings occur, there are a lot of parties involved in the discussion. It seems that franchisees end up being treated like disposable assets rather than as the serious business partners they are.”

The Wishart Act, enacted in Ontario 10 years ago, entrenches the rights of franchisees with some of the toughest franchise regulations in the country, adds Sterns. “The Wishart Act should have had a major impact on franchisor behaviour, but the conduct of even large, sophisticated companies like GM and Suncor would indicate otherwise. These cases will establish, we hope, that this law offers the highest form of protection, and can’t be circumvented through the creative drafting of contracts that don’t meet the requirements of the law.”

Meanwhile, a group of 20 dealers who refused to sign the Wind-Down Agreement, including Bob Slessor of Grimsby Pontiac-Buick-GMC, have won an early victory in a separate lawsuit that seeks damages, and a court order allowing them to renew their dealer agreements when they expire on October 31 of this year. “We are very pleased that Justice Sarah Pepall dismissed GM’s application to stay our claim, and break up our multi-party action,” says Slessor.

That’s the best news he and others in the group of 20 have heard in a long time. “Since the terminations were announced, we have all been struggling. It’s difficult to sell automobiles if customers are worried that you won’t be here to look after them at some point. GM has made a deliberate effort to divert our customers to a competitor dealership, namely Queenston Chevrolet in Hamilton.”

Slessor said one of his regular customers, who had purchased a vehicle from his dealership months before his termination, received a recall service notice from GM directing him to have his vehicle serviced at the Queenston dealership, which was not included in the terminations. “I didn’t sign the Wind-Down Agreement,” Slessor notes, “but GM sent this letter to my customer, despite the fact my dealer agreement is valid until at least the end of this October.”

Slessor and his group are happy they have won their first battle against GM, but note the clock is ticking. “We need a ruling on this before our agreements expire at the end of October. We have received assurances through our counsel that Justice Pepall will consider a motion to extend our dealer agreements if the trial is delayed.” 

The question of criteria used by GM Canada in its dealership downsizing puzzles many, especially since the U.S. parent recently decided to invite more than 600 of its dealers back into the fold. CADA has taken up the charge on this side of the border, asking GM Canada to reconsider its position. “In the U.S., GM has admitted that the metrics it used in the downsizing were flawed, and as a result have invited many of the dealers who were shut down to reopen,” says Rick Gauthier, CADA president and CEO. “I find it difficult to believe that if the U.S. got it wrong in many cases, Canada got it right all of the time.”

Gauthier concedes that it is too late for most of the terminated dealers to salvage their old businesses, but insists GM must still address the fact that it is improbable that all dealers were treated fairly. In an April 6, 2010 letter to Marc Comeau, General Motors of Canada’s VP of sales and marketing, Gauthier states: “CADA believes there is still an opportunity for (GM Canada) to work collaboratively with our organization regarding the concerns we have in this matter. We are asking that together we create a workable and joint forum to review the metrics utilized in 2009 by GMCL in order to arrive at the very serious actions it took vis-à-vis the 240 terminated dealers.”

As for the charges that CADA “threw their dealers under the bridge,” Gauthier notes, “That is an issue that is involved in the lawsuit, of which we are not a named defendant. I really can’t talk about that issue. All I can say is that everything we did was contingent on GM filing for bankruptcy.”

However, a CADA memo sent to dealers on May 4, 2009, asking them to contribute toward a General Motors Dealer Group Fund, suggests otherwise.  That memo encourages all dealers to contribute to the legal fund, noting that legal representation would be needed in a “complex restructuring or insolvency proceeding.” The memo talks about “power in numbers” and the need to “avoid divide-and-conquer” tactics, adding, “If you are not part of the client group, they do not represent you and you will not have a voice.”

Gazarek says that “voice” wasn’t there when it was needed. “In the Sunday conference call, they (CADA and Cassels Brock representatives) told us we needed to seek individual counsel. By that time, we only had two days to do it. We had no idea at the time which other dealers were involved in the call—you just called in, and unless someone spoke up, you didn’t know.”

In the Statement of Claim, it is alleged that Cassels Brock was serving two masters at the time, also acting on behalf of the Canadian government in its bailout of GM that made Canada a 12 percent shareholder in the company. “(The Canadian government) was instrumental in GM’s decision to reduce the number of dealers,” the claim states. “Cassels was in an untenable and indefensible conflict of interest purporting to act for Canada and the GM dealers.”

Since closing their Cadillac-Chevrolet dealership as well as a Saturn-Saab dealership his daughter was running, the Gazareks have been tying up loose ends, dealing with creditors, and trying to find a new user (buy or rent) for the huge complex that sits on more than six acres of land.  “A building like this is difficult to get rid of because it is designed for a single use—automotive. The only value really is in the land. It’s just too bad I poured all that fresh money into the building three years ago.

“GM has given us no assistance whatsoever. They wouldn’t even buy back the parts we had purchased from them.”

Gazarek is bitter that GM took so much away from them with the apparent blessing of the Canadian government. “I find it strange that GM itself was on the verge of bankruptcy, but went around closing dealers who were profitable and doing a good job of servicing GM customers. I don’t think I will ever understand that. Many of my former employees are still looking for work, and the community loses too. In addition to the many organizations we sponsored, we were paying $400,000 a year in taxes. I can’t afford that now.”

Adds son Brent: “GM has created a lot of ill will that is going to come back to haunt them. Just think of all the people burned by this who will never buy another GM product. Then think of their families, their friends and so on.”

Back on Cannon Street in Hamilton, Burroughs says life goes on. His former City Chevrolet dealership is now City Motors, selling value-added used cars and offering auto service to customers who either live or work in the downtown core. “We’re a business that was built on service, and that is holding us in good stead now that the GM banner is gone.”

His planned retirement is on hold while he oversees the transition of the business to its new format.

John Bear, a long-time dealer on Upper James Street in Hamilton, says that while his heart goes out to the dealers who lost their livelihoods, he believes the restructuring was necessary. GM chose to retain Bear’s Hamilton dealership, while terminating its agreement with the Nethercott dealership at Upper James and Rymal.

“We are definitely gaining benefits from the restructuring—we had lost the Pontiac brand, but that has now been replaced with Chevrolet, giving us a full lineup of GM products. Sales, quite frankly, have improved since the dust settled around this. I think people are becoming aware of the quality of GM products and, obviously, with fewer dealers you are bound to see more sales coming through your door. Service has been very busy.”

Bear has three dealerships that survived: his long-time Hamilton location as well as sites in St. Catharines and New Hamburg. The former Nethercott Chevrolet dealership on Upper James is now selling Suzukis. (Bill Nethercott declined requests to comment). HMP, meanwhile, was taken over by the Setay Group, which also operates Queenston Chevrolet and a Honda dealership on Centennial Parkway. Brad Albini, general manager of those dealerships and a partner in the Setay Group, indicates his company acquired the HMP dealership on Rymal Road in August 2009. Jeff
Dubois, who was groomed to take over that dealership from his dad before the terminations, says he will be managing a new Nissan dealership on Centennial Parkway.

Others are now without a ride altogether.

GM declined to comment on this article, stating it does not comment on matters before the courts. Similarly, a spokesperson for Cassels Brock & Blackwell declined to be interviewed. 

Braking the family business
When GM sent an email slamming the brakes on the Slessor family’s 55 years of serving Grimsby and area, Robert (pictured left) and his dad, Bob, sat in astonishment trying to understand why GM would close their Pontiac-Buick-GMC dealership. “I remember looking at my dad, who is 84 now. His face was ashen, and I could tell he was devastated. I was disgusted that 55 years and two lifetimes of loyalty were being rewarded like this. GM didn’t even bother to meet with its dealers—it sent an email.”

Unlike GM, Robert knew he had to deliver the news personally—first to his wife and four children, then to 48 employees. “This was one of the most difficult things I have ever had to do as employer. I sat down with each employee, explained the situation and said I hoped they would stay, even though there was a chance they wouldn’t have a job after Oct. 31.”

For his family, it may mean the end of a legacy. “My dad afforded me a wonderful opportunity to come into the family business, learn by his side and, ultimately, take it over. I wanted to do the same for my children.”

Robert is clinging to the hope that the lawsuit will work. “All we really want is to be GM dealers—that’s what we’re good at, and that’s what we have committed our lives to.”

Sticking to your strengths
Paul Burroughs was and is the last man standing. When GM took away his City Chevrolet dealership rights last year, it ended a 42-year run of new car sales in the downtown core for the Cannon Street location—and with it a long line of GM dealerships in lower-city Hamilton.

While the news didn’t come as a shock, “emotionally, it still gets you, because I’d been associated with General Motors since 1972,” Burroughs shares. “Who wants to give up a relationship after 38 years?”

Not that he’s leaving anytime soon. Having rebranded the facility City Motor Products after an early termination of GM’s franchise agreement in November, the 61-year-old is now completely focused on used cars and maintenance, as well as collision repairs—a facet of his company that has thrived since he took over the
dealership in 1992.

“We’ve always had a very strong, effective and profitable service operation. And I’m counting on that to continue,” says Burroughs, who has also increased used car sales in recent months.

“That’s the great thing about the used car market—it’s so big, there’s almost no limit. But I’m a steady-as-you-go type of person. We’re not trying to make the biggest noise in town. We want a sustainable business—to grow it in small steps.”