Car Dealers Take On Carmakers

Minnesota’s new car dealers are at war, fighting an unlikely foe: car manufacturers.

“MANUFACTURING LIES” a headline blares in the Minnesota Automobile Dealers Association most recent magazine. That is followed by a series of other headlines, such as “The Dahms obstacle,” “The misinformation campaign” and “Overcoming alternative facts.”

They are biting comments considering dealers need an alliance with automakers, whose products they sell.

“It is an odd relationship that we all have with our factories,” said Scott Lambert, president of the dealers’ association.

Relations have been eroding since car manufacturers and dealers faced deep financial trouble around 2009, when the recession all but killed new vehicle sales.

The sides are fighting over Minnesota legislation that passed the state House and Senate in different forms earlier this year. Car dealers are lobbying senators, and lobbying hard, to get them to agree to the House bill that, among other things, would increase what manufacturers pay dealers to do warranty repairs.

“The manufacturers are short-changing dealers,” Lambert said, which is even harder on rural Minnesota dealers with lower sales volume and less money to work with than bigger city dealers.

Carmakers, meanwhile, say they obey laws and treat dealers fairly.

“The auto dealers association is seeking many benefits for themselves in legislation that does nothing for consumers or manufacturers,” carmaker lobbyist David Bright said. “This is a legislative give-away to the dealers association that is looking to make more money in the halls of the state Capitol.”

The two sides have compromised on parts of the legislation, but key areas remain in dispute.

Senate Commerce Committee Chairman Gary Dahms, a one-time car dealer who the dealers’ group calls an “obstacle,” said he expects the two sides to work out compromises on outstanding issues before he moves the bill forward.

The House-passed bill is “very, very one-sided” for dealers, he added.

Dahms, R-Redwood Falls, was a Chrysler dealer until 1987.

While Dahms thinks the bill favors dealers, fellow Republican Rep. Ron Kresha of Little Falls said vehicle manufacturers have recovered from the recession and dealers need “a fair shake.”

“The local dealers are the ones I listen to,” Kresha said. “I believe the big manufacturers are pushing too hard.”

Brad Gruhot of the Marshall Chamber of Commerce said it is important that dealers remain profitable for the good of the owners, employees and community as a whole. He said car dealers contribute to their communities.

One of the most contentious issues is what dealers say is factories underpaying for warranty work.

State law already requires carmakers to pay dealers at the same rate as they would charge customers.

“That worked great for 30 years,” Lambert said.

Technicians at many dealers, especially those that carry General Motors vehicles, no longer want to do warranty work, Lambert said. Technicians’ pay is tied to how much time guidelines say they should spend on a repair job. But, dealers and technicians say, the listed time often is not realistic.

In some cases, manufacturers who pay in full for warranty work place surcharges on new vehicles they sell the dealers, Lambert said, as a penalty.

A dealers’ association survey showed that just 17 percent of service directors responded that they are being treated fairly for warranty work.

Bright strongly disagreed with the dealers’ claims.

“Even though automakers already fully reimburse dealers for warranty repairs with a profit margin added on top, the dealers association is asking the state government to mandate an even higher profit margin for their members,” Bright said.

The legislation would require manufacturers to pay dealers “preposterous rates with no basis in reality,” Bright said.

Carmakers also oppose a provision that would limit their ability to require dealers to remodel stores to once a decade.

“Dealers want less frequent store renovations, even though that means a less enjoyable experience for the consumers that shop in them, and it can harm the brand image, which is important for manufacturers,” Bright said.

Manufacturers offer incentive packages when they require dealer makeovers, he added.

Lambert said dealers would not talk to a reporter for this story, fearing reprisals from carmakers. They also will not sue manufacturers, with Lambert calling that business suicide.

Nearly 20,000 Minnesotans work at car dealerships.

Lambert and his members are lobbying state senators in an attempt to get them to accept something closer to the House-passed bill.

“They have to do what they have to do,” Dahms said, adding that he will ask the two sides to resume negotiations.