Chrysler Offered Settlements Below $100k to Terminated Dealerships

WASHINGTON - Chrysler sought to cut expenses by paying an average settlement of “significantly below” $100,000 to terminated dealerships that filed arbitration claims, a company spokesman said in an e-mailed statement reported on by Automotive News.

The statement by Chrysler spokesman Michael Palese sought to correct a report in The New York Times last week that said the company’s settlements averaged about $500,000, citing “people with direct knowledge of the terms.”

Chrysler settled 151 of the 418 arbitration claims filed by dealerships closed as part of the company’s bankruptcy proceeding last year. “Many” of these settlements involved cash payments, Palese said.

“It makes good business sense anytime we can settle a case for an amount significantly below the cost of litigation,” he said in an e-mail today. “This enables Chrysler to focus more resources into what’s truly important -- developing outstanding products.”

The figures would put Chrysler’s overall costs for settlement payments at “significantly below” $15 million. Palese declined to be more specific.

Dealer lawyers said Chrysler started making settlement offers in April, usually for $25,000.

Those offers increased somewhat as the arbitration process continued through July, though they never approached the typical size of General Motors’ offers, the lawyers said.

GM spokeswoman Ryndee Carney declined to disclose the company’s average settlement or total settlement payments.

Dealer lawyers said the differing settlement payments by the two companies, as well as what they described as GM’s more respectful overall treatment of arbitrating dealers, would have an impact going forward.

GM “was willing to settle for an amount more closely aligned with the value of the franchise being taken from the dealer,” said lawyer Richard Sox of Tallahassee, Fla., whose Bass Sox Mercer firm represented both Chrysler and GM dealerships.

He added: “Although both sets of dealers are approaching the relationship cautiously, our Chrysler dealers are much more wary of expending capital on their franchises as compared to our GM dealers.”

Chrysler’s Palese said the company’s dealers “are already enjoying increased profitability and are making significant investments in their dealerships.”

These investments are “on track with” the $500 million investment objective in Chrysler’s November business plan, he said.

Dealer lawyers said GM commonly offered settlements of two to three times the wind-down money it paid to dealerships to close by October.

Dealerships received as much as $1 million in wind-down money depending on their size, Jim Bunnell, GM’s general manager of dealer network support, said earlier this year.

That would mean some rejected GM dealerships received as much as $2 million in settlement payments, an amount consistent with reports by dealer lawyers.

GM reached individual “resolutions” with 408 of its 1,176 arbitrating dealerships. Most of these resolutions led to the store winding down in October, as originally planned. Carney declined to say how many of these resolutions involved settlement payments.