New York’s highest court recently ruled that General Motors violated a state law in dealing with a Chevrolet franchise in Yonkers, NY. GM attempted to cancel the franchise due to “subpar sales”. GM uses a system called the Retail Sales Index (RSI) as a benchmark for the sales that their franchises should meet. However, many dealers, including the Beck franchise in Yonkers, argue that this system is unfair because it compares dealers to the rest of the state but does not account for “market nuances”. The Beck co-owners, Russel and Leon Geller, claimed that the RSI was unfair because they were compared to the Buffalo area, where Chevy’s market share is about four times greater. The Beck Chevrolet franchised sued GM in 2011, and this week the New York Court of Appeals ruled that GM’s failure to recognize local-market factors violated state law and ruled 5-1 in favor of the Beck franchise.
This ruling has large-scale implications. Many car companies use similar systems to GM’S RSI benchmark, and this point has been a central argument between dealers and manufacturers for years. A Florida lawyer Richard Sox, who helped draft the New York dealer-protection law that is at the heart of this case, stated that it “is going to apply to all manufacturer sales-performance formulas in all states when it comes to attempts to terminate dealers.” This ruling could change how manufacturers measure their franchises across states and determine which ones are successful and which ones aren’t. This case targets the importance of local-market features that car manufacturers are overlooking when evaluating their franchises.