Lemon Law Claims Survive Chrysler Bankruptcy

On April 30, 2009, one time automotive giant, Chrysler LLC filed a voluntary petition for Chapter 11 bankruptcy protection. Chrysler's filing, with 39.3 billion in assets, is the seventh-largest bankruptcy in U. S. History.

At the time of filing, there were some 1,350 consumer lawsuits pending nation wide against Chrysler for violations of so called Federal and State "Lemon Laws." The filing of bankruptcy, along with the automatic stay imposed by the Bankruptcy Code, brought these "Lemon Law" claims to a screeching halt. Consumers could take no further action of any kind against Chrysler.

In general, Lemon Laws give rights and remedies to consumers with problematic vehicles. They require manufacturers, or manufacturers' authorized dealers, to repair defective vehicles within a reasonable time. If repairs are not made within a reasonable time, then Lemon Laws require the manufacturer to replace the vehicle, refund the purchase price, or pay damages to the consumer. Most Lemon Laws also require the manufacture to pay the consumer's attorney fees.

As part of the Chrysler reorganization plan, a proposal to sell the majority of its assets to Italian Auto Manufacturer, Fiat, and then join Fiat in forming a new, stronger, more efficient Chrysler Company was submitted to the Court. Objections, motions and arguments were heard. On June 1, 2009, the Bankruptcy Court entered an Order approving and authorizing the Fiat Transaction. As a result, a "New Chrysler" automotive manufacturer was born.

According to documents filed with the Court on June 30, 2009, the "New Chrysler" agreed to assume certain liabilities of the bankrupt Chrysler. These liabilities include pending and future Lemon Law claims. This means that the 1,350 consumers who were stopped from pursuing their lawsuits because of the bankruptcy, are now able to resume litigation in courtrooms across America.

Through a process outlined in court documents, the "New Chrysler" will assume the liability of bankrupt Chrysler and be substituted as the defendant in pending Lemon Law litigation. Future Lemon Law claims will be brought directly against the "New Chrysler." Consumers will have the same rights and remedies against the "New Chrysler" as they had prior to the Chapter 11 filing. The Bankruptcy Court is expected to approve and order the "New Chrysler" assumption of "Lemon Law" liability as early as July 16, 2009.

Article provided by Aiken & Scoptur

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What's Ahead for the Global Auto Industry?

Over the course of just a few months, the profile of the U.S. automobile industry has changed in profound ways as GM and Chrysler, two of the Big Three American carmakers, have filed for bankruptcy. The most immediate, visible effects are likely to involve direct and indirect job losses as manufacturing plants are shut down and car-parts suppliers and other vendors go out of business.

Under a “best case” scenario--a relatively smooth and easy bankruptcy and emergence for the two industrial titans--the U.S. auto industry is likely to lose 60,000 jobs by the end of this year, growing to about 179,000 in 2010, according to a Center for Automotive Research study. The bankruptcies and their ripple effects also will shrink the U.S. economy by $3.4 billion in 2009, and by another $9.9 billion in 2010, according to the CAR study.

But the industry also will undergo other significant strategic and tactical changes, says Jagdish Sheth, chaired professor of marketing at Emory University’s Goizueta Business School and auto industry consultant whose works include The Rule of Three: Surviving and Thriving in Competitive Markets and The Self-Destructive Habits of Good Companies...And How to Break Them. In a recent interview with Knowledge@Emory, Sheth discusses the latest developments within the industry and the likely outcomes.

Knowledge@Emory: Your “Rule of Three” observes that in almost every mature industry, the natural competitive forces through shakeouts and mergers end up in three large companies as full line suppliers surrounded by many small niche companies. Until recently, the U.S. auto industry was dominated by GM, Ford Motor and Chrysler. With two of them filing for Chapter 11 bankruptcy, what happens to the Rule of Three?

Sheth: Nothing. The Rule of Three is still valid because the automotive industry, like many others, is no longer a domestic industry, but a global one. We have already seen this in the tire industry. At one time, the U.S. was dominated by Goodyear, Firestone, and B.F. Goodrich. In Europe, the big three were Michelin, Dunlop, and Pirelli. But today’s global tire market is dominated by Bridgestone (Japan), Michelin (Europe) and Goodyear (US). Something similar will happen in the auto market, and we will see three companies from different markets dominating the global auto industry, while others will operate in niche segments.

Knowledge@Emory: Which American companies will likely become global players?

Sheth: First, let us consider what is happening now. Chrysler is not just bankrupt, but is being sold to Fiat. It will get consolidated into a global play. So in the U.S., we are really talking about Ford and GM.

Knowledge@Emory: Which of these two American automakers is likely to dominate the global stage?

Sheth: Ford may be one of them, but only if it makes some strategic international mergers or acquisitions. Ford needs more of a global reach, and may have to merge with a European company; although now that the Nissan-Renault alliance is under strain, there might be a merger of Renault or Peugot with Ford.

If Ford cannot follow through with a significant merger or acquisition, then I think a European carmaker, perhaps Volkswagen, is likely to emerge as a global player; but only after it completes additional mergers such as the one with the owner of the Audi brand [in the 1960s].

Knowledge@Emory: Which carmaker will be the third major player?

Sheth: As things stand, Toyota will be the best candidate. It is already the dominant brand in Japan, which is a big market, and it is active in other Asian markets, such as China and India. Toyota is also entrenched in the United States and in Europe.

Knowledge@Emory: With two of the Big Three U.S. automakers effectively sidelined, will there be any competitive pressure on foreign automakers to maintain or expand their U.S. manufacturing operations?

Sheth: Importing a fully built vehicle is usually not very cost efficient. It means that millions of dollars sit idle as inventory is shipped to a destination, and then further delayed in warehousing and distribution. Instead, as car companies become increasingly globalized, they will find it more efficient to source components globally, while setting up localized assembly facilities. This is similar to the industrial model that PC makers already utilize. But to make this global model work, automakers must improve their supply chain management capabilities. Right now there are still too many delays and other inefficiencies.

Knowledge@Emory: Let’s go back to GM. If it emerges from bankruptcy as a much smaller company, does it still have any competitive advantage?

Sheth: Yes, but not as a carmaker. Instead, GM’s key assets are its capabilities. One of them is OnStar. Right now OnStar is known primarily for its roadside assistance communications, but it can be a key player as automobiles evolve through vehicle telematics, or the integration of sending, receiving and storing multimedia information (voice, data, video) through Internet connectivity. Eventually, vehicles will trade information with each other to reduce traffic accidents and congestion, and will serve as communication centers linking individuals to everything from their home security system to their kitchen appliances.

Knowledge@Emory: These are all innovative ideas, but the U.S. government effectively owns GM right now. Do you think the company can be nimble and responsive when it’s owned by politicians?

Sheth: First, I do not think the federal government wants to be involved in day-to-day management. Instead, I believe the government will act as an institutional investor, setting financial goals and governance targets that will encourage the company to get itself back on track. There is some evidence to suggest that is what happened in the banking bailout. The government initially provided huge sums of money to banks when it loaned money at high interest rates through the Troubled Asset Relief Program (TARP). But the governance requirements and interest rates were so onerous—intentionally so—that banks were incentivized to quickly take steps on their own to raise capital and pay back the TARP funds. Similarly, I think the federal government will quickly move to sell off its stake in GM, or orchestrate a merger or acquisition with a foreign or a private equity company.

Knowledge@Emory: What will increasing globalization mean to the dealership model?

Sheth: I have said before that there are too many dealers and that the traditional model—where state laws often protect dealers’ franchises—is not tenable. But this excess is now being rationalized by GM and Chrysler, which are using their respective bankruptcies to circumvent the state franchise protection laws.

I anticipate more superdealers to emerge, similar to American Nalley of Brunswick and Hennessey Auto Cos. in Georgia [and Reedman-Toll in Pennsylvania]. I also expect we’ll see more regional and national dealers like CarMax and AutoNation.

The automobile industry is changing significantly, and while the developments may cause some initial dislocation, the changes are necessary and will result in greater efficiencies in the long term.

From Knowledge@Emory

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Asbury Automotive Group To Close One Chrysler and Two GM Dealerships

/PRNewswire / -- Asbury Automotive Group, Inc. (NYSE:ABG) , one of the largest automotive retail and service companies in the U.S., today announced that its Nalley Chrysler/Jeep dealership in Roswell, Georgia is on Chrysler LLC's list of stores that it intends to reject as part of its dealer consolidation plan. In addition, General Motors has notified the Company that it will not renew the franchise agreements for two Asbury dealerships in Kissimmee, Florida - a Chevrolet franchise and a combined Pontiac/Buick/GMC store - when they expire in November 2010.

The three dealerships generated revenues of approximately $105 million in 2008, or about 2% of Asbury's total revenues of $4.6 billion.

"We are disappointed that the Nalley dealership will be closing and the Kissimmee stores will be phased out, and our hearts go out to the affected employees," said Charles R. Oglesby, Asbury's President and CEO. "At the same time, we understand that consolidation of their dealer networks is a critical component of Chrysler and GM's restructuring programs, and that it's important for all parties to bear some part of the burden. We will do whatever we can to support the manufacturers through this difficult period."

Mr. Oglesby continued, "Overall, the closing of these dealerships will not have a material impact on Asbury's ongoing revenues, earnings or financial position. With approximately 86% of our new light vehicle revenue generated by mid-line import and luxury brands, we continue to believe that Asbury is well-positioned for future growth."

About Asbury Automotive Group

Asbury Automotive Group, Inc. ("Asbury"), headquartered in Duluth, Georgia, a suburb of Atlanta, is one of the largest automobile retailers in the U.S. Built through a combination of organic growth and a series of strategic acquisitions, Asbury currently operates 86 retail auto stores, encompassing 113 franchises for the sale and servicing of 37 different brands of American, European and Asian automobiles. Asbury offers customers an extensive range of automotive products and services, including new and used vehicle sales and related financing and insurance, vehicle maintenance and repair services, replacement parts and service contracts.

Forward-Looking Statements

This press release contains "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements relating to our goals, plans, expectations and strategies. These statements are based on management's current expectations and involve significant risks and uncertainties that may cause results to differ materially from those set forth in the statements. These risks and uncertainties include, among other things, general economic and business conditions, including consumer confidence, interest rate changes, the price of oil and gasoline and the availability of consumer credit; our ability to generate sufficient cash flows and maintain our liquidity; our ability to comply with our debt or lease covenants and obtain waivers of these covenants as necessary; the reputation and financial health and viability of vehicle manufacturers whose brands we sell, and their ability to design, manufacture, deliver and market their vehicles successfully; and the effect of a bankruptcy of one or more vehicle manufacturers. These and other risk factors are discussed in the Company's annual report on Form 10-K and in its other filings with the Securities and Exchange Commission. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

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