Small Iowa car dealer battles auto giant to remain a GM franchise

By: - July 5, 2021 10:00 am

A new court battle centers on an obscure Iowa law that discourages auto manufacturers from terminating franchise agreements with Iowa dealers, particularly if those dealers contribute to the public welfare through community support. (Photo by Maxwell Ridgeway via Unsplash)

A long-simmering dispute between General Motors and a northwest Iowa auto dealership that’s fighting to retain its GM franchise is headed back to court.

The dispute centers on an obscure Iowa law that discourages auto manufacturers from terminating franchise agreements with Iowa dealers for breach of contract or poor sales, particularly if those dealers contribute to the public welfare through community support. It pits General Motors, one of the world’s largest automakers, against a small, family-owned dealership in rural Iowa.

The dispute began seven years ago when GM responded to declining sales of Buick and GMC vehicles at Estherville’s Motor Inn, a GM dealer owned by the Heywood family since 1937. GM enrolled Motor Inn in a dealer-improvement program, citing a lack of advertising, a failure to use a website provided by GM.

Unsatisfied with what it saw as Motor Inn’s subsequent lack of improvement, GM sent the dealership a letter in 2015 the dealer was in material breach of its contract with GM due to what it called poor sales performance and poor customer satisfaction scores.

According to court records, GM gave Motor Inn six months to improve, then renewed its five-year contract with the dealership. After Motor Inn’s sales failed to improve, GM sent the dealership another letter in June 2016, warning that the situation was under review. In December 2016, GM notified Motor Inn it was terminating the dealership’s contract to sell GMC and Buick products. Motor Inn challenged that decision, citing the Iowa law that restricts the manner in which auto-franchise agreements can be terminated.

That law, which dates back to 1970, is intended to assure the public that after a company sells vehicles within an Iowa community, consumers will be able to retain access to any dealer services they might need to protect their purchase.

The law says auto manufacturers must show “good cause for termination” of a franchise agreement, and that once the agreement is terminated, another franchise providing the same make of car must be authorized in the same community. Automakers must also consider whether it is “injurious to the public welfare” for the local dealership’s business to be disrupted by ending the franchise agreement.

Motor Inn’s dispute with GM went before an administrative law judge who issued a decision blocking GM’s efforts. The Iowa Department of Transportation then upheld that decision, prompting GM to file an appeal in Iowa District Court. A judge sent the case back to the DOT director, Scott Marler, for consideration of additional evidence.

At a subsequent hearing, GM argued it had good cause to end its relationship with Motor Inn, alleging the Estherville outlet’s sales were generally the lowest among all Buick and GMC dealers in Iowa, and that its sales were declining even as car sales increased nationwide. GM also claimed the dealership’s sales were the result of poor business decisions, a lack of marketing, inadequate ad spending, insufficient investment in its physical facilities and the lack of a business development center.

Motor Inn countered that by arguing its business was brisk enough to employ salespeople, repair technicians and an office staff. Owner Mark Heywood testified that his family provided generous support to the community and had done so for years.

In his decision, Marler concluded the evidence supported a conclusion that “Motor Inn transacts an amount of business more than adequate to turn a profit.” As for the Heywoods’ alleged lack of investment in the business, Marler found that the family “has made investments in the dealership across generations, which have allowed the business to now enjoy the benefit of a lack (of) long-term debt obligation.”

GM allegedly acknowledged that it had yet to approach any local dealers about the possibility of becoming a Buick/GMC franchisee, Marler noted, adding that should any Motor Inn workers lose their jobs, “there is no new franchisee to absorb these employees.”

He also noted that “the Heywood family have been strong supporters of local entities, including the local hospital, school booster club and scholarship funds” and that evidence showed the family would not be able to maintain their donations at the same level if the franchise was terminated. “This would clearly be injurious to the local public welfare,” Marler ruled.

In challenging those findings, GM’s has filed a court petition seeking a judicial review of the decision, claiming portions of it are unsupported by substantial evidence.

The DOT has rebutted that, arguing GM’s claims have no merit. A hearing date has yet to be scheduled.

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Clark Kauffman
Clark Kauffman

Deputy Editor Clark Kauffman has worked during the past 30 years as both an investigative reporter and editorial writer at two of Iowa’s largest newspapers, the Des Moines Register and the Quad-City Times. He has won numerous state and national awards for reporting and editorial writing. His 2004 series on prosecutorial misconduct in Iowa was named a finalist for the Pulitzer Prize for Investigative Reporting. From October 2018 through November 2019, Kauffman was an assistant ombudsman for the Iowa Office of Ombudsman, an agency that investigates citizens’ complaints of wrongdoing within state and local government agencies.