TORONTO—A group of Canadian new-vehicle dealers on May 3 won permission to sue General Motors United States in a case that goes to the heart of the relationship between the automaker and its franchised sales outlets.
In giving the green light to the lawsuit, Ontario’s top court overruled an earlier decision that the suit had no reasonable prospect of success.
The longtime Toronto-area dealers allege in their unproven claim that GM in the U.S. breached its duty of good faith and fair dealing.
In a nutshell, they argue the manufacturer is in a conflict of interest by focusing on maximizing its own profit on the sale of new vehicles at their expense. They say the company’s vehicle offerings are uncompetitive, and the corporation has refused price cuts and other incentives to increase market share.
According to the claim, dealers earn only a small profit from new vehicle sales. Instead, they rely on trade-in resales, servicing and parts sales to make their money.
As a result, they say, they want to maximize the market share of GM vehicles on the road, while the company has acted with self-interested disregard for the “disastrous financial consequences” on them.
“The (dealers) allege that there has been a devastating impact on their business as GM has suffered a decrease in market share since 2008,” according to the Appeal Court decision. “This, they say, is inconsistent with GM U.S.’s duties of good faith and fair dealing.”
The dealers also claim GM U.S. used bailout money from the governments of Canada and Ontario that flowed in the aftermath of the 2009 recession to the advantage of big-city dealers in the United States over those in the Toronto area.
They also argue GM U.S. makes the real decisions related to their franchises and the bulk of their Canadian sales are from imports from the company’s American operations.
Faced with the claim, GM U.S. successfully argued it owed no duty of good faith to the dealers. Essentially, the company argued it was not a direct party to the franchise agreement the Canadian dealers have.
The dealers appealed and the higher court sided with them, despite finding a lack of a direct contractual relationship between GM U.S. and the Canadian outlets.
“I do not agree that the appellants’ claims have no reasonable prospect of success,” Justice Mary Lou Benotto wrote for the Appeal Court.
“It is not plain and obvious that a parent company in the position of GM U.S. could never owe a duty of good faith or fair dealing to the appellants.”
The dealers’ claim against General Motors Canada—with some of the allegations dismissed—was allowed to proceed and was not the subject of the appeal.