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June 9, 2017

GM India dealers eye US class action suit over compensation

General Motors dealers in India reportedly are exploring options of filing a class action suit in the US over what they say is inadequate compensation for their point of sale (PoS) investments by the carmaker planning to exit the local market by the end of this year.

General Motors dealers in India reportedly are exploring options of filing a class action suit in the US over what they say is inadequate compensation for their point of sale (PoS) investments by the carmaker planning to exit the local market by the end of this year.

For its part, the Economic Times of India said, GM is offering massive discounts – as high as 30% – to liquidate stock at dealers and its factory.

In a communication to its partners, GM India announced the discount programme that would help clear about 1,800-1,900 Chevrolet vehicles at dealerships, plus 800 cars in stock with the company.

"The company has told us it will compensate us for the losses on account of these discounts but on condition that we purchase vehicles in stock at the plant. Financial institutions have blocked limits on inventory funding since the GM announcement on 18 May. So, even if we want to, it is difficult for us to make additional purchases," a Chevrolet dealer principal told ET.

The report said the stock liquidation measure came amid talks between GM India and its dealers. On Wednesday, GM concluded discussions with 96 dealer principals on the compensation packages related to the ending of sales in the local market. The Dealer Advisory Board (DAB) — with 15 representatives — is evaluating its further course of action against GM as the majority of the dealers are unhappy with the company's offer of about 12% of their investment as compensation.

A dealer operating a couple of showrooms in central India said that GM offered INR7.5m (US$116,000) as compensation for a total investment of around INR60m ($900,000) for setting up a showroom.

"There are three options we are examining. Some individual dealers are looking at filing civil suits, those who have invested in new greenfield showrooms are considering criminal cases, and we are also evaluating the option of filing a class action suit in the United States," a second dealer principal told ET.

GM declined to discuss the compensation it would provide its sales partners in the country. "GM India is working directly with our dealers to transition to authorised service outlets, and to recognise some of the investments made in dealerships. As we consider these discussions to be confidential, it would not be appropriate to discuss them publicly," a spokesman told ET.

Though GM will stop selling vehicles in India by the end 2017, its Talegaon, Maharashtra, factory will continue production of export cars.

GM has said it would honour all warranties, provide aftersales support and was in talks with dealers on a transition plan.

Dealership representatives told ET the company has been pushing them to convert into authorised service centres but concerns have risen about the viability of such a business.

GM makes the Beat hatchback, Cruze sedan and Tavera, Enjoy and Trailblazer utility vehicles in India.

Separately, GM India's circular on stock liquidation, reviewed by ET, said that dealer/model line wholesale targets would be communicated by the company's regional offices, after which target achievement calculations would be done for each dealer group. GM said 10% of the compensation amount on the inventory would be credited to dealers after seven working days of the release of the bulletin, another 30% of the amount, if the dealers achieve 50% of the wholesale target by 20 June, and the balance 60%, if 100% of the targets are achieved by 10 July.

The bulletin further said the "obligation of liquidating inventory (in stock or to be wholesaled) rests with the retailer," and that the company would not "purchase any unsold inventory in retailer stock pursuant to past/present and/or future orders from the retailer."

On the new sales programme and the stock compensation scheme, a GM India spokesman told ET the company was "working with the dealers to provide appropriate support through this transition. Our dealers are important partners in implementing our transition plan, which is focused on providing continuity and peace of mind for our customers."

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