States: GM using court to ditch dealers

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By William Ehart

General Motors came under attack Monday from another quarter when 37 states, including Maryland and Virginia, filed an objection in the automaker's bankruptcy proceedings.

The objection, filed by Nebraska Attorney General Jon Bruning on behalf of the other states, argues that the company should not be able to use bankruptcy court to skirt state laws, including franchise laws protecting dealers' relationship with the automaker.

The states find fault not just with GM's 1,350 dealer terminations, but with the terms it is forcing continuing dealers to accept.

"The attorneys general have grave concerns over what GM is doing," said Mr. Bruning, a Republican. "Ignoring state law is not only illegal, its just plain bad business, and were going to try and stop it."

The objection also covers such ground as environmental and personal-injury liability and consumer warranty claims.

Mr. Bruning is president of the National Association of Attorneys General.

GM is also under fire from its dealers, some of its bondholders and Congress, which has introduced legislation on the dealer issue.

The states filed objections in Chrysler's bankruptcy case without success, though Mr. Bruning said some of their concerns were addressed. The issue of continuing dealers was not a factor in Chrysler's proceedings.

"In the GM case, we also are objecting to the treatment of the dealers being retained," said Raquel Guillory, a spokeswoman for Maryland Attorney General Douglas F. Gansler, a Democrat. "They want them to sign away any rights they have under state law.

"We don't think they should ask them to do that, and we don't think that they should be allowed to ask the dealers to do that."

States involved in the objection also include California, Massachusetts, Michigan, New Jersey and Pennsylvania. Texas filed a similar objection on its own.

Mr. Bruning said later Monday that he and representatives from four other states had a "very productive" conference call with Matt Feldman, a bankruptcy lawyer for President Obama's auto task force.

"I said the closings need to be a transparent process, that if there are metrics, those metrics need to be clear," Mr. Bruning said. "He agreed that transparency would be useful in the process, and he wants to be more transparent going forward.

"He assured me that the government was not involved in choosing which of the dealers would be closed."

Mr. Bruning said there are examples of GM dealer closings in his state that put the fairness of the process in doubt.

"One dealer bought his dealership for $2 million four years ago. He has tripled his sales, and they are shutting him down and giving him $70,000," he said. "They relocate the franchise in the same town, and the new dealer doesn't have to pay anything."