Articles & Papers written by the Gregory Law Group
Tesla Motors Confrontation with State Dealer Franchise laws.
Chapter 1: Introduction:
From the advent of the automobile, the automotive industry has been one of the most important economic driving forces in America. In fact the International Organization of Motor Vehicle Manufacturers states, “The auto industry is the single greatest engine of economic growth in the world”. The wide gamut of the impact comes from a host of facets that revolve around the automobile from: design, manufacturing, supplies and materials to selling, servicing, maintaining, financing, insuring and parking. The list is almost in in-exhaustible. In 1953, Charles Wilson, the president of General Motors declared before Congress: “what is good for the country is good for General Motors and vice versa”. We saw the correlation that Charles Wilson alluded over 50 years prior in the recession of 2008-2011. General Motors, which was once the largest corporation in the world, had a pre-recession market capitalization in 2000 of $50 billion yet as the great recession took hold, their market capitalization dropped to below $1billion in February 2009, a level not seen since the Great Depression of the 1920’s. The recession brought similar fates to Ford, Chrysler, all their subsidiary brands, most auto suppliers and many auto related companies as demand for automobiles drastically decreased. GM, Ford and Chrysler responded and cut production resulting in huge economic losses including, lost jobs, compensation decline, community collapse, tax bases shrinking and finally leading these economic titans to a position which most thought was certain demise without substantial intervention.
When President Obama took office, the American auto industry was by most accounts either on the brink of collapse or already collapsed. The President and the federal government not only had to contend with the disastrous effects of the giant and failing manufacturers but also the countless workers, communities, suppliers, dealers and incalculable peripheral businesses that rely on the automotive industry for their livelihood. The federal government stepped in and bailed out General Motors, Chrysler and Ford (although to a lesser degree) through the United States Treasury Department’s Troubled Asset Relief Program (TARP). The massive bailout was not implemented and probably never would have happened solely to protect the corporations but instead the bailout was designed to protect the countless dependents in communities all over this country from the effects of a failed automotive industry. As a result of the bailout and the opportunity to survive, the American automotive manufacturers and their related businesses have emerged with a remarkable comeback resulting in production that has almost doubled during the years between 2009 and 2013. The cumulative effects can be seen in every community across America manifested as created or retained jobs, rebounded real estate values, continued and/or rebounded tax revenues and continued increasing automotive based commerce. Davidson, supra. The recovery in the automotive sector accounts for between 15 and 20 percent of the United States entire economic recovery.
While the federal government utilized the TARP program to breathe life into these manufacturers, Congress simultaneously strived to spur new ways to revitalize the aging and declining American automobile industry as a needed catalyst to aid in the US economy’s emergence from recession and reduce the risk of entering an economic depression. 2009 was the seventh straight year of decline for the failing American automotive manufacturers. When the difficult decision was made to support the American automotive industry there were sacrifices that had to be made but also there was an undoubtable need to turn towards innovation from stagnation to aid America’s resurgence in a critical segment of our economic engine.
The Advanced Technology Vehicle Manufacturing Loan Program:
In 2008 the Advanced Technology Vehicles Manufacturing Loan Program (ATVM) was created and funded with $25Billion. The ATVM program was designed to provide capital to American automobile manufacturers to create vehicles that would help lessen America’s dependence on foreign oil and meet the looming higher mileage requirements set by the EPA. The ATVM executive director put it this way:
“Over the long term, we know that the continued success of America’s auto industry depends on whether we keep innovating and adopting next generation technologies that consumers all over the world increasingly demand.” Peter Davidson, An Update on Fisker Automotive and the Energy Department’s Loan Portfolio, Energy.gov, September 17, 2013.
In 2009 the US Department of Energy announced that it was loaning $8 Billion dollars to Ford, Nissan and Tesla motors to fund their quests to create advanced vehicle technologies, which mainly consisted of electric drivetrains. Later that year Fisker Automotive, another American startup automotive manufacturer was conditionally awarded a loan of over $528 million dollars under the same program with the same mandate. Peter Davidson, the director of the loan program commented that the DOE program was “playing a crucial role in helping America’s auto industry thrive, innovate and compete. Davidson, supra. He further stated what had become a common belief that “This is a race that we simply cannot afford to lose.”
Although two of the world’s largest automotive manufacturers (Ford and Nissan) took part in the ATVM program many of the other players were small innovators with great aspirations or fledging enterprises who had dreams for creating next generation technology. As example, Tesla was founded in 2003 and started delivering vehicles in 2008. At the time they received the ATVM funding they were selling a few hundred high priced electric two-seat sports cars, which were manufactured in the United Kingdom. With the advent of the ATVM loan program and a desire to provide innovation to the American automotive industry Tesla was quickly memorialized and became one of the poster-children for the ATVM and the new federal mandate. Tesla Motors, Inc. and their founder Elon Musk had a dream to change the automotive industry despite their very small sales numbers. Tesla, with their ambitious dream, clearly captured the ingenuity that Congress sought when they created the programs to help the United States exit the recession and move forward in the automotive industry’s race for innovation.
The larger recipients of the ATVM program have been very important to technological advances and made stellar progress yet Tesla and another small start-up, Fisker, became the models for the initiative that was positive or conversely, negative with the ATVM and aspirations for alternative fuel vehicles. Both companies have been heralded by some, scorned by others and ultimately used as political capital or scapegoats depending on the party and the moment in what has often ended up in a bipartisan political war of words.
Tesla, a new player in the highly competitive and capital intensive world of automobile manufacturing was founded on a model and brand with a totally new and innovative drivetrain and electric platform. Fisker Automotive, the other small automotive manufacturer, offering new yet unproven technology, also received ATVM loans and was initially heralded as a promising upstart. Although Fisker promised huge results in electric cars they ultimately were unable, even with huge ATVM loans, to survive in the extremely fast paced, competitive and capital intensive business of automotive manufacturing, sales and distribution. In addition to the ATVM funds that Fisker received, they also “burned through roughly $1 billion in private investment money”. Fisker filed for bankruptcy in November 2013 falling out of the graces of even their most diehard supporters. A Chinese auto parts supplier, Wanxiang Group, acquired Fisker’s assets in 2014 for $149.2 million dollars in the bankruptcy action. The Chinese company has plans to reintroduce Fisker and its products. The demise of Fisker has since been used as fodder in the bipartisan war against the ATVM program and alternative fuel vehicles.
Tesla on the other hand has not only survived but Tesla’s CEO, Elon Musk, as the CEO of one of the smallest automotive manufacturers in the world has created himself as an opinion leader and gained “an inordinate influence over the entire auto industry”. Musk makes auto industry rethink basic assumptions, Automotive News, June 23, 2014. Musk, the founder of a host of companies including, Zip2, PayPal, SpaceX, SolarCity and Tesla has used his ingenuity, work ethic, previous success, political power and influence to poise his small-volume but successful sales at Tesla, in a very small premium segment of the auto sales arena to push customer’s experiences to new levels all whilst recasting the image of electric powertrains in the publics eye. As a result, both Musk and Tesla both have garnered a respected voice in boardrooms, legislatures, the stock market, among other automotive manufactures and even in family rooms all around the country. An example of the public persona Telsa enjoys was evident by the remarks of President Obama on May 26, 2010:
“…thanks to loans through the Department of Energy, which helped provide Tesla motors with the financial wherewithal to expand, that shuttered plant is soon going to reopen. (Applause.) And once again -- once again, it will be a symbol of promise, an example of what's possible here in America. Tesla is joining with Toyota in a venture to put a thousand skilled workers back to work manufacturing an all-electric car. (Applause.) And this is only the beginning. We're investing in advanced battery technologies to power plug-in hybrid cars… And it was made possible by loans through the Department of Energy, as well as tax credits and grants to increase demand for these vehicles.” President Barack Obama, Remarks by the President on the Economy, May 26, 2010, http://www.whitehouse.gov/the-press-office/remarks-president-economy-0.
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Avoiding & Navigating Financial Crisis for Franchised Automotive Dealers
Chapter 1: An Introduction to Automotive Dealer Franchising, Franchisor/Franchisee Relationship & Economic Impact of Franchises
The following is an overview of bankruptcy and Avoiding & Navigating Financial Crisis as applied to a new car franchised dealer. This overview is intended to provide a general synopsis on dealership bankruptcy and is not intended as legal advice and should not be relied on as counsel or advice. As frequently espoused in this document, anyone having questions regarding his or her particular dealership or situation should consult his or her own trusted legal advisors for aid in navigating the complexities associated with his/her fact specific enquiry.
Franchise businesses represent a large part of the United States economic engine. In a 2010 article, the vice president of government relations for the International Franchise Association (IFA) declared that “franchising plays a vital role in our nation’s economy; it’s one of the big engines driving new job creation”. Franchise businesses make up more than 10 percent of all U.S. businesses. In the 2007 Economic Census Franchise Report, which was lauded as the first comprehensive report on the franchise segment as part of the U.S. economy, reported that franchise businesses accounted for nearly $1.3 trillion of the $7.7 trillion in total sales. The study further reported that franchise businesses employ 7.9 million workers. Ultimately, the franchising engine generates one of every seven jobs in the private sector in the United States. 
New car dealers lead in sales for all the various categories of franchise businesses with $687.7 billion in annual sales.
The automotive franchise distribution model dates back to 1898 when William E. Metzger, established what is believed to be the first General Motors dealership as a franchisee. Proponents for the franchise model point to the fact that individual franchised dealers invest millions of dollars of their own private capital in their dealerships to provide local communities with top sales and service experiences, while allowing auto manufacturers to limit their investment in sales outlets and reserve their capital for the core areas of designing, building and marketing vehicles.
Although the industry has spawned large public groups over the last decade, franchised dealers are predominately locally owned. Franchised dealers live, work and play in their communities and are important members of communities all across the nation. Dealers and their employee teams play important roles from sponsoring sports teams, philanthropic endeavors, local employment, tax generation etc. as they generate billions of dollars for their local economies. The investments that franchised dealers make in their own business’s allows manufacturers to benefit from the high financial returns of capital invested in manufacturing as opposed to the low sales margins gained from retailing automobiles.
The most important element that creates economic value for local franchised new car dealers is their ability to use the trademark that the franchisor owns and their resulting opportunity to purchase new cars from the franchisor/manufacturer. By allowing the franchisee to sell their products and services and use their trademarks, the franchisor essentially lends dealers its national and/or global goodwill.
In the case of new car automobile franchises the franchisor is also the brand specific manufacturer of the automobiles the dealers sell. As such the franchisor lends their good will to the franchisee in order to stimulate the dealer to sell more cars which in effect means the dealer will order more new cars from the franchisor/manufacturer and grow the franchisors sales and profitability. As a result of the franchisor’s desire to sell more cars, the franchisor and the franchisee have a strong mutual interest in seeing one another flourish. This mutual interest mandates that the franchisor and the franchisee work closely together to protect the brand and enhance one another’s mutual interests.
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 Ned Smith, Franchises Play Vital Role in U.S. Economy, Business News Daily, Sept 15, 2010, http://www.businessnewsdaily.com/213-franchise-businesses-play-vital-economic-role.html
 Judge Margaret Mahoney, Selected Issues arising in franchise bankruptcies, Southeastern Bankruptcy Law Institute.
 The First Century of the Detroit Auto Show, Society of Automotive Engineers Inc., January 2000, at 265.
 Auto Retailing: Why the Franchise System Works Best, NADA, last visit September 27, 2014, http://www.nada.org/NR/rdonlyres/DF4863B1-591A-4CA4-917D-45FF870AE3D0/0/Auto_Retai
 LaGuardia Associates, 92 F.Supp.2d at 225.
Regulatory issues in the vast maze dealers must navigate
Dealerships have an ever changing and vast list of state, local and federal laws and regulations that need to constantly be conformed to. Although the following list seems daunting it is not even a full nor all inclusive list that is ever changing. Dealers need legal counsel to aid them in designing advance programs to make sure they comply and evolve with the continually changing regulatory climate. Dealers should consider the following non-exhaustive list of regulations (specifically noting that there are no state laws or regulations listed):