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GM Holden snubs compo claims

Dealers across the ditch have had their call for extra cash firmly turned down as the carmaker responds to threats of legal action.
Posted on 06 May, 2020
GM Holden snubs compo claims

GM Holden has rejected what it calls “inaccurate claims, assumptions and costs allocations” made by dealers in Australia and is standing by its offer of compensation after deciding to pull the pin on the Holden brand.

Law firm HWL Ebsworth (HWLE), representing 185 Holden dealers across the ditch, was seeking more than four times the amount of compensation per car offered to its clients and threatening legal action.

The stoush between the two parties comes after General Motors (GM) announced in February it was retiring the Holden brand from New Zealand, Australia and Thailand by the end of 2020.

GM says it has provided a response to HWLE following an analysis by PricewaterhouseCoopers (PwC) and Norton Rose Fulbright of the dealers’ claims. It adds that it considers its transition support program is “more than fair and reasonable, even before the devastating impact of Covid-19 on the economy and industry”. 

“The HWLE proposal made a number of inaccurate claims, assumptions and costs allocations,” GM says in a statement issued on May 5. 

“It also made baseless allegations of unconscionable and misleading conduct which are plainly wrong and unsupported by fact or law. These allegations are categorically rejected by GM Holden.”

GM says its compensation offer for new vehicle sales was calculated using three fiscal years, 2017-2019, and amounts to A$1500 (NZ$1,594) per car – in addition to funding for recent showroom upgrades and other associated costs. 

“This compensation is over four times what the average dealer made in the new vehicle department over this same time frame,” it says.

“HWLE has claimed that such amount should be A$6,110. The PwC analysis of HWLE’s modelling for such amount identified a number of inaccurate assumptions and cost allocations.

“For example, it omitted to factor in dealers’ opportunity to continue the service, repair, warranty and parts activities. Aftersales is typically one of the most profitable parts of a dealer’s business representing on average up to 115 per cent of a dealer’s total net profit in 2019.”

Aftersales opportunities

Even though the Holden brand is being pulled from right-hand-drive markets, GM plans to maintain an aftersales operation in those countries for at least 10 years.

GM also claims the HWLE proposal was “wrongly based on 7.7 years of compensation when there is approximately 2.5 years remaining on the current agreement”. 

“After the wind down of Holden new vehicle sales, dealers can continue to service and repair vehicles through to the end of the current agreement,” it says. “If they accept the compensation offer, dealers are also given the opportunity to continue as Holden authorised service operations beyond the current agreement.

“PwC, after making appropriate corrections and adjustments, concluded that an appropriate range of compensation is actually A$350-A$1,409 per vehicle.”

The statement also says GM rejects HWLE’s claims of misleading, deceptive or unconscionable conduct.

“These claims are based on a bizarre and illogical argument that GM has secretly planned to shut down Holden since at least 2015, but made various significant investments in programs, plans and strategies to support and promote Holden in order to mislead dealers into thinking that there was no secret plan to shut down Holden,” the statement adds.

“It defies logic to believe that GM intended to close Holden while investing heavily in new or updated right hand drive models.”

The statement highlights investments in marketing campaigns and engineering staff, ongoing spending on motorsport and other sponsorships, and upgrades to facilities at the company’s proving ground at Lang in Victoria.

“Investments such as these cannot by any logic be held to be the actions of a company that allegedly intended to close through that time,” it adds.

“As the company stated on February 17, ultimately GM came to the very difficult decision that it could not support further investment in growing the Holden business into the future, because it could not meet GM’s investment thresholds.”

Case studies

GM has also put forward details of two case studies to bolster its arguments.

Medium-sized dealership: “For a medium-sized Holden dealership which sold 190 cars in 2019, GM Holden’s per vehicle compensation offer totals A$712,500. This significantly exceeds the average medium-sized dealer’s total net profit in 2019 across its business of approximately A$200,000. It should be noted the A$200,000 figure includes the very profitable service and parts business which dealers will continue to benefit from going forward. In contrast, under the HWLE formula, the compensation for that dealer would be A$8,936,930.”

Large-sized dealership: “In the case of a large Holden dealer who sold 466 cars in 2019, the per vehicle compensation offered by GM Holden totals A$1,747,500. This significantly exceeds the average large-sized dealer’s total net profit in 2019 across its business of approximately A$330,000. It should be noted the A$330,000 figure includes the very profitable service and parts business which dealers will continue to benefit from going forward. In contrast, under the HWLE formula, the compensation for that dealer would be A$21,923,902.”