Australia’s Holden Dealers could combine to launch a $2 billion lawsuit against General Motors in a bid to extract from the Detroit car maker what they believe they are owed.

GM announced in February that it would cease manufacture of right hand drive vehicles by the end of 2020. The decision leaves Holden Dealers in the lurch, having extended their franchise agreements in 2017 until the end of 2022.

The national Holden network, made up of 185 dealers who between them run 203 showrooms, has contracted HWL Ebsworth lawyers and forensic accountants KPMG to handle negotiations with GM. The US giant has made offers to some Dealers, which Dealers have described as “grossly inadequate”.

Dealers believe the offer is not a fair reflection of the financial impact on their businesses and staff. GM says about 1000 staff will be impacted, but Dealers argue the number is more like 9000.

Whether the legal action goes ahead might depend on the outcome of a Senate Inquiry, with both the Federal Government and the Opposition pledging to ensure GM meets its obligations under Australian law to Dealers, their employees and customers.

With most Holden Dealers having received their compensation offers in meetings with GM representatives, and the rest having a ballpark idea of the offer they are likely to receive, there is a feeling that the offers fall well short of acceptable.

Holden Dealers feel GM has let them down since the last franchise agreements were signed in 2017. GM encouraged them to invest in new facilities or renovate existing ones – millions of dollars – and even denied them the opportunity to expand into other brands. Diversifying would have protected stand-alone Holden Dealers, and they feel especially betrayed given GM probably intended to withdraw from Australia even at that point. Other Dealers are committed to costly long-term leases.

It has been reported that the compensation offers have been as low as $100,000, ranging up to $2.4 million. GM says it determined the figures based on the average net profit each location earned from new Holden sales between 2017 and 2019 inclusive, multiplied by 2019 sales, and extrapolated out to the end of 2022. It will also factor in unamortised costs of facilities including showrooms and signage.

A Holden spokesman said: the company believed it was doing the right thing by its Dealers and that the offers were fair.
“In most cases Holden Dealers will receive compensation a factor of four times the average Holden new car profit/unit of all dealerships over the 2017-2019 fiscal years. This number includes the sale of highly profitable domestically produced Commodore units in 2017/18,” the company said in a statement.

“The compensation formula Holden is using is applied consistently for all Dealers and covers reasonable earning expectations from the New Holden sales department over the remaining portion of the Dealer Agreement. All Dealers also have the opportunity to continue as Holden Authorised Service Outlets, maintaining their current service and repair client base. This is a consistently very profitable part of their businesses.

“The proposed compensation also includes a provision to reimburse Dealers for a portion of their unamortised investments in their new car showroom, as well as full reimbursement of unamortised investments in Holden dealer signage.”