Around 220 vehicle dealers in the United States for American Suzuki Motor Corp. are facing two options with regards to the company’s filing for Chapter 11 bankruptcy: surrender their franchise agreements in exchange for cash settlement, or file a claim in the company’s bankruptcy case. American Suzuki filed for Chapter 11 bankruptcy on Nov. 5, 2012 to wind down its automotive division in the US.
The company is seeking to reject the franchise agreements of its US dealers, asking them to surrender the franchises voluntarily, in exchange for cash as well as new contracts to operate Suzuki parts and service outlets.
However, dealers should consider whether Suzuki’s cash offers are what they could receive under state franchise laws.
Had Suzuki just cancelled the franchise agreement outside bankruptcy court, state franchise laws would have compelled the Japanese carmaker to buy back new-vehicle inventory and parts as well as to compensate dealers for facilities and other costs.
A National Automobile Dealers Association official remarked that Suzuki dealers should receive what they would be entitled to under franchise laws.
The NADA official also advised the dealers to consult lawyers before making any move. It has been disclosed that Suzuki has been making offers to dealers since last week. If a dealer throws out the settlement offer, he could opt to file a claim in the bankruptcy case for what is believed to be owed.
However, doing such could mean that a dealer could only recover a small fraction of his claims by the time Suzuki pays off other, higher-priority creditors.
On the other hand, if a dealership accepts the offer, it could collect the full settlement amount, which is reached by measuring dealership sales, rent, vehicles in inventory, facilities investment and other metrics.