Reprinted from Automotive News, September, 2004
Despite everything you've heard about improving dealer relations, another flood of litigation is just around the corner. Here's why, and here's what you can do to stay out of court.
Intense competition has led many motor vehicle manufacturers to re-focus their business plans and has raised their awareness of the customers' total experience, from sales to service. Manufacturers constantly encourage their dealers to improve their facilities and services and to position dealerships in the most desirable locations. Of course, manufacturers' regional and national strategies may not always coincide with the dealers' perception of local requirements or the dealers' financial objectives. Increasingly, national and regional competitive pressures result in clashes with the dealers' more individually focused concerns. These pressures are producing a growing number of disputes which evolve into litigation.
Common Manufacturer/Dealer Disputes
Disputes between manufacturers and dealers fall into many categories. A few of them are:
- Franchise termination
- Dealer ownership transfer
- Vehicle allocation
- Performance-related bonus and incentive programs
- Manufacturer standards and qualifications (e.g., facilities, sales, and service)
- Dealership relocation issues (especially in communities experiencing population shifts)
Manufacturers rely on generally accepted procedures and standards when addressing these areas. Certainly, in any resulting litigation, the existence of written standards and the manufacturer's implementation of the standards or failure to do so will be an issue.
Developing Standards and Procedures
We have all heard the old maxim that "an ounce of prevention is worth a pound of cure." Nothing could be more true in the context of potential manufacturer-dealer disputes. In this highly regulated industry, manufacturers must understand their legal environment before they begin to manage and shape their regional and national strategies. The manufacturers' task is daunting because they must consider the legislative scheme in each state. Many state legislatures have empowered motor vehicle boards or commissions to enforce the legislative scheme, and have also generally granted them broad rule-making powers. Depending upon the state, these administrative bodies can be very aggressive in protecting the interest of the local dealers.
While there are some similarities, there are sometimes important differences between the states. Hence, a manufacturer's standards and procedures may be perfectly acceptable in one state but interpreted as illegal in another. Dealers, however, have only their own state's laws to worry about, and the state's administrative agency is usually there to protect the interests of the dealers.
A Few Considerations for Manufacturers
Here are a few to-do list items for dealers when re-examining their existing standards and procedures or developing new ones:
- Determine if written standards must be filed with each state's motor vehicle board. Some states refuse to recognize a manufacturer's written standards unless filed.
- Analyze relevant state law. A manufacturer should consider how each state defines the legal concepts of good faith and fair dealing, reasonableness standards, good cause, uniformity, and discriminatory practices
- Carefully analyze business objectives and how they might conflict with local objectives
- Review historic performance and areas of dispute in each region
- Review existing dealer agreements
- Audit written standards and procedures and compare them to actual practice
- Ensure thorough training and communication of standards and procedures
- Monitor implementation to ensure uniformity and to identify areas of potential improvement
Consistent Implementation
It is debatable which scenario is worse, having no standards or having complex standards that are never implemented or inconsistently implemented. Sometimes dealers view manufacturer standards as either too complex, and sometimes standards are inadequately communicated to the dealers responsible for implementing them. Further, relationships between a manufacturer and dealer are frequently dominated by the personalities involved. The resulting lack of uniformity can damage a manufacturer's chance of a favorable result, in both the original business objective and any litigation. For example, many states have laws prohibiting a manufacturer from discriminating against a dealer and other laws that similarly require uniform implementation of manufacturer standards and procedures.
Conclusion
Motor vehicle manufacturers who take a haphazard or reactive approach to pursuing their business objectives typically find themselves with unpredictable or undesirable results. However, consistent implementation of a well-conceived plan enables management to protect the company's interests, particularly in the event of litigation. In the final analysis, there is simply no substitute for careful preparation.