Updates For Lincoln Dealers

September 30, 2010

Good afternoon.

With the recent announcement by Ford that it plans to reduce the number of Lincoln dealers, some have speculated that Ford will use a variety of tactics to terminate dealers or to cause dealers to resign their franchises. We want to remind you of the rights of Virginia dealers in standing up to some potential tactics.

Sell or Resign

A manufacturer cannot force a dealer to sell or resign its franchise. It can only seek to terminate a dealer. To do so, it must show that it has good cause to end the dealer’s rights. This involves a lengthy process in which the manufacturer has the burden to show by a preponderance of the evidence that the dealer has failed to fulfill a broad range of responsibilities. The Virginia statute makes it unlawful:

5. Except as otherwise provided in this subdivision and notwithstanding the terms of any franchise, to terminate, cancel, or refuse to renew the franchise of any dealer without good cause and unless (i) the dealer and the Commissioner have received written notice of the franchisor's intentions at least sixty days prior to the effective date of such termination, cancellation, or the expiration date of the franchise, setting forth the specific grounds for the action, and (ii) the Commissioner has determined, if requested in writing by the dealer within the sixty-day period and, after a hearing on the matter, that the franchisor has shown by a preponderance of the evidence that there is good cause for the termination, cancellation, or nonrenewal of the franchise…VA Code 46.2-1569(5).

A dealer who challenges a termination may stay in business until the Commissioner of Motor Vehicles finds that a manufacturer has good cause to terminate, and a court agrees if the decision is appealed:

In any case where a petition is made to the Commissioner for a determination as to good cause for the termination, cancellation, or nonrenewal of a franchise, the franchise in question shall continue in effect pending the Commissioner's decision or, if that decision is appealed to the circuit court, pending the decision of the circuit court. In any case in which a franchisor neither advises a dealer that it does not intend to renew a franchise nor takes any action to renew a franchise beyond its expiration date, the franchise in question shall continue in effect on the terms last agreed to by the parties…”  VA Code 46.2-1569(5)

Pressure to Upgrade Facilities

Under Virginia law, the decision to upgrade facilities is the dealer’s. As long as a dealer meets the facility requirements of its franchise agreement, the manufacturer cannot refuse to provide a dealer rights or benefits available to others because the dealer refuses to upgrade its facilities. Because it cannot require a dealer to upgrade, it cannot withhold incentives as a condition for failure to upgrade. A dealer has a right to challenge any attempt to penalize it for failing to upgrade facilities:

§ 46.2-1572.3. Waiver prohibited.

No motor vehicle manufacturer, factory branch, distributor, distributor branch, or subsidiary thereof shall obtain from a motor vehicle dealer a waiver of the dealer's rights by threatening to impose a detriment upon the dealer's business or threatening to withhold from the dealer any entitlement, benefit, or service to which the dealer is entitled by virtue of any franchise agreement, contract, statute, regulation, or law of any kind or which has been granted to more than one other franchisee of the manufacturer, factory branch, distributor, or distributor branch in the Commonwealth…

New Models

Under Virginia law, a manufacturer cannot threaten to withhold new models from a dealer if it does not make facility upgrades as demanded.   Virginia law is quite clear that a dealer is entitled to all models of the line make manufactured by the franchisor. It is unlawful for a franchisor:

7a. To fail or refuse to offer to its same line-make franchised dealers all models manufactured for the line-make, or require a dealer to pay any extra fee, or remodel, renovate, or recondition the dealer's existing facilities, or purchase unreasonable advertising displays or other materials as a prerequisite to receiving a model or a series of vehicles. VA Code 46.2-1569(7a).

We want to be sure you are aware of your rights under Virginia Code as you consider a possible manufacturer contact about terminating your franchise.

We will continue to monitor this issue and provide additional information as it becomes available.

September 30, 2010

Good afternoon.

With the recent announcement by Ford that it plans to reduce the number of Lincoln dealers, some have speculated that Ford will use a variety of tactics to terminate dealers or to cause dealers to resign their franchises. We want to remind you of the rights of Virginia dealers in standing up to some potential tactics.

Sell or Resign

A manufacturer cannot force a dealer to sell or resign its franchise. It can only seek to terminate a dealer. To do so, it must show that it has good cause to end the dealer’s rights. This involves a lengthy process in which the manufacturer has the burden to show by a preponderance of the evidence that the dealer has failed to fulfill a broad range of responsibilities. The Virginia statute makes it unlawful:

5. Except as otherwise provided in this subdivision and notwithstanding the terms of any franchise, to terminate, cancel, or refuse to renew the franchise of any dealer without good cause and unless (i) the dealer and the Commissioner have received written notice of the franchisor's intentions at least sixty days prior to the effective date of such termination, cancellation, or the expiration date of the franchise, setting forth the specific grounds for the action, and (ii) the Commissioner has determined, if requested in writing by the dealer within the sixty-day period and, after a hearing on the matter, that the franchisor has shown by a preponderance of the evidence that there is good cause for the termination, cancellation, or nonrenewal of the franchise…VA Code 46.2-1569(5).

A dealer who challenges a termination may stay in business until the Commissioner of Motor Vehicles finds that a manufacturer has good cause to terminate, and a court agrees if the decision is appealed:

In any case where a petition is made to the Commissioner for a determination as to good cause for the termination, cancellation, or nonrenewal of a franchise, the franchise in question shall continue in effect pending the Commissioner's decision or, if that decision is appealed to the circuit court, pending the decision of the circuit court. In any case in which a franchisor neither advises a dealer that it does not intend to renew a franchise nor takes any action to renew a franchise beyond its expiration date, the franchise in question shall continue in effect on the terms last agreed to by the parties…”  VA Code 46.2-1569(5)

Pressure to Upgrade Facilities

Under Virginia law, the decision to upgrade facilities is the dealer’s. As long as a dealer meets the facility requirements of its franchise agreement, the manufacturer cannot refuse to provide a dealer rights or benefits available to others because the dealer refuses to upgrade its facilities. Because it cannot require a dealer to upgrade, it cannot withhold incentives as a condition for failure to upgrade. A dealer has a right to challenge any attempt to penalize it for failing to upgrade facilities:

§ 46.2-1572.3. Waiver prohibited.

No motor vehicle manufacturer, factory branch, distributor, distributor branch, or subsidiary thereof shall obtain from a motor vehicle dealer a waiver of the dealer's rights by threatening to impose a detriment upon the dealer's business or threatening to withhold from the dealer any entitlement, benefit, or service to which the dealer is entitled by virtue of any franchise agreement, contract, statute, regulation, or law of any kind or which has been granted to more than one other franchisee of the manufacturer, factory branch, distributor, or distributor branch in the Commonwealth…

New Models

Under Virginia law, a manufacturer cannot threaten to withhold new models from a dealer if it does not make facility upgrades as demanded.   Virginia law is quite clear that a dealer is entitled to all models of the line make manufactured by the franchisor. It is unlawful for a franchisor:

7a. To fail or refuse to offer to its same line-make franchised dealers all models manufactured for the line-make, or require a dealer to pay any extra fee, or remodel, renovate, or recondition the dealer's existing facilities, or purchase unreasonable advertising displays or other materials as a prerequisite to receiving a model or a series of vehicles. VA Code 46.2-1569(7a).

We want to be sure you are aware of your rights under Virginia Code as you consider a possible manufacturer contact about terminating your franchise.

We will continue to monitor this issue and provide additional information as it becomes available.