Most franchisors impose requirements on dealers to prevent sales of new vehicles for export. U.S. franchisors contend these limitations are necessary because their rights to distribute vehicles are limited to this country, and any dealer sales for shipment to other countries will cause a violation of contractual limitations.
Many manufacturers regularly review port export reports, and they impose chargebacks on dealers for “swimmers” – vehicles sent outside the country. Dealers have great difficulty trying to identify those who will or may export, and this is complicated by the efforts of some exporters to train straw buyers.
Given the interests of the franchisors in the appropriate distribution of vehicles and dealer sales and service agreements preventing sales for export, dealers must try to protect their relationships with their franchisors. Many dealers have put in place processes to identify straw buyers and prevent sales to exporters. Some dealers use agreements with buyers that they will not export the vehicle for a period of time.
Dealers are frequently concerned about claims of discrimination or other legal actions resulting from their efforts to prevent exporting. The need to comply with franchisor requirements to protect the right to sell and service vehicles is critical for dealers. Nevertheless, a potential buyer may seek to challenge a dealer’s practices. An example of what dealers fear has happened in California where an exporter has sued a dealer and a franchisor. The plaintiff identifies itself as “a licensed wholesale automobile broker/dealer in the State of California.” One defendant is a Land Rover dealer in Portland, Oregon and the other is the franchisor – Jaguar Land Rover of North America. The dealership required the buyer to sign an agreement that it will not export a new vehicle imposing liquidated damages if it does so. The lawsuit alleges an illegal conspiracy between the dealer and JLRNA in violation of the antitrust laws by preventing the exporter from buying vehicles and selling them as it wishes.
We will see from developments whether it states a claim. The case clarifies dealers’ needs to be careful in activities to prevent exports.
Across the country, including Virginia, states have passed laws permitting a franchisor to penalize dealers only for exports about which the dealer knew or should have known. These state laws provide no license to sell to exporters, however. To the extent possible, a dealer must take action to identify potential exporters and not do business with them.
- Implement a process to identify potential exporters.
- Check the names of new vehicle buyers against the list of exporters a manufacturer may provide to you.
- If your manufacturer has provided a list of suggested export “signals”, follow that. You have the right to refuse to sell a vehicle to someone whom you suspect to be an exporter.
- If the dealership finds itself threatened with legal action or is sued for its activities in protecting against exporting activity, seek indemnification from the manufacturer. The activities to protect against exporting protect the manufacturer’s rights under its agreements with the supplier of vehicles. The franchisor should indemnify the dealer against any lawsuit challenging the activities of the dealer to protect the rights and interests of the franchisor, particularly where the dealer has complied with the franchisor’s policy.