August 14, 2025
By Barrie Charapp Beaty
Charapp & Weiss, LLP
bbeaty@cwattorneys.com
For many years, we have been writing about the attack by the manufacturers on dealers’ rights and businesses. However, many dealers wish not to upset the apple cart or enforce the rights in which their franchise acts provide them.
In the latest act of boldness, the Alliance for Automotive Innovation, known to you as the Alliance, sent a letter in May to the Justice Department requesting that it examine franchise laws, specifically as it relates to add-points and warranty reimbursement. Like the Alliance, Scout, a wholly owned subsidiary of Volkswagen that is no different than Audi, sent a letter requesting that the federal government intervene to get rid of state laws that ban direct to consumer sales. Essentially, the letters by the Alliance and Scout shared a common theme, that state franchise laws are archaic, unnecessary, and anti-competitive. All of which could not be further from the truth!
Whether it is costly facility or image demands, increasing reliance on stair step incentives with easy disqualifiers, refusals to comply with state laws on retail reimbursement on labor and parts, frequent audits that violate state law, or chipping away dealer’s franchise rights, dealers are finding franchisors to be increasingly demanding and unreasonable. And now, they flat out told the federal government that dealers should have no rights in state franchise acts.
Dealers have for years acquiesced to the desires of the manufacturers. But how sound are these in the face of increasing onslaughts?
- The factory is our partner. Really? The relationship is verging on domestic abuse. Franchisors see you as their partner as long as you do as they say. Disobey and you must face discipline. That is hardly a partnership.
- You want to sell cars and make money. Clearly that is why you are in business. However, the increasing demands and tactics infringe on your ability to sell cars. The age-old punishment of making sure your allocations are of less desirable models and colors, or simply reducing your allocations without explanations, affects your ability to get the products you need to sell cars. Increasing facility and image requirements, that are backed with little justification, force you to spend money with no evidence of a return and impact your ability to make money. And, let’s not forget the unfair performance requirements often attached to stairstep incentives that prevent you from qualifying for funds to turn per vehicle losses into profits.
- What good will it do? Any manufacturer or distributor has hundreds or even thousands of franchisees. If they are dissatisfied, they must make it known. Often, a state trade association will take up an issue with a franchisor only to be told that it is not hearing from its dealers they are dissatisfied. If you are dissatisfied, let the franchisor know. Only when the hundreds or thousands of franchisees individually make their voices heard will the franchisor pay attention.
- The franchisor has more resources than you do. There is no question, but how effective are those resources when franchisees all over the country make their dissatisfaction known and back that with commitments to legal action? That does not mean you can agree with other dealers to work together or to take legal action against the manufacturer. However, if each dealer exercises its own rights, then a manufacturer will be hard pressed to maintain an oppressive regime against all its dealers.
What should concern dealers?
Retail labor and parts. Does your state allow you to recover retail compensation for warranty labor and/or warranty parts? If so, is your franchisor complying with the law? Too often, a factory will feign compliance, but chop down your actual compensation below retail rates. If you believe you are being shorted contrary to what your state requires, take action. Appeal any decision using the franchisor’s internal appeal process. Take action under your state’s statute if that does not work.
Audits. Too often manufacturers simply disregard state law when performing warranty and incentive audits. They make unfair chargebacks that are unsupported by their programs or by the law. You can meet with an auditor before the audit is completed to point out the shortcomings of the audit. Do that. Most manufacturers have an internal appeal process. Use it. Every state has a process to challenge the franchisor’s audit results. Use that. You will find you can make progress with the franchisor at each step. You will not, however, protect your rights unless you use them, including filing a legal action to challenge unfair chargebacks.
Recall Expenses. Is the manufacturer in compliance with federal and state laws on recall expenses? OEMs should be solely responsible for the expenses of recalls. There is a provision under federal law to compensate you if you have grounded new vehicles. Are you being paid? Some states have provisions requiring OEMs to pay you if they order you to ground used cars, such as Virginia. Is your manufacturer complying with that? Is your OEM refusing to compensate you or charging you back for expenses for rental vehicles it offers to customers? It may try unless you challenge it. Are you being properly compensated for the service and the parts used in recall operations? Sometimes an OEM may contract labor time or prescribe unrealistically low parts pricing for recall operations. Some states like Virginia, have protections against parts pricing for recall repairs. Do not let OEMs make their recall problems yours.
Performance calculations and disqualifications from programs. Manufacturers are increasingly including performance qualifiers on incentive programs. And those performance qualifiers are often unfair and based on faulty information. They are backed by statistically unsound calculations, meaning they are not fair and are improper under state law. If you believe that the measurements of your performance are unfair, you must object to your franchisor. Is your primary market area correctly defined? Do the performance calculations reflect geographic and demographic differences in your market compared to the market the franchisor uses as its base? Are you receiving sufficient supplies of vehicles to allow you to meet the performance targets set by your franchisor? If you believe you are being treated unfairly, take issue. Any communication that you receive questioning your performance shall be answered and countered. And be prepared to file a legal challenge if the franchisor tries to shrug you off.
Dealer Agreements. Is your manufacturer complying with your dealer sales and service agreement? Are they asking you sign something that is against your state law? Is the manufacturer asking you sign a data share agreement that is invalid in your state or makes you subject to another state in which you don’t operate? Make sure the addendums you sign do not waive rights or have admissions that will cause issues in the future. If you disagree with the actions of your franchisor, let it know. Use the checklist provided to assist in reviewing and entering into documents with your manufacturer.
Too often, manufacturers and distributors justify oppressive actions by claiming the dealer advisory committee has gone along with it. But you know that is just cover. Often, well-meaning dealers on those advisory committees are not given enough information or an opportunity to challenge improper franchisor actions.
If you believe your franchisor is out of line, let it know. If it is taking actions that ignore your rights and damage your business, be prepared to take legal action against the manufacturer to protect your rights. Only when dealers stand up and individually take the steps they must to challenge manufacturers and distributors can they expect them to listen to the collective voices of dealers. The state franchise acts are there to protect you no matter how much the franchisors want them gone, and dealers need to use them!