Manufacturer’s Audit Completed: Now What Do You Do?

Your dealership has just been though an audit by your franchisor. You and your team sat with the auditor, you received a recap of the findings, and the amount of the chargeback was presented to you. Now what do you do?

Your primary decision is whether or not you will challenge the chargeback. Most manufacturers provide an internal appeal process, whether it is called an appeal, a mediation, or something else. If you are dissatisfied with the results of the internal process, Virginia provides for a challenge process through a hearing at the Department of Motor Vehicles. There will be multiple decision points throughout the process, but here is a general decision process you can follow.

Internal Appeal to the Factory

  1. 1.    How do you appeal? When considering whether to file an appeal with the factory, the first step is to ask how. Review your dealer manual and determine how you file a challenge. To whom does the communication go? By what means?  What information must it contain? What is your time limit for submitting it?
  2. 2.    How good is your case? Once you have determined how to file an internal challenge to the audit results, the next step is to review the strength of your position. If it is an incentive audit, understand the rules of each program applicable to vehicles for which you received proposed chargebacks. Review your documentation. Did you meet the program requirements? Is there anything missing that can be supplemented? If it is a warranty service chargeback, what is the basis? Understand the manufacturer’s required warranty policies and procedures. Review your paperwork and determine whether you have what you need.
  3. 3.    What state law rights do you have? Virginia provides the strongest protections for an audited dealer in the country. You should understand carefully the rights those laws provide you. Has the auditor looked back to matters longer than six months? Virginia law gives you the right to compensation even though you don’t strictly comply with the manufacturer’s standards; is the auditor aware of that? You will be given the opportunity to appeal before a chargeback can be processed so be sure that you are not charged prematurely. Review the requirements of Virginia law so that you understand your rights.
  4. 4.    How will the matter be determined? If you file under the manufacturer’s internal processes, what will be the process by which it will be considered? Will it be considered strictly on your submission with a decision from the manufacturer’s representative? Or will you be required to appear along with a manufacturer representative to make a presentation to a senior manufacturer person or committee?
  5. 5.    What will it cost? Once you have gathered this information, determine what the internal appeal will cost. Is the cost of the appeal worth the costs both in terms of direct expenses and indirect expenses resulting from people being taken away from what they would otherwise be doing?

Administrative or Judicial Appeal

Once you know the results of the internal appeal process, unless you have emerged victorious, you have a similar decision process to undertake in determining whether you will go farther. You may challenge a manufacturer’s audit decisions by a request for a hearing before DMV. There are a number of questions you will have to ask yourself based on that.

  1. 6.   Review the results of the internal process. Given the manufacturer position and the decision maker’s findings, are you still convinced about the strength of your position?
  2. 7.    What is the state process you will have to follow? The Department of Motor Vehicles hearing is a legal proceeding in which you will probably require legal representation.
  3. 8.    Understand the costs. In addition to attorneys fees, you may have personnel tied up as witnesses at any hearing. You will have personnel who will be responsible to put together material in any discovery during the challenge process. Calculate your direct costs and indirect costs and determine whether the benefit of a proceeding is outweighed by the costs.
  4. 9.    Is there a chance to settle? Your franchisor will go through a similar decision process, especially after the internal proceedings are complete. It will have to hire a lawyer in Virginia, it will have the expense of discovery, and it will have people tied up in discovery, meetings, and hearings. Is there a possibility that the parties can find some common ground and settle?
  5. 10.  Is there an opportunity to obtain an award of attorneys fees? Virginia law provides for recovery of attorneys fees for a dealer that prevails in a DMV hearing.

The decision is not a static one that is made irrevocably once the audit is complete. There are opportunities throughout the appeals process to reconsider as developments occur. However, be prepared to apply this decision chain if you are considering an appeal of audit results.