Trust but Verify

When asked for the one piece of advice to give to a dealer on franchise relations, President Ronald Reagan’s often repeated phrase that characterized his relations with the Soviet Union is a good choice – “Trust but verify.” A cordial, professional rapport is important to the franchisor/franchisee relationship.   But, a franchisor will always operate in its best interests, whether or not that is best for the dealer.  

“Wait,” you say.  “Reagan’s advice is really not apt since Reagan was suspicious of the Soviets’ motives, while the factory is my business partner.”  Really?  Have you looked carefully at what your partner is doing these days?

Some manufacturers have been working overtime coming up with programs to make your business and customers less yours and more theirs.

For example, consider the standardized fascia or the designated wall panels you had to install on your building. The factory wants them to function for car customers the same way that the golden arches function for hamburger buyers

And how about those standards you must meet from greeting customers to delivering vehicles?  Many manufacturers want to be Apple, but without the hard part of creating iconic products through innovation and hard work .  To them, imposing on you a cookie cutter process for serving customers is the next best thing.

Many factories today want their dealers to be their outposts that they fully control without the investment (except for that program money that really came from your former new car margin) and without the headaches of managing personnel and dealing one-on-one with customers. It wants to tell you how your business must look and how you must use standard processes so that your customers identify more with the factory than with you. 

An example of factory overreach in support of this goal is Chrysler’s recently circulated form Software License, Data Exchange, and Electronic Commerce Agreement.  Presented as a simple update of an agreement from a decade ago to facilitate electronic ordering and communications, it is really a major factory grab of substantial confidential operating information and customer data that dealers don’t have to give to Chrysler under the dealer agreement. 

  • The data agreement gives Chrysler the right to access, store, and use confidential dealership operating information as well as customer information the dealer doesn’t already provide. The agreement assures dealers that they still own this information.  But Chrysler gets a “royalty-free, perpetual license” to use the information.  Chrysler doesn’t need to own the information if it can keep it and use it any way it wishes consistent with the agreement.
  • Chrysler does agree to maintain the confidentiality of dealer information.  But it doesn’t need to sell or circulate dealer identifiable information outside of Chrysler to make it valuable. It can create compilations of “anonymized” information that it can sell or circulate outside of Chrysler. And it may disseminate all of a dealer’s confidential information rather freely within Chrysler and to its affiliates without having to anonymize it.
  • The agreement allows Chrysler to use a dealer’s information in any legal proceedings. Translation: if a dealer gets into a dispute with Chrysler, the factory doesn’t need to do time-consuming discovery.  It already has the dealer’s important information that it is free to use any way it wishes in the case.
  • Chrysler can provide a dealer’s confidential information in response to a subpoena and doesn’t need to make the dealer aware of it. Folks in lawsuits with a dealer don’t need to obtain confidential business information through discovery where the dealer may convince the court that they should not have access to it. They can just subpoena Chrysler that has the right to turn over all of a dealer’s confidential information if it chooses to do so without notice to the dealer.
  • Chrysler can terminate the data agreement with thirty days notice, but there is no provision for a dealer to do so.

So what is the object lesson from this for all dealers? When presented with an agreement from a manufacturer, ask, “Why must I or why should I sign this?”  Many manufacturers regularly have representatives show up at your dealership and put a document in front of you with a request to  sign it.  A dealer should never sign a document that is simply presented for execution.

 “Trust but verify” is not the only Reagan advice that is important for franchisees today.  When the factory rep walks into your office and puts a document in front of you to sign or the document is delivered to you with a demand that you sign, take some time.  Read it, understand it, and ask for advice from an experienced dealer lawyer, if necessary.  Unless you are required to sign it, or you see the benefit to you of signing it, you may want to follow the words of Nancy Reagan and “just say no.”