Franchisors are Becoming More Aggressive; What About You?

New car dealers are increasingly restive about the aggressiveness of franchisors. 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.

Dealers often speak about many reasons to not confront their franchisors. But how sound are these in the face of increasing onslaughts?

  • The factory is our partner. Really? 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, like VADA, 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?

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 Virginia 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. And be prepared to file a legal challenge if the franchisor tries to shrug you off.

Retail labor and parts.  Virginia law allows you to recover retail compensation for warranty labor and/or warranty parts.  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 in violation of the law, take action. Appeal any decision using the franchisor’s internal appeal process.  Consider taking legal action with the DMV 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. Virginia law provides for your right to challenge the franchisor’s audit results using the DMV hearing process. 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? Virginia requires  OEMs to pay you if they order you to ground used cars. 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. Do not let OEMs make their recall problems yours.

Dealer Agreements.  Is your manufacturer complying with your dealer sales and service agreement? Is it authorizing jobbers to sell OEM parts in competition with you, as one manufacturer has recently announced? Is it setting up certified body shops to compete with your body shop as an importer has recently done? Is it demanding that you make false and deceptive disclosures if you agree with a customer to use non-OEM parts in a repair or in reconditioning an older used car, as another manufacturer has recently done? If you disagree with the actions of your franchisor, let it know.

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.