Remember: Your Franchisor Is a Supplier


We have written extensively about protecting your dealership when contracting with suppliers. Some dealers may not view their franchisors as suppliers, but they are if programs are offered, not mandated.  You cannot negotiate the standard terms of your dealer sales and service agreement. However, if a program is “voluntary” (we understand we must use this word carefully since the incentives, threats, and pressure hardly make manufacturer programs look voluntary), you do have the right to just say no.

Review a manufacturer’s agreement for a program that is “voluntary” just as you would any other supplier agreement.  One area in which franchisors are active today are data sharing agreements.  Your manufacturer will offer a service for you sharing your customer data. Consider what you are getting and what you are giving up before signing such an agreement.

Terms in any data sharing agreement will have an impact on your dealership.  Here are some to which you should give attention.

Who owns your data?

Does the agreement provide that your manufacturer owns your data to which it has access? If so, seriously consider whether this is a program to which you wish to subscribe. It is your data. Your customer information is a valuable dealership asset. Maintain your ownership of it. Once you give up your rights, a manufacture can do anything it wants with it, including providing it to your competitors if you no longer wish to cooperate with the franchisor on the program.

Is your franchisor required to safeguard your data?

The FTC Information Safeguards Rule requires that a supplier agree to safeguard consumers’ non-public personal information you share. Typically, manufacturer agreements provide only that a dealer will safeguard data with no corresponding requirement on the manufacturer. Some information must be shared with a manufacturer to start warranty coverage or to comply with recall obligations.  However, much of the information collected and shared with a manufacturer under a data sharing agreement is not something that must be shared, and it should be protected by a safeguard agreement.  Any sharing agreement should provide that the manufacturer will safeguard information provided by the dealership.

If there is a problem, who indemnifies whom?

Too often, in franchisor data sharing agreements, dealers must indemnify manufacturers, but manufacturers do not have similar obligations. That means if a problem leads to a lawsuit against the dealer because of an action by the manufacturer or its representatives, a dealer has no recourse to require the manufacturer to answer for what it causes. Indemnification provisions should be mutual, with each party responsible to indemnify for problems it may cause. The same is true for responsibility for the attorneys’ fees of the other party.  Too often, manufacturer agreements provide that dealers are responsible for manufacturer attorneys’ fees to litigate over a problem with no similar obligation of the manufacturer.  An attorneys’ fee provision should provide for the prevailing party to recover fees and costs.

How can a dealer cancel the agreement?

Often, a manufacturer can cancel the sharing agreement if it contends the dealer breached it. However, a dealer is bound for as long as it is a franchisee.  If an agreement is truly “voluntary”, the dealer should have the right to cancel its participation.  Under Virginia law, a dealer can cancel a data sharing agreement with no more than sixty days notice.

What law will apply to the agreement?

The law applicable to the agreement should be that of the state in which the dealer is located.  The manufacturer may want to mandate application of the law where it is located, but what impact will that have on a dealer? For example, we have written about the burdensome California data sharing law that goes into effect January 2020. If the agreement provides that conduct under the agreement is subject to California law, does that mean dealers in other states must provide to their customers the rights of the California data sharing law?  Until there are regulations and judicial decisions about the new law, no one can answer that question definitively, making dealers potentially subject to private lawsuits under the statute.

How are you required to make data available to your franchisor? 

A Virginia dealer, by statute, may elect to “push” consumer data to the franchisor rather than providing access to its system and it may choose to provide data in a way that is consistent with its policy for compliance with the FTC Privacy Rule.