Dealers Should Trust But Verify

Good rapport is important to the franchisor-franchisee relationship. But a franchisor always will operate in its best interests.

Michael Charapp

February 21, 2013

3 Min Read
Dealers Should Trust But Verify


When I am asked for one piece of advice to give to a dealer on franchise relations, I generally cite President Ronald Reagan’s famous quote characterizing his relations with the former Soviet Union: “Trust but verify.”

A cordial, professional rapport is important to the franchisor-franchisee relationship. But a franchisor always will operate in its best interests, whether or not that is best for the dealer.  

“Wait,” you may say. “Reagan’s advice really is not apt because he suspected Soviet motives, while the factory is my business partner.” Really? Have you looked carefully at what your partner is doing these days?

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

Consider the standardized fascia or the designated wall panels that you had to install on your building as part of widespread facility-upgrade programs auto makers push.

The factory wants them to function as a brand cue for customers the same way the golden arches function for McDonald’s hamburger buyers. 

And how about those standards you must meet from greeting customers to delivering vehicles? Many auto makers want their brand to be like 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 dealerships to be outposts that they fully control without the investment (except for program money that really comes from your former new-car margin) and without the headaches of managing personnel and dealing one-on-one with customers.

They want to tell you how your business must look and how you must use prescribed processes so that your customers identify more with the factory than with you. 

An example of factory overreach 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 really is a factory grab of confidential operating information and customer data that dealers don’t otherwise have to give under the dealer agreement. 

But 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 they still own this information. But Chrysler gets a “royalty-free, perpetual license” to use it. Chrysler doesn’t need to own the information if it can keep it and use it in any way it wishes that is consistent with the agreement.

Chrysler’s rights to use a dealer’s data are substantial. While it does have to protect the confidentiality of a dealer’s information, it can create compilations of “anonymized” information that it can sell or circulate outside of Chrysler.

It may disseminate all of a dealer’s confidential information rather freely within Chrysler and to its affiliates without having to anonymize it.

So what is the object lesson 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 presented that way.

“Trust but verify” is not the only Reagan advice that is important for franchisees today.

When the factory rep 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, if necessary, seek advice from a dealer lawyer. 

Unless you are required to sign it, or you see the benefit of signing it, you may want to follow the advice of former First Lady Nancy Reagan who said, “Just say no.”

Michael Charapp is a lawyer who represents auto dealers. Based in McLean, VA, he is at 703 564-0220 and [email protected].

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