When Silence Isn't Golden

Some new car dealers feel that it is not important to respond to communications from a franchisor. Why should I spend my time, they reason. What good will it do? While you should not be concerned about replying to normal marketing communications or policy directives, it is important to answer factory correspondence potentially affecting your franchise or criticizing your dealership's performance.

Some new car dealers feel that it is not important to respond to communications from a franchisor. “Why should I spend my time,” they reason. “What good will it do?”

While you should not be concerned about replying to normal marketing communications or policy directives, it is important to answer factory correspondence potentially affecting your franchise or criticizing your dealership's performance. Think about the following situations:

  • A dealer challenges a termination by a franchisor for deficient sales performance. The dealer claims his sales territory includes geographic areas for which he should never have been responsible. The manufacturer responds that the dealer never complained when the territory was redrawn to add the new areas.
  • A dealership complains to the state because it cannot do an off-site sale at a location where it has been held for years because the franchisor removed from the dealer's market area the census tract where the offsite sale location is located. The franchisor responds that the dealer didn't complain when the market area reduction took place.
  • A dealer complains about chargebacks for new vehicles exported. The franchisor responds that the dealer did not complain when the franchisor sent the initial notice of potential export chargeback.

What is the common thread through these situations taken from actual cases? In each, it is the claim by the franchisor that the dealer's position is not legitimate since it acquiesced by silence in the face of important communications from the franchisor. So what lesson should a dealer take from this?

  • Read every communication from your franchisor. General policy documents, normal marketing and product communications, and those pertaining to service or parts operations should be routed to managers in charge of those departments. Those that may affect the franchise or that contain warnings about the dealership's performance must be handled by the dealer.
  • Get help. Is the letter sent to you being sent to other dealers, too? Or have you been singled out for the action? Your state association may be able to determine whether it is a mass communication or not. An attorney knowledgeable about dealership law will be able to help.
  • Know your state law rights. State law protections are critical. Understand those protections. If you have questions, ask the experts — your state association executives or an attorney knowledgeable in state-dealership law.
  • Answer all communications that are potentially prejudicial or a threat to your dealership. Read the correspondence thoroughly. Understand each point. Sometimes, the manufacturer's complaint will simply be overblown. Sometimes it will be a complaint about deficient performance in a matter that is not required by your franchise agreement. Sometimes it will be a serious issue, but the information may be outdated by changes you have already made. Answer every point.
  • If the claims are based on measurements that appear to be wrong, request detailed explanations.
  • Don't be afraid to ask for a meeting to state your position and to request changes.

The tips listed above are designed to protect your position in the event of legal action with your franchisor. However, you are in the business of selling and servicing cars, not inviting legal actions.

Improper measurements of your performance can lead a franchisor to disqualify you from earning incentive payments or disqualifying you for performance awards. They can even lead a manufacturer to consider a new point covering some of the sales areas it believes your dealership is not adequately serving. Protecting your legal position is important, but it is even more important to fix any problems.

Michael Charapp, an attorney with Charapp & Weiss, LLP who specializes in representing motor vehicle dealers, can be reached at (703) 564-0220 or [email protected]

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