The relationship between a motor-vehicle franchisor and its franchisees need not be oppressive.
The relationship is inherently one of mutual dependence. You need the cars and parts your manufacturer makes and distributes for your business. Your franchisor needs you and your fellow dealers to serve as its retail distribution channel and warranty repair centers.
But the relationship is always that of the large manufacturer as franchisor and hundreds (or thousands) of independent business people as franchisees. Some manufacturers choose to deal with their fragmented distribution channel in an oppressive manner.
In the 1950s, Congress attempted to deal with this uneven bargaining power by passing the Automobile Dealer Day in Court Act. Unfortunately, subsequent court decisions ruled a dealer must prove manufacturer coercion or intimidation to prevail.
This is a big hill to climb for dealers who must challenge factories with legions of attorneys whose job is to keep manufacturer oppression of dealers just short of coercion or intimidation.
All the states stepped in with statutes of some sort to address the power disparity between manufacturers and dealers. These statutes protect dealers from termination by the manufacturer without some special circumstances as defined by law.
All of the state statutes, to one degree to another, regulate the agreements between franchisors and their dealers to attempt to level the playing field somewhat.
Most state law protections are not self-enforcing. Dealers can only obtain maximum protection under their state franchise laws if they expend the time, the effort, and the resources to hold their franchisors accountable. To do that you must be proactive.
Because of the mutual dependence, dealers are reluctant to be combative with their franchisors. That is understandable. However, the relationship must be both cordial and respectful. We will leave the cordiality to you. Here are some steps that you should take to make sure that you earn respect from your franchisor.
Know your rights. Your rights derive from your franchise agreement as interpreted under your state’s law. Make sure that you have your entire dealer agreement including exhibits, addenda and attachments. Your state dealer association is a great resource for understanding your state law rights.
Demand respect. Your franchise is the most valuable asset of your dealership. Just as you protect your investments in real estate and the hard assets of your business, resolve that you will protect your franchise.
Read all communications from your franchisor. That warning may seem unnecessary, but you are deluged with information from your franchisor. It is easy to let some of the communications go by without really looking at them. Understand each communication you receive, and route each one to the appropriate department head. Handle performance criticisms or threats yourself.
Challenge criticisms or threats. Franchisors don’t just take drastic action against a dealer’s franchise suddenly. Almost all such actions are the culmination of a campaign to establish a record of cause to terminate a franchise.
Establish your own record so that when the attorneys for the manufacturer review the file to determine if they have a case, they will know what they are up against. If you receive performance criticisms or threats, explain why the franchisor is wrong. Make clear you will do what is necessary to protect your franchise.
Don’t be afraid to act. Dealers often are concerned they will draw retaliation if they assert their rights. But why do you spend so much time with your employees on compliance with consumer laws? It’s because you fear legal action by consumers. Franchisors are no different. They must fear legal action if they cross the line. They will be most careful with dealers who do what it takes to obtain fair treatment. If you believe that your franchisor is treating you inappropriately, talk to your dealer association. Consult with a knowledgeable lawyer. Defend your rights.
Michael Charapp is a dealer lawyer in McLean, VA and the co-author of the new book “Auto Dealer Law: The Definitive Legal Guide to the Purchase, Sale and Operation of Vehicle Dealerships.” It is available at www.autodealerlaw.com. He is at (703) 564-0220 or [email protected].