Issues Your Dealership May Have With OEMs

Courtesy of Richard Sox, BSM Law

The changing face of the United States consumer is something that OEMs are well aware of in 2023. We all are. But with a demand for quicker service and easier engagement, OEMs are making changes to their business model to try to lure customers to the top. Manufacturers have started to edge into your business, they say, to make it more convenient for the consumer to buy a new car.

This plan may have been in the works for a while, but electric vehicles and the laws associated with them have become a great excuse for rolling out innovative programs and taking control over the retail sale of vehicles at the manufacturer level.

As a dealer, this should sound an alarm. And given that, we are helping you better understand the current issues franchises are having with manufacturers this month.

The issue is simple at the outset: as we mentioned, manufacturers are getting more involved in the retail sale of vehicles. You can see this in a few different forms.

In one example, manufacturers are leaning towards “the agency model.” You see this as a prevalent practice in Europe where the car customer is allowed to order through the manufacturer and then the dealer prepares the car and delivers it. The dealer becomes the “agent.” Many European manufacturers, Jaguar, Mercedes Benz and more, really like this option.

In another example, one that has existed for a while, manufacturers are participating in direct sales. Tesla has never had franchisees and they are selling directly to the consumer. In most states, the law allows this because they’ve never had dealers. But other OEM’s have seen the advantage of that business model in the last several years and now they are interested in finding ways to do it, in their own style.

One idea that we have not seen come to fruition completely yet, is when a manufacturer might form a joint venture to get around particular retail laws. In most places the law is clear- you cannot compete against your own dealerships. But manufacturers are getting around this by getting creative, and not calling a vehicle by their company name but instead naming it based off a partnership in the EV space. Honda has a joint venture with Sony as we draft this article- and it could technically be a legitimate model because Sony’s never had vehicle franchises. But dealer associations around the country are strengthening their franchise protections, to make it clear that it’s prohibited for a legacy OEM to compete with their dealers. And they are also stating that it is a violation of the law to also sell direct through any affiliated or common entity.

OEMs are setting up digital platforms making it incredibly easy for the consumer to go in and order a vehicle online. In one case Ford lets customers order their vehicle, make a deposit, reserve their vehicle AND the platform values the trade-in (when there is one.) Dealers disagree with this activity- they are concerned about losing money after they get that trade, and that the platform may not value the car in the way they need it to be valued for a positive impact on revenue. State dealer associations are slowly but surely starting to go into their franchise laws and make clear that only a licensed motor vehicle dealer can do these things.

Your team probably has not put too much thought into what’s happening in these areas. You’ve enjoyed solid revenue over the last few years. And due to being in a comfortable position, it is easier to accept what the OEM’s are asking for or doing in this space.

But right now, there are lawsuits in different states focusing on this issue. And as dealers fight for their piece of the pie, there’s been scenarios where a manufacturer is holding things back from their dealerships- like new EV stock.

You may not be feeling the pinch of this yet. But you are in a position where if this continues, it could impact on your bottom line. Who controls the transactions? Whose customer is this? Where does the revenue go if a vehicle is sold through the OEM and not you?

Many states have laws that are more than sufficient to challenge these programs. But you cannot take this on by yourself. Groups of dealers will need to work together to push back and potentially file lawsuits. We are here to help. Don’t place the investment you’ve made in your franchise at risk.

About Richard – In 2000, Rich joined Bass Sox Mercer as a shareholder. Since that time, he assumed the role of Managing Partner and has focused solely on motor vehicle franchise law. In this capacity, he provides counsel to dealers regarding their rights and obligations as related to the manufacturer issues including incentive programs, facility programs, franchise terminations, performance issues, succession planning, unfair vehicle allocation and transfer turn-downs. In addition to overseeing the motor vehicle dealer franchise litigation area of the practice, Rich leads BSM’s work with state and metro dealer associations including assisting with updating motor vehicle franchise protections.