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| News our Dealers can Use |
| Amendment to the California Vehicle Code Offers New Protections to Dealers by Substantially Reducing the Manufacturers’ Ability to Require Dealers to Build and/or Maintain Brand Exclusive Dealership Facilities |
Over the past fifteen years, car manufacturers have developed a preference for brand exclusive dealership facilities. In fact, the issue of exclusive dealership facilities has become central to many dealer/factory relationships. However, a manufacturer’s desire to be represented in an exclusive facility does not always take into account the circumstances at a particular dealership, or even the overall state of the economy. As many dealers have experienced first-hand, manufacturers will often apply undue pressure on dealers, in order to force them to build and/or maintain these brand exclusive facilities.
In response to the downturn in the economy and the difficulties many dealers are experiencing, the California Legislature amended the Vehicle Code to protect California new car dealers from this type of treatment by manufacturers. The new section of the Vehicle Code, effective as of July 2, 2009, offers strong protections to dealers from manufacturers’ demands for brand exclusivity. These protections have been created by making three types of conduct by the manufacturers unlawful.
First, a manufacturer may not prevent a dealer from acquiring, adding, or maintaining an operation of a different line make of vehicles in the facility where the dealer currently operates a dealership (otherwise known as “dualing”), if the dealer complies with any reasonable facilities and capital requirements of the manufacturer. Second, a manufacturer may only require a dealer to establish or maintain exclusive facilities if the imposition of such a requirement would be reasonable in light of all circumstances, including economic conditions. Third, a manufacturer may not require a dealer to make a material alteration, expansion, or addition to any facility, unless such a requirement is reasonable in light of all circumstances, including economic conditions. Furthermore, in any legal proceeding where these types of conduct by the manufacturer are at issue, it is the manufacturer’s burden to prove that its conduct does not violate the Vehicle Code.
With this newest amendment to the Vehicle Code in place, California new car dealers now have several legal recourses they may take to protect themselves from a manufacturer’s undue pressure to build and/or maintain brand exclusivity. In these circumstances, it is important that dealers are fully apprised of their rights under California law. Dealers who have a full understanding of their rights under the law, as well the particular procedures that need to be taken to vindicate those rights, are better prepared to protect their interests, including the substantial investments they have already made in their automotive franchises.
If we can be of assistance, or if you would like additional information regarding the services our firm provides, please contact the Law Offices of Michael J. Flanagan at (916) 646-9100, or send us an e-mail request to info@lawmjf.com.
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| New Legislation Provides Terminated Chrysler and GM Dealers the Right to Binding Arbitration |
The past year has been a trying and difficult year for California New Car Dealers, especially those Chrysler and GM dealers whose Dealer Agreements were rejected through bankruptcy, or those dealers coerced to voluntarily terminate their agreements for fear of receiving no compensation as a result of the bankruptcy proceedings. The New Year may bring relief to many rejected and/or terminated dealers as a result of legislation passed in both Houses of Congress. The legislation provides for binding arbitration for rejected dealers who choose to appeal the termination of their franchise agreements.
The legislation also requires, within 30 days of the enactment of the Act, that Chrysler and GM provide covered dealers with a summary of the terms and the rights accorded to them under the Act. Covered dealers will have 40 days from the date of enactment to elect to pursue their right to binding arbitration. The arbitrator will have 180 days to decide the matter, but time may be extended for good cause. If the arbitrator finds in favor of a dealer, the manufacturer must then provide the dealer a letter of intent to enter into a sales and service agreement. However, successful dealers will be required to return any compensation received from the manufacturer as part of its initial decision to terminate the dealer.
Covered dealerships under this Act include the 789 Chrysler dealerships that were not assumed and assigned. The Act also covers any GM dealer that received a wind-down letter for a franchise and the small number of rejected GM dealers who did not sign either a participation or wind-down letter with GM. Partial wind-downs and complete wind-downs are included.
The plan requires the arbitrator to be chosen from a list of qualified arbitrators maintained by the Regional Office of the American Arbitration Association in the Region where the dealership is located, and the arbitration shall be conducted in the state where the covered dealership is located.
The arbitrator shall balance the economic interest of the covered dealership, the economic interest of the covered manufacturer, and the economic interest of the public in determining whether a dealer shall be included in the dealer network. The factors to be considered in this determination shall include (1) the dealership’s profitability in the years 2006 through 2009, (2) the manufacturer’s overall business plan, (3) the dealership’s current economic viability, (4) the dealership’s performance under the objectives established in the franchise agreement, (5) the characteristics of the dealership’s market, (6) the dealership’s performance with regard to the manufacturer’s criteria in determining whether to terminate a dealership, and (7) the length of experience of the dealership.
Our offices have been representing California New Car Dealers throughout the state for 30 years. If your Chrysler or GM sales and service agreement has been terminated in anticipation of, or as a result of the Chrysler/GM bankruptcies, and you wish to appeal this decision, please do not hesitate to contact our office immediately for assistance. Our office will be representing a number of Chrysler and GM dealers in this appeal process and we will be spreading much of the general research, administrative costs, and other common interest efforts among our dealer clients in these matters in an effort to keep fees and costs down for each individual dealer.
For further details, call, write or e-mail us today. We look forward to hearing from you.
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| Law Offices of Michael J. Flanagan Win Reinstatement in the Section 747 Car Dealer Arbitration for Dodge City Chrysler Jeep Dodge (08/19/2010) |
On June 1, 2010, American Arbitration Association (AAA) arbitrator Nickolas J. Dibiaso issued his written determination that the Chrysler, Dodge, and Jeep franchises of Dodge City Chrysler Jeep shall be renewed, and therefore, shall be assumed by and added to the dealership network of Chrysler Group LLC. The dealership was represented in its Section 747 arbitration case against New Chrysler by the Law Offices of Michael J. Flanagan.
Although Dodge City Chrysler Jeep operated all three of Chrysler’s line-makes in a state-of-the-art exclusive Chrysler facility in La Quinta, CA, consistent with Chrysler’s long-term goals for its dealer network, the dealership became one of the 789 Chrysler dealerships terminated in Old Chrysler’s bankruptcy proceeding. In December 2009, Congress passed, and the President signed into law, the Consolidated Appropriations Act of 2010 (Public Law 111-117). Section 747 of the Act provided that those car dealerships that were selected for termination in Chrysler’s and GM’s bankruptcy proceedings could seek to be added back to the manufacturer’s post-bankruptcy dealer networks through binding arbitration with AAA.
Mike Flanagan and Gavin Hughes, with the assistance and hard work of the firm’s law clerks and office staff, and the cooperation of the dealership’s owner, Kenny Sowell, and his employees, were able to present a compelling case for the dealership’s reinstatement in the comprehensive legal briefs submitted to the arbitrator, as well as through live witness and expert testimony during the three-day arbitration hearing. The arbitrator was persuaded that the analysis of the seven Section 747 statutory factors and the balancing of the economic interests of the dealership, of Chrysler, and of the public favored the addition of all three of Dodge City’s franchises to Chrysler’s dealer network.
With nearly all of Chrysler’s arbitrations resolved, only 30 Chrysler dealerships have won reinstatement; Chrysler has claimed victory in the other 70 cases that proceeded to a merits hearing. These results illustrate the uphill battle that car dealers have to fight, not just in Section 747 arbitrations, but also in almost any dispute with a car manufacturer.
If we can be of assistance, or if you would like additional information regarding the services our firm provides, please contact the Law Offices of Michael J. Flanagan at (916) 646-9100, or send us an e-mail request to info@lawmjf.com.
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| Protecting Your Dealer Area 11/1/07 |
A common misconception of some dealers is that their franchise agreements guarantee them an area of sales responsibility (“AOR”) which the manufacturer may not infringe upon by adding or relocating dealerships into that AOR. The fact is most dealer agreements do not provide such protection and quite often specifically reserve to the manufacturer/franchisor the right to adjust dealer markets by choosing to add additional dealerships when the manufacturer determines it to be appropriate.
Recently, a Northern California newspaper quoted a source as saying “...dealerships usually have an anti-competition clause that prevents another seller from offering the same brand within a 10 mile radius.” This misunderstanding is a perfect example of the confusion surrounding dealers’ rights to protest the addition of same line-make franchises into their existing markets.
Because of an obvious imbalance in the relative bargaining positions between dealers and manufacturers, most manufacturers are not compelled to agree to sales area protection for dealers. In an effort to level the playing field, however, most states have created certain statutory protections for automotive franchisees. In California, the legislature has enacted specific dealer protections against certain manufacturer practices, and they are codified in the California Vehicle Code. Specifically with regard to the establishment of new dealerships and dealership relocations, Vehicle Code section 3062 provides dealers within a 10 miles radius of the site of a proposed new or relocated same line-make dealership the right to file a Protest against the establishment of the proposed new or relocated dealership.
Before establishing a new dealership or relocating an existing one, Vehicle Code § 3062 requires a manufacturer to provide written notice to the California New Motor Vehicle Board and to each dealership of the same line-make within 10 air miles of the proposed location of the intended new or relocated dealership.
This is where dealers often run into trouble. Upon receipt of the required notice described above, each affected dealer has only 20 days in which to file a Protest with the New Motor Vehicle Board, protesting the proposed new dealership establishment or relocation. Some dealers fail to file a timely Protest with the Board, believing their franchise agreements contain terms which provide a basis to challenge the manufacturer’s act, only to discover too late that they have forfeited their only opportunity to protect their sales area.
The best course of action upon receipt of an add-point or relocation notice is to consult an experienced automotive franchise law attorney and file a Protest immediately in order to preserve your rights.
For more information, call, write or email us at the addresses and numbers shown on our CONTACT US page.
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| Mike Flanagan is Guest Panelist at New Motor Vehicle Board Annual Rountable |
On March 27, 2007, Mike Flanagan was a guest panelist at the California New Motor Vehicle Board's annual Rountable, an event attended each year by numerous automotive industry representatives from across the nation.
Mike and three other auto industry attorneys (Allen Resnick, Kevin Colton and Bert Rasmussen) discussed the number of retail automobile dealerships in the country and the impacts on customers, dealers and manufacturers as that number is increased or decreased.
Several other important auto industry topics were discussed by other panels throughout the day. All in all, participants and attendees agreed that the event had been a great success and looked forward to returning next year.
Congratulations to the New Motor Vehicle Board and its staff for putting on a very productive Roundtable for the sixth consecutive year!! |
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