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OEMs Continue to Attempt to Avoid Application of Franchise Laws

By Richard N. Sox & Micah A. Andrews

OEMs Continue to Attempt to Avoid Application of Franchise Laws

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One of the first strategies OEMs often employ to avoid complying with a state’s franchise law protections is to argue that the laws do not apply to a dealer agreement that was executed prior to the passing of those statutes. This position allows the OEM to avoid compliance with necessary and appropriate updates to a state’s franchise law which are passed throughout the years. Fortunately, most franchise laws include language making clear that changes to the franchise protections should apply to all active dealer agreements, regardless of when they were executed.

BSM has recently represented two Minnesota dealers challenging unfair sales territory assignments where the OEMs employed this tactic. As an experienced dealer knows, a dealership’s assigned sales territory can significantly effect its sales performance metrics and facility guidelines, among other issues. Manufacturers typically utilized air time or drive time in assigning census tracts to a dealers’ primary market area.

In reality, customers will find the dealership most convenient to them by determining which dealership is closest by drive time. Moreover, even if a census tract is assigned by drive time, there can be psychological barriers such as rivers and state or county lines which cause the customer to drive to a dealership further away. There can also be shopping patterns which draw customers away from the closest dealer by drive time to travel to a dealer further away but one which is closer to a major shopping destination with big box stores, theaters, recreation and restaurants.

It is, thus, imperative that relevant factors are considered when the OEM assigns or changes an assigned territory. Like many states, the Minnesota statutes mandate that OEMs make these assignments fairly.

However, both OEMs argued that they did not have to comply with the franchise law protections because the dealer agreement pre-existed the primary market area protections. However, BSM successfully argued in both matters that the Minnesota franchise laws were retroactive in nature and the OEM could not avoid compliance with the law.Two well-reasoned decisions by Judges in the Federal District Court of Minnesota now make clear that Minnesota’s franchise protections apply to all active dealers in the State, even those who have long-existed or who entered perpetual agreements.

 We have seen OEMs make this same argument against the application of new franchise laws to an existing dealer agreement in the context of sales performance, incentive programs and warranty reimbursement.

If you have been negatively affected by an OEMs actions and have been told that existing state franchise protections do not apply to your dealership, this is often untrue. You should immediately contact your experienced dealer lawyer to access your statutory rights.

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