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The Changing Landscape of Termination Actions

By: Jason T. Allen

The Changing Landscape of Termination Actions

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To no surprise, manufacturers continue to push performance issues through the issuance of quarterly letters, a notice of default or in the worst case scenario, a notice of termination.  Historically, the focus of those letters has primarily been on the dealer’s achievement of the manufacturer’s sales performance standard. Other performance issues may have been included in the manufacturer letters, but the clear focus was on the dealer’s sales performance.  However, that is starting to change, and manufacturers are increasingly focused on other alleged breaches to alter dealer behavior and potentially terminate Dealer Agreements.

Make no mistake, sales performance continues to be a very important metric to the OEM’s, and dealers must pay attention to their performance under the respective metrics.  But, the OEM’s have suffered a recent string of defeats on sales performance terminations, which have undercut the legitimacy of the sales performance measurement and potentially limited its effectiveness (at least in current form).  

There are a number of other performance criteria in the standard dealer agreement, such as customer service satisfaction, net-working capital standards, facility compliance, trademark compliance and others.  OEM’s have begun putting dealers on notice for those other (non-sales performance issues). For example, in some instances, manufacturers have incorporated a dealer’s agreement to modify its facility into the Dealer Sales and Service Agreement and then initiated termination proceedings when the dealer did not comply with the facility plans.  Manufacturers have also become increasingly aggressive with how their trademarks are displayed, and in particular, initiated termination actions on alleged trademark violations when they otherwise may not have been able to establish a breach of the Dealer Agreement. Finally, manufacturers have placed renewed focus on the customer service satisfaction measurements and achievement of net-working capital requirements.  

While sales performance remains an issue, manufacturers are increasingly using other areas of dealer performance to either effect change or initiate termination proceedings.  Dealers are encouraged to monitor correspondence and respond to any alleged breaches of the Dealer Agreement regardless of the type identified.