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There is More to a New Dealer Agreement than a Signature Line

By: Shawn D. Mercer

There is More to a New Dealer Agreement than a Signature Line


Every dealer knows he or she should have new dealer agreements reviewed by a knowledgeable dealer lawyer prior to signing. There are a host of issues tied to new dealer agreements that go beyond the standard terms about which dealers must give careful consideration.

Market Area:

Carefully review your primary market area, area of primary responsibility or whatever terminology your manufacturer applies to your assigned market. You are theoretically supposed to have a competitive advantage in your assigned market. If this is not the case, you should request a change to your market area if it is in any way inaccurate or unfair. Such requests should be in writing and a copy retained for your records. Requests for change could prove beneficial in the event a manufacturer were to later seek to terminate your franchise agreement based upon alleged poor sales performance. Further, the manufacturer may actually agree with you and adjust your market area to better reflect those areas where you in fact have (or should have) a competitive advantage.

Facility Addendum:

You should attempt to minimize the coverage of any facility or premises addendum to your dealer agreement. Manufacturers and distributors often will seek to include all land and buildings that are in any way related to your automotive business. They also often seek to include exclusivity provisions within the dealer agreement. Even if exclusivity is prohibited under applicable franchise law, dealer agreements also typically contain the requirement that the manufacturer approve any change to the dealership premises. This issue often arises when the dealer desires to acquire an additional franchise or to sell adjoining land. If you have excess land, or an extra building, body shop, etc. that is not required to meet the minimum facility requirements of your manufacturer, you should seek to exclude the additional land and buildings from the premises addendum to your franchise agreement. If such land is not subject to your dealer agreement, you are not required to obtain approval from the manufacturer for a change in the use of such land or buildings. You may ultimately avoid a time consuming and expensive protest to a change of use turn-down by the manufacturer.

Sales Expectations:

Carefully review your assigned sales expectancy or minimum sales responsibility when you receive new numbers. If you believe your sales requirements to be artificially high, you may wish to take some time to obtain assistance with reviewing your market. This goes hand-in-hand with examining your market area to determine whether parts of the market are better assigned to another dealer. Further, there may be unique characteristics to your market that would make consumers in your market less inclined to purchase your brand of vehicles than is the case in other parts of your state. It may be a competing manufacturer’s assembly plant, or you may be located in an area that is significantly more or less affluent than other areas of your state. These factors can have a significant impact on your ability to meet the sales requirements of the manufacturer.

Working Capital:

Carefully review stated working capital requirements. Adjustments to sales requirements typically impact working capital requirements. Often ignored requirements like maintaining guide levels of working capital may be later used as the basis for an attempted franchise termination.

Succession Planning:

You should determine whether you have a successor addendum in place, and if so, whether it continues to reflect your wishes. It is the perfect time to examine your estate and succession planning when you execute a new dealer agreement.

In summary, carefully examine your dealer agreement (and other key dealership documents) annually to insure your best interests are being served. If changes are necessary, promptly request such changes in writing. Your efforts could be the difference between the manufacturer identifying you as a good dealer instead of a poor performer. Questions concerning these and other legal matters should be directed to your dealer lawyer.


– Have new dealer agreements and key contracts reviewed by a knowledgeable dealer lawyer prior to signing.
– There are many issues with dealer agreements that go beyond standard terms.
– Review key dealership agreements annually to ensure your best interests are being served.
– Promptly request any necessary changes in writing.

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