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Dealers Can Constructively Object To OEM Formulas

Explain your issues in writing and get them in your file. BY JON MCKENNA

Suppose your nameplate manufacturer is calculating your dealership’s average market share, grading its sales performance or setting its territory in ways that penalize your business. What does a dealer do then?

Too many dealers sit back and stew, which is a big mistake, said Richard Sox, a Tallahassee, Fla.-based partner with the Bass Sox Mercer law firm who specializes in dealership clients.

“The days of playing golf and buying dinner for your factor reps and working out any issues over dinner on the back of a napkin are gone,” Sox said. “The manufacturers do not operate that way anymore. They are very attorney driven. The dealer has to adjust by being very formal in his requests” to change a formula.

When OEMs Rile Dealers

Most often, he sees dealers have a problem with manufacturers that:

  • Insist that a dealership meet an “average market share” standard. As a practical mathematical reality, some members of a group must always perform below the average, Sox noted.
  • Draw up a dealership’s territory based on air miles and ignoring physical features and road access. People in a dealer’s assigned Census tract or ZIP code will drive farther to a competitor if the highway access is better, or they don’t have to divert to a river bridge or go over a mountain, he said.
    • “This is an example of one of several dealer-specific circumstances that impact the sales performance measurement calculation, because the dealer in fact is not the most convenient and its market share will go down disproportionately,” Sox explained.
  • Fail to consider the local market’s tastes and buying habits, when allocating vehicles during periods of short supply. Say, for example, buyer demand is intense for the latest Ford F-150 pickup truck. If people in your dealership’s area of primary responsibility (APR) are avid pickup drivers, you may not look that great in the manufacturer’s sales performance measurement formula (which compares against competing dealers) and get short-changed on F-150s.
  • Don’t take into account unique competitors, with that sales performance formula. What if a nearby competitor is also the manufacturer’s distributor for that region? Your dealership’s market share certainly will suffer by comparison to a store in a far-off city.
  • Ignore unique psychographics in a dealer’s APR. Residents in a Rust Belt city may, for example, be biased against imports. Conversely, people in a Sun Belt community that also hosts a foreign manufacturer’s assembly plant may be predisposed to buy that company’s cars out of civic pride.

Explain Objections In Writing

Suppose a dealer is feeling penalized by the nameplate manufacturer in one or more of these areas. Sox recommends first carefully reviewing the store’s APR, and then committing the objections in writing and submitting that report to the manufacturer’s regional dealership operations office.

“Without question, it should be put into writing. This is because, No. 1, the manufacturer is much more likely to take action on at least reviewing a written request. Secondly, if the manufacturer doesn’t agree with the dealer’s objections, at least the letter goes in the dealer’s file and is a record of that dealer pointing out circumstances that are beyond his control.

“That is important down the road if the manufacturer decides to start pressuring dealers over sales performance measurement and/or sending a notice of default with the dealer agreement. The dealership would have been on record for some time that, ‘It’s your formula that is the problem, not us.’”

The attorney also believes it is sound practice for the dealer to a) recommend a change or solution, and not simply complain about a formula in the letter; b) follow up and recommend a meeting or conference call with representatives of the manufacturer; and c) consider hiring an attorney or one of the specialty consulting firms that conduct refined marketplace analyses based on vehicle registrations, demographics, etc.

In his experience, manufacturers have proved most willing to compromise with dealers over territory assignments, “because those are more easily quantifiable in terms of how you adjust and correct them.” Sox has noticed OEMs bend on adjusting their sales performance measurements to consider biases toward a particular make and model, but not biases toward domestic cars vs. imports or vice versa.

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