One year ago, a New York dealership won a ruling against GM’s use of ratings. Today, the fight against unfair performance ratings is growing even stronger.
The landmark Beck Chevrolet v General Motors case in New York was the first of its kind to rule manufacturers’ sales effectiveness ratings were unfair. Since that ruling a year ago, several other states have rallied against North American car manufacturers, fighting for fair criteria to rate a dealership’s performance.
Along with that first successful ruling, Ohio, Florida, Illinois, California, and Maryland have sided with dealerships, rejecting the use of generic dealer performance ratings. That list is set to become longer yet, as other states are seeing pushback against the carmakers.
An Unfair Comparison
Car manufacturers use a blanket performance rating system to determine a dealer’s successfulness. For years, dealerships have cried foul, arguing that success must be measured in context. They’ve sought demographic and geographic influence into the success ratings as a true measuring stick.
The basis of the argument for dealerships is valid. For example, a domestic car dealership in a low-income neighborhood is not likely to see the same success as one located in a middle-to-high-income area. Likewise, a Kia dealership is quite unlikely to be as successful on Dearborn, Michigan’s doorstep compared with one in a major city center.
Yet, manufacturer’s consistently compare ratings with no regard for demographic or location with serious results.
Rapped for Poor Performance
Dealerships with subpar performance ratings according to their manufacturer’s results have been subject to harsh treatment. Often, a poor sales success rating will preclude the dealer from significant financial incentives that can tally up to hundreds of thousands of dollars. Inventory allocation is a challenge for these dealerships to secure.
President of the Ohio Automobile Dealers Association, Zach Doran, said, “It can affect allocation. It can affect [dealers’] ability to transfer their dealership to a successor. It can affect their incentive programs… It’s not like a bad letter grade. It has serious consequences.”
Manufacturers have also threatened or taken action to close ‘underperforming’ dealers, as was the case for Beck Chevrolet that saw the battle taken to the Second U.S. Circuit Court of Appeals. The same battle ensured in Canoga Park, California, for Dependable Dodge in which FCA North America unfairly attempted to terminate the dealership’s franchise.
A Ratings Reform on the Horizon
Since losing the court ruling in New York, General Motors has said it would review their rating system in that state. It’s a decision that will be closely watched by manufacturers, dealers, and states alike. Maryland is one of the first to tighten dealer-protection laws to stay in line with the criteria of the Beck ruling.
Attorney Aaron Jacoby, counsel involved in the Beck Chevrolet case, underlined the ramifications of the decision. It isn’t just the manufacturers directly involved in the decisions that will be affected. Such rulings will require every manufacturer abide by the same minimum dealership performance ratings code, nationwide.
Of the court case win, Jacoby notes that for manufacturers to stay within the law, they must change their rating criteria, even if there isn’t a law like Maryland’s active in the state. “They can’t treat a dealer in Michigan differently than they treat a dealer in Maryland, in New York.”
After the landmark New York case, dealerships threatened with losing their franchise or facing stiff incentive losses finally have a foothold to stand their ground and fight back.
