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Hyundai’s new dealer agreement addendums raise concerns over state franchise law compliance

The new appendices will be triggered by specific events, such as the completion of a facility upgrade, relocation, ownership restructuring, or the sale of the dealership.

The National Automobile Dealers Association (NADA) has alerted Hyundai dealers to recent changes in the manufacturer’s dealer sales and service agreement that may conflict with state franchise laws. A memo from NADA warns that Hyundai dealers could face significant financial burdens from new addendums to existing contracts, including a facility renovation addendum, guidelines on store owners and managers, and a right of first refusal addendum. Noncompliance with these terms could potentially result in the termination of dealer agreements.

Specific events, such as completing a facility upgrade, relocating, restructuring ownership, or selling the dealership, will trigger the new appendices. Although an addendum regarding the risk of loss and damage was mentioned, NADA clarified that Hyundai had rescinded that change, which would have transferred vehicle title and liability from Hyundai to the dealer upon shipment from the final entry point.

A NADA spokesperson confirmed the memo’s authenticity but declined to comment further. Hyundai, acknowledging NADA’s concerns, stated that it considers its dealer relations “collaborative and productive” and will continue to work closely with dealers, NADA, and other stakeholders to address these concerns.

Hyundai Motor America, which has built a robust retail network in the U.S. since its market entry nearly three decades ago, had 845 dealerships across all 50 states by the end of 2023. Many dealers have participated in expensive upgrades under the Accelerate facility image program, with 380 dealers completing upgrades and 70% expected to complete them by 2025.

The complexities of state franchise laws add another layer of difficulty to factory-dealer relations. Each state operates under its own laws designed to protect retailers and consumers. Russell McRory, a franchise law attorney, highlighted that these laws level the playing field between manufacturers and dealers and ensure consumer benefits.

In Virginia, where dealers are protected by laws requiring automakers to follow specific steps before proposing changes to dealer agreements, the Virginia Automobile Dealers Association (VADA) has actively opposed Hyundai’s new addendums. Don Hall, president of VADA, sent a letter to Hyundai Motor America in April on behalf of Virginia’s 27 Hyundai dealers, stating that none of the new addendums had undergone the mandated review process.

Hyundai affirmed its intention to comply with Virginia law and stated that dealers who signed the agreement before the mandated review process would not face penalties. Hall emphasized that, despite well-intentioned leadership, Hyundai must recognize that dealers, as partners, understand their local communities and customer needs better than anyone else. Ultimately, both sides need to focus on enhancing the customer buying experience.

The ongoing discussions and adjustments highlight the evolving dynamics in factory-dealer relationships and the importance of adhering to state laws to ensure fair practices and consumer protection.

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