The manufacturer keeps sending threatening letters concerning the dealership’s performance. Should I respond?

We advise Dealers to respond to every manufacturer letter that claims some performance deficiency. It is important to respond to these letters to establish a more favorable record to counter the manufacturer’s attempt to build a record to support the issuance of a Notice of Termination. In the event you find yourself in litigation with the manufacturer, the manufacturer will point to each un-responded letter as evidence of the dealership’s alleged complacency and refusal to use its “best efforts” to perform under the terms of the Dealer Agreement. Our office regularly counsels Dealers on how to best respond to these letters.

What do I do if I receive a Notice of Default?

It is critical for Dealers to respond to any Notice of Default. The Notice of Default is used by manufacturers to the lay the foundation for the eventual issuance of a Notice of Termination. A well-reasoned written response from a Dealer can often extend the default period, sometimes indefinitely. We routinely advise Dealers how to respond to Notices of Default.

What Do I do if I receive a Notice of Termination, Notice of Establishment, Notice of Relocation, or Notice of Modification?

We strongly encourage Dealers to contact an attorney immediately upon the receipt of any of these notices. The Board’s jurisdiction over these matters is strictly construed by the courts. These Notices require the manufacturer to state how long the Dealer has to file a protest with the New Motor Vehicle Board. If you do not timely file a Protest within the statutory time period your rights will likely be forfeited. However, if you failed to timely file a Protest there are certain circumstances where the Notice may have been defective and thus the time period to file a Protest might not have expired. It is always worth a phone call to our office to determine what options might exist.

My Dealer Agreement is expired, will I lose my franchise if I don’t execute a new Dealer Agreement?

No. In California, franchise agreements exist in perpetuity unless voluntarily terminated by the Dealer or by order of the New Motor Vehicle Board. Manufacturers have created a fictional narrative that every Dealer must operate under a current franchise agreement—this simply is not true. Manufacturers will use the expiration of a Dealer Agreement as an opportunity to coerce certain concessions from Dealers. Often the manufacturer will include an addendum to a new Dealer Agreement that requires the Dealer to make certain facility improvements, to expand, to relocate, to change management, or to provide site control over their property. We routinely advise Dealers that their existing Dealer Agreement remains in effect, regardless of the term, and they are under no obligation to agree to additional obligations.

The sales performance standard used to measure our sales performance is unfair and prevents the dealership from achieving certain incentives. Is there anything I can do?

Yes. You can challenge the manufacturer’s sales standard and the burden will be on the manufacturer to demonstrate the reasonableness of the standard used in light of existing local market conditions. Many boards, commissions, and courts across the country are rejecting manufacturer sales performance metrics with increasing frequency. This can have a profound effect on a Dealer’s ability to operate a successful dealership where incentives and allocation are tied to Dealer sales performance, as measured by the manufacturer, in its sole discretion.

Law Offices of Gavin M. Hughes

3436 American River Drive, Suite 10

Sacramento, CA 95864

(916) 900-8022