Alerts and Updates
State Motor Vehicle Dealership Laws May Curb Manufacturer's Attempts to Eliminate Dealers
June 20, 2005
State Motor Vehicle Dealership Laws May Limit Right of Manufacturers to Stop Dealers From Selling or Transferring Their Interests in Dealerships and Prevent Termination of Perceived Underperforming Dealers
It is a dealer's worst nightmare. After having invested countless years and hundreds of thousands or millions of dollars in developing a dealership, a letter arrives from his or her OEM stating that there is no more room in the chain for the dealership because of changing market conditions outside the dealer's control or because the dealership no longer measures up to certain new standards. For example, according to a published report, since 2002 at least 40 Nissan dealers have been informed that they cannot sell their dealerships as Nissan believes their markets cannot sustain them. Further, Nissan has informed other dealers that if they are unable to improve sales, or unwilling to upgrade stores, they could lose their franchises altogether.
The fact that a manufacturer has threatened to take drastic measures against a dealer does not mean that the dealer is without recourse. In fact, numerous state legislatures have enacted motor vehicle dealer protection statutes that are tailored to protect dealers.
Specifically, typical motor vehicle dealer protection statutes limit the circumstances under which a manufacturer may refuse to give effect to, or attempt to prevent, the sale or transfer of a motor vehicle dealership. Further, many motor vehicle dealer protection statutes limit the circumstances under which a manufacturer may terminate, modify, fail to renew, or refuse to continue a franchise. Finally, nearly all states have specific prohibitions on manufacturers coercing or attempting to unduly influence dealers.
As a result of such state motor vehicle dealer protection laws, dealers enjoy substantial protections from mistreatment by manufacturers. Dealers facing these issues may want to seek out counsel skilled in the nuances of manufacturer/dealer disputes, as such cases involve a unique set of regulations not typically present in standard commercial disputes.
For Further Information
If you have any questions about this Alert, please contact Wayne A. Mack or J. Manly Parks or the lawyer in the firm with whom you are regularly in contact.
Duane Morris offers a full range of legal services specifically for our dealer clients. In addition to providing representation nationally before federal and state courts, and in arbitrations and mediations, we advise clients on succession planning, buy-sell transactions, small business counseling, guidance on warranty reimbursements, and labor and employment relations.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.
