Pub. 1 Issue 2

30 www.glancda.org dards,” said Anderson. “You have to remember that customers want good service, convenient location, and a nice environment in which to look at cars.” He observed that enhancing the brand is important for every franchisor, but “I have never met a person that admitted to purchasing a car because of an archway, tiled floor, or cappuccino machine at the dealership.” Anderson did note that, in some cases, facility improvements can be a good idea. “If your service waiting room is cramped, your customers can’t tell what your dealership is selling, or you are behind all your competitors in terms of amenities, you prob- ably need a facility upgrade,” he said. “However, if the upgrade doesn’t translate directly into an improved customer experience, it is probably not worth the money.” Experts at Anderson’s firm participated in a recent NADA/ CADA study that confirmed his own observations. “Improve- ments that provided only standardization across a brand offered little benefit to the dealers in that study,” he said. “However, actually improving a facility where it mattered to the custom- er, or expanding it when the market was ready, often proved worthwhile.” The Manufacturer’s know that their “carrot” is woefully insufficient to motivate you to spend your capital or borrow ad- ditional money to finance their new customer retail experience, so they often impose their “stick” on those who fail to timely comply. For example, Mercedes Benz dealers who agree to the Autohaus facility improvement program receive additional gross profit on each new vehicle, while those dealers who do not agree must try to compete with less margin. And, even if you can avoid making the improvements for now, when you attempt to transfer or attempt to sell your dealership, the Manufacturer will condition its approval on your successor agreeing to the facility improvement program. That means, the value of your dealership is harmed whether or not you agree. So, what do you do? Do you acquiesce to the Manufacturer’s demands? Do you ignore them? Do you try to form a group of like minded dealers to fight the program? Depending on which of the 50 states your dealership is located, your answer may vary substantially. Thanks to your Association, in 2009 the California state leg- islature enacted very good protective legislation. Vehicle Code § 11713.13 prohibits your Manufacturer from “require[ing], by contract or otherwise, a dealer to make a material alteration, expansion, or addition to any dealership facility, unless the required alteration, expansion, or addition is reasonable in light of all existing circumstances, including economic condi- tions.” Further, in the event of a dispute, the law is clear that the Manufacturer has the burden of proving the reasonableness of the facilities improvement requirement. Even if the Manufacturer were to meet its burden of proof in establishing the reasonableness of the requirement to build their newest Taj Mahal design, that does not necessarily mean that you must do so. The primary remedy available to the manufacturer in the event you breach your obligations as a dealer, including your facility requirements, is to attempt to terminate your franchise. (The Manufacturer could theoreti- cally sue you for breach of contract, but we fail to see how it could prove that its damages to the legal certainty required to maintain such a claim). Provided you timely protest the termination notice, you have the right to challenge it before the New Motor Vehicle Board. The Board must determine whether “Good Cause” exists to terminate your franchise. In doing so, the Board must consider seven factors—not merely whether you have complied with your Manufacturer’s new remodel program. Both the economist and the lawyer agrees that if a dealer wishes to object to a demand for facility improvements, he or she should have a solid argument and properly communicate it to the factory early in the process. “We sometimes assist dealers and their attorneys by analyzing the possible sales and service gains from improvements, well before they sign on the dotted line or get a termination notice,” said Anderson. “That makes it easier to object, and often helps the dealer and his or her attorney negotiate with the factory to avoid unnecessarily costly ‘improvements’ that, on balance, do little or nothing for the customer.” And, we also counsel our dealers to be sure to deliver good CSI and SSI scores, and sell your share of new cars. With that, you should be able to tell the factory to pound sand when it comes to facility improvements.   Carrots and Sticks — continued from page 29