By Jason T. Allen, Bass Sox & Mercer
Manufacturer activity in the add-point and relocation area continues to be strong. General Motors, Honda, FCA, Nissan, Hyundai and others remain active in adding additional dealerships to the marketplace. Dealers often have protest rights that force the manufacturer to prove why the proposed dealership is necessary in the market and serve to protest the dealer’s existing market area. The following outlines what to look for prior to the formal notice of an additional dealership, and items to consider once the formal notice is provided.
Prior to the formal notice:
Most of the time, the manufacturer does not explicitly state that it is considering adding a point in the market until it formally provides notice of the proposal (more on that below). At that point in time, the point has been noticed and it is often too late to document the market activities. However, there are certain activities that can signal the manufacturer is considering a market change (whether add-point or relocation), which can allow you the opportunity to prepare for an additional point (or to challenge the point).
The most obvious is a notice of a market-study. Some brands, such as Honda, provide dealers with notice that they intend to study a market. The studies typically conclude that an additional dealer is necessary in the “study area”. The study area is often within, or directly adjacent to, an existing designated market area, which means another dealer will be proposed to serve the market.
Other indications that the manufacturer is considering an additional point are frequent trips to the market by factory personnel and discussions regarding dealer sales performance and market brand performance. The sales performance/brand performance letters both set the stage for the addition of another dealer to “fix” the issue that the manufacturer recently began to highlight.
What to Consider:
If there are indications of such manufacturer activity, there are certain items that a dealer can monitor and discuss with the manufacturer. The most obvious is to document the activities in the marketplace that may be impacting performance such as customer preferences for a certain brand or type of vehicle. For example, brand performance in a particular area may be below the brand’s “standard” or “average”, but that may be easily explained by a preference for another competing brand.
A below average brand performance by itself does not justify adding another dealership, yet, that is often the manufacturer’s stated basis for the decision. With that in mind, it is helpful to both monitor and convey the on-the-ground situation in the market to the manufacturer especially prior to the notice of an additional dealership.
After the formal notice:
The formal notice of the add-point (or relocation) is delivered by letter and formally commences the add-point process. The written notice will provide the proposed location, dealer-operator and may provide expected date of commencement.
The formal notice not only triggers the time to protest, but also provides valuable information about the proposed location. The protest deadline time period varies state by state and a dealer should be informed about the timing so it does not miss a deadline to protect its statutory market area. Filing a protest does not block the proposed dealership altogether, but instead, halts the proposed dealership until a hearing is held and places the burden on the manufacturer to prove that the dealership is necessary.
One of the most common reasons cited for another dealership in a market is inadequate brand performance, which is why keeping the manufacturer informed about the market realities is so important. Other justifications include an increasing population level and other brand market changes.
In summary, add-points (and relocations) continue even in a leveling new vehicle sales market. Those add-points are often tipped off in advance by factory behavior, and there are ways that a dealer can document the market realities to help assist with a protest if the formal notice is provided and a new dealership proposed for the market.
It is also important to remember that most states provide express protections for a dealer’s territory, and filing a protest not only delays the immediate establishment, but also forces the manufacturer to prove why the dealership is necessary in the marketplace.
Jason Allen is a partner at law firm Bass Sox & Mercer, which specializes motor vehicle franchise law and in representing automobile, motorcycle, and truck dealers nationwide. The firm can be reached at 850-878-6404 and bassra@dealerlawyer.com.
