Ford’s new plan for Lincoln
Here we go again. Another manufacturer plan for its dealer network that invariably leads to more dealers being strong-armed into spending money or giving up their franchise. As of the date I write this column, Ford has announced that it intends to reduce the number of Lincoln dealers in its network with the idea of making the brand mirror the Lexus dealer network. As part of this restructuring, those Lincoln dealers who “choose” to remain will supposedly be required to build new, high-end stand-alone showrooms for the franchise.
What never is discussed by manufacturers in creating the latest, greatest dealer network/franchise alignment plan is what happens to dealers when the plan doesn’t work. After all, the manufacturers come up with these plans and then insist the dealers put their money on the line implementing the plan. When the plan doesn’t increase sales as the manufacturer anticipated, who loses their investment? The dealer — that’s who.
Think about how many times GM changed its franchise alignment desires, going from Cadillac dualled with Buick, to Buick dualled with GMC and Pontiac, to Cadillac dualled with Chevrolet, to Cadillac standing-alone in many markets. Dealers always pay the price for the mistakes made by manufacturers in developing these latest and greatest dealer network and franchise alignment plans.
Let’s review the dealer’s rights as it relates to a manufacturer’s desire to reduce the number of overall dealers and to force remaining dealers to substantially upgrade their facilities.
Manufacturers cannot force a dealer to surrender the franchise
This seems an obvious point, but you would be surprised how many dealers do not understand that just because a manufacturer says it no longer has a place in its network for your dealership doesn’t mean the dealer has to surrender the franchise. Every Lincoln dealer has a dealer sales and service agreement with Ford Motor Company. As we have discussed many times before in this column, in virtually every state, an automobile franchise may not be terminated or non-renewed without due cause. “Due cause” is generally understood to be a violation by the dealer of the dealer agreement. That violation must be substantial in nature.
In a situation where a manufacturer’s business plan calls for the elimination of dealers there is not, by definition, a violation of the sales and service agreement by the dealer. Therefore, the dealer does NOT have to comply with the manufacturer’s business plan. Instead, dealers should take the position that if the manufacturer wants to close their store then the manufacturer will have to offer the dealer money or other consideration that would cause the dealer to voluntarily give the franchise up.
In the case of the Lincoln franchise, Ford has already been out in the field making offers to buy dealers out of their franchises. Lincoln dealers should treat these discussions like any other business transaction. To the best of your ability, these dealers should take the emotion out of the equation and consider the value of what is being offered to close the store compared to the value of carrying on with the franchise. We encourage dealers to document these negotiations in writing and explain how they are arriving at the amount they believe the franchise is worth. This documentation will be very important if Ford isn’t able to buy dealers out of their franchises and moves on to attempting to push them out of business by force through allegations of deficiencies in performance. It will not be lost on a judge that there is no coincidence between Ford’s desire to buy a dealer out of the network and its attempts to force the dealer out of business.
Manufacturers cannot force a dealer to provide exclusive or upgraded facilities
Over the last several years, many states have added specific protections for dealers in the area of facilities. Specifically, a number of states now strictly prohibit a manufacturer from requiring that the dealer provide exclusive facilities for the manufacturer’s franchise(s). Even if a dealer is not located in a state that provides this specific franchise protection, the terms of the dealer agreement provide protection.
If a dealer has previously been approved by the manufacturer to have a non-related franchise in its facility or on its property this will be evidenced in a facility addendum to the dealer agreement. In such a case, the manufacturer cannot unilaterally change its mind by no longer permitting the non-exclusive arrangement. A Lincoln dealer, as an example, that has previously been approved to be dualled with a non-Ford franchise, or even the Ford brand itself, cannot be forced by Ford to provide Lincoln in an exclusive facility.
Like exclusivity prohibitions, many states over recent years have added facility protections for dealers within the motor vehicle franchise laws. These laws generally provide that a manufacturer is prohibited from requiring a dealer to renovate, upgrade or expand his or her facility. The only condition placed upon this prohibition is that the current and reasonably foreseeable conditions within the dealer’s market do not justify the requested renovation, upgrade or expansion. Therefore, unless a manufacturer can document that the dealer does not (i) provide adequate signage; (ii) provide its customers with adequate parking; (iii) provide adequate vehicle inventory storage space; (iv) provide sufficient indoor vehicle display space; (v) provide adequate sales and service customer areas and offices; or (vi) provide timely service due to a lack of service stalls, there is no reasonable basis to insist upon a renovation or expansion.
It is difficult to envision a scenario that would justify any significant upgrade or expansion of a dealer’s Lincoln facility. Most importantly, Ford’s inevitably great projections for Lincoln sales in the future under its new plans will not be considered a “reasonably foreseeable” condition that would justify dealers spending large amounts of money to construct upgraded Lincoln dealership facilities. Ford will instead have to bring those projections into reality and sustain any increases for some period of time before they could credibly argue that it is time for Lincoln dealers to invest in their dealership facility.
We encourage all Lincoln dealers to stand strong and not buckle under the expected intense pressure by Ford to force its new plan on you. If the pressure is too great or dealers need a “bad guy” in the negotiations in order to attempt maintain “good guy” status, Lincoln dealers should not hesitate to contact an experienced motor vehicle franchise lawyer to assist.
