New Protections for Auto Dealers from Unreasonable Manufacturer Charge-Backs

by Don Reynolds on 2016-08-16 1:05pm

 

On March 4, 2016 the Florida Legislature passed House Bill 231, which amended section 320.64, Florida Statutes relating to the dealer sales and service agreements between manufacturers and franchised dealers. House Bill 231 provides additional grounds to deny, suspend, or revoke a license held by a motor vehicle manufacturer, factory branch, distributor, or importer (collectively known as the licensee), and prohibits the licensees from taking certain actions against motor vehicle dealers. Specifically, the manufacturer:

  • Is limited to a 12-month period, instead of an 18-month period, following the date an incentive payment was paid to perform an audit of such payment; and

  • May deny or charge back any payment related to a warranty, maintenance, or other service-related claim or incentive claim or a portion of such claim, only if the manufacturer has “proven” the claim or portion of such claim to be false or fraudulent or that the dealer failed to substantially comply with the reasonable, written, and uniformly applied procedures of the manufacturer.

Florida dealers have long claimed that manufacturers have interpreted incentive and warranty policies in ways that are unfair and that deny dealers legitimate compensation. The dealers felt that Florida state law did not adequately protect their rights. As far back as September 2006, Automotive News reported that there were “several automakers that [Florida] dealers say are toughening their audits of how stores handle sales incentives programs as the size of those factory incentives has grown. Industry consultants estimate that the rate of such audits has doubled over the past three years. As factories have hit some dealerships with six- or seven-figure chargebacks, dealer groups are lobbying state legislatures to enact greater protection from aggressive audits and penalties. Without those measures, they say, dealerships that face big charges will not have a fair opportunity to appeal. [The penalties are called chargebacks because factories charge dealerships back for the amount of incentive payments deemed to have been made improperly. Details of factory incentive programs vary, but dealerships generally earn a dollar amount for each vehicle sold under a program -- sometimes several thousand dollars each.]

More recently, one of Florida’s largest dealers, Norman Braman, sued General Motors in January 2012 after the manufacturer halted incentive payments to Braman's Miami Cadillac dealership in 2011 on the grounds that the dealership failed to comply with its Essential Brand Elements facility requirements.

The Florida Legislature responded by revising the terms under which a chargeback would be allowed. In addition, the legislation revised Florida Statute 320.64 such that licensees:

  • May not take adverse action against their franchised dealer, if the dealer sold or leased a vehicle to a customer who exported the vehicle to a foreign country or who resold the vehicle, unless the manufacturer provides written notification to the motor vehicle dealer regarding such resale or export within 12 months after the date the dealer sold or leased vehicle to the customer;

  • Must pay the dealer for temporary replacement vehicles provided to customers by the dealer as a loaner vehicle during service or repair even if the dealer owns the vehicle, provided that the dealer complies with written and uniformly enforced vehicle eligibility requirements; and

  • May not require or coerce a dealer to purchase goods or services from a vendor selected by the manufacturer without first making available to the dealer the option to obtain the goods or services from a vendor chosen by the dealer and may not unreasonably withhold consent to allow the dealer to use alternative goods or services. The term "goods or services" does not include material subject to applicant’s or licensee’s copyright, trademark, or trade dress rights; required special tools or training; parts to be used in repairs; goods or service.

These changes provide extra protections to auto dealers and ensure that you will be able to create incentive programs which increase sales and reward your best employees without fear that manufacturers can hurt you for doing so.