Expect More Law Disputes

Expect a 35%-40% increase in legal disputes between auto makers and their dealers by next year, says an attorney specializing in such matters.

Legal activity already is on the rise in the Gulf States region, Brit T. Brown with the Houston-based firm of Beirne, Maynard & Parsons tells the Automotive Press Assn. in Detroit.

The political climate is becoming more friendly to manufacturing in states such as Texas and Alabama as auto makers build new plants there, and that ultimately may lead to the weakening of state franchise laws that have long protected dealers by limiting the control OEMs have over the distribution channel.

Brown, whose firm represents OEMs, believes the legal pendulum has swung too far in its protection of dealers and, as a result, states are beginning to evaluate whether those laws are anti-competitive. “In fairness, we do need to make sure the laws don't swing too far back in the other direction where dealers are hurt,” he says.

In Texas, the legislature overwhelmingly approved a bill that includes an amendment dissolving the Texas Motor Vehicle Board, an entity that in most states jokingly is referred to as the “Dealer Protection Board,” Brown says.

“The Texas Automotive Dealers Assn. has been untouchable in the past,” Brown says. “But there clearly has been a change in the political thinking. And Texas has been a trendsetter.”

Dealers and OEMs are squabbling over issues such as retail repositioning, where the OEM wants to terminate, transfer or relocate a franchise; the implementation of customer and sales satisfaction initiatives; warranty reimbursements; and the OEMs' desire for exclusive brand dealerships.

While many of the disputes happen between the domestic manufacturers and their dealers, Brown says some of the import brands and their dealers are beginning to have more problems. “There are a couple of import brands that are going to have a major battle on their hands,” he predicts.