STATE FRANCHISE LAWS ARE HITTING HOT BUTTON ISSUES ACROSS THE INDUSTRY

State franchise laws are playing significant roles in a number of “hot-button” issues affecting auto dealers.

The relevance of the state statutes governing dealer-factory relations is evident in discussions on the Oldsmobile phaseout, Ford and Lincoln Mercury certification award programs and the newly announced Chrysler Group sales-linked incentive changes.

The laws — amended by 40 states over the past three years to toughen controls on or forbid permanent factory-owned dealerships — will soon be nationwide.

Alaska's legislature is considering a bill that if enacted, as seems likely, would make it the 50th state with a distinctive law that covers only franchised dealers and their factories.

“The success state associations have had in first adopting and then strengthening and re-strengthening these laws is striking,” says James A. Moors, NADA's legal affairs director for franchising laws.

The Olds dealer-factory discussions are framed by the fact that about 30 state laws spell out detailed deadlines and restrictions in winding up franchises. Those laws distinguish between voluntary terminations and arbitrary cancellations.

Four states require a replacement brand to be provided, if it is available and if it meets the law's territory requirements. Other states call for “appropriate” financial settlements and reviews by regulating commissions or state courts.

Meanwhile, franchise laws are cited as dealers challenge the new Ford Blue Oval, Lincoln Premier and Mercury Advantage certification programs. Five dealers are suing Ford in U.S. District Court. State dealership groups are joining the fight.

Ford Division President James G. O'Connor says, “I can't help but notice that one of the five plaintiffs — Robert Creedon of Senator Ford — just won the first Blue Oval in Sacramento, CA.”

For his part, Mr. Creedon says he was convinced of the suit's merits. The suit opposes vehicle invoice discount bonuses that goes to certified dealers. It creates what plaintiffs call a “three-tier” pricing system, allegedly illegal under the Robinson-Patman Act.

Thirteen Lincoln Mercury dealers who have become Chicago's Cook County Circuit plaintiffs against the awards programs say the Illinois franchise law imposes a factory “control” restriction, which Premier and Advantage violates.

The Ford suit in Newark cites the New Jersey law's code on coercion of dealers, contending that the certification bonus makes it imperative that dealers apply for Blue Oval to remain competitive.