Pub. 56 2015-2016 Issue 3

23 SPRING 2016  DEALER FRANCHISE — CONTINUED ON PAGE 24 These contractual provisions limit an owner’s right to manage, sell or transfer his or her investment to the owner’s preferred buyer, save for state law. Again, the state grasps the need to balance the fac- tory’s concerns with the dealer’s investment and continuity and the state’s laws of descent and distribution in order tomaintain a competi- tive environment for the consumer by providing statutory oversight. 15 In addition to the manufacturer’s demands outlined in their fran- chise agreement, mostmanufacturers require the dealer to expend a significant amount of capital on their facility which increases the cost for a new point or a relocation as well as an existing facility. These requirements go beyond what is necessary for a satisfying customer sales experience. The level of manufacturer detail gets down to a specific paint color and floor tile and display style. 16 For example, BMW requires a minimum display space in the showroom for a dealer with a sales planning guide of 1 - 800 units. This dealer is required to display a minimum of 8 vehicles in a “driving gallery” formation; a dealership with a sales planning guide of 801 to 1400 is required to display 9 vehicles in a “driving gallery” formation; and, a dealership with a sales planning guide of 1401 and above is required todisplay 10 vehicles in a “driving gallery” formation. The required space in the showroom per vehicle is 325 square feet. The dealer who must display 8 vehicles is now required to have a showroom that is, at minimum, 325 x 8 or 2,600 square feet; 325 x 9 = 2,925 square feet for the dealer required to display 9 vehicles; and, 325 x 10=3,250 square feet todisplay 10 vehicles. 17 (SeeAttachment1.) Under BMW’s facility requirements, if a BMW dealer sells 20 newunits permonth, that dealer is required to build a showroomfor 8 vehicles, i.e., 2,600 square feet. A dealer who sells 66 units per month must have the same size showroom. A dealer who sells 117 units or more monthly is required to have 3,250 square feet for displaying vehicles, which is 650 square feetmore in the showroom than the dealer selling only 20 units per month.The expenseplacedupon thedealer selling20units permonth for a required 2,600 square feet versus the dealer selling 117 units per month with a requirement of an additional 650 square feet is an example of a questionable position by a manufacturer or distributor regarding facility requirements. The 20 unit a month dealer must now have a showroom size that does not lend itself to “best practices” for the dealership.This dealer will have to spend money that may be better spent elsewhere in the business or risk losing factory incentives. Franchises and State Regulation of Dealer Location The Texas Legislature passed the statute overseeing consumer, state, dealer, and manufacturer concerns in 1971. 8 This statute has been re-visited by the legislature each regular session since 1971–whether through filed bills, public hearings, or adopted amendments. The individual state legislator is the one who is familiar with their community and the needs of their constituency. It is the state legislator who knows the day-to-day consumer and busi- ness concerns. It is the state legislator who is responsive to the needs of the state and its citizenry. Regulating the approximate 1300 Texas franchised dealerships and their manufacturers and distributors is appropriately done by the state and as set out in the U. S. Constitution. 9 A grasp of the contractual relationship between the franchised dealer and manufacturer is necessary to an understanding of the growth of the statutory framework regulating the relationship and its on-going and dynamic changes. Amotor vehicle franchise agreement is not a negotiated docu- ment between the parties. It is not an individualized agreement. The standard provisions are the same whether the dealer is located in Texas, New York, or Ohio. The Sherman Antitrust Act 10 prohibits the dealers from com- ing together to negotiate their franchise agreements with the manufacturers or distributors. The franchise agreement is written by the manufacturer or distributor and presented for signing to the dealer. While the franchise agreement encompasses numerous issues, since the first segment of the FTC Workshop focuses on add points, relocations, and termination, the following agreements are primarily discussed within those confines. BMW of North America, Inc. Dealer Agreement Each franchised dealer’s sales and service agreement a/k/a franchise agreement, contains many similar provisions, regard- less of the franchise. For illustration, the BMW dealer agreement includes the following: 1. Requires a dealer to agree not to make any major structural change in any of the dealer’s premises without BMW’s prior written consent; 2. Requires a dealer to agree not to change the location of any of the dealer’s premises without BMW’s prior written consent; 3. Requires a dealer to agree not to establish any additional location for dealer’s BMW operations without BMW’s prior written consent. 11 (Emphasis added.) The BMW dealer does not have any exclusive specific geo- graphic region to sell the BMW products. 12 This non-exclusive provision is typical in a motor vehicle franchise or sales and service agreement. BMW allows for termination of the agreement upon the death or permanent disability of any owner holding a majority or controlling ownership interest in the dealership. A termina- tion provision is also included if there is any other change in the ownership or beneficial interest in the dealership. BMW also grants itself the right to terminate a dealer upon the death or permanent disability of or any change in the dealership’s general manager, without BMW’s prior written consent. 13 BMWmay also terminate, under their agreement, if the dealer sells, assigns or transfers or attempts to sell, assign, or transfer the dealership without BMW’s prior written consent. 14