Pub. 58 2017-2018 Issue 3

20  TEXAS FRANCHISE LAWS — CONTINUED FROM PAGE 18 selling, exchanging, repairing and servicing motor vehicles. A franchised dealer’s responsibilities also include a building requirement or “dealership.” A “dealership” means: The physical premises and business facilities on which a franchised dealer operates the dealer’s busi- ness, including the sale and repair of motor vehicles. The term includes premises or facilities at which a person engages only in the repair of a motor vehicle if the repair is per- formed under a franchise and a mo- tor vehicle manufacturer’s warranty. 20 (Emphasis added.) Not only is a franchised dealer expected to stock and retail motor vehicles as well as parts, but the dealership is de- fined and required to service and repair motor vehicles-operations that are not a part of a manufacturer’s or distributor’s stated definition or license as the selling and repairing of motor vehicles by a manufacturer or distributor is contrary to intra-brand competition. To allow a manufacturer or distributor to perform the defined operations of a franchised dealer is contrary to the prohibition barring a manufacturer or distributor from owning, operating, controlling, or acting in the capacity of a franchised or non-franchised dealer and is also contrary to the license issued by the agency. Finally, it is antithetical to the Legislature’s determined opposi- tion to vertical integration of the motor vehicle sales and repair process. "DEALER" CHRONICLED Who is a dealer is central to the State’s regulatory scheme allowing for and maintaining intra-brand competition and making certain that vertical integration does not leach into the State’s regulatory design and enforcement. Under Chapter 2301, Occupations Code, a manufacturer, as a TxDMV licensee, assembles new motor ve- hicles; a distributor, as a TxDMV licensee, allocates and sells new mo- tor vehicles to dealers in Texas; and a franchised dealer, as a TxDMV licensee, buys, sells, exchanges new and used motor vehicles and services or repairs motor vehicles under a manufacturer’s warranty at a dealer- ship pursuant to a franchise. The Legislature specifically spelled out the dealer operational prohibi- tion pertaining to manufacturers and distributors in 1995 by adding language stating: § 5.02. MANUFACTURERS; DIS- TRIBUTORS; REPRESENTA- TIVES. (a) In this section, “dealer” means franchised dealer. (b) It is [shall be] unlawful for any manufacturer, distributor, or representative to: (25) Operate as a dealer except on a temporary basis and only if: (A) the dealership was previously owned by a franchised dealer and is currently for sale at a reason- able price: or (B) the manufacturer, distribu- tor, or representative operates the dealership in a bona fide relation- ship with a franchised dealer who is required to make a significant investment in the dealership subject to loss, and who reasonably expects to acquire full ownership of the dealership under reasonable terms and conditions. 21 (Emphasis added.) This 1995 statutory exception provided for a rare instance in which a dealership terminated its franchise relationship without a buyer for the dealership and the manufacturer or distributor deter- mined to maintain the location until it was transferred to another dealer. 22 In 1999, the Legislature repealed § 5.02(b)(25) and added a new section specifying that a manufacturer or dis- tributor may not, directly or indirectly, own, operate, control, or act in the capacity of a dealer, and describing the exceptions to the general prohibition: § 5.02C. MANUFACTURER OR DISTRIBUTOR OWNERSHIP. OPERATION, OR CONTROL OF DEALERSHIP. (a) In this section the term “manu- facturer” includes: (1) a representative; or (2) a person or entity who is af- filiated with a manufacturer or representative or who, directly or indirectly through an intermedi- ary, is controlled by, or is under common control with, the manu- facturer. (b) For purposes of Subsection (a)(2), a person or entity is controlled by a manufacturer if the manufacturer has the authority directly or indirectly, by law or by agreement of the parties, to direct or influence the management and policies of the person or entity. (c) Except as provided by this sec- tion, a manufacturer or distributor may not directly or indirectly: (1) own an interest in a dealer or dealership; (2) operate or control a dealer or dealership; or (3) act in the capacity of a dealer. 23 (Emphasis added.) The 1999 amendment provides for a manufacturer or distributor ownership exception for a limited time period if the dealership was acquired from a franchised dealer and if the dealership is available for sale at a reasonable price and on reasonable terms and condi- tions; or to broaden dealership own- ership diversity; or, if a motor home manufacturer also held a motor home dealer's license as of June 7, 1995. 24 The 77th Legislature added an amend- ment to § 5.02 C in 2001 clarifying how to determine if the price of a dealership and other terms and condi- tions are reasonable when an acquired dealership is sold by a manufacturer or distributor. 25 That same session, the Legislature adopted the Texas Oc-