GM Dealer Agreement Modifications Present a Good Time to Remind Dealers of Their Right to Contest Modifications in Essential Elements of the Franchise Relationships

Paul R. Norman | 08.21.20

General Motors has revealed its new five-year dealer agreement, which contains modifications that most dealers are not likely to find material, but nonetheless important. 

GM’s new agreement contains some positive changes that can benefit dealers, such as: 

1. A provision allowing dealers to disclose the use of non-GM parts and accessories or the sale of non-GM service contracts in documents other than the purchase order. 
2. A provision allowing dealers to use non-genuine GM parts in performing warranty repairs, if the parts are GM approved. 
3. A clarification that an RSI less than 100 is not necessarily a breach of the dealer agreement, but is necessary to achieve a ​“Satisfactory” sales effectiveness rating. 
4. Removal of the requirement that a dealer must satisfy its obligation under the dealer agreement before GM will execute a successor addendum, as long as the proposed successor is deemed qualified to act as Dealer Operator both when the addendum is executed and at the time of succession.

On the other hand, GM’s new agreement also makes some changes that may be potentially adverse to dealers, including: 

1. A new general obligation to ​“maintain a commercially reasonable digital presence.” 
   • The vagueness of this provision leaves room for uncertainty, but in practice will likely not require dealers to make dramatic changes in the way they do business. 
2. A new prohibition against motor vehicle parts and accessory sales outside the United States. 
   • This change could be a concern for dealers in states bordering Canada and Mexico who have large wholesale parts operations, but we are not aware of any Wisconsin dealers who will be materially affected by it. 
3. A new restriction on GM’s contractual obligation to repurchase damaged or altered motor vehicles upon termination or expiration of the agreement.

Although the changes are relatively minor overall, GM’s decision to modify its agreement presents a good time to remind Wisconsin franchised dealers that they have a right to contest material changes in their ​“agreements” with a manufacturer that adversely affect them. 

The term ​“agreement” has been broadly defined by the Wisconsin Supreme Court and applies to changes to an essential element of the franchise relationship even if that element is not covered within the ​“four corners” of the agreement itself. For example, a change in the dealer’s assigned area of sales responsibility can be challenged under the applicable statute even if it is not contained in the dealer agreement itself. Even a change in an incentive program that may impact a dealer differently from other dealers might be subject to challenge. 

The law provides that manufacturers must notify dealers in writing of material adverse changes in their ​“agreements” at least 60 days before the change becomes effective. During that 60-day period, the dealer can file a complaint with the applicable state agencies and request a hearing on whether there is ​“good cause” for the changes. At the hearing, the manufacturer will need to show that it has ​“good cause” for the changes by explaining, among other things, its reasons for the proposed changes. The dealer will need to show how the changes will substantially and adversely affect the dealer’s rights, investment, or return on investment. 

Dealers can strengthen their argument that the changes are adverse by joining together in challenging changes that affect them in the same way. Challenging such changes not only allows dealers to defend themselves and their franchise relationships, but also prevents a manufacturer from being able to modify a dealer agreement while the ​“good cause” determination is pending. In the event that a dealer’s challenge fails, the dealer at least had more time to develop a contingency plan to adjust to the proposed changes. In the event that the dealer’s challenge succeeds, the dealer’s agreement will remain unchanged. 

But it is important for dealers to act quickly whenever they receive notice of a change, because once the 60 days expires, they no longer have the right to challenge the change.