Car dealers: do you really have the right to refuse new vehicles?

According to a recent article in the NY Times:

The Chrysler Group said on Monday that it had not yet counted tens of thousands of cars in its inventory numbers, which are already considered high by industry standards. Chrysler said it had routinely excluded these vehicles, valued at billions of dollars, from its unsold cars and trucks account because they had not yet been assigned to a specific dealer or ordered by a customer. (New York Times, October 24, 2006)

When I first started learning about the auto industry, dealers and manufacturers had a name for vehicles made but not ordered. That name was: “sales bank”. “Sales banking” is a practice that manufacturers say they abandoned after being devastated by the system during the oil crisis of the 1970s.

In the early 1980s, when the dust settled, Automotive News ran stories like:

Ernest D’Agostino of Rhode Island filed a lawsuit in US District Court against the Chrysler Corporation, alleging that Chrysler terminated its franchise because it refused to buy “gas guzzlers,” large cars with poor fuel economy. gasoline. A federal court jury found against Chrysler, and Chrysler, in an unreported case, appealed. Chrysler agreed to drop its appeal and paid a settlement to D’Agostino (Automotive News, October 1982); Y

Fred Drendall of Drendall Lincoln-Mercury/Pontiac sued Ford Motor Company alleging that when he tried to cancel the orders, he was intimidated by Ford spokesmen and when he caved in to pressure and ordered the vehicles, high floor costs forced him to refinance his car. concessionaire. . He was eventually fired and suffered a heart attack. (Automotive News, December 1982).

Those were tough times in the car business.

Today, most Sales and Service Agreements have provisions such as the following:

2. (D) INVENTORY. Dealer shall maintain a stock of current models of such lines or series of VEHICLES, of an assortment and in quantities consistent with applicable Company GUIDELINES, or adequate to meet Dealer’s share of current and anticipated demand for VEHICLES. at the LOCATION OF THE DEALER. The maintenance of VEHICLES in stock by the Dealer will be subject to the Company completing the Dealer’s orders in this regard. (Ford Motor Company, Mercury Sales and Service Agreement, Standard Provisions.)

However, most states have Dealer Day in Court Laws with provisions such as:

Art. 4413(36), SUBCHAPTER E. PROHIBITIONS. Section 5.02. Manufacturers; dealers; Representatives. (b) It is unlawful for any manufacturer, dealer, or agent to: (1) Solicit or attempt to require any dealer to order, accept delivery, or pay anything of value, directly or indirectly, for any motor vehicle, appliance, part, accessory or any other product unless voluntarily ordered or contracted by said distributor. (Texas Motor Vehicle Commission Code)

It shall be unlawful and a violation of this code for any manufacturer, manufacturer’s branch, dealer, or dealer’s branch licensed under this code to coerce or attempt to coerce any dealer in this state to: (a) Order or accept delivery of any motor vehicle, part or accessory thereof, apparatus, equipment or any other merchandise not required by law that has not been voluntarily ordered by the reseller. (California Vehicle Code Section 11713.2)

In addition to state laws, the National Dealership Day in Court Act also prohibits manufacturers and dealers from coercing a dealership into accepting “cars, parts, accessories, or supplies that the dealership does not need, want, or feel the market needs.” can absorb.” 1956 USCode. Cong. & Admin. News, page 4603.

But, the law is always a two-edged sword and there is usually a fine line drawn between actions that are appropriate and actions that are not. For example, it has long been established that a dealer’s refusal to take the manufacturer’s entire line of vehicles, choosing instead to sell a competitor’s models, is grounds for termination. See, for example: Randy’s Studebaker Sales, Inc. v. Nissan Motor Corporation, 533 F.2d 510 (10th Cir. 1976), at 515.

Accordingly, before deciding whether to accept or reject delivery of vehicles, a dealer should consult with a competent automotive attorney who is familiar with the laws of the jurisdiction where the vehicles are to be delivered, with respect to their particular circumstances.

Note: This article is not intended to provide legal advice, nor should it be construed as such.

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