Car Dealers: Do You Really Have The Right To Decline New Vehicles?

According to a recent NY Times article:

The Chrysler Group said Monday that it had not yet accounted for 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, worth billions of dollars, from its count of unsold cars and trucks because they had not yet been assigned to a specific dealership or ordered by a customer. (New York Times, October 24, 2006)

When I started learning about the auto industry, dealers and manufacturers had a name for manufactured vehicles, but not ordered. That name was: “sales bank.” The “sales bank” is a practice that manufacturers claim 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 United States District Court against Chrysler Corporation, alleging that Chrysler canceled its franchise because it refused to buy “gas guzzlers” – large, fuel-efficient cars. A federal court jury that ruled against Chrysler and Chrysler, in an unreported case, appealed. Chrysler agreed to withdraw its appeal and paid D’Agostino a settlement (Automotive News, October 1982); Y

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

Times were tough in the auto business.

Today, most sales and service agreements have provisions such as the following:

2. (D) STOCKS. The concessionaire must maintain stocks of the current models of said lines or series of VEHICLES, of an assortment and in quantities that are in accordance with the Company’s GUIDELINES for it, or that are adequate to satisfy the concessionaire’s part of the current demand and advance of VEHICLES in the LOCALITY OF THE DEALER. The maintenance of the stock of VEHICLES by the dealer will be subject to the company fulfilling the dealer’s orders. (Ford Motor Company, Mercury Sales and Service Contract, Standard Provisions).

Most states, however, have dealer day laws in court with provisions such as:

Art. 4413 (36), SUBCHAPTER E. PROHIBITIONS. Sec 5.02. Manufacturers; Dealers; Representatives. (b) It is illegal for any manufacturer, distributor or representative to: (1) Require or attempt to require any distributor 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 requested or contracted by said distributor. (Texas Motor Vehicle Commission Code)

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

In addition to state laws, the National Dealer in Courts Day Law also prohibits manufacturers and dealers from coercing a dealer into accepting “automobiles, parts, accessories, or supplies that the dealer does not need, want, or feel the market for. can absorb. “1956 USCode.Cong. & Admin.News, page 4603.

However, the law is always a double-edged sword, and there is generally a fine line between actions that are appropriate and actions that are inappropriate. For example, it has long been ruled that a dealer’s refusal to take over 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.

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

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

About the author

Leave a Reply

Your email address will not be published. Required fields are marked *