Car Dealers - Do You Really Have the Right to Refuse New Vehicles?

Car Dealers – Do You Really Have the Right to Refuse New Vehicles?

According to a recent article in the New York Times:

Chrysler Group said Monday that it has yet to count tens of thousands of cars in its inventory numbers, which are already high by industry standards. Chrysler said it routinely excludes these vehicles, worth billions of dollars, from its unsold car and truck inventory because they were not assigned to a specific dealer or ordered by a customer. (The New York Times, October 24, 2006).

When I first started learning about the auto industry, dealers and manufacturers had a name for manufactured, but not registered, vehicles. This name was: “Sales Bank”. “Sales banking” is a practice that manufacturers claim they abandoned after the regime destroyed it during the oil crises of the 1970s.

By the early 1980s, when the dust had settled, Automotive News was running stories like:

Ernest D’Agostino of Rhode Island filed suit in US District Court against Chrysler, alleging that Chrysler terminated his franchise because he refused to buy “gas gnomes”—large cars with low gas mileage. A federal jury found against Chrysler and Chrysler, in an unreported case, appealed. Chrysler agreed to drop its appeal and paid D’Agostino a settlement (Automotive News, October 1982); And

Fred Drendall, of Lincoln-Mercury/Pontiac, has sued Ford Motor Company, claiming that when he tried to cancel orders he was intimidated by Ford spokespeople, and when he bowed to pressure and ordered vehicles, rising floor costs forced him to refinance his dealership. Eventually he was fired and had a heart attack. (Automotive News, December 1982).

Those were tough times in the auto business.

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

2. (d) shares. The Dealer shall maintain a stock of current models of such lines or series of vehicles, of an assortment and in such quantities as may be instructed by the Company thereto, or sufficient to satisfy the Dealer’s share of the current and projected demand for automobiles at the Dealer’s location. Dealer maintenance of vehicle inventory is subject to Company filling of Dealer orders for that. (Ford Motor Company, Mercury Sales and Service Agreement, Standard Terms.)

However, most states have dealer day in court statutes with provisions such as:

art. 4413 (36), Branch E. prohibitions. sec 5.02. manufacturers; Representative Distributors. (b) It is unlawful for any manufacturer, distributor, or representative to: (i) solicit or attempt to solicit any dealer to demand or accept delivery or payment of anything of value, directly or indirectly, for any automobile, appliance, part, or accessory; or any other commodity unless ordered or contracted voluntarily by such merchant. (Texas Motor Commission symbol)

It is unlawful and a violation of this Code to compel or attempt to coerce any Dealer into this situation for any manufacturer, subsidiary, distributor or distributor authorized under this Code to: Another good that is not required by law and which the trader did not voluntarily request. (Section 11713.2 of the California Vehicle Code)

In addition to state laws, the National Dealer Day in Court statute also prohibits a manufacturer and distributor from forcing a dealer to accept “automobiles, parts, accessories, or supplies that the dealer does not need, want, or feel the market is capable of absorbing.” 1956 USCode.Cong. & Admin.News, pg. 4603.

But the law is always a double-edged sword and there is generally a fine line between correct actions and improper actions. For example, it has long been agreed that a dealer’s refusal to take all of a vehicle manufacturer’s lines, choosing instead to sell competing 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.

Thus, before deciding whether to accept or refuse to deliver vehicles, the dealer should check with a competent motoring attorney, who is familiar with the laws in the jurisdiction where the vehicles are to be delivered, with respect to his particular circumstances.

Note: This article is not intended to provide legal advice, and should not be construed as doing so.

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