General Motors has announced to all its dealers in New York that as a result of the Beck Chevrolet decision it will alter the Retail Sales Index (RSI) performance measurement. Unfortunately, these changes are not sufficient to make the RSI calculation a fair measurement by which to measure dealers’ sales performance.
Pursuant to GM’s Dealer Sales and Service Agreement, all dealers must be at or above an RSI score of 100%. In the Beck case, GM was using its RSI calculation of Beck Chevrolet’s performance to threaten a termination of the franchise. However, the court found that GM’s RSI formula was not a reasonable sales performance formula, as required by New York law, because it failed to take into account local market circumstances out of the dealer’s control. Specifically, the Court determined that GM could not terminate the Chevrolet franchise because the RSI formula did not factor in the very strong import brand bias that exists in Beck’s market. The RSI formula was measuring Beck Chevrolet’s market share in comparison to the average Chevrolet market share across the State of New York. The RSI formula was faulty in that dealers in other parts of New York did not face this same import brand bias and thus measuring Beck’s performance against State market share average was unfair and unreasonable.
In its recent announcement, GM states that in the first quarter of 2017 it would begin measuring dealers’ market share against the other same brand dealers within the dealership’s Designated Market Area as prescribed by Nielson. According to GM’s notice, there are ten (10) DMAs which encompass the State of New York. In measuring dealers using this new method, dealerships will be assigned a new RSI and a ranking which compares their performance to the average market share for the brand in the DMA. Before taking adverse action against a dealership based upon its new RSI calculation, GM states that it “may” take into account additional factors such as the dealership’s assigned territory (APR/AGSSA), the overall registration effectiveness of the brand in the dealership’s assigned territory, proximity of an OEM manufacturing facility, facility construction at the dealership, road work in the area of the dealership and any other issues brought to GM’s attention by the dealer.
Despite these changes in measuring dealers’ sales performance there continue to be several fundamental problems with this measurement in New York as well as the continuing RSI measurement in other states. First, dealers continue to be measured against an “average” market share. By definition, all dealerships in the State or DMA cannot be at or above 100% RSI. The mathematics involved in using an “average” necessarily result in some portion of dealers always being above and others always being below average. Second, ranking dealers’ RSI continues to result in a faulty conclusion. Just because a dealership ranks last or near last in the State or DMA is meaningless in and of itself. There is always going to be a dealership ranked last within a finite number of dealerships. Being ranked last amongst a group of good performing dealers should not automatically result in the conclusion that the dealership is a poor performer. Third, the Dealer Sales and Service Agreement makes no mention of requiring dealers to be at or above a certain ranking. Thus, there is no contractual basis by which GM can judge a dealership’s performance based upon RSI ranking in the State or DMA. Fourth, the old and new measurement formula does not take into account shopping patterns in a dealership’s market which create unique sales challenges. Even within a DMA, market conditions can be very different from one dealership to another. Fifth, the use of DMAs as the new measurement area does not remove the faulty results which result from measuring dealers against the performance of same brand dealers in other parts of the State. Some of the DMAs include areas within states outside of New York. In some cases, the DMA encompasses areas in two other states besides New York. It is difficult to believe that the inter-brand and intra-brand competition is going to be consistent throughout such a large and diversified area.
Ultimately, we will have to take a “wait and see” approach to GM’s new measurement system. At a minimum, however, we strongly recommend that all GM dealers communicate to GM any known issues with their assigned APR/AGSSA and other unique market circumstances which are out of the dealership’s control which have an adverse impact upon its new vehicle sales. In order to be in the best position to fend off GM criticism of the dealership’s sales performance under the old or new RSI calculation, dealers must be on the record with these concerns.
Author: Richard Sox
Richard Sox is a lawyer with the firm of Bass Sox Mercer PA (formerly known as Myers & Fuller PA).