As Hyundai Motors America (HMA) and Genesis Motors America (GMA) suggested in their May 1, 2018, announcement, they have offered a proposed new Genesis Dealer Sales and Service Agreement to Hyundai dealers in most states. Dealers located in states like Florida and Texas have been told by HMA that a Genesis franchise offer will be forthcoming as soon as those states issue a manufacturer license to Genesis Motor America.
The Genesis Sales and Service Agreement is not clear on whether a separate facility will be required for the Genesis franchise but what is clear is that dealers will be required to provide a laundry list of Genesis-specific personnel and services in order to receive the franchise. Those items include exclusive sales and service personnel, a dedicated General Brand Manager, a separate data management system, dedicated service bays, signage and a service rental fleet.
The separation of the Genesis franchise as set out in the proposed Agreement conflicts with many state motor vehicle franchise laws. Some states prohibit the separation altogether as the Genesis product has been manufactured and distributed by HMA and, as such, gives Hyundai dealers a continuing right to receive the Genesis product within their Hyundai franchise. Simply announcing that certain vehicles will now be a new brand does not allow HMA to circumvent these franchise protections.
Other states require a manufacturer that is changing its system for distributing product to offer the opportunity to participate in the new distribution system to its existing dealers. HMA/GMA’s offer of a Genesis franchise to all Hyundai dealers may satisfy this requirement. While in yet other states, dealers have a right to protest any adverse change to their franchise, which the separation of Genesis products would certainly qualify. However, in almost all states, the franchise protections prohibit a manufacturer from requiring a dealer to provide exclusive facilities or other upgrades unless it is justified by the dealer’s current and reasonably expected market conditions. Based upon the expected low Genesis sales volume and units in operation, it is difficult to imagine the additional personnel and devoted portions of the Hyundai facility, let alone a separate facility altogether, would be justified for some significant period of time.
Hyundai dealers have been given until July 20, 2018, to submit an Expression of Interest form to continue to the discussions with HMA/GMA regarding receipt of the Genesis franchise. Otherwise, Hyundai dealers will continue to be permitted to accept the previously offered settlement monies in exchange for waiving their rights to the Genesis franchise. Hyundai dealers interested in continuing to sell the Genesis product have generally three options. First, submit the Expression of Interest and ultimately accept the Sales and Service Agreement as proposed. Second, submit the Expression of Interest and use the franchise law protections to negotiate limits to the brand elements to be provided to the Genesis franchise. Third, put HMA/GMA on notice that the Hyundai dealership believes it continues to have a right to the Genesis product as part of the Hyundai franchise and utilize applicable franchise law to protest the proposed separation of Genesis as a new franchise.
Considering the pending deadline to accept the settlement monies or express an interest in the Genesis franchise, Hyundai dealers should not delay in consulting with their experienced franchise legal counsel to determine the next course of action based upon their state franchise protections and individual market circumstances.
Author: Richard Sox
Richard Sox is a lawyer with the firm of Bass Sox Mercer PA (formerly known as Myers & Fuller PA).