On the heels of the major changes made to the Mercedes-Benz Dealer Agreements last month, Mercedes-Benz is now asking dealers to sign a “Dealer Improvement Addendum.” These Addenda appear to be sent to any dealer which Mercedes-Benz believes is not performing sufficiently in the area of sales performance, customer satisfaction performance and/or making an Autohaus upgrade to the dealership facility.
The Addendum has the dealer agreeing that their performance in one of the above-described areas is “deficient” as required by the Dealer Agreement and then sets a specific level of performance that the dealer agrees to obtain by a date-certain. The Addendum is not merely a “notification” of the dealer’s alleged failure to comply with the terms of the Dealer Agreement but is a binding legal agreement. As a result, dealers should think long and hard before signing the Addendum.
In many cases it is not reasonable for a dealer to be expected to meet a certain sales performance, customer satisfaction or facility requirement. As applied to dealers performing below the Regional average sales penetration, the sales performance formula used by Mercedes-Benz may be faulty due to allocation issues or the unique nature of the dealer’s market. Likewise, we know that in many cases the customer satisfaction survey process is not reliable and the Autohaus facility program is not viable for some dealers.
While the Dealer Agreement sets general performance requirements for the dealer, the Dealer Improvement Addendum is very specific as to what the dealer is agreeing to accomplish to correct the alleged deficiency. If the dealer fails to reach the performance level by the date agreed to, Mercedes-Benz will have a greatly strengthened hand in arguing the dealer is in violation of its Dealer Agreement. Agreeing to the terms of the Addendum could severely limit or entirely eliminate the dealer’s argument that these requirements are not reasonable under the dealer’s specific circumstances.
The alternative to signing the Addendum is to respond to Mercedes-Benz in writing explaining why the performance standard(s) listed in the Addendum is unreasonable as applied to the dealer’s specific circumstances. Dealers cannot be forced to sign a Mercedes-Benz Dealer Improvement Addendum including terms with which they don’t agree.
Dealers receiving a Dealer Improvement Addendum should seek experienced franchise legal counsel before executing the Addendum.
General Motors hides the PEA (Again)
I wrote in my December 2011 column in Dealer magazine, “GM’ 6/11 CYTD Dealer Retail Sales Performance Review” concerning General Motors’ Sales Performance Reports sent to dealers in the fall of 2011. I pointed out that dealers should consider responding to any report criticizing their performance by pointing out the various issues out of the dealer’s control, which negatively impact their sales performance. One of the most pressing issues for some dealers is a lack of available vehicle allocation.
I described in my column that General Motors was, for the first time in quite some time, providing detailed allocation information on the Sales Performance Report by vehicle model which could be used to demonstrate that the dealer was not receiving the number of vehicles necessary to equal the number of vehicles General Motors is saying the dealer must sell to be sales effective.
Well, General Motors willingness to be honest and upfront with its dealers about the number of vehicles allocated to the dealer by model was short-lived. As of the September calendar-year-to-date Sales Performance Report issued in early January, General Motors is back to playing “hide the pea.” The allocation report has been removed from dealers’ Sales Performance Reports.
Despite General Motors return to playing games with its dealers, dealers should continue to closely monitor their allocation requests, actual allocation and any allocation turn-downs by the dealership so that those numbers can be used in responding to a Sales Performance Report alleging that the dealer is deficient.
Nissan dealers required to agree to incentive rules
In response to a wave of incentive chargebacks against Nissan dealers which resulted in a number of challenges to, and protests of, those chargebacks, Nissan has sent dealers a very important change to it sales incentive program rules. Dealership personnel will not be able to access new program rules without either the dealer principal or the executive manager first “accepting” the terms of the incentive program. The acceptance of the rules allows the dealership six months of access to the system, or until the rules are changed, before the dealer principal or executive manager must again enter the system and accept the terms of the program.
Why is this news? This change to the way in which the incentive rules are accessed will place a heightened burden on the dealership to abide by the claims submission procedures. The dealership’s dealer principal or executive manager will no longer be able to argue that they were unaware of the details of a particular incentive program in challenging a chargeback for a failure of dealership personnel to comply with the program rules.
The express acknowledgement by the dealer principal or executive manager could also cause serious problems for the dealership if fraud is alleged in the claims submission process. All dealer agreements, including Nissan’s, state that if a dealer is found to have committed fraud in its submissions to the manufacturer, the franchise can be immediately terminated. Historically, it was difficult for a manufacturer to argue that the level of fraud involved in false claims reporting permitted a termination of the franchise because fraud generally requires “knowledge” by those approved to operate the franchise.
We fear that Nissan could use this new rule requiring the dealer principal or executive manager to accept all program rules to meet the requirement of “knowledge” in the situation where a rogue dealership employee was submitting false incentive claims. In that case, Nissan could move to terminate the dealership’s franchise rights. As a result of this concern, Nissan dealers should insure that the dealership personnel responsible for submitting incentive claims are intimately familiar with the incentive program rules and that the dealership self-audits its claims from time to time to prevent intentional or unintentional false claim submissions.