Mercedes-Benz (MBUSA) sent its dealers a proposed new Passenger Car Dealer Agreement, Light Duty Truck Dealer Agreement and Commercial Vehicle Dealer Agreement to be effective January 1, 2012. It is very important that dealers understand the changes made in those agreements as they could very well have an adverse impact upon dealers.
The changes MBUSA proposes are significant. MBUSA has added requirements related to due diligence reviews, emphasis on customer satisfaction issues, training of dealership personnel, access to dealership electronic data and approval of a dealership transfer.
Of particular concern, MBUSA is asking dealers to agree to allow it to conduct “periodic due diligence reviews” of the owners of the dealership. The scope of this “review” is not defined. This provision would seem to be overreaching as there is no reasonable basis for MBUSA to conduct a review of the owner’s personal financial statements, business dealings or any other matter. Compliance with the traditional terms for keeping the franchise in good standing, such as working capital, sales performance, CSI performance and floorplan financing, can be determined by looking at dealership information. The dealer principal’s personal information has no bearing on these criteria.
Likewise, MBUSA proposes to place significantly greater control over what employees are hired by the dealership and their respective levels of training. The new provision includes a requirement that all dealerships employ a “shop foreman.” I don’t believe that a shop foreman is a position that all dealers utilize at their dealerships. This requirement can only be explained as another way in which the manufacturer is attempting to gain more control of the day-to-day operations of your business. As I have said repeatedly in this column, as independent business owners, dealers should make the decisions related to the operations of their dealership, while the manufacturer should be concerned with providing the dealer with attractive product. If the dealer is performing well, MBUSA should not be concerned with whether the dealer has employed a “shop foreman,” a “door-greeter,” a “grounds-keeper” or any other such employee!
Similarly, MBUSA’s new Dealer Agreements emphasize training for all employees as designated by MBUSA. Dealers should be aware of whether their state franchise laws prohibit unreasonable training requirements as those statutory protections will trump the terms of the MBUSA Dealer Agreements.
The proposed revisions to the Dealer Agreements also seek dealers’ consent to allow MBUSA to unilaterally turn-down the sale of the franchise if MBUSA does not like the proposed purchaser’s plans for the dealership facility. In other words, it appears that MBUSA wants to have the ability to make the sale of a franchise contingent upon the purchaser making whatever facility upgrades MBUSA deems appropriate. This proposed provision could dramatically impact your ability to sell the franchise and obtain a return on your investment in the franchise. Again, dealers should be sure to be aware of what protections are provided in their state franchise laws as it relates to ownership transfers. Some states prevent a manufacturer from making approval of the transfer contingent upon changes to the facility, while others provide a limited list of reasons for which the manufacturer may deny the ownership change. In most cases, that list does not include reference to facilities.
Also of great concern is the proposed revision to the Dealer Agreements, which allows MBUSA to have full access to dealership electronic records and data as part of an examination of the accounts and records of the dealership. This provision gives MBUSA unprecedented access to dealership records. Such access is overly intrusive and does not provide the dealership the opportunity to object to MBUSA obtaining information that the dealership deems to be irrelevant or proprietary. Unfortunately, this is a relatively new area of concern such that most states have not addressed the issue in the motor vehicle franchise laws. Dealers should be strongly urged to resist providing MBUSA with a direct link into your dealership computer systems, but instead agree to send MBUSA whatever information they seek (within reason). In particular, providing access to customer information creates both federal and state law exposure for dealers if that information falls into the wrong hands and is not kept strictly confidential by MBUSA.
Lastly, the proposed new Commercial Truck Dealer Agreement places new and extensive focus on customer satisfaction. These proposed revisions would allow MBUSA to dictate what the dealership must do to “satisfy” a complaining customer and to dictate when the customer is satisfied. Of most concern, these proposed revisions include an agreement whereby the dealer acknowledges that the franchise may be terminated by MBUSA, if MBUSA deems that the dealership has failed to meet its required Customer Satisfaction Index performance guides. It is well-established that CSI indices can be very unreliable and inaccurate in some circumstances.
Vehicle export chargebacks
Mercedes-Benz is reversing chargebacks in certain circumstances
There has been no slow-down in the rate of chargebacks being levied by manufacturers when a vehicle has been found to have been exported outside the U.S. dealers have been fighting these chargebacks arguing that, unless the purchaser was listed on the manufacturer’s “broker black list,” the dealer had no way of knowing that the purchaser acquired the vehicle with the intent of exporting it overseas. The one bright spot in what typically is a long and exacerbating process of appealing the chargeback is Mercedes-Benz’ handling of export chargebacks.
MBUSA adopted a New Vehicle Export Policy (the “Policy”) effective February 14, 2011. The policy contains the following sales process checklist to enable dealers to verify that the proper procedures were followed regarding the potential export of a vehicle:
- The dealer must collect all applicable sales taxes paid for the vehicle.
- The vehicle must be registered with the appropriate state agency and all fees paid.
- Title fees must be collected and the dealer must obtain a copy of the title application receipt.
- The dealer must possess a copy of the sales agreement.
- The dealer must obtain a current and valid customer photo identification.
- The dealer must obtain proof of insurance for the vehicle.
If a vehicle is found to have been exported, MBUSA automatically issues a notice of chargeback to the dealer selling that vehicle. However, we have found that if a dealer can demonstrate that it met the above checklist criteria at the time of sale MBUSA has issued an “exemption” on the proposed chargeback. In addition to the above checklist items, it is critical that dealers go online to review MBUSA’s broker blacklist to determine if the purchaser is listed. If the purchaser is not listed, the dealer should make a “screen print” of the negative result of the search for the purchaser on the list and place a copy of the screen printed page in the deal file. Each exemption we have seen granted by MBUSA involved the dealer demonstrating compliance with the checklist as well as delivery of a copy of the results of the search for the purchaser on the broker blacklist.
In addition to the above items, dealers being threatened with a chargeback should understand whether their state franchise laws provide protection against a chargeback resulting from the export of a vehicle. Many states have addressed the issue by prohibiting the manufacturer from levying the chargeback unless the manufacturer can show that the dealer knew or should have known the vehicle was purchased with the intent to export it overseas. In conjunction with these statutory protections, dealers should consider using an Acknowledgment form whereby the purchaser signs the form agreeing it is not purchasing the vehicle with the intention of exporting the vehicle outside of the U.S. Providing a signed copy of such an acknowledgement to the manufacturer will be of great assistance to the dealer in obtaining an exemption from chargeback.