Car Dealers: Do You Really Have The Right To Refuse New Vehicles?

According to a recent article in the NY Times:

Chrysler Group said Monday it had yet to account for tens of thousands of cars in its inventory numbers, which are already considered high by industry standards. Chrysler said it had routinely excluded these multibillion-dollar vehicles from its unsold cars and trucks account because they had not yet been assigned to a specific dealer or ordered by a customer. (New York Times, October 24, 2006)

When I first started learning about the auto industry, dealers and manufacturers had a name for vehicles built but not ordered. That name was: “sales bank”. “Sales banking” is a practice manufacturers allege they abandoned after being devastated by the system during the 1970s oil crisis.

In the early 1980s, when the dust settled, Automotive News ran stories like:

Ernest D’Agostino of Rhode Island filed a lawsuit in US District Court against the Chrysler Corporation, alleging that Chrysler terminated its franchise because it refused to purchase “gas guzzlers,” large cars with poor fuel efficiency. gasoline. A federal court jury found against Chrysler, and Chrysler, in one unreported case, appealed. Chrysler agreed to withdraw its appeal and paid D’Agostino a settlement (Automotive News, October 1982); and

Fred Drendall of Drendall Lincoln-Mercury/Pontiac sued Ford Motor Company alleging that when he tried to cancel the orders, he was intimidated by Ford spokesmen and when he caved in and ordered the vehicles, high floor costs forced him to refinance his concessionaire. . He was eventually fired and suffered a heart attack. (Automotive News, December 1982).

These were difficult times in the automobile business.

Today, most Sales and Service Agreements have provisions such as the following:

2. (D) INVENTORY. Dealer shall maintain current model stock of such VEHICLE lines or series, in an assortment and in quantities that are in accordance with applicable Company GUIDELINES, or adequate to satisfy Dealer’s share of current and anticipated VEHICLE demand. at the DEALER LOCATION. The maintenance of the stock of VEHICLES by the Dealer will be subject to the Company completing the Dealer’s orders in this regard. (Ford Motor Company, Mercury Sales and Service Agreement, Standard Provisions.)

However, most states have Dealer Day Laws in Court with provisions such as:

Art. 4413(36), SUBCHAPTER E. PROHIBITIONS. Section 5.02. manufacturers; dealers; Representatives. (b) It is unlawful for any manufacturer, dealer, or representative to: (1) Require or attempt to require any dealer to order, take delivery of, or pay anything of value, directly or indirectly, for any motor vehicle, appliance, part, accessory or any other product unless voluntarily ordered or contracted by said distributor. (Texas Motor Vehicle Commission Code)

It shall be unlawful and a violation of this code for any manufacturer, manufacturer branch, dealer or dealer branch licensed under this code to coerce or attempt to coerce any dealer in this state: (a) To order or accept delivery of any motor vehicle , part or accessory thereof, apparatus, equipment or any other merchandise not required by law that has not been voluntarily ordered by the reseller. (California Vehicle Code Section 11713.2)

In addition to state laws, the National Dealership Day Law in Courts also prohibits manufacturers and dealers from coercing a dealer into accepting “automobiles, parts, accessories, or supplies that the dealer does not need, want, or feel are on the market.” can absorb.” ” 1956 USCode. Cong. & Admin. News, page 4603.

But, the law is always a two-edged sword and there is usually a fine line drawn between actions that are appropriate and actions that are not. For example, it has long been established that a dealer’s refusal to take a manufacturer’s entire line of vehicles, choosing instead to sell a competitor’s 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.

Therefore, before deciding whether to accept or deny delivery of vehicles, a dealer should consult with a competent automotive attorney, who is familiar with the laws of the jurisdiction where the vehicles are to be delivered, regarding their particular circumstances.

Note: This article is not intended to provide legal advice, nor should it be construed as such.