Dealer diligence advised in relations with franchisor(s)

Dealer diligence advised in relations with franchisor(s)

[I]The case of the MBUSA dealer renewal process[/I]

In response to sharp dealer group reaction to a franchisee renewal process implemented recently by Mercedes Benz USA (MBUSA), the manufacturer reversed itself on a controversial waiver of dealer rights provision that arguably was in violation of the franchise protection laws in most states.

The renewal process included a due diligence compliance review of the dealership prior to the issuance of succeeding dealer agreements. The signature page for the dealer franchisee with acknowledgments, is where the offensive waiver verbiage appeared. Dealer lawyer and WANADA Kindred-line member Mike Charapp in a client alert on point this week about the MBUSA dealer agreement renewal process said that a Mercedes Benz dealer who signs the MBUSA application and the acknowledgements agrees that MBUSA may offer or not offer (them) a dealer agreement in (MBUSAs) sole discretion and the dealer waives all rights under law.

Upon hearing from their dealers on the provocative waiver provision, MBUSA today followed up with their dealer body notifying them that they were striking the offensive waiver language from the dealer agreement renewal process paperwork reassuring dealers that no harm was intended.

The May 13, 2011 MBUSA notice to their dealers from Niles Barlow, Jr., gm of strategic retail development, put it as follows: We, as a distributor, are aware and respect the rights granted to you under state franchise laws and in no way are attempting to strip you of them. It is MBUSAs responsibility to gather information during the renewal process that allows us to assess any risks that may exist with a particular entity or entities and develop or adjust any training that may be necessary.

Mike Charapps client alert reportedly got the attention of the right people at the right level at MBUSA that caused the automaker to revise its approach to the dealer agreement renewal process. While MBUSA is within its rights to request information so it can review what it has on file for its dealers prior to issuing renewal agreements, it has no right to demand that dealers sign acknowledgements waiving all of their rights to that renewal or acknowledging that MBUSA, contrary to state law, may renew or not renew at its sole discretion, Charapp said.

The MBUSA dealer agreement renewal process situation, noted above, is a current example of why dealers must proceed carefully in their franchise relationships with the automakers. Kudos to Mr. Charapp for identifying the issue and getting the word out for the benefit of MBUSA and its dealer network!

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