Hyundai Motor America last week sent its dealers a letter explaining its plans to separate Genesis into its own brand. The letter included a Settlement and Release Agreement. In exchange for a full release of any right to the Genesis product in the future, HMA is offering its dealers a cash payment based on the number of Genesis vehicles retailed in 2017. Dealers have until March 12, 2018, to execute the agreement, or it is withdrawn.
Hyundai dealers should carefully consider the agreement with legal counsel, in the context of their state franchise laws, before executing the agreement. State motor vehicle franchise laws generally prohibit a manufacturer from making a change to the distribution system of their product without first offering their existing dealers the right to that product under the new distribution system. There is a strong argument to be made that this is exactly what HMA proposes to do by removing the Genesis vehicles from the Hyundai franchise and redistributing them through a new distributor (Genesis Motors America).
Indeed, the basis of a dealer challenge to HMA is that the dealer made a substantial investment in the Genesis product, and taking those vehicles away and giving them to other dealers is unfair.
Many Hyundai dealers signed the Genesis Participation Agreement, which contained a provision waiving the dealer’s right to a future Genesis franchise. But there is a strong case to be made that the waiver is void because it required the dealer to waive rights it otherwise had under state franchise law.
Dealers considering signing the Settlement and Release Agreement may want to consider these several points:
- The agreement states that dealers who sign it will not apply to become Genesis dealers. There is no time limit on that restriction, and it appears to apply to all a dealer’s Hyundai points.
- Any dealer who signs the agreement, additionally, consents not to continue doing service work on Genesis vehicles in that market.
- HMA reserves the right to terminate the agreement, and take back all settlement money paid if Genesis Motor America does not receive a license to operate in the state or if their redistribution plan is successfully challenged in court.
Here again, Hyundai dealers are urged to seek legal counsel on this matter. WANADA Kindred-line member and auto dealer lawyer, Mike Charapp, has outlined some of his thinking for Hyundai dealers on HMA’s Genesis plan that can be accessed by clicking here.Download Bulletin PDF