Factory image programs have long been the bane of dealers' existence. It goes something like this: In the quest for effective branding to increase market share, manufacturers require their dealers to make periodic facilities upgrades. These facilities upgrades are often very expensive, partially because factories often require that certain contractors, vendors or products are used in the upgrade to enhance uniformity among the manufacturer's points and assure proper branding.
In good times, these facilities requirements may be bearable, but during the Great Recession, and in its aftermath the "new normal," these impositions may be, for some, prohibitively expensive and some dealers began voicing their concerns that facilities upgrades did little to nothing to increase manufacturer brand penetration.
The manufacturers didn't listen, so in 2011 the National Automobile Dealers Association (NADA) commissioned a study which resulted in an objective and fact-based analysis of the various factors that drive the economics of facility image programs. The results of that study were mixed. They were:
- Expansion of the dealership (especially service departments) can pay off well;
- Modernization of the store is somewhat harder to justify; and
- Standardization, which is the replication of features from store to store far above and beyond logos and signage, seems to be of no benefit at all.
A year later, a second phase of the study was commenced, which basically reached the same conclusions, though, as reported in Detroit News, dealers' attitudes towards facility upgrade requirements are improving as the economy improves. And 2012 NADA Chairman, Bill Underriner, reported that ongoing efforts are afoot to better the dialogue between manufacturers and dealers on the issue of facilities requirements.
In the meantime, however, dealers have appealed to their legislators to take action. In California, this has resulted, in part, in the pending franchise bill that I reported on last month.
On Thursday, New Mexico Governor, Susana Martinez, signed House Bill 202, which amended the state's Unlawful Acts for Car Dealers to prohibit car manufacturers, distributors or their representatives from requiring dealers to relocate or construct a new dealership unless necessary to comply with health and safety laws or technology requirements. The law also bars manufacturers from requiring dealerships to build a new facility, or to relocate or alter or remodel an existing dealership within 10 years of previous construction.
Other states, like New Jersey and Ohio, for example, have passed legislation that curbs what factories can do in the event a dealer does not comply with facilities upgrade mandates.
Specifically, in 2011, New Jersey Governor Christie signed A-3722 into law as P.L. 2011, c.66. That law revises the New Jersey “Franchise Practices Act,” N.J.S.A. 56:10-1, et. seq., which, in part, limits the rights of manufacturers to impose facilities requirements on dealers.
In 2010, the Ohio Legislature passed S.B. 204, sponsored by then-State Senator, Mark Wagoner (a friend and former law school classmate of mine), which also limited the rights of manufacturers to impose facilities requirements on dealers by prohibiting manufacturers from requiring a franchisee to remodel, renovate, or recondition the dealer's existing dealership facilities as a prerequisite to receiving the product, unless reasonably necessary to accommodate the adequate sale and service of a vehicle based on the technology of that vehicle.
I would expect to continue to see legislative reform chipping away at the rights of manufacturers to penalize dealers for not participating in overreaching factory image programs or legislation aimed at making participation in these programs less costly. But branding is a necessary part of any business, and as such, reasonable factory image programs are not likely to go away any time soon.