California Dealers Seek Franchise Law

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DO DEALERS NEED A STATE FRANCHISE LAW to protect themselves? Some California dealers think so, and Sacramento is taking note.

While everyone was paying attention to franchise legislation passed in Montana, the California Motorcycle Dealers Association (CMDA) this past February quietly submitted Assembly Bill 2976. AB 2976 would prohibit an OEM from 1) requiring a dealer to buy and store a minimum number of vehicles in order to qualify for an incentive, 2) unfairly discriminating in favor of dealers who abide by these vehicle purchase and inventory practices, or 3) forcing a dealer to maintain more than a 60-day supply of vehicles based on the sales rate of that dealer for the previous 90 days.

The bill was reviewed — and approved — by the state assembly's committees on Transportation and, then, Appropriations. As I write this, AB 2976 is set for a floor vote. In addition to the CMDA, 35 dealerships (spanning a range of brands and business sizes, I might add) have registered their support for the bill. The Motorcycle Industry Council and the Specialty Vehicle Institute of America, organizations that represent the interests of the OEMs, are trying to kill it.

Opponents argue that the bill is unnecessary; they contend that the state's New Motor Vehicle Board is responsible for settling disputes between OEMs and dealers. Moreover, they say, OEM incentive programs are optional — dealers aren't under any obligation to participate.

Well, sure. But if a dealer doesn't cooperate — doesn't take that minimum number of vehicles (regardless of whether it can sell them all) — what's to stop the OEM from referring customers to other dealerships, or even setting up a new dealership 26 miles away (outside the protected radius)? What's to stop a manufacturer from favoring "cooperating" dealers with better and less costly P&A?

"For many years now, [OEMs] have created a system by which dealers who do not take unreasonable levels of inventory that the manufacturers insist on are not eligible for dealer discounts, promotional financing, customer rebates and other specfied offers tied to orders," says John Paliwoda, executive director of the CMDA.

Ask any dealer what's keeping him (or her) up at night; it's inventory levels. We're hearing horror stories from dealers across the country whose businesses are crumbling under the weight of all these bikes. It's not uncommon to hear that dealers are struggling with 90- to 120-day supplies (four months!) only to have the OEM offer a deal to extend their flooring, as long as (you guessed it) the dealer takes, say, 120 more bikes. This in states where the motorcycle market is down double-digits. Shove it down their throats far enough, and you know where it comes out!

Truth be told, franchise legislation is an act of last resort. The dealers simply want the OEMs to come to the table and work on a plan to change the distribution system. "The problem for which dealers are currently seeking relief will not be solved by legislation," says Ed Lemco, executive director of the National Council of Motorcycle Dealer Associations. "The industry has to come up with the answer from within."

So the manufacturers are going to have to come up with a plan. Harley-Davidson already has; its Retail Sales Objective (RSO) tool provides dealers with their sales history and regional seasonality trends. Dealer and OEM then work together to develop the store's individual sales objective. Vehicle shipments are scheduled throughout the year; a dealer not reaching its RSO gets its shipments reduced, and the excess vehicles are sent to other dealers who are exceeding their RSOs. It's encouraging to see such innovation and flexibility coming out of Milwaukee.

The CMDA and NCMDA are calling for a meeting involving all state dealer associations, the MIC and the individual OEMs with the goal of finding a nonlegislative solution to the distribution problem. They've made the invitation, but according to Paliwoda and Lemco, the OEMs haven't yet responded. Unless they do, expect to see franchise bills similar to Montana's and California's introduced across the country.

Mary Slepicka Associate Publisher/Editorial Director mslepicka@dealernews.com