The Importance of Responding to Manufacturer Performance Letters

Almost all OEMs send periodic letters to their franchisees summarizing dealerships’ past sales and customer satisfaction performance. Depending on the manufacturer, these letters will often include notations regarding prior meetings with a dealer or discuss action items a dealer has stated it will focus on in order to increase sales or customer satisfaction. While these annual or quarterly summary letters may seem fairly innocuous, a dealer, especially a dealer that the manufacturer has asserted is underperforming, is wise to critically review the manufacturer’s letter and consider responding.

Why? Manufacturers are in the practice of using these periodic letters to help form a record that may one day support its attempt to terminate (or non-renew) a dealer’s franchise agreement.  While statutes exist in every state preventing a manufacturer from terminating a dealer without just cause, shrewd manufacturers use these letters to begin crafting a story of dealer underperformance before they have even decided whether to terminate the dealership. If they do, they will use the narrative as presented in their prior letters to tell a story of underperformance supporting their claim that the dealer should be terminated.

Of course, the story of a dealership’s performance as presented through the manufacturer’s letters are rarely fair nor tell the whole story. As dealers know, a number of factors can contribute to a dealer having “bad” sales performance or customer satisfaction numbers under the manufacturer’s chosen metrics. To begin with, many OEMs use sales performance measurements that are inherently unfair as they fail to consider unique market circumstances affecting a dealer. In addition, issues like the OEM’s inadequate allocation of vehicles, improper assignment of territory, or flawed customer satisfaction review procedures can result in a well-performing dealer being made to look like a poor performing dealer. These factors are rarely acknowledged in the manufacturer’s periodic letters and a dealer facing termination will be left playing catch-up in explaining why the manufacturer’s underperformance claims are inaccurate or unfair.

A dealer who receives their quarterly letter from the manufacturer (or any other letter which specifically addresses the dealership’s performance) is wise to respond to the letter to point out manufacturer behavior or other factors that are impacting the measurement numbers. For example, if the letter encourages the dealer to use the manufacturer’s procedures for securing additional inventory but the available inventory only includes models to which there is no customer demand, this should be noted. If facing termination, a dealer can be sure that the manufacturer will point to its prior letter as evidence that it was making additional allocation available to the dealer which was ignored. However, a letter sent in response to the manufacturer’s assertion which clarifies the statement, highlights a dealer’s objections, and tells the whole story can go a long way in undermining the manufacturer’s attempted sleight of hand and make their chances of convincing a Judge, Jury, or Hearing Officer that a dealership should be terminated more difficult. 

Questions about statements or claims made in a manufacturer’s periodic performance letter or questions as to how to appropriately respond should be directed to an experienced dealer lawyer.