Dealer Protections: Choice of Vendors

By: Andrew G. Thomas, Esq.

Dealerships contract with vendors for many aspects of their business, ranging from facility renovations to the use of various digital systems that dealers depend on for daily operations. When facilities are being renovated or constructed, dealers generally comply with guidelines set by the manufacturers, but dealers are footing the bill and have to live with the end result. As such, dealers rightfully want to choose vendors they know and trust, and not always the vendors suggested by a manufacturer. The same concept applies to digital management systems, digital retailing tools, and all of the other services and products that dealers typically contract for with vendors.

But who actually has the right to choose vendors? Most manufacturers attempt to require or coerce dealers to use their preferred vendors, and they do this several ways. The most common methods are by attempting to limit dealers to a list of “certified” or “approved” vendors, or by coercing dealers to use such vendors through incentives or other means.

Fortunately, many states have franchise laws which limit or outright prohibit such efforts by the manufacturer. And this is for good reason—it is the dealer who is running the business, the dealer who is actually selling the vehicles to customers, and the dealer who ultimately must rely on the vendors. Franchise protections in this area can range from blanket prohibitions on manufacturers restricting a dealer’s choice of vendor (so long as the goods or services provided by the chosen vendor are comparable), to restricting a manufacturer’s ability to tie incentives to certain vendors or prohibiting manufacturers from obtaining kickbacks from their preferred vendors.

The bottom line is that in many states, dealers have the ability to choose the vendors they want, so long as the vendors offer comparable goods and/or services to those of the vendors offered by a manufacturer.

If you have any questions relating to a dealer’s rights to choose vendors, or to a manufacturer’s ability to limit dealer choice of vendors in any state, you should contact an experienced franchise attorney.