Allocation – Good Habits for Voicing Your Allocation Concerns to the OEM

By Micah A. Andrews

Nearly all dealers can relate to the frustration of going through extended periods receiving an insufficient allocation of new motor vehicles by their OEM. This includes both an overall decrease in the amount of product as well as times where allocation lacks vehicles in models and trims needed to actually meet the dealership’s specific market demand (Example: an allocation that includes no trucks). This problem has been especially widespread given the impact of COVID-19 on many OEMs’ production effort. However, even before the pandemic, allocation problems related to strikes, trade regulations, material shortfalls, or even inadequacy that goes unexplained by the OEM, regularly impacts dealers.

When a dealer is experiencing allocation problems, it is more important at that time than ever for the dealer to make sure they are adequately communicating (and documenting said communication) with the OEM addressing the allocation insufficiency. It is wise for dealers to institute a regular practice of sending written communication to the OEM documenting allocation shortcomings and requesting that the lack of inventory be addressed. 

Below are some pointers to keep in mind when considering whether to address allocation problems with a written letter to the OEM:

1. It Doesn’t Hurt to Ask –

Many dealers do not send regular communications to their OEM addressing allocation failures simply because they believe the letter will fall on deaf ears and won’t effectuate any actual change. Of course, this can often be the case. However, there are certainly dealers who receive vehicles from the OEM’s discretionary pool of vehicles simply because they asked.  Nearly all manufacturers set aside a pool of vehicles from the standard allocation group (usually at the regional level) that can be allocated at the region’s discretion.  

 2. Written Letters Create a Record Documenting Allocation Failures –

One frustration voiced by dealers when they are getting little to no inventory is that they still continue to get OEM messages asserting sales performance shortcomings. A regularly sent letter addressing allocation failures has the benefit of creating a record documenting the OEMs actions and the dealer’s objections. A dealer who receives a deficiency notice or notice of termination from their OEM based on sales performance is much better positioned to defend against this claim if they have a well-documented record of the OEM’s allocation failures.

3. Written Letters Should Address Specific Vehicle Needs for Your Market –

Regularly sent letters addressing allocation also have the benefit of highlighting specific product needs relevant to a dealer’s unique market. A well-prepared letter should specifically describe the makes for which the dealer has consumer demand and request additional allocation of these vehicles. OEMs will often point to a dealers’ rejection during the ordering process of makes that simply will not sell in a dealer’s market as evidence that the OEM has been sufficiently supplying product. A letter specifically describing the unique market circumstances making allocation of certain makes and trims imperative will cut against this OEM sleight of hand.

In conclusion, dealers should make a habit of regularly writing their OEM to address allocation failures, request specific product moving forward, and request supplemental allocation from discretionary pools. This practice serves the dealership both in maximizing the number of vehicles the dealership is allocated and in creating a written record of allocation concerns if the OEM ever attempts to conveniently “forget” its prior allocation failures. Questions about allocation concerns or questions as to how to appropriately communicate these concerns to the OEM should be directed to your dealer lawyer.