Allocation Lessons

By Jason T. Allen

Issues surrounding the allocation of new vehicles have existed in some shape or form for as long as manufacturers have allocated vehicles.  Those issues were aggravated during the pandemic and chip-shortage when demand consistently exceeded supply, lots were empty and vehicles were sold (or pre-sold) by the time the vehicle hit the lot.  Supply has since rebounded, but that does not mean that issues with vehicle allocation have disappeared.  The historically “normal” issues with vehicle allocation can persist when there is a new model offering, a particularly hot model, allocation related to facility upgrades, or the misuse of discretionary allocation.  Fortunately, many dealer agreements and state laws provide protection for dealers relating to vehicle allocation.

BSM has handled a number of allocation cases recently, including a trial in federal court that determined Hyundai violated its Dealer Agreement and Florida law relating to allocation.  The manufacturer playbook for defending allocation cases is to point the finger at the dealer even when there is evidence to show the manufacturer withheld vehicles from the dealer.  So, what can dealers do to monitor vehicle allocations especially when they may believe that they are not receiving a reasonable supply of vehicles?  The simple answer starts with recordkeeping.  Allocation cases may be the most data intensive litigation a dealer can have with the manufacturer and a dealer’s own recordkeeping (in real time) can be important to establish what was taking place when each allocation cycle occurs.  

A list of considerations is included below for how a dealer can evaluate allocation issues and anticipate what the manufacturer may try to use in defense of a dealer’s claim that the allocation was insufficient.

• Request the allocation methodology
  • Many state laws require the manufacturer to provide the allocation methodology to dealers in writing upon a dealer’s request.  This is a good first step to not only understanding how the allocation formula works, but also being able to evaluate whether it is actually working correctly in practice.
  • In addition to requesting the “formula” for the system allocation, dealer’s should also consider requesting how discretionary units are allocated, any criteria used to allocate discretionary units, and what the dealer can do to receive more discretionary units.
• Request more vehicles
  • This is obvious, but very helpful in establishing a dealer’s efforts at specific points in time.  
• Track the allocation offerings
  • This is more time consuming, but can be a worthwhile endeavor.  Tracking the vehicles offered in each allocation compared to what was recently sold, what is on-ground, and what is in the pipeline is extremely helpful to also establish in real-time what was occurring when the allocation was run.  
• Track other dealer inventory
  • One of the first clues that allocation issues may exist is the dealer’s level of inventory compared to its competitors.  Tracking competitor inventory at the time of allocations can also be extremely helpful to paint a broader picture of the impact of unfair allocations.
• Track turn-rate and pricing
  • One of the manufacturer’s favorite defenses in an allocation case is that the dealer simply did not “turn” its inventory fast enough.  Tracking turn-rate on a monthly basis and comparing that to allocations is another helpful way to evaluate whether the allocations are keeping up with a dealer’s sales rate.  
  • This is especially true when compared against competitors.  Many manufacturers provide both monthly sales and turn-rate information.  So, monitoring and retaining that information can be very helpful in showing how the allocation situation unfolded.
  • Similarly, manufacturers will often say the dealer was holding out for gross.  A simple way to track this information is monitoring the advertised pricing of units by competitors to insure what the customer sees is indeed competitive with the marketplace.
• Turndowns
  • Manufacturers will seize on turndowns as a defense in an allocation case, or as a reason not to provide more allocation when requested by a dealer.
  • It is obvious that not all turndowns are created equal.  Having the records to show why a vehicle was turned down can be crucial to establishing that more allocation was needed even beyond the turned down units.  
  • This information is likely to be more granular and would include specifics about the model, trim, color, whether the vehicle was on backorder, etc… to help explain why it made sense to turn-down a unit even during times when the dealer needed more.

Data is crucial to any allocation concern.  Having the data (such as sales, turn-rate, turndowns, and inventory) to establish that the allocations are not sufficient is critical whether a dealer is simply trying to keep up in real-time, or is considering bringing a legal claim.  Tracking information like what is described above, and keeping records, is an important step in evaluating and pursuing the allocation protections provided by law.