Best Steps for Organizing Succession Plans – Don’t Let the Manufacturer Take Advantage of a Succession Event to Put Your Franchise in Peril

By Micah A. Andrews

Last Fall, General Motors provided its dealer network with the 2025 Dealer Sales and Service Agreement, a network-wide re-contracting which General Motors performs every five years. Of the notable amendments in the new Dealer Sales and Service Agreement, General Motors elected to completely remove its Successor Addendum which has historically been used to pre-approve a proposed successor Dealer Operator.  General Motors’ stated reasoning for its amendment was to “simplify succession and estate planning procedures, avoid confusion over statutory requirements, and reduce administrative processing time.”  Experienced dealers, whether a General Motors dealer or not, will likely view these asserted reasons with skepticism… the entire point of pre-emptively approving a Dealer Operator successor is to simplify succession plans and reduce administrative processes.  Further, statutory requirements (i.e. dealer Franchise Acts) should always trump contractual requirements, making their impact far from “confusing” as it relates to a successor addendum.

In reality, General Motors’ removal of the addendum should be viewed by dealers as another manufacturer identifying that succession events – or other ownership changes that may result in a new Dealer Operator or General Manager being appointed – can be used as leverage to elicit the manufacturer’s own business desires. More and more, dealers have experienced a manufacturer using a dealer’s desire to adopt or effectuate a succession plan as an opportunity to pressure the dealer to make concessions in exchange for manufacturer approval (for example, commitments to facility renovations, performance plans, or operational changes).  In even worse situations, manufacturers have used succession events as a basis for threating termination and pressuring a sale where the manufacturer did not otherwise have cause to terminate based on performance. 

With the new year, dealers would be wise in taking time to organize and establish succession plans in order to be best positioned to avoid manufacturer disruption. Some best steps include:

• Where (like General Motors) Successor Addendums are no longer available in the franchise agreement, dealers should review and evaluate their applicable State franchise law to understand where statutory protections are available. Many states offer protections, but each have unique requirements that should be evaluated closely. 
• Dealers should ensure that their existing contractual disclosures (for example, ownership share percentages, General Manager declarations, and addresses) are accurate. These minor disclosures often “slip-through-the-cracks,” but are later used as a sword by manufacturers when it is to their advantage.  
• Where a Dealer Operator successor has already been decided (for example, familial successors), proactively disclose this to the manufacturer and initiate steps to have the individual meet training/certification requirements the manufacturer may desire.
• Consult with tax and estate professionals to ensure items like capitalization and floorplan lending will be squared away in the event of a succession event.

While taking these steps can require work now, an ounce of prevention will go a long way in ensuring that the dealership’s future is secure were a succession event to occur. Where these steps are not taken and a manufacturer decides it is in its best interest, for whatever reason, to be difficult, a dealership may face a costly and frustrating battle to effectuate leadership transition. Questions about your dealer’s succession plan, existing contracts, or questions as to how to appropriately take the steps above should be directed to your dealer lawyer.

This article is not intended to provide legal advice.  If you have any questions related to this article, please contact Micah A. Andrews for more information.