Dealer Performance Letters & Hyundai’s Recent Involvement

By Nicholas A. Bader

Starting with the onset of the COVID-19 pandemic, the automotive retail industry entered a fascinating phase. An industry, expected to be barreling towards disaster, instead roared on. Amongst the supply chain shortages, and rush to internet commerce, another dynamic appeared that did not receive as much press attention. Automakers for a time were less active with dealer network changes—at least the ones they initiated. Sure, dealer networks saw plenty of changes through a buy/sell frenzy. But, the activity of add-points and sales performance terminations stalled for a while. One hypothesis for why this may have happened could be that automakers were less willing to litigate over sales metrics and market penetration while they were unable to provide ample inventory to their networks.  And, like the “pent up demand” the industry experienced from consumers, it may be that automakers are now preparing to address the dealer and market performance issues they held off on in recent years.

A number of automakers are active with sending performance letters and scheduling meetings with dealers to press them on their performance. The newest active participant? Hyundai and Genesis.  Historically, those brands were not among those we saw actively writing to their dealer body citing performance deficiencies, but they’re very active these days.  Over a year ago, they created the Core Operational Performance Program (“COPP”). Since then, Hyundai has been writing dealers around the country who they’ve placed in COPP citing any number of metrics certain dealers are failing to meet.  There’s also one non-metric data point BSM attorneys are seeing time-and-time again which is whether the dealer’s facility meets Hyundai’s image program, GDSI 2.0. 

Those that have read this newsletter for any length of time, or have interacted with BSM attorneys, know we take sales performance critiques seriously. And, we believe dealers should too.  BSM believes it is a best practice for dealers to respond thoughtfully in writing, carefully rebutting positions taken by the automaker. In most instances, such letters are part of what automakers often call an “improvement program” or something similar. Dealers who receive notices their dealer agreement is set to be terminated are usually in an improvement program. Examples of other automakers with improvement programs include General Motors, Stellantis, and Kia.

We expect COPP will soon prove to be like other improvement programs—the group from which dealers are selected for termination. So, while it may be tedious and unpleasant to respond to performance letters, it is wise to do so. At best, it can serve as way to tell your story so the automaker will decide against terminating your store. At worst, it can serve as helpful evidence in litigation to fight a termination. Either way, it is worth the time.