FORD SEPARATES ITS LEGACY AND EV BUSINESSES

By: Andrew G. Thomas

Ford recently announced that it is creating a separate company for its EVs. But for dealers, this exciting news is tempered by potential concerns. Will Ford’s separation of its EV products impact dealers’ Ford franchise agreements? Is this an issue covered by state franchise laws? Can Ford legally do this?

The most prominent question is whether Ford’s reorganization will affect franchise agreements with current dealers. This will largely depend on your state’s franchise laws and exactly how Ford chooses to handle the separation. The big picture is that generally, under most state’s franchise laws, dealers must be offered all vehicles in the line-make(s) for which they have a franchise agreement. Thus, if you have a Franchise agreement with Ford, Ford must offer you all vehicles in the Ford line-make. Further, if the method of distribution changes (or if the distributor changes), many states require that existing dealers be offered a new, identical franchise agreement for those same vehicles. So a manufacturer cannot typically use rebranding to deprive a dealer of a vehicle that it is already selling. When Genesis separated from Hyundai it made Genesis a separate line-make, which created cascading issues in numerous states. As Hyundai dealers were offered the Genesis vehicles before the spinoff, Genesis was then required to offer identical franchise agreements to those same dealers despite the change in distribution system and line-make.

Accordingly, in many states Ford will likely be required to continue to offer its current selection of EVs to Ford dealers despite its creation of a separate EV branch—that is if Ford even decides to make its EVs a distinct line-make. However, if Ford does create a new line-make for its EVs, it may not be required to offer future EV models to its existing dealer base under their current franchise agreements. Instead, Ford could utilize a different set of dealers to sell the EV line-make of vehicles.

Under most state’s franchise laws, Ford would have to create a new line-make, and then create new vehicles within that line-make if it wanted to skirt its current dealer system. As it has already started creating EVs, and distributing them to dealers prior to its separation of the EV company, it would likely face substantial legal challenges if it attempted to do this.

Any questions regarding this issue should be directed to your dealer attorney.