Go on the Record and Tell the OEMs What Their Metrics Don’t Do

By Nicholas A. Bader

The industry changed somewhat during the COVID-19 pandemic. With that in the rearview mirror, one issue is returning—performance letters sent by OEMs. As a result, dealers should remember that the best practice is to send a response. But, the response should be carefully prepared.

In our practice, we routinely see letters sent to dealers by OEMs claiming the dealers are performing poorly. During 2020-2022, many OEMs significantly slowed, or altogether stopped, these letters. Stellantis and Hyundai are two manufacturers we have recently observed sending letters to numerous dealers—typically those they have determined to be some of the lowest performing dealers in the state, region, or nation. With this occurring, dealers should know it is usually best to send a written response to these letters.

Performance letters typically recite a dealers’ scores using one or more metrics utilized by OEMs as a one-size-fits-all measurement across dealer sizes and geographies. In practice, these would better be called one-size-fits-some. Your market may have consumer practices, geographic boundaries, local regulations, outsized competition (a large facing dealership or above average number of competing dealerships), or any number of other factors that may skew your scores. Also, the geography assigned to your dealership may be too large, or include territory more convenient to competing dealers of the same brand, resulting in your dealership being held accountable for more sales than are reasonable. This too may result in low scores due to factors beyond your control.

If the OEMs request an “action plan”, “business plan”, or any similar description of what the dealer plans to remedy deficiencies, that plan should only include actions the dealer believes are reasonable and those that the dealers will implement. It is tempting to agree to whatever will momentarily pacify the OEMs, but if those plans are not reasonable or will not occur, such an agreement would be short-sighted and be used in the future to show how the dealer continues to not meet its obligations.

If you have read this newsletter or interacted with our firm for any amount of time, you likely know that we recommend that dealers respond in writing to performance letters sent by OEMs. At best, this practice helps them understand your perspective. At worst, these letters help dealers create a record of issues that prevent the dealership from performing well within the OEMs performance metrics. We are currently working with numerous dealers to prepare such responses.