Mercedes-Benz Implements Wide-Scale Changes to Dealer Territory

By Richard Sox & Andrew Thomas

Mercedes-Benz USA recently informed dealers that it would be changing their Car and Light Truck Area of Influence (AOI) and Commercial Vehicle Primary Market Area due to a shift from using zip codes to census tracts for assigning territory.

While the Mercedes-Benz Dealer Agreement permits changes to the AOI/PMA, dealers should review any such changes to ensure the new territory is accurate and reasonable. Assigned territory is critical to all dealers, as among other implications, it has a direct impact upon the calculation of the dealership’s new vehicle sales effectiveness and performance as well as facility guidelines relating to planning volume and units in operation.  

Dealers should primarily focus on the question of whether the residents in the assigned census tracts would likely travel to their dealership as opposed to other neighboring Mercedes-Benz dealerships. Most OEMs typically use straight line air distance when assigning territory, rather than actual travel time. This can lead to dealers being assigned territory that is geographically close to them, but actually a closer drive to a competing dealer. This is particularly true for dealerships which are close to certain geographic features that limit or reroute traffic patterns, such as mountains, state borders, rivers and other bodies of water. Assessing historical vehicle sales within the assigned census tracts will assist in determining whether the assignment is proper.

Dealers should be aware that numerous states have franchise laws which permit a dealer to challenge modifications or revisions to their assigned territory—and the right to challenge such changes may be limited to a specific period of time or it is waived. While the ability to challenge such changes varies state by state, many states which permit such challenges require that the challenge be made within a 30-to-60-day window. Additionally, if state franchise laws do not expressly permit a dealer to object changes to their assigned territory, your dealer counsel can evaluate whether the change could be protested as an adverse modification of the dealer agreement.

All else being equal, changes which result in your proposed new territory having less new vehicle registrations is generally beneficial, as sales expectations will be lower and easier to obtain. While the knee-jerk reaction may be to fight changes which take territory away, the reality is that a less populated assigned territory is typically preferred.

In summary, if you receive a notice which references a change to your assigned territory, you need to act quickly to determine (1) whether you have a right to protest such a change; and (2) what the impact of the proposed change is.