The Territories They Are A-Changin’

By: W. Kirby Bissell

As many dealers are already aware, manufacturers are in the process of updating dealers’ areas of primary responsibility to conform to the 2020 Census results. Some of you may have already received letters from your manufacturer while others are still waiting. Upon receipt of a letter informing your dealership of its new area of primary responsibility, there are a few considerations to keep in mind.

First, you will need to have your experienced dealer counsel provide an opinion on whether your dealership has the right to protest the change in territory. The ability to do so varies from state to state but many states provide a 30-to-60-day window within which a dealership can protest a modification of its area of primary responsibility. Alternatively, should your state not provide a protest right, your dealer counsel can evaluate whether the change in area of primary responsibility could instead be protested as a modification of your dealer agreement. In some instances, the letter from the manufacturer notifying your dealership of the territory change will reference whether a statute allows a protest, but it makes sense to have a dealer attorney verify that potential.

Second, your dealership should evaluate the impact of the proposed territory change. In some instances, the territory change may be favorable for your dealership’s sales performance. For instance, if you previously had 50 census tracts in your area of primary responsibility with approximately 25,000 new vehicle registrations and your proposed new territory only contains 40 census tracts and 20,000 new vehicle registrations, this would be a favorable territory change for your dealership. All other things being equal if the territory change results in your dealership having less new vehicle registrations in its area of primary responsibility then your sales expectation for satisfactory performance with your manufacturer is easier to attain. We often hear dealers upset that their manufacturer “took their territory away.” In reality, a smaller, less populated area of primary responsibility makes it easier for a dealer to have satisfactory sales performance. Thus, the better attitude is “thanks for making my territory smaller.”

Finally, your dealership might consider hiring a consultant to evaluate the precise effect of the territory change. Consultants can analyze exactly how many registrations are being added or subtracted from your area of primary responsibility. They can also evaluate the relative convenience of the census tracts in your area of primary responsibility. This involves examining the air distance from your dealership to a given census tract as well as the drive distance and drive time. Drive distance and drive time are the most important considerations because consumers will consider the relative convenience of your location to their home based on how far they have to drive to get there, how long it takes to get there, or potentially, both.

In summation, if you receive a letter changing your territory, act quickly. Most statutes are time limited on when a protest can be made. Contact your experienced dealer counsel for their legal opinion on your ability to file a protest. Consider whether your territory is actually getting smaller, in which case it likely makes sense to not protest the modification. Evaluate whether a consultant might be useful in getting specifics on how your territory’s registration numbers and relative convenience to customers actually changed.