The move to a general Block Exemption on June 1, 2013 could spur a “stampede” of consolidation as businesses look to sell before manufacturers can veto the right to transfer a business.

The right to block sales is just one of several new powers manufacturers could enforce on dealers as part of their new contract agreements (see below).

Miles Trower, partner at TLT Solicitors and the National Franchised Dealers Association’s adviser on Block Exemption, told the AM/NFDA Franchised Dealer Conference 2011 that dealers could still influence the commercial outcome of the new manufacturer agreements.

Trower said: “We’re still waiting to see how individual manufacturers will react to their right to veto transfers.

“Some manufacturers will take a more pragmatic approach and won’t block sales.

“Other manufacturers may not and they’ll want absolute control.”

The removal of this automatic right may have a significant impact upon the short and medium term plans of dealers, both in terms of arrangements for an eventual sale and also the willingness of dealers to undertake significant investment in their business.

A number of manufacturers have started to introduce specified sale policies in advance of the change in 2013.

Once such example is that the dealer wishing to sell is required to give advance notice to the manufacturer, who then attempts to locate two willing purchasers of the business.

The outgoing dealer then decides whether or not to accept one of these offers or retain the dealership, even if a higher price could be obtained from a suitable third party.

Trower said: “This example, while sometimes found in other types of franchise business models, is likely to have a detrimental effect upon the ultimate price received by the outgoing dealer.

“It is also likely that different manufacturers will approach the issue of dealership re-sales in different ways, meaning that multi-brand dealers may be faced with differing procedures and requirements for each brand that they operate.

“The uncertainty regarding the ability to receive a full market value on the sale of a dealership may also encourage short-termism and discourage significant investment in the dealership business by those considering a sale.”

Four industry experts examine the implications of new Block Exemption rules to franchised dealers in a new white paper from AM.

The white paper is available by clicking here.

 

The regulations

New general BER from June 1, 2013:

  • A move from open-ended to fixed term agreements
  • Dedicated showroom and staff
  • Standards, restrictions and incentive programmes extended to other areas (eg used cars)
  • Sales targets imposed rather than agreed
  • More manufacturer influence over dealer staff and management
  • More stringent performance management
  • No obligation to explain terminations
  • Manufacturers can veto dealership sales/transfers

How can dealers influence the BER outcome?

  • Make sure your manufacturer keeps you informed
  • Liaise with and support your dealer council
  • Get involved where you can and challenge where you can
  • Review new agreements carefully and ask questions
  • Make sure agreed clarifications are included in the contract
  • Be wary of ‘entire agreement’/’non reliance’ clauses
  • Don’t discount variations/side agreements to take account of your own circumstances