Youngstown Daily Legal News

Bill would update Ohio's auto dealership franchise law

TIFFANY L. PARKS
Special to the Legal News
Published: January 12, 2016

Sens. Joseph Uecker, R-Loveland, and William Coley, R-Middletown, have introduced a bill into the Ohio General Assembly that would revise state law governing new motor vehicle franchise agreements.

“Ohio’s motor vehicle dealer franchise law was enacted nearly 40 years ago to address a significant disparity in bargaining power between dealers and their manufacturers,” Uecker said in testimony for Senate Bill 242 before the Senate Transportation, Commerce and Labor Committee.

“It also sought to provide important consumer safeguards relating to the sale, service and repair of motor vehicles.”

Uecker said SB 242 was crafted to address concerns regarding performance standards and reimbursements.

“Manufacturers currently determine a dealer’s area of sales responsibility and vehicle allocation,” he said.

“They judge a dealer’s sales effectiveness and terminate dealers based upon criteria established by the manufacturer with little input from dealers.”

Performance standards for dealers are often calculated based on statewide or national averages, which fail to recognize the local market conditions that may influence buying patterns.

“Local market conditions like a nearby auto manufacturing facility can greatly influence a dealer’s ability to meet manufacturer’s established sales goals,” Uecker said.

“Furthermore, their ability to buy or sell a dealership can be impacted by a failure to meet a manufacturer’s performance criteria.”

Concerning cause to terminate or failure to continue a franchise, a bill summary for SB 242 states that current law specifies a number of factors that must be considered by a franchisor in determining whether there is good cause to terminate, cancel or fail to continue or renew a franchise agreement.

Further, current law outlines circumstances that do not constitute sufficient good cause to take such an action.

One factor that does not constitute sufficient good cause is the failure of the franchisee to achieve any unreasonable or discriminatory performance criteria.

The bill states that for purposes of this component, performance criteria that do not take into account local market conditions are deemed unreasonable.

As a result, the failure of a franchisee to achieve performance criteria that do not take into account local market conditions would not be sufficient good cause for ending a franchise agreement.

SB 242 specifies that “local market conditions” includes but is not limited to factors beyond the control of the franchisee, such as: the proximity of other motor vehicle dealers and the brands sold by such dealers; the proximity of manufacturing facilities for motor vehicles, parts and accessories; the buying patterns of motor vehicle purchasers; traffic patterns and customer drive time and drive distance; and the population, demographics, geography, topography and employment and unemployment rate of the relevant market area.

As for the bill’s other provisions, Uecker noted that Ohio law has required manufacturers to reimburse dealers for service and parts related to warranty and recall work at the same rate as non-warranty customers for similar work since 1979.

“However, a recent 6th Circuit Court of Appeals decision found an important part of the statute ambiguous. The court ruled that while (state law) clearly allows a dealer to determine the amount charged for labor per hour, the ambiguity in the statute allows the manufacturer to dictate the time allotted for the repair,” he said.

“The result is a dealer can charge his or her labor rate, but the manufacturer can dictate how many hours of work will be paid.”

SB 242 clarifies that manufacturers must reimburse dealers at the dealer’s current retail labor rate, as already required by law, and base the repair time on the time allotted for the work in the nationally recognized, independent labor time study guide used by the dealer.

The proposed legislation would set parts reimbursement at the manufacturer’s suggested retail price as published in the most recent edition of the manufacturer’s price guide.

The measure would prohibit manufacturers from retaliating against dealers who exercise their rights according to the bill.

Referencing data from the National Automobile Dealers Association 2013 economic study guide, Uecker said new car and truck franchised dealerships in Ohio generate 16 percent of the Ohio retail sales tax, employ more than 50,000 residents and pay an average annual wage of nearly $48,000.

“Ohio dealerships are crucial to our economy,” he said, urging lawmakers to join him in “helping auto dealers across Ohio continue to serve and thrive in their communities.”

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