Motor Vehicle Dealership Reinstatement Measure Signed into Law

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

More than 2,000 motor vehicle dealers that had their franchises terminated in connection with the federal government-funded restructuring of General Motors and Chrysler earlier this year now have an opportunity to seek reinstatement of their franchises under legislation signed yesterday by President Obama.

Under the new law, dealerships that were not lawfully terminated under state laws on or before April 29, 2009, shall be authorized to request reinstatement or continuation of their franchise agreements or to be added as a franchisee to the dealer network of their former franchisor in the geographical area where the dealership was located when its franchise was terminated, not assigned, nonrenewed, or discontinued.

Such an election by the dealership would have to occur within 40 days of the legislation’s enactment.

Those seeking reinstatement or continuation must make a request for binding arbitration. The arbitrator would be required to balance the economic interests of the dealership, the economic interest of the manufacturer, and the economic interest of the public at large and decide whether or not the dealership should be reinstated or continued.

The factors considered by the arbitrator include:

(1) The dealership’s profitability in 2006, 2007, 2008, and 2009,
(2) The manufacturer’s overall business plan,
(3) The dealership’s current economic viability,
(4) The dealership's satisfaction of performance objectives,
(5) The demographic and geographic characteristics of the market territory,
(6) The dealership’s performance in relation to the manufacturer’s criteria, and
(7) The length of experience of the dealership.

The dealership reinstatement measure is contained in H.R. 3288, the Consolidated Appropriations Act of 2010 (Public Law 111-117).

Full text of the reinstatement provision (Sec. 747) will appear at CCH Business Franchise Guide ¶14,281.