According to a recent article in the NY Times:
The Chrysler Group said Monday it had not counted the tens of thousands of cars in its inventory, which is already considered high by industry standards. Chrysler said it has routinely excluded these vehicles, worth billions of dollars, from its tally of unsold cars and trucks because they have not been assigned to specific dealers or ordered by customers. (New York Times, October 24, 2006)
When I started learning about the auto industry, dealers and manufacturers had names for vehicles that were produced, but not ordered. The name is: “sales bank.” “Sales bank” is a practice that producers say has been abandoned after being undermined by the system during the oil crisis of the 1970s.
In the early 1980s, as the dust settled, Automotive News carried news such as:
Ernest D’Agostino of Rhode Island filed a lawsuit, in U.S. District Court against the Chrysler Corporation, accusing Chrysler of discontinuing its franchise because it refused to buy a “gas drinker” – a large, low-mileage car. A federal court jury against Chrysler and Chrysler, in an unreported case, appealed. Chrysler agreed to drop the appeal and pay D’Agostino a settlement (Automotive News, October 1982); and
Fred Drendall, of Drendall Lincoln-Mercury/Pontiac sued Ford Motor Company alleging that when he tried to cancel an order, he was intimidated by a Ford spokesman and when he bowed to pressure and ordered a vehicle, high floor fees forced him to refinance his dealership. . He was eventually stopped and suffered a heart attack. (Automotive News, December 1982).
Those were tough times in the car business.
Currently, most Sales and Service Agreements have the following terms:
2. (D) SHARE. Dealers must keep in stock the latest model of that line or series of VEHICLES, in a variety and quantity in accordance with Company GUIDELINES, or sufficient to meet Dealer’s share of current and anticipated demand for VEHICLES at LOCAL DEALER. The maintenance of the inventory of the VEHICLE by the Dealer shall be subject to the fulfillment of the Dealer’s order for it by the Company. (Ford Motor Company, Mercury Sales and Service Agreement, Standard Terms.)
However, most states have Dealer Day in Court Acts with provisions such as:
Art. 4413(36), CHAPTER E. PROHIBITIONS. Section 5.02. Producer; Distributor; Representative. (b) Any manufacturer, distributor or representative shall not: (1) Require or attempt to solicit any dealer to order, take delivery of, or pay for anything of value, directly or indirectly, for any motor vehicle, equipment, spare part , accessories or other commodities unless ordered or voluntarily contracted by the dealer. (Texas Motor Vehicle Commission Code)
It is unlawful and against this code for any manufacturer, manufacturer, distributor, or distributor branch licensed under this code to compel or attempt to coerce any dealer in this state: (a) Order or take delivery of any motor vehicle, parts or accessories thereof, equipment, fixtures or other commodities not required by law which the dealer will not voluntarily order. (Section 11713.2 of the California Vehicle Code)
In addition to state law, the National Dealer Day Act in Courts also prohibits manufacturers and distributors from forcing dealers to accept “cars, parts, accessories, or supplies that dealers do not need, want, or perceive.” 1956 USCode. Cong. & Admin.News, page 4603.
However, the law has always been a double-edged sword and generally a fine line is drawn between proper and inappropriate action. For example, it has long been agreed that a dealer’s refusal to take all the manufacturer’s vehicle lines, choosing to sell a competitor’s model, is a reason for discontinuation. See, for example: Randy’s Studebaker Sales, Inc. v. Nissan Motor Corporation, 533 F.2d 510 (10th Cir. 1976), at 515.
Consequently, before deciding whether to accept or reject delivery of a vehicle, dealers should check with a competent automotive attorney, who is familiar with the laws of the jurisdiction in which the vehicle will be shipped, with respect to their particular circumstances.
Note: This article is not intended to provide legal advice, nor should it be construed as such.
