Dealer-Manufacturer Relations

Western board adopts key principles

If anything can be said about the relationships between equipment dealers and manufacturers there is never a dull moment. While both parties have distinct roles in providing equipment and service to customers, the level of collaboration and cooperation has sometimes bordered on being immature, which is mindboggling when you consider this industry is well beyond 100 years old.

Some organizations, whether it’s this industry or others, have improved business results all along the supply chain by sharing information and developing common strategies. However, some retailers and suppliers continue to struggle and conflicting views on how to make money is often at the core of the struggle.

Retailers want flexibility in developing business plans that not only encourages customer loyalty but differentiates them from competitors. This can be a sore spot for some suppliers, which leads to coarse talk, lawsuits and legislation.

As a dealer advocate, the Western Equipment Dealers Association has made dealer-manufacturers relations a top priority since the organization was founded in 1889. Fast forward to today and some of the issues that had people at loggerheads back then are still present. But pointing fingers accomplishes little, which is why the association has proactively looked for solutions to this thing called dealer-manufacturer relations.

In the not-too-distant past, the association, then known as the SouthWestern Association, floated the idea of model legislation, something that would balance the needs of dealers and the industry’s suppliers. This concept was also adopted by the former Canada West Equipment Dealers Association. While the idea of model legislation may have been moved to the back burner, it continued to simmer and did create a framework that may be more relevant today than 15 years ago, according to Wally Butler, CFO, of the Mazergroup.

“Dealerships continue to evolve to meet the needs of the changing economics of agricultural production. This has led to larger dealer groups investing in infrastructure and technologies often beyond traditional geographical footprints of state or provincial boundaries,” says Butler, whose New Holland dealership operates 15 stores in western Canada. “It’s vital to not only have consistent agreements with manufacturers but also consistent legislation that makes sense for all involved – manufacturers, dealers and agriculture producers – even governments.”

Butler says the ongoing desire to have consistent agreements and consistent legislation prompted the Western board of directors to adopt nine principles related to dealer-manufacturer relations. “Development of the key principles is a template for ongoing improvement of the business environment, which is fundamental for the production of food for the world,” adds Butler, who also serves as president of the Western board.

“Defining key principles is part of the process,” says John Schmeiser, CEO, Western Equipment Dealers Association. He says not only do they outline what the association stands for but they’re important in “determining what should or shouldn’t be addressed through legislation.”

The key principles

While the nine key principles weren’t etched in stone by flame on the top of a mountain, they were developed with reverence for the process of improving manufacturer relations. According to Schmeiser, the idea of the key principles first surfaced during a meeting of the top executives of other associations that represent dealers throughout North America. He says this is just another attempt to keep the lines of communications open with manufacturers.

“There is a prevailing thought that if manufacturers agreed to the key principles and conducted their business accordingly, perhaps there wouldn’t be a need for dealer protection legislation in the first place,” says Schmeiser. “If we achieve this, I think Western’s members would view their relationships with the manufacturers as true partnerships and create a winning formula for manufacturers, dealers and customers.”

And, notes Schmeiser, while improvements have been made over many decades of discussions, the association’s biennial survey of dealer-manufacturer relations suggests some relationships are getting worse – and that’s what the key principles seek to improve.  

“The reality is that there are some great manufacturers that go above and beyond to support and help their dealers. Unfortunately, not every manufacturer treats dealers in the same vein. This is what creates problems and can lead to legislation,” which Schmeiser calls unfortunate.

“It’s unfortunate when dealer-manufacturer relationships deteriorate to the point that the only solution is more legislation, which results in legal challenges to the legislation by manufacturers. When we operate in a contentious environment the industry as a whole loses,” he adds.

Dirty laundry is unpleasant    

Schmeiser says when the dealers and manufacturers resort to airing their dirty laundry in front of elected officials the industry is not served well.

“When we are forced to lean on a legislative solution, it speaks to the breakdown in relationships,” says Schmeiser. “It’s hard to fault any association that feels it has to solve important issues through the legislative process; however, the Western board started thinking there has to be another way and that led to the development of the key principles. The board believes if the association can prevent the need for legislation in the future, adopting the nine principles was worth the effort.”

Butler agrees with Schmeiser. “As a fundamental pillar of Western’s commitment to dealers, the board believes manufacturer relationships are critical for industry success.  Western now represents over 2,000 dealers in nine states and nine provinces. That’s nearly 25 percent of dealers in North America, making it an excellent time to spearhead ongoing discussions with manufacturers about relevant issues to the dealers of today and tomorrow. Dealer feedback has been clear – continue to work to improve the business environment for everyone involved in the equipment industry.”

Promoting the principles

While the board’s adoption of the key principles is a relatively new approach to dealer-manufacturer relations, the need for these key values continues to move forward the idea of the association’s initial attempt of developing model legislation.

“We have started sharing our principles with manufacturers and they clearly see our position and priorities. From our perspective, this is a good place to start the discussion. Through the key principles, we also establish a stronger foundation for model bill language,” says Schmeiser. “We also have a great track record of open communication with manufacturers and, to their credit, some want to have this conversation with us. We were able to reach consensus in the past on language and I think the key principles give us the necessary foundation to achieve agreed upon model legislation language.”

“Anytime a framework/template can be used to start or continue discussions, the likelihood of success rises exponentially,” adds Butler. “Legislators have local constituent-specific issues to resolve. However, the business environment tends to be similar over larger geographic areas and model legislation is a great way to develop consistency and ease efforts that may require legislative solutions and reduce conflicts with manufacturers.” 

“Western’s mandate is very clear,” concludes Schmeiser. “We are an advocacy association and we will continue to invest in advocacy as we understand the importance of this to our members. All of our advocacy efforts come from the grassroots – from the members up to our state/provincial advisory committees and then to the board. This process ensures that we focus on the issues that are important to our members. The association is committed to be there to help achieve this by continuing to be the voice of dealers, whether in the legislature or a manufacturer’s corporate office.”

The principles are available now on Western’s website at https://www.westerneda.com/advocacy/industry-relations   

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DEALER/MANUFACTURER RELATIONSHIP

Key Principles

1. Termination of Dealer Agreement

1. 1. Good cause must be required (i.e., a substantial violation of an essential and reasonable term that the manufacturer consistently enforces)
   2. The dealer must be given notice and a reasonable opportunity to correct the problem subject to very few exceptions where the issue cannot be corrected
   3. Market share defaults must provide for a significantly longer cure period and market share standards must be reasonable and accurate.

2. Substantial Change in a Dealer’s Competitive Circumstances

1. Same principles on good cause, cure period and market share apply to substantial changes in a dealer’s competitive circumstances
2. The terms of the dealer agreement do not impact the determination of whether a dealer’s competitive circumstances have been changed
3. Primary focus of restriction is on activities that adversely change the ability of a dealer to compete with other dealers supplied by the same or affiliated manufacturer
4. Significant events, such as termination of a single store (without terminating dealer agreement), may be specifically defined to be substantial changes in competitive circumstances

3. Inventory Repurchase Requirements

1. Repurchase required upon any termination or store closure
2. Repurchase prices must be based on a dealer’s investment in wholegoods and attachments and the current net price for parts
3. Repurchase requirements apply to unused/undamaged inventory with additional requirements to purchase demo/rental units with appropriate adjustments
4. Repurchase obligations relating to other significant dealer purchases from manufacturers may be appropriate (e.g., special tools, business systems and signage)

4. Ownership Transfers

1. Transfers of non-controlling ownership interests should be permitted without consent
2. Transfers of controlling ownership interests to trusts or family members for estate planning purposes should be permitted without consent as long as the CEO (or equivalent) does not change as part of the transfer without manufacturer consent
3. Transfers of controlling ownership interests (or of dealerships and related interests in dealer agreements) to non-family members subject to manufacturer consent, but (1) consent cannot be unreasonably withheld, (2) reasons for withholding consent must be communicated in writing in a timely manner and reflect consistent standards and (3) the manufacturer has the burden of proof to establish that consent was reasonably withheld

5. Management Changes

1. Manufacturer consent to a management change is limited to a change in the CEO (or equivalent)
2. Manufacturer consent to management change subject to same limitations as in 4(c) above relating to transfers of ownership interests
3. Manufacturer must provide a reasonable period for dealer to hire replacement CEO

6. Amendments/New Dealer Agreements

1. A dealer agreement cannot be amended without the dealer’s specific written consent to that amendment
2. A new dealer agreement will not be applicable to a dealer without the dealer’s specific written consent to that agreement
3. No adverse action may be taken against a dealer if the dealer does not consent to an amendment or new dealer agreement and the dealer’s refusal to consent will not constitute good cause for termination of the dealer agreement or a substantial change in the dealer’s competitive circumstances

7. Purity

1. A manufacturer may not restrict a dealer from purchasing products from other manufacturers, including requirements relating to separate facilities, personnel, financial statements or capital structure
2. A manufacturer may not condition the approval of the sale of a dealership or transfer of controlling interest based on the dealer’s agreement to a restriction prohibited by 7(a)
3. Exception from restrictions may be acceptable if narrowly construed and the dealer is given an exclusive territory in exchange for agreeing to the restriction

8. Warranty Procedures

1. Dealers must receive fair compensation for work performed based on dealership’s normal practices for non-warranty work
2. Payment must be paid within a reasonable period of time
3. Warranty procedures to be satisfied for payment must be reasonable and allow dealers an opportunity to correct deficient applications for payment
4. Audit periods for warranty claims must be limited to reasonable periods of time

9. Inventory Ordering

1. Inventory ordering requirements should not be permitted, but manufacturers may measure performance through appropriate market share standards
2. Appropriate limits on discrimination in pricing and filling orders are important

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Article Written By WEDA Staff