US: automakers and dealers clash on right of first refusal image

Over the past few years, automakers have started to increasingly exercise their right of first refusal in buy-sell transactions of dealerships, sometimes scuttling or seriously hindering big franchise players.

In the US, many franchise deals have allowed the carmaker to veto the original buyer when it comes to a dealership transaction – with the company giving the sale without further term changes to the dealership it prefers. According to dealers, buy-sell advisers and dealer lawyers, the automakers have exercised increasingly the right over the past couple of years. Audi, Mercedes, General Motors, Nissan and Jaguar Land Rover are among the carmakers that did it in recent transactions.

According to the manufacturers, the refusal has serious arguments: they strive to also support minority dealer development plans, they only want to safeguard the future of the franchise by awarding the contracts to strong-performing dealers and protect both their interests and its entire dealer network.

Dealers on the other hand say the companies that invoke the veto right just delay the closing of expensive deals and in the end cost a lot of money and time for the prospective buyers. The increase in usage of the clause could also lead to depreciating value for the dealerships and decrease competition among franchisers, warn dealers and buy-sell advisers.

Via Automotive News