What is the difference between a manufacturer requiring a dealer to comply with a program and a manufacturer providing an optional incentive if a dealer complies with a program? Often, it seems that they are functionally identical; both requirements and incentives seek to coerce dealers into engaging in behaviors that dealers would otherwise not consider.

Consider facility upgrades. Traditionally, a manufacturer may have simply required its dealerships to construct new facilities to align with the manufacturer’s updated brand image standards. Today, many manufacturers instead create programs that provide incentives to dealers that construct image compliant facilities.

These incentive programs sound nice until you consider that they are the functional equivalent of a mandate, as they often come in the form of manufacturers providing cheaper new vehicles to compliant dealerships. This often gives compliant dealerships a pricing advantage of thousands of dollars. (1)

Sure, dealers may have the option to not comply with a facility incentive program, but their dealerships would face a significant competitive disadvantage that could eventually drive them out of business. Cynics might think this is what the manufacturers really want — to use incentive programs to drive smaller dealers out of business. It is certainly cheaper and easier than formally terminating franchises, which trigger dealer protest rights under California law. But these types of incentive programs may also be a way for manufacturers to attempt to skirt other franchise laws.

Take the facility upgrade example. Thanks to AB 179 (last year’s franchise bill), California Vehicle Code section 11713.13(c) specifically prohibits manufacturers from imposing a facility requirement if a dealership previously modified its facility within the last 10 years and the cost was more than $250,000. This statute provides dealers with substantial ammunition in fighting back against costly facility requirements. However, this law may be a lot less helpful in combating a facility program that is ostensibly optional. Instead, a dealership seeking to combat an incentive program may be forced to turn to California’s statute on unlawful OEM performance standards.

Even though California’s statute on unlawful OEM performance standards was primarily designed to combat unreasonable vehicle sales performance standards, the statute can be used to combat other types of OEM performance standards. For example, a low volume dealership in a rural area could argue that an OEM incentive program that withholds monies from dualed dealerships is not reasonable “in light of all existing circumstances,” including the “geographical and market characteristics in the dealer’s area of responsibility” and “local and statewide economic circumstances.” (Vehicle Code section 11713.13(g)(1).)

As a result of continued manufacturer abuse of incentive programs, AB 179 further includes authority for dealers to file protests at the New Motor Vehicle Board involving unlawful manufacturer performance standards. And in such protests, manufacturers have the burden of proof to establish the legality of their program.

At this point, it is unclear how the New Motor Vehicle Board will handle protests involving performance standards. However, if your dealership is facing an unreasonable manufacturer incentive program, you should strongly consider whether a protest at the Board makes sense.