ISSUE 2, 2024 12 Getting to Know David Simpson, 2024 CNCDA Chairman 28 MANNING LEAVER LEGAL LANE Dealership Vendor Agreements Roadmap Official Publication of the California New Car Dealers Association
Business Transactions • Buy-Sell Agreements • DMV, BAR, and other governmental approvals • Lender flooring and capital loan agreements • Entity formation and structure • Shareholder Agreements • Manufacturer approvals and relations • NMV non-profit association representation Estate Planning • Succession planning for businesses • Trust Agreements including lifetime benefit trusts • Gift and Estate Tax planning Tax • Property Tax planning, audits, and appeals • Federal estate and gift tax controversy audits • EDD Audits BUSINESS LAW | LITIGATION | ESTATE PLANNING | REAL ESTATE | TAX | EMPLOYMENT PRACTICES FERRUZZO & FERRUZZO, LLP | A Limited Liability Partnership, including Professional Corporations 3737 Birch Street, Suite 400, Newport Beach, California 92660 | PH: (949) 608-6900 | ferruzzo.com Business Litigation • Consumer Legal Remedies Act lawsuits • Sales and Service Agreements • Disputes before the CA New Motor Vehicle Board • Consumer claims regarding the sale of automobiles • Manufacturer audit disputes • Hearings before the AQMD, RWQC and OSHA Real Estate • Dealership site acquisition and dispositions • Lease agreements • Lender Opinion Letters Employment Practices • Wage and hour class action lawsuits • Private Attorneys General Act (PAGA) claims • Arbitration Agreements • Employer Handbooks and Employer Compliance Procedures Ferruzzo & Ferruzzo, LLP began providing legal representation to new car and truck dealers over four decades ago. Over the course of that time, one of the central goals of the firm has been to remain rooted in our client relationships. With the strength of over 25 attorneys, we provide a spectrum of legal services to support every aspect of running and owning your new car and/or truck dealership. We have practice groups in each area of the law that service the needs of you and your dealership.
A Better Core in 2024 DominionDMS.com (866) 928-3210 1515 South Federal Highway, Suite 406 Boca Raton, FL 33432, USA SCHEDULE YOUR DEMO Discover how VUE By Dominion DMS gives your dealership: Hearing the cries of the automotive community, we developed a brand new cloud core DMS, called VUE. This software is flexible, efficient and innovative. Schedule a demo and upgrade to a Better Core in 2024. EFFICIENCY INNOVATION FLEXIBILITY SAVINGS Personalization, Engagement, and Speed – the holy trinity of an amazing customer experience. Being a cloud-core DMS and using agile development methodologies means that we can keep dishing out top-notch solutions for our dealers and partners. Dominion DMS is easy to learn and simple to use. You have easy access from any web connection and you get to choose the apps you want and need to drive your success. Behold, VUE! Waving a magic wand to make DMS core fees vanish into thin air. Franchise dealerships can now save while still enjoying our best in class accounting, parts, sales, and service modules.
©2024 California New Car Dealers Association (CNCDA) | The newsLINK Group, LLC. All rights reserved. The California New Car Dealer Quarterly is published four times each year by The newsLINK Group, LLC for the CNCDA and is the official publication for this association. The information contained in this publication is intended to provide general information for review, consideration and dealer education. The contents do not constitute legal advice and should not be relied on as such. If you need legal advice or assistance, it is strongly recommended that you contact an attorney as to your specific circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of the CNCDA, its board of directors, or the publisher. Likewise, the appearance of advertisements within this publication does not constitute an endorsement or recommendation of any product or service advertised. The California New Car Dealer Quarterly is a collective work, and as such, some articles are submitted by authors who are independent of the CNCDA. While the California New Car Dealer Quarterly encourages a first-print policy, in cases where this is not possible, every effort has been made to comply with any known reprint guidelines or restrictions. Content may not be reproduced or reprinted without prior written permission. For further information, please contact the publisher at (855) 747-4003. 14 28 ContentsISSUE 2, 2024 1517 L St. Sacramento, CA 95814 www.cncda.org (916) 441-2599 Brian Maas President Michael Walsh, MBA Chief Financial Officer Anthony Bento Chief Legal Officer Autumn Heacox Director of Communications & Marketing Cathy Mason Director of Operations Rebecca Matulich Director of Events & Partnerships Kenton Stanhope Director of Government Affairs Crissy Hodgson Senior Staff Counsel Andrea Daugherty Political Engagement Manager Lauren Johnston Membership Manager Liza Hernandez Staff Accountant Stacy Barawed Executive Assistant McKenna Bediamol Administrative Coordinator Jamie Cowden Administrative Assistant 4 6 Cheers to Another 100 Years of Success 8 PRESIDENT’S MESSAGE CNCDA’s Legislative Progress By Brian Maas, President, CNCDA 10 2024 Officers and Directors 12 Getting to Know David Simpson, 2024 CNCDA Chairman Simpson Buick GMC Cadillac of Buena Park, Simpson Chevrolet of Garden Grove, Simpson Chevrolet of Irvine By Autumn Heacox, Director of Communications & Marketing, CNCDA 14 Driving Dealer Advocacy Why Participating in NADA PAC Matters Both Nationally and Locally By Kenton Stanhope, Director of Government Affairs, CNCDA 15 The Franchise Law Manual, Third Edition, Is Now Available! 17 CNCDA Political Action Committee 2024 Chairman’s Club 18 2024 Dealer Day Photo Gallery 24 Our Commitment to Protecting California’s Franchised Dealers By Autumn Heacox, Director of Communications & Marketing, CNCDA 28 MANNING LEAVER LEGAL LANE Dealership Vendor Agreements Roadmap By Joseph Berberich, Manning, Leaver, Bruder & Berberich LLP 32 2024 Sponsors 35 California Auto Outlook
The California New Car Dealers Association has protected and promoted the interests of California’s franchised new car dealers for the last 10 decades. In that time, we have made a tremendous impact on the industry as a whole and will continue to bring value and support to our members. To learn more about the nation’s largest state automobile dealer association and all the key advantages of being a member, please visit us at cncda.org. CHEERS TO ANOTHER 100 YEARS OF SUCCESS
Sweeten the deal with Home Delivery, powered by Cottrell’s home delivery units. More and more customers are expecting home delivery as part of the car-buying experience. Make sure your dealership is prepared with a specialized home delivery unit from Cottrell, Inc., the worldwide leader in car haul manufacturing — the same company that builds the equipment that’s been delivering cars to your dealership for more than 40 years. These 1-Car units allow for quick loading and unloading and do not require a CDL to operate. Your sales staff will be on the road in minutes with a rolling billboard for your dealership. CONTACT: Adam Strong, Western Region Sales Manager 770.532.7251, ext. 304 astrong@cottrelltrailers.com Unit in the field. Thanks to Beaver Toyota, Cumming, GA. VISIT: CottrellTrailers.com
Brian Maas, President, CNCDA PRESIDENT’S MESSAGE CNCDA’s Legislative Progress Dear CNCDA members, As we wrap up the first half of the year, I want to update you on our legislative progress in 2024. With over 2,000 bills introduced, your CNCDA team remains vigilant in identifying potential threats, assessing amendments and seeking alternative pathways to advance provisions that align with our members’ needs and concerns. One bill that has been on our radar is SB 961, introduced by Sen. Weiner (SD 11, covering the city and county of San Francisco, Broadmoor, Colma, Daly City, as well as part of South San Francisco). Initially, the bill proposed equipping all vehicles with an “intelligent speed limiter” by 2027. However, through our advocacy efforts, particularly at Dealer Day, we’ve successfully influenced amendments to the bill. Now, instead of actively limiting vehicle speed, it will only notify drivers when they exceed speeds by 10 miles per hour over the posted limit. While this amendment marks progress, CNCDA, alongside our partners at the Alliance of Automotive Innovation (AAI), continues to advocate for an even more practical solution. Another bill of concern is SB 898, introduced by Sen. Skinner (SD 9, covering cities in Contra Costa and Alameda counties along the 880 corridor and the Port of Oakland and Oakland International Airport), which initially mandated window tinting on all cars sold after Jan. 1, 2025. This mandate posed significant challenges for manufacturers and safety implications for drivers. Thanks to our advocacy, we’ve managed to amend the bill, narrowing its scope to only apply to the driver-side window in heavy-duty trucks, tractors and buses, thereby alleviating some of the burdens on our members. Furthermore, SB 903, also introduced by Sen. Skinner, presents another challenge. This bill seeks to ban the sale and use of products containing per- and polyfluorinated substances (PFAS) in California by 2030. However, PFAS are essential chemicals used in vehicles for various safety functions, posing a threat to the car manufacturing process. Despite our efforts to secure exemptions for cars from the PFAS ban, the author remains resistant. We will continue to work with manufacturers to defeat or amend SB 903 to mitigate its adverse effects on our industry. In closing, I urge you to recognize the importance of your advocacy (and events like Dealer Day), which can make a real difference in shaping legislation that affects our industry. Your engagement and support are invaluable as we navigate these legislative challenges together. If you would like to get involved in supporting our advocacy efforts, please reach out to me at bmaas@cncda.org. Thank you, CNCDA members, for your unwavering partnership and support. Your commitment to our industry and your active participation in shaping future legislation is truly commendable. Sincerely, Brian Maas, President The California New Car Dealers Association 8 California New Car Dealer Quarterly
Anticipate every turn In an industry that’s always evolving, your dealership can rely on our Dealer Financial Services team’s 90 years of experience to see what’s around the corner, forward-thinking insights to prepare you, and technology to keep you ahead of the curve. What would you like the power to do?® John Alexander, john.f.alexander@bofa.com James Diedrich, james.a.diedrich@bofa.com Liane Low-Bevett, liane.low-bevett@bofa.com Bob Ludwig, robert.ludwig@bofa.com business.bofa.com/dealer ©2024 Bank of America Corporation. All rights reserved. 5949042 12-23-0323 Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value “Bank of America” and “BofA Securities” are the marketing names used by the Global Banking and Global Markets divisions of Bank of America Corporation. Lending, derivatives, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Trading in securities and financial instruments, and strategic advisory, and other investment banking activities, are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, BofA Securities, Inc., which is a registered broker-dealer and Member of SIPC, and, in other jurisdictions, by locally registered entities. BofA Securities, Inc. is a registered futures commission merchant with the CFTC and a member of the NFA. In an industry that’s always evolving, your dealership can rely on our Dealer Financial Services team’s 90 years of experience to see what’s around the corner, forward-thinking insights to prepare you, and technology to keep you ahead of the curve. What would you like the power to do?® John Alexander, john.f.alexander@bofa.com James Diedrich, james.a.diedrich@bofa.com Liane Low-Bevett, liane.low-bevett@bofa.com Bob Ludwig, robert.ludwig@bofa.com business.bofa.com/dealer ©2024 Bank of America Corporation. All rights reserved. 5949042 12-23-0323 Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value “Bank of America” and “BofA Securities” are the marketing names used by the Global Banking and Global Markets divisions of Bank of America Corporation. Lending, derivatives, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Trading in securities and financial instruments, and strategic advisory, and other investment banking activities, are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, BofA Securities, Inc., which is a registered broker-dealer and Member of SIPC, and, in other jurisdictions, by locally registered entities. BofA Securities, Inc. is a registered futures commission merchant with the CFTC and a member of the NFA.
2024 Officers and Directors EXECUTIVE COMMITTEE DAVID SIMPSON Chairman Simpson Buick GMC Cadillac of Buena Park, Simpson Chevrolet of Garden Grove, Simpson Chevrolet of Irvine TONY TOOHEY Immediate Past Chairman Auburn Toyota RICK NIELLO Region 1 Vice President The Niello Company MARK NORMANDIN Region 2 Vice President Normandin Chrysler Dodge Jeep Ram BILL HATFIELD Region 3 Vice President Hatfield Buick GMC JARED HARDIN Region 4 Vice President Hardin Buick GMC ROBB HERNANDEZ Vice Chairman Camino Real Chevrolet SAL GONZALES Region 5 Vice President Culver City Volvo ANNE BOLAND Secretary/Treasurer Bob Smith BMW 10 California New Car Dealer Quarterly
DIRECTORS Randy Denham S.J. Denham Inc. Matthew Hall AutoNation Western Region Taz Harvey Dublin Mazda Rick Niello The Niello Company Tony Toohey Auburn Toyota Jessie Dosanjh Stevens Creek Chevrolet Ryan Fitzpatrick Coliseum Lexus of Oakland Dave Moeller City Toyota Mark Normandin Normandin Chrysler Jeep Dodge Ram Devinder Singh Bains Turlock Chrysler Dodge Jeep Ram Cheryl Bedford Sunset Auto Center Don Groppetti Nissan of Visalia Bill Hatfield Hatfield Buick GMC Ted Nicholas Three-Way Chevrolet Cadillac Ellena Sweet Fresno Acura James Graham Santa Margarita Ford Bruce Hamlin Guaranty Chevrolet Motors Inc. Jared Hardin Hardin Buick GMC John Oh Lexus of Westminster David Simpson Simpson Buick GMC Cadillac of Buena Park Anne Boland Bob Smith BMW Matt Browning Browning Automotive Group Sal Gonzales Culver City Volvo Rinaldi Halim Sierra Automotive Group Robb Hernandez Camino Real Chevrolet Region 1 Region 2 Region 3 Region 4 Region 5 11 California New Car Dealer Quarterly
Getting to Know David Simpson, 2024 CNCDA Chairman SIMPSON BUICK GMC CADILLAC OF BUENA PARK SIMPSON CHEVROLET OF GARDEN GROVE SIMPSON CHEVROLET OF IRVINE By Autumn Heacox, Director of Communications & Marketing, CNCDA How did you become a car dealer? Did you always aspire to work in the automotive industry? I graduated from college in 1984 with a degree in finance working during school at night for UPS. I never had any aspirations of becoming a dealer until my dad, who owned a singlepoint Buick store, asked me several months before I graduated, “What are your plans for a job when you graduate?” I replied, “I have several offers from various defense contractors and thought I would pursue that.” He asked, “What about giving the car business a try?” I thought, why not? And that’s when I started my automotive career. 10 years later, I bought him out with the help of GM’s Motors Holding Division. Do you have family members in the auto industry? I do. I have my two sons, my daughter and my wife. Describe your educational background; what did you study? I have a bachelor’s degree in finance and also attended both the NADA Dealer School and GM’s Dealer School. Are there specific individuals that have had a major impact on your career in the auto industry? Absolutely! Richard Stricklen, president of Motor City Buick GMC and Motor City Lexus of Bakersfield, was so much so that my speech at CNCDA Dealer Day was devoted to him as my mentor. What is the most rewarding part of your career? When a team of people within our organization comes together on an idea or problem and takes it upon themselves to take care of the customer. What do you think will be some of the dominant trends within the auto industry in the next 5-10 years? Continued consolidation of rooftops with the continued new vehicle franchise system. EVs will become more prevalent due to the fact that some OEMs have overly committed to these. But I also think that hybrids will increase along with more fuel cell options as the infrastructure increases as well to support those. Why did you become involved in a leadership role at CNCDA? None of us can complain about what happens with new laws unless you donate your time to, at the very least, help protect and promote the franchise system. If you look back at your career in the auto industry, what would be three things that you have learned, that you would pass along to a younger member within the industry? 1. Always hire people who are smarter than you. 2. Manage by metrics and never be afraid to admit you were wrong. 3. Always be humble, smile more and talk less. 12 California New Car Dealer Quarterly
Describe your all-time favorite vehicle. What do you drive today? My favorite vehicle is the vehicle that’s leaving the dealership with another happy customer with a cashable contract. I drive a variety of vehicles, from a Chevy Blazer EV, Cadillac Escalade and Corvette Z06. But my favorite would be our 45’ Newell RV when going on cross-country trips with my wife. What is your favorite way to spend your free time? I love playing golf and pickleball, traveling, boating, skiing and traveling in our RV. 13 California New Car Dealer Quarterly
Driving Dealer Advocacy WHY PARTICIPATING IN NADA PAC MATTERS BOTH NATIONALLY AND LOCALLY By Kenton Stanhope, Director of Government Affairs, CNCDA If you were able to join us at our annual day of advocacy, Dealer Day, you heard from the National Automobile Dealers Association (NADA) Vice Chairman Tom Castriota. Tom highlighted the importance of dealers’ engagement with federal legislators in Washington, D.C., and how decisions made by Congress directly impact dealerships, even here in California. NADA’s political action committee (NADA PAC) is a critical part of NADA’s advocacy on Capitol Hill. NADA PAC relies on voluntary personal contributions from dealers and managers of NADA-member dealerships to support pro-dealer candidates in the U.S. House and Senate. Founded in 1975, NADA PAC is one of the largest business trade association PACs in Washington, D.C., with more than 1,650 contributors in 2023. NADA PAC has already supported more than 240 candidates in the 2024 election cycle. Here in California, decisions regarding candidate contributions are made locally by our dedicated NADA PAC team, consisting of esteemed individuals such as NADA Directors Mark Normandin, Matt Browning and Cheryl Bedford; NADA PAC Chair Jessie Dosanjh; 2024 CNCDA Chairman David Simpson and CNCDA President Brian Maas. Collaboration with California’s metro dealer associations further strengthens our impact. We invite you to take an active role in shaping the future of dealership advocacy by scanning the QR code below and completing the Prior Approval Form. Your involvement with NADA PAC ensures dealership interests are strongly represented at our nation’s Capitol. https://www.cncda.org/wp-content/ uploads/2024-NADA-PAC-Prior-Approval-Infographic-and-Form.pdf For more information about NADA PAC, contact Joshua Heit, director of NADA PAC, at jheit@nada.org. 14 California New Car Dealer Quarterly
The Franchise Law Manual, Third Edition, Is Now Available! We are proud to announce the publishing of our new Franchise Law Manual, Third Edition (an exclusive member benefit), created by the California New Car Dealers Association and Manning, Leaver, Bruder & Berberich LLP Attorneys at Law. California franchise laws have evolved over decades of amendments and modifications. To aid in understanding these laws, CNCDA has organized them into five major areas of dealer protection in this manual: • Investment, Succession and Buy-Sells • Facilities • Operations • Audits • Protests and Petitions The manual gives our members practical advice on how to exercise their rights under California’s new and existing franchise laws. To download the manual, please log in to www.cncda.org/comply and visit our Compliance Manuals page. 15 California New Car Dealer Quarterly
Smart In Automotive ArentFox Schiff’s Automotive Group drives innovative strategies forward. Our cutting-edge, national practice advises automotive leaders as the industry faces a dizzying array of competitive and regulatory hurdles. Key Contacts Smart In Your World afslaw.com Aaron H. Jacoby Managing Partner, LA; Chair, Automotive 213.443.7568 aaron.jacoby@afslaw.com Russell P. McRory Partner, NY 212.484.3942 russell.mcrory@afslaw.com Victor P. Danhi Partner, SF 415.757.5505 victor.danhi@afslaw.com
2024 Dealer Day 2024 Dealer Day Photo Gallery 18 California New Car Dealer Quarterly
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Our Commitment to Protecting California’s Franchised Dealers By Autumn Heacox, Director of Communications & Marketing, CNCDA For a century, the mission of the California New Car Dealers Association (CNCDA) has been to protect and promote the state’s franchised new car and truck dealers to ensure a fair and thriving industry for our members and California’s motoring public. Our dedicated staff diligently monitors legislative changes, advocates on your behalf and provides valuable resources, support, updates and events. We are committed to ensuring our members can focus on what they do best: running successful dealerships while serving their customers and communities. CNCDA’s efforts to safeguard the integrity of the franchise system have led to significant legislative victories and milestones. We work with lawmakers, policymakers and industry partners to ensure that the rules governing California’s franchised new car and truck dealers are fair and balanced. Our successful championing of this critical legislation has protected the integrity of the franchise system and enabled our members to thrive in what many consider a challenging statewide business climate. This track record not only serves as a national model for automobile dealer associations but also ensures fairness, transparency and accountability for our members. Here are some recent examples: • AB 473 (2023): This landmark legislation, the first of its kind in the nation, modernized California’s motor vehicle franchise laws. It holds manufacturers accountable for excessive dealership requirements and, most importantly, prevents competition amongst their own dealers. Other provisions preserve manufacturer fairness, transparency and accountability to our members. This was an enormous win for our dealers and a testament to our commitment to serving our members. • AB 179 (2019): CNCDA’s success with AB 179 mandated that manufacturers honor warranty agreements and fairly compensate dealers for labor, parts and associated costs. The bill required manufacturers to file a reasonable warranty reimbursement schedule, including hazardous material disposal costs. This victory continues to deliver significant financial savings, directly benefiting our members, even today. • Franchise Law Updates (2009, 2011, 2013): In 2013, CNCDA made additional franchise law updates, providing a rebuttal presumption for dealers who sold or leased an exported vehicle. It restricted the exorbitant dealer performance standards and modified warranty repair and incentive rules, providing a right to cure, a 15-day written notice of changes to warranty reimbursement schedules, and limited audit requirements of records to nine months. In 2011, CNCDA successfully prohibited waivers of dealer protection rights, reduced unfair competition against dealers by factory‑owned stores, and prohibited mandates for the use of factory-approved vendors for service contracts and GAP agreements. In 2009, CNCDA conformed California to the rules in most states regarding termination assistance, multi‑brand dealership operations, facility improvements and statutory indemnity. Beyond our commitment to advocate for dealers’ rights, CNCDA provides members with several other resources so they can remain focused on their business: • Compliance Resources: Keeping dealers compliant with state and federal regulations through comprehensive guides and manuals. • Legal Assistance: We provide expert legal advice and support on franchise law and other regulatory issues. Our member-only legal hotline assists with matters ranging from advertising to HR and everything between; we’re here to answer your questions. 26 California New Car Dealer Quarterly
REGISTER TODAY www.cncda.org/events • Education and Training: CNCDA’s seminars, webinars and communications keep dealers informed about industry trends and best practices. • Networking Opportunities: Connecting dealers and industry professionals through events like Dealer Day and our annual convention. • Trusted Market Data and Research: CNCDA is committed to delivering trusted industry insight and analysis. California typically leads auto trends for the rest of the nation. It’s our responsibility to communicate and deliver accurate market data, serving as a bellwether for the automotive industry worldwide. • Sharing Positive Impact: We communicate publicly the everyday good deeds and positive impact dealers make in their communities. We showcase the vital role dealerships play in the state’s economic vitality, their charitable contributions and how dealers improve the lives of all Californians. For members looking to maximize CNCDA’s benefits, we encourage dealers to: • Stay Informed: Ensure you are receiving and reading our emails, monthly bulletin and alerts. Be sure to also attend our informative webinars. These resources contain crucial information about legislative updates/ requests, breaking alerts, how to comply with new laws and regulations, upcoming events and more. • Show Up: Attend CNCDA events like Dealer Day, New Laws Seminars and our annual convention to strengthen your dealership and our industry and to network with your peers. • Take Action: When we ask for your involvement in advocacy efforts (like making calls, sending emails and attending/hosting fundraisers), please take action. Your participation is vital in stopping harmful legislation and supporting measures that benefit our members. Don’t forget to join our Chairman’s Club and donate when you can to our public affairs campaigns and our PAC. • Make a Difference: Volunteer to help on our committees. Contact fellow dealers who sit on our Board of Directors and let them know you want to get involved in a leadership role. By staying informed and actively participating in CNCDA’s efforts, our members will help us continue to protect and promote California’s franchised new car and truck dealers into the next century. Thank you for your dedication to our mission. 27 California New Car Dealer Quarterly
MANNING LEAVER LEGAL LANE Dealership Vendor Agreements Roadmap By Joseph Berberich, Manning, Leaver, Bruder & Berberich LLP This article covers some general concepts about managing dealership vendor agreements and provides suggestions on areas to cover when negotiating these agreements. In the normal course of operations, an automobile dealership is a party to many types of vendor agreements, such as those relating to dealer management systems (Reynolds, CDK and others), uniform and laundry services, janitorial services, credit card services, employment management systems, environmental health and safety compliance, privacy compliance, warranty processing, customer relationship management, copy machines, postage machines, information services, key tracking, alarm services, telephone systems, Carfax, landscaping, body shop agreements, signs, content providers for websites, website maintenance, digital marketing, advertising and F&I products. These are just some of the many vendor agreements dealers have. Dealers are sometimes surprised to discover how many agreements they have, and their cost. What is sometimes even more surprising is the length of time many contracts run. Dealers can determine what vendor contracts they have by looking at their payables general ledger or subledger, which should identify the agreements. The dealer should have a complete signed copy of each agreement. For ease of access, it is good to have all vendor agreements in one file or computer folder. Often, dealers cannot locate complete, signed copies of the vendor agreements. In that case, it is best for the dealer to contact the vendor and ask for a complete copy. Dealers are often reluctant to do this, believing that vendors will speculate that a buy-sell is being considered. To alleviate this concern, dealers sometimes tell vendors they need copies of the agreement because they are doing an audit of all existing agreements and establishing a contract management system. Each agreement has a specific term showing how long the agreement is effective. It is very common for vendor agreements to contain an “evergreen clause.” An evergreen clause means the agreement automatically renews for a specific period (often the same period as the initial agreement, or longer) unless the dealer gives notice to the vendor within the time specified in the agreement that the dealer is terminating the agreement. Unless a dealer has a system that flags the time when the dealer must give this advance notice, such an “evergreen” renewal may occur. It is very easy for a dealer to miss the advance notice and be stuck for a long term, thus the term “evergreen clause.” Most vendor agreements also have a notice provision that describes to whom notices are to be given and the way they are to be given, such as by overnight delivery, certified mail or another method. It is important that any notices required by the agreement be given in the manner prescribed in the agreement. In a buy-sell of a dealership, vendor agreements are always a somewhat difficult issue. The seller will have agreements with terms that sometimes extend for years beyond the close of the buy-sell. If they are not assumed by the buyer, the seller 28 California New Car Dealer Quarterly
will be responsible for them and must buy the agreement out or continue to make payments. The agreements the buyer will assume should be included in the sale agreement. It is a mistake to leave this issue open for determination by the buyer and seller after the agreement has been signed because disputes often arise about what agreements the buyer will assume. The time to resolve this is before the sale agreement is signed. The reality, however, is that many parties choose not to address this issue at the time of signing the buy-sell agreement and leave it to be determined during the buy-sell process. If the sale occurs by a stock purchase, rather than an asset sale, the buyer of the stock will be assuming all existing agreements unless they are excluded by the agreement. Most dealership sales are by asset purchase agreements, not stock sales. In handling vendor agreements that are not being specifically assumed by the buyer in the buy-sell agreement, the agreement sometimes provides that the buyer will agree to also assume vendor agreements that, for example, cost less than five hundred dollars a month and can be canceled with a 90-day notice. For all vendor agreements that won’t be assumed by the buyer in the sale agreement, the seller should give notice to the vendors that agreements will be terminated at the earliest date allowed by the vendor agreement. Sometimes vendors will allow the agreement to be terminated on the date of the sale closing, or will at least agree to a reasonable termination date or buyout of the agreement, considering the business relationship the dealer and vendor have had over the years. To be ready if the time comes when a dealership will be sold, it is a good practice to insist with every vendor when the vendor agreement is signed, or amended, that there be a clause which will give the dealer the right to terminate the agreement on the close of a buy-sell. Such a clause might read: “Notwithstanding anything to the contrary in this agreement, or any amendments or extensions of it at any time after the date of the agreement, if the dealer determines to sell the dealership, the dealer may terminate this agreement by notice to (name of vendor) not less than 30 days before termination, with the termination to be effective the later of the closing date of the dealership sale or 30 days after the termination notice.” Dealers are advised to obtain their own legal counsel about the use of such a clause. Most vendor agreements have been carefully drafted by attorneys for the vendor and include favorable language for the vendors. The vendors will say company policy does not allow for any changes. A dealer’s response to objectionable provisions can be that if the vendor wants your business, some changes must be made. The ultimate decision on objectionable provisions will depend on the negotiating leverage of each party, the size and scope of the transaction, the risk tolerance of each party, and which party is likely to breach the agreement. The following is a checklist that highlights some areas of vendor agreements that need to be considered. Description of parties and effective date. The parties should be identified by their legal names. The effective date of the agreement should be clear. Scope of services or products. This section of the agreement should clearly describe in detail what the vendor is providing. Pricing and payment terms. The pricing and payment terms, including any taxes, should be clearly provided. The due date of payments should be stated. Any late payment penalty should be reasonable. Definitions. Some agreements will include a list of definitions that will affect the terms of the agreement. Any definitions should be carefully reviewed to show how they impact the agreement and to make sure they are consistent with the terms of the agreement. Reference to other documents. Attachments to the agreement must be reviewed. Some agreements will provide a website link that contains part of the agreement which must also be carefully reviewed. A dealer should object to any unfair provision in the agreement that binds the dealer to any changes on the website document whether or not the dealer is aware of or consents to the changes. When possible, it is a good practice to remove references that incorporate documents that are not attached to the vendor agreement, such as agreements on the vendor’s website, and to instead attach those to the vendor agreement so the terms of the entire agreement are clear. Term and termination. The term of the agreement and termination date are very important provisions. 29 California New Car Dealer Quarterly
Vendors want to bind the dealer to as long a term as possible. Dealers who don’t pay attention to these provisions will find themselves locked into a term that is far longer than anticipated. A good position for the dealer is to have an initial term that is as short as possible, with a provision that when the term ends, the agreement is terminated, but if the parties continue with the agreement, it goes on a month-to-month basis and can be terminated by either party on 30 days’ notice. A dealer may want to lock in good pricing for a longer period, but when that period ends, the contract goes monthto-month. The dealer should avoid an evergreen clause discussed above because of the risk of failing to give proper notice that would terminate the agreement and prevent the evergreen term from going into effect. Some agreements allow a party to terminate the agreement for convenience at any time without providing a reason. Representations and warranties. There are usually representations and warranties in vendor agreements whereby each party states that certain matters are true. These create claims against a party if any representations are inaccurate or are breached. The scope and language of the representations are determined by the nature of the agreement, and the dealer should carefully review its representations and warranties to ensure they are true, accurate and reasonable. Compliance with laws. Every vendor agreement should have a compliance with laws section that provides that the vendor will always comply with all federal, state, local laws, ordinances and regulations applicable to the agreement and the vendor’s business. Indemnification. Vendor agreements should have an indemnity provision which is an agreement to hold the other party to the agreement harmless from certain costs, expenses and damages. It is a risk-shifting tool that can be drafted to cover liability for third-party claims and direct claims of one party against the other. Indemnity clauses should protect both parties to the agreement and should cover all losses of the indemnified party, including attorney and expert witness fees. Vendors typically draft indemnity provisions to be one-sided in the vendor’s favor. Moreover, it is a common practice for vendors to limit their liability under any indemnification they offer as discussed below, so indemnification provisions need to be read in concert with limitation on liability provisions. Limitation on damages. Vendor agreements presented to dealers will almost always have a provision that severely limits the amount of damages that can be claimed against the vendor if the vendor breaches the agreement. It is not unusual for the limitation clause to state that the vendor will not be liable for any indirect, punitive, incidental, special or consequential damages. In addition, some agreements further provide that any damages suffered by the dealer will not exceed the amount paid to the vendor by the dealer over a defined time period, or some similar unreasonable limitation. In responding to these types of limitations, the dealer should consider what damages would occur if there were a breach and then negotiate a provision that would compensate the dealer for those damages. Damages because of a breach can include lost profits and ideally the limitation clause should not exclude those damages. Negligence, gross negligence and willful misconduct. Vendor agreements will sometimes state that the vendor is not liable for any negligence of the vendor, but rather that the vendor is only liable for conduct described as gross negligence or willful misconduct. This language might be found in the sections of the agreement regarding indemnification, the representations or in some other place. Ordinary negligence is a violation of a reasonable standard of care. Gross negligence is a departure from the reasonable standard and requires conduct which is blatant and reckless. Vendors should be liable for their ordinary negligence, not just liability for gross negligence or willful misconduct. Liquidated damages. Some agreements have a liquidated damages clause. Liquidated damages are a fixed dollar amount a party breaching the agreement owes to the other party. Parties sometimes negotiate an amount of liquidated damages where it is difficult to estimate what damages a party would suffer if there were a breach. In some instances, liquidated damages can work if the parties make a reasonable attempt to determine the amount that would compensate a party for a breach of the agreement. Force majeure. Force majeure is a French term that literally means “greater force.” It relieves parties to the agreement from liability under the agreement due to events beyond their control, sometimes called “acts of God” such as natural disasters, war, pandemics, and the like. A force 30 California New Car Dealer Quarterly
majeure clause is a standard contract provision and should clearly define the events that are considered force majeure. Insurance. If the agreement provides for vendor services which could cause some type of injury or damage, there should be a provision requiring the vendor to provide proof of insurance to cover any liabilities the vendor may have to the dealership and naming the dealership as an additional insured. Audit rights. There may be a need for a section in some agreements allowing the dealer to audit the vendor’s services. These rights can include access to books, records and other items to verify the vendor’s compliance with the agreement. Confidentiality and privacy. If confidential matters must be disclosed in certain vendor agreements, it is important to have a confidentiality clause. The clause should describe what is confidential, specify the obligations of the vendor regarding the confidential information, and how the information will be returned to the dealer when the agreement terminates. Many vendors give themselves the right to use customer data for their own purposes. Dealers should resist provisions that allow this. The agreement should ensure that the vendor will comply with all customer data privacy requirements. Notices. There should be a notice section in the agreement stating to whom and where notices are to be sent and the way they are to be sent. Governing law and jurisdiction. Many vendor agreements require that if there are any legal disputes over the agreement, the law of the state chosen by the vendor applies and that disputes must be litigated in that same state. This language should be resisted. If a business chooses to do business in California, California law should apply to any dispute and the matter should be litigated in the county where the dealer does business. Entire agreement. Every agreement should have an “entire agreement” clause. This is a clause that basically states there are no other agreements between the parties other than those stated in the agreement. It is also known as a “merger” or “integration” clause. Dispute resolution. Every agreement should address how disputes under the agreement will be resolved. This is usually done by court litigation, mediation or arbitration. It is usually best to have a clause that provides that the prevailing party in any legal action will recover attorney and expert witness fees spent pursuing or defending the action. If the agreement requires arbitration of disputes, it is good to have a provision that the arbitrator is bound to follow the law in making decisions because, for example, in California arbitrators are not required to follow the law and can apply their own sense of justice in their decisions. California also has a method of dispute resolution called “judicial reference” which is akin to a private court action that proceeds in the same manner as a court proceeding and is often presided over by a retired judge. Judicial reference requires that the hearing officer follow the law. It also allows an appeal of the decision. Counterparts. There should be a provision allowing the agreement to be signed in counterparts (signatures not all on the same page) and that copies of the signed agreement will be treated as originals for all purposes. Signatures. The signature area of the agreement should include the legal name of the party, the signature of the person signing on behalf of the party, and the printed name and title of the person signing. The signor should not sign as an individual unless that individual has agreed to be personally responsible for obligations under the agreement. Attachments and exhibits. Ensure that all attachments and exhibits referred to in the agreement are physically attached to it. Manning, Leaver, Bruder & Berberich LLP is a Los Angeles law firm that practices throughout California and has been in existence for over 100 years. It has a strong automobile dealer practice covering all areas related to the automobile dealer industry, including dealership buy-sells, real estate transactions, business and consumer litigation, regulatory compliance, dealer association law and franchise law. See www.manningleaver.com for more information and areas of practice. Nothing in this article may be considered as legal advice. Contact legal counsel for legal advice. 31 California New Car Dealer Quarterly
32 California New Car Dealer Quarterly
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California Auto Outlook Comprehensive Information on the California Vehicle Market Volume 20, Number 2 Released April 2024 Covering First Quarter 2024 TM Publication Sponsored By: California New Light Vehicle Registrations Predicted to Exceed 1.8 Million Units in 2024 TWO YEAR PERSPECTIVE Historical Data sourced from Experian Automotive. *2024 forecast by Auto Outlook. Historical figures have been updated since the previous release. California Annual New Light Vehicle Registrations - 2009 thru 2024 ANNUAL TRENDS QUARTERLY RESULTS California Quarterly New Light Vehicle Registrations Percent Change vs. Year Earlier Data sourced from Experian Automotive. 0.96 1.08 1.19 1.49 1.66 1.78 1.99 2.03 2.03 1.99 1.89 1.60 1.77 1.59 1.77 1.82 0.0 0.5 1.0 1.5 2.0 2.5 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24* New vehicle regs. (millions) Years California U.S. YTD '23 YTD '24 Change YTD '23 YTD '24 Change Registrations TOTAL 428,561 431,638 0.7% 3,430,826 3,759,144 9.6% Car 133,847 119,731 -10.5% 703,301 711,455 1.2% Light Truck 294,714 311,907 5.8% 2,727,525 3,047,689 11.7% Domestic 159,557 147,302 -7.7% 1,517,904 1,579,928 4.1% European 65,855 67,022 1.8% 355,501 390,821 9.9% Japanese 162,787 179,388 10.2% 1,186,819 1,416,015 19.3% Korean 40,362 37,926 -6.0% 370,602 372,380 0.5% Market Share Car 31.2 27.7 -3.5 20.5 18.9 -1.6 Light Truck 68.8 72.3 3.5 79.5 81.1 1.6 Domestic 37.2 34.1 -3.1 44.2 42.0 -2.2 European 15.4 15.5 0.1 10.4 10.4 0.0 Japanese 38.1 41.6 3.5 34.6 37.7 3.1 Korean 9.4 8.8 -0.6 10.8 9.9 -0.9 Data sourced from Experian Automotive. 11.4% 6.0% 15.9% 20.1% 5.5% 0.7% 4Q '22 vs. 4Q '21 1Q '23 vs. 1Q '22 2Q '23 vs. 2Q '22 3Q '23 vs. 3Q '22 4Q '23 vs. 4Q '22 1Q '24 vs. 1Q '23 % change vs. year earlier California and U.S New Light Vehicle Registrations YTD ‘23 and YTD ‘24 thru March New vehicle registrations in California are predicted to exceed 1.8 million units this year and increase 2.7 percent from 2023. The projection is 15% higher than the total in 2022 when the market was significantly impacted by product shortages and is approaching the prepandemic level of 1.89 million units in 2019. Pent-up demand should provide a boost to sales for at least the rest of this year. Elevated interest rates are keeping loan and lease payments high, but rising incentives have stabilized transaction prices. New light vehicle registrations in California increased by less than one percent during the first three months of this year versus year earlier, below the 9.6 percent improvement in the Nation. Weaker results in California were partially attributable to relatively strong sales in the First Quarter of 2023. California domestic brand registrations (which include Tesla) declined 7.7 percent so far this year. Large increases for Honda and Toyota contributed to the 10.2 percent improvement in Japanese brand registrations. New vehicle registrations in the state increased for the sixth consecutive quarter in 1Q ‘23. As mentioned in the previous release, the pace of improvement is expected to ease in 2024, with percentage increases likely to remain positive, but in the single digits. 35 California New Car Dealer Quarterly
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