Be Cautious Of Vehicle Sales Which Could Be For Export

Team VADA eViews
The Digital Newsletter of Your Virginia Automobile Dealers Association
May - June 2008
 
 
  • Due to the weakness of the US Dollar foreign brokers are aggressively trying to buy US vehicles
  • Most franchise agreements include limitations on the sale of vehicles for imports
  • Protections exist under Virginia law for dealers who take proper steps to avoid selling vehicles which will be exported
 
Given the weakness of the American dollar, brokers are aggressively trying to buy vehicles in the United States to ship overseas. Doing business with brokers is always an activity that must be approached carefully. For example, when selling used cars to such people, one must be very careful to be paid in full before releasing the vehicle. Otherwise the dealer is likely to wind up looking for a car that is already “swimming”.
 
Selling new vehicles to brokers who may export them involves even more serious problems. Dealers are regularly dealing with these problems today by manufacturers who are enforcing provisions in dealer sales and service agreements prohibiting sale of new vehicles for export.
Manufacturers and distributors who do business in the United States have their own contractual arrangements that provide where they may distribute cars. In some instances, they will be limited to distribution in North America or the United States. There are then other licensing agreements with foreign distributors which may give them rights in other countries or on other continents. 
 
Because of the limitations on the manufacturers and distributors, they have also limited dealers to the territories in which they may sell. For example, in the standard provisions of the General Motors Dealer Sales and Service Agreement, General Motors makes very clear that “a dealer located in the United States is authorized to sell new Motor Vehicles only to customers located in the United States. Dealer agrees that it will not sell new Motor Vehicles for resale or principal use outside of the United States.” Dealer agreements with most other manufacturers have similar limitations.
 
Dealers and their sales personnel should understand that intentionally selling new vehicles for export can have serious consequences. It may be a breach of the dealer agreement. In many cases, the manufacturer or distributor may seek to penalize the dealer by refusing payment of holdback, incentives, and the like, and disallowing vehicle counts for contest and allocation purposes.
 
Based on an amendment to the Virginia Code that was enacted several years ago, there is protection for Virginia dealers who unknowingly sell vehicles that subsequently get exported. Virginia Code 46.2 1571(A)(6) states as follows:
 
A dealer shall not be charged back or otherwise liable for sales incentives or charges related to a motor vehicle sold by the dealer to a purchaser other than a licensed, franchised motor vehicle dealer and subsequently exported or resold, provided the dealer can demonstrate that he exercised due diligence and that the sale was made in good faith and without knowledge of the purchaser’s intention to export or resell the motor vehicle.
 
Please carefully note that the protection for Virginia dealers is available only to those who can show that they made a sale in good faith and without knowledge of the intention to export. If you are ever called to show that with respect to vehicles being sold by your dealership, will you be able to show it? Here are some things that manufacturers look for:
 

  • Did the dealership title the vehicle or did it assign the CO? 

     

  • Who bought the vehicle? Was it an individual who provided a residence address or was it a company that has a business in which the vehicles can be used? Or was it a company, especially an out of state company, which appears to be a broker? 

     

  • How were the vehicles paid for? If they were financed or leased, or if a company that appears to be a user paid in company funds, which would be clear evidence the vehicles were sold for use. However, if one company is purchasing multiple vehicles, especially if different company checks are being used, that is a sign of trouble.

     

  • Has the dealership done other business with the purchaser – especially wholesaling vehicles or selling used vehicles for export? 

     

  • Is the buyer on a list of exporters that has been circulated by the manufacturer?
 
 
We are not saying stop all sales that may have indications that vehicles are being exported. We are saying that if there are indications you should ask more questions so that you can show the dealership was diligent in forming its belief that vehicles would not be exported.
 
Dealers who believe they have been improperly charged for exports can challenge these chargebacks through the manufacturers’ internal appeal processes and then by appeal to the Department of Motor Vehicles. In the event a dealer exercises its rights, Virginia Code provides protection so that a dealer will not be forced to pay a chargeback until the process is complete. Virginia Code 46.2-1571(F) provides in pertinent part:
 
A manufacturer, factory branch, distributor, or distributor branch may not collect chargebacks, fully or in part, either through direct payment or by charge to the dealer’s account, for warranty parts or service compensation (including service incentives) or for sales incentives or other sales compensation until 40 days following final notice of the amount charged to the dealer following all internal processes of the manufacturer, factory, factory branch, distributor, or distributor branch. Within 30 days following receipt of such final notice, the dealer may petition the Commissioner, in writing, for a hearing. If a dealer requests such a hearing, the manufacturer, factory branch, distributor, or distributor branch may not collect the chargeback, fully or in part, either through direct payment or by charge to the dealer’s account, until the completion of the hearing and a final decision of the Commissioner concerning the validity of the chargeback. 
 
However, to take advantage of the rights provided by the Virginia Code, dealers must carefully train employees that exports are not permitted, even in these difficult times. 
 
 
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