Dealers regularly receive notifications from manufacturers of their area of primary sales responsibility. Whether the area is denominated as the primary market area, the area of geographical sales and service advantage, or some other term, many dealers disregard these notifications. These dealers generally feel there is nothing they can do about the size and shape of the area of primary sales responsibility designed by the manufacturers. This is not true.
A dealer who feels its area is incorrectly designed has the ability to challenge the action by the manufacturer. Under Virginia law, performance standards established by a manufacturer must be fair and reasonable:
§ 46.2-1572.4. Manufacturer or distributor use of performance standards.
Any performance standard or program that is used by a manufacturer or distributor for measuring dealership performance and may have a material effect on a dealer, and the application of any such standard or program by a manufacturer or distributor, shall be fair, reasonable and equitable, and if based upon a survey, shall be based upon a statistically valid sample. Upon the request of any dealer, a manufacturer or distributor shall disclose in writing to the dealer a description of how a performance standard or program is designed and all relevant information used in the application of the performance standard or program to that dealer.
Sales effectiveness is a performance standard. The most critical factor in any sales effectiveness calculation is the geographic area for which the dealer is responsible for sales. Whatever measure is used by the manufacturer, the definition of the area in which the dealer is supposed to have a sales advantage is critical. If that area is too large or too small then the calculations used by the franchisors’ statisticians to measure sales effectiveness will be flawed.
What should you do?
Review your PMA. What is your primary market area as defined by the franchisor? You have probably been given a map which shows your primary market area based upon census tracts or zip codes. For franchisors that do their calculations based on market share in a metro area, you probably have been given that calculation based upon assumptions drawn from the location of your dealership. Do you have an advantage in every geographic area assigned to you? Are there areas assigned to you that are remote?
Consider geographic and demographic factors. Are there geographic and demographic factors that impact your PMA? Are you responsible for geographic areas that are separated by natural boundaries such as a river or a mountain? Are you responsible for areas that may appear to be proximate to your dealership but that are not appropriately yours because of traffic patterns? Are you responsible for areas where demographic factors may not favor you, such as a college town with buyers who prefer import vehicles if you are a domestic dealer, or a town with a supplier to a domestic manufacturer if you are an import dealer? Understand the demographic and geographic issues in your PMA and seek appropriate adjustments if those issues cut against your ability to sell vehicles in the areas assigned.
Where are your sales? You probably receive sales distribution maps from your manufacturer showing where you sell vehicles, or you may make your own map. Review that map carefully. Do you have clusters of sales in some areas and not in others? Investigate that. If it is the result of some flaw in your marketing efforts, you can change that. However, if it is the result of some issue in the area in which you are not achieving sales, investigate whether you should seek a change to your PMA.
Review notifications of change. Manufacturers regularly provide notifications of change concerning the dealer’s primary market area. What does that notification do to the area in which you are responsible? Do you have advantage in newly assigned areas? If you have areas removed in which you have advantage, why were they removed? Is it part of the manufacturer’s process of potentially creating a new open point? Understand the reasons for the change and challenge any change that is contrary to your interests.
Challenge a misdefined PMA. If you have areas for which you believe you should not be responsible, challenge the PMA with your franchisor. If the factory fails to take action, a dealer can use available internal procedures to challenge the area of sales responsibility. For example, General Motors and Ford both have internal procedures whereby these determinations can be challenged – in the case of a Ford dealer before the Ford Policy Board and in the case of General Motors through mediation. If this step is unavailing, the next step is a complaint to the state. If a complaint is filed with the Virginia DMV to challenge the action of the manufacturer, then the state will hold a hearing.
One word of warning: If a dealer gets to the point where it is challenging its assigned area of sales responsibility either through the franchisor’s internal procedures or before the state, expert evidence will probably be necessary. This evidence can be expensive to develop. However, it is important to note that if one does not meet minimum sales responsibility requirements, the manufacturer may have a basis to impose detriments on a dealer, including attempting to terminate. The money spent on realigning an area of sales responsibility is far less than the money that may be spent in a challenge to prevent termination of the dealership.