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Auto Dealerships: Franchising in a Heavily Regulated Industry

Automobile dealerships were the first type of legally recognized and regulated franchises. In fact, in 1937 Wisconsin enacted the first state law protecting car dealers from wrongful termination and non-renewal.

State laws protect auto franchisees

The strong lobbying efforts of car dealers and the National Automobile Dealers Association (NADA) have achieved an impressive set of state laws that protect franchisees from manufacturers in 49 states. Legislation includes:

  • Protection against termination or non-renewal without good cause
  • Protection from encroachment by new dealers into a dealer's existing territory
  • Prohibitions on manufacturer requirements that dealers accept unpopular models or unpopular accessories
  • Protections on the right of the franchisee to transfer the business
  • Provisions ensuring that automobiles are allocated equitably to all dealers, so no dealer gets an oversupply of popular or unpopular cars

Most of this legislation is longstanding. Some states have special tribunals to determine whether manufacturers have violated dealer statutes, while others leave the decisions to courts.

Franchise regulation and the strength of the auto industry

We often hear that increased regulation of franchising will lead to its demise. Whenever states enact legislation, some argue that franchisors will flee those states. The auto industry shows the contrary: virtually every state has extensive regulations, and there is no evidence that it has diminished the strength of the industry.

If you feel that your rights as an auto dealer franchisee have been violated, be sure to discuss your situation with a franchise lawyer.

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