On March 23, 2009, Governor Timothy M. Kaine signed Senate Bill 1410, which amends Virginia’s motor vehicle dealer act to provide substantially more protections for dealers with respect to terminations, add points and relocations, warranty reimbursement and charge-backs, and exclusivity requirements. The legislation became effective upon the Governor’s signature. A copy of the newly enacted provisions is available here.

Terminations

The most substantial changes to manufacturers’ obligations upon termination of a dealer is when the manufacturer decides to eliminate a line-make. In addition to ordinary buy-back obligations as outlined in the Virginia Code Ann. § 46.2-1569(5b), the manufacturer must also pay the equivalent of the fair market value for the franchise for the line-make. Fair market value is limited to the goodwill value of the dealer’s franchise for that line-make in the dealer’s relevant market area. That value is to be determined as of one of three dates: (i) the date the manufacturer announces the action that results in termination, cancellation, or nonrenewal, (ii) the date the action that resulted in termination, cancellation, or nonrenewal first becomes general knowledge, or (iii) the day 12 months prior to the date on which the notice of termination, cancellation, or nonrenewal is issued. The term “general knowledge” is not defined.

Also, in determining the fair market value for the franchise, if the dealer sells other line-makes from the dealership facilities, the manufacturer must also pay the dealer for the terminated line-make’s contribution to the payment of rent or to cover the obligation for the fair rental value. The manufacturer is obligated to provide this compensation for either the unexpired term of the lease or three years’ rent, whichever is less, or if the dealer owns the facilities, for three years.

If the dealer does not sell other line-makes at the same dealership facilities, the manufacturer must also provide facilities assistance. For a dealer that leases the facilities, the manufacturer must pay the sum equivalent to the rent for the unexpired term of the lease or three years’ rent, whichever is less. For a dealer that owns the facility, the manufacturer must pay the dealer a sum equivalent to the reasonable rental value of the facilities for three years. To be entitled to facilities assistance, the dealer is obligated to attempt to mitigate damages by listing the facilities for lease or sublease with a licensed real estate agent within 30 days after the effective date of the termination and thereafter reasonably cooperate with the real estate agent. If the dealer is able to lease or sublease the facilities in such a way that is consistent with zoning requirements to preserve the right to sell motor vehicles from the facilities and the terms of the lease, the dealer is obligated to reimburse the manufacturer from net revenue up to the total amount of the facilities assistance payments the dealer has received. The statute does not define what is considered “net revenue” to the dealer.

In addition to new restrictions upon the elimination of a line-make, Senate Bill 1410 also expands manufacturers’ buy-back obligations upon terminations generally. Instead of requiring manufacturers to repurchase new vehicles of the current or prior model year, Virginia Code Ann. § 46.2-1569(5b)(1) has now been amended to require repurchase of any new motor vehicle acquired from the manufacturer or another dealer in the ordinary course of business within 18 months of termination, without any restriction on the model year.

Also, Virginia Code Ann. § 46.2-1569(5) has been clarified to explicitly place the burden on the manufacturer to show by a preponderance of the evidence that there is good cause for termination.

Add Points and Relocations

Senate Bill 1410 amends Virginia Code Ann. § 46.2-1569(4) to place the burden on the manufacturer to show by a preponderance of the evidence that after the add point or relocation, the relevant market area will support all of the dealers in that line-make in the relevant market area. Previously, Section 46.2-1569(4) only required that there be “reasonable evidence” that the “market will support all of the dealers of that line-make in the relevant market area” without specifying which party had the burden of proof.

Warranty Reimbursement and Charge-Backs

Senate Bill 1410 amends Virginia Code Ann. § 46.2-1571(A)(6) to make it illegal for manufacturers to deny a warranty claim or reduce the amount of compensation for warranty repairs that are considered “add-ons” – when the dealer discovers the condition requiring repair during the course of a separate repair requested by the customer.

Also, Senate Bill 1410 shifts the burden of proof when a manufacturer seeks to charge back sales incentives or otherwise issue charges for vehicles that are sold to a purchaser other than a licensed motor vehicle dealer and are subsequently exported or resold. The prior version of Section 46.2-1571(A)(6) had placed the burden on the dealer to show that the sale was made in good faith and without knowledge of the intent to export or resell the vehicle. Section 46.2-1571(A)(6) has now been amended to place the burden on the manufacturer to show by a preponderance of the evidence that the dealer should have known and did not exercise due diligence in discovering the purchaser’s intention to export or resell the vehicle.

Exclusivity Requirements

Senate Bill 1410 clarifies Virginia Code Ann. § 46.2-1569(7b), which previously prohibited manufacturers from requiring or otherwise coercing a dealer to underutilize the dealer’s facilities. Section 46.2-1569(7b), as amended, explicitly prohibits manufacturers from “requiring or otherwise coercing a dealer to exclude or remove from the dealer’s facilities operations for selling or servicing of a line-make of vehicles for which the dealer has a franchise agreement to utilize the facilities.”