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Wednesday, June 12, 2024 | Back issues
Courthouse News Service Courthouse News Service

Franchisee Calls BMW a Big Bully

MINNEAPOLIS (CN) - A car dealer says BMW of North America bullies its franchisees in a so-called "Added Value Program," coercing dealers into doing things not required by their franchise agreements, and using the dealers' own money to do it.

Sears Imported Autos claims in its federal complaint: "This dispute arises from BMW's application of what it refers to as its Added Value Program (hereinafter 'the Program'). Under the Program, the net price BMW dealers ultimately pay for a BMW motor vehicle is dependent upon BMW's subjective application of Program criteria to the dealer.

"Prior to implementing the Program, BMW set dealer prices at 85% of the Manufacturer's Suggested Retail Price ('MSRP'), affording dealers a standard trading margin of 15% of MSRP.

"At or about the time it unilaterally adopted and implemented the Program, BMW raised its dealer pricing to 90% of MSRP, reducing the dealers' standard trading margin by 5% of MSRP, an amount equal to the maximum of per-vehicle rebates available under the Program.

"Program criteria fall into two categories: 'Brand Value' and 'Customer Satisfaction.' Under the Program, BMW assesses the extent to which each dealer satisfies each set of criteria, and based upon that evaluation, rebates up to 5% of the MSRP of each vehicle purchased by the dealer.

"Any dealer who is not able to obtain the full rebate of 5% of MSRP per vehicle under the Program (or is subject to delays in receipt of the rebate) operates under a substantial competitive disadvantage against BMW dealers in the same market when selling new BMW motor vehicles and obtaining related service business.

"BMW's pricing changes were intended to and did:

"a. reduce the historic trading margin that had been uniformly and proportionately available to all BMWs to create a pool of funds; and

"b. use these available funds as leverage to extract concessions from dealers and/or coerce dealers into action desired by BMW, but that BMW may not require under the Franchise Agreement and applicable law.

"Stripped of its trappings, the Program operates as a device whereby BMW unilaterally and often discriminatorily imposes on a dealer capital, operational, facilities renovation, and other requirements and restrictions that applicable law and contract do not permit.

"In effect, BMW uses a dealer's own money as leverage to enforce the illegal restrictions, requiring dealers to pay 5% of MSRP more than market value for each vehicle purchase and withholding those excess payments if and to the extent a dealer does not or cannot comply with BMW's requirements.

"Implementation and application of the Program violates multiple provisions of the

BMW Franchise Agreement in that it: (a) precludes a dealer's opportunity to earn a reasonable return on investment by reducing its ability to acquire and keep satisfied customers; (b) violates BMW's pledge to allocate its vehicles in a fair and equitable manner among its dealer body which by definition contemplates evenhanded pricing and allocation; (c) violates the termination provisions of the Franchise Agreement in that the loss of Program payments amounts to the constructive termination of the Franchise Agreement; and (d) imposes unreasonable facility demands on dealers in violation of BMW's pledge to forego the imposition of such demands."

Sears demands treble damages for breach of contract, violation of the Robinson-Patman Act and antitrust violations. It is represented in by Robert DeMay with Leonard, Street & Deinard.

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