Pub. 1 2019-2020 Issue 3

N ow that it appears that we are reaching some sem- blance of the new normal, let’s look at some of the critical legal issues facing franchised motor vehicle dealers over the remainder of 2020. PPP Loan Forgiveness After months of revisions and clarifi - cations to the Paycheck Protection Program rules for eligibility and forgiveness of loans under the Pro- gram, we now have a much clearer picture. Dealers who received loans of less than $2,000,000 (when factoring in applicable affiliation rules) can now rest easy that the Small Business Administration does not plan to audit you to determine if you were eligible for the loan and, unless there is some concern with your loan forgiveness application, does not plan to audit your use and forgiveness of loan proceeds. For dealers that received loans of greater than $2,000,000, it would be prudent to coordinate with your accountant and legal counsel to best position your business for the expected SBA audit. Among other things, this should involve adequately documenting your need for the loan at the time of the PPP loan application based upon a lack of easy and quick access to capital markets as well as the economic uncertainties faced at that time. The SBA has recently created the portal by which the PPP lenders can submit approval (or denials) of forgiveness applications. Al- though the vast majority of banks have said they are not ready to accept forgiveness applications from businesses yet, dealers should be working with their accountants and legal counsel to complete the forgiveness application and gather the required supporting documents which are required to be sent with the forgiveness application. Changes to Vehicle Distribution System for Electric Vehicles Over the past several months there has been a wave of electric vehicle agreements sent to dealers from their manufacturers. These include the Battery Electric Vehicle Agree- ment from Volkswagen and Audi as well as Electric Vehicle Participation Agreements from the Chevrolet, Buick and GMC divisions of General Motors. More of these agreements are expected from other manu- facturers as they get closer to the launch of their all electric vehicles. Dealers should pay close attention to the terms of these EV agree- ments. Unlike with past new model launches, the OEMs seem to want to obtain a commitment from dealers in advance of the vehicle launch that the dealership will meet a long list of requirements to sell and service the EVs, to include any requirements which may be added in the future. If the dealer does not comply with these require- ments, the dealer agrees within the EV agreement that it will not be eligible to receive EVs for sale. In our view, this is contrary to the process intended by Florida law. Florida motor vehicle franchise laws provide that an OEM must provide a fair number and mix of all models to dealers with a franchise for that vehicle brand. Florida law provides further than a dealer must comply with “reasonable” sales and ser- vice requirements associated with the vehicles. The EV Agreements appear to attempt to take away a dealer’s right to argue that a sale or service requirement associated with an EV model is unreasonable. Some of the OEMs like Volvo, Volkswagen and Audi, have in- stituted a big change in the way customers order vehicles. His- torically, as the retail agent in the chain of commerce, the dealer is the party that interacts with the customer, submits the customer’s vehicle order and handles the entire transaction with the customer. This is why dealers are asked to invest in such large and plush facilities, to have a certain amount of sales offices, floor space, etc. – all to attract customers to the dealership to purchase a vehicle. Now, as if there is something fundamentally different about vehicles powered by an electric motor as versus an internal combustion engine, these OEMs have decided that customers must order their vehicles through an online vendor set up by the OEM. Deposits are placed through the online vendor and the customer is asked to choose the dealership at which he or she would like to complete the transaction and pick up the vehicle. This process places more separation between the retail dealer and the customer and brings the customer closer to viewing the OEM as the party with which they are dealing. What will come next, a slate of finance and insurance options offered by the OEM at the time a vehicle is ordered? Will OEMs set a fixed price for vehicles in the future so that no negotiations over price between the customer and dealer will be necessary (i.e. Tes- la)? Is the OEM’s aim to ultimately turn dealers into glorified vehicle LEGAL ISSUES FACING FRANCHISED MOTOR VEHICLE DEALERS By Richard Sox, Esq. 14 Pub Yr 1 2019-2020 | Issue 3