Pub. 1 2021 Issue 2

25 KENTUCKY AUTO DEALER CONTINUED ON PAGE 26 Each month, KADA’s legal counsel, Ron Smith and Sarah Bishop from Stoll Keenon Ogden PLLC, will offer a look at applicable Kentucky statutes and their impact on Kentucky dealers. This month, their focus is on Kentucky’s dealer incentive statute. THE PROBLEM: As dealers know, over the past few years most manufacturers have reduced gross profit margins on their vehicles, sometimes making it unreasonably difficult for dealers to actually make any money on new vehicle sales. In order to influence dealer behavior, manufacturers have instituted various “conditional” “incentive” programs requiring dealers to meet a smorgasbord of requirements in order to “earn” gross profit margin incentives. Some of these involve certified training, customer services and the like. However, depending on the dealers’ markets, some can be impossible for the dealer to justify in light of the expenses associated therewith (for example: separation of an operation franchise from a previously manufacturer-approved dualed facility; constructing a new building; expensive showroom reconstruction; and requirements for expensive equipment). In one recent case, the distributor approved a dealer’s upgraded facility. Three months later, the manufacturer changed the definition of ‘units in operation,’ declared the dealer’s facility noncompliant and took away a 2% facility compliant contribution contained in the manufacturer’s incentive program. The dealer successfully contested that issue and the 2% has been restored and will run through 2023. Often, a dealer’s market must drive his or her decision. A recent example is the Lincoln Vitrine Program (Vitrine is French for “glass display case”). Previously approved dual Ford- Lincoln dealerships theoretically will be required to separate and at a minimum, build a new Lincoln showroom along with a customer waiting area, etc. Most smaller Ford-Lincoln dealerships simply could not afford or justify that expense, considering their normal sale of a few cars per month. Accordingly, those dealers were denied the percentage incentive available to larger dealers in the program. In short, these incentives are functionally unavailable to small-market dealers, resulting in less gross profit per vehicle available to the dealer to generate sales. A few years ago, Hyundai/Genesis, after being rebuffed in their effort to separate Genesis from Hyundai, as a result of dealer pressure, litigation and administrative actions, allowed continued combination of the franchises. Recently, however, a program involving incentive payments and facility requirements for Hyundai standalones and Genesis standalones are slowly accomplishing what Hyundai/Genesis originally intended: the elimination of smaller market Genesis dealers unless the dealer constructs a building. All of these incentive programs are short-term programs. Ford can eliminate the Lincoln program annually in the Hyundai/Genesis program is also short-lived. Dealers are ultimately forced to decide whether to make an investment that is economically unfeasible, most of the time in both the short-term and long-term. A potential remedy is found in KRS 190.070(3)(a), which makes it illegal for a manufacturer or distributor to discriminate in favor of one dealer against another dealer holding a franchise for the