The following article first appeared in the September 2015 newsletter of Ag Equipment Intelligence.
As Ag Equipment Intelligence reported in the Sept. 11 “On the Record” broadcast, new dealer contracts are on the way from CNH, with the intent to get all of its dealers on the revised agreements by the end of 2016.
CNH announced a new agreement in July for each of its dealer networks — Case IH Agriculture and Case Construction Equipment — that dealers say gives the OEM a lot more teeth in the agreements with dealers carrying the CNH brands.
Lance Formwalt and Dave Shay of Seigfreid Bingham, the legal counsel that represents Western Equipment Dealers Assn. and the NAEDA Industry Relations Task Force, received notice to review the agreement and provided feedback but noted the new agreement represents several significant departures from current contracts. Because Case dealers have not signed new forms of agreements since the mid-1990s, Formwalt and Shay say the changes are more dramatic for Case ag and construction dealers than for New Holland dealers.
Seigfreid Bingham’s Formwalt and Shay issued a memo on Aug. 10 to CNH dealers that summarized the top changes appearing in the new dealer agreement. Following is a synopsis of 4 items they say will most affect farm equipment dealers carrying the CNH brands.
1. Future Replacement of Dealer Agreements — A new provision maygive CNH the right to require dealersto sign any new form of dealeragreement introduced in the future.“This is important because its effectis to make the dealer choose betweensigning the new agreement or befaced with termination — even instates or provinces where good causeis required,” say Formwalt and Shay.
2. Separation of Facilities/Personnel — CNH is reserving the right to require separate facilities and/or personnel if a dealer is engaged with another business that requires a “considerable commitment” of a dealer’s resources or efforts. “We believe that CNH may attempt to use this provision in connection with dealers that carry product lines that are viewed as competitive with Case or New Holland,” Formwalt and Shay say. CNH also included language about display area size requirements for its brands relevant to other products in the dealership.
3. Removal of Locations from Dealer Agreements & Removal of Product Lines — Case IH and Case Construction want to add the ability to terminate a single branch location (vs. the entire agreement) as remedy for dealer violations. It is significant “because dealers may not be able to use the dealer protection laws to protect against termination,” say Formwalt and Shay, because dealer protection laws address the entire dealer agreement, not specific locations. The remedy already exists in the New Holland contract.
Additionally, each of the new agreements gives the OEM the authority to remove CNH products from the list of equipment a dealer is authorized to sell. “This is especially concerning since this remedy can be used even if a dealer is complying with the terms of the agreement, including market share,” they say.
4. Minimum Ordering Requirements — The new agreement requires dealers to maintain an inventory “at the level deemed necessary to meet dealer’s equipment sales obligations.” Formwalt and Shay say this standard “puts significantly more discretion in the hands of CNH than in the current agreement where the dealer’s inventory must be ‘adequate in relation to the sales and service potential.’” CNH is also reserving the right to require dealers to order inventory in minimum specified quantities.
One dealer Ag Equipment Intelligence contacted, who had not yet looked at the contract, said that state law is paramount when it comes to termination language and, thus, the effect of contracts will vary depending on locations. In states with strong dealer protection laws, the concern is not as great, he says.
With regard to enforcement of the new agreement (which CNH wants to get all dealers onto by December of 2016), Formwalt and Shay say, “In general, if you request permission from CNH to add territory, product lines or locations, CNH will likely be able to require you to sign the new dealer agreement as a condition of that approval. If a dealer requests permission from CNH to approve an ownership transfer (including transfers between existing owners or for a sale/merger transaction), CNH’s ability to condition the approval of the transfer on signing a new dealer agreement may be limited by the dealer protection law. Formwalt and Shay are encouraging affected dealers to contact their state and regional dealer associations with questions.
Ag Equipment Intelligencelearned that the Case IH Dealer Advisory Board, chaired by Steve Hunt, H&R Agri-Power, a Case IH group doing business in 5 states, would be reviewing the issue further later this month.