It’s good to see that Pennsylvania farm equipment dealers are at least trying to fight back against the new dealer agreements that OEMs are pushing. According to a Dec. 5 article in Lancaster Farming, “Pennsylvania farm machinery dealers are renewing their efforts to prohibit manufacturer practices they say are unfair.” (Click here for the full story.)
“This will put (dealers) in the same category as our automobile dealers,” said Rep. Will Tallman, R-New Oxford, the prime sponsor of House Bill 1553.
While the article cites comments from Deere, Case IH and New Holland spokespeople, the only remarks coming from the dealers’ side of the story are from Tim Wentz, field director at the Northeast Equipment Dealers Assn. and a dealer specializing in used equipment and parts. “Other dealers contacted for the story were not available or did not return a call,” according to Philip Gruber, who wrote the article.
This is pretty much what we’re hearing from dealers, which means we’re not hearing much. This is a bit surprising considering how onerous some of the stipulations in the recently proposed CNH dealer agreement appear to be. (See below.)
At the same time, I can’t say that I blame individual dealers for not speaking out against these one-sided agreements. We’ve seen how they’ve been quietly punished by their manufacturer for expressing a concern or offering an opinion about their manufacturers’ intention on topics like these. While the manufacturers may call their dealers “independent businesses,” the only independence they really have is to agree with the manufacturer and take the deal or get out of the business.
But the fact of the matter is someone needs to say something. I think this necessarily needs to fall on the state associations that represent dealers, like the Northeast Equipment Dealers Assn. is doing in Pennsylvania. Effective action was taken earlier in New Hampshire as well.
One dealer who we spoke with when the new CNH agreement was originally discussed said, 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 said.
That being the case, it’s clear that in states with not-so-strong dealer laws is where the effort will be needed most, which means the state and regional associations need to get with their friends in their state assemblies. But the impetus has to come from the member dealers. Like almost all of legislative efforts, action starts at the grass roots.
The following is excerpted from the September 2015 newsletter of Ag Equipment Intelligence. It was also covered in Ag Equipment Intelligence’s Sept. 11 “On the Record” broadcast.
Lance Formwalt and Dave Shay of Seigfreid Bingham, the legal counsel that represents Western Equipment Dealers Assn. and the Equipment Dealers Assn.’s Industry Relations Task Force, 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 may give CNH the right to require dealers to sign any new form of dealer agreement introduced in the future. “This is important because its effect is to make the dealer choose between signing the new agreement or be faced with termination — even in states or provinces where good cause is 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.