The Secrets Behind Dealership Franchise Law

The Secrets Behind Dealership Franchise Law

My full conversation with Leonard A. Bellavia – Sr. Partner at Bellavia Blatt, PC is now LIVE:

— Automotive franchise laws: why they exist and will they go away?
— Consumer-friendly auto brands
— Dealers’ top legal concerns
— Will Tesla ever franchise? (?!)

How to avoid fraudulent warranty reimbursement – Attorney Len Bellavia

How to avoid fraudulent warranty reimbursement – Attorney Len Bellavia

For years, dealers have been challenged with receiving fair compensation for retail warranty reimbursement. However, nowadays, franchised dealers in all states are protected. On today’s CBT Now, Lenord Bellavia, Founding Partner of Bellavia Blatt,  joins us to break down what this means for the industry.

According to Bellavia, “Dealers should pay attention to the reimbursement rates as it correlates to revenue streams.” But, dealers are front-end centric, meaning they always worry about sales. Therefore, based on how the industry continues to evolve, the fixed operations sector has driven the entire business overhead expeensives. Bellavia says, “This is what dealers call shop absorption, where the back end of the business drives the overhead.” Furthermore, Bellavia believes “Dealers get grossly underpaid for their parts and labor under warranty.”

Reasonable compensation

When sitting down with dealers to outline what they’re leaving on the table, most dealers believe they’re missing out on a few couple of dollars or percentages in labor rates. However, Bellavia asserts, “When translated into real dollars, it’s typically between $200,000 and $300,000 annually in revenue opportunities. However, manufacturers hold dealers to rigorous standards regarding supporting updates and working capital. According to Bellavia, manufacturers set up departments at the OEM level to analyze warranty claims to receive kickbacks, but “Those submissions must be strictly focused on.” He continues, “If dealers submit 100 consecutive repair orders and one isn’t appropriate for the batch, the OEM will reject it and postpone it by a month or two. Which leads to possible lost revenue of several thousand dollars.”

To properly create a submission, Bellavia’s highly skilled team takes 30 to 40 hours in the first step. Then, they have a quality control process that takes an additional ten hours to review possible mistakes that the manufacturers could see. Furthermore, according to Bellavia, “There are state statute exclusions that dealers are unaware of, which include batteries, maintenance, tires, and more that reduce the overall markup.”

All 50 states have legislation defining 150 qualifying repair orders, parts, and labor. Most dealers are aware of the legislation and are taking advantage of it. Still, those unaware of it need to learn they can resubmit a submission repeatedly for labor because retail labor increases annually.

Leonard Bellavia, Esq. on CBT Automotive Network

How Car Dealers Can Structure Their Buy/Sell Deals for Maximum Success — Len Bellavia, Esq.

We know there are plenty of dealership buyers right now, and as we are all aware, it is a seller’s market. Brokers are constantly making inquiries and telling car dealers that they will never be able to get a better price than they can get right now. Today on Inside Automotive, we’re pleased to welcome back Len Bellavia, Esq., Founding Partner of the law firm of Bellavia Blatt PC, also known as DealerLaw.com, who has handled hundreds of dealership buy-sells. Bellavia joins us to share his creative ways of dealing with this topic, which has been on the minds of many dealers lately. Many dealership buyers in the market are private equity groups, family offices, and public companies with bottomless pockets. Every time one of these organizations buys a dealer group, they have to staff it. But with the current staffing challenges, it isn’t easy to find qualified operators. Sellers don’t always stay on after the transaction to consult. In fact, Bellavia believes the buy/sell market is at a “crossroads” because it’s tougher to convince sellers that the value of their dealerships is not the same as it was a year or two ago. There’s a “widening gap” between what buyers are willing to pay and what sellers expect. If you compound that problem with current economic conditions and OEM news, buyers are doing more sophisticated analyses of potential transactions. On the flip side, sellers are experiencing record profitability, and they are tempted to stay on the fence. However, sellers need to have a succession plan in place, says Bellavia. Because blue sky values are so high, qualified general managers are largely getting priced out of the market. They are no longer able to come to the table because dealer principals are paying closer attention to the “big money players.” But if the dealer principal isn’t quite ready to leave the business, the best course of action is to cultivate a young, talented manager and allow them to buy a piece of the dealership. 

Leonard Bellavia Speaks on FixedOpsRoundtable.com

Automakers, Fixed Ops and Electrification

After Dark at the Fixed Ops Roundtable® has a special edition on Wednesday, June 15th at 8 pm Eastern! Ted Ings and Kara Delaine Harris welcome Leonard Bellavia of Bellavia Blatt, PC to discuss the potential evolution of the dealer-franchise model.

Leonard Bellavia, Esq. on CBT Automotive Network

What Legal Protections Do Franchise Dealers Have Against Direct Manufacturer Sales? – Len Bellavia, Esq.

Automakers have made some bold moves concerning electric vehicles, with many franchise dealers wondering if the future of their business is in jeopardy. Today on Inside Automotive, we’re pleased to welcome Len Bellavia, Founding Partner of the law firm of Bellavia Blatt, PC, to help us sort through the announcements and concerns. We’ll also get his perspective on the future of the overall franchised dealer network.

Len has spent his life in automotive and represents thousands of dealerships across the country. He has also commenced mass legal action on behalf of hundreds of franchise dealers in the United States District Courts against Daimler Chrysler, Ford, GM, Snap-On Tools, and the Tribune Company.

In light of many announcements from OEMs hinting at their desires for a direct-to-consumer sales model, Bellavia says that franchise dealers from all around the country are wondering if they need to take action. From his perspective, the consensus among dealers seems to be that these issues generally resolve themselves. The market seeks its own level, and the initiatives from Ford, Volvo, and others are based on current statutory law, which all 50 states prohibit.

In the end, if franchise dealers are not involved in setting the price and interacting with consumers, there are existing statutory prohibitions that would prohibit manufacturers from doing direct selling programs.

The onus is now on dealer advisory boards, dealer councils, state associations, and dealers to negotiate their future positions, says Bellavia. However, lawsuits between OEMs and dealers can lead to strained relationships.

“The entire future of the franchise system is at play here,” says Bellavia. “Dealers need to come to terms with the fact that state associations by and large have done an excellent job at giving dealers statutory protections. Now, it’s up to the franchise dealers themselves to envoke those protections.”

So, what makes manufacturers like Tesla and Rivian different? Because they are not legacy automakers, their business plans were executed without franchised dealers. While the Tesla model is instructive, explains Bellavia, it does not give the legacy automakers free rein to emulate it.

As opposed to fighting a legal battle with the manufacturers, car dealers can file injunctions against the direct selling initiatives and shut them down relatively quickly. Bellavia thinks car dealers and OEMs should come to the table and try to coexist within a reasonable framework. However, if the OEMs push the boundaries, car dealers have a good legal standing to fight them.

In his opinion, CEOs like Jim Farley are testing the waters with these comments, and if there is no tangible pushback from franchise dealers, they will keep pressing forward.