Dealership Facilities: Limitations Under Illinois Law on Manufacturers’ Requirements
The Illinois legislature adopted changes last year to the Illinois Motor Vehicle Franchise Act (“MVFA”) which place additional limitations on the manufacturers’ ability to impose requirements on dealership facilities. Leading up to these changes, costs to dealers from constructing new facilities or remodeling existing facilities to comply with manufacturers’ image programs were skyrocketing. This was due, in part, to the frequency of program upgrade changes, that were required, and the requirements that improvements use manufacturer-specified materials.
In 2017, the MVFA was amended after having been unanimously approved by both the House and Senate Chambers of the Illinois legislature, to prohibit the manufacturers (their divisions and their representatives) from requiring dealers to remodel their dealership facilities within ten (10) years of the most recently required remodel. Section 4(d)(11) of the MVFA states:
“It shall be deemed a violation for a manufacturer, a distributor, a wholesaler, a distributor branch or division, or officer, agent or other representative thereof:
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to coerce or require any dealer to construct improvements to his or her facilities or to install new signs or other franchiser image elements that replace or substantially alter those improvements, signs or franchiser image elements completed within the past 10 years that were required and approved by the manufacturer or one of its affiliates.” (815 ILCS 710/4(d)(11)).
Under this amended law, the 10-year period starts to run for a dealer (which includes that dealer’s successors and assigns) either, on the date the manufacturer gives final written approval of the facility improvements or installation of signs or other franchiser elements, or on the date the dealer receives a certificate of occupancy, whichever is later. Routine maintenance, such as but not limited to, interior painting or similar maintenance that is reasonably required to keep the dealership facility in attractive condition is not considered to be a substantial alteration.
The 2017 MVFA amendment also prohibits manufacturers from requiring dealers to purchase dealership building improvement materials and services from a manufacturer-designated vendor, provided the dealer selects a vendor, approved by the manufacturer, unless, however, the manufacturer provides substantial reimbursement to the dealer for the manufacturer-designated vendor materials or services. A manufacturer may require a specific vendor if the manufacturer reimburses the dealer for the increased cost of the materials and services. Further, the amendment requires a manufacturer that leases signage and other image and design elements to dealers to give the dealer the option to purchase the signs or other franchiser image or design elements from a vendor selected by the dealer and approved by the manufacturer. The manufacturer cannot unreasonably withhold its approval, where such approval is required. The dealer is, however, required to conform to the manufacturer’s intellectual property or trademark usage guidelines. (815 ILCS 710/4(d)(12)).
Elsewhere in the MVFA, the manufacturer is prohibited from requiring a dealer to underutilize the dealership facility by requiring removal or exclusion from the dealership, of vehicle lines for which the dealer has franchise agreements with other manufacturers, provided the dealer satisfies certain specified statutory requirements (e.g., keeps reasonable line of credit for each vehicle line, etc.). (815 ILCS 710/4(d)(8)).
Also remember, especially if a manufacturer representative tries to suggest otherwise, that all of the foregoing provisions of the MVFA apply to the manufacturers and the dealership facility requirements. Section 3 of the MVFA states:
“Any person [e.g., manufacturer] who engages directly or indirectly in purposeful contacts within this State in connection with the offering or advertising for sale or has business dealings with respect to a motor vehicle within the State shall be subject to the provisions of this Act [MVFA] and shall be subject to the jurisdiction of the courts of this State.” (815 ILCS 710/3).
Moreover, the provisions of the MVFA apply to all manufacturer written or oral agreements with a dealer (including the manufacturers’ sales and service agreements, bulletins, policies, program guides, and the like). (815 ILCS 710/8).
It’s important for dealers to keep these MVFA provisions at hand when considering a facility remodel or new construction, or even when thinking about a dealership acquisition or sale. For example, service department upgrades are becoming more prevalent, with many manufacturers requiring dedicated service drives. Another trend relates to the customer waiting areas that allow customers to see the service area and their vehicle while being serviced. And often, with a dealership acquisition comes the question of factoring in the cost of any facility upgrades as part of the buy/sell transaction. Image compliance requirements may not translate into an increased valuation. However, these MVFA provisions provide some protection for dealers who determine to invest in their facilities and may allow them to realize a greater return on their initial facility improvements investment.