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  • Julie A. Cardosi

OEM Written Notices --“Nastygrams” Should Not Automatically Be Filed in the “Circular Bin”

Full Title: Dealers Should Properly Respond to OEM Written Communications and Notices --“Nastygrams” Should Not Automatically Be Filed in the “Circular Bin”


Written OEM communications, such as monthly or quarterly performance notices, which assert or reveal alleged deficiencies, or other OEM communications which set forth any particular concern of the OEM or allege problems of the dealership under its sales and service (franchise) agreement (such as, performance, facility or brand image compliance, vehicle ordering processes, capitalization), should not be “filed” in the “circular bin.” Nor should these notices and the OEM concerns they reveal be ignored. While such OEM written communications might seem like innocuous reminders, often they are purposefully crafted and may be intended to build a case over time to support an OEM’s legal claims of alleged dealership deficiencies.


Ignoring these communications and any alleged claims by the OEM does not mean the concern will go away or be forgotten. Properly responding to these communications, especially if they point to alleged deficiencies or performance concerns, is important to the dealership. Depending on the nature of the communication, the dealer’s response should be measured and not be undertaken without the prior review of the dealership’s counsel to avoid unintended consequences or future use of the OEM communication against the dealership’s interests.


For example, in certain instances, these OEM written notifications are a precursor to the OEM’s claim that the dealer defaulted under the terms of its franchise agreement and are sometimes followed by OEM notification of termination of the dealer’s sales and service agreement. In Illinois, franchise termination by an OEM under the Illinois Motor Vehicle Franchise Act requires that the OEM satisfy its burden of proving that “good cause” exists for such action. However, the OEMs may try to point to the prior written communications as indicia of the deficiencies alleged, opportunities given to correct, and ongoing nature of the uncured problem, for which the OEM seeks action, such as termination or modification of the dealer’s existing franchise agreement (e.g., “term” agreement) and the dealer’s obligations thereunder. Dealers may then find themselves facing the potentially costly option of having to formally dispute or challenge the OEM’s conduct and asserted deficiencies, which may include filing a legal protest or other legal challenge.


A dealership that properly responds to OEM performance letters or communications is able to document possible inaccuracies in the OEM’s narrative of the alleged problem. Importantly, the dealer’s response might also correctly identify the origin of the alleged concern. For example, perhaps it stems from some conduct on the part of the OEM, such as an allocation problem, or the use of improper standards of measurement, or an incorrectly assigned market territory, or a failure to account for other market factors. Down the road, if the dealer and the OEM end up in a dispute regarding the alleged concern, the dealer’s position is documented to include conduct or shortcomings on the part of the OEM that caused or contributed to the alleged deficiencies.


Based upon the considerations discussed above, a dealership should evaluate, along with its legal counsel, the dealer’s prompt written response to regular OEM performance letters, particularly where they may give rise to alleged deficiencies, paying close attention to factual accuracies and inaccuracies. The same holds true for written OEM communications specifically summarizing alleged performance or other concerns under the dealer’s sales and service agreement. This exchange of communication will assist the trier of fact, such as an arbiter, protest board or even a court, to assess whether the alleged concern constitutes a violation by the dealer under the dealer’s franchise agreement or whether the alleged concern originates from or is caused in whole or in part by conduct or failures on the part of the OEM or some other factors. Consulting with counsel helps the dealer to avoid an unintended consequence such as statements against interest and will ultimately save both time and cost in the event the dealer has to formally challenge any adverse action taken by the OEM on the basis of its alleged deficiencies or concerns.


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