Dealership termination occurs when either the franchiser or dealership want to terminate their contract, resulting in closure of the dealership.
There are a variety of reasons why either party may want to close the dealership. For example, a franchise may want to shut down a dealership if the dealership has breached their agreement. On the other hand, the dealership may want to close their own shop if it is not profitable.
When can a franchiser cancel or terminate a dealership agreement?
- If the dealership fails to follow the standards or procedures outlined in the agreement, the franchise may terminate the contract.
- If the dealer’s performance or overall operation of the dealership does not comply with the dealer agreement, it may be terminated.
At this time, the dealership owner may sell their remaining inventory back to the franchiser or sell their entire property to another franchisee. If the dealership believes that the franchiser is breaching their agreement, they may dispute the termination.
A contract breach may be expensive and time consuming for both parties. During a termination, you must carefully review the contract obligations in order to protect yourself or prove that the other party is liable for a contract breach. A dispute can occur during the termination process between the franchiser and the dealership, causing a conflict that may result in a lawsuit.
Dealership termination caused by bankruptcy
In 2009, Chrysler breached 789 franchise agreements upon filing for bankruptcy. There were 280 dealers who decided to sue the government for this contract breach in 2010. The case finally went to trial just a few months ago.
The reason these dealers are suing the government is because the Chrysler bankruptcy restructuring was managed and financed by the United States Treasury. The court will decide whether Chrysler decided to close the dealerships on their own, or if the government told them to do so.
These dealerships were required to close shop with zero payout. They are seeking compensation for the value of their stores at the time of the closure. The trial is ongoing. At this time, no resolution has been made.