Proposed Virginia legislation aims to limit buy-sell approval time

A bill introduced in January in Virginia aims to tighten the turnaround time for automaker approval of buy-sell transactions to 60 days. Proponents of the legislation say a lack of clarity in an existing dealer franchise statute allows manufacturers to unfairly delay or oppose dealership sales in the state.

Legislation initiated by the Virginia Automobile Dealers Association was introduced in the state's House of Delegates on Jan. 3. Delegate Terry Austin, a Republican, brought forth House Bill 191, and one week later, Sen. Lamont Bagby, a Democrat, introduced Senate Bill 534. The bill passed the Senate Jan. 31. A substitute House bill was introduced, and adopted and engrossed on Tuesday.

If the legislation passes both chambers and is signed into law by Gov. Glenn Youngkin, automakers would be required to decide whether to approve or object to a potential dealership purchase within 60 days of receiving notification of a pending transaction, according to Senate bill language. Today, automakers can reject a buy-sell deal up to 30 days before the sale's effective date, according to the bill's language.

Clarifying the notice requirements will prevent automakers from insisting they need more information about the sale, which can draw out a decision, said Don Hall, CEO of the Virginia Automobile Dealers Association. Any buy-sell application not objected to within 60 days would automatically be considered approved, he said.

Drawing out approving a sale beyond the two-month window can be detrimental to a business, particularly when employees attempt to leave the dealership before new ownership takes over. Hall said sellers could lose out altogether on a buyer who is not willing to wait more than six months for a deal to close or who butts heads with a manufacturer. Automakers in other states also draw out the buy-sell approval process, he said.

Hall told Automotive News that the group, which represents nearly 500 dealers in Virginia, has worked closely with the Alliance for Automotive Innovation on the bill's language since mid-December.

The alliance said in an emailed statement to Automotive News that state franchise laws make it "extremely difficult" for manufacturers to end franchisee contracts with active dealers or add more dealers in a particular area.

"We don't view that as a positive," the alliance said. "A manufacturer needs to have confidence a dealer representing its brand — and serving its customers — is responsible, a good operator and well-suited to the dealership and the community."

Some approval delays have been caused by additional provisions manufacturers wish to impose as part of a sale agreement, Hall said.

For example, General Motors rejected a potential buyer in one transaction because of "bad" Customer Service Index scores at the height of the pandemic when dealers struggled to retain inventory, Hall said.

During prolonged delays in the purchase process, manufacturers "make demands that they couldn't make with current owners," Hall said. "Everybody had bad CSI because they had no product during COVID. It went on for months and months, but what [GM] really wanted was a commitment in writing that [the buyer] would build a new facility."

A GM spokesperson said the automaker doesn't comment on specific buy-sell agreements.

"Our buy-sell process is designed to evaluate the qualifications of the candidate(s) to ensure successful sales, service and facility operations while promoting and preserving competition and outstanding customer satisfaction," the spokesperson said in a statement.

Virginia's legislation says an automaker's consent to relocate a store can't be unreasonably withheld. In addition, certain language in the current regulations regarding dealership purchases — particularly the words "and qualifications — would be struck out.

Under the current law, a manufacturer can reject a buyer on the basis of lacking good moral character, lacking the financial ability to operate a car dealership, failing to reach established dealer standards and lacking "reasonable motor vehicle dealership management experience and qualifications."

The vague phrasing of "and qualifications" allows manufacturers parameters with essentially no boundaries to define a qualification, Hall said, which he believes makes even less sense when the buyer operates a large, well-established group.

"This idea that people are not qualified when they have 38 dealerships, and they are publicly traded or have huge amounts of money? No," Hall said. "What they weren't willing to do is kiss your ass in a way that made you feel good on that particular day."