Editorial: Virginia bill limiting buy-sell approval response time good for dealers

Virginia legislation putting stricter limits on the manufacturer response time to franchised dealership buy-sell agreements should be welcome regulation in the Old Dominion.

The proposed 60-day cap isn't unique, since other states have time limits ranging from one to two months, but Virginia would put clear boundaries on when the clock starts and clarify what triggers the process. That is worth emulating.

If approved, Virginia would set reasonable limits. Some states already have similar rules, and those that do not should. The issue is especially timely as dealership merger and acquisition brokers predict a robust pace for buy-sells this year, and amid the rise in activity, some automakers are slowing down deals, intentionally or not. Virginia's legislation includes a helpful default clause that says if an automaker doesn't file an objection within the defined time frame, the deal will be approved.

Clearly defined rules are essential for all parties, especially as retailers grapple with consolidation. Automakers shouldn't have the ability to push boundaries on a case-by-case basis, or to draw out negotiations while they dither.

To be sure, automakers have a right to oppose a potential franchisee with just cause. The franchise relationship is a special one that binds the parties, so it is reasonable that an auto brand can weigh in on who should represent it in local markets. Virginia's bill would protect buyers, sellers and brokers, and encourage new investors to become dealers, without wasting further time in an already complex process.

There is always a risk that buyers will grow impatient with the right of first refusal process and withdraw their bid. When those buyers share their negative experiences with fellow dealers, it gives the automaker a bad reputation, and if the deal does go through after all, it starts the relationship on a sour note. And a seller who has spent years partnering with that automaker is not exiting on a high note, either.

Sixty days is enough time for an automaker to decide whether a buyer is worthy of selling its vehicles, or to make an objection. The rules on when the clock starts must be black and white for all involved parties.

More states should follow Virginia's lead and spell out when automakers can exercise their right of first refusal on proposed dealership sales, so people who want to exit or enter the auto retailing world can do so in a clear, timely and efficient manner.