L. Michael Hankes  |  ATTORNEY AT LAW
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The Importance of Dealer Participation in the Meineke Franchise System

In our last arti­cle, we reviewed the changes that have been made by Meineke to the fran­chise con­tract that was made avail­able to the exist­ing Meineke deal­er­ship in April of 2000. This arti­cle will review the four­teen (14) dif­fer­ent aspects of rep­re­sen­ta­tive dealer par­tic­i­pa­tion in the deci­sion mak­ing process for the Meineke sys­tem that were included in that fran­chise contract.

The fran­chise agree­ment rec­og­nizes two dealer enti­ties asso­ci­ated with the Meineke Deal­ers Asso­ci­a­tion: (1) the Dealer Asso­ci­a­tion Advi­sory Coun­cil (here­after DAAC) and the Adver­tis­ing Com­mit­tee. Para­graph 2.5 of the fran­chise agree­ment enti­tled “Con­sul­ta­tion with the Dealer Asso­ci­a­tion Advi­sory Coun­cil” expressly rec­og­nizes both the Meineke Deal­ers Asso­ci­a­tion and the DAAC. It con­firms Meineke’s agree­ment to con­sult with the DAAC on cer­tain listed para­graphs of the fran­chise agree­ment (which unfor­tu­nately are incom­plete and con­tain errors in the actual para­graph num­bers) and asserts gen­er­ally that Meineke may con­sult gen­er­ally with the DAAC on other mat­ters. The incom­plete list­ing of the affected sec­tions of the fran­chise agree­ment and the incor­rect para­graph num­bers was prob­a­bly due to the nego­ti­a­tion process that pro­duced the agree­ment. For pur­poses of clar­ity, the Meineke Deal­ers Asso­ci­a­tion through either the DAAC or the Adver­tis­ing Com­mit­tee has a say in the fol­low­ing areas of the new contract:

Para­graph 3.3 “Roy­alty Fee Administration”

In this para­graph, Meineke agreed to con­sult with the DAAC on the amount of the roy­alty fee for any new prod­ucts and ser­vices and “to con­sider, among other things, the poten­tial prof­itabil­ity of such new prod­ucts and ser­vices in deter­min­ing the amount of the roy­alty fee”. This sec­tion should be read in con­junc­tion with Meineke’s oblig­a­tion in para­graph 7.1 enti­tled “Autho­rized Prod­ucts and Ser­vices” to con­sult with the DAAC with respect to deci­sions to add or delete Autho­rized Prod­ucts and Ser­vices. Thus, under para­graphs 3.3 and 7.1 of the fran­chise agree­ment, Meineke was required to con­sult with the dealer rep­re­sen­ta­tive body before it added the new ser­vices at the indi­cated roy­alty rates which we iden­ti­fied in our Novem­ber 2002 article.

Para­graph 3.4 “Con­tri­bu­tions to the Meineke Adver­tis­ing Fund”

In this sec­tion, Meineke states that it has the right (with­out waiv­ing any other rights or reme­dies) to notify the DAAC or other region­ally elected dealer rep­re­sen­ta­tives (per­haps the National Coun­cil) of a dealer’s delin­quen­cies in pay­ments to the Meineke Adver­tis­ing Fund (here­after MAF). Here, the dealer rep­re­sen­ta­tive bod­ies must be care­ful not to become a foil for Meineke’s dis­putes with indi­vid­ual deal­ers. The dealer rep­re­sen­ta­tives should rec­og­nize the impact that even a tacit approval of Meineke’s actions with respect to indi­vid­ual deal­ers could have on the sys­tem. Those rep­re­sen­ta­tives should also be vig­i­lant in their mon­i­tor­ing of the MAF as noted in the dis­cus­sion of para­graph 8.2 below.

Para­graph 7.2 “Parts and Supplies”

Under this sec­tion, Meineke is oblig­ated to seek the advice of the DAAC as to the tim­ing of any com­pet­i­tive build­ing process for any “Pre­ferred Sup­plier” arrange­ment. Meineke is also required to seek the advice of the DAAC if it pro­poses to mod­ify its spec­i­fi­ca­tions and stan­dards or the list of approved sup­pli­ers. The DAAC has the right to actu­ally see “rel­e­vant infor­ma­tion in order to ver­ify the finan­cial arrange­ments we may have with pre­ferred third-party sup­pli­ers”, pro­vided that there are cer­tain con­fi­den­tial­ity pro­vi­sions asso­ci­ated with the review. This means that the DAAC has the right to review and con­firm the actual con­trac­tual arrange­ments that Meineke has with approved sup­pli­ers, includ­ing any rebates, pro­mo­tional allowances or other benefits.

Para­graph 7.6 “Changes to Spec­i­fi­ca­tions and Standards/Days and Hours of Operation”

Here Meineke is not only required to con­sult with the DAAC as to mate­r­ial changes in the Oper­a­tions Man­ual, but has a lim­ited veto power as to required days and hours of oper­a­tion. How­ever, the Jan­u­ary 1, 2004 time lim­i­ta­tion on such changes is less than a year away, and the dealer rep­re­sen­ta­tives should be mind­ful that such changes, if pro­posed, can’t be imple­mented unless Meineke meets the addi­tional cri­te­ria for chang­ing days and hours of oper­a­tion spelled out in para­graph 7.6.

Para­graph 7.9 “Insurance”

In this para­graph, Meineke agreed to con­sult with the DAAC on any mate­r­ial changes in the require­ments for the “types and min­i­mum amounts of cov­er­age, exclu­sions and max­i­mum deductibles” relat­ing to insurance.

Para­graph 7.11 “Cus­tomer Warranties”

Here, as in the sec­tions out­lined above, Meineke must con­sult with the DAAC if it pro­poses a new war­ranty or changes an exist­ing war­ranty “on terms that are mate­ri­ally more favor­able to con­sumers than are gen­er­ally granted by major com­peti­tors in the auto­mo­tive main­te­nance and repair industry”.

Para­graph 8.2 “Meineke Adver­tis­ing Fund”

In this sec­tion, there are four sep­a­rate issues on which the DAAC and the Adver­tis­ing Com­mit­tee have sig­nif­i­cant input.

This para­graph pro­vides for the appoint­ment of up to seven mem­bers of the Adver­tis­ing Com­mit­tee by the DAAC. The DAAC and Adver­tis­ing Com­mit­tee have four sep­a­rate func­tions under this paragraph:

Meineke will peri­od­i­cally (defined as not more than once every six months), seek the advice of the Adver­tis­ing Com­mit­tee “with respect to the cre­ative con­cepts and media used for pro­grams funded by the MAF”. This means that the Adver­tis­ing Com­mit­tee has the right to help struc­ture the cre­ative con­tent of Meineke’s adver­tis­ing and the means by which it is dis­sem­i­nated to the public;

Meineke must seek the advice of the DAAC as to which bank, trust com­pany or other finan­cial insti­tu­tion admin­is­trates the fund;

Meineke must seek the advice of the Adver­tis­ing Com­mit­tee before it changes the allo­ca­tion of the 8% fran­chisee con­tri­bu­tion to the MAF set out in para­graph 8.2 of the fran­chise agree­ment; and,

Meineke is required to con­duct an audit of the MAF each and every year. Every dealer must be pro­vided with a copy of the audit upon writ­ten request. On request, the Adver­tis­ing Com­mit­tee may peri­od­i­cally review the books and records of the MAF.

Obvi­ously, the rights of indi­vid­ual deal­ers and the dealer rep­re­sen­ta­tive bod­ies to review the annual audit of the MAF and the books and records of the MAF respec­tively, are impor­tant rights that should be exer­cised on a reg­u­lar basis.

The final two areas of the fran­chise agree­ment where the DAAF can have a dia­logue with Meineke are in the mod­i­fi­ca­tion of the encroach­ment pol­icy under Para­graph 17.3 enti­tled “Pol­icy Regard­ing Meineke Expan­sion” and in the appoint­ment of the ombuds­man in Para­graph 17.15 enti­tled “Ombuds­man”. As we have repeat­edly stated in the past, the encroach­ment pol­icy was the poor­est part of the deal­ers’ 1999–2000 nego­ti­a­tion efforts and offers vir­tu­ally no ben­e­fit to an indi­vid­ual dealer beyond the fact of its exis­tence. There still remains work to be done. We also doubt that the pro­vi­sion relat­ing to the Ombuds­man has ever been used.

How­ever, with the voice that has been given to the dealer rep­re­sen­ta­tives in the writ­ten fran­chise con­tract, the ground­work has been laid for those rep­re­sen­ta­tives to have some impact on the direc­tion in which the Meineke sys­tem heads as busi­nesses in the auto­mo­bile after­mar­ket rise to meet the chal­lenges of the new millennium.

This article is intended for informational purposes only and is not to be relied upon as legal advice, as individual facts and circumstances may vary.