The Road Ahead: Recent Amendments to the Colorado Vehicle and Powersports Franchise Laws

The distribution of on-highway motorcycles and powersport vehicles, such as off-highway motorcycles, ATVs, snowmobiles, and PWCs (Personal Water Craft) is regulated by various franchise state laws. These laws address a range of issue in the franchise relationship. For example, termination, cancellation, or nonrenewal of the dealership; relocations; and limitation on a dealer’s power to transfer the dealership. Virtually all states also regulate operating aspects of the relationship, including administration of warranty claims, preparation and delivery obligations of the dealer, allocation and delivery of products, and the like. Importantly, each state franchise law is unique and must be consulted itself as a primary source. There is no uniform law or FTC rule to draw upon for guidance in this area.

Colorado’s Motor Vehicle Franchise Law (applicable to on-highway motorcycles) and Colorado’s Powersports Franchise Law was recently amended. The changes to these laws include:

Facility Improvements

  • Increases from 7 years to 10 years the time when a manufacturer is prohibited from requiring its dealers, who sell only motorcycles or motorcycle and powersport vehicles, to alter a facility at a cost of more than $25,000 (same increase in time for other motor vehicles, but current law provides $250,000 threshold).
  • In motor vehicle franchise law applicable to motor vehicle dealers that sell only motorcycles or motorcycles and powersport vehicles, adds facility improvement restriction exemptions for technological improvements related to electric, automated, compressed natural gas and fuel-cell motor motorcycles and powersport vehicles or to improvements made to install or upgrade electric vehicle charging equipment (adds same exemptions for other motor vehicles).

Relevant Market Area (RMA)/Relocation

  • Amends the RMA definition to greater of: 1) area defined in franchise agreement; or 2) area within a 10 miles radius of existing same line-make dealer as proposed additional dealer (previously defined as greater of: 1) area defined in franchise agreement; or 2) area within radius of 5 miles in county with population of more than 150,000 or 10 miles in county with population of 150,000 or less).
  • Amends required recipients and contents for notice to dealers that franchisors are required to provide relative to new dealers, reopenings or relocations.
  • Amends new dealer/relocation provisions to provide that a dealer adversely affected by the reopening or relocation of an existing dealer or the addition of a dealer may, within 90 days after receipt of notice, file a legal action in the district court or file an administrative complaint with the executive director of the Colorado Motor Vehicle Dealer Board (Board) to prevent or enjoin the relocation, reopening or addition of a dealer. Requires the court or executive director to deny any proposed change unless the manufacturer shows by a preponderance of evidence that the existing dealer(s) in the RMA aren’t providing adequate representation and that the determination to deny, prevent or enjoin a change is effective for at least 18 months.

Termination Adjudication

  • Amends termination provisions to provide that a dealer may appeal a manufacturer’s decision to terminate a dealer by filing a complaint with: 1) the executive director; or 2) the district court, provided neither executive director nor administrative law judge holds a hearing concerning the complaint within 60 days after filing.

Prohibitions

  • Selling vehicles at a lower actual price than what is offered to any other dealer for the same vehicle similarly equipped, except for resale to any government, donation or use by the dealer in a driver education program or price change made in the ordinary course of business, provided such is made available to all dealers when the price changes. Doesn’t prohibit a franchisor from offering incentives, provided such are reasonably available to all dealers.
  • Requiring a dealer to grant or enforce a right of first refusal or option to purchase a dealer, provided the exercise of such contractual right would stop a transfer of dealer ownership to an immediate family member.
  • Using an unreasonable performance standard or failing to communicate, upon request by a dealer, such in clear and concise writing to a dealer before applying a standard.

Recall Repair Compensation

  • Requires recall repair compensation, provided the franchisor issues a stop-sale, the dealer holds active sales, service and parts agreement for the used vehicle covered by a stop-sale and the franchisor hasn’t provided a remedy or made parts available for more than 30 days after the stop-sale is issued.
  • Requires compensation to be 1.5% per month of the average trade-in value for the vehicle’s model, defined as the value established by a generally accepted 3rd-party resource, prorated from 30 days after the stop-sale was issued to the earlier of the date: 1) manufacturer provides dealer with a remedy and any necessary parts; or 2) dealer transfers vehicle. Doesn’t require manufacturer to provide compensation exceeding the total average trade-in value. Provides that the manufacturer and dealer may agree to different recall compensation terms.
  • Provides that the franchisor may determine a reasonable manner and method for a dealer to demonstrate inventory status of such used vehicles.

These changes become effective August 9, 2017. Manufacturers and distributors that sell motorcycles and powersport products in Colorado should become familiar with these changes and make necessary changes to comply with these amendments.

Disclaimer: Please note that the information provided in this post does not constitute legal advice and is not intended to be and should not be construed as legal advice. Readers with questions specific to the issues raised in this post should consult with qualified legal counsel. If you have any questions, E. Martín Enriquez may be reached at menriquez@lrrc.com or 303.628.9585.