clauses in authorized dealers contracts

It is reported by SOHU that as the authorized reseller contracts on Automobile Brand Sale of 2010 is about to be signed, some auto dealers find that though have been seriously criticized for nearly two years, some illegal or obviously unequal terms are still existed.

SOHU has collected and analyzed some of the clauses in the contracts in order to attach importance to them and promote the harmonious relations between manufacturers and auto dealers.

　　Exclusive Distributors deny or limit the transactions of dealers

　　Party A and its affiliated companies and authorized dealers retain the rights to accept or reject any product orders of the dealers.

　　Dealers are not allowed to sell automotive products of Party A to any reseller. Without the prior written consent of Party A, dealers shall not engage in direct marketing or maintain product inventory outside the region.

　　Without the written consent of Party A, dealers shall not engage in sales, distribution, publicity, promotion, consignment of any product that compete with theirs; dealers shall not accept itself be identified as special maintenance plants and franchisees by any other automobile manufacturers or motor vehicle distributors except Party A.

　　Exclusive Distributors limit dealers’ prices of cars

　　Franchisees should set the prices of contract products in accordance with the suppliers.

　　Franchisees should adopt the unified national price limit stipulated by the suppliers of spare parts. Once the franchisees violate this subsection, the suppliers are entitled to take relevant measures until the Franchisees carry out effective corrective measures. Meanwhile the entire resulting loss will be burdened by the franchisees.

　　Dealers agree to comply with the recommendation on prices of products and sales policy from Party A from time to time.

　　Exclusive Distributors can arbitrarily adjust sales targets and retail standards

　　When necessary, suppliers have the right occasionally adjust annual or monthly sales plan or inventory planning according to changes in the domestic market.

　　Dealers should agree upon annual sales targets of products together set by the two sides aperiodically. If no agreement is reached, Party A has the right to make a reasonable decision.

　　If the dealers do not complete the annual sales targets, Party A can send a 14-day-long written notice to require the dealers to submit an improvement plan, which needs to be approved by Party A. Improvement plan should be incorporated into any recommendations made by Party A, including improved time frame.

　　According to the retail standards and marketing policy Party A occasionally issued to the dealer’s, dealers should maintain an adequate number of Party A’s automotive products on the existing model series which is to be used for display, presentation and inventory.

　　Exclusive Distributors to interfere in the daily operation of dealers

　　Dealers should obtain the prior written consent of Party A if they are intended to replace their senior managers.

　　Party A can refuse the above consent only when it is totally sure the changes may directly or indirectly harm the dealers’ performance under their Agreement.

　　Franchisees should ask the Exclusive Distributors for instruction through written report when the composition of the shareholders is about to change. The modification can be made only after the consent of the Exclusive Distributors having been accepted.

　　Franchisees should provide their monthly balance sheets and income statements in accordance with the requirements of suppliers and timely report their finances, the costs and to provide account books and invoices for the checks.

　　Exclusive Distributors unilaterally decide the duration of the contract and whether the contract will be subsisted

　　The effective duration of the contract is two years. Before the expiry of the contract, the Party A may set the period of validity of the next contract in line with the evaluation of dealers’ business performance.

　　If a dealer ranks in last ten in the annually comprehensive evaluation for two consecutive years, then the period of validity will be set six-month long in the next renewal.

　　After the expiry of six months, if the dealer’s last semi-annual comprehensive evaluation is still beyond the last ten, then the contract will not be renewed.

　　In the following cases, suppliers have the right to terminate the agreement immediately by a written notification without a prior notice to the other side: Franchisees whose any of those three aspects (including customer satisfaction surveys, clandestine procurement, flight inspection) ranks in the last ten for two consecutive years in the survey on customer satisfaction which suppliers appoint an intermediary structure to carry out; Concerning the completion rate of annual sales plan, Franchisees whose sales performance of two or more car models rank in the last three in the whole country within a year or the sales performance of arbitrary car models ranks in the last three twice or more for two consecutive years according to the magazine ‘business plan’; once franchisees take certain actions or measures without the suppliers’ prior written consent which is clearly stated in this agreement.

(The terms of the contract quoted from some authorized reseller contracts of brand vehicles. The Party A means a total dealer, which is a part of the suppliers; the supplier refers to the total automobile manufacturers and distributors. Authorized dealers and franchisees represent auto dealers who get the authorization of the suppliers according to Implementation Measures on Management of Automobile Brand Sale.)(Translator: Yalong/ Jessie)

　　See original Chinese report Please click