DealersEdge Professional Forums

This is one of those age-old questions about how to get out of a contract with one of your major vendors; say like a computer provider, service-reminder company, etc. Has anyone out there broken a contract with a year left without having to pay a substancial penalty (like half the contracted amount).



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** Rob, Editor WD&S **
Help is only a message post away!
robc@dealersedge.com

I know a Chrysler dealer in Maryland who broke his contract with one of the 2 large DSP's after only 2 years into the 5 year contract. He was a strong negotiator, however, and was able to get an 'out' clause written into the contract. The funny thing is, the vendor didn't even bother to pick up the equipment. The dealer started charging storage (after notifying the DSP), and after a year, auctioned off the system without the vendor showing any interest in picking it up . At the same time, that DSP was seeking damages from another customer in Virginia for well over $100,000 for a similar system that wasn't as large.

The big '2' have changed the terminology of their sales documentation over the last several years. Go to www.reyrey.com to review R+R's documentation. Pay particular attention to the modified definition of Initial Service Term. It used to be that a customer could cancel support 12 months into a system contract with 60 days written notice (Naturally, he had to continue his lease payments - if any). It appears now that the definition of Initial Service Term has been modified to cover the ENTIRE term (5 years or 7 years). Another interesting observation is the priority of legal documents. The actual sales exhibit signed by the dealer and the DSP is only #5 in priority!(Behind (1)the authorization letter, (2)the master sales agreement, (3)the customer guide, and (4)defined terms)(See page 2 of the Master Sales Agreement). In other words, there are 4 other documents that take precedence in a court of law (but only one that the dealer actually signed - the authorization letter.

We tried (but never very forcefully) to wrangle out of some contracts with a couple vendors (uniform companies, oil companies, janitorial, etc). After a couple painful lessons we now avoid any contracts of longer than 12 months in duration. I'm not sure, off-hand, what our contract is with R&R. Hmmmm.....

Cheers
Doug

There's really two parts to this issue - one is the software and hardware monthly support fees, and the other is the lease on the equipment.

In the past, ADP & R&R were pretty flexible on letting dealers out of the remaining obligation for the monthlies. As long as a 30 day notice was given, they were pretty forgiving, when they did not legally have to be.

The lease is the hard part. It is an obligation, just like the remaining payments I have to make on my vehicle, whether I like the vehicle or not. I've had some cars I'd love to have just given back and called it even.

In the last several years the vendors have gotten tougher on letting dealers off the hook with the software and hardware fees. I have seen some cases where they only made the client pay a portion, and I have some some instances where they held the client to the terms of the contract.

Sometimes it just depends on the situation, the dealer, the attitudes taken, etc... You can sometimes get the payoff on the lease written down, and the vendors will usually work with you on the remaining support and license fees owed, etc...

ADP & R&R both work with captive lease companies (Credit Corp and Reyna), so they are also obligated to an extent for the hardware purchase and whatever is bundled into a lease, so it's not a simple matter for anyone involved.

I know this isn't an answer, just some more info on the issue. We have worked with dealers in the past where we have had some luck in this area. Just knowing who to talk to, what you can and can't do, and to what extent the vendors are willing to work with you can help.

Rob:
I think this has a lot to do with the circumstances. If there have been real unresolved issues, that are documented, there is not going to be much of a challenge. If the reason for the termination is simply that the dealer found a better price elsewhere then there certainly could be a real threat of legal action.

One of the things that use to really bother me was a contract that automatically renewed itself. This is common in uniform and other service type contracts. On a one year contract it would contain a clause that states that if the dealer does not notify the vendor 30 days before the contract ends it will automatically renew for another year. This clause is always on the back of a one page contract.

I started quickly reading contracts and lining off stuff I did not like. The salesperson would always look really surprised but then I would sign the contract after I had gotten rid of the stuff I did not like. I always told them that I wanted them to take it to their boss and if someone had a problem with the changes I made please let me know. I signed lots of contracts and never had anyone call or turn down the contract.

If its is a computer contract or a uniform contract, the vendor wants your business. However it doesnt have to be entirely on his terms. If the dealer doesnt like certain parts of the deal then try and change those parts. You will be surprised at the results.


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Frank Burrows
Automotive Business Solutions LLC
fburrows@absdata.com

How about UCS contracts? Did you have any luck making changes to that one?

Tom

Carking:

At the end of our contract we invited Reynolds, ADP and UCS to give us pricing. They all were equally eager to get the business and all three made lots of concessions. The problem with computer contracts is that you cant negotiate them in the middle of a contract only at the end. The other factor is that you have to be willing to change vendors if your first choice is unwilling to get you where you want to be.

You really have to do your homework and make sure you not only plan for the present but also plan for the future. I found that the proposals often leave out necessary software and hardware in order to lower the pricing. You have to know exactly how many of each piece of hardware and software you want or need. I think that unless someone at the dealership wants to put in the time and effort, you should get someone to do the negotiating for you. There are lots of experienced people out there that do this.

Your vendors arent any different than your business. We would all like our customers to pay sticker and 10% off of list for wholesale and believe us when we say it is non-negotiable. Then there is reality.


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Frank Burrows
Automotive Business Solutions LLC
fburrows@absdata.com