Dealer buying and selling: understanding the words

Everyday distributors enter into buy-sell agreements and have no idea what the words mean.

I recently worked with a long-time “auto” attorney who told me that he used the same buy-sell agreement for every deal, whether he represented the buyer or the seller.

He said the parties would eventually come to the settlement he proposed, so he saved everyone time and money simply by changing the names and addresses on his staff and no one has ever complained. An incredible but true story.

Dealer purchases and sales are technical documents. A preposition and a verb could change the price by a quarter of a million dollars or more. I have seen it! A comma here or there, or an adjective inserted in the right place could change the entire meaning of the document.

The merchant said the factory will pay for it. The dealer, the factory said, will pay for it. Identical words; opposite meanings. In one case, the factory pays, in the other, the distributor pays. A simple, safe, but illustrative example.

There are dozens of buy-sell cases in which dealers left hundreds of thousands of dollars on the table or paid hundreds of thousands that they didn’t have to pay. And when they left the closing table, neither the parties nor their advisers ever knew what they were doing.

Definitions

OEM = original equipment manufacturer. OEM refers to the parts used in the original assembly of a vehicle, compared to aftermarket parts that can be installed later the car leaves the factory.

The following example does not apply to all transactions, but there are dozens of other technicalities and no doubt various situations will arise in each dirty.

The typical sentence in a buy-sell, regarding the parts, is something along the line:

“BUYER will purchase SELLER’s entire inventory of current parts and accessories (listed in manufacturer’s current spare parts books and / or computer tapes), unused, undamaged, new and factory rebuilt for General Motors vehicles that sold available at closure, excluding parts and accessories that cannot be returned to the manufacturer. “*

Suppose, for example, that one is buying or selling a General Motors dealer, how does the above sentence apply to AC Delco parts?

To understand the distinction, you must understand the history of the aftermarket distribution of the various manufacturers.

AC Delco Parts

Delco is an acronym for Dayton Engineering Lab Co. and AC stands for Albert Champion, the man who founded Delco.

Just as vitamin manufacturers wanted to profit from bargain hunters by allowing grocery stores to sell their vitamins under a different label and at a lower price, General Motors wanted to profit from aftermarket bargain hunters by selling parts. from GM at a lower price.

The powers to be at GM thought that using the Delco brand would be a way to distinguish parts and accessories from General Motors OEM parts and accessories and therefore limit complaints from their dealers that the factory was going to be in. direct competition. with them.

AC Delco was and still is owned by General Motors. Delco parts from General Motors manufacturers and some of them used in GM vehicles (ball joints, struts, etc.) come with lifetime warranties, if installed by an AC Delco workshop.

Some GM dealers use Delco parts because they are cheaper and the factory allows them to be considered “genuine” as far as the customer is concerned. **

But the fact is, Delco parts are “not returnable to General Motors “under the General Motors Dealer Sales and Service Agreement.

Please note that although AC Delco parts are produced by General Motors, they have different part numbers and a different dealer.

Consequently, any GM dealer with AC Delco parts in stock must address the issue and reach an agreement between the buyer and seller. Prior to signing of the asset sale contract.

Coming to the closing table and then protesting that AC Delco pieces must be counted as “returnable” creates problems. A buyer has the right to assume that the seller knows what the words of the contract mean at the time the deal is made and if a seller did not include the manufacturer’s aftermarket parts, *** then that is the problem of the seller.

Brokers, Lawyers, Accountants, Consultants

Which brings us to the subject at hand. Just because someone has managed a dealership for 20 years or handled the dealership buying and selling for the factory for 20 years does not make them students of the industry when it comes to buying and selling. And, in the case of the lawyer who used the same buy and sell in every deal, purchase or sale, neither is it to be an “automotive” lawyer for 20 years.

As mentioned above, there are dozens of technicalities that come up in every dealership sale.

Furniture, fixtures and equipment

There are, for example, five ways to value hard assets. Do you know which definitions benefit the buyer and which ones the seller? In a Chevrolet-Cadillac store sale, the addition of a prepositional phrase added $ 480,000 to the amount the buyer paid for the hard assets. Neither the buyer nor his advisers ever understood why the price was so high.

Representing both parties

If an advisor (broker, lawyer, accountant, etc.) says they will represent both parties in a transaction, what definition do they choose? Is it the one that favors the buyer or the one that favors the seller? If they represent a party, the choice is straightforward. If they represent both, even explaining the differences would hurt one of the parties. The same is true for other definitions and technical exceptions.

Sum

As I said at the beginning of this article, “Everyday dealerships enter into buy-sell agreements and have no idea what the words mean,” but everyone walks away happy with the results, proving the old adage “Ignorance is welcome.”

* Manufacturers differ in their definition of returnable parts.

** The Magnuson-Moss Warranty Act of 1975 states, in part, that aftermarket parts do not void the manufacturer’s warranty, unless the warranty clearly states that they would, or if it can be proven that the device from the Aftermarket is the direct cause of the failure. Various state laws also protect consumers who use replacement parts.

*** Most factories have replacement parts. Ford has Motorcraft®, Chrysler has MOPAR, an acronym for “MOtor PARts.”

**** Note: Sometimes an aftermarket part can be both OEM and aftermarket. For example, if Ford uses Bosch fuel injectors when building a vehicle, then Bosch injectors could be considered OEM on one car model and aftermarket on a different model.

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