Rockland County car buyers are biased against European brands, a Nyack Volkswagen dealership contends, so VW should not be allowed to use statewide sales statistics to measure the dealership’s sales performance.
A U.S. District Court judge in White Plains rejected that argument a year ago, but on Oct. 28 a federal appeals court overturned the ruling and gave the dealer another chance to make its case.
Palisades Volkswagen in Nyack and Hudson Valley Volkswagen in Wappingers Falls in Dutchess County sued Volkswagen Group of America in 2013 under New York’s Franchised Motor Vehicle Dealer Act. The jointly owned dealers made two claims: VW used an unreasonable benchmark to measure Palisades’ sales performance and imposed unreasonable conditions when the franchises changed their ownership structure.
The first claim is based on a formula that VW uses to calculate how many cars a dealer should sell in its market. For example, if 10,000 new cars are registered in a dealer’s territory and VW has a 5 percent market share in the greater region, then the dealer must sell 500 new VWs to comply with its franchise agreement.
But Rockland County has unique consumer characteristics, Palisades claims. The original complaint said Rockland car buyers are biased against German cars, compared to Westchester and nine other downstate counties. In 2014, Palisades filed an amended complaint that describes the bias as being against all European brands.
VW had a 3.2 percent market share in Westchester, for instance, but only 2.2 percent in Rockland, for a 31 percent difference. Rockland’s alleged European brand bias resulted in lower market shares ranging from 29 percent to 67 percent for Audi, BMW, Mercedes-Benz, Mini and Porsche when compared with Westchester sales.
One way VW uses the benchmark is to give high-performing dealers rebates of up to 2 percent, according to the original complaint. Palisades sold $13.7 million in new cars in 2012 but was denied a 2 percent sales bonus worth $274,641.
In 2010, VW opened a new dealership, Lash Volkswagen in Elmsford, eight miles from Palisades. The new dealership cut into Palisades sales in Westchester and lowered its sales performance score. When Lash earned the rebates, according to the lawsuit, the new dealer got a pricing advantage that hurt Palisades’ sales.
The amended complaint dropped Lash as a defendant and makes no mention of the bonus program. It claims that Palisades has lost sales and profits, and the value of the franchise has diminished, from VW’s use of an unreasonable benchmark.
VW answered that the sales targets had been used for many years and it wasn’t until more than two years after Palisades performed below its benchmark that the dealer sued.
The second part of the lawsuit concerns the owners’ ability to transfer shares internally.
Thomas J. Coughlin, of Greenwich, owned 70 percent of Hudson Valley Volkswagen and Palisades Volkswagen. Owning 10 percent shares each were his son, Sean of Fishkill, Richard Stavridis of Ossining and John Matteson of Stamford.
In 2001, the owners created The Premier Collection LLC and transferred their interests in the two dealerships. Premier also owns Audi, BMW, Jaguar, Land Rover, Mazda and Volvo franchises. Thomas Coughlin transferred some of his interests to his son, Sean, daughter, Patricia, and his grandchildren. He still controlled 61.5 percent of Premier.
Premier notified VW of the new ownership structure. VW approved the structure, according to the lawsuit, but imposed new conditions, such as covenants not to sue. None of the other brands that Premier represents imposes similar conditions.
VW answered that Palisades and Hudson Valley did not notify VW of ownership transfers or seek written consent, as required by their dealer agreements, until more than a decade after the transfers began.
U.S. District Court Judge Nelson Roman said in a 2014 opinion that he was not convinced that sales data established an anti-German brand bias in Rockland. He rejected the dealers’ argument that Volkswagen had imposed unreasonable conditions when the ownership changed. And he allowed the dealers to file an amended complaint.
Last year the federal district judge made a final ruling in favor of Volkswagen Group of America. Palisades and Hudson Valley appealed to the U.S. Second Circuit in Manhattan.
While the appeal was pending, the New York Court of Appeals issued a ruling in a similar case. Beck Chevrolet Co. of Yonkers had sued General Motors over the use of statewide market share statistics to establish dealer sales targets. Below-average sales performance could result in termination of a dealership.
Beck claimed that the performance standards were unreasonable because they failed to account for local customer preferences or brand popularity in the downstate region. Chevrolet sells a lot of pickup trucks, for example, but pickup trucks are not popular in Yonkers.
The state appeals court ruled in May that sales performance standards that rely on statewide data but do not take into account local brand popularity violate the Dealer Act. “The data must take into account the market-based challenges that affect dealer success,” the court ruled.
The court also noted that the Dealer Act was enacted to counterbalance unequal bargaining positions in the auto industry.
The federal appeals court cited the Beck opinion in vacating the lower court ruling against Palisades and Hudson Valley.
The case was sent back to U.S. District Court in White Plains to consider the impact of the Beck decision and to proceed in whatever manner it deems best.
Roman ordered Palisades and Hudson Valley to file an amended complaint and scheduled a status conference on Dec. 15.