Buying and selling dealerships: understanding words

Every day dealers enter into buy-sell agreements and have no idea what the words mean.

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

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

The purchases-sales of the dealers 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 dealer said the factory will pay for it. The dealer, the factory said, will pay for it. Identical words; opposite meanings. In one case, the country of the factory, in the other, the country of the distributor. A simple example, no doubt, but it is still illustrative.

There are dozens of instances of buy-sell where traders left millions of dollars on the table, or paid millions 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 did.

Definitions

OEM = original equipment manufacturer. OEM refers to the parts used in the original assembly of a vehicle – vis-à-vis, the aftermarket parts that can be installed after the car leaves the factory.

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

The typical phrase in a sale, with respect to the parties, goes something like this:

“BUYER shall purchase SELLER’s entire inventory of current (listed in Manufacturer’s current parts books and/or computer tapes), unused, undamaged, new, and factory rebuilt parts and accessories for General Motors vehicles that sells available at Closing, excluding parts and accessories that are not returnable to the Manufacturer.”*

Suppose, for example, that one is buying or selling a General Motors dealership, how does the aforementioned premium apply to AC Delco parts?

To understand the distinction, one must understand the history of aftermarket parts distribution from the various manufacturers.

AC Delco Parts

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

Just as vitamin manufacturers wanted to cash in on bargain hunters by allowing grocery stores to sell their vitamins under a different label and at a lower price, General Motors wanted to cash in on aftermarket bargain hunters by selling spare 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 thus 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 used on GM vehicles (ball joints, struts, etc.) come with lifetime warranties, if installed by an AC Delco garage.

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 that Delco parts are “No 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 distributor.

Consequently, any GM dealer that has AC Delco parts in inventory must address the issue and reach an agreement between the buyer and seller. Prior to sign the contract for the sale of assets.

Getting to the closing table and then protesting that AC Delco parts should be counted as “returnable” creates problems. A buyer is entitled to assume that the seller knows what the words in 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 topic at hand. Just because someone has run a dealership for 20 years, or handled dealership buying and selling for the factory for 20 years, doesn’t make them a student of the industry when it comes to buying and selling. And, in the case of the lawyer who used the same buy-sell in every deal – buy or sell, neither is being a “car” lawyer for 20 years.

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

Furniture, Accessories and Equipment

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

Representing both parties

If an advisor (broker, attorney, accountant, etc.) says that they will represent both parties in a transaction, which 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 easy. If they represent both, even explaining the differences would hurt one party. The same is true with respect to other technical definitions and exceptions.

Addition

As I said at the beginning of this article, “regular dealers enter into buy-sell deals and have no idea what the words mean,” but they all walk away, happy with the results, proving the old adage. “Ignorance is pleasant.”

* Manufacturers differ in their definition of returnable parts.

** The Magnuson-Moss Warranty Act of 1975 provides, in part, that replacement parts do not void the manufacturer’s warranty, unless the warranty clearly states that they would, or the replacement device can be proven to be the direct cause of the failure. failure. Various state laws also protect consumers who use aftermarket 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 model of car and aftermarket on a different model.