Dealer Termination Checklist: A Practical Guide

Although the purposes of terminated dealers’ lawsuits have not changed in the last 25 years, the nature of their legal claims has, and, in general, those suits have become more difficult for dealers to win. Terminating existing dealers is often a necessary or desirable step to achieving important commercial objectives of a manufacturer, such as (1) substituting effective dealers for less productive ones, (2) consolidating the distribution function in fewer hands that enjoy the efficiencies of scale needed to improve market penetration, or (3) assuming for itself the distribution function in certain geographic regions or for particular classes of customers.

Unless the parting is something also desired by the dealer, a termination may prompt a dealer to search for any recourse to reverse the manufacturer’s decision, including filing a lawsuit. Especially if the termination portends significant business losses, the dealer may be tempted to sue now and answer later any hard questions about the merits of its lawsuit. The aim of this checklist is to help manufacturers accomplish such terminations while, at the same time, minimizing the risk of expensive litigation.

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