On June 25, 2024, the Motor Vehicle Regulation Advisory Committee of the Texas Department of Motor Vehicles (the “Advisory Committee”) rejected a rulemaking petition advanced by the Texas Automobile Dealers Association (“TADA”) requesting that the Department of Motor Vehicles (“DMV”) adopt new rules defining terms contained in Tex. Occ. Code § 2301.452(a) relating to the allocation of new motor vehicles.
Section 2301.452(a) provides, in relevant part, that a manufacturer “shall deliver in a reasonable quantity and within a reasonable time to a franchised dealer . . . any new motor vehicle . . . covered by the franchise if the vehicle . . . is publicly advertised as being available for delivery or is actually being delivered.” (emphasis added). The TADA requested that the Advisory Committee introduce a rule that would define “reasonable quantity” and “reasonable time” to essentially require that manufacturers allocate motor vehicles in sufficient numbers to meet that manufacturer’s sales standards or expectations, regardless of the dealer’s sales performance or current vehicle availability.
A year earlier, in March 2023, a bill was introduced in the Texas Senate with similar language, including a provision that would require manufacturers “on a quarterly or any three-month period . . . [to] make available an allocation to each motor vehicle dealer sufficient number of vehicles, by model, to permit each dealer to meet sales standards for that period.” Texas Senate Bill 2195. That bill was referred to the Business & Commerce Committee but did not advance out of committee.
Senate Bill 2195 and the proposed rule advanced by the TADA would overhaul the allocation systems utilized by manufacturers, which generally allocate vehicles by comparing a dealer’s in stock and in transit vehicle inventory to a dealer’s sales rate (commonly known as a “balanced days’ supply” system). Moreover, manufacturers generally reserve a small percentage of the available pool to allocate vehicles to dealers at their discretion.
Members of the Advisory Committee supporting the rule commented that smaller dealers, especially in times of short supply, need a minimum level of allocation to survive and meet their sales goals which the proposed rule would accomplish. For example, these members noted that if a dealer has a monthly sales goal of 100 vehicles but is only allocated 50 vehicles or if it is allocated vehicles only at the end of a month, that dealer would never be able to reach its sales goal, which would prevent that dealer from receiving certain incentives and earn additional allocation. These members commented that manufacturers could adjust their current allocation algorithms to accommodate a minimum amount of allocation (based on monthly sales goals) to be distributed to each dealer.
Members opposing the rule (including manufacturer representatives and some dealers) commented that the proposed rule would result in certain dealers being allocated vehicles they cannot sell, resulting in unsold vehicles sitting on dealer’s lots, while high performing dealers would not be able to earn additional allocation based on their ability to sell vehicles (i.e., their sales rate). Other members commented that imposing a minimum floor for allocation does not fit the term “reasonable,” as used in the statute, does not take into account that a dealer may decline allocation offered by a manufacturer, would require manufacturers to allocate vehicles to underperforming dealers and would eliminate a manufacturer’s ability to use discretionary allocation.
The Advisory Committee, after receiving comments from members and non-members at the hearing, refused to support the proposed rulemaking advanced by the TADA. As a result, manufacturers may continue to utilize a balanced days’ supply method to allocate vehicles to dealers in Texas. Individual dealers, of course, retain the right to challenge an OEM’s allocation system as unreasonable under Section 2301.452(a).
