Law, Without Force, is Impotent.

--- Blaise Pascal - 1623-1662. French mathematician, physicist, and religious philosopher.

I am not a lawyer. I don't want to play lawyer. But I am affected by the law - especially when I do business with aparty who flaunts the law. What follows is my interpretation of an existing condition in South Dakota that I find unfair and in violation of our state laws.

South Dakota franchised automobile dealers are subject to state laws that regulate their activity. If a dealer finds himself in violation of one of the regulations found in Chapter 32-6B of South Dakota Codified Law, he or she can expect a phone call or visit from the Division of Motor Vehicles with a request that he or she "cease and desist". And if he or she does not "cease and desist", I would expect that the Attorney General would proceed with prosecution.

What happens when a franchisor, or automobile manufacturer residing in another state in this case, violates a law in that same chapter of South Dakota Codified Law? Who is it that enforces the good people of South Dakota's laws in that instance? Does the Division of Motor Vehicles visit or call them? Does the Attorney General call to remind them that they are violating laws that the the South Dakota Legislature has passed into law? At what point does it move to prosecution?

In Chapter 32-6B of South Dakota Codified Law, section 57 prohibits an automobile manufacturer selling their vehicles to dealers at different prices:

It shall be unlawful for a franchisor to offer to sell or to sell any new vehicle to any franchisee at a lower actual price therefor than the actual price charged to any other franchisee for the same model vehicle similarly equipped or to utilize any device including, but not limited to, sales promotion plans or programs which result in such lesser actual price; provided, however, the provisions of this section shall not apply to sales to a franchisee for resale to any unit of government, federal, state, or local. Provided, further, the provisions of this section shall not apply to sales to a franchisee of any vehicle ultimately sold, donated, or used by said franchisee in a driver's education program. Provided, further, that the provisions of this section shall not apply so long as the franchisor offers to sell or sells new vehicles to all franchisees at the same price. Each and every person who violates this section shall be guilty of a Class 1 misdemeanor, and each and every person violating this section shall be liable thereby for all damages caused by such violation.

Now despite the fact that this is written in legalese and someone did their best to camouflage the true meaning of the law, one can still glean what is intended by the law. I believe that this law says that an automobile manufacturer cannot sell a vehicle to a South Dakota dealer at a price any different than that same manufacturer sells a similarly equipped vehicle to another South Dakota dealer (except in the cases of a government fleet vehicle or a vehicle intended for driver education purposes). That is not that difficult to understand.

So what happens if a manufacturers does sell a vehicle to one South Dakota dealer at a price any different than that same manufacturer sells a similarly equipped vehicle to any other South Dakota dealers? Well, the law indicates that they are committing a Class 1 misdemeanor and they are to be "liable thereby for all damages caused by such violation".

Well, what the hell does that mean? Apparently, it means nothing. I mean ABSOLUTELY NOTHING! Let me explain.

Virtually every automobile manufacturer that has multiple franchisees in South Dakota has sales or marketing promotions that allow a dealer to get some kind of "kickback" from the manufacturer that results in the ultimate cost of a vehicle being different for different dealers. These programs might be related to facilities or other aspects of the dealers business practices or they may be related to sales volume. An example of a program that rewards dealers for spending money on their facility is General Motors' EBE program which I have detailed here.

An example of a program that rewards dealers for their sales volume might be as follows. The manufacturer assigns a dealer a sales objective. These sales objectives are completely arbitrary (though they are usually based on past sales performance) because they cannot take into account the various factors in any given market. These might include the dealers' current inventory (how many vehicles or models does dealer have available to sell), local market conditions (think urban versus rural, metro versus small, etc.), and a variety of other circumstances over which a dealer may have no control. The dealer then earns a "kickback" based on how well he performs against the arbitrary sales objective.

Regardless of how the dealers earn the "kickback", they come in different amount to different dealers and because this is included under the "sales promotion plans or programs which result in such lesser actual price" provision of the law, this practice violates South Dakota law. A quick visit to Google to see what the punishment might be for a Class 1 misdemeanor in South Dakota indicates the  maximum penalty is one year imprisonment in a county jail or two thousand dollars fine, or both. I haven't see any automobile manufacturer executives headed to the county jail in Lyman or Brule Counties.

So why should you care if you are not a South Dakota automobile dealer? The law is intended to protect dealers and their customers by assuring fair competition for all. It is similar to the destination charges on new vehicles. There was a time when you could travel to Detroit and pick up your vehicle direct from the manufacturer, thereby eliminating the destination charge. This ended over 30 years ago, when the automotive industry was required to adopt equalized freight charges.

You should also care because this is our law. As South Dakota residents, we don't get to pick and choose which laws we like and will follow and which we don't like and want to leave behind. Manufacturers who choose to do business in our state should be held to the same standard. If you want to do business in South Dakota, you must comply with South Dakota laws.