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Five-year contracts dismissed as 'mad'

BMW and Peugeot dealers are coming to terms with an uncertain future after the two carmakers issued five-year retail agreements under the revisions to block exemption.

Under the agreements, both companies now only have to give retailers six months' notice before terminating. BMW says this will help protect its dealers from outside competition, but automotive industry experts disagree. Rival carmakers have issued rolling two-year contracts, which have a notice period of two years.

The new contracts will prejudice retailers from some advantages of the new block exemption, says Alan Pulham, director of the Retail Motor Industry Federation's Franchised Dealer Division.

“Dealers won't be able to sell their businesses as a going concern under contracts with such short termination periods. Under these contracts carmakers don't have to give a reason for termination,” he says. “It's absolute madness. It gives BMW and Peugeot greater control of their network.

“But there is an option – dealers don't have to sign. This is an example of manufacturers finding a way of manipulating regulations.”

One industry analyst says: “Dealers operating under a five- year agreement will find that the value of their business fluctuates dramatically compared to a business working under a two-year agreement. Because the manufacturer only has to give six months' notice rather than two years, retailers will only be able to plan for the value of their asset in a short-term way.”

Under the new contracts, BMW warns that 90 per cent of dealers will have to invest in the franchise.

That could mean new showrooms, parts departments and service bays if dealers want to meet strict bonus conditions.

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