Dealer gets injunction to stop Ford fining him

Instead, Ford has instituted the chargeback system, which for some dealers amounts to close to $1-million. If the chargebacks aren't paid, ""they put it on your parts statement, and if you don't pay your parts statement, they put you on COD and you're basically out of business," Mr. Chernichen added.

The Globe and Mail
November 25, 2001

Dealer gets injunction to stop Ford fining him
Auto maker told to end 'chargebacks' on Canadian vehicles shipped to U.S.
Greg Keenan

A Calgary auto dealer has won an injunction against Ford Motor Co. of Canada Ltd. that prevents the auto maker from levying a fine against him because some vehicles he sold ended up in U.S. driveways.

The injunction is a victory for Marlborough Ford Sales Ltd. in its closely watched battle against Ford, which has levied so-called chargebacks on several dealers in an attempt to halt export sales — where brokers or others purchase the vehicles in Canada then ship them to buyers in the United States.

The chargebacks are essentially "a penalty in the purest and most oppressive sense," Mr. Justice J.H. Langston of the Alberta Court of Queen's Bench said in a ruling granting the injunction.

"[Marlborough] says that it has taken prudent, responsible and reasonable steps to determine the buyer's intent and to guard against, as best it can, sales of vehicles to the United States," Judge Langston said.

But there are no clear procedures established by Ford to prevent export sales, he said, which means dealers become responsible for controlling such sales.

"The logical consequence of such procedures is a nebulous and ill-defined state of affairs in which the dealer must exercise a form of discretion in its sales which is constantly subject to Ford's unilateral and arbitrary review," he said.

The rules on how to ensure customers don't sell vehicles to Americans keep changing, so dealers are never sure exactly what they should be doing, said Donald Chernichen, a lawyer for Marlborough Ford.

"Our contention has been that if you don't like our set of rules, please tell us what they are," Mr. Chernichen said. "If we had a set of rules we agreed upon, that would be fine."

Instead, Ford has instituted the chargeback system, which for some dealers amounts to close to $1-million. If the chargebacks aren't paid, "they put it on your parts statement, and if you don't pay your parts statement, they put you on COD and you're basically out of business," Mr. Chernichen added.

The vehicles that end up south of the border are usually hot sellers such as Ford's heavy-duty pickups, some of its high-end sport utility vehicles and – in recent months — the 2002 Thunderbird.

Brokers can make thousands of dollars by buying vehicles in Canada – where they're priced lower than in the United States — then selling them for U.S. dollars and converting the U.S. currency back into Canadian dollars. The price difference on the Thunderbird, for example, can be as high as $15,000.

Ford and other auto makers oppose the practice in part because their head offices allocate only a certain number of hot-selling vehicles for Canada, and some U.S. dealers have complained about cars originally destined for Canada ending up in the United States.

The auto maker thinks it has a strong case and will go to trial, spokeswoman Lauren More said.

Exports are prohibited under sales and service agreements dealers sign, Ms. More said.

"Our dealers are under contract to sell to Canadians," she added. "We'd like the vehicles allotted to Canada to be in the hands of Canadians."

Ford, which levied a charge of about $83,000 on the Calgary dealership, has been the most active in trying to stop the flow of new vehicles out of Canada.

Several cases involving Ford chargebacks have gone through the National Automobile Dealers Arbitration Plan, a joint arbitration program set up by dealers and the auto makers.


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