Hyundai sued over allocation practice

Using discretionary allocation to punish and reward dealers is a common practice among manufacturers, according to Henry Noye, a partner with East Coast law firm Obermayer Rebmann Maxwell & Hippel.

“They’re going to say, ‘This is voluntary, you don’t have to do this,’ but they also have the power of the purse. So when you try to do something else, you get less of a priority,” Noye told Automotive News.

Discretionary allocation exists so that automakers can move inventory to dealerships for a variety of reasons, such as helping a store where vehicles have been damaged by extreme weather.

Central Avenue argues Hyundai is using its discretionary allocation powers to punish it for noncompliance, and that is “causing significant damage … in the form of lost sales, revenue and profit.”

Hyundai Motor America maintains it has the right to reward dealers as it sees fit.

“We had a very simple view as we launched these programs…that these are all voluntary,” Robert Grafton, Hyundai’s vice president of dealer network and strategy, told Automotive News. “There’s support for dealers who elect to participate in helping offset their [capital expenditure] expenses, and if a dealer elects not to participate, that’s fine as well.

“We’ve committed over $1 billion to support our retail partners’ investments, updating their facilities and ensuring that there’s a consistent look that meets the brand standards and addresses consumer expectations,” he said.

Grafton said 70 percent of Hyundai’s 832 dealers have opted into the store upgrade program.

“You don’t get 70 percent of an entire network doing anything unless they have confidence in terms of where the brand is headed, what it’s trying to accomplish and how it’s going about that.”