Texas Motor Vehicle Regulatory Advisory Committee Rejects Texas Dealers Association’s Attempt to Overhaul Vehicle Allocation System

On June 25, 2024, the Texas Department of Motor Vehicles’ Motor Vehicle Regulation Advisory Committee (the “Advisory Committee”) denied a rulemaking petition filed by the Texas Automobile Dealers Association (“TADA”) requesting the Department of Motor Vehicles (“DMV”) adopt new regulations defining the terms in Tex. Occ. Code § 2301.452(a) relating to the allocation of new motor vehicles.

The relevant part of section 2301.452(a) provides that the manufacturer “shall provide in a reasonable amount and within reasonable time to a franchised dealer . . . any new motor vehicle . . . covered by a franchise, if the vehicle . . . is publicly advertised as available for delivery or is actually delivered.” (Emphasis added). TADA requested that the Advisory Committee introduce a provision that would define “reasonable quantity” and “reasonable time” to generally require manufacturers to allocate motor vehicles in sufficient numbers to meet the sales standards or expectations of that manufacturer, regardless of the dealer’s sales performance or current vehicle availability.

A year earlier, in March 2023, a bill with similar wording was filed in the Texas Senate, containing a provision that would require manufacturers “each quarter or during any three-month period… (to) make available to each dealer of motor vehicles an allotment of sufficient vehicles, by model, to enable each dealer to meet the sales standards for such period,” Texas Senate Bill 2195. The bill was referred to the Business and Commerce Committee but did not advance out of committee.

Senate Bill 2195 and the proposed rule introduced by TADA would seek to overhaul manufacturers’ allocation systems, which typically allocate vehicles by comparing a dealer’s inventory and in-transit vehicles to the dealer’s sales rate (commonly known as the “balanced supply days” system). Additionally, manufacturers typically reserve a small percentage of an available pool to allocate vehicles to dealers at their discretion.

Advisory Committee members supporting the rule noted that smaller dealers, especially in times of shortage, need a minimum level of allocation to survive and meet their sales goals that the proposed rule would achieve. 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 the dealer is only allocated vehicles at the end of the month, the dealer would never be able to meet its sales goal, which would prevent the dealer from receiving certain incentives and obtaining an additional allocation. These members noted that manufacturers could adjust their current allocation algorithms to include a minimum amount of allocation (based on monthly sales goals) to be distributed to each dealer.

Members who opposed the rule (including representatives of manufacturers and some dealers) commented that the proposed rule would result in some dealers being allocated vehicles that they could not sell, resulting in unsold vehicles sitting on dealer 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 allocation level does not fit the term “reasonable” as used in the bill, does not take into account that a dealer may reject an allocation offered by a manufacturer, would require manufacturers to allocate vehicles to low-performing dealers, and would eliminate a manufacturer’s ability to exercise discretionary allocation.

The Advisory Committee, after receiving comments from members and nonmembers at the hearing, declined to support the proposed rulemaking advanced by TADA. As a result, manufacturers may continue to use the balanced delivery days method to allocate vehicles to dealers in Texas. Individual dealers, of course, retain the right to challenge the OEM allocation system as unreasonable under section 2301.452(a).