License To Sell – Quick Facts about Licensure in Iowa

Every automotive dealership in Iowa is required to be licensed by the Iowa Department of Transportation (DOT). Anyone that sells more than six (6) motor vehicles within twelve (12) months may be presumed to be engaged in the business and should be licensed. See Iowa Code § 322.4(1) and § 322.2(8). Further, anyone that is buying cars for the sole purpose of reselling them should also have a dealer’s license. Id.

Acquiring a motor vehicle dealer’s license involves meeting the statutory requirements, completing paying the licensing fees, and, in the case of operating a used motor vehicle dealership, additional required training. Dealers must have an office with a landline telephone where regular business hours are maintained, a repair facility with minimum space and equipment to repair at least one vehicle of at least 14 feet by 24 feet, and adequate outdoor display facility. Display facilities for new motor vehicle dealers must also include an indoor display space that is at least 18 feet by 30 feet. See 761 IAC 425.12. Automotive dealerships also have specific insurance requirements, including a $75,000 surety bond that must be filed with the Iowa DOT and minimum liability requirements of $100,000. Iowa Code § 322.4(g) and § 322.4(h).

Dealers also must renew registration and pay licensing fees every two years, with the license expiring on December 31 of even-numbered years. Currently, licensing fees are $70 for each registration, $70 for each license, and $20 for every extension lot within the same city. See Iowa Code § 322.5(1) and § 322.29. The Iowa DOT does not prorate the amount of this fee, which means that a license purchased on January 1, 2017 and December 20, 2018 will cost the same and both expire on December 31, 2018. Additionally, if a dealership is registered it can obtain dealer plates for operation of certain vehicles on the roadways. Each dealer requires an additional fee of $40.

Finally, if a used-vehicle dealer does not qualify for an exception, it is also required to attend a dealer licensure-training program. The pre-licensing class is a minimum of eight (8) hours, with a five (5) hour continuing education class required every two years to renew the dealer license. At least one person from the dealership such as an owner, officer, member, or partner must attend the training. The training is offered through the Iowa Independent Automobile Dealers Association, with classes generally offered monthly.

Many new motor vehicle dealerships also participate in leasing programs for new motor vehicles. Any motor vehicle dealership that will lease a motor vehicle for use for a period of more than sixty (60) days must obtain a separate leasing license from the Iowa DOT. Currently, the fee for a motor vehicle leasing license is $30.

Once you have jumped through all of the hoops to get your license, the State of Iowa allows you to sell vehicles at your main dealership and registered extension lots. Dealers can also obtain temporary permits, for an additional $10 fee, to display vehicles at fairs, shows, and exhibitions. Although dealers are allowed to offer vehicles for sale at such events, the final sale must take place at the dealer’s registered principle place of business. Additionally, certain motor vehicle dealers can sell vehicles at certain events (e.g fairs, show, exhibition) that are located within its area of responsibility for new vehicles, see Iowa Code § 322.5(2)(a) and 761 IAC 425.26, or the same county as its principal place of business for classic vehicles, see 761 IAC 425.29.

The aforementioned summary is a quick overview of the licensure requirements in Iowa; it is not meant to be an exhaustive list of requirements or to address every situation or exception. If you have questions about licensure requirements, fees, or what your license permits in Iowa, contact the knowledgeable professionals at Arenson Law Group, PC. Arenson Law Group, PC, is here to assist you with any of your dealership’s legal questions. Call us today at (319) 363-8199.

Defining Good Faith in Iowa Automotive Franchise Law

In 2010, the Iowa legislature passed S.F. 2234, which added a new section to the Iowa Motor Vehicle Franchisers law (Iowa Code § 322A.18) (the “Act”) regarding a duty of good faith. The new section says: “A franchise imposes on the party a duty of good faith in performance and enforcement of the franchise agreement. ‘Good faith’ means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.” So far, however, there are no Iowa cases reported that specifically interpret this new section of our state’s dealer law.

Traditionally, contract disputes in Iowa have the same general requirement of “honesty in fact and the observance of reasonable commercial standards of fair dealing.” Therefore, the Act has an additional requirement of looking to the “trade” (automobile industry) to determine what “fair dealing” means. Since we do not have cases in Iowa to provide an example of what this may mean for automobile dealers, cases that have similar requirements outside of Iowa may provide some clues.

Pennsylvania has a Board of Vehicles Act that was created “to promote fair dealing and honesty in the vehicle industry and among those engaged therein without unfair or unreasonable discrimination or undue preference or advantage.” As such, franchisors in Pennsylvania are required to deal with franchisees “in good faith and in a commercially reasonable manner.” This language is similar to Iowa’s good faith requirement.

Two competing Cadillac dealerships in the Pittsburgh area recently fought with GM about relocation. One dealer, Bowser, wanted to relocate so that he could achieve the requirements to be eligible for GM’s Essential Brand Elements (EBE) program. The EBE program pays dealers approximately $400–$800 per vehicle sold if the automobile dealer’s facility complies with the EBE standards. For Bowser, meeting the EBE standards required a complete rebuild.

Bowser’s dealership was located on rented property, and he did not want to rebuild on property that he did not own. Although he attempted to buy the property, the property owner wanted a price that was roughly $1 million higher than market value. So, he looked for other potential locations. He found another location that had good visibility and was priced reasonably.  However, GM attempted to prevent the relocation.

As part of Bowser’s dealer agreement, GM required him to request and obtain GM’s approval before any relocations. In response to Bowser’s relocation request, GM offered to buy-out Bowser’s franchise or move the Cadillac dealership to Bowser’s Buick-GMC dealership, which was east of the Cadillac dealership. Bowser rejected each of these suggestions and GM subsequently denied Bowser’s relocation request.

GM stated several reasons for its denial of the relocation request. At the heart of the denial was concern that Bowser’s move would place his dealership too close to Rohrich’s dealership. Rohrich is a competing Cadillac dealership that did meet the EBE standards because of a recent remodel. However, GM did not explicitly state that Rohrich was the main reason that they denied the request. Instead, GM gave a number of unrelated reasons that were not actually supported.

Bowser argued that GM was unreasonably withholding consent to the relocation in violation of Section 12(b)(4). Section 12(b)(4) requires that a manufacturer must have good reason to deny a new vehicle dealer’s relocation request. Rohrich petitioned to intervene in the proceeding and did so with the consent of the Board. After two days of testimony from GM, Bowser, and Rohrich, the Board determined that GM did unreasonably withhold their approval for the dealership relocation.

The Board concluded that many, if not all, of GM’s stated reasons were not the actual reasons for the denial of Bowser’s relocation. In fact, the evidence showed that GM had discussed Bowser’s move with Rohrich and expressed concern to Bowser that Rohrich would be upset with the move. GM specifically discussed alternatives that Bowser could pursue with Rohrich. As such, GM did not meet the requirement of good faith by failing to explain the actual reasons behind the request denial.

The Board issued a final order supporting Bowser’s move and ordering GM to approve the relocation request. Then, Rohrich, not GM, filed for review of the Board’s order. The Commonwealth Court of Pennsylvania took the appeal to explain that GM had the burden to prove that its denial was reasonable. Bowser did not need to show that the refusal was unreasonable. The Court concluded that a “vehicle manufacturer’s conduct that fails to meet standards of good faith and honesty may therefore may properly be found unreasonable under the Board of Vehicles Act.” Since the Board found that the reasons that GM articulated for refusing the relocation request were not the actual reasons, GM unreasonably rejected Bowser’s request for relocation.

Like Pennsylvania, Iowa’s Act requires good faith. As this case illustrates, that likely means that if the franchisee can show that the franchisor is not being honest, then they have violated the required duty of good faith. To determine how this affects your dealership and your relations with the factory, contact the car dealer attorneys at Arenson Law Group, PC at 319-363-8199.

Attention Business Owners: You May be Eligible for the New Iowa Tax Credit!

The Iowa legislature recently enacted the Business Property Tax Credit. The credit will allow commercial-property owners to cut down on the property taxes in 2013 that will be payable in the fall of 2014 or the spring of 2015. This credit will apply to certain commercial, industrial, and railroad properties. It will not apply to properties such as agricultural property, residential property, property that is rented or leased under low-income housing, mobile home parks, nursing homes, or manufactured home communities.

The credit is designed to help small businesses in Iowa, but large businesses can take advantage of the credit up to a certain amount as well. The Iowa Legislature saw high commercial property taxes as a factor that decreases business growth and new job creation. Their hope is that by giving businesses this credit, it will also give local economies a boost. The Legislature estimates that the credit will about $523.

You must apply for the Iowa Business Property Tax Credit by January 15, 2014. Check out www.iowa.gov/tax/locgov/13PTReform.html to apply for the credit. You can also find more information here: http://www.iowa.gov/tax/locgov/BPTCInstructions.pdf. If you have questions about how the credit will affect your business or how you should apply for this credit, contact Arenson Law Group, PC at 319-363-8199 today, and will be happy to discuss the new credit with you.

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