Navigating voluntary terminations with your OEM

This article was written by Hilary Holmes Rheaume and first appeared in the July issue of Powersports Business.

For powersports and equipment dealers, the decision to voluntarily terminate a franchise agreement or product line can be deceptively complex. What may initially seem like a straightforward business decision — simply notify the manufacturer and move on — can quickly spiral into a costly misstep if not handled with care. From triggering repurchase obligations to navigating state franchise laws, a poorly executed termination can expose dealers to financial risk and legal vulnerability.

I regularly advise dealers on how to approach voluntary terminations in a way that protects their business interests. The process requires more than a courtesy email and a handshake — it demands strategic foresight, contract fluency, and procedural discipline.

Think before you terminate

The first step isn’t sending a termination notice — it’s asking the right questions. Before initiating any action, dealers should pause and evaluate five key areas:

• Who needs to be involved? This usually includes leadership, legal counsel, and in some cases, frontline employees who may be affected by operational shifts.
• What is being terminated? Are you winding down an entire franchise relationship or just a specific product line? The answer will dictate the level of documentation and negotiation required.
• Where will the termination take effect? One location? Several? This impacts not only logistics but legal compliance across state lines.
• When should the process begin? “As soon as practicable” is a more sustainable approach than rushing into “as soon as possible.” Timing can affect everything from inventory management to buyback eligibility.
• Why are you terminating? Whether the decision is driven by profitability, strategic realignment, or supply chain issues, understanding your rationale will help shape the messaging and protect against blowback.

Review your dealer agreement — closely

Your dealer agreement is your playbook — and no two are exactly the same. Before issuing a notice of termination, confirm that the agreement you’re operating under is the most current version. Then scrutinize the termination provisions.

Does the agreement require 30 days’ notice? Ninety? Are terminations only allowed during specific windows? And how must the notice be delivered — via certified mail, overnight carrier, or another method? Failure to follow these details exactly could invalidate the termination or delay important downstream processes, such as repurchase obligations.

Don’t forget to loop in your manufacturer’s dealer representative, and always keep copies of every communication for your records.

Execute with precision

When it’s time to terminate, precision is non-negotiable. Reference the exact contract clause authorizing your action, specify which products or locations are affected, and document every step.

A clear paper trail is your best defense if questions or disputes arise. The goal is not only to comply with your contractual obligations but to demonstrate good faith and professionalism throughout the process.

Understand the repurchase requirements

Voluntary terminations may trigger the manufacturer’s obligation to repurchase inventory, including parts, equipment, signage, and sometimes even special tools. These requirements are governed by both the contract and applicable state franchise laws.

Critically, the clock on repurchase timelines may start the moment a termination notice is issued—not when the termination becomes effective. That means timing and documentation matter. If your state laws are silent on buyback terms, check your agreement—some include repurchase language that dealers can enforce.

Avoid common pitfalls

Even seasoned dealers can overlook key details in a voluntary termination. Five pitfalls I frequently see include:

1. F&I gaps: If financing obligations are not honored or insurance lapses mid-process, deal ers may end up liable for repossessions or uncovered claims.
2. Surprise shipments: Inventory ordered long ago might still arrive—understand your rights to reject it if it’s no longer needed.
3. Dormant lines: Some manufacturers may informally accept a termination but ask you to maintain a dormant line to sidestep repurchase obligations. Insist on formal closure.
4. Handling costs: Handling, packaging, and freight costs add up—track them carefully, as you may be able to recover these expenses.
5. Demo disputes: Manufacturers may claim demo models don’t qualify for buyback. Depending on your state’s laws, that might not hold up.

Best practices for a clean exit

A well-planned termination helps you preserve resources, maintain vendor relationships, and avoid legal headaches. I recommend these best practices:

• Reduce inventory in advance if your agreement lacks a buyback provision.
• Communicate proactively with both your dealer rep and your financing partner to keep everyone aligned.
• Track all expenses, from freight to labor, and maintain meticulous records.
• Put everything in writing — never rely on verbal commitments.
• Engage legal counsel early to evaluate risk and help craft your notice.

Voluntary terminations may feel like the path of least resistance compared to legal action or involuntary franchise terminations. But they carry their own set of risks — especially when contracts, timelines, and state laws collide.

By treating voluntary terminations with the seriousness they deserve — and following a strategic, documented process — dealers can exit cleanly and confidently, preserving both their reputation and bottom line.

Hilary Holmes Rheaume is an experienced attorney providing strategic legal counsel for powersports, automotive, and equipment dealerships. She excels in franchise relations, regulatory compliance, and commercial litigation, representing clients in court and before state agencies and dealer boards.