Before the Showroom Stock and the Service Van: Channel Rules to Get in Writing

Before you spend on showroom stock and a service van, get the commercial rules in a signed document rather than a sales deck. The rules that protect an investment are narrower than the ones usually discussed. Territory matters, but only if a breach carries a remedy. Stock terms matter more: rotation, return and demo buy-back decide whether unsold inventory is an asset or a write-off. Vehicle and tool ownership, warranty labour reimbursement, spare parts allocation, lead registration and online sales rules all belong in the same agreement, because each one changes what the investment is worth if the relationship ends. And one legal boundary deserves checking before you sign: a dealer arrangement that pairs a brand with a marketing system and a fee can fall inside the franchise disclosure rule.

The Money You Spend Before Anyone Protects It

Showroom stock and a service van are capital that only pays back through the territory. A van full of tooling and spares is worth its cost if you are the authorised service point for a defined area for a defined term. If the factory can appoint a second dealer across the road, or sell direct into your accounts, or terminate on short notice, your capital is financing someone else’s market development. The point of the agreement is not to make the relationship formal. It is to make the capital recoverable.

That is why the sequence matters. Negotiate the document first, then buy the stock. A factory that wants the order will usually produce a dealer agreement quickly, and the quality of that draft tells you a great deal about how the relationship will be run. A factory that will not put channel rules in writing before your investment is asking you to carry the risk that it has not defined.

Territory Is Not Protection Unless It Has a Remedy

Definitions of territory are easy and almost every draft has them. What most drafts lack is what happens when the definition is broken. Write the geography precisely, by named administrative units, postal codes or named accounts, and state whether the appointment is exclusive, protected or non-exclusive. Then add the consequence clause: if the factory appoints another dealer inside the boundary, what does it owe you? Options include a transfer payment calculated on your demonstrated sales, a right to terminate without penalty and to have remaining stock repurchased, a reduction in your purchase obligations, or a right of first refusal on the new appointment.

Also define the exceptions that factories normally keep: national accounts, tenders, government projects, export sales, and internet sales. The exceptions are where exclusivity usually dies, and they should be listed rather than left to be discovered. Consignment stock for distributors is a useful comparison because it shows how a stock arrangement can be structured so that the factory carries the inventory risk instead of the dealer.

Stock Terms: Rotation, Return and Demo Buy-Back

Showroom stock is not a normal purchase, because part of it exists to be demonstrated rather than sold, and part of it will be superseded. Three clauses make the difference. Stock rotation: the right to return a stated proportion of unsold current stock for credit within a stated window, with the condition that it is undamaged and in its packaging. Supersession: what happens when the model you hold is replaced, and whether the factory takes back the old demonstration unit. Demo buy-back or demo support: whether the demonstration unit is supplied at a reduced price, on consignment, or as a loan that must be returned.

Write the mechanics too, because a right without a procedure is not a right. Who pays the freight on a return, what credit note it produces, how long it takes to be issued, and what happens if the returned unit fails inspection. Then define the end of the arrangement: what the factory must buy back, at what basis, and within what period. A dealer who has to liquidate stock through a competitor has lost the value of the investment twice.

Vehicles, Tools and Branded Assets

A service van is usually bought by the dealer, but its livery, its tooling and its diagnostic equipment may be specified or branded by the factory. State ownership explicitly, and state what happens at termination: whose obligation is it to remove branding, how long is allowed, and can the factory require you to stop using the vehicle’s branded identity immediately. The same applies to demo equipment, spare parts kits, calibration tools and any software licence installed on your devices.

If the factory contributes to the vehicle or the showroom fit-out, write it as a defined contribution with a defined clawback, rather than as a vague subsidy. A contribution that can be reclaimed at the factory’s discretion is not support, it is a hold over your business. The risk management file a distributor gets asked for is a reminder that some obligations run the other way: the distributor carries regulatory duties that the agreement should acknowledge and resource.

Service Economics: Warranty Labour, Spares and Training

The van exists to service machines, so the agreement has to define how service is paid for. Warranty labour reimbursement is the usual gap: what is covered, at what rate, with what documentation, and how quickly it is settled. Do not accept a promise of support. Ask for the structure: labour time allowances per procedure, travel rules, parts supplied free or at discount, the claim form, the approval route, and the payment cycle.

Spare parts allocation matters as much as price. Ask for a defined spare parts kit with the machine, a stated parts availability period after end of production, and a lead time for emergency orders. For training, get numbers rather than intentions: places per year, whether training is at the factory or on site, whether certification is issued and how long it remains valid. A service van without certified technicians is a vehicle with a ladder in it. Who prepares which page of the registration file matters in the same way, and which dossier pages come from the manufacturer sets out the split a distributor inherits when it registers the product in its own market.

Leads and Deal Registration

Lead ownership is where dealer relationships turn sour fastest, because it is the one rule that affects day-to-day revenue. Ask for a registration system with a time limit: a dealer registers a project or an account, the factory confirms or rejects within a stated period, and confirmation gives protection for a stated duration with a defined activity requirement. Without a clock, registration becomes a land grab; without an activity requirement, a dealer can squat on accounts indefinitely.

Define the conflict resolution as well. If the factory receives an enquiry from your registered account, does it route to you or quote directly? If two dealers register the same project, who wins: first registration, the one with the site visit, or the one the customer named? And what happens to a project that the factory’s own team has been working before your appointment? Write the answers, because the first disputed lead will otherwise be settled by whoever has the better relationship with the sales manager.

Online Sales and Marketplaces

Decide in writing whether you may sell online, on which platforms, and under what identity. Three questions need answers. May you list the products on marketplaces, and if so, on which ones? Must you use the factory’s approved imagery and wording, and who owns the resulting content? And what is the position when the factory itself or another dealer undercuts the listed price online?

A pricing policy is useful only if it defines the consequence of a breach, and only if it applies to every channel including the factory’s own website. A one-sided policy that constrains dealers while the factory sells direct at a lower price is a reason to leave the arrangement, and it is better discovered at signature than after the stock is on the floor.

The Franchise Boundary Worth Checking

One legal question deserves attention before signing, particularly for dealers selling into the United States. An arrangement that grants the right to operate under a brand, plus significant control or assistance over the method of operation, plus a required payment, can meet the definition of a franchise under the Federal Trade Commission’s franchise rule, published at 16 CFR Part 436. That classification brings disclosure obligations and a timing rule for when the document must be delivered, and it can reframe what you thought you were signing.

This is a question for a lawyer, not for the factory’s sales manager, and it is worth asking before the money is spent rather than after. If the arrangement is close to the line, the right response is not to avoid the dealership but to establish which side of the line it sits on, and to make sure the required disclosures exist. A factory that has done this before will know exactly what you are asking. A factory that has not will learn something useful at your expense, which is a reason to ask early.

The Checklist to Sign Before the Van

Territory with boundaries and a named remedy for breach, including the exceptions the factory keeps. Stock rotation, supersession and buy-back terms with the freight, credit and inspection mechanics. Ownership of the van, tooling, demo stock and software, and the exit procedure. Warranty labour reimbursement structure, spare parts allocation and availability period. Training numbers and certification validity. Lead registration with a clock and an activity test, plus a conflict rule. Online sales and marketplace rules that bind every channel. Term, notice period and the handling of unsold stock at the end. And a written answer on the franchise question, or a reference to the advice you obtained.

None of that requires the factory to promise more than it can deliver. It requires it to say what it means, so that when you sign the purchase order for the showroom and the van you know what you are buying alongside them. The stock and the van are the visible investment. The agreement is the one that decides whether you get it back.