Alternative Distribution Models In The Automotive Sector: Contractual Law Issues

October 2025 – The European automotive industry is in the midst of a profound transformation. Traditional dealership networks are being redefined, with manufacturers increasingly weighing direct-to-consumer, agency, or hybrid sales models. While such innovations can enhance brand control and customer engagement on the part of manufacturers, they also raise complex contractual law issues related to commercial and legal sustainability.

At the centre of these challenges is the reality that altering hitherto existing distribution models requires substantial changes to existing contractual relationships. After all, most dealership agreements contain detailed provisions on exclusivity, termination rights, and non-compete obligations.

Failure to comply with such contractual obligations naturally entitles the other party to pursue claims for incurred damage or to seek additional legal remedies. Dealers exiting automobile sales networks or forced to alter operations may seek reimbursement from manufacturers for unrecovered investments, loss of goodwill, or diminished market position.

Contractual issues

Across most jurisdictions in Central and Eastern Europe (including Austria, Bulgaria, Croatia, the Czech Republic, Hungary, Romania, Serbia, Slovakia and Turkey), the standard approach has been that changes to contractual relationships must be effected through either renegotiation or the lawful termination of existing contracts, with close attention paid to provisions on exclusivity, termination rights, and non-compete provisions. These clauses are generally enforceable and must adhere to the principles of fairness, non-discrimination, and must also be proportionate and justified by legitimate business interests in line with both national and EU competition laws – in particular the EU's Commercial Agents Directive. While the selection of foreign governing law for distribution contracts is permissible in most jurisdictions, overriding mandatory provisions is also viable.

Altering a dealer's territory, reducing their role, or replacing or complementing it with a direct sales channel typically requires contractual renegotiation or termination in accordance with the respective terms and statutory rules.

The renegotiation of existing contracts must be mutually agreed by the parties, with the option for either party to opt-out of the process. Termination procedures normally require advanced written notice, the duration of which depends on the given jurisdiction, whether the agreement was for a definite or indefinite period of time, and on the clauses contained in the specific agreement.

When any contract is terminated without proper notice, or without providing compensation, this carries the risk of breach of contract claims – which certainly also applies to the automotive distribution industry. Typically, any assessed liability is dependent on the terms of the specific contractual relationship. But in the event of a breach, the terminating party may be held liable for any damage incurred by the other party. Thus, compliance with the respective termination procedures and termination compensation terms demands close attention.

In numerous jurisdictions the maximum termination indemnity amount that applies to automotive dealerships must not exceed the annual average remuneration received by a dealer during the past five years. In addition, potential claims for goodwill, investments, or compensation on the part of dealers when operations are disrupted, are widely recognised as crucial factors in such cases. Dealers, especially in cases of non-compliance, or when a contract is terminated prematurely, may seek compensation for any prior investments or loss of profits. In Turkey and Austria, for example, dealers and agents may claim reimbursement for unamortised investments or for the value of customer portfolios which they have developed.

Outliers

Despite pan-European harmonisation, key jurisdictional differences are still found. For example, Austrian law deviates from the EU Directive on Commercial Agents and states that an agreement that restricts a commercial agent's business activities for the period after the termination of a contract is not legally valid. In the Czech Republic, Slovakia and Croatia non-compete clauses covering a period longer than two years after the termination of the respective agency are also prohibited. Meanwhile, Turkey imposes specific compensation caps and strict requirements for post-contractual non-compete clauses. Likewise, statutory notice periods differ: Austria provides for two years' notice in certain distribution agreements, whereas Hungary maintains a three-month period irrespective of contract length.

Summary

Local variations remain a key factor when restructuring automotive sales distribution systems. Moreover, only minimal distribution model-related case law has been developed in most CEE countries.

Kinstellar's multijurisdictional team offers specific automotive sector expertise. We are perfectly placed to guide clients through the legal complexities associated with both existing and future distribution models.

This article was prepared with contributions from Markus Taufner, Dominika Bajzáthová, Hrvoje Klišanić, Debora Dineva, Daniel Peter, Eren Ertem, Radim Kotlaba, Mina Srećković, and Marc Barabas and others.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.