Dealership Arbitration Agreement

Dealership Arbitration Agreement: Understanding its Implications

Dealership arbitration agreement refers to a legal arrangement between a car dealership and its customers, requiring them to settle disputes through arbitration rather than through court litigation. This type of agreement has been prevalent in the automotive industry for several years, as it offers a way to minimize legal costs and resolve issues outside of court.

There are both advantages and disadvantages to dealership arbitration agreements that you should know about before signing one. In this article, we will explore how dealership arbitration agreements work, their pros and cons, and what you should consider before agreeing to one.

How Dealership Arbitration Agreements Work

When you purchase a car from a dealership, the sales contract may include an arbitration agreement. This agreement states that any legal dispute arising from the transaction will be resolved through arbitration. Arbitration is a private legal proceeding in which the parties present their cases to a neutral third party called an arbitrator, who then makes a binding decision.

Arbitration agreements may also limit the damages a consumer can recover, waive rights to a trial by jury, and require the parties to pay their own legal fees and the arbitrator`s fees. Before signing an arbitration agreement, it is important to read and understand its terms.

Pros of Dealership Arbitration Agreements

One of the main advantages of dealership arbitration agreements is that they can reduce the time, complexity, and cost of resolving disputes. If a dispute arises, arbitration can be quicker and cheaper than a court proceeding, and the parties can avoid the uncertainties and delays of litigation.

Another benefit of arbitration is that it provides a more informal and flexible process than a court proceeding, which may be especially beneficial for consumers who may not have extensive legal resources.

Finally, arbitration agreements can offer some protections against class actions and other types of litigation, which can be more costly and time-consuming for both parties.

Cons of Dealership Arbitration Agreements

There are also several potential disadvantages to dealership arbitration agreements that buyers should be aware of. One of the main criticisms of arbitration is that it can be biased in favor of the party with more power or resources. For example, the dealership may have a pool of arbitrators that it prefers to use and who may be more likely to rule in their favor.

Another disadvantage of arbitration is that it often results in lower damages for the consumer than they would be awarded in a traditional court proceeding. Furthermore, the confidentiality of the arbitration process can make it more difficult for consumers to learn about similar complaints or issues.

Finally, some argue that arbitration agreements limit consumers` legal options and can deter them from filing claims or pursuing legal action, which can make it easier for businesses to engage in unethical or illegal practices.

Key Considerations

Before signing a dealership arbitration agreement, it is important to understand its terms and weigh the pros and cons. Here are some key questions to consider:

– What disputes are covered by the arbitration agreement?

– What is the process for selecting an arbitrator?

– What are the fees and costs associated with arbitration?

– Can the parties appeal the arbitrator`s decision?

– Are there any limitations on the types of damages that can be recovered?

– Are there any restrictions on the types of legal claims that can be brought?

– What are the implications for the consumer`s legal rights?


Dealership arbitration agreements can be a useful tool for resolving disputes in the automotive industry, but they also have potential drawbacks for consumers. Before agreeing to an arbitration agreement, it is important to carefully read and understand its terms, and consider the potential impacts on your legal rights and options. Ultimately, the decision to sign an arbitration agreement should be based on a thorough assessment of the benefits and drawbacks, and the specific circumstances of your transaction.