By Jason Brisebois, John Yiokaris, and Peter Viitre, SOTOS LLP
Canada is an attractive but highly regulated market for foreign vehicle original equipment manufacturers (OEMs). It has a safe and stable economy and adheres to the rule of law, making it an appealing destination for OEMs looking to introduce their products into new foreign markets.
While the Canadian marketplace may appear similar to the United States at first glance, dealer regulation, franchise protections, differing legal systems, tariffs, environmental law requirements, data privacy laws, consumer protection laws, and other regulatory regimes create a distinct legal and commercial environment.
Careful dealer network structuring at the outset is critical to avoiding regulatory friction, dealer disputes, and costly restructuring later. This article outlines certain principal considerations that non-Canadian OEMs should review when expanding into the Canadian marketplace and designing a Canadian dealer network.
Choosing the right market entry structure
Many OEMs enter Canada by establishing a wholly owned Canadian subsidiary, which contracts directly with dealers and manages national distribution, marketing, and compliance. This structure offers simplicity with respect to tax, employment, regulatory, and related matters, while also providing liability containment.
Alternative models, such as appointing an independent importer and distributor, may offer speed to market but can result in reduced brand control and increased difficulty transitioning to a direct manufacturer-dealer relationship at a later stage. Once dealers are entrenched under a third-party distributor, realignment can be highly contentious and expensive.
Regardless of the model adopted, early cross-border tax planning is essential. Canada’s corporate tax, sales tax, transfer pricing, and withholding tax regimes can materially affect OEM and dealer economics, pricing, and overall profitability if not addressed upfront. Misalignment between legal structure and tax planning can result in compliance exposure and costly retroactive restructuring.
Dealer network architecture and coverage strategy
Canada’s geography, population distribution, and climate materially affect the planning and scope of any proposed dealer network. While Canada is geographically vast, its population is highly concentrated in a small number of urban corridors, including southern Ontario, Québec’s St. Lawrence corridor, and parts of British Columbia and Alberta. This uneven distribution complicates dealer placement, service coverage, and vehicle and parts logistics, particularly in lower-density regions. In addition, Canada’s population has grown significantly over the past five years, driven in part by increased immigration.
In the seven provinces that have, or will soon have, franchise disclosure and relationship legislation — including Ontario, British Columbia, and Alberta — automotive dealerships generally constitute “franchises” under such laws, regardless of how the dealer agreement characterizes the relationship. As a result, a franchise relationship will often exist between the OEM and each dealer, even if one is not intended, imposing additional disclosure and relationship obligations on the OEM. Failure to recognize and comply with these obligations can result in significant monetary and reputational consequences and may materially affect an OEM’s entry into the Canadian market.
Some OEMs have also moved away from the traditional franchise model toward agency or direct-to-consumer (D2C) models, under which dealers no longer own and sell new vehicles directly but instead focus on delivery, test drives, service, and used vehicle sales. This shift is often driven by a desire to establish closer ties with customers, reduce dealer floorplan requirements, and capture a greater share of vehicle sales margins.
In light of these developments, key dealer network considerations include whether to adopt a traditional franchise model, an agency (D2C) model, or a hybrid approach, and whether different models will apply across vehicle lines; how to ensure adequate national and regional coverage, including rural and remote markets; whether dealers may operate single-brand or multi-brand rooftops; and how network density, point allocation, facility requirements, and the opening or closure of locations will be managed. Dealers operating other OEM franchises may also face contractual restrictions on taking on additional brands.
Dealer agreement design and termination risk
Dealer agreements in Canada must balance brand control with enforceability and commercial realities. Given that dealer relationships often last for many years, such agreements should be carefully drafted and forward-looking, while providing dealers with a reasonable opportunity to recoup their investment.
Dealer agreements typically constitute franchise agreements under applicable franchise disclosure and relationship legislation. Key drafting considerations include term length and renewal rights, performance criteria, facility and branding standards, staffing and training requirements, floorplan obligations, export restrictions to prevent grey marketing, ownership and change-of-control provisions, and termination rights and notice periods.
Provincial and federal legal and regulatory considerations
Canada’s federal system has a material and often underestimated impact on foreign OEMs. Legislative authority is divided between the federal government and the provinces, resulting in overlapping regulatory regimes. While competition law, customs, and certain safety standards fall under federal jurisdiction, provinces regulate dealer licensing, consumer protection, franchise disclosure, employment standards, and aspects of environmental compliance.
Dealer regulation, including licensing regimes such as Ontario’s OMVIC framework, is provincial in nature, requiring OEMs to manage compliance across multiple jurisdictions simultaneously. OEMs should also be mindful of advertising and marketing laws, franchise disclosure obligations, competition and consumer protection legislation, language requirements, particularly in Québec, and environmental and emissions standards.
Successful expansion into Canada therefore requires a coordinated national strategy that is adapted to provincial realities, rather than a one-size-fits-all approach.
Data, digital retail, and customer ownership
Data has become an increasingly important asset for OEMs. However, Canadian laws governing the collection, use, storage, disclosure, and destruction of personal information are extensive. At the federal level, the Personal Information Protection and Electronic Documents Act (PIPEDA) applies to commercial activities, while several provinces have enacted enhanced private-sector privacy regimes that impose stricter requirements.
These laws affect digital retail platforms, dealer CRM systems, marketing programs, connected-vehicle and telematics data, and cross-border data transfers. Emphasis is placed on meaningful consent, purpose limitation, and accountability throughout the data lifecycle. OEMs must ensure that their data architecture, dealer agreements, and customer engagement strategies align with these requirements, even where customer interactions occur primarily at the dealer level.
Dispute resolution
To mitigate litigation risk, OEMs should carefully consider dispute management mechanisms within their dealer agreements, including dealer advisory councils, escalation frameworks, and tiered dispute resolution processes such as mediation and arbitration.
Most OEMs operating in Canada participate in the National Automobile Dealer Arbitration Program (NADAP), an industry-funded mediation and arbitration program that provides binding dispute resolution between OEMs and dealers. While participation is not mandatory, NADAP is widely used due to its efficiency, confidentiality, and reliance on arbitrators with automotive industry expertise. OEMs should assess whether participation aligns with their distribution model and ensure internal processes are structured accordingly.
OEMs should also be aware that provincial franchise legislation permits dealers to associate, and dealer associations are common in Canada. Depending on the circumstances, such associations may either simplify or complicate dispute resolution.
Conclusion
Canada is a stable, sophisticated, and attractive automotive market, but it is not a plug-and-play extension of other jurisdictions. OEMs that invest early in thoughtful dealer network structuring, regulatory compliance, and balanced dealer economics are better positioned for sustainable growth and long-term brand stability.
About the authors
Jason Brisebois is a partner at Sotos LLP, practising corporate, commercial, and franchise law, with a focus on the automotive sector. jbrisebois@sotos.ca
John Yiokaris is a partner and co-managing partner at Sotos LLP, advising automotive manufacturers and dealers on franchise, trademark, and commercial matters. jyiokaris@sotos.ca
Peter Viitre is a partner at Sotos LLP and head of its corporate and commercial practice, advising domestic and international clients on market entry, dealer network structuring, and regulatory compliance. pviitre@sotos.ca
The views expressed in this guest column are those of the authors.
