Pub. 1 2012-2013 Issue 2

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S S U M M E R 2 0 1 2 14 15 new jersey auto retailer W W W . N J C A R . O R G new jersey auto retailer The 2011 Franchise Practices Act Amendments — One Year Later BY MARVIN J. BRAUTH, ESQ. In May of last year, the New Jersey Legislature enacted and Governor Christie signed into law extensive amendments to the Franchise Practices Act. Having now had over one year of history since the amendments went into effect, it is timely to consider whether the amendments have accomplished their purposes. A mong the most prominent amendments to the Franchise Practices Act were ones dealing with two-tier pricing, facilities requirements and site control. Two-tier pricing is prohibited outright by the amendment. Facilities upgrades can be required by a manufacturer only if funds for the upgrade are readily available to the dealer, the dealer can make a reasonable annual return on his or her investment, and the dealer can secure the return of the investment within 10 years. Site control can be requested only if separate consideration is paid for it. As the New Jersey Franchise Practices Act is not self- enforcing – there is no state agency that enforces the provisions of the law – despite the amend- ments, two-tier pricing continues and manufacturers have not backed off from pressing for facility upgrades and site control. However, dealers who have pushed back have got- ten relief from some facility/site control re- quirements, and one manufacturer, as a result of dealer pres- sure, has agreed to terminate its two- tier pricing programs. Other manufacturers are being pressed on the two-tier pricing issue as well. With respect to exporting, the amendments prohibit charge-backs if the dealer can show that the exported vehicle was registered in the United States before it went overseas and the manufacturer cannot prove that the dealer had actual knowledge that the vehicle would be exported. Despite this amendment, certain manufactur- ers continue to charge dealers back for exported vehicles without the required proof. However, when the amendment has been raised by dealers and proof of registration in the United States is presented, the charge backs have been dropped. The 2011 amendments also made extensive changes to the protest law. The burden of proof was put squarely on the manufacturer and, in the case of new points, the test whether a new franchise will be allowed was modified, from one in which the manufac- turer’s need for a new point was balanced against the harm to the existing dealers, to one in which only the harm to the existing dealers and their performance in their own markets (not the manufacturer’s performance in the market of the open point) is considered. Since this amendment has gone into effect, a few protests have been filed and the manufacturers have pulled out all stops to avoid the new statute or have the new test applied in the same manner as the old. Every word in the statute is being fought over by the manufacturers. Only time will tell, whether or not the intent of the Legislature will be upheld. Significant protection was also added for dealers facing termination. Among the changes: • If a lawsuit or arbitration challenging a termination is filed before the termination becomes effective, the termination cannot go into effect until the lawsuit or arbitration is fully decided. • If the dealer is successful in the lawsuit or arbitration, he or she keeps the franchise. Relief cannot be limited tomoney damages. • If, before a termination becomes effective, either during the required notice period or while a lawsuit or arbitration is pending, the dealer presents a buy-sell to the manufacturer, the manufacturer is required to consider the buy-sell as if no termination notice had been given and the termination may not go into effect while the buy-sell is being considered. Since the amendments went into effect, a few termi nation sit uations have arisen. Generally, the manufacturers involved have accepted the terms of the amendments, have continued to do business with the dealers and have considered buy-sells where presented. These are just a few of the amendments that were made – ones that have most prominently come up in dealer-manufacturer relations since the amend- ments went into effect. Other amendments dealt with dualing, f loor plan financing, conditioning approvals of buy-sells, amendments to franchise agreements, releases, au- dits and other topics. As with the amendments described above, these amendments are not self-enforcing. Their efficacy depends on the willingness of dealers to insist upon their legal rights. Un- less dealers enforce the law, the manufacturers, as seen above, in relation to the two-tier pricing, site control and facilities require- ments, often just ignore the statute. However, when dealers have pushed, manufacturers have bent. It is up to the dealers to insure that the amendments fully accomplish their purposes. Marvin Brauth is a shareholder with the Law Firm of Wilentz, Goldman & Spitzer, P.A. He is also General Counsel to NJ CAR and has represented the interests of automotive retailers for more than 30 years. Despite the amendments, two- tier pricing continues and manufacturers have not backed off from pressing for facility upgrades and site control.