Pub. 12 2013-2014 Issue 3

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 F A L L 2 0 1 3 14 new jersey auto retailer Carmakers’ motives are clear, and in most respects, unremarkable and understand- able, even if harsh. Whether domestic brands or imports, they are competitive with one another to a fault. They see their franchised retail dealer networks as extensions of themselves. On this, they do have a point. Dealers are the tips of the various brands’ spears; they complete the factories’ ultimate mission to put their cars in the hands of consumers; they interact with and directly relate to the public, selling and leasing cars at retail, and providing maintenance and repairs. It is the dealers who, on their franchisors’ behalf, actually deliver on factory war- ranties. Auto franchisors cannot succeed without successful dealers. It is, therefore, interbrand competition and the profit motive that mainly trigger franchisors’ programs, initiatives, policies and threats to persuade or coerce dealers to, for example, expand, relocate, reno- vate, recapitalize, de-dual, image, train, hire and so on. The historical unfairness of factory imperatives is in the unequal (or non-existent, in most cases) bargaining power of the dealer. This inherent un- fairness and power disparity have driven the trend of remedial state franchise laws and amendments. All fifty states, for example, now prohibit the termination or nonrenewal of an auto franchise, except upon good cause (or similar formulation) and upon written notice so that the dealer can challenge the factory’s decision. Like New Jersey, many states’ franchise laws prohibit perceived factory excesses in detail. Each year, NADA keeps track of state law amendments, and, in any given year over the past decade, it is common to see amendments to between twenty and thirty state laws that provide safeguards for franchised auto dealers. For New Jersey dealers, state law speci- fies a number of specific kinds of protec- tions for dealers, in the form of prohibitions against certain kinds of franchisor practices. Comprehensive amendments toNew Jersey law in 2011 enhanced dealer rights and protections in numerous respects. The pro- hibited practices by auto franchisors include: 1. Imposing unreasonable standards of per- formance, unreasonable facilities, finan- cial, operating, or other requirements. 2. The use of arbitrary or unreasonable formulas or calculations to gauge per- formance. 3. The failure to sell products to all dealers at the same price, on the same terms, and without differentials on discounts, allowances, etc. 4. Unreasonable interference with the use of dealer facilities (except that there may be requirements for the dealer to meet reasonable, written space and volume requirements as uniformly applied). This includes limitations on line makes in the factory (anti-dualing). 5. Requirement to relocate or to make facil- ity/operational modifications unless the franchisor candemonstrate: (a) availability of funds; (b) the ability of the dealer to earn a reasonable returnon the investment,with the full return of investment within ten years; or (c) the modification as required so that the dealer can effectively perform sales and service. 6. Requirement by the franchisor (or a com- monly owned financial institution) to penalize a dealer as the result of the main- tenance of working capital equity, floor plan financing “greater than the lesser of (1) the minimum required to operate the dealership, based on the operations over the previous year, or (2) an increase of no more than 5% over the prior calendar year unless the franchisor can show that more is necessary. For decades, New Jersey has provided for- midable protection for a dealer who receives a notice of termination/nonrenewal. With the 2011 amendments, it is now expressly the factory’s burden to prove “good cause,” and termination is automatically stayedwhile the legal challenge is pending. Although these “cat-and-mouse” games are exasperating, dealers should carefully weigh their options when an ominous letter arrives. When the auto franchisor gets too aggres- sive or overreaches, it is usually useful for a wary dealer to respond responsibly in writing, setting forth how and why the proposed initiative is both unreasonable and likely violates state law. Many lawyers practicing in this field can attest that fran- chisors are apt to back off in the face of a potential challenge in which the dealer has presented a formidable argument, based on facts, reasonability, and applicable law. This is especially so in New Jersey where the recently amended law provides considerable protection for the dealer who is called upon to risk hard-earned capital. Eric L. Chase, Esq. is a partner in the law fi rm of Bressler, Amery & Ross, P.C. and he can be reached at 973.514.1200. RIGHTS  continued from page 13 Franchisors are apt to back off in the face of a potential challenge in which the dealer has presented a formidable argument, based on facts, reasonability, and applicable law.