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 25 new jersey auto retailer W W W . N J C A R . O R G dealer must perform at least at the level of that market share percentage. Market share is an average of the performance of all dealers in the geographic area – zone, State or region – that is being used. As an average, it is the compilationof the performance of dealers who are higher than the average and dealers who are lower than the average. Generally, with any average, half of the inputs—in this case dealers—will be at or above the average and half will be at or below. Since, in the creation of the average, half of the dealers score below what the average turns out to be, the expectation that the performance of every dealer must be at the average or above to be acceptable and that every dealer in the lower half — 50% of all the dealers — is un- satisfactory, is unreasonable. It is amathematical impossibility for all dealers to be in the upper half and it is false to assume that 50% of all dealers are underperforming at any given time. Despite the inherent unreasonableness of requiring all dealers to be in the top half and the potential invalidity of a dealer’s territory, franchi- sors insist on the validity of their sales performance formula and use it regularly. Likewise, they use customer satisfaction figures that result fromsmall samples,withpoorly formedquestions andwhich canoften be manipulated to produce unrepresentative results. Recognizing that formulas used by franchisors can be invalid and unreasonably applied, the Franchise Practices Act contains several provisions to protect dealers. Those provisions supercede the provi- sions in dealer franchise agreements that franchisors rely on as giving them the right to use their formulas. One such Franchise Practices Act provision, for example, bars franchisors fromimposing unreason- able requirements on dealers. It is unreasonable to require a dealer to achieve a sales performance figure based on an unreasonably defined territory or a formula that requires all dealers to be in the top half. Likewise, theFranchisePracticesAct specificallybars franchisors from utilizing “an arbitrary or unreasonable formula or other calculation or process intended to gauge performance as a basis for making any decisionor takinganyactiongovernedby” theFranchisePracticesAct. This provision specifically addresses the formulas used by franchisors to assess such things as sales performance and customer satisfaction and bars use of formulas that produce unreasonable results generally or in the case of an individual dealer. Thus, when you receive a report or a deficiency/default notice from a franchisor that is based on a calculation of performance, you should keep the protections afforded you in the Franchise Practices Act in mind. Before accepting the franchisor’s conclusions, or ignoring them, you should evaluate the validity of the formula or calculation to your circumstances. If there is reason to conclude that the formula or calculation is producing an unfair result, you or your attorney should respond to the report or notice pointing out the reasons why the conclusions are invalid.Never ignore a communicationwithwhich you disagree because it can be construed as acquiescence. Likewise, should a franchisor seek to take any action adverse to you based on an invalid calculation, you can and should push back by relying on the Franchise Practices Act provisions discussed in this article. Marvin J. Brauth, Esq. is a shareholder with Wilentz, Goldman & Spitzer, Woodbridge, New Jersey. He has been representing automotive retailers for over 30 years. He can be reached at 732-855-6084 or mbrauth@wilentz.com. When you receive a report or a de fi ciency/default notice from a franchisor that is based on a calculation of performance, you should keep the protections afforded you in the Franchise Practices Act in mind. Don’t lose another sale because of the lack of insurance coverage, when it is just a click away. Stop the loss of profit- able sales…especially on weekends and holidays…and get more cars delivered by acting now! Call S. Brown and Associates at (973) 270-2270 Are you LOSING SALES because your customers can’t produce proof of insurance?