Pub. 13 2014-2015 Issue 1

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 I S S U E N O . 2 , 2 0 1 4 14 new jersey auto retailer Until 1971, there were no laws on the books in New Jersey protecting any type of franchisee from oppressive franchisor conduct. Franchise agreements, of course, gave franchisors virtually unfettered control over their franchisees. As a result, in the automotive retailing context, dealers were subject to arbitrary termination by their manufacturers without cause, as well as severe restrictions on the sale of their businesses. Dealers who devoted years of effort and sizeable investment in the development of a successful business saw that business terminated, or renewal of the dealer agreement refused, for no other reason than to enable the manufacturer to award The Franchise Practices Act Has Caused Major Changes to the Dealer-Manufacturer Landscape (But More Are Still Needed) BY MARVIN J. BRAUTH, ESQ. the business and all its good will to an insider. Similarly, when a dealer desired to sell his business, he was forced to sell it to the manufacturer’s candidate on terms dictated by the manufacturer. Open market transactions were few and far between. To address these abuses and others, the New Jersey Legislature passed the origi- nal Franchise Practices Act in 1971. That Act was intended to reduce the inequal- ity of bargaining power between many types of franchisors and franchisees by prohibiting franchisors from terminat- ing, or refusing to renew a franchise except for good cause, and by requiring franchisors to approve open market sales of franchises unless the proposed transferee could be shown to be deficient in experience, financial capability or character. Since 1971, the scope of the Franchise Practices Act has been enlarged many times, particularly, in the automotive retailer- manufacturer context, as new issues came to the attention of the Legislature. Early on, provisions were added requiring manu- facturers to allow dealers to perform all services and install all parts necessary to complete a warranty repair, providing for fair compensation to dealers for the warranty work they perform, barring company owned stores and allowing dealers to protest when a manufacturer proposes a new dealership or relocation of an existing one in close proximity to an existing dealership. These issues were addressed early on because warranty repairs are an important consumer and public safety matter, while company-owned stores can undercut dealer pricing, and new or relocated dealerships affect the profitability, value and even the survivability of dealerships. Despite the fact that virtually every dealer agreement states that the dealer is an independent business person, over the years, manufacturers have developed one program or requirement The franchise system and, in particular, franchise statutes are current ly under attack by Tesla, Wall Street, the press and automotive manufacturers and distributors in general. Thus, it is timely to look back on the development of the franchise laws, the impact that they have had on the dealer-manufacturer relationship and what still needs to be done to level the dealer- manufacturer playing field.