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 23 new jersey auto retailer W W W . N J C A R . O R G rights to distribute the manufacturer’s vehicles for approximately one year. These franchise agreements required dealers to maintain a showroom and repair facility, keep a reasonable inventory of vehicles on their lot and sell within their designated territory—all items that are still included in franchise agreements more than 100 years later. According to Hewitt, by 1910, franchise agreements began to require dealers to appoint "subdealers" in their territories. This began the true development of a vast network of independent franchisees. Through the next several decades, the industry continued to develop, but cracks began to appear in the façade as dealers began to complain about how they were being treated by the much more powerful automakers. This groundswell of pushback led to Congress passing theAutomobileDealer’sDay InCourtAct in 1956. The lawprohibited coercion and gave dealers the right to sue automakers in federal court. At the time, some automakers said passage of the bill would force them to look for other ways of selling and servicing vehicles. Some of the manufacturers even managed to convince dealers to oppose the legislation because they feared reprisals from the automakers. Does this sound at all familiar? Fifty-eight years later, manufacturers are using the same tactics. While the law eventually passed, subsequent rulings watered down the effectiveness of the original law. States had begun addressing their local dealer concerns through the passage of franchise laws as early as 1937, but they proliferated in the 1960s and 1970s. Dealers generally have an advantage at the state level because they are the cornerstone of many local communities and interact with legislators and their constituents. Most manufacturers do not have local roots and only show up at Statehouses when legislation they oppose is introduced. Franchise laws have been passed in virtually every state because legislators recognize that dealerships positively impact their local communities, local economies, employees and customers. And while these laws protect entrepreneurs, who investmillions of dollars in their businesses, from having them taken away without cause, they are consumer protection laws that ensure proper treatment of consumers. A 1978 U.S. Supreme Court opinion bolstered state franchise laws when they were exempted from federal antitrust provisions and their constitutionality was upheld. While automakers continue to profess that the franchise laws that govern the dealer-manufacturer relationship make the cost of doing business too expensive, these laws have worked to begin leveling the playing field between two business entities that need each other’s cooperation in order to remain successful.