Pub. 13 2014-2015 Issue 4

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 . 1 , 2 0 1 5 24 new jersey auto retailer BY MARVIN J. BRAUTH, ESQ. With vehicle sales and profits up, manufacturers have become increasingly more aggressive in their relationships with their dealers. This article will discuss several of the hottest issues that have come to the fore in recent months. After years of reluctance to terminate dealers except in the most egregious circumstances, many manufacturers have begun to issue termination notices over performance issues, including alleged sales andcustomer satisfactiondeficiencies. There are several things adealer should keep inmind if facedwith such an attempt to terminate. First, many of these terminations are based on formulas and interpretations of statistics that are invalid. For example, one statistical devise used by manufacturers is to require all dealers to perform at 100% of the manufacturer’s state or regional sales or customer satisfaction aver- age. This means that they expect 100% of their dealers to be in the top 50% of all dealers, a mathematical impossibility. Second, dealer performance is evaluated by the manufacturers on the basis of ter- ritories the manufacturer assigns to the dealer, typically, without the consent of the dealer. Sometimes, territories are assigned on the basis of the location or absence of neighboring dealerships, rather than a realistic assessment of the dealer’s ability to perform satisfactorily in the territory. An overly large territory, for example, or one in which it is inconvenient for some customers to travel to the dealership, can adversely affect a dealer’s performance from a statistical point of view. Third, customer satisfaction scores, specifically, depend on the number of responses —whether a valid sample exists, the wording of the questions asked in the customer surveys and the integrity of the survey process. Defects in themanufacturer’s handling of the survey process can adversely affect the appearance of a dealer’s performance. Dealers facedwith termination threats or actual terminations on these or other grounds have a host of protections in the Franchise Practices Act. The statute bars manufacturers from imposing unreasonable requirements on their dealers and forbids use of arbitrary or un- reasonable formulas and calculations. Performance formulas, surveys, territories and other factors that go into manufacturer performance scoring can be challenged using these protections. Furthermore, any termination, to be valid, must be based on a substantial breach of a material requirement. Inconsistent treatment of a type of performance deficiency by a manufac- turer can ref lect negatively on whether it is really material and substantial. In addition, dealers should note that, even after a termination notice is sent, the dealer is entitled to a final court decision before the termination may be implemented. If desired, the dealer may sell the dealership to a third party before the termination becomes final and the manufacturer must process the buy-sell as if the termination notice had never been issued. As the market for dealerships has improved, buy-sell transac- tions have dramatically increased. Manufacturers continue to use these buy-sell transactions as opportunities to close dealer- ship points, or have them sold to favored candidates, through the exercise of rights of first refusal. Even when manufacturers approve transfers presented to them, they sometimes use the approval process to compel facilities upgrades or dealership relocations by the imposition of conditions on the approvals. As to rights of first refusal, legislation introduced in the State Legislature last year, if enacted, would prohibit the exercise of Several Issues Heat Up Regarding Dealer-Manufacturer Relationships