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 25 new jersey auto retailer W W W . N J C A R . O R G rights of first refusal, except to promote minority and female dealership programs. The manufacturers and their trade asso- ciations have vigorously fought the enactment of the proposed legislation, which also includes other amendments to the Franchise Practices Act. As of this writing, the legislation has passed the Assembly but is stuck in the Senate. Moreover, since the 2011 amendments to the Fran- chise Practices Act, it has been unlawful for manufac- turers to impose conditions on a buy/sell. They may only approve or disapprove the dealership candidate. Howeve r, de spite be i ng unlawf ul, manufact urers continue to impose conditions because many sellers and buy- ers are reluctant to undertake a fight with the manufacturer. This unwillingness has emboldened the manufacturers. In an appropriate case though, a dealer may choose to sue to prohibit the imposed conditions, or for damages, if a favorable sale is lost. If successful, a dealer can recover attorney fees as well. Along with increased buy-sell activity, there has been increas- ing activity under the Protest Statute, which enables existing dealers to challenge add-points or relocations. Under 2011 amendments to the Franchise Practices Act, it is supposed to be easier for protesting dealers to prevail in a protest as the test under the statute has been changed from the manufacturer’s need for a dealership in the new or relocated territory to the performance of the existing dealers in their own territories. Only preliminary results are in, so the efficacy of the 2011 amendments remains to be determined. For luxury vehicle dealerships, exporting has once again come to the forefront. Since 2011, the Franchise Practices Act has pro- tected dealers from chargebacks for exported vehicles as long as the vehicle is registered or titled somewhere in the United States before being exported, and the dealer who sold the vehicle neither knew nor, under the exercise of reasonable diligence, should have known that the vehicle would be exported. To get around this law, several luxury vehicle manufacturers have adopted new export policies which put the burden on deal- ers to conduct extensive investigations of all potential sales to determine whether a vehicle is going to be exported. Given the burden these policies create, there is a substantial probability that dealers will not be able to implement all of the required investigative measures or to have them uniformly applied in all transactions. The result will be that, for a dealer who did not complete the investigation for a vehicle that is exported, the manufacturer will justify a charge- back on the basis that, if the dealer had completed the investigation, he or she would have known that the vehicle would be exported. The key to the statute, however, is whether the dealer “reasonably” should have known that the vehicle would be exported. If the investiga- tive steps are not reasonable, which some of them appear to be, they may not reasonably be required and dealers who do not implement them would not be subject to chargebacks. The open question, though, is which steps are and are not reasonable. Although not solely a manufacturer-dealer issue, brokering has also been an issue of increasing concern. Many brokers doing business in New Jersey are not licensed by the Motor Vehicle Commission and, given the sales format they use — execution of all documents at and delivery of the vehicle to the customer’s home or place of business — dealers who do business with brokers may be in violation of MVC regulations prohibiting off premises sales. This may be putting their own dealer licenses at risk. Where the manufactures come into this is in their failure to enforce their trademark and trade-name rights against the brokers and to police the sales policies and incentive programs that prohibit brokered sales. This enables brokers to promote vehicle sales with impunity and dealers to do business with brokers to secure incentive program payments. The Motor Vehicle Commission has been reluctant to devote its investigative resources in going after brokers and, as noted, manufacturers do not vigorously enforce their own policies. The end result is that brokering is a major factor in certain parts of the State and adversely affects the sales performance statistics of dealers in territories in which brokers sell vehicles through dealers located outside of their territories. Marvin J. Brauth is a shareholder with Wilentz, Goldman & Spitzer, Woodbridge, New Jersey. He has been representing automotive retailers for over 30 years in connection with issues affecting their dealerships. Mr. Brauth can be reached at 732-855-6084 or mbrauth@wilentz.com . Despite being unlawful, manufacturers continue to impose conditions because many sellers and buyers are reluctant to undertake a fight with the manufacturer.