Pub. 14 2015-2016 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 15 new jersey auto retailer W W W . N J C A R . O R G be further developments on this front in 2016. In the meantime, dealers, whose banks still permit discretion in markups, should follow the approach recommended by NADA for documenting the reasons for markup differentials between customers. Not to be outdone, the Federal Trade Commission (“FTC”) has been flexing its muscles on the topic of dealer advertising. While dealer advertising is usually looked at as a state regulatory issue, false or deceptive advertising is a violation of the Federal Trade Commission Act and can subject a dealer to FTC penalties and injunctions. Over the past few years, the FTC has cited a number of dealers and dealer groups around the country for advertising violations and has usually entered into consent agreements with them which have included significant penalties and compliance requirements. When a consent agreement is entered into, the FTC then monitors the dealer to verify compliance. In one case in fact, a dealer who had agreed to compliance requirements apparently without making significant adjustments to his advertising prac- tices, was cited by the FTC for breach of his consent agreement. The FTC came down on him with a heavy hand. There is no indication that the FTC will let up on its enforcement actions in 2016. Dealers need to regularly monitor their advertising -- in all media -- including their advertising agencies, to make sure that compliance with all requirements is being observed. When Tesla began retailing vehicles throughout the country in its own retail stores, it set out to overturn the franchise laws in many states, including New Jersey, that require vehicle manufacturers and distributors to sell vehicles at retail only through franchised dealers. This attack has unleashed a nationwide movement, spearheaded by the motor vehicle manufacturers and distribu- tors, to undue franchise protections. Now, in 2016, the FTC has opened an inquiry questioning the benefits of the franchise laws in the motor vehicle arena. Not only is the FTC looking into the justification for prohibitions on company owned retail stores, but it is also questioning the need for warranty reimbursement laws; limitations on the performance of warranty repairs to franchised dealer service departments, not independent service centers; laws enabling dealers to protest and have a hearing on a manufacturer’s or distributor’s proposal to open a new same line make dealership or relocate an existing one in proximity to the relocating dealer; limitations on the manufacturer’s or distributor’s ability to termi- nate dealers; and, other manufacturer-dealer issues. At a January 2016 hearing, the manufacturers and distributors put on a full court press to convince the FTC that franchise laws are outdated, interfere with their ability to promote their brands and obstruct innovation and new market entry. NADA and state dealer association representatives defended the necessity for the current franchise laws and explained how they promote the consumer interest as well as the substantial investments made by franchised dealers. Most franchise laws have been enacted at the state level. Whether the FTC investigation will result in federal action to undue fran- chise laws or will just be another investigation that dies a slow death remains to be seen. However, it is evident that the manufacturers and distributors are on a course to press for the rollback of fran- chise laws. Whether that will play out state-by-state before state legislatures or in the halls of Congress remains to be seen. How- ever, 2016 is a year in which more on this subject is apt to occur. The rash of recalls is another matter that may call for Federal action. Many states are looking for solutions that ensure that consumers are sold and drive only “safe” vehicles and are informed of defects that may affect their safety in both new and pre-owned vehicles. They are also looking at the right of dealers to compen- sation for vehicles that they must hold in inventory because of a defect not of their creation. However, given the magnitude of the issue, a national solution may be necessary. Undoubtedly, there will be more on this topic in 2016. Marvin J. Brauth, Esq. is a shareholder with Wilentz, Goldman & Spitzer, P.A in Woodbridge, New Jersey. He has been representing automotive retailers for over 35 years in connection with issues affecting their dealerships. Mr. Brauth can be reached at 732.855.6084 or mbrauth@wilentz.com. Looking at the markups for consumers so identified and comparing them to that for other consumers the CFPB determines whether a pattern of discrimination exists.