Pub. 16 2017-2018 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 8 22 new jersey auto retailer 2018’S Top Twenty Legal Trends For Automobile Dealers BY ERIC L. CHASE, ESQ. 2 018 might be a year of extraor- dinary good fortune for deal- ers, not only in sales, profits and store values, but also in legal and regulatory reform. At the same time, counter-developments in political and investigatory arenas could profoundly undermine some of the upbeat initiatives and developments. Every dealer needs to take a hard look at which of the fol- lowing trends could impact their business, and plan accordingly. 1. Franchisor Sales Performance Standards and Pressures on Dealers Franchisor governance of dealer sales per- formance is inherently problematic. First, their “accuracy” in determining dealer sales efficiency and “expectation” numbers, as well as establishing fair minimum sales benchmarks, is flawed and scientifically unsound. Second, the methodologies used make certain a significant percentage of dealers will always be deemed “under-per- forming.” Third, any system devised to assure the “failure” of dealers with lower numbers is unfair. Fourth, auto makers use these results, based on unreliable and unfair metrics, to arbitrarily identify “winners” and “losers” from among their franchisee network. For many years, manufacturers have eval- uated, identified and enforced dealer sales objectives and requirements under a mis- guided pretense of scientific validation and reliability. The truth is, these metrics are an unfair and inaccurate gauge of whether a dealer may be in material breach of the dealer agreement. U.S. auto franchisors (almost universally) measure dealer sales efficiency by com- puting an “average” sales penetration benchmark for all the same-brand dealers in the applicable region or state. Then they compare each dealer’s sales penetration in its area of responsibility measured against “opportunity” or “expected” or “average” sales. Dealers whose sales penetration falls below “average” of all same-brand dealers in the comparative geography are deemed “underperforming.” That means, at any given time, about half the dealer network of an auto franchisor is unsatisfactory, and in material breach of the dealer agreement! Keep in mind, sales performance evalua- tions often impact a dealers’ eligibility for certain bonuses, which can determine a dealer’s profitability or competitiveness. Also, if a dealer is looking to acquire anoth- er dealership, below average sales of exist- ing stores can be an automatic disqualifier. If manufacturers want to usemetric-based statistics in determining dealer sales performance efficiency, they must be required to first demonstrate the va- lidity and accuracy of both the metrics themselves AND their statistically demonstrable relationship to the sales performance of individual dealers.