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 24 new jersey auto retailer 7. Franchisor Programs: Incentives, 2-Tiered Pricing, Stair-Steps and More Although the particulars of Cadillac’s “Project Pinnacle” are more complicated than most incentive programs, they illustrate the kind and quality of control that franchisors seek. Automakers routinely put together “programs” they hope will boost sales of their vehicles. The aim is to “encourage” dealers to sell more units by paying them additional money as “incentives” or “bonuses.” In certain programs, the per-unit payment to the dealer goes up at specified benchmarks in retail sales (“stair-step” programs). But these programs result in high-volume dealers having more money per vehicle than their lower -volume peers. That complaint is the essence of “two-tiered pricing.” Not only is it unfair to the lower-volume dealers, it also that discriminatory result unfair, say critics, but it turns off customers. For years, a few dealers have challenged “two-tiered pricing on the basis of anti-discrimination and antitrust laws. But dealers also contend that such programs may be counter-productive, as a practical matter, when the resulting retail price differences destroy consumer confidence. 8. State Franchise Laws For over a decade, material revisions to franchise laws have been enacted in about 20 states per year. State associations and the ATAE are both vigilant and proactive in confronting what they perceive as factory overreaches. 2018 should continue this trend, hopefully, with some emphasis in seeking to address the auto franchisors’ flawed methodology in the evaluation of dealer sales. Elimination or reduction of auto franchisors’ power to exercise their contractual right of first refusals should be a priority for amendments to state laws. 9. Privacy and Identity Theft; Cyber Security Just when we think the threats of hacking and identity theft may be abating somewhat, or that protective software is prevailing, along comes the Equifax disaster, exposing over half of American adults (143,000,000 people) to thievery by sophisticated hackers. Then comes an announcement in October 2017 that 3 BILLION Yahoo accounts had been compromised. These recent, large-scale cyber nightmares should signal to small businesses that vulnerability to criminal actors is a problem for everyone who relies on computers, and that the problem will not get better anytime soon. Dealers are finding that many customers, in response to the Equi- fax exposure, have frozen businesses’ access to credit reports from Equifax and others. Thus, dealers cannot readily obtain customers’ credit reports if frozen. In such circumstances, the customer must unfreeze the credit report so that the dealership can access the report. Unfortunately, this kind of delay and inconvenience, alongwith some added expense, will need to be endured for the foreseeable future. As an overall proposition, Auto dealers must remain especially vig- ilant as they obtain, safeguard, and store large volumes of sensitive customer information, both in hard copy form and in electronic storage. Constant updating of cyber security is important, because computer invaders become more sophisticated all the time. 2018 is bound to see more examples of brazen hacking, cyber-attacks and identity thievery. Every dealer is well-advised to have a well- versed IT employee to oversee continuing and updated safeguards. 10. Recalls Recall numbers will continue their historical upward trend, yet the public will take such news in stride. Recalls are so commonplace now, they rarely get lasting headlines, unless there is also an issue of deliberate misconduct. It’s not that larger numbers of cars now have more defects, or more serious defects, than in earlier years. Quite the opposite is true. So why all the recalls? In large measure, the recall trend is so pro- active because both automakers and state and federal government agencies want to avoid the negative impact of highly publicized failures, especially if they threaten lives. Thus, a very small percentage of defective cars within a model group is apt to spur a model-wide recall. For example, if only ten cars out of 100,000 manufactured vehicles are shown to have a serious safety defect, you nevertheless could see 100,000 recall notices. This is prudent, even when the odds of a serious defect in a particular vehicle are very low. For dealers, recalls do generate service and parts income, at no cost to the customer. But downsides can include factory delays, which generate stress for both dealers and their customers. What is a dealer to do with new inventory in the face of recall notices? What about used inventory under recalls? What about the irate customer who receives a recall notice, but the factory is short on parts? What about consumers who ignore recalls altogether, choosing instead to drive with defective vehicles? Dealers need to know the recall status of their inventory, and due diligence in keeping up on a continuous basis is a good practice. To be doubly certain, a dealership employee should regularly match vehicles in stock to the available public information about recalls. The National Highway Traffic Safety Administration (NHTSA) is an indispensable tool for recall information. See www.nhfsa.gov to search for relevant recall information by make, model and year. 11. Alternate Dispute Resolution The Consumer Financial Protection Bureau (CFPB) has continued to assert itself in this area. On July 10, 2017, under former Director Richard Cordray, the CFPB published a rule that purportedly pro- tected consumers’ ability to bring class action lawsuits. However, that rule has been effectively overturned, and the CFPB is definitive- lymoving in a different direction under the Trump Administration. The big ADR question for dealers continues to be the viability of mandatory arbitration clauses in contracts with consumers, especially where a customer signs away any right to initiate a LEGAL TRENDS  continued from page 23