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 32 new jersey auto retailer State motor vehicle franchise laws continue to be the primary source of protection for motor vehicle dealers against abusive tactics by their manu- facturers. In that regard, it is critical that motor vehicle dealers support their state and metro dealer associations with their time and money in continuing to update the franchise laws. With new challenges arising on a regular basis, let’s look at some recent legislative changes made by states to address various issues. Vehicle Recalls For decades, federal law has required new vehicle manufacturers to reimburse dealers for the carrying costs on vehicles which must be held in inventory due to an outstanding recall. The reimbursement rate is the equivalent of 1 percent of the vehicle’s MSRP, to be paid monthly. However, federal law never addressed a dealer’s carrying costs on pre-owned vehicles required to be held in inventory due to an outstanding recall. Over the last several years, the number of pre-owned vehicles subject to a stop-sale recall has increased dramatically, due to a combination of fraudu- lent behavior on the part of vehicle manufacturers and heightened regulatory scrutiny of defective parts used in vehicles. This combination of events has resulted inmany manufacturers being quicker to issue recall notices for certain vehicles, while not having a replacement part or repair for the defect available at all or in the quantities necessary to get those vehicles back on the road. A number of states have addressed this issue by passing franchise laws which provide that the manufacturer must pay dealers a percentage of the vehicle’s black book value on a monthly basis until such time as a repair is available to the dealer. The reimbursement rate ranges from 1 percent to 2.5 percent. In exchange for receiving reimbursement for the carrying costs of recalled, pre-owned vehicles, some legislatures have gone further by requiring dealers to perform recall checks on pre-owned vehicles before selling that vehicle (unless it is a stop-sale recall in which case the vehicle must remain in inventory) and on any vehicle brought in for service. The dealership must then provide notice to the customer of any outstanding recalls on the vehicle. Dealership Facilities Manufacturer facility programs are certainly not a new problem for dealers. Those programs which require an image upgrade, facility size expansion (or both) have been previously addressed by many states by way of a prohibition on any “unreasonable” facility requirement. Of course, the manufacturers use per-vehicle incentive programs as leverage to make it difficult for dealers to avoid the facility upgrade by arguing that it is unreasonable. To counter this leverage, some states have prohibited manufacturers from offering a per-ve- hicle incentive associated with a facility requirement that is not reasonably and practically available to dealers. Even with that protection, many dealers find it difficult to litigate with their manufacturer over the reasonableness of the incentives. The Latest Trends In Motor Vehicle Franchise Legislation BY RICHARD SOX, ESQ.