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 33 new jersey auto retailer W W W . N J C A R . O R G As a result, some states are now adding a provision to the franchise laws which protects dealers from being forced to upgrade their dealership within some period of time (typically 7-10 years) from the last manufacturer-required upgrade. Most importantly, under this provision the manufacturer must continue to pay the dealer all facil- ity incentives that other dealers may be eligible for during the length of the grandfather period. In this way, the dealer is not placed at a competitive disadvantage by having new facility incentives withheld until a new upgrade is completed. Sales Performance A recent court case in New York found (and appellate courts upheld) that General Motor’s sales performance formula, known as Retail Sales Index, failed to take into account local market circumstances in gauging the sales performance of the dealership. Dealers have known for a long time that most manufacturers’ sales performance formulas are simply based upon average market share in the state, region or nation and do not take into account a dealer’s local mar- ket circumstances such as demographics, income levels, shopping patterns, etc. Accordingly, several states have adopted specific franchise law provisions governing performance criteria – in some cases criteria beyond sales performance. These provisions, in essence, prohibit any performance criteria which does not take into account the dealer’s local market circumstances. Subscription Programs One of the most recent challenges to dealers is the manufacturers’ development of “subscription programs” through which retail con- sumers can pay a monthly fee in exchange for use of a select group of vehicles. These subscription programs clearly take the place of a sale or lease of a vehicle which would have otherwise been made by a franchised dealer. However, because these programs most closely resemble a rental program versus a sale or lease, the vast majority of state franchise laws prohibiting a manufacturer from selling or leasing vehicles direct to retail consumers do not apply. A handful of states are proposing new franchise legislation that would prohibit a manufacturer or related entity from not only selling and leasing directly to the consuming public but also from providing vehicles at retail through a subscription-like program. The only state to successfully pass such legislation thus far is Indiana, which phrased the provision as prohibiting a manufacturer or distributor from being the “retail contact through which the right of use for a new or used vehicle is obtained.” Note: The information contain in this article is provided for educational purposes only and is not to be construed or interpreted as legal advice. Richard Sox is a Partner at the law firm of Bass Sox Mercer PA. The firm’s sole practice is the representation of automobile dealers in their efforts to establish a level playing field with automobile manufacturers. Mr. Sox can be contacted, via email, at rsox@dealerlawyer.com . Founded in 1927, Gallagher is the fourth largest insurance broker and risk management firm in the world and has been NJ CAR’s distribution partner for the NJ CAR Workers’ Compensation Program for over 15 years. Gallagher is a broker-friendly program manager that honors and protects broker/ client relationships and pays competitive commissions to participating brokers. Recognized by the Ethisphere Institute as one of the World’s Most Ethical Companies for six consecutive year. For more information about NJ CAR’s Workers’ Compensation Program or to obtain a quote, contact Pattie Collins, Area Senior Vice President at Ballagher, at 732.837.9150 ( pattie_collins@ajg.com) .