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 8 new jersey auto retailer President’s MESSAGE | BY JAMES B. APPLETON Manufacturers Must Pay Dealers Fairly To Complete Recall Repairs Automakers are either confused or purposefully ignoring their obligations to provide their franchised dealers with fair compensation when a safety recall is issued that impacts the brand, particularly when the recall involves a “stop sale” designa- tion. As dealers know, a “stop sale” prohibits them from retailing any vehicles covered under the designation. “Stop sale” designations also significantly diminish customer equity in the affected vehicles. These customers, rightfully con- cerned about the safety defect, are unable to sell or trade in their vehicle (or get what their vehicle is truly worth) because dealers cannot reasonably be expected to accept a vehicle they are unable to turn around and retail. The New Jersey Motor Vehicle Franchise Practices Act (FPA) plainly states that “It shall be a violation of [the FPA] for any motor vehicle franchisor, directly or indirectly, through any officer, agent or employee, to . . . fail to compensate a motor vehicle franchisee for all reasonable costs incurred by the franchisee in complying with the requirements imposed on the franchisee by the franchisor relating to a product recall.” Manufacturers, under both State and federal law, are required to compensate dealers for vehicles affected by a recall whether held in their inventory or accepted in trade throughout the duration of a “stop sale” recall. Federal law requires manufacturers to provide dealers with monthly payments equal to 1% of the value of any NEW vehicle that can’t be sold because of a recall. There is no federal law to address USED vehicles under a “stop sale” recall. Still, the FPA clearly requires that manufacturers must pay ALL costs associated with a recall. This includes floorplan, insurance and depreciation on all affected new, used and certified, pre-owned vehicles held in dealer inventory (or otherwise acquired by the deal- er) for the duration of the recall. But few, if any, manufacturers are living up to this obligation. The only way for dealers to get manufacturers to meet their obligations under New Jersey law is for a dealer or group of dealers to file suit. This is expensive, time-consuming and wholly unnecessary if the existing laws were being rightfully enforced. NJ CAR is pushing for legislation that would better define the compensation manufacturers owe dealers for used vehicles under stop-sale recalls. The bill would require manufacturers to provide dealers with monthly compensation equivalent to 1.75% of any affected used vehicle's value (determined by a reputable third-party used-car guide) whenever repairs are not completed within 15 days of a recall. Automakers are pushing back on the 1.75% figure, but the number wasn’t plucked out of thin air. The proposed 1.75% value is based on an assessment of the true cost of recalls to dealerships.