Pub. 17 2018-2019 Issue 2

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 . 3 , 2 0 1 8 10 new jersey auto retailer Over the past decade, NJ CAR has witnessed a significant increase in motor vehicle brokering activity across the State of New Jersey. This article will explore the history of this practice, its recent proliferation into the mainstream new car marketplace, and the various business and legal pitfalls that franchised retailers face when engaging with brokers. In no way is this article intended to instruct or advise NJ CAR’s members to cease doing business with brokers. Rather, the article simply serves to illuminate the issues that can arise when using brokers so individual retailers can decide for themselves whether their risk tolerance is sufficient to continue doing so. Brokers Flourish In Today’s New Car Market At one time, brokering primarily existed in insular ethnic com- munities within the State. Members of such communities sought the assistance of informal “brokers” from within the community to reduce perceived vulnerabilities when negotiating the purchase or lease of a new vehicle. These brokers often generated their business through word-of-mouth and purported to help their cus- tomers overcome linguistic or cultural barriers that could be used to their disadvantage in a transaction. While there is no evidence that any unique bargaining imbalance exists for such consumers, brokers in these communities use the perception of such imbal- ance to their own advantage, often charging customers large sums of money for their services. Today, drastic technological advances and related changes to the car business have allowed the broker model described above to proliferate beyond insular communities. Brokers leverage the vast marketing power of the Internet to participate in ordinary transactions in which none of the above-referenced linguistic or cultural barriers exist. Using carefully-curated websites, brokers now purport to directly offer new motor vehicles for sale and lease, offer vehicle financing, and accept trade-ins and lease terminations. To establish credibility with consumers, brokers’ websites often display apparent sales operations similar to those of a typical new car retailer and purport to possess “special rela- tionships” with manufacturers. However, the reality of the brokers’ business could not be further from that of a licensed and franchised new car retailer. If brokers have any brick and mortar presence at all (most do not), they often operate from small retail storefront locations with no ability to display inventory. They therefore possess minimal facilities, no inventory, and no repair facilities or the ability to render follow-up services. More important though, they fail to possess a franchise. Therefore, they possess no relationships with manu- facturers and cannot obtain a license to engage in buying, selling or dealing in new motor vehicles, as required by New Jersey law. Nor can they buy, sell or deal in used motor vehicles without possessing a license, which they never do. In addition, they offer financing without the required Consumer Lender, Motor Vehicle Installment Seller, or Sales Finance Company licenses issued by the New Jersey Department of Banking and Insurance. Since the brokers’ operations are unlicensed, they are unlawful. Brokers misrepresent the nature of their business to inject themselves into new car transactions and siphon money away from both licensed retailers and consumers. Ironically, brokers often disparage the business practices of franchised retailers in their marketing materials, even though brokers depend on them entirely to exist (i.e., brokers cannot obtain new vehicles for sale or lease without the participation of a franchised retailer) . Nevertheless, a lack Know Your Business & Legal Risks When Working With Unlicensed Brokers BY ANTHONY ANASTASIO, ESQ.