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 11 new jersey auto retailer W W W . N J C A R . O R G of targeted enforcement action by State authorities, coupled with changing market conditions have allowed brokers’ unlawful par- ticipation in the new car market to thrive. As suggested earlier in this article, the Internet has drastically changed all aspects of re- tailing. Consumers have come to expect total market transparency and convenience when shopping for all forms of merchandise. In- creased transparency in the new car marketplace, combined with tenuous macroeconomic conditions have squeezed profit margins to the point where new cars are sold for little or no profit. Against this backdrop, maintaining access to factory incentive money has become essential for the survival of many franchised retailers. Brokers can bring customers from far outside of a dealer’s usual target market to move units quickly, when necessary to meet monthly manufacturer sales quotas. Sales quotas are reached, and factory incentive money is earned – wash, rinse, repeat. Brokers Provides Short-Term Gain But Long-Term Pain This burgeoning symbiotic relationship between new car retailers and brokers is fraught with both business and legal risks for retail- ers. On the business side of the issue, by developing a reliance on brokered sales, new car retailers miss out on the profitable parts- and-service business that flows from developing and maintaining local customer relationships. Indeed, strong local relationships are the key to the long-term health and success of all dealerships. Also, many brokers offer financing through independent sourc- es, which can reduce profits in a retailer’s finance and insurance department. Further, if a retailer fails to meet manufacturer sales quotas despite conducting multiple brokered transactions in furtherance of that goal, then the dealer essentially gives away any available profits on those transactions to brokers without receiving any incentive money to cover the loss. Finally, and most important, by supplying brokers with business, retailers create competition for themselves because brokers simultaneously sup- port several other competing franchised retailers. And where do the manufacturers fit into this picture? Apparent- ly, manufacturers are not concerned about brokering since they routinely tolerate fly-by-night Internet brokers’ misappropriation of their trademarks and brokers holding themselves out as autho- rized factory representatives, which damages their brand (and in turn, damages the franchisees who represent the brand). Manufacturers also appear to tacitly encourage their franchisees to engage with brokers to achieve higher sales volumes. However, manufacturers do not appear to care about brokers – until they do care. Later, during an audit, manufacturers may seek to claw back factory incentive money by claiming that brokered sales do not count toward related sales quotas, or worse, claim that such sales violate reselling prohibitions in the franchise agreement. Also, sales to purchasers from outside the franchisee’s designated market area may not count toward the manufacturer’s required performance metrics. Over time, a retailer’s alleged failure to perform as agreed may lead to the manufacturer attempting to terminate the franchise. For every retailer who engages with brokers with the implied encouragement of their franchisor and then unwitting- ly gets burned in an audit, another dealer continues to engage with brokers to survive to the next month without realizing their eventual fate. Remarkably, the legal side of this issue is even worse for retailers than the business side. As discussed earlier, the typical broker’s website – which is, for all intents and purposes, their public face – is almost always rife with misrepresentations, willful omissions, and outright deception. Again, brokers often state that they possess special relationships with manufacturers that allow them to offer the lowest price, which is always false, since they have no franchise. Even franchised dealers are prohibited from implying a special man- ufacturer relationship in their advertisements. Brokers price-advertise motor vehicles for sale and lease that they do not possess, which is a blatant violation of the New Jersey Consumer Fraud Act and related Motor Vehicle Advertising Regulations. Brokers price-ad- vertise such vehicles without any of the required disclosures under those regulations, often at prices that are impossible in the market- place (e.g., “Lease a 2018 Maserati for $299 a month”). Brokers “bait” customers with these false and incomplete statements regarding vehicle availability and price, and then use your dealership to make the “switch.” The problem is, the paper trail on a brokered transaction gone awry due to the broker’s misconduct only points to the franchised retailer, not to the broker. Even if a broker could be identified by an aggrieved consumer, the broker almost never has a “pocket” for plaintiffs’ attorneys to raid in a lawsuit. Accordingly, the franchised retailer will be named in the suit and be forced to incur the cost of defending against it. Similarly, regulators often forgo enforcement actions that are difficult to investigate or prove. Thus, UNLICENSED BROKERS  continued on page 12