Pub. 17 2018-2019 Issue 3

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 7 new jersey auto retailer W W W . N J C A R . O R G President’s MESSAGE | BY JAMES B. APPLETON Unfair Stair-Step Programs Negatively Impact Your Brand Stair-step programs, by their very nature, create two distinct groups of “haves” and “have-nots”. These unfair incentive programs have only grown in popularity and complexity and threaten the very core of the franchise system. Manufacturers who utilize these elaborate and unfair two-tier pricing programs can’t see the forest through the trees. They are trading diminished brand value, a decline in demand and a hit to the customer experience in exchange for a short-term boost in sales. New Jersey’s Motor Vehicle Franchise Prac- tice’s Act (FPA) prohibits stair-step incentive programs, but that hasn’t kept manufacturers from coming up with more creative ways to find a loophole to exploit or straight out ignore the laws that are on the books. Stair-step programs are aimed at selling more vehicles. But the convoluted formulas and often unattainable goals dealers must meet to qualify for the incentives end up creating confusion among customers who see wildly fluctuating prices for the same vehicle at different dealers and, sometimes, at the same dealership. The lack of consistency, transpar- ency and explanation lead to an erosion in consumer trust in the brand and dealers. Manufacturers have a right to expect reason- able sales performance from their franchisees, but the performance must be measured using the right metrics. There are so many variables that come into play when measuring a deal- ership’s performance, including location, area of responsibility, population demographics, local brand preferences, proximity to major roads and much more. Cookie-cutter analysis is unfair and unreliable when so many factors can impact sales efficiency. Stair-step programs exacerbate this problem by making it all but assured that a certain percentage of dealers will have no reason- able chance to participate in these incentive programs, artificially and arbitrarily creating winners and losers. NJ CAR wants to ensure all manufacturers adhere to the FPA and is fighting back on several fronts. The Coalition has filed a law- suit challenging Mazda’s Brand Experience Program (BEP), contacted Lincoln about its Lincoln Commitment incentive plan and we are taking another look at Cadillac’s Pinna- cle Program. Our initial opposition, years ago, led Cadillac to modify the program and, recently, Lincoln scaled back on the commitment program after NJ CAR raised legal concerns on behalf of our dealers. The Coalition’s lawsuit against Mazda claims the BEP violates several FPA provi- sions. The program clearly violates the pro- hibition on discounts, allowances, credits, or bonuses for one dealer that are not given to ALL dealers, as well as the prohibition on denying benefits to dealers who choose to not make facilities modifications. And these are just two of the more egregious violations of the FPA. It will be a while before a decision is reached in the Coalition’s lawsuit against Mazda. If the Coalition receives a favor- able opinion in that case, the Executive Committee will reconsider whether NJ CAR will file similar lawsuits against other manufacturers utilizing unfair (and illegal) stair-step incentive programs. There is no denying that some dealers find value and benefit greatly from these programs. But many of these incentives are prohibited by the FPA. All manu- facturers must make sure their programs don’t violate the protections offered to ALL franchised dealerships under New Jersey law. Stair-step programs make it all but certain that a percentage of dealers will have no reasonable chance to participate in these incentive programs, creating a world of “haves” and “have nots.”