Pub. 17 2018-2019 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 9 20 new jersey auto retailer FACTORY DEMANDS  continued from page 17 (Note: Legislation was recently introduced in the New Jersey Legislature (A-5097/S- 3493) that would allow Tesla to operate up to 16 direct sales locations.) Subscription Services. A manufacturer that offers sub- scription services (like Volvo’s subscription arrangement “Care By Volvo”) directly to the public is, in effect, making a direct sale to a consumer, which is prohibited under New Jersey’s FPA, as discussed in the preceding paragraph. Non-manufacturer subscription services fall outside of the FPA. Depending on how an “independent” subscription service is structured, it may fall outside of the NJMVC’s dealer licensing requirements and be exempt from the New Jersey Consumer Protection Leasing Act protections (N.J.S.A. 56:12-60, et seq.). At the same time, such entities can apparently title and register subscription vehicles and avoid paying “upfront” Sales/Use Tax using Sales Tax Exemption Code No. 4 (lease/rental), based upon the duration of the subscription. Dealers thinking about signing up for a subscription program need to make sure there is a well-drafted indemnification provision in any agreement they sign and that they are fully protected from any downstream claims/complaints from consumers. Such independent subscription service programs typically utilize a mobile phone application that directs a consumer to a given dealer, based upon the payment desired by the con- sumer. Such subscription service providers remain faceless entities to consumers who only know that they dealt with a given dealership. If a consumer has a problem with the trans- action or vehicle, they will return to the dealership – not the subscription service provider. Internet Sales. The New Jersey Division of Consumer Affairs’ Motor Vehicle Advertising Regulations (N.J.A.C. 13:45A-26A.1, et seq.) arguably apply to any form of motor vehicle advertising including print, radio, TV and Internet – even though the Division’s regulations were adopted many years before the launch of the Internet. New Jersey motor vehicle dealers are well aware of the Division’s “reach”, if their advertising is noncompliant. However, advertising by third-party Lead Generators, Brokers (both in- and out-of- State), and manufacturers like Tesla often include f lagrant violations of the same motor vehicle advertising regulations that dealers must abide by. At present, it appears to be an unlevel playing field with New Jersey automotive retailers being held to a higher standard than other parties, who equally target New Jersey consumers and often inf lict real harm on them. The Coalition has provided the Division of Consumer Affairs with a proposal to revise the present Motor Vehicle Advertising Regulations, by creating an entirely new section in the regula- tions to address Internet advertising. This would position New Jersey’s franchised auto retailers on a level playing field with in- and out-of-State brokers and others. Brokers. Although New Jersey law does not specifically pro- hibit brokering, State law does prohibit anyone from engaging in the business of “buying, selling or dealing” in motor vehicles without a motor vehicle dealer’s license. Brokers often advertise illegally – claiming they can buy vehicles directly from man- ufacturers cheaper than dealers can. Often, their advertising includes one or more manufacturer’s trademarks, leading con- sumers to believe they are “franchised” for various makes and models of vehicles – when they are not. And, when a consumer has an issue with a broker and complains to the NJMVC, it’s the dealership’s (not the broker’s) paper that the deal is written on and it’s the dealership (not the broker) that is visited by the NJMVC’s field investigator. Arguably, the increase in the amount of brokering activity is directly related to the proliferation of manufacturers’ two-tier pricing programs, where dealers (wanting to maximize the amount of manufacturer incentive monies at month end) need to reach ever-increasing sales objectives – and using brokers becomes more enticing as a way to do so. Eliminate the manufactur- ers’ two-tier pricing programs and brokering activity will be reduced dramatically! Third-Party Lead Generators. There are a variety of pro- grams designed to draw potential customers to dealerships as viable leads for the purchase or lease of a vehicle. Most of these programs are marketed to dealers on a monthly subscription ba- sis. (Note: Previously, the New Jersey Division of Taxation determined that fees paid by dealers for such services are subject to New Jersey Sales Tax [effective 11/05/2011].) One entity, TrueCar, which claims to be a third-party lead generator, uses a business model in New Jersey that has the Coalition concerned as to whether or not the model complies with State law and whether or not dealers doing business with TrueCar are operating within the law. Under its business mod- el, TrueCar: • Charges the seller, not the buyer, to arrange a sale; • Negotiates and/or sets a firm sale price that the dealer has agreed to beforehand; and • Only gets paid by the dealer if a vehicle sells (a performance fee). As such, it’s NJ CAR’s opinion that TrueCar’s current business model clearly demonstrates the Company is “…engaged in the business of buying or selling or dealing in motor vehicles”. NJ CAR takes no position as to whether dealers should or should not do business with TrueCar – many Coalition dealer members do business with them, while others do not. NJ CAR’s sole purpose in questioning the business model under which TrueCar operates is to make sure that State regulators – primar- ily the New Jersey Division of Consumer Affairs and the Attor- ney General’s Office – do not go after dealers for “violations”, if at some point in the future the State determines that there are issues with TrueCar’s advertising practices. While it’s true that auto retailing is a tough business, New Jersey law provides auto retailers with many protections and NJ CAR remains committed to seeking additional protections for you and your dealership to maintain a level playing field. Robert May is NJ CAR’s Managing Director and Staff Counsel. He can be reached at 609.883.5056, x313 or via email at rmay@njar.org.