Pub. 17 2018-2019 Issue 4

Dissatisfied with CSI: How to Protect Your Dea l ership from Manufacturer Abuses BY MICHAEL P. MCMAHAN, ESQ. “This can’t be right.” You scrutinize last quarter’s performance report to figure out how you missed your Customer Satisfaction Index score by less than a percent. Two surveys? You’re out of the money by two surveys? You’re about to miss hundreds or thousands of dollars per car for an entire month or quarter because John Smith was angling for free service and Jane Doe’s car had a specialty part on backorder? All while most of your customers were completely satisfied with your dealership? This can’t be right. And it isn’t right. In New Jersey, manufacturers are prohibited, under the Franchise Practices Act, from imposing “unreasonable standards of performance or unreasonable facilities, financial, operating or other requirements upon a motor vehicle franchisee” (N.J.S.A. § 56:10-7.4(a)). They are also prohibited from utilizing “an arbitrary or unreasonable formula or other calculation or process intended to gauge performance as a basis for making any decision or taking any action” governed by the Franchise Practices Act. Id. at 7.4(d). A manufacturer is also forbidden from failing to provide every dealer in the state of New Jersey new car pricing “on the same terms, with no differential in discount, allowance, credit or bonus, and on reasonable, good faith and non-discriminatory allocation and availability terms.” Id. at 7.4(h). New Jersey courts have already found that the pricing statute constitutes a per se ban on differential pricing in New Jersey. In JDN VW, LLC v. Volkswagen of America, Inc., the court held that a Volkswagen dealer stated a claim under N.J.S.A. § 56:10- 7.4(h) where the dealer alleged that, as part of a bonus program instituted by Volkswagen, it was unfairly compared under a performance metric using a regional market average. Dkt. No. C-000026-13 (Super. Ct. Sussex Cty. Chancery Feb. 4, 2014) . In so finding, the court stated that 7.4(h) is “a blanket prohibition against price discrimination.” Id. at *9. In other words, manufacturers are prohibited by law from offering any incentive program that results in varying prices from dealer to dealer in the state of New Jersey. While this statute and holding has not been tested in higher courts, at the very least, the Franchise Practices Act must be read as requiring manufacturers to fairly implement their incentive programs. 1 And while no New Jersey court has spelled out what constitutes an “unreasonable” performance standard, we can look to our sister state New York, and its highest court, for guidance. In Beck Chevrolet Co. Inc. v. General Motors, the New York Court of Appeals analyzed whether GM’s use of a statewide standard for sales performance (RSI) was fair to a dealer whose local market looked nothing like the rest of the state. In so doing, the Court found that: Whether a performance standard is ‘unreasonable, arbitrary or unfair’ depends on considerations unique to the franchise business, which is driven by sales in a competitive market. A performance standard that measures dealer success based on data that fails to accurately represent market challenges would appear to undermine the franchisor and dealer’s common goal of selling and servicing vehicles and franchisor products. At a minimum, [the Dealer Act] forbids the use of standards not based in fact or responsive to market forces because performance benchmarks that reflect a market different from the dealer’s sales area cannot be reasonable or fair. (emphasis added) The Court ultimately found that the use of RSI by itself was per se unreasonable in New York. In other words, if there are circumstances outside of your control — such as local consumer biases, odd traffic patterns and flows, or one-off weather events such as a hurricane — it is unreasonable for the manufacturer to ignore those local conditions and instead require you to perform just as well as a dealer in Maryland or 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 22 new jersey auto retailer