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 23 new jersey auto retailer W W W . N J C A R . O R G V O Y N OW B A Y A R D W H Y T E A N D C OM PA N Y , L L P C E R T I F I E D P U B L I C A C C O U N T A N T S V O Y N OW B A Y A R D W H Y T E A N D C OM PA N Y , L L P C E R T I F I E D P U B L I C A C C O U N T A N T S The Northbrook Corporate Center • 1210 Northbrook Dr., Suite 140, Trevose PA 19053 Contact Hugh Whyte, Randall E. Franzen or Kenneth Mann: Financial Reporting & Projections/Forecasts Lifo Inventory Applications n Tax & Estate Planning Cash Management & Budgeting n Performance Evaluation Cost Analysis n Buy/Sell Agreements & Succession Planning Mergers & Acquisition s n Internal Control Design 215-355-8000 n voynowbayard.com Accountants & Management Advisors to the Auto Industry since 1954 O N B R D Y E OM P N Y , L I I E T A , o e . r z o e n th M n: j ti / t t t l i l ti i l i t l i 0 n co ntants & agement isors e to Industry ce 1954 Virginia — or even another part of New Jersey — who did not face any of those problems. Accordingly, CSI incentive programs may be subject to challenge under the New Jersey Franchise Practices Act. Frequently, they penalize dealers for not reaching some unattainable “average” score for a market that does not reflect the reality of the location the dealership finds itself in. Worse, CSI incentive programs often only give out points for scores that are “completely satisfied,” giving no credit at all to “satisfied” and “very satisfied” customers. While the customer is grading you on a scale of 1-5, the manufacturer is grading you on a pass/fail, where the only pass is a 5. If the customer was given a pass/fail survey, your scores would be dramatically different. These skewed metrics result in perverse incentives, where you may be tempted to hound customers to give the maximum score on all surveys, which defeats their purpose and annoys the customer. The incentives may not even be lawful to begin with, but programs like this certainly appear unfair, unreasonable, and arbitrary. If you are facing substantial losses due to onerous manufacturer programs, you have tools in your arsenal to push back. And if your dealership is facing the chopping block for poor performance, there are additional protections that kick in. When attempting to terminate a dealership, a manufacturer must show that its termination or non-renewal is for “good cause,” which is limited to the “failure by the franchisee to substantially comply with those requirements imposed upon him by the franchise.” N.J.S.A. § 56:10-5. Frequently, a dealer agreement only provides that a franchise must have satisfied customers or satisfactory customer service — sometimes CSI is wholly absent from the contract itself. Check your franchise documents to see what the franchisor actually requires. If your dealership is going to choose to fight the manufacturer on its abusive performance standards, it is important to document all the things the dealership is doing right. For example, keep a file of all exemplary reviews, glowing recommendations, or awards the dealership has received. Strive to raise or to keep your scores as high as possible while you gear up for a fight. If there are any particularly bad reviews or customer complaints, be prepared to explain the cause. Was there a disgruntled employee whom you have since removed? Does the customer have a history of being a problem? You should be prepared to tout your successes and explain your failures, so you can demonstrate that you have done everything you can and the manufacturer is just being unreasonable. Should you find yourself with your back against the wall from an unreasonable manufacturer program, contact your attorney to discuss how you can use the New Jersey Franchise Practices Act to fight back. Michael P. McMahan, Esq. is an Associate at Arent Fox LLP. He can be reached at 212.484.3982 or via email at Michael.mcmahan@arentfox.com. 1 Indeed, NJ CAR is challenging Mazda’s incentive program right now as unfairly creating price differentials amongst Mazda dealers in New Jersey, where Mazda is demanding costly facilities upgrades and heavily rewarding those that choose to build. That case is pending before the United States District Court, District of New Jersey, New Jersey Coalition of Automotive Retailers, Inc. v. Mazda Motor of America, Inc., No. 3:18-cv- 14563-BRM-TJB.