Pub. 18 2019-2020 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 25 new jersey auto retailer W W W . N J C A R . O R G As motor vehiclemanufacturers prepare to produce and distribute more all-electric ve- hicles, there appears to be a propensity on their part to require unique conditions to be placed on dealers not previously found under their franchise agreement. The manufacturers’ view of all-electric vehicles has resulted in some manufacturers, including Mercedes Benz and Ford Motor Company, requiring dealers to sign an agreement, separate from their franchise agreement, to be eligible to sell the all-electric vehicles. There is no logic to the requirement of a separate agreement and such a requirement squarely violates New Jersey franchise laws. Despite its differing technology, the all-electric vehicle remains merely another model vehicle under the brand for which dealers possess a franchise. Dealers are more than capable of selling and servicing these vehicles with the proper training and equipment. By the terms of the franchise agreement, as well as New Jersey law, the manufacturers are required to allocate a fair and reasonable quantity of vehicles produced under the brand to each franchised dealer. The only condition a manufacturer can place on a dealer to receive a particular vehicle is that the dealership can sell and service the vehicle. With regard to all-electric vehicles, require- ments that would be considered reasonable to adequately sell and service the vehicle include ( i ) a sufficient amount of electric capacity at the dealership to maintain all-electric vehicles in inventory; ( ii ) an adequate supply of charging stations at the dealership; ( iii ) adequately trained sales staff to present the vehicle’s technology to potential customers; ( iv ) properly trained service personnel to repair the vehicles; and ( v ) maintaining the special tools and ser- vice stalls necessary to repair the vehicles. Manufacturers like Mercedes Benz and Ford have gone much further in the requirements which dealers must meet to be eligible to receive their upcoming all-electric model vehicles. These manufacturers are proposing agreements that are separate from the Deal- er Sales and Service Agreement and include provisions not directly related to the adequacy of the dealership to sell and service the vehicle. These agreements set up a separate vehicle ordering system and require dealers to meet many requirements and agree to indemnify the manufacturers against any claims ( other than those involving defects in the vehicle itself ) brought by a customer. The Mercedes Benz EQC Agreement goes even further by establishing a system by which the retail customer can only order an all-elec- tric vehicle through a website created and operated by Mercedes Benz. To be eligible to order the EQ vehicle through Mercedes Benz’s EQC Customer Online Reservation System, a dealership must meet requirements that are not directly related to the adequacy of the dealer- ship to sell and service the vehicle. Mercedes Benz states that if the EQC Agreement is not signed and the requirements not maintained by the dealership, the dealership will be ineligible to order vehicles for its customers or have a customer select the dealership as the dealership from which the customer desires to purchase the vehicle. These separate electric vehicle Agreements create a distribution system that is inconsistent with the promises made in the existing Dealer Sales and Service Agreements. As required by New Jersey law, Mercedes Benz and Ford must allocate a fair and reasonable supply of ALL vehicles, including all-electric vehicles, to franchised dealers. Establishing an exclu- sive ordering process, placing requirements on participation, and limiting the allocation of all-electric vehicles to franchised dealers who have completed a sales transaction does not meet this requirement. In addition to violating the terms of the Dealer Agreement and New Jersey law requirements to allocate a fair and reasonable supply of ve- hicles, these proposed separate electric vehicle dealer agreements would likely be considered a violation of New Jersey law prohibiting an adverse modification to the franchise. Lastly, the EQC Program Agreement creates a second set of problems for dealers. Through the program, Mercedes Benz has inserted itself into the customer sales process. The Mercedes Benz Dealer Sales and Service Agreement pro- vides that Mercedes Benz will produce vehicles and provide those vehicles to the dealership to market to retail customers. The EQC Program fundamentally alters Mercedes Benz and the dealers’ position. Mercedes Benz now proposes to interface with the customer through the vehi- cle ordering website directly and, by way of the EQC Program requirements, determine whether a dealership will be eligible to market the vehicle to a particular customer. Mercedes Benz’s role under the EQC Customer Online Reservation System squarely violates the franchise agree- ment and moves dangerously close to violating New Jersey law’s prohibition against a manufac- turer selling directly to retail customers. Richard Sox is a Partner at the law firm of Bass Sox Mercer, PA. The firm’s sole practice is the representation of automo - bile dealers in their efforts to establish a level playing field with automobile manufacturers. He can be contacted, via email, at rsox@dealerlawyer.com .