Car dealers across the country are navigating one of the most complicated regulatory and competitive environments in recent memory. Brokers are operating outside the law in states where the practice is banned. The FTC is cracking down on dealers over pricing transparency. And the long-term shape of the franchise system itself is being tested by direct-sales brands.
Joining us on today’s Inside Automotive episode to discuss all of those issues and more is Laura Perrotta, President of the New Jersey Coalition of Automotive Retailers (NJ CAR). Perrotta says illegal broker activity in her state is putting pressure on dealers, and little is being done to stop it.
NJ CAR pres.: Brokers operating outside the law
Brokering has been illegal in New Jersey for decades. But Perrotta says the problem is getting worse, not better, and franchised dealers are the ones taking the hits.
Unlicensed operators are selling new vehicles across the state without holding a dealer license. Perrotta says they are difficult to track and harder to shut down. At the same time, manufacturer stair-step programs are adding to the broker problem. Those programs, which are also illegal in New Jersey, put pressure on dealers to hit volume targets. That mix, she says, creates conditions that make broker activity more attractive and harder to police.
"We have brokers making deliveries out of their driveways. Meanwhile, down the street, one of our Kia dealers is building a $20 million facility."
Several manufacturers have sent letters to N.J. dealers notifying them that broker-related transactions will not count toward sales volume or incentive programs. But Perrotta says that’s not enough. NJ CAR is pressing the state’s new Motor Vehicle Commission head to take action by conducting direct inspections of broker operations and fining anyone selling new vehicles without a proper license.
FTC’s pricing policy “unfair”
New Jersey dealers are also facing pressure from the FTC’s recent scrutiny over pricing transparency. The FTC sent warning letters to nearly 100 dealers across the country, warning them that advertised prices must reflect the actual cost to consumers, including all fees. The problem, Perrotta says, is that brokers don’t face that same pressure.
“The FTC is really analyzing dealership transactions right now, but the brokers are really not following any advertising rules whatsoever. They are just rampantly not following the rules of the road, where the dealers are held to every degree of perfection, and they can do whatever they want out in the broker world and not be regulated or analyzed. So it’s not fair,” she said.
NJ CAR is calling on the FTC to apply the same standards to brokers that it demands from dealers.
It’s not just a New Jersey issue. Dealers across the country are working to navigate the FTC’s policy. To help clear up some of that confusion, CBT News is hosting the Auto Leadership Summit on Fair Pricing and Compliance in Washington, D.C., on June 16. The summit will bring together industry leaders, elected officials, and top retailers to address these challenges.
Local Matters: the campaign against direct-to-consumer sales
Another issue dealers in New Jersey and across the country are facing is a threat to the franchise system altogether. Direct-sales brands like Scout, the Volkswagen-backed truck and SUV brand, aim to bypass dealers entirely.
In New Jersey, the concern is especially pointed. The state carved out a limited exception to its direct-sales ban through a prior settlement agreement with Tesla. Perrotta says NJ CAR fears Scout could enter the market on the heels of that agreement, using it as a foothold to establish a direct-sales presence in the state. That exception, she warns, could become a door others walk through.
While many dealers and associations are fighting back, NJ CAR is going on the offensive. The association has hired Moxie Strategies to lead a statewide public relations campaign built around a single tagline: Local Matters. Perrotta says the campaign puts a human face on franchised dealerships before someone else defines it for them.
“We want to talk about how these 538 dealerships in New Jersey are here, brick and mortar. We are supporting roughly 70,000 jobs across the state. And we’ve been here for many a generation,” Perrotta said.
The need for more affordable American-made cars
Perrotta is also keeping a close eye on a growing threat from Chinese automakers. For now, a 100% tariff on Chinese-made cars effectively bans them from the U.S. market. Should that change, Perrotta says it would have a devastating effect on U.S. automakers.
She admits, however, that many dealers in her state would be eager to have Chinese-made cars on their lots.
“They’re always dealers, you know. They’re saying, if somebody wants to buy a car, I want to be the one to sell it to them,” she said.
For now, Perrotta is calling on U.S. automakers to respond to the affordability gap that makes Chinese vehicles appealing in the first place. The average new vehicle price has climbed from roughly $35,000 before COVID to around $50,000 today. Perrotta says manufacturers need to get serious about simpler, more affordable models.
“I hope that the U.S. automakers get serious about making more affordable models. Maybe just get something that’s a little bit more affordable for Americans. That would be amazing.”
NJ Dealers holding steady
Despite the challenges, Perrotta says New Jersey dealers are holding steady. Most dealers, she says, are describing conditions as adequate rather than exceptional, and for now, that is enough.
“It’s not gangbusters, but it could be worse. And I’ll take ‘it’s OK’ right now with all the headwinds we have, which are a lot,” Perrotta said.
NJ CAR is also making progress on the technician pipeline that has been a priority for the association. The program, which is free to students, is now in its fourth or fifth class and placing graduates directly at dealerships across the state.
“The New Jersey Department of Labor is really happy with our progress. And our dealers are really excited about this pipeline we’re creating,” Perrotta said.
