Illegal Car Brokers In New Jersey

Jake Lebowitz joins Inside Automotive to examine the rise of unlicensed auto brokers in New Jersey and the implications for dealers, consumers, and the franchise system.

Lebowitz outlines how broker-driven transactions are reshaping competitive dynamics by introducing pricing models that operate outside traditional dealer frameworks. While brokers can drive short-term volume, they also create challenges around compliance, profitability, and long-term customer relationships. The conversation explores how this growing trend affects dealership performance, manufacturer incentives, and regulatory enforcement, as well as what steps may be needed to restore balance across the retail landscape.

•  How unlicensed brokers operate and compete with franchised dealers 
•  The impact of broker-driven deals on dealer margins and profitability 
•  Risks tied to compliance, incentive programs, and potential chargebacks 
•  Why broker-acquired customers often lack long-term service retention 
•  Challenges in identifying and enforcing regulations against broker activity 
•  The need for coordinated action between dealers, OEMs, and regulators

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Transcript

Welcome And The New Threat

Jim Fitzpatrick 0:07

Welcome to Inside Automotive with Jim Fitzpatrick. Hey everyone, Jim Fitzpatrick. Thanks so much for joining us this morning. In New Jersey, licensed dealers are facing a growing challenge. Illegal brokers joining us to talk about this very issue and what's happening there in New Jersey and why it matters. Really for the dealership and the integrity of the franchise system and the really the industry overall is Jake Liebowitz, who's the fourth generation owner and dealer principal of Raceway Auto Group. These guys have got 16 different stores in uh in the lineup in the group, and uh they got their hand on what's going on, their hand on the pulse of what's going on there in the New Jersey market. And uh so, Jake, thank you so much for joining us on the show today.

SPEAKER_01 0:46

Thanks for having me, Jim. Appreciate it. Great show and um appreciate what you do for the dealer network.

Jim Fitzpatrick 0:52

Well, thank you so much for those kind words. For viewers who may not be familiar with this issue, uh dealers around the country, what exactly is happening in your market right now with regard to these broker deals and these brokers that are that are out there?

SPEAKER_01 1:06

Yeah, so in New York and New Jersey, there are uh unlicensed brokers. They are leasing agents, they are um they're basically set up as um almost like a shell entity, and they operate sort of in the gray area of the automotive dealer network because they're unlicensed, they're unregulated. Um, in New York, there was some enforcement that sort of legitimized parts of what brokers do, but in New Jersey, they are illegal. They are unlicensed, many of them claim to be licensed and bonded, and they're not. You can very clearly go onto the state websites and and search the Motor Vehicle Commission. Um, so they advertise deals that don't exist, they operate heavily in our markets, um, and they infiltrate our network by basically um offering a service that is uh a service that a dealer offers, yeah. And they offer prices that many times can't even be met, as they don't have ad covenants, they don't have Mac guidelines, and they don't have any of the regulations that automotive dealers have.

Jim Fitzpatrick 2:22

Sure, sure. And and you said that they as a as a kind of a uh a way to circumvent the system, there's some there's some dealers out there that are actually bringing these guys into their folder, into their employment. So technically speaking, they would be okay to broker these deals or to be kind of a sales agent.

Incentives And Retail Sale Mislabeling

SPEAKER_01 2:41

Yeah, so so in many cases, there there may be a dealer that does 50 or 100 or 150 of these a month. There are dealers in Long Island and there are dealers in North Jersey that I would say 50 to 60 percent of their new car volume comes from this channel. Wow. Now, one of the problems that Paul Sansone Jr. has really talked about recently, and Paul has been a great advocate, so I want to give him uh an honorable mention here. Um, is the main problem comes from the incentive guidelines, right? If you're selling a car at retail, the dealer in the dealer agreement must be facilitating that deal at retail in their PMA, right? Right now, you could sell a car, you could deliver it out of your PMA. If you're controlling the customer, great, no problem. Right. Where it becomes a where it becomes an issue is you've got, let's say, a dealer um a hundred miles away, and you've got a broker operating in your market, and you have an employee of that broker operating in the dealership's walls, right? This this isn't always the case. Sometimes there's no employee of the broker. Okay, but a lot of times the broker has access to the dealers, dealer tracker route one. Okay, they're able to submit the deal, and then there's a sale code for broker deals. I think it's sale type six, or in many cases, um, it's a different sales code than a retail sale, right? So if the dealer does an off-site broker deal and and puts it in as a broker deal, yeah, they lose all their incentive money. Okay. So that's one of the big problems is hey, if you're operating by the book, in New Jersey, it's illegal. So a dealer would never really put it in that, hey, we're doing an off-site broker deal. Yeah, right. But in New York, in New York, what's happening is a lot of these dealers have to hit their stair step number, right? Yep. So these brokers that are in um parts of Jersey that are close to Brooklyn or Staten Island, where I'm at, a lot of the people have moved from Brooklyn, Staten Island into my market of freehold, Old Bridge. Yeah. Um, I'm not sure if you're familiar with these markets, but I am. Um so what happens is these guys will set up an office and they'll they've they've no expense, they have no capex, right? They have no regulation, right? And they're able to act as a de facto sales agent of the dealership and basically deliver the car right to that customer with no license. Right. The dealer punches it as a retail deal. Yep. And guess who never sees that customer for service?

Jim Fitzpatrick 5:24

You, you, the dealer.

SPEAKER_01 5:26

Yeah. The deal, the the the the a lot of these brokers even sell a concierge service where they'll pick up the car from the customer and they'll bring it for service. Wow. So it's it's circumventing the whole dealer network, right? Yeah. And um, there are certain brands that are worse offenders than others, I'm sure you could imagine. Um, and you know, I don't think I have to really uh bring those brands up to you know to make mention of who they are.

Jim Fitzpatrick 5:56

But are they you know, when you think about broker deals, you you think more along the lines of maybe Highline, somebody looking for a certain Mercedes or a certain Lexus that's hard to come by or something, something in that realm, maybe a a Range Rover that nobody can get their hands on or what have you. But that's not the case, right?

SPEAKER_01 6:14

I mean that no, it's not it's not even remotely the case. And what happens is in my market, for instance, you can go on Google and you can type up autobroker near me, right? And there's about 30 of them in a 15, 20, 25 mile radius, and they market new Jeep lease, they market new Nissan lease. There's Toyota dealers doing this, right? So what happens is they are basically unlicensed, they're unregulated, but they're acting as a as a dealer, in essence.

Jim Fitzpatrick 6:51

Right.

SPEAKER_01 6:51

The biggest problem is if these deals were tight, were entered in as a broker deal, there would be no reason for them to be done because they would lose all of the incentive money.

Jim Fitzpatrick 7:02

Right, right.

Customer Harm Fees And Privacy Risks

SPEAKER_01 7:03

So it's a OEM incentive policing issue, and it's also a state um issue. So we're we're working closely with the Motor Vehicle Commission of New Jersey because the Jersey state regs very clearly define that brokering is illegal. Brokering is the sale of a vehicle. Um, I have the definition, I don't have it uh in front of me, but what about when it comes uh for sales tax?

Jim Fitzpatrick 7:32

Who's paying sales tax on thy vehicle?

SPEAKER_01 7:35

So that's a great question, and that's really where it's hurting a lot of these localities and municipalities is A, where's the sales tax going? Right. B, there's no recourse to the let's say a customer you know types best best uh Mazda lease near me, right? And they land on uh A B C broker auto. Right. Wow, they have a great lease. Let me call them. The broker says, Yeah, we got that lease, we'll take care of you. What are you looking for? Give me your information, right? Yeah. A, it's an FTC violation because by law, they're not able to take a customer's credit information, right? Yeah. And then what happens is they'll reach out to a basket of 10, 20 dealers they work with, and they'll say, Who wants to take a three, four thousand dollar loser to hit your number? Right. Right. And what happens is a lot of times we see customers that come in and they have deals that are five, six, seven, ten thousand dollar losers. Wow. And they'll put it in front of me, you know. Hey, um, you know, dealer, can you can you make this deal that this broker put in front of us? Yeah. And they they get angry, but it's we can't make the deal. Just because an unregulated broker put it in front of you does not mean that as a regulated dealer who invests in the facility and the brand, yeah, of course. It's not a deal we can make.

Jim Fitzpatrick 8:59

But also the broker can't make that deal either, right? But the customer's got to find that out by going back over to the broker and going, hey man, they can't do the deal. And then, of course, we know what could happen there, where the customer they say, all right, well, you know, here's the real number on the car, and then they put them in the colour. Correct, correct. Okay.

SPEAKER_01 9:16

And and what really blew my mind is um in many cases, these brokers are making two to three thousand a car from the customer. Wow. So the customer is paying the broker a fee. Right. The broker is also sometimes taking a fee from the dealer, right? So this is all money that belongs in the dealer network. And yeah, and look, if you want to be a broker and you want to send bird dogs to a dealer, yeah, by all means, play you know, within the rules that were set. But so actually during COVID, a lot of this went away because there was no inventory, right?

Jim Fitzpatrick 9:53

So who's and then as who's offering the financing on these cars to these customers? Where's that coming from?

SPEAKER_01 9:59

It's all facilitated through dealers. So we're handling that too. So the broker is acting as a de facto agent of the dealership. Okay, they have relationships with the dealer, okay, and they're able to go into the dealer's dealer track, which is another FTC privacy compliance nightmare. Yeah. Um, there so if if you look up New Jersey motor vehicle statutes relating to brokering, yeah, if you're a dealer and you engage in this activity, I believe it's a ten thousand dollar fine per transaction, but in addition, you could lose your dealer license.

Jim Fitzpatrick 10:37

And so let me ask you this but having to having a law that's on the books and actually enforcing it, we we know is two different things. Have any dealers in New Jersey suffered the pain of actually having to pay these fines or being called out on this? Or is it just kind of one of those things where it's like, hey, it's against the law, don't do that, and nobody does anything.

Laws Fines And Why Enforcement Lags

SPEAKER_01 10:57

So that's how it's been. Nobody's done anything. There hasn't been the proper regulation channel set up. But I will say, Senator Gopel, who's a phenomenal New Jersey state senator, has worked closely with myself and a group of dealers, and we have a new motor vehicle commission chair that is, you know, they're doing what they can. Where it becomes tricky is let's say you're John Smith, right? And you're you're buying a car through a broker, but it's all running through the dealership. Yeah, right. The broker is delivering the car, the dealer is punching it as a retail sale. Right. So in an audit, you go in, you pull the deal jacket, you may not know it's a broker deal. Right. But I'm gonna tell you how you know it's a broker deal. If you look at certain pump-in, pump outs, right, let's say you're a dealer in South Jersey, yeah, and you have a hundred Mazdas or Nissans or Jeeps a month being sold into your market. Yeah, nobody's driving three hours from South Jersey to Long Island to buy a car that they could buy here, right? So what's happening is these brokers are out are in these markets, yeah. They set up an office for$2,000 a month.

Jim Fitzpatrick 12:10

Yep.

SPEAKER_01 12:11

They they're making more money than a lot of the dealers in many cases.

Jim Fitzpatrick 12:14

Yeah, that's less than one car profit on to them, right?

SPEAKER_01 12:18

Correct. It's it's one profit and they have no expense. Right. They have no CapEx, they have no facility, they have no training, they have no compliance.

Jim Fitzpatrick 12:25

Exactly what they're using as a sales pitch to these customers to go, we don't have the overhead that the dealer has, which means we can cut you a better deal.

SPEAKER_01 12:33

In many cases, yeah. And look, it's what concerns me is the customer has no recourse. Something goes bad, customer gives them a$10,000 deposit, broker flees to Bermuda or wherever they go. You have no recourse because it's an unregulated part of the system and they're not licensed again. Uh so dealers are a problem in this, right? If you're a dealer and you're allowing brokers to infiltrate your uh business, that's a problem, yeah. Right. Um, and if you're a deal, if you even if you're a New York dealer where brokering is somewhat legal because they tried fighting it and it got legalized for whatever reason, right? Even in that case, if you're punching it as a retail sale, but a broker is delivering it off site, it's not a retail sale, it's a broker sale.

Jim Fitzpatrick 13:27

Yeah.

OEMs Volume Pressure And Margin Erosion

SPEAKER_01 13:28

And that has the ability to be charged back in full because you're not abiding by the incentive policy.

Jim Fitzpatrick 13:34

So are the OEMs looking the other way on this because they just want the RDRs and they just kind of let the dealer or the franchise system kind of work itself out, or or where where do they stand on this?

SPEAKER_01 13:46

So they know it's bad for the franchise. They know it's horrible. You can tell by the numbers it's horrible, right? Um, they know it's bad for the dealer, they know it's bad for service retention. Yeah. Um, I am.

Jim Fitzpatrick 14:00

I know it's bad really for the customer. The customer is, I mean, you know, to take that customer outside the walls of the franchise itself and the franchise system and everyone else that's in there, uh it doesn't make for a great CSI either, right?

SPEAKER_01 14:14

It's horrible for the customer, it's horrible for the dealer, it's horrible for the OEM. And so what I've done is I've looked at composites in high broker markets, Miami, Los Angeles, New York, right? And then I'll look at a composite in a in an area like Texas, yeah, or Nashville or Ohio, right? What do you think the difference is?

Jim Fitzpatrick 14:40

What?

SPEAKER_01 14:41

Major. I mean, you're you're talking it could be three to five percent in return on sale swing. Wow, because what's happening is the broker is basically sucking all of that margin out from the dealer, right? Sure. And they're also taking all the service that the and and this creates another problem. If you're buying a dealership, right, and the dealer represents that they sell a hundred new cars a month, yeah, right, of 50 or brokers.

Jim Fitzpatrick 15:10

Yeah, it you're a problem.

SPEAKER_01 15:12

Yeah, because those 50 broker deals, you're not seeing them in service the way you should be. That's right, right?

Jim Fitzpatrick 15:17

That's right.

SPEAKER_01 15:18

And they're trained by the broker, hey, it's a lease, you don't have to service it, or it's so it goes against what we um really harp on to the customer maintain your car. You may be buying out your lease at the end. Oh, and it's actually in your lease agreement that you have to maintain this vehicle.

Jim Fitzpatrick 15:38

Yeah.

SPEAKER_01 15:38

So it look, the broker is not licensed or not regulated. They're gonna tell you whatever they need to tell you to make a sale. Of course, right? So it's it's concerning to me because you have these OEMs that are chasing volume, right?

Jim Fitzpatrick 15:52

It's telling me though, that that the that the oh that all of this could be halted with uh with a law coming down, a law, but a but a rule coming down from the OEM. I mean, it it it seems it this seems so easy to fix, but yet they're probably not necessarily maybe they're just not fixing it to go, hey, we're looking the other way. We need the RDR, we want we want vehicles to be sold. I mean, it you you all you know that a dealer could be put on probation with a letter if in the event they do something wrong with their franchise, right?

SPEAKER_01 16:23

So of course, and me that look the OEM knows the dealers who are doing it, right? It's very obvious because a guy goes from having 30 RDRs, then the last day of the month he's got 150 RDRs.

Jim Fitzpatrick 16:36

Exactly, right?

Dealer Participation And Kia Pushback

SPEAKER_01 16:36

Um, yeah, and not just that, by the pump in, pump in, pump in, pump out reports, you can tell. And you could tell by a customer as a broker's tag on their on their car. Yeah, you go look at the VIN and see what dealer sold it, right? Yeah. And look, uh we we had a we had a meeting with New Jersey Car where we had about 20 dealers on the car on the call. Okay. There were probably eight of them who were participating in this business because they've been doing it for so long, they feel it's a necessary evil. Okay. They they there's also managers that are um maybe uh compromised. Can I uh you know, let me use that word.

Jim Fitzpatrick 17:17

Uh no, that's there, there's definitely managers that are compromised. I mean, obviously, you're in the business, you're in New Jersey. I'm not, but I've been in the business long enough to know that that's way too close for comfort. There's definitely managers that are being compromised by this system. There's no question about it.

SPEAKER_01 17:34

No, they there are, and again, we see it in the data. And uh, so you've got brands like Kia, for instance. When I told Kia about this, yeah, they were they they were they they did everything they they could to say we're never gonna allow this, and if we see it happening, yeah, we're gonna try to stop it. So they knew of a dealer in North Jersey engaging in it, they got sent a letter. Yep. So and I gotta give a lot of kudos to Kia. They've done a tremendous job of building that's fantastic, you know, yeah, building a great product that stands on its own. Yeah, and a lot of times, so if you're a um OEM and you're a dealer and you could sell a retail car and make a fair margin without hitting a stair step, you have no reason to chase you know, yeah brokers and do illegal business to a lot of times these dealers, so there's there's a group of dealers doing it um in a in a way that's disgusting, in my opinion. I'm like, these guys must be making a ton of money, right? Why else would they be doing it? Yeah, they're actually less profitable than anybody in the whole country, yeah, the guys that are partaking in it. So there's no good reason to do it. And my hope is that the Motor Vehicle Commission, the states, because again, car dealers are the best rateable in the town for real estate taxes, and when it's hurting a car dealer, it's hurting the municipality in ways that people don't really understand. Yeah, you know.

Tax Base Service Loss And NJ CAR

Jim Fitzpatrick 19:07

So on the sales tax issue, because the deal is being actually really run through the dealership, the broker's just or uh setting the deal up, structuring the deal, getting the customer on okay, and then the and then the deal though is still being done through the dealership.

SPEAKER_01 19:21

The deal is being done through the dealership. Now, the the problem is a lot of the deals that should be New Jersey deals are being done through New York. Okay, so you know, look, you want a customer to shop in their market, yeah, right? You're in um Philadelphia, yeah, you should be shopping in Philadelphia. Yeah. If you're in Philadelphia, you shouldn't be shopping in Long Island, sure, right? Or Brooklyn. So um I think sales tax is, you know, it my I look at sales tax more of a concern as the real estate taxes at risk because dealers are losing so much money because of this, and the employees at risk. Yeah. And employment tax, you know, payroll taxes are a huge contributor to um, you know, the state and the localities.

Jim Fitzpatrick 20:10

Right, right, for sure. Very interesting. This that this is uh something that we're gonna be, you know, following closely. Uh love to do a follow-up with you. Uh, maybe bring on um, you know, somebody from NJ Carr, maybe the president of NJ Carr. Uh she's a friend of the show as well. She's been great. Laura Grayson, yeah, it's been great.

SPEAKER_01 20:30

The conflict with NJ Carr, they're phenomenal. Yeah, but they also don't want to hurt their dealers, right? Yeah. So it's it's it's a it's a balancing act. They want they want it to go away, but they don't want it to go away at the expense of dealers being shut down.

Scout And The Direct Sales Fight

Jim Fitzpatrick 20:46

Right, right. I got you. Hey, in our last few minutes here together, um, you're an Audi and Volkswagen dealer. Want to get your quick take on scouts. What where I mean, this is obviously getting a lot of dealers very upset that that you know you've got these legacy, this legacy car maker that's saying, hey, we're gonna sell directly to consumers. I don't know where it stands with New Jersey, but obviously some other states have already fallen to say we're gonna give them a dealer license, they could sell vehicles. Um what's your take on that situation?

SPEAKER_01 21:16

Look, my take is that um franchise law exists for a reason, right? And I think that what the I think Scout is, I think everything happens for a reason. And I think what's gonna happen with Scout is they're gonna be struck down, it's not gonna be allowed to operate as a direct-to-consumer model because anytime you have a company that has shared interests with a company that enters into franchise agreements with a dealer, yeah, that same company can't then go, um, you know, and Ford sort of almost um went into it with the mock E and that whole situation. And they Got so much pushback from dealers, right? Yeah. Um, so my take on it is that if it's bad for the dealer, it's bad for the business. Yeah. No matter what. Right. Whether it's brokering, direct sales, um, if it's bad for the dealer, it's bad for the customer, it's bad for the business. We have to support our dealers. And I think you're gonna see very quickly that scalp is gonna, it's gonna go away. It's not gonna, you know, either Volkswagen dealers will um, you know, be able to take scalp franchise, whatever it is, it's not gonna operate in a way where they can just sell direct to consumers.

Jim Fitzpatrick 22:35

Okay, you think that that'll that'll evolve over time and they'll just say, look, let's give this vehicle to Volkswagen or Audi stores.

SPEAKER_01 22:43

And Volkswagen dealers need it, you know, if it's a good product. I mean, look, I I I I bring up Kia because Kia listened to dealers. We were we were acquiring Kia dealerships 2007 through 2012 through 2022, and Kia always listened to the dealer, yeah. And anytime they drifted in a way that was anti-dealer, they would listen to dealers and they would you know get back on course. Yeah, and when I see OEMs that are going, um, you know, Audi is a phenomenal um OEM and they've drifted a little bit. I think they'll get back on track. But look, I think that a lot of OEMs can learn a lot from the Toyotas and the Kias and how they take care of the dealer. Yeah. And could you ever imagine Toyota creating a scout-like um entity? No way. No way, it never would. So um my take on it is that I believe what's meant to happen will happen. Right.

Jim Fitzpatrick 23:43

And um gotta let it run run its course.

SPEAKER_01 23:47

Yeah.

Nissan Turnaround Residuals And Focus

Jim Fitzpatrick 23:47

Yeah. Yeah. For sure. Hey, before I let you leave, you're feeling good about Nissan? You're a Nissan store. You have a Nissan store.

SPEAKER_01 23:54

Um I have a Nissan store. Nissan is a challenge. Yeah. Um, it's that the product is great. They've got they've got a lot of um components that could make them great. Uh they're dealing with some challenges in regions, but not others. Like I said, you might have a Texas Nissan region killing it, and a New York region that's getting killed.

Jim Fitzpatrick 24:20

Yeah.

SPEAKER_01 24:20

So the inconsistency is bad for the for the manufacturer because um these car, like it's not like it used to be where the auction was ran here and the car would do back more. So when you're tanking residuals due to brokering or fleet tail, right? It hurts the whole country.

Jim Fitzpatrick 24:40

Oh, yeah.

SPEAKER_01 24:41

Because they can't price that vehicle as aggressively the next time around. And uh I I bought Nissan, I bought a big Nissan store because I believed in it. I still believe that they could turn it around, but I believe they need to take action quickly. Yeah. And I believe that they need to focus on what works. You know, don't focus on 20 products. Yeah. You know, how about bringing back to GTR? Yeah. Right? That would drive a ton of activity to showrooms, wouldn't it? Sure. So focus on the rogue, the centra, the pathfinder, the armada, make great lease programs, take care of your dealers, protect them. Don't allow fleet tail, don't allow broker business. Um, I believe if Christian and Tiago, who are who are great um operators, can follow some of that direction, I think Nissan will be okay. I really do.

Jim Fitzpatrick 25:36

Yeah, well, good. That's that's great. I know that Nissan executives uh watch the show, so uh maybe they're taking notes on what you just said. It was great advice.

SPEAKER_01 25:44

So and I'm I'm happy to talk, and and Tiago will will pick up the phone and he'll call me, which is great. Yeah, um, and I think that's how Kia became successful was picking up the phone and calling a dealer, no, no matter who you are. You know, that's right. So I'm always open to talking to them about you know how they can improve on certain operations. And the problem is they may see something in Nashville or Texas or you know, another state, yeah, but in what in in in in our region, um uh Nissan dealers, and it's probably almost public information, but I think the average Nissan dealer in this region return on sales is negative 2%, give or take. Think about that. Yeah, negative 2% return on sale. Wow. Right? So something is causing that, yeah. And they need to look at what's causing it and they need to fix it. Right. Or dealers aren't gonna stick around if they're losing minus two. You could do the math.

Jim Fitzpatrick 26:43

That's right. That's right. That's right.

Final Thoughts And Sign Off

SPEAKER_01 26:44

It doesn't work.

Jim Fitzpatrick 26:45

That no question about it. Jake Libowitz, dealer at uh Raceway Auto Group. Thank you so much for giving us so much time here at CBT News. Very much appreciate it. It's this is a hot topic in terms of the brokers, and then we're gonna see what happens with uh with Scout. Uh, I hope they take your advice on that and uh you know have this happen sooner rather than later that they turn this uh this uh incredible car over to one of their you know VW or Audi stores. And also I appreciate you being as candid as you were with us, really. I know a lot of dealers will get out a lot out of it. So thanks so much.

SPEAKER_01 27:17

Yeah, thank you so much, Jim. Great. Have a great day. Appreciate it. Thanks for watching. Inside automotive with Jim Fitzpatrick.