Are brokers distorting the dealership model?

Paul Sansone Jr., owner of Sansone Jr’s Auto Group, examines the growing scrutiny surrounding automotive brokers and the impact on franchised dealerships. He discusses how broker activity is reshaping vehicle sales in certain markets and raising concerns around compliance, pricing integrity, and dealer agreements.

Sansone outlines how state-level regulations—particularly in New Jersey—prohibit broker involvement, yet enforcement remains uneven across the industry. He explains why relying solely on OEM guidance is insufficient and highlights the operational and legal risks dealers face when engaging in broker-related transactions. The conversation also explores how widespread broker activity can distort market dynamics, weaken dealer control, and create internal vulnerabilities. As regulatory pressure increases, dealers must balance compliance with competitive realities in evolving retail environments.

•  How broker activity impacts pricing, compliance, and dealer agreements 
•  Differences in state laws and enforcement, including New Jersey’s strict stance 
•  Limitations of OEM guidelines in regulating broker transactions 
•  Operational and legal risks tied to non-compliance 
•  Strategies for dealers navigating broker-heavy markets 

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Transcript

Welcome And The Broker Problem

Jim Fitzpatrick 0:07

Welcome to Inside Automotive with Jim Fitzpatrick. Broker activity is under the spotlight in New Jersey as manufacturers like Kia, Toyota, and now Nissan take steps to address unregulated and in some cases illegal behavior. Joining us now to break it all down is Paul Sandstone Jr. You've seen him here before on CBT News. He's been really closely following this issue and advocating for stronger oversight. Paul, thanks so much for joining us. And uh really appreciate you taking the time out of your schedule to talk about this very important issue. So if we can, let's kind of level set when we talk about broker activity. What does that actually look like on the ground there in New Jersey today?

Why It Is Spreading Nationally

New Jersey Rules And OEM Incentives

SPEAKER_02 0:47

Well, New Jersey is one of several areas around the country that are hot spots for broker activity. Um again, basically, dealers are complicit in working with uh independent third-party brokers selling them cars at less than what we can buy them for, and then they're using the manufacturer incentives, the manufacturer rebates, and misrepresenting the sale type and uh creating an uh an unauthorized sales channel uh that uh has become rather huge in our area. And as uh Jake had uh you know, Jake Liebowitz and I, as a local competitor of mine, but friend of mine, yeah, uh have uh identified that some districts have as much as 40, 50, 60 percent of their business are sold by outside brokers. So it's created quite a uh horrible uh selling environment in our area. California, I spoke to a very, very large uh Mercedes dealer that said it's out of hand in California also. And then Miami, we heard it's the same thing down in Miami. So it's not just uh New Jersey, but it it's growing, which is what created the uh sense of urgency. It's not just a small little uh retail uh uh population.

Jim Fitzpatrick 2:03

Right. From your standpoint, and you mentioned a couple of things, but what is the overall problem with it? Um, if you you know, to take the other side for the dealers that say, well, we are selling, but we're hitting our mark and we're we're moving metal and we're making money, and you know, what's wrong with that?

SPEAKER_02 2:18

So well, first of all, let's take the uh motion out of it for a second. I do want to address that though. Uh in New Jersey specifically, New Jersey it's against your motor vehicle license to sell to a broker, flat out against your motor vehicle license.

SPEAKER_00 2:32

Okay.

SPEAKER_02 2:33

So a dealer uh that's uh that's an area of enforcement that New Jersey is getting serious about, and they've sent out a motor vehicle letter uh reminding dealers that it is illegal, and from what I understand, I'm not gonna use the word illegal, it's against their motor vehicle license to sell to a broker, and they uh fine, significant fines and loss of your your motor vehicle license, which puts you out of business in New Jersey.

SPEAKER_00 2:59

Yeah.

SPEAKER_02 3:00

So New Jersey has a level of um of compliance that other states may or may not have. I'm not an uh expert on broker business in all the states, but I certainly feel like I'm very well versed in uh in New Jersey. Uh so that's one area of just flat out, you know, you have regulations on the books, you're either compliant, comply with them or not. You can't have you can't have rules you want to adhere to and rules you don't want to adhere to because it's in your best interest. And that's really been one of my main stays with this. And the other side of it is the manufacturer. The manufacturer clearly state that you do not pay any of the manufacturer incentive, lease specials, etc., on sales to brokers, and brokers have a separate sales code, and dealers have been ignoring uh the guidelines, and the manufacturers have been ignoring policing it. So for me, it's a black and white issue. If you have a regulation on the books in the state, if you have incentive rules that that you have to comply with, uh they you just like warranty regulations, you have rules that you have to comply with. You can't say I want to comply with this rule, but I don't want to comply with that rule.

SPEAKER_00 4:12

Right.

SPEAKER_02 4:13

So in New Jersey, that was very black and white. And why I felt, and Jake and I felt, that if you take the emotion out of it, uh that we had very solid grounds to get enforcement because the rules are already on the books.

Social Media Fuels Broker Growth

Jim Fitzpatrick 4:28

Yeah, yeah, for sure. And and you know, I you you when you can't you can't go on to uh uh social media these days without seeing some car broker that now is selling cars and teaching people how to buy cars at a better opportunity or better price or what have you. And uh and all of these little you know, car brokers now are are popping up across the board on even on social media.

SPEAKER_02 4:52

Uh well what really triggered me, Jim, is I got on my phone a uh marketing message from a marketing company, marketing to brokers, grow your business to a hundred deals a month. And I was like, this is absolutely disgusting.

SPEAKER_00 5:06

Wow.

SPEAKER_02 5:07

But but bottom line, but bottom line is the broker, the broker activity has been going on forever for a very long time in our area, and now we just are asking for the enforcement and guidelines uh that can that not regulate it, eliminate it in New Jersey, eliminate it.

Jim Fitzpatrick 5:27

Yeah, well, you must have woken up a lot of people because now Toyota's uh issued letters to all of their dealers, and Kia has done the same, and of course Nissan now has issued letters to their dealers. So this is an issue. I mean, this is something where it looks like the OEMs are jumping in and going, hey guys, we do not tolerate broker deals. This can't, this is against actually your franchise agreement, right?

SPEAKER_02 5:50

Well, if you think about it, I either acquired a franchise like everybody else, and uh, you know, the the manufacturer has entrusted me to take care of my market area. They didn't entrust broker ABCD to uh sell to the market area. I am their designated dealer in my market, and that is my responsibility to my manufacturers to sell and cover your PMA. And uh for them to for them to circumvent that responsibility, I always felt was very offensive to the dealers. You can't look a dealer in the eye and say we're one team and then and then ignore something that is detrimental to your business, to your bottom line, and even to their bottom line in their business.

Jim Fitzpatrick 6:36

Sure. Um, we don't have to get specific on the brands, uh, but have the OEMs turned the other cheek on this in the past and said, well, we'll just kind of let let the dealers work that out in their markets or what have you. I mean, this this can't be something that's brand new. I mean, broke brokers have been doing deals for a long time with with uh franchise dealers, right?

Resetting Targets After Crackdowns

SPEAKER_02 6:56

Uh it it's just it's been just a blind eye has been turned to it. Nobody, you know, when it's a small problem, then there's not a lot of spotlight on it. Yeah. But when it got to the level that it got, uh it became uh a very, very serious problem for the dealers and the and the uh franchise. Sure. And I'm I I want to address uh, you know, also what do you do now? Yeah. I mean, think about it. You have dealers, and again, for the audience that has never dealt with this, I I just a simple explanation. If you're a dealer that's selling a hundred cars a month and you have new cars, and you have, regardless of the brand, and you have a retro program or an incentive program based on sales, volume, whatever. Yeah, and 50% of those deals, 50 of those deals are broker deals. Now all of a sudden we have compliance. And I'm and I truly believe that the manufacturers are going to be aggressive with compliance, at least the ones that have sent out notifications as as we've had.

Jim Fitzpatrick 7:59

Sure.

SPEAKER_02 7:59

But if you think about it, what you need to do is be fair to the dealers that built a business on something that you turned a blind eye to for uh 10, 20 years. Right. You can't all of a sudden say, Jim Fitzfactory, you're in you sold a hundred cars and your incentive is still a hundred cars. When you come to me, they should be going to the dealer and saying, Jim, it's very easy, first off, to identify broker dealers. You do a pump in, pump out report. Yeah, it's it's so easy that it we've had dealers call Jake and I, and oh, you're ratting us out. I said, There's nothing to rat out. I mean, it's it's it's very obvious who is doing the business and who isn't. So there's not an issue in my mind of that. But you identify the dealers that are doing them. Be fair to the dealers. You've turned a blind eye to this for five, 10, 15 years. Yeah, they built a business model, whether I agree with that business model, you agree with it, that's really immaterial. The gentleman, guy or girl built a business model around it. We have to be fair to the dealers and say, look, we are going to be uh auditing. You have to reset, reshuffle the deck and say, look, if your natural sales objective is 50, you can't have his artificial hundred sales objective be his target, or else it'll just uh it'll just encourage a continued bad habit. So I'm I really have uh am encouraging the manufacturers how painful that might be to look at that avenue and really talk to the dealers that are doing it and and reset the reset the uh uh incentives, reset the objectives.

Jim Fitzpatrick 9:35

I would imagine you have countless customers that you could point to, or I should say, people that have that came into your dealership, you demoed the car, you presented the car, you went over the whole vehicle, and then they pick up the car through a broker, and you don't get the deal.

SPEAKER_02 9:48

That's I was I was on a busy on the showroom floor, busy day. I sail, I I knew what was going on. Uh I actually walked up, introduced myself to the customer, and I said, Look, if you have no intention of buying a car for me, I'd appreciate if you if you you leave basically. And uh the I actually in that case, he told me the deal he had. I told him the deal I was gonna do, and he did end up buying the car for me legitimately, but that's not the norm.

Jim Fitzpatrick 10:20

No, that's you and you don't want it to have to come to that, right? I mean, at the end of the day, yeah, everyone the dealer suffers and the customers definitely suffer. The brokers make out like bandits. I say bandits, but you know what I mean. They and and and then you know, when you think about the relationship between a desk manager or a sales manager, a GSM at a dealership and brokers, that that's you know, as a dealer, that's too close for comfort for me. You you don't know what's going on there either. You know what I mean?

SPEAKER_02 10:46

Let me take it, let me take it a step further, Jim. If the manufacturers uh have uh difficulty in auditing this process, so to speak.

SPEAKER_00 10:55

Yeah.

SPEAKER_02 10:56

If you're a dealer that continues with broker business and your motor vehicle license is at stake, and hundreds of thousands of dollars of incentive monies are at stake, every employee you have has an axe over your head. Yeah, you will never, you will never be able to fire an FI manager, a billing clerk. Think about it. That's right. That's a good point. Every one of them over your head, every one of them has an axe over your head and that could turn you in. That's right. And in fact, what really what braised that to me is uh, you know, the FTC compliance with the used car pricing and everything else. I was on one of the webinars. And they said the number one way in which they're identifying dealers is through other dealers or employees of those dealerships reporting them. Oh, of course, no question. Which is what I feel is going to happen. And you have multiple stores at risk to do to do a few deals. I mean, I had one dealer say, Well, I only did 10 of them.

Jim Fitzpatrick 11:58

Yeah. Okay. I only broke I only broke the law a little bit, I only broke the law ten times, not a hundred times.

SPEAKER_02 12:05

But that's that's a pretty scary thing that every employee at your dealership has something over your head that could be so detrimental to you and your business.

Jim Fitzpatrick 12:12

Yeah.

SPEAKER_02 12:13

And you just can't allow something like that to happen.

Jim Fitzpatrick 12:16

No, no, there's no there's no question about it. And then what about what about CSI in all of this? I mean, I would imagine that the OEMs are concerned, you know, about about the the CSI in the deal and and what that uh or with the customer. What what kind of an impact does that have?

CSI Data Gets Murky Fast

SPEAKER_02 12:31

You know what if you're you don't even know if you're getting accurate email addresses. You know, all of the thing gets gray and fuzzy, even if the brokers are very sophisticated on how to uh on how to do this and hide it. I'm sure they're they're easily able to hide uh any CSI issues uh that pop up. Sure. Um, so it's it's just uh a business that uh is gonna go should go away. But I do want to point something out to a dealer. If you really think about what happened, we let it happen, A, because we let it happen by us giving our rights as a dealer and uh as a manufacturer to brokers, a passing, giving them the giving them the wedge into our business was really uh the dealer's fault in mass.

SPEAKER_00 13:19

Yeah.

SPEAKER_02 13:20

But the other side of it is they are serving uh a population that needs to get served, whether it be for ethnic reasons, um, there are ways to handle the business. So for for I'm gonna use an example. When I was uh running my father's auto mall at Route One, we had a very high Asian population, and we had brokers coming in and uh maybe we can sell to this community. And first off, I had no idea what they were signing up the customers up for. I didn't understand the language. So instead of even getting involved with that, we had an Asian department. So dealers, if you say, all right, this is a uh a segment for religious reasons, for ethnic reasons, whatever, right? That we want to market higher within. Yeah, bring the bring it in the fold, you know, take the uh veil of secrecy out of it, and and uh and and I think that is a very easy way to uh still retain that business. Yeah, but aren't there but aren't there bring it out of the shadows?

Jim Fitzpatrick 14:17

Aren't there some dealers though that have the brokers actually working right there in the gate? They give them an office in the corner and say, here, you can actually work right out of my showroom.

SPEAKER_02 14:26

Well, I don't know what I don't know if if that's fact or fiction. I have heard that the only thing I could tell you is what is going on today. If that is the case, I have a feeling that that's gonna be a short-lived situation. Yeah, I mean, there's been a lot of things that have gone on. Dealers have given brokers their uh login to call deals indirectly, and actually uh through dealer track and route one.

SPEAKER_00 14:47

Wow.

SPEAKER_02 14:47

So there's a lot of things that have gone on, and we're not gonna snap our finger and this be gone this month.

SPEAKER_00 14:53

Right.

SPEAKER_02 14:54

Uh, but I certainly feel the tide has changed, and um for every dealer and broker that has said something nasty to me, to Jake and I, we've had 10, 20 guys giving us a pat on the back saying, Um, I'm glad I'm glad we're finally addressing this issue. Yeah, and uh that we they appreciate it.

NJ CAR And Enforcement Momentum

Jim Fitzpatrick 15:13

Yeah, no, yeah, no, no question about it. What about the what about NJ Carr? I know that she's uh uh that Laura's been involved in this as well, right?

SPEAKER_02 15:22

Well, again, NJ Carr was really the first person that stepped up to the plate and uh and really helped us have somewhat of visibility with uh with one of our manufacturers.

SPEAKER_00 15:36

Yeah.

SPEAKER_02 15:36

And it it didn't go anywhere at the time, but it was the first uh foray into getting dealers really addressing the issue.

SPEAKER_00 15:43

Okay.

SPEAKER_02 15:43

And and I have to give credit, you know, at the at some of the regional people that I've we've been dealing with. Because I know they had to fight this is a national issue. If you're if the corporate head of the manufacturer doesn't wish to do anything about it, nothing's gonna happen regardless of what your local uh uh reps are doing. But the fact is it got pushed all the way up to the top at Nissan, Kia. Quite frankly, uh Kia was spectacular in addressing it. And I'm thrilled that Nissan's letter came out as strongly worded as it was. Yeah I I I don't think that left any room for anyone to have any misinterpretation of what their uh what their guidelines are.

Jim Fitzpatrick 16:28

But as you know, it's one thing to to uh issue a letter, it's another thing to hold people accountable and actually you know say, okay, here's where the rubber meets the road. You're you know, you're gonna be put on probation as a dealer or franchise dealer, or we're gonna you know threaten your your license or what have you. I mean that's really that's really the the key here, right? Is there any are there any teeth in these letters or in the in the law there in New Jersey with the other thing?

SPEAKER_02 16:55

I think I think uh as you mentioned, Jim, uh the real rubber meets the road is when that first dealer gets his motor vehicle license suspended.

SPEAKER_00 17:04

Yeah.

SPEAKER_02 17:05

That first dealer gets the chargeback. And uh quite frankly, these chargebacks could put people out of business. This these are not chargebacks. You're talking about hundreds of thousands of dollars, hundreds of thousands of dollars, seven figures if if dealers really pressed it.

Jim Fitzpatrick 17:22

And so unfortunately, yeah. No, I was just gonna say, and if you are in a in you're thinking about selling your dealership, that's a huge contingent liability that you know is is just sitting out there that uh you know the new owners are not gonna take too kindly to if in the event they say, well, wait a minute, I just bought a can of worms here, right?

SPEAKER_02 17:41

Well, quite frankly, the guys that paid a lot of blue sky in the areas with uh recently in the areas with these brokers, yeah. Um we I have I have the ability to see what the PL statements are around the horn. And it you paid to buy a franchise that has a big uh market, and it's half of that market.

SPEAKER_00 18:05

Yeah.

What Dealers Should Do Now

SPEAKER_02 18:05

So you paid up on the blue sky and you're getting significantly less than what you bought for. I think many of these dealers may have been misrepresented. I'm not one of those, but uh, there are plenty of guys out there that bought dealerships recently that I think have an axe to grind with uh with that purchase.

Jim Fitzpatrick 18:22

Oh, I bet. I bet. Hey, for dealers that are watching, what should they be doing right now to protect themselves and stay compliant as this evolves?

SPEAKER_02 18:31

Again, it's pretty easy. Uh you know, if you have somebody that wants to refer business to you, or you have that market segment, as I said, either bring it in-house, have the consumers come to the dealership. If Jim Fitzpatrick has a relationship with uh with a congregation or a synagogue, whatever, and they want to have that business brought in, then bring the business in, deal with the customers directly, know who you're doing business with, and uh, and however you want to uh whatever type of referral fee, it's it's a different program when I'm dealing directly with the consumers. And as I said, uh, you know, the teeth in this in New Jersey are rather strong. New York dealers have a little bit different uh issue because brokers are somewhat regulated. I would I would strongly encourage them uh to make sure that their brokers are registered, licensed, certified, all the stuff that New Jersey state law approved.

Jim Fitzpatrick 19:32

Sure.

SPEAKER_02 19:32

I mean, New York state law approved uh uh broker activity to some level, but I'm sure most of them are not even compliant with those rules. Right. So there's a lot of teeth in it, and now that you have manufacturers and dealers rallying behind the cause, uh that's that that's really what's gonna make it make it happen.

Jim Fitzpatrick 19:50

Right, right. And then you need also the state legislators to be to be on this as well, right?

SPEAKER_02 19:56

Well, your motor vehicle license, I don't I don't know. I can't do business without a motor vehicle license. So I don't know how much more penalizing you can be.

SPEAKER_00 20:03

Yeah.

SPEAKER_02 20:04

And and and what I mentioned about the manufacturer, I recommend the Motor Vehicle Commission do the same thing. Go into dealerships, introduce yourself, say we may have been turning a blind eye to this for the last 20 years, but we're not going to be turning a blind eye to it now. And you know, be forewarned basically. And if it and if you don't pay attention to that, then then shame on you as a dealer. That's right. So but to be compliant is is fairly easy. Know what you're you know what your deals are, know who you're marketing to. Uh, you know, eliminate the broker deals. Don't get managers that want to ingratiate themselves bringing this type of business in. We control that. We're the dealers. We control an activity that we want to bring into our stores.

Jim Fitzpatrick 20:46

And as as you know, Paul, uh, the the other thing about that too is that when you bring a manager in and he's got his his whole group of cronies that are brokers and such, and uh and you're you're you know you're celebrating, oh, we're gonna add another hundred cars to the bottom line, what have you. Keep in mind when that manager leaves, guess they they they also take that business with them. So it's a very it you know what I mean? It's it's business that they're gonna be, you know, over and taking from store to store until they work, you know, so many stores in the market and what have you. It's just not a all the way around, it's just not a good, not a good look. Right.

SPEAKER_02 21:20

We work very hard uh to take care of our consumers and most dealers, uh most dealers are very hardworking guys that believe in the long play. The manufacturers need to trust the dealers to cover their market, right? To sell the to sell the communities that are in need. We are going to be in a transition period for 30, 60, 90 days. Uh as I said, I think the real enforcement will happen as soon as somebody gets slapped on the wrist or fined.

SPEAKER_00 21:47

Right.

SPEAKER_02 21:47

That's when people are going to take it seriously. But I I have uh a real belief that uh this is serious. Uh I know Nissan specifically, I'm very proud to say, really stepped up to the Plate uh Kia, I mean, really, really did some great initiatives to really set the record straight. Now the next step is all right, it's out there. Now let's make sure that people are compliant.

SPEAKER_00 22:12

That's right.

SPEAKER_02 22:12

And as I said, if a dealer thinks he's hiding under the radar, you're not hiding, you're no one's hiding under the radar with this thing. It's so easy. It's so easy to identify. And who wants every employee that works for you to have a leverage over you for something as significant as this is? You're not talking about a$10,000 ten dollar bill.

Jim Fitzpatrick 22:33

Uh Paul, employees, former employees would never do that to you, though. Never.

SPEAKER_02 22:38

Never.

unknown 22:39

Never.

Jim Fitzpatrick 22:40

Never.

SPEAKER_02 22:41

Oh, Paul says That's why you always have a witness to everything that you do. Make sure. I hate to say it. I know. I hate to say it, but it's true. I know. If you are in a position of power, you have to.

SPEAKER_00 22:54

Yes.

SPEAKER_02 22:54

And you're running businesses like we are. You can't leave yourself open to uh scrutiny. You can't leave yourself open to somebody that's looking to make a name for themselves or to hold you hostage for something.

Final Warnings And Wrap Up

Jim Fitzpatrick 23:07

That's right. It's not worth it. It's not worth it. Not worth it. It is not worth it, dealers. You heard it here right from Paul Sansone Jr., owner of Sanson Jr.'s Auto Group. Thank you so much for joining us on the show. Very much appreciate it. And uh well, obviously we want to stay in touch with you because we as this thing evolves and as uh things come up, we want to be able to call on you to you know get you back on the air and talk about this.

SPEAKER_02 23:28

Well, I appreciate it. I I do think the winds have changed and we're ready to move forward.

SPEAKER_00 23:34

Good.

SPEAKER_02 23:34

And I just encourage the dealers, if there's that much activity in your market, then go out to figure out how you can get that market.

SPEAKER_00 23:42

Right.

unknown 23:42

Right.

SPEAKER_02 23:42

Honestly, that these are people that we should be reaching out to. And uh I I think the price angle is off the table. Yeah, you know, that I think that the price advantage that was prevalent before is off the table. So just serve your communities and uh we'll all be better off for it.

Jim Fitzpatrick 24:00

I'll leave it right there. Thanks so much, Paul. Really appreciate it.

SPEAKER_02 24:03

Thank you, Jim. Thanks.

Jim Fitzpatrick 24:06

Thanks for watching Inside Automotive with Jim Fitzpatrick.