In New Jersey, licensed dealers are facing a growing challenge from illegal brokers. Joining us on today’s Inside Automotive episode to discuss what’s happening, why it matters, and the integrity of the franchise system is Jake Lebowitz, fourth-generation Owner and Dealer Principal of Raceway Auto Group.

According to Lebowitz, these brokers typically market vehicle deals directly to consumers, often advertising aggressive pricing that franchised dealers say cannot be supported within manufacturer guidelines and operating costs. Acting as intermediaries, brokers connect customers with dealerships while collecting fees from both sides of the transaction. Their low-overhead structure allows them to compete on price without adhering to the same standards required of licensed dealers.

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Financial and operational impacts

In some cases, broker-driven transactions account for a substantial share of dealership sales volume, particularly in high-density markets. This has created additional pressure on retailers operating within established legal and manufacturer frameworks, as competitors leveraging broker channels may gain short-term volume advantages.

Additionally, the practice introduces complications tied to manufacturer incentive programs and compliance requirements. Transactions facilitated by brokers are often recorded as retail sales, allowing dealers to retain incentive eligibility regardless of the deal’s nature. This approach carries risk, including potential chargebacks and violations of manufacturer agreements.

Beyond immediate transaction impacts, broker activity can weaken long-term customer relationships. Customers acquired through third-party intermediaries are less likely to engage with dealerships for future service or repeat purchases. In some cases, Lebowitz notes that brokers offer additional services that further distance customers from the dealership experience.

“Customers acquired through brokers are not seeing the dealership for service… It’s circumventing the whole dealer network.”

Financially, the model places additional strain on dealer profitability. Brokers effectively extract margin from each transaction, reducing overall returns. Markets with higher broker activity have shown lower performance compared to regions where traditional retail processes dominate. This dynamic can also distort dealership valuations by inflating sales volume without corresponding gains in service retention or profitability.

Despite clear legal restrictions in New Jersey, enforcement has been limited. Identifying broker involvement can be difficult, particularly when transactions are processed through dealership systems. State regulators have begun to examine the issue more closely, but enforcement mechanisms remain inconsistent.

Regulatory and industry response

The impact extends beyond dealerships to consumers and local economies. Customers working with unregulated brokers may face limited recourse in disputes and potential risks related to handling personal and financial information. At the municipal level, reduced dealership profitability can affect tax revenues tied to both real estate and employment.

Automakers are aware of the growing influence of broker activity and its implications for the franchise system. Some brands have taken steps to discourage the practice, while others are perceived as tolerating it to achieve higher sales volume. The issue highlights a broader tension between short-term performance metrics and long-term network stability.

Lebowitz said resolving the issue will require coordinated action between regulators, automakers, and dealers. Strengthening enforcement, aligning incentive structures, and reinforcing the integrity of the franchise system will be key to addressing the challenges posed by unlicensed broker activity.

As the issue gains visibility, industry stakeholders are expected to face increasing pressure to close regulatory gaps and ensure a more level playing field for licensed dealers.