Saturday, March 24, 2012

Law, Without Force, is Impotent.

--- Blaise Pascal - 1623-1662. French mathematician, physicist, and religious philosopher.

I am not a lawyer. I don't want to play lawyer. But I am affected by the law - especially when I do business with aparty who flaunts the law. What follows is my interpretation of an existing condition in South Dakota that I find unfair and in violation of our state laws.

South Dakota franchised automobile dealers are subject to state laws that regulate their activity. If a dealer finds himself in violation of one of the regulations found in Chapter 32-6B of South Dakota Codified Law, he or she can expect a phone call or visit from the Division of Motor Vehicles with a request that he or she "cease and desist". And if he or she does not "cease and desist", I would expect that the Attorney General would proceed with prosecution.

What happens when a franchisor, or automobile manufacturer residing in another state in this case, violates a law in that same chapter of South Dakota Codified Law? Who is it that enforces the good people of South Dakota's laws in that instance? Does the Division of Motor Vehicles visit or call them? Does the Attorney General call to remind them that they are violating laws that the the South Dakota Legislature has passed into law? At what point does it move to prosecution?

In Chapter 32-6B of South Dakota Codified Law, section 57 prohibits an automobile manufacturer selling their vehicles to dealers at different prices:
It shall be unlawful for a franchisor to offer to sell or to sell any new vehicle to any franchisee at a lower actual price therefor than the actual price charged to any other franchisee for the same model vehicle similarly equipped or to utilize any device including, but not limited to, sales promotion plans or programs which result in such lesser actual price; provided, however, the provisions of this section shall not apply to sales to a franchisee for resale to any unit of government, federal, state, or local. Provided, further, the provisions of this section shall not apply to sales to a franchisee of any vehicle ultimately sold, donated, or used by said franchisee in a driver's education program. Provided, further, that the provisions of this section shall not apply so long as the franchisor offers to sell or sells new vehicles to all franchisees at the same price. Each and every person who violates this section shall be guilty of a Class 1 misdemeanor, and each and every person violating this section shall be liable thereby for all damages caused by such violation.
Now despite the fact that this is written in legalese and someone did their best to camouflage the true meaning of the law, one can still glean what is intended by the law. I believe that this law says that an automobile manufacturer cannot sell a vehicle to a South Dakota dealer at a price any different than that same manufacturer sells a similarly equipped vehicle to another South Dakota dealer (except in the cases of a government fleet vehicle or a vehicle intended for driver education purposes). That is not that difficult to understand.

So what happens if a manufacturers does sell a vehicle to one South Dakota dealer at a price any different than that same manufacturer sells a similarly equipped vehicle to any other South Dakota dealers? Well, the law indicates that they are committing a Class 1 misdemeanor and they are to be "liable thereby for all damages caused by such violation".

Well, what the hell does that mean? Apparently, it means nothing. I mean ABSOLUTELY NOTHING! Let me explain.

Virtually every automobile manufacturer that has multiple franchisees in South Dakota has sales or marketing promotions that allow a dealer to get some kind of "kickback" from the manufacturer that results in the ultimate cost of a vehicle being different for different dealers. These programs might be related to facilities or other aspects of the dealers business practices or they may be related to sales volume. An example of a program that rewards dealers for spending money on their facility is General Motors' EBE program which I have detailed here.

An example of a program that rewards dealers for their sales volume might be as follows. The manufacturer assigns a dealer a sales objective. These sales objectives are completely arbitrary (though they are usually based on past sales performance) because they cannot take into account the various factors in any given market. These might include the dealers' current inventory (how many vehicles or models does dealer have available to sell), local market conditions (think urban versus rural, metro versus small, etc.), and a variety of other circumstances over which a dealer may have no control. The dealer then earns a "kickback" based on how well he performs against the arbitrary sales objective.

Regardless of how the dealers earn the "kickback", they come in different amount to different dealers and because this is included under the "sales promotion plans or programs which result in such lesser actual price" provision of the law, this practice violates South Dakota law. A quick visit to Google to see what the punishment might be for a Class 1 misdemeanor in South Dakota indicates the  maximum penalty is one year imprisonment in a county jail or two thousand dollars fine, or both. I haven't see any automobile manufacturer executives headed to the county jail in Lyman or Brule Counties.

So why should you care if you are not a South Dakota automobile dealer? The law is intended to protect dealers and their customers by assuring fair competition for all. It is similar to the destination charges on new vehicles. There was a time when you could travel to Detroit and pick up your vehicle direct from the manufacturer, thereby eliminating the destination charge. This ended over 30 years ago, when the automotive industry was required to adopt equalized freight charges.

You should also care because this is our law. As South Dakota residents, we don't get to pick and choose which laws we like and will follow and which we don't like and want to leave behind. Manufacturers who choose to do business in our state should be held to the same standard. If you want to do business in South Dakota, you must comply with South Dakota laws.

Saturday, March 17, 2012

Bring on the Heels!!

In a game that redefined ugly basketball, Creighton edged Alabama 58-57 Friday afternoon in Greensboro. Alabama controlled the tempo of the game for about 38 of the 40 minutes. But the beloved Jays found a way to "survive and advance"!

As was scripted, our daughter, Rachel, was on hand to witness the victory while our son, Alex, and I were burning up the text messages. The celebration via Twitter, Facebook and text messages was both unique and fun!

The Bluejay victory has earned them the privilege of playing the top seed in the Midwest Region, the North Carolina Tar Heels, in Greensboro, NC, just 50 miles from the University of North Carolina campus.  

The match up has a great story line. Creighton All-American sophomore Doug McDermott and UNC All-American sophomore Harrison Barnes played together at Ames (Iowa) High School, leading their teams to consecutive state championships during their junior and senior campaigns and winning 53 straight games during that span. McDermott spent most of his junior year coming off the bench, yet still earned second-team all-state accolades before ascending to the starting five for his senior campaign. The story has been well documented in recent days.

Unfortunately, Barnes has a deeper and more talented supporting cast than does McDermott including ten McDonald's All-Americans. I think the Tar Heels will be heavily favored, but that doesn't mean a whole lot (does it Duke and Missouri?).

Creighton has a rich basketball tradition, but it’s safe to say that Sunday is the biggest day in its basketball history. In addition to the Bluejays game against top seeded North Carolina on Sunday, the Lady Jays play Saint John’s Sunday in Norman, OK and Creighton is also the host institution for the 2nd/3rd-round games in Omaha this weekend. It's about as close to the center of the March Madness as any one school can be.

Bring on the Heels!!

Tuesday, March 13, 2012

Bleeding Bluejay Blue!!

Knust Bluejays
If you know me, you know I have a passion for college basketball. (If you don't, check out the links.) March is typically my least productive month (unless you measure productivity by how much basketball one can absorb in 31 days!).

Another of my passions is Creighton University, where I earned a business degree thirty years ago and to where our two oldest kids matriculated. They both earned business degrees and all three of us "bleed" Creighton blue.

So you can imagine what happens when you take two of my passions and combine them in the month of March. It makes for some “white knuckle” fun!

The Creighton Bluejays have had a great year and aside from a three game streak in early February, they have been a lot of fun to follow. The coach-player, father-son team of Greg and Doug McDermott have brought Creighton’s family theme to the basketball court.

Oldest child Bluejay Rachel is making her way from Washington, DC to Greensboro, NC, where the Creighton will take on the Alabama Crimson Tide in the NCAA Tournament on Friday afternoon. She will be rallying with the DC Creighton Alumni and cheering the Jays on to a win!

Bluejay son Alex spent his birthday earlier this month in St. Louis, cheering on the Bluejays in their "Arch Madness" run to the Missouri Valley Conference title. He is trying to figure out a way to make the two-hour trek from his work in Sioux Falls to our home in Chamberlain, where we'll have the projector and three other TVs tuned in to all things Creighton, in time for the 1:40 PM EDT tip-off.

Honorary Bluejay wife Judy has CU degree in Motherhood. She is a University of South Dakota Coyote but she spent her share of time at CU during her college days. Judy cannot watch the Creighton games - the pressure is too great. Anything less than a twenty point lead sends her to the next room to do a couple laps around the rosary with a favorable outcome for the Bluejays' as her intention. She could be the Bluejays' MVP (Most Valuable Prayer).

Youngest child Sarah will be cheering on the local high school basketball team in the state tournament. Though she attended a Bluejay game in Omaha with us earlier this season, she probably won't be losing any sleep over the Bluejays' fate.

The Lady Jays will give us Jays fans some bonus basketball as they earned their way into the women's version of March Madness. They will take on St. John's in Norman, OK on Sunday afternoon. So Jays fans will have a rooting interest in a Sunday game regardless.

I have been heard this week to complain about the Bluejays' eight seed and their potential second round matchup against the top seeded North Carolina Tar Heels in the Heels' backyard. I am over all that now (NOT!) and ready for the boys to lace 'em up, take the court and kick some Crimson Tide ass! GO BLUEJAYS!!!!!

Monday, March 12, 2012

A Happiness Hypothesis

What is happiness? My criteria for happiness is similar to how Supreme Court Justice Potter Stewart described obscenity in 1964: You know it when you see it.

In his book "The Happiness Hypothesis: Finding Modern Truth in Ancient Wisdom", Jonathan Haidt combines psychology, philosophy, religion and history to provide some insight into what makes a person happy.

After looking at what "happiness" truly is, Haidt does not actually proclaim to offer a recipe for happiness, but rather offers different ideas for how to measure your own state of "happiness". While one might not agree with everything in the book, it does challenge  you to consider what you really do believe about happiness and what makes you feel good about yourself.

It is an interesting take from a self-proclaimed atheist Jew who draws on Christianity, Judaism, Buddhism, Hinduism and Islam principles and traditions. The author presents a good dose current psychological research on the human condition compared and contrasted with ancient wisdom and philosophy.

I found the book enlightening, informing and entertaining. A great book for anyone interested in the way we think and perceive the world around us!

Florida Dealer Files Federal Suit

Florida Cadillac dealer Norman Braman has brought a federal lawsuit against General Motors over their EBE program. Braman, former owner of the Philadelphia Eagles football team, has deep pockets. I don't think they are as deep as General Motors' pockets but I'm guessing that he will be waging a public relations battle as well as a legal battle. He was told Automotive News last week that GM is waging war on dealers.

Florida passed a state law in 2009 that calls for manufacturers to pay a "reasonable" portion of an incentive to dealers who don't comply with facility requirements if they satisfy other elements of the manufacturer's program. According to Braman's attorney, GM has told dealers in Florida it will only pay 20 percent.

I am interested to see if other Florida dealers jump on this suit. I am not an attorney, but it seems like all Florida dealers are subject to the same laws. Will there be a class certified in this case?

Stay tuned for updates!

Sunday, March 11, 2012

Guest Post by Kevin Vanatta - Newberry Motors

Kevin Vanatta is a General Motors dealer in Newberry, Michigan, which is a community of almost 3,000 on the upper peninsula of that state. His store is somewhat remote in that the next closest dealership is almost 70 miles away.

Kevin has been in the automotive industry for 38 years and has been a dealer for 20 years. He is active in his community and his store is an integral part of the Newberry community.

He recently had an opinion piece published in AutoRetailNet. I asked him if I could post it here and he graciously consented.
In my opinion, what GM has done should be against the law because it creates two tier pricing for dealers. What I mean by that is if dealer A chooses to go with the program he is going to get a “kick back” for hitting certain levels of achievment, thereby creating a pricing differential. It can be argued that the “kick back” money is to be invested in the facility upgrade, but what if it isn’t? Instead it could be used to assist in getting a car deal done, thereby giving dealer A an advantage over dealer B that didn’t go with the program.
Secondly, as an independent business owner, I should be allowed to “do it my way.” That is why I have chosen to be “independent.” If I wanted someone to tell me what to do and when and how, I would have gone to work for someone else. If the manufacturer wants to buy me out to have their say, well it can talk to me in $$$$$.
I am not against a certain type of look or the thought that any manufacturer wants to standardize, but I can assure you that when the client is looking at buying a car or requiring service that he or she really doesn’t care what color the tile is. Customers simply want to be taken care of in a courteous, professional manner by someone that can understand their concern or need and help them to be satisfied in a timely fashion. I believe that customers want to feel like the dealer they are doing business with will be there long-term, to take care of their ongoing needs.
Lastly, and equally as important, if not more so, is that not all facilities/communities/areas of responsibility are created equal. The investment for my facility is not much less than a metro dealer who has many more potential clients in their marketing area, although yes, he has more competition. What is the real question that is being asked by the manufacturer when he requires us to use its styling ideas? Is it really trying to make or keep the customer happy, or is it just to create a look? My choosing at Newberry Motors to upgrade my business plan to satisfy GM’s requirements would price me out of the market and put me out of business, because no upgrade is going to grow the number of potential clients in my area.
One of the requirements of EBE and the GM Sales and Service Agreement that came out of the bankruptcy is that I can not have any other new brand on my lot, which is Chrysler in my case. In 1992, when I became a GM Dealer, they approved the fact that I could have Chrysler products on the same lot and sold out of the same showroom, but under the protection of the bankruptcy court they slid this little legalese in there. What will happen if or when push comes to shove? i don’t have an answer at this time but i’m thinking it may be quite ugly!
EBE has put me and many other smaller dealers between a rock and a hard place, when all we hope for is to have a manufacturer partner that will be a real part of our team and be in business with us for the long haul.

Kevin has stated the feelings of many small, rural dealers. I appreciate his honest and sincerity. I am often asked if I fear retribution from General Motors be speaking out. I haven't given that a whole lot of thought because when something is unfair or wrong, I feel compelled to speak out.

I certainly welcome other comments in this space. If you are interested in a formal post, just send it to me. You are also welcome to comment below.

Friday, March 9, 2012

NADA's Factory Image Program Study

So Mr. Dealer, would you take a look at the charts below and tell us where you would spend your money? That's just what we thought!!

Thursday, March 8, 2012

March 2012 SDADA Column

I recently had my General Motors EBE facility site visit. I don't know how many of you have gone through the process of ponying up $10,000 to have someone from Gensler come to your store and point out all the ways your store is hindering your business. Although I found the representative from Gensler to be  a very pleasant gentleman, it was a painful process for me.

If you want all the gory details, check out my blog at The abridged version goes like this:

My store is fifteen years old. It was built to GM's "Image 2000" specifications. I have made some significant improvements since it was built. The interior has been repainted twice and exterior has been repainted once. I still regularly get comments about what a nice facility it is.

I went into this process hoping to make the best of it. I was prepared to make a modest investment in my store. I am not opposed to building the large blue entry portal on the front of my building. I see some benefit in that. I'm not certain that GM needs to specify every last detail of how it is built but I won't give a lot of push back on that.

I paid extra money for the blue window frames (or mullions) that General Motors wants me to now replace. The 3500+ square feet of gray tile they specified when we built is in good conditional and fully functional yet it is neither the right shade nor size and thus GM wants to tear it up. They want me to take the photo of my family down off my office wall (because customers can see into my office). Naturally, they want me to buy a bunch of overpriced furniture that I think is just plain ugly (though I'm sure it looks good somewhere)! There are a dozen other similar changes they want in my store.

If I don’t comply with these standards, I will be at a $500/vehicle disadvantage to any dealer who does comply. This program is not really about facility upgrades at all. If it were, the payouts would be tied to the cost of doing the upgrades themselves and not to the number of vehicles purchased from GM during the program. As you know, this pricing scheme violates South Dakota franchise laws which prohibit multi-tier pricing. If we do not enforce our laws, then we deserve just exactly what we get.

Again, I refer you to my blog entry at the address above. I would be interested to hear from you on this topic. Please give me a call or send me an email.

EPA Underestimated Emissions Control Costs for Model Year 2004-2010 Heavy-Duty Trucks

NADA and ATD have called into question the EPA’s cost analysis of emissions control requirements for model year (MY) 2004-2010 commercial trucks. The mandates resulted in substantially higher prices for commercial vehicles, depressed sales and delayed the environmental benefits that the EPA originally sought.

According to NADA/ATD, until now, few studies have ever compared the EPA’s cost predictions to the actual cost of meeting its motor vehicle emissions mandates. The study, which looks back at the 2004-2010 medium- and heavy-duty truck emissions mandates, reveals that the EPA underestimated actual compliance costs on average by a factor of two to five. It shows what can happen when a regulatory proposal – based on far in-advance predictions – seeks to set mandates far in the future. Importantly, the study documents the real-world market disruptions that can occur as a result.

The lessons learned from this report apply directly to the proposed MY 2017-2025 fuel economy regulations for light-duty vehicles. That rulemaking, combined with previous Obama administration fuel economy mandates, will raise the average price of a vehicle by $3,000, according to EPA and National Highway Traffic Safety Administration estimates. When faced with unreasonable federal regulatory mandates that increase motor vehicle costs, buyers of light-duty vehicles – similar to what commercial truck buyers experienced – will seek out less expensive alternatives in the marketplace.

Take Advantage of These NADA Member Benefits

All Legal/Regulatory Webinars to be Provided at No Charge to Members

I hope you will take advantage of this NADA member benefit. NADA University is offering all legal and regulatory webinars, live and on-demand, as a member benefit (complimentary) beginning in March 2012. It includes all past legal/regulatory webinars whose information is current. In addition, dealers may extend their no-cost member benefit to their CPAs, attorneys and other contracted professionals who work with them on compliance matters. Dealers can simply add those professionals as sponsored users within the dealership’s NADA U accounts, automatically providing complimentary access to member benefits. The legal/regulatory webinars are provided in addition to other NADA U member benefits: 10 Learning Hub programs, Driven guides, NADAPerks, MarketINSIGHT webinars and all resources in the Industry Information section of Resource Toolbox.

On-Demand: NADA-Google Learning Hub Series Offered at No Charge to Members

NADA University and Google are presenting a series of four webinars, offered at no charge to NADA and ATD members only. The first two webinars, “The Smartphone Revolution” and “The Google + Project for Dealers” are activated on-demand for members in NADA University, Learning Hub, in the Internet category. Other dates and topics will be announced—watch this space.

Sunday, March 4, 2012

The Law of Unintended Consequences

Outcomes that are not the outcomes intended by a purposeful action. That sounds like a reasonable definition of "The Law of Unintended Consequences". Eleven years ago, Indiana legislators passed a law preventing a dealer from locating a new dealership within a six-mile radius of another dealership of the same manufacturer. 

Summit City Chevrolet, in Ft. Wayne, has filed a court action to block Kelley Chevrolet from moving to a new site. But the new site, while within the six miles radius, is further away from Summit City Chevrolet than their current site. It would be reasonable to assume that, when they passed the original law, Indiana legislators were trying to protect dealers from manufacturers allowing others dealers to move in on established territories after dealers have invested in those areas.

But, in a textbook example of the law of unintended consequences, the law also prevents a dealer from moving his store to a new location that is further away from another dealership than his current site.

Now Indiana legislators are considering HB 1171 which is bill intervening in the spat between the two dealers. Senator Jim Smith said that Kelley Chevrolet is asking the General Assembly to pick winners and losers. He voted against the bill.

It doesn't seem to me that the legislature is the venue for this dispute. As the saying goes, "Be careful what you ask for."