June 2016 SDADA Column

Do Americans know how lucky they really are? They have Uncle Sam to protect them from themselves.

The Federal Trade Commission has proposed a survey of consumers regarding their experiences trading in, buying and financing vehicles at dealerships. The commission will conduct 40 interviews with consumers that are 90 minutes in length.

In 2015, there were over 38 million used vehicle transactions and over 17 million new vehicle transactions in our country. The FTC will conduct 40 interviews and will then have a complete understanding of the automotive market in America!

This survey is a repeat of the one the FTC conducted five years ago. That survey found no systemic problems with the auto-retailing sector. Processes have certainly gone to hell since that survey!

I know I can be a bit cynical but perhaps we should survey health care patients, attorney clients, insurance company customers, mobile phone customers, etc. Is there no room for improvement in any of these transactions? Some would suggest that market forces and competition would be very good at improving and streamlining the processes.

At some point, perhaps consumers must be responsible for their own choices. There are many options in  the marketplace. Consumers have control over where they buy. That can (and should) be the ultimate regulator!

A Peek Behind the CFPB Curtain

This "must see" video (http://goo.gl/Mcu0qe) takes a somewhat humorous look at the shenanigans going on with the CFPB in their attempt to regulate and punish those involved in auto finance lending. This is your government at work!

Supreme Court Issues Pro-Dealer Opinion in Service Writer Overtime Case 

The Supreme Court issued an opinion in Encino Motorcars v. Navarro, vacating a 2015 Ninth Circuit Court of Appeals decision that had held that dealership “service writers” are not covered by the federal “salesmen” exemption from overtime pay. In doing so, the Supreme Court expressly rejected a 2011 U.S. Department of Labor (DOL) interpretative regulation that service writers/advisors are not "salesmen" exempt from overtime. In particular, the Court faulted DOL for failing to give adequate weight to dealerships’ reliance interests during the rulemaking process, and for failing to provide a “reasoned explanation” for the abrupt change of policy. The Supreme Court’s decision requires the Ninth Circuit to reconsider its prior decision consistent with the language of the Fair Labor Standards Act (FLSA) without giving “controlling weight” to the DOL’s 2011 regulation.

In March 2015, the federal Ninth Circuit Court of Appeals ruled that service writers are not exempt from overtime as “salesmen.” That decision was based on the Ninth Circuit’s conclusion that preamble language found in a 2011 DOL rulemaking constituted an interpretation of the FLSA entitled to legal deference. Together with the state dealer associations covered by the Ninth Circuit, NADA filed an amicus brief in support of a certiorari petition with the U.S. Supreme Court. The Supreme Court granted “cert” in January and heard oral argument in April. Former Solicitor-General Paul Clement expertly (and successfully) argued on behalf of the petitioner with NADA’s amicus brief being cited several times during the argument and in the Opinion itself.

Overtime FAQ for Dealers

As I mentioned in this space last month, the U.S. Department of Labor (DOL) issued a rule that dramatically increases the salary and compensation levels that must be met in order for "white collar" dealership employees to be exempt from overtime. NADA has issued a new FAQ publication on the white collar rule's impacts on dealerships and their employees.

OSHA Issues New Injury and Illness Electronic Reporting Mandate 

Starting in 2017, certain dealerships must begin submitting employee workplace injury and illness records to the Occupational Safety and Health Administration (OSHA). All dealerships must maintain reasonable procedures by which employees can report work related injuries and illnesses promptly and accurately. The new reporting rule builds on existing mandates requiring dealerships with 10 or more employees to accurately record and post employee workplace injury and illness using OSHA Forms. In the future, these forms must be made available to OSHA and state labor inspectors upon request. Car dealerships with fewer than 250 employees at a single "establishment" are not required to submit forms to OSHA.

September 2012 SDADA Column

I've just returned from my 8th NADA Washington Conference representing South Dakota dealers. While I'm always proud to represent our state's dealers, I especially enjoy the Washington Conference for several reasons. 

We always have as many dealers as any other state at the conference, which considering our numbers, is impressive enough. Our delegation is always engaged and up to speed on the issues. We have had an impressive NextGen dealer each year the program has been in place. Significantly, we always have a good time at the event!

Trace, Darrel, and Bruce kept up the tradition of a strong delegation of South Dakota dealers - they understand and communicate the issues to our Congressional delegation so well. Myron has great rapport with Noem, Thune and Johnson's offices and so many at NADA as well. Max Patnoe is a truly impressive young man. We can look forward to him being a strong voice for dealer issues.

So I was especially proud to be one of more than 400 new-car dealers and dealer association executives from across the country urging lawmakers to support NADA’s top priority issue, H.R. 5403, which rescinds the Consumer Financial Protection Bureau’s flawed guidance on auto lending (see below). We spoke to Senators Thune and Johnson. We were not able to see Representative Noem because she was voting (they actually take votes in the House!). We did speak to a staffer in her office.

In a nutshell, Senator Thune supports our issues but everything that could be considered "our issues" is in the 300+ bill log jam that Harry Reid has created between the House and the Senate. Representative Noem is supportive of our agenda. Senator Johnson told us that none of our issues would be discussed before his term expires.

It was a successful conference. Thanks to Trace, Darrel, Bruce, Max and Myron for doing the important job of being the "Voice of the Dealer" in our nation's Capitol.

NADA, NAMAD and AIADA Issue Statement on CFPB Proposal

In response to the Consumer Financial Protection Bureau’s proposal to oversee larger nonbank auto finance companies, the National Automobile Dealers Association (NADA), the National Association of Minority Automobile Dealers (NAMAD) and the American International Automobile Dealers Association (AIADA) issued the following statement:

“As stated on numerous occasions, NADA, NAMAD and AIADA strongly oppose discrimination in any form and fully support the efforts of the CFPB, the Department of Justice, the Federal Trade Commission and other federal agencies to eliminate it from the marketplace.

“However, the CFPB has again failed to fully disclose its methodology for measuring for the presence of disparate impact. There are legitimate, market-based reasons for disparities in interest rates – from monthly budget constraints, to the presence of more competitive offers, to inventory reduction considerations – all of which are nondiscriminatory and all of which can be documented in the transaction. A better solution would be for lenders to adopt a robust retail compliance program that documents the basis of the pricing decision to effectively reduce the risk of discrimination in the purchasing process. The Department of Justice has created such a risk mitigation model, and we encourage the bureau not to overlook this common sense approach to addressing fair credit risks in the auto financing market.

“With respect to the proxy methodology report released by the CFPB, many of the questions that Congress and others have asked remain unanswered. We look forward to rigorous peer review to ensure that the tools the bureau is using to address fair credit concerns may actually accomplish its goals.”

OSHA Repeals Dealer Recordkeeping Exemptions

The Occupational Safety and Health Administration (OSHA) recently repealed a number of industry exemptions from its mandate that employers with 11 or more employees keep a workplace injury and illness log, including one for car dealers that dates back to the 1980s. Effective January 1, 2015, car dealers must use OSHA Form 300 to record workplace injuries and illnesses.  By February 1, 2016, they must also post an OSHA Form 300A summary of the workplace injury and illnesses that occurred in 2015. Dealers can access an OSHA fact sheet on the rule and an online tool to train employees on how to fill out the newly required forms. 

As a concession, the final rule contains a commitment by OSHA to review the efficacy of today’s changes in two years, the direct result of NADA’s unwavering opposition to the exemption repeal, first proposed by OSHA in 2011. Regulatory Affairs will soon issue an all-member FAQ on the topic. Questions can be directed to NADA Regulatory Affairs at 703.821.7040 or regulatoryaffairs@nada.org.

July 2013 SDADA Column

As summer winds down, the CFPB's assault on dealer reserve continues to gear up. On July 16, 2013, the U.S. Senate confirmed Richard Cordray, a man who is quoted as saying, "consumers should not have to pay more for a car loan simply based on their race" (as if to insinuate that car dealers believe that they should), to a five-year term as the CFPB's director. Sen. Tim Johnson, who chairs the Senate Banking Committee, called the vote "a win for the American people."

From its website, here are the CFPB's definition of "buy rate" and its tips for negotiating a loan:

"A buy rate is the interest rate that a lender quotes to your dealer when you seek a loan directly through the dealer. Your dealer may offer you a rate that is higher than the buy rate. The rate the dealer offers you is called the 'contract rate.' Sometimes the lender pays the dealer a fee that is based on the difference between these two rates, which can give the dealer an incentive to charge you a higher interest rate than you qualify for.

"TIP: Ask the dealer what the buy rate is and offer to pay the buy rate plus a flat fee, rather than paying an interest rate that is above the buy rate. This could save you thousands of dollars over the life of the loan.

"TIP: The dealer may offer you a higher interest rate than you can get directly from a bank or credit union. Shop around to find out who offers the best interest rate."

As we dealers know, indirect loans at the dealership can often undercut the rates on direct-to-consumer loans. I think most dealers would encourage consumers to shop around and see who offers the best and most convenient deal on a loan -- a bank, a credit union or a dealership.

Getting the best overall deal is not as simple as securing the lowest interest rate. Trade-in value; down payment; manufacturer incentives that are exclusive to a captive finance company; the convenience of having multiple lenders bid for the dealership's business; etc. are all factors that affect the value of the deal.

How long before our customers show up at dealerships demanding a loan at the buy rate and not a cent more?

NADA Moves Dates for 2015 – 2018 Conventions

Beginning in 2015, the NADA Convention and Expo will be held Thursday to Sunday, instead of Friday to Monday. “After surveying the membership and exhibitors, the consensus was to end the convention on Sunday, instead of Monday,” said Desmond Roberts, chairman of NADA’s convention committee and a Chevrolet dealer in Hodgkins, Ill. “The Thursday to Sunday timeframe will allow convention attendees to be back at work earlier the following week.” The 2014 NADA and American Truck Dealers (ATD) conventions will be held concurrently in New Orleans from Jan. 24-27 as scheduled from Friday to Monday.

Here are the revised dates for the NADA and ATD conventions:

2015 – San Francisco (Jan. 22-25)

2016 – Las Vegas (March 31 - April 3) 2017 – New Orleans (Jan. 26-29) 2018 – Las Vegas (March 22-25)

For more information on the NADA convention, visit www.nadaconventionandexpo.org. For more information on the ATD convention, visit www.atdconventionandexpo.org.

OSHA Targeting Dealerships

OSHA is targeting automotive repair and maintenance businesses, including new-car dealerships, through a Region 8 (http://www.osha.gov/oshdir/r08.html) Local Emphasis Program. This focused inspection activity, scheduled for between April 16 and at least Sept. 30, 2013, stems from five complaints OSHA Region 8 received in FY 2010, all of which resulted in citations. NADA urges dealerships nationwide to review the inspection directive (http://www.osha.gov/oshdir/r08.html) and their health and safety compliance. Dealerships with specific questions regarding their compliance should contact Lauren Bailey, NADA Regulatory Affairs, at regulatoryaffairs@nada.org or (703) 821-7040 or contact their state or local dealer association.

April SDADA Column

The theme of this column is government regulation and how it continues to impact every facet of our business.  You will find below three more intrusions: one in advertising, one in service and one in the finance office.

In March, I attended an NADA Public Affairs meeting that really got my attention. In addition to the Tesla discussion (see my column in last month's SDADA bulletin), we learned that the Consumer Finance Protection Bureau (CFPB) has indirect lending through dealerships square in its bull's-eye. With the way the profits are distributed in most new vehicle stores, that should scare the hell out of us!

Lat month, the CFPB released a bulletin that claims indirect lending through dealerships may result in minorities paying more for auto loans. Though dealers are exempt from CFPB oversight, auto lenders are not. So the CFPB’s guidance could drastically change how auto finance sources compensate dealers for arranging auto loans. In other words, banks could get rid of finance reserve.

It would be very interesting to see the methodology by which the CFPB has come to this conclusion. They are not accusing anyone of intentional discrimination. The CFPB issued its guidance based on a theory called disparate impact. If minorities end up paying more for credit than non-minorities in the same credit tier, then it is considered unintentional discrimination. But how does CFPB determine disparate impact exists in today’s marketplace?

Disparate impact can only be proven through a statistical analysis of past transactions, but the CFPB has not revealed how it is conducting its analysis or what data it’s relying upon. There is also no indication that the Bureau has studied how moving to a “flat fee” compensation method would impact the marketplace.
We know that dealer-assisted financing—which is optional—increases access to and reduces the cost of credit for millions of Americans. Our customers overwhelmingly choose dealer-assisted financing because it’s convenient and competitive.

Before this consumer-friendly model is disrupted, the CFPB should explain how it is conducting its analysis. The Bureau also should demonstrate the effect flat fees would have on today’s intensely competitive auto financing market.

The regulatory beast that is the federal government continues to extend its ugly tentacles into every facet of our business and our lives. This is an issue that’s not likely to go away, so stay tuned.

FTC Staff Revises Online Advertising Disclosure Guidelines 

Our second example of intrusive government regulations is the Federal Trade Commission's release of a  new guidance for mobile and other online advertisers that explains how to make disclosures clear and conspicuous to avoid deception. Updating guidance known as Dot Com Disclosures, which was released in 2000, the new FTC staff guidance, .com Disclosures: How to Make Effective Disclosures in Digital Advertising, takes into account the expanding use of smartphones with small screens and the rise of social media marketing. It also contains mock ads that illustrate the updated principles. Like the original, the updated guidance emphasizes that consumer protection laws apply equally to marketers across all mediums, whether delivered on a desktop computer, a mobile device, or more traditional media such as television, radio or print.

Connecticut Body Shop Faces More Than $50,000 in OSHA Fines

Finally, if you don't do what "Big Brother" wants you to, this is what happens. Hoffman Auto Body Shop has been cited by the U.S. Department of Labor’s Occupational Safety and Health Administration for nine alleged violations of workplace safety standards at its Connecticut Avenue facility in East Hartford. The auto body repair shop faces proposed fines of $54,300. OSHA’s Hartford Area Office began their inspection on Dec. 6, 2012, to verify correction of hazards cited during a 2011 inspection. In the 2012 inspection, OSHA identified hazards similar to those cited during the 2011 inspection. Specifically, equipment and materials, some of it flammable, were stored near paint spray booths and electric panels. The stored materials limited access to extinguish potential fires, presented fire and shock hazards and impeded cleaning around the booths, which allows potentially combustible materials to accumulate.