January 2016 SDADA Column

I am listening to an Federal Trade Commission "Auto Regulation Workshop" as I write this column. This is a rather optimistic title for this "witch hunt".

The FTC has, in the past, shown they supported manufacturer direct selling. Of course this was only the personal opinion of staff - not an official position. 

So the FTC now conducts a "kangaroo court" with panels stacked against the dealers advocating for a demolition of the franchise system (and State Franchise Laws) and endorsing direct selling by manufacturers. 

They are featuring a parade of panelists that are testifying about how the dealers are getting rich ( "average dealership profits of over $1 million/year"), running monopolies within their local markets, adding cost as a middleman and generally doing all of this at the expense of both the manufacturer and the consumer.

The ultimate irony is that the general theme of the panelists is regulation (in the form of State Franchise Laws) is inefficient and adds cost to the distribution system. There has never been an administration that has introduced more regulations (at great cost to our nation's businesses) in the history of our country. But it is only these State Franchise Laws that add costs - none of the federal regulations are guilty of such a travesty!

We can expect the "findings" of this sham to be marched out as evidence that the franchise system is broken and that State Franchise Laws should be sacked. Elon Musk is smiling all the way to the bank.

This is just another attack by the current administration and its legion of regulators who are bitter about the automobile dealers' success in earning a carve out of the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2010. The attacks by the Consumer Finance Protection Bureau over the past five years are similarly motivated.

I think it is appropriate to end this discussion with a reminder of the Tenth Amendment to the United States Constitution which states that the federal government possesses only those powers delegated to it by the United States Constitution. All remaining powers are reserved for the states or the people. 

That is the Federal Trade Commission you hear in that background muttering "Whatever!". 

Multi-Tier Pricing Strikes Again

You've probably seen the story about Napleton Automotive Group alleging FCA US offered dealers large sums of money to report unsold vehicles as sold. While there are many moving parts to this story and I don't care to opine on this until all the facts are out, it is illustrative of the fact that multi-tier incentives or bribing with "marketing incentives" causes problems for all involved.

It undermines the value of each brand, confuses consumers and now we see it leads to potentially scandalous and misleading reports hitting stock values. It is virtually impossible for dealers to offer transparency in their pricing to consumer if manufacturers will not do the same to their dealers. 

NADA Convention Registration Open 

Online registration for the 2016 NADA Convention & Expo in Las Vegas is open. As one of the most popular destinations in the country for meetings and conventions, several hotels in NADA’s convention block have already sold out. 

Hotel rooms are still available in NADA’s block but they are going fast. The  convention—which runs from Thursday, March 31, through Sunday, April 3, 2016—will be held at the Las Vegas Convention Center. For more information or to register, visit www.nadaconvention.org.

April 2015 SDADA Column

I recently attended an NADA Government Relations Committee meeting in Washington, DC. I had very productive discussions with all three members of our South Dakota congressional delegation. Senators Thune and Rounds and Representative Noem are all supportive of our legislative priorities: support the CFPB Reform Bill to keep auto loans affordable and accessible, ensure that changes in LIFO and advertising deductibility do not hurt small business, and focus on strategies to boost recall completion rates instead of grounding vehicles for minor recalls.

Each of these priorities is an easy discussion because they have such broad appeal outside of our industry. Community banks are being crushed by the same heavy-handed tactics the CFPB is trying to apply to auto dealers and lenders. Ultimately, fewer community banks and fewer auto lenders does not serve the consumers which is what the CFPB purports to do.

LIFO (last in, first out) is a longstanding inventory accounting method used by businesses to help mitigate rising inventory costs as it allows companies to calculate their income by basing sales on the newest inventory for goods, such as vehicles and parts, which increase in price over time. It is a strategy used by many businesses, big and small, to keep more capital in the business for future investment. Any drastic changes will decrease capital investment by businesses.

Any bill regulating rental and used vehicles under any open recall could cause a significant disruption for consumers, rental companies and dealers. As we dealers know better than anyone, the majority of vehicle recalls do not require the drastic step of grounding the vehicle. In fact, many of the recalls we saw in 2014 would have been handled under "service bulletins" in the past. The current vehicle recall process was not designed to differentiate among potential levels of risk. It would make much more sense to create policies tailored to boost consumer recall response and completion rates. Of course, that's why we shouldn't expect those policies from Washington regulators!

Wall Street Journal Offers Peeks Behind the CFPB Curtain

While Senator Elizabeth Warren (D-MA) was saying that the CFPB should assume oversight of auto dealers, which were left out of the Dodd-Frank Act (a discussion fully vetted during the debate of Dodd-Frank), the Wall Street Journal was offering some insight into exactly how the CFPB goes about their business.

In an April 6 editorial entitled Washington’s Latest Bank Heist, the Wall Street Journal exposed the double secret methodology (Bayesian Improved Surname Geocoding) behind CFPB's accusation that auto dealers are charging minority buyers higher interest rates on car loans than they're charging similar white customers.

A week later, on April 13 in Do Two Half-Victims Make a Whole Case?, the Journal opined that it was unreasonable to fine an auto lender (specifically Ally) if you could not identify a victim.

These two opinion pieces make the auto dealers argument in a very clear and simple manner. No ad NADA could ever buy would come close to the value of these op-ed pieces. I urge you to read them and pass on to anyone who does not understand the issue!

Detroit News Commentary: Direct Auto Sales Could Raise Car Prices

In another article that makes the dealers' case, Lawrence J. Spiwak, president of the Phoenix Center for Advanced Legal & Economic Public Policy Studies, makes the case that intra-brand price competition, which is the by-product of many state franchise laws, saves the automobile consumer money.  Not requiring auto manufacturers to sell their cars through independently owned local dealerships will only serve to drive end prices up for consumers.

Another opinion piece that lays out the issue clearly and concisely in a medium that ads cannot be purchased. Just when you think the media are stacked against you...

January 2015 SDADA Column

It goes without saying that the NADA Director's Column is intended to be about NADA issues. While I have discussed South Dakota issues in this space before, they have not usually been the primary focus. But he South Dakota Automobile Dealers Association has a very important bill in front of the legislature this year and I feel compelled to address it.

The bill will repeal the South Dakota damage disclosure. We have been down this road before but the hail storms last summer seem to have raised awareness of what a bad law that our current damage disclosure law is. In fact, several legislators have learned firsthand about "diminution of value".

The used car dealers, insurance companies, body shops and salvage dealers have also expressed support of this bill. Through the years, we have struggled to get all these parties on the same page. As the saying goes, "the stars have aligned".

Two years ago, I added a body shop in my Ford store. Since then, I've seen the lengths to which people will go to avoid having to disclose damage on their vehicle. They have learned how a damage disclosure can crush the value of a late model vehicle. If you give people a reason to lie, cheat or steal, don't be surprised when they do so. Our current damage disclosure law causes people to do just that.

I have never talked to a member of SDADA that thinks the damage disclosure law is a good one. We have discussed raising the damage limit or excluding certain equipment. That is simply spraying perfume on the pig.

This is our best opportunity to kill this law. We need your help. Please talk to your legislators about this bill. Make certain that they understand it and why we want to do it. Point out to them that all of this information is now public (Carfax, Auto Check, etc.) and that many of us are providing this information to your customers at no cost before they buy your vehicle.

Get involved. Make a phone call. Let's put a stake in the heart of the damage disclosure law once and for all!

Dealers Much More than "Middleman" for Consumers

Tesla's sales model had stirred much discussion about the role of the traditional automobile dealer. We have been cast as everything from oligopolists, who just want to preserve an antiquated system, to middlemen, who add no value to the process.

NADA's arsenal of resources intended to get the dealers' story out continues to grow. The videos and other materials found here make a great short presentation for your Kiwanis or Rotary meeting. Please consider spreading the word.

NADA’s “Get the Facts” initiative is designed to inform policymakers, opinion leaders and the media about the numerous benefits of the dealer franchise network through a variety of multimedia resources and videos available at nada.org/getthefacts.

The current franchised new-car dealer model has benefited consumers, manufacturers and local communities for nearly a century. It is supported by both dealers and factories as the best and most efficient way to buy, sell, service and finance cars in the marketplace. NADA’s Get the Facts page sets the record straight about the benefits of the franchise system for consumers and local communities all over America.

This campaign emphasizes that local franchised auto dealers: fiercely compete for business and drive consumer prices down; take the side of consumers in warranty and safety recalls; create good-paying local jobs and significant tax revenue for local communities; and simplify an otherwise complex car-buying experience.

Dealers and local dealer associations are encouraged to link to the videos on their websites, and with permission can co-brand the videos with their own logos. For more information about co-branding content from NADA’s “Get the Facts” initiative, contact publicaffairs@nada.org.

November 2014 SDADA Column

Last month, I bemoaned the automobile manufacturers' stair-step pricing programs again. It appears Ford Motor Company recently rolled out a stair-step program that offers dealers a cash bonus for reaching year-end sales targets.
that there is a new player in this addictive game.

Ford’s sales analyst, Erich Merkle, wants to call it a dealer bonus program. Merkle called it a "volume-based growth program", You can put as much lipstick and perfume on that pig as you would like, Mr. Merkle. It has a snout, a curly tail and it says "oink". It is still a pig - and it stinks.

I have made my points about why these stair-step programs are bad for the factory, the dealer and the consumer here and here. NADA has made a statement against these programs. I've also pointed out that our South Dakota law supposedly prevents this kind of factory activity.

Merkle said it took “months” to develop this incentive program. That's a rather scary thought. Did it really take "months" to develop an incentive program that is a clone of other stair-step programs? Or did it take months to try to come up with a name and description for this program that might sound more palatable to dealers? Will the dealer recognize this pig if we call it a Sus scrofa domesticus?

My friend, Jack Kain, who is quoted in the Automotive News article, is right on with his comments: “It cheapens the product and it's just a doggone shame”. Well said Jack. Well said.

NADA Provides Resources Defending Franchise System

The dealer franchise system has come under attack recently as Tesla has attempted to circumvent state franchise laws. Dealers have been called "middlemen" who extract profit out of the system.

In response, NADA has assembled an arsenal of resources intended to get the dealers' story out. These resources can be found at nada.org/getthefacts .

Please take a look at these resources. Several of the videos would be great to show at a Kiwanis or Rotary meeting. They are short, easy and make the point clearly.

It is important that dealers are perceived as something other than a "middle man" and that we do add value to the system. If we don't tell our story, who will??!!

New Study of Loan Records Refutes CFPB Position on Auto Lending

You may have seen recently that  new comprehensive study of more than 8.2 million loan records by Charles River Associates concludes that the method used by the Consumer Financial Protection Bureau (CFPB) to measure for discrimination in an auto lender’s portfolio is “conceptually flawed in its application and subject to significant bias and estimation error.”

The study calls into question the reliability of a testing methodology that the CFPB has used to level allegations of unintended discrimination against—and extract settlements from—auto lenders and to pressure auto lenders to change the way they compensate dealers for originating finance contracts.

While the results of this study come as no surprise, it is significant that an independent third party has found that the method CFPB uses for identifying discrimination in auto lending is flawed. They also found that this may result in significant measurement errors that overstate the extent of harm to borrowers.

We'll see if this slows the CFPB down. Any bets?