NFADA Newsletter
Published by: Nevada Franchised Auto Dealers Association
Volume 08-14 August 2014
President, Don Weir
Executive Director and Editor,
Wayne A Frediani
Wayne A. Frediani
NFADA Executive Director
Nevada Scores Even if Tesla Passes on Gigafactory
Though Nevada is not assured of landing Tesla Motors' "Gigafactory," experts
say the area is already a winner even if Tesla CEO Elon Musk decides to drive his prized
$5-billion battery factory elsewhere.
Tesla officially announced Nevada as a finalist for the Gigafactory as part of a letter to
shareholders last week. He said that it had "broke ground" on an unspecified site near
Reno, but that it was withholding naming it as the site of the Gigafactory pending action
on incentives from the state government.
The announcement confirmed work at a Tahoe Reno Industrial Center site first identified
by the Reno Gazette-Journal in June following a search of Storey County, Nev., records.
The fact that Nevada managed to make it as the first finalist named out of heavyweight
semifinalists such as money-rich Texas and a resurgent California is sure to get it noticed
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among industrial circles nationwide, said John Boyd, a principal of New Jersey-based siteselection firm the Boyd Co.
I think the focus now for Gov. (Brian) Sandoval and the economic development folks is
to put Reno and Northern Nevada on the map as a major player in the auto industry, II Boyd
said. "The way to do that is job training."
New Mexico and Arizona are the other semifinalists. Tesla plans to break ground in one
or two other finalists before picking a winner.
The Tesla announcement builds on northern Nevada's growing portfolio of industrial
projects.
The area is already known as an e-commerce hub thanks to facilities from Amazon.com,
Barnes & Noble and Zulily, said Dave Simonsen, vice president of NAI Alliance's industrial
properties group in Reno. The arrival of an Apple facility at the Reno Technology Park also
solidified Northern Nevada's reputation as a data center location.
When you get entities at the scale of an Amazon or Apple building projects in an area, it
can cause a domino effect as other companies piggyback on their research and start
looking at the region as well, Simonsen said.
Though Tesla's Gigafactory is unlikely to attract similar projects, it still will have wideranging influence if it gets built in the Reno area, according to Simonsen. The indirect
benefits combined with the estimated employee count of 6,500 will also be a boon for the
retail sector and businesses tied to housing. These can range from shops and restaurants to
sheetrockers, landscapers, electriCians and plumbers, Simonsen said.
The Detroit News: Auto Dealers Defend State Franchise Laws
Amid Tesla Push
The nation's 17,000 new-car dealers are fighting back in the face of pressure from Tesla
Motors Inc., which is working to convince state legislatures to let it sell cars directly to
consumers. The National Automobile Dealers Association commissioned a report released
recently. It argues that dealers provide significant benefits to consumers and carmakers. It
launched a website at www.nada.org/GetTheFacts to make its case. Dealers employ about 1
million people nationwide. Dealers repeatedly turned back attempts by automakers over past
decades to upend state laws that bar them from directly sales. But they face their greatest
challenge to their legal protections from the California-based electric car company. "The
franchised dealer network benefits consumers and manufacturers alike by providing fierce price
competition among dealers and an extremely efficient distribution network that is acutely
sensitive to local markets."
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Automotive News: NADA Moves to Counter Franchise System Critics
Franchised car dealers have taken plenty of heat for their resistance to Tesla Motors'
state-by-state campaign to sell cars directly to consumers. The dealers have been called
monopolists, middlemen and dinosaurs. They've been accused of using their clout in state
legislatures to pad their profits. Peter Welch, president of the National Automobile Dealers
Association, is ready to push back. "We're tired of being called backwards protectionists that
don't know how to sell cars on the Internet and add hassle to the buying experience," Welch told
Automotive News. "It's exactly the opposite."
In one of his most aggressive moves since his 2013 hiring, Welch is launching a
communications strategy this week to treat the franchise fight more like a national political
campaign. NADA still won't comment on state debates or confront Tesla, but it plans to
rapidly spin out talking points and comments to influential journalists and policy experts -- many
of whom are questioning why franchise laws exist. "It's going to take several forms, and it's
going to go on forever as long as I'm president of NADA," Welch said of the campaign. "We've
got a great story to tell, and I don't think it's been told as articulately as it should have been in the
past."
As part of the push, NADA is launching a page on its Web site
(www.nada.orgigetthefacts) with fact sheets and animated videos about the franchise model.
NADA has no plans to buy advertising, but there's a 30-second video that's suitable for TV,
and Welch said state and local dealer groups would be welcome to air it. Automotive consultant
Maryann Keller released an NADA-commissioned report on the franchise model, and NADA
will release its own report as well to argue that manufacturers prefer franchised dealers.
Getting out the message will be Jonathan Collegio, a battle-tested spokesman that Welch
hired this spring from American Crossroads, a Karl Rove-founded Republican political action
committee that spent $105 million during the 2012 election cycle. Collegio, 37, said that much of
his strategy will be simple "blocking and tackling." His team will find all reporters who have
written about the franchise model in the past year and contact them to get out NADA's new
message.
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The Margin Tax Initiative
Tremendous energy is ongoing to continue fundraising for the Coalition to Defeat the
Margin Tax Initiative with Question No. 3 balloting less than 90 days away. Congrats to all
dealers who have contributed to the coalition, between the dealers, state association, and 2 local
metro associations our industry has contributed $325,000 toward the campaign – great JOB!!
Disappointing however, is that 30 Nevada Dealerships have not personally contributed to
the coalition. The Coalition to Defeat the Margin Tax Initiative’s success in defeating this
measure depends on private individuals and businesses. I therefore, on behalf of the Officers and
Board, ask you to consider a donation to assist in efforts to defeat the Margin Tax Initiative.
Winner Mnrdabach, national firm from Santa Monica, will launch campaign Labor Day
till November 4, 2014, election day. Year to date the coalition has raised $3 million – far short
of $6-7 million needed to fund a winnable campaign. “It takes money and a “full court press”
is ongoing with small businesses impacted.”
Discuss with every vendor your dealership does business with Question No. 3 any
company or individual can join the coalition to show opposition to question No. 3 you can join
on line – and get more information – by clicking on the join link the website Stop the
MarginTax.com. Posters, brochures are available for your dealership urging a no vote on
Question No. 3 – by calling 877-359-5099, host a presentation to all your employees, schedule a
15 minute presentation by a NO on 3 coalition speaker with your employees at your dealership to
share the facts. Just call 877-359-5099.
In concluding, there are less than 60 days to have your employees registered to vote.
Please contact your local county registrar of voters to seek information on facilitating registration
today. Early voting begins in October.
House Financial Services Committee On CFPB
Flat Rate vs. Finance Reserve
As you should all be aware by now the finance reserve model of compensating dealers
for helping arrange financing for their customers is under attack by the Consumer Finance
Protection Bureau (CFPB). Those within the bureau firmly believe that the existence of
discretion creates opportunity to discriminate, therefore everything must be done to eliminate
discretion. Before its existence, proponents of the creation of the CFPB lobbied to include motor
vehicle dealers within the regulatory purview of the bureau because they were convinced that
dealers consciously and systematically discriminate against protected classes of buyers by
charging them a higher finance reserve markup than non-protected buyers.
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Notwithstanding those firmly held beliefs, the dealers were able to convince a more
thoughtful congress to exempt them from the purview of the CFBP. This exemption has not
stopped the CFPB from actively pursuing their original agenda of regulating dealer practices by
strong-arming the lenders that dealers utilize to assist customers in financing their purchase.
Time and time again, dating back to the aforementioned lobbying battles, dealers have asked for
real life examples, data, and statistical analysis that discrimination exists and the effect that
imposing a flat rate system would have on consumers. These simple pleas of transparency and
evidence made by dealers, lenders and members of congress have continually gone unanswered.
They are an agency with no funding source that congress can utilize as leverage and therefore
they are emboldened to pursue their own agenda, regardless of the effect on the market place.
Last November the CFPB hosted an auto finance forum. Participants included the CFPB,
the U.S. Department of Justice (DOJ - the CFPB's enforcement arm), the American Financial
Services Association (AFSA - most lenders), and NADA to _ name a few. A few tidbits to take
away from the meeting are that the CFPB stated that while flat fees are their preference to
eliminate their perception of discrimination, it may not be the only method. The DOJ seemed to
acknowledge that the finance reserve business models have a positive effect on financing - terms
for consumers and most importantly, AFSA has agreed to pay for a study of the effects that a flat
fees system would have on consumers in the market place.
In the meantime, NADA had to come up with a plan based on a historically acceptable
procedure that will allow for the continued use of the finance reserve business model that
eliminates the first hurdle of rebuttable presumption of discrimination in the event that a credible
data analysis would result in disparate impact of protected classes of buyers. NADA's guidance
is based on a procedure that was developed and accepted by DOJ in 2007 in the settlement of the
U.S.A. v. Pacifico Ford lawsuit, wherein Pacifico Ford was accused of discriminatory lending
practices pinning from their finance reserve practices. While the DOJ never proved
discrimination and Pacifico never acknowledged engaging in discriminatory practices, a
settlement was agreed to and a system of recording and reporting was put in place that NADA
believes is now a practical solution to preserve the dealer finance reserve business model.
I preface this by stating that neither the CFPB nor DOJ have publically or officially
indicated that this process will address or satisfy their concerns regarding disparate impact that
may occur when dealers are afforded discretion in setting finance reserve interest rates.
However, in the past the DOJ has accepted the premise that the finance reserve model can have a
beneficial impact for consumers in the market place. The DOJ is the CFPB's enforcement arm; in
other words, if the CFPB wants to take action against a lender, they have to get the DOJ to do it
for them. The policy and procedure being promoted by NADA mirrors the policy and procedure
that was devised by the DOJ, in the Pacifico settlement, which allowed Pacifico to continue to
utilize the finance reserve system.
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NOTE:
A bill (H. R. 4811) that would rescind the CFPB auto guidance passed the House Financial
Services Committee on June 11 by a vote of 35-24. Rep. Horsford voted for this bill.
Some Democratic Members did not vote for H.R. 4811 because they thought it was overbroad.
They asked NADA to work with them to address their concerns, and working together, came up
with a new bill to be introduced on September 8 by Reps. Stutzman (R-IN) and Perlmutter (DCO). This bill would:
a.
Rescind the CFPB auto guidance
b.
Allow the CFPB to re-issue auto guidance, but this time with public comment,
transparency, and the impact on consumers and small businesses being known.
NADA is hopeful that this new bipartisan, narrowly-tailored bill will get a vote in the House
before Congress adjourns for the election.
The Dynamics of Recalls Have Changed: What Dealers Need to Know
Tens of millions of motor vehicles become subject to new federal safety recalls each
year. The number of safety recalls has risen exponentially since late 2013, along with the number
of vehicles covered by those recalls. Why? Among other reasons, vehicle manufacturers are
gathering more information sooner which, when analyzed, can lead to safety defect or
noncompliance determinations. Importantly, dealers play a critical role in seeing that as many
recalled vehicles as possible are remedied consistent with OEM instructions.
NHTSA indicates that it will soon issue details on the capability and functionality of this
new data base, which is mandated by the Moving Ahead for Progress in the 21st Century Act,
the transportation bill enacted in July 2012. Once available, these details will be provided to
NADA members and to ATAEs for their own use and to assist members of the public interested
in researching a motor vehicle's recall status.
Questions concerning federal safety recalls or the new VIN-searchable data base may be directed
to NADA Regulatory Affairs at regulatoryaffairs@nada.orgor 703.821.7040.
Charlie Gilchrist Chairman, Regulatory Affairs Committee
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NADA, AFSA Dispute New York Times Editorial on Subprime Auto Loans
Auto dealer and lender groups are howling in protest at an editorial in Saturday's New
York Times that equated subprime auto loans with subprime mortgages. The groups insist there
is no comparison between the two types of loans. At the same time, a recently disclosed U.S.
Department of Justice investigation into subprime auto loans is very much part of the debate.
"Last Tuesday, the National Automobile Dealers Association called the editorial, titled
"When a Car Loan Means Bankruptcy," unfair and unfounded. In a written rebuttal signed by
NADA President Peter Welch, the association said that "Enforcement of existing laws against a
small minority of bad players is in everyone's interest, but smearing an entire industry for the
misdeeds of a few is just plain wrong." NADA 's Welch said the editorial portrays the auto
lending industry "as a hotbed of deceptive practices and a harbinger of insolvency that could
trigger another recession. Nothing could be further from the truth." Bill Himpler, executive vice
president of the American Financial Services Association, a lenders' trade association in
Washington, D.C., also told Automotive News the editorial was off base.
NADA said in its rebuttal that auto loan defaults, at a rate of less than I percent in June,
are at historic lows. The implication: There's no indication that a swelling number of consumers
with subprime credit are finding themselves unable to make their car payments. AFSA's Himpler
pointed out other distinctions between subprime auto loans and subprime mortgages. For starters,
he said, investors bought mortgages expecting the underlying assets to appreciate in value. That's
never the case with auto loans, he said. "In mortgages, people thought they were going to be
flipping properties," he said. "There's no market for flipping used cars. Buying something that
needs a new paint job and selling it for twice what you paid for it -- that doesn't happen in cars."
A subprime auto lender CEO ... said another big distinction is that mortgage brokers sold
mortgages with no stake in how well those mortgages would perform in terms of repayment over
the long term In contrast, he said, the subprime auto lenders that sell asset-backed securities
typically agree to buy back the loans if they perform below stated thresholds. "It's called skin in
the game," the executive said. "That's a big difference ".
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FRANCHISED DEALERS PROVIDE PRICE COMPETITION,
SAFETY AND LOCAL ECONOMIC BENEFITS
Franchised new-car dealers in the U.S. helped pave the way for startup brands, such as
Honda and Toyota, said Forrest McConnell, chairman of the National Automobile Dealers
Association.
"All these manufacturers-even back in 1968-leveraged the franchised dealer system to get
their products to the public because franchised dealers shouldered the cost of stores, service,
employees and inventory," McConnell said today in remarks at the 2014 Automotive Forum
presented by NADA and J.D. Power in New York City. "Dealers gave those franchises a partner
on the road to success."
McConnell, a Honda and Acura dealer in Montgomery, Ala., highlighted the consumer
benefits of the current franchise dealer network for sales, service and handling vehicle recalls. He
said the franchise dealer system drives competition up and keeps costs down, and "cutting out
dealers would not lower car prices because a factory-owned retail network would have to put in
the same investment in physical assets and the same operating expenses that dealers now
shoulder."
"If manufacturers sold directly to customers, there would be zero competition in pricing
vehicles, parts and service. Dealerships compete fiercely for the opportunity to sell people cars
and to service those cars for the long-term. That kind of competition benefits customers," he
added. "Customers would be stuck paying the full sticker price-because there would be no 'same
brand dealership' to shop and compare prices. The biggest competition for a Ford dealer is the
other Ford dealer down the street."
McConnell added that 2013 was a record year for product safety recalls, and this year
with millions of General Motors vehicles recalled, more than 4,000 GM dealers nationwide are
gearing up to take care of their customers.
"When something goes wrong on the assembly line, our service departments are there to
make things right," he said. "GM dealers are getting ready to support their customers from New
York City to Yuma, Arizona, at no cost to them." Car and truck owners know they have a
dealership in their community that they can turn to."
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