Special Coverage
State of Industry: North America
The National Automobile Dealers Assn. is engaged on several fronts in Washington and elsewhere.
That keeps Andrew Koblenz busy as the trade group’s general counsel and vice president-legal and regulatory affairs.
NADA’s recent activities include opposing calls for more auto-financing restrictions; explaining how the auto industry works to policy makers who otherwise might not know; training dealers on new regulations and warning lawmakers that proposed fuel-economy mandates might harm auto sales.
WardsAuto: Dealers face new financial regulations. What is NADA doing to help them comply?
Koblenz: We play a key role in helping dealers understand regulations. A lot is going on: in-person training sessions, written educational guides and webinars through NADA University, extensive information on our website and NADA TV.
WardsAuto: What do you highlight in training sessions?
Koblenz: Everything from the basics of the Truth-in-Lending Act to the likely impact of Dodd-Frank (financial-reform law). Dealers want to know the full range of their responsibilities.
WardsAuto: What’s attendance been like at the training sessions?
Koblenz: State and metro dealer associations are clamoring for our guys to come out. We don’t give legal advice, but we do provide a compliance framework.
WardsAuto: So dealers are sufficiently up to speed on complying with regulations and what is expected of them?
Koblenz: Dealers are certainly working to keep pace with the onslaught of new regulatory obligations. They have a healthy appetite for compliance. For example, we had 4,000 dealership personnel attend our Red-Flags Rule seminars. Dealers want to comply. As an industry, they are very conscientious about that.
WardsAuto: We interviewed a guy trying to sell compliance software, and he said dealers he talked with shut him down, saying they just weren’t interested. He’s referring mainly to small, independent dealers, but they told him they seriously doubted the federal government would raid their car lot.
Kolbenz: I don’t know where he is coming from or who he is marketing to, but that certainly is not the approach we have advocated or the reaction we have received from our members.
They understand that they may be held responsible for non-compliance and that there are sound business practices for promoting a culture of compliance. Playing Russian roulette is not a prudent compliance strategy.
WardsAuto: How many government regulations do dealers face?
Koblenz: I haven’t counted them lately, but there are hundreds in areas such as financing, marketing, sales, tax, the back shop and used cars. And that is just on the federal level. States have a lot too. It’s truly one of the most regulated industries.
WardsAuto: Earlier this year, a law took effect that calls for risk-based pricing notices. It requires that borrowers get copies of their credit scores and are told if they did not obtain the best available rate because of imperfect scores. Is NADA for that?
Koblenz: NADA certainly is for educating consumers, which is why we have been so active in the AWARE (Americans Well-Informed on Automotive Retailing Economies) Coalition. NADA has worked with the Federal Trade Commission to develop a workable compliance option for dealers under the risk-based pricing notice rule.
However, NADA disagrees with some aspects of the FTC’s interpretation of the law mandating the notices, particularly as it relates to the scope of the new requirement. That said, we are continuing to work diligently to educate dealers on the full range of their compliance responsibilities under this rule.
Incidentally, another recent regulation that dealers need to deal with is the Red-Flags Rule. The regulation requires dealerships to safeguard against identity theft, to make sure people sitting across from you wanting a car are who they say they are. This one can help, because if you are a dealer and don’t catch an ID thief, the victim is you.
WardsAuto: So regulations are basically good?
Koblenz: Regulations are not inherently bad; we can’t live in a world without rules. But regulatory overload is a big threat. And in addition to the costs, it’s what can happen on the margins and edges that concern us.
WardsAuto: Indirect lending seems pretty straightforward. The dealer acts as a middleman for a customer and a lender. The dealer charges a fee for services rendered. Why is it hard for some people to understand how it works, and why do some of them want government to restrict it?
Koblenz: NADA tries to help people understand the industry, but there are some so-called consumer advocacy groups with an agenda. They dislike the indirect-lending model. So they describe it inaccurately, because to do otherwise wouldn’t get to the conclusion they want.
One of the inaccuracies is the assertion that consumers can qualify to borrow at the buy rate, which is the wholesale rate available to the dealer. This incorrect premise leads to the false accusation that if you as a consumer don’t get the wholesale rate, there’s an overcharge. We have been explaining that this simply is not true.
What’s more, if someone doesn’t like the APR offered by the dealer, he or she can go directly to a bank or other direct lender. But the consumer very well may end up with a better rate at the dealership, because direct lenders offer consumers fully funded rates that take into account overhead and costs for processing and delivering the loan to the consumer.
Seventy percent of the auto-financing market is indirect lending. If dealers systematically overcharged for loans, the direct lenders would go after and win that business. In reality, the reverse is true. The availability of dealer-assisted financing puts competitive pressure on the rates charged by banks and other direct lenders.
Also, rates are negotiable between the dealer and customer. If people don’t know that, go to the AWARE website at www.autofinancing101.org. We invite people to shop rates. Dealers aren’t afraid of competition. But they don’t want unfair allegations causing unnecessary additional regulations to be placed on them.
WardsAuto: NADA has objected to the proposed federal mandate of raising average fuel economy to 54.5-mpg by 2025. Why is your organization lobbying against it?
Koblenz: NADA supports fuel-economy increases under the CAFE (corporate average fuel economy) program. The key question is what will be the cost to the consumer.
We are concerned the 54.5 mpg proposal, which we haven’t seen because it hasn’t been released to the public yet, won’t sufficiently consider either (1) the cost to the consumers for the vehicles that will effectively be mandated or (2) whether consumers will have any appetite for those products.
Where is the consumer in this? How much will this cost per car? We are having trouble finding that anywhere.
Hybrid vehicles are great, but to a lot of people the premium price doesn’t pencil out in offsetting fuel savings. The public is showing that in the sales rate of hybrids.
For advanced-technology vehicles, we should be striving for a pull market, where regulations leverage consumer demand, and not a push market, where the government effectively mandates certain vehicles without sufficient consideration of whether consumers actually will buy them.
We’re concerned that the advanced technology needed to meet new fuel standards will price a lot of consumers out of the new-car market. They will end up either buying fuel-inefficient older vehicles or hang on to the ones they already own.
And if the regulations don’t correctly predict the consumers’ reactions, the economic carnage to auto sales would be great. We suggest the government slow down development of the new rules to allow greater consideration of market forces. These rules aren’t due for another three-and-a-half years. We can learn a lot about consumer appetite in that time.
So, we’re calling for a time out. We’re not against increasing fuel economy. But we want the government to take the time to do it right and take into consideration the buying habits of the American public.
WardsAuto: A lot of the proposed fuel-economy standards come from the state of California. Is that a problem?
Koblenz: California has way too much power in this. Congress has said states – including California – should not be setting fuel-economy rules. This is a national issue. California should be able to contribute its ideas and information, but it should not be allowed to set the rules. Fuel economy is a national matter for the National Highway Traffic Safety Admin.
WardsAuto: If you weren’t in your current line of work, what would you want to be doing?
Koblenz: Playing third base for the Boston Red Sox. That was always a pipe dream, but the way the Red Sox fell at the end of the season this year, I may just still have a shot at it right now.
