CATA News

In their searches for used-vehicle inventories, dealers should be extra cautious about buying any that may have been impacted by the recent spate of wet weather in parts of the country.

 

As storm-ravaged areas take stock of the destruction left by Hurricane Ida, thousands of flooded cars are expected to be among the personal property that was ruined. While cars with flood damage may have titles that indicate that, the system is not foolproof — which means some of these autos are likely to be purchased by unknowing buyers.

 

"Unfortunately, following major hurricanes or flooding events, we see fraudsters try to scam consumers by selling cars damaged in the flooding," said Tully Lehman, public affairs manager for the National Insurance Crime Bureau.

 

Compounding the potential for fraud this time around is the high demand for used cars as the global shortage of microchips continues slowing production of new vehicles. That demand could create an opportunity for scammers to take advantage of buyers’ eagerness to seal a deal, experts said.

 

Ida slammed into Louisiana on Aug. 29 and then moved inland, eventually crossing over the mid-Atlantic and Northeast. The storm left a trail of devastation in its wake: deadly flooding, high winds, storm surge and tornadoes. That was on the heels of two other large storms that dumped torrential downpours in the Southeast and Northeast. 

 

About 378,000 flood-damaged cars already were on the roads before Ida hit, Carfax spokesman Chris Basso said. 

 

"If history holds true, we’re looking at several thousand more [flooded] vehicles, and a decent percentage of them will make it back into the market," Basso said.

 

Flooded cars often end up for sale in places far from where they originally were damaged. Be sure to check used vehicles for signs of flood damage:

 

• A musty odor in the interior, which sellers sometimes try to cover with a strong air-freshener;

• Upholstery or carpeting that may be loose, new or stained or doesn’t seem to match the rest of the interior;

• Damp carpets;

• Rust around doors, under the dashboard, on the pedals or inside the hood and trunk latches;

• Mud or silt in the glove compartment or under the seats;

• Brittle wires under the dashboard;

• Fog or moisture beads in the interior lights, exterior lights or instrument panel.

 

Floodwaters can destroy — sometimes slowly — electronics, lubricants, and mechanical systems in vehicles. Corrosion eventually can find its way to the car’s vital electronics, including airbag controllers, according to Consumer Reports.

 

Services such as the National Insurance Crime Bureau’s VINCheck help shoppers see if there’s anything in a vehicle’s history that’s a red flag. However, some reports don’t show everything. 

 

Basically, when an insurance company receives a claim for a flooded car and the vehicle is totaled — meaning the repairs would cost more than the car’s worth — the car’s title generally is changed to reflect its status.

 

Those ruined cars are typically sold at salvage auctions to junkyards and vehicle rebuilders, according to Consumer Reports. Reselling them to consumers may be legal if the title discloses the flood damage.

 

However, not all car owners file an insurance claim. If they don’t have comprehensive coverage — the part of car insurance that flooding would fall under — they’re generally out of luck. This means that with no insurance company involvement, the flood damage may not end up officially recorded anywhere. 

 

"Unfortunately, there will be those that, due to not having insurance coverage for flood damage, will attempt to clean their car and try to sell it to unsuspecting buyers at some point in time down the road," Lehman said.

 

And, there are some dealers who will clean up flooded cars and sell them, whether locally or in another state where titling rules are less stringent.

 

"This makes checking out cars closely, even on lots, very critical," Lehman said. "And remember, if the price seems too good to be true, it likely is," Lehman said. "Trust your instincts and if you have a bad feeling, go elsewhere."

 

The automotive sector was hit the hardest by supply chain disruptions during the Covid-19 pandemic, according to a survey that covered six broad industries.

 

The survey was conducted by the Economist Intelligence Unit and sponsored by Citi. It surveyed 175 supply chain managers — more than 70% of which were based in Asia — in February and March this year, and its findings were released in late August.

 

In addition to auto, the respondents came from five other industries:

 

 • Footwear and apparel;

 • Food and beverage;

 • Manufacturing;

 • IT, tech and electronics;

 • Healthcare, pharmaceuticals and biotechnology.

 

About 51.7% of respondents from the auto sector said disruptions to supply chains were "very significant" — the highest proportion across the six industries.

The footwear and apparel industry came in second with 43.3% respondents reporting "very significant" disruptions. Meanwhile, only 6.7% from the IT, tech and electronics sector indicated the same.

Over the past year, the movement of goods was disrupted as the global spread of Covid forced many countries to shut borders, close workplaces or limit exports.

The spread of the more transmissible delta variant again heightened such worries, as major Asian manufacturing hubs such as China and Vietnam in recent weeks locked down parts of their countries to curb a rise in Covid cases.

The auto industry was particularly affected by a shortage of semiconductors, which caused several carmakers to cut production at some of their plants. The chip shortage was caused by a surge in demand for personal computers and other consumer electronics as many people were kept at home during Covid lockdowns.

 

New locations

The pandemic has led some businesses to rethink their supply chains for the longer term, with about a third of respondents conducting a complete overhaul, the survey found.

One in five supply chain managers surveyed have invested or are looking to invest in the Philippines and India in the next 12 months as part of their strategy.

"Cheap labor costs and young populations in both those countries are important factors in this choice," said the report outlining the survey findings.

The report noted that the Philippine government is keen to attract manufacturing investments in sectors including electronics, automotive, aerospace, health and IT. 

India, meanwhile, was a preferred location for many supply chain managers in the auto sector, according to the report.

 

Several factors have combined to push car inventories low and prices to record highs throughout 2021. Some automakers plan to keep them there. A new report says that two of Germany’s more prominent luxury automakers plan to keep inventories low even after the crisis resolves.

 

A supply crisis all year

A worldwide shortage of microchips has hobbled car factories this year. Most new cars contain more than 100 of the tiny processors, controlling everything from engine performance to Bluetooth phone connections. But the chips are in short supply globally.

Automakers trimmed their orders for chips as the Covid-19 pandemic limited new-car shopping last year. But consumers went on an electronics buying frenzy to accommodate working and attending school from home. As car sales began to rebound, chipmakers had no excess capacity to build new chips for car companies. That has left factories slow, inventories low, and prices high.

Analysts don’t expect the situation to ease until late 2022 or even early 2023. But, when it does, some automakers may not return to their old practice of sending plenty of inventory to dealership lots.

 

‘We will consciously undersupply demand’

BMW Chief Financial Officer Nicolas Peter said the automaker plans to "clearly stick with … the way we manage supply to keep our pricing power at the current level."

Mercedes-Benz parent Daimler AG has the same idea. "We will consciously undersupply demand level," Daimler’s CFO Harald Wilhelm said. The company will "shift gears towards the higher, the luxury end," he added.

The two German companies are not alone. General Motors Chief Executive Mary Barra told reporters in May the company would "never go back to the level of inventories that we held pre-pandemic because we’ve learned we can be much more efficient."

 

Falling incentives

Some automakers had begun deliberately reducing their inventories before the chip shortage began. That approach allows dealers to discount cars less. Before the pandemic, Kelley Blue Book data show, incentives made up 10.9% of the average new-car transaction. At the end of August, they made up just 5.9%.

American buyers are accustomed to buying a car from what their local dealership has in stock and driving it home the same day. But BMW’s Peter said that the pandemic has proven "customers are ready to wait three to four months, and this is helping our pricing power."

 

As part of his plan for the U.S. to overcome the coronavirus pandemic, President Joe Biden on Sept. 9 announced a Covid-19 Action Plan and directed the U.S. Labor Department’s Occupational Safety and Health Administration to draft a rule requiring companies with 100 or more employees to either (1) ensure that their workforce is "fully vaccinated" or (2) require any workers who remain unvaccinated to produce a negative test for Covid-19 at least once a week. 

OSHA is expeditiously developing an emergency technical standard (ETS) to implement Biden’s directive. Early information from White House officials suggests that covered dealers also will be required to provide employees with paid time off to get vaccinated and/or to recover from any vaccination side-effects.

It was not immediately clear when the rule would be issued or when it would take effect. In addition, details on issues such as how dealers will be required to determine who is vaccinated and who is not, and what types of tests will be required were not immediately announced. Answers for those and similar questions likely will be addressed in the ETS. 

Until the ETS takes effect, dealers are urged to consult with outside counsel regarding the adoption of workplace vaccination policies.

 

The Covid Action Plan also includes emergency funds for schools to provide safe environments for students and educators.

 

Illinois Gov. J.B. Pritzker on Sept. 15 signed legislation that provides for a $4,000 rebate on electric vehicle purchases starting in July 2022. Pritzker said the rebate would be available to all Illinoisans, not just those in certain counties, as had been discussed during floor debate of the bill.

 

Rebate eligibility could be clarified in follow-up legislation which lawmakers have said will be considered in the fall veto session to clean up portions of the nearly 1,000-page bill. The sweeping energy regulation overhaul aims to phase out carbon emissions from the energy sector by 2045 while diversifying the renewable energy workforce.

 

The electric vehicle portion of Senate Bill 2408 aims to put 1 million electric vehicles on Illinois roads by 2030, also by offering incentives of up to 80% on the cost of charging stations that were built by labor paid at the prevailing wage, based on a number of factors.

 

The new law also provides subsidies to convert coal-fired plants to solar or energy storage facilities at about $47 million annually starting in 2024. That provision, according to state Sen. Michael Hastings, D-Tinley Park, will be a boon to downstate by helping "transition shuttered coal plants into state-of-the-art solar energy sites with world-renowned battery storage," a provision aimed at boosting the reliability of otherwise intermittent resources such as wind and solar.

 

Pritzker’s signature marked a celebratory end to negotiations that began shortly after he took office in 2019.

 

Illinois Attorney General Kwame Raoul on Sept. 13 announced a partnership between public and private entities, including the Chicago Automobile Trade Association, designed to combat the increase in organized retail crime. Such crime and retail fraud can be mistaken for isolated incidents committed by low-level offenders, but organized crime rings often are behind the incidents.

The new Organized Retail Crime Task Force is comprised of career investigators and attorneys from the attorney general’s Criminal Enforcement Division working with the U.S. Secret Service, the Department of Homeland Security, the Illinois State Police, the Barrington Police Department, the West Chicago Police Department, the Cook County Sheriff’s office, the Illinois Association of Chiefs of Police and the Illinois Association of State’s Attorneys. 

The task force will consult with the Illinois Retail Merchants Association, the Magnificent Mile Association, the CATA, the Internet Association, and national retailers including CVS, Home Depot, Lowe’s, Target, Walgreens and Walmart.

"Organized retail crime is a multibillion dollar per year industry," Raoul said, "but more important than the financial cost is the danger organized retail crime poses to our communities. These brazen, violent crimes are committed by sophisticated criminal organizations that are involved in drug trafficking, human trafficking and other serious crimes. 

 

"Even during the looting we saw last year, we came to understand that some of these criminal acts were not merely opportunistic, but organized in advance. The task force will allow investigators and prosecutors in my office to better collaborate with our law enforcement partners and ensure cooperation between law enforcement, as well as retailers and online marketplaces, to protect communities, consumers and combat the rise in retail crime."

Before the recent rise in auto thefts and carjackings in Illinois, the crime was decreasing before the pandemic. QuoteWizard looked at statistics from 2010 through 2019 and found auto thefts in Illinois decreased by 21 percent, one of the biggest drops in the country.

The theft of auto parts has skyrocketed in many states during the Covid-19 pandemic, particularly when it comes to catalytic converters. According to State Farm claims data, Illinois ranks fifth in the nation for auto parts theft.

Because retail crimes often are coordinated by organized crime outfits, various law enforcement agencies may be investigating the same target in different communities. Without sufficient coordination, both agencies can be led to believe that they are dealing with isolated actors rather than a pattern of organized crime.

 

Cyber insurance policies, also referred to as "cyber risk insurance" or "cyber liability insurance" coverage, are financial products that enable businesses to transfer the costs involved with recovery from a cyber-related security breach or similar events.

Typically, the most important aspect of cyber insurance will be network security coverage. This coverage will respond in the event of a network security failure – such as data breaches, malware, ransomware attacks and business account, and email compromises. However, the policy also will respond to liability claims and ancillary expenses of an attack or breach.

But there is an alarming trend: Businesses, including dealerships, either are seeing massive increases in cyber insurance coverage at renewal or, worse, being denied outright the coverage altogether. Why? The claims are too high, the premiums are too low, and businesses are not doing enough to protect themselves from cyber-attacks and hackers. 

 

Compliance, insurance, and IT experts from ComplyNet, Assured Partners, and Ntiva will host a 30-minute webinar Sept. 21 on the security mandates insurance companies are imposing. Join the webinar if you want to maintain protective cyber coverage. If you wait until renewal, it might be too late. Register today!

 

D’Orazio Ford’s (Wilmington) Allison D’Orazio and Corey Shawn Owens of Castle Buick-GMC (North Riverside) were members of NADA University’s May 2021 graduating class.

 

Berman Nissan of Chicago, Star Nissan (Niles) and Woodfield Nissan (Hoffman Estates) were among 25 dealers named to the 2020 President’s Circle by Nissan Motor Acceptance Co. for top performance. Glendale Nissan (Glendale Heights) was among NMAC’s Partners in Excellence. 

 

Chicago’s Kennedy-King College, one of a handful of schools in the Chicago market with collision repair curricula, will benefit from money raised at a golf fundraiser, 6-9 p.m. Sept. 9 at Topgolf in Schaumburg.

The outing is being coordinated by the Collision Repair Education Foundation, which assists secondary and post-secondary collision repair training programs. CREF is based in Hoffman Estates.

An unlimited buffet and beer, wine and soda await golfers for $150 each. Networking guests cost $75 each. Sponsorships also are available ranging from $500 to $5,000. Contact Brandon Eckenrode, managing director for CREF, at (312) 231-0258 and Brandon.eckenrode@ed-foundation.org.

Money raised during the networking event will enable Kennedy-King’s collision program to buy needed tools, equipment and supplies to help prepare students for entry-level industry employment. College staff, Kennedy-King collision students, and other guests are expected to participate.

"Across the country, this industry is facing an issue of an aging workforce and desperate need for entry-level staff. This focused effort to support Kennedy-King College’s collision program will help current and future students in their collision program," Eckenrode said.

 

More U.S. workers now are employed by foreign automakers and suppliers than domestic carmakers, according to fresh data from the U.S. Bureau of Economic Analysis.

 

About 51% of the 999,000 U.S. workers in the motor vehicles and parts manufacturing sector are employed by companies based in other countries, according to BEA data through 2019, the latest available. That’s up from 34% in 2009.

Auto suppliers, the vast majority of which are foreign-based, account for many of those jobs, the Center for Automotive Research noted.

"This is all driven by investment," said Nancy McLernon, president and CEO of the Global Business Alliance. "Global automakers are making big bets on U.S. manufacturing because we have a huge consumer market, a skilled workforce and a strong business climate."

 

Fear of tariffs on imported vehicles and parts under the former Trump administration also contributed to global carmakers' growing U.S. footprint, industry sources told Axios.