CATA News

By Steve Gates, 2021 AIADA Chairman

 

No question about it, auto retailing today, amidst a pandemic, is more complicated, challenging, and potentially rewarding than ever before. In times like these, when our businesses require every ounce of our focus, it’s easy to turn inward. To put blinders on and focus only on the job in front of you, the stuff that HAS to get done. 

That’s why I’m so impressed with the auto dealers among us who have instead turned outward and broadened their gaze to include not just what needs to be done in a crisis but what CAN be done. The dealers who developed innovative online sales teams overnight. Who turned their lots into food banks. The dealers who didn’t shrink in the face of adversity, but grew.

As the AIADA chairman, I’m especially heartened to see so many of our members reaching out to Washington, D.C., this spring. The public perception of Congress couldn’t be lower, and the challenges of meeting with a legislator at the moment are many, so it’s gratifying to see so many dealers overcoming those hurdles to get to know their representative and, more importantly, help them get to know their employees and store. That outreach, taking 30 minutes to give a tour and having some employees engage in a quick Q&A might not seem like much, but it could very well be the first introduction a newly elected member of Congress has to an auto retailer.

Your effort, and your time, could make the difference in how a lawmaker views small businesses in their district.

Just ask Peter Lustgarten, principal of Concordville Subaru in Glen Mills, Pennsylvania, who hosted Rep. Mary Scanlon (D-Pa.) in October 2019 and will host her again this May. Or GM Geoff Yeager of Toyota of Lancaster in Lancaster, California, who hosted Rep. Mike Garcia (R-California) in October 2020.

These folks allowed the AIADA to arrange in-person meetings, but we are just as happy to set up a virtual event at your store. To get the ball rolling, just tell us that you want to host an event. We’ll handle all the logistics from there.

The AIADA is, by its very nature, an organization populated by members who turn outward in hard times. When others equivocate, we seize an opportunity. We’re the dealers who have never been satisfied by the status quo and have always had to fight to get a fair shake for our stores and brands. 

A pandemic won’t stop us, and the growing numbers of Dealer Visit reports coming across my desk are just more proof of that.

 

High demand for dealership acquisitions is continuing in 2021, according to firms that broker buy-sells.

"We are well on pace to exceed our record activity in 2020 of the sale of 37 dealership franchises, including the largest strategic transaction from a price perspective in history," said George Karolis, president of the Presidio Group.

Karolis is referring to last year’s $735 million acquisition by Asbury Automotive Group of most of the Dallas-based Park Place Dealerships, representing additional annual revenue of about $1.7 billion. The Presidio Group advised Park Place in the deal.

In 2021, Karolis and his competitors expect keen demand for dealerships to continue, led by publicly traded new-vehicle dealership groups such as Asbury and Lithia Motors, which have announced huge acquisition targets in the next few years.

"Our 2021 closings to date and pipeline are a leading indicator for Presidio of heightened buy-sell activity and another expected record year for our firm," Karolis said in an email.

Erin Kerrigan, founder and managing director of Kerrigan Advisors, said recently that she also expects another record year.

"Inertia is increasingly considered to be a bad strategy," she said during a recent webinar hosted by the American International Automobile Dealers Association. "Dealers feel they either need to commit to growth or sell their business."

There were 289 buy-sell dealership transactions in 2020, up 24% from 2019, Kerrigan wrote in her quarterly Blue Sky Report summarizing the year and the fourth quarter of 2020.

Cliff Banks, president of Banks Media Enterprises and creator of The Banks Report on dealership buy-sells, agrees demand is high for dealerships. "Q1 was as active as we’ve seen the market since the Great Recession," Banks said.

For all the talk about "disruptors" such as Tesla and Rivian supposedly shaking up auto retail, Banks said Wall Street investors seem to have latched onto the more traditional, franchised new-car networks. That’s driving stock prices higher for publicly traded new-car retailers. In turn, that generates the means for the public groups to make more acquisitions, he said.

However, Banks said he’s not convinced 2020 was a record year, statistically.

According to Banks, there were 226 transactions in 2020, representing 357 dealership "rooftops." That’s an increase of just three transactions compared with 223 in 2019. And by Banks’ reckoning, 2019 was down from 251 transactions in 2018.

 

The state’s two leading dealer associations have filed suit against the Illinois secretary of state’s office and two vehicle manufacturers that intend to sell new vehicles directly to consumers, rather than employing a franchised dealer network.

Officials of the Chicago Automobile Trade Association and the Illinois Automobile Dealers Association said they were forced to seek remedy in the courts after Secretary of State Jesse White’s office "turned a blind eye" to unlicensed and unregulated vehicle sales by Rivian Automotive, and potential future sales by Lucid U.S.A. State law requires new-vehicle retail sales to be conducted by licensed franchised dealers, not directly by manufacturers.

 

"We have no choice but to file this lawsuit, both to protect consumers as well as the hundreds of franchised dealers across the state who contribute to the local economy," said Pete Sander, president of the IADA. "We warned the secretary of state’s office that consumers will be the losers if it does not enforce the laws it is required to enforce."

At issue are the benefits to consumers and to the Illinois economy generated by more than 700 dealers operating 2,300 franchises across the state. Those benefits include:

 

Consumer protection. Dealers maintain service centers with trained staff to perform all recall and warranty repairs, where the dealers act as advocates for the consumers with the manufacturers.

 

Availability of parts and service. Dealers maintain an inventory of parts and provide timely service to consumers who depend on the daily use of their vehicles.

 

Price competition. Consumers have many choices, with the competition among dealers saving buyers money. Direct sales from manufacturers result in a monopoly that offers no price benefit.

 

Community benefits. The franchised dealers are long-established local businesses that generate millions of dollars of revenue and economic development, employ 42,000 people across the state and support many local causes and events. 

 

"We welcome new manufacturers to Illinois, especially those that are building innovative vehicles," said David Sloan, the CATA president. "Our franchised members already sell dozens of electric and hybrid vehicles. We ask that manufacturers sell them in Illinois according to state law. We’re not demanding they cease operations in the state, just that they franchise dealers."

 

Over the past several years, the two dealers associations have sought the secretary of state’s office to enforce laws on the books. The state agency initially granted Tesla a license to sell electric vehicles from a small number of locations in Illinois. The associations agreed to a settlement on the Tesla issue only if the secretary of state vowed to strictly enforce that law going forward.

 

That promise from White’s office now appears to be in jeopardy. In the lawsuit, the groups charge that the office has made "excuses to avoid its enforcement duties" and has "walked a thin line" between enforcement while eroding the requirements regarding new companies seeking to sell in Illinois. 

 

In recent months, the Illinois attorney general’s office has issued an informal opinion that directly conflicts with state laws, according to the CATA and the IADA. As a result, the auto dealer associations are seeking a court order requiring White to enforce existing state laws regulating the sale of new vehicles. The lawsuit also seeks an injunction halting further issuance of dealer licenses to vehicle manufacturers.  

 

"Our patience has run out," Sander said. "It is time for everyone to step back and let the court decide what is in the best interest of the people of Illinois. There are too many conflicting signals coming from those who are charged with regulating our industry as well as protecting consumers and Illinois employers."

 

The economic impact of automotive sales in Illinois is significant. Each year the industry generates $34.4 billion in annual sales resulting in $2.2 billion in state sales tax, which is 14% of all state sales tax generated each year. In addition to the 42,000 people directly employed, the industry indirectly supports another 50,500 Illinois jobs. 

 

The CATA and the IADA were joined in the lawsuit by the Peoria Metro New Car Dealers Association and the Illinois Motorcycle Dealers Association, as well as numerous franchised dealerships. The lawsuit was filed in Cook County Circuit Court. 

 

The full Illinois House is debating a measure that would increase the booked time of repairs of vehicles under manufacturer warranty, after House Bill 3940 passed out of the chamber’s Labor & Commerce Committee on a 21-2 vote March 24.

Dealers and their technicians should prepare to contact their representatives and urge support of the bill. State lawmakers are in recess until April 12.

The legislation would amend the Illinois Motor Vehicle Franchise Act to define and expand upon how vehicle manufacturers are required to compensate franchised dealers for labor and parts associated with warranty work. It also would make changes to manufacturer calculations for time allowances for repair work, and guarantee compensation for vehicles under warranty equal to work performed out of warranty. 

Mechanics Local 701, the union representing area technicians at dealerships, is working with the CATA to advance the legislation. Technicians say many warranty jobs just can’t be performed in the booked time allowance, meaning they sometimes work without compensation.

Under House Bill 3940: "Adequate and fair compensation requires the manufacturer to pay each dealer no less than the amount the retail customer pays for the same services with regard to rate and time. Any time guide previously agreed to by the manufacturer and the dealer for extended warranty repairs may be used in lieu of actual time expended. In the event that a time guide has not been agreed to for warranty repairs, or said time guide does not define time for an applicable warranty repair, the manufacturer’s time guide shall be used, multiplied by 1.5."

 

Illinois Gov. J.B. Pritzker signed a bill into law on March 23 that caps interest rates at 36% on consumer loans, including payday advances and car loans. The Illinois General Assembly passed the legislation, the Predatory Loan Prevention Act, in January and the measure took effect upon Pritzker’s signature.

Introduced by the Illinois Legislative Black Caucus, the newly signed Public Act 101-0658 is modeled on the Military Lending Act, a federal law that protects service members and their dependents through a range of safeguards, including capping interest rates on most consumer loans at 36%. The MLA finance charge cap applies only to active-duty service members and their dependents, but the legislation effectively extends the limit to all consumer loans.

Prior to the legislation, the average annual percentage rate for a payday loan in Illinois was 297%, while auto title loans averaged APRs of about 179%, according to the Woodstock Institute, an organization that was part of a coalition formed in support of the legislation. Illinois residents pay $500 million a year in payday and title loan fees, the fourth highest rate in the U.S., the Woodstock Institute calculated.

Even at new-car dealerships, extended service contracts, GAP insurance and other add-ons can sometimes push the cumulative APR towards 36%.

But under the new law, any loan made in excess of a 36% APR would be considered null and void, and no entity has the "right to collect, attempt to collect, receive, or retain any principal, fee, interest, or charges related to the loan." Each violation provides for a fine of up to $10,000.

With its passage, Illinois joins 17 other states and Washington, D.C., in imposing a 36% rate cap on payday loan interest rates and fees, according to the Center for Responsible Lending.

But some organizations, including the Illinois Small Loan Association, have already expressed concern with the broad nature of the bill and its potential to completely eliminate access to small consumer loans within the state.

Steve Brubaker, who lobbies for the loan association, said high APRs can be misleading since the average fee (including interest) for a typical two-week payday loan comes out to about $15 for each $100 borrowed.

The Online Lenders Alliance said upon Pritzker’s action that it was disappointed the governor had signed the legislation, saying it was a "bad bill" for Illinois residents.

"Now is not the time to reduce credit access. Consumers in Illinois are struggling, and elected officials should be working to ensure that all consumers have options to deal with unforeseen or irregular expenses," said Mary Jackson, the alliance’s chief executive. "Sadly, this bill eliminates many of those options for those who need them most."

Still, advocates of the bill say it can help limit predatory lending. More than 200 million Americans live in states that allow payday lending without heavy restrictions, according to the CRL. And the loans are easy to obtain. Typically, consumers simply need to visit a lender with a valid ID, proof of income and a bank account to get a payday loan. The balance of the loans usually is due two weeks later.

Yet the high interest rates and short turnaround can make the loans expensive and difficult to pay off. Research conducted by the Consumer Financial Protection Bureau found that nearly one in four payday loans is refinanced nine times or more. Plus, The Pew Charitable Trusts reports it takes borrowers roughly five months to pay off the loans, with finance charges that average $520. That’s on top of the amount of the original loan.

 

Car dealer Brad Sowers is spending money to prepare for the coming wave of new electric models from General Motors. He is installing charging stations, upgrading service bays and retraining staff at his St. Louis-area dealership to handle the technology-packed vehicles.

But when he considers how many plug-in Chevy Bolts he sold last year — nine, out of the nearly 4,000 Chevrolets sold at his Missouri dealerships — it gives him pause.

"The consumer in the middle of America just isn’t there yet," when it comes to switching to electric vehicles, he said, citing the long distances many of his customers drive daily and a lack of charging infrastructure outside major cities.

As auto executives and investors buzz about the coming age of the electric car, many dealers say they are struggling to square that enthusiasm with the reality today on new-car sales lots, where battery-powered vehicles in 2020 made up fewer than 2% of U.S. auto sales.

Most consumers who come to showrooms aren’t shopping for electric cars, and with gasoline prices relatively low, even hybrid models can be a tough sell, dealers and industry analysts say.

Automakers are moving aggressively to expand their electric-vehicle offerings with dozens of new models set to arrive in coming years. Some, like GM, are setting firm targets for when they plan to phase out gas-powered cars entirely.

Many dealers say that puts them in a delicate spot: They are trying to adjust, but remain unsure whether and how fast customers will actually make the switch. About 180 GM dealers, or roughly 20%, decided to give up their Cadillac franchises rather than invest in costly upgrades that GM has required to sell electric cars. A GM spokesman said the company expected some Cadillac dealers to opt out and is pleased that the roughly 700 remaining share its all-electric goals.

Past attempts by car companies to expand electric-car sales have largely flopped, saddling retailers with unsold inventory. Even now, some dealers say they are reluctant to stock electric models en masse.

"The biggest challenge is that dealers have a bit of ‘boy who cried wolf’ syndrome," said Massachusetts dealer Chris Lemley.

Car companies have promised for years to make electric cars mainstream, but produced only low-volume, niche models, he said. He recalls Ford rolling out an all-electric Focus that sold poorly and stacked up on his lot. It was discontinued in 2018.

 

"So when we are told, ‘This time, we really mean it,’ it’s easy to be skeptical," Lemley said.

 

Some shoppers also are unsure. Joe Daniel, an energy analyst at the Union of Concerned Scientists, said he was determined to buy an electric car, but eventually abandoned his effort after realizing there weren’t enough public charging stations near his apartment in Washington, D.C. Without a place to plug in, the purchase made little sense, he said.

 

"For EVs to take off, they need to be as convenient as gas-powered cars—that’s the whole point of this big purchase," Mr. Daniel said.esla vs. NIO: Battle for the World’s Largest EV Market

 

To solve problems like this, President Biden has said he wants to spend billions of dollars to upgrade the country’s charging infrastructure as part of a push to incentivize battery-powered cars.

 

Ford, GM and other major car companies say they are confident in their new electric-vehicle offerings and are training dealers to sell and service them.

 

Still, some auto retailers say they worry about the long-term implications for their business. 

 

According to a recent NADA dealership workforce study, women hold 19% of jobs at U.S. dealerships, a figure that continues to increase annually, albeit slowly. The CATA was encouraged to sit down with two area female dealers to learn more about their leadership roles and the paths that led them to where they are today.

 

Karen Sutton-Ford, Dealer Manager, Sutton Ford 

Sutton-Ford entered the auto industry in 2012, when she began her career at Toyota Motor Corporation before shifting gears in 2015 and entering the retail side of the car business at Sutton Ford in Matteson. Her father, Nate Sutton, is the principal there. 

Growing up in the business, Sutton-Ford learned at an early age the ins-and-outs of working at a car dealership, and she grew to love that each day is different and rewarding, never boring or monotonous.  

 

Life in the business, however, doesn’t always come easy. When Sutton-Ford began working at the family dealership, she started as the Commercial & Fleet Manager but quickly grew her role — and responsibilities — to Dealer Manager, a title she earned through hard work and experience.

Another challenging aspect — especially for a young, minority female — is feeling the lack of representation in the industry. 

"It gets exhausting speaking up on behalf of a group of people and trying to be heard," said Sutton-Ford. "Women have the biggest influence on car-buying decisions, yet men are always targeted when it comes down to the actual transaction." 

Despite this, Sutton-Ford said: "I also see this as a positive because, at the end of my career, I’ll be able to look back and see how far we have advanced because I was vocal and stood up for what was right. I know we will move forward because I am not silent about issues that impact women and minority groups."

Sutton-Ford was recognized in 2019 with Automotive News’ 40 Under 40 award, and she recently completed her certificate from NADA’s Dealer Academy.

Her advice for younger people looking to get started in the business — both females and males — is to fail forward and to not be afraid of pushing limits or boundaries that society has outlined. She attributes her father as her greatest mentor and influence in her life. She also enlists an executive coach who has helped build her confidence when leading teams of men and individuals who are older than her. 

Ultimately, she would like to become the COO of Sutton Auto and add at least two more franchises — including a luxury brand — to the dealership’s portfolio. To connect with Karen Sutton-Ford, find her on LinkedIn. 

 

Kelly Webb Roberts, President, Webb Automotive Group 

Webb Roberts grew up working in her family’s Ford store (which recently celebrated its 50th anniversary), completing every task available, including sweeping floors, washing cars and working in the office. Today, as president of the Webb Automotive Group, she oversees six franchises under an umbrella that includes Chevrolet, Genesis, Hyundai and Mitsubishi.

 

Webb Roberts worked hard to get to where she is. She started her career in automotive public accounting before joining the family business. At 23, she took over the family’s Chevrolet dealership in Oak Lawn and later expanded the Webb Automotive Group’s footprint.

 

Surviving the recession in 2008 instilled a foundation of prudent business practices for Webb Roberts, including a strong focus on the professional development of her employees, something in which she heavily invests both monetarily and timewise. She attributes a lot of her personal professional development to being raised with a strong work ethic and the General Motors Women’s Retail Network 20 Group, in which she participates.

 

"Being a part of the GM Women’s Retail Network has been a privilege and an honor," said Webb Roberts. The group of 20 female dealers from across the country meets a few times a year to trade advice and share best practices with a focus on improving business performance. Webb Roberts and her sister Jackie Webb, who also runs the dealerships, believe more women should work in the car business and that they should pursue the education they need to be well-prepared. For this reason, the Webb Automotive Group continues to promote and support scholarships for women pursuing an auto-related education at www.gmsac.com. According to the Webb sisters, there never has been a better time to pursue an automotive career.

 

Automotive News recognized Webb Roberts in the 2017 edition of its 40 Under 40 awards. At the time, she was just 34, which was also about when she was elected to the CATA board of directors. She currently is on the CATA’s executive committee — the first female ever so elected — as the association’s treasurer. 

 

When asked about the challenges of being a female in the industry, Webb Roberts said: "Things have progressed dramatically in my short time in the industry. I don’t focus on being a female in the business so much as on the challenges of operating multiple businesses. My mantra is ‘make results, not excuses.’ Instead of worrying, focus on understanding and overcoming the challenge that is in front of you."

 

To connect with Webb Roberts, visit her LinkedIn profile.

 

By Paul Walser, 2021 NADA Chairman

 

While we are nearing the end of the first quarter of 2021, this year brings a host of new opportunities for America’s automobile dealers. The NADA and its dealer members have continuously rallied together despite the pressing challenges brought on by the global health crisis. 

I commend all dealers for ensuring the safety and security of your customers and employees through a remarkable time — all while keeping the doors of your showrooms and service departments open for business. I also must commend my predecessor, NADA 2020 Chairman Rhett Ricart, for leading our entire industry through a time of uncertainty. Rhett deserves a hearty "thank you" from all dealers and dealership employees for his steady and strong presence as he and NADA guided us through a tumultuous time.

This year, I challenge my fellow dealers to look at all aspects of our business through the lens of the customer and be open to a mindset of doing things a different way.

Dealers continue to battle challenges brought on by the COVID-19 pandemic, but our industry began 2021 on an optimistic note. Franchised new-car dealerships reached 14.5 million new-vehicle sales last year. Despite the lowest monthly SAAR on record (8.7 million units last April,) signs of the new-vehicle sales recovery began in the second half of 2020. As the year continues, the NADA anticipates sales of 15.5 million new units (an increase of 7.2% from 2020). 

But we are cautious of several potential roadblocks: COVID-19 cases could lead to production disruptions along the vehicle supply chain; supplies could be impacted by a global shortage of semiconductor microchips used for auto production; and customers may experience tight inventory on dealer lots.

Recovering from a pandemic and regaining momentum in the retail sector is our initial challenge. But strengthening our franchise system — and a willingness to do things a different way — is our long-term goal. Every dealer has a responsibility to make the franchise system stronger. In my incoming remarks as NADA chairman, I identified three areas that, if improved, can make us stronger: diversity and inclusion; dealer-OEM relationships; and dealer involvement. Fostering diversity in the automotive industry not only is the right thing to do, it also is good for our business.

I’m proud that the NADA will work to advance its own diversity initiatives throughout the year, so we can attract a more diverse workforce, create opportunities for women and other underrepresented groups, and help more minority dealers succeed. We will look at many avenues to new pathways, including more tools and resources, business training, coaching and mentoring, access to capital and, ultimately, creating partnerships.

To that end, we will work to improve dealer-OEM relationships for the benefit of our customers. We’re living in a rapidly changing business environment. And the fact remains, customers don’t want to spend four hours understanding the price of a car. We must improve our operations so that customers are drawn to our speed, transparency and control in the process. Shortening the transaction time is critical to our future. 

In the past 90 days, I’ve spoken to the North American leadership of most of the manufacturers that sell cars in this country. There’s an appetite on their part to work with dealers to strengthen the franchise system and improve the customer experience.

As you can see, we have a lot of work ahead, but also a lot of opportunity. The beauty of our industry is that anyone can thrive — even through market turmoil culture and a global pandemic. I commend my fellow dealers for your hard work through these unprecedented times. This year, the nation’s automobiles dealers will continue to show what we’re made of!

 

The Chicago Automobile Trade Association has joined with the Illinois Automobile Dealers Association — and with the strong support of each of their Boards of Directors — in preparing a lawsuit to fight the issuance of dealers’ licenses to motor vehicle manufacturers and to protect the franchised motor vehicle dealer system.  

Several new-vehicle manufacturers, including Rivian and Lucid, have announced plans to begin building and selling motor vehicles directly to the public later this year and in the coming years.  

State law requires manufacturers to contract with franchised dealers to sell new vehicles at retail, but Illinois Secretary of State Jesse White’s office said it will issue direct sale dealer licenses to those new manufacturers.  

 

The lawsuit will seek a ruling that Illinois laws requiring vehicle sales through franchised dealers apply to all motor vehicle manufacturers entering the market in the same way that they apply to existing manufacturers. The suit also seeks to prevent White’s office from issuing dealer licenses to motor vehicle manufacturers which would allow them to not have franchised dealers.

When the legal complaint is finalized, the dealer associations will ask their members to join as plaintiffs to protect the integrity of the franchised dealer system.  

In asking every dealer to put his or her name on the lawsuit, to add to the impact of the case, the CATA and the IADA would not be asking for funding; the dealer associations would pay the legal costs to defend the franchise system for the good of all Illinois dealers and their customers.

Additional information, including a form for dealers to join as a plaintiff and a copy of the complaint, will be released soon.

 

Legislation in Illinois that would increase the booked time of repairs of vehicles under manufacturer warranty picked up another co-sponsor March 15: Rep. Jay Hoffman (D-Swansea), one of the House’s assistant majority leaders.

 

Automakers consider different time guides for the same repair when technicians fix a car under warranty versus the longer time considered when customers pay for the work.

Dealers have long charged that the reduced time allowance for warranty repairs comes from, among other things, manufacturer studies of repairs in which all the needed tools and parts are carefully laid out near the vehicle before the job begins, hardly a real-world scenario. Instead, it can take a technician 15-20 minutes to fetch those during a repair. Technicians say many warranty jobs just can’t be performed in the booked time allowance, meaning they work at times without compensation. 

Mechanics Local 701, the union representing area technicians at dealerships, is working with the CATA to advance the legislation.

Under House Bill 3940: "Adequate and fair compensation requires the manufacturer to pay each dealer no less than the amount the retail customer pays for the same services with regard to rate and time. Any time guide previously agreed to by the manufacturer and the dealer for extended warranty repairs may be used in lieu of actual time expended. In the event that a time guide has not been agreed to for warranty repairs, or said time guide does not define time for an applicable warranty repair, the manufacturer’s time guide shall be used, multiplied by 1.5."

HB 3940 was assigned March 16 to the House Labor & Commerce Committee, whose members include Rep. Hoffman.