CATA News

New rules enacting President Donald Trump’s reductions in fuel efficiency standards for new vehicles through 2026 moved closer to reality when U.S. agencies on Jan. 14 sent proposals to the White House for final review.
 
After more than 17 months of discussion, the National Highway Traffic Safety Administration and the Environmental Protection Agency submitted to the White House Office of Management and Budget proposed rules for model years 2021-2026 fuel efficiency, the agencies said.
 
Final rules are expected as early as late February or March, officials said.
 
The administration of former President Barack Obama had required car manufacturers to achieve roughly 5% annual increases in vehicle fuel efficiency through the 2026 model year.
 
The Trump administration in August 2018 proposed freezing fuel efficiency standards at 2020 levels through 2026, erasing the increases the Obama administration enacted. But officials will not finalize that proposal.

 

"We’re not going to be flat, as was proposed," Acting NHTSA Administrator James Owens told Reuters in a recent interview. "We’re going to set standards that are reasonable and achievable."
 
Several automakers told Reuters they anticipate annual fuel efficiency increases of about 1.5%, much less stringent than the Obama rules, but administration aides said the proposal, which is about 2,000 pages, underwent significant revisions.
 
The EPA said the final rules "will benefit all Americans by improving the U.S. fleet’s fuel economy, reducing air pollution, and making new vehicles more affordable for all Americans."
 
The administration has argued that the rollbacks are necessary for economic and safety reasons, but California and environmentalists reject that analysis, saying consumers would spend hundreds of billions more in fuel costs.

 

The administration’s 2018 proposal would have resulted in average fuel efficiency of 37 miles per gallon (mpg) by 2026, compared with 46.7 mpg under rules adopted in 2012.

 

The Trump administration’s "preferred option" would have hiked U.S. oil consumption by about 500,000 barrels per day by the 2030s but reduced automakers’ regulatory costs by more than $300 billion.

 

Trump has sought to reverse Obama’s climate change policy, which was aimed at reducing greenhouse gas emissions.

In November, California and 22 other states challenged the administration’s decision in September to revoke California’s authority to set stiff vehicle tailpipe emissions rules and require a rising number of zero emission vehicles.

 

They also vowed to sue when the administration finalized the new requirements.

 

Major automakers -- including General Motors Co, Toyota Motor Corp, and Fiat Chrysler Automobiles NV -- backed the administration’s effort to bar California from setting tailpipe standards.

 

As the automobile industry undergoes major shifts in coming years, manufacturers will have to rethink their definition of "premium," according to McKinsey, a business consultancy keeping tabs on trends in the industry and the emerging mobility sector.
 
Ben Ellencweig, a New York-based McKinsey partner specializing in mobility, said the definition of premium is expending beyond the product to include features such as connectivity, the retail experience and how service is provided. Looking ahead, it likely will include access to other mobility services.

 

Customers for premium services will be treated differently, he predicts, as manufacturers and dealers work to create services that meet all their mobility needs.
 
The changes in the automotive sector are being driven by several long-term trends: urbanization, regulatory actions that are placing tighter controls on vehicles, new technology and a revolution in consumer expectations, Ellencweig said Jan. 14 during a McKinsey presentation to the Detroit Automotive Press Association.
 
Eighty-eight percent of executives surveyed by McKinsey agree some manufacturers and suppliers will disappear by 2030 amid industry disruption, but even that view may be too complacent. More will need to be done to prepare for future changes, he said.
 
Ellencweig said connectivity and design are the new benchmarks for luxury, especially for navigation over short distances. Premium customers want vehicle communications with smart roads and traffic services, as well as the ability to communicate with other vehicles, integration with smartphones and full integration with media subscription services.

 

Exterior and interior styling are top differentiators for manufacturers and consumers alike. The greatest values are interior functionality, space and human-machine interfaces, all of which will play major roles in differentiating vehicles and winning customers, Ellencweig said.

 

Though powertrain remains one of the top three differentiators, non-classic features such as battery performance are becoming more important.
 
In a challenge to traditional notions of brand appeal, 40% of premium customers say they would switch brands to gain better connectivity.

 

As dealer profits face increasing pressure, parts and services will be critical to dealers’ economic viability. Franchise parts and services businesses should be aware of new digital players with aggressive price points. Online sales represent a growing share of the $54 billion auto-parts market, Ellencweig noted.
 
Inga Maurer, a McKinsey partner based in Chicago who consults on mobility issues, said the increasing popularity of electrified powertrains will significantly impact dealer repair work. But dealers can take advantage of increasingly available vehicle data and sell upgraded maintenance services.
 
Used-vehicle sales likely will become less profitable for dealers because of intense competition from online services, she said. At the same time, captive-finance companies are becoming more active in the used-car market as cars that are one to four years old become more popular in reaction to the rising price of new vehicles.
 
Dealers and manufacturers struggling with the question of residual value are looking for more accurate data, which could help free up more financing for used vehicles.
 
Maurer also said one issue the mobility sector will have to face is cities taking greater control of their road networks through tighter regulation in a bid to control congestion.
 
McKinsey studies indicate the amount of time spent commuting could increase 10% over the next decade, putting more pressure on regulators.
 
"Cities have to come to terms with regulations when there are too many vehicles on the road," said Maurer, who notes Chicago is limiting the number of ride-sharing vehicles operated by companies such as Uber and Lyft in the center of the city.

 

New this month, technicians taking certain ASE automobile certification tests — Suspension & Steering (A4); Brakes (A5); Electrical/Electronic Systems (A6); or Auto Maintenance and Light Repair (G1) — have the option to see each question in a split-screen, Spanish/English format.
 
No special registration procedure is needed to access the Spanish translation, which is built into the test delivery screen. Test-takers will click on a "Leer en Español" ("Read in Spanish") button to call up a screen showing the question and answer options in both Spanish and English.
 
All ASE tests will continue to have the searchable English-to-Spanish Glossary of technical terms which can be helpful to resolve dialectal differences. In addition, anyone for whom English is a second language may bring a standard, published English-to-foreign language dictionary to use at the test center.
 
Only the listed four certification and recertification tests have the new bilingual feature this year. However, ASE anticipates Spanish translation of the other automobile series tests required for Master status to be available later.
  
Visit www.ase.com/Tests/ASE-Certification-Tests/Spanish-Testing.aspx for information in Spanish about the new translation option.
  
Established in 1972, the National Institute for Automotive Service Excellence is an independent, third party nonprofit organization. ASE upholds and promotes high standards of service and repair through the assessment, certification and credentialing of current and future industry professionals, and the prestigious ASE Blue Seal logo identifies professionals who possess the essential knowledge and skills to perform with excellence.

 

There are about 250,000 ASE Certified professionals at work today in dealerships, independent shops, collision repair shops, auto parts stores, fleets, schools and colleges throughout the country.
 
For more about ASE, visit www.ase.com.

 

Cox Automotive forecasts sales of 39.4 million used vehicles this year by dealers and private parties, down from the estimated 39.6 million in 2019. Sales by franchised and independent dealers would total 20.3 million, up from 20.0 million last year.
 
Jonathan Smoke, Cox’s chief economist, expects this year to mark "the beginning of a slight decline in total" used-vehicle sales. While used-vehicle sales by dealerships should keep on climbing.
 
"We believe the retail market will continue to grow as the supply shifts to higher-quality, younger and more expensive used vehicles," Smoke said.
 
The National Automobile Dealers Association said that affordability issues on the new-car side, along with robust used-car inventory levels, have some consumers moving from new to used.
 
"As affordability remains a challenge, more consumers chose used vehicles in 2019," NADA chief economist Patrick Manzi said in the analysis. "New cars are getting too expensive for many consumers. Even consumers with great credit or the ability to buy new are instead choosing a used vehicle."

 

Auto shows provide an ideal opportunity for automakers to shake hands with customers and potential customers. As a result, several have gone "all in" on large consumer shows in an effort to engage with the public.
 
In a Dec. 9 Automotive News article, Honda’s Sage Marie, assistant vice president for public relations said: "From a consumer standpoint, auto shows are stable and growing in importance. From a media standpoint, the dynamic is definitely changing. The way automakers leverage auto shows to deploy news is changing."
 
He added, "It’s fishing where the fish are."
 
The nation’s longest running auto show, the Chicago Auto Show opens its doors to the masses Feb. 8, but lots will happen before then. On Feb. 5, the show’s Concept & Technology Garage gives automotive media a fantastic opportunity to take a deep dive into the latest automotive trends.
 
Group Vice President – Toyota Division Marketing at Toyota North America Edward (Ed) Laukes will be the keynote speaker Feb. 6 at the Midwest Automotive Media Association Breakfast, which kicks off the Media Preview of the 2020 Chicago Auto Show.
 
Also during the media preview portion of the show, Cody Thacker, head of electrification for Audi of America, will be the keynote speaker on Feb. 6 at the Economic Club of Chicago Luncheon. Thacker leads the team whose mission is to ready the organization for electric vehicles and other emerging automotive trends.
 
Show hours are 10 a.m.-10 p.m. Feb. 8-16, and 10 a.m.-8 p.m. Feb. 17. Tickets are $13 for adults; and $8 for seniors aged 62 and older and for children ages 7-12. Younger children are free.

 

Dealers should be aware that of all the states bordering Illinois, Indiana is the only "non-reciprocal" state. That means that an Indiana resident who trades in a vehicle when purchasing from an Illinois Dealer is subject to the Illinois $10,000 trade-in tax cap. Conversely, when a resident of any other bordering state (Wisconsin, Iowa, Missouri, etc.) purchases a vehicle from an Illinois Dealer, the rule hasn’t changed.

 

That means the Illinois Dealer can provide a driveaway sticker, subject to rules in place for qualification (customer must be a "resident" of that reciprocal state, sign an Illinois DOR approved affidavit to that effect, and provide a copy of an out of state driver’s license or other approved identification to the selling dealer), and the customer then can register the vehicle in, and pay tax to, the reciprocal state without any Illinois tax obligation.
 
The tax laws of the reciprocal state will dictate the amount of tax paid, and the Illinois trade in cap will not impact the transaction.

Legislation has been filed in Springfield to replace the $10,000 trade-in allowance limit, which was enacted this month, and to open dealerships to Sunday sales.
 
Both bills were filed Jan. 22. The state’s General Assembly convenes for the 2020 Spring Legislative Session on Jan. 28.
 
Under Senate Bill 2481, increasing the sales tax owed on private vehicle transactions would collect the $45 million a year that officials say the trade-in cap will raise. Taxes dues on private sales have not been adjusted in decades. The legislation was was introduced by Democratic Sen. Antonio Muñoz of Chicago.
 
House Bill 4212, introduced by Illinois Rep. Yehiel "Mark" Kalish, D-Skokie, would repeal Section 5-106 of the Illinois Vehicle Code, which prohibits the retail sale of vehicles on Sundays.

Legislation to open dealerships to sales on Sundays has been introduced in Springfield every spring since 2014.

Participation in the 2020 Dealer Workforce Study, one of the automotive industry’s largest workforce studies, is underway at nadaworkforcestudy.com. Participation ends April 15.
 
Dealer participation in the National Automobile Dealers Association report is vital and allows the NADA to analyze and provide such valuable information. The annual report helps new-car and –truck dealers to fine-tune employee compensation and benefits, promote retention, and stay ahead of the demographic curve.
 
All participating NADA Members will receive a complimentary custom report for their store. This exclusive report will include a Workforce Management Scorecard that compares and ranks the participating dealership against peer-level dealerships on key metrics related to compensation, retention and turnover.
 
In addition, all participants will receive a complimentary electronic copy of the 2020 Dealership Workforce Study National & Regional Trends in Compensation, Benefits & Retention Report. Participants also will be granted access for up to one year to the Database Search Tool where they will find all of the data submitted for each of the past workforce studies.
 
Questions can be directed to workforcestudy@nada.org.

 

 

A call is placed at 5:15 p.m. Friday by a dealership’s chief information officer, who says she thinks the company has been hacked. The allegedly hacked customer records have not been posted, yet the tip appears legitimate. The CIO asks, "What do we do?"
 
Scenarios like this are increasingly common, and the reputational, regulatory and operational effects can be devastating. The response should be swift and focused, and it should include:

 

MOBILIZATION: Responding to a data breach will involve resources from across the company’s functional groups — IT, HR, legal, risk, accounting, marketing — and from the C-suite to the affected line of business, as well as external resources such as breach counsel, forensic investigators, crisis management and PR teams, and notification mail processors. The dealership should have a response plan in place before the incident, and the team should be mobilized immediately.
 
Many of the issues faced next will have civil and regulatory implications, and discussions should have the benefit of legal privilege. Consider engaging breach counsel first.
 
STABILIZATION: The first step in getting control of the data post-incident is to patch whatever leak exists. The technical team should lock down any stolen or misused credentials, devices or system vulnerabilities and preserve evidence.
 
INVESTIGATION: Once the technical vulnerabilities have been addressed, identify the scope and duration of the incident; use outside forensic examiners, if necessary. At the same time, review contracts with any implicated third-party service providers, and identify applicable responsive insurance.
 
ANALYSIS: Data breaches are addressed primarily as a matter of state law, with every state defining and prescribing responses to a breach differently. The dealership also may have obligations related to data breaches under contracts with commercial vendors or suppliers. Understanding the responsibilities — to customers, regulators, counterparties and investors — turns heavily on the language of the data breach statutes in each implicated state, and the language of any contracts.
 
Which states are implicated largely is determined by the location of customers and business operations. Whether counterparties must be involved is determined by the language of agreements. This is a highly fact-specific, largely "legal" analysis.
 
NOTIFICATION: After identifying the "what," "how" and "who," it’s time to notify any external stakeholders. This may involve notifying customers, contractual counterparties and investors, and most-assuredly will involve notifying state attorneys general. Notification requirements differ by state, both as to timing and substance. The timing for most statutes runs from knowledge of the breach, and may be as short as 24 hours.
 
EVOLUTION: To the extent there is a benefit to a data breach, it lies in identifying the facts and circumstances that led to the breach and using them to anticipate future threats and improve company systems and practices.

 

While most used-vehicle financing metrics closed 2019 at a steady pace, Edmunds noticed the average interest rate for a new-vehicle retail installment contract fell for the third month in a row in December, dropping to its lowest point since February 2018.
 
Edmunds reported the annual percentage rate on new financed vehicles averaged 5.4% in December, compared to 5.5% in November and 5.9% in December of 2018.
 
Edmunds data showed that 22.4% of shoppers who financed their vehicle purchases in December 2019 got an interest rate below 3%, compared to 20.4% of those who financed purchases in December 2018.
 
"Automakers and dealers gave new-car buyers a lot of reasons to feel some holiday cheer in December," Jessica Caldwell of Edmunds said in a news release.
 
"Everyone knows new-car deals are usually sweetest at the end of the year, but it’s been a long time since financing offers were this good," she continued.
 
Meanwhile on the used-vehicle side, Edmunds determined that while terms and monthly payments in December mirrored the figures seen a year earlier, average APR on used financing dipped to 8.2% while the total amount financed rose by more than $400 year-over-year to $22,660.
Although interest rates took a dip, Edmunds pointed out new-vehicle retail prices are expected to hit near-record highs in December.
 
Edmunds data indicated that the average transaction price for a new vehicle will climb to $38,377 in December, compared to $37,260 last year and $33,773 five years ago.
 
"The December numbers aren’t always indicative of larger market trends because people tend to buy pricey luxury vehicles, trucks and SUVs this time of year," Caldwell said. "This drives up the average transaction price and lowers the average APR since these shoppers can usually qualify for the lowest promotional rates.
 
"But the fact that rates have been on a steady decline for the last several months bodes well for more favorable financing conditions in 2020," she continued.
 
Two other firms weighed in on how new-vehicle prices behaved in December, beginning with Kelley Blue Book. The valuation analysts at Kelley Blue Book reported the estimated average transaction price for a light vehicle in the United States was $38,948 in December. New-vehicle prices increased $656 (up 1.7%) from December of 2018, while falling $80 (down 0.2%) from November. 
 
"New-vehicle transaction prices finished the year on a high note, with the average rising nearly 2% and approaching the record set in November 2019," Kelley Blue Book analyst Tim Fleming said in a news release. "However, as retail demand fell in 2019, dealer discounts grew, approaching 7% of MSRP in December — the highest since July 2009.
 
"On a positive note, the discounts appear to be working as the average days in inventory fell by two days from the previous month," Fleming continued. "With sales expected to be down in 2020, anticipate the pressure to continue on new-car prices and incentives."