CATA News

Antioch-based Raymond Auto Group covered $20,000 towards a 2020 Chevrolet Express Cargo van to Open Arms Mission, a local food pantry which recently received a $20,000 grant administered by the Lake County Board. The dealership jumped at the opportunity to cover the remaining $20,000. 

Open Arms Mission provides daily living necessities such as food and toiletries to individuals and families in need while encouraging self-sufficiency. The pantry has remained open during the COVID-19 pandemic to continue serving its community, making health and safety adjustments such as offering a drive-thru distribution to eliminate indoor face-to-face contact. Since last spring, Open Arms Mission has distributed more food — especially to families with children — in an effort to ease food insecurities during the pandemic.

"Raymond Auto Group has served Antioch and surrounding towns for 60 years, and is committed to being there when our community needs a little help," said Mark Scarpelli, president of the group. "This case is no exception."  

The dealer group has partnered with Open Arms Mission for the last decade on various projects to help those in need right within the Antioch community. 

"Our philosophy," said Open Arms Mission Executive Director Marytherese Ambacher, "has always been neighbor helping neighbor, and we feel blessed that Raymond Auto Group stepped up to help us meet the needs of community members who are food insecure,.

"The van will be used to pick up reclaimed food and donations from local grocery stores and deliver food to homebound neighbors."

Local new-car dealers are perfectly positioned to come to the aid of their communities. The Chicago Automobile Trade Association, the area’s new-car dealer association, has been a longtime supporter of local nonprofit organizations. Since the inception of its Chicagoland Dealers Care program in 2008, the CATA has donated more than $100,000 to local charitable organizations supported by its dealer members.

For more information on Raymond Auto Group and the CATA, visit RaymondDeals.com and CATA.info, respectively. For more about Open Arms Mission, see OpenArmsMission.org.

 

The COVID-19 pandemic puts new weight behind two longstanding complaints dealers have with OEMs, said Rhett Ricart, 2020 chairman of the National Automobile Dealers Association. Automaker demands for expensive, lookalike facilities, which Ricart calls "mausoleums," are the first dealer complaint. The second is retroactive "stair-step" dealer incentives tied to hitting volume targets.

"Mausoleum mandates do nothing to help the dealers and the customers they serve," Ricart said this month during a webinar hosted by the Detroit-based Automotive Press Association. "If the OEMs think they’re so darned important, they ought to help the dealers with it."

Ricart ties both complaints to the current social-distancing environment imposed by the coronavirus. The NADA has complained for many years about OEM facility requirements — especially, the demand for uniform, corporate appearances.

Several OEMs put facility upgrades on hold during business shutdowns earlier this year. But the NADA is on guard in case some OEMs dust off those plans since sales have bounced back.

Such demands "didn’t do a damn thing to increase customer satisfaction before the pandemic," Ricart said. In his view, they make even less sense during the pandemic, when many customers want to avoid the dealership completely.

There always will be some customers who want to come to the dealership to get questions answered, and to see, hear, feel and smell the cars and trucks for themselves, Ricart said.

However, he said the pandemic has sped up the evolution of the dealership showroom to "more of a delivery center," where customers do most of the shopping and buying online and only come to the dealership to take possession — unless they opt for home delivery.

Under the circumstances, building a big showcase is out of touch with the new reality, Ricart said.

When a dealer builds a new building, "We’ve got to keep it for 30, 40 years from now," he said. "I think if you look around in 30 years, any building you have now is not going to look like a building you need, period."

Compared with OEM facility demands, tying COVID-19 to the NADA’s longstanding objection to stair-step incentives is a bit more of a stretch.

The NADA’s basic argument remains the same, Ricart said: Retroactive, stair-step incentives distort the market, create customer distrust and hurt the brand image for both the dealership and the OEM.

Ricart didn’t name any OEMs. Jared Allen, a spokesman for the NADA, said separately that Ricart was speaking in general terms about the entire industry.

What happens is, to earn the maximum dealer incentive per unit, say, for a whole month’s target volume for a certain vehicle, the dealership has to hit the target or else lose the per-unit bonus for the entire number, including the vehicles that are already sold. That’s the retroactive part. Dealerships that might miss the target are likely to drop prices at the end of the month.

"You come in one week and it’s one price, then you come in next week and it’s not the same price," Ricart said. "Nobody would like that on a big purchase, whether it’s a washer-dryer, or a hot tub, or anything."

The tie-in with COVID-19 is that during the pandemic, more customers are switching to digital shopping, at advertised prices, Ricart said.

"For the last eight months … digitization has made pricing so easy to understand," he said. "If you advertise a price online, that’s pretty much your best price."

That is, unless a stair-step incentive complicates pricing. "If we regress in this area, it is our customers that will suffer," Ricart said.

 

Based on a nearly flat increase in the consumer price index for the 12 months that ended June 1, the exemption thresholds for Regulations M and Z for exempt consumer credit and lease transactions will remain $58,300 effective Jan. 1.

The thresholds are set pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amendments to the Truth in Lending Act and the Consumer Leasing Act that require adjusting the thresholds annually based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

If there is no annual percentage increase in the CPI-W, the Federal Reserve Board and the Bureau will not adjust this exemption threshold from the prior year. 

However, in years following a year in which the exemption threshold is not adjusted, the threshold is calculated by applying the annual percentage change in CPI-W to the dollar amount that would have resulted, after rounding, if the decreases and any subsequent increases in the CPI-W had been taken into account. Transactions at or below the thresholds are subject to the protections of the regulations.

 

This year’s automotive factory shutdowns left dealerships with fewer offerings on their lots. That’s a good thing, many industry experts contend.

The benefits of leaner dealership lots have been an unexpected byproduct of the pandemic. The result has been a seller’s market, with automakers able to hold the line on discounts, driving prices to record highs.

And because of the inventory crunch, manufacturers have been giving priority to their most popular models and feature combinations, which has reduced complexity and cut supply-chain costs, they say.

Meanwhile, dealers are saving money by holding less inventory, and cars are selling faster, at higher average prices. The typical new vehicle spent about 56 days on a dealer lot in October, down 27% from the same month last year, according to Edmunds.com.

"I don’t think our dealers want to go back to historic inventory levels," Fiat Chrysler Chief Executive Mike Manley told investors last month. "What I think we see now is somewhat closer to the new normal of inventory levels."

With fewer prospective buyers visiting showrooms during the pandemic, dealers say they don’t need as many cars on the lot for test drives. There were nearly 1 million fewer cars at all U.S. dealerships at the end of October, or 25% fewer compared to a year earlier, according to research firm Motor Intelligence.

But David Hult, CEO of Asbury Automotive Group, a publicly traded dealership chain based in Georgia, said dealer inventories surely will grow when factories catch up to demand. 

"I can only assume that the supply will creep back up," Hult said. "Brand loyalty isn’t what it used to be, and when someone else has a product that you don’t, you could actually lose sales."

For decades, American dealerships have kept endless rows of vehicles outside their stores in enough colors and variations for buyers to find what they want, when they want it. Smaller inventories would result in more customers preordering their cars weeks in advance, a practice common in Europe and elsewhere. The change would have implications for dealer-owned real estate and how carmakers run their factories.

 

A nationwide crime trend shows car thieves are getting help from technology to steal vehicles in a matter of minutes. Police say it’s all done by electronically copying vehicle key fobs.

At least three area Dodge dealers said new SRT models were stolen during recent crimes at their lots. 

"I thought if you put your keys up and your doors were locked, other than busting your windows and hot wiring your car, I didn’t think there was a way to steal your car," one consumer victim told an NBC-TV affiliate in Charlotte, North Carolina.

Police say thieves are able to send a signal from one key fob to another if they can get close enough, by creating an electronic copy of the original key fob to get access inside the vehicle. 

Police suggest getting a steering wheel lock or a driveway lock, which is similar to a tire boot. Another tool is a signal-blocking pouch that can keep a hacker from communicating with key fobs.

At dealerships, police said the thieves have had someone test drive a vehicle. When the key fob was used to open the vehicle, the signal was copied. A best practice would be to never give the key fob to the test driver. 

Instead, have a porter start the vehicle and bring it around to the front door or the service drive-thru. The porter then can hand the key to the dealer salesperson, who joins the customer for the test drive. That likely would thwart the copying attempt, as long as no one is near the car other than the porter when the doors are opened and the vehicle is started.

 

Al Piemonte Nissan in Melrose Park is a winner of Nissan’s 2020 Award of Excellence and the Nissan Global Award. Star Nissan (Niles) and Zeigler Nissan of Orland Park won the 2020 Award of Excellence.

 

Elizabeth Heubel, of Pugi of Chicagoland in Downers Grove, was among the NADA Academy’s September 2020 graduating class. Karen Ford of Sutton Ford in Matteson graduated from the Academy in August.

 

CVR will host a two-hour webinar to review the top challenges license and title clerks face in Illinois in electronically filing documents for vehicle titles and registrations. The webinar is 10 a.m.-12 p.m. Nov. 19.

Joey White, CVR’s Illinois account executive, will deliver the free presentation. White has 21 years’ experience in state regulation processing. She will provide training on the best practices and tips to make the regulation process easier. 

 

To register, click here.

 

Massachusetts voters overwhelmingly approved a ballot question on Nov. 3 to expand the state’s "Right to Repair" law, a decision with potentially far-reaching ramifications in the automotive industry about who has access to the highly proprietary data transmitted by carmakers. The measure amends a landmark 2012 "right to repair" law in the state.

Opponents of the latest Right to Repair initiative, known on ballots as Question 1, conceded defeat shortly after the polls closed. The results showed voters backing that measure by a 3-to-1 margin — 75% to 25%.

Under the newly approved Right to Repair law — which drew at least $43 million in spending, the most for a ballot question in state history — automakers will be required to provide car owners and independent mechanics with access to wireless mechanical data, known as telematics, starting with model year 2022 cars.

The Right to Repair Committee, which had raised at least $24 million to push the measure, framed it as a matter of preserving choices for car owners about where to get their car fixed, and protecting the competitive edge of independent mechanics around the state.

"Tonight is a great victory for the 1,600 independent repair shops here in Massachusetts, and the 40,000 jobs in the aftermarket," said Tommy Hickey, the committee’s director. "It’s pretty clear in the ballot what the will of the voters was."

 

The vote is likely to rumble quickly through the automotive world, which already has been roiled by the debate about who should have access to the highly proprietary data. It also remains to be seen whether lawmakers amend the ballot question’s language after federal officials raised concerns about its proposed timeline.

The Coalition for Safe and Secure Data, an automaker-backed committee that fiercely opposed the question, conceded after the vote, though it contended the data privacy concerns it had raised remain.

"Today’s vote will do nothing to enhance that right [to repair] — it will only grant real-time, two-way access to your vehicle and increase risk," the group said in a statement.

The new law builds on a measure voters passed in 2012 that first allowed independent repair shops to plug into a car and access the same digital codes that car dealers and their mechanics use to help diagnose problems.

That law, which legislators later tweaked in 2013, prompted automakers to agree to a memorandum of understanding that set similar requirements across the country.

It’s unclear if the industry could follow a similar path on telematics. That system, often found in late-model cars, monitors and remits real-time readings on the vehicle back to the manufacturer, and the type of data can vary between manufacturers.

Under the newly approved law, manufacturers will be required to equip vehicles starting with 2022 models with an open-access platform for that data. Owners could then retrieve the mechanical readings through a mobile app, and grant a local repair shop access to help in repairs.

The debate over the measure quickly evolved into an expensive, and often hyperbolic, advertising war over cybersecurity and drivers’ personal data. The Coalition for Safe and Secure Data, backed by nearly $26 million in contributions from General Motors, Toyota, and other manufacturers, ran a series of ads insinuating that the garage codes to your home could be at risk, or that "domestic violence advocates" say predators could use a car’s data to track their victim’s location.

But cybersecurity experts differed on how much risk the ballot question posed to someone’s data, and several said the claims pushed by automakers veered into exaggeration and "fear-mongering."

The newly passed measure had faced its own questions. It does not specify who will build the app or how it should operate, and the National Highway Traffic Safety Administration has said it is "effectively impossible" for automakers to design, test, and implement a secure approach within the proposal’s time frame.

 

 By Randy Henrick, Ignite Consulting Partners

 

Joe Biden’s victory likely will usher in a new era of consumer protection and compliance challenges for auto dealers.  Four of the five Federal Trade Commission commissioners will have their terms expire during the Biden administration. President Biden will have the power to replace the head of the Consumer Financial Protection Bureau. The Democrats will, for at least two years, control the House and maybe the Senate, too.

 

The Democratic Party platform stated that a Biden administration would work "to ensure equitable access to credit and banking products for all Americans, and reinvigorate the CFPB to ensure that banks, financial institutions, and lenders cannot prey on consumers." The platform also indicates Democrats will "eliminate the use of forced arbitration clauses." Strong language is also given to protecting consumers’ rights to privacy and protecting consumers from data breaches.

In short, as Democratic Sen. Chuck Schumer said with respect to the Supreme Court, everything is on the table.

That being said, it is reasonable to expect changes in the automobile world to be evolutionary not revolutionary. The Trump administration has put new staffers at senior levels in the CFPB and the FTC. While some of these people may leave or be replaced, there will not be a wholesale firing and replacement of Republican staffers on Day One.

Here are some thoughts on what to expect.

 

CFPB

It is important to remember that Sen. Elizabeth Warren, the original architect of the CFPB, will have an important voice in Biden administration policy. Warren raised concerns earlier this year about auto finance and has indicated her disdain for auto dealers in the past.

"Auto dealers got a specific exemption from CFPB oversight, and it is no coincidence that auto loans are now the most troubled consumer financial product," Warren said. "Congress should give the CFPB the authority it needs to supervise car loans — and keep that $26 billion a year in the pockets of consumers where it belongs." The $26 billion per year is Warren’s estimate of total dealer participation which Warren would like to eliminate.

Warren also is closely aligned with Richard Cordray, who headed the CFPB during the Obama administration. You may recall that the CFPB under Cordray published the agency’s bulletin on auto finance indicating that dealer participation resulted in disparate impact credit discrimination. In May 2018, Congress passed a joint resolution that was signed by President Trump disapproving the bulletin.

Disparate impact credit discrimination involves facially neutral practices that have the effect of discrimination. Actual intent to discriminate is not required. Disparate treatment credit discrimination generally requires intent to discriminate.

The U.S. Supreme Court in 2015 decided the case of Texas Department of Housing v. Inclusive Communities Project. This case appeared to make it harder to bring a disparate impact credit discrimination case under a statute like the Equal Credit Opportunity Act, although the ECOA was not at issue in the case. The ECOA prohibits "any creditor to discriminate against any applicant with respect to any aspect of a credit transaction." This picks up disparate treatment credit discrimination. But the ECOA does not prohibit acts that "otherwise make unavailable" credit to protected classes as does the Fair Housing Act, which was at issue in the case. It was this language that the Supreme Court ruled 5-4 picks up disparate impact credit discrimination. The Supreme Court has not ruled on whether the ECOA prohibits disparate impact.

 

FTC

FTC commissioners serve staggered terms. No more than three commissioners can be of the same political party. Two Republican commissioners will have their terms expire in 2023 and 2024, respectively. When replacing a commissioner, including a Democratic commissioner as will occur in 2022, it is reasonable to believe that a Biden administration will appoint someone more leftward leaning than a Republican president would appoint.  Over time, this could lead to a more activist FTC including against auto dealers and auto finance about which the FTC has held hearings.

 

FTC staff members may also turn over and it is not unreasonable to believe that more liberal replacements may be appointed. Expect the FTC to be more active during the Biden Administration although how soon and how much so will remain to be seen.

 

Department of Justice

The DOJ has brought criminal actions against auto dealers, their owners, and their employees for bank fraud, interstate wire fraud, and other federal criminal law violations. Several dealer principals as well as F&I personnel have served jail terms for defrauding federally regulated lenders by, for example, submitting falsified credit applications, power booking, and other fraudulent behavior.

 

President Biden will appoint a new head of the DOJ of Justice to replace William Barr early in his term. This person obviously will be more liberal than Barr. It is reasonable to expect that senior levels in the DOJ likewise may move to the left. This could result in more investigations, enforcement actions, and criminal proceedings against auto dealers who falsify documents and misrepresent transaction information to lenders.

State attorneys general

 

The CFPB and state attorneys general act in close concert on consumer protection matters. During the Trump administration, many enforcement actions against auto dealers have originated with State AGs.

 

An activist CFPB and aggressive AGs can be expected to pursue more claims against auto dealers. Your state AG is the most likely regulator you will encounter. It is critical that you have a policy and procedure for addressing consumer complaints. Use this procedure for every consumer complaint. Remember that even a small complaint can become a big problem if the consumer reports it to the AG.

 

What’s a dealer to do?

If you have put compliance on the back burner during the Trump administration, now is the time to get prepared, review and update your policies, and train/retrain your employees. A checkup with your legal or compliance advisor is an excellent idea.

 

The Biden administration is likely to focus on safeguards and privacy, so make those first on your list. (Review your privacy notice and make sure it states what your actual sharing practices are). Consumer protection in sales and F&I will be another area for activist agencies. If you have not already done so, adopt and implement the NADA Fair Credit Compliance Program and the NADA Voluntary Protection Products policy and program. 

 

In recent enforcement actions, the FTC has made dealer principals jointly and personally liable with the dealership for violations including broad unfair and deceptive practices violations. This trend will continue. That should be reason alone for your senior management to give priority to compliance as the Biden Administration takes over.

 

Randy Henrick is an auto dealer compliance expert who provides compliance consulting services to dealers directly at www.AutoDealerCompliance.net. 

 

Upon finishing their turkey legs, Americans each year prepare for the next American holiday: Black Friday. Advertising around that occasion can get creative, but the Better Business Bureau reminds dealers about Illinois advertising rules that prohibit dealers from touting free gifts and offers.

Despite the times, the BBB has consistently applied the Illinois Motor Vehicle Advertising Regulations to dealer practices as they become known. Dealers themselves have expressed the importance of a fair marketplace in which no dealer offers promotions that conflict with the regulations and harm the sales of other dealers.

With that in mind, the BBB wants to alert dealers to certain practices relating to Black Friday promotions. "We often see Black Friday offers that dealers would not otherwise run, involving free incentives with the sale or lease of vehicles," said Patricia Kelly, senior counsel of the BBB’s Chicago office. She reminds dealers of the language of rule 475.590 that relates to Black Friday promotions.

 

Section 475.590 Gifts and Free Offers

  a) It is an unfair or deceptive act to advertise or offer free prizes, gifts or other incentives in connection with the purchase or lease of a vehicle where the vehicle is sold or leased at a price arrived at through bargaining or negotiation, unless the dealer meets the requirements of subsection (b) of this Section.

  b) A free prize, gift or other incentive may be advertised or offered in connection with the purchase or lease of a vehicle if:

  1) the free prize, gift or other incentive is offered through a manufacturer’s program or a manufacturer’s authorized and approved dealer advertising association without any participation by the dealer, excluding dues or assessments that are required to participate in the advertising association. The program or association shall be clearly and conspicuously disclosed; and

  2) all material terms and conditions relating to the offer are clearly and conspicuously disclosed at the outset of the offer.

 

While Black Friday is a time when other general retailers with fixed prices offer free promotions, Illinois dealers are prohibited by rule 475.590 from advertising or offering free prizes, gifts or other incentives in connection with the purchase or lease of a vehicle because the price is arrived at through bargaining or negotiation.   

"This rule is very broad," Kelly said. "It covers anything a dealer advertises or offers for free or included or any other expression of that notion."

 

In past years, Kelly said the BBB has seen offers that included electronics, smart phone items and remote starters.   The list, she said, is as long as the imagination.

"We have also seen contests, such as wheel spins, that purport to be independent of sales and include ‘no purchase necessary’ language," she said. "But consumers and BBB ‘shoppers’ have reported that dealer staff told consumers at the store of a different standard.   Consumers who win a wheel spin free item, for instance, are told they must buy or lease a vehicle to obtain the prize."

The BBB seeks to assist dealers in thinking about their Black Friday promotions in line with rule 475.590. The BBB has referred dealers in the past to the office of the Illinois attorney general under the BBB/CATA advertising review program because of free promotions during Black Friday events.  "Violations of rule 475.590 are considered zero tolerance issues per the CATA Board of Directors and we take these issues very seriously," Kelly said.

Therefore, the BBB hopes that dealers consider their Black Friday promotions carefully with this rule in mind.  As always, the BBB is ready to assist CATA members by reviewing their advertising content prior to publication to ensure compliance with rule 475.590.  

"We wish dealers good sales in the coming weeks, as the holidays approach," said Kelly. "Our intent, as always, is to encourage a level playing field in usual times and in the times we are having now.  

"We hope that all dealers consider their promotions for Black Friday with these principles in mind."