Crisis Control Off NADA’s Agenda This Year

Crisis control isn’t on the agenda for David Westcott, who becomes chairman of the National Automobile Dealers Assn. next month.

Some of his predecessors of the past few years found themselves dealing with dire recession-related issues such as dealer survival, as vehicle sales went into a free fall.  

Things are better now: Credit is flowing again. Economic indicators such as higher employment and housing values bode well for vehicle sales. Gas prices are reasonably stable. More than 43 new models are expected to roll into showrooms in 2013. WardsAuto predicts light-vehicle sales of 15 million for the year.

Still, Westcott assumes the leadership of a 16,000-member trade organization that has a lot on its mind.

High on NADA’s list of concerns are some auto makers’ stair-step incentives in which some dealers get more auto maker financial support than others, depending on hitting sales targets. Critics say that allows some dealers to sell cars at lower prices, causing unfair competition. 

NADA will join with state dealer associations to try to legislatively combat these programs, says Westcott, 66, owner of David Westcott Buick GMC Suzuki in Burlington, NC. His store sells about 1,200 vehicles per year. He has been a new-car dealer since 1981.

He says auto makers have been receptive to NADA’s desire for flexibility in facility upgrade programs, but problems remain.

WardsAuto talks with Westcott about what he expects upon becoming NADA chairman Feb. 10 at the annual NADA convention in Orlando.

WardsAuto: Among others, former U.S. Defense Secretary Robert Gates and astronaut Mark Kelly will speak at the convention. Why did you select them and what do you expect them to say?

Westcott: We select speakers who are global leaders and are inspiring. What they talk about will be topical. Robert Gates, who has served eight U.S. presidents over his career, will discuss global politics and U.S. foreign policy.

Our inspirational speaker, Mark Kelly, was the commander of space shuttle Endeavor’s final mission and is the husband of former U.S. Representative Gabrielle Giffords, who survived an assassination attempt after being critically wounded by a gunman in Arizona.

WardsAuto: Current NADA Chairman Bill Underriner has singled out two major issues that impact dealers: two-tier pricing (stair-step incentives) and mandatory facility upgrades. Will these be front-burner issues in your administration as well?

Westcott: Two-tier pricing and mandatory facility upgrades are symptoms of a bigger overall problem: manufacturer intrusion into dealers’ businesses. Two-tier pricing is a critical issue, and NADA will continue its discussions with manufacturers.

It can unfairly create real competitive disadvantages for some dealers and cause customer confusion and dissatisfaction in the marketplace. I recently surveyed our 63-member board of directors, who represent dealers nationwide, and their feedback was that 2-tier pricing is at the top of their list of concerns.

We have to be cautious when talking about 2-tier pricing, because we’re not suggesting that incentive payments go away. We’re suggesting that incentive programs be fair and equitable to all dealers, large and small. That’s critical, because NADA represents all dealers from the largest to the smallest.

The facilities issue is another major concern. As Bill Underriner stated in his remarks to the Automotive Press Assn. in Detroit last October, facility-image programs have to be flexible.

Auto manufacturers that build flexibility into these programs have more success. When programs are not flexible and don’t consider local conditions, there’s a much higher likelihood of pushback and controversy.

WardsAuto: What recommendations have come from the Industry Relations Task Force formed earlier this year and headed by NADA Vice Chairman-elect Forrest McConnell III?

Westcott: On the manufacturer facility-image programs, we suggested a number of approaches, such as offering small dealers the option of completing only the exterior elements of the program; changing the payout formula in a way that would allow small dealers to at least cover the cost of required renovations; and providing small dealers more flexibility in making renovations.

To address the issue of stair-step incentive programs, we launched an aggressive media strategy to lay out why these programs are harmful to the industry and cause customer confusion and brand erosion. We’re also working with dealer associations across the country to develop effective state legislative proposals to combat these programs.

WardsAuto: NADA has met with more than a dozen OEMs to discuss the results of the facility-upgrade study. What has been their reaction? Do they appreciate your position? Are they willing to compromise?

Westcott: Generally, the reception of the OEMs was very good. One major OEM actually waited for the results of the study to fine-tune their program. Even the skeptics were impressed with the balanced and objective approach of the study and the professionalism of our researcher, Glenn Mercer, a longtime automotive consultant.

It’s fair to say that the study added to a more rational discussion on facility upgrade programs. Our hope is that OEMs, in the future, will recognize that a one-size-fits-all approach is not the best way to go forward.

WardsAuto: NADA has met with electric-car maker Tesla to discuss your concerns that it violates state franchise laws because it effectively sells cars directly to consumers using the Internet. What is the current status of those discussions?

Westcott: We met with the top executives at Tesla Motors back in November. While we can’t discuss the specifics of the meeting, we can say it was constructive and positive, and opens the door for ongoing dialogue.

We are firm believers in the franchise system. Relying on individual entrepreneurs has proven historically to be the best way to sell, service and distribute cars. Tesla has a different business model for their company and the way they sell their vehicles. Every other major manufacturer relies on its dealer network. And there’s a good reason: The franchise system is tried and true.

WardsAuto: NADA has donated $1 million to jump start emergency relief in the aftermath of Hurricane Sandy. What have you done to protect dealers and consumers from flood-damaged vehicles creeping into their inventory?

Westcott: NADA, individual dealers and state and metro dealer associations contributed $1.5 million to emergency relief, and 537 dealership employees, mostly from New York and New Jersey, have received $338,700 in relief assistance from the NADA Foundation.

Our goal is to eliminate totaled vehicles from used-car commerce. We don’t want rebuilt wrecks on our lots. NADA is pushing to ensure that all insurance companies are permanently red-flagging flooded, severely damaged and stolen vehicles by making the VINs publicly available in a timely manner. Some insurance companies already do so, and some do not.

WardsAuto: Where and how is NADA spending most of its lobbying effort?

Westcott: Taxes. The estate tax remains the No.1 tax issue for dealers. Our goal is a permanent solution that does not threaten jobs or family-run businesses. Comprehensive tax reform is on the table in Washington in 2013, and NADA will be very much involved in that entire process.

Protecting the LIFO (Last In, First Out) accounting method that is utilized by about 50% of dealerships is high on the list. Repealing it would amount to a business-crippling tax hike.

On the regulatory front, NADA will continue to explain the extraordinary benefits that dealer-assisted financing provides, and we will closely monitor government activity that could directly or indirectly hurt a car buyer’s ability to find affordable financing.

WardsAuto: It would seem the fiscal cliff agreement that raised the estate tax rate to 40% from 35% in 2012 would be problematic.

Westcott: A return to a 55% rate and a $1 million exemption would have created havoc for dealerships faced with a transition triggered by a death in the family. The 40% rate and the $5 million, inflation-adjusted exemption approved by Congress solidified some permanent gains despite extreme budget-related challenges.

As Congress considers comprehensive tax reform, NADA will engage on the estate tax to help dealers preserve the working capital necessary to grow family businesses and create jobs.

WardsAuto: What progress have you made on the issue of corporate average fuel economy standards going to 54.5 mpg (4.3 L/100km by 2025)? What impact will these rules will have on car sales?

Westcott: NADA was very successful in changing the debate on fuel economy to recognize the role of car and truck buyers and the cost associated with these increases. Dealers have long supported improvements in fuel economy, but we strongly believe that government regulation should not price people out of the market.

NADA seeks to cut expensive regulations that prevent dealers from growing their businesses and creating jobs. Our first goal will be to identify the rules that are most costly and then to find the most effective way to eliminate or reduce their impact on our dealerships and employees.

WardsAuto: Have new- and used-vehicle sales in 2012 met your expectations? What are NADA’s projections for 2013 sales?

Westcott: Low interest rates on auto loans, an aging fleet of vehicles on the road that need to be replaced, declining gasoline prices and exciting new vehicles on display at U.S. auto shows are all positive signs for the auto industry. Paul Taylor, our chief economist, predicts that new-car sales in 2013 will be better than 2012, up nearly 1 million cars and light trucks.

WardsAuto: Are you seeing broad consumer acceptance of hybrid and electric vehicles?

Westcott: Sales of hybrid and electric vehicles vary by region of the country. Consumer acceptance differs on the West Coast compared with the Midwest.

Overall, the higher cost of these vehicles compared with conventional powertrains and battery range have limited the sales of electric vehicles. Combined sales of hybrid and electric vehicles still account for less than 3% of total new-vehicle sales in the U.S.

WardsAuto: Mobile technology and social media are influencing the car-buying process. How can NADA help its members take advantage of these assets?

Westcott: The workshop program at our convention, and later hosted online through NADA University, provides a strong lineup of programs specifically to address the use of mobile technology and social media, as well as how to engage with the customers in their 20s and 30s whose use of these technologies is second nature.

Programs like “Digital Moments That Matter” address how to use mobile and social media to build relationships with the customer before, during and after the purchase process.

WardsAuto: How has NADA helped you personally as a dealer?

Westcott: My first interaction with NADA goes back many years, from learning ways to improve business operations after attending the NADA convention workshops and shopping the expo floor. NADA is constantly providing dealers with updates on industry, legal, legislative and regulatory issues. Closer to home, my son graduated from the NADA Dealer Academy about eight years ago.

WardsAuto: What results jumped out at you from NADA’s recent Dealer Workforce Study?

Westcott: We were pleased to see that, on a national level, dealerships are doing a better job of attracting and retaining most of their employees compared with other industries. However, the study also shows that we have some significant challenges to address in key positions.

We need to do a better job of retaining sales consultants in all areas of the country, as well as sales managers, finance and insurance directors and managers, and service advisors in certain regions. We know how important it is for our industry to meet those challenges, as the study confirms the positive correlation between tenure and new- and used-vehicle sales.