Was 2016 Good Year for Auto Dealers?

For auto dealers 2016 has been a fairly stable year, occasionally marked by ups and downs. October was the third consecutive month with falling car sales, yet November defied expectations and saw numbers that put the industry within reach of record volume for a second straight year.

That, alongside a stable economy and positive predictions from industry experts, for now has abated concerns that any significant drop in car sales can be expected in the coming year.

Here’s a look at how auto dealers did in 2016, what regulatory changes were introduced and what can be expected in the coming year.

2016 Results and 2017 Expectations

Although 2016 saw some months of falling car sales, the overall picture is positive. Depending on December sales, the U.S. industry may end up with record sales for a second year in a row.

In its midyear report the National Automobile Dealers Assn. noted a slight preference shift toward used cars, with new-car sales dropping somewhat. In 2017, new-vehicle sales are expected to reach a healthy plateau and level off in response to the saturated and mature market. In terms of the types of cars being sold, 2016 has seen light trucks take the lead, while car sales have dropped. NADA expects this trend to continue, with light-truck sales accounting for about 60% of the market next year and continuing to rise.

NADA also reported midyear employment at dealerships had topped 1.1 million, on a par with 2015 levels, while average dealership employment had risen from 67 in 2015 to 69. Future data from NADA will show whether those trends continued throughout the year, though the report predicted an all-time high employment in dealerships by the end of 2016.

Another development for auto dealers in terms of employment has been the ongoing shift in generational demographics. In 2016, 60% of all new hires were Millennials, a 3% increase over last year. Millennials now account for about 42% of the total dealership workforce in the U.S. This is due to increasingly greater work schedule flexibility as well as payment plans that match that flexibility.

Legislative and Regulatory Developments

A noteworthy regulatory change for auto dealers this year is the Federal Trade Commission’s revised Used Car Rule concerning the “Buyers Guide” that car dealers must display on used cars offered for sale.

As of Nov. 10, the amended Used Car Rule is in place, though dealers are being given a full year to use their remaining stock of old Buyer Guides. The rule has been amended to require used-car dealers to include information disclosing whether the car is on sale “as is” or with a warranty. If a warranty is included, the Guide must include information on the duration and terms and conditions of the warranty, the percentage of total repair costs covered and which specific vehicle systems are backed by the warranty.

On a different note, in September the FTC took issue with a number of Los Angeles-area car dealers who were making use of so-called “yo-yo” financing tactics. These practices apparently aimed at pressuring buyers to accept unfavorable deals.

Other practices by this group of dealers challenged by the FTC highlight the need for transparent and professional dealership practices. Such transgressions are the reason some states have taken the somewhat unpopular regulatory measure of increasing dealer bond requirements in 2016.

Bond Amount Increases in 2016

Three states, Iowa, New York and Louisiana amended their auto dealer bond requirements in 2016.

In April, Iowa increased its required auto dealer bond amount from $50,000 to $75,000. As of July 1 auto dealers in the state have been required to post such a bond when applying for or renewing a dealer license.

In May, Louisiana bumped up its auto dealer bond amount to $50,000. Previously amounts for dealer bonds in the state differed according to the volume of sold vehicles, but as of Aug. 1 all dealers have been required to obtain a $50,000 bond, regardless of their sales volumes.

New York followed suit in September when it increased its bond amounts to $20,000 for dealers who had sold up to 50 vehicles in the previous year and $100,000 for dealers who sold more than 50 vehicles the previous year. New dealers are required to obtain a $20,000 dealer bond. These requirements come into force March 28.

The rationale behind these increases largely has been explained by the necessity for bond amounts to match the weight of potential claims that may arise. If a history of insufficient compensation is established, this often leads to the rise in surety bond amounts that are intended to protect consumers from deceptive business practices.

What's your take on the industry and where it is going? Do you see it growing? Are there other changes that took place and deserve to be mentioned here? Let us know in the comments section; we’d be happy to hear your take on this.

Todd Bryant is the president and founder of Bryant Surety Bonds.