What's Ahead for Auto Dealers in 2018?

With another year of record sales having passed, auto dealers now are looking ahead to the rest of 2018. Early forecasts from the National Automobile Dealers Assn., Cox and Edmunds predict that even though a decrease in new-vehicle sales is expected, a robust and stable year lies ahead.

On the regulatory end, dealers will need to pay attention to the actions of the Consumer Financial Protection Bureau (CFPB) as well as the Federal Trade Commission (FTC) throughout the year as they enforce stricter oversight.

Read on for an overview of the trends and challenges facing auto dealers this year. According to NADA’s 2018 U.S. sales forecast, new car and truck sales will slightly decline from last year’s total of 17.2 million to about 16.7 million.

As NADA senior economist Patrick Manzi explains, the slight drop is partly due to increases in interest rates, which the Federal Reserve will raise this year, increasing loan terms and higher transaction prices. A jump in late-model used cars coming off leases also is a factor in falling new-vehicle sales.

Yet, backed by steady economic and labor-market growth, consumer spending power is up. Drops in deliveries of new vehicles thus are expected to be matched by increases in used-car sales. The total used-vehicle market is expected to exceed 40 million sales this year, with 15.3 million used vehicles being sold by new-vehicle dealerships.

Greater entry of plug-in and hybrid vehicles is also on the map. According to Edmunds, the latter could grow from 3% in 2017 to about 4.4% in 2018.

The Trump Admin.’s tax-reform bill, signed into law Dec. 22, also is expected to give the industry a boost, further helping dealers adjust. Moreover, as consumers shift from sedans toward light trucks, SUVs and crossovers, all of which offer more utility, dealership profits will remain high. Light trucks are likely to top 65% of the market in 2018.

What about regulations? Will auto dealers face any regulatory constraints this year?

Regulatory and Compliance Trends

In terms of compliance, auto dealers can expect a number of new developments over the course of the coming year. According to Dealertrack’s new edition of its Compliance Guide, this year the CFPB is expected to amp up its examination of auto-dealer transactions under the Larger Participant Rule, which it adopted in 2015.

With auto loans being the third-largest type of household debt in the U.S., the CFPB’s aim is to ensure all deals involving nonbank auto financing will be up to standards. This includes clear auto-financing terms, providing accurate information to credit bureaus, fair lending practices and more. An additional effort in that direction by the Bureau likely will be to safeguard auto-dealer compliance with federal consumer credit protection laws.

The FTC’s scrutiny of “yo-yo” financing schemes, which made headlines over the past year, also is expected to continue this year, according to Dealertrack. In yo-yo financing, a customer takes possession of a vehicle before a loan is formally approved, but is then contacted by a dealer who says the loan rate went up. Sometimes it’s legit, other times not.

Along with this, the Commission may begin targeting instances of nondisclosure of applicable safety recalls for vehicles at dealerships.

Specific regulatory changes targeting auto dealers this year are increases in at least two states in the amounts of auto-dealer surety bonds. As of Jan. 1, dealers in Oregon and Illinois have been required to post bonds in higher amounts to remain licensed.

Oregon auto dealers now must post a $50,000 dealer bond, up from the $40,000 bond required previously. Dealers of motorcycles, mopeds, all-terrain vehicles and snowmobiles in the state also have seen an increase – the new requirement being a $10,000 bond.

In Illinois, motor-vehicle dealers now must also post a $50,000 bond when applying for a license or renewing their current license, whereas remittance agents must post a bond of at least $20,000 (which may increase further, based on remittances for the fiscal year).

While bond increases in other states do not seem to be planned currently, the above two instances follow a general trend of state jurisdictions imposing stricter licensing requirements on auto dealers.

What are your thoughts on the sales and regulatory trends for auto dealers in 2018? Would you add anything to the above? Let us know in the comments!

Vic Lance is the founder and president of Lance Surety Bond Associates.