NADA Shifts Into Crisis Mode, But Is It Doing Enough?

Special Coverage

NADA Convention & Exposition

Since its inception in 1917 to fight a proposed 5% luxury tax on passenger vehicles, the National Automobile Dealers Assn. has been remarkably effective in carrying out its mission of protecting and preserving the automotive-franchise system.

For the most part, the trade association has been able to run on cruise control, only mashing the pedal once in awhile to stay ahead of potential threats to its constituents. It was a fairly predictable existence: sales downturns every 10 or 12 years; occasional problems with an auto maker; staving off legislation that would hurt dealers; and designing programs to help improve dealer image and profitability.

But the auto industry suddenly has become frighteningly unpredictable. NADA has been forced to shift into a higher gear, although some members say it needs to be faster, yet – as the credit collapse and subsequent problems of General Motors Corp. and Chrysler LLC threaten to overtake the group and do irreparable damage to its dealers.

Some dealers tell Ward's they believe NADA should have responded faster, more vocally and more effectively to the industry crisis of the last several months.

Many of their observations are fair, but the reality is the association's actions very likely kept the U.S. auto industry from collapsing and probably bought GM and Chrysler more time to find ways to survive, in the process saving thousands of dealerships.

Incoming Chairman John McEleney admits he has heard the criticism but says the association was “engaged quickly and quietly.” Behind the scenes, NADA President Phil Brady and other NADA officials were meeting with the White House, the U.S. Dept. of Treasury and the Small Business Admin. to craft ways to free up credit for dealers.

Incoming Chairman John McEleney.

NADA recognized early on the potential danger posed by a collapse of the credit markets. Association officials lobbied Congress hard in September, supporting passage of Treasury Secretary Henry Paulson's $750 billion Troubled Assets Relief Program, designed to bail out financial institutions following the collapse of Lehman Brothers, Merrill Lynch and AIG.

In fact, Sen. Harry Reid (D-NV) mentioned the dealerships that would go out of business in his state if the TARP was not passed during the Senate debate.

The problem is, not all NADA's actions were public, creating a perceived lack of communication from the association early on.

Despite its early involvement in the TARP negotiations, it appears NADA didn't begin shifting into high gear until November. At the very least, its responses left dealers feeling underwhelmed and wondering what NADA was doing.

But in some cases, NADA moved too fast. On Oct. 29, Brady hand-delivered a letter to the White House calling for refundable tax credits for vehicle buyers, restoring the deductibility of interest on consumer auto loans and funding state “cash for clunkers” programs that encourage consumers to upgrade to newer vehicles.

NADA put the letter together fairly quickly. Brady invited Cody Lusk, president of the American International Automobile Dealers Assn., and Damon Lester, president of the National Association of Minority Automobile Dealers, to NADA's headquarters ostensibly to talk about the letter.

Instead, when Lester and Lusk showed up, Brady showed them a finished letter, telling them he was delivering it to the White House that day.

Additionally, Chairman Annette Sykora appeared at a press conference held at a MileOne Automotive-owned dealership the week of Nov. 14, supporting Sen. Barbara Mikulski's (D-MD) “The Mikulski Auto Ownership Tax Assistance Amendment.” The bill proposes all sales/excise tax and the interest paid on automotive loans be made deductible for new car and truck purchases between Nov. 12, 2008, and Dec. 31, 2009. The proposed legislation since has been updated and is being co-sponsored by Sen. Kit Bond (R-M). It still is in play, Brady tells Ward's.

To be fair to NADA, no one predicted the speed or depths to which car sales would plunge last year. It was inconceivable deliveries would fall 2.9 million units, with much of the decline occurring the last four months of the year.

Nor did anyone fully understood the danger GM and Chrysler were in until early November.

NADA was in a dilemma. Its members needed money, but it was becoming increasing clear to officials in the days leading up to the first round of the auto makers' Congressional hearings in mid-November that bailout fatigue was setting in.

Certainly, NADA needed to be represented at the hearings, but the question was how to ask for money without getting lumped in with the auto makers.

The association developed a strategy that called for Sykora to testify on behalf of the auto makers, but not ask for money for the dealers. “We wanted to be part of the solution, not seen as part of the problem,” she says.

Brady says the highest priority was to bring stability to the Detroit Three and consumer confidence. “The best chance at getting that (bridge-loan) passed was to have the least complicated and most straightforward legislation we could put together,” Brady says. Dealers would have created confusion if they also had asked for money.

Still, Sykora raised some dealer eyebrows when she told the Senate she was not there to ask for money for the dealers, but rather to support the auto makers.

NADA officials, meanwhile, were working feverishly behind the scenes meeting with the White House, Treasury, Congressional members and the Small Business Admin. to craft policies to stimulate car sales and generate floor-plan assistance for dealers.

One such measure was to free up money from the SBA for dealers by changing the definition of a small business. The current definition is based on a business' annual revenue or gross receipts. Only dealerships with less than $29 million in yearly sales are eligible for SBA loans.

While many dealerships operate as small, family-run operations, their revenue (an average of $33 million) far exceeds the standard set by the SBA, primarily because vehicles are big-ticket items.

NADA now is asking the SBA to base dealer-loan eligibility on the number of employees, rather than revenue. The group says it is confident the SBA will come through, but the measure has been held up due to the changing of White House administrations.

Perhaps, the most important measure NADA has helped craft is the $200 billion Term Asset-Backed Securities Loan Facility (TALF) established by the Federal Reserve. Ultimately, TALF, when it kicks in at the end of January, will start freeing up credit for consumers and small businesses.

The main reason credit is frozen is the unwillingness of the larger financial institutions to securitize loans. TALF will facilitate the issuance and sale of securitized loans, including auto loans. Treasury will provide $20 billion of credit protection using funds from the TARP to the Federal Reserve in support of TALF.

A huge victory for NADA is the fact that TALF is including floor-plan financing for dealers as part of the loans it will securitize.

The lobbying effort prior to the second round of GM's and Chrysler's Congressional testimony in December is perhaps the most public action NADA has undertaken during the crisis.

NADA flew more than 150 dealers and state-association directors to Washington on Dec. 9 to lobby Congress for the bridge loans. Five of six CEOs of the public dealer groups also participated. It was an intense few days, with dealers organized into teams to visit the appropriate congressional members.

The effort ultimately failed, and some dealers have expressed concern that NADA is losing its effectiveness. NADA officials admit they were surprised their lobbying effort failed but say the work paid off in the end because the government ultimately stepped up and provided the money.

The fact that the loan bill passed in the House of Representatives and garnered numerous votes in the Senate gave President Bush the cover he needed to provide the money, says Andy Koblenz, NADA's vice president-legal and regulatory affairs.

NADA also believes the lobbying helped it make significant headway in educating Congress, various Federal agencies and the media about the importance of the automotive-retail system.

NADA officials, along with Sykora and McEleney, tell Ward's they reject the idea the association could and should have done more. Still, they admit there are serious challenges ahead in the short term, including a significant downturn in membership along with revenue, and that the group is going to have to adapt to better serve its members.

McEleney in 2007 created a committee to find ways for NADA to meet its constituents' needs, but tabled it as the nation's economic crisis unfolded and became the issue of the day.

Nevertheless, there likely will be a lot of debate at NADA this year, along with some lively and spirited board of directors' meetings.

Ed Tonkin, vice president-Ron Tonkin Automotive Group, decided late last year to run for vice-chairman because change needs to happen at the association, he says. It's likely he'll be the chairman in 2010. His win was somewhat of a surprise, dealers tell Ward's, and probably is creating some anxious moments for NADA officials.

Tonkin's election means there are board directors who would like to see NADA adopt a more vigorous and public defense of dealers. Tonkin is passionate and willing to share his opinion, which means he has to be careful he doesn't overshadow the quieter McEleney this year.

Dealers who have worked with McEleney say he often keeps his thoughts to himself, but is smart and tough. One dealer, though, says it's one thing for the association to talk, and another to get real work done.

To describe the situation as a rift is too strong of a term, say some of NADA's directors. There may be different opinions, but they all are working toward the same goal – protecting the car dealer.

The combination of McEleney and Tonkin could be a powerful one-two punch if they work together this year.

“We need to be a stronger advocate on behalf of the dealers,” Tonkin says. “We need to press for action right now. More than at any other time, the dealer represents strong equity and has more leverage.”

NADA's short-term goal the next few weeks is to make sure it is part of discussion the auto makers have with the Obama Admin. The group needs to make sure cutting dealers are not part of any auto maker's restructuring plans. “If you're not at the table, you're on the menu,” Tonkin says.

Other areas that have to be addressed is the 2-tier pricing some auto makers quietly are engaging in, setting dealer against dealer. “It's a divide-and-conquer strategy,” one dealer says.

Communication is another challenge for NADA, one that is frustrating. Some dealers say the association needs to do a better job of letting its members know what's being done for them. “You can't make them (members) read their emails,” laments one official.

Michelle Primm, an Ohio dealer and a NADA director, says NADA has to find ways to get in front of the decision makers at the dealership level. “It's the same challenge we have in the showroom and service departments – getting in front of our customers,” she says.

Jimmy Gray, owner of Jimmy Gray Chevrolet in Mississippi, says NADA was great last year.

“I think they are very valuable, especially with the information they've been getting to us and with the lobbying efforts that NADA did during the hearings,” he says. “They really coordinated their lobbying efforts with their dealers. It was very effective. Ms. Sykora testified on Capitol Hill, and I think she did an excellent job.”

NADA also will have to find ways to reduce some of its bureaucracy, say some members. “It's become an 'ole boys' network,” complains one director.

With 62 board members and numerous committees, NADA sometimes moves slowly, but the events of last year have shaken some of that up. With a younger and newer board, it should be less an issue moving forward.

Sykora's stint as the youngest and the first woman to run NADA also has helped.

As with anything, there is always room for improvement. But NADA has and will continue to be a force to be reckoned with, both for auto makers and on Capitol Hill.

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