What’s Hillary Clinton Got To Do With It?

The program billing says National Automobile Dealers Assn. Chairman David Westcott “will offer a spirited defense of the indirect financing model.” He does that, then opens the floor to questions.

First question from an attendee of the F&I Conference and Expo in Las Vegas: “Why is Hillary Clinton speaking at the NADA convention?”

Well, so much for the pressing issue that a relatively new government agency might muscle banks to end the practice of letting dealers tack on a percentage point or two to auto-loan rates. Called dealer reserve, it is the centerpiece of indirect financing whereby dealers as middlemen facilitate car-buying credit, as they do 80% of the time.

A lot of people beefed a couple of months ago when NADA announced Clinton will deliver a keynote speech at the trade group’s annual convention in January. Obviously, some still are stewing.  

Clinton is a former First Lady and immediate past Secretary of State. She also is an unofficial Democratic candidate for the 2016 Presidential election. The latter is what has some critics continually asking why NADA, with a largely Republican membership, would tap her as a convention speaker.

Westcott, a Southern gentleman from North Carolina, begins to answer the question by noting past NADA keynoters have included public figures such as Bill Clinton, both George Bushs and former Secretary of State Condoleezza Rice.

The questioner at the floor mike interrupts the NADA chairman’s answer. “This speaker is running for president,” he says of Hillary Clinton, who actually hasn’t said she is running but is doing a lot of stretching exercises. “It sounds like you are endorsing her.”

“This is a top-level speaker,” Westcott says before giving up and going on to other questions. Those deal more with the topic of his conference speech about why the indirect-financing model is great for everybody: the market, customers and dealers; so what’s the government’s problem?

“The financing model has worked for a century but now it is being threatened,” he says, referring to the Consumer Finance Protection Bureau’s disdain of dealer reserve.

The CFPB indicates the practice possibly contributes to disparate impact, or alleged unintended patterns of discrimination. The bureau prefers flat fees as a way to pay dealers for helping customers get loans from third-party lenders.

Maybe it is my junior high school debating club experience, but I could argue both sides of the issue.

In defense of dealer reserve, the average add-on is less than 1%. It is a fallacy to assume a car buyer would get a lesser loan rate with dealer reserve out of the picture.

Lenders offer dealers wholesale rates. In turn, dealers offer customers retail rates. The wholesale rate is not available to consumers, any more than someone can drive into a BP service station and request the wholesale rate for gasoline.

In defense of flat fees, they could solve a lot of problems, simplify things and eliminate dealer defensiveness.

At last year’s F&I Conference and Expo, Tyler Corder, CEO of the Findlay Automotive Group dealership chain, said he thought flat fees were coming and dealers could live with them.

But Westcott says, “Having the government push everyone to this model isn’t a good idea.” He may be right about that.

He also says, “Some people don’t understand dealer-assisted financing.” He’s definitely right about that. Some consumer advocates have portrayed the dealer-reserve system as akin to street muggings.

After Westcott’s speech entitled, “Preserving the Benefits of the Indirect Financing Model,” attendees talk about the pros and cons of it and also wonder why the heck the government is stepping into it. They also talk about the guy with the Hillary Clinton question.

“I didn’t think the question necessarily was rude, however it was asked rudely,” says one attendee.

Another says: “Yeah, but he’s right. She is running for president.”