2015 December Massachusetts Auto Dealer

MSADA, One McKinley Square, Sixth Floor, Boston, MA 02109

auto M a s s a c h u s e t t s

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December 2015 • Vol. 27 No. 12

Going National

Next Level Leadership

The official publication of the Massachusetts State Automobile Dealers Association, Inc

Taking Every Opportunity

Dealers Are Catalysts for Change

Victory Revisited A Bright Outlook

The New Generation

2015

We Bring Communities Together

Business is

Good

Benchmarks of Dealership Values

Strength in Numbers

The Never-Ending Reach of the Government Arm

The Cutting Edge

Fostering the Future

Unbreakable Bonds

Countering Congress

Pushing Forward Standing Tall Together

Snow and Slow

Winning Legacy

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S t a ff D i r e c t o r y Robert O’Koniewski, Esq. Executive Vice President rokoniewski@msada.org Jean Fabrizio Director of Administration jfabrizio@msada.org Peter Brennan, Esq. Staff Attorney pbrennan@msada.org Marta Argueta-Guerra Administrative Assistant/ Membership Coordinator mguerra@msada.org Auto Dealer MAgazine Robert O’Koniewski, Esq. Executive Editor Catherine MacDonald Editorial Coordinator macdonaldcs8@gmail.com Subscriptions provided annually to Massachusetts member dealers. All address changes should be submitted to: MSADA by e-mail: mguerra@msada.org Postmaster: Send address change to: One McKinley Square, Sixth Floor Boston, MA 02109 Auto Dealer is published by the Massachusetts State Automobile Dealers Association, Inc. to provide information about the Bay State auto retail industry and news of MSADA and its membership.

Ad Directory Blum Shapiro 25 Boston Herald 36 Ethos Group 2 G&M New England LLC 26 Leader Auto Resources 17 Lynnway Auto Auction 26 Nancy Phillips 25 O’Connor & Drew, P.C. 35 Reflex Lighting 22 Reynolds & Reynolds 11 Southern Auto Auction 24

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The official publication of the Massachusetts State Automobile Dealers Association, Inc

Ta b l e o f C o n t e n t s

4 6 9 10

From the President: Looking Ahead to 2016 THE ROUNDUP: Government Grinds It Out Through the Holiday Season LEGISLATIVE SCORECARD TROUBLESHOOTNG: The Zero Emission Vehicle Mandate and You

12 AUTO OUTLOOK 14 SECURITY: Looking into the Future 15 Dealer Services: What Got You Here May Not Get You There 16 LEGAL: Five Things to Keep in Mind as 2016 Begins 18 Cover Story: The Year in Review

22 27 28 30 32 34

NEWS From Around the Horn ACCOUNTING: Closing the Deal SOUND OFF: Marketing to Today’s Demographics nada Market Beat nada update: Facing Forward SOUND OFF: General Managers Can Still Become Great Dealers

ADVERTISING RATES Inquire for multiple-insertion discounts or full Media Kit. E-mail jfabrizio@msada.org Quarter Page: $450 Half Page: $700 Full Page: $1,400

Back Cover: $1,800 Inside Front: $1,700 Inside Back: $1,600

Join us on Twitter at @MassAutoDealers www.msada.org

Massachusetts Auto Dealer DECEMBER 2015

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from the President

MSADA

Looking Ahead to 2016 Facing challenges new and old

By Scott Dube MSADA President

W

ith 2015 now in the record books, it’s time for us to reflect on the challenges and successes of the past year and look ahead to where our industry is heading.

MSADA is here to protect the interests of our member dealers on a small scale and at an industry-wide level. All these efforts come together when we face a challenge like how to fight back against a policy disaster, such as what our Senator Elizabeth Warren is proposing year after year. As an architect of the Consumer Finance Protection Bureau, she continues to set her sights on erasing the compromise forged by our own leadership and Rep. Barney Frank back in 2010 and doesn’t care if she has to lie to get her agenda pushed forward. Here’s an important statement from the Senator that came just six months ago: “One study estimates that these auto dealer markups cost consumers $26 billion a year. Auto dealers got a specific exemption from CFPB oversight, and it is no coincidence that auto loans are now the most troubled consumer financial product.

Congress should give the CFPB the authority it needs to supervise car loans – and keep that $26 billion a year in the pockets of consumers where it belongs.”

This assertion is patently false, and it shows the work that remains in promoting and protecting our industry from those who simply refuse to work to understand it.

We’re going to have our work cut out for us over the next year, and unfortunately Massachusetts continues to be ground zero for too many of the policy battles that could disastrously affect auto dealers across the country.

But among the many things I’ve learned during my tenure as MSADA President so far, I’ve seen that we’re a dedicated bunch. We aren’t going to let one senator waging a one-person war derail sound policy. We are going to continue working together to make sure the voice of small businesses doesn’t get lost in the hot air that seems to flow so easily from some of our elected representatives.

As always, as we continue to work for you, we continue to rely on your help as well. Hopefully, when you see the stakes we’re fighting against, you will think about how you can contribute to our efforts in the next year. I’m always willing to help a dealer figure out what makes sense for him or her should there be any questions. I’d be more than happy to speak with you at our MSADA New England International Auto Show Charity Gala and Dealer Summit in just a few weeks. Please see Executive Vice President Robert O’Koniewski’s column on page 6 for more details on the events that day.

Before that event comes, please take some time to enjoy time with your family over these holidays. They are, after all, why we do what we do every day. On behalf of the MSADA family, I’d like to wish you all a Happy New Year. t

DECEMBER 2015

Massachusetts Auto Dealer www.msada.org

Msada Board Barnstable County

Brad Tracy, Tracy Volkswagen

Berkshire County

Brian Bedard, Bedard Brothers Auto Sales

Bristol County

Richard Mastria, Mastria Auto Group

Essex County

William DeLuca III, Woodworth Motors John Hartman, Ira Motor Group

Franklin County

Jay Dillon, Dillon Chevrolet

Hampden County

Jeb Balise, Balise Auto Group

Hampshire County

Bryan Burke, Burke Chevrolet

Middlesex County

Chris Connolly, Jr., Herb Connolly Motors Scott Dube, Bill Dube Hyundai Frank Hanenberger, MetroWest Subaru

Norfolk County

Jack Madden, Jr., Jack Madden Ford Charles Tufankjian, Toyota Scion of Braintree

Plymouth County

Christine Alicandro, Marty’s Buick GMC Isuzu

Suffolk County

Robert Boch, Expressway Toyota

Worcester County

Steven Sewell, Westboro Mitsubishi Steve Salvadore, Salvadore Auto

Medium/Heavy-Duty Truck Dealer Director-at-Large [Open]

Immediate Past President James G. Boyle, Tuck’s Trucks

NADA Director

Don Sudbay, Jr., Sudbay Motors

Officers

President, Scott Dube Vice President, Chris Connolly, Jr. Treasurer, Jack Madden, Jr. Clerk, Charles Tufankjian

Associate Members

MSADA A ssociate M ember D irectory Albin, Randall & Bennett Barton D. Haag (207) 772-1981 American Fidelity Assurance Co. Dan Clements (616) 450-1871 American Tire Distributors Pamela LaFleur (774) 307-0707 AutoAlert Don Corinna (505) 304-3040 Auto/Mate Dealership Systems Troy Potter (877) 340-2677 Bank of America Merrill Lynch Dan Duda and Nancy Price (781) 534-8543 Bellavia Blatt Andron & Crossett, PC Leonard A. Bellavia, Esq (516) 873-3000 Blum Shapiro John D. Spatcher (860) 561-4000 Boston Globe Mary Kelly, Tom Drislane (617) 929-8373 Burns & Levinson LLP Paul Marshall Harris (617) 345-3854 Cars.com Heidi Allen (312) 601-5376 CDK Global Chris Wong (847) 407-3187 Construction Management & Builders, Inc. Sarah Macomber (781) 246-9400 CVR John Alviggi (267) 419-3261 Dealerdocx Brad Bass (978) 766-9000 Dealermine Inc. Karen Parmenter (800) 304-3341 x5179 DealerTrack Ernest Lattimer (516) 547-2242 Downey & Company Paul McGovern (781) 849-3100 EasyCare New England Inc. David DeCredico (800) 458-7070 Ethos Group, Inc. Drew Spring (617) 694-9761 F & I Resources Jason Bayko (508) 624-4344 Federated Insurance Matt Johnson (606) 923-6350 First Citizens Federal Credit Union Joe Ender (508) 979-4728 Fisher & Phillips LLP John Donovan (404) 240-4236 Joe Ambash (617) 532-9320

Gulf State Financial Services Bob Lowery (713) 302-5547 GW Marketing Services Gordon Wisbach (781) 899-8509 Hireology Kevin Baumgart (773) 220-6035 Huntington National Bank John J. Marchand (781) 326-0823 John W. Furrh Associates Inc. Kristin Perkins (508) 824-4939 KEEPS Corporation Darcy Silver (718) 309-6133 Key Bank Mark Flibotte (617) 385-6232 KPA Michael Hurd (207) 400-6535 Leader Auto Resources, Inc. Chuck August (518) 364-8723 Lynnway Auto Auction Jim Lamb (781) 596-8500 M & T Bank John Federici (508) 699-3576 Management Developers, Inc. Dale Boch (617) 312-2100 Micorp Dealer Services Frank Salkovitz (508) 832-9816 Mid-State Insurance Agency James Pietro (508) 791-5566 Mintz Levin Kurt Steinkrauss (617) 542-6000 Murtha Cullina Thomas Vangel (617) 457-4000 Nancy Phillips Associates, Inc. Nancy Phillips (603) 658-0004 Northeast Dealer Services Jim Schaffer (781) 255-6399 O’Connor & Drew, P.C. Kevin Carnes (617) 471-1120 Performance Management Group, Inc. Mark Puccio (508) 393-1400 PreOwned Auto Logistics Anthony Parente (877) 542-1955 ProActive Leadership Group Bill Napolitano (774) 254-0383 Quik Video Jack Gardner (617) 221-5502 R.L. Tennant Insurance Agency, Inc. Walter F. Tennant (617) 969-1300

Reflex Lighting Daryl Swanson (617) 269-4510 Resources Management Group J. Gregory Hoffman (800) 761-4546 Reynolds & Reynolds Marc Appel (413) 537-1336 Robinson Donovan Madden & Barry, P.C. James F. Martin, Esq. (413) 732-2301 Samet & Company John J. Czyzewski (617) 731-1222 Santander Richard Anderson (401) 432-0749 Schlossberg, LLC Michael O’Neil, Esq. (781) 848-5028 Sentry Insurance Company Eric Stiles (715) 346-7096 Shepherd & Goldstein Ron Masiello (508) 757-3311 Silverman Advisors, PC Scott Silverman (781) 591-2886 Solect Energy Development Kristen Brandt (781) 733-0223 Southern Auto Auction Tom Munson (860) 292-7500 Sprague Timothy Teevens (800) 828-9427 SunTrust Bank Michael Walsh (617) 345-6567 Taino Consulting Group Herby Duverné (617) 797-9316 Target Dealer Services Andrew Boli (508) 564-5050 TD Auto Finance BethAnn Durepo (603) 490-9615 TD Bank Michael M. Lefebvre (413) 748-8272 TrueCar Pat Watson (803) 360-6094 US Bank Vincent Gaglia (716) 649-0581 Wells Fargo Dealer Services Christopher Peck (508) 314-1283 Wicked Local Media Massachusetts Jay Pelland (508) 626-4334 Zurich American Insurance Company Steven Megee (774) 210-0092

www.msada.org Massachusetts Auto Dealer DECEMBER 2015

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The Roundup

Government Grinds It Out Through the Holiday Season

By Robert O’Koniewski, Esq. MSADA Executive Vice President Follow us on Twitter - @MassAutoDealers

Federal Legislation In its rush to meet certain self-imposed fiscal and holiday recess deadlines, Congress actually passed two fairly comprehensive bills this month that affect dealership operations: a transportation funding bill and a tax overhaul bill.

1. Highway Bill In early December, the president signed into law the “Fixing America’s Surface Transportation Act”, or FAST Act, a five-year, $305 billion funding bill to cover highway, mass transit, passenger railroad, and other transportation activities. The bill also covers the treatment of vehicles with open recalls.

According to the National Auto Dealers Association, “in a win for dealers”, the bill included compromise legislation to ensure that dealers are not regulated the same as large multi-national rental car companies. Under the bill, only those dealers with an average of 35 or more rental vehicles in their fleet over a calendar year would be required to ground recalled rental vehicles until they are remedied. The Senate version would have applied to all dealers with five or more rental or loaner vehicles. U.S. Rep. Roger Williams (RTexas) offered a House amendment to change the flawed Senate bill.

Significantly, another proposal to ground all used vehicle inventory subject to recall by Sen. Richard Blumenthal (D-Conn.) was kept out of the final bill due to the strong grassroots efforts by dealers. A recent study by J.D. Power found that prohibiting the sale by dealers of recalled vehicles while not similarly regulating the private market would hurt consumers by devaluing trade-ins by $1,210, on average.

DECEMBER 2015

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The FAST Act also contains a number of other provisions of interest to dealers: • Dealer Requirement to Check for Open Recall: Requires a dealer to notify the service customer when servicing a vehicle within the dealer’s franchise if the vehicle is under open recall, if the dealer has to do so pursuant to its franchise agreement. Penalty for failing to comply is the dealer is not entitled to “fair reimbursement” for remedying the vehicle.

• Recall Extension: Extends the time a vehicle can be recalled from 10 to 15 years.

• Tire Registration by Sellers: Requires a rulemaking to mandate that tire dealers, including auto dealers who sell tires, transmit customer information to the appropriate tire manufacturers and to maintain records of tire purchasers.

• Consumer Notification Pilot Program: Creates a two-year pilot program for six states to advise owners if their vehicle is under recall at the time of registration.

• Public Awareness Campaign: Authorizes NHTSA to conduct a media campaign to promote having vehicle owners remedy their open recalls.

Finally, in a win for truck dealers, the FAST ACT did not include an increase in the Federal Excise Tax (FET) on most heavy-duty trucks.

2. Tax Bill As we were going to press Congress passed a $622 billion tax bill that will allow dealers and their customers to expense a larger portion of business equipment purchases. The “Protecting Americans from Tax Hikes Act of 2015” will lower taxes and give automobile and truck dealers and their customers certainty to make business

MSADA decisions for these important tax provisions.

These provisions will be of interest to those purchasing passenger automobiles and trucks for business purposes, but those vehicles are subject to limits on the amount that can be deducted under Sec. 179 expensing and bonus depreciation allowances. Key provisions cover: • Extension and modification of increased expensing limitations and treatment of certain real property as section 179 property. The provision permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively). These amounts currently are $25,000 and $200,000, respectively.

The provision modifies the expensing limitation for qualified real property by eliminating the $250,000 cap beginning in 2016.

• Extension and modification of bonus depreciation. The provision extends bonus depreciation for property acquired and placed in service during 2015 through 2019 (with an additional year for certain property with a longer production period). The bonus depreciation percentage is 50 percent for property placed in service during 2015, 2016 and 2017 and phases down to 40 percent in 2018 and 30 percent in 2019.

• There is also an extension of an additional $8,000 in first year-depreciation for certain business vehicles purchased in 2015. This provision provides substantial potential savings for a dealership’s business customers, but in order to use the provision in 2015, they must purchase qualifying vehicles before December 31, 2015.

Dealers are encouraged to consult their tax advisor to determine how to best maximize their potential tax savings. Look for our bulletin on this suject matter.

3. Consumer Financial Protection Bureau Upon the House passage of the CFPB reform bill, H.R. 1737, the Republican Staff of the U.S. House Financial Services Committee released a report entitled

“Unsafe at Any Bureaucracy: CFPB Junk Science and Indirect Auto Lending” that provides a detailed and compelling critique of the Consumer Financial Protection Bureau’s efforts to eliminate dealer participation from the indirect vehicle financing marketplace.

The statistical method the CFPB is using to allege racial discrimination in auto lending is “prone to significant error,” according to internal Bureau documents obtained by the House Financial Services Committee. In addition, internal memoranda reveal that senior CFPB officials warned CFPB Director Richard Cordray of the “weakness” of the controversial legal theory upon which the Bureau has built discrimination cases against auto lenders.

“Notwithstanding the weakness of its case, the Bureau pursued its radical enforcement strategy using ‘unfair, abusive and deceptive’ tactics of its own, including by making an example of a company over which it had significant political leverage and concealing other aspects of its efforts from public scrutiny,” according to the Financial Services Committee staff report.

The report includes the internal CFPB documents the committee obtained during its investigation of the CFPB’s pressure campaign against vehicle finance companies. The CFPB is using a controversial legal theory known as disparate impact to go after companies that help arrange auto financing for car buyers.

The press release is available at http:// financialservices.house.gov/news/documentsingle.aspx?DocumentID=399984.

The report is available at http://financialservices.house.gov/uploadedfiles/11-24-15_cfpb_indirect_auto_staff_ report.pdf.

New State Issues On Beacon Hill our state Legislature remains as active as ever. Here are a few items of interest to dealers that we are working on: • Sunday OT Pay Repeal: House 1752, filed by Rep. Matthew Muratore (Rwww.msada.org

Plymouth), would eliminate the timeand-one-half pay requirement for employees who work on Sundays at retail stores. The bill was reported favorably by the Joint Committee on Labor and Workforce Development and received initial House approval on December 3.

The bill would need a favorable vote to “engross” in the House to then send it to the Senate for consideration.

• Non-OEM Parts and Vehicle Warranties: House 3810, filed by Rep. John Scibak (D-South Hadley), would require dealers to provide car buyers a written notice regarding the use of aftermarket parts in a repair and the potential impact on the vehicle’s warranty.

The notice stated in the bill is misleading and erroneous, and would create a Chapter 93A Consumer Protection Act violation against dealers who do not hand out the notice. The bill was filed on behalf of the Right to Repair coalition partners. MSADA spoke in opposition to the bill at the public hearing by the Joint Committee on Consumer Protection and Professional Licensure on December 1.

• Minimum Wage – How High? Under current law, the state minimum wage is increasing to $10 per hour, starting January 1, 2016. For some labor advocates, however, that is not enough. Senate 1024 has been filed to increase the minimum wage to $15 per hour. It was reported favorably by the Joint Committee on Labor and Workforce Development and is presently in the Senate Ways and Means Committee.

• Arbitration in Employee Disputes: Labor lawyers are promoting a bill on Beacon Hill that would eliminate the ability of employers to settle disagreements with employees through arbitration agreements. Senate 958, filed by Sen. Harriette Chandler (D-Worcester), was reported favorably by the Joint Committee on Labor and Workforce Development and is presently in the Senate Ways and Means Committee. Associated Industries of Massachusetts is leading the opposition to this bill.

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The Roundup New DOR Business Tax Filing System

No Change in Consumer Credit and Lease Thresholds

On November 30 the Massachusetts Department of Revenue rolled out MassTaxConnect, a new online tax system for business taxpayers that replaces WebFile for Business.

MassTaxConnect retains a number of important functionalities currently available in WebFile for Business. For example, MassTaxConnect will continue to allow taxpayers and practitioners to schedule payments, to choose to file early, and to benefit from automatic calculations and error alerts. Filing taxes with DOR will continue to be free with MassTaxConnect.

The new system offers a range of new benefits to business taxpayers and practitioners. Existing WebFile for Business users will be able to log in to MassTaxConnect today with their existing WebFile for Business username and password.

Business filers can obtain additional info at: http://www.mass.gov/dor/.

The Federal Reserve Board and the Consumer Financial Protection Bureau (CFPB) announced that the dollar thresholds in Regulation Z (Truth in Lending Act) and Regulation M (Consumer Leasing Act) for exempt consumer credit and lease transactions will remain at $54,600 on January 1, 2016. That means that, as of January 1, 2016, consumer credit transactions and consumer leases at or below $54,600 will continue to be subject to the protections and requirements of Regulations Z and M. This announcement is consistent with the Dodd-Frank Act amendments to the Truth in Lending Act and the Consumer Leasing Act to adjust these thresholds each year by the annual percentage increase in the Consumer Price Index.

FTC Workshop on Auto Distribution System The Federal Trade Commission is holding a Workshop on the Automobile Distribution System on January 19, 2016, in Washington DC. The workshop will focus on several areas: relevant market area and termination; warranty reimbursement; direct sales; and future trends in the industry. There will be four distinct panels who will discuss each of these areas, three of which will be focusing on areas that are regulated by the state franchise laws.

NADA has been involved in discussions with the FTC staff about the workshop for several months, including panel participants. As a result, each panel will have the dealer point of view represented on it.

Additional information is available at www.ftc.gov, including how to submit comments during the open comment period that runs through March 2016.

DECEMBER 2015

Regional Dealer Meetings Throughout the year we conduct meetings across the state with legislators and dealers at which we provide an update on various legislative and legal issues your Association is addressing, as well as receive input from our member dealers on issues of interest. The meetings serve as great opportunities to encourage active dialogue between the elected officials and local dealers.

Recently Bill DeLuca III and his son Bill DeLuca IV hosted State Sen. Kathleen O’Connor Ives (D-Newburyport) at his Haverhill dealerships, and Joel Baker hosted Rep. Jennifer Benson (DLunenburg), the House chair of the Joint Committee on Consumer Protection and Professional Licensure, at his Baker Cadillac store in Leominster. On December 11 we convened a meeting in Pittsfield of our Berkshire County dealers, led by our MSADA director Brian Bedard, and their legislative delegation, including Rep. Gailanne Cariddi (D-North Adams), Rep. Tricia Farley-Bouvier (DPittsfield), and Rep. William “Smitty” Pignatelli (D-Lenox), and staff for Rep. Paul Mark (D-Peru) and Senator Ben

Massachusetts Auto Dealer www.msada.org

Downing (D-Pittsfield).

If you have an interest in hosting a legislator at your store for a visit, please feel free to contact me at (617) 451-1051 or by email at rokoniewski@msada.org.

Thank you to Bill, Joel, and Brian for setting these meetings up and our dealers for taking time out of their stores to attend.

2016 Auto Show, Dealer Summit & Charity Gala MSADA’s 59th edition of the New England International Auto Show will run January 14-18, 2016, at the Boston Convention and Exposition Center in South Boston.

In order to celebrate our Auto Show, dealers, their families, and key employees are invited to attend on Friday, January 15, our Nineteenth Annual Auto Show Charity Gala at the BCEC, from 5:00 p.m. to 10:00 p.m. The Gala benefits our Charitable Foundation’s Automotive Technician Scholarship Program.

Prior to the Charity Gala we will conduct the Dealer Summit at the BCEC from 2:00 p.m. to 5:00 p.m., at which we will have several speakers discuss on-going events in our industry, including Jeff Cowan, Craig Lockerd and more. Use the registration materials we have sent to sign up today.

Kevin Holmes, New ATD Board Member Congratulations go out to MSADA member Kevin Holmes of Tri-State Truck Center in Shrewsbury, who has been elected to serve on the American Truck Dealer (ATD) Board as the Freightliner representative.

Income Tax Cut on Jan. 1 Under state law, the personal income tax rate will be set at 5.1 percent on January 1, 2016, down from the current rate of 5.15 percent. t

MSADA

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Massachusetts Auto Dealer DECEMBER 2015

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Troubleshooting

MSADA MSADA

The Zero Emission Vehicle Mandate and You

By Peter Brennan, Esq.

MSADA Staff Attorney When the state’s MOR-EV electric vehicle rebate program was rolled out in 2014, Massachusetts franchised dealers took an active role in promoting the program for the Commonwealth. Our dealer members currently sell battery-electric, plug-in hybrid, and even fuel cell vehicles, and many have spent significant time and money to educate their employees on the benefits of these automobiles. Additionally, as a result of our lobbying efforts, two members of your Association’s board of directors, Scott Dube and Robert Boch, sit on the Massachusetts Zero Emission Vehicle (ZEV) Commission and contribute to the state’s efforts to increase demand for and awareness of zero emission and plug-in hybrid vehicles.

However, under a California law that created a ZEV mandate for manufacturers, dealers in the future could be pressured by their manufacturers to buy more electric vehicles than they could possibly hope to sell, especially if the price of gas remains relatively low.

The ZEV mandate began in 1990 when California enacted the California Low Emission Vehicle Program (CA LEV). A ZEV Mandate was included as a part of CA LEV with the goal of reducing smog and other pollution through the government mandated development of zero emission vehicle technology.

Under CA LEV, regulations are promulgated by the California Air Resources Board (CARB) regarding emission standards and substantial fleet obligations for manufacturers.

DECEMBER 2015

The original ZEV Mandate required two percent of all vehicles sold in California in 1998 to be zero emission vehicles (ZEVs). The law has since been amended to include both ZEVs and partial zero emission vehicles, such as the plug-in hybrid electric vehicles (PHEV’s), as well as the banking of credits which could be bought and sold by manufacturers. In order to comply with the regulations, 4.5 percent of a manufacturer’s model year 2018 vehicles must be ZEVs or a mixture of ZEVs and PHEVs. This rises to 22 percent for model year 2015, with a minimum of 16 percent being ZEVs (hybrids cannot account for more than 6 percent percent of the total).

Section 177 of the federal Clean Air Act allows states to follow federal requirements or adopt California’s emission standards. If a state adopts the California standards, then the state must adopt the regulations in full with no alterations.

However, Section 177 states, as they are known, can sever the ZEV Mandate while retaining the California emission standards. Massachusetts is one of nine states that have opted-in to California’s requirements, including the ZEV Mandate, and the Commonwealth, therefore, must abide by the regulations as they are approved

by CARB and also adopt any regulatory changes made by CARB on a yearly basis. The federal government, meanwhile, has taken significant steps to harmonize federal emission regulations with the CARB standards.

The ZEV Mandate, as currently drafted, could represent a major problem for dealers when the mandate kicks in for model year 2018 vehicles due to the way that vehicle sales are calculated in the regulations. The CARB regulations state, in relevant part: “The minimum ZEV credit percentage requirement for each manufacturer is listed in the table below as the percentage of PCs and LDTs, produced by the manufacturer and delivered for sale in California that must be ZEVs . . . .” California Code of Regulations, Title 13, Sec-

Massachusetts Auto Dealer www.msada.org

tion 1962.2(b)(1(A)(Emphasis added).

The phrase “delivered for sale” in the regulations is concerning because CARB considers an automobile to have been “delivered for sale” when it is sold by the manufacturer to the dealer, not the end use consumer. A manufacturer that does not hit their targeted number of ZEVs “sold” pursuant to the CARB regulations in each ZEV state faces huge fines and may not be allowed to sell vehicles in that state.

Dealers have reason to be concerned that they will be stuck with ZEVs and PHEVs sitting on their lots that the manufacturer has pressured them into buying in order to hit the quota with no regard for the public demand for the vehicles.

A viable alternative to the current standard for a “sale” presents itself in the regulations, as the CARB regulators use a different standard for fuel cell vehicles, which are not considered to have been “sold” until the vehicle is “placed in service”. “[C]redits earned from hydrogen fuel cell vehicles that are certified to the California ZEV standards applicable for the ZEV’s model year, delivered for sale and placed in service in California or a Section 177 state, may be counted towards compliance in California and all Section 177 states . . . .” § 1962.2(d)(5)(E) (Emphasis added).

Recently, Automotive Trade Association Executives representing the nine CA-LEV states that have opted-in to the ZEV Mandate, including Massachusetts, contacted CARB with concerns regarding the use of “delivered for sale” as the regulatory standard and encouraged the regulators to adopt the “placed in service” standard instead. Stay tuned. .t If you require any additional information on documentary preparation fees, please contact Robert O’Koniewski, MSADA Executive Vice President, rokoniewski@msada.org or Peter Brennan, MSADA Staff Attorney, pbrennan@msada. org or by phone at (617) 451-1051.

MSADA

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By Joseph W. Ambash and Jeffrey A. Fritz

Five Things to Keep In Mind as 2016 Begins

Joe Ambash is the Managing Partner and Jeff Fritz is counsel at Fisher & Phillips, LLP, a national labor and employment firm representing hundreds of dealerships in Massachusetts and nationally. They may be reached at (617) 722-0044.

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Massachusetts Auto Dealer DECEMBER 2015

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AUTO OUTLOOK

DECEMBER 2015

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MSADA

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Massachusetts Auto Dealer DECEMBER 2015

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Security

MSADA

Looking into the Future

By Herby Duverné Principal & CEO of Taino Consulting Group

Matthew Riley

Operations Manager at Taino Consulting Group

Keeping up with, understanding, and correctly mitigating security risks affecting automotive dealerships can be a fulltime job and an uphill battle for management. With hundreds of thousands of dollars’ worth of assets located in an oftenexposed environment, implementation of appropriate security controls can turn the tables on a would-be intruder or thief.

While typical security measures include video surveillance, motion detection alarm systems, security patrols, and key control, today’s modern technology allows for a more cutting-edge approach.

The next big thing in protecting businesses involves unmanned aerial vehicles, more commonly known as drones.

Although drones have existed for years, their unfamiliarity in mainstream security operations along with murky and undefined legal boundaries have branded this technology as more trouble than it is worth. However, this up-and-coming innovation can be incredibly useful especially when integrated into existing security systems.

For instance, a single drone can automatically monitor defined flight patterns on dealership property. Outfitted with high definition day- and night-vision cameras, drones can provide effectual 24/7 security surveillance. When incorporated into an DECEMBER 2015

existing alarm system, in the event of an alarm the drone will detect the compromise and travel to that specific area to record video surveillance at a closer range.

They are also especially useful when monitoring areas that are not within clear views of fixed camera surveillance. Daily maintenance effort is also minimal as the drone can be docked in a protected rooftop area where it sits in between rounds of surveillance to recharge its battery.

Drones act not only as a deterrent for potential thieves but also as a “set it and forget it” surveillance system. Essentially providing round-the-clock-patrol, incorporating a drone into your security system could be a valid choice to consider.

Moreover, drones can be outfitted and programmed with limitless capabilities.

Thermal cameras, flashing lights, and sirens are just a few of the literal bells-and-

today’s market, and all have the capabilities to study specific dealership properties to provide a customized installation.

Much like a traditional alarm system, the drone will then proceed to conduct routine patrols to trigger detections and alarms that will be sent to designated personnel from the dealership as well as to police.

Essentially, implementing a drone is another way to have a personalized roundthe-clock guard, without paying a physical guard to patrol the property.

Unlike traditional surveillance systems, drones are not hindered by fixation, as sedentary cameras are. They can fly to wherever need-be within defined boundaries, and can be smoothly guided to its destination via precise pre-programmed GPS tracking. Drones can offer efficient yet comprehensive surveillance on any property at any time of day, with the added

The next big thing in protecting businesses involves unmanned aerial vehicles, more commonly known as drones. whistles that could be attached to this compact quadcopter to not only record but also ward off potential thieves. Programming a drone should be thoughtful and specific to the most high-risk times of day and locations of the property it aims to protect.

These small unmanned aerial vehicles may seem like they would be outrageously expensive, but the truth is that a drone would ultimately cost a fraction of the price of a full or part-time overnight guard. When it is all said and done, incorporating a drone into your security system could cost around $6,000, which would include the drone, the technician installation, personalized programming set to the GPS coordinates of the property, monitoring device(s), and permits and registration fees.

Expert-level technicians and specialty service providers are widely available in

Massachusetts Auto Dealer www.msada.org

bonus that it can be monitored from the comfort of a nearby office or home.

In conclusion, when considering advanced security measures, it is always important to make risk-based decisions applicable to your organization. First, it is important to first understand your business assets and the security risks impacting those assets. Following a well thought out cost benefit analysis, determine whether or not implementing a drone could provide a useful, appropriate surveillance method.

Drones are certainly hot commodities these days, especially in the security industry. Whether or not drone surveillance is right for your security system is ultimately a personal decision; however, it is a sign of emerging, effective security governance.

Keep a keen eye on this new technology that just might take off in the near future. t

Dealer Services

MSADA

What Got You Here May Not Get You There By Rob Sneed Rob Sneed is a development rep and motivator for Ethos Group Consulting Services and the author of various articles in the automotive industry.

Ethos Group

provides franchised

automotive dealerships with an integrated program

of

results-driven

income-develop-

ment services, comprehensive training, robust recruiting and industry-leading products.

As this year comes to a close, it is apparent that 2015 will be recorded as the best year in a decade of automotive sales. As a whole, the industry delivered vehicles of unprecedented innovation, performance, and quality. Dealers leveraged the lessons learned in past years to maximize their profit, and employees benefitted from a larger share of a sweeter pie.

As we look forward to what the coming year has in store, it is important that we not forget that bad habits are formed in good times. Success is the sweetest of lullabies, and it can easily lull the most driven individuals into an ominous state of satisfaction – where comfort turns to complacency and proactivity regresses into reactivity.

Regardless of whether your business captured its share of the success in 2015, 2016 holds opportunities that are accessible to anyone that chooses to pursue them.

Your dealership’s potential is limited only by your vision and your team’s capacity to make it a reality. Your vision is the foundation for everything that will be accomplished over the coming year.

Get a Game Plan The most successful organizations have a well-designed game plan. Their lead-

ers think through the end-game, envision likely challenges, and implement strategies. They prepare for success and refuse to accept excuses for unpreparedness and disorganization.

Recognizing the need to cast a detailed vision for your business may sound simple, but often times it requires that you embrace change. It is important to remember that what got you here may not get you there! To deal with the dynamics of an ever-changing business environment (and economy), you must have a game plan that is dynamic enough to succeed. It must be well-designed, adaptable, and align your organization’s day-to-day operations with your organization’s vision.

The Four Priorities of a Visionary Game Plan First, you need to address the number one reason that leaders fail to create a robust game plan for their people: Time. Finding time to create a game plan is difficult because there will always be other interests competing for your time and attention. The reality is that planning will always yield a net gain of time. If you want to speed up your dealership’s growth, you have to reject the notion that there is no time to slow down.

Your game plan should outline your vision for your organization while acting as a roadmap for success. It should be an adaptable tool that will accommodate to changing needs. The best strategic plans will focus on the four following priorities:

#1 - Developing Market Share Increasing sales is all about taking better care of the people in your market. As customers are more satisfied with the way they buy, finance, maintain, and service their purchases, you will see business compound.

In order to grow market share, you should outline a strategy for the marketing of vehicles through advertising, merchandizing of inventory on the lot, creating an exceptional buying experience, and completing the ownership in the service department. www.msada.org

#2 - Maximizing Revenue There is nothing wrong with prioritizing profit! Consumers are willing to pay more when they get more. By aligning your organization’s game plan to deliver on customers’ wants and needs, you earn the right to ask a premium for your services.

#3 - Expense Control Making money is one thing, and keeping it is another. You must structure your organization’s game plan in a way that retains the earnings so you can reinvest in your organization.

#4 - Customer Satisfaction Satisfied customers are your best resource and should never be undervalued.

You cannot compromise when it comes to creating a truly exceptional, world-class, and completely satisfactory experience that earns your customers loyalty!

Maximizing the Momentum Designing a game plan can be intense. In fact, game planning comes at the expense of two most precious resources: time and energy. But the alternative to preparation is to proceed without a plan. Doing so can result in an imbalanced, inefficient approach that may lead to disorder in your organization and compromise your mission.

If you want your organization to experience growth, you have to commit to growing your business. It starts by clearly defining your vision and creating an action-oriented game plan, but it does not end there.

You must keep your team focused in the face of the inevitable distractions.

Even well-designed goals will never be realized unless there is a developed and focused game plan behind them. Leaders must have the vision, sweat, persistence, and endless attention to detail to lead their organizations to victory. Take the time to begin with the end in mind, and you will experience success in 2016 on a new level. t

Massachusetts Auto Dealer DECEMBER 2015

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MSADA

Legal

By Joseph W. Ambash and Jeffrey A. Fritz

Five Things to Keep in Mind as 2016 Begins

2015 was by no means a dull year for employers in Massachusetts. Several new laws went into effect, including the Earned Sick Time Law and the Parental Leave Law, and employers have had to make adjustments.

With 2016 soon upon us, here are five things to keep in mind:

If you were able to take advantage of this “safe harbor,” you need to know that it is no longer applicable as of January 1, 2016.

Accordingly, you need to ensure you are in compliance with the Earned Sick Time Law going forward.

Minimum Wage Increase

The U.S. Department of Labor’s Wage & Hour Division continues to audit auto dealers for wage and hour compliance. Dealers who contract with detailing companies appear particularly susceptible to an audit and to a claim by the DOL that they are “joint employers” of the detailer’s employees (and, therefore, jointly responsible for any of the detailer’s wage and hour violations).To reduce the risk of such a claim, it is a good idea to have a written independent contractor agreement with the detailing company outlining the terms of the arrangement and to ensure the detailer’s employees remain free from your control or direction in connection with their schedules and work, both under the agreement and in fact.

In addition to the joint employer issue, in the event of any audit, the DOL will review your own payroll records, usually going back two years, for wage and hour violations. Again, you should review your pay plans to ensure compliance. For example, if you are paying a non-exempt employee monthly incentive compensation (such as a bonus or commission), you need to ensure, for compliance under federal law, that you are paying any overtime due on the same.

As you may recall, in June 2014, Governor Patrick signed into law a bill that automatically increases the Massachusetts minimum wage (then $8 per hour) by $1 each year until 2017. As of January 1, 2016, therefore, the minimum wage is increasing to $10 per hour. It is imperative that you review your pay plans to ensure you will be in compliance. Minimum wage (and attendant overtime pay) violations can be very costly, including potential treble damages and attorneys’ fees.

Earned Sick Time “Safe Harbor” is Expiring After much media attention and fanfare, the Massachusetts Earned Sick Time Law went into effect on July 1, 2015. As we reported previously, the Attorney General issued its final regulations just 12 days before the law went into effect, leaving employers little time to ensure compliance.

The final regulations did, however, create a “safe harbor” for employers with existing policies providing paid time off. It provided, in essence, that if (1) as of May 1, 2015, an employer had in place a paid time off or paid sick leave policy whereby fulltime employees had the right to earn and use at least 30 hours of paid time off between January 1, 2015 and December 31, 2015, and (2) on or after July 1, 2015, any employees not covered by that policy (i.e., part-time, seasonal, temporary, new, and/or per diem employees) received paid time off either at the same rate or proportionally, the employer would be deemed in compliance.

DECEMBER 2015

U.S. Department of Labor Audits

sence, the DOL proposes increasing the salary/guarantee requirement from the current $455 per week to $970 per week.The final rule is slated to be released in late 2016. If this change goes into effect, you likely will need to make significant changes to your managers’ and administrative and professional employees’ pay plans or risk potentially hefty overtime exposure.

Training Your Managers is Key We extol the benefits of periodic training of your managers on HR-related issues frequently in this column, but the importance of such training cannot be overstated. Periodic training concerning discrimination, harassment, and retaliation (1) reduces the risk that a manager will make inappropriate comments or engage in inappropriate conduct (for which the dealer would be vicariously liable) and (2) increases the likelihood that he or she will recognize such misconduct in others, and will promptly report the same to HR for investigation and, if warranted, prompt remedial action. Such action could serve as a compelling and complete defense to a claim of discrimination, harassment, or retaliation.

We wish you all a happy, healthy, and compliant 2016. t

Be Prepared for Changes to “White Collar” Overtime Exemptions As you may have heard by now, the DOL has issued a proposed rule that would revamp the regulatory scheme governing certain “white collar” exemptions to the overtime law (i.e., the executive, administrative, and professional exemptions). In es-

Massachusetts Auto Dealer www.msada.org

Joe Ambash is the Managing Partner and Jeff Fritz is counsel at Fisher & Phillips, LLP, a national labor and employment firm representing hundreds of dealerships in Massachusetts and nationally. They may be reached at (617) 722-0044.

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Cover Story

January

year in

The 2015 New England International Auto Show Charity Gala and Dealer Summit were well-attended and saw widespread media attention focused on the Massachusetts auto industry.

February

March

Best Automotive owner Scott Shulman was recognized as the Massacusetts nominee for the TIME Dealer of the Year award. One of the industry’s most presitigous honors TIME Dealer of the Year recipients are among the nation’s most successful auto dealers who also demonstrate a commitment to community service.

DECEMBER 2015

Massachusetts Auto Dealer www.msada.org

Jeb Balise and Brad Tracy, each hailing from opposite ends of the Commonwealth, outlined their vision for the future of the Massachusetts auto industry as members of the MSADA Board of Directors. “I think the car business is really good for all dealers right now,” Balise said.

“The tide is rising.”

MSADA

19

May

review

Governor Charlie Baker, RMV Registrar Erin Deveney, NADA Chairman Bill Fox, and other industry authorities joined MSADA members at the 2015 MSADA Annual Meeting. Baker addressed the need for tamping down on red tape in government bureaucracies, while Deveney pledged that the RMV would be more responsive to dealers’ needs.

June April MSADA sponsored Blackstone Valley Tech seniors Jacob Bisson and Bryce DeMers to attend the National Automotive Technology Competition at the Javits Center in New York City.

The grand reopening of Ira Toyota of Danvers gave the dealership a chance to share its close ties with the local community. With those in attendance ranging from State Representative Ted Speliotis to Group 1 CEO Earl Hesterberg, the dynamic of a nationally-owned dealership with close local relationships was on full display.

www.msada.org

Massachusetts Auto Dealer DECEMBER 2015

20

2015 The Year in Review

July

September Massachusetts delaers joined 400 industry peers from across the country at the NADA Washington Conference. MSADA President Scott Dube, NADA Director Don Sudbay, former NADA Director Ray Ciccolo, and Board Clerk Charles Tufankjian made the trip alongside Executive Vice President Robert O’Koniewski and Staff Attorney Peter Brennan.

Ethos Group’s Leadership and F&I Summit, held in Natick, offered dealers a chance to re-evaluate their business vision. Led by Ethos Group’s Rob Sneed and Tim Marbut, the pair offered exercises and self-evaluations geared toward improving dynamics in the showroom and in the back office.

August Six years after their father’s passing, Tommy and Carla Cosenzi reflected on the challenges and successses of inheriting an auto dealership group in the midst of an economic recession. The duo has become known for both their business acumen and charitable giving, including more than $500,000 raised for cancer research through the annual Thomas E. Cosenzi Driving for the Cure Golf Tournament.

DECEMBER 2015

Massachusetts Auto Dealer www.msada.org

MSADA

21

October MSADA Past President Jim Boyle made use of his Portsmouth Toyota dealership in October when California Republican presidential candidate Carly Fiorina needed a sudden change in venue for a planned rally. The event made ABC’s World News Tonight, with the dealership’s name right in the frame as Fiorina spoke.

November

Quirk Ford’s innovative program that employs local high school students as tech ambassadors in the showroom continued to gather media attention, inlcluding a report from NBC Nightly News with Lester Holt. The nationally-broadcast program spoke with both Quirk and the student-employees about their role helping customers navigate the ins and outs of vehicle systems.

for the January 2016 New England International Auto Show Charity Gala and Dealer Summit, news broke around the world of dealer Ron Bouchard’s passing.

The Fitchburg dealership group owner was renowned for his 1981 Talledega 500 victory and Winston Cup Rookie of the Year title in addition to his automotive retail success in Central Massachusetts.

Bouchard had just opened a racing museum collecting cars and memorabilia from throughout his New England racing career.

www.msada.org Massachusetts Auto Dealer

December

As MSADA continued to prepare

DECEMBER 2015

22

NEWS from Around the Horn from Around

NEWS the Horn

BOSTON

CarMax Looks to Expand in Massachusetts CarMax has shaken up used-car markets around the country.

Now the largest U.S. used-car retailer plans to open stores in Norwood and Danvers as part of a regional expansion.

Known for its non-negotiable prices and money-back guarantees, CarMax Inc. has tested the region’s market for four years with a store in North Attleborough.

The Fortune 500 company, headquartered in Virginia, could have five to eight stores in the Boston area in the coming years, company officials said. Boston, New York, San Francisco, and Seattle are the last major markets in the country where CarMax has little, if any, presence — and chief executive Tom Folliard has said he is determined to change that.

Folliard, 50, is no stranger to the area. He grew up in Easton and attended Oliver Ames High School there. His late father, Tom Folliard, was a basketball player at Providence College and later a basketball coach and athletic director at Bryant College

DECEMBER 2015

Massachusetts Auto Dealer www.msada.org

MSADA FITCHBURG

In Memoriam: Ron Bouchard Longtime Fitchburg auto dealer and former Wintston Cup driver Ron Bouchard died December 10. He was 67.

Bouchard, who earned the 1981 NASCAR Winston Cup Rookie of the Year title and won the Talledega 500 that same year, was known as a legendary New England modified driver who built a successful dealership group. NASCAR fans and drivers registered their condolences around the world alongside the Fitchburg community.

“He loved this sport, and made an indelible mark on it, one that won’t soon be forgotten,” NASCAR said in a statement.

In an interview with Massachusetts Auto Dealer in September, Bouchard said he learned while driving Winston Cup that he had a passion for selling cars. His empire grew to include Chrysler-Dodge-Ram, Kia, and Nissan in addition to the Honda and Acura franchises. Bouchard said building the business over time helped ease the pain of retiring from racing, especially as he got to know his employees.

“In my mind some of them are like my kids,” he said.

“They appreciate the place, and understand how we do business: Take care of the customer, and make them want to come back and buy a second one.”

and Stonehill College.

Under Folliard, who became CEO in 2006, CarMax’s annual sales have more than doubled, to $14.2 billion in fiscal 2015. In the last year, annual sales climbed 14 percent from $12.5 billion, and profits jumped 21 percent to just under $600 million.

Folliard is moving his company into the heart of Eastern Massachusetts’ auto business, opening a store on the famous “Automile” in Norwood, where dealerships stretch along Route 1.

CarMax, which last year sold nearly 600,000 used cars nationwide, will also open a store at 161 Andover Street in Danvers, just off Interstate 95. It plans to debut a fourth showroom in the area next year, along Route 9 in Westborough.

“The big dealers are going to be the people we will compete against,” Folliard told The Boston Globe. “We want to be on the Automile. We want to be where the other car dealers are. We go to where the customers are.”

Bouchard, who was inducted into the New England Auto Racers Hall of Fame in 1998, won a total of 37 races at Thompson Speedway Motorsports Park in Thompson, Connecticut, and was the Modified track champion there in 1978.

“He was not only a wonderful personal friend, but was a marvelous driver and a great golfing companion,” Thompson Speedway owner Donald Hoenig told ESPN. Dale Earnhardt Jr. also registered his condoloences, noting Bouchard was a close friend of his father. Closer to home, the Fitchburg community also mourned his passing.

“He loved cars and he loved his family,” Bouchard’s sister, JoAnn Bouchard Bergeron, told The Worcester Telegram & Gazette. “He’s going to be greatly missed.”

Bouchard leaves his wife, Paula (Flemke) Bouchard; five children, Eugene Bouchard, Robert Bouchard, Michelle Bouchard, Tracey Bouchard Dinardo, and Chad Bouchard; his mother, Lorraine (Henault) Bouchard; a brother, Kenneth Bouchard, all of Fitchburg; a sister, JoAnn Bouchard Bergeron of Mason, New Hampshire; nephews and nieces.

His father, Robert H. Bouchard, 88, died in 2010.

HADLEY

TommyCar Donates Funds to Springfield Open Pantry TommyCar Auto Group made a contribution of $3,000 to support the Rock 102 Mayflower Marathon held in November. Country Hyundai, Country Nissan, and Northampton Volkswagen matched the first $1,000 that was donated by listeners each day, donating a grand total of $3,000 to the Springfield Open Pantry.

The company’s service departments also offered discounts on vehicle maintenance to anyone willing to donate non-perishable canned goods.

“We’re strong believers in giving back to the communities we serve.” said Cosenzi. “We’re proud to be able to help Rock 102 with their Mayflower Marathon. Thanks to this event, we’re able continued on next page www.msada.org

Massachusetts Auto Dealer DECEMBER 2015

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24

NEWS from Around the Horn HINGHAM

New Tesla Showroom Receives Approval

from previous page to help make a difference.”

This year the annual Rock 102 FM Mayflower Marathon raised $125,000 for the Springfield Open Pantry. Bax & O’Brien broadcast 52 hours from the Basketball Hall of Fame in downtown Springfield. Their goal was to fill three, 48-foot trailers with nonperishable food donations.

DECEMBER 2015

Tesla’s fourth Massachusetts showroom could be open by the end of the year.

The town planning board gave the electric car manufacturer the green light to modify retail space inside one section of the shopping center, which is located off Route 3. Derby Street general manager Bill Hamilton said Tesla will open the display space “as soon as they can ... possibly this year.”

Hingham will be Tesla’s fourth Massachusetts location, along with showrooms in Natick, Dedham, and Boston’s Prudential Center. The Boston showroom opened in mid-November.

At the Derby Street Shoppes, the alterations will replace the former White’s Bakery space on the Whole Foods Market side.

Tesla may also put a display vehicle out on the sidewalk. The company will also install a charger station at the edge of nearby parking spaces. The town zoning board of appeals had previously approved that and other modifications.

Hamilton compared Tesla’s planned showroom to the hundreds of Apple Stores the computer manufacturer has opened across the country.

Massachusetts Auto Dealer www.msada.org

MSADA Tesla will join two other dealerships on that stretch of Derby Street – Best Chevrolet and the recently-opened Herb Chambers Lexus.

BOSTON

Consumber Groups Raise Awareness on CarMax Recall Issues Consumer advocate groups called upon Attorney General Maura Healey in December to investigate used car dealer CarMax, claiming that the dealer has sold recalled vehicles to drivers in Massachusetts.

The MASSPIRG Education Fund and the Consumers for Auto Reliability and Safety Foundation reported a joint investigation that found 17 percent of the cars available for purchase at CarMax’s North Attleborough dealership were subject to at least one federal safety recall that had not been addressed.

“Consumers rightly have the expectation that when shopping at any car dealership they will be sold a safe car, and, at the very least, they certainly would not expect that any car for sale would still be under a safety recall,” MASSPIRG Legislative Director Deirdre Cummings said during a press conference on Boston Common.

Cummings said the necessary repairs to address the safety issues were, in many cases, available free of charge to CarMax, which instead leaves it up to the consumer to remedy the problem that prompted the recall.

Healey’s office said in statement to the Statehouse News Service that it is “aware of MassPIRG’s request and we will be studying their report closely.”

Safety advocate Sean Kane, president of the board of directors for The Safety Institute, said he went to CarMax in North Attleborough to buy a car for his family as part of an investigation of CarMax’s practices.

The 2012 Jeep Grand Cherokee he was interested in had passed the CarMax safety inspection, he said, and the salesperson told him that the Jeep was safe to drive despite the car having three unrepaired safety recalls.

Kane stood in front of the Jeep he bought November 30 from CarMax as he recounted how the dealership downplayed the significance of those recalls.

“I specifically told CarMax I wanted to buy a safe vehicle for my family, and they sold me a vehicle with three potentially lethal safety defects — sudden engine shutdown, faulty brakes, and a fire hazard,” Kane said.

The dealership said the current recall system is based upon the relationship between auto manufacturers and registered dealers or car owners, and does not include independent auto retailers like CarMax. www.msada.org

Massachusetts Auto Dealer DECEMBER 2015

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NEWS from Around the Horn MARION

Selectmen Consider Electric Vehicles The Town of Marion selectmen have taken the first steps toward bringing electric-powered vehicles to the town’s motor fleets by agreeing to allow the town’s Energy Management Committee to apply for grants that would enable the town to lease the energy efficient vehicles at a subsidized rate.

Members of the Marion Energy Management Committee (EMC) came before Marion Selectmen in December to revisit an earlier discussion on the possibility of the town using the energy saving vehicles to replace gas-powered town-owned vehicles.

The EMC is considering the lease of three EVs – either the BMWi3 or Nissan Leaf models. The cost would also be offset by the sale of the town’s three aging Crown Victorias, used by the police department.

EMC members have enlisted the help of Evan Melillo, formerly an administrative analyst for the Town of Dartmouth, who was instrumental in navigating the application process for that town when it first leased three EVs, to help Marion do the same. Dartmouth now has six EVs in its town motor fleet.

DECEMBER 2015

Massachusetts Auto Dealer www.msada.org

MSADA

Accounting

MSADA

Closing the Deal

What to Keep in Mind When Buying or Selling a Dealership By Todd E. Merriam CPA, O’Connor & Drew

Over the last few months, we have seen some increased dealership buy/sell activity with several of our clients. For those buyers with cash and the proper bank financing, there are opportunities to be had in the marketplace. On the flipside, for those who are looking to sell their dealership, we have seen stores sell for strong blue sky multiples.

Whether you are on the buying end or the selling end of a buy/sell agreement, one of the most stressful parts of the transaction is the actual “closing.” While in a perfect world the buyer and seller would sign the closing statement and part ways, there are many items that need to be considered and information that needs to be prepared in order to have a successful and efficient closing.

Below are some key items you will need to keep in mind: • A parts physical inventory should be performed by an outside third party before the date of the closing. If any time has elapsed between the inventory physical and the date of the closing, the value of inventory purchased should be adjusted on the closing statement for any parts sold or stocked into inventory by the seller.

• Preparing a listing of the value of new and used vehicles being transferred to the buyer is one of the more labor intensive parts of preparing for a closing.

Vehicle inventory purchased by the

buyer should be valued before the closing date and reviewed on the day of the closing for any vehicles the seller sold the previous day.

• When it comes to used vehicles, a listing of all used vehicles that the buyer has agreed to purchase should be prepared along with the agreed upon sales price. The condition of used vehicles should be inspected by a representative of the buyer prior to the day of the closing.

• There are several details that go into valuing new vehicle inventory. The buyer of the dealership purchases new

accurate.

• Any vendor contracts that the buyer is assuming should be agreed upon before the date of the closing. If any of the contracts being assumed have been prepaid by the seller, then the buyer should credit the seller for a prorated portion of the contact.

• While the buyer and seller are ready for the closing, your state’s registry of motor vehicles may not be ready for the change. Your specific state will have its own procedures to transfer the dealer license from the seller to the buyer. If a transfer of the dealer license has not

By planning ahead and keeping the above items in mind, your closing can be a stress free and efficient process. vehicles at the manufacturer’s invoice price less holdback and manufacturer’s incentives (floorplan & advertising assistance). Since the seller has already collected these items, they are subtracted from the price of the vehicle. In addition, if PDI work has been performed by the seller, the cost can be added to the purchase price. Failure to perform a detailed analysis of each new unit in inventory could result in the seller leaving money on the table or the buyer overpaying for inventory.

• Floorplan lenders are important players in the buy/sell process. The day before the closing the floorplan lenders of the buyer and the seller should be in communication to determine the floorplan liability payoff figure. It is important to keep your bank in the loop of when the closing will occur so the final payoff figures on the closing statement are www.msada.org

been finalized, it may hold up the closing due to requirements of the manufacturer and floorplan lenders.

There are many items that need to be considered before the date of the closing.

In many cases, buyers and sellers will attend the closing meeting with a small army consisting of lawyers, bankers, accountants, and brokers. It is important in the days leading up to the closing for all of these parties to communicate with each other in order to ensure all the necessary information is obtained and prepared. By planning ahead and keeping the above items in mind, your closing can be a stress free and efficient process. . t For any questions regarding buying and selling a dealership, please feel free to contact Todd E. Merriam, CPA at (617)-471-1120 or tmerriam@ocd.com.

Massachusetts Auto Dealer DECEMBER 2015

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Sound Off

Marketing to Today’s Demographics

By Colette Phillips

In today’s highly competitive, increasingly culturally diverse marketplace, the most recent Census figures offer compelling evidence that U.S. companies in their aggressive pursuit of overseas markets for their products and services may be overlooking a multicultural consumer market gold mine in their own backyards.

New population estimates released by the U.S. Census Bureau show that, for the first time, the majority of Americans under the age of one are minorities. It’s part of a demographic shift that’s expected to create a minority-majority nationwide population sometime within the next 30 or 40 years. California, Hawaii, New Mexico, and Texas have already passed that threshold at the state level.

The ethnic landscape of most of America’s cities has also changed dramatically in the past decade. Twenty-two of the 100 largest cities, including Boston, are now minoritymajority cities. Statistically, Blacks, Hispanics, and Asians represent over 30 percent of the United States population.

Research indicates that these ethnic groups are the fastest growing consumer groups in the country and that, contrary to popular stereotypes, they are brand loyal, have tremendous purchasing power, and are growing increasingly prosperous. Black, Hispanic, and Asian consumers have a combined income of more than $4.4 trillion. One in five incremental new vehicles sold in 2014 was to a Hispanic, meaning that Hispanics represented 20 percent of all new vehicle sales growth. That is not exactly chump change.

Automakers and car dealers that want to pick up more sales from this burgeoning car buying class will want to focus on Hispanic youth who are more inclined to purchase new and will likely earn more, over time. Hispanic purchasers of Toyota, Nissan, and Honda are 40 percent higher than their non-Hispanic counterparts. Lexus has made a concerted effort to target African-Americans and has seen a huge return on investment. Lexus is now the foreign vehicle of choice for African-Americans who spent $30 billion in 2014 on the purchase of new and used cars.

Culturally diverse consumers notice companies who notice them, rewarding them with their business, loyalty, and support. As the American marketplace grows ever culturally and linguistically diverse, it’s clear that any company that does not actively pursue multicultural customers is leaving money on the table.

These compelling statistics make targeting culturally diverse and immigrant consumers an imperative for American

businesses. However, companies hoping to reach these fast growing, emerging markets merely by “casting a wider net” will sell themselves short. Message exposure doesn’t necessarily mean message receptiveness, particularly in today’s disruptive digital media marketplace. Only by taking the time to understand the unique cultural sensibilities of diverse markets will companies compete effectively in the 21st century.

The lesson for executives striving for greater market share and profit: Learn all you can about your target markets before you make your pitch. If you are a car dealer, targeting culturally diverse consumers here in Massachusetts will show results by boosting your marketshare and profits.

Here are five success factors to consider when targeting these consumers: Do your Homework: Research whether formal or informal is critical to guiding your multicultural marketing program. The research data will inform you on the purchasing habits, lifestyle, and product and service preferences of multicultural consumers.

Get Buy-In: Launching a multicultural marketing program must be based on the fact that it makes good, practical business sense. To succeed, it must have the commitment both in human and financial resources and acceptance at all levels of the dealership beginning at the office of the CEO. Self-Evaluate: It is important to evaluate your dealership to determine if your sales staff reflects the marketplace; for example is your sale staff culturally and gender diverse? Are any of your current staff bilingual? Would people of color feel comfortable shopping at your dealership? Are you advertising in media channels that reach this target audience?

Evaluate Competitors & Industry: Research your competitors’ and industry’s approach vis-à-vis multicultural consumers and evaluate and review best practices. Ask, “Are there ways we can improve on what’s already being done in the marketplace industry?” Then, differentiate your marketing strategy.

Engage Consumers Through Partnership: Engage in “socially responsible” corporate philanthropy. Co-branding marketing programs, such as event sponsorships, are important to multicultural consumers.

Not targeting culturally diverse markets is leaving significant dollars on the table. .t Colette Phillips is president of Colette Phillips Communications, Inc., a Greater Boston-based communications firm focusing on helping companies grow by targeting growing consumer segments. She can be reached at (617) 357-5777.

Have an opinion you want to share? Email rokoniewski@msada.org.

DECEMBER 2015

Massachusetts Auto Dealer www.msada.org

NADA Market Beat

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M Have new-vehicle sales peaked this year? Sales topped 18 million SAAR for the third month in a row in November, but NADA analysis shows that incentives were also higher—moving up 6 percent compared to October. Light-truck sales continued to power ahead, slightly exceeding our forecast of 56 percent of the light-vehicle market. Cars continued to lag behind light-truck sales, and much of the rise in incentive spending has been in the small to mid-size car segments. We still expect 17.3 million new-vehicle sales in 2015 and 17.7 million in 2016. This will be another banner year; however, note that our 2016 sales forecast depends heavily on rising incentives, as OEMs chase market share despite declining demand. We believe that without incentives, 2015 would certainly mark the peak in new-vehicle sales.

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MSADA

www.msada.org

Massachusetts Auto Dealer DECEMBER 2015

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NADA Update

By Don Sudbay

Facing Forward Don Sudbay, President of Sudbay Automotive Group, represents MSADA members on the NADA Board of Directors. He welcomes your

questions

and

concerns

(donsudbayjr@sudbay.com).

As we end what has been a wildly successful year as an industry, I want to encourage us all to stay vigilant about the threats to our livelihood that we’re able to combat. While competition and market forces are all a part of the business, we don’t have to take misrepresentations and baseless attacks lying down.

Below you’ll find examples of both gross misrepresentations and ways to fight back against them, including from NADA President Peter Welch. But in the meantime, I hope you’ll also take some well-deserved time off with your families over this holiday season.

Warren’s False Claim Listed As ‘Biggest Pinnochio’ of 2015 Sen. Elizabeth Warren’s bogus claim that “auto dealer markups cost consumers $26 billion a year” made The Washington Post’s list of the Biggest Pinocchios of the year.

In a list that was dominated by Donald Trump and the 2016 presidential candidates, Washington Post Fact Checker Glenn Kessler wrote of Warren: “Sen. Elizabeth Warren (D-Massachusetts), pushing for new regulations of loans made by car dealers, cited a figure based on a misleading and dated report from the Center for Responsible Lending, an advocacy group. But then she also wildly mischaracterized the number, as even the advocacy group conceded that figure includes reasonable compensation owed to car dealers.”

The 2015 Biggest Pinocchios list was compiled from claims that had earned at least Four Pinocchios during the year.

NADA President in NYT: What Drivers Really Need

By NADA President Peter Welch

Re: “Dealers Selling Electric Cars Short,” The New York Times (December 1): “Car dealers are in the business of helping consumers find vehicles that best suit their needs, desires, and budgets. And DECEMBER 2015

the reality is that electric vehicles — and the infrastructure that supports them — unfortunately do not yet suit the needs, desires, or budgets of most car buyers.

“Will I be able to find a recharging station if my errands run longer than anticipated? How long will recharging take?

What if a new job doubles or triples the distance of my commute? Can I really afford the additional upfront cost of an electric vehicle? These are real-world questions that, understandably, lead many consumers to conclude that an electric vehicle simply is not right for them.

“That is why accusing auto dealers of being the chief skeptics standing in the way of increased electric vehicles sales assumes a rather dull and, quite frankly, insulting view of the consumer. Does The New York Times really believe that consumers do not put any thought behind the second-biggest purchase many of them will ever make?

“Car dealers fully embrace the importance of electric vehicles to growing segments of the market — which is exactly why dealers have fought so hard to be able to include them in their franchised fleets. But dealers know better than anyone that, at the end of the day, the consumer is king. This article does not do readers any favors by simply glossing over that reality.”

Used-Vehicle Prices Dip, but Remain Unusually Strong, Manheim Index Shows Despite a slight dip, wholesale used-vehicle prices last month remained robust, according to a widely watched index released this month. After five consecutive months of increases, the Manheim Used Vehicle Value Index in November stood at 125.1, edging down from 125.3 in October but up solidly from 123.3 a year earlier. The index measures changes in used-vehicle prices and is adjusted for vehicle make, mileage and time of year. It started in January 1995 at 100.

NADA Releases Report by J.D. Power to Assess Reductions in Trade-In Values Caused

by Preventing Sale of Used Vehicles with Open Recalls The National Automobile Dealers Association announced a report that it commissioned from J.D. Power showing that many consumers could see the value of their vehicle trade-ins decline by an average of $1,210 - and by as much as $5,713 if auto dealers were prohibited from selling any used vehicles with open recalls.

The J.D. Power study, “An Economic Assessment of Trade-In Value Reduction Caused by Preventing Auto Dealers from Selling Passenger Vehicles with any Open Recall,”

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NADA Update

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concluded that the enactment of legislation requiring auto dealers to fix all outstanding safety recalls before selling or leasing any used passenger motor vehicle could have an adverse impact on the value of those trade-ins.

Each year, approximately 10 million vehicles are traded in to franchised dealers. In virtually all of these transactions, the trade-in manager at the dealership uses a combination of electronic analytic tools and physical inspections to decide how much of a “trade-in allowance” to offer the consumer.

This trade-in allowance is an important part of the overall transaction, because, typically, the consumer uses it to fund the down payment needed to finance the purchase or lease.

But if the dealer is restricted from reselling a recalled vehicle, either at retail or at wholesale, until that recall was remedied, J.D. Power identified a number of costs that would be incurred during the grounding period that could negatively impact the trade-in allowance offered. While there are additional factors to consider regarding reselling a recalled vehicle, J.D. Power’s analysis was related only to the additional expenses of the cost of financing the vehicle purchased from the consumer, the cost of storing the vehicle, the cost of insuring the vehicle, and depreciation costs.

Furthermore, while $1,210 represents the weighted average for both in-brand trade-ins (for illustration a Honda trad-

Repair delays resulting from the challenges faced in engineering, producing, and distributing the replacement parts needed to address recalls are both real and significant. ed to a Honda dealer) and out-of-brand trade-ins (a Honda traded to a Ford dealer), the costs are higher for out-of-brand trade-ins, because out-of-brand dealers incur additional costs when holding the vehicle during the repair delay and when transporting the vehicle to an in-brand dealer for repair, the report states.

According to government and industry data collected for the study, repair delays resulting from the challenges faced in engineering, producing, and distributing the replacement parts needed to address recalls are both real and significant.

Also significant is the fact that dealers will not know in advance how long a recall delay will last, and thus must estimate the delay, which could further exacerbate the trade-in value reductions that consumers will face.

“Assuming a repair delay that is shorter than the actual repair delay is a risky proposition for a dealer, and thus they are

more likely to act as if they believe the range of repair delays will be on the high end of the range of repair delays observed in the past for recalls of similar scale and complexity,” explained Jonathan Banks, executive analyst at the Used Car Guide division of J.D. Power, and the report’s lead author.

“In a hypothetical scenario, a lack of clear information could reduce the trade-in value offered to a consumer by hundreds of dollars if a trade-in manager were to overestimate a 30-day recall delay by an additional 30 days.”

Auto Industry’s Stellar Days Numbered After Solid November?

The American auto industry was riding high last month and is believed to have just posted its best November in history. Sales numbers have exceeded expectations throughout much of 2015, which is now on pace to be the best year for auto sales on record. But if November wasn’t the peak month for car and truck dealers in the U.S., that time is likely right around the corner. And it’ll be a slow roll downhill from there. Prolonged increases to incentive spending aren’t considered sustainable, as either manufacturers or dealers (or both) accept lower profit margins than they ordinarily would.

But by offering unnaturally low vehicle prices, auto industry executives are effectively able to artificially inflate sales beyond the point when economic fundamentals would warrant a downturn.

Such deals are currently up six percent year over year and are only expected to grow in 2016, according to a report published last month by the NADA. “We expect rising incentives and for automakers to use their increased manufacturing capacity to chase market share and volume in 2016,” Steven Szakaly, NADA’s chief economist, said in a statement accompanying the report. “In the long run, new-vehicle sales cannot be sustained above 17 million units because of rising interest rates, increasing regulatory compliance costs, and wage and income pressure.” The NADA predicts auto sales will peak next year.

U.S. Proposes Major Changes to Crash Ratings Federal regulators have proposed overhauling the government’s five-star vehicle safety ratings to add scores for crash avoidance technology and pedestrian protection, and to incorporate a new test that measures performance in a frontal offset crash.

The new system, which would allow vehicles to be scored in half-star increments for the first time, would be used on cars and trucks starting with the 2019 model year. The National Highway Traffic Safety Administration said it plans to collect public comments and issue a final decision by the end of 2016. t

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Sound Off Great General Managers Can Still Become Dealers

By Nancy Phillips If you do not already own a franchised auto dealership, the industry may appear to have closed its doors to you. Even if you are a dealer, if you are short on meeting your sales performance, CSI or facility upgrade requirements, you also may find yourself on the outside looking in.

It is not the same industry that it was. Yet, as difficult as it is to find a dealership to purchase, it is not impossible. And once you are in, provided you excel and do everything just right, the doors swing open much wider.

Consider the history of dealership acquisitions over the last quarter of a century. Who were the buyers and who are they now? Who will they be next year and beyond?

Buyers 25 years ago were usually individual dealers with one or two dealerships or general managers who made acquisitions on their own or with the help of family or the dealers for whom they worked. Today the majority of acquisitions are made by dealership groups, because they are preferred by franchisors for their proven track records, financial resources, and willingness to support facility brand enhancements.

Established groups tend to be presented with more opportunities by franchisors, brokers, and sellers themselves.

While franchisors must do their best to obtain the top candidates to represent their brands, we believe that being open to different types of purchasers is key. Looking back on the history of our company in its early years and what became of the general managers we put into their first dealerships, the proof is in the results. Nearly all of those individuals who we took a chance on have become outstanding dealers.

Consider the results in our home state of New Hampshire alone: • Our office put together the first dealership acquisitions for two partners, one a Wall Street guy and the other an automotive controller. They morphed their first dealerships into what is now one of the largest groups north of Boston.

• A general manager of a four-store dealership group also acquired his first dealership through us. He increased sales ten-fold with a very difficult franchise and then returned to acquire all of his former employer’s dealerships.

• Another significant story involves a young man who we

placed in a failing dealership through a leveraged buy out.

He rapidly increased sales, acquired a second dealership through us, and is now the top rated dealer with his franchise in the entire region.

Helping an ambitious young person to obtain the unattainable, changing their life and their prospects, and watching them grow has been one of the most interesting and rewarding parts of our business.

In recent years, our ability and desire to work with nondealers has been greatly curtailed by the high percent of our transactions being sold to dealer groups. This has nothing to do with the quality and number of superb potential candidates who are not yet dealers, but rather our obligation to serve our sellers by working with purchasers who’s funding and approvability is insured. It is the dealer groups who best fulfill the stringent criteria.

That being said, if you are not yet a dealer and really want to become one, don’t give up hope. Last month we announced the sale of Newcomb Motors in Orange, Massachusetts, to pre-owned vehicle dealers Gary McGilvray, Ryan Eschbach, and Logan Kelly. Prior to that, we orchestrated the sale of Martin Ford followed by the sale of Valley Motors Chevrolet Buick GMC, both located in Fort Kent, Maine, to Steven Pelletier, a former partner in one of New England’s largest lumber companies.

In just a few years, Pelletier has built signature facilities for each of his brands and has recently acquired a full line Chrysler open point in his market area. As for the three charming young men who are now the proud owners of the new Orange Chrysler Dodge Jeep - in their first two months of business, they have doubled vehicle sales. We are confident that theirs is a name that will come to haunt their competitors in no time at all.

What do these new dealers have in common and how were they able to break into this business? In every one of these acquisitions, these purchasers were themselves willing to take risks on difficult dealerships that more typical buyers passed over. We believe that, depending on the franchisor, there is still a window of opportunity for qualified non-dealers to gain entry into this business. . t Nancy Phillips Associates specializes in sales, acquisitions and evaluations of franchised automobile dealerships. Contact Nancy Phillips at (603) 658-0004 or

Have an opinion you want to share? Email rokoniewski@msada.org.

DECEMBER 2015

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MSADA

TRUCK CORNER American Truck Dealers Move the Industry Forward

By Eric K. Jorgensen

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Massachusetts Auto Dealer JUNE 2015

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