Nov 2017 Massachusetts Auto Dealer Magazine

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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FIRST CLASS MAIL US POSTAGE PAID BOSTON, MA PERMIT NO. 216

November 2017 • Vol. 29 No. 11

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

Driving the Future

OW H OS T AU

W E I EV R P

2018

Dealer Summit

& Twentyfirst Annual Charity Gala

January 12 Summit begins 1 p.m.

Gala begins 5 p.m.

For event registration, contact jfabrizio@msada.org

Ma s s a c h u s e t t s

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S ta f f 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 Jean Harris Administrative Assistant/ Membership Coordinator jharris@msada.org Auto Dealer MAgazine Robert O’Koniewski, Esq. Executive Editor Tom Nash Editorial Coordinator nashtc@gmail.com Subscriptions provided annually to Massachusetts member dealers. All address changes should be submitted to MSADA by e-mail: jbernal@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 21 Boston Herald 32 Leader Auto Resources 23 Lynnway Auto Auction 22 Nancy Phillips 21 O’Connor & Drew, P.C. 31 Southern Auto Auction 20 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

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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

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From the President: Putting on the Final Touches ASSOCIATE MEMBER DIRECTORY THE ROUNDUP: Legislature Takes Reprieve for Holidays – See You Next Year! (Just Kidding) legislative scorecard TROUBLESHOOTNG: Volkswagen Settlement Update AUTO OUTLOOK ACCOUNTING: Warranty Reimbursement – Tactics of the Manufacturer

15 LEGAL: On The Importance of Accurate Time Records 16 Cover Story: Driving the Future

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NEWS From Around the Horn DEALER SERVICES: With Interest Rates Rising, What Is a Dealer to Do? TRUCK CORNER: ATD Gets Ready for a Season of Change nada Market Beat nada update: Preparing the Shows

COVER ILLUSTRATION BY SEAN RICE, COLIN ANDERSON/GETTY IMAGES

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

Massachusetts Auto Dealer NOVEMBER 2017

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From the President

MSADA

Putting on the Final Touches

As we prepare for the next Auto Show, now is the season to remember how lucky we are.

By Chris Connolly, MSADA President While your Association continues to work hard on putting the final touches on the upcoming 2018 New England International Auto Show (January 11-15) and its Dealer Summit and Charity Gala (January 12), we have been given an important reminder of how lucky we are to be the folks who share these wonderful hunks of metal with the world.

Last month, we shared with you in these pages the importance of giving back to our communities, especially in the spirit of this season. But more generally, we should look inside ourselves as well. I am grateful every day for my family, friends, and this great industry in which I am lucky enough to take part.

I am also fortunate to be able to represent my fellow “I am grateful MSADA members as your Association president. Being in every day for the thick of the policy battles on Beacon Hill and Capitol Hill on behalf of my fellow business community members my family, is a privilege, and I look forward to seeing what lies ahead in the coming months. As you will see in Bob’s column, friends, and there is never any shortage of activity.

In this month’s magazine, we highlight the excitement of the vehicles themselves rather than the regulatory battles surthis great rounding them. We all know that these machines are what industry in get us excited about what we do -- and that is certainly what brings people to our showrooms. The ingenuity of automowhich I am tive technology has been in overdrive since the days of first inventing the internal combustion engine, but every year it lucky enough seems our product is safer, more efficient, and more fun.

We all are going to have our own favorites at the Auto to take part.” Show. Of course, we dedicate our livelihoods to certain manufacturers, and we’d damned well better expect they be the best on the floor. But the bigger message is that with all these new models rolled out for the public, we dealers are here to help get them in the vehicle of their dreams.

This is indeed a critical message: The automotive business is a people-driven business. We are here for our customers. We are here for their convenience and, more importantly, their safety. That is why the laws are the way they are, and why we are always striving to protect and improve them. The Auto Show delivers that message softly, but it cannot be missed.

I hope you will take a look at our preview of some of these great vehicles in these pages, and I hope will you join me in seeing them up close in January. Should you have any questions about registration for our Dealer Summit and Charity Gala, please email Jean Fabrizio at jfabrizio@msada.org. t NOVEMBER 2017

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 [Open]

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 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 Scott Dube, Bill Dube Hyundai

NADA Director

Don Sudbay, Jr., Sudbay Motors

Officers

President, Chris Connolly, Jr. Vice President, Charles Tufankjian Treasurer, Jack Madden, Jr. Clerk, Steve Sewell

Associate Members

MSADA A ssociate M ember D irectory ACV Auctions Will Morris (860) 670-7867 ADESA Jack Neshe (508) 626-7000 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 Armatus Dealer Uplift Joe Jankowski (410) 391-5701 AutoAlert Jessica Gates (816) 506-0515 Auto Auction of New England Steven DeLuca (603) 437-5700 Auto/Mate Dealership Systems Troy Potter (877) 340-2677 Bank of America Merrill Lynch Dan Duda and Nancy Price (781) 534-8543 Bellavia Blatt & Crossett, PC Leonard A. Bellavia, Esq (516) 873-3000 Blum Shapiro John D. Spatcher (860) 561-4000 BMO Harris Bank Chris Peck (508) 314-1283 Boston Globe Mary Kelly and Tom Drislane (617) 929-8373 Broadway Equipment Company Fred Bauer (860) 798-5869 Burns & Levinson LLP Paul Marshall Harris (617) 345-3854 Capital Automotive Real Estate Services Willie Beck (703) 394-1323 Catalogs.com David Solar (954) 908-7122 CDK Global Chris Wong (847) 407-3187 Construction Management & Builders, Inc. Nicole Mitsakis (781) 246-9400 Cox Automotive Ernest Lattimer (516) 547-2242 CVR John Alviggi (267) 419-3261 Dealer Creative Mike Otis (315) 382-3675 Dealerdocx Brad Bass (978) 766-9000 Dealermine Inc. Jane Webb (800) 304-3341 DealerSocket Shelly Del Rosario (949) 900-0300 Downey & Company Paul McGovern (781) 849-3100

EasyCare New England Greg Gomer (617) 967-0303 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 Gatehouse Auto Jay Pelland (508) 626-4334 Gulf State Financial Services Tom Foster (832) 628-1916 GW Marketing Services Gordon Wisbach (857) 404-0226 Harbor First Ron Scolamiero (617) 500-4080 Hireology Kevin Baumgart (773) 220-6035 Huntington National Bank John J. Marchand (781) 326-0823 Independent Power Systems Mariana Seabra/Ryan Ferrero (978) 998-4079 Todd Stratford, (617) 777-0365 JM&A Group Jose Ruiz (617) 259-0527 John W. Furrh Associates Inc. Kristin Perkins (508) 824-4939 Key Bank Mark Flibotte (617) 385-6232 KPA Tim Whelan (303) 802-3019 Leader Auto Resources, Inc. Curt Murray (978) 201-4797 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

www.msada.org

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 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 Mike O’Connor (860) 462-7958 Robinson Donovan Madden & Barry, P.C. James F. Martin, Esq. (413) 732-2301 Samet & Company John J. Czyzewski (617) 731-1222 Santander Bank Richard Anderson (401) 432-0749 Schlossberg & Associates, LLC Michael O’Neil, Esq. (781) 848-5028 Sentry Insurance Company Eric Stiles (715) 346-7096 Shepherd & Goldstein CPA Ron Masiello (508) 757-3311 Silverman Advisors, PC Scott Silverman (781) 591-2886 Southern Auto Auction Tom Munson (860) 292-7500 SPIFFIT Sean Ugrin (303) 862-8655 Sprague Energy Claude Peyrot (603) 430-7254 SunPower Christie McCarthy, (408) 457-2357 SunTrust Bank Michael Walsh (617) 345-6567 Target Dealer Services Andrew Boli (508) 564-5050 TD Auto Finance Marc Gerhart (781) 697-1525 TrueCar Pat Watson (803) 360-6094 US Bank Vincent Gaglia (716) 649-0581 Wells Fargo Dealer Services Stephen Janetz (215) 986-8498 Zurich American Insurance Company Steven Megee (774) 210-0092

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The Roundup

Legislature Takes Reprieve for Holidays – See You Next Year! (Just Kidding)

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

The Massachusetts Legislature, being one of the few in the country that meets continuously in a full two-year session, needs rules to govern the pace of play, otherwise too much might get accomplished in too short a time, thereby leaving them to ponder “what next?” As such, having survived the post-Labor Day pre-holiday rush, the General Court broke off formal sessions as demanded by its rules, at midnight on Wednesday, November 15.

Regardless of the lack of full formal sessions, where roll calls can be taken, over the span of the next several weeks until Baby New Year 2018 wends his (or her) way onto the scene, plenty can still be accomplished by our elected officials, albeit within the confines of unanimous consent during the twice a week informal sessions.

In fact, as the House and Senate rushed to pass each’s own version of criminal reform, the main thrust being how can we lock up fewer criminals, a conference committee will eventually be named to iron out the chambers’ differences during the holiday season – a Merry Christmas to all those perpetrators of felonies that will soon be mere misdemeanors under the law.

In the meantime, as we go to press, the secretary of state and the attorney general will be keeping a close eye on which of the sponsors of the 21 proposed ballot questions for next year will have the requisite number of signatures (64,750) filed with city and town clerks by the close of business on Turkey Day eve, November 22. Proponents of the sales tax cut, the $15 minimum wage, and the paid NOVEMBER 2017

Massachusetts Auto Dealer www.msada.org

family and medical leave proposals all are confident of having the necessary signatures filed in order to get to the next step – having the proposed laws filed with the legislature’s clerks as a bill for public hearing before the pertinent committee.

We already know the millionaires’ tax is slated for the November 2018 ballot. But that effort could be derailed by a court challenge filed by several business groups, claiming the proposal is unconstitutional. The state’s highest court has set a hearing for early next year.

On our legislative front, we received good news this month when, after its November 13 public hearing, the Joint Committee on Transportation reported out favorably Senate 1982, dealing with the used vehicle record book, filed by state Sen. Michael Rush (D-West Roxbury), a strong dealer advocate who represents the Norwood Auto Mile.

(Rep. John Rogers (D-Norwood) also filed identical legislation.) The legislation would reform the used vehicle record book requirement by allowing franchised dealers, in the alternative to maintaining a hand-written log book, to keep the required information in the dealer’s data management system, in an electronic format approved by the Registry of Motor Vehicles. Last session’s attempt to overcome this archaic vestige of record keeping practices dating to the Woodrow Wilson administration came up one step short on the last night of the session. Hence, back to the starting line.

Nevertheless, we are working hard to “reform” this practice, now celebrating its 100th birthday.

All eyes were on the RMV this month as we

MSADA proceeded into Month Two of the rollout of the revamped motor vehicle inspection program, which really had a rough start.

We heard from dealers who were experiencing problems, but the RMV has done a good job putting out those fires as they popped up. Should you still be having issues, let us know so we can get your matter resolved. Also, you can use the following website for all Massachusetts Vehicle Check-related information: www.

MassVehicleCheck2017.com.

Staying with inspection stations, we are actively working with the Senate Ways and Means Committee in an effort to get Senate 2139 onto the Senate floor for action. This bill would allow a franchised dealer, who has opened a new dealership or has sunk considerable money into the re-construction of an existing store, to obtain an inspection license upon request to the RMV registrar. Filed by Sen. Vinny deMacedo (R-Plymouth), a strong dealer advocate, this bill was approved by the Senate last session but died in the House Ways and Means Committee along with an identical House bill. With the RMV sticking to its made-up need to have a cap on licenses, new dealerships have suffered the brunt of lacking inspection capabilities. Even though we were able to help a number of new dealerships obtain licenses under the prior program, as the dealer community grows the need for these service will also. If you wish to assist us with your legislator on this effort, or on any other piece of our legislative agenda, give me a call. (See our Legislative Scorecard following this column.)

MSADA-Blum Shapiro CFO & Controllers Summit – Dec. 12, Natick As 2017 nears to a close, we at your Association continue to field calls from our members regarding a host of issues – • What is going on in Washington with these tax reform proposals?

• Potential data breaches at my dealership concern me – what can I do to implement

the necessary cybersecurity measures?

• I think I can be doing better with my fixed ops – whom can I talk to?

• Ongoing legal issues with my franchise and the factory seem to be heating up – what should I be looking out for?

These are just a small sample of what we hear, and I am sure you share some, if not all, of these concerns.

To address dealers’ questions (as well as those of your CFO and/or controller), we are partnering up with our associate member, Blum Shapiro, for a one-day CFO & Controllers Summit, designed to tackle a host of legal, accounting, and tax issues.

This event will be held on Tuesday, December 12, 2017, 8:30 a.m. – 3:30 p.m., at the Verve Hotel, 1360 Worcester Street (Route 9), Natick.

Check out our ad in this month’s magazine. We are offering this one-day summit at the MSADA-subsidized price of $125/person. The registration fee covers continental breakfast, lunch, and various materials.

Plus, for each dealer principal who registers and attends, he or she can bring one key manager at no charge.

Do not pass up this wonderful opportunity, sponsored by your MSADA, to protect your dealership and get a handle on a number of issues roiling our industry presently. Should you require any additional information, please do not hesitate to contact me.

DealerPro Workshop – Dec. 14, Plymouth On Thursday, December 14, at the Hotel 1620 in Plymouth, your Association will conduct a full-day workshop presented by Don Reed, CEO of DealerPro Training Solutions. In his presentation “Six Simple Changes for Record Profits in Fixed Ops”, Don will cover: • Always put your customer first • Recruit service advisors • Compensate to motivate • Build your own profit improvement plan www.msada.org

• Learn four essentials to 100% absorption • Identify opportunities for fixed ops improvement Check out our ad in this month’s magazine. To register, contact me or use the registration forms that have been mailed and emailed to you.

We are offering this one-day workshop at the MSADA-subsidized price of $150/person. The registration fee covers continental breakfast, lunch, and seminar workbook.

Plus, for each dealer principal who registers and attends, he or she can bring one key manager at no charge.

2018 Fuel Economy Guide Now Available The U.S. Department of Energy and the Environmental Protection Agency recently released the 2018 Fuel Economy Guide. The Guide provides detailed fuel economy numbers for MY 2018 light-duty vehicles, along with estimated annual fuel costs and other information for prospective purchasers.

To ensure that customers have ready access to fuel economy information for current model year vehicles, dealers may choose to print copies to have on hand or provide access to the electronic version/ website on a computer or electronic device.

New rules to be aware of for 2018: • Enhanced Electronic Access: The 2018 Fuel Economy Guide is available in electronic format only. The online guide will be updated periodically to include newly released vehicle models and current fuel cost estimates. You can download the latest guide and print copies from the electronic file as needed at http://www. fueleconomy.gov/feg/dealers.shtml; • Display Signage: Dealers can download, print and display a poster directing customers to the Fuel Economy Guide (this is optional and is not required by law). Go to https://www.fueleconomy. gov/feg/dealers.shtml; and

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The Roundup • An EPA/DOE letter details how to make the guide available to customers. Go to: https://www.fueleconomy.gov/feg/pdfs/ guides/FEG2018_Dealer_Letter.pdf.

If you have questions contact NADA Regulatory Affairs by email at regulatoryaffairs@nada.org.

2018 Auto Show, Dealer Summit & Charity Gala Circle the dates now – MSADA’s 61st edition of the New England International Auto Show will run January 11-15, 2018, 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 12, our Twenty-First 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 1:00 p.m. to 5:00 p.m., at which we will have several speakers discuss on-going events in our industry.

MSADA Dealer Support Programs – Are You Using Them?

Since 2014 your association has administered a program in which we subsidize the cost of certain compliance efforts dealers go through at their stores.

Through this program, we have supported dealers’ use of Fisher Phillips for employment law services, such as pay plans, employee handbooks, etc.; KPA and Furrh Associates for OSHA and environmental compliance; and O’Connor & Drew for tax compliance and cybersecurity protections. Your Board of Directors voted at its December 2016 board meeting to continue these programs for 2017.

In addition to the compliance assistance, your Board voted to reauthorize the community outreach program for 2017,

NOVEMBER 2017

in which we assist dealers’ efforts for up to $1,000 annually.

Do not hesitate to contact us regarding these programs so you do not lose out on these services supported by your association.

Federal Tax Reform – Debate Continues As we go to press, the U.S House has successfully passed its version of tax reform, altering various pieces of the personal and corporate codes. The Senate Finance Committee has issued a framework for its own proposal, scheduled to be taken up right after the Thanksgiving break. The key piece dealers are watching is the treatment of interest deductibility. The House would allow for 100% deductibility of finance interest, especially as it relates to floor planning. The Senate would only allow for up to 30% deductibility. Although NADA has been lobbying the Senate strenuously to move to the House position, it does not seem likey the Senate is willing to go there at this time.

Other key provisions and how each chamber treats them are as follows: Top individual tax rate: House – 39.6%, four individual tax brackets Senate – 38.5%, seven individual tax brackets Estate tax: H – Expands exemption to almost $11 million per person; tax repealed in 2024 S – Expands exemption to almost $11 million per person Corporate rate: H – 20%, starts in 2018 S – 20%, starts in 2019 Top pass-through rate: H – 25% with caveats S – Above 30% State and local deductions: H – Preserves for property tax up to $10,000 S – Eliminates

Massachusetts Auto Dealer www.msada.org

MSADA Medical expense deduction: H – Eliminates S – Preserves Student loan interest rate deduction: H – Eliminates S – Preserves Personal exemption: House and Senate eliminate Standard deduction: House and Senate each nearly double Alternative minimum tax: House and Senate eliminate Child tax credit: H - $1,600 per child S - $1,650 per child

Congratulations – Martin Truex, NASCAR Champ On Sunday, November 19, at Homestead-Miami Speedway, driving a 2018 Toyota Camry for Furniture Row Racing, Martin Truex won his eighth race of the year on the way to capturing NASCAR’s top crown, the Monster Energy Cup. Furniture Row Racing is unique in that it is a one-car team (although it does have a technical relationship with Joe Gibbs Racing), and it is the only racing team based west of the Mississippi, making its home in Denver, Colorado, at a time when most teams are headquartered in North Carolina. Congratulations to the New Jersey native, who extends the recent long-list of non-Southerner champs, such luminaries as Jeff Gordon, Jimmie Johnson, Kevin Harvick, Brad Keselowski, Tony Stewart, the Busch brothers, to name a few. Just 90 days to go until the 2018 Daytona 500 on February 18

Employment Law Seminar, Dec. 7, Springfield MSADA will conduct its next employment law seminar with attorney Joe Ambash of Fisher Phillips on Thursday, December 7, at 9:00 a.m., at the Tower Square Hotel (formerly the Springfield Marriott), in Springfield. Use the registration form that has been emailed to you to sign up. t

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MSADA

Troubleshooting

Update on the Volkswagen Settlement

By Peter Brennan, Esq.

MSADA Staff Attorney The world was shocked when, in September 2015, Volkswagen admitted to using software designed to cheat emissions tests on several “clean diesel” vehicle models across the Volkswagen, Audi, and Porsche brands (collectively, “Volkswagen”). Since the bombshell admission, the company has entered into settlements with the U.S. government and several states, and it has paid a record number of fines and penalties related to the scandal.

As settlements have been finalized and money begins to be paid out to claimants

by Volkswagen, the beneficiaries will include the usual suspects, such as environmental programs and advocates, but also auto dealers, especially Volkswagen brand dealers and those that sell heavy duty trucks or ZEVs. In the years following the discovery of the cheat devices, Volkswagen entered into a series of partial settlements to resolve civil claims stemming from the company’s alleged violation of the Clean Air Act (CAA). These settlements, involving Volkswagen, the federal government, and various state governments, came with a price tag of roughly $15 billion dollars. Of the initial $15 billion, roughly $10 billion was earmarked for consumers.

Affected vehicle owners were given the opportunity to sell their cars back to the factory in exchange for the NADA clean trade-in value of the vehicle, plus restitution payments of $5,100 to $9,900. Leaseholders were made whole with a lower cash payment and the ability to terminate

their lease and return the vehicle to the factory.

After previously rejecting several proposed remedies, regulators in October 2017, approved recall fixes for owners of several models who wished to remain in their vehicles. Under the terms of the settlement, consumers have until September 1, 2018, to determine whether they will accept a buyback or repair, and all buybacks and recall work must be completed by June 30, 2019.

Tied in with the initial CAA claims, Volkswagen settled with Massachusetts and other states for violating the states’ unfair and deceptive trade practices laws. This settlement, of $570 million, was distributed among the 37 states that formed a coalition to bring an action against Volkswagen and equated to roughly $1,000 for each subject vehicle sold in those states. The portion of this settlement earmarked for Massachusetts is more than $20 million.

As part of the CAA settlements, Volkswagen is also required to invest an additional $2 billion in the promotion and adoption of ZEVs. Of this $2 billion in ZEV-promotion money, California will receive $800 million, while $1.2 billion will be spent in the rest of the United States pursuant to a court-approved “National ZEV Investment Plan”. Volkswagen has created a subsidiary, “Electrify America”, to fulfill the automaker’s commitments under this section of the settlement, and it must invest $300 million every 2.5 years in ZEV infrastructure, education and public outreach, and activities to increase ZEV exposure or access.

In addition to spending $2 billion promoting ZEVs, Volkswagen must establish an environmental trust fund to mitigate the damage caused by the excess nitrogen oxides that may have been released into the air by the cheat-device enabled vehicles.

Atmospheric environmental justice will not come cheaply. The company must fund an environmental mitigation trust fund with $2.7 billion. Of that money, Massachusetts will receive over $75 million.

Under the agreement, 15% of the $75 milwww.msada.org

lion that Massachusetts will receive can be spent directly on infrastructure to support ZEVs, while the rest will go towards other ways to reduce atmospheric nitrous oxides.

This money cannot be distributed to the Commonwealth until trust documents are finalized and an administrator appointed by the state is approved, both of which are expected to happen in time to meet a December 6, 2017, deadline.

Heavy-duty truck dealers should see an immediate benefit from the distribution of the money in the trust, as many heavy-duty trucks are eligible to have their engines replaced under the terms of the settlement.

The Massachusetts Department of Environmental Protection plans to hold public hearings to receive input on how to spend the trust fund money, and it has set up a website where Massachusetts citizens can weigh in remotely: https://www.mass.gov/ guides/volkswagen-diesel-settlements-environmental-mitigation.

The Massachusetts Attorney General, having previously reserved the Commonwealth’s right to pursue environmental claims against Volkswagen, joined with nine other states to file a lawsuit in July 2016 against the automaker for violating state environmental laws. In March 2017, this lawsuit was settled for $157 million, including a $20 million payment to Massachusetts. In addition to the monetary penalty, Volkswagen agreed to stipulations regarding the availability of new ZEVs in Massachusetts. The stipulations, in part, require Volkswagen to make each current and new battery electric model available every year to Massachusetts dealers, and to provide Massachusetts dealers with advertising and promotional support, as well as sales incentives and service support t If you require any additional information on this or any other legal topic, 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.

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AUTO OUTLOOK

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MSADA

ACCOUNTING

Warranty Reimbursement – Tactics of the Manufacturer

By Frank O’Brien

O’Connor & Drew A

member of the firm

since

1998, Frank

man-

ages the firm’s internal and fraud diviTo contact, email: fobrien@ocd.com audit sion.

Since the enactment of the amendments to the Chapter 93B Dealer Franchise Laws in 2012, most dealers in the Commonwealth have capitalized on the warranty reimbursement provisions by submitting for warranty parts and labor reimbursements at retail rates. This has not stopped certain manufacturers from manipulating the true compliance with the law. Below are some examples of the specific tactics that have been employed by certain manufacturers and our advice on how to address them:

General Motors

Manufacturer Tactic: GM implemented the Option A vs. Option C tactic over a decade ago. Upon submitting a warranty parts reimbursement, GM transfers dealers from Option C to Option A for both parts and labor. Most GM dealers have grown accustomed to Option C’s annual labor rate increase based upon the Consumer Price Index, but with Option A, General Motor freezes the labor rate. As a result, we have seen many dealers submit the parts increase and overlook the labor rate for multiple years, foregoing hundreds of thousands of dollars in addition gross profit.

OCD Recommendation: Dealers should consistently review their labor rates to determine the difference between their retail rate and their warranty rate. Based on our experience, any dealership with a delta of $10 or more should perform the warranty labor analysis, which is the same 100-RO analysis as parts.

Manufacturer Tactic: Over the past few months, we have heard reports of GM sending letters to dealers requesting repair NOVEMBER 2017

orders in order to “audit” the dealers’ current warranty labor and parts rates.

OCD Recommendation: State law does not include language that allows the manufacturer to audit and subsequently lower the warranty rates of a dealer. Prior to responding to such a letter, we recommend that the dealer contract us, MSADA, and legal counsel to discuss possible options.

Additionally, any submissions sent to GM should be done at the dealer’s discretion using strategies to maximize its rates.

Subaru

Manufacturer Tactic: In the past, Subaru calculated the difference between what they called MSRP (67%) and the dealer’s average mark up. However, MSRP is a parts matrix controlled by the manufacturer where a portion of the parts are marked up 67% but other higher dollar parts marked up at significantly lower rates. Additionally, Subaru capped the dollar value in which they applied the higher rate based upon the part values in the dealer’s calculation. Recently, Subaru has been approving dealers at a straight forward cost plus rate calculation without any caps.

OCD Recommendation: Subaru dealers that were approved under the old method should resubmit under the new calculation methodology, which will most likely result in thousands of dollars of additional gross profit a month.

Chrysler and Ford

Manufacturer Tactic: State law explicitly excludes maintenance items from the 100-RO calculation for both parts and labor. Chrysler and Ford have both taken the approach that some maintenance items, such as brakes, alignments, and wiper blades, actually do count in these calculations. As these items tend to be competitively priced, the inclusion of these parts and labor operations brings the rates down.

OCD Recommendation: Ford and Chrysler dealers should review their pricing on these items. While we understand that they should be competitively priced, the labor should be charged at a rate of at least $100 per hour and the parts should be

Massachusetts Auto Dealer www.msada.org

marked at MSRP. Additionally, Ford and Chrysler count accessories, which should be charged close to full retail for labor.

Toyota and Lexus

Manufacturer Tactic: Toyota and Lexus have taken the stance that since they pay MSRP for parts that this means that they are in compliance with the law and can reject dealers who have submitted for retail using the 100-RO analysis.

OCD Recommendation: “MSRP” is not the same as “retail.” In fact, the Massachusetts law clearly states that warranty compensation for labor and parts should not be less than the rates charged to the dealer’s customers for the same types of repairs, as calculated by submitting 100 consecutive customer paid repair orders to substantiate the rate. We recommend that Toyota and Lexus dealers unify as a group in conjunction with the state association in an effort to pursue true retail rates for parts.

Mercedes-Benz

Manufacturer Tactic: Mercedes-Benz previously has taken a similar stance as Toyota and Lexus. However, there are some dealers in the state that have challenged this issue with Mercedes-Benz and been awarded retail rates in accordance with the law.

OCD Recommendation: We recommend that Mercedes-Benz dealers prepare and submit the 100-RO calculation to substantiate its rate. If the submission is denied, prepare a response letter to challenge Mercedes-Benz’s non-compliance with the law.

Nissan

Manufacturer Tactic: Nissan and Infiniti surcharges its dealers a set dollar amount on every vehicle purchase invoice to recuperate the cost of paying dealers retail on warranty parts. The Nissan surcharge ranges from $100 to $140 based on model and has increased over time. This surcharge is applied to all dealer invoices within the state regardless of whether a dealer has been approved for retail rates.

OCD Recommendation: Support MSADA’s current effort to amend the law to prohibit such surcharges. t

MSADA

Legal

By Joseph W. Ambash and Jeffrey A. Fritz

On The Importance of Accurate Time Records The Massachusetts Wage Act mandates that employees be paid all wages “earned.”

And Massachusetts law requires employers to keep (for at least three years, although we recommend four) a “true and accurate record” of “the hours worked each day and each week by each employee.”

While penalties for violations of the record-keeping requirement may be rare, such violations are punishable by (1) a fine of upwards of $25,000 and/or imprisonment of upwards of a year for a first willful offense (doubled for any subsequent willful offense), or (2) a fine of upwards of $10,000 and/or imprisonment of upwards of six months for a first non-willful violation (increased to $25,000 and/or imprisonment for upwards of one year for any subsequent non-willful offense). Each day an employer fails to keep such a record constitutes a separate violation.

Aside from such penalties, failing to keep “true and accurate records” of your employees’ compensable time makes defending against wage and hour claims significantly more difficult. To make matters worse, even innocuous failures to pay wages due employees result in automatic treble damages. Every $1,000 an employer fails to pay becomes $3,000. They also may result in your having to pay the employee’s attorney’s fees, which can be very costly, and frequently are brought as a class action.

Having strict policies governing the recording of compensable time is vitally important to ensure compliance with the law and minimize risk. Simply having such policies, however, is not enough. You need to ensure they are followed by managers and employees alike. Indeed, if you have actual or constructive knowledge that employees are working “off-the-clock”—for example, performing work-related tasks while at home, or in transit away from your dealership—you can still be held liable, regardless of what your policy says

and/or whether the employee claiming the violation failed to comply with it.

Take, for example, a very recent case against a pharmacy in Massachusetts federal court. In that case, technicians claimed they periodically were required to take an online training course, which they frequently had to do at home, and for which they were not compensated. Like most responsible employers, the pharmacy had acceptable time and compensation policies in place. For example, they required all technicians to record and report all time worked, and to review and sign their time cards to verify they had been paid for all hours worked. The pharmacy also had a policy that all technicians must be paid for time spent taking their online training course, whether done at the store or remotely. And, finally, the pharmacy made clear that it is a violation for technicians to work “off the clock,” or for anyone to instruct or encourage another employee to perform uncompensated work.

Nonetheless, some technicians took their online training at home and did so “off the clock.” In many instances, the technicians themselves failed to report the time they worked to the appropriate person because, according to them, they were told, or it was suggested, they would not be paid for it. Nonetheless, the Court determined that the evidence showed that managers and supervisors knew these technicians were taking their online training at home, and that they were not being compensated for it.

Accordingly, the Court found in the technicians’ favor and, since the pharmacy did not have records of the compensable time at issue, issued damages based largely on how much uncompensated time the technicians said they worked (so long as what they said seemed reasonable).

The Court awarded contractual damages going back six years, unpaid wages going back three years (which were trebled), www.msada.org

and may award significant attorneys’ fees (although, at the time of this writing, that matter remains unsettled).

As the foregoing shows, having good policies in place simply is not enough.

They need to be enforced as well. Turning a blind eye toward “off-the-clock” work—be it having an employee run a work-related errand on the way home, or allowing employees to make after-hours calls to potential customers, or the like— only increases the risk of liability.

You can (and should) have a policy that requires all employees to log accurate records of their time worked. Conversely, you cannot have a policy that says employees will only be paid their wages if they comply with that policy. While you certainly can discipline an employee for failing to comply with the policy, that discipline cannot consist of a deprivation of wages s/he earned by virtue of his or her work.

Certainly, if an employee performs “off the clock” work for your benefit of which you have no actual or constructive knowledge, you are probably in the clear. But, if you have any reason to know they are working “off the clock,” you need to take steps to remedy the situation and ensure they are paid appropriately. t

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

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COVER STORY

PREV

Nissan Maxima

Discover the 2018 Nissan Maxima, a luxury sedan with striking aerodynamic styling.

Driving

The next wave of innovation on display

Ford F 150

The 2018 F-150 is sporting its most advanced powertrain lineup ever, so it is no surprise that best-in-class torque and capability features come right along with it.

GMC Terrain

Experience the next chapter of design from GMC the striking and refined 2018 Terrain small SUV.

NOVEMBER 2017

Massachusetts Auto Dealer www.msada.org

MSADA MSADA

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VIEW Cadillac CT 6 The CT6 pushes the envelope for performance, technology, and craftsmanship.

Innovatively engineered and meticulously appointed, it exudes substance and style.

Lexus LX

The 2018 Lexus LX boldly traverses into the territory of uncompromising refinement and capability as a flagship luxury utility vehicle.

the Future

at the 2018 New England International Auto Show VW Beetle

What do you get when you cross iconic design with modern features like stylish bumpers and available Bi-Xenon headlights? You get a true original, once again.

Chrysler Pacifica

Toyota Tundra

To build a machine as tough as the 2018 Toyota Tundra, it takes a nation. That is why you can feel the pride that goes into crafting each and every Tundra in the United States.

The Chrysler Pacifica, a minivan that earned Cars.com’s top award with its arrival for 2017, has upgraded multimedia systems and a standard blind spot warning system with crosstraffic detection.

Audi RS 5

The 2018 Audi RS 5 Coupe is all grown up—a smooth, quiet, comfortable, connected grand tourer, albeit one that packs a 450-hp punch.

www.msada.org

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DRIVING THE FUTURE

Hyundai Sonata

The 2018 Hyundai Sonata features a new design and advanced safety features like blind spot detection. The Sonata makes every mile a little better.

Infiniti QX 80

With subtle exterior upgrades and a sophisticated interior evocative of an executive boardroom, drivers will get an amplified sense of power and luxury.

The 2018 Ram Rebel features a turbocharged engine, faster acceleration, and a durable storage system.

Porche 911 GT3

An expanded palette of Porsche’s best components gives the 911 GT3 even more allure.

Kia Stinger

Kia’s GT Concept Car brought to life as a true Grand Touring vehicle, complete with rear- or all-wheel drive, premium amenities, and head-turning design.

NOVEMBER 2017

Ram Rebel

Chevy Corvette

The 2018 Corvette provides the perfect combination of power and handling to create a stunning sports car.

Massachusetts Auto Dealer

www.msada.org

MSADA

MSADA Acura TLX

PREVIEW

This new model features aggressive, sporty design, and new technology features throughout.

From luxury supercars to the latest in electric vehicles, the New England International Auto Show offers the full range of next-

Subaru Ascent

All-new for 2018, Subaru’s return to the three-row vehicle features a 2.4-liter four-cylinder engine.

Volvo V90

With this new wagon model, Volvo’s top shelf is officially full.

generation automotive technology.

Jeep Wrangler Sport Engineered to be capable and trail-rated tough.

www.msada.org

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NEWS from the NEWS from Around Around the Horn Horn from Around

NEWS the Horn

DEDHAM

HANOVER

Man Charged with Stealing $700K from Dealership

Planet Subaru Highlighted in Automotive News

A former selectman has been charged with embezzling more than $700,000 from the car dealership group where he once worked.

The Sun Chronicle reports that Timothy Giblin was released on bail after pleading not guilty in November to 14 charges, including larceny and forgery.

Prosecutors say he stole the money while working as comptroller for the Gallery Automotive Group and used some of it to pay college tuition for his children. He allegedly printed 34 checks without permission and forged someone else’s signature on some of them.

Giblin served on the Norton board of selectmen for 11 years until resigning in March when the allegations came to light.

Giblin refused to comment outside of court. His lawyer called him “a gentleman of significant standing in his community.”

Brothers Jeff and John Morrill aimed to create an inclusive environment when they opened Planet Subaru in 1998 in Hanover. Automotive News recently highlighted that the dealership’s ratio of women — 30.3 percent of all employees and 35.5 percent of sales reps — is well above the industry average.

Two of three service advisers, plus the service manager, are women. Having more women on staff helps the leadership team make better decisions and attracts customers who like to work with women, Jeff Morrill told the publication. Yet he notes that, even as progressive as he and his brother try to be, the dealership staff is not yet half women.

“This is an industry where men still occupy nearly all the positions of power,” Morrill said. “So until there are more women in those positions of power, it’s really incumbent on the men to bring more women into the business so those women can be part of the decision-making in the future.”

NOVEMBER 2017

Massachusetts Auto Dealer www.msada.org

MSADA BOSTON

Prime Motor Group’s BuySell Move Featured in Automotive News Prime Motor Group CEO David Rosenberg’s move of a large portion of the company to a New York asset management company drew interest from Automotive News this month as a way to build competitive advantage as the industry changes.

“With everything going on in the automotive business today, you need to be super aggressive, have as much scale as possible, and be an efficient retailer of automobiles,” Rosenberg told the publication. “To do that, you need a lot of capital and a lot of size.”

Rosenberg added that the arrangement will position the company well for an increased presence of electric and automated vehicles in the coming years.

WASHINGTON

NHTSA Announces VW Airbag Recall Probe U.S. safety regulators are investigating complaints that a Volkswagen recall may not fix a wiring problem that can stop the front driver’s airbag from inflating in a crash.

The probe by the National Highway Traffic Safety Administration covers nearly 416,000 vehicles, including the 2010 to 2014 CC and Passat, the 2010 to 2013 Eos, the 2011 to 2014 Golf, GTI, Jetta and Tiguan, and the 2012 to 2014 Jetta Sportwagen.

VW recalled the cars in August of 2015 because wiring in the steering wheel can fail, cutting the electrical connection to the air bag. But the agency says it has received 90 complaints of failure since the recall began. It has no reports of crashes or injuries.

Volkswagen blamed the problem on debris in the steering wheel hub that can cause the wiring to tear. If the electrical connection fails, it would set off the air bag warning light.

The safety agency will find out how often the problem happens and decide if another repair is needed. www.msada.org

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Around the Horn NEWS fromSERVICES DEALER

MSADA

BOSTON

Delphi Acquires Boston-Based Autonomous Vehicle Company NuTonomy will be acquired by a major global auto parts supplier, a deal that could hasten the deployment of autonomous vehicle technology around the world.

Delphi Automotive will pay at least $400 million to acquire the Boston-based company, with as much as $50 million in additional payments based on performance.

NuTonomy, which emerged from the Massachusetts Institute of Technology and headquartered in the Seaport District, will remain based in Boston and continue to operate as a standalone business unit, Delphi chief technology officer Glen De Vos said.

The startup was the first to test self-driving technologies on Boston roads and recently received city approval to begin offering rides to passengers.

NOVEMBER 2017

Massachusetts Auto Dealer www.msada.org

MSADA

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CAMBRIDGE

Lamborghini and MIT Announce Self-Healing Concept Car Engineers at Lamborghini are collaborating with researchers at MIT on a self-repairing electric supercar concept that does not have batteries and stores electrical energy within its own body panels.

Through the so-called Terzo Millennio (Italian for third millennium), which was unveiled at MIT’s annual EmTech conference in Cambridge, the two groups are exploring a range of ideas that they believe could reshape electric vehicles.

The concept is being developed through a three-year collaboration between the two groups that is aimed at exploring the science behind some of Lamborghini’s more outlandish concepts.

At the heart of the concept is a different approach to energy storage. The group aims to develop carbon nanotube supercapacitors that can be integrated into the body of the vehicle and used alongside regenerative braking technology to simultaneously harvest and release electric power.

Details on how this will be achieved, and specifically how the group will overcome the energy storage limitations of supercapacitors, are hazy, with a statement from Lamborghini stating an ambition to “better the limits of current technology and close the gap on conventional batteries’ energy density.”

The project also aims to develop technology that would be able to continuously monitor the vehicle’s carbon fiber structure for small cracks and trigger a self-healing process that see carbon nanotubes released to fill in the cracks and prevent them from spreading. In this case, a self-repairing process starts via

micro-channels filled with healing chemistries, reducing to zero the risks of small cracks propagating further in the carbon fiber structure.

www.msada.org

t

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Dealer Services

MSADA

With Interest Rates Rising, What Is a Dealer to Do?

By Christopher Peck BMO Harris Bank

What is happening with interest rates is always a hot topic among auto dealerships.

That is particularly the case now that the Federal Reserve has been raising rates as part of its gradual monetary policy normalization. It is clear rates will continue to rise, but what that means for dealerships depends on both internal and external factors.

The most obvious impact of rising shortterm rates is on dealers’ carrying costs.

Manufacturers prefer dealerships to carry a large inventory because it provides potential buyers with many choices. But it also increases the dealer’s carrying costs. In a rising interest rate environment, keeping inventory levels high will affect profitability.

All About the Inventory Along with rising rates, there is another problem with this scenario. After seven consecutive years of record sales, demand for new cars has been slowing this year.

After the recession, dealers were able to pass carrying costs onto consumers. But with competition heating up amid stagnant demand, it is increasingly difficult to do as dealerships ramp up their incentives. Yes, manufacturers typically provide dealers with floor plan assistance, which is great in a strong sales cycle. But it provides less relief for dealers if manufacturers’ rebate amounts do not match a longer inventory turn and rising interest rates.

Then there is the rising cost of cars. Not only are new cars more expensive than they were a few years ago, the product mix is trending in the wrong direction in terms of cost control. Demand for trucks and NOVEMBER 2017

SUVs is up while smaller vehicles continue to struggle.

The bottom line: If your inventory count is the same as it was two years ago, then it is probably too high.

Meanwhile, long-term interest rates are expected to rise as the Fed begins shrinking its balance sheet. This will affect capital purchases such as real estate and equipment. That is important for dealerships that have yet to complete a store refresh. If you have not completed your upgrade, the sooner you can lock in your interest rate the better off you will be.

who is more hawkish on monetary policy could increase the pace of rate hikes. On November 2, President Trump nominated Fed governor Jerome Powell to be the next chairman. Assuming he is confirmed by the Senate, Powell is widely expected to continue the course Yellen has charted.

But we will have to wait and see exactly what his approach to monetary policy will be going forward. [Note: As we were going to press, on November 20 Janet Yellen submitted her resignation to President Trump, effective with the swearing in of her replacement.]

Not So Fast

Get Proactive

So what is the good news for dealerships? For starters, after the Fed’s initial burst of rate hikes, the pace of activity has been slower than anticipated. Since late 2016 the Fed has raised short-term rates three times: in December, March and June.

Everyone was prepared for a rate hike every three months through the rest of 2017, but that did not happen.

BMO Capital Markets forecasts the next rate increase will occur in December, with the next two coming in June and December 2018. BMO Capital Markets also anticipates two more rate hikes in 2019.

BMO Capital Markets Senior Economist Alex Koustas explains the Fed had intended to implement steady rate hikes to stave off inflation. But despite tightness in the labor markets, wages have not increased and inflation has been kept in check. That has led the Fed to relax its rate hike schedule. Essentially, this gives dealers more time to digest the impact of the most recent rate increases, and it gives them more time to prepare for the next expected round of hikes.

Koustas points out one caveat: Fed Chairwoman Janet Yellen’s term ends on February 3, 2018, and a new chairman

Policy matters aside, dealerships themselves have several tactics at their disposal for mitigating the effects of rising rates, including: • Maintain vehicle inventory at a level commensurate with market demand; • Consider inventory carrying costs as part of the cost of goods sold when determining sales price and salesperson compensation; and • Choose a strong, stable finance source that has demonstrated a willingness to be consistent in lending policies during any interest rate and economic environment.

It is a matter of being proactive about how much inventory you are carrying and being mindful about your projections. In a cycle where interest rates are rising and demand is slowing, larger inventories will reduce your bottom line. It is not easy, but it is how the smart dealerships reduce their carrying costs and, in the process, minimizing the impact of rising interest rates. t

Massachusetts Auto Dealer www.msada.org

Christopher Peck is Director of Dealership Finance at BMO Harris Bank.

For questions or comments, you can reach Chris at chris.peck@bmo.com.

MSADA AUTO OUTLOOK

MSADA TRUCK CORNER

ATD Gets Ready for a Season of Change

By Steve Parker

Baltimore Potomac Truck Centers ATD Chairman

From my vantage point in Maryland, my family and I are enjoying the autumn season. And as October turned to November and as I watched the leaves turn from green to golden hues of orange and red, I realized that a great deal of change is underway both in the season and in our dealer business.

The truck dealer business is changing every day, and we must prepare for what is ahead. To do just that, ATD has commissioned a study called “The Commercial Truck Dealer Future Landscape.” The advent of new driving technology, potential new entrants, and government mandates will change the way we dealers sell to customers and operate our stores.

Another big change is tax reform legislation, as the House tax reform bill (H.R. 1) is being debated this month. ATD has been meeting extensively with the tax-writing House Ways and Means Committee and Senate Finance Committee to advocate for the fair treatment of pass-through entities, including a 25-percent rate on pass-through income. We have also been informing lawmakers about preserving the deductibility of business interest, which is under threat. The Senate tax reform bill will be released once the House bill is reported out of the House Ways and Means Committee. Decisions being made on Capitol Hill will dictate changes we experience in our markets for the next few years.

“The Commercial Truck Dealer Future Landscape” study could not have come at a better time.

ATD will examine what our truck dealer business will look like over the next decade, and we will unveil the results at the 2018 ATD Show in Las Vegas.

Speaking of our annual meeting, I am sure many of you have noticed the name change. Our NADA/ ATD Show was formerly known as our annual Convention & Expo. But make no mistake that ours is still the premier industry event of the year. Please take note of the change to our 2018 schedule: Rather

than a winter show, we will be holding a spring celebration with the conference kicking off the week of March 22 through March 25. I would like to remind all our members that registration for the ATD Show is open. I hope that you will all attend our event in Las Vegas! During that week, it will be my privilege to pass the baton to your incoming ATD Chair Jodie Teuton from Kenworth of Louisiana. You may remember Jodie as our Conventions Chair at our last show in New Orleans. I have been proud to work with Jodie during my time on the ATD board, and I know that she will take the helm with boundless passion and energy.

Finally, the ultimate change is “Father Time.” Soon, this year will give way to the next, and ATD will ring in a new year with all our members and industry allies. We will undoubtedly encounter new challenges, but we look forward to the opportunities ahead. We would not be where we are today if it were not for your support.

With all this change coming, there is one thing that will always stay the same: our commitment to you - our ATD family and all the members whom we are proud to represent. We will never stop advocating for you and your customers. We will never stop protecting our great industry. And ATD will be here for all our dealers through the changing seasons, year after year. t

“We will never stop advocating for you and your customers.

We will never stop protecting our great industry.”

www.msada.org

Steve Parker is chairman of ATD, a division of NADA, which represents 1,800 heavy- and medium-duty truck dealerships.

He is president of Baltimore Potomac Truck Centers in Linthicum, Maryland, which operates five full-service commercial truck dealership locations with Mack, Volvo, and Hino Trucks franchises in Maryland and Virginia.

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NOVEMBER 2017

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MSADA

NADA MARKET BEAT

JANUARY 2016

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MSADA MSADA

Sound Off

Retail Warranty Reimbursement Joseph Jankowski Armatus Dealer Uplift

The factory-dealer relationship is anything but a level playing field, and unfortunately the behaviors of some manufacturers have necessitated state laws to protect dealers. These laws cover a myriad of issues, but one that is critical to your bottom line exists in 40 states, with more on the way.

For years most dealers have submitted for annual increases to their warranty labor rate, but have been stuck with an artificially low parts mark-up stipulated in their dealer agreements. This mark-up is typically 40 percent over cost, although some manufacturers will pay you list or MSRP. By the way, do not be fooled by the “list” claim you may hear.

You are not collecting 67 percent, which is anecdotally thrown around by your factory rep, or by your managers. You are most likely being paid a mark-up in the low-to-mid 50s.

Based on state laws, you are entitled to collect “retail” from your manufacturer for parts used in a warranty claim.

No, retail is not list price or MSRP; in most cases it is clearly defined in the law. Basically, retail is what your customers pay you for a warranty-like repair. In a store with typical pricing and discounting practices, the mark-up normally falls in the 75 percent to 85 percent range. For dealers utilizing a list pricing model, you should expect something in the 60 percent range. So, even in a conservative pricing environment a dealer should expect to improve his warranty gross profit by 50 percent. However, something on the order of doubling the gross is very realistic. This is a onetime process, and does not need to be repeated, unless you materially change your parts pricing strategy.

This is not to say that the manufacturer will simply lie down and grant you a 100 percent improvement in your gross. First of all, the laws mandate a submission and detail what is required of the dealer, but that is just the beginning.

Several things need to be considered in order to ensure the best possible result: Thorough understanding of the law – Rest assured, certain manufacturers will read the statute differently from you. Sometimes the positions they take are rather shocking, including those that will simply refuse to follow the law, or others that will attempt to include non-warranty-like repairs in a deliberate attempt to lower your mark-up.

Following the manufacturer’s protocol – It is critical to understand the factory’s guidelines for the inclusion or exclusion of various aspects of the submission. Each of them have different rules, and they typically won’t disclose all of them to you. If you can determine what they are, you should follow them within reason; do not be combative or send up “legal signals” out of the gate.

Optimization – Absolutely key to this process is achieving the best possible result, and that can only be done through the proper selection of your submission sample.

This is something that should not be left to chance or inferior technologies. Missing your mark-up by even a few points can cost you thousands every year, perpetually. Do yourself a favor, and explore this aspect with some attention to detail.

It will be worth it to you in the long run.

Warranty Auditors – Beyond technology, however, is the need for a thorough audit process. Your declaration will be scrutinized by factory auditors that know every nook and cranny of countering retail warranty submissions. You should have someone familiar with their techniques, in order to preempt or refute their sometimes-questionable positions.

Here again, it is better to get along with these folks, and in many cases, this is not a problem. However, without naming any specific manufacturers, some are extremely difficult.

Factory Responses – In many cases your approval will not be smooth, and the manufacturer may rebut your calculations, or in some instances, summarily reject your submission. Responding in the proper manner is critically important, since it could be the difference between achieving a substantial increase in your warranty parts gross, or obtaining nothing at all. There are many dealers that have resubmitted two, three, or four times over the course of a year or two, costing themselves multiple six figures in lost profit.

The bottom line is that you have an extraordinary opportunity to receive a fair reimbursement for the parts utilized in the warranty work you perform. If this process is approached in a judicious and professional manner, you can quite possibly double your warranty parts gross profit. There are many pitfalls for the uninformed, but tremendous upside for those that perform the submission process properly. t For more information, Contact Armatus Dealer Uplift at (888) 477-2228 or info@dealeruplift.com. Armatus has performed over 3,000 successful retail warranty parts submissions to 24 manufacturers in 40 states.

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

OCTOBER 2017

Massachusetts Auto Dealer www.msada.org

NADA Update

By Don Sudbay

Preparing the Shows 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 enter the holiday season, your MSADA and NADA are ramping up toward two epic displays of the best our industry has to offer. As you will see in this issue, we have many great vehicles that will be on display at our New England International Auto Show in January, and below our NADA Chairman gives an overview of what to expect from NADA. If you have any questions about either upcoming event, do not hesitate to ask. See you on the show floor!

Introducing the 2018 NADA Show

By Mark Scarpelli, NADA Chairman The upcoming NADA Show, March 22-25, 2018, in Las Vegas, is an experience you cannot get anywhere else.

NADA’s is the only four-day event that houses a sold-out expo with more than 500 exhibitors showcasing the latest products and services just for dealers. When you are not shopping the latest and greatest, you will have every opportunity to learn about our ever-evolving business with our revved-up digital programs and a show-wide focus on today’s and tomorrow’s technology. The enrichment continues with more than 100 educational workshop sessions and dynamic lifestyle programs. And our exclusive dealer-franchise meetings are your chance to meet with your OEMs’ top executives and plan for the future.

Most of all, allow me the opportunity to thank all of you in person for this amazing year in which I have been honored to serve you as NADA Chairman. I have been humbled to visit many of your states and metro areas while meeting thousands of fellow dealers and employees. I look forward to seeing you at the Friday general session, where we will welcome University of Alabama football coach Nick Saban, who has won five national championships, four with the Crimson Tide. On Saturday, I will pass the torch to 2018 Chairman Wes Lutz, and we will introduce the CEO of Waymo, John Krafcik. Our Sunday inspirational session will feature Robert O’Neill, former SEAL Team Six leader, killer of Osama bin Laden, and New York Times best-sell-

ing author.

If you have not booked your trip yet, I urge you to do it immediately. Rooms at the most popular premiere hotels are filling up quickly, and six hotels are already sold out.

The U.S. auto industry, consisting of 16,500-plus dealers, manufacturers, customers, and allies, is strong. And your presence at our NADA Show says we are Vegas strong. Just like in any challenging time in our history, the U.S. auto industry must band together and move forward with resilience. We did not survive 100 years without our members’ support. If you are an invested, engaged, and passionate member of our industry, support it! And celebrate it with us in Las Vegas.

This is your celebration, your show, and I will proudly be there. On behalf of everyone at NADA, we will see you at the 2018 NADA Show!

Floor Plan Financing Should Remain Fully Deductible The U.S. House Ways and Means Committee markup of H.R. 1, the “Tax Cut and Jobs Act,” was passed by the House in mid-November. NADA had concerns regarding a provision in H.R. 1 that would have capped interest deductibility at 30 percent of adjusted taxable income. Because dealers rely exclusively on floor plan loans to buy expen-

“Just like in any challenging time in our history, the U.S. auto industry must band together and move forward with resilience.” sive vehicle inventory from auto manufacturers, limiting business interest deductibility would make floor planning more expensive, which would negatively impact dealers, consumers, the auto industry, and the general economy.

The limitation on interest is apparently designed for companies that choose debt over equity for tax purposes. This tax profile does not apply to the majority of dealers who are closely-held companies that use floor plan financing to fund vehicles and do not have access to public equity markets.

The full House fixed the interest deduction issue so that it is 100% for floorplan lending.

In addition, the proposed small-business exemption of $25 million in receipts does not work for most dealers. While

www.msada.org

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MSADA

NADA Update most dealerships are family-owned small business, the average dealership has gross receipts of approximately $60 million annually because of the high cost of automobiles.

Last Chance to Register for NADA Academy Seminar on Advanced Parts Management The NADA Academy will be hosting a weeklong Advanced Parts Management seminar at Northwood University in Midland, Michigan, from December 4-8, 2017.

Attendees will learn how to transform their parts department into a profitable operation by improving inventory, as well as discuss important topics like parts turn and fill rates.

Participants will analyze and discuss their dealership’s performance and walk away with the tools to make significant improvements. The key areas covered include perfecting the mix, profit-centering, understanding customer needs, a deep DMS dive, case study and SWOT analysis, sharing best practices, and more.

Space is limited. For more information, call (800) 5576232 or send an email to academyseminars@nada.org.

NADA Foundation Supports Families After California Wildfires In the early morning hours of Sunday, October 9, Julie Costa woke to the fire alarm going off in the home she was renting in the Fountaingrove area of Santa Rosa, California, about 60 miles north of San Francisco.

With the power out and phone lines down, she received text messages from her son, who lived across town, and a nearby cousin, who were both evacuating their homes. They urged her to do the same.

“It all happened so fast. There was no time to grab anything,” said Costa, who has worked as the controller and office manager at Manly Honda in Santa Rosa since 2002.

“By the time we got outside, the whole area, the winery and entire hill was on fire, and I did not realize how bad it was until I got outside. The wind was so strong. The fire was coming towards us. The neighbor’s house was on fire.”

Costa and her boyfriend, who was visiting from Houston, and her 8-year-old German Shepherd evacuated the home by car.

“There were tree branches and fire on the road. It was crazy. You could not see because of the smoke,” she added.

“It was just insane trying to drive out. We luckily got out.”

They spent the early morning hours sleeping in the parking lot at the car dealership where she works. She instructed her son to meet them at the dealership.

As a result of the wildfires and firestorm, Costa, along with four coworkers at Manly Honda, lost their homes and all their personal items, including clothes, furniture, and electronics. They each received financial assistance from the NADA Foundation’s Emergency Relief Fund.

NOVEMBER 2017

“The U.S. auto industry, consisting of 16,500-plus dealers, manufacturers, customers, and allies, is strong. And your presence at our NADA Show says we are Vegas strong” According to the City of Santa Rosa Fire Department, more than 6,900 structures were destroyed in Sonoma County, including nearly 3,000 homes in Santa Rosa alone.

“It was like a war scene,” Costa said after returning to the property where her home once stood. “Everything is burnt and gone. My entire neighborhood is gone.”

To donate online to the NADA Foundation’s Emergency Relief Fund, go to nada.org. Personal or corporate checks can be made payable to Emergency Relief Fund, c/o NADA Foundation, 8400 Westpark Drive, Tysons, VA 22102. For more information, call (703) 821-7102. Donations to the NADA Foundation are generally tax-deductible; contributors should consult their tax advisors for details.

Cordray to Resign from CFPB, May Run for Ohio Governor Richard Cordray plans to step down as the head of the Consumer Financial Protection Bureau, the controversial consumer watchdog created by President Obama and the Democrat-controlled Congress following the 2008-09 financial crisis, amid growing speculation that he will run for governor of Ohio as a Democrat in 2018.

His decision to leave at the end of November means President Donald Trump should soon get to install his own director atop the bureau, a regulator set up to police mortgages, credit cards, and other financial products.

Cordray’s decision to step down early was welcomed by some of his most vocal critics in the private sector, including NADA. “Corday’s tenure as CFPB director has been marked by a number of ill-fated attempts to stymie consumer benefits of free-market competition, including the CFPB’s attempt to eliminate the ability of auto dealers to discount interest rates for the benefit of their customers,” said Peter Welch, president and CEO of NADA. Welch urged President Trump to appoint a director “who will work with consumers, financial service providers and Congress to ensure that consumers have access to fair and competitive financial products and services.” t

Massachusetts Auto Dealer www.msada.org

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