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

December 2013 • Vol. 26 No. 12

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

Year in Review


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

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St a f f D i r e ct o ry 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 Paul Fellows Administrative Assistant/ Membership Coordinator pfellows@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: pfellows@msada.org Postmaster: Send address change to: One McKinley Square, Sixth Floor Boston, MA 02109 Quarter Page: $450 Half Page: $700

Full Page: $1,400 Back Cover: $1,800

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 Bellavia Blatt Attorneys at Law, 2 BlumShapiro, 23 Boston Herald, 32 Downey & Company, LLP, 21 Lynnway Auto Auction, 22 Nancy Phillips Associates, Inc., 23 O’Connor & Drew, P.C., 31 Schlossberg, LLC, 20 Southern Auto Auction, 24 ADVERTISING RATES Inquire for multiple-insertion discounts or full Media Kit. E-mail jfabrizio@msada.org

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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: Looking Ahead to 2014 THE ROUNDUP: Dealer Summit and Preview Night Party – Register Today LEGISLATIVE SCORECARD TROUBLESHOOTNG: More Frequently Asked Questions ACCOUNTING: From an Aesop Fable AUTO OUTLOOK TRUCK CORNER: Making the Roundtable ACCOUNTING: 2013 Dealership Trends and Analysis

16 Cover Story: Year in Review

20 25 28

NEWS From Around the Horn NADA UPDATE: Countdown to the 2014 NADA Convention & Expo NADA MARKET BEAT

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

Massachusetts Auto Dealer DECEMBER 2013


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from the President

by Scott Dube, MSADA President

Looking Ahead to 2014 Facing challenges new and old

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ith 2013 now in our rear-view mirror, it’s a good time for all of us to reflect on the challenges and successes of the past year and look ahead to what’s coming down the pike. MSADA is here to protect the interests of our member dealers on a small scale and at an industry-wide level. Much of this year for MSADA has been spent holding back the tide of Tesla Motors, which is working across the country to outright destroy the nearly century-old franchise dealer system in favor of an irresponsible and dangerous precedent. Throughout this fight in the court system, we’ve had the benefit of the skilled hands of our own Executive Vice President, Robert O’Koniewski, and new legal team member Peter Brennan. Both have led this fight through the legal twists and turns, and we’re lucky to have them working for us. On the legislative side, in addition to Bob’s years of experience helping see through needed changes on Beacon Hill, many of our own have stepped up to the plate and given hours of their time to lobbying on bills and generally building relationships with our representatives. Chris Connolly and Charlie Tufankjian also joined us for our annual Washington trip, which is no small task. The efforts of Don Sudbday and Dick Witcher on a national level, month in and month out, continue to keep Massachusetts at the forefront of national policy issues. 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. As an architect of the Consumer Finance Protection Bureau, she has her sights set on erasing the compromise forged by our own leadership and Rep. Barney Frank back in 2010. “As you know, the CFPB has authority over nearly every kind of consumer loan, but the big exception is car loans,” she recently said. “The CFPB has done great work in this area… But it makes no sense to me that there

DECEMBER 2013

should be any exception here for consumers who are being tricked out of billions of dollars every year on car loans.” This statement is utterly ridiculous and patently false. 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. I’ve seen one thing clearly throughout this past year, however. We’re a dedicated bunch, and 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.

Register for Dealer Summit & Auto Show Preview Night GAla You can start the New Year off with a bang at our New England International Auto Show Preview Night on January 17, 2014. Our Preview Night Party will feature a Casino Night event where you can experience our own piece of Las Vegas, while trying to win great prizes — all in the name of raising money for our Auto Tech Scholarship Program. 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.

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Msada Board Barnstable County Gary Beard, Dick Beard Chevrolet

Berkshire County Brian Bedard, Bedard Brothers Auto Sales

Bristol County Richard Mastria, Mastria Auto Group

Essex County William DeLuca, Woodworth Motors John Hartman, Ira Motor Group

Franklin County Jay Dillon, Dillon Chevrolet

Hampden County Jack Sarat, Jr., Sarat Ford

Hampshire County Bryan Burke, Burke GMC

Middlesex County Chris Connolly Jr., Herb Connolly Motors Scott Dube, Bill Dube Hyundai

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

A ssociate M ember D irectory Name Contact Telephone ADESA Boston Chris Carli (508) 270-5403 ADP Dealer Services Maria Trezza (973) 404-4466 Albin, Randall & Bennett Barton D. Haag (207) 772-1981 American Fidelity Assurance Co. Tom Trudell (413) 885-5477 AutoRaptor (RAL) Howard L. Leavitt (401) 421-6533 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 (617) 929-8373 The Boston Business Advisory Group Paul Cuomo (781) 681-1501 Vincent Saccone (781) 681-1519 Burns & Levinson LLP Paul Marshall Harris (617) 345-3854 Cars.com Tawanda Falconer (312) 601-5052 Construction Management & Builders, Inc. Kate Sullivan (781) 246-9400 CVR Scott Herbers (714) 684-2614 DealerDOCX Merchon Brower (585) 451-3322 Dealermine Inc. Karen Parmenter (800) 304-3341 x5179 DealerTrack Ernest Lattimer (516) 547-2242 Downey & Company James Downey (781) 849-3100 EasyCare New England Inc. Mike Douglas (770) 246-9724 Ethos Group, Inc. Drew Spring (617) 694-9761 F & I Resources Jason Bayko (508) 624-4344 Federated Insurance Chris Welch (724) 766-6666 First Citizens Federal Credit Union Joe Ender (508) 979-4728 Fisher & Phillips LLP John Donovan (404) 240-4236 Joe Ambash (617) 532-9320 Grant Thornton LLP Alan Oslomowski (508) 926-2200 GW Marketing Services Gordon G. Wisbach Jr. (781) 899-8509 Huntington National Bank John J. Marchand (781) 326-0823 Key Bank James Q. Moretti (781) 558-5132 Leader Auto Resources, Inc. Brendan J. Murphy (518) 878-6341 Lynnway Auto Auction Jim Lamb (781) 596-8500 M & T Bank John Federici (508) 699-3576 MetroMedia Energy Timothy Teevens (800) 828-9427 Micorp LLC Ryan Kim (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 O’Connor & Drew, P.C. Kevin Carnes (617) 471-1120 Performance Management Group, Inc. Mark Puccio (508) 393-1400 Ray-Jurgen Richard Thibadeau (860) 585-0111 R.L. Tennant Insurance Agency, Inc. Walter F. Tennant (617) 969-1300 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 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 Southern Auto Auction Tom Munson (860) 292-7500 Sovereign Bank Richard Anderson (401) 432-0749 Target Dealer Services Andrew Boli (508) 564-5050 TD Auto Finance BethAnn Durepo (603) 490-9615 TD Bank Michael M. Lefebvre (413) 748-8272 Wells Fargo Dealer Services Christopher Peck (508) 314-1283) Wicked Local Media Massachusetts Jay Pelland (508) 626-4334 Windstream Rick Caruth (978) 296-0313; (413) 977-6111 Zurich American Insurance Company Steven Megee (774) 210-0092

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Massachusetts Auto Dealer DECEMBER 2013

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The Roundup

Dealer Summit and Preview Night Party – Register Today by Robert O’Koniewski, Esq. MSADA Executive Vice President Every year your Association’s major event is our auto show. Next month, MSADA’s 57th edition of the New England International Auto Show will run January 16-20, 2014, at the Boston Convention and Exposition Center in South Boston. In order to celebrate our Auto Show, dealers need to circle Friday, January 17, on their calendars when you are invited to attend our 17th Annual Auto Show Charity Gala at the BCEC, 5:00 p.m. to 9:00 p.m. The Gala benefits our Charitable Foundation’s Automotive Technician Scholarship Program. This year’s edition will feature a Casino Night party where attendees can enjoy live gaming opportunities and win great prizes all in the name of raising money for our tech scholarships. Prior to the Charity Gala we will conduct a 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. This year’s key note speaker is Grant Cardone. Invitations have been sent out, so be sure to register as soon as possible. For dealers and their key staff who attend the Dealer Summit, you will receive at registration two free Charity Gala tickets for each meeting attendee. Additional Charity Gala tickets can be purchased in advance for $50 each. (They will be $100 each at the door.) Don’t delay – register today!

RTR Fix Now Law As our November Auto Dealer magazine went to press, the “right to repair” legislation unanimously passed by the Legislature was awaiting

DECEMBER 2013

Massachusetts Auto Dealer www.msada.org

the governor’s review and action. We are happy to report that the RTR fix is officially law, as the governor signed the bill on November 26, thereby creating Chapter 165 of the Acts of 2013. The details of the “fix” were explained in the November magazine. Bottom-line, the ability of OEMs to sell Model Year 2015 vehicles in January 2014 can continue unabated, having avoided the adverse implications the initiative petition had for certain cars and all medium- and heavy-duty trucks.

HR Compliance Seminars On December 4 and 19, your Association hosted HR compliance seminars put on by attorney Joe Ambash of Fisher & Phillips in Springfield and Peabody, respectively. HR law is changing on a seemingly daily basis.  Dealers need to be confident that they are properly running their dealerships in full compliance of federal and state wage-hour and other HR laws. In addition, the overzealous U.S. Department of Labor has approached several Massachusetts dealers in the past couple of months and demanded payment of overtime for detailers working for Real Clean (Kilnapp Enterprises). In addition to the Real Clean situation, issues that the seminars address include how to hire, fire, and manage lawfully; the importance of documenting your employment decisions; social media issues for dealerships, including actions taken by the National Labor Relations Board; and how to properly conduct criminal background checks; At the completion of the seminars attorney Am-


MSADA bash reviews a ten-point check list dealers need to conduct for their dealership HR operations: 1. Evaluate your detailing (i.e. Real Clean) arrangements; 2. Review your employment application; 3. Make sure you comply with the new CORI law if you do background checks; 4. Check your compliance with Massachusetts and federal wage-hour laws; 5. Review your company’s I-9 forms; 6. Review your employee handbook policies for compliance with NLRB and other legal requirements; 7. Create a social media policy; 8. Review and update your Family and Medical Leave Act (FMLA) policies; 9. Review and understand the law against gender identity stereotyping; and 10. Set up employment law compliance training for your managers and supervisors. Failure to comply with employment law requirements can be an expensive proposition for your dealership’s finances should you be on the bad side of an administrative or judicial action against you. Our next seminar is scheduled for our dealers in the SE Massachusetts/Cape Cod region on January 9 at the Radisson Hotel in Plymouth, at 9:00 a.m. If you want to educate yourself and your HR team on how to stay in compliance and avoid expensive litigation, please use our registration materials to signup. Finally, as an additional member service, your Board of Directors has voted to create a compliance review program for dealerships’ pay plans and employee handbooks. Be sure to look for our materials on this program as we roll it out in early 2014.

Katherine Clark, Member of Congress The state’s game of electoral musical chairs continues. On Tuesday, December 10, State Senator Katherine Clark (D-Melrose) became Massachusetts’ newest member of Congress when she beat Republican Frank

Addivinola with 66 percent of the vote in a special election to fill the seat vacated by Ed Markey. The seat opened up when Markey was elected to the U.S. Senate in a special election to fill the seat vacated by John Kerry who replaced Hillary Clinton as U.S. Secretary of State earlier this year. Turnout for the election was a paltry 13 percent, according to Massachusetts Secretary of State William Galvin. Your association supported Cong. Clark with DEAC funding. Cong. Clark’s 5th Congressional District extends from just north of Boston out to the Framingham area. The election gives the district its first new representation in 37 years as Markey was first elected to the House seat in 1976. Cong. Clark was first elected to the Massachusetts House in a 2008 special election and then joined the Massachusetts Senate in 2011. She won the Democrat primary for this year’s Congressional special election with 31.5 percent of the vote, beating six other rivals, including Middlesex County Sheriff Peter Koutoujian and State Senators Karen Spilka and William Brownsberger. Cong. Clark, 50, grew up in New Haven, Connecticut, and has worked for a law firm in Chicago and for the attorneys general offices in Colorado and Massachusetts, where she attended the Kennedy School of Government and also worked for the Massachusetts Office of Child Care Services. Clark received a primary endorsement from Attorney General Martha Coakley, a Democrat candidate for governor next year. Cong. Clark joins two other former state senators in the Massachusetts Congressional delegation – Stephen Lynch (D-South Boston) and William Keating (D-Bourne). Cong. Clark joins Niki Tsongas to double the number of women in the state’s House delegation. Cong. Tsongas herself was elected via special election also, in 2007. As a result of Cong. Clark’s election, Senate President Therese Murray has

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called for a spring 2014 election to fill the vacant state senate seat.

States’ Efforts to Meet Electric Car Mandates The following is excerpted from The New York Times. In an effort to spur lackluster sales of electric cars, California, New York, Massachusetts, and five other states said on October 23 that they would work jointly to adopt a range of measures, including encouraging more charging stations and changing building codes, to make it easier to own an electric car. The goal, they said, was to achieve sales of at least 3.3 million vehicles that did not have any emissions by 2025. The states, which represent more than a quarter of the national car market, said they would seek to develop charging stations that all took the same form of payment, simplify rules for installing chargers and set building codes and other regulations to require the stations at workplaces, multifamily residences and at other places. They said they would also promote hydrogen fueling stations, presuming that fuel-cell cars become more widely available. And they said they would promote “time of use” electric rates that would allow charging at off-peak prices, and expand incentives like high-occupancy lane access and reduced tolls and preferential parking. The states also said they would buy electric cars for their own fleets, and in some cases encourage their municipalities to do the same. The coalition of states — California, Connecticut, Maryland, Massachusetts, New York, Oregon, Rhode Island and Vermont — is roughly the same as the one that formed in the early 1990s to embrace tighter emissions limits on gasoline-powered cars, which the federal government later embraced. Supporters of the program have said that the states had played a crucial role in promoting the market for hybrid vehicles through steps like allowing access to car continued on next page

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The Roundup from previous page pool lanes, and could play the same role with electric cars. Part of their theory now is help remove one of the biggest obstacles to owning an electric car — the underdeveloped network of charging stations. In the East, where drivers often commute across state lines, coordinated action by smaller states will also encourage sales, backers say. The Northeast states have been working together to develop more than a thousand charging stations between Maine and the District of Columbia. The group was working on uniform signage and more standard payment systems — the equivalent of an E-ZPass for electric charging. The states did not give a total amount for what they would spend, and some steps would not cost the governments much money, like letting electric vehicles use car pool lanes or requiring property owners to install chargers. Supporters have pointed out that the states had money from a variety of sources. For example, Connecticut has money paid by Northeast Utilities when it merged with NStar; Massachusetts has an Electric Vehicle Incentive Program financed by the state’s Department of Environmental Protection; and in Maryland, the Legislature approved tax credits. Oregon received financing through the federal stimulus program, as did Rhode Island. Hydro Quebec, the provincial utility, will pay for some charging stations in Vermont. The joint effort comes as sales of electric cars have lagged the Obama administration’s ambitious goal of having one million sold by 2015. The Web site EV Obsession noted recently that through the end of August, sales of the Chevy Volt were at a level that would produce about 22,000 a year, roughly the same as last year. The car runs enough miles on electricity to cover an average commuter’s trip but also has a gasoline engine, which gives it virtually unlimited range. Yet it is not on its way to becoming a mass seller. The Nissan Leaf, DECEMBER 2013

MSADA an all-electric car, was running roughly neck-and-neck with the Volt in sales. Others sold in far smaller numbers. Counting all makes, annual sales of electric cars were running at a little more than 45,000; annual sales of plug-in hybrids, which are intended to run on gasoline and battery power, were running at roughly the same rate. Automakers, facing pressure to meet sales mandates, have been scrambling to increase sales. In August, General Motors said it would cut the price of the 2014 Volt by $5,000. Prices for some other models have also been falling.

Regulation M and Regulation Z Thresholds The Federal Reserve Board and the Consumer Financial Protection Bureau (CFPB) recently 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 increase to $53,500 beginning Jan. 1, 2014. This means that beginning January 1, 2014, consumer credit transactions and consumer leases at or below $53,500 are subject to the protections of the regulations. These increases are consistent with the Dodd-Frank Act amendments to the Truth in Lending Act and the Consumer Leasing Act to adjust these thresholds annually by the annual percentage increase in the Consumer Price Index.  

Seven New Initiative Petitions for 2014 When the Legislature returns to formal sessions in January, lawmakers will have four months to consider seven initiative petitions certified by Secretary of State William Galvin and referred to the House clerk. The Secretary of State forwarded to the clerk the seven petitions whose backers gathered in excess of the 68,911 signatures required to initially qualify for the November 2014 ballot. The initiative petitions include the following:

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• Expand the 5-cent bottle redemption law to water bottles, juices and other drinks; • Raise the minimum wage to $10.50 an hour; • Institute the Patient Safety Act to limit the number of patients a nurse can care for at one time; • Establish mandatory earned sick time for employees; • Limit excessive hospital operating margins and CEO compensation through financial transparency; • Unchain future gas tax increases from inflation; and • Repeal the 2011 legalization of casino gambling. The Legislature has until May 6, 2014, to act on the petitions. If no action is taken, petitioners must gather an additional 11,485 signatures by July 2 to qualify for the ballot. Several of the topics covered by the petitions, such as the minimum wage, are pending before the House and Senate in similar, if not identical, bills. The Senate voted in November to raise the minimum wage to $11 an hour by 2016, and House leaders have suggested they could take up the matter in early 2014, but petitioners could still pursue their ballot question as they wait for resolution, or if a final minimum wage bill does not satisfy their interests.

State’s Unemployment Rate Higher Than U.S.’s As we went to press, the state announced that its unemployment rate of 7.1 percent is higher than the national rate of 7.0 percent for the first time since May 2007, when a 4.5 percent rate was enough to put the Commonwealth above the national rate. This prompted debate amongst experts: Was the national rate catching up to the Commonwealth’s, or was the state falling behind as the rate has stagnated at the high rate as it increased progressively over the last 16 months? There will be more to this story as we begin 2014.

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Troubleshooting

MSADA

More Frequently Asked Questions By Peter Brennan, Esq.

Staff Attorney, MSADA Here at your Association, we field legal inquiries from dealers and their employees on a daily basis. Many of these questions reappear from time to time, and this column will periodically review some of the most frequently asked questions that we field on behalf of members.

Q: A customer recently bought a new car using the following: $8,600 in cash, a $4,000 cashier’s check, and a $3,5000 money order. Do I have to report this transaction to the IRS, even though the total cash amount was less than $10,000? Yes. Under the IRS’s 8300 Reporting Rule, if a dealership receives more than $10,000 in cash in a single transaction they are required to file combined IRS and FinCEN Form 8300. The IRS tracks large cash payments in order to prevent those that have gained funds through illegal means from “laundering” the money by using it in a legal transaction. The IRS considers this Rule one of the main deterrents against criminals involved in the drug trade and terrorism, and thusly takes the reporting requirement very seriously. However, the sum of cash received by the dealer in the above-listed transaction was less than $10,000, so why would DECEMBER 2013

the dealer need to report the transaction? The answer is that, under the Rule, cash is not limited to paper money and coins. “Cash” under the Rule also includes certain monetary instruments such as a cashier’s check, bank draft, traveler’s check, or money order, so long as the amount on these instruments is $10,000 or less. This portion of the Rule is designed to prevent people from buying several monetary instruments in amounts of $10,000 or less and combining them in a single transaction in order to hide the transactions from the IRS. Monetary instruments in amounts over $10,000 do not have to be reported because the institution that issued the instrument is required to report the transaction under a separate Rule. In the transaction listed above, the dealer would need to report the transaction to the IRS because the cashier’s check and money order are treated as cash, bringing the total cash received by the dealer during the transaction to $16,100. After receiving an amount of cash that triggers the Rule, IRS Form 8300 must be filed within 15 days, unless the 15th day falls on a Saturday, Sunday or holiday, in which case the deadline is extended to the next day that is not a Saturday, Sunday or holiday. The customer must also be notified in writing when the transaction is reported to the IRS. However, the customer does not have to be notified until January 31 of the subsequent calendar year, so it may benefit the dealer to delay notifying the customer if the customer is likely to have a negative reaction to this news. The penalties for failing to file a correct Form 8300 as required by the Rule are harsh. Failing to file within the 15day period can bring civil penalties, and intentionally disregarding the reporting requirement can result in a fine of the greater of $25,000 or the amount of cash that should have been reported (up to

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$100,000). Purposely filing a false Form 8300, preventing or trying to prevent a Form 8300 from being filed, or trying to set up a transaction in a way that would make it unnecessary to file a Form 8300 are all seriously frowned upon by the IRS, and such actions carry heavy criminal implications that can result in fines of up to $1.5M and five years in prison. Complying with the 8300 Reporting Rule can be complicated, and occasionally a buyer will further complicate matters by attempting to trick a dealer into not reporting a transaction. Do not hesitate to contact your Association if you have questions regarding any transaction.

Q: Is there a threshold on vehicle damage that we must disclose to our clients? Under the Massachusetts Attorney General’s regulations, 940 CMR 3.16, a dealer must disclose any material fact that would affect a consumer’s decision to purchase an automobile. Thus, the failure to disclose any damage – regardless of dollar amount – that would influence a buyer not to enter into the transaction is an unfair and deceptive practice. Accordingly, dealers need to disclose any and all facts about a vehicle to a buyer or prospective buyer no matter how trivial the information may appear to be. In this manner, a dealership can protect itself and avoid the severe penalties (treble damages, attorneys’ fees) provided under M.G.L. 93A, the Consumer Protection Act. If you have a question that you would like to see answered in this column in the future, 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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Accounting

MSADA

From an Aesop Fable by Michael McKean Michael McKean is of OCD Consulting,

the founder and president an automotive management

development and brokerage firm with clients nationwide.

OCD Consulting is a joint venture of O’Connor & Drew, P.C., New England’s largest independent automotive CPA firm.

A scorpion and a frog meet on the bank of a stream and the scorpion asks the frog to carry him across on its back. The frog asks, “How do I know you won’t sting me?” The scorpion says, “Because if I do, I will die too.” The frog is satisfied, and they set out. However, in midstream, the scorpion stings the frog. The frog feels the onset of paralysis and starts to sink, knowing they both will drown, but has just enough time to gasp “Why?” Replies the scorpion: “It’s my nature...” Automobile dealers and their manufacturers have always had a relationship resembling the one between the frog and the scorpion. While the scorpion, in this case the manufacturer, is depending on the frog for its own survival, often times its instincts can cause both harm. This relationship becomes clarified when I see some of the programs manufacturers devise to “help dealers better understand and manage their performance.” I look at them and like the frog, I ask myself, “Why?” Recently, two new initiatives announced by Nissan and Mercedes Benz bring this fable to life. Nissan has announced that it is transitioning its sales effectiveness metric from a Regional Sales Effectiveness (RSE) score to a State Sales Effectiveness Represented (SSER) score. Nissan’s stated reason for this change is that they want “to use a more localized standard for evaluating dealer sales effectiveness.” Like the frog, I am suspicious and would like to ask, “Why?” All measures of sales effectiveness, no matter what cloth they are cut from, are by definition irrational. It is called the Lake Woebegone syndrome, that place where all the children are above average. So, why make the effort to change from a regional score to a state represented score? I believe the answer is in a letter sent by Nissan to each of its dealers describing the new metric. In the letter, Nissan provided the old RSE score and

the new SSER score with a suggestion that dealers, whose scores deteriorate under the new system, will need to come up with a plan for corrective action. How can the same dealer be “good” under one system, but “bad” under another? This makes no more sense than the scorpion stinging the frog, but it is the nature of what manufacturers like to do. The Mercedes Benz program, the Dealer Performance Review (DPR), is not new, but it is being re-launched with new enthusiasm. The program is designed to help identify “under-performing” dealers, now by using nationally-standardized (as opposed to regional) metrics. These include: operating profit, customer satisfaction scores, registration and sales effectiveness scores, customer paid parts sales, and service retention. This program is important to dealers because those who are deemed to be “poor performers” will see a significant decrease in incentive money paid to them by Mercedes Benz. Like many factory performance management schemes, this has the underlying assumption that no dealer can be below average and gives no consideration to differences in the geography or the demographics of any particular market. Under the DPR program, dealers who score in the bottom 10% of all dealers nationally are put on a watch list and are provided “assistance” from factory personnel. Mercedes Benz dealers on the DPR watch list need to pay attention because this program is not going away. All manufacturers are fighting for increased sales and market share. Without question, a strong dealer network is a valuable weapon in this fight. Recently, standards for customer service and facility modernization have been raised, and I suppose one could ask if dealers would have gotten to these levels without prodding from the manufacturers. But, in my opinion, all too often manufacturers try to place the blame for their shortcomings in market share on the backs of their dealers rather than looking toward over-zealous sales projections and miscues in their product offerings. The Nissan and Mercedes programs are just two examples of programs and initiatives that I believe are wrong for both dealers and manufacturers, because, like the scorpion and the frog, neither are going to get to the other side. It is not that I think manufacturers don’t have the right to expect good performance from their dealer body, because they do. It is important that all dealers strive to perform at the very highest level. But all too often, the systems that factories devise to measure and manage dealer performance are conflictive, subjective, irrational, and unfair. Dealers who find themselves being scrutinized under these kinds of programs need to be aware that they have a scorpion on their back.

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Massachusetts Auto Dealer DECEMBER 2013

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AUTO OUTLOOK

DECEMBER 2013

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MSADA

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Massachusetts Auto Dealer DECEMBER 2013

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TRUCK CORNER Truck Corner

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MSADA

Making the Roundtable

by Dick Witcher Dick Witcher man of ATD

is

Chair-

and the

dealer principal at

Min-

uteman Trucks, Inc.

DECEMBER 2013

Roughly three years ago, Kyle Treadway and I had a dustry, to ensure that policymakers and the public unique idea: regularly talking to other members of our understand the importance of the trucking industry industry at a policy roundtable. The idea resulted from to the nation’s economy, and to build the political traveling the halls of Congress bumping into other loband grassroots support necessary to strengthen and byists and employees of manufacturers. It seemed silly grow the industry in the future. to the two of us as we realized that all of us in the indus“Every day, millions of trucks travel across the try might be pitching contrary concepts to legislators. United States to deliver and help move America What was needed was something Washington drastiforward. cally misses: talking to one another not at one another. “Most Americans don’t realize how essential With the help of Patrick Calpin of the NADA/ATD trucks are to their lives until there is a severe weathlegislative office, the first meeting of the policy rounder or adverse condition that prevents trucks from table was held in the old offices on First Street. About a delivering. dozen participants gathered for the initial tentative poli“But the fact is trucks are critical to our national cy issues conversation. The truck manufacturers’ repreand global economy, to our families, to our busisentatives attended, but they were closedmouth – I guess nesses, and so much more. When they stop moving, they thought they were giving away company secrets. the country stops moving. The associations’ representatives, although much more “By telling our story—educating the public and open, didn’t grasp how an issue affecting one of them working with policymakers at the state and federal might have contrary impact on the members of other our level—we can ensure the trucking industry re“Taking seats andthat ready associations. For example: the Truck Rental and Leasmains the thriving industry it is today.” ing Association couldn’t understand why truck dealers for a combative exchange, might not want to take customer tax credits as a method If you feel compelled to participate after visiting the our expectations to finance the purchase of natural gas fueled trucks. site you can contribute were to the effort. It took a couple of meetings (for the first eighteen Taxes were the second major topic! Comprehensive turned upside down!” months trimester meetings were held, we are now tax reform is not likely to become an active subject uncomfortably at two meetings a year) before agendas til mid-2014. But, when it starts, lots of stuff will get were shared and added to by others. But the concept thrown onto the table, including increases to federal is being widely embraced: At the December 5 meeting excise tax on class 8 trucks, the repeal of IRS section there were nearly 50 participants and 30 organizations 1031 like kind exchanges, LIFO, IRS section 179 Boin attendance or on the phone; it was the largest turn- nus depreciation, etc. out ever. In less than three years our group has grown Several people in the room participated in the neby four times. gotiations on Right to Repair, and they gave their The first topic of the December 5 meeting was perspective to the events. R2R legislative efforts are the joint industry program called “Trucking Moves taking place in many states and the issue seems to me America Forward.” The public relations firm of Story likely to come alive again in Massachusetts. Partners presented the program, collateral material, The DOT, NTSB and FMCSA have been issuing and video to be used for the identity improving effort. a number of new regulations which are negatively Trucking has really taken a beating in Washington. It impacting the industry, and the strategies to address is also roughed-up around the country, and the image these issues were discussed by the American Trucking needs some shining! The American Trucking Associa- Association, the Owner Operator Independent Drivers tions with funding from others in the industry started Association. A strategic change in direction by some a five-year multi-million dollar annually public rela- associations is filing suit against the federal governtions campaign to improve the industry’s image. The ment – nothing is getting through Congress – many official kickoff will happen at the Mid America Truck have concluded the courts is the only viable route at Show in March of 2014. Take a look at the official this time. website: www.truckingmovesamerica.com. Eight hundred words hardly describe all that took “The mission of Trucking Moves America For- place at the roundtable session. If you want to know ward is to establish a long-term industry-wide more give me a call at the dealership at (508) 668-3112. movement to create a positive image for the int

Massachusetts Auto Dealer www.msada.org


Accounting

MSADA

2013 Dealership Trends and Analysis - Part 1

This edition will focus on the overall results from our dealer clients

By Paul McGovern Paul McGovern, a partner at Downey & Company, has specialized in auto dealership accounting

and

ment for

manage-

30 years.

Due to the overwhelming positive response we received to our trends and analysis newsletter for 2012, we have compiled information for 2013 from our dealer financial statements to again analyze various trends from year to year. This edition will focus on the overall results from our dealer clients.

Overall Sales Over 85% of our dealer clients saw overall total dealership sales increase year over year. The average increase was $2.5 million.

New Vehicles Approximately 76% of dealers sold more new units year over year with an average increase of 46 units. We anticipate an increase in units sold for 2014 as economic factors (low inflation, low interest rates, etc.) will sustain consumer confidence. While a significant percentage of dealerships experienced an increase in unit sales, only approximately 27% were able to increase their margins on new vehicle sales. Average margins dropped from 4.6% in 2012 to 3.58% in 2013. Dealers saw gross profit per vehicle (excluding F&I) drop by approximately $43 per vehicle. Dealers grossed on average (excluding F&I)

$1,073 in 2013 as compared to $1,116 in 2012. We would expect to see a slight erosion of margins in 2014 as consumers continue to use resources such as the internet to price shop vehicles.

Used Vehicles Used vehicle sales have improved in 2013 as the availability of vehicles and wholesale prices have stabilized. Over 56% of our dealer clients experienced an increase in used vehicle sales selling on

Over 87% of dealer clients increased parts sales an average $147,000. While dealers would like this growth to continue, it is anticipated that these numbers will level off in 2014. Margins in both categories remained stable. While approximately 54% of dealer clients saw an increase in service margin, the average increase was only .16%. The average margin for dealer clients is approximately 64%. The same can be said for parts sales. Approximately 63% saw

Fueled by additional unit, parts and service sales, it’s no surprise that a majority of dealers showed greater profits. Approximately 68% of our dealer clients achieved an increase in profitability from 2012 to 2013. average 23 more units over the same time frame. As with new vehicles, competition as well as consumer price shopping have caused a decrease in gross profit. Only 27% of dealer clients showed an increase in margins on used vehicle sales. Average margins fell .6% from 10.49% in 2012 to 9.89% in 2013. On average, gross profit per vehicle (excluding F&I) declined by $91 per vehicle. In 2012, dealer clients averaged (excluding F&I) $1,882 per vehicle, while only generating $1,791 in 2013. For 2014, we expect the margins to stabilize.

Parts & Service

A substantial number of dealers saw their parts and service rise. Over 85% of dealer clients saw their service business increase an average of $110,000. Parts sales increased even more dramatically. www.msada.org

their margins increase, but that increase on average was less than .4%. The average margin for dealer clients is approximately 32%. With both average margins within industry ranges, any change would be minimal in 2014.

Overall Profitability

Fueled by additional unit, parts and service sales, it’s no surprise that a majority of dealers showed greater profits. Approximately 68% of our dealer clients achieved an increase in profitability from 2012 to 2013. The solid results in 2013 is a harbinger of things to come for 2014, as the general outlook is for steady, if unspectacular, growth in the near future. If you have dealership management questions or concerns, please contact Paul McGovern at PMcGovern@DowneyCoCPA.com.

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Massachusetts Auto Dealer DECEMBER 2013

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16

Cover Story

YEAR January

February

The 2013 New England International Auto Show Preview Night Gala was well-attended and saw widespread media attention on the auto industry focused on Massachusetts.

Multi-franchise dealer Ray Ciccolo’s vast community support helped earn him recognition as TIME’s 2013 Dealer of the Year for Massachusetts. One of the industry’s most prestigious honors, TIME Dealer of the Year recipients are among the nation’s most successful auto dealers who also demonstrate a long-standing commitment to community service. Ciccolo was among only 57 auto dealers – out of 17,000 nationwide – nominated for the 44th annual award.

May

June

Natick’s Planning Board voted 3-2 in favor of a request from electric car manufacturer Tesla to sell cars in the Natick Mall. The issue continued throughout the year, with MSADA taking the manufacturer to court in order to defend the Commonwealth’s franchise laws.

In his first Annual Meeting as MSADA President, Scott Dube outlined the path laid before him and the challenges ahead. Other speakers included NADA Director Don Sudbay, ATD Chairman Dick Witcher, State Sen. Marc Pacheco, Massachusetts Registry of Motor Vehicles Registrar Rachel Kaprielian and IHS Automotive Senior Principal Economist George Magliano, among others.

DECEMBER 2013

Massachusetts Auto Dealer www.msada.org


MSADA

17

IN REVIEW March

Apri l

Herb Connolly Acura celebrated the end of a lengthy construction project on a new facility with a Grand Re-Opening. The event boasted live music, catered food and a preview of the 2014 Acura RLX. The project involved a complete demolition of the original building, which dated back to the 1960s.

MSADA sponsored two Pathfinder Regional Vocational Technical High School seniors to attend the National Automotive Technology Competition, including one of only three female competitors, at the Javits Center this year.

July

August

Legislators on Beacon Hill met to mold two versions of the “Right to Repair� law together, with MSADA working to defeat a proposal by the AAA to force manufacturers to reveal all telematics to independent repairers.

Kelly Auto Group owner Brian Kelly opened the largest VW dealership in North America, a harbinger of not just a renewed focus for the German automaker but growth for the Massachusetts dealership community and North Shore area at large.

www.msada.org

Massachusetts Auto Dealer DECEMBER 2013


18

YEAR IN REVIEW 2013 Legal Bulletins by Month

July #33 – CFPB Actions Questioned #34 – IRS Guidance on Obamacare delay #35 – NADA Editorial on Franchise System #36 – DOL Audits #37 – TIME Dealer of the Year Nomination #38 – DOL Audits Webinar

January #1 – Fiscal Cliff Avoided #2 – Salvage Title Applications #3 – Ten Resolutions for Your Dealership #4 – Federal Law Updates #5 – Form 8300 Reporting #6 – FTC Updates

September

February #7 – Governor’s FY2014 Budget #8 – NLRB Court Ruling #9 – Storms and Store Closure Rules #10 – NADA Study on Facility Upgrades #11 – Presidents’ Day Pay Reminder #12 – Legal & Accounting Seminar #13 – Reminder – Legal & Accounting Seminar

March #14 – FTC E-Mail Warning #15 – New FMLA Poster #16 – New Form I-9 Issued #17 – FTC Online Advertising Guidelines #18 – IT Security Webinar

April #19 – Reminder – IT Security Webinar #20 – Reminder – IT Security Webinar #21 – HR Compliance Seminar – Worcester #22 – Reminder – HR Compliance Seminar – Worcester

May #23 – NADA Response to CFPB #24 – Legal & Accounting Webinar #25 – Obamacare Webinar #26 – NLRB Court Ruling re Union Poster #27 – Reminder – Legal & Accounting Webinar #28 – Reminder – Obamacare Webinar #29 – Memorial Day Pay Reminder

June #30 – OSHA Alert #31 – Election Day Voting #32 – Independence Day Pay Rule Reminder

DECEMBER 2013

August #39 – Reminder – DOL Audits Webinar #40 – Sales Tax Holiday #41 – Reminder – Sales Tax Holiday #42 – OSHA, EPA Updates #43 – Obamacare Webinar #44 – Labor Day Pay Reminder

September #45 – FTC Ad Enforcement Actions #46 – Red Flags Rule Compliance #47 – Obamacare Seminar - Marlborough #48 – Time to Review Your Advertisements #49 – Obamacare Update #50 – Reminder – Obamacare Seminar Marlborough #51 – New Wage-Hour Guide Issued #52 – Reminder – Obamacare Seminar – Marlborough

Massachusetts dealers joined 400 industry peers from across the country at the NADA Washington Conference to represent their business before a gridlocked Congress.

October MSADA dealers met with more than 120 state legislators for MSADA’s Dealer Day on Beacon Hill. This year’s Dealer Day occurred at a time when three key pieces of dealerrelated legislation face potential activity in the Senate and the House. Right to Repair legislation, changes to the state’s franchise law, and legislation related to Tesla were the main issues brought to the table by dealer industry representatives.

November Natick’s Town Meeting approved a short-term change to town zoning bylaws to allow for limited car sales at the Natick Mall and in the Golden Triangle area – paving the way for Tesla to sell its automobiles directly to consumers.

Massachusetts Auto Dealer www.msada.org

October #53 – Columbus Day Pay Reminder #54 – New FCC Rules on Robocalls and Texts #55 – New Record Retention Guidelines November #56 – U.S. Senators Seek Answers from CFPB #57 – Election Day Voting #58 – Veterans’ Day Pay Reminder #59 – DOL Actions against Dealers & Real Clean #60 – House Passes RTR Fix #61 – HR Compliance Seminar – Springfield #62 – RTR – Dealer Call to Action #63 – Reminder – RTR Dealer Call to Action #64 – RTR Passes; Call the Governor #65 – Reminder – HR Compliance Seminar – Springfield #66 – Hazcom Training Deadline #67 – RTR – Governor Signs Bill

December #68 – Reminder – HR Compliance Seminar – Springfield #69 – HR Compliance Seminar – Peabody #70 – 2014 Fuel Economy Guide Issued #71 – Year-End Tax Reporting Rules #72 – Reminder – HR Compliance Seminar – Peabody #73 – Reminder – HR Compliance Seminar – Peabody #74 – 2014 Holidays Bulletin #75 – Dealer Plates Use Compliance Reminder


MSADA

19

December MSADA prepares for its New England International Auto Show Preview Night Gala. The event will benefit the Massachusetts Automobile Dealers Charitable Foundation, which provides scholarships to full-time students for auto technician training at accredited schools.

www.msada.org

Massachusetts Auto Dealerr DECEMBER 2013


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NEWS

from Around the Horn

NORTHAMPTON

TommyCar Owner Awarded 40 Under Forty and Professional Women of the Year Carla Cosenzi, president of TommyCar Auto Group, was recently awarded 40 Under Forty by Business West and Professional Women of the Year by Western Mass Women’s Magazine. After attending Dealer Academy, Cosenzi worked in every facet of the company from parts to service to sales to gain experience and knowledge within the industry. In 2009, Cosenzi and her brother, Tommy, assumed ownership of the dealerships following the untimely death of their father Thomas E. Cosenzi. The group consists of Country Nissan in Hadley; Country Hyundai in Greenfield; Northampton Volkswagen in Northampton; and Patriot Buick GMC in Charlton. Sharing responsibilities with her brother, Carla Cosenzi has played a lead role in promoting and expanding the TommyCar brand. Meanwhile, she remains on the UMASS Nursing Advisory Board and is actively involved in the community, continuing the Thomas E. Cosenzi Driving for the Cure Charity Golf Tourna-

DECEMBER 2013

ment, which has raised more than $400,000 in support of brain-cancer research for DanaFarber Cancer Institute. In 2014, the group will re-open Northampton Volkswagen and Country Hyundai at a new site. The $12 million state-ofthe-art Volkswagen and Hyundai dealerships will be located on King Street in Northampton. Each will be just under 18,000 square feet and will consist of modern, spacious and comfortable showrooms. With 13 service bays in each facility and the latest in automotive service technology, the facilities aim to provide customers with the best service and shortest wait times.

Massachusetts Auto Dealer www.msada.org


NEWS from Around the Horn

MSADA

LAWRENCE

Commonwealth Motors Christmas Classic Banquet Gathers 16 Teams, 300 People Sixteen teams (eight boys and eight girls) and over 300 players, coaches and team managers gathered at the Relief’s In earlier this month as part of the coming together of the newly named Commonwealth Motors Christmas Classic. Tournament sponsor Charlie Daher, owner of Commonwealth Motors, gave out a $1,000 scholarship to a senior on each of the tourney teams. “Long before you were born, I remember going to the tourney,” said Daher, according to The Eagle Tribune. “You are really a part of history. This is an opportunity to bring back the greatness again.” The 39th annual boys tournament will tip off at Merrimack College on December 21 while the 26th annual girls tourney will begin December 23 also at Merrimack.

Commonwealth Motors of Lawrence is giving a $1,000 scholarship to a deserving senior from each of the 16 teams in the Commonwealth Motors Christmas Classic.

NORWOOD

Former Manager Buys Cadillac of Norwood Former general manager Michael Xidea recently purchased the automobile dealership known as Cadillac of Norwood, located at 700 Providence Highway, according to Wicked Local Norwood. Xidea began his automotive career back in 1988 and recently returned to Massachusetts after completing the sale of Premiere Cadillac in St. Augustine, Florida, where he was the executive vice president and general manager responsible for all dealer operations. After the Florida dealership was sold, he returned home to Canton and started working on purchasing Cadillac of Norwood from Raymond Ciccolo. Xidea began working on the purchase in June, received approval from General Motors in August and took over as the new owner on October 15. www.msada.org

Massachusetts Auto Dealer DECEMBER 2013

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NEWS from Around the Horn WEYMOUTH

Weymouth Auto Mall Reaches End of Road After 54 Years Weymouth Auto Mall enjoyed a 54-year run at the corner of Route 18 and Washington Street, but decisions by national dealerships to no longer sell their products at the family-owned business forced it to close, according to owner Richard Smith. “It’s a sad day,” Smith told The Weymouth News. His father Richard Smith Sr. founded the business originally called Ricky Smith Pontiac in 1959. Smith said Weymouth Auto Mall took a series of blows in 2009 when General Motors, Pontiac and Buick stopped using his dealership as a franchise to sell their cars. Beginning in October 2010, the dealership has sold only used cars. Weymouth Auto Mall did well selling used cars, Smith said, but it did not have the lucrative repair service it enjoyed when the business sold new autos. He said an ambulance firm recently bought the showroom and repair building, but he was not at liberty to say who the buyer is. Smith said he would retire and likely be involved in the auto business to some extent.

DECEMBER 2013

Massachusetts Auto Dealer www.msada.org


MSADA METHUEN

Chrysler 300S Receives Even More ‘Blacked-Out’ Styling for 2014 The Chrysler 300S debuted for the 2012 model year as a sleeker, stealthier version of the standard Chrysler 300 premium sedan, and the automaker has elaborated on that concept for the 2014 model year. Recently unveiled at the LA Auto Show, the 2014 Chrysler 300S receives even more “blacked-out” style elements, including a new black-chrome grille surround and grille blades as well as gloss-black headlight and taillight bezels, daylight opening surrounds and belt molding. Should buyers opt for a paint job other than black, the updated Chrysler 300S still maintains a monochromatic theme with body-color door handles and fascia inserts. A new Dark Ceramic Gray clear coat will provide driv-

ers with another sophisticated color option when the 2014 model goes on sale next spring. Inside the cabin, the 2014 Chrysler 300S offers newly available Ambassador Blue Nappa leather seats and armrests with silver stitching as an alternative to black upholstery. As with previous S models, the new Chrysler 300S features a segment-exclusive Beats by Dr. Dre audio system that is tuned specifically for the premium sedan. “Chrysler has further streamlined the look of the 300S with the new blacked-out and body-color elements, and the result is a bold sedan that manages to be both classic and modern at the same time,” said Tom Barenboim, owner of Clark Chrysler Jeep Dodge Ram. “Driving enthusiasts will also be pleased to find out that the car’s imposing stance is matched by an aggressive demeanor out on the road.” www.msada.org

Massachusetts Auto Dealer DECEMBER 2013

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NEWS from Around the Horn

MSADA

RAYNHAM

RAYNHAM

Redesigned 2014 Mazda6 Rakes In End-of-Year Awards

Combating Weak Sales, Honda to Offer Incentives

For the 2014 model year, Mazda completely redesigned its Mazda6 from the ground up, outfitting the midsize sedan with a full suite of fuel-saving SKYACTIV technologies and the brand’s aggressive KODO, or Soul of Motion, design language. Those changes have not only made a big impact at dealerships, with yearto-date sales of the model up by 14 percent year-over-year through October, but they have also garnered praise from automotive journalists in their end-of-year awards. After test-driving new models for the past year, the staff at Popular Mechanics magazine named the 2014 Mazda6 its Car of the Year, commending the model’s 40-mpg highway rating, its sportscar feel and its seductive styling. The top criteria considered by Popular Mechanics in determining the award winner were affordability, bold design, fuel efficiency, innovation, performance and utility. Elsewhere, Road & Track magazine recently designated the Mazda6 as its Best Family Sedan of 2013, noting that the car’s responsive steering and nimble chassis make the Toyota Camry and Honda Accord seem like “dead fish” by comparison.

Honda Motor Co., hoping to bounce back from a weak showing in November sales, is offering U.S. dealers significant cash incentives to pump up their new-car business in the final month of the year. Honda told dealers on December 4 it would pay bonuses of $3,000 for every vehicle they sell above their December 2012 sales total, according to dealers briefed by the company. Retailers can use the extra money to drop prices on new vehicles or finance other incentives to persuade customers to buy. Automakers often offer similar bonuses to their dealers, but Honda’s new program is noteworthy because the Japanese company typically offers much less in sales incentives than its competitors. “For a lot of dealers, this could add some punch to December and put some fire in their bellies,” said Adam Silverleib, vice president of Silko Honda in Raynham. “It’s going to take a lot of work to get to the payday [level], but it definitely gives dealers something to work with.”

DECEMBER 2013

Massachusetts Auto Dealer www.msada.org

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NADA Update by Don Sudbay Countdown to the 2014 NADA Convention & Expo 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).

A Special Note from NADA Chairman David Westcott

“The auto industry is Accelerating, and dealers and their managers can stay ahead of the competition by attending the 2014 NADA Convention & Expo in New Orleans from January 24-27. “There are 174 workshop sessions presented by 100 industry experts, and nearly half of the presenters are new to the convention program. “NADA’s educational workshop sessions are geared for dealers and their managers to optimize their performance and profitability throughout the year. Organized by NADA University Online, 64 workshops are available in seven tracks: Dealer/Executive; Human Resources; Legal and Regulatory; Internet and Marketing; Sales, Business Office/ F&I; Parts; and Service and Body Shop. “With this wide selection of workshops, every aspect of your business will be covered—from legal and regulatory compliance issues, hiring and retirement plans to advertising and marketing. “There are also 25 franchise meetings scheduled for dealers to meet with their respective manufacturer executives. This is a prime opportunity to discuss marketing plans, sales outlooks and product launches. “And as always, there will be plenty of networking events and opportunities to meet with execs and shop for products and services from nearly 600 exhibitors on the expo floor, including six automakers: Ford, General Motors, Chrysler, Toyota, Mitsubishi and Kia. “This is the 10th NADA convention in New Orleans since 1973. The city is tough and resilient, just like our industry, and it matches the energy and festivity of our convention. “If you haven’t booked a hotel room yet, now is the time to make a reservation. Register as soon as possible. Most hotels in the NADA convention block are already sold out and space is limited. “You still have time to save on registration. Dealers and managers who register by January 16 will receive a $75 dis-

count from the onsite rate. “To maximize your convention experience with up-tothe-minute access on sessions and events, download workshop handouts and navigate the expo floor, the Convention Mobile App for smart phones and tablets will be available later this month. Download the app to create a personalized schedule, and sync with myNADAplanner. “On the expo floor, NADA’s Social Connection Zone will also help attendees stay up-to-date on the latest technology trends and online resources. The zone will cover topics such as Facebook advertising, tips on using Twitter and maximizing Google+. “The countdown to the ‘automotive industry event of the year’ has begun! “For more information or to register, visit www.nadaconvention.org. “We look forward to seeing you in the Big Easy.”

Steven Szakaly Named New Chief Economist at NADA

NADA has named Steven Szakaly as its new chief economist. “Steven brings several years of experience working in economics and the auto industry,” said NADA President Peter Welch. “As the industry and economic environments continue to change, his analytical-thought leadership will benefit the membership as well as add to public policy discussions.” Szakaly brings more than 10 years of forecasting and industry analysis experience to NADA. Prior to joining NADA, he led economic forecasting at Cliffs Natural Resources in Cleveland, Ohio. He has worked with General Motors in powertrain forecasting in Detroit and was an economist with the Center for Automotive Research in Ann Arbor, Michigan. Szakaly began his career as an associate economist with the Federal Reserve Bank of Chicago.

Important Vehicle and Equipment Tax Benefits Expiring at Year-End

Important tax benefits for dealers and their business customers are set to expire at the end of 2013. Qualifying businesses can immediately expense certain equipment and software purchases this year, instead of depreciating the cost over several years. Under Section 179 of the Internal Revenue Code, businesses may deduct a total of $500,000 of certain equipment purchases made in 2013, subject to certain restrictions and a phase-out. Additionally, 50% bonus depreciation on equipment purchases is in effect until the end of 2013. The increased depreciation under these rules for vehicles is similarly set to expire December 31, 2013. The Section 179 and bonus depreciation incentives can also

www.msada.org

Massachusetts Auto Dealer DECEMBER 2013

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MSADA

NADA Update be combined. However, it is important to note that the availability and combination of these incentives are subject to complex rules. For example, the vehicle bonus depreciation is subject to certain vehicle type, business use and weight restrictions. Therefore, dealers are encouraged to speak with their accountants and should encourage their business customers to do the same regarding the expiring incentives.

Akerson in D.C.: GM Still Has ‘A Lot to Prove’

Dan Akerson, the departing CEO of General Motors, gave a closing defense [at the National Press Club in Washington D.C.] of the bailout that saved GM five years ago, saying the company’s strong balance sheet and recent accolades for its cars show the wisdom of the move. For Akerson, the former telecom executive who joined GM in 2010, it was also a chance to cement a legacy as the CEO who closed the books on the bailout era. “General Motors is working again,” he said in the speech at the National Press Club. The speech was also a warning. Akerson admonished his colleagues not to slip back into the old habits that led the company into bankruptcy.

Global Auto Sales May Top 100 Million By 2018

Automakers — who have recovered from the Great Recession — will have an opportunity over the next several years to tap into rapid growth overseas while sales in the U.S. will continue to increase more gradually. The rapid global expansion of the automotive industry will put even greater pressure on North American parts suppliers as manufacturers continue to increase the pace of new product introductions, according to analysts from IHS Automotive. “At no other time in recent history has the North American automotive market been as well positioned as it is today,” said Mike Jackson, director of North American vehicle forecasting for IHS Automotive. In the U.S., automotive sales have recovered to an expected total of 15.5 million this year from a low of 10.4 million in 2009. U.S. sales will continue to increase over the next four years in the U.S., but the pace will slow at the same time that product introductions increase, said Jackson, who was one of several analysts to speak at an event IHS hosted for the media. But at the same time that sales will grow slowly in the U.S., global sales are expected to increase 22% over the next four years as sales skyrocket from about 82 million this year to more than 100 million by 2018.

NADA’s Used-Vehicle Price Index Reaches All-Time High in November

After diving by 3.5% in October, the rate of used-vehicle depreciation slowed substantially to 1.5% in November, pushing the NADA seasonally adjusted used-vehicle price DECEMBER 2013

index to its highest point of 125.6. The index, which measures the change in prices for used-vehicles up to eightyears-old, is up 1.8 points from October’s figure of 123.8, surpassing the previous high of 125 set in December 2012. “November’s decline in the rate of depreciation can be credited to favorable market conditions, lower unemployment, moderating gas prices and advantageous credit conditions, including the end of the federal government shutdown in October,” said Jonathan Banks, executive automotive analyst of the NADA Used Car Guide, in the December edition of Guidelines, a monthly report on new- and used-vehicle sales trends and price movement.

European Car Sales Rise a Third Month on Volkswagen Gains

European new-car sales rose a third consecutive month in November, the longest period of gains in four years, as demand for autos from Volkswagen AG and Renault SA contributed to signs that an industrywide decline is ending. Registrations in November increased 0.9 percent from a year earlier to 975,281 vehicles, the Brussels-based European Automobile Manufacturers Association, or ACEA, said in a statement. The growth followed gains of 4.6 percent in October and 5.5 percent in September. The economy of the 17 nations sharing the euro will probably expand this quarter, continuing growth after a six-quarter recession in the region ended in the three months through June, according to analysts surveyed by Bloomberg. New vehicles boosting car sales in Europe include the Golf hatchback and Skoda Rapid Spaceback wagon at Volkswagen, the region’s biggest carmaker, and the Captur compact crossover at Renault.

Ford ‘Lifers’ Get Second Chance as CEO Readies Exit

Every Wednesday, Ford Motor Co.’s top executives gather before sunrise to work through some of the company’s most vexing problems. Notably absent is CEO Alan Mulally. The 2-1/2-hour meetings, which mainly focus on vehicle quality issues, were started by Mark Fields after he was appointed COO a year ago -- a clear sign that a changing of the guard is under way at Ford. Mulally, 68, is a top contender to lead Microsoft Corp., according to sources familiar with the software company. But regardless of whether he gets that job, he is unlikely to stay at Ford through 2014, two people close to the automaker said. The view from inside Ford, and of people close to the company, is that the management team Mulally groomed is now ready for his exit. Fields, 52, is widely expected to take over as CEO. Mulally’s exit would leave Ford mostly in the hands of “lifers” who have spent much of their careers working for the Blue Oval. All but one corporate officer -- global marketing chief Jim Farley -- were at Ford prior to Mulally.

Massachusetts Auto Dealer www.msada.org

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MSADA MSADA

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NADA Market Beat

28

Produced by NADA’s Industry Analysis Group • Angela Lisulo, Economist

Review of New Light Vehicle Sales Overall

There were 1.2 million light-vehicle sales in the U.S. in November 2013. This marked an increase of 3.1 percent from October 2013 and an increase of 8.6 percent over last November. November 2013 YTD figures bring total light-vehicle sales to 14.2 million up 8.3 percent from a year ago. The November 2013 Seasonally Adjusted Annual Rate (SAAR) for light-vehicle sales is 16.3 million. This is the highest recorded SAAR value for 2013 YTD; the last time that a SAAR value reached 16.3 million was in May 2007.

In November 2013 YTD figures, car sales held a market share of 49.2 percent with sales up 5.5 percent from a year ago while corresponding figures for light trucks put the light-truck share at 50.8 percent with sales up 11.2 percent from a year ago. See Figure 1.

Companies/Brands

Companies with a geographic base in the Asia/ Pacific region held the largest market share of lightvehicle sales for November 2013: 45.7 percent of the market. This was followed by companies based in North America (Detroit 3 and Tesla Motors) at 43.6 percent and then companies based in Europe at 10.7 percent. All company categories by geographic bases – North America, Asia/Pacific and Europe – experienced growth in light-vehicle sales in November 2013 YTD figures from last November. In November 2013 YTD terms, companies with bases in the Asia/Pacific region also held the largest share of light-vehicle sales in the U.S. at 45.4 percent. The corresponding share held by the North America-based companies was 45.3 percent and that for the Europebased companies was 9.2 percent. Focus: The Detroit 3 companies - General Motors, Ford and Chrysler. For 2004-2012, the annual share of U.S. light-vehicle sales held by the Detroit 3 has generally trended downwards; in 2004, the share was 60.1 percent, and in 2012 the share was 44.6 percent. Each company experienced a loss of market share during the period with General Motors leading with the greatest loss over the period. For November 2013 YTD, the Detroit 3 companies have held 45.2 percent of all light-vehicle sales in the U.S. Each company currently DECEMBER 2013

has a portfolio of models which consists of more light trucks than cars. General Motors: Chevrolet has held the lead in sales, of the 4 brands under General Motors, with 70.2 percent of the company’s

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29 light-vehicle sales, November 2013 YTD. It also currently holds the largest portfolio of models out of the Detroit 3 brands: 22 models in total. Of the Chevrolet models, the Silverado has held the largest share of Chevrolet sales at 24.4 percent and it is the model with the highest sales figure with 437,821 units sold, November 2013 YTD, under General Motors. Ford company: Of the Ford company’s two brands, the Ford brand has been in the clear lead with 96.7 percent of the company’s light-vehicle sales, November 2013 YTD. The Ford F Series has held the largest share of Ford brand light-vehicle sales at 30.0 percent and it is the model with the highest sales figure with 644,195 units sold, November 2013 YTD, under Ford company. Chrysler company: Sales under Chrysler company are not as heavily dominated by one particular brand as has been seen in the case of General Motors with Chevrolet and Ford company with the Ford brand. That said, from a portfolio of five brands under Chrysler company. Dodge has held the leading share of Chrysler company light-vehicle sales at 33.7 percent, November 2013 YTD. From the Dodge models, the Dodge Caravan has held the largest share of light-vehicle sales at 20.6 percent, November 2013 YTD. However, it is the Ram pickup which is the model with the highest sales figure with 312,607 units sold, November 2013 YTD, under Chrysler company. An assessment of the sales performance of the leading models by sales – Chevrolet Silverado, Ford F Series and the Ram pickup – puts the Ford F Series in the dominant position followed by the Chevrolet Silverado and then the Ram pickup for every month of 2013 thus far. For each of these models, 2013 monthly sales have surpassed corresponding figures for 2012 except for September 2013 in the case of the Chevrolet Silverado. See Figures 2, 3 and 4. www.msada.org

Massachusetts Auto Dealer DECEMBER 2013


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NADA Market Beat Segments

For November 2013 YTD, the cross utility vehicle (CUV) segment has held the leading share of lightvehicle sales at 25.3 percent. For total light-truck sales, the CUV segment has held the leading share at 49.9 percent of these sales, November 2013 YTD. Most CUV sales have been found under the Middle CUV sub-segment (63.1 percent of CUV sales, YTD). Accounting for sales in the only other middle sub-segment for CUVs, Middle Luxury CUV subsegment, to obtain a complete figure of the portion of CUV sales with ‘middle’ elements means that 74.9 of CUV sales have been led by vehicles with ‘middle’ elements, YTD. For total car sales, the middle car segment has held the leading share of 41.3 percent of these sales, November 2013 YTD. See Figures 5 and 6.

Power source

The November 2013 YTD shares held by sales in both the diesel category and the alternative power category have each grown over their respective corresponding values for 2012 leading to the continuing erosion of the dominant base held by gasoline-powered light-vehicle sales. For November 2013 YTD, the diesel share stood at 2.9 percent up from 2.8 percent (November 2012 YTD), the share for the alternative power category stood at 3.8 percent up from 3.3 percent (November 2012 YTD) while the gasoline share stood at 93.3 percent down from 93.9 percent (November 2012 YTD). In November 2013, for the alternative power category, the follow-

DSCEMBER 2013

Massachusetts Auto Dealer www.msada.org

ing light vehicles were sold in the U.S.: 3,725 electrics, no vehicles powered by fuel cells, 35,290 hybrids, 136 units powered by natural gas and 4,899 plug-in hybrids amounting to 44,050 light-vehicle sales. See Figure 7.

Models

There were three pickup trucks and two cars occupying the top five ranks of the best-selthreeng light vehicles for November 2013 YTD. The three leading pickup trucks consisted of models from each of the Detroit 3 companies: Ford F Series (Ford company), Chevrolet Silverado (General Motors) and the Ram Pickup (Chrysler company). The two leading cars were both models in the middle car segment produced by companies based in the Asia/Pacific region: Toyota Camry (Toyota company) and Honda Accord (Honda company). From the list of the 15 best-selling light vehicles for November 2013 YTD, 8 out of 15 light vehicles were Detroit 3 models while the rest were from companies based in the Asia/Pacific region. See Figure 8.

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Dec 2013 msada auto dealer