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

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

February 2014 • Vol. 27 No. 2

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

Dealer of the Year

y l l e K n a i r B


Questions?

Call Jean Fabrizio at (617) 451-1051, or email jfabrizio@msada.org for your scholarship application, eligibility and details. www.msada.org

Application Deadline: Friday May 23, 2014


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 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 BlumShapiro, 26 Boston Herald, 36 Lynnway Auto Auction, 28 Nancy Phillips Associates, Inc., 26 O’Connor & Drew, P.C., 35 Schlossberg, LLC, 24 Southern Auto Auction, 25 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: Big Dealerships, Bigger Hearts THE ROUNDUP: How High Will Your Business Costs Go Up in 2014? LEGISLATIVE SCORECARD TROUBLESHOOTNG: Protecting Your Dealer Data LEGAL: Employees’ Off-Duty Time – Is It Any of Your Business? AUTO OUTLOOK ACCOUNTING: Are QR Codes a Gateway for Cyber Crime? ACCOUNTING: 2013 Dealership Trends and Analysis

16 COVER STORY: Going Big: Dealer of the Year Brian Kelly

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NADA/ATD CONVENTION: Industry Leaders Speak in New Orleans ACCOUNTING: Warranty Parts Reimbursement Update NEWS From Around the Horn NADA UPDATE: NADA Releases Fair Credit Compliance Program for Dealers NADA MARKET BEAT Join us on Twitter at @MassAutoDealers www.msada.org

Massachusetts Auto Dealer FEBRUARY 2014


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from the PRESIDENT

by Scott Dube, MSADA President

Big Dealerships, Bigger Hearts Brian Kelly made us all proud as our TIME Dealer of the Year nominee

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s businessmen and women who operate one of the most important economic engines in our communities, we all have a unique opportunity to lend a helping hand in ways too numerous to count. It can be as small as sponsoring a Little League team or as large as funding entire programs. Whether we’re donating millions to charity each year or even giving our time and effort to good causes, our work has a ripple effect throughout our communities. And many times, that ripple leads to attention coming our way. I think it’s safe to say all of us are in it to help out -- we don’t do it for the press. Brian Kelly, our 2014 TIME Dealer of the Year, is a great example of that. While building a world-class business, his long-standing commitment to his community has spurred many philanthropic endeavors. He’s provided support for the YMCA, Boys & Girls Clubs of America, Special Olympics, Miles for Smiles (to find a cure for the neuro-genetic disorder Angelman Syndrome) and Ellie Fund (to fight breast cancer). He has also participated in Globe Santa, the Boston Globe’s annual appeal to help in-need families and children enjoy the holidays, by donating a Fiat for the organization’s raffle that raised over $60,000. In addition, he donated $100 for every auto sold to a Beverly resident over a six-month period to support the Beverly High School’s new sports park, raising more than $20,000. Recently, he pledged $25,000 to J. Henry Higgins Middle School in Peabody, to help fund their after-school program. And he was delighted to donate a police service motorcycle to the Lynnfield

Police Department for use in crowd control during parades and to help support the D.A.R.E program. That’s a long list. And he doesn’t want special attention for any of it. That’s one of the reasons why the TIME Dealer of the Year program is important. We hear the same thing from our honorees every year: “This isn’t about me.” Whether it’s serving in leadership roles for our community or philanthropy, our Dealers of the Year never seem to want credit for their hard work. But highlighting those among us who go above and beyond is important. We’re all trying to do our part, and it is important to show that we are dedicated to our communities. Seeing Brian Kelly recognized in New Orleans at the NADA Convention was an exciting time not just for Brian and his family, but for all of us. At MSADA, we are always working to send out the message that our member dealers are neighbors as much as businesses. Sharing the national stage is a chance for all of us to reflect on that, and to remind us that the work we do every day, inside the dealership and out, is part of the fabric that makes up Main Street America. We should all be grateful to have this opportunity to be a part of driving our communities forward. So I hope you will join me in congratulating Brian on this important distinction, and start thinking about who our next Dealer of the Year might be. We have had so many wonderful nominees over the years, and I look forward to seeing who among us next earns the recognition.

“Whether we’re donating millions to charity each year or even giving our time and effort to good causes, our work has a ripple effect throughout our communities.”

FEBRUARY 2014

Massachusetts Auto Dealer www.msada.org

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MSADA

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 III, 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 Chevrolet

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

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

Plymouth County Christine Alicandro, Marty’s Buick GMC Isuzu

Suffolk County Robert Boch, Expressway Toyota

Worcester County Steven Sewell, Westboro Mitsubishi Steve Salvadore, Salvadore Auto

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

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

NADA Director Don Sudbay, Jr., Sudbay Motors

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

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 Heidi Allen (312) 601-5376 CitNOW Jack Gardner (617) 221-8008 Construction Management & Builders, Inc. Kate Sullivan (781) 246-9400 CVR John Alviggi (267) 419-3261 DealerDOCX Merchon Brower (585) 451-3322 Dealermine Inc. Karen Parmenter (800) 304-3341 x5179 DealerTrack Ernest Lattimer (516) 547-2242 Downey & Company Paul McGovern  (781) 849-3100 EasyCare New England Inc. Mike Douglas (770) 246-9724 Ethos Group, Inc. Drew Spring (617) 694-9761 F & I Resources Jason Bayko (508) 624-4344 Federated Insurance John Ballard (859) 312-9896 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 TrueCar Steve White (774) 392-2904 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

www.msada.org

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The Roundup

How High Will Your Business Costs Go Up in 2014? by Robert O’Koniewski, Esq. MSADA Executive Vice President Brain Kelly, Our 2014 Dealer of the Year While most of the country was being battered by winter storms, including throughout our home base here in New England, over 70 Massachusetts dealers found their way to NADA’s 2014 national convention in New Orleans on January 24-26. Unfortunately for attendees, the Big Easy was hit with its own share of cold, icy weather for several days while we were there. The weekend proved special for one of our own dealers. Brian Kelly of the Kelly Auto Group carried the honor of Massachusetts TIME Magazine Dealer of the Year into the competition against 56 other representatives from across the country. The state honor is based on a compilation of works on behalf of the state association, efforts for social and charitable organizations, and commitment to the community. Although Brian did not receive the national award, he and his colleagues on the stage that day are all winners for the successes on behalf of their fellow dealers and fellow citizens where they live and work. Please see our cover story on Brian beginning on page 16. Following Saturday’s opening session, at which Brian and his colleagues were honored, we held our state cocktail reception at the Hilton Riverside Hotel, jointly sponsored by our partner O’Connor & Drew, where MSADA President Scott Dube welcomed Massachusetts dealers and MSADA associate members in town for the festivities. Brian Kelly also gave warm remarks with his family in attendance. Congratulations to Brian and his family as our 2014 Dealer of the Year! FEBRUARY 2014

Massachusetts Auto Dealer www.msada.org

UI Rate Freeze 6x? For the last five years, by this time in February the Legislature had passed a law to freeze the state’s Unemployment Insurance rates charged to businesses, thereby saving businesses upwards of $2.2 billion in the aggregate over that time. This year the UI issue has become a political football between the House, Senate, and governor over the minimum wage issue and the pursuit of UI reforms. On February 12, the Massachusetts House of Representatives approved a stand-alone Unemployment Insurance rate freeze that would avert an automatic $500 million tax increase on employers that took effect on January 1. The House approved the UI rate freeze as part of a larger $154 million supplemental spending bill. The measure freezing rates at the current Schedule E is now before the Senate, which, on February 5, passed a similar measure as part of a sweeping restructuring of the system that pays benefits to jobless workers. The Senate’s version of the supplemental spending bill does not include any treatment of the UI rate issue. Thus, if the issue is to be resolved in the supplemental budget, it would be left to a conference committee to decide the matter. Although the business community is strongly interested in making long-term reforms to the out-dated unemployment system, the immediate need is for the Legislature to enact a rate freeze before the Department of Unemployment Assistance sends out first-quarter tax bills in April. The Unemployment Insurance Trust Fund used to pay jobless benefits in Massachusetts currently enjoys


MSADA a healthy balance of approximately $800 million. Representative Brian Dempsey (DHaverhill), chair of the House Ways and Means Committee, stated during debate that House leaders expect to craft a UI reform bill, but that time is becoming short to avert the 33 percent rate increase. Further, House Speaker Robert DeLeo (DWinthrop) has said he would like to link UI reform to a measure to increase the state’s $8 per hour minimum wage. Readers may recall that the Senate last November passed legislation to hike the minimum wage to $11 per hour by 2016 at increments of $1 per year. At that time, the Speaker stated that he would consider a minimum wage hike if it was part of a UI reform package. Senate leaders have recently said that their UI reform bill is designed to stabilize UI tax rates for most employers and make those rates more dependent on the hiring and firing record of individual companies. Under the Senate bill: • The wage base upon which UI payments are calculated would rise from the current $14,000 per year to $21,000 per year in 2015, a change that by itself would escalate costs for employers. • An expanded rate table would take effect in 2015, and rates would be set at a new Schedule C for 2015, Schedule A for 2016 and back to Schedule C for 2017. The expanded rate table should offset the effects of the increased wage base for companies with stable employment histories while raising rates for some companies that add and terminate workers frequently. Under the new rates, the most stable employers would pay $153 per employee per year, while the worst-rated companies would pay $2,337 per employee annually. • Company UI tax rates will be based upon the average of three years payroll instead of one, minimizing rate shock for expanding companies or those that encounter cyclical economic problems and find themselves having to lay people off. The Senate bill did not reduce the maxi-

mum duration of benefit weeks from 30 to 26 or increase the time people must work before collecting benefits. Now as the various proposals linger in legislative limbo, the governor has chimed in to stress his desire for creating a “comprehensive UI fix,” which he prefers to simply passing another one-year rate freeze. So, as the matter stands as we go to press, the chambers have before them a stand-alone rate freeze in a supp budget plan, rate reform but no freeze in a Senate bill sitting in the House, and the added burden of the minimum wage being discussed as a quid pro quo for considering a broader UI rate reform deal.

Tax Fairness Commission Report As the second term of the Patrick Administration winds down, the conversation on tax hikes continues. Readers may recall that the Legislature last year rejected the Patrick administration’s proposal to raise taxes by $2 billion annually, which included an increase in the income tax rate, a reduction in the sales tax rate, and the elimination of dozens of personal and corporate tax exemptions and deductions. Instead, the Legislature settled for a much smaller amount of revenue derived from modest increases in the gas and tobacco taxes. As part of last year’s tax debate, the Legislature created a 15-member special commission to review the state’s tax code and recommend ways to make it simpler and fairer while promoting economic growth and staying competitive with other states. As we have seen over the years, such phrases as “fairer and simpler” have come to mean how can taxes be raised on some while maybe being cut on others. We all know that the tax code is designed not to simply generate necessary revenues for funding government but to create tax winners and losers. This year’s version of the tax fairness commission is no exception.

www.msada.org

On February 25 the commission issued its report with several recommendations, to be presented to the Legislature on March 3. The key recommendations are as follows: • A graduated income tax, instituted through a constitutional amendment; • Establish the ability to collect on-line and remote order sales tax once Congress grants states the ability to do so; • Double the current personal exemption on single tax filers, heads of household, and those who are married filing jointly; • Expand the property tax circuit breaker, which is presently limited to senior citizens, to make all low-income individuals with families eligible; • Increase the state funded match of the federal earned income tax credit (EITC) to 30% from its current 15% rate and retain its refundability; and • Increase the flat income tax rate from its current 5.2% to a rate that will at least fully offset the revenue loss due to the change in the EITC, the increase in the property tax circuit breaker, and personal exemption. Voters need to approve any new constitutional amendment. Voters have defeated on five occasions proposals to create a graduated income tax, most recently in 1994. During its meeting, the commission voted to “explore” four proposals related to corporate taxation: • Make the R&D Tax Credit the most favorable in the U.S.; • Reduce the corporate excise to the national average of 6.99%; • Adopt a lower small-business corporate tax bracket and lower manufacturer bracket; and • Eliminate the minimum corporate excise tax. It will be interesting to see how much enthusiasm any of these proposals garner within the current Legislature, especially during an election year and coming off the recent statement by Speaker DeLeo in his continued on next page

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The Roundup from previous page annual address to the House that he will not be putting forth any new tax proposals this year. Readers may recall that this report is dropped upon the report issued last year from yet another legislative tax commission that reviewed tax exemptions, deductions and subsidies extended to individuals and corporations to relieve tax burdens on certain groups and spur growth. There are a large number of these tax expenditures (such as the trade-in allowance) that, if eliminated, would represent hundreds of billions in new revenues to the state, which has an annual budget of $36 billion. In late January the governor filed his fiscal year 2015 budget proposal of $36.5 billion with the Legislature. The joint Committee on House and Senate Ways and Means has conducted a series of eight public hearings across the state on the proposal. Traditionally, the House does its budget in April and the Senate its version in May, with a conference committee resolving the differences in time for the governor to review and sign it by the start of the fiscal year on July 1.

Doc Prep Fee Especially in light of last month’s discussion of the inclusion of the doc prep fee in the sales tax amount of the vehicle purchase, the beginning of the year is a perfect time for each dealer to review the amount of his or her documentary preparation fee charged on the motor vehicle purchase contract at each dealership. In Massachusetts there is no state law that sets the amount of the doc prep fee.  Here in Massachusetts the doc fee cannot be additional profit but instead, as a fee charged for cost recovery purposes, must have a reasonable relationship to the costs incurred by the dealer for the doc prep activities.  It cannot include any RMV fees or the EVR (CVR/TriVIN) fee, nor can it have anything to do with the Title Preparation Fee. The Title Preparation Fee (which is on a separate line on the P&S) has been capped by the Legislature at $5.

FEBRUARY 2014

You cannot charge a titling fee higher than $5, nor can you roll your costs above the $5 into the doc prep fee. Any cost you incur in preparing or procuring title above the $5 amount cannot be passed on to the consumer other than through the gross profit earned on the vehicle. Additionally, our AG’s advertisement regulations require that the fee be fully disclosed on the Motor Vehicle Purchase Contract and in any advertised vehicle price.  Therefore, the fee cannot differ from customer to customer, or month to month, nor should it be waived for any customer.  It must be consistent for each customer.  Any deviation could hold you open to potential liability under the Mass. Consumer Protection Act (MGL Chapter 93A) and the AG’s regulations, which include stiff penalties, treble damages, and attorney’s fees.  Under this regulatory scheme, for instance, if your ads include a $100 doc fee, and your MVPC includes a $100 doc fee, and you charge a $100 doc fee that the customer then pays, you are OK.  In effect, the fee is a separate component of the transaction and really has nothing to do with the vehicle price.  The fee is a mechanism for the dealer to incorporate a method of cost recovery for activities a dealer must go through for each purchase.  Similarly because the dealer must calculate the fee amount by looking at total transactional costs related to documentary preparation and dividing that by number of transactions, it cannot change day-to-day, week-to-week, etc.  An annual analysis will determine the doc prep fee for you.  Thus, it cannot be $150 for six months, then drop to $75 for an OEM promotion, and then shoot back up to $150. In short, if you are charging a “doc fee,” be sure you can justify the amount and charge every customer the same amount. Do not charge anyone a title preparation fee higher than $5. (You are not, however, required to put an itemization on the P&S. It is sufficient to have an explanation available if you are asked by a customer to justify the “doc fee.”)

Massachusetts Auto Dealer www.msada.org

Some states have laws that set the amount that the dealers cannot exceed, and some include a statutory procedure one must submit to in order have the fee approved. Of the 50 states, Massachusetts is one of the few that appears most open to individual dealership calculation without governmental approval.

MSADCF Auto Tech Scholarships Available Applications for the Massachusetts State Auto Dealers Charitable Foundation’s 2014-2015 Auto Tech Scholarships are now available on our website at www.msada.org. The Foundation’s auto tech scholarship program awards scholarships to eligible applicants for use at post-secondary educational institutions that offer auto tech training programs. Since its inception in 2003, the Foundation has awarded in excess of $900,000 to more than 200 students. A scholarship award is worth $6,000-$13,000 each over two years. Five years ago the Foundation’s scholarship program expanded to include not just manufacturer-backed programs but also general automotive technology programs at a greater number of colleges in the Massachusetts area. This gives dealers an even greater chance to capitalize on a highly skilled base of potential employees. To obtain additional information on the scholarship program, contact Jean Fabrizio at MSADA at (617) 451-1051 or by e-mail at jfabrizio@msada.org.

Annual Meeting – May 2, Boston Your Association will conduct this year’s Annual Meeting on Friday, May 2, at the Mandarin Oriental Hotel in Boston. We will commence with a buffet lunch at Noon, with our business meeting running from 1:00-5:00 p.m. We are lining up a number of exciting industry speakers for the day. Invitations have been sent out, so please register as soon as you receive yours..

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MSADA

www.msada.org

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Troubleshooting

MSADA

Protecting Your Dealer Data By Peter Brennan, Esq.

Staff Attorney, MSADA Every day, Association members collect a large amount of customer data during the normal course of running their businesses. Depending on the type of data that you collect in a given transaction, ensuring that your customer’s personal information is safeguarded may be required under federal and state law. Even when safeguarding customer data is not explicitly required, it makes good business sense to do so. Passage of the Gramm-Leach-Bliley Act (GLB) in 1999 codified federal protections on the customer data of financial institutions. The Federal Trade Commission’s “Privacy Rule” (16 CFR 313) and “Safeguards Rule” (16 CFR 314) implement the provisions of GLB, and they are particularly important for dealers to understand in order to guarantee compliance with the federal standards. The Privacy Rule contains, at 16 CFR 313.3, the definition of “nonpublic personal information” (“NPI), and, pursuant to this definition, dealers should consider any personal information collected from a customer that is not “publicly available” to be NPI and therefore subject to strict privacy safeguards. NPI encompasses obvious information such as social security numbers, bank account information, credit cards numbers, etc., but can also include seemingly innocuous information about a customer’s monthly lease rate or the down payment amount that they put down on their automobile purchase. FEBRUARY 2014

Under the Privacy Rule, dealers are prohibited from sharing a customer’s NPI with any third party unless they first provide the customer with an “opt-out” notice along with a reasonable way to opt-out of the information being shared (unless an exception applies). The Safeguards Rule requires businesses that collect NPI from customers to take certain procedural and technical steps to protect this data to prevent access from non-authorized third parties. In correlation with the Privacy Rule, a business must also give customers a privacy notice that details how the NPI of their past and present customers is collected, disclosed and protected. Automobile dealers are subject to these regulations pursuant to the definition of “financial institution” in GLB if they (i) extend credit to someone in connection with the purchase of an automobile for personal, family or household use; (ii) arrange for someone to finance or lease an automobile for personal, family or household use; or (iii) provide financial advice or counseling to individuals. The determination of whether a dealer qualifies as a financial institution is made on a per transaction basis and can be very tricky. For instance, the Privacy Rule would not apply to the dealer regarding information gained during a transaction in which the customer paid cash or arranged their own financing, while the rule would apply to NPI that a potential customer provided while looking into leasing or buying an automobile even if a formal application is never submitted. Importantly, the FTC views the potential for a third-party to access a customer’s NPI as a violation on par with a situation where the information is actually accessed. Essentially, if your customer’s NPI is being stored in an unsecure location where it could be accessed by a third party, the FTC can pursue the same enforcement actions as if a third party had accessed the information.

Massachusetts Auto Dealer www.msada.org

In July 2012 the FTC announced an enforcement action against a franchised automobile dealer in Georgia alleging that, as a result of the dealership’s failure to implement reasonable security measures to protect its customers’ personal information (including names, addresses, social security numbers, dates of birth, and driver’s license numbers), the personal information of 95,000 consumers was made available on a peer-to-peer (P2P) network. Dealers must be extremely vigilant in monitoring their own network for security breaches of this nature. P2P file-sharing software can present significant data security risks, due in part to the fact that once a file has been shared to a P2P network, it may be viewed or downloaded by any computer user with access to the network, and it generally cannot be permanently removed from the network. Another technological development that could put dealers at risk is the use of USB flash or “thumb” drives by employees. An employee could unwittingly load a virus such as spyware onto the dealership network through the use of a compromised thumb drive, or could use such a device to obtain customer NPI and take it from the dealership. If this device is then lost or stolen, the dealer would be in serious jeopardy of state and federal enforcement actions. Compliance with federal and state data security regulations is an extremely complicated and ever-evolving topic, and dealers should consult with industry experts when developing their privacy notices and data protection plans. If you require any additional information on data security regulations or any other issue, 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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Legal

MSADA

By Joseph W. Ambash

Employees’ Off-Duty Time Is it Any of Your Business?

Every employer discovers situations involving activities of their employees outside of work. In this era of social media, the likelihood that you will learn more than you ever wanted to know about your employees’ private lives is substantially increased. Some information that comes to your attention clearly deserves a response. We previously have written about the rogue employee whose behavior immediately impacts your dealership. For example, an employee who steals your trade secrets or is arrested for a DUI while using a company car becomes your problem, not just a piece of information. But there are many other situations that come to your attention that are much more ambiguous. The action you take in these circumstances may potentially have unwanted legal consequences. Consider these situations: • You discover that one of your salespersons has a website displaying revealing pictures of herself. You think it will offend customers if they discover it. What can you do? • You learn that one of your employees was arrested for disorderly conduct while partying on vacation in Florida. What can you do? • Another of your employees is the principal investor in a newly-established medical marijuana facility. This troubles you and you think it could affect your dealership’s reputation. What can you do? • Another employee is a frequent blogger for a domestic supremacy group. What can you do? Notice that none of these situations involves conduct that, in and of itself, directly affects the dealership. These individuals have not committed any acts of misconduct on work time or related to their job, nor have they specifically drawn attention at work to their activities. But still, you want to take action to protect your dealership’s reputation. Fortunately, Massachusetts employers have fairly wide latitude to take action against employees when troubling informa-

tion about off-duty conduct comes to their attention. Except if they are unionized or have specific written employment contracts, most dealership employees are “at will” and can be terminated by the employer for any reason that is non-discriminatory. By contrast, public employees, such as teachers, typically have greater job protection. The recent widely-publicized case of the Fitchburg special education teaching assistant who moonlighted by posing in racy negligee is a case in point. Her school district could not simply terminate her without potentially running afoul of union or other due-process rules. Dealerships have far more latitude – but still must be careful not to violate Massachusetts privacy or other laws when reacting to off-duty behavior of their employees. What steps should an employer take when learning about off-duty conduct of employees? First, determine how you learned about the conduct. Did the information appear on the web? In the newspaper? Through an anonymous tip? Or did a supervisor or manager improperly intrude into the employee’s protected Facebook page? Massachusetts has a law protecting individuals against “unreasonable, substantial or serious interference” with privacy. There may be circumstances in which an employer’s inquiry into off-duty activities crosses the line into invasion of privacy. Employees can sue for damages in invasion of privacy cases. Second, assuming the information comes to your attention from third parties without improper inquiry on your part, ask yourself whether disclosure of the information is genuinely troublesome for your business. While you may strenuously disagree with an employee’s off-duty behavior, his or her politics or hobbies, or whatever, there is always the risk that terminating the employee may generate worse publicity for your dealership than the behavior itself. On the other hand, disclosure of offensive or criminal www.msada.org

off-duty behavior can implicate a dealership’s reputation, in which case termination is appropriate. Some states actually have laws protecting off-duty conduct. Colorado, for example, prohibits terminating an employee for lawful off-duty conduct unless it relates to the employee’s job or is necessary to avoid a conflict of interest with any of the employee’s responsibilities to the employer. Massachusetts hasn’t yet reached this stage, but dealers should nonetheless think about whether the conduct in question materially impacts their workplace. Third, ask yourself whether there are hidden risks in taking action against the employee. For example, certain posts on Facebook that relate to an individual’s job may be found to be “protected, concerted activity” by the National Labor Relations Board. Check to make sure that the off-duty activity is truly unrelated to the employee’s job. Similarly, consider whether the employee might claim some other type of discrimination that you had not considered, such as discrimination based on religion or sexual orientation due to the nature of the employee’s off-duty activity. Once you’ve considered the legal risks of terminating an employee for off-duty conduct unrelated to his or her job, make your own business decision about how to proceed. Until Massachusetts passes more laws restricting employer action, you have a fair degree of flexibility in making your decisions.

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Joe Ambash

is managing

Boston Fisher & Phil-

partner of the office of

lips, a national law firm representing

manage-

ment in labor and employment

law.

He

can

be reached at jambash@ laborlawyers.com.

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AUTO OUTLOOK

FEBRUARY 2014

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MSADA

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Accounting

MSADA

Are QR Codes a Gateway for Cyber Crime? By Barton Haag Barton D. Haag is a principal at Albin, Randall & Bennet, where he specializes in automobile and motorcycle dealerships. He can be reached bhaag@arbcpa.com.

Did you know that QR codes originated in the automotive industry? These square, two-dimensional “Quick Response” barcodes that are now known as a digital marketing tool got their start in the 1990s by auto manufacturers to track vehicle parts during the manufacturing process. QR codes have gained in popularity because they allow consumers to quickly connect with a business online via their smartphone or mobile device. This interactive quality also creates an element of surprise. You may know the brand that you’re trying to engage via the QR code, but you don’t know where the code will direct you until you actually scan it. For example, a QR code printed on a business card may link you to a professional biography, a YouTube channel or a photo on Flickr. One very creative German company created a unique frosted cookie with QR codes printed on edible paper! With elements of surprise and creativity, there comes the danger of mobile security fraud. Did you know that QR codes can expose your device to malicious websites or viruses?

How do QR Codes work? In terms of design, QR codes are two dimensional, black and white boxes that aren’t exactly beautiful. However, because

FEBRUARY 2014

they are machine readable, they do enable online engagement through traditional print ads, business cards, signage and other print materials. Users simply snap a photo of the QR code with their smart phone or mobile device (using a QR code reader application) and are linked to websites for a variety of marketing purposes: sales promotions, events, contests, social media engagement and more. According to a Mashable article by Todd Wasserman, QR code tampering became apparent as recently as 2011, particularly overseas where QR codes are known to be more popular than in the U.S. QR codes themselves are not viruses, but

5 Ways to Safely Use QR Codes cyber criminals can use QR codes in a variety of ways: • Linking you with URLs that have a landing page infected by malware. These sites might prompt you to download infected applications that contain a variety of viruses. Infected apps can expose your smartphone or devices’ calendar, contacts, and even credit card information to hackers. • Prompting you to enter your password for social media accounts, exposing your Facebook or other social networks to cyber crime. • Sending text messages to a premium rate number, charging expense messages to your phone bill. This is more common in other countries where 900 numbers are more common, but it’s still worth extra caution (and perhaps a closer eye on the usage of your phone bill’s data plan). • Infecting your laptop or PC when you plug your mobile device in to back-up

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or transfer files, the malware or virus can then infect the computer.

QR Codes Safety Practices If you find QR codes to be convenient, there are ways to continue using them safely. Here’s how to protect your mobile device from a QR code scam: 1. Avoid QR codes on public signage, which are more susceptible to tampering. If you do use them, look carefully to be sure that a malicious QR code hasn’t been applied on top of the original. 2. Check to see if a QR code in a magazine, or on printed materials is actually a sticker. This may be another attempt by cybercriminals to direct your smartphone to a malicious website. 3. Consider installing a mobile security app on your smartphone or mobile device. Or double-check to find out if your smartphone comes with a security measure for checking apps for security threats before the app is downloaded. 4. Use a mobile QR code scanning app that has the ability to preview URLs before linking. This gives you the opportunity to look for URL’s that may seem odd. For example, if you click on a QR code at a bank’s ATM, make sure the scanning app is pointing you to the bank’s own domain. Many people don’t check URLs on mobile devices. 5. If a QR code links you with a website that asks for passwords or personal information, never provide it. A safer option is to visit the intended company’s website from your computer, avoiding the use of a mobile application. For more information on QR codes and potential cyber crime on your smartphone or mobile device, consult your mobile carrier or an informational technology professional for guidance on the security of both your mobile device and your PC.

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2013 Dealership Trends and Analysis — Part 2 — By Paul McGovern Paul McGovern, a partner at Downey & Company, has specialized in auto dealership accounting and management for 30 years.

In this installment, we will further analyze trends for dealerships based on the size of our dealer clients. In part one of this two-part series, we addressed the overall trends of our dealer clients. In this installment, we will further analyze trends for dealerships based on the size (determined by total dealership sales dollars) of our dealer clients. By doing so, dealers will be able to gauge their results against likesized dealerships. We have categorized the dealerships as follows: small (<$15 million), medium ($15-25 million) and large (>$25 million). Analysis is based upon results for the nine months ended September 30, 2013 compared to September 30, 2012. As evidenced by the chart, all categories experienced growth in each sales class. All categories continue to struggle with declining margins on vehicle sales. Larger dealerships have continued to maintain their advantages. Dealers in the large category are able to take advantage of their

higher sales to absorb their personnel, semi-fixed and fixed expenses. Many of the stores in the large category own multiple dealerships. Their increased purchasing power allows them to negotiate better pricing from their vendors, especially in the areas of advertising, floor plan interest rates, and IT and software costs. They also have lower personnel expenses as a percentage of sales. A large store with five times the sales of a smaller store typically would only have twice as many administrative employees. It is no surprise that large stores generate significantly higher profits. Small and medium dealerships need to remain vigilant in managing their businesses in order to maintain profitability and to remain competitive with the larger stores. The following chart illustrates the sales and gross profits by department for the various categories of sales.

As expected, dealers are generating the bulk of their gross profit and underlying net profit from the parts and service departments. Margins continue to shrink on vehicle sales but these vehicle sales are critical to feeding the more profitable parts and service operations. If you have any questions, please contact Paul McGovern at 800-849-6022 or PMcGovern@DowneyCoCPA.com

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COVER STORY

l e K n a i Br

Dealer of the Year

FEBRUARY 2014

Massachusetts Auto Dealer www.msada.org


MSADA

“You take good care of the employees, they take good care of customers. It’s as simple as that.”

lly

going

going

BiG

For Brian Kelly, success is better when it’s shared with others

For almost 50 years, Brian Kelly has been on a car lot nearly every day. That kind of dedication is hardly rare in the auto industry, but the results of his hard work stand out. With 10 dealerships in his stable and a long record of community service, his resume reveals a businessman willing to take risks and a willingness to share the rewards. But like most second-generation dealers, his career started out in more humble circumstances. “I began in 1965 cleaning up the showroom and cars,” Kelly recalls. While the work began with changing light bulbs and sweeping floors, the itch to move metal kept him advancing. At 16, he was taking customers on test drives. “In short fashion,” he adds, “I became the best sales consultant in the dealership.” A 1970 graduate of Claude H. Patton Vocational School in Beverly, Kelly went through NADA executive training and purchased his dad’s Datsun store in 1980. He quickly outgrew the facility and became one of the top-volume dealers in this region. In 1989, he continued to build his relationship with Nissan when he became the first Infiniti dealership in the world. That expansion has continued for decades. With Chrysler, Jeep, Honda, Volkswagen and Fiat now part of his dealership group, he’s moved into Maserati and Alfa Romeo as well. That diversity and the innovation behind those companies still motivate him even after half a century in the business. “I like the excitement of the products,” he says. “I’ve always been interested in the actual vehicles.”

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DEALER OF THE YEAR A Winning Formula Any dealer will tell you that a successful business comes from the power of people, not the product. From day one, Kelly says he has worked to make sure his employees have what they need to be committed to growing along with him. “You take good care of the employees, they take good care of customers. It’s as simple as that,” Kelly says. That dedication has paid off. Many employees have been with the company for decades. It’s also created lifelong customers in the process, and some families have bought as many as 20 cars from Kelly over the years. “It’s a relationship; that’s the attitude we have. That’s how you grow a business.” With the growing business has come growing properties. In 2013, Kelly put the finishing touches on what has become the largest Volkswagen dealership in North America. The goal began simply: Build a dealership where his employees will thrive, having access to the latest technology and best practices in the industry. As a result, the 53,000 square foot facility that he says sets a benchmark for his other dealerships. That same year, Automotive News named Kelly’s dealerships

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among the top 100 to work for in North America, a list that recognizes stores that are excelling in workplace satisfaction, talent retention, and fair treatment of their employees. “We take great care of our employees as well as our customers, and this honor was proof positive that all our hard work and dedi-

cation is being noticed,” Kelly says. “I really enjoy watching my employees grow and prosper. It makes me very happy to witness them buy homes, send their children to college and basically better their life and the lives of those around them.”

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MSADA Giving Back

“It gets a lot of notoriety. That’s not why we do it.”

For Kelly, working to help others is central to his identity as a businessman. That attitude extends beyond his employees to the community at large, with a string of causes and organizations he has supported for years. In addition to support for groups such as the YMCA and the Boys & Girls Club of America, he’s donated vehicles to good causes and pursued a new focus in helping children find after-school programs, such as the Higgins Middle School Nighthawk Program. “When I was that age, I went to my father’s used car lot every day,” he says. Kelly knows many kids don’t have the same kind of structured after-school time his father could offer him, so sponsored after-school programs are vital. He also supports summer programs. “I think every kid in the summer should be able to go to camp if they want to. That’s always been important to me,” Kelly said. Kelly will spot opportunities to help just by reading the daily newspaper. He says he does it because “it feels good,” and is surprisingly reticent on the topic. “It gets a lot of notoriety,” he says. “That’s not why we do it.” He recalled the day he presented the check to the Nighthawk Program. Kids were excited, approaching Kelly and his son-in-law and friend he brought along for the occasion. Kelly said the event made everyone feel great.

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After so many years and so much success in the industry, there was a time Kelly thought he would be retired by now. “I thought I’d be one of those dealers that ended up in Florida. My kids are grown and gone. I thought I’d be down there playing shuffleboard,” he said. Now he says he probably won’t enter that new phase of his life for several years. “I like to keep busy,” he said. “What

would I do? I’m not a golfer. I don’t gamble.” When he’s ready, Kelly looks forward to eventually transitioning the business to the next generation. “I have two sons in the business and a son-in-law and they do a great job. I’m looking forward to them taking over the business at some point.” Even then, Kelly won’t be in Florida. After being around a car dealership almost every day for 49 years, he still sees himself involved in some capacity post-retirement. “When they get ready to take over, then I’ll do my best to take a back seat — maybe taking half a day.” Speaking to Kelly post-Presidents’ Day, it’s clear he still has the momentum. “Starting Thursday momentum built, and Monday we just rocked. We broke sales records that we’ve never seen before,” Kelly said. “That tells you something. That tells you there’s a pent up demand. We’re getting more than our fair share.”

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NADA/ATD CONVENTION

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Industry Leaders NADA Defends In-Dealership Financing Westcott: The CFPB’s effort to coerce the industry into adopting flat fees will harm competition and will harm the car buying public. Despite an auto sales turnaround over the past year, new-car dealers still face major industry and regulatory challenges, said David Westcott, the outgoing chairman of the National Automobile Dealers Association. “Last year, we faced a new threat to dealer-assisted financing and our business model,” said Westcott, in remarks at the 2014 NADA Convention & Expo in New Orleans. “In dealership financing has been enormously successful in increasing access to auto credit, and reducing the cost for millions of Americans. Consumers overwhelmingly choose dealer-assisted financing because it’s convenient and affordable.” Last March, however, the Consumer Financial Protection Bureau (CFPB) issued “guidance” to indirect auto lenders alleging that the industry has engaged in unintentional, statistical discrimination against protected minority classes. “Now let me be clear: our industry strongly opposes any form of discrimination in any aspect of our business. Discrimination is just wrong and illegal,” added Westcott, a Buick-GMC dealer in Burlington, N.C. “If a Dick Witcher, outgoing chairman of the American Truck Dealers (ATD), federal agency is making allegations that discrimination urged dealers to meet with their members of Congress as “the first step in exists in our industry, it should have to explain itself, and combating regulatory burdens,” and that the work of securing the future of it needs to be transparent with the public.” dealerships begins with each of them. Congress has weighed in many times, and representa“One of the continuing challenges in the months ahead will be advancing tives and senators from both sides of the aisle are asking our agenda in Washington. We have worked extensively with our electthe CFPB to answer some very basic questions, he said. ed officials to communicate our challenges and identify solutions,” said “If the CFPB gets its way, what happens? Consumers Witcher in remarks at the ATD Convention & Expo in New Orleans. “And will lose the ability to see if dealers can ‘meet or beat’ an in a time of a divisive Congress—and when regulators are eager to pass offer from their own bank,” Westcott added. “This will on new rules and regulations—we are called to protect your interests more harm competition. This will harm customers. And the than ever.” customers who will suffer the most are those who have “Our legislators need to understand what we need. This starts with us the least.” inviting them to visit our dealerships and meet with our employees so they Westcott urged individual dealers and dealer associaknow who we are and what we do,” he said. tions to keep engaging and informing their members of “It’s key in helping them to understand our business and use us as a reCongress on the issue. source before they make regulations that hurt our industry.” “Our message is simple: the CFPB’s effort to coerce the Witcher, chief executive officer of Minuteman Trucks in Walpole, Masindustry into adopting flat fees will harm the car buying sachusetts, also warned dealers that the industry faces “serious regulatory public,” he said. “Rest assured that NADA will continue overreach” that will ultimately make the job of dealers more difficult, such to lead the charge and defend in-dealership financing.” as stricter federal emissions standards and fuel economy standards.

ATD Chairman Dick Witcher:

FEBRUARY 2014

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MSADA

Speak in New Orleans McConnell Ready to Lead NADA in 2014 Although new-car dealers continue to face a host of challenges from the government and industry, Forrest McConnell, III, 2014 chairman of the National Automobile Dealers Association, said dealers are risk-takers and they can rely on NADA just as he and his family have done for generations. “NADA is working through some of the toughest regulatory and legislative challenges that Washington throws at us,” said McConnell, in keynote remarks at the NADA Convention & Expo in New Orleans. “Many of you know that the government has been trying to impose more regulations over our $783 billion finance market. Why? Because they don’t understand our business,” he said. Eighty percent of customers come to us because our financing system is convenient and competitive. We provide credit avenues that they didn’t even know existed. NADA will keep hammering Washington that dealers don’t add to customers’ credit costs. We save our customer’s money. Period.” McConnell, who began serving on NADA’s board in 2008, outlined some of association’s industry efforts, including meeting with 30 manufacturers at least twice a year and analyzing the responses from NADA’s Dealer Attitude Survey. “It’s important that our manufacturers understand and respect what we do. We buy their products. We invest billions in capital. We absorb many of their costs,” he said. “We build expensive facilities, but it’s important we build true partnerships with our manufacturers, too. Manufacturers “We need to make sure that new who have good relationships with dealers have a fuel economy standards for trucks strong advantage over others who don’t.” are not only good for the environMcConnell highlighted how the family busiment, but fair—and affordable— ness in auto retailing began in 1919 when his for the people who make them, grandfather and father opened dealerships in sell them and drive them,” he said. Montgomery, Alabama. They joined NADA in In the legislative arena, ATD 1940. Today, McConnell runs McConnell Honda/ strongly supports H. Con Res. Acura with his brother, William. 52, a bipartisan bill sponsored “As a dealer, I can tell you that in the years I’ve by Congressmen Reid Ribble been with NADA, they’ve really helped me suc(R-Wisconsin) and Tim Walz (Dceed,” he said. Minnesotta), which keeps the fedAlthough there have been an array of challengeral excise tax rate at 12 percent. es, NADA has always supported dealers’ efforts “We have said ‘No’ to a rise in as they strive for success. He encouraged attendthe federal excise tax for heavyees to continue to take risks, as he and countless duty trucks. The 12 percent levy is others have done. already the highest excise tax im“NADA will always be here to take care of the posed by Congress on a percentage basis,” Witcher added. “Increasing this tax things that sidetrack you from your life,” he said. could further hurt our industry and stall new truck sales.” “So push back the fear. Take the leap. We got your back.”

‘Let’s Tackle Regulations’

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MSADA

Hillary Clinton Praises Dealers’ Role in Economic Recovery The nation’s auto dealers are critical to the recovery and ongoing economic health of the United States, former U.S. Secretary of State and U.S. Senator Hillary Rodham Clinton told those gathered at the National Automobile Dealers Association Convention & Expo in New Orleans. “Building and selling cars helped create the American middle class,” said Clinton. “The resurgence of the auto industry over the past few years has been a driving force behind our recovery. And you, the auto dealers of America, continue to play a vital role in communities all across our country.” The crowd gave Clinton a standing ovation and then listened intently as she mentioned various NADA leaders, including personal friends Jack Caldwell, an NADA board member representing Arkansas, and Thomas “Mack” McLarty III, chairman of the Arkansas-based McLarty Companies, which owns 11 auto dealerships in five states. Clinton also answered questions about her support of the automaker bailout as a senator representing New York State, her professional regrets about the 2012 Benghazi attacks and why she chose to accept the Secretary of State post after waging a fierce Presidential campaign against Barack Obama. But the auto dealers were especially engaged as she discussed her support of small business in general, specifically dealerships. “The resurgence of the auto industry over the past few years has been a driving force behind our recovery,” she said. “And you, the auto dealers of America, continue to play a vital role in communities all across our country.” Calling herself an optimist who believes America’s greatest days are ahead of it, she called for the country’s leaders to move beyond their differences and to work together for the good of the country as it did after World War II and as the auto industry now does. “The auto business has come through some tough times—and dealers bore a big part of the burden—but you’re showing us all that there’s light at the end of the tunnel,” she said. “That there is no challenge too big or too hard when Americans work together.”

Forbes to Dealers: You Embody the Best of the Free-Market System Steve Forbes, chairman and editor-in-chief of Forbes Media and keynote speaker at the annual National Automobile Dealers Association Convention & Expo, extolled the free-market and capitalist systems and told dealers, “You exemplify what is best in the American economy.” Capitalism allowed Henry Ford to turn “a toy for the rich” into a product almost everyone can afford, Forbes said. Free markets actually improve the lives of those at all socioeconomic levels, he said. “It expands humanity and brings about enormous circles of cooperation.” Apple’s iPhone, for instance, consists of parts made throughout the world, he said. Free trade “is not inhumane; it breaks down barriers and engenders trust on a day-to-day basis.” But it was Forbes’s comments on the CAFE fuel-economy standards that drew one of several rounds of hearty applause. “CAFE standards try to dictate what happens in the market,” he said, predicting they would be modified in 2017. “I guarantee that thing is going to be changed.” FEBRUARY 2014

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Warranty Parts Reimbursement Update by Frank O’Brian C PA , CIA , C F E a t O’Connor & Drew, P.C.

The 2012 amendments to the 93B Dealer Franchise Laws have been in place for more than a year and a half, and many dealers have capitalized on the new warranty law by submitting for warranty parts reimbursements at retail rates. However, many dealers have yet to take advantage of this golden opportunity. Since the new law has been well publicized by MSADA as well as others in the industry, most dealers are aware of the new law. So why are dealers reluctant to submit? We believe that dealers fail to submit for one of the following two reasons: (1) fear of retribution from the manufacturer; and (2) underestimation of the impact to the bottom line.

Retribution from the Manufacturer Based on our experience preparing these submissions for hundreds of dealers in various states including Massachusetts, we have yet to see any direct retribution on those dealers that have obtained retail rates. Additionally, as more dealers are approved, it becomes less likely for the manufacturer to single out a dealer. Since the new warranty parts law was enacted back in the summer of 2012, most manufacturers have complied and approved dealers. However, some manufactures, such as Nissan, BMW and Hyundai, despite approving dealers for retail rates, do not pay the approved retail rate

on all warranty parts. In some instances they reimburse a set amount or a handling charge on large dollar parts or pay a set rate on recalls. This is a direct violation of the law. There are also a few manufacturers, specifically Mercedes-Benz, Toyota and General Motors, who have aggressively persuaded dealers that it was not in their best interest to submit. MERCEDES-BENZ – Based on our knowledge, Mercedes-Benz has not approved any dealers in the state. We are also not aware of any Mercedes-Benz dealers that have submitted, as most dealers have been reluctant to due to Mercedes-Benz’s lack of approval in other states. Despite this resistance from the manufacturer, dealers should consider submitting due to the large volume of warranty parts sales, which would result in hundreds of thousands of dollars for most Mercedes-Benz dealers. TOYOTA – Toyota is another manufacturer that has avoided approvals. However, we have heard recently that Toyota has softened its stance against approving dealers and, upon request, have sent dealers instructions on how to submit. As a result several Toyota dealers have begun the process to submit for retail rates. GENERAL MOTORS – General Motors has approved numerous dealers in the state; however, they transfer dealers from Option C to Option A for both parts and labor upon approval. Option C is the annual increase based on the Consumer Price Index (“CPI”). Option A is increases based on the 100 repair order analysis. Most GM dealers have been accustomed to Option C for its labor rate increases so this would move them to Option A, and require them to submit the 100 repair order analysis in order to get a rate increase. This is not necessarily a negative for dealers, as most dealers’ true retail rate, as calwww.msada.org

culated under the new warranty law, will result in a higher warranty labor rate than the one currently paid by GM. The only caveat is that the dealer must submit the calculation to substantiate its rate similar to that of the warranty parts submission.

Impact on the Bottom Line The additional gross profit generated for each dealer will vary based on the volume of warranty parts sales and mark up percentage. The average dealer’s retail rate typically ranges from 70% to 90% over cost, while the most manufacturers still pay is 40% over cost. If a dealer is approved at 80% mark up over cost, then that dealer would in effect double its warranty gross profit. It is important to note that when projecting additional gross profit, one should calculate based on warranty parts cost of sales and not warranty parts gross profit since gross profit changes as your rate changes, but the cost remains the same. Some manufacturers pay list pricing or MSRP, which most dealers perceive as 67% mark up. However, MSRP is a price matrix determined by the manufacturers. On average, MSRP usually pays between 50% and 60% mark up over cost. If your dealership employs a reasonably aggressive price matrix, it is usually well worth submitting for retail rates. Regardless of your situation, it is critical to calculate the impact on the bottom line to determine the revenue opportunity. With gross profit being squeezed from the dealer left and right, there are few opportunities to increase gross profit without increasing volume. It’s the easiest money you will ever make. If you would like additional information, please call Frank O’Brien, CPA, CIA, CFE at O’Connor & Drew, P.C., 617.471.1120 or fobrien@ocd.com.

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NEWS

from Around the Horn

WEST SPRINGFIELD

NORWOOD

Balise Named Dealer of the Day on CBT News

Gallery Automotive Group Breaks Ground on State-ofthe-Art BMW, MINI Dealerships

James Balise was recently named Dealer of the Day by CBT (Car Biz Today) News, a news source for the auto retail industry. Balise got its start almost a century ago and, in 1971, opened one of the first Honda dealerships in North America. James Balise became President and Dealer of Balise Motor Sales in 1986. To d a y, Balise is one of the largest retailers of new and used automobiles in New England. Headquartered in West Springfield, the organization employs more than one thousand associates at facilities in Massachusetts and Rhode Island:

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Massachusetts Auto Dealer www.msada.org

Gallery Automotive Group LLC is excited to announce it has begun construction on BMW and MINI dealerships at 1040 Hingham St., Rockland, just off of Route 3, Exit 14. The facilities will occupy a piece of real estate abutting Route 3, bisecting the Hingham-Rockland town line. The new dealerships will replace BMW Gallery of Norwell at 98 Accord Park Drive, Norwell, with 58,000-square feet of BMW and MINI showrooms and service facilities. Doors are expected to open in the fall of this year. The new dealerships will also add at least 20 jobs. â&#x20AC;&#x153;Our new location will offer our current BMW clientele and anyone who is passionate about driving a state-of-the-art home on the South Shore and will offer current and future MINI enthusiasts in Southeastern Massachusetts a well-deserved home. We couldnâ&#x20AC;&#x2122;t be happier about our partnership with these iconic


NEWS from Around the Horn brands,” said Gallery Automotive Group Director of Operations, Kevin Misanko. In addition to creating an exciting new atmosphere for car-buying on the South Shore, the site and design harness the potential for visibility afforded by Route 3. The high-end franchises will present like a downtown office building, and include a second-floor “jewelry box” – a glass enclosure that will display eight different models from the BMW and MINI lines, visible from Route 3 South.

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NORWOOD

Boch Featured in Guitar Aficionado Massachusetts dealer and Subaru distributor Ernie Boch recently found himself the subject of niche news – and the topic wasn’t cars. Boch was featured in Guitar Aficionado, with the cover blurb: “BOSTON’S BILLIONAIRE CAR KING GOES GUITAR CRAZY.” Boch, one of only four private Suburu new-vehicle distributors in the United States, owns several dealerships in Norwood. According to its site, the magazine “checks out Boch’s impressive guitar collection. Ernie may preside over a multibilliondollar auto-dealer empire in Boston, but his true passion is his wicked-cool collection of classic, as well as uncommon, axes.” The magazine story and photo spread show off Boch’s collection of more than 80 noteworthy guitars. The collection includes Stratocasters, Telecasters, Les Pauls, Gibsons, Fenders, historic Rickenbackers, among others. “They all get played. ... I keep them fully strung and tuned, always,” said Boch, who is depicted lounging barefoot poolside, on a couch and in one of his collectible cars. Boch has played guitar since he was 12. In 2006, he got serious

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NEWS from Around the Horn

Ernie and the Automatics

about music again and formed Ernie and the Automatics, a blues-rock band that he says was playing as many as 200 gigs a year. Boch shut down the band after a monthlong U.S. tour with Deep Purple in 2011. “It was a lot of fun,” he told the magazine, “but it was just too much to keep things going at that level.” PEABODY

Range Rover Earns Polk Loyalty Award, Again The Range Rover SUV may have shed about 700 pounds as part of its 2013-model-year redesign, but this year’s Polk Automotive Loyalty Awards indicate the vehicle is still pulling its weight among existing Land Rover fans. With the 2013 Range Rover topping the Luxury Full-Size SUV category, the model has now been recognized nine times in the 18-year history of Polk’s awards, including six straight segment wins. The Polk Automotive Loyalty Awards honor the vehicles in each segment that had the highest percentage of buyers who returned to either the same model or the same make. The 2013 Range Rover features a new allaluminum unibody structure for improved agility and fuel economy while incorporating the next-generation Terrain Response 2 system to customize its ride to a variety of driving surfaces. Outside, the latest Range Rover sports a more modern look, receiving new styling cues like sweptback headlights and a sloping roofline. “Though the new Range Rover has sleeker styling and a much lighter curb weight than past generations, the SUV is as athletic and luxurious as it’s ever been,” said Dave Edwards, general manager of Land Rover Peabody, a Greater Boston Range Rover dealer. “That mix of modern sensibility and classic capability allows Land Rover to attract new buyers to the brand while retaining its valued longtime customers.” FEBRUARY 2014

Massachusetts Auto Dealer www.msada.org


MSADA LAWRENCE

Boys & Girls Club of Lawrence Receives NADCF Ambassador’s Grant from MSADA Markus Fischer (back row, second from left), executive director of the Boys & Girls Club of Lawrence, joins club members in accepting a $1,500 NADCF Ambassador’s Grant from Robert O’Koniewski (back row, far left), MSADA executive vice president and the Massachusetts State Automobile Dealers Charitable Foundation. Also representing MSADA at the gift presentation was William DeLuca IV (far right) of Woodworth Motors Andover and the DeLuca Family of Dealerships in Haverhill.

HANOVER

Prime CEO Talks Change, Presidents’ Day and Technology David Rosenberg, CEO of Prime Auto Group, was featured on Boston.com to discuss Presidents’ Day in the auto industry, how online research has changed dealer dynamics, and the thrill of fresh technology. Manufacturers already are well aware of New England’s Presidents’ Day auto sales said Rosenberg, whose auto group will have 21 dealerships spread across New England when its Mercedes-Benz facility opens in Hanover later this year. “They know that it’s a special weekend in Boston, particularly, but also throughout New England,” Rosenberg said. “Dealers want to clear inventory, manufacturers are offering incentives, and interest rates are still low. It truly is a good time to go shopping.” Much of the carnival atmosphere of past Presidents’ Day sales is gone. “I remember the years when we’d buy racks of cherry pies, paint the dealership’s windows, and have people dressed up as George Washington and Abe Lincoln,” Rosenberg told Boston.

com. “Things aren’t as hokey these days. It’s not as much about the hype as taking care of people.” That’s not all that’s changed. Consumers are more prepared, they visit fewer dealers, and some of the happiest car owners are those who have developed relationships inside the dealership. Rosenberg knows the average customer has spent somewhere between 7 and 11 hours online. He’s happy when someone comes in with figures they’ve obtained from places such as Cars.com, Edmunds, Kelley Blue Book, and Autotrader. “With all the online services, we can get multiple leads for the same customer,” says Rosenberg. “The new industry standard says you’re doing a good job if you turn 10 percent of those internet leads into sales.” At the end of the process, something never changes: The thrill of having a new car with the latest technology. For Rosenberg, it’s the new air conditioned seats. “I love them, especially on a hot summer day in a car with a dark interior.” www.msada.org

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NEWS from Around the Horn

MSADA

RAYNHAM

Mastria Nissan Lauded by Edmunds.com for Customer and Community Focus While car dealerships all sell the same products, they can distinguish themselves from competitors with the experience they provide their customers and their dedication to the local community. According to Edmunds.com, Mastria Nissan is one of the select showrooms that “go the extra mile” to please buyers while also enriching its hometown of Raynham. Highlighted in a recent Edmunds.com article profiling five dealerships nationwide that offer unexpected customer and community initiatives, Mastria Nissan was recognized first and foremost for its Tires for Life program, which provides customers with tire replacement for the life of any new or used vehicle they purchase from the dealership. To be eligible for the program, customers must follow

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the factory-recommended maintenance schedule for their vehicle and have the work done at a Mastria service center, where their tires need to be rotated every 5,000 to 6,000 miles and alignments must be made once per year or every 15,000 miles, whichever happens first. Each tire replacement is covered up to $175. “Our Tires for Life program is a great way to save our customers a significant amount of money while also ensuring they return to our dealership where we can build long-term relationships,” said Bruce Garcia, general sales manager of Mastria Nissan. “The recognition from Edmunds.com is a testament to how hard our team works to go well beyond what’s expected at a car dealership, both in how we treat our customers and how serious-

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Richard Mastria

ly we take our responsibility to support Raynham and the surrounding area.”


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NADA Update by Don Sudbay

NADA Releases Fair Credit Compliance Program for Dealers 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 I mentioned in my last column, NADA has sent dealers a guidance that, if followed, will strengthen the dealer’s ability to comply with the federal Equal Credit Opportunity Credit Act. Please read Chairman Forrest McConnell’s comments regarding this subject in the first paragraph below. Also, every dealer should take action to protect customer data. As we have seen in the Target fiasco, this can be a very serious problem. NADA has provided an addendum for its members to use with third party vendors. This addendum is located at www.nada.org/dealerdata. Download the document, discuss it with your controller and attorney, and present it to your vendors. If you have any questions regarding either of these issues, feel free to call me and I will get you in touch with an NADA expert who can help you find the answers.

A Special Note from NADA Chairman Forrest McConnell: “Last year the Consumer Financial Protection Bureau issued fair credit ‘guidance’ to indirect finance sources that seeks to change the way they compensate dealers for arranging financing. Since then NADA has led the charge in defending the dealer-assisted financing model and is working to prevent the adverse consequences that government-imposed flat fees would cause for consumers, dealers and finance sources alike. “At the same time, we have provided dealers with additional educational resources to strengthen their efforts to comply with fair credit laws. As part of this effort, NADA, the American International Automobile Dealers Association and the National Association of Minority Automobile Dealers issued the NADA Fair Credit Compliance Policy & Program to their respective members on January 24. “This publication provides essential background on this issue, sets forth a fair credit compliance program template that a dealer can adopt, and contains both general and specific instructions for completing the program template. Among many other features, the program template (a) sets forth a fair FEBRUARY 2014

credit policy that states the dealer’s unambiguous commitment to fair credit compliance; and (b) establishes a voluntary standardized method for determining the amount of dealer compensation that may be earned in a credit transaction. “The compensation method is based on one that was adopted by two dealers in 2007 to resolve Department of Justice allegations of unintentional credit discrimination. It generally involves establishing a set amount of dealer participation that a dealer adds to a buy rate and only deviating from that amount if certain pro-competitive factors that are unrelated to the consumer’s background are present in the transaction and are properly documented. The NADA template also contains sample forms to facilitate this process and it creates management, training, oversight and reporting guidelines to ensure the program is properly carried out. “Adopting the NADA program template, or any portion of it, is an individual dealer decision and is strictly optional. The program does not constitute a ‘safe harbor’ for complying with federal law and no federal agency has endorsed it. However, NADA believes the program, if properly adopted and faithfully executed, will strengthen the dealership’s ability to comply with the federal Equal Credit Opportunity Act. “Dealers can access a PDF of the NADA Fair Credit Compliance Policy & Program at nada.org/faircredit. “Additionally, NADA members can access a Word version of the program template on that web page by entering their user name and password and consenting to a licensing agreement. Dealers should consult with their attorney to determine appropriate fair credit compliance procedures for their dealership to adopt. “Stay tuned for more educational information on this topic and the NADA Fair Credit Compliance Policy & Program, including an NADA University webinar that will be announced to dealers in the near future.”

NADA’s Service Provider Data Access Addendum Now Available for Download Last month, NADA’s Legal and Regulatory Affairs department issued a sample Service Provider Dealer Data Access Addendum (“Addendum”) and cover memo for dealers to use with their third party service provider vendors. This follows a memo sent last August from NADA to all members that contained an overview of the primary regulatory issues surrounding dealer data, numerous practical tips for dealers to consider when protecting their data, as well as samples of the contract provisions required under federal law when a dealer wishes to allow access to dealer data with a third party service

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MSADA MSADA provider. The Addendum is now available to dealers as a Word document at www.nada.org/dealerdata.

Enroll Today in NADA’s Dealership Workforce Study Stay ahead of the competition. Participating dealerships will receive two complimentary reports designed to improve recruiting and hiring decisions. A major challenge facing new car and truck dealers is attracting and keeping talented employees. To assist dealers with this task, NADA offers the Dealership Workforce Study, now open for enrollment to NADA and ATD members. There is no cost to participate. Participating dealers will receive a complimentary: • 2014 Dealership Workforce Study Basic Report, a custom report that compares the individual dealership’s compensation for 60 job positions, employee benefits programs, hours of operation, work schedules, and retention and turnover to the aggregated data of other participating dealerships, both regionally and nationally; and • 2014 Dealership Workforce Study Industry Report, which provides an overall industry-wide analysis of the aggregated DWS data, including hiring and retention trends, demographics such as generational differences and the gender gap, compensation, tenure, employee benefits statistics, plus hours of operation and work schedules for all U.S. regions, as well as an economic overview of 2013 and forecast for the future. Dealers can enroll as individual dealerships or dealer groups using a secure, web-based process that involves completing a survey and uploading payroll data. Enrollment closes on April 30, 2014. Eligible dealers can enroll at www.nadaworkforcestudy.com. For more information, send an email to WorkforceStudy@nada.org or call (800) 557-6232.

Senate Committee Passes Bill to Cut Outdated Paperwork Mandate at Auto Dealerships A U.S. Senate committee on February 6 approved a bipartisan, NADA-supported bill that eliminates some red tape required by the Environmental Protection Agency when a new car or truck is sold. The legislation, which passed the Senate Environment and Public Works Committee, now goes to the floor of the Senate for consideration. The bill, H.R. 724, which has no known opposition, was passed by the House of Representatives early last month 405 to 0. The bill would repeal a 1977 mandate that requires dealers to certify that a vehicle complies with the Clean Air Act. A dealer is required to present this form to the purchaser of a new vehicle even though all vehicles must comply with the Clean Air Act before being sold in the United States. Ad-

ditionally, a Clean Air Act certification sticker can be found under the hood of most vehicles, or in the owner’s manual, making an additional certification by the dealer redundant.

NADA: Rising Home Values, Residential Construction and Employment to Boost Auto Sales Increasing home values, residential housing construction and rising employment are key factors that will drive the U.S. economy this year, says Steven Szakaly, NADA chief economist. “These factors are also critical to maintaining the pace of auto sales growth, which has been an integral part of the economic recovery,” said Szakaly at the NADA Convention & Expo in New Orleans. NADA predicts 16.4 million new cars and light trucks will be purchased or leased in the U.S. this year, a 5.8 percent increase from 2013.

NADA Used Car Guide: Used Vehicle Prices to Slip in 2014 A sharp rise in the supply of late-model used cars and light trucks is expected to end a five-year run of price growth, according to the NADA Used Car Guide. Late-model used vehicle supply will be more plentiful, in large part due to an 18 percent surge in off-lease volume. The supply of units six to eight years in age, though, will continue to fall as a byproduct of the new-vehicle sales decline from 2006 to 2009. “These diverging trends will result in late-model used-vehicle prices dropping more substantially than their older counterparts,” said Jonathan Banks, executive automotive analyst for the NADA Used Car Guide, at the 2014 NADA Convention & Expo in New Orleans.

NADA: Used-Vehicle Price Index Remains Unchanged in January After a slight 0.1 percent uptick in January, NADA’s usedvehicle price index remained unchanged at 124.6, tied with August 2013 and December 2013 as the third-highest figure ever recorded. The index measures the change in used-vehicle prices up to eight-years-old. “The arctic weather that impacted large swaths of the country did little to push usedvehicle prices off their expected course in January,” said Jonathan Banks, executive automotive analyst of NADA Used Car Guide, in the February edition of Guidelines, a monthly report on new- and used-vehicle sales trends and price movement. Price movement for the majority of vehicle segments fell between a tight range of -0.3 percent to 0.4 percent, with compact utility, large SUV and midsize van prices dropping slightly, while compact car, large pickup and mid-size utility prices inched up; and mid-size car prices were flat over the month.

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NADA Market Beat

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

Review of New Light Vehicle Sales Overall There were 1.0 million light-vehicle sales in the U.S. in January 2014. This sales figure was down 25.5 percent from December 2013 and down 3.0 percent from last January. The January 2014 Seasonally Adjusted Annual Rate (SAAR) for light-vehicle sales is 15.2 million.

For January 2014, car sales held a market share of 47.4 percent with sales down 8.7 percent from a year ago while corresponding figures for light trucks put the light-truck share at 52.6 percent with sales up 2.7 percent from last January. See Figure 1.

Companies/Brands

Companies with a geographic base in the Asia/ Pacific region held the largest market share of lightvehicle sales for January 2014: 46.3 percent of the market. This was followed by companies based in North America (Detroit 3 and Tesla Motors) at 44.7 percent and then companies based in Europe at 9.1 percent. All company categories by geographic bases – North America, Asia/Pacific and Europe – experienced contraction in light-vehicle sales in January 2014 over last January. Of the Detroit 3, Fiat Chrysler was the only company that experienced growth in January 2014

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sales, from a year ago, at 7.9 percent. Both General Motors and Ford had a contraction in light-vehicle sales compared to last year with General Motors experiencing the greatest contraction at 11.9 percent. From the group of Asia/Pacific-based companies, Isuzu experienced the most growth in January 2014 light-vehicle sales from last year at 48.0 percent followed by Subaru at 19.3 percent.


33 From the group of Europe-based companies, Jaguar Land Rover experienced the most growth in January 2014 sales from a year ago at 15.1 percent followed by BMW at 3.0 percent. See Figures 2, 3 and 4.

Segments

The light-truck share of January 2014 lightvehicle sales (52.6 percent) was an increase over that of last January (49.7 percent) while the car share of January 2014 light-vehicle sales (47.4 percent) was a decline from that of last January (50.3 percent). Of all the segments, the cross utility vehicle (CUV) segment held the largest share of lightvehicle sales at 28.0 percent followed by the small car segment (18.9 percent) and the middle car segment (18.4 percent), respectively. Within the CUV segment, the middle CUV sub-segment has been the largest sub-segment holding 64.7 percent of January 2014 CUV sales. Within the small car segment, the upper small sub-segment has been the largest subsegment holding 71.8 percent of January 2014 small car sales. Within the middle car segment, the lower middle sub-segment has been the largest subsegment holding 80.9 percent of January 2014 middle car sales. Focus: The van segment. For the period 1983-2013, the annual share of vans out of lightvehicle sales rose from 1983 to its peak in 1995 (11.2 percent) after which it trended downwards for the rest of the period. For January 2014, the van segment held 5.0 percent of total light-vehicle sales with 50,446 units up 9.4 percent from a year ago. For the light-truck category, this segment held 9.5 percent of sales for the month. Of the 2 sub-segments within the van segment, the small van sub-segment held the largest portion of the van segment at 68.4 percent for January 2014. See Figures 5 and 6.

Power source

Gasoline-powered light vehicles held a market share of 93.8 percent of total January 2014 light-vehicle sales which was up from the cor-

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NADA Market Beat responding share of 93.6 percent last January. The market share held by the diesel category rose to 2.8 percent from its value of 2.6 percent a year ago. The market shares held by light-vehicle sales of electrics and plug-in hybrids have each grown since last year while those for sales of hybrid light vehicles and natural gas-powered light vehicles declined from last January. In January 2014, for the alternative power category, the U.S. automobile industry sold the following light vehicles: 3,617 electrics, 0 units powered by fuel cells, 26,856 hybrids, 66 units powered by natural gas and 2,905 plug-in hybrids amounting to 33,444 light-vehicle sales. Focus: Fuel cell light vehicles. Fuel cell light vehicles have the least number of sales for any power source placing these vehicles in the last rank of the alternative power category by order of descending number of sales. For 2011-2013, sales for fuel cell light vehicles have been on an upward trend and reached double digits in 2013 when these sales amounted to 10 units â&#x20AC;&#x201C; an increase of 100 percent over corresponding sales figures in 2012. The only model sold as a fuel cell light vehicle is the Honda FCX â&#x20AC;&#x201C; a car. In January 2014, there were 0 fuel cell light vehicles sold in the U.S. market. See Figure 7.

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Models

From the list of the 15 best-selling light vehicles for January 2014, 7 of the light vehicles were Detroit 3 models while 8 of the vehicles were from companies based in the Asia/Pacific region. Within the Detroit 3 portfolio of vehicles, the Chevrolet and Ford brands each contributed 3 models while the Ram brand contributed 1 model to the list. Within the portfolio of vehicles from the Asia/Pacific-based companies, the Toyota and Honda brands each contributed 3 models while Nissan and Hyundai brands each contributed 1 model to the list. The first 3 ranks of the best-selling light vehicles for January 2014 were held by pickup trucks produced by the Detroit 3 while the fourth and fifth ranks were both held by cars produced by Toyota. See Figure 8.

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Feb 2014 MSADA magazine