“If manufacturers sold directly to customers, there would be zero competition in pricing vehicles, parts and service,” said McConnell.
The latest Chairman of the National Automobile Dealers Association, aka NADA, defended the auto retailing franchise system saying it benefits both automakers and car buyers by providing much needed competition. Forrest McConnell, NADA chairman, today in Detroit told the Automotive Press Association that dealers – across town or on the web – compete fiercely against each other on vehicle pricing, financing and service, which he claims reduces costs for consumers.
McConnell, a Honda/Acura dealer from Montgomery, Alabama, said there is a simple reason why manufacturers use dealers to sell new cars. “The franchised dealer network is the most competitive, the most cost-effective and most pro-consumer model for buying and selling new cars and trucks.”
“If manufacturers sold directly to customers, there would be zero competition in pricing vehicles, parts and service. Car buyers would be stuck paying the full sticker price—because there would be no ‘same brand dealership’ to shop and compare prices,” said McConnell.
The franchised new-car dealer system has come under criticism for adding costs by adding a layer of middlemen. Worse, the Consumer Financial Protection Bureau, CFPB, is going after auto lenders claiming that certain lenders that offer auto loans through dealerships are responsible for unlawful, discriminatory pricing based on race, religion, and nationality.
Potentially discriminatory markups in auto lending may result in tens of millions of dollars in consumer harm each year. The CFPB has the jurisdiction – after NADA lost a lawsuit – and is in the process working on regulations covering fair lending.
The argument with the CFPB has been ongoing since March 2013 when the agency issued its ‘guidance’ on indirect auto lending that in the view of NADA wrongly attempted to fix rates and fees. NADA says this “eliminates the flexibility of dealers to discount financing rates offered to their customers by pressuring lenders to switch to a flat fee compensation system.”
Last January, NADA developed an optional Fair Credit Compliance Policy and Program for dealerships, which was released in partnership with the National Association of Minority Automobile Dealers and the American International Automobile Dealers Association, in an attempt to head off the regulations.
The CFPB has not approved the plan so many dealerships – including mega dealer Roger Penske – have not formally adopted it. CFPB is actively suing lenders, banks and auto dealers.
Not surprisingly, NADA is now taking the issue to Congress. Last month, Reps. Ed Perlmutter (D-Colo.) and Marlin Stutzman (R-Ind.) introduced H.R. 5403, a bipartisan bill to nullify the CFPB’s auto lending ‘guidance.’ So far, 69 Republicans and 40 Democrats in the U.S. House of Representatives support the dealer’s ability to discount the rate for our customers, he said.
NADA is politically powerful since its more than 17,000 members are frequent givers to campaigns. To be fair, dealers contribute to the national, state and local economies by employing one million people, at an average salary of $52,000 before bonuses or profit sharing. NADA claims the average pre-tax profit of a dealership is 2.2%, with 11 million on average in capital. McConnell wryly noted that most states collect more than that from sales taxes – 6% in Michigan – when a dealer sells a car.
