Pub. 16 2017-2018 Issue 4

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S 23 new jersey auto retailer W W W . N J C A R . O R G There are too many variables that arriving at any kind of mean- ingful “average” sales evaluation is probably a lost cause. Not to mention, using an “average” penetration threshold as a minimum passing grade is both absurd and unreasonable. No manufacturer should construct a network plan that assures the automatic failure of about half its franchisees at a given time. With an “average” benchmark for all dealers, the failure rate never improves, because the “average” will move up or down along with a brand’s sales trends. Even if a brand’s sales double, the number of “below average” dealers will stay constant. Manufacturers should use systems that increase the likelihood and assure the possibility that every franchisee can comply with reasonable standards at the same time. So, in revamping their current methodologies, what should auto franchisors do instead? First, instead of “one-size-fits-all” metrics that depend on convoluted and artificially devised comparisons, they should establish discerning standards so that each store is assessed on its own compliance with those standards (i.e. adequate facilities, well-trained professional sales and service staffs, customer friendly policies and practices, reasonable capitalization, regular suitable advertis- ing in local media, appropriate and adequate inventories of vehicles and parts, etc.) Second, if manufacturers insist on relying upon vehicle salesmetrics, they must developmethodologies that are fully explained to dealers and proven to be statistically valid to scientifically determine how many vehicles a given dealer should sell or should have sold. 2. Autonomous Cars: A Threat to Dealer Survival, or a Major Growth Opportunity? Auto retailers are just starting to figure out what role they will play in the autonomous vehicle wave coming down the road. Some predict human-driven vehicles will be legislated off the highways in 15-20 years, which will spell the demise of automotive retailing. Most industry experts see autonomous vehicles serving as an “ad- dition” not a “substitution” to existing automotive sales because they will enable many people who cannot or should not operate a vehicle (i.e. those with disabilities or under the influence). There is no indication that most current drivers will want to completely cede operational control of their vehicle. So will today’s franchised distribution network will be diminished or displaced? Inmy opinion, even if vast numbers of self-driving ve- hicles enter the marketplace in the next 10-20 years, today’s dealers should continue as the principal retailers and fleet marketers of the new units in a modernized and reconfigured distribution system. 3. Impact on Dealers from the Changes in Government and the Push-Back Against Regulatory Growth For legislation and regulations affecting dealers, 2018 will be a year of both uncertainty and some gains. The maelstrom that seems to perpetually surround the Administration of President Trump shows no sign of abating in 2018. The development of various congressional oversight and special counsel investigations remains a wild card that could stymie much of President Trump’s regulatory agenda. If the 2018 mid-term election cycle goes poorly for Republicans, 2019 legislative initia- tives could drop or change precipitously. A serious impeachment initiative with a new Congress in 2019 could derail the overall economy and cause the retail auto market to tumble. Even without intervening problematic political events, some economists warn that a major market correction is long overdue. A thorough federal regulatory overhaul requires direct con- gressional action, with the passage of new laws and the repeal of old ones. Congressional cooperation, however, is an oxymoron as political partisanship continues. Regulatory cutbacks are happening administratively and by executive order in many areas without new laws enacted by Congress. 4. Retailing by Non-Dealers New car retailing could be changing and it could be changing sooner than many realize. Amazon, Wal-Mart, Costco, and oth- er non-dealer entities are chomping at the bit to be direct vehicle retailers. Tesla and many others continue to push the envelope with electric vehicles (EVs). I believe that “department store” and online sales by nationwide or regional vendors are likely at some point in the future, but so is the expansion of products and needed services, tailor-made for the brick-and-mortar dealership. 5. After Manufacturer Scandals, Are Brand Integrity and Brand Reputation Recovering? The Volkswagen emissions scandal, GM ignition defect revelation and Takata airbag mess, affected public confidence inmany brands. Egregious factory misconduct and cover-ups have occurred (or have been exposed) with troubling frequency in the recent past. Hopefully, even if manufacturers are not motivated by doing the right thing for their own sake, they will see the wisdom of avoiding spectacular business losses, along with reputational harm. 6. Taxes and the Positive Impact on Dealers of a Federal Tax Overhaul On December 20, 2017, Congress passed the first major overhaul of the Internal Revenue Code since 1986. When all factors are taken into account, the newly revised Code lowers net income tax payments for individuals at all income levels, and cuts the corporate rate from 35 percent to 21 percent. This is good news for dealers, as increases in personal and cor- porate disposable income will likely motivate more new car sales in 2018 than there would be otherwise. Dealers, however, have every reason for optimism about sales and profits, stimulated by this new tax law. LEGAL TRENDS  continued on page 24