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CDG spent a day on the floor of the New York Auto Forum, where three familiar topics kept popping up:
What the FTC clampdown means for dealers
How operators should view the Chinese automaker threat
The future of the franchise model.
Sen. Bernie Moreno, R-Ohio, OEM executives, analysts, and industry leaders who will feel the consequences, all weighed in.
Here are their takes…
Reframing the FTC warnings as ‘fantastic’ may actually help dealers.
Moreno aims to protect his former industry during his Washington tenure. And one part of doing that means making sure all dealers play by the rules, he told John Fitzpatrick, CEO of Force Marketing, who moderated his session at the forum.
“The worst day for me was when I sold somebody a car," Moreno shared. "Our dealership sold somebody a car: Customer went home. They had a great experience, and we hit it out of the park. Ten out of 10; everybody's happy."
Two days later, the customer called back after seeing an ad from another dealer that made it look like Moreno's dealership had overcharged, and they had to explain why that price wouldn't work out for them, whether it was because the incentive didn't apply or because the payment wasn't correct.
"They don't want to hear any of that," Moreno said. Which is exactly why, when asked about the compliance letter that the FTC sent to 97 dealership groups earlier this month, Moreno said, "I think it's fantastic.”
Sen. Bernie Moreno
Worth noting: Moreno thinks the majority of dealers play it straight.
"I worked for Saturn Corporation from '85 to '92, and it was about reimagining the car business, because it needed to be reimagined," Moreno said. "Today, 97% of car dealers[hips] are very sophisticated, extraordinarily well-run operations that do the right thing…"
That said, it's the small remaining percentage causing problems.
"And yes, I think we should have transparent, understandable standards that are common sense to punish the guys that are making all of us look bad," Moreno said.
"You can't advertise a car that does not exist," he said. "You can't advertise a car at a price that's actually not attainable. You cannot continue bait-and-switch operations. That crap went out in the '80s and '90s."
Even better: Moreno said he hopes to convene dealers, OEM representatives, and FTC leadership, including FTC Chairman Andrew Ferguson, to develop a rule that would become a future-proof law. This way, dealers have a say in it."
Rob Cochran, NADA chairman and CEO of #1 Cochran, also discussed transparency during the "Defining Customer Experience in Automotive Retail" panel. He thinks the franchise system needs to evolve and improve in some areas.
"When we look at the vehicle purchase process, it's really, really important to recognize that both dealers and the OEMs play in this ecosystem," Cochran said.
Rob Cochran
NADA chairman
CEO of #1 Cochran
The action item is simple, if not easy: Dealers should audit advertising, F&I disclosures, and incentive language before someone else does it, while staying close to legislation like what Moreno’s cooking up, so when the opportunity arises to chime in, the retail perspective gets included.
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A Chinese car ban now can give dealers time to get ultra-competitive.
In addition to his pricing priorities, Moreno said he's working on legislation he expects to introduce next month, though he didn’t share a specific date, that would widen the ban on Chinese cars.
"...We're going to hermetically seal the U.S. auto industry, so that there is never a scenario where a Chinese automobile will enter our market," Moreno said. "That's hardware. That's software. That's partnerships. That's imports. There will not be a Chinese automobile here."
Sharing Moreno’s stance in part: Mike Stanton, CEO of NADA, and John Bozzella, CEO for Alliance for Automotive Innovation, were both asked about China during a "Washington Speaks…" panel moderated by Paul Daly, CEO of More Than Cars.
They said two things are true: It's smart for the industry and national security to stop Chinese cars.
"This is a government-sponsored, heavily subsidized, over-capacitized industry designed to export its way to profitability," Bozzella said. "It is right for policymakers to consider responses to anti-competitive behavior."
John Bozzella
Alliance for Automotive Innovation
CEO
Still, Bozella says it's complicated.
"I do think we should not take the view that this policy environment will be there forever," Bozzella said. "How does this industry in the United States become more competitive?"
Meanwhile, on the OEM front: Andrew Frick, president of Ford Blue and Model E Ford Motor Company, said Chinese brands have grown from roughly 11-12% of the Mexican auto market a few years ago, to nearly 30% today.
In Australia, Ford's dealers told him Chinese brands could reach 50% market share by end of decade.
"They do not see it changing," Frick said.
Similarly, Christian Meunier, chairman of Nissan Americas said, "I think we need to get ready and get prepared for the Chinese cars at one point in time to come to the U.S. I think it's going to happen. It's going to be a matter of time."
But here’s the bigger takeaway: Jack Hollis, the longtime Toyota executive who is now managing partner for Accrual Equity Partners, said legislation now gives dealers time to prepare.
"You have a window," Hollis said. "You have four years to crush back the competition.The answer is making your dealership so popular and so enjoyable, and exceeding the expectations of the customer, that they don't want to look at anything else."
Jack Hollis
managing partner
Accrual Equity Partners
The franchise model thrives when dealers and OEMs partner effectively.
Bringing it all back to the retail side, Moreno said he isn't worried about the franchise dealer system because dealers handle it all for manufacturers.
He asked the crowd to picture a hypothetical entrepreneur sharing everything a dealer handles for an OEM:
A $30 million facility used only for one brand? Check. Hiring people? Consider it handled. Marketing? Got it. Used cars? Done. F&I? Covered.
In that dynamic, Moreno said everyone must play nice.
"Really, truly be partners, not affiliates, but partners," Moreno said. "I got you covered on the retail side. You got me covered on the manufacturing side…"
Even so: Moreno said dealers and OEMs need to de-escalate the warranty reimbursement arms race, saying it won't end well for anybody. Instead, he said both need to make money and be profitable.
"Car dealers would make really crappy manufacturers," he said. "And this reverse is also true."
Which leads us to the OEM perspective, again…
Frick (with Ford) described its deliberate effort to rebuild trust with dealers.
"We want to improve dealer sentiment through action," he said, describing dealer engagement tours where Ford's entire leadership team, including CEO Jim Farley, sits at round tables to hear dealer feedback before making major decisions.
Duncan Aldrich, SVP and president of GM North America, described the same dynamic from the Chevrolet, Buick, GMC, and Cadillac sides.
What works for dealers, according to Aldrich: "The dealers who are succeeding the best were the quickest to, let's say, return back to the basics. Really focused on doing those basics brilliantly, and really working the system, working the leads, working the BBCs…," he said.
From Nissan: Christian Meunier also chimed in on the cost of a breakdown between dealers and OEMs.
"When I came back in January last year, I realized that I didn't recognize the company I had left a few years before," he said. "The company had lost its appetite to sell cars."
His first priority: Dealer profitability as the company's number one KPI.
"Without their success, I'm not successful,” Meunier said. “The company won't be successful without the leader being successful, and dealer profitability is our number one KPI for the company to be successful."
The signal: Nobody can do what dealers do for manufacturers, and vice versa. When the two sides work together and cooperate, it gives both parties a better chance at profitability while sustaining the model that keeps on surviving each headwind the world throws its way.
Bottom line: The New York Auto Forum makes it clear that some of the biggest forces reshaping dealership profitability are taking hold in Washington, in Beijing, and in the OEM boardroom. Not just on the showroom floor.
Making change and receiving support from official bodies requires dealers to participate at every level, from tightening operations at their own dealerships to getting involved at the policy level.
This helps ensure that whatever takes hold at the dealership level doesn’t happen without active input and participation from the people who understand that world best: the dealers.
They can do this by showing up to councils, flagging pain points and pushing back on capital requirements that don't make business sense.
Manufacturers, meanwhile, would do well to listen to and support the more than 6,000 entrepreneurs who dedicate their professional lives to sell the brand’s vehicles in compliant dealerships.
Thanks for reading, everyone.
