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FIRST CLASS MAIL US POSTAGE PAID BOSTON, MA PERMIT NO. 216
June 2018 • Vol. 30 No. 6
The official publication of the Massachusetts State Automobile Dealers Association, Inc
Predicting the Future
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 Jean Harris Administrative Assistant/ Membership Coordinator jharris@msada.org Auto Dealer MAgazine Robert O’Koniewski, Esq. Executive Editor Tom Nash Editorial Coordinator nashtc@gmail.com Subscriptions provided annually to Massachusetts member dealers. All address changes should be submitted to MSADA by e-mail: jharris@msada.org. Postmaster: Send address change to: One McKinley Square, Sixth Floor Boston, MA 02109 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.
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The official publication of the Massachusetts State Automobile Dealers Association, Inc
Table of Contents
4 5 6
From the President: Thinking Ahead ASSOCIATE MEMBERS DIRECTORY THE ROUNDUP: We Now Know - Cost of Doing Business Going Up, For Sure
9 10 11
TROUBLESHOOTNG: Employment Law Compliance
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AUTO OUTLOOK
legislative scorecard LEGAL: Supreme Court Rules on Class Action Waivers in Arbitration Agreements
16 Cover Story: Predicting the Future
20 25 26 28 29
NEWS From Around the Horn ACCOUNTING: Financial Reporting Changes Are on the Horizon nada Market Beat TRUCK CORNER: Trucking Industry Supports Repeal of Federal Excise Tax nada update: Credit Talk Continues
Join us on Twitter at @MassAutoDealers www.msada.org
Massachusetts Auto Dealer
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From the President
MSADA
Thinking Ahead
Dealers are on the front lines of technological change
By Chris Connolly, MSADA President Increasingly, we as dealers are finding the future of our industry discussed through the prism of technology that was once the realm of science fiction. Whether we are talking about vehicles that plug into the electric grid instead of the gas pump, or vehicles that do not have steering wheels, how customers want to buy a car in 30 years will change as well. Change is rarely 100 percent good or 100 percent bad -- the key is to be in control. People who are excited about new technology are among those most likely to appear in our showrooms looking to see the best we have to offer. We need to make sure that our industry is prepared to offer the most up-to-date information available, with enthusiasm for whatever the public wants to buy. It is of key importance that the franchise dealer remains at the forefront of these conversations. Our own manufacturers appear at times to be stacking the deck against the continued success of this model, which has served the public good for a century. They may fear shrinking markets or otherwise decreased demand in a world where people may need fewer vehicles. We and, more importantly, the public know better. The Internet has made buying and receiving everything from tooth paste to a refrigerator possible from your couch. Nobody, besides perhaps people on the Forbes richest list, wants to buy a vehicle based on what they see from their couch. Dealers have a key role to play in the auto industry for the next 100 years, which is why as a group we need to study up on what engineers who may not have even started school yet may be producing for us. MSADA is here to keep our members informed, our legislators aware of our contributions to our communities, and regulators from making decisions without knowing all of the implications. As MSADA continues to work to ensure the public learns more about our industry, knowledge empowerment is one area in which we will continue to do more work. When we get bogged down in legislative battles over the future of our industry, whether on Beacon Hill or Capitol Hill, these are the kinds of details that help our legislators understand how vital we are to the community. I encourage you to take a look at what some of your fellow member dealers are thinking on the issues of today -- you will see opinions as diverse as the dealers offering them. Please always feel free to weigh in yourself. We are always here to help our members learn, and grow, together. t
“Change is rarely 100% good or 100% bad — the key is to be in control.”
JUNE 2018
Massachusetts Auto Dealer www.msada.org
Msada Board Barnstable County
Brad Tracy, Tracy Volkswagen
Berkshire County
Brian Bedard, Bedard Brothers Auto Sales
Bristol County
Richard Mastria, Mastria Auto Group
Essex County
William DeLuca III, Woodworth Motors Don Sudbay, Sudbay Motors
Franklin County
Jay Dillon, Dillon Chevrolet
Hampden County
Jeb Balise, Balise Auto Group
Hampshire County
Bryan Burke, Burke Chevrolet
Middlesex County
Chris Connolly, Jr., Herb Connolly Motors 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 [Open]
NADA Director
Scott Dube, Bill Dube Hyundai
Officers
President, Chris Connolly, Jr. Vice President, Charles Tufankjian Treasurer, Jack Madden, Jr. Clerk, Steve Sewell
Associate Members MSADA A ssociate M ember D irectory ACV Auctions Will Morris (860) 670-7867 ADESA Jack Neshe (508) 626-7000 Albin, Randall & Bennett Barton D. Haag (207) 772-1981 American Fidelity Assurance Co. Dan Clements (616) 450-1871 American Tire Distributors Pamela LaFleur (774) 307-0707 Armatus Dealer Uplift Joe Jankowski (410) 391-5701 AutoAlert Jessica Gates (816) 506-0515 Auto Auction of New England Steven DeLuca (603) 437-5700 Auto/Mate Dealership Systems Troy Potter (877) 340-2677 Automotive Search Group Howard Weisberg (508) 620-6300 Bank of America Merrill Lynch Dan Duda and Nancy Price (781) 534-8543 Bellavia Blatt & Crossett, PC Leonard A. Bellavia, Esq (516) 873-3000 Bernstein Shur PA Ned Sackman (603) 623-8700 Blum Shapiro John D. Spatcher (860) 561-4000 BMO Harris Bank Chris Peck (508) 314-1283 Boston Globe Anthony Merullo (617) 929-2337 Broadway Equipment Company Fred Bauer (860) 798-5869 Burns & Levinson LLP Paul Marshall Harris (617) 345-3854 C-4 Analytics LLC Rob Stoesser (617) 250-8888 Capital Automotive Real Estate Services Willie Beck (703) 394-1323 CDK Global Chris Wong (847) 407-3187 Construction Management & Builders, Inc. Nicole Mitsakis (781) 246-9400 Cox Automotive Ernest Lattimer (516) 547-2242 CVR John Alviggi (267) 419-3261 Dealer Creative Mike Otis (315) 382-3675 Dealerdocx Brad Bass (978) 766-9000 Dealermine Inc. Jane Webb (800) 304-3341 DealerSocket Shelly Del Rosario (949) 900-0300
Downey & Company Paul McGovern (781) 849-3100 Eastern Bank David Sawyer (617) 897-1125 EasyCare New England Greg Gomer (617) 967-0303 Ethos Group, Inc. Drew Spring (617) 694-9761 F & I Resources Jason Bayko (508) 624-4344 Federated Insurance Matt Johnson (606) 923-6350 First Citizens Federal Credit Union Joe Ender (508) 979-4728 Fisher Phillips LLP John Donovan (404) 240-4236 Joe Ambash (617) 532-9320 Gatehouse Auto Jay Pelland (508) 626-4334 Gulf State Financial Services Tom Foster (832) 628-1916 GW Marketing Services Gordon Wisbach (857) 404-0226 Harbor First Ron Scolamiero, Michael Scolamiero (617) 500-4080 Hireology Kevin Baumgart (773) 220-6035 Huntington National Bank John J. Marchand (781) 326-0823 JM&A Group Jose Ruiz (617) 259-0527 John W. Furrh Associates Inc. Kristin Perkins (508) 824-4939 JP Morgan Chase Bank Alex Khademi (404) 375-4504 Key Bank Mark Flibotte (617) 385-6232 KPA Tim Whelan (303) 802-3019 Leader Auto Resources, Inc. Curt Murray (978) 201-4797 Lynnway Auto Auction Jim Lamb (781) 596-8500 M & T Bank John Federici (508) 699-3576 Management Developers, Inc. Dale Boch (617) 312-2100 Micorp Dealer Services Robert Calhoun 617-285-4833 Mid-State Insurance Agency James Pietro (508) 791-5566 Mintz Levin Kurt Steinkrauss (617) 542-6000
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Murtha Cullina Thomas Vangel (617) 457-4000 Nancy Phillips Associates, Inc. Nancy Phillips (603) 658-0004 Northeast Dealer Services Jim Schaffer (781) 255-6399 O’Connor & Drew, P.C. Kevin Carnes (617) 471-1120 Performance Management Group, Inc. Mark Puccio (508) 393-1400 PreOwned Auto Logistics Anthony Parente (877) 542-1955 R.L. Tennant Insurance Agency, Inc. Walter F. Tennant (617) 969-1300 Reflex Lighting Daryl Swanson (617) 269-4510 Resources Management Group J. Gregory Hoffman (800) 761-4546 Reynolds & Reynolds Mike O’Connor (860) 462-7958 Robinson Donovan Madden & Barry, P.C. James F. Martin, Esq. (413) 732-2301 Samet & Company John J. Czyzewski (617) 731-1222 Santander Bank Richard Anderson (401) 432-0749 Schlossberg & Associates, LLC Michael O’Neil, Esq. (781) 848-5028 Sentry Insurance Company Eric Stiles (715) 346-7096 Shepherd & Goldstein CPA Ron Masiello (508) 757-3311 Southern Auto Auction Joe Derohanian (860) 292-7500 Sprague Energy Robert Savary (603) 430-7254 SunPower Christie McCarthy (408) 457-2357 Kristin Hodges (707) 694-7759 SunTrust Bank Michael Walsh (617) 345-6567 Target Dealer Services Andrew Boli (508) 564-5050 TD Auto Finance Marc Gerhart (781) 697-1525 TrueCar Pat Watson (803) 360-6094 US Bank Vincent Gaglia (716) 649-0581 Wells Fargo Dealer Services Deb Hogan (508) 951-8334 Zurich American Insurance Company Steven Megee (774) 210-0092
Massachusetts Auto Dealer
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The Roundup
We Now Know - Cost of Doing Business Going Up, For Sure By Robert O’Koniewski, Esq. MSADA Executive Vice President rokoniewski@msada.org Follow us on Twitter • @MassAutoDealers
Exactly one year ago, you may recall, I wrote a column, entitled “Cost of Doing Business Could Increase Substantially in Next Two Years.” In that column I talked about various legislative and ballot proposals kicking around Beacon Hill – a proposed constitutional amendment on the November 2018 ballot to create a millionaires tax; a ballot question to increase the minimum wage to $15/ hour over the next four years; new worker protections for pregnant workers and pay equity legislation; a ballot question on paid family and medical leave – all which would add substantially to the cost of running a small business in this Commonwealth. Well, on June 28, Governor Charlie Baker made that a reality when he signed legislation that will guarantee the minimum wage is set at $15/hour by January 1, 2023, with an incremental annual increase each year until then, and that employees will have the benefit of a paid family and medical leave program, courtesy of that extra money employers have sitting around just collecting dust in cookie jars. On the plus side, we finally get rid of the time and one-half Sunday and holiday premium pay requirement, as it is incrementally rolled back over the next five years. And retailers will have a guaranteed annual sales tax holiday in August beginning in 2019, albeit motor vehicles are still excluded from the holiday. What’s missing in all this? The state retailers’ organization that had pushed the ballot question to roll back the state sales tax to five percent agreed to pull their question off this November’s ballot. So, in effect, the retailers used the ballot process JUNE 2018
Massachusetts Auto Dealer www.msada.org
to gin up activists across the state to collect over 100,000 signatures to get a ballot question before the Legislature and potentially voters, which would provide relief from the current 6.25 percent tax rate, in order to use that as leverage to eliminate Sunday/holiday premium pay and to achieve some procedural concessions on the minimum wage increases – it will be over five years instead of four and it does not include an annual automatic inflation index increase. This was all accomplished in the context of the state’s highest court throwing the so-called millionaires tax off the November ballot, which sent state lawmakers into a furious tizzy because they had the additional $2 billion it would pull in annually already spent. Once the millionaires tax was dead by court decree, the Legislature focused on creating a comprehensive agreement on the remaining ballot questions, because they did not want to take another hit on revenue loss as the sales tax cut was polling favorably at over 60%. And the retailers did not want to face the eternal wrath of the Legislature if there was yet another cut in precious revenue from an already precariously balanced budget, as health care costs eat up more and more spending each year, squeezing out all other “essential” spending. So, a deal was made. On June 20, 2018, both branches of the Massachusetts General Court enacted legislation designed to head off three ballot questions pertaining to paid family and medical leave; an increase in the minimum wage from $11/hour to $15/hour; and a reduction in the sales tax from 6.25% to 5%. The Legislature crafted the so-called “Grand
MSADA Bargain” to satisfy the interests of several ideologically disparate parties and prevent the issues from being decided by voters in November. Under the “Grand Bargain”, now law, (i) the hourly minimum wage will rise from $11 to $15 over a five-year period, until it hits $15/hr. in 2023; (ii) the Sunday/ Holiday premium pay requirement will be rolled back incrementally over the same five-year period; (iii) a paid family and medical leave program will be created and overseen by state government and backed by a new payroll tax; and, (iv) the state will institute an annual sales tax holiday. As a result of the compromise legislation, the ballot questions pertaining to paid family and medical leave and the reduction of the sales tax will be withdrawn. Below is an overview of the details of the so-called “Grand Bargain”. Minimum Wage: The state hourly minimum wage will increase to $15 over five years in the following increments: Current - $11; 1/1/2019 - $12; 1/1/2020 - $12.75; 1/1/2021 - $13.50; 1/1/2022 - $14.25; 1/1/2023 - $15. The tipped hourly minimum wage will also increase from the current rate of $3.75 to $6.75 over five years. (The minimum wage ballot question would have increased the hourly minimum wage to $15 over a four-year period and would have tied future minimum wage hikes to inflation.) Sunday/Holiday Premium Pay Requirement: The state requirement that businesses pay most retail workers at 150% of their regular hourly rate for hours worked on Sundays and certain holidays will be eliminated gradually over five years in the following increments: Current – 150%; 1/1/2019 – 140%; 1/1/2020 – 130%; 1/1/2021 – 120%; 1/1/2022 – 110%; 1/1/2023 – 100%. Paid Family and Medical Leave: Most workers in Massachusetts will be eligible to receive job-protected paid family and medical leave beginning in 2021. The benefits to employees will include 12 weeks available for family leave and 20 weeks available for medical leave, for a maximum of 26 weeks in aggregate. The complicated benefit structure will be capped
at $850 per week, adjusted annually to remain at 64% of the State Average Weekly Wage (currently $1,338.05). To fund this new paid leave requirement, a payroll tax of 0.63% (which will be adjusted annually) will be paid into two trusts overseen by a new department within state government – the department of family and medical leave. Employees will be required to cover 100% of the family leave contribution and 40% of the medical leave contribution, while employers will be responsible for 60% of the contribution to the trust fund for medical leave. Employers with 25 of fewer employees will not be required to cover the employer portion of contributions but will be required to remit the employee portion of contributions. Contributions to the paid medical leave and paid family leave trusts will begin on July 1, 2019, with benefit payments beginning on January 1, 2021. Employers will be allowed to opt out of the paid family and medical leave program if they provide benefits through a private program that are the same or better than the state plan. Sales Tax Holiday: Beginning in 2019 there will be an annual sales tax holiday for a weekend in August. Sales of motor vehicles will remain excluded from this holiday. According to attorney Joshua Nadreau at the employment law firm of Fisher Phillips, this is what dealers can do immediately to address this situation and make sure you stay on the right side of the law: • Evaluate employees’ pay and work schedules to ensure that, as the minimum wage increases, affected employees’ rates of pay are increased; • Monitor work on Sunday and holidays and be cognizant of the annual changes so that you are calculating premium pay properly; • Review employee payroll to determine the proper family and medical leave contributions and make arrangements to cover the employer’s contribution; • Update your handbook and policies to comply with the law’s new requirements—for example, the law requires that you provide notice to your employwww.msada.org
ees of their right to be paid family and medical leave. You should likewise consider implementing a policy to comply with the law’s notice and medical certification requirements; • Train your managers and your HR staff on compliance with the new leave law; and • Once the law is effective, carefully consider any disciplinary actions that may occur within the six-month presumption period. As you digest all this, keep in mind, we have not even addressed the ever-increasing health care costs businesses are facing. And there are more to come, as the Legislature throws additional assessments on the big hospitals and health care providers, with not one syllable of a discussion on reining in costs.
Pay Equity Law Takes Effect July 1 As we have written previously, the pregnant workers protection law took effect earlier this year on April 1. On top of that, employers look forward to complying with the new pay equity law that takes effect on July 1. Under the federal Equal Pay Act, Title VII of the Civil Rights Act, and Massachusetts’ state discrimination law, employers are already required to pay men and women the same for doing the same job. However, the new Act goes further, requiring that men and women be paid the same for doing different but “comparable” jobs. Under the Act, “comparable work” is work that is “substantially similar” in terms of skill, responsibility, and working conditions. In order to comply with the new law, you must look carefully at the duties actually performed by the employees rather than relying on “job descriptions alone” to determine comparability. While gender-based wage disparities are prohibited, the Act does allow for justifiable “variations in wages” based on: • “a system that rewards seniority with the employer” – provided that time spent on leave due to “a pregnancy-related condition” or “protected parental, family and medical leave” does not reduce seniority; Massachusetts Auto Dealer
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The Roundup • a “merit system”; • a system which measures earnings “by quantity or quality of production, sales, or revenue”; • the geographic location in which a job is performed; • education, training, or experience, to the extent such factors are “reasonably related” to the job; or • travel that is “a regular and necessary condition” of the job. The Act also provides that you cannot lower the compensation of employees “solely in order to comply” with the law, leaving open the possibility of wage cuts motivated at least in part by other factors. The Act also bans any “pay secrecy” policy or practice which would prohibit employees from “inquiring about, discussing or disclosing information about either the employee’s own wages or about any other employee’s wages.” However, just because an employee asks about other employees’ compensation does not mean that you are required to respond. The Act explicitly states that employers are not obligated to disclose an employee’s wages to another employee or a third party. You cannot discharge or otherwise retaliate against an employee who has inquired about another employee’s compensation or otherwise “opposed any act or practice made unlawful” under the Act. The Act also includes significant changes to how an employer may use salary history in the hiring process. The Act provides that you may not seek a prospective employee’s salary history from the prospective employee or their current or former employer. It does not, however, prohibit you from gathering information about a prospective employee’s compensation from other publicly available sources. The Act also leaves open the possibility that a prospective employee may “voluntarily” disclose their salary history, and you may then “confirm” that salary history with the employee’s former JUNE 2018
employer. However, this can only occur only after an “offer of employment with compensation has been negotiated and made to the prospective employee.” Employers found to be in violation of the Act face steep penalties. The Act grants both employees and the Massachusetts Attorney General the right to sue, and successful claimants can win unpaid wages, liquidated damages for 100% the amount of the unpaid wages, and attorneys’ fees and costs. The Act also explicitly provides that employees may proceed on behalf of themselves and other “similarly situated” employees, opening the door for costly class action litigation. The Act provides employers with an opportunity to defend against these costly claims. An employer that completes a “self-evaluation of its pay practices in good faith” and “can demonstrate that reasonable progress has been made towards eliminating wage differentials based on gender for comparable work” is entitled to an affirmative defense to liability against a claim of wage discrepancy and to any claim of pay discrimination under M.G.L. c. 151B for a period of three years following the completion of the self-evaluation. Please refer to our previous writings on this subject matter. We also recently held a seminar and a webinar on this. Contact our office if you require assistance.
MSADA the books since 1917, initially created to help fund the U.S. effort in sending our Doughboys off to fight in the War to End All Wars, the FET is the highest federal excise of its kind. It brings in approximately $3 billion annually into the federal highway trust fund, about 8% of the fund’s total. The FET adds approximately $20,000 to the price of a tractor truck. In combination with the OEMs’ efforts to comply with federally required emissions technologies that add about $40,000 to the price of the truck, these federal requirements, in effect, inhibit and discourage the sale of cleaner and safer new trucks. It is hoped that the NADA/ATD efforts to highlight the onerous nature of the FET will make repeal part of any tax or infrastructure package later this year once Congress gets to focusing (maybe?) on the deterioration of our roads and bridges. Legislative meetings (staff and/or elected officials) included Rep. Richard Neal (D-Springfield), the ranking mi-
ATD Congressional Fly-In In conjunction with the American Truck Dealers (ATD) Board of Line Representatives summer meeting, approximately 40 truck dealers and state association staff gathered in Washington in mid-June for the fourth annual legislative fly-in dedicated to medium- and heavy-duty truck dealer issues. The ATD fly-in was focused on gathering co-sponsors for H.R. 2946, legislation filed by Rep. Doug LaMalfa (R-California), which would repeal the current 12% federal excise tax (FET) on heavy-duty trucks and trailers. On
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nority member of the House Ways and Means Committee; Rep. Niki Tsongas (D-Lowell) (see photo with Mass. dealer Kevin Holmes); Rep. Jim McGovern (D-Worcester); and Rep. Joseph Kennedy (D-Brookline). Heavy-duty truck dealers are encouraged to contact their members of Congress to ask them to co-sponsor H.R. 2946. t
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Troubleshooting
MSADA
Employment Law Compliance By Peter Brennan, Esq.
MSADA
Staff Attorney The beginning of June marked the fifth anniversary of my employment at this prestigious Association, and, without going into detail, let’s just say it takes a lot more to surprise me than it used to. That said, one area where dealerships consistently keep me on my toes is what can be characterized as an occasional attitude of ambivalence regarding compliance with state and federal employment law, especially when the steps required to achieve compliance can be somewhat simple and low cost. Here is an example: I am amazed at the number of dealerships that choose to operate without an employee handbook. The benefits of maintaining an employee handbook are numerous. As stated in our MSADA Guide to Wage and Hour Compliance (March 2016): “First, it is an essential employee relations tool which allows a dealership to acquaint new employees with the dealership and the benefits it provides. Second, it is an excellent way to alert new employees to what you expect of them in terms of their conduct and job performance. It ensures that employees receive a consistent explanation of the policies and procedures that the dealership considers important. Third, a properly drafted handbook helps a dealership to avoid unemployment and discrimination claims by clearly establishing the existence of important policies and by ensuring that managers will be enforcing the policies in a consistent manner in all of departments.” To that synopsis I will add a seemingly common-sense point: It is much, much easJUNE 2018
ier to discipline an employee for violating dealership policy when that policy is explicitly stated in the handbook and the employee has signed the handbook acknowledging receipt. A smart dealership will provide a signature page in the handbook for the employee to acknowledge receipt and keep the receipt in the employee’s file. There are pitfalls to avoid when drafting your dealership’s handbook, and these are also covered in our Guide (Chapter 28). Despite the risks associated with drafting and maintaining a handbook, overall it is a highly recommended practice. While our Guide provides advice and a sample table of contents for those that wish to draft their own handbooks, it is recommended that a dealership retain an attorney to assist in the process. This service is one of several covered by MSADA’s legal compliance subsidy, the details of which are included at the end of this column. Another area where I am consistently flabbergasted is the use by dealerships of employment applications that are very obviously not compliant with state or federal regulations. For instance, in Massachusetts an employer may not request criminal record information on its initial employment application form unless very specific conditions apply. However, many dealerships still employ this practice, generally because the dealership has been using the same forms for many years. The Massachusetts Attorney General recently undertook enforcement actions against several local businesses for violating this provision of the law, and increased scrutiny of employment applications is expected. Employment applications will soon fall under increased scrutiny because of the Massachusetts Pay Equity Act, effective on July 1, 2018, under which employers may not ask about the wage or salary history of an applicant until after an offer of employment with compensation has been made. MSADA has issued several bulletins, published magazine columns, and hosted seminars and webinars on the Massachusetts Pay Equity Act, for good reason – mem-
Massachusetts Auto Dealer www.msada.org
bers of the plaintiffs’ bar are looking at the law as a way to put their children through college and purchase vacation homes. If, after July 1, a dealership uses an employment application that asks the applicant to list their previous salary history, then that dealership should expect to be on the receiving end of an enforcement action or demand letter by the end of the summer. Consequently, dealerships should take the opportunity to review their employment applications before the new law goes into effect on July 1, 2018. The Association can provide you a sample application that is legally compliant, should you need one. Legal Compliance Subsidy: Since June 2014, MSADA has worked with Fisher Phillips LLP, the national labor and employment firm, to provide certain employment law services to members at a special discounted rate. The three legal services dealers can partake in are the following: • Pay Plan Review: Fisher Phillips will review each dealership’s pay plans for all of its employees for compliance with Massachusetts and Federal wage and hour law. It will advise each dealership accordingly. • Employment Handbook/Application Review: Fisher Phillips will review each dealership’s employment handbook and application form for compliance with Massachusetts and Federal law and make recommendations accordingly. • Management Training and General Audit: Fisher Phillips will come to your dealership to provide special training to your managers about compliance with employment laws and the risks to the managers themselves and the dealership of failing to comply with employment laws. For more information on this subsidy, please use the contact information below. t If you have questions regarding the topics covered here, or any other issue, please contact Robert O’Koniewski, MSADA Executive Vice President, at rokoniewski@ msada.org, or Peter Brennan, MSADA Staff Attorney, at pbrennan@msada.org, or by phone at (617) 451-1051.
MSADA
Legal By Katharine O. Beattie, Jennifer R. Budoff, and Brendan J. Lowd
Supreme Court Rules on Class Action Waivers in Arbitration Agreements On May 21, the U.S. Supreme Court handed down a watershed decision in Epic v. Lewis, resolving a previously long debated issue: Can employers require that workplace disputes, including unpaid wage and discrimination matters, be litigated in individual arbitrations or should employees always have the option to bring class action claims in court? In Epic, the Supreme Court decided on the former, opening the door for employers to implement and enforce individualized arbitration agreements. The decision in Epic ruled on three separate cases: Murphy Oil USA Inc., Epic Systems Corp., and Ernst & Young. Each of the cases involved a contract between an employee and his or her employer providing for individual arbitration proceedings as the only method to resolve disputes. Despite the contracts, the employees argued that they had a right to litigate wage and hour claims through class or collective actions in court. The Supreme Court disagreed, holding: (1) that the Federal Arbitration Act, a federal statute, requires courts to enforce arbitration agreements according to their terms, including terms providing for individualized arbitration proceedings (i.e. not joint, class or collective actions in court); and (2) that the National Labor Relations Act, a federal statute guaranteeing employees certain workplace rights (such as the right to collectively bargain), does not compel a different result.
Why Is This Decision Significant? Automobile dealers are no strangers to class action lawsuits, particularly in the context of wage and hour disputes. The good news is that the decision in Epic creates a mechanism for employers to control the manner and method through which such disputes are resolved.
Class action waivers in employment arbitration agreements can be used by automobile dealers to minimize exposure to class action claims, which should be a top priority for all automobile dealers. It is undisputed that wage and hour class actions are on the rise, and Massachusetts law requires automatic triple damages for almost all wage and hour violations. Preventing employees from litigating claims on a class basis makes these cases significantly less attractive to plaintiffs’-side lawyers. In addition, arbitration agreements can potentially result in significant litigation cost savings for automobile dealers. While this is not always the case, arbitration is designed to be an efficient, less expensive way to resolve disputes, as compared to fighting it out in a court. Further, and as compared to a court proceeding, arbitrations can: (1) provide greater scheduling flexibility; (2) allow for the parties to select an arbitrator with expertise in a particular subject area to decide the dispute; and (3) mandate confidentiality. Of course, there are also potential downsides to arbitration over litigation, including limited appeal rights and the possibility that an employee may seek to challenge the arbitration agreement in court. Nevertheless, the workforce composition and nature of employment claims brought in the automobile dealers industry requires that serious consideration be given to instituting arbitration agreements with class action waivers going forward.
How Do We Know If Arbitration Agreements with Class Action Waivers Make Sense For Our Business? The high employee turnover rate in the automobile dealers industry coupled with the draw and commission pay plans often utilized for sales staff creates an environwww.msada.org
ment ripe for class action wage and hour claims. Individualized arbitration agreements are a key tool to minimize wage and hour exposure. Keep in mind, however, that there are a number of other issues to consider when deciding whether to move forward with such arbitration agreements. These can include: (1) the impact on workplace culture and how employees may react to the change; (2) whether the agreements will cover all employment disputes or will be limited in scope; (3) when the agreements would be rolled out, e.g., at the beginning of employment for new employees or tied in with pay increases for current employees; (4) whether the agreements would apply to all employees or just those in certain positions; and (5) what competitors in the industry are doing. Even if an automobile dealer decides to require that employees sign arbitration agreements with class action waivers, certain precautions must be taken to ensure that the agreements are valid. This means, among other things, providing employees with both a reasonable time to review the agreement and ensuring that the agreement is supported by adequate consideration. In short, while implementing these arbitration agreements may require time and legwork upfront, they carry significant value for employers. Automobile dealers are advised to seek legal counsel in deciding whether they should, in light of the Supreme Court’s recent decision in Epic, use employee arbitration agreements with class action waivers in their day to day business operations. t Katharine, Jennifer and Brendan are attorneys practicing in Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.’s Employment, Labor and Benefits Group. They may be reached at (617) 348-4445 or KOBeattie@mintz.com.]
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COVER STORY Massachusetts dealers weigh in on the direction of the auto industry The only constant in the automotive retail world is change. Whether it is the vehicle stock rolling onto lots or the needs and desires of customers, to be an auto dealer is a constant exercise in thinking ahead. Massachusetts Auto Dealer asked several dealers from across the Commonwealth their views on what the future holds for our industry. We also asked Executive Vice President Robert O’Koniewski to offer his view from his perch on the front lines of the State House.
It is 2030, and you are walking onto a dealership lot on Presidents’ Day. Describe the vehicles you want to see in front of you. In 2030, I want to see whatever the public wants to drive. My guess is there will be more electric vehicles for sale in 12 years than today, but only because the public eventually will demand it. We’ve seen a big shift in the desires of the people, from sedans to crossovers, trucks, and SUVs over the past few years. The manufacturers will continue to respond and react to the wants and needs of the American driver, but at the same time try and make the cars greener and environmentally friendlier. As the young people of today get older and grow into their prime spending years, I’m sure environmentally friendly will be as an important requirement for their vehicle as safety, styling, and reliability is today.
Chris Connolly, Herb Connolly Acura and MSADA President
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Predi the Fu
icting uture
MSADA MSADA Carla Cosenzi, TommyCar Auto Group
I think by 2030 you will start to see huge advances in electric vehicles, and I think the automotive industry will have made huge strides towards autonomous vehicles. Electric vehicles will have better range, price points, and charge time. If vehicles aren’t already autonomous by this time, I believe you will see autonomous features come standard, such as piloted adaptive driving, self-braking, sign recognition, self-parking, and steering assist along with continued advancements of safety and technology, such as advanced connectivity services. I also believe the interior of the vehicles will be drastically different to cater to shared mobility and autonomous vehicles.
Scott Dube, Bill Dube Hyundai and Mass. NADA Director
My favorite car is the one people want to buy! All kidding aside, it’s the market that should dictate what we have on our lots. We are in a unique time where governments have decided to try to change the market through tax breaks and incentives. 2030 is a ways off, and it seems to me we go through a market demand shift more often than once in 12 years. Currently trucks and SUV’s rule; ten years ago it was more efficient and inexpensive transportation people were looking for. Unemployment is low and gas prices are relatively low; these things benefit the larger, less fuel-efficient vehicles. I think by 2030 we will have seen another market shift but it’s not clear in my crystal ball what it will be. One thing is certain, vehicles will change over the next decade or two. The unknown is the pace of change. We expect there will be degrees of electrification, more autonomous, and we believe the vehicle of the future will be connected – to other vehicles, the infrastructure, and service providers.
Michelle Wirth, Mercedes-Benz of Springfield
Robert O’Koniewski, MSADA Executive Vice President
In 12 years, which is not a long time, I would hope that the vehicles we see in our members’ showrooms are, at a minimum, what customers want and not what government has told them they should drive. And those vehicles should be offered at an affordable price. Over the last decade, new government dictates on fuel economy, emissions, safety and subsequent design modifications have added at least one-third to the price of cars, trucks, SUVs, and CUVs. The type of vehicles we will see will ultimately depend on how far government goes in its regulatory desires, especially if we as a country move away from a current policy goal of cheap gas. If politicians move to a more onerous price point on gas, certainly that will affect what the motoring public may want or have to purchase. I definitely do not see the price of future product going down. Also, there needs to be a full-out development of charging infrastructure to support increased EV usage, if EVs domintate the marketplace. www.msada.org
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RACE TO THEthe FINISH Predicting Future Wirth: No. We don’t believe in features that are 99 percent ready. A first-mover advantage and marketing talking point cannot come at the expense of a tested and proven solution that customers are confident in and can feel comfortable with the technology. O’Koniewski: Today? No – not going to happen. They are not ready for prime time. Since learning to drive when I was 12, I love motoring along under my own control. Also keep in mind, AVs will need to be perfect at all times. I am not convinced the factories will ever be able to develp a 100 percent recall-free car or truck. However, in 30 years when I cannot drive, sign me up for that perfect AV. It is interesting to see techies and some politicians pushing AV development when it is not clear how much of a market there will be for them.
If an autonomous vehicle showed up at your doorstep today and offered to take you around the block, would you get in? What about in five years? ConnOlly: I don’t think I’m ready to get into an autonomous vehicle today; there are too many unknowns and safety concerns for me. But I know it is a technology that is coming and fairly soon. While I think most Americans will continue to want to drive their vehicles themselves, there are great opportunities for a lot of people who are unable to drive themselves anymore and autonomous vehicles will change many of these people’s lives in a positive way. Cozenzi: That’s a definite yes, today. The car of the future is coming, and everyone needs to embrace it. The dream of cars driving themselves is becoming a reality. Before, the question was whether it was possible; now we know it is. Given the growth and increasing pace of customer demands, success in the car business today requires adapting and moving forward in an innovative way. Dube: I think it stands to reason that someday AVs will be common. I have no idea how long that will take but wonder how dangerous the transition is. Mixing the AV fleet with unpredictable human drivers seems like a really big challenge to me. As you move further down the timeline, those challenges still exist; it’s possible that infrastructure changes might mitigate some of that risk: Things like AV-only lanes or embedded road technology, vehicle transponders, or things we have not even thought of yet. Would I get in one? I’m not sure, especially now. Five years from now? It still depends on too many variables we just don’t know today and how fast the technology evolves. JUNE 2018
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A customer walks in and wonders out loud why they cannot just do this all online. What do you say? ConnOlly: I’d tell him or her that it can be done online. More and more dealers are offering internet sales from start to finish, through tools like Roadster. But most customers aren’t ready for that, they need more time, and coming into a dealership and talking to a professional helps them to make a decision. They need to drive the car and really see if it’s comfortable for them and enjoyable to drive. I’d say 99.99% of all of our sales have our customers online at some point or another in their auto shopping journey. It’s made our job easier because better-informed customers are the best customers. Cosenzi: They can. There aren’t too many things out there anymore that you can’t buy online these days, and consumers are looking for a stress-free car buying experience and now we are able to offer just that. We now offer “Click. Drive. Buy.” It’s a completely new way to buy a car online. A customer can get instant, upfront pricing, value their trade, select payment option, research and select recommended service and protection plans, and even secure financing all from the comfort of
MSADA having one of our team members greet a customer by name with a smile on their face and assist them with their needs is just as important as it is when they visit a five star resort.
their own home. We’ll even deliver the car to them for a test drive. The future of the automotive industry presents many challenges but also many new opportunities. I am so excited to see what the future holds for us in the automotive business. Dube: Our customers today can do a lot of the transaction online. What we find is that most people still want to touch, feel, and smell the car they are interested in. Often they find the vehicle has nuanced differences from what they perceived online. It’s hard to know what seats will feel like, how the color really looks in person, how much pep the car has, or what the car handles like online. A lot of time and energy go into making dealer websites as informative as possible, but so far the actual experiential portion of the purchase cannot be replicated there. For a lot of people, buying a new vehicle remains an expression of their personality and tastes. Not everyone, but a majority still enjoy getting a new car.
O’Koniewski: You already can. Over 70% of car buyers today use the Internet for some part of the purchasing process. This will only get more extensive as dealers become more savvy and aggressive in steering customers to their showrooms, websites, and ultimate sales. Again, progress will be toward more Internet, not less. But there is no substitute for getting behind that wheel and test driving your second most expensive purchase, after a home. The bigger issue will be the shrinkage of vehicle and retailer choice as consolidations and factory mergers eliminate retail points and vehicle makes and models. t
Wirth: We believe customers should do business the way they want to do business. Today you can buy a vehicle from us on our website, in person, on the phone, or via text or email. We believe there will always be a need for a showroom, and a personal relationship to members of our service and sales team. Our products do not just provide transportation. They are an expression and extension of our clients’ lifestyle. Part of their lifestyle involves amazing experiences –
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NEWS the NEWS from Around Around the Horn Horn from Around NEWSfrom
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AutoFair Subaru Celebrates Grand Opening Hundreds gathered for the grand opening of AutoFair Subaru of Haverhill last month, including community leaders, AutoFair executives, and special guest Ernie Boch, Jr., who heads Subaru New England.
The event culminated with a ribbon cutting, marking the end of a multi-year process that saw the dealership move from its original Plaistow, New Hampshire location to the former site of the long-running Regan Ford dealership.
The AutoFair team
President Andy Crews and Haverhill Chamber President Paul Official ribbon cutting in front of AutoFair Subaru’s front doors with spe- Magliocchetti reading the official citation from the House of Representatives for AutoFair Subaru’s new location. cial guest Ernie Boch, Jr., of Subaru New England
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NEWS from Around the Horn
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Herb Chambers Donates Vehicle to Seniors and Veterans Herb Chambers has donated a 2018 Ford Escape that will allow the Town of Holliston to provide needed transportation options for senior citizens and veterans. Herb Chambers, founder and President of The Herb Chambers Companies, handed the keys to Holliston Town Administrator, Jeff Ritter, at Herb Chambers Ford of Westborough in May. The donated Ford Escape will add needed transportation options for Holliston seniors and military veterans who need assistance getting to important medical appointments around town and beyond. “The Herb Chambers Companies strongly believes it is our responsibility to do all we can to better care for our seniors and veterans,” said Herb Chambers. “We are proud to provide this new vehicle to the Town of Holliston so it can provide transportation to those elderly residents who need help getting to a doctor’s appointment or to a medical facility when unexpected circumstances arise.” The auto dealer recently celebrated the grand opening of The Herb Chambers Collision Center of Holliston.
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NEWS from Around the Horn WEST SPRINGFIELD
Gary Rome Donates Vehicle to Student in ‘Year of Excellence’ Program Out of 175 eligible students, 15 finalists, and just one car, Holyoke High School senior Antonio Santos beat the odds to win a new Hyundai Accent. It was all part of Gary Rome Hyundai’s “Year of Excellence” campaign that set out to encourage students at Holyoke High School and Dean Technical High School to maintain high academic standards and school citizenship. Of the 15 finalists selected at random earlier in June, 12 students were from Holyoke High School and three were from Dean Tech High School. “I am so pleased to be able to give away a brand new 2018 Hyundai Accent to a qualified high school student,” said Gary Rome, president of the Gary Rome Auto Group. “As a member
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of the community I feel compelled to make a difference and give back what was so freely given to me. I hope that our initiative called the ‘Year of Excellence’ has made a difference for some of the students, causing them to try harder and become more focused.” The “Year of Excellence” campaign began at the start of the school year to encourage high school seniors from Holyoke High School and Dean Tech to excel in their senior year of high school. Students in the drawing had to maintain a 3.0 GPA by the end of their senior year, have fewer than six absences and tardies, and have fewer than 3 discipline referrals.
MSADA BERLIN
Germany Orders Recall over Mercedes-Benz Cheating Software After revealing that 774,000 Mercedes-Benz vehicles across Europe contain unauthorized emissions-cheating software, the German Transport Ministry has ordered Daimler to recall 238,000 of the vehicles in Germany, Reuters reports. The main vehicles in question include the Mercedes-Benz C-Class, Vito, and GLC with diesel engines. The defeat software could be used for the company to cheat on emissions testing, although the Ministry has seen no evidence of it being used to do so. The Ministry is only able to recall vehicles within Germany or vehicles with a pan-European road-worthiness certification from German authorities, which is why only 238,000 of the vehicles have been officially recalled. Daimler has agreed to cooperate with authorities and says it has found a technical solution for updating the software on its vehicles, which should allow the company to avoid receiving a fine. Emission test cheating “defeat devices” or software are illegal under European law, a lesson Volkswagen learned to the tune of $25 billion in fines, penalties, and restitution. Daimler
also succumbed to the emissions cheating scandal in July 2017, ordering the recall of 3 million vehicles to fix excess emissions coming from their diesel engines. FRAMINGHAM
Connolly Family Featured in Boston Magazine The Herb Connolly Auto Group was recently featured in Boston Magazine as part of a feature on multigenerational family-owned businesses. The publication noted that the business has grown from a single point to four brands and a body shop over the course of a century. “We love working together and are so proud to be celebrating 100 years in business,” MSADA President Chris Connolly told the magazine. “We are hands-on owners who have worked hard to create a family atmosphere and culture with our employees. It has always been our goal to provide exceptional service and to make things quick and easy for our customers.”
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NEWS from Around the Horn
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U.S. Senate Discusses Autonomous Vehicles and Boston Traffic The looming mainstream deployment of autonomous cars and trucks around the country has the potential to improve traffic safety while reducing congestion along key freight corridors and metropolitan regions, U.S. senators on a transportation committee said in June. “Tons of new technology could really ease what is an infrastructure crisis that we have in our region,” Sen. Cory Booker (D-New Jersey) said during a hearing of the Environment and Public Works Committee. Massachusetts Sen. Ed Markey, also a Democrat, noted severe traffic in cities such as Boston, New York, and Washington is affecting people’s commutes as well as the flow of freight. “We have a lot of reasons to solve this problem,” Markey noted. Advocates for the technology often list improved safety, mobility, and vehicle efficiency as likely benefits. Committee Chairman Sen. John Barrasso (R-Wyoming) emphasized that interoperability would help ensure the technology’s smooth transition.
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“How their benefits are realized will depend on industry and agencies working together to make sure our roads keep pace with the vehicles that they accommodate,” Barrasso said.
ACCOUNTING MSADA
MSADA
Financial Reporting Changes Are on The Horizon By Jeff Caruso
CPA, O’Connor & Drew, P.C Jeffrey joined O’Connor & Drew, P.C. in 2002. In 2005, he left O’Connor & Drew, P.C. to join a consulting firm that provides finance and accounting support to various
Fortune 500
companies. In 2008, Jeffrey rejoined O’Connor
& Drew, P.C. to continue his career in public accounting. Jeffrey has experience in auditing commercial accounts as well as in auditing not-for-profit organizations and higher education. Contact him at jcaruso@ocd.com.
While there is some time before a set of new financial reporting standards needs to be implemented, planning for these changes starts today. The Financial Accounting Standards Board (FASB) will soon produce an Accounting Standards Update (ASU) that most certainly will impact dealership financial reporting when it relates to the accounting for leases. While the new standard impacts both lessees and lessors, for this article we will focus on its impact on the lessee. The ASU will require organizations that lease assets to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current accounting principles, the recognition, measurement, and presentation of expenses and cash flows arising from the lease primarily will depend on its classification as a finance (capital) or operating lease. However, unlike current accounting principles, which require only a capital lease to be recognized on the balance sheet, the new ASU will require both types of leases to be recognized on the balance sheet. The requirement to include operating leases on the balance sheet is the major change.
The ASU also will require disclosures to help stakeholders and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. Operating leases will now need to reflect an asset for the “right of use” and a liability for the future lease payments at a discounted present value amount of the future cash payments on the balance sheet. Under the old rules, payments required under operating leases, like rent for a storage lot, were expensed monthly. The standard is effective for private companies with fiscal year-ends after December 15, 2019, and December 31, 2020 for calendar year-end entities.
Finance Leases Finance leases, essentially what we already know as capital leases, typically relate to service equipment, computer servers, and the DMS. In determining if a lease should be classified as a finance lease, the previous capital lease rules still apply with the addition of one more: 1. The lease transfers ownership of the underlying asset to the lessee at the end of the lease term. 2. The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise. 3. The lease term is for the major part of the remaining economic life of the underlying asset. 4. The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payment equals or exceeds the fair value of the underlying asset. 5. The underlying asset is of such a specified nature that it is expected to have no alternative use to the lessor at the end of the lease term. The fifth criterion is added as part of this update to capture those arrangements that may have been structured differently in the past to avoid having to apply the capital lease accounting treatment. If any of the above criteria are met, the lease will www.msada.org
be classified as a finance lease. If none are met, then the lease will be classified as an operating lease.
Operating Lease Under the old rules, payments under what was previously characterized as an operating lease would have been expensed on a straight-line basis. These leases, if they are 12 months or more in duration, will be brought to the balance sheet with a “Right of Use” asset and corresponding liability. The liability will be recorded at the present value of the lease payments. At each reporting period, the liability is adjusted to the current discounted present value. Impairment charges can also be made if necessary. The most significant impact, especially for dealers that lease their facilities, will be on the balance sheet. Dealers should begin to take an inventory of all potential lease agreements and assess the impact on their balance sheet. While it may sound like a simple gross-up of assets and liabilities with no change to net equity, the impact can be potentially greater. Dealers will need to consider the floorplan and other debt agreements with lenders that contain financial covenants. Covenants that could be impacted include basic fixed-charge coverage, current ratio, debt service coverage, and debt to net worth. Once all leases have been identified, dealers should project what their balance sheets might look like and assess its impact on the financial covenants. Initiating discussions with creditors and lenders before the standards are in place should be a priority. Also, know that if comparative statements are presented, prior periods should also reflect the new assets and liabilities. While it may seem like there is time until this standard must be implemented, the lease inventory process and balance sheet projections should be started now. The time and resources it will take to undergo this process are always underestimated. t Massachusetts Auto Dealer
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Patrick Manzi
NADA Senior Economist
Boyi Xu
Economist
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Massachusetts Auto Dealer www.msada.org
MSADA
NADA MARKET BEAT
JANUARY 2016
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TRUCK CORNER
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Trucking Industry Supports Repeal of Federal Excise Tax By Jodie Teuton Chairwoman, American Truck Dealers ATD Chairwoman Jodie Teuton is vice president of Kenworth of Louisiana and Southland Truck Leasing in Gray, Louisiana.
Not every centennial is a cause for celebration. Last year, the federal excise tax (FET) reached the 100-year mark, and America’s truck dealers can all agree that this onerous tax has outlived its usefulness. The FET was originally imposed in 1917 for a noble cause — to help pay for World War I. Although the last American veteran of that conflict, Cpl. Frank Buckles of Charles Town, West Virginia, died in 2011, the FET is still in place. In fact, this tax on new heavy-duty trucks, tractors, and trailers has grown from 3% to 12%, and adds $12,000 to $22,000 on the price of a new heavy-duty truck. It is also the highest excise tax Congress levies on a percentage basis on any product, including alcohol and tobacco. It is time for a change. The American Truck Dealers’ top legislative priority is to repeal the FET, and truck dealers and automotive trade association executives converged on Capitol Hill this month to support this important effort. A bill introduced last year in the U.S House of Representatives, the “Heavy Truck, Tractor, and Trailer Retail Federal Excise Tax Repeal Act” (H.R. 2946), would abolish the FET. It was introduced by U.S. Rep. Doug LaMalfa (R-California) and has since drawn the support of 17 bipartisan co-sponsors. The language in the bill stressed the need for Congress to consider a more reliable and consistent revenue source to fund the Highway Trust Fund instead of the FET. On May 21, LaMalfa sent a letter to Speaker of the House Paul Ryan (R-Wisconsin), Chairman of the Ways and Means Committee Kevin Brady (R-Texas), and Chairman of the Transportation and
“This outdated and burdensome tax may have made sense in 1917, but today it simply stands in the way of our progress.”
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Infrastructure Committee Bill Shuster (R-Pennsylvania) to urge Congress to include repeal of the 12% FET in any infrastructure legislation it may consider. It is important for Congress to revisit the FET, because the economic harm of this tax is being exacerbated by other regulations. For example, the Environmental Protection Agency (EPA) has mandated that new trucks reduce greenhouse gas emissions through installation of expensive new technologies. These recent regulations could add as much as $40,000 to the price of a new heavy-duty truck. The FET compounds these regulatory burdens, because customers must pay the FET on top of the price increases brought about by these regulations. Moreover, truck dealers spend considerable resources just to comply with the complex IRS regulations associated with collecting the tax. While ATD is working to garner support for H.R. 2946, it is time for the entire industry to push for the repeal of the FET. In addition to ATD, other industry supporters of the FET repeal include Baker Commodities, Bendix Commercial Vehicles, Daimler Trucks North America, Mack Trucks, National Trailer Dealers Association, Navistar, NTEA – The Association for the Work Truck Industry, Recreation Vehicle Dealers Association, Truck & Engine Manufacturers Association, Truck Renting and Leasing Association, Truck Trailer Manufacturers Association, and Volvo Trucks North America. The commercial truck industry is undergoing a remarkable transformation despite the pressures of new federal regulations, rapidly evolving technology, and the challenges of recruiting and retaining the best trained staff. This outdated and burdensome tax may have made sense in 1917, but today it simply stands in the way of our progress. Truck manufacturers, suppliers, and industry stakeholders — along with dealers — stand a better chance of repealing the FET if we do it together. One hundred years from now, I hope that future truck dealers talk about how our generation was able to abolish the FET and clear the path for their success — that would be a true cause for celebration. t
NADA Update
By Scott Dube
Credit Talk Continues Scott Dube, President of Bill Dube Hyundai and MSADA Immediate Past President, represents NADA’s Massachusetts members on the NADA Board of Directors. As we enter the Summer sales season, we can usually expect things to be a little more quiet in the halls of government. A scan of the headlines, however, shows that between changes within the Consumer Financial Protection Bureau and Congress perhaps not taking their usual recess, we can expect to be on alert for issues that affect our business community. NADA, of course, works for you tirelessly to get ahead of the problems thrown our way, whether from regulatory agencies or our elected representatives. As you will see below, we are also closely tracking the new European Privacy Rule. Change comes from all corners, and NADA and MSADA are always prepared to give you the information you need to stay on top of our industry.
Auto Dealers Uphold Fair Credit and Consumer Competition
today’s intensely competitive vehicle financing market. Our NADA program fully adopts, and adds to, the beneficial fair credit risk mitigation model that the Department of Justice developed in 2007 to resolve two fair credit cases involving dealerships. We have worked to make dealer adoption and implementation of the voluntary NADA/NAMAD/AIADA Fair Credit Compliance Policy & Program as straightforward as possible. To this end, each of the three major credit application aggregators (DealerTrack, RouteOne, and CU Direct), as well as several other companies, have licensed the use of the program and included it in their automated offerings to dealers. Time and time again, NADA has shown empirically that policies that attempt to upend our dealer reserve model will harm car buyers because they reduce the competition that
We have worked to make dealer adoption and implementation of the voluntary NADA/ NAMAD/AIADA Fair Credit Compliance Policy & Program as straightforward as possible.
By Wes Lutz, NADA chairman Since 2013, the nation’s franchised new-car dealers and industry allies stood side-by-side as we fought the Consumer Financial Protection Bureau (CFPB) to preserve the dealer assisted financing model and its irrefutable benefit to all car-buying customers. In May, our customers won a major victory when Congress and the President voided the CFPB’s 2013 guidance – a NADA priority for the last five years. But our work is not done. I want to remind all franchised dealers who have not already done so to review and consider implementing NADA’s voluntary Fair Credit Compliance Policy & Program, which we released in 2014 with the American International Automobile Dealers Association (AIADA) and the National Association of Minority Automobile Dealers (NAMAD). Our program helps dealers to offer competitive rates to our customers while abiding by the nation’s fair credit laws. It’s good for our customers, good for our businesses, and implementing it is the right thing to do. I cannot stress the benefits of this program enough. It is an effective approach to promote compliance with the federal Equal Credit Opportunity Act (ECOA), while preserving flexibility for dealerships to allow customers to benefit from
brings lower rates for customers. This has been the crux of our argument since the CFPB rolled out its flawed auto finance guidance—a rule that, in essence, threatened to take away our customers’ right to find a better and more competitive deal. NADA will continue to support our members through the challenges ahead. In the meantime, it’s up to our industry to lead the way when it comes to offering credit fairly to our customers. I’m confident that we’ll continue to prove that dealers provide the most competitive, efficient, consumer benefits in our current auto finance model while abiding by some of our nation’s most important laws and doing right by our customers.
What Does the European Privacy Rule (GDPR) Mean for U.S. Dealers? Many dealers may have seen news stories about the broad privacy and data security regulation coming from the European Union (EU) called the “General Data Protection Regulation” or “GDPR.” GDPR is European law, but it applies to any company, anywhere in the world, that “controls” or “processes” information about people in the EU. Violations www.msada.org
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NADA Update carry steep potential fines and penalties, and reports suggest that compliance with the GDPR is operationally disruptive, complicated, and expensive to implement. The deadline for compliance is May 25, 2018. The key question for automobile dealers and other U.S. businesses is whether the GDPR applies to them at all. The answer depends on the scope of your activities with, or directed to, people in the EU. If you have a physical location in the EU, if you actively market goods and services to the EU, or if you undertake certain other activities concerning EU data, then the GDPR may apply to you. However, the applicability of GDPR to the average U.S. dealer or dealer group seems unlikely at best. The current expert consensus appears to be that if, for example, you have no EU physical location, you do not engage in marketing directed to the EU (a website alone is generally not enough), you do not ship goods to the EU, and you do not engage in any “monitoring” of people in the EU, then the GDPR likely does not apply to you. Please note that these issues are fact-specific and many questions remain about the GDPR and its applicability to U.S. businesses. Dealers should consult with their legal counsel to determine the applicability of GDPR to their specific operations, and this serves as an important reminder for dealers to also work with their lawyers to ensure continued compliance with current U.S. privacy and data security related obligations.
New Mobility Services No Threat to Car Dealerships, Says NADA Attitudes toward vehicle ownership are changing, particularly in the wake of new mobility solutions such as ride-sharing and ride-hailing. Discussion has been under way for some time now over the evolution of automotive retail, with consumer preference for online buying raising doubts about the long-term viability of selling vehicles in car dealerships. Jonathan Collegio, senior vice president of public affairs at NADA, believes that too much emphasis is being put on the potential disruption caused by these changes. Instead, he thinks that OEMs and others involved in the running of dealerships should be focused on the opportunity that change can bring. For example, dealers could prove key in building public acceptance of autonomous vehicle (AV) technologies and boost sales of future vehicles. Consumer acceptance of the technology will be critical for its success, and this is still something that has not been fully achieved. As found in a 2018 NADA study, “Consumers by an 80-20 margin would prefer to capture 80% of the safety benefits from semi-autonomous vehicles they can still drive, as opposed to 100% of the benefit from fully autonomous, driverless vehicles.” In addition, Collegio argues that ride-hailing is not necJUNE 2018
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MSADA essarily a replacement for vehicle ownership but will instead complement it. “NADA believes that people are more likely to do both in the future; to continue to hold personal ownership of a car, and to use ride-hailing when it’s more convenient to do so,” he tells Automotive World.
NADA Responds to U.S. Dept. of Commerce “Section 232” Investigation of Auto Imports NADA President and CEO Peter Welch released the following statement in response to the U.S. Department of Commerce’s announcement that it was initiating a “Section 232” investigation into tariffs on automobile imports: “A tariff on imported vehicles and auto parts equates to a consumer tax, and we are concerned that such a tax would mean higher prices and fewer choices for our customers. NADA will always be on the side of maintaining affordability for our customers, and we will continue to work with the Trump Administration and Congress to advocate for policies, including trade policies, that enable our customers to purchase the new cars and trucks they need and want at prices they can afford.”
Franchised Dealers More Optimistic on Pre-Owned In its Dealer Sentiment Index for the second quarter, released in June, Cox Automotive found that franchised dealers continue to be happy with their used-car sales, and they feel better about used than they do about new-car sales. The sentiment index for used cars among franchised dealers registered a 72, up from 69 in Q1. Not only does this suggest that used sales continue to be a “bright spot,” for franchised dealers, but it also shows these stores are “more positive on used-vehicle sales in Q2 than they were in Q1 and more positive on used than new,” Cox Automotive said.
Financial Reform Legislation Allows Free ‘Credit Freezes’ and Year-Long Fraud Alerts Among many other provisions, the recently passed “Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018” will make it easier for consumers to protect their credit by (a) allowing placement of a “credit freeze” on their credit at no charge, and (b) by expanding the current 90-day fraud alert to one year. The legislation takes effect September 21, 2018, and could lead to an increase in “frozen” credit reports at the dealership and elsewhere. Dealers should ensure they work with their vendors and train their employees on how to identify and properly respond to a credit freeze, as well as to a fraud or other alert on a consumer credit report. t
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