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FIRST CLASS MAIL US POSTAGE PAID BOSTON, MA PERMIT NO. 216
October 2019 • Vol. 31 No. 10
The official publication of the Massachusetts State Automobile Dealers Association, Inc
2019
Hall of Fame Ceremony
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 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: jfabrizio@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.
Ad Directory BlumShapiro, 32 Ethos Group, 2 Leader Auto Resources, 25 Nancy Phillips, 32 O’Connor & Drew, 40 Southern Auto Auction, 31 ADVERTISING RATES Inquire for multiple-insertion discounts or full Media Kit. E-mail jfabrizio@msada.org Quarter Page: $450 Half Page: $700 Full Page: $1,400
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The official publication of the Massachusetts State Automobile Dealers Association, Inc
Table of Contents
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From the President: Voting Our Values ASSOCIATE MEMBERS DIRECTORY THE ROUNDUP: Second Inaugural Hall of Fame Honorees Inducted; Sleepy’s Update LEGISLATIVE SCORECARD LEGAL: USDOL Revises Rules on Overtime TROUBLESHOOTING: FTC Proposal Could Hit Dealers Hard AUTO OUTLOOK BUSINESS OPS: Interest Rates & Financing – What Lies Ahead? ECONOMIC IMPACT REPORT
26 Cover Story: 2019 MSADA Auto Dealers Hall of Fame Ceremony
30 33 34 36 37
NEWS From Around the Horn IN MEMORIAM: Tom Flynn nada Market Beat TRUCK CORNER: Spend St. Valentine’s Day 2020 at the ATD Show nada update: Reading the Tea Leaves
Back Cover: $1,800 Inside Front: $1,700 Inside Back: $1,600
Join us on Twitter at @MassAutoDealers www.msada.org
Massachusetts Auto Dealer
OCTOBER 2019
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From the President
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Voting Our Values By Chris Connolly, MSADA President I want to take this opportunity to thank everyone who made it to our second Hall of Fame induction ceremony in Chatham. It is always a pleasure to share a moment to honor those who have stood out and made strides in this industry. All of us have benefitted enormously from the efforts of those who came before us -- and this was a too-rare moment in the spotlight that I hope we share again soon. As dealers, we would always be looking forward to what is coming up rather than opening up the history books, or even what might be going on in the world around us. Monitoring what could affect our bottom line is what keeps us in business. There is one key aspect we sometimes take for granted: On November 5, all of us need to go out and vote. Surely by now you have noticed that thousands of bills get filed through the State House, Congress, and our Town Halls each and every year. It is an incredible amount of information to keep track of, and frankly most legislators can barely keep track of their own initiatives. That is why it is essential to have friends, or as close to friends as you can ever truly have in politics. But not playing the game isn’t an option. If we do not make our voices heard in the items being brought to their attention, if we do not bring our own issues into the discussion, someone else is simply going to have an easier time making our lives difficult. Election time is a critically important event in our calendar, because it gives MSADA a chance to show our legislators, town councilors, mayors, etc. that the issues they are tackling are not in a vacuum. Every bill or ordinance they put forward and every vote they take has the chance to impact our businesses, positively or negatively. Often the results are much more stark than they realize. Franchised auto dealerships employ more than 30,000 people in Massachusetts, and we cover every part of the state. We represent a large and quantifiable part of their constituencies, and their agendas hit or help us in ways that we have to make sure they understand. The bottom line is, they know the difference we make in their local economy when we show them the numbers. The Teslas and Right-to-Repair outfits of the world cannot make the same case that we can, and they don’t provide the constituency that we do. Lawmakers can often be reasoned with, and a lot of times the flashy issue of the day simply needs proper illumination from a local economics perspective. So as Election Day nears, I encourage you to reach out to your local municipal representatives. If you have not already done so this year, I also encourage you to donate to our state Political Action Committee. It’s a key way of keeping our agenda on the table, and it only takes a few minutes. Contact Executive Vice President Robert O’Koniewski at (617) 451-1051 or rokoniewski@msada.org. t OCTOBER 2019
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 Bernstein Shur PA Ned Sackman (603) 623-8700 Blum Shapiro John D. Spatcher (860) 561-4000 BMO Harris Bank Steve Gagnon (813) 447-1723 Boston Magazine Noreen Murray (617) 275-2012 Broadway Equipment Company Fred Bauer (860) 798-5869 Burns & Levinson LLP Paul Marshall Harris (617) 345-3854 Capital Automotive Real Estate Services Daniel Garces (703) 394-1313 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 Dave Cantin Group Woody Woodward (800) 722-8621 Dealer Creative Jeff Hayes (919) 719-1333 Dealerdocx Brad Bass (978) 766-9000 Downey & Company Paul McGovern (781) 849-3100 DP Sales Distributors Andrew Prussack {631) 842-7549 Eastern Bank David Sawyer (617) 897-1125
Eastern Insurance Group William Gross (508) 620-3349 EasyCare New England Greg Gomer (617) 967-0303 Enterprise Rent-A-Car Timothy Allard (602) 818-3607 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 Hireology Kevin Baumgart (773) 220-6035 Hub International Insurance Brokerage Jim Walsh (603) 494-9016 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 Chuck August (518) 364-8723 Lynnway Auto Auction Jim Lamb (781) 596-8500 M & T Bank John Federici (508) 699-3576 Management Developers, Inc. Dale Boch (617) 312-2100 McWalter Volunteer Benefits Group Shawn Allen (617) 483-0359 Mid-State Insurance Agency James Pietro (508) 791-5566 Mintz Levin Kurt Steinkrauss (617) 542-6000 Murtha Cullina Thomas Vangel (617) 457-4000
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Nancy Phillips Associates, Inc. Nancy Phillips (603) 658-0004 NEAD Insurance Trust Charles Muise (781) 706-6944 Northeast Dealer Services Jim Schaffer (781) 255-6399 O’Connor & Drew, P.C. Kevin Carnes (617) 471-1120 Performance Management Group, Inc. Dale Ducasse (508) 393-1400 Piper Consulting Jim Piper (207) 754-0789 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 Rockland Trust Co. Manny Silva (781) 982-6806 Samet & Company John J. Czyzewski (617) 731-1222 Santander Bank Richard Anderson (401) 432-0749 Chris Peck (508) 314-1283 Schlossberg & Associates, LLC Michael O’Neil, Esq. (781) 848-5028 Service Credit Union Dave Pasternak (603) 812-8967 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 TD Auto Finance Marc Gerhart (781) 697-1525 TradeRev Amy Davis (617) 512-7033 TrueCar Pat Watson (803) 360-6094 US Bank Vincent Gaglia (716) 649-0581 Wells Fargo Dealer Services Josh Tobin (508) 951-8334 Windwalker Group Herby Duverne (617) 797-9316 Zurich American Insurance Company Steven Megee (774) 210-0092
Massachusetts Auto Dealer
OCTOBER 2019
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The Roundup
Second Inaugural Hall of Fame Honorees Inducted; Sleepy’s Update By Robert O’Koniewski, Esq. MSADA Executive Vice President rokoniewski@msada.org Follow us on Twitter • @MassAutoDealers
This month, your Association honored five titans of our industry when we gathered on October 3 at the Chatham Bars Inn on Cape Cod to induct William DeLuca III, James Hurrell, Rick Mastria, Ira Rosenberg, and John S. Sarat as our second annual class of the Massachusetts Auto Dealers Hall of Fame. The selection process started earlier this year when we polled our member dealers for nominations. All the submitted names were eventually reviewed by our executive committee, with the board of directors making the final approvals. The purpose of the process was to receive input from our members as to whom they felt were worthy of recognition. The final selections reflect the stature of individuals who have built and strengthened our industry throughout the last century into what it is today in the Commonwealth. During the ceremony, DeLuca and Hurrell gave very emotional acceptance speeches that focused on the team work of family members and member dealers necessary to make dealerships and the Association successful. Family members jumped in to share anecdotes for our two deceased inductees – Brian Rosenberg for his father Ira, and Jack Sarat, Jr., for his father, John. We also were happy to have Vincent and Rick Mastria, Jr. accept on behalf of their father, Rick, who was unable to attend. Earlier that day we hosted a breakfast for attendees at which Joe Roesner of the Fontana Group presented on “Understanding and Responding to Sales Performance Metrics”. It was OCTOBER 2019
Massachusetts Auto Dealer www.msada.org
quite informative as to how to best respond when your factory comes calling with unrealistic goals or unilateral changes to your area of responsibility, or attempts to take adverse action against you based on the factory’s unreasonable interpretation of your sales data. The Chatham Bars Inn was an ideal setting for our event, providing beach-front, relaxed elegance that everyone seemed to enjoy immensely. Be on the lookout for our materials next year as we plan for our third induction ceremony – a must attend event for next fall’s calendar. Check out our cover story and photo spread in this month’s issue. Finally, Bill DeLuca was kind enough to send along the following note afterwards as a message for our member dealers: “BEST KEPT SECRET – Recently, I had the pleasure to attend the second annual Massachusetts Auto Dealers Association Hall of Fame banquet, which was held on October 3-4, at the Chatham Bars in located in Chatham, MA. In full disclosure, I was there because I was fortunate enough to be elected into the second class of the Hall. My take from the event, which was very tastefully done, was that there weren’t enough dealers participating in the event. I say that because the Association is picking up the tab for the two days, all expenses paid. Now, I know you all can afford your own vacations and dinners, but this is the chance to just relax and chat among your peers, maybe play a little golf, do some sightseeing, or maybe even do nothing. There are
MSADA no meetings. No heavy lifting. Did I tell you the best part? Sorry vendors, there weren’t any! You don’t have to spend the night looking over your shoulder to see who is going to grab you and pitch their product. The Association has had around 100 participants each of the first two years. We have over 200 member dealers with approximately 430 dealership roof tops. There is no excuse not to attend this celebration of our state’s industry. I hope when you see the notice next spring, as these events are planned way in advance, please mark it down and have the Association book your room. I look forward to seeing you next October, as it’s already on my calendar!”
Sleepy’s Update For the last six months, we have written extensively about how the Supreme Judicial Court’s decision in Sullivan v. Sleepy’s LLC, issued on May 8, has caused upheaval to our industry’s workplace landscape. In a nutshell, if you have missed our communications over that time, the SJC stated the following in Sleepy’s: • Draws and commissions cannot be retroactively allocated as hourly and overtime wages and Sunday pay, even if these draws and commissions equaled or exceeded the minimum wage for the employees’ first forty hours of work and one and one-half times the minimum wage for all hours worked over forty hours or on Sunday. • Employees are entitled to separate and additional payments of one and one-half times the minimum wage for every hour the employees worked over forty hours or on Sunday. • The court did not articulate whether this ruling was to be applied retroactively to dealers’ pay practices, nor did the decision overrule the 16-yerar old guidance from the state agency in charge of wage-hour enforcement which spelled out how commissions could be used to cover overtime pay that was owed and upon which employer legal counsels re-
lied to craft compliant pay plans. As a result, the decision now has spurred the filing of approximately 80 lawsuits challenging dealership pay plans, comprising a three-year reach back for liability (for additional payment of OT wages that were already paid out but for which plaintiffs now seek double payment), treble damages, and a 12% penalty as set in the wage-hour law. This list continues to grow unabated as the plaintiffs’ attorneys troll the ranks of current and former dealership employees to feed at the litigation trough. Come the end of the day, we are talking in the aggregate hundreds of millions of dollars in repeat payments, damages, and penalties. In order to create some retroactive relief for dealers who followed the state’s guidance and did the right thing in compensating their commission-paid salespeople, we have been seeking a change to the law to provide employers an affirmative defense against the lawsuits if they can prove they relied on the state’s 16-year old guidance to craft and implement their pay plans. Governor Charlie Baker included such a provision in his supplemental budget he filed to close out FY2019 spending. Unfortunately, the House did not take up the language when it issued its version of the FY19 supplemental budget. As we were going to press, signaling its desire to confront the issue and the severe problems that employers are facing if this new pay rule is applied retroactively by the courts against retailer defendants, the Senate in its supplemental budget that it passed created a ten-person commission to review the problem and make recommendations by March 1, 2020. Your Association strongly supported the creation of this commission in an effort to move forward on an appropriate solution for our members. The task force would be co-chaired by the state secretary of labor and the state secretary for administration and finance, and it would comprise eight gubernatorial appointments – four representing retail www.msada.org
employers, three representatives of employees, and one person selected from a list provided by the Massachusetts Employment Lawyers Association or a list from a union representing inside sales people paid solely by commissions. The House and Senate will need to work out the differences between each’s supplemental budgets, especially wide variances in additional spending, and they need to do so by October 31 in order to legally close out Fiscal Year 2019. Post-Sleepy’s Dealership Punch List – as we have stated repeatedly: • As of now, it is imperative going forward that dealerships pay any 100% commission-paid employees $18 per hour, separate and apart from their commissions, for any time worked over 40 hours in a workweek or on Sundays. If you are paying a recoverable draw each week, make sure that draw covers at least the number of hours worked (up to 40) multiplied by the current minimum wage of $12 per hour. Do not use a draw to cover OT hours or Sunday pay. That said, the more conservative course, at this point, would be simply to pay, separate and apart from commissions, minimum wage for all hours up to 40 each week, issue a separate and additional check to cover payments of one and one-half times the minimum wage for every hour the employees worked over forty hours or on Sunday, assessing its effect on employee compensation and adjusting commission structures as necessary. (The Sunday pay issue is complicated by legislative error in last year’s Grand Bargain; without wasting time and space here explaining it, pay any Sunday hours worked at time and one-half.) • Dealerships need to do a complete review of their pay plans with competent counsel and beef up their in-house recordkeeping to avoid wage-hour liability moving forward: (1) require the keeping of accurate time cards at your stores; always require employees to record their hours worked; (2) monitor overtime hours worked and
Massachusetts Auto Dealer
OCTOBER 2019
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The Roundup Massachusetts law requires that the emtance program. consider implementing an overtime apployee be paid at least time and one-half Under our compliance assistance proproval process; and (3) always pay emgram, we will support your compliance his or her regular rate. ployees for all hours worked. Write clear, efforts, from $500 up to $1,000, for your In addition to complying with the Masspecific, detailed pay plans for each job participation in OSHA/environmental sachusetts holiday laws, a dealer must position. Focus with clarity on the terms workplace compliance services offered also comply with his or her own policies. used in those plans (hourly rate, regular by Furrh Associates, KPA, Ethos, or PipIf your Employee Handbook or past pracrate of pay, etc.). er Consulting; employment law services tice says that the day is a “paid holiday,” • We have also recommended that dealoffered by Fisher Phillips; and tax comthen you are required to pay employees ers should consider looking at what OT pliance and cybersecurity protection serfor that day even if it is not a regularly they paid to 100% commission paid vices offered by O’Connor salespeople since & Drew. Additionally, unMay 8 to the date der our community outwhen the pay plan “Do not forget to take advantage reach program, we will was fixed using of our financial assistance support your community commissions and giving up to $1,500 in the a recoverable draw for compliance services and year as a single point store and provide those community outreach.” and up to $2,000 total salespeople a sepawith $250 per two affiliate rate check for those stores. OT hours, as dictatIf you need information or the applischeduled workday. Further, if an emed by the Sleepy’s ruling. In this manner, cation for these programs, please do not ployee works on one of these days, the a dealership could potentially eliminate hesitate to contact me. employee would be entitled to holiday any liability associated with the new pay for the day plus the additional preSleepy’s rule issued post-May8. Save the Date – 2020 Auto mium pay for the hours worked on the We will keep you abreast of developShow, Dealer Summit & Gala holiday, or another day off with pay, if the ments as they occur. handbook so provides. As a result, dealOur 2020 New England International Veterans’ Day Work Rules ers are urged to review their holiday pay Auto Show will be here before you know policies carefully to ensure that they acThe Veterans’ Day holiday, celebrated it. The show will run January 16-20, endcurately reflect their actual practices. this year on Monday, November 11, is ing on the Martin Luther King holiday. considered a restricted holiday and has Our Dealer Summit and Gala will be held Congrats, Scott Dube certain permit and premium pay rules: on Friday, January 17. Be on the lookout At the recent NADA Board of Direc• A dealership that operates on Veterans’ for our registration materials. tors meeting in San Diego, our MassaDay is required to pay most employees Tech Competition to Start chusetts NADA director, Scott Dube, at time and one-half their regular rate November 25 was elected by his peers in the Region so long as work is actually performed One states (Pennsylvania, NY, NJ, on up on the holiday. (Due to the error in the Next month we will begin the process through New England) to serve for the Grand Bargain, this holiday remains at to select our Massachusetts auto tech next two years as region vice chairman. team to represent us at the national com1.5x pay.) Scott will be seated officially at the napetition at the NY Auto Show in April • An employer may not require an emtional convention in February in Las Ve2020. On Monday, November 25, we ployee to work on this holiday nor may gas. With his election, Scott attains a seat will conduct the written test for students it punish or penalize an employee for on the NADA Board’s executive commitwho sign up through their high schools, choosing not to work. tee. Congratulations, Scott. the results from which we will select the • If the dealership is going to be open pritop ten two-person senior teams from or to 1:00 p.m. on the day, a local permit Compliance, Community the schools. They will then compete at is required. Outreach Subsidy Reminder Massachusetts law does not recognize the hands-on competition, which we will As the calendar nears an end, please ac“paid holidays.” In other words, if an emhold on January 18, at the BCEC during cept this as our monthly reminder to our ployee does not work on a legal holiday, the opening hours of the Saturday of our member dealers to take advantage of our there is no requirement that he or she be auto show. The winning team will then be compliance assistance subsidy program sent to NYC. paid for the holiday. If, however, an emt as well as our community outreach assisployee does work on this legal holiday, OCTOBER 2019
Massachusetts Auto Dealer www.msada.org
MSADA
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Massachusetts Auto Dealer
OCTOBER 2019
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LEGAL
MSADA
By Joseph W. Ambash and Jeffrey A. Fritz
USDOL Revises Rules on Overtime
On September 24, 2019, the United States Department of Labor revised its rules concerning overtime, which are scheduled to go into effect January 1, 2020. Unlike the prior go-round of similar revisions in late 2016 (which, as you may recall, ultimately were enjoined), you should expect these changes—most notably, an increase to the “salary basis” threshold, from $455 to $684 per week—will go into effect without issue. You will need to adjust your pay plans accordingly.
What Exemptions Do These Revisions Affect?
These revisions center on the “white collar” exemptions: i.e., the “executive” exemption, the “administrative” exemption, the “professional” exemption, and the “highly compensated employee” exemption. Each of these exemptions involves a “duties” test (i.e., what the employee does) and a “salary basis” test (i.e., how the employee is paid). For example, to qualify for the “executive” exemption, an employee must (1) have the “primary” duty of management of a department or sub-department of the dealership, (2) supervise the work of two or more full-time employees, (3) have the authority (or significant say in whether) to hire and fire, and (4) be paid on the requisite “salary basis.” Similarly, to qualify for the “administrative” exemption, an employee must (1) have the “primary” duty of performing office or non-manual work directly related to the management or general business operations of the dealership, (2) perform this “primary” duty using discretion and independent judgment with respect to matters of significance, and (3) be paid on the requisite “salary basis.” To qualify for the “highly compensated employee” exemption, an employee must (1) have a “primary” duty that includes performance of office or non-manual work, (2) customarily and regularly perform at least one of the exempt duties or responsiOCTOBER 2019
bilities of the executive, administrative, or professional employee, (3) earn at least the requisite amount per year, and (4) be paid on the requisite “salary basis.” An employee’s “primary” duty is his or her principal, main, major, or most important duty, based on all the facts in a particular case, with the major emphasis on the character of the job as a whole. An employee is paid on a “salary basis” when he or she receives a predetermined amount of compensation each period, which is not reduced based on variations in the quality or quantity of work. Limited instances exist, of course, in which deductions can be made, such as absence from work for one or more full days for personal reasons other than sickness or disability, or for such absences due to sickness or disability if the deduction is made in accordance with a bona fide PTO policy. That said, employers need to be very careful in making deductions to “white collar” salaries, as improper ones can jeopardize the exemption and, therefore, result in significant overtime liability. Notably, these regulatory revisions should have no impact on your salespeople, service advisors, parts counter employees, or mechanics. While your salespeople, for example, are exempt from federal overtime, they are non-exempt under Massachusetts law and, as regular readers of this column know, currently are the subject of significant litigation as a result of the Sleepy’s decision.
$68.40). While the USDOL has not scheduled any additional increases in the future, you can expect more frequent revisions (that is to say, increases) going forward. Additionally, the annual compensation threshold for “highly compensated” employees will increase. It currently is $100,000 but, effective January 1, 2020, will increase to $107,432. With respect to “highly compensated” employees’ salaries, however, nondiscretionary bonuses and/or incentive payments will not go toward satisfying any part of the “salary basis” test. Notably, the USDOL made no changes to the “duties” tests for any of these exemptions.
What Should You Do Now?
These changes go into effect in about two months. Accordingly, you should review your pay plans, especially those of your managers and administrators, to ensure they are paid appropriately and, if not, make any necessary adjustments by January 1, 2020. Focus certainly on the “salary basis” test but also on the “duties” test, to identify and rectify any prospective or existing misclassification issues. Failure to do so can result in significant overtime exposure, which, as many employers have found out the hard way, have a three-year look back and result in automatic triple damages. t
What is Changing Under These Revisions?
The most significant change under the USDOL’s revised overtime rule is an increase to the requisite “salary basis.” Since 2004, the threshold “salary” required to maintain exemption from overtime has been $455 per week. Effective January 1, 2020, that number will increase to $684 per week. That said, nondiscretionary bonuses and/or incentive payments (including commissions) paid at least annually can go toward satisfying 10% of that amount (or
Massachusetts Auto Dealer www.msada.org
Joe Ambash is the Managing Partner and Jeff Fritz is a partner at Fisher Phillips, LLP, a national labor and employment firm representing hundreds of dealerships in Massachusetts and nationally. They can be reached at (617) 722-0044.
Troubleshooting
MSADA
FTC Proposal Could Hit Dealers Hard By Peter Brennan, Esq. MSADA
Staff Attorney Earlier this year, the Federal Trade Commission (FTC) issued a notice of proposed rulemaking to amend its Standards for Safeguarding Customer Information, commonly known as the Safeguards Rule. While protecting customer information is of vital importance to every dealership, the changes that the FTC has proposed would likely add hundreds of thousands of dollars to every dealer’s bottom line, while providing scant, if any, new protections for your customers’ data. Some history: There is no blanket federal law or regulation regarding data privacy and protection, and different industries are regulated in a patchwork manner federally. Passage of the Gramm-Leach-Bliley Act (GLB) in 1999 first 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. Franchised new car dealers are subject to these Rules under GLB, as covered “financial institutions”, only in certain instances, such as assisting consumers in obtaining financing or leasing on new or used vehicles. The Privacy Rule contains the definition of “nonpublic personal information” (“NPI), and, pursuant to this definition, dealers should already consider any personal information collected from a customer that is not “publicly available” to be NPI and therefore subject to strict privacy safeguards. The Safeguards Rule currently requires that a covered financial institution develop and implement an in-
formation security program that is “appropriate to [its] size and complexity, the nature and scope of [its] activities, and the sensitivity of any customer information at issue.” Additionally, the Safeguards Rule already 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. The determination of whether a dealer qualifies as a financial institution under GLB is made on a per transaction basis and can be complicated. For instance, the Rules would not apply to NPI gained during a transaction in which the customer paid cash or arranged their own financing, while the Rules 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. Currently, if a 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 actually gained access to the information. Consequently, dealers are already required to be extremely careful with their customers’ NPI. Despite these existing protections, the FTC now seeks to amend the Safeguards Rule in five ways. Two of the proposed changes will have a major impact on dealership data protection operations: (1) adding provisions “designed to provide covered financial institutions with more guidance on how to develop and implement specific aspects of an overall information security program”; and (2) adding provisions “designed to improve accountability of financial institutions’ information security programs”. The devil is in the details of the proposed changes – and the “guidance” proposed by www.msada.org
the FTC is more accurately a requirement. The resulting compliance burden would have an enormous impact on dealerships of all sizes and would require dealers to hire a chief compliance officer and conduct annual penetration tests and biannual vulnerability tests of the dealership’s software. According to the FTC, the Safeguards Rule amendments are, in part, based primarily on the cybersecurity regulations issued by the New York Department of Financial Services and the insurance data security model law issued by the National Association of Insurance Commissioners. The FTC has stated that it does not anticipate the proposed amendments to be overly burdensome on covered entities. The FTC may be correct with reference to financial services and insurance companies, as it is likely that all of the NPI collected by such businesses is covered by the Safeguards Rule, and such entities would presumably already have staff solely dedicated to GLB compliance. However, an automobile dealer only acts as a “financial institution” in limited instances. According to an analysis performed by NADA, the cost for small dealerships to comply with the amended Rule would be $220,400 initially and $217,800 in annual costs, while midsize operations would pay $367,550 initially and $336,050 in annual costs. NADA has submitted comments to the FTC in opposition to the proposed Rule changes, and there is currently no timeline for the FTC to finalize the rule changes. In the meantime, dealers are encouraged to review their data privacy practices and GLB compliance. t If you have any questions regarding this column, 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.
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Interest Rates & Financing – What Lies Ahead? five-plus years. Market makers or dealers are the large banks that put swaps together. They act as either the buyer or seller themselves. Counterparties only have to worry about the creditworthiness of the bank and not that of the other counterparty. Instead of charging a fee, banks setup a bid and ask Principal, CPA, price for each side of the deal. The future MST O’Connor payments are discounted to account for & Drew, P.C. inflation. The discount rate also adjusts for what the money would have returned Rate Trends if it were in a risk-free investment, such Interest rates are always a hot topic. as Treasury bonds. Everyone likes to predict which way Based on what they know today, both they are heading, whether it is better to Lender options parties have to agree at that time on what go fixed or floating, and how to shop for they think will probably happen with inAn important consideration when the best rate. It has now been over a deterest rates. working with a financial institution cade of low interest rates, and it appears In general, the biggest risk on a swap is should be your working relationship and as if the current rate range is the “new a prepayment event. Once you lock into their understanding of your business. normal.” Rates plummeted rapidly on the a fixed rate, a swap can be “in the monWhile “character” lending is a thing of heels of the Great Recession and were ey” if rates rise enough, though largely dictated and lowered by this happens less frequently than the maneuvering of the Federal It has now been over a decade expected. On the other hand, if Reserve System and other cenof low interest rates, and it rates go down, then there is a cost tral banks. In 2017 and 2018 appears as if the current rate to prepaying the swap, due to the rates began to tick upward, and disrupting of the existing swap range is the “new normal.” it seemed that we were heading contract and the higher rate being toward the higher rates that had received by the counterparty. These prethe past, a financial institution that trubeen anticipated for some time. Then the payment amounts can be significant. ly understands you, your business, and music stopped. On a lighter note, Einstein supposedyour complete financial picture can be a Rates outside the U.S. were lower and ly said that the greatest invention was valuable member of your financial team. heading even lower; concerns set in that “compound interest.” Try to work your This is particularly true during difficult the economic good times were slowing. business to be on the right side of the economic periods, which we haven’t exIn the last six months or so, rates have recompounding! perienced in some time. treated again and the Fed is entertaining t rate cutting at each meeting. Market rate Interest Rate Swaps Mark V. Dow, Principal, CPA, MST, intervention from the government seems What is an interest rate swap? A swap joined O’Connor & Drew in 1986 and to be a constant and now has come to be is a contract to exchange interest rate paybecame a principal in 1993. Dow is expected every time the economic headments based on an agreed-upon schedule. currently responsible for managing aclines are less than favorable. The good By far, the most common swap is the excounting, auditing, and tax services for news is that this should keep floorplan changing of variable rate payments for a wide range of clients. He works exteninterest at bay. fixed rate payments, where a client pays sively with contractors and distributors Debt vs. Equity a fixed rate and receives a floating rate, and is primarily focused on commercial The discussion of financing and capital such as LIBOR. The debt is not swapped, for-profit and high-net-worth clients. begins with the merits of carrying debt just the interest payments. Swaps are best Mark has also presented various semivs. investing your own capital. By the for long-term financings for typically nars on automobile dealership finances.
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magnitude of the dollars involved, most businesses and capital projects require a certain amount of debt. The real debate is at what point you are fortunate enough to have the option of deploying capital or using bank financing. This often comes down to your risk tolerance. How will you feel about high leverage during difficult times and having to infuse capital at the bank’s request? Carrying modest debt levels is also a form of forced savings, as you avoid the temptation to overspend using someone else’s money, which will need to be paid back.
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RACE TO THE FINISH COVER STORY
2019
Hall of Fame C By Jeff Breeze
Chatham Bars Inn feels like the edge of the world, and in a way it is. If you were to venture East, you won’t find land again until the coast of Portugal. On October 4, the people who get the chance to tread on land this precious are those that have spent their lives proving they deserve to be here and those around to celebrate them at the Second Annual MSADA Auto Dealers Hall of Fame Ceremony. While two members of this year’s class are deceased, and Rick Mastria got whisked away by his cousins for a European vacation, those that gathered were in a properly celebratory mood. After a cocktail hour and a fivecourse meal, the ceremony began in
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Massachusetts Auto Dealer www.msada.org
earnest with MSADA Executive Vice President and General Counsel Robert F. O’Koniewski providing an introductory speech and MSADA President Chris Connolly introducing each of the recipients. O’Koniewski’s remarks set the tone for the evening, highlighting the excellence within the automotive dealer industry: “This is truly the last legal realm of pure capitalism in the free market that we have today. And as much as government throws regulations at us and as much as politicians want to feed off our plates, it survives and gets stronger and stronger and is due to the testament of individuals like our Hall of Fame inductees.”
MSADA
Ceremony William DeLuca, III Bill DeLuca’s Woodworth Chevrolet Cadillac
John S. Sarat Sarat Ford Lincoln With a business born of the hard scrabble existence of the Great Depression, John Sarat established a 90-year automotive legacy in Western Massachusetts. Bringing a Ford franchise to Agawam in 1955 led the way to a few dealerships in the Pioneer Valley that are now run by his son and grandchildren.
Upon graduating from UNH, Bill DeLuca took the keys to Woodworth Chevrolet Cadillac and never looked back. The twoterm MSADA president was 2011 TIME Dealer of the Year award winner and has expanded that shop to three dealerships in addition to being president of Auto Auction of New England, chairman of the Bank of New England, and an active member of the Greater Lawrence community. “I would like to thank Bob O’Koniewski, members of the staff, current directors, and members who voted for me. I am truly humbled and honored to be receiving this award. To be in the second class of the Hall of Fame is truly special, especially to be alongside legends Boch, Balise, Ciccolo, Connolly, and Fuller. I would also like to thank my fellow inductees tonight. I would like to acknowledge my wife, who is with us tonight, and three of my five children: Billy, Kristen, and Marissa. Thanks again on behalf of myself and my family.”
Jack Sarat, Jr. “My dad was a great guy, and he started out in 1929 and struggled through the depression. He loved his employees and his customers. When I thought about what he was famous for, when I started out he would send me out for an extra $50 in every deal: ‘Go get an extra $50, Jack.‘ “As dealers in Massachusetts with 427 franchise rooftops, you think about how many thousands of employees we have and how many family members we support. The automobile industry in Massachusetts thrives, so congratulations to everyone. This is your award, also.” www.msada.org
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RACE TOHALL THE OF FINISH MSADA FAME CEREMONY Ira Rosenberg Ira Motor Group With a legacy that spans the creation of two different dealership enterprises, Ira Rosenberg retired from the automotive business only to build another empire. The vastness of that empire was exceeded by his largess within the community and held fast to a mantra that made him a great man: “Love Your Customer, Love Your Work Family, and Give Back to the Community that Made You Successful in the first place.”
Brian Rosenberg “Number one, I can tell you my dad would be truly honored and humbled for this. My earliest memories are visiting my dad at the dealership. He was never as happy as when he was working on a showroom floor selling cars to someone who would inevitably become his next best friend.” “My dad absolutely loved his customers, and his employees became his family. Every day he was working at a dealership he would enter a different door because he would see different people every single time, and whether it was an employee or a customer, he went up to him and shook his hand and said, ‘thank you for being here.’”
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MSADA Rick Mastria Mastria Auto Group TIME Magazine’s 2010 Dealer of the Year in Massachusetts, Rick Mastria has made an impact on the MSADA board over the years serving nearly every role before becoming president. With 25 years under his belt working with MSADA for the betterment of all the dealerships across the Commonwealth, he’s the youngest member of the Hall of Fame.
Vincent Mastria “My dad couldn’t be here because he is on vacation, but with all the phone calls and text messages I’ve got, I promise you he would rather be here. This award is the most treasured recognition he has received in a long and successful career. Support from the MSADA and the dealer body is what made him so successful.”
Rick Mastria, Jr.
“My dad has always been a team first leader, so it’s fitting that we’re here accepting the award on his behalf. His years of experience and his tenure with MSADA helped to develop principles that we use in our business today. Most important being the relationships that he has developed along the way.”
James Hurrell Legislative Agent-Consultant Jim Hurrell never sold cars and never worked in a dealership, but the impact that he helped make improved the standing for all dealers across the Commonwealth. A former state representative, Hurrell has been a lobbyist on Beacon Hill, and for over 40 years worked on behalf of MSADA, helping to drive the cause of auto dealers to the fore of politicians dockets. “I want to say that over the years I have had the honor of being on Beacon Hill for 55 years, 42 with this great association because no one person can do the job that is required. The bottom line is it was an honor representing you. I’ve seen thousands of dealers come and go, and I’ve seen many of the employees understand how important it was at the State House. It is not just the dealers, you need to activate your workers, the people that put the industry together. “It is just taken for granted that if you don’t educate your representatives, they are not going to know. I served in the legislature for ten years and it is hard, but without this association, some of the people on Beacon Hill would absolutely close you down if they could, so it’s really wonderful to have such a strong group. It’s the cheapest insurance policy you will ever get. “I think I am leaving the association at its strongest point and that makes me very proud. I just want to say thank you very much. I want to thank my family here. This is my last hurrah after 55 years.”
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NEWS NEWS the NEWSfrom from Around from Around Around the Horn Horn NEWS
NEWS the Horn
MSADA
BURLINGTON, VERMONT
Herb Chambers Taps DealerPolicy DealerPolicy announced on October 17 that Herb Chambers, one of the largest automotive groups in the U.S., has selected DealerPolicy as its auto insurance solution provider. DealerPolicy’s innovative technology platform allows car buyers to instantly review competitive auto insurance quotes from DealerPolicy Insurance Agency and speak with a licensed insurance agent while at the car dealership. Customers can receive coverage advice from licensed agents and have their policy documents sent to them within minutes. “We’re thrilled that The Herb Chambers Companies has chosen us to partner with, and to share our platform with their customers,” says Ryan Fitzgerald, V.P. of Business Development at DealerPolicy. “Car buyers who use our Marketplace platform and go on to purchase insurance through DealerPolicy Insurance Agency see an average of $60 a month in savings on their insurance.” DealerPolicy also offers an enterprise program called
Digital Dealer Agency. Dealerships in this program can work with an affiliated licensed insurance agency, and these agencies are then able to benefit from recurring insurance commissions. According to Herb Chambers CEO, Alan McLaren, “DealerPolicy was attractive to us for three main reasons. The first is that it offers real benefits for our customers and helps improve their in-store experience - we can now truly provide them with a one stop shopping experience. The second is that we believe the auto insurance savings generated by this program could increase affordability for additional protection products. Finally, the Digital Dealer Agency program will provide an additional income stream through our licensed agency.” A recent DealerPolicy study showed that over 80% of car buyers would like to get everything done relating to their car purchase, including insurance, while at the dealership buying their car.
BOSTON
Hyundai and Aptiv Partner for $4B Joint Venture Self-driving vehicle company Aptiv announced a partnership with Hyundai Motor Group at the end of September. Karl Iagnemma, president of Boston-based Aptiv Autonomous Mobility, will lead the joint venture, which will be headquartered in Boston. Aptiv’s Seoul office will also serve as a key technology and testing center for the partnership. Aptiv, which is headquartered in Dublin, and Hyundai Motor Group will each take 50 percent ownership stake in the $4 billion joint venture. Through the partnership between Aptiv and Hyundai, the two companies will work to advance the design, development, and commercialization of level four and five autonomous technologies. Aptiv said it will begin testing fully driverless systems in 2020 and make a “production-ready” platform available by 2022. That platform will be available to robotaxi providers, fleet operators, and automoOCTOBER 2019
tive manufacturers. Aptiv will provide 700 employees, as well as its driving technology and intellectual property, while Hyundai, through its affiliates, will provide $1.6 billion in cash at closing and an additional $400 million in “vehicle engineering services, R&D resources, and access to intellectual property.” The affiliates include Hyundai Motor, Kia Motors, and Hyundai Mobis. “This partnership further strengthens Aptiv’s industry leading capabilities in the development of advanced driver assistance systems, vehicle connectivity solutions, and Smart Vehicle Architecture,” Kevin Clark, president and CEO of Aptiv, said in a prepared statement. “Hyundai Motor Group’s cutting-edge engineering and R&D capabilities make them our partner of choice to advance the development of a production-ready autonomous platform.”
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MSADA SPRINGFIELD
Mercedes-Benz of Springfield Turns Two Mercedes-Benz of Springfield celebrated its second anniversary, having opened its doors on October 16, 2017. There had been an 11-year hiatus of having a local dealership. When the owners opened the doors for business, the first customer drove into the service drive at 8 a.m., and it has been busy every day since. “We opened the doors on October 16 and immediately customers flocked to us, which is an estimate to our brand and the need that was in this area. We are really thrilled that we can serve that need and have so much support from the Mercedes-Benz community and the community at large,� said Peter Wirth, dealership co-owner. Since opening two years ago the dealership has sold over 2,000 cars, serviced 16,000, and given over 22,500 car washes, proving there are many loyal Mercedes-Benz owners in the Pioneer Valley. They’ve also partnered with a number of local
organizations and created over 50 jobs locally. Mercedes-Benz of Springfield is a full service authorized Mercedes-Benz dealer, sustainability built with solar panels on the roof and using waste oil from vehicles to heat the facility.
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GREENFIELD
Brown Sale to Lundgren Orchestrated by Nancy Phillips On October 11, Nancy Phillips Associates announced the sale of Brown Motors, owned by Darci Brown and located in Greenfield, to Barry Lundgren, owner of Lundgren Honda in Auburn and Lundgren Honda of Greenfield. Darci Brown has owned and operated the Brown Motors dealership since 1995. The new dealership will be known as Lundgren Chrysler Jeep Dodge Ram and abuts Lundgren’s Honda dealership, forming a campus that offers both Honda and the full line of Chrysler vehicles to customers throughout Western Massachusetts. Lundgren Chrysler Jeep Dodge Ram is not a big city superstore, but a friendly, comfortable, locally owned and operated dealership that serves customers from Brattleboro to Northampton, Athol to North Adams. The Lundgren family is celebrating over 50 years in the transportation business in Massachusetts, having begun in 1964 when Richard Lundgren established Honda Sales & Service, a Honda motorcycle dealership, on Route 9 in Shrewsbury. In 1987, Barry Lundgren joined his father in Auburn at Lundgren Honda, selling off the motorcycle operations in 1994. They added Lundgren Honda of Greenfield to their family in 2010 and now have continued that expansion. t
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MSADA
MSADA IN MEMORIAM
Thomas Francis Flynn Jr. 1936 - 2019 • Flynn VW Audi BMW
From 1964 until his retirement in 2007, Thomas Francis Flynn, Jr. was the heart and soul of the Flynn Automotive Dealerships, working tirelessly to grow and maintain the family business and make a positive impact in the Western Massachusetts community. Tom died peacefully on September 22, 2019. Tom was born on August 28, 1936, at Faulkner Hospital in Roslindale, the son of the late Thomas F. and Madeline (Callahan) Flynn. He was a 1954 graduate of Boston Latin School, where he was captain of both the cross-country and track teams. He was a 1958 graduate of the University of Massachusetts Amherst, where he was again captain of both the cross-country and track teams, leading the winning relay team for the one-mile race in the Boston Garden against New England colleges. One of his proudest moments was a runner-up finish in the mile to Ron Delaney, the 1956 Olympic Gold Medalist from Ireland, at the Northeast AAU Championships. After graduating from college, Tom was a newly Commissioned Lieutenant in the United States Army. From 1958-1962, Tom was an Army Company Commander, 82nd Airborne, Special Forces serving in several locations throughout Germany. He was awarded the Army Commendation Medal for Meritorious Service while in Germany due to “his loyalty, integrity and tact in his relationship with both his superiors and subordinates.” This distinguished honor was given to only two soldiers out of tens of thousands. He was then subsequently awarded the wings of a Military Parachutist. Upon his return to the United States, he and his family lived for a short time in the Boston area, serving from 1962-1964 in the Special Forces Reserves. In 1964 they moved to Pittsfield, where he established Flynn Volkswagen with his father Thomas Flynn, Sr. The family moved to Lanesborough, where they resided and raised their 5 children until 2009, before moving full-time to South Yarmouth. Flynn Volkswagen began with three service bays and a onecar showroom, but by 1970 they moved across the street to a new “State of the Art” facility with eight service bays, a full paint and body shop, and a five-car showroom. In 1971, Tom Flynn, Sr. retired, and it wasn’t until 1984 that Tom Flynn III joined the fold and they added Porsche and Audi to the Flynn family. Tom was always busy though, and for 14 years he
commuted daily between Pittsfield and his Ford, Mercury, Nissan, and Subaru store in Bennington, VT. In 1989, a BMW franchise was added, but they returned the Porsche franchise three years later. 1994 marked the addition of a new nine-car showroom and a Mazda franchise. Tom handed over the reigns to his son, Tom Flynn, III, in 2003, naming him President of the Flynn Family of Dealerships. Tom helped to streamline the operation before he retired. They sold their Mazda franchise to focus on German automobiles and built a ten-car BMW Exclusive showroom. Tom was kind, caring, and charitable; he was an active member of the community. He served on the National Automobile Dealers Association; he was President of MSADA and President of the VW Dealers Association. He was an active communicant of his parish and, along with his wife, was named 2007 honorary chair couple of the Diocese of Springfield appointed by the Bishop. He was a long-time Member of the Board at (BARC) Berkshire Association of Retarded Citizens and President of Omega Corp., where he was an integral part of securing Group homes for disabled adults. In 2007 BARC unveiled the “Thomas F. Flynn, Jr. Community Apartments” at 189 East Street in Pittsfield to thank Tom for his tireless support and many years of service. In addition to his endless hours devoted to the family automobile business. Tom loved visits with his grandchildren, whom he adored, always saying that each one was the next Olympian in their respective sport. He delighted in sharing the many stories of his life in the Military with them. He enjoyed fishing, hunting, and spending time outdoors with his beloved German Shepherds. He was an avid racquetball player, winning a number of regional tournaments, including reaching the State and New England Tournaments in doubles. Tom enjoyed traveling, with Ireland always holding a special place in his heart. Ireland was so near and dear to Tom that if he wasn’t telling stories of his travels to Ireland, he was planning his next trip there. In retirement, there wasn’t a crossword puzzle he couldn’t conquer or an episode of Jeopardy he didn’t seize. He enjoyed living on Cape Cod, or, as he so fondly referred to, “God’s Country.” Tom was predeceased by his wife Marion and his son Joseph. t
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Patrick Manzi
NADA Senior Economist
Boyi Xu
Economist
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MSADA
NADA MARKET BEAT
JANUARY 2016
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TRUCK CORNER
Spend St. Valentine’s Day 2020 at the ATD Show 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.
On St. Valentine’s Day 2020, hundreds of your fellow truck dealers, OEM executives, allied industry, and international guests will converge in the entertainment capital of the world. Let’s take this time to celebrate a year’s worth of our milestones and achievements. Show the commercial truck industry some love by spending your St. Valentine’s Day weekend with me—and all of ATD— at the 2020 Show in Las Vegas! Start making your plans to be at the industry event of the year February 14-17 (Friday through Monday). ATD is excited to announce special keynote speaker, renowned global futurist Jim Carroll. Jim will give a riveting presentation on how he sees our industry changing based on real research, proven trends, and special insight. He’s given out some of the most compelling advice to organizations like Disney and NASA, and we’re excited to have him on our stage. Our Show will kick off with our industry roundtable, which features an interactive discussion led by ATD’s Legislative and Regulatory Affairs. We’ll review current policies affecting the truck dealer business and how new initiatives, like the Modernize the Truck Fleet Coalition, could reshape our world for the better. I encourage you to attend and hear all about our latest FET repeal efforts and how our industry has united in this battle. We’ll also talk about the most critical issues today, including the White House’s new trade negotiations and our industry’s autonomous truck developments. ATD is excited to present our excellent exhibitors at the 2020 Expo; this is where business gets done and where you’ll have the opportunity to shop for the latest and greatest products on the market.
We’re also excited about our workshop schedule, combined with NADA’s offerings, for more than 60 topics led by the most knowledgeable experts in the industry. Best of all, the ATD Show is where you’ll have the opportunity to meet with your OEMs face-to-face. In past years, ATD has hosted franchise meetings between dealers and manufacturers. This is the chance to build bridges for the coming year and have productive discussions about what matters to your business. As always, I encourage all ATD members to take advantage of the full access you have to the NADA Show—you are welcome at all general sessions and networking events. Be sure to join me on Saturday, February 15, when I’ll be honored to share my perspective of the year with you, and what we can expect for the future of our industry. I look forward to the opportunity to thank each of you in person and to hand the keys over to the incoming ATD chair, Steve Bassett. So, mark your calendars now if you haven’t already for St. Valentine’s Day 2020. Register today and join us at the show you cannot miss! I’d love to see you in Las Vegas!
The ATD Show is
where you’ll have the opportunity
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Teuton is vice president of Kenworth of Louisiana, a full-service dealership with locations in Baton Rouge, Houma, Lafayette, Lake Charles, Monroe, New Orleans, and Shreveport; full-service Hino dealerships in Baton Rouge and Monroe; and Southland Truck Leasing at all dealership locations. ATD, a division of the National Automobile Dealers Association, represents more than 1,800 heavy- and medium-duty truck dealerships. t
NADA Update
By Scott Dube
Reading the Tea Leaves Scott Dube, President of Bill Dube Hyundai and MSADA Immediate Past President, represents NADA’s Massachusetts members on the NADA Board of Directors. He can be reached at scott@dubecars.com. Events in Washington are unfolding in a way that make much of our government seem more uncertain than ever. At NADA, we are working to make sure that, amid the chaos, the interests of our member dealers and the hundreds of thousands of employees and families they represent are heard.
Let’s Make USMCA Happen
By Charlie Gilchrist, NADA Chairman For nearly two years, the automotive industry has been living in a world of uncertainty as the U.S.-Mexico-Canada Agreement (USMCA) renegotiated by President Trump awaits ratification. And all the while, the dark cloud of tariffs on autos and auto parts has hung above us. But it is not all storms on the horizon. Earlier this month, I had the opportunity to address members of the Automotive Press Association in Detroit about the importance of creating certainty for our industry with the immediate Congressional passage of USMCA. The reality is that the U.S. auto industry is built on an integrated, global supply chain and is reliant on a favorable trading relationship with our two biggest trading partners: Canada and Mexico. On January 1, 1994, then-President Bill Clinton signed the North American Free Trade Agreement (NAFTA) into law to strengthen trade among the three countries within North America’s borders. Since then, NAFTA has permitted OEMs and suppliers in Canada, Mexico, and the United States to ship vehicles and automotive parts without tariffs before final assembly and retail sale. NAFTA has greatly enhanced the global competitiveness of the U.S. auto industry and has paid dividends to the U.S. economy. Because of NAFTA, the U.S. has become a major vehicle exporter and more jobs were created right here in America. NAFTA is one example of how trade is an essential element of a healthy and competitive U.S. automotive and parts industry. More than 25 years since NAFTA was signed, the USMCA modernizes NAFTA for our current times and business environment. The Agreement is vital to our industry. USMCA will main-
tain auto production and distribution in North America and will preserve the global competitiveness of the U.S. automotive industry. Furthermore, USMCA will reduce the threat of tariffs on vehicles and parts by exempting those produced in North America, enabling dealers to continue providing affordable vehicles options for American consumers. There is no question about it: The USMCA is a win for our industry, our customers, and our businesses. This is why it is critical that our leaders in Washington move USCMA forward. Let’s get behind President Trump’s renegotiated deal and make USMCA happen.
Rhett Ricart Elected 2020 Chairman NADA’s 63-member board of directors elected Rhett Ricart as its 2020 chairman. “I am humbled by this opportunity. NADA is an incredible organization,” said Ricart, who represents new-car dealers in Ohio on NADA’s board. “I love cars; I love people; I love this business; and I am blessed to have a wonderful wife and family.” Ricart who is currently serving as NADA vice chairman, succeeds Charlie Gilchrist, president of Gilchrist Automotive in Weatherford, Texas, as chairman. “We must keep building on what has been provided to us, and we must take advantage of the opportunity to protect and build upon our legacy,” added Ricart, president of Ricart Automotive Group in Groveport, Ohio. Ricart’s franchises include Ford, Genesis, Hyundai, Kia, Mazda, Mitsubishi, and Nissan, as well as Harley-Davidson. Paul Walser, who represents new-car dealers from Minnesota on NADA’s board and serves as partner of Walser Automotive Group in Bloomington, Minnesota, was elected NADA vice chairman for 2020. Bill Willis, president of Willis Chevrolet-Buick and Willis Ford in Smyrna, Delaware, was re-elected as secretary. Bob Shuman, president of Shuman Chrysler-Dodge-JeepRam in Walled Lake, Michigan, was re-elected as treasurer. The election took place at NADA’s board meeting in San Diego, California, on October 15, 2018; the new terms begin at NADA Show 2020 in Las Vegas in mid-February.
NADA Issues Third Quarter Economic Report Patrick Manzi, senior economist with NADA, issued an analysis of U.S. auto sales and the economy following the end of the third quarter in 2019: What happened in September 2019? Manzi: We expect sales in September to decline compared to August 2019 and September 2018. The Labor Day sales weekend was included in the August 2019 sales num-
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NADA Update bers and provided a boost to sales last month. We will not have the additional boost this year in September, but still expect that sales will close out the month at a SAAR below 17 million units. We will also likely see increased incentive spending to deal with declining sales. What happened through the first three quarters of 2019? Manzi: Sales have been down most months compared to last year and transaction prices have continued to climb for both new and used vehicles sold by franchised dealerships. According to the latest NADA Average Dealership Financial Profile from July 2019, the average transaction price of a new light-vehicle is up 5% to $36,973 compared to July 2018. We expect the average transaction price of a new vehicle will top $37,000 before the end of the year. On the used vehicle side, transaction prices are up 3.2% to $21,086 compared to July 2018 as dealers have been selling more late-model used vehicles than a few years ago. Transaction prices have continued to rise as new-vehicle consumers continue to shift to light trucks from car segments. Through August, light trucks represented more than 70% of all new vehicles sold this year—a first for the industry. Of that 70%, more than 40% were sales of crossovers. The crossover segment has been red hot for several years now and has posted consistent market share gains all year. New vehicle sales volumes at the average dealership have been down roughly 2-3% each month, which is in line with our expectations. Meanwhile, used vehicle volumes have been up 2-3% each month. Franchised dealerships continue to move in the direction of a 1:1 new to used unit ratio. In 2015, the average dealership reached a cycle high and sold 1.35 new vehicles for every used vehicle. As of July 2019, that ratio had fallen to 1.12 and will likely continue to fall over the next few years as new vehicle sales descend to a plateau and late model used vehicle supplies remain high. What are some key trends for the rest of the year and potential headwinds and tailwinds? Manzi: The two interest rate cuts by the Fed will help some consumers with lower payments. We have seen credit standards tightening in recent months with a larger share of auto loans being made to more creditworthy customers. We expect that this will continue throughout the year as well. Dealers are likely to see benefits in the form of lower inventory floor planning costs. The low interest rate environment of a few years ago turned inventory floor planning into a profit center for several years before rising interest rates shifted inventory financing back to a traditional expense. We expect that off-lease vehicle returns peaked over the summer months and will total more than 4 million units this year. Off-lease inventories will remain robust in the near-to-medium term due to high leasing penetrations over the past few years. As prices continue to climb on the new OCTOBER 2019
MSADA vehicle side for both loans and leases, more and more consumers will shift to the used vehicle market. Low vehicle sales during the Great Recession have resulted in supply constraints of older and lower priced used vehicles, which will cause prices at the lower end of the spectrum to remain elevated in the near term. According to data from Experian, millennials now purchase more vehicles than Generation X. Through the second quarter of 2019, millennials registered 28.7% of all new vehicles compared to 26.9% for Generation X. Significantly impacted by the Great Recession, the millennial generation has taken longer to behave like previous generations when it comes to purchasing homes and vehicles. As millennials enter their prime earning years and start families they are behaving more like past generations. Millennials are closing in on baby boomers and are on track to surpass boomers in the next few years to be the largest purchasers of new vehicles. What are some macroeconomic indicators that could impact auto sales? Manzi: Consumer confidence readings have been volatile in recent months due to trade-related uncertainty but remain high and indicate that consumers will still be willing to make large purchases. Economic growth is slowing, and 2019 Q3 GDP growth is expected to fall off compared to Q3 of last year. We expect 2019 Q3 GDP growth of 2.1%, down from 3.1% in 2019 Q3 and roughly in line with in 2019 Q2. For the year, we expect GDP growth to return to a more long-term trend level of growth just above 2%. The two interest rate cuts in the third quarter will likely help bring in a few additional sales and help dealers with floor planning costs but will not cause any major changes to the industry’s sales trajectory. Job gains are slowing in the late stages of what is now the longest period of expansion on record but overall the labor market remains solid. And there is uncertainty surrounding the implementation of tariffs on imported autos and auto parts, which if implemented later this year will cause new vehicle prices to rise and sales to fall. Are you sticking to your original forecast of 16.8 million light vehicle sales in 2019? Manzi: Yes. New light-vehicle sales will likely continue to decline for the rest of the year compared to 2018, but we remain confident that, barring any unexpected shocks, franchised dealerships are on track to sell 16.8 million new light vehicles in 2019. The downside risks to our sales forecast include the fallout from trade disputes, including potential tariffs on autos and auto parts, and the Fed changing course on interest rates. t
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