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FIRST CLASS MAIL US POSTAGE PAID BOSTON, MA PERMIT NO. 216
September 2019 • Vol. 31 No. 9
The official publication of the Massachusetts State Automobile Dealers Association, Inc
2019
NADA Washington DC
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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, 25 Ethos Group, 2 NEAD, 31 O’Connor & Drew, 32 Southern Auto Auction, 22 ADVERTISING RATES Inquire for multiple-insertion discounts or full Media Kit. E-mail jfabrizio@msada.org Back Cover: $1,800 Quarter Page: $450 Inside Front: $1,700 Half Page: $700 Inside Back: $1,600 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: Pounding the Capital Pavement ASSOCIATE MEMBERS DIRECTORY THE ROUNDUP: The Never-Ending Sleepy’s Saga LEGISLATIVE SCORECARD LEGAL: Sleepy’s Help On The Way? TROUBLESHOOTING: California Love Lost AUTO OUTLOOK
16 Cover Story: NADA Washington, DC Conference
20 21 24 26 28 29
BUSINESS OPS: FASB Delays Implementation of New Lease Guidance NEWS From Around the Horn IN MEMORIAM: Don Rodman nada Market Beat TRUCK CORNER: Dealers Must Prepare for a New Generation of Trucks nada update: Capitol Hill Recap
Join us on Twitter at @MassAutoDealers www.msada.org
Massachusetts Auto Dealer
SEPTEMBER 2019
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From the President
MSADA
Pounding the Capital Pavement NADA’s Washington conference brings our grassroots to Capitol Hill
By Chris Connolly, MSADA President As I write this, our NADA Washington Conference delegation is just returning from the annual sojourn to our seat of federal government, where dealers from across the country continue to work to make the voices of Main Street businesses heard. The Washington Conference is a chance to make sure our representatives understand that we continue to operate in a land of shifting regulations and the constant threat of politically motivated challenges. We go to our Congressional representatives to advocate “Pick up the visit for policies that make it easier to do business, instead phone and of more difficult. We will get into a little more detail about what let your these issues are in this issue’s cover story and Bob’s legislator column. Regardless of whatever battles are currentknow what ly being waged, we can never stop putting effort into making sure our representatives know who we are, issues you what we do, and how vital our contribution is to their care about.” districts and our communities. We may not agree on every issue with our representatives, but as we have seen proven during the past decade, these relationships can really pay off when it counts. Especially in a year when we are beginning to look ahead to the next presidential election, it is critical to remember that relationships matter, whether that means your local zoning board or the American presidency. All of this work is done for the benefit of our member dealers, who are working tirelessly day in and day out to make their businesses succeed. They are putting food on the table for their families, and by extension are doing the same for as many as 50 men and women in their communities. They do not all have time to make a trip down to Washington, and that is why we feel privileged to speak on your behalf. I thank our Washington Delegation - Don Sudbay, Charles Tufankjian, Scott Dube, and Chad Bouchard - for sacrificing their time and energy to make sure our voice is heard. It can seem like there is no end in sight to the difficulties, especially given the nature of our Congress right now. But the effort is worth it, and I hope you will join me in showing them our appreciation. Additionally, I want to continue to stress the importance of your voice in this process. We make the trip down to DC so you do not have to, but that means perhaps next year you might make plans to join us. Or, you can pick up the phone and let your legislator know what issues you care about. Please let me or Bob know if you would like any talking points or other tips for representing our industry. t SEPTEMBER 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
www.msada.org
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
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The Roundup
The Never-Ending Sleepy’s Saga, While Dealers Convene in Nation’s Capital By Robert O’Koniewski, Esq. MSADA Executive Vice President rokoniewski@msada.org Follow us on Twitter • @MassAutoDealers
Sleepy’s Update – Governor’s Legislation Since May 8, 2019, the Supreme Judicial Court’s decision in Sullivan v. Sleepy’s LLC has dominated our industry’s legal and workplace landscapes in Massachusetts. As we go to press, many of our member dealers have confronted what the Sleepy’s ruling means for their 100% commission paid salespeople pay plans and (hopefully) made the necessary adjustments to comply moving forward. For those that have not yet made the needed adjustments, I am not sure what they may be waiting for at this point. As a refresher, 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-year old guidance from the state agency in charge of wagehour enforcement which spelled out how commissions could be used to cover overtime pay that was owed and upon which employer legal counsels relied to craft compliant pay plans. The decision now has spurred the filing of approximately 70 lawsuits challenging dealership pay plans, comprising a three-year reach back for liability (for additional SEPTEMBER 2019
Massachusetts Auto Dealer www.msada.org
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 will continue 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. As a result of your Associations’ briefings to Governor Baker and legislative leaders on this issue, in addition to input from other affected parties, the Governor filed a supplemental budget to complete FY2019 spending, House 4067, which includes language that would address the impacts of the Sleepy’s decision on retailers’ 100% commission paid salespeople pay plans. Sections 20 and 22 of the bill would create a potential retroactive fix to the problem by providing employers with an affirmative defense to claims based on Sleepy’s for alleged prior violations that are the bulk of the current lawsuits. Under these sections, quoting from the proposed legislation, an employer would not be subject to any liability or punishment for failure to pay overtime compensation or Sunday/holiday premium pay “if the employer pleads and proves by a preponderance of the evidence that it acted in good faith in conformity with and in reasonable reliance on any written administrative interpretation of the department [of labor standards] or of an agency of the commonwealth which has or had at any time the authority to interpret, regulate, or enforce [the] law. Such a defense, if established, shall be a bar to the action if the administrative interpretation was in effect at the time of the violation, even if it is later modified, rescinded, or determined by judicial authority to be
MSADA invalid or of no legal effect.” The Governor’s bill would also establish an exemption from the Massachusetts wage-hour requirements for overtime pay by creating an exemption for inside salespeople that would be based on the current exemption in federal law. This, too, could have retroactive as well as prospective application to commission-paid pay plans. Finally, the legislation would fix the treatment of the wind-down on 1.5x pay for three holidays the legislature did not properly address in last year’s Grand Bargain – New Year’s Day, Columbus Day, and Veterans’ Day. The legislation presently resides before the House Ways and Means Committee. Your Association has been actively lobbying the legislature for the language. There is no set schedule as for when this may be taken up by the full legislature, if ever. There are no guarantees under the Golden Dome. Further, once the plaintiffs’ bar becomes aware of the Governor’s proposal, they will not be silent. We are in the early innings of this ballgame; more to this story is yet to be written over the coming weeks. In the meantime, dealers continue to fight current litigation, with Motions to Dismiss being argued before courts based on well-founded concepts of current case law. Your Association has been supportive of the legal activities of ongoing litigation that pre-dated Sleepy’s but which involved many of the same issues addressed in that decision. Arguments proffered to the court in this dealership litigation directly attack the conclusions the SJC put forth in Sleepy’s. Regardless of how these arguments are resolved in the dealership litigation, this will all end up in the SJC’s lap again, as the losing side will be sure to challenge lower courts’ decisions. Finally, we have advised dealers to act immediately to consult qualified counsel in order to review their operations and make the necessary adjustments. • As of now, it is imperative going forward that dealerships pay any 100% commission-paid employees $18 per hour, separate and apart from their com-
missions, 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 consider implementing an overtime approval process; and (3) always pay employees for all hours worked. Write clear, specific, detailed pay plans for each job position. Focus with clarity on the terms used in those plans (hourly rate, regular rate of pay, etc.). • We have also recommended that dealers should consider looking at what OT they paid to 100% commission paid salespeople since May 8 to the date when the pay plan was fixed using commissions and a recoverable draw and provide those salespeople a separate check for those OT hours, as dictated by the Sleepy’s ruling. In this manner, a dealership could potentially eliminate any liability associated with the new Sleepy’s rule issued post-May 8. www.msada.org
45th Annual NADA Washington Conference This year your MSADA delegation, along with over 500 franchised car and truck dealers and dealer association executives from across the country, hit our nation’s capital on September 15-17 to attend policy briefings and meet with Members of Congress to discuss key legislative and regulatory issues as part of NADA’s 45th Washington Conference. Every time we travel to DC for our annual NADA conference, it never ceases to amaze me just how insular their world is in the 202 area code. There is surely no place on Earth like it. That is why our visits with our elected officials are so important. They need to hear from their local businessmen and women – our member dealers – on a continual basis to fully grasp our importance to the local, state, and national economies. Whatever you may think of how partisan the politics are in DC, just multiply it by ten. Last year hyper-partisanship was at a high level, as the Congressional Democrats engaged in a strategy of total “resist” to anything President Trump proposed. This continues to today. We also had the opportunity in 2018 to witness firsthand the fevered pitch of advocacy for and opposition to the Judge Kavanaugh nomination to the Supreme Court. Fortunately this year we were able to avoid Hurricane Impeachment by a week as well as environmental activists shutting down traffic throughout the city. Interesting times indeed. Putting aside the cynicism and skepticism about the ability of getting anything done positively for our nation, when in DC, it is always important for dealers to remember why they are there and to stay in their own lane regarding those issues important to our industry. We have been successful over the years by avoiding the very fights everyone else seems to want to jump into, regardless of the relevancy to their own industries. When in DC, we step gingerly into the sandbox others use as a WWF smack down pit. This year’s MSADA delegation included MSADA President Chris Connolly
Massachusetts Auto Dealer
SEPTEMBER 2019
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The Roundup (Herb Connolly Motor Group); MSADA Vice President Charles Tufankjian (Toyota of Braintree); our state NADA director Scott Dube (Bill Dube Hyundai); MSADA Board Member from Essex County, director Don Sudbay (Sudbay Auto Group); our Next Gen rep for this year Chad Bouchard (Bouchard Auto Group); MSADA staff attorney Peter Brennan; and me. Dealers from across the country use the annual Washington Conference to meet with their Senators and Representatives to discuss various legislative and regulatory issues affecting dealership operations. This is also a chance for dealers to see their legislators in the halls of power where they conduct their business, in contrast to the usual district functions like chamber of commerce rubber-chicken luncheons and ribbon cuttings. NADA, as part of the festivities, in addition to policy briefings and other NADA related materials, schedules politicians and commentators to provide attendees with a flavor of the current situation in Washington and what may be in store for us prospectively, especially with the presidential election looming on the 2020 horizon. This year’s crop of speakers included Sen. Tim Scott (R-South Carolina); Rep. Anthony Brown (D-Maryland); Rep. Garret Graves (R-Louisiana), who addressed the Next Gen attendees; Deputy U.S. Trade Representative C.J. Mahoney; EPA Administrator Andrew Wheeler; National Highway Traffic Safety Administration counsel Jonathan Morrison, who served previously as counsel for the California New Car Dealers Association; and Pulitzer Prize-winning investigative journalist Bob Woodward. Once on Capitol Hill, we engaged in dealer dialogue on such issues as mandatory stop-sales of used vehicles with open recalls; the effect of trade tariffs on vehicle manufacturing, costs, and sales; advocacy for the passage of the US-Mexico-Canada Trade Agreement; and repeal of the federal excise tax on the sale of heavy-duty trucks. Unfortunately, due to the legislative schedule, during our two days of meetings in DC we conferred with staff members SEPTEMBER 2019
only for Reps. Stephen Lynch (D-South Boston), William Keating (D-Bourne), Jim McGovern (D-Worcester), Joseph Kennedy III (D-Brookline), Katherine Clark (D-Melrose), Lori Trahan (D-Westford), and Richard Neal (D-Springfield), and Sen. Ed Markey (D-Malden). We are familiar faces for them all, as we make the effort to sit down with them regularly back home in Massachusetts as well. Rep. Neal is chairman of the powerful House Ways and Means Committee, and Rep. McGovern chairs the House Rules Committee, which controls the flow of legislation and amendments to bills. I want to express my gratitude and appreciation to our Association dealers who made the trek to DC. Moving forward, we need to keep in mind that for two days we were a group of small businessmen who, on behalf of their fellow dealers back home, gave up time from their dealerships and families to fly to Washington to discuss issues important to their stores and making sure the economy remains progressing in a positive direction. Back home, however, we are an association of 427 members, whose dealerships employ on average 60 men and women, and who are responsible for almost 20 percent of the Commonwealth’s retail economy. As we ask dealers to get more engaged in contacting their Congressmen and local legislators, we ask that you not be shy and let others carry the load. All dealers - big and small, domestic makes and foreign are in the same boat. If we give the members of Congress a free ride and do not engage them on the issues, they will think we have no problems. The same is true when we are fighting for or against certain laws on Beacon Hill. In the future, please heed the call from your Association to contact your elected officials when such an issue arises. There always exists a great need to go before our elected officials and inform them of our concerns and desires. Without our input, our esteemed members of Congress, if left to their own devices, could find a way to pour more gasoline on the fire.
Massachusetts Auto Dealer www.msada.org
Columbus Day Work Rules The Columbus Day holiday, celebrated this year on Monday, October 14, is considered a restricted holiday and has certain permit and premium pay rules: • A dealership that operates on Columbus Day is required to pay most employees at time and one-half their regular rate so long as work is actually performed on the holiday. (Due to the error in the Grand Bargain, this holiday remains at 1.5x pay.) • An employer may not require an employee to work on this holiday nor may it punish or penalize an employee for choosing not to work. • If the dealership is going to be open prior to Noon on the day, a local permit is required. Massachusetts law does not recognize “paid holidays.” In other words, if an employee does not work on a legal holiday, there is no requirement that he or she be paid for the holiday. If, however, an employee does work on this legal holiday, Massachusetts law requires that the employee be paid at least time and one-half his or her regular rate. In addition to complying with state holiday laws, a dealer must also comply with his/her own policies. If your Employee Handbook or past practice says that the day is a “paid holiday,” then you must pay employees for that day even if it is not a regularly scheduled workday. Further, if an employee works on one of these days, the employee would be entitled to holiday pay for the day plus the additional premium pay for the hours worked on the holiday, or another day off with pay, if the handbook so provides. Thus, dealers should review their holiday pay policies to ensure that they accurately reflect their actual practices.
Beau Angus MacNash Congratulations to our editorial coordinator Tom Nash and his wife Catherine MacDonald, our former colleague, on the birth of their first child, a boy, Beau Angus MacNash, on August 29, weighing in at 9 lbs, 2 ozs., and 20 inches. Better start saving now – college is not getting any cheaper. t
MSADA
www.msada.org
Massachusetts Auto Dealer
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LEGAL
MSADA
By Joseph W. Ambash and Jeffrey A. Fritz
Sleepy’s Help On The Way? On September 6, 2019, Governor Baker submitted a bill to the Legislature entitled, “An Act Making Appropriations for Fiscal Year 2019 to Provide for Supplementing Certain Existing Appropriations and for Certain Other Activities and Projects.” While the bill focuses largely on budgetary and tax issues, it includes legislation that could help fix the problems the Massachusetts Supreme Judicial Court created in Sullivan v. Sleepy’s LLC. As drafted, the Act would remedy these problems prospectively and likely retroactively as well. It is unclear whether the Act ultimately will become law. However, it shows, at the very least, the governor, at the MSADA’s and other entities’ urgings, recognizes both (1) the importance of 100% commission pay plans as a means of motivating salespeople to sell, for the mutual benefit of themselves and the dealerships for which they work, and (2) the manifest injustice the Sleepy’s decision would impose on Massachusetts dealers who relied, for almost two decades, directly or indirectly on the Department of Labor Standards’ Opinion Letters, which publicly advised employers that so long as commissions at least equaled (1) Massachusetts minimum wage for all time worked up to forty hours, and (2) 1.5x minimum wage for all time worked over forty hours in any workweek, they were in compliance.
The Prospective Fix If enacted, the Act would add an exemption to the Massachusetts Overtime Law for “an inside salesperson who is a commissioned employee who satisfies either the requirements of sections 207(i) or 213(b) (10) of the federal Fair Labor Standards Act [“FLSA”].” Section 207(i) of the FLSA is the “inside sales” or “commission-paid” exemption whereby, in essence, so long as (1) the employee works for a “retail” dealership, (2) the majority of the employee’s compensation is by commissions, and (3) the employee is paid at least $10.89 for all hours worked in any week in which s/he SEPTEMBER 2019
works over forty hours, the employee will be exempt from overtime pay. (Of course, they would still have to receive at least Massachusetts minimum wage, currently $12 per hour for all hours worked.) Section 213(b)(10) of the FLSA similarly exempts from overtime pay any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles or trucks for a “retail” dealership. The new legislation also would exempt any such employees from the Massachusetts Blue Laws’ requirement of premium pay on Sundays and holidays. In short, if this legislation were to become law, you could continue to pay your employees, including your salespeople, on a 100% commission basis, without any requirement of separate and additional overtime compensation. In other words, it would render the Sleepy’s decision moot on a going-forward basis.
The Retroactive Fix If enacted, the Act also would give employers an affirmative defense to claims based on Sleepy’s for alleged prior “violations.” An affirmative defense is one the employer must plead and ultimately prove by a preponderance of the evidence. In essence, if an employer can prove, by a preponderance of the evidence, that “it acted in good faith in conformity with and in reasonable reliance on any written administrative interpretation of the department or of an agency of the commonwealth which has or had at the time the authority to interpret, regulate, or enforce said law,” that employer would not be subject to liability or punishment for any violation. Like the prospective fix, this defense also would apply to alleged violations of the Massachusetts Blue Laws under Sleepy’s. Assuming this legislation were to pass, MSADA members likely would have a leg up in establishing good faith reliance, given the seminars, publications (including these articles and bulletins), and compliance programs it offers its members.
Massachusetts Auto Dealer www.msada.org
The Status The Act currently remains referred to the House Committee on Ways and Means, which has been its status since September 9, 2019. Where it goes from there, if anywhere, remains unclear.
Sleepy’s Litigation Update As of this writing, at least 66 class actions have been filed against Massachusetts employers, largely auto dealers, since May 9, 2019, based on the Sleepy’s decision. Motions to dismiss have been filed in a number of them (and no doubt will be filed in others), arguing the Sleepy’s decision should apply prospectively only, not retroactively, given the clear injustice that would result in the event of retroactive application. These motions to dismiss are pending with the Superior Court, and the issue should reach the Appeals Court and/or the Supreme Judicial Court next year. If you haven’t made a change yet to your 100% commission pay plans, you should do so immediately. The most conservative approach, for the time being, is to pay your salespeople minimum wage and overtime, with an altered commission rate. At the very least, however, you must ensure you pay, separate and apart from commissions, 1.5x Massachusetts minimum wage for all time worked over 40 hours in any workweek, as well as any Sunday and/or certain holiday hours. t
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
California Love Lost By Peter Brennan, Esq. MSADA
Staff Attorney In a long-awaited action, the Trump administration recently escalated its fuel economy skirmish with the state of California by revoking the Golden State’s unique ability to regulate vehicle tailpipe emissions. The move was expected to happen at some point, after being foreshadowed by President Trump since he took office, but it has still sent shockwaves through the industry and media (at least for a day or two until the impeachment circus came to town). Depending on your news source and prejudices, the move is either an assault on the climate, the state of California, the concept of states’ rights, and the automobile industry, or a common sense move to reign in a renegade, would-be sovereign state that has gone too far in pushing its environmental solutions on the country to the detriment of automobile manufacturers and the car-buying public. A brief history: In 1967, Congress enacted the Air Quality Act of 1967, which expressly preempted most states from adopting separate new vehicle emissions standards. However, Congress explicitly allowed California to continue adopting and enforcing its own vehicle emissions standards through a waiver of preemption. In 1970, Congress amended the Clean Air Act and codified California’s exemption as Section 209 of the Act. In 1977, Congress amended the Clean Air Act and added Section 177, which allows other states to adopt California’s vehicle emissions standards if the state adopts the standards in full with no changes, among other requirements. The states that adopt California’s standards are sometimes referred to as “Section 177 States”, and Massachusetts is
one of twelve such states. In 1990, California adopted zero-emission vehicle standards mandating that a certain percentage of the fleets automakers manufacture for sale in California be ZEVs. Congress later granted the state a waiver, in Section 209(b) of the Clean Air Act, for the ZEV standards, which has become known as the “ZEV Mandate”. In 2012, California adopted new greenhouse gas (GHG) emissions standards and updated the ZEV Mandate, receiving a waiver from the Environmental Protection Agency (EPA) on such in 2013. Ten states, including Massachusetts, have adopted California’s ZEV requirements, and they are known as “ZEV Mandate States”. Other than California and Massachusetts, the Section 177 states, with the non-ZEV mandate states in italics, are Colorado, Connecticut, Delaware, Maine, Maryland, New Jersey, New York, Oregon, Rhode Island, Vermont, and Washington. In order to comply with the ZEV Mandate, 4.5% of a manufacturer’s model year 2018 vehicles must be ZEVs or a mixture of ZEVs and Plug-in Hybrid Electric Vehicles (PHEVs). This rises incrementally each year to 22% for model year 2025, with a minimum of 16% being ZEVs (hybrids cannot account for more than 6% percent of the total). The stated goal of the mandate is that, by 2025, ZEVs will represent 15% of all new vehicle sales. Consequently, Massachusetts has committed to having 300,000 EVs on the road in Massachusetts by 2025. Since January 2018, 12,350 ZEVs have been sold in the Commonwealth, with PHEVs accounting for a little under half of that total. To reach the 2025 target requirement, over 285,000 ZEVs will need to be sold in the Commonwealth in the next fiveplus years. The current ZEV Mandate awards credits to a manufacturer when a ZEV is “delivered for sale”, meaning that each respective manufacturer’s credit percentage is determined based upon the delivery of the vehicles to franchised dealers, not when the vehicles are actually sold at retail to the driving pubwww.msada.org
lic. Your Association, along with the state dealer associations from the non-California ZEV states, previously has submitted letters to CARB arguing against this counting method. There is widespread concern that automobile manufacturers will simply dump unwanted ZEV-compliant vehicles on dealer lots. In 2016, the California Air Resources Board (CARB), which sets the standards that other Section 177 states must follow, declined to amend the regulations to change the credit-generation mechanism. The waiver was withdrawn by the Trump Administration through a combination of final regulations issued by the National Highway Traffic Safety Administration (“NHTSA”), codifying a single national fuel standard and a related action by EPA withdrawing the previously granted waivers based on the new NHTSA regulation. In announcing the withdrawal of California’s waiver, Secretary of Transportation Elaine Chao stated, “Today’s action meets President Trump’s commitment to establish uniform fuel economy standards for vehicles across the United States, ensuring that no State has the authority to opt out of the Nation’s rules, and no State has the right to impose its policies on the rest of the country.” In response, California now leads a group of twenty-three states, plus the District of Columbia, in a lawsuit filed in federal district court against Ms. Chao, NHTSA, the Department of Transportation, and others, seeking injunctive relief to declare the NHTSA regulations unlawful. The lawsuit, which Massachusetts has joined, was filed the day after the NHTSA regulations and waiver revocation were announced and is likely to reach the Supreme Court at some point, although a timeline is tough to predict. The future is uncertain, but the end is nowhere near. 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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2019
NADA Washington DC Conference
Whenever there is something to talk about that affects the entire nation, people find the best place to gather is in a place where their voice is best heard. Typically, that place is close to the seat of the federal government. For By Jeff Breeze a few days in September, it was auto dealers that came to gather in Washington, DC, to discuss the state of the industry and chart a path forward at NADA’s annual Washington Conference and Congressional fly-in. Massachusetts’ franchised auto dealers were represented on Capitol Hill by MSADA President Chris Connolly, Massachusetts NADA Director Scott Dube, MSADA Directors Don Sudbay and Charles Tufankjian, Chad Bouchard, MSADA staff attorney Peter Brennan, and MSADA Executive Vice President and General Counsel Robert F. O’Koniewski. More than 450 NADA members gathered at the JW Marriott for a conference on September 16 and 17. The event also included Capitol Hill visits, speeches by politicians and regulators, a reception at the International Spy Museum, and an open house at the NADA Legislative Office.
The Next Generation
Monday’s schedule began with a NextGen program focused on getting young, new attendees up-to-speed on NADA’s legislative priorities. Reuters correspondent David Shepardson opened by providing insight into key policy issues that proved central to the conference: trade and tariffs. After NADA’s legislative affairs team instructed the group of 65 NextGen attendees on how to be successful advocates for the retail auto and truck industry, attendees put their new skills to the test by holding mock Congressional meetings. Rep. Garret Graves (R-Louisiana) urged dealers to “demand better behavior out of your members of Congress… demand productivity, demand agility, and demand responsiveness.” Bouchard, who was there as Massachusetts’s NextGen dealer, said, “The rest of the group that was there was part of the MSADA board. My program was for aspiring dealers under 40; it is a great experience, and you get to meet a lot of good car dealers. We met some of the congressmen and state reps and learned about the politics that are going on that impact our industry. It is always good to be in the know and to be able to support the whole dealer body.”
Trade Talks Top Agenda Trade was the main policy issue that ran throughout the first day of the conference, specifically, the introduction of legislation to implement the United States-Mexico-Canada Agreement (USMCA). President Trump’s threat to impose tariffs of up to 25% on imported automobiles and auto parts was also targeted as a top legislative priority facing dealers. “We asked the legislator’s staff for their support on the USMCA,” Connolly said. “We think that’s important, and more importantly, we think that it is something that Congress can get together on and come to an agreement to pass before the end of the year. The craziness SEPTEMBER 2019
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MSADA success of future U.S. trade policy hinges on successful implementation of USMCA, Mahoney said. “We can get the trade stability you want, and we want, if we can get USMCA across the finish line.”
Open Recalls and Closing Loopholes Earlier this year, U.S. Senators Richard Blumenthal (D-Connecticut) and Ed Markey (D-Massachusetts) introduced the Used Car Safety Recall Repair Act. The bill proposes that no vehicle can be sold when there is an open recall notice on it that has not been directly addressed. While this seems like an issue that deserves to be addressed, the way the legislation is currently written is overly broad and needs to be refined. At this point, the bill is stuck in committee, but there is a chance that it will be appended to a greater transportation bill in November. The primary issue is that there is no distinction between safety-related and non-safety recalls – for example, a recall notice for an airbag sticker that should be affixed to a visor versus an open recall for a flawed and potentially lethal airbag that has not been replaced. “We’re all in agreement that some things are not safe and that there should be a law passed at the federal level to prevent people from selling cars with dangerous open recalls,” Connolly said. “Currently there is not any law that prevents a dealer from selling a used car with any open recall. There needs to be a law that closes that loophole. At the same time, we’re saying do not vote for this bill the way it is, because it is too far far-sweeping, and it does not distinguish between a legitimate safety recall and any other recall. Go back and figure out a different bill, or make changes to this and amend it, and then fix the problem. That is your job as legislators.” of the election starts to ramp up in 2020, and we think that there will be very little across-the-aisle support. The rhetoric gets to be so fever-pitched during an election year. It is so polarized right now, and everyone feels that it is a zero sum vote. The implication is that if it is good for you, it is bad for me, and there is no way it can be good for both of us. We think this one bill is good enough for both of them as long as everyone does not attach their own agenda items to it.” The USMCA legislation was the main topic of conversation during Monday’s conference lunch, as Deputy U.S. Trade Representative C.J. Mahoney called on the assembled dealer advocates to bring up the agreement with their Members of Congress. Mahoney touched on the threat of China tariffs, but while those negotiations may be at the forefront of many auto dealer’s minds, the
Dropping the Truck Excise TaxXXXX A repeal of the 12% federal excise tax (FET) on heavy-duty trucks continues to be a legislative priority. Modernize the Truck Fleet is a coalition leading the effort to repeal the 102-year-old FET and identify viable funding alternatives. The FET was a big priority when The American Truck Dealers (ATD), which is part of NADA, and the Truck Renting and Leasing Association hosted legislative fly-ins in June. The FET on trucks was established in 1917 as a means to help the government fund the American effort during World War I. Now it is the only excise tax on vehicles in the country, and depressed sales of commercial vehicles would certainly be improved by its repeal. “It is making it prohibitive for people to buy a new truck,”
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RACE TO THE FINISHConference NADA Washington paigns over the last two years. The session featured a live interactive demonstration of Phone2Action’s digital advocacy platform that got the room of dealer advocates to send over 100 text messages to members of Congress in just two minutes.
Shaken Not Stirred
O’Koniewski said. “Companies are leaving older trucks on the road that are not as environmentally friendly and not as fuel efficient or safe as the new trucks. Removing that excise tax should spur investment in new trucks, which would be better for the environment and obviously better for business.” However, the tax does bring in $3 billion annually that goes to the highway fund to keep the country’s roads drivable. O’Koniewski said that, with vehicles migrating away from gasoline, the entire way that the fund is supported needs to be revised. While he places the onus of figuring out the means to the legislators, it is a use tax based on mileage that he envisions being part of the overall solution in the long-term. “The highway fund needs to be less dependent on gas and diesel sales anyway. We need to figure out a way for everyone to start paying for the highways, bridges, and infrastructure more than just a gas tax and this excise tax,” Connolly added. “We need to find a way to replace that $3 billion in a more fair and equitable way that is sustainable because as we move to better fuel-efficient vehicles and electrification, the people who drive electric cars are going to need to pay for the roads and bridges too, because they still use them.”
The Cutting Edge of Advocacy Monday’s official conference business ended with two breakout sessions: NADA’s Chief Regulatory Counsel for Environment, Health, and Safety led attendees through the current federal regulatory issues affecting dealerships, including finance, tax, privacy, telemarketing, trade, labor, and website accessibility. In the next room, NADA Digital Director Abram Olmstead headed up a second breakout session focused on the increased participation in state, local, and even regulatory advocacy camSEPTEMBER 2019
The martini glasses start getting filled quickly when your event is in a space that houses James Bond’s Aston Martin DB5. The welcome reception for the Washington Conference was held at the newly relocated and revamped International Spy Museum. NADA members enjoyed spectacular views of the U.S. Capitol and the Washington Monument from the rooftop terrace, tasted exciting international food options, and got special access to three floors of the largest collection of international espionage artifacts.
The Clock is Ticking The second day of the conference kicked off with a breakfast hosted by NADA PAC. “We are in the eleventh hour,” said Donovan Bertsch, chairman of NADA PAC. “We cannot take today for granted. It is up to you to push for what you want for your business.” That sense of urgency continued in the comments by NADA President Peter Welch, who noted that while NADA has tallied up “a string of legislative victories over the last few years, we still have a full plate. There is a lot of static over the horizon.”
The Corridors of Perception “If you think we can shape perception of dealers, then you are in the right place,” 2019 NADA Chairman Charlie Gilchrist said. “The reality of our industry is that we must communicate when we go to the Hill.” Gilchrist spoke about how dealers need to shape and sometimes even change public perception of the industry among Congress, the media, communities, and customers. Louisiana truck dealer Jodie Teuton, chairwoman of the American Truck Dealers, again called on conference attendees to join commercial truck dealers, dealer association executives, and the Modernize the Truck Fleet coalition in supporting legislation that would repeal the federal excise tax on heavy-duty trucks and trailers.
Many Sides, Many Stories The Tuesday morning session closed with voices representing multiple perspectives with two regulatory officials, two con-
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MSADA gressmen, and a journalism legend. Author Bob Woodward, EPA Administrator Andrew Wheeler, National Highway Traffic Safety Administration Chief Counsel Jonathan Morrison, Sen. Tim Scott (R-South Carolina), and Rep. Anthony Brown (D-Maryland) all spoke at the morning session. Sen. Scott described their topics as “the good, the bad and the ugly” of the current policy agenda and political environment in Washington DC. Brown and Scott agreed that there was only a limited amount
of time left on the legislative calendar to get anything done before the campaign season distracted Congress. That’s why it was important for the NADA member advocates to be in DC telling Members of Congress how they are doing and what they could be doing better. “We love to hear stories [about policy impacts], and the automotive sector is full of good stories,” he said. Pulitzer Prize-winning investigative journalist and bestselling author Bob Woodward ended the morning by telling stories of leadership that he has collected over his career. Notably he mentioned, that although he did not realize it at the time, President Gerald Ford displayed the greatest leadership traits when he put the good of the country over politics and pardoned Nixon. “Presidents should ask: What’s the next stage of good for the majority of the people in this country and what’s the strategy to get there,” Woodward said.
Under the Dome
Tuesday afternoon was spent with dealers from across the country meeting with representatives from their states. Over 200 meetings occurred, and the Massachusetts contingent spent time with representatives for most of the state’s congressmen, including Rep. Richard Neal (D-Springfield), Rep. Jim McGovern (D-Worcester), Rep. Joseph Kennedy III (D-Brookline), Rep. Lori Trahan (D-Westford), Rep. Stephen Lynch (D-South Boston), Rep. Bill Keating (D-Bourne), Rep. Katherine Clark (D-Melrose), and Sen. Markey. “A lot of this stuff has to be face to face. We need to remind them how big a part of the economy we are - 20% of the retail, 25,000 employees - and we need to get that stuff in front of them fairly regularly or else it is easy for them to forget,” Dube said. “It’s almost like Groundhog Day,” Dube added. “We go down every year and talk about some of the same issues, year after year. We have a very good relationship with our delegation. We do not always have 100% agreement, but we feel like they do listen to us and we feel like we have an opportunity to shape their opinion about how these thing affect people back home.” Bouchard, who had participated in last year’s conference as well, found the time productive, and that the points that they made were being heard by the congressional staffs. “We hit on the same four topics as we did last year, and talking about these things multiple times you could see that the people we talked to remembered and understood the importance of our points,” Bouchard said. “I think it goes a long way that we are reiterating the importance of them understanding the significance of these bills and issues to our industry.” “One must always remember that accurate information usually sways policy,” O’Koniewski added. “Wrong information can lead to irreparable bias on a legislator’s end. We need to remember that their actions can harm or help us, and hopefully ‘true’ facts can prevent bad law. That is the real battle.” t
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FASB Delays Implementation of New Lease Guidance Michael Cosgrove Principal, CPA, MSM, O’Connor & Drew
“Accounting Standards Update 2016-02, Leases” was issued in February 2016 with a proposed effective date for fiscal years beginning after December 15, 2019 (calendar year 2020) for non-public entities. However, on July 17, 2019, the Financial Accounting Standards Board (FASB) unanimously approved a proposal to defer the effective date of this standard for private companies for one year. Ultimately, this “new” effective date would be for January 1, 2021, for calendar-year private companies. The FASB plans to issue a new Accounting Standards Update during the 3rd quarter of 2019 addressing the delayed implementation. What are the purposes of the Leasing Accounting Standard? The primary goal of the lease accounting standard is to increase transparency and comparability amongst organizations. Under the current rules, organizations have the opportunity for what has been deemed “off-balance sheet financing” or operating leases. These leases, while they may have significant importance to potential users of the financial statements, only require a footnote disclosure. However, under the proposed leasing standards, many of those previously deemed “operating leases” will be required to be reflected on the balance sheet itself. What will my balance sheet look like? After the implementation of this accounting standard, the balance sheets will likely show an increase in long-term debt as well as long-term assets. However, there will also be an increase in the current portion of long-term debt as the next 12 months’ worth of payments will be shown as a current liability. As you progress through the lease terms, the current payments would reduce your existing liability while you would depreciate the capital asset. Will my income statement be impacted? The income statement will not be impacted by the end of the lease, but throughout the course of the lease some of the income statement amounts may vary compared to payments. However, if you elect to depreciate the capital asset over the lease period, then you should have similar results compared to if you had SEPTEMBER 2019
simply been expensing the monthly payments. What types of items may be leases? There are many different types of possible lease transactions, including, but not limited to, accounting software (DMS), telephone equipment, CRM software, other software, office space, facility space, additional parking lots, etc. It is important to note that there is an exemption for short-term (12 months or less) leases. However, the exemption does indicate that management must evaluate the likelihood of renewing subsequent years. At this point, there still is uncertainty surrounding tenant-at-will agreements with a real estate entity that is a related party (i.e., if the dealership owner owns the real estate associated with the property, but it is held in a separate LLC). As the specifics become available, we will keep you informed. What should I be doing now? Right now, dealers should be working closely with their accountants and their accounting office personnel (i.e., CFO, corporate controller, etc.). The office team should be compiling documents to provide an inventory of possible leases and working with the external accountants to determine the magnitude of each individual lease. I would recommend evaluating each individual lease and then looking at the materiality or the leases in the aggregate. Then, dealers should be discussing the provisions with their lenders and accountants to understand potential loan covenants that may be impacted through this accounting change. It is very possible that certain loan covenants will need to be adjusted or even reworded in order for an existing entity in good-standing to continue to be able to meet its minimum financial covenants. Lenders should be made aware, as early as possible in the process, that an accounting change is coming to the financial statements. If you have any questions about any of your possible leasing situations, please do not hesitate to contact me directly. I am happy to walk you through the process to help you identify possible leases and evaluate the possible dollar amounts that could be impacting your financial statements. t Michael Cosgrove joined the firm in 2007 and was promoted to Principal in 2017. He can be reached at mcosgrove@ocd. com or (617) 417-1120. He manages accounting, auditing, and tax services for a wide range of clients working on a variety of client engagements, including audits, reviews, compilations, and agreed-upon procedures. Cosgrove oversees both the tax and assurance components of his engagements. He is an active participant in various administrative functions including recruiting, interviewing, onboarding, etc.
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NEWS NEWS the NEWSfrom from Around from Around Around the Horn Horn
NEWS the Horn
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Hyundai Dealers Issue UMass Med School Grant On September 20, Hyundai Hope On Wheels, a 501(c)(3) non-profit organization supported by Hyundai and its U.S. dealers, announced a $300,000 Hyundai Scholar Hope Grant to the University of Massachusetts Medical School to continue its longstanding fight against pediatric cancer. The organization has committed $13.2 million to support 52 new doctor-researchers in their search for better treatment options and to improve care for children diagnosed with pediatric cancer. Dino DiPlacido of Route 2 Hyundai and Rusty Clifford of Herb Chambers Hyundai were among the local dealers who officially presented the Hyundai Award to Jason Shohet at the University of Massachusetts Medical School at a ceremony on September 23. September is Childhood Cancer Awareness Month and HHOW has launched its campaign theme for 2019, “Every Handprint Tells A Story.” Every 36 minutes a child is diagnosed with pediatric cancer impacting 15,000 young lives each year. Childhood cancer remains the leading disease-related cause of death among children. There are many handprints in the fight to find a cure. HHOW remains one of the largest funders to support medical institutions and efforts to develop pediatric cancer research in the nation. This year will reach $160 million in total lifetime funding since 1998 towards finding a cure. With this latest grant, the University of Massachusetts Medical School has received $1.4M in total grants since 2011 from HHOW. “For 21 years, Hyundai and its dealers have partnered with medical doctor research teams from the top hospitals and institutions from around the country in a quest to finally beat this disease,” says Scott Fink, Board Chair and Hyundai dealer owner, Hyundai of New Port Richey. “Hyundai’s contributions have helped to significantly improve childhood cancer cure rates to more than 80 percent. This is why every minute is precious and every second matters in the fight against pediatric cancer.”
During the event, children battling cancer who are being treated at UMass Memorial Healthcare, the clinical partner for the University of Massachusetts Medical School, will participate in the program’s signature Handprint Ceremony. Patients dip their hands in paint and place their handprints on a white 2019 Hyundai Santa Fe. Their colorful handprints on the official Hope Vehicle represent their individual and collective journeys, hopes, and dreams.
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NEWS from Around PROVIDENCE, RI
Identity Theft Ring Leader Pleads Guilty The leader of a multi-state identity fraud ring that bilked retailers, banks, and car dealerships of more than $1.3 million in Massachusetts and three others states pleaded guilty on September 19. Octavio Andres Difo-Castro of New York City admitted in U.S. District Court that he employed several individuals, including an Attleboro man, to open bank accounts and fraudulently receive financing with stolen information he purchased on the Dark Web. The ring bought automobiles, clothing, and electronic devices in Massachusetts, Rhode Island, Connecticut, and Pennsylvania using fake driver’s licenses, Social Security numbers, and other documents, according to prosecutors. Mansfield and Seekonk police assisted in the investigation. Difo-Castro pleaded guilty to one count each of conspiracy to commit wire fraud and conspiracy to access device fraud, two counts of aggravated identity theft, and 19 counts of wire fraud. An Attleboro man, Jason McDonald pleaded guilty in March 2018 to his role in the ring and was sentenced to 39 months in federal prison.
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Three other individuals, Reynaldo Martinez of Providence, Donald A. Wicklund of Pawtucket, Rhode Island, and Patricia Peralta of Patterson, New Jersey, have also pleaded guilty. Martinez and Wicklund received prison sentences, and Peralta is awaiting sentencing. Another defendant, Yenesia Pujols of Providence, is awaiting trial on one count each of conspiracy to commit wire fraud, conspiracy to commit bank fraud, aggravated identity theft, and Social Security fraud, and three counts of wire fraud. The investigations were led by the U.S. Secret Service, with the assistance of the Social Security Administration, the U.S. Postal Inspection Service, police from East Providence and Warwick, and the Rhode Island State Police.
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David Rosenberg Purchases Galos Dealerships After accusing his largest investor of financial misconduct, David Rosenberg was terminated as chief executive of Prime Automotive Group, a company built by Rosenberg and his colorful father, the late Ira Rosenberg. Rosenberg’s dismissal was mentioned in a GPB Capital news release announcing that Kevin Westfall, an executive with 40 years in the automotive industry and chairman of GPB Capital’s automotive strategy division, had been appointed interim chief executive, and that Rosenberg had been “relieved of his duties.” This news only seemed to free Rosenberg to take his next step in the automotive business as he does not appear to be sitting still after his ouster from the dealership chain. Following the announce- David Rosenberg ment of the firing, Saco dealership owner Mark Galos announced that Rosenberg and business partner Mike Gibel have purchased Frank Galos Chevrolet and Cadillac, founded by Galos’ father. David Rosenberg was the chief executive of one of the nation’s largest auto dealership networks, with over 25 locations in Massachusetts, Maine, New Hampshire, and Vermont. In July, he filed a lawsuit in a Massachusetts superior court that accused GPB Capital Holdings, which has a majority stake in
Prime Automotive, of running a Ponzi scheme by using new investment money to pay returns to existing investors. The lawsuit was triggered when GPB Capital failed to pay Rosenberg $5.9 million on July 1 as part of its buyout of Rosenberg’s stake in a fund that is behind the purchase of dozens of dealerships. In a statement, Rosenberg’s attorney, Jack Pirozzolo of Sidley Austin in Boston, said the action “represents further retaliatory action taken against David Rosenberg for reporting evidence of financial misconduct at GPB. Company leadership not only ignored Mr. Rosenberg’s initial call for corrective steps within GPB’s legacy auto dealership operations, they attempted to silence him and other members of the Prime Automotive Group team when misconduct was discovered. Now they have wrongfully terminated Mr. Rosenberg for acting responsibly and ethically and in the best interests of the dealerships and GPB investors, and for asserting his rights to certain payments that GPB was contractually obligated to make to him by July 1 – but which Mr. Rosenberg has not received to date.” After purchasing its majority stake in Rosenberg’s dealerships, GPB Capital asked Rosenberg to run GPB Prime. But Rosenberg has said the heads of the investment firm tried to push him out earlier this year after he alleged that the investment group was making moves to inflate dealership values and profits beyond what they really were. He also accused GPB Capital of creating fake contracts and adopting deals that benefited the heads of the investment fund rather than investors.
BURLINGTON
Planning Board Member Resigns Over Herb Chambers Lawsuit John Kelly, who has held elected office in Burlington for more than 40 years, abruptly resigned from the planning board at the end of September. Kelly said he made the decision because the board had been marginalized by a lawsuit between the town and the Herb Chambers Porsche dealership. The planning board granted a special permit to Herb Chambers to split the Porsche dealership from the company’s Audi dealership. The permit, however, contained a provision that would have capped the number of trade-in cars the dealership could sell. That clause, the Herb Chambers land court lawsuit said, would “entirely upend” the profit margins of the dealerships. In August, the company emailed town meeting members, saying the planning board’s stipulation violated the intent of a zoning change
narrowly approved by town meeting last year over the planning board’s recommendation to not approve the new rules. “I cannot, in good conscience, be part of this deliberate marginalization, diminishment, and undermining of one of the most professional and hardest working departments in town,” Kelly said at the end of the planning board meeting. “Consequently, I have decided this is my last Planning Board meeting.” Planning board chair Barbara L’Heureux asked Kelly to take a few days to reconsider his decision. Kelly responded by saying he intended to deliver his resignation later to the town clerk’s office as he left the meeting that night. A spokesperson for Herb Chambers previously declined comment because of the pending litigation. t
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In Memoriam IN MEMORIAM
Donald Edward “Don” Rodman, 88 Don Rodman, founder of Rodman Ford in Foxborough and the Rodman for Kids charity, passed away on August 27 at home surrounded by his family. He was, by his own admission, lucky in love and rich in family and friends. He hung out with sports legends and captains of industry and attained a measure of celebrity status himself as both a business icon and one of the region’s most prolific and hardworking philanthropists. He rose from hardscrabble beginnings to reach heights of personal and professional success. Rodman was born into poverty during the Great Depression and raised by a single mother in a Jewish enclave of Dorchester near Franklin Park. He learned the value of hard work out of necessity, hawking newspapers in Mattapan Square with his younger brother Gerry to help put food on the table. By 16, he was working as a full-time mechanics helper in an automobile garage on Dorchester Avenue. After a four-year enlistment in the U.S. Army, he married Marilyn Cipol and went to work for Cote Motors in Mattapan as a mechanic and later a salesman. Rodman would go on to work for two more dealerships as a part owner before he caught the eye of the Ford Motor Company, which offered him a small dealership in Foxborough center on Mechanic Street in the spring of 1960. Rodman jumped at the offer, and then recruited his brother, Gerry Rodman, who left an Air Force career to join the fledgling business. While being told he was crazy for running a car dealership in the outer suburbs, Rodman Ford Sales was profitable from day one. With Don at the helm and Gerry’s persuasive skills as primary salesman, the dealership thrived, moving to its familiar location on Route 1 later that same year. Rodman subsequently acquired a Lincoln-Mercury franchise in Foxborough and opened a second on Route 44 in Raynham, established the Rodman Health & Fitness Center, and launched the technology-driven Rodman Collision Repair Center and Rodman Car & Truck Rentals. While Gerry settled and became a fixture in Foxborough, Don and Marilyn put down roots in Canton, where they raised their five sons and where Marilyn embarked on a long career in public service on the Canton School Committee and as a supporter of the arts. SEPTEMBER 2019
“Nothing was ever handed to him,” noted longtime Canton Selectman John Connolly. “Some people get rich or famous and forget where they came from. Don Rodman never forgot. Never, ever, ever.” Rodman’s penchant for giving stretched back to his earliest years at Rodman Ford, when he took a portion of the advertising budget and put it into a private account to assist residents in need. He entrusted a local priest to disburse the funds anonymously as he saw fit, knowing “all too well what it felt like to be that family and the difference it could make.” Over the years, under the leadership of his brother, the small charitable account would transform into the Foxborough Discretionary Fund, which has provided everything from Christmas gifts to mortgage assistance for thousands of residents in need. Rodman established a similar fund in Canton and turned to Canton Citizen publisher Beth Erickson to administer it. Similar to his arrangement with the priest in Foxborough, Rodman entrusted Erickson to identify the recipients and facilitate the donations. He only had two conditions: It had to be completely anonymous and, when possible, he wanted to know the recipients’ stories. “There was a letter from a woman dying of cancer whose husband wanted to take time off to be with her but the bills were piling up,” Erickson recalled. “Don Rodman’s help made that happen. There was more than one family who would not have had Christmas without him. There were two veterans with PTSD who needed help. There was a Canton couple facing a mountain of medical bills after their child was severely injured in a car crash, and a man who was dying and wanted to see his father from England one last time but could not afford to pay for his trip.” “So many people, so many stories,” Erickson continued. “And none of them knew it was Don Rodman who stepped up each time. Each note was addressed to ‘Dear Anonymous Donor.’ One said, ‘I don’t know who you are but you have changed my life forever.’ Many said they could never repay him for his kindness but would never forget it. And there were those who said that being helped by a complete stranger had made them want to ‘pay it forward’ and help someone else in need. In the end, that is all Don Rodman ever wanted.”
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MSADA Rodman frequently leveraged his own business and marketing acumen to amplify the impact of his charitable efforts. This approach that helped transform a once failing bike-a-thon into one of the most successful single-day fundraising events in the country — an event, now bearing his name, that has raised over $143 million for dozens of Massachusetts nonprofits serving at-risk children. Approached in 1991 and asked to help raise money for the Robert F. Kennedy Children’s Action Corps, Rodman responded by launching the Rodman Ride for Kids, the well-known bicycle event which has since raised more than $143 million for a range of nonprofits working with at-risk children. The Rodman Ride is just one of several affiliated charities targeting youth under the “Rodman for Kids” umbrella. Others include a theater appreciation program, a car donation program, a holiday party, and the appropriately named “Disney for Kids,” which since 1992 has provided 2,400 at-risk kids with all-expense paid trips to Disney. Amy Branco Rossman, executive director of the Rodman for Kids organization, characterized her late boss as a true philanthropist and a champion for children: “Don liked to explain that to be a real philanthropist you have to do more than just give — you have to inspire others to give as well. And through his decades of work on countless boards and committees, and nearly 30 years of running his own charitable organization, Don influenced more giving that we can imagine.” The Rodman Ride for Kids brought honorary chairmen from the local sports community, including Larry Bird, Bobby Orr, and Rob Gronkowski to help advance the cause. He counted all three among his friends, with a shared set of values and a genuine desire to help others. Gronkowski, the former star tight end for the defending Super Bowl champion Patriots and a longtime fan favorite, also referenced “mutual respect” when
reflecting on his relationship with Rodman. “Don was a great guy,” Gronkowski said. “He was a big fan of mine, which made it even more special to work with him. He started the Rodman Ride in 1991 and has raised over $140 million for kids in and around Boston. It’s really something special. Even just to see what he has built over [at Rodman Ford], and he’s done such a great job with his charity work, too. The legacy he has left behind is just surreal.” Patriots owner Robert Kraft, whose stadium and adjacent Patriot Place development is located across Route 1 from Rodman Ford, also reflected on Rodman’s legacy. “Don Rodman was a brilliant businessman, a passionate philanthropist, and an iconic community leader,” Kraft said. “His combination of skills and traits are so rare in today’s world. It was an honor and privilege to know him and call him a true friend. My family and I send our condolences to the entire Rodman family. He leaves a lasting legacy and will be missed by so many.” t
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Patrick Manzi
NADA Senior Economist
Boyi Xu
Economist
SEPTEMBER 2019
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NADA MARKET BEAT
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TRUCK CORNER
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Dealers Must Prepare for a New Generation of Trucks 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.
SEPTEMBER 2019
Summer has turned to Fall, and a new season signifies changes in our truck industry. Despite projections that we are entering a softening economy, the demand for truck technology is only increasing. Our industry is moving forward at lightning speed, and another autonomous truck has officially been tested on public roads. In September, Americas Commercial Transportation Research forecasted that the commercial vehicle market is slowing down, and we will soon see a drop in build-rates for heavy-duty trucks and trailers. But that has not stopped progress, and customers are ready for the next generation of trucks. In fact, Japanese manufacturer UD Trucks recently released a level 4 autonomous truck that simulated the transport of sugar beets on a stretch of public road in Japan. In June, Starsky Robotics tested a fully unmanned autonomous truck on a nine-mile stretch of public highway in Florida. And recently, Volvo unveiled its all-new Class 8 electric tractor at its customer center in Virginia. Production is set to begin next year. Our industry’s landscape is evolving, but I want to emphasize that our core foundation remains. ATD is constantly examining how U.S. truck dealerships are changing and how our businesses will look in the future. I would like to again reference ATD’s study, “The Commercial Truck Dealer Future Landscape,” and highlight how it projects our growth up to the year 2027. We are clearly seeing the advent of new power sources, but the change to the dealer model is not drastic; it will not upend our ecosystem. The study also shows that truck dealers will continue to sell combustion engines well into the future! We have yet to see how new technology will impact customer demand and how new laws will affect our regulations. No matter what new technologically advanced trucks come out, dealers will be ready to sell them. More than ever, truck dealers and their employees are adjusting to this changing landscape while meeting our customers’ needs. All dealers should prioritize best practices, including recruiting, hiring, and retaining the best employees for our stores and emphasizing that in this business training never ends. While the demand for truck technology rises, dealers must prepare for the next generation of trucks and educating our customers about them. Massachusetts Auto Dealer www.msada.org
Report from Washington
ATD was proud to participate in the 45th annual Washington Conference in September, where the power of individuals taking action together on behalf of the entire industry was a common theme throughout. In the opening session, I called on conference attendees to join commercial truck dealers and dealer association executives, as well as The Modernize the Truck Fleet coalition, in supporting legislation that would repeal the federal excise tax (FET) on heavy-duty trucks and trailers. The FET on heavy-duty trucks was first imposed in 1917 to help pay for our military efforts in World War I. This tax on most new heavy-duty trucks, tractors, and trailers has grown from 3% to 12% today. The FET is the highest excise tax on a percentage basis that Congress levies on a product, and it discourages the sale of cleaner and safer trucks. The tax often adds as much as $22,000 to the price of a new heavy-duty truck. This is in addition to the nearly $40,000 in recent federal emissions and fuel-economy mandates that already make it harder for small businesses to afford a new truck. Additionally, the environmental and safety benefits of newer trucks are delayed when truck buyers and fleet owners cannot afford to purchase new equipment because of excessive taxes and/or burdensome regulations. The FET is a complicated and difficult tax to administer, and truck dealers, who are responsible for collecting and remitting the tax, incur considerable costs when navigating IRS regulations that apply to this tax. Today’s heavy-duty truck, unlike a 1917 truck, is highly customizable with many options that add to these challenges. H.R.2381 was introduced by Reps. Doug LaMalfa (R-California) and Collin Peterson (D-Minnesota) on April 29. The bill currently has 25 bipartisan cosponsors and was referred to the House Ways and Means Committee. Sen. Cory Gardner (R-Colorado) introduced S.1839, which is similar to H.R.2381, on June 13. This legislation was referred to the Senate Finance Committee. Members are urged to cosponsor H.R.2381/S.1839 to spur new truck sales, promote the deployment of cleaner, safer trucks, and modernize the truck fleet. t
NADA Update
By Scott Dube
Capitol Hill Recap 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. We are back from another successful Washington Conference, where your fellow dealers’ footsteps echoed in the halls of our nation’s Capitol. I hope you will take a moment to read our cover story this month and reach out to your U.S. representatives to make sure they know where you stand on the issues. A heartfelt “thank you” to our hardworking Association staff and the dealers who took the time to make the trip to D.C. See you next year!
Proposed Safeguards Rule Changes Are Not the Right Path Forward for Dealers By Charlie Gilchrist, 2019 NADA chairman Across a number of industries, including the retail auto industry, the data landscape is changing drastically, and the volume of data our dealerships collect is growing exponentially. As dealers, we rely on this data to serve our customers, whether it’s assisting with finance transactions or alerting customers for service. The data we maintain are at the heart of our businesses and the core to our customer relationships and reputations. With this in mind, dealers have always taken significant steps to protect our customers’ private information, and that will remain an essential priority for us going forward. But recently the Federal Trade Commission issued a notice of proposed rulemaking to amend the Safeguards Rule. This would require dealerships to, among other things, adopt specific, minimum technological standards to protect the data we collect. Some of these requirements include encrypting customer information, multi-factor authentication, and hiring a chief information security officer (CISO) to oversee a dealership’s information security program and report to its board of directors. While employing these measures may be desirable, they do not exist in a vacuum. There has been no demonstration that all of them are necessary to protect customer information. Not only would these prescribed measures add enormous compliance costs—an average per dealership one-time,
up-front cost of $293,975 and an average annual cost of $276,925—they also fail to account for business size, risk, and sensitivity of the data collected by entities required to comply with the rule. The existing Safeguards Rule has afforded dealers the flexibility to employ data safeguarding tools that make sense based on the nature of our respective businesses. In contrast, the FTC’s proposed changes would dictate that all dealerships across the country implement all items on a long list of security tools and requirements. The cost of these changes might be easy for a megabank like Citibank to absorb, but as we’re all aware, most dealerships are small, Main Street businesses. We don’t have the same resources. While we all support protecting customer information and dealers should proactively review with their vendors the adequacy of their security measures, the FTC’s proposed onesize-fits-all rulemaking is not the right approach. Indeed, Automotive News made just this point in an editorial published earlier this month. NADA is hard at work on this issue. In addition to submitting detailed comments to the FTC, we are leading comprehensive educational sessions with key reporters and media outlets, including Automotive News. Our priority is opposing the proposed sweeping amendments to the Rule and highlighting the significant impact they would have on dealers if adopted. NADA’s goal is to obtain a regulatory approach that protects sensitive data appropriately but still allows dealers across the country to focus on our core business: serving customers and meeting their needs.
Always Be Prepared for Dealership Emergencies By Edie Wines, NADA Academy Instructor Perpetual preparedness may seem a bit redundant, but I discovered recently that there is a big difference in preparing for an impending disaster and keeping those preparations up to date. As I wrote this, my family and I were on the run from Hurricane Dorian. We made the decision to escape when the forecast showed Dorian’s most likely path of making landfall in our area as a Category 3 hurricane. It is an arduous process to look around your home and decide what to take with you assuming what remained might not be there on your return. It is a decision that should not be made in the heat of the moment. This experience got me wondering about auto dealerships. How prepared are you for a catastrophe? You may not be in a hurricane, earthquake, or tornado zone, but no one is ex-
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NADA Update cluded from the potential devastation of fire. Could you carry on and rebuild in the event of a partial or total loss of your physical property? Here are a few things you can do now to prepare: 1. If you are one of the few dealerships with a DMS server on location, be sure that backups are performed daily and that the most recent copy is taken off location or stored in a fireproof safe. 2. Take advantage of the digital archiving features of your DMS or a third-party provider for all documents such as deal paperwork, repair orders, parts tickets, and purchase invoices. 3. Scan and digitally store all vendor contracts, lender agreements, OEM agreements and addendums, and tax returns. 4. Store online banking and credit card access log-ons and passwords in a safe location (i.e. safety deposit box). 5. Make digital copies of all titles and supporting documentation, such as powers-of-attorney, reassignment forms, and odometer statements. If the potential disaster is foretold (i.e. hurricane), move all titles, MSOs, and supporting documents to a safe location. While replacements can be obtained, the time and expense to do so is extensive and can delay insurance reimbursements and sales of vehicles. 6. Make a list of all items you should take with you. This is not a decision to be made while scrambling to secure your property and assuring the safety of your employees. 7. Have a plan for notifying employees of the status of the dealership operations and for checking on their well-being. Many dealerships will use their Facebook page for posting the status and for allowing employees to check in. 8. Make sure there is a video of the entire dealership property showing furnishings, equipment, and improvements. Update the video if there are additions and/or remodeling. Your insurance company should also have recommendations for mitigating your business losses. Do not wait until the hurricane spaghetti computer models crisscross your location to get prepared. Initiate these processes now and continuously update the digital information. Think about what you would need to sustain and quickly rebuild your business should the worse-case scenario occur. Keep in mind that you may not have advance warning to do so. If you are perpetually prepared, you should feel some comfort in knowing that your business will go on.
Distinguished Speaker Series Announced Our most popular leadership-focused education format is back! Five dynamic keynote speakers at the NADA Show, February 14-17 in Las Vegas, will go beyond the traditional education topics to discuss key insights around Leadership, Dealership Culture, Team Building, and Personal and Business success. Here is the 2020 Distinguished Speaker Series: How to Focus on What Matters Most Friday, February 14 • 2:30-3:30 p.m. SEPTEMBER 2019
MSADA Erik Qualman, Best-Selling Author and Keynote Speaker: Leaders in this digital decade are made, not born. Using practical research, Qualman showcases the five habits that drive success and happiness for employees, partners and customers in today’s WiFi world. Qualman reveals new techniques (including Positing-It-Forward, being FLAWsome and other insights) to positively impact and transform your organization. The Hero Effect®: Creating a Culture of Heroes at Every Level Saturday, February 15 • 10:30-11:30 a.m. Kevin Brown, Motivational Keynote Speaker and Author: Kevin shares ideas, strategies, and principles that will inspire and equip participants to show up every day and make a positive difference. At the heart of Kevin’s message is a simple, yet powerful philosophy for life that drives every thought, every action, and ultimately every result we achieve both personally and professionally. Motivate your team to reach beyond what is required and do something remarkable! The Shift: Building Next-Generation Enterprises for a Next-Generation Workforce Sunday, February 16 • 10:30-11:30 a.m. Seth Mattison, Internationally Renowned Workforce Strategist and Management Trendspotter: Mattison offers a fresh perspective and call to action for leadership mavericks and trailblazers at all levels to begin the work of dismantling the rigid fixed structures holding organizations back from thriving in the new world or work. The Power of Appreciation: Inspire Success, Engagement, and Perspective Monday, February 17 • 10:30-11:30 a.m. Mike Robbins, Expert in Teamwork, Leadership and Emotional Intelligence; Author; Former Professional Baseball Player: Appreciation is one of the most powerful yet overlooked aspects of successfully motivating and empowering people and teams. When individuals and teams put more attention on what is working, instead of focusing on problems and perceived weaknesses, they thrive. Through this program, which is based on the key principles of his book “Focus on the Good Stuff,” Robbins illustrates how appreciation impacts productivity, morale, and success. Success: It’s on You Monday, February 17 • 1-2 p.m. Ross Shafer, Six-time Emmy Award-winning Comedian, Writer, Network TV Host, and Best-selling Author: Too often our team members stall their own growth (and yours) until they get validation and encouragement from their leaders. Shafer will inspire your team to take charge of their own assignments, even when nobody is around to guide them. They will learn to be accountable and responsible to and for themselves. t
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