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FIRST CLASS MAIL US POSTAGE PAID BOSTON, MA PERMIT NO. 216
August 2013 • Vol. 26 No. 8
The official publication of the Massachusetts State Automobile Dealers Association, Inc
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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 Paul Fellows Administrative Assistant/ Membership Coordinator pfellows@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: pfellows@msada.org Postmaster: Send address change to: One McKinley Square, Sixth Floor Boston, MA 02109 Quarter Page: $450 Half Page: $700 Full Page: $1,400
Back Cover: $1,800 Inside Front: $1,700 Inside Back: $1,600
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 Bank of America, 2 BlumShapiro, 22 Boston Herald, 32 Lynnway Auto Auction, 20 Nancy Phillips Associates Inc, 22 O’Connor & Drew, P.C., 31 Southern Auto Auction, 19 ADVERTISING RATES Inquire for multiple-insertion discounts or full Media Kit. E-mail tnash@msada.org
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The official publication of the Massachusetts State Automobile Dealers Association, Inc
TA B L E O F C O N T E N T S
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FROM THE PRESIDENT: Good News for All THE ROUNDUP: State’s FY2014 Budget Remains Unsettled TROUBLESHOOTNG: Texting Customers? Not Without Consent ACCOUNTING: Are You Ready for a Sales Audit? AUTO OUTLOOK INSURANCE: Child’s Play or a Potential Legal Problem? SOUND OFF: A Defense of the Dealer Franchise System
16 COVER STORY: Supersizing Volkswagen
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NEWS From Around the Horn FINANCIAL SERVICES: A Blueprint for Business Succession Planning NADA UPDATE: ‘Accelerate’ Your Business NADA MARKET BEAT
Join us on Twitter at @MassAutoDealers
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Massachusetts Auto Dealer AUGUST 2013
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from the PRESIDENT
by Scott Dube, MSADA President
Good News for One is Good News for All In the ongoing fight to grow our industry, we should celebrate success
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s I’ve been relaying in previous columns, much of the job as President of MSADA is keeping up with the torrent of information about our industry, whether it’s local, statewide or national. It can make for pretty depressing reading. We face any number of challenges on a daily basis, and the fights are long and hard. Of course, on Beacon Hill we are still dealing with the aftermath of the “Right to Repair” situation from last year. It’s being expertly handled by our lobbying team and Executive Vice President Robert O’Koniewski as they navigate the waters of another legislative session. Then there’s the ongoing battle with Tesla motors and their attempt to eviscerate Massachusetts franchise law. The Natick Town Council voted to allow the electric automaker to be able to operate out of the town’s mall, but the bylaw change will require a two-thirds majority vote at a Town Meeting. But as we wait to see what happens on Beacon Hill and the sales for this month we wanted to highlight some good news. Kelly VW is opening the largest VW dealership in North America, and that’s a feat that means great things for Kelly employees, the Danvers community and our industry in Massachusetts. These are the kinds of stories that we need to be bringing to the table when we are discussing issues such as “Right to Repair” or Tesla attempting to subvert a time-tested business model. Franchised auto dealerships are pillars of every community in Massachusetts, and their success is a part of those
communities’ ecosystems. It’s those kinds of facts that make what sometimes appear to be esoteric fights about bylaws real for legislators and the public. There are 50 men and women behind every dealership, who have pride in where they work and love for the community they live in. Any initiative that will hurt our ability to do business will end up hurting communities just the same, whether it’s decreased opportunity for us to grow our the curtailment of the ability to retain the business we already have. As the summer comes to a close, we have a great opportunity to think about how we’re going to get our message across. Dealer Day on Beacon Hill, which will occur on October 2 at the Omni Parker House, will be a great chance to get together and strategize about the challenges we’re facing. I look forward to seeing our Beacon Hill team and Bob laying out best practices and answering your questions, but most of all I look forward to getting together and sharing success stories like that of Brian Kelly and his 400 employees, and talking about how those kinds of things are made possible in this Commonwealth. In the meantime, I hope you enjoy the waning days of Summer, and as always please continue to reach out to me with any ideas about how we can continue to bring our positive, pro-business message to everyone
“Franchised auto dealerships are pillars of every community in Massachusetts, and their success is a part of those communities’ ecosystems.”
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A ssociate M ember D irectory Name
MSADA BOARD Barnstable County Gary Beard, Dick Beard Chevrolet
Berkshire County Brian Bedard, Bedard Brothers Auto Sales
Bristol County Richard Mastria, Mastria Auto Group
Essex County William DeLuca, Woodworth Motors John Hartman, Ira Motor Group
Franklin County Jay Dillon, Dillon Chevrolet
Hampden County Jack Sarat, Jr., Sarat Ford
Hampshire County Bryan Burke, Burke GMC
Middlesex County Chris Connolly Jr., Herb Connolly Motors Scott Dube, Bill Dube Hyundai
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 James G. Boyle, Tuck’s Trucks
NADA Director Don Sudbay Jr., Sudbay Motors
OFFICERS President, Scott Dube Vice President, Chris Connolly, Jr. Treasurer, Jack Madden, Jr. Clerk, Charles Tufankjian
Contact Telephone
ADESA Boston Chris Carli (508) 270-5403 ADP Dealer Services Maria Trezza (973) 404-4466 Albin, Randall & Bennett Barton D. Haag (207) 772-1981 American Fidelity Assurance Co. Tom Trudell (413) 885-5477 AutoRaptor (RAL) Howard L. Leavitt (401) 421-6533 Bank of America Merrill Lynch Lawrence Corrente and Nancy Price (781) 534-8543 Bellavia Blatt Andron & Crossett, PC Leonard A. Bellavia, Esq (516) 873-3000 Blum Shapiro John D. Spatcher (860) 561-4000 Boston Globe Mary Kelly (617) 929-8373 The Boston Business Advisory Group Paul Cuomo (781) 681-1501 Vincent Saccone (781) 681-1519 Burns & Levinson LLP Paul Marshall Harris (617) 345-3854 Construction Management & Builders, Inc. Kate Sullivan (781) 246-9400 CVR Scott Herbers (714) 684-2614 DealerDOCX Merchon Brower (585) 451-3322 DealerTrack Ernest Lattimer (516) 547-2242 Downey & Company James Downey (781) 849-3100 EasyCare New England Inc. Mike Douglas (770) 246-9724 Ethos Group, Inc. Drew Spring (617) 694-9761 F & I Resources Jason Bayko (508) 624-4344 Federated Insurance Chris Welch (724) 766-6666 First Citizens Federal Credit Union Joe Ender (508) 979-4728 Fisher & Phillips LLP John Donovan (404) 240-4236 Joe Ambash (617) 532-9320 Grant Thornton LLP Alan Oslomowski (508) 926-2200 GW Marketing Services Gordon G. Wisbach Jr. (781) 899-8509 Huntington National Bank John J. Marchand (781) 326-0823 Key Bank James Q. Moretti (781) 558-5132 Leader Auto Resources, Inc. Brendan J. Murphy (518) 878-6341 Lynnway Auto Auction Jim Lamb (781) 596-8500 M & T Bank John Federici (508) 699-3576 MetroMedia Energy Timothy Teevens (800) 828-9427 Micorp LLC Ryan Kim (508) 832-9816 Mid-State Insurance Agency James Pietro (508) 791-5566 Mintz Levin Kurt Steinkrauss (617) 542-6000 Murtha Cullina Thomas Vangel (617) 457-4000 Nancy Phillips Associates, Inc. Nancy Phillips (603) 658-0004 O’Connor & Drew, P.C. Kevin Carnes (617) 471-1120 Performance Management Group, Inc. Mark Puccio (508) 393-1400 Ray-Jurgen Richard Thibadeau (860) 585-0111 R.L. Tennant Insurance Agency, Inc. Walter F. Tennant (617) 969-1300 Resource Management Group J. Gregory Hoffman (800) 761-4546 Reynolds & Reynolds Marc Appel (413) 537-1336 Robinson Donovan Madden & Barry, P.C. James F. Martin, Esq. (413) 732-2301 Samet & Company John J. Czyzewski (617) 731-1222 Schlossberg, LLC Michael O’Neil, Esq. (781) 848-5028 Sentry Insurance Company Eric Stiles (715) 346-7096 Shepherd & Goldstein Ron Masiello (508) 757-3311 Silverman Advisors, PC Scott Silverman (781) 591-2886 Southern Auto Auction Tom Munson (860) 292-7500 Sovereign Bank Richard Anderson (401) 432-0749 Target Dealer Services Andrew Boli (508) 564-5050 TD Auto Finance BethAnn Durepo (603) 490-9615 TD Bank Michael M. Lefebvre (413) 748-8272 Wells Fargo Dealer Services Christopher Peck (508-314-1283) Wicked Local Media Massachusetts Jay Pelland (617) 757-5571 Zurich American Insurance Company Steven Megee (800) 443-4513
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The Roundup
State’s FY2014 Budget Remains Unsettled — Unemployment Rate Up Again by Robert O’Koniewski, Esq. MSADA Executive Vice President Just when you thought the Commonwealth’s $34 billion budget for the current fiscal year that began July 1 was put to bed, it turns out the state’s business community, including the growing high tech sector, is upset about a new sales tax on computer and software services. As part of the $500 million tax plan legislators approved to earmark new revenues for transportation and education projects, the so-called “tech tax” is expected to generate $161 million in its first year. (This $500 million amount was well short of the $800 million the governor said was needed, at a minimum, to meet our immediate transportation needs, prompting a gubernatorial veto that the Legislature easily overrode last month.) Now with the business community up in arms about the new tax, however, key legislators and the governor are beginning to re-examine the tax’s scope and implementation. Any adjustment, or even outright repeal, of the tech tax will jeopardize the $500 million total in new tax revenues state government needs to meet its various commitments for the fiscal year, thereby leading to yet another round of tax hike discussions (but certainly not spending cuts) between the Legislature and the governor. Readers may recall the Legislature rejected the governor’s call for $2 billion in new net revenues, which included an income tax hike and a sales tax cut, and settled for the more modest $500 million, with no new income or sales tax rate increases. As the controversy of the tech tax swirls and the governor pledges to convene a tax summit in the fall to discuss the business community’s outcry, one key Senator offered up a bit of candor not usually heard at the State House: “It [the tech tax] AUGUST 2013
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certainly, probably needed more vetting than it got. It was out there for six months; the governor proposed it; the Ways and Means committees…tried to narrow the definition, but it’s not an easy area of activity to clearly define…I think it might have been too complex a plan to try to put through as part of that package.” In the meantime, as the governor returned to work to confront the tech tax battle after an almost one month vacation at his western Massachusetts estate, the state’s unemployment rate saw yet another increase in July, to 7.2% from 7.0%, with virtually no recorded job growth. The Massachusetts consumer confidence index also recorded a substantial plunge in July.
New Endorsement – American Fidelity Assurance Your Association is pleased to announce a new endorsement agreement with a life and health insurance company that will help you and your employees save money and manage expenses – American Fidelity Assurance Company (AFA). American Fidelity, which has been an MSADA associate member since 2011, is an industry recognized leader in providing services and benefits, such as voluntary supplemental health insurance products (cancer, disability, life, and hospital indemnity) and tax deferred annuities to employees, including those at your dealerships. AFA currently serves a number of Massachusetts dealerships and is partnered with 43 state dealer associations across the country. Please look for our materials in the coming weeks as we begin to roll out our partnership with AFA.
MSADA Dealer Day on Beacon Hill – October 2 Our annual “Dealer Day on Beacon Hill” will be held on Wednesday, October 2, in Boston. We are asking our member dealers and their key employees to convene at the Parker House Hotel in Boston beginning at 10:00 a.m. in preparation for walking up to the State House to meet with their representatives and senators to discuss those issues in the automotive industry that dealers are presently confronting. We will have an issues briefing and a keynote address to get dealers in a proper frame of mind to provide legislators a dealer’s perspective on your economic footprint locally and throughout the state in the aggregate. For those dealers we know who will be attending, we will schedule your legislative appointments for you. It is extremely helpful to our lobbying efforts for legislators to see their constituents face to face and receive a perspective they don’t have in the normal course of their activities. No one knows your business better than you. That knowledge needs to be conveyed to your legislators in an environment and manner they understand, hence our Dealer Day on Beacon Hill. Please circle the date and plan on visiting Boston on October 2.
New Associate Member – DealerDOCX We welcome a new associate member to the MSADA family – Dealer DOCX – a business records management company. DealerDOCX (company website: www. dealerdocx.com) will help dealers turn their deal jackets, repair orders, parts tickets, and other paper files into secure, electronic documents. Dealers will be able to safeguard customer and dealership information with DealerDOCX’s protected, permissionbased system allowing dealers ultimately to sift through thousands of business documents in seconds not days. DealerDOCX will pick-up, scan, and convert dealership paper into electronic PDF files stored in its secure cloud-based
document management system. Bottom-line: DealerDOCX will help you free up filing space and regain room in your dealership so you can focus on selling and servicing cars. As its slogan says: “Move Metal, Not Mountains of Paper.” Key contacts for the company are Michael DeCarlo (mike@clouddocx. com; phone (585) 869-6089) and Merchon Brower (merchon@dealerdocx. com; phone (585) 451-3322).
Finance Rate Caps – Déjà Vu All Over Again The more immediate regulatory bane of dealers’ existence (and their dealer associations like MSADA and NADA) seems to be the Consumer Finance Protection Bureau, an independent federal agency in its infancy created by the Dodd-Frank Wall Street reform law. On a weekly basis we see comments from CFPB officials and industry observers regarding dealers’ consumer finance practices and regulatory proposals designed to “clean up” alleged abuses. Presently CFPB has launched a number of attacks on dealer compensation, both directly and through back-door regulatory efforts. This is not a new issue to us in Massachusetts, however. From 2005-2012 your Association successfully beat back various legislative efforts to place a ceiling limit on the amount a dealer could earn for arranging financing for customer purchases. Based on the California Car Buyers Bill of Rights law that passed early in the last decade, legislation filed here included such proposals as setting a $150 ceiling on dealer compensation per financed deal; instituting a mark-up cap of 2.75 percent on the amount loaned; and, most egregious of them all, prohibiting any dealer mark-up over the rate set by the finance company. Dealers must keep an eye on this fight in Washington as the CFPB regulators try to get around the dealership exemption we successfully fought for in the Dodd-Frank law. NADA has been aggressively confronting the CFPB attacks and has rolled out a three-pronged approach to attack the www.msada.org
CFPB’s legal, factual, and policy flaws and false assumptions. This will be a major topic of conversation at the upcoming NADA Washington Conference, September 18-19.
Senate Bill Could Ground Rentals for “Minor” Recalls On July 30 the U.S. Senate Commerce Committee, by voice vote, passed S.921, the Raechel and Jacqueline Houck Safe Rental Car Act of 2013. The bill would regulate businesses with fleets of five or more rental vehicles (including dealerships that provide loaner vehicles) and subject these cars and trucks under any open recall to be grounded within 24-48 hours. NADA, the American International Automobile Dealers Association, and the National Association of Minority Automobile Dealers argued in a letter to the committee that all recalls do not require the grounding of a rental vehicle. The groups stressed that the bill is overly broad and gives large rental car companies a competitive advantage over smaller ones. “Dealers do not want unsafe, recalled vehicles on the road,” said NADA President Peter Welch. “But the legislation fails to recognize the difference between major and minor recalls. Some recalls require immediate action, but others may be as minor as missing or incorrect info in an owner’s manual.” Other examples include a clarification of the description of the air bag system in the owner’s manual; a seat belt chime not sounding if the driver buckled his seat belt before starting the vehicle; incorrect date of manufacture on the Federal Certification Label; improper airbag caution label adhesion on the driver’s sun visor; and inaccurate spare tire size and cold inflation pressure information on the placard. All of these could potentially ground vehicles under S. 921. Welch noted that the large multinational rental companies supporting the bill have fleets of hundreds of thousands of vehicles and can easily comply with the bill because grounded vehicles can be replaced with other models. Small dealerships with just a few loaner vehicles for their service customers Massachusetts Auto Dealer AUGUST 2013
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The Roundup do not have this option, added Welch. Prior to the vote, the Committee chairman, Sen. Jay Rockefeller (D-West Virginia), and the ranking minority party member, Sen. John Thune (R-South Dakota), acknowledged that “more work needs to be done” on the bill before the Senate takes further action. Sen. Barbara Boxer (D-Calif.), a sponsor of the bill, said she wants to “work on perfecting amendments going forward.”
Detroit Bankruptcy – Have We Seen This Movie Before? On July 18, the city of Detroit, Michigan filed for bankruptcy protection, becoming the largest municipality to do so in our country’s history. Leading the charge for the bankruptcy filing was emergency city manager Kevyn Orr, an attorney who was appointed by the state’s Republican governor, Rick Snyder. The thrust of the filing is an attempt by Mr. Orr to reduce the $3.5 billion in unfunded pension liabilities of the city’s municipal employees as a first step in restructuring Detroit’s overall long-term debt of $18 billion. In a recent Wall Street Journal interview, from which I quote: “Mr. Orr said he based his analysis of pension obligations in part on his experience in the 2009 bankruptcy of Chrysler Group LLC. He said Chrysler was able to argue successfully that the need to cut dealerships trumped protections for dealers under state laws. The bankruptcy code ‘says that federal laws should be supreme’, Mr. Orr said. ‘We managed to overcome some pretty strong arguments.’” Readers may recall that, in order to avoid the termination protections afforded by state franchise laws, which include appropriate due process provisions and financial remuneration, on May 14, 2009, Chrysler filed with the U.S. bankruptcy court a motion to reject dealer agreements for 789 dealerships across the country, to be terminated effective June 9 of that year. In Massachusetts 12 Chrysler dealers were included on the rejection list. AUGUST 2013
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As a result of the federal court’s exertion of absolute power over state franchise law in the Chrysler proceeding, as well as in the subsequent GM bankruptcy, hundreds of family businesses and thousands of their employees experienced an economic upheaval that not even the most severe economic downturn could inflict on them – the elimination of multi-generational businesses and well-paying jobs with a stroke of the pen. It will be interesting to see how Detroit and her taxpayers and retirees ultimately make out, given Mr. Orr and the court’s past track record.
DealersEdge Webinars Are you taking full advantage of our weekly educational and training seminars provided to you through our partnership with DealersEdge Management Training? Are you receiving our weekly e-mails announcing upcoming webinars and registration information? If not, you are missing out on an incredible bargain that will add value to your employees knowledge and skills, and ultimately to the success of your stores. DealersEdge annually provides more than 45 live weekly webinars that feature timely, topical information delivered by an incredible roster of presenters that are experts in various fields. The live courses, and more than 100 pre-recorded webinars (and growing), are available to MSADA members in two ways. Members can elect to register for a live webinar or purchase a prerecorded course on an a la carte basis with MSADA’s member discount of $149 per course OR you can sign up for the MSADA VIP Season Ticket. For just $800 annually, a dealership can use the VIP Season Ticket to register up to 10 team members to access all programming, both live and recorded. That’s more than $30,000 worth of training for JUST $800! If you aren’t already, we hope you will consider this extremely cost-effective and time-saving method of training your management staff on the latest information in their area of expertise. If you have any
Massachusetts Auto Dealer www.msada.org
questions, please don’t hesitate to contact DealersEdge at 800-321-5312 or me at rokoniewski@msada.org. The upcoming schedule of webinars for the next several weeks is as follows: • September 5, 1:00 p.m. EDT – Russell Grant: Dealership Data Security in a World of More and More Third-Party Vendors. • September 12, 1:00 p.m. EDT – Brian Pasch, PCG Digital Marketing: Learn How Google Wildfire is Recasting Digital marketing Strategies for Auto Dealers. • September 19, 1:00 p.m. EDT – Author Chris Collins: The Millionaire Service Advisor – How One Advisor Struck It Rich by Learning How to “Collect Customers”. • September 26, 1:00 p.m. EDT – Paul Gillrie, the Gillrie Institute: How to Swim Safely with the DMS Sharks. • October 3, 1:00 p.m. EDT – Mark Rodriguez, Auto Client Care, Inc.: How to Improve Telephone Skills in Fixed Ops.
Our PACs - DEAC & NCDPAC We appreciate the contributions thus far received from our member dealers who have answered our calls for donations to our PACs. Each year MSADA expresses itself politically through NADA’s federal PAC, Dealers Election Action Committee (DEAC), and through our state PAC, the New Car Dealers Political Action Committee (NCDPAC). We depend on contributions from our dealers to keep these PACs strong, as we need to have an active voice in Washington and on Beacon Hill. Contributions to our PACs are an inexpensive insurance policy. Since by law we cannot use our membership dues or other association revenues for political contributions, the PACs help us to remain strong politically as we advocate for our dealers’ interests in the political process. If you have not yet given to the PACs this year, please contact me at rokoniewski@msada.org and we can make sure your contributions happen. Thank you.
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Texting Customers? Not Without Consent By Peter Brennan, Esq.
Staff Attorney, MSADA Recently your Association has come across an issue that may affect dealers who contact customers via unsolicited electronic communications such as text message, email or fax. Say a customer brings in a vehicle for routine maintenance and provides a cell phone number so that you can alert them when the vehicle is ready. Can you then use that cell phone number to later send the customer unsolicited offers, such as: “Dear Customer, at your last service visit we recorded the odometer of your 2008 Ford Taurus at 89,000 miles. As a loyal customer we will give you $3,000 off the MSRP on any 2013 Ford Taurus we have in stock. Please call 888-555-5555 for more information on our customer loyalty discount” ? The short answer: Not without the customer’s explicit written consent. While this specific example constitutes a bit of a gray area in the current law, we would ultimately advise against sending a customer such an unsolicited offer unless the customer had previously and explicitly assented to receiving such offers, as several recent cases regarding unsolicited text messages have resulted in multi-million dollar class action settlements. In May 2012, Lithia Motors settled for $2.5 million a class action lawsuit brought under the Telephone Consumer Protection Act (TCPA) for sending unsolicited text messages. Each member of the class was eligible for between $175 and $675, AUGUST 2013
depending on how many text messages the customer had received and whether they had attempted to opt out of receiving the messages. Ultimately, Lithia paid out roughly $400 per unsolicited text message. In similar cases brought under the TCPA, 20th Century Fox paid class members $200 per text message for a total of $16M for an unsolicited text letting customers know about the release of a new film on DVD, and Jiffy Lube agreed to a whopping $47M settlement for sending unsolicited text messages that advertised a “one-time offer” for 45% off an oil change to many of its customers. The current laws that apply to customer communications are the Telephone Consumer Protection Act (TCPA), the Controlling the Assault of Non-Solicited Pornography and Marketing Act (CANSPAM), the Junk Fax Prevention Act, as well as various Federal Communications Commission (FCC) regulations and interpretations. The TCPA bans unsolicited text messages that are sent using an autodialer unless (1) the customer previously gave consent to receive the message or (2) the message is sent for emergency purposes. This ban applies even if the customer has not placed their mobile phone number on the national Do-Not-Call list of numbers telemarketers must not call. The CAN-SPAM law supplements the TCPA and bans unsolicited “commercial” email messages that are sent to mobile phones, as these email messages may sometimes appear as texts on a mobile phone, and defines “commercial messages” as those that primarily advertise or promote a commercial product or service. This law does not ban “transactional or relationship” messages such as messages that provide information about an existing customer’s account or warranty information about a product they’ve purchased. Under the Junk Fax Prevention Act, unsolicited faxes may be sent to a customer
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once an “existing business relationship (EBR)” exists, so long as the customer has voluntarily provided the fax number to the business. Under all of the above-listed statutes, if a customer provides “prior express consent” to receive unsolicited communications, the business can send such communications without fear of legal reprisal. However, court decisions have diverged on the applicable definition of “prior express consent”. Some courts have looked to an old FCC interpretation that found sufficient consent given if a cell phone number was provided, while other courts relied on a more stringent interpretation of the phrase and awarded multi-million dollar class action payouts. In light of these rulings, the FCC published a new interpretation of “prior express consent” that will go into effect on October 16, 2013. Under this interpretation, prior express consent must be in writing, bear the signature (or electronic signature) of the person to be called or texted, list the phone number to which calls or texts may be made, and contain a clear and conspicuous disclosure informing the consumer that calls or texts will be made using an autodialer and that the person is not required to provide consent to receive such calls or texts as a condition of making a purchase. Whether courts will defer to the FCC’s interpretation of this statute remains to be determined. However, it is clear that dealerships should use caution and only send unsolicited electronic communications to customers if they have prior express consent to do so. If you require guidance or additional information regarding these rules, contact Robert O’Koniewski, MSADA Executive Vice President, rokoniewski@msada.org or Peter Brennan, MSADA Staff Attorney, pbrennan@msada.org, or by phone at (617) 451-1051.
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Are You Ready for a Sales Audit? By Lauren Carnes, CPA, MST
L auren C arnes is a P rin cipal at O’C onnor & D rew, P.C. in B raintree , M assachusetts . S he can be reached at lcarnes @ ocd . com .
As the Massachusetts Department of Revenue (DOR) makes an attempt to recoup lost tax dollars, the number of sales and use tax returns chosen for verification and audit are on the rise. The process begins with a simple Notice of Audit Appointment letter accompanied by an Information Document Request. The next step is a call to your CPA or trusted advisor to discuss the logistics of the exam, execute a Power of Attorney granting the DOR authority to deal with your advisor, and discuss areas of potential exposure. The pre-appointment work includes gathering and reviewing the following information: • Tax Returns • General Ledger • Charts of Accounts • Accounts Payable/Voucher Register/ Purchase Journal • Accountants’ Workpapers (Trial Balance/ Adjusting Entries) • Schedule of Operating Expenses • Accounts Payable Invoices; Leases; Contracts • Resale and Exempt Certificates • Detail of Depreciation Schedules • Copy of Sales and Use Tax Filing In my experience, the key areas currently being examined include the following: • Resale Certificates - Do you have a resale certificate from all vendors? Review all parts sales to customers claiming exemption from sales tax and determine whether or not you have proper documentation for these customers. If not, imme-
diately mail them a resale certificate and request that it be returned executed as soon as possible. The DOR will give you 60 days to provide them with an executed resale certificate or the sales become taxable. • Fixed Assets - Review depreciation schedules for all fixed asset additions and their corresponding invoices to see if sales tax or use tax was paid on all purchases in state or out of state purchases. • Demos - Are you self-assessing use tax on at least one? The amount of sales/use tax to be paid on a monthly basis should equal the Annual Lease Value x .003 x .625 (see MSADA Bulletin 2001-3). • Parts and Repair Sales - Policy work - if you are the end customer did you pay use tax on the parts used in this policy work - air filters, oil filters, etc. or are maintenance services considered part of the original purchase price of the vehicle that are offered free at the time the vehicle is sold? Other Free Maintenance - consider what items sales and use tax need to be paid on by the dealership if when originally purchased no sales and use tax was paid. • Rental vehicles - Review invoices received by vendors and verify whether or not they charging you sales tax on the rentals provided to customers; if not, you must charge the customer. • Office Supplies/Other Supplies/Miscellaneous Supplies - Review invoices and determine that items used in Service Department and/or Body Shop such as gloves, paper towels, wipes, glass cleaner, wheel weights, razor blades, polish pads, etc. all were taxed when purchased. Office supplies including business cards, tag system key cards, deal jackets, vehicle stock number - log book, inventory record book, key tag labels, all should be taxed when purchased. Items bought at BJ’s or Costco used by everyone should be subject to tax. • Advertising/computer subscriptionsSoftware and specialized service software should be subject to sales tax. This is a highly specialized area and somewhat new www.msada.org
- agents focus on “Cloud” services and subscriptions such as Autotrader.com and dealer on-line services that can be edited and/or modified for the dealership’s own situation. • Lease/Rental bills - Computer hardware and computer maintenance - sales tax must be charged on a monthly basis. You and your staff should perform a self-audit with respect to the items listed above and determine before the examination begins where your dealership might have some exposure prior to the initial appointment. The initial appointment is a lengthy meeting between the DOR agent, his/her manager, your controller and, in most cases, your CPA. This “conference” consists of going over your taxpayer’s rights, a detailed explanation of the entire audit process and then a discussion of the dealership’s accounting for each of the sales and use items tax listed above and how the agent would like to examine each one of them. A test period is agreed to by both parties. Finally, the agent will go through the information document request and an explanation of the sampling procedures he/she will use. The agent will conduct his/her examination of the records, and other information, at the dealership for a few days at a time for a period of anywhere from a six to nine months. The agent will generally examine all fixed asset purchases made during the period under audit, but normally only uses a test period for all other expenses from which he/she will then extrapolate results for the audit period. A report is provided at the end of the examination and the taxpayer and its CPA are given ample opportunity to dispute and negotiate the results. Proper planning, which includes taking steps to becoming sales and use tax compliant prior to an audit, i.e., now, can save you time and money should the DOR send you a Notification of Audit Appointment Letter.
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AUTO OUTLOOK
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Child’s Play or a Potential Legal Problem? By Steven Megee
Steven Megee is regional sales manager a t t h e F r a m i n g h a m R e g i o n a l O ff i c e fo r Z u r i c h N o r t h A m e r i c a C omm e r c i a l ’ s Programs & Direct Markets’ business unit. He can be reached at steve.megee@zurichna.com.
More dealers are installing playgrounds and play areas to keep small children busy while their parents are shopping for cars and trucks. Everything from train rides to large fully-equipped playgrounds are going up at dealerships across the country. While this can be a very customer-friendly thing to do and provide an advantage over the competition, be aware of the risks involved and build a safe play environment.
What are the risks? The Consumer Product Safety Commission (CPSC) calculates that about 200,000 children are treated in hospital emergency rooms as a result of playground-related injuries. Fifteen children actually die each year from injuries suffered in playground equipment-related incidents. Almost 60 percent of all injuries are caused by falls to the ground, so protective surfacing and elevation of the equipment are very important. Before installing one of these play areas, a cost-benefit analysis should be performed to determine if it makes good business sense to do so. Be aware that if you are involved in legal action as the result of an injury on your playground, your equipment and play area may be judged against nationally-recognized safety standards such as those published by the CPSC.
General safety guidelines Falls are responsible for the majority of injuries, so this is a good place to start talking about playground safety. The first AUGUST 2013
option here is to eliminate or minimize the fall hazard. Build or install only equipment that is close to the ground with very little vertical height. If this isn’t possible, then install equipment that is completely enclosed so that it would be extremely difficult for children to fall. If a fall exposure does exist, then additional precautions are necessary. Protective surfacing under and around all playground equipment is the most critical safety factor. It is important to install a surface that will absorb shock during a fall. Asphalt, concrete, grass and turf should not be used as a playground surface. Loose-fill material such as double
“It is also important to keep the issue of children’s security in mind when planning a play area in your store.” shredded bark mulch, wood chips, fine sand or pea gravel installed to depths specified by the CPSC (dependent on the height of the playground equipment) are the preferred surface materials. Fall zones are essential safety features. These areas, under and around equipment wherever a child might fall, should be covered with a protective surfacing material and be free of other equipment or obstacles. The CPSC recommends that stationary climbing equipment and slides have a fall zone extending a minimum of six feet in all directions from the perimeter of the equipment. Swings present special problems. Because of the dangers associated with them, it is recommended that you not include
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swings in your dealership’s play area. It is also important to keep the issue of children’s security in mind when planning a play area in your store. It is recommended that you only have one entrance and exit to the play area. Check with your dealership’s legal counsel to determine if state law allows you to post signage regarding specific rules and regulations pertaining to activity in the play area.
Other safety tips • Platforms or play structures more than 30 inches above the ground should include guardrails to help prevent falls. • Openings that are closed on all sides should be less than 3-1/2 inches or greater than 9 inches to reduce the potential for head entrapment. • Close all “S” hooks as tightly as possible and eliminate protrusions or catch points that can catch children’s clothing and cause strangulation incidents. • Eliminate or guard exposed moving parts that may present a pinch or crush hazard for small hands or fingers. • After installation, good maintenance is critical. Make frequent inspections of the equipment and repair unsafe items immediately.
Sources of help Once a decision is made to go forward and install a child play area that includes playground equipment, it is time to do some research. A Website titled “The National Program for Playground Safety” offers more information on how to build and maintain a safe playground. Their address is www. uni.edu/playground/. This site includes “A parent’s quick checklist” for evaluating a playground and information on the National Action Plan for the Prevention of Playground Injuries.
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Sound Off
MSADA
A Defense of the Franchise System By Maryann Keller I am honored to be here this afternoon and to share with you some of my thoughts about the benefits to consumers of the franchise system. I am also very happy to be able to provide a report to NADA on this topic. I truly do believe that there are consumer benefits to the franchise system . This is an issue that has captured media attention where the debate has been distorted by a lack of knowledge among journalists about the franchise system. Let’s examine why the franchise system – with independent owners selling and servicing new vehicles purchased at wholesale from the factory – offers significant consumer benefits versus a factory direct system of sales. One obvious benefit is the multitude of dealers among any given brand – even for some of the larger scale luxury brands like BMW, Mercedes, or Audi in major markets – that compete with each other in sales and service. Competition among same brand and competing brand dealers is the essence of free enterprise. Manufacturers set the MSRP, but dealers are free to adjust pricing based upon many factors that relate to their operations as well as local, regional, and national conditions. We often hear references to Apple and its fixed price model. Fixed prices work as long as demand exceeds supply, as Apple is now discovering as it stock drops due to competition and shifts in the marketplace. The marketplace, not the factory, determines transaction prices. For new and used cars, that is best facilitated by dealers on the ground interacting with customers every day. Consumers are free to shop for financing through Capital One, local credit unions or banks so they can always compare those terms against that offered to them by the dealer. Franchise dealers, through a multitude of lenders, are able to provide customers with loan terms that meet their budgets. In fact, data has shown that dealer indirect lending provides very competitive rates to that offered directly by lenders. While free market benefits accrue to car owners by having multiple vehicle service providers compete for their business, the greatest benefit in terms of service comes from access to a network of trained mechanics, specialized equipment and parts. A nationwide system of dealers for any given brand provides consumer peace of mind. Warranty and recall work can be done though any franchised dealer who is obligated to this work on behalf of the manufacturer he represents and to
make the repairs to their standards. The franchised dealer, through his or her presence in the local market and direct contact with the customer, often advocates with the auto company on behalf of the customer. When the seller and the auto company are one and the same, the customer is probably less likely to have complaints handled satisfactorily. The dealer is motivated to satisfy the customer while the factory is some distant entity that could be less responsive to an individual. The franchised dealer also provides the marketplace for trades – and for selling factory-certified used cars and offbrand vehicles as well. Any customer with a car knows that he can trade his vehicle for another – and the dealer does this as a convenience for the customer but ties up his capital in doing so. Even wealthy owners of Tesla will eventually want to have some assurance that they can get fair market value when they trade their car for something else, though now it appears that eBay is their outlet. Again, since service, among many other factors, influences resale value, the fact that the Tesla depends on availability of factory service could negatively impact value. I would like to end with these words from Alfred Sloan, the man who created the most powerful auto company of its time. As Sloan wrote in his memoir, My Years with General Motors: “From my point of view, the welfare of the more than 13,700 General Motors passenger car dealers in the United States, with their $2 billion or so of invested capital, must be a major concern of the corporation. The franchise system of distribution makes sense only if you have a group of sound prosperous dealers as business associates. I have never been interested in business relationships that are not of benefit to all concerned. It is my belief that everyone should hold up his end of the relationship and be rewarded accordingly. “ There is no doubt in reading the chapter on distribution and the dealers that Sloan valued dealers and credited them as partners in the company’s success. It’s a message that rings as true today as it did in his day.
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Automotive industry analyst Maryann Keller, managing partner at Maryann Keller & Associates LLC, recently made a presentation at the NADA/ATAE conference in Newport, Rhode Island. This is an excerpt of her remarks.
Do you have an opinion you want to share? Send submissions to tnash@msada.org.
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MSADA COVER STORY
Supersizing How one Massachusetts dealership set a new benchmark with the largest VW dealership in North America By Tom Nash Brian Kelly, owner of the Kelly Auto Group, is known for his attention to detail. In his pairing with German automaker Volkswagen, it appeared he met his match as plans for a new dealership included manufacturer-specified details all the way down to the rocks in the landscaping. With such high-touch planning, it might come as a surprise that the most notable detail was actually an accident: When Kelly Volkswagen officially opens its doors next month, it will be the largest VW dealership in North America, a harbinger of not just a renewed focus for the German automaker but growth for the Massachusetts dealership community and the North Shore area at large.
Expanding Success Kelly bought the dealership in 2010 and soon saw the potential for growth. Housed in a temporary facility for the past three years, Kelly Volkswagen has been a top seller. The new customer base was different from Kelly’s other Japanese and American brands, and it became clear the dealership needed room to grow. “I was exploring my options about where to put it, and during the three years that I owned it I could see the potential of VW and the quality of the products,” Kelly said. “I had no idea it would be the largest in North America. I wanted a building we could grow with as a company.” Still, the accolades continue to roll in at the temporary location on Route 114 in Danvers, across the street from the Kelly Infiniti dealership. Both these dealerships, along with four other Kelly facilities, recently placed as six of Automotive News’ Top 100 best automotive dealerships to work for in North America. Just two weeks prior, Director of Operations Brian Heney was named to a list of 40 under 40 “up-andcomers” in auto retailing by the same publication. “For us, our whole business is built around our employees,” Heney said. Heney said the new facility aims to provide a comfortable work environment. Technicians will have state of the art equipment, the break room has a big screen television, and the facility is “just incredible,” he said. “Our service department is as nice or nicer than some showrooms,” Heney said. “We’re putting everything that makes sense in the auto world into this Volkswagen store.” AUGUST 2013
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By the Numbers Old dealership size: 14,000 square-feet New dealership size: 53,000 square-feet 65 Kelly VW employees at the new store 23 service bays 100-car showroom
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Volkswagen
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Supersizing Volkswagen
Construction Building the 53,000 square-foot facility took about a year, with a few final details delaying the grand opening. But when VW brass from Germany came to do an initial survey, “They called me back and said it was the largest in North America. I was surprised. I didn’t know,” Kelly said. Incorporating the company’s new 2.0 image program, Kelly said Volkswagen has specific design elements. The white-frame building has softer woods and tile, and Kelly had to choose from a collection of certain posters to hang on the walls. Volkswagen was very specific about the service drive-through, “right down to the Mexican river rocks that had to be a specific size.” “Every manufacturer has a program like this, but VW carries it to the next level, in a good way. They think about things other manufacturers don’t,” Kelly said. Salvatore Sachetta, the construction project manager, has worked on more than 30 dealerships in his career. He said the aesthetic impact of the new facility “sent shivers up and down my spine.” “When I saw the VW Dealership lit for the first time at night with the 100 foot flag, site lights and white frame all lit up at the same time, it was thrilling,” Sachetta said. Sachetta expects the customer response to be “overwhelming.” “They will be delighted with all of the newest and most innovative technologies that the automotive industry has to offer,” he said.
Setting the Benchmark
Upon its Grand Opening in mid-to-late October, Kelly Volkswagen will set the tone not just for VW, but for Kelly’s other dealerships. The facility boasts 23 service bays, its own fuel station, a 100-car climate controlled showroom, and hotel quality bathrooms. Energy efficiency is also in focus, with the building’s rooftop wind turbine, extra roofing insulation, LED lights and en-
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MSADA MSADA
ergy saving water heaters. “I wanted to use the dealership as a pilot program to see what technology works and maybe put it into the other dealerships,” Kelly said. “This sets the benchmark that all my dealerships should hope to be.” Kelly said other dealers have called and asked to tour the building. The new facility has also proved enticing to potential employees. “We’ve hired some really great employes who see a shiny building going up and want to be a part of it,” Kelly said. “And it’s a reward to my current employees who worked out of a subpar temporary facility, keeping in mind it’s important to give them the building they deserve.”
Putting Economic Recovery in Motion One of the points Kelly seems most proud of is the job creation the project brought to the North Shore community. In addition to the 125 subcontracting jobs brought on for the project, ranging from roofers to lawyers, the new Kelly VW will have 65 employees when the store opens. “You hear the politicians, whether it’s the president or the governor, talk about what we need to do to get the economy going,” Kelly said. “When you build a dealership it takes about a year. It does put money quickly and directly into the economy because you’re paying for the building as you go. When I hear the politicians talk about what needs to happen, that’s exactly what we did.” Outlooks have improved across the industry, he said. Kelly is selling as many cars now as the group did before the recession, and hopes the new facility will give an extra boost. “Hopefully we’ll sell more cars and do more business,” he said. “It’s certainly a better atmosphere for our customers.”
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NEWS
from Around the Horn
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DANVERS
Mass. Dealerships Listed in Top 100 Dealer Workplaces Six Massachusetts dealerships have been listed as part of the top 100 dealerships to work for by Automotive News. For the second year, the publication has identified dealerships that are excelling in workplace satisfaction, talent retention and fair treatment of their employees. The Massachusetts dealerships listed are Kelly Nissan of Lynnfield; Kelly Infiniti and Kelly Volkswagen, both in Danvers; Kelly Nissan of Woburn; Kelly Honda in Lynn and Mini of Peabody. The recognition begins with a list of the top 100 places to work -- a summary that honors new-car dealerships in the United States and Canada that have excelled in creating a highquality work environment. For now, the list is arranged geographically. A ranking of the top dealerships will be revealed at an October 17 ceremony in Chicago, where Automotive News will honor the dealerships on the list. Later that month, Automotive News will publish a special
WOBURN
Olsen Cadillac Receives 50Year Award President Richard Olsen (L to R) and Chairman Robert Olsen of R.C. Olsen Cadillac in Woburn received a 50-year award from Angela Montgomery, Cadillac’s Northeast regional director, and Michael Westhoff, Cadillac’s zone manager. section that lists the top 100 dealerships. Some of the dealerships will be profiled in depth, with a look at some of the practices and policies that helped make them great places to work. Also recognized on the Top 100 list were two Prime dealerships in Maine, Prime Hyundai and Prime VW, both in Saco, which are owned by Massachusetts-based Prime Motor Group.
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NEWS from Around the Horn RAYNHAM
GMC Vehicles Toughen Up the Gridiron in Madden NFL 25 The extremely popular Madden NFL video game has featured countless football stars in its 25 years on the market, but during that time it has yet to include any vehicles that fans might see promoted during actual games on TV. That will all change when EA SPORTS Madden NFL 25 hits stores on August 27, as GMC, the Official Vehicle of the NFL, will be integrated into the game at several points during play. Showcasing the redesigned 2014 GMC Sierra pickup truck, as well as the GMC Yukon, Acadia and Terrain crossovers and SUVs, Madden NFL 25 will award the MVP of each Super Bowl with one of those vehicles, and the models will also be shown on ads in select stadiums. Players with an Internet connection and an Origin Account will be able to replay GMC’s real-life “Never Say Never Moment of the Week,” which highlights an exemplary display of athleticism, intelligence and preparation. Users will also be able to compile their own GMC Collection of Professional Grade players after purchasing Madden Ultimate Team packs. “GMC is the ideal pick as the first auto brand to have vehi-
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cles in Madden NFL football because its reputation for toughness and reliability translates perfectly to the gridiron,” said Gary Carter, general sales manager of Mastria Buick GMC Cadillac. “Madden NFL has millions of dedicated fans that span different generations, so this is a great opportunity for GMC to acquaint users with its modern lineup, particularly with the all-new 2014 Sierra.”
MSADA RAYNHAM
Redesigned 2014 Mazda3 Expected to Lead Compact Class in Fuel Economy For the 2012 model year, the Mazda3 became the first vehicle to incorporate Mazda’s SKYACTIV technologies when it received a 2.0-liter SKYACTIV-G engine and SKYACTIV manual and automatic transmissions. Now, for the 2014 model year, it will join the new 2014 Mazda6 and Mazda CX-5 by donning the entire suite of fuel-saving features, adding a lightweight SKYACTIV-Body and SKYACTIV-Chassis. Mazda says those changes will help its best-selling vehicle return up to 41 mpg on the highway when the new generation arrives this September, topping the highly competitive compact segment. Sedan models of the 2014 Mazda3 would achieve their best-in-class fuel economy with the carry-over 2.0-liter SKYACTIV-G engine and the choice of a standard SKYACTIV-MT six-speed manual transmission or a SKYACTIV-Drive six-speed automatic. For buyers who want more respon-
WESTWOOD
Auto Magazine Features Prime Group CEO Prime Motor Group CEO David Rosenberg talks strategy, outlooks and loyalty in his Q&A session found in the August 19 Automotive News. At 44, Rosenberg decided to retire from auto retailing and move into academia. He set his sights on becoming a professor of economics. But the car business was not out of his system; he turned around and launched Prime Motor Group of Westwood.
siveness without sacrificing fuel efficiency, a new 2.5-liter SKYACTIV-G engine will also be available, generating 184 horsepower while still netting a manufacturer-estimated 40 mpg on the highway in sedan models. “Nearly every piece of equipment in the new Mazda3 has been designed to create a nimbler and more fuel-efficient ride, including not only the suite of SKYACTIV technologies but also a newly available i-ELOOP regenerative-braking system,” said Barry Chew, sales manager of Mastria Mazda. “The best part is that even with the reduced fuel consumption, the Mazda3’s exterior is more striking than ever with its bold KODO styling on both sedan and five-door models.”
Prime has opened or acquired 19 stores in Massachusetts, New Hampshire and Maine, and includes 15 brands. The group sold just over 15,000 new and used vehicles in 2012. Rosenberg detailed various strategies and tactics for future sales success, including online presence. The group will be launching their re-designed website on September 8, he told the publication. “I feel that almost every dealer in America has a Web site that was designed by maybe just eight or 10 Web site companies, and so their sites look and operate the same. We want to be different. We want our own signature on it.” www.msada.org
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NEWS from Around the Horn PEABODY
MINI’s Monthly Sales Reach an All-Time High in June In 2012, MINI achieved its highest annual sales since arriving in America more than a decade ago. This year, the eccentric auto brand is on pace to break that record, capping off the first half of 2013 with its best-ever monthly sales in June. With 6,571 models sold last month, MINI’s sales rose by 10 percent in the United States compared to June 2012. Year-to-date, the brand’s sales are now up by 1 percent compared to the same period last year, totaling 32,356 units. Even sales of used MINI models have been surging, increasing by 16 percent year-overyear in June while jumping 19 percent year-over-year through the first six months of 2013. “MINI has become less of a niche brand as it has expanded its lineup to seven models; its impressive sales today are partially due to the numerous choices that drivers can consider,” said Gary King, general manager of MINI of Peabody. “The MINI Cooper remains the best-seller, but the introduction of the larger Countryman a few years back brought more capability and versatility to the mix, and recent launches like the MINI Paceman and Roadster offer uniquely sporty options for buyers.” WELLESLEY
Massachusetts Toyota Dealer Changes Sales Plan to Suit Modern Shoppers With the ever-increasing popularity of shopping on the internet, Massachusetts residents are changing the way they purchase everything from shoes to furniture. One place they haven’t changed their buying habits, however, is in the auto showroom, but a local Boston Toyota dealer, Wellesley Toyota, is working to change that with its sales process dubbed the “Now Way.” As the name would suggest, the “Now Way” is meant to serve auto shoppers in the same manner they would purchase a cell phone or computer. Gone are the commission-focused sales people, replaced with Toyota Product Geniuses that operate on an hourly salary, and the dance between sales person and financing expert has also gone the way of the dinosaurs, replaced with a sales manager that serves as the single point of contact for the entire purchasing process. The result is a streamlined process with greater transparency and, based on reviews, higher customer satisfaction. AUGUST 2013
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MSADA “The process of buying a car has been the same for decades, and it really didn’t reflect the habits of modern shoppers,” said Nai Nan Ko, Jr., general manager of Wellesley Toyota. “Car shoppers are doing more research online and generally have a good idea of what they want before they set foot in our showroom. It’s our job to answer any remaining questions they have and to make sure they get into the vehicle they want with as little stress as possible.” DANVERS
Massachusetts Car Exec Named One of ‘40 Under 40’ Kelly Automotive Group’s Director of Operations has been named to a list of 40 under 40 “up-and-comers” in auto retailing by Automotive News. Awarded to Brian Heney, the honor comes among other Kelly dealerships’ accolades: The auto industry trade publication has placed five of them among the top 100 automotive dealerships to work for in North America (see earlier news item). After getting his start as a sales consultant at Kelly Infiniti in 2001, Heney worked his way up to become executive manager at the dealership in 2008. In 2006, he graduated from the National Automobile Dealer Association’s Dealer Candidate Academy. Heney bought a Harley-Davidson motorcycle dealership in Billerica from his father-in-law in 2010 while he continued to run the Infiniti store. The Harley dealership was successful, and Heney sold it last year to take on his role as director of operations for the group’s eight dealerships, which includes the first Fiat dealer in New England and the largest Volkswagen dealership in the United States. The group plans to open Maserati and Alfa Romeo dealerships, but Heney told The Salem News the group was still trying to figure out where they might go. Heney said the Kelly Automotive Group and Heney won these awards because of its employees, its volume and feedback from customers.
(APEAL) Study. J.D. Power gathered the feedback of more than 83,000 owners and lessees of 2013-model-year vehicles to determine the most gratifying rides in its 2013 APEAL Study. Evaluating vehicles across 77 attributes of performance and design, the autoresearch firm ranked each model based on a 1,000-point scale, with the Range Rover earning the industry’s highest score. The SUV’s achievement marks the first time the vehicle leader of the J.D. Power APEAL Study came from outside the Large Premium Car segment. “The new Range Rover’s lightweight-yet-strong chassis provides a smoother and more nimble ride, and that’s something that longtime Land Rover customers probably noticed immediately during their daily commutes,” said Dave Edwards, general manager of Land Rover Peabody. “Owners have also responded positively to the 2013 Range Rover’s sleeker styling, which pulls from the popular Evoque with the swept-back headlights and backwards-sloping roofline.” FRAMINGHAM
Connolly Golf Outing Raises Money for Cancer Center The Connolly Auto Group’s Annual Golf Outing this month raised more than $10,000 for Mt. Auburn Hospital’s Hoffman Breast Cancer Center.
PEABODY
2013 Range Rover Climbs to Top of J.D. Power APEAL Study For the 2013 model year, the Range Rover was completely redesigned to become the first production SUV built on an allaluminum unibody platform. It appears that change has been met with a very warm welcome from customers, as the 2013 Range Rover not only topped its segment, but all models on the market in the recently released J.D. Power and Associates 2013 Automotive Performance, Execution and Layout
The Connolly Auto Group holds its annual golf outing to raise money for a charity. For the past six years the group has chosen Mt. Auburn Hospital. “That’s where my late mother was treated for her cancer from 2006-2008,” Christopher Connolly told Patch.com. “They gave her two years of great health, and she and my dad were able to travel a lot for those two years. So it’s a special place in our hearts.” The outing, which featured golf, a cookout and a raffle, was held at Framingham Country Club. www.msada.org
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Financial Services
MSADA
A Blueprint for Business Succession Planning
By Vincent Saccone, LUTCF and Paul Cuomo of The Boston Business Advisory Group The Boston Business Advisory Group will address your Financial Issues on a monthly basis. Email specific questions or suggestions for future articles to vsaccone@glic.com.
The equity that small business owners build in their companies represents a valuable personal asset. But in a privately-held company, how can equity be converted to liquid cash when the owner exits the business? Creating an exit plan (or “succession plan”) is an integral part of strategic business planning. This article will help business owners understand: (1) why a succession plan is important; (2) how to begin the process; and (3) how to put the plan into action.
The Tax Impact at an Owner’s Exit
Succession planning aims to achieve an optimum outcome for the business (e.g., passing ownership to an heir or selling the company) while also converting business equity into liquid cash when it is needed. This goal is important for two reasons: 1. At retirement, business owners usually want to enjoy their leisure time or pursue other opportunities. After giving up control, they don’t want to worry about the health of a company they have left behind.
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2. An owner’s heirs may lack the expertise or interest to manage the business. At the owner’s death, they would like to receive cash to increase their own personal financial security, and perhaps also to meet income and estate tax obligations. The value of a business passed to heirs is included in the owner’s estate at death and could be subject to federal estate taxes if not left to the surviving spouse. These taxes must be paid in cash, and the filing deadline for federal estate taxes is nine months after the date of death, unless an extension is requested. So, even if heirs do not need or expect a business to produce immediate cash after an owner’s death, federal and state governments require cash to settle taxes. In the worst cases, valuable businesses have been put on the market at “fire sale” prices just to meet estate tax pressures. Aside from taxes, heirs may need cash for other needs including business debts and obligations, probate and attorneys’ fees, the cost of business appraisals, audits, and the cost of closing down the business and paying severance to employees. Almost every business needs a pool of liquid cash to work through a period of transition in ownership. Providing this cash is one of the most important steps in the succession planning process.
Three Key Questions One starting point for business succession planning is to ask and answer three questions: 1. What is the business worth now on a “fair market value” basis? Fair market value is the amount that a willing buyer would pay a willing seller in an arm’slength negotiated transaction. A business appraisal conducted by a qualified professional can help to answer this question.
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2. What will the business be worth when the owner exits? Any future growth in revenues or profits should increase business value. Owners also can increase value by making provisions to groom one or more successors. 3. How will heirs obtain a fair value for the business when the owner exits? A solution called a buy-sell agreement predetermines the terms of a sale (including transaction price) and also provides the cash necessary to complete the sale and pay expenses and taxes.
Terms of a Buy-Sell Agreement A buy-sell may be formed between coowners or partners, who each agree to buy out the other’s interest. Alternatively, it may involve the current owner and a designated successor owner, perhaps a family member or top manager. Most buy-sell participants lack the resources to buy a partner or owner’s interest in a valuable business. Without planning, they may be capable of completing the transaction only by borrowing heavily or paying in installments over time. Since most business owners and their heirs prefer to receive cash at the closing, it is necessary to define the source of the cash well in advance. Often, the primary source is permanent life insurance.
Valuing the Business After a successor is determined, the next step is to determine the buy-out value. While small business owners have some flexibility in setting the price of a buy-out transaction, the IRS and courts will insist on a valuation that represents fair market reality, some valuation methods include: • Comparable recent transactions – Busi-
MSADA ness value is based on the terms of sales or mergers involving companies of comparable size in the same industry or market area. • Multiple of revenue or book value – Business value may be pegged to a multiple of gross revenues in the year or two just before the owner exits. For example, many serviceoriented businesses sell for about one to two times annual gross revenues. Or the value may be pegged to an audited balance sheet as a multiple of “book value.” • Discounted cash flow— The value is based on total cash flow that the business is projected to generate for a period of years (typically three to five) after the owner’s exit, discounted by a cost of capital.
Hire an Attorney to Draft a Legal Agreement The next step is to formalize the buy/ sell arrangement through a written agreement with the help of an attorney experienced in succession planning. Ideally, this attorney also has some proficiency in estate tax planning and business valuation. An important section of the agreement defines the “trigger events” that will require ownership to change hands. Common trigger events include an owner’s death, disability, retirement, divorce, or separation from employment. When a buyout is triggered by an event other than death, the legal agreement also may include provisions that prevent the departing owner from competing against the company or disclosing its trade secrets.
Provide Funding to Assure that the Agreement is Carried Out Permanent life insurance typically is used to fund buy/sell arrangements be-
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ments include provisions for terminating the buy/sell by mutual consent or if specified events occur. In this case, the policy’s owner can recoup part of the premium cost from cash value.
Planning for a Long-Term Disability
cause coverage can continue, and premiums remain affordable, at any age. Funding buy/sell arrangements with permanent life insurance also has other benefits: • Quick and convenient cash for heirs – Life insurance solves the problem of turning an illiquid asset (the business) into liquid cash for heirs or estate settlement. • Tax advantages – Life insurance pays a death benefit that is free of federal income taxes. In buy/sell arrangements, the benefit is usually paid to the party who has the obligation to buy the shares: the surviving shareholders, outside buyer, or the death benefit does not create estate tax consequence for the estate of the deceased. • Affordable, level premiums – Permanent life insurance can be purchased at affordable level premiums, especially when the insured person is fairly young and in good health. • Cash value—The cash value of a permanent policy can provide buyout funds if an owner exits at a trigger event such as a divorce or normal retirement. Most agreewww.msada.org
In addition to an owner’s death, another trigger event that can be funded with insurance is an owner’s long-term disability. In this case, disability income insurance can be purchased to fund an obligation written into the buysell agreement. Subject to the terms of the policy, disability buy-out insurance pays to the business beneficiary or other owner a stated amount of lump-sum or periodic income (after a waiting period) that can be used to fund part or all of a buyout. In summary, business owners rarely stop working long enough to ask why they are working so hard. But there will come a day when this question will become paramount. Ultimately, a small business may not maximize long-term success for the owner and heirs unless the owner plans ahead to reap the rewards.
t Saccone & Cuomo, Registered Representatives and Saccone, Financial Advisor of Park Avenue Securities LLC (PAS), 160 Gould Street, Needham, MA 02494, 781-4494402. Securities products/services and advisory services are offered through PAS, a registered broker-dealer and investment advisor. Financial Representatives, The Guardian Life Insurance Company of America (Guardian), New York, NY. PAS is an indirect, wholly owned subsidiary of Guardian. Neither Guardian nor its subsidiaries, agents or employees provide tax or legal advice. You should consult your tax or legal advisor regarding your individual situation. The Boston Business Advisory Group is not a registered investment advisor. The Bulfinch Group is not an affiliate or subsidiary of PAS or Guardian. Life insurance offered through The Bulfinch Group Insurance Agency Inc., an affiliate of The Bulfinch Group, Inc. The Bulfinch Group is not licensed to sell insurance. Neither Guardian nor any of its subsidiaries, employees or agents provides tax or legal advice. PAS is a member of FINRA, SIPC. 2013-6203
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by Don Sudbay MSADA
NADA Update
‘Accelerate’ Your Business at the NADA Convention in New Orleans Don Sudbay, President of Sudbay Automotive Group, represents MSADA members on the NADA Board of Directors. He welcomes your
questions
and
concerns
(donsudbayjr@sudbay.com). We are all excited about returning to New Orleans for the 2014 NADA Convention. Don’t delay making your reservation, as hotels are selling out quickly. I look forward to seeing you all in the “Big Easy.” As you can see by Dave Westcott’s remarks below, next year’s convention promises to be both informative and fun.
A Special Note from NADA Chairman Dave Westcott: “It’s fitting that New Orleans—a city as tough, determined and resilient as the auto industry—will host the 2014 NADA Convention & Expo in January. “Just like the city, the auto industry has endured its own share of crises and comebacks. We have been through many challenges over the past few years, but today we are stronger than ever and auto sales are steadily improving. “Since the devastation of Hurricane Katrina, the Big Easy has invested billions of dollars in major restoration projects, including renovations at the convention center and improving the streets. There is also a new streetcar line connecting the Sports District to the Central Business District and French Quarter. Hundreds of new restaurants have opened since Katrina and millions of dollars have been invested in hotel upgrades. “This will be the 10th time the NADA convention has been held in New Orleans since 1973. “Our convention theme is ‘Accelerate’—something the auto industry and New Orleans have in common with both rebuilding our roads to recovery. The NADA convention offers all attendees—dealers and their managers, manufacturer execs and exhibitors—an opportunity to learn new ways to ‘accelerate’ business success. “We’ve listened to feedback from attendees. After a thorough review of the convention schedule, some key changes have been made. Monday’s general session has been moved from the afternoon to 9 a.m., with workshops and franchise AUGUST 2013
meetings to follow, and several franchise meetings were rescheduled for Saturday morning. “One thing that hasn’t changed is the quality of the workshops. We had 160 workshop proposals resulting in many new topics and presenters. From sales and finance to legal and executive leadership seminars, the 60 workshop topics cover every aspect of our businesses. For convenience and accessibility, we have also developed programs that will be available through NADA University’s online education resources and the convention mobile app. “And as always, dealers and their managers can attend networking events, meet with manufacturer execs and shop for products and services from hundreds of exhibitors on the expo floor. “The 2014 ATD Convention & Expo runs concurrently with NADA on January 24-27. ATD members can attend any of the NADA events and programs. “Online registration and housing is now open. Seven of the 33 convention hotels have already sold out. Be sure to make your reservations early to book a hotel of choice. Dealers and managers who register by September 13 will receive a $100 discount from the onsite rate. For more information or to register, visitwww.nadaconvention.org. “We’re working hard to deliver a convention experience that lives up to the billing as the ‘Automotive Industry Event of the Year.’ “See you in New Orleans!”
Why the Dealer Franchise System Is Here to Stay Franchised auto dealers are on track to sell more than 15 million new cars and trucks this year, including a half million electric, natural gas, hybrid and other alternative technology vehicles. These Main Street businesses – the backbone of their communities – are leading America’s economic recovery. Franchised auto dealers employ nearly a million Americans, provide good jobs that can’t be shipped overseas and engage in robust market competition. For more than 100 years, automakers have contracted with franchised dealers to sell and service their vehicles for one simple reason – it’s the most efficient and cost effective way of doing so. Franchised auto dealers’ cumulative investment in land, equipment and facilities exceeds $200 billion – expenses that auto manufacturers would otherwise have to incur. Ford and GM tried owning their own dealerships and failed. These experiments proved that factory stores did not
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MSADA deliver better customer service or reduce consumer costs. A question has been raised as to whether automakers should be licensed to sell directly to consumers. A better question is who should decide this licensing issue – and the answer is the states. In our federal system, states have the right to license lots of important retail industries – everything from eyewear to alcoholic beverages. The states are best positioned to decide what level of accountability, regulation and competition is best for their citizens. Although all states regulate the auto retail marketplace, their approaches differ widely: many allow automakers to sell direct; others require a local licensee as an additional layer of accountability. This reflects the fact that, when it comes to auto retailing, one size doesn’t fit all. It is easy to understand the rationale behind state laws that foster the presence of a well-capitalized, independent dealer network. New vehicles are expensive, generally require financing and often involve a trade-in. Consumers are better served by multiple retailers competing for their business. A Ford dealer’s biggest competitor, for example, is usually the other Ford dealer down the street. Most buyers, according to the Harvard Business Review, value a combination of online service, personal service and physical locations over standalone Web distribution – which sounds exactly like the dealer franchise system that’s currently in place.
OSHA Targets Body Shops with New Enforcement Program Last month, the Occupational Safety and Health Administration (OSHA) announced a new National Emphasis Program (NEP) aimed at helping to protect workers from the health effects (including asthma and sensitization) of occupational exposure to isocyanates, a class of chemicals sometimes found in automotive refinish systems. The NEP specifically targets auto body shops. The NEP will involve a combination of targeted inspections, employer outreach, and compliance assistance. Dealerships with auto body shops should review NADA’s “A Dealer Guide to the OSHA Respiratory Protection Rule.” In addition, any dealership interested in reviewing their general compliance with federal and state health and safety standards should consider taking advantage of the OSHA On-Site Consultation Program, which offers free and confidential safety compliance reviews for small- and mediumsized businesses. For more information on the isocyanate NEP, email NADA Regulatory Affairs at regulatoryaffairs@ nada.org.
EPA Provisionally Excludes Solvent Wipes from Hazardous Waste Rules The EPA on July 23 issued a rule conditionally excluding solvent-contaminated wipes from its hazardous waste regu-
lations, provided dealerships manage them properly. The wipes used in dealership service and auto body operations run the gamut from woven laundered cloths to paper disposable wipes, wipers, shop towels and/or rags. Some are used with solvents, others to wipe up liquids such as oils, greases, paints and antifreeze. Generally, wastes contaminated with EPA-listed solvents become “hazardous” and must be managed as such. Under the new rule, used wipes contaminated with EPA-listed solvents are not “hazardous” waste if they are: 1. Stored in closed, labeled containers. 2. Liquid-free when sent off-site for cleaning or disposal. 3. Not accumulated for longer than 180 days. Service and body department wipes are used with numerous liquids and for various purposes, and are often intermixed prior to off-site cleaning or disposal. Consequently, dealerships should consider implementing the above three management strategies for all used wipes. The push to obtain regulatory relief for rags and wipes began in 1992. Through the years, NADA filed several sets of comments, formally participated on a Small Business Regulatory Enforcement Fairness Act panel, and met numerous times with EPA. The protracted deliberations leading up to yesterday’s final rule largely can be attributed to a competitive battle between disposable wipe manufacturers, their reusable wipe counterparts, and commercial laundries. Caution: State law variations may exist with these and other hazardous waste rules. For more information on EPA’s new rule, email NADA Regulatory Affairs at regulatoryaffairs@nada.org or (703) 821-7040.
2014 ATD Convention: Online Registration and Housing for New Orleans Now Open The city of New Orleans will host the 51st annual ATD Convention & Expo next January, which will run concurrent with the NADA Convention from Friday 24 to Monday, January 27. The Big Easy has recently undergone major restoration projects, such as $800 million in hotel upgrades, $77 million in street improvements that include a new streetcar line connecting the Sports District to the Central Business District and French Quarter, and a 55 percent increase in the number of restaurants over the past seven years. “There’s a limited number of hotel rooms available at the Hilton Riverside, which is the ATD headquarters hotel, so we’re encouraging dealers to register as soon as possible,” said ATD Convention Chairman Steve Parker. “A benefit of staying at the Hilton Riverside is that ATD dealers, managers, spouses and relatives can attend the daily continental breakfasts and evening receptions sponsored by Eaton.” ATD attendees who register by October 7 will receive a $150 discount from the onsite rate. For more information or to register, visit www. atdconvention.org.
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NADA Market Beat
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Produced by NADA’s Industry Analysis Group • Angela Lisulo, Economist
Review of New Light Vehicle Sales Produced by NADA’s Industry Analysis Division Overall
FIGURE 1
There were 1.3 million light vehicle sales in the U.S. in July 2013 – this marked a decline of 6.4 percent from June 2013 and an increase of 13.9 percent over last July. July 2013 YTD figures bring total light vehicle sales to 9.1 million up 8.4 percent from a year ago. The July 2013 Seasonally Adjusted Annual Rate (SAAR) for light vehicle sales is 15.6 million down from the SAAR value of June 2013 which was 15.9 million. In July 2013 YTD figures, car sales held a market share of 49.8
Brands
FIGURE 2
By geographic base, the brands based in Asia/Pacific held the largest market share of light vehicle sales in July 2013: 47.8 percent of the market. This was followed by brands based in North America (Detroit 3 and Tesla Motors) at 43.0 percent and then brands based in Europe at 9.2 percent. The Detroit 3 held 42.9 percent of light vehicle sales in July 2013. All geographic base categories – North America, Asia/Pacific and Europe – experienced growth in light vehicle sales in July 2013 YTD figures since last July. In July 2013 YTD figures, brands based in North America held the largest share of U.S. light vehicle sales at 45.7 percent compared to the other geographic categories. The Detroit 3 accounts for the bulk of the North America-based brand share: the Detroit 3 has held a share of 45.6 percent, for July 2013 YTD light vehicle sales, which is an increase from 44.8 percent a year ago. The July 2013 YTD share held by all the Asia/Pacific-based brands was 45.3 percent and that for all the Europe-based brands was 9.0 percent. Of the Detroit 3, Ford has experienced the most growth in YTD sales, since last July, at 12.3 percent, followed by Chrysler (9.3 percent) and then General Motors (9.1 percent).
AUGUST 2013
percent with sales up 5.3 percent from last July while corresponding figures for light trucks put the light truck share at 50.2 percent with sales up 11.8 percent from a year ago. See Figure 1.
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Focus: The European major OEMs/brands – Daimler, BMW, Volkswagen. Over recent years, for this group, Volkswagen has emerged as the OEM/brand with the highest sales volume from a position of generating the least sales. For 2008-2012, Volkswa-
29 gen started the period with the lowest annual sales of the group but surpassed Daimler and BMW towards the end of the period (2011-2012); Daimler, BMW and Volkswagen each experienced their lowest annual sales point in 2009 for the period. These 3 OEMs/brands have collectively held a market share of 6.9 percent of July 2013 YTD light vehicle sales in the U.S. For July 2013 YTD, Volkswagen has had the highest sales volume of the group with 242,571 units. However, Volkswagen has experienced a contraction in sales in YTD terms since last year while Daimler and BMW have each had growth in sales since last July in YTD terms: July 2013 YTD sales are up 10.5 percent for Daimler and up 9.2 percent for BMW while Volkswagen July 2013 YTD sales are down 1.3 percent, all since last July. See Figures 2, 3 and 4.
FIGURE 3
S egments
The large car and the van segments continue to experience contraction in sales from last year, in YTD terms. The cross utility vehicle (CUV) segment continues to hold the largest share in sales YTD figures; for July FIGURE 4 2013 YTD figures, the CUV share was 25.0 percent. This is followed by the middle car segment (20.9 percent) and then the small car segment (19.7 percent). Since last year, the greatest growth in July 2013 YTD sales was in the CUV segment (16.7 percent) followed by pickups (15.8 percent). Within the CUV segment, for July 2013 YTD, all 6 subsegments have experienced growth since last year and the middleCUV has had the largest number of sales of 1.4 million. Within the pickup segment, for July 2013 YTD, the large pickup has had the largest number of sales of 1.1 million and it is the only pickup sub-segment that has experienced growth since last year (the only other subsegment (the small pickup) has experienced a decline in sales since last July). Focus: The sport utility vehicle (SUV) segment. Of the 8 segments presented in this report, the SUV segment ranks 6th in terms of market share of July 2013 YTD light vehicle sales in the U.S. at 6.5 percent with 591,711 units up 0.5 percent from last July. For 1982-2012, this segment held its peak market share of annual light vehicle sales in 2002 at 17.7 percent. After 2002, this segment’s market share declined sharply – it has been in single digits since 2008.
FIGURE 5
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NADA Market Beat FIGURE 6
With the exception of 2009, the middle SUV sub-segment has held the largest share of annual SUV sales for 2008-2012 from a total of 5 SUV sub-segments. It is also the only SUV sub-segment with visibly rising market share since 2009 on annual basis. The middle SUV sub-segment has held the greatest share of the SUV segment’s July 2013 YTD sales: approximately 1/2 of SUV July 2013 YTD sales with 293,243 units sold up 11.4 percent from last year.
power category experienced growth in sales, from a year ago, in YTD terms. In July 2013, for the alternative power category in light vehicles, the U.S. automobile industry sold 4,093 electric vehicles, 44,595 hybrid vehicles, 3,499 plug-in hybrid vehicles, 190 natural gas vehicles and no fuel cell vehicles amounting to 52,377 light vehicle sales. See Figure 7.
FIGURE 7
FIGURE 8
For Q2 2013, the leading vehicles in the middle SUV sub-segment included Ford Explorer (50,046 units sold) followed by Jeep Grand Cherokee (47,663 units sold). See Figures 5 and 6.
Power source
Gasoline-powered light vehicles held a share of 93.4 percent of July 2013 YTD light vehicle sales which was a slight decline from its corresponding share of 94.1 percent a year ago. The diesel category continued to hold its YTD market share from a year ago: 2.7 percent of U.S. light vehicle sales. With the exception of fuel cell light vehicles, all sub-categories within the alternative AUGUST 2013
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Models
From the list of 15 best-selling light vehicles for the month, the leading 2 vehicles were pickup trucks from the Detroit 3: Ford F Series followed by the Chevrolet Silverado. Third, fourth and fifth place were occupied by cars from brands with geographic bases in Asia/Pacific: Toyota Camry, Honda Civic and Honda Accord, respectively. Of the 15 best-selling light vehicles for this month, 3/5 were brands with geographic bases in Asia/Pacific while the rest were Detroit 3 brands. See Figure 8.
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