Massachusetts Auto Dealer Magazine July 2021

MSADA, One McKinley Square, Sixth Floor, Boston, MA 02109

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FIRST CLASS MAIL US POSTAGE PAID BOSTON, MA PERMIT NO. 216

July 2021 • Vol. 34 No. 7

The official publication of the Massachusetts State Automobile Dealers Association, Inc

Belabored Rates

Ma s s a c h u s e t t s

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S ta f f D i r e c t o r y Robert O’Koniewski, Esq. Executive Vice President rokoniewski@msada.org Jean Fabrizio Director of Administration jfabrizio@msada.org Peter Brennan, Esq. Staff Attorney pbrennan@msada.org Auto Dealer MAgazine Robert O’Koniewski, Esq. Executive Editor Tom Nash Editorial Coordinator nashtc@gmail.com Subscriptions provided annually to Massachusetts member dealers. All address changes should be submitted to MSADA by e-mail: jfabrizio@msada.org Postmaster: Send address change to: One McKinley Square, Sixth Floor Boston, MA 02109 Auto Dealer is published by the Massachusetts State Automobile Dealers Association, Inc. to provide information about the Bay State auto retail industry and news of MSADA and its membership.

Ad Directory Bellavia Blatt, 2 Bellavia Blatt, 17 NEAD, 19 O’Connor & Drew, 28 ADVERTISING RATES Inquire for multiple-insertion discounts or full Media Kit. E-mail jfabrizio@msada.org Quarter Page: $450 Half Page: $700 Full Page: $1,400

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The official publication of the Massachusetts State Automobile Dealers Association, Inc

Table of Contents

4 5 6 9 10

From the President: Charging Ahead ASSOCIATE MEMBERS DIRECTORY THE ROUNDUP: Legislature Getting Warmed Up LEGISLATIVE SCORECARD AUTO OUTLOOK

14 Cover Story: Belabored Rates

18 20 21 22 23 24 25 26

NEWS From Around the Horn TROUBLESHOOTING: Frequently Asked Questions LEGAL: Are Non-Competition and Non-Solicitation Agreements Enforceable? nada Market Beat ACCOUNTING: Take Advantage of the Opportunity AIADA Brief: In 2021, Dealers Make an Impact TRUCK CORNER: Your Voice Counts nada update: We Are All-In on EVs

Back Cover: $1,800 Inside Front: $1,700 Inside Back: $1,600

Join us on Twitter at @MassAutoDealers www.msada.org

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From the President

MSADA

Charging Ahead

By protecting the franchise dealer model, MSADA is protecting consumers in this new era.

By Chris Connolly, MSADA President As we move further along into 2021, electric vehicles are cropping up in all corners of our industry. As we keep repeating, we dealers need to stay involved right at the ground floor of this technological revolution so that our customers’ needs are represented.

What is becoming more clear is that, as these vehicles get more advanced, buyers will need more help, not less. And as we emerge from the COVID pandemic, it is clear that community connections are vital to not just our industry but also our entire economy.

Less help is exactly what customers will find if the model Tesla is pursuing becomes standardized across the industry -- which all too many of our OEM partners seem to be desiring lately. MSADA is here to sound the alarm on behalf of our dealer members and, by extension, our customers.

From the internal combustion engine to today, dealers have been part of the fabric of this industry. There is no reason to change that which benefits our customers.

OEMs and even Tesla know this, but in the coming months and years we will be inundated by campaigns to loosen the threads of our 93B franchise law.

While the myriad of issues stemming from EV adoptions are relatively new, there remain important battles being waged daily by MSADA that have taken the better part of a decade or longer. Auto body labor rates set by insurance companies have not been adjusted in many, many years. Beyond the problems this causes for businesses, this has become a genuine and acute problem for customers who rely on insurance to pay to repair their vehicle. Thankfully, this long-running issue may have turned a corner with Gov. Charlie Baker’s recently established special commission. Check out this month’s cover story on page 14 for more.

Whether we are going to bat on a new issue or one that has hovered for too long, MSADA is vigilant and eager to serve. Please always feel encouraged to reach out should you have any concerns about your particular manufacturer or other industry issue. We are here to make doing business in our great Commonwealth easier and to continue building an entrepreneurial community that will thrive for generations to come.

Dealer of the Year Nominations Are Open

The time has come again for us to nominate one of our own as our TIME Dealer of the Year candidate, who will step into the national spotlight. Please give this some thought and send in your suggested nominee to Executive Vice President Robert O’Koniewski at rokoniewski@msada.org. t

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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 Chrysler Dodge Ram Jeep 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, Steve Sewell Treasurer, Jack Madden, Jr. Clerk, Charles Tufankjian

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. Rich Datz (609) 937-8398 America’s Auto Auction Boston Jim Lamb (781) 596-8500 Armatus Dealer Uplift Joe Jankowski (410) 391-5701 Auto Auction of New England Steven DeLuca (603) 437-5700 Automotive Search Group Howard Weisberg (508) 620-6300 Bank of America Merrill Lynch Dan Duda and Nancy Price (781) 534-8543 Bellavia Blatt Leonard Bellavia (516) 873-3000 Bernstein Shur PA Ned Sackman (603) 623-8700 Broadway Equipment Company Fred Bauer (860) 798-5869 Burns & Levinson LLP Paul Marshall Harris (617) 345-3854 CDK Global Rob Steele (508) 564-1346 Chase Auto Alex Khademi (404) 375-4504 Clifton Larson Allen Rick Parmelee (860) 982-9307 Coastal Outsourced Solutions Andrea Vieira (508) 979-4733 Construction Management & Builders, Inc. Nicole Mitsakis (781) 246-9400 Cooperative Systems Scott Spatz (860) 250-4965 Cox Automotive Ernest Lattimer (516) 547-2242 CVR John Alviggi (267) 419-3261 Dave Cantin Group Woody Woodward (401) 465-7000 DealerShop Ken Grove (248) 444-6283 Brian Fleischman (716) 864-0379 DealersSocket Troy Potter (877) 340-2677 Downey & Company Paul McGovern (781) 849-3100

DP Sales Distributors Andrew Prussack {631) 842-7549 Eastern Bank David Sawyer (617) 620-3484 Eastern Insurance Group John Berksza (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 Direct Sean Wiita (508) 414-0706 Michelle Salas (508) 599-0081 F & I Resources Jason Bayko (508) 624-4344 Federated Insurance Matt Johnson (606) 923-6350 Fisher Phillips LLP John Donovan (404) 240-4236 Joe Ambash (617) 532-9320 Gulf State Financial Services Mike Sims (817) 689-1735 GW Marketing Services Gordon Wisbach (857) 404-0226 John W. Furrh Associates Inc. Kristin Perkins (508) 824-4939 Key Bank Mark Flibotte (617) 385-6232 KPA Abe Cohen (503) 902-6567 LocaliQ Automotive Jay Pelland (508) 626-4334 LotLinx Brad Bass (978) 766-9000 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 Nancy Phillips Associates, Inc. Nancy Phillips (603) 658-0004 NEAD Insurance Trust Charles Muise (781) 706-6944

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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 Pro-Vigil Sasha Lam-Plattes (408) 569-2385 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. Joseph Herzog (508)-830-3241 Samet & Company John J. Czyzewski (617) 731-1222 Santander Bank Richard Anderson (401) 432-0749 Chris Peck (508) 314-1283 Schlossberg, 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 SunTrust Bank Michael Walsh (617) 345-6567 The Towne Law Firm P.C. James T. Towne, Jr. (518) 452-1800 TrueCar Pat Watson (803) 360-6094 US Bank Vincent Gaglia (716) 649-0581 Wells Fargo Dealer Services Josh Tobin (508) 951-8334 Windwalker Herby Duverne (617) 797-9316 Zurich American Insurance Company Steven Megee (774) 210-0092

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The Roundup

Legislature Getting Warmed Up

By Robert O’Koniewski, Esq. MSADA Executive Vice President rokoniewski@msada.org Follow us on Twitter • @MassAutoDealers

Budget Finally Signed Our Legislature, knowing that it exists in a 24-month window of opportunity, can add new meaning to the words “off to a slow start”. As we have chronicled previously, our Legislature dances to a different tune, as they ease into the legislative process for all bills that are not the budget. Now that the spending plan is behind them, many of the committees are beginning to throttle up with an aggressive public hearing schedule; others, not so much.

Governor Charlie Baker affixed his signature on July 16 to the state’s FY2022 budget plan (Chapter 24 of the Acts of 2021), which constitutionally started on July 1. During the budget conference committee deliberations, your Association had two matters of interest: the creation of a special commission to study auto body labor rates and an amendment to the state’s wage-hour law to create a limited affirmative defense for following state guidance in specific wage and hour litigation related to the Supreme Judicial Court’s 2019 decision in Sullivan v. Sleepy’s. Although the final conference committee agreement did not include the Sleepy’s-related language, we did get a win on creating the special commission.

Section 130 of Chapter 24 establishes a 14-member special legislative commission to study the rate level at which auto insurance companies reimburse auto body repairers for the labor component for repair work. The commission will consist of: • Four legislators – the House and Senate chairs of the Joint Committee on Financial Services, both Democrats, and a Republican from each the House and Senate; • The state commissioner of insurance; • The attorney general; JULY 2021

Massachusetts Auto Dealer www.msada.org

• Three members from the auto insurance industry appointed by the Automobile Insurers Bureau of Massachusetts; • Three members from the auto repairer industry appointed by the Alliance of Automotive Service Providers of Massachusetts; • One gubernatorial appointee representing a vocational-technical school or program; and • One who shall be a member of MSADA. The commission is required to hold at least two public hearings and issue its findings and recommendations, including proposed legislation or regulatory actions, by December 31, 2021.

Much like the Godzilla movies that seemingly are remade and pop up every few years, you may have seen this movie before. Well, that is because you have. In 2008, your Association was active in the creation of and participation in a special commission on auto body labor rates. At that time, the commission punted on any recommendations because we were at the threshold of the deregulation of the auto insurance market and many of the participants (but certainly not those representing the auto body repairers on the commission) wanted to see where that took us before imposing any new laws or regulations.

That inaction has taken us to the point where we went from 47th in the country in insurance-reimbursed labor rates to 50th – the very bottom, having finally passed Mississippi. Essentially, everything has become much worse, including higher costs and inconveniences for car-owners, whose wait times to make repair appointments have grown substantially as has the repair times themselves, with the number of available repair shops still open having decreased.

MSADA If I may be optimistic for a moment, there seems to be some critical legislative mass developing on this, which could lead to positive reforms. I am not one for rabbit’s feet and lucky charms (unless it is the cereal), but maybe this time the Legislature can shake the bondage of the insurance industry and effect true resolution to these problems.

Finally, the FY22 budget included increased monies for education and workforce development to close the skills gaps impacting Massachusetts residents and employers and expand access to career opportunities through the career technical institutes and the state’s dual enrollment program. We are part of an informal coalition of 28 business organizations that are attempting to improve vocational-technical education programs and opportunities so that we can better tap into a pool of future employees for our dealerships such as for auto techs, sales, finance, and other job offerings. There are several matters within the Education Committee that we also are working on towards these goals. If you want more information on these matters, please feel free to reach out to me.

Two side notes on state finances: (1) In signing the FY22 budget, Gov. Baker vetoed a provision that would have delayed for yet another year the long-awaited implementation of the state’s charitable deduction. Voters approved a ballot initiative in 2000 (!) to establish a deduction for charitable contributions on state income tax returns, but the Legislature has prevented its implementation, saying it needs the money. In 2002, the Legislature delayed its implementation until certain economic triggers occurred. These triggers were met eventually in 2020, but the Legislature delayed the deduction in the FY21 budget and again in this year’s FY22 plan.

The deduction represents about $65 million in tax revenues. This is yet another example of the Legislature manipulating a positive ballot question vote. So, every time a legislator tells us we cannot fix the RTR implementation date over the Model Year 2022 problem because they say they

cannot change the outcome, we use this as an example as well as the legalization of marijuana, state financing of elections, and several tax cut proposals where they messed with the “voice of the people.”

(2) The business community is still actively lobbying legislators to use some of the $5.3 billion the state received from the federal American Rescue Plan Act to relieve employers from carrying the full freight of increased unemployment insurance assessments caused by a massive spike in unemployment claims resulting from onerous government shutdown orders during the pandemic. It is totally unfair to have businesses pay for a problem they did not create. Stay tuned.

Let the Hearings Begin While the collective General Court finally came to a resolution on this year’s budget, the standing committees were holding public hearings on bills they have before them, in time for the solons to sprint toward their break for August vacations.

Throughout the year, once committee memberships were set, your legislative team has been actively presenting our positions to legislators in scores of private Zoom meetings.

On July 19 the Joint Committee on Consumer Protection and Professional Licensure held a public hearing via Zoom to take testimony on automotive-related bills, such as our proposed amendments to Chapter 93B, the motor vehicle franchise law (House 407, filed by Rep. Dan Hunt, D-Dorchester; Senate 183, filed

by Sen. Brendan Crighton, D-Lynn; and Senate 239, filed by Sen. Marc Pacheco, D-Taunton).

This committee is co-chaired by Sen. Susan Moran (D-Falmouth) and Rep. Tackey Chan (D-Quincy). This is Moran’s first year as chair. MSADA President Chris Connolly of Herb Connolly Motors and I testified in favor of the bills. The manufacturers, naturally, opposed them.

The issues being addressed by the 93B legislative proposals are the following: • Prohibit vehicle surcharges by manufacwww.msada.org

turers to pay for warranty reimbursement at the statutorily required retail rate; • Limit how often the manufacturer can request a facility upgrade to once every ten years; • Prohibit a manufacturer from requiring a dealer to purchase goods or services from a vendor selected, identified, or designated by a manufacturer or distributor by agreement, program, incentive provision, or otherwise without making available to the dealer the option to obtain the goods or services of substantially similar quality from a vendor chosen by the dealer; • Protect dealer’s customer data from OEMs and other third parties; • Prohibit an OEM from arbitrarily or unreasonably altering the geographic area of responsibility within which it measures the dealer’s performance; • Protect dealers from manufacturers’ using export chargebacks to penalize dealers for cars that get exported without dealer’s knowledge; • Prohibit manufacturers from placing a surcharge on the vehicle invoice as a means of recouping warranty reimbursement costs directly from dealers; • Prohibits the factories from restricting a dealer’s menu of service contract offerings; • Addresses various dealer and consumer related issues surrounding recalls, including compensation for parking cars while waiting for parts from the factories and the disclosure of open recalls to consumers; and • Prohibit a factory from competing with its franchised dealers by offering leases or subscription services for vehicles of the same line make as those sold by its franchised dealers.

On that day, we also testified in favor of our legislative proposals to create an appeals process for class 1 licenses – Senate 234, filed by Sen. Patrick O’Connor (R-Weymouth); House 336, filed by Rep. Chan; and House 361, filed by Rep. Michael Finn (D-West Springfield). To fill a void in current law, the bills would create a process for a party to appeal the alleged improper issuance of a class 1 franchised Massachusetts Auto Dealer

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THE ROUNDUP dealer license by a municipality to an alleged non-factory franchised entity.

We also supported legislation inspired by the COVID restrictions driving customers to increased on-line contracting.

Senate 180, filed by Sen. Crighton, and House 421, filed by Rep. Jack Lewis (D-Framingham), would reform the threeday cancellation law to clarify that dealership-customer contracts executed via the internet are not to be considered as “offsite” transactions.

Finally, at the public hearing we opposed House 423, filed by Rep. David Linsky (D-Natick), which would allow a factory to bypass the current statutory factory-dealership prohibition and open a factory-owned store, without a dealer, if there is no same line-make dealer in the state (the so-called Tesla Exemption). We have worked successfully to kill this bill for the last four sessions; this year we are similarly committed to defeat it.

This hearing is just the tip of the iceberg for your Association. We are awaiting our chance to speak before at least a handful of other committees, including Financial Services; Transportation; Telecommunications, Utilities and Energy; Labor and Workforce Development; and Education.

This process is just as much about speaking out against anti-dealer bills and killing them as it is about trying to pass our proposals. The fun never ends.

TIME Dealer of the Year 2022 It is that time of the year again. The highest honor bestowed on a dealer each year at the NADA convention is the TIME Magazine Dealer of the Year Award (TDYA). The process begins with nominations from each state. At MSADA we consider the state nominee so important that he or she is also designated as the “Massachusetts Dealer of the Year”.

Dealers may nominate him/herself or another dealer. Since your Association’s leadership does the selection at the state level, the members of the MSADA Executive Committee are not eligible (President Chris Connolly, Vice President Steve Sewell, Treasurer Jack Madden, Clerk JULY 2021

Charles Tufankjian, NADA Director Scott Dube, and at-large members Jay Dillon and Frank Hanenberger); neither are the TDYA Recipients for the last four years: Christine Alicandro Karnolt, Ray Ciccolo, Don Sudbay, and Frank Hanenberger.

Please help by nominating candidates for selection as the Massachusetts TDYA. Please give this your careful consideration. E-mail me at rokoniewski@msada. org with your nomination. Nominations must be received at our office by Friday, August 6, 2021. Thank you for your assistance on this matter.

“Coffee with Coopsys”: IT Compliance and Best Practices Webinars Beginning earlier this year we rolled out with our associate member Cooperative Systems a series of six, 15-minute webinars regarding IT compliance issues and dealership best practices. “Coffee with Coopsys” is held on the second Tuesday of each month, 10:00 a.m.–10:15 a.m. Registration is complimentary for all MSADA members. The schedule of topics for the second half of 2021 are as follows: • August 10 - Top 5 Ways To Protect Your Dealership from a Ransomware Attack (revised version of webinar earlier this year) • September 14 - What are the IT Policies and Procedures You Should Have in Place within Your Dealership?

• October 12 - Social Engineering & the Importance of Security Awareness Training • November 9 – How to Manage a Proper PCI Compliance Program within Your Dealership (revised version of webinar earlier this year) • December 14 - Microsoft Licensing Compliance & Office365 Subscription Plans Check our bulletins for registration information for our future “Coffee” webinars for the remainder of the year.

NADA Education Subscription The NADA Education subscription is a powerful tool for providing continuous

Massachusetts Auto Dealer www.msada.org

MSADA training and development to your dealership employees, all for the price of a single monthly car payment.

You can have access to all NADA Professional Series classes and Academy Seminars for every employee at your store for one low monthly price of $699/month for the first dealership rooftop, $399/ month for any additional dealership rooftop (for a 12-month commitment). Your subscription will enable you to: • Quickly equip new managers • Turn experienced managers into leaders • Drive profitability • Make career development discussions easy, and improve employee satisfaction • Make your team better, stronger, faster Your subscription will entitle you to all NADA Professional Series classes and seminars. It excludes NADA Academy, however.

For more information, use this link https://www.nada.org/EducationSubscription/ or contact Sharon Sollom by email at ssollom@NADA.org or by phone at (703) 850-9566.

Compliance, Community Outreach Subsidy Reminder for Dealers Remember to take advantage of our compliance assistance subsidy program as well as our community outreach assistance program. Under our compliance assistance program, we will support your compliance efforts, from $500 up to $1,000, for your participation in OSHA/ environmental workplace compliance services offered by Furrh Associates, KPA, Ethos, or Piper Consulting; employment law services offered by Fisher Phillips; and tax compliance and cybersecurity protection services offered by O’Connor & Drew. Additionally, under our community outreach program, we will support your community giving up to $1,500 in the year as a single point store and up to $2,000 total with $250 per two affiliate stores. If you need information or the application for these programs, please do not hesitate to contact me. t

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L EGISLATIVE S CORECARD JULY 2021

BILL#

SPONSOR

SUBJECT

STATUS

S183 S239 H407

Sen Crighton Sen Pacheco Rep Hunt

Amendments to Ch. 93B, the auto dealer franchise law.

SUPPORT

Joint Committee on Consumer Protection held public hearing on July 19, 2021.

H365 H400

Rep Finn Rep Howitt

RTR Law amendments to fix Model Year start date and consumer notice.

SUPPORT

Joint Committee on Consumer Protection held public hearing on July 19, 2021.

H336 H361 S234

Rep Chan Rep Finn Sen O’Connor

Creates process to appeal improperly issued Class 1 license.

SUPPORT

Joint Committee on Consumer Protection held public hearing on July 19, 2021.

S180 H421

Sen Crighton Rep Lewis

Modernize on-line purchase process.

SUPPORT

Joint Committee on Consumer Protection held public hearing on July 19, 2021.

H345

Rep Cusack

Clarifies licensure to finance small loan contracts with negative equity.

SUPPORT

Joint Committee on Consumer Protection held public hearing on July 12, 2021.

S226

Sen Moore

Amends definition of heavy-duty trucks under RTR law.

SUPPORT

Joint Committee on Consumer Protection held public hearing on July 19, 2021.

S245 H470

Sen Velis Rep Walsh

Open safety recalls notifications.

OPPOSE

Joint Committee on Consumer Protection held public hearing on July 19, 2021.

H423

Rep Linsky

Allows an OEM to open a factoryowned store, without a dealer, if there is no same line-make dealer in the state.

(The so-called “Tesla Exemption.”)

OPPOSE

Joint Committee on Consumer Protection held public hearing on July 19, 2021.

H1152 H1178 S711

Rep McMurtry Rep Phillips Sen Moore

Creates process to increase the insurance reimbursed labor rate paid to auto body

SUPPORT

In the Joint Committee on Financial Services; no hearing scheduled yet.

H1183 S657

Rep Puppolo Sen DiZoglio

Protects dealers from OEMs’ restrictions on selling non-OEM service contracts.

SUPPORT

In the Joint Committee on Financial Services; no hearing scheduled yet.

H1070 S719

Rep Driscoll Sen O’Connor

Creates administrative appeal process for vehicle owners to seek diminished value of damaged vehicle returned to vehicle owner.

SUPPORT

In the Joint Committee on Financial Services; no hearing scheduled yet.

H3477 H3494 S2372

Rep Golden Rep Howitt Sen Rush

Creates statutory process for allowing temp tags for out-of-state sales.

SUPPORT

In the Joint Committee on Transportation; no hearing scheduled yet.

H2004

Rep Jones

Sleepy’s-related affirmative defense.

SUPPORT

In the Joint Committee on Labor and Workforce Development; no hearing scheduled yet.

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AUTO OUTLOOK

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RACE TO THE FINISH COVER STORY

Belabored Rates After years of no movement, auto body labor rates are finally being addressed in the Commonwealth

By Stephanie Power

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f you are in the Massachusetts auto industry, you are no stranger to the issue of auto body labor rates. The issue, of course, is that reimbursement rates are the lowest in the nation, and against a backdrop of steady inflation, raised insurance premiums, utility increases, and hikes in equipment and employee costs, rates have remained relatively unchanged for more than three decades.

“It is a tough way to make a living,” says MSADA Executive Vice President Robert O’Koniewski. “The overhead costs (of running a shop), minimum wage, UI spikes, land taxes, equipment costs and training investments to keep up with new vehicle safety and technology have all gone up. The reimbursed labor rates on insurance-pay have not kept up with the economics.”

A 2018 published report by Mitchell International, a data collection and business software company based in San Diego, ranked labor rates among all 50 states. With a rate of $38.28, Massachusetts came in 50th. North Dakota sits at the top of the list with $64.52, Connecticut is 19th at $50.81, Pennsylvania 25th with $48.92, and New Hampshire ranked 42nd with a rate of $44.95. Meanwhile, Massachusetts consistently ranks among the states with the highest cost of living, lower only than New York and Hawaii, according to a recent CNBC study.

Based on more than 6,000 labor rate surveys conducted by National Auto Body Research (NABR), a Phoenix-based independent research and consulting firm focused on the collision repair industry, the average national body and refinishing rate is $59 per hour.

Many in the Massachusetts auto industry have spent decades fighting for rate increases, and this year they may have another chance to be heard. On July 16, 2021, Gov. Charlie Baker created a commission to study the Commonwealth’s auto body labor JULY 2021

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rates and determine whether current rates are reasonable and if they require increasing.

The commission is a replica of a similar initiative from 2008.

O’Koniewski said the 2008 commission decided to take no action and that, although sufficient evidence and testimonials which justified raising rates came forth, nothing changed.

“Things have actually gotten worse,” he said. “We need to make sure, number one, that repairs are compensated fairly, and two, that the consumer is taken care of. With labor rates so low for so long, there are less repair shops open and that means longer wait times that hurt consumers.”

The commission will compare labor rates in surrounding states, study the number of shops that have closed since 2008, and determine the impact of labor rates on the repair industry workforce.

Kevin Gallerani is a fourth generation collision repair shop owner in Plymouth. He is also president of Alliance of Automotive Service Providers of Massachusetts (AASP-MA) and has been working on labor rates for as long as he has been in the

MSADA business. He believes rates have been suppressed intentionally for far too long.

“It is corrupt,” he said. “There is no arguing, the insurance companies know it. They are holding us down.”

At 38 years-old, Gallerani represents a newer generation who grew up understanding the effects of suppressed rates on family-run businesses and the viability of the repair industry at large.

He said with all the costs and complexities of repairing today’s high tech vehicles, it discourages up-and-coming tradespeople from entering a career where the work required does not guarantee a payoff, especially considering the liability shops are held accountable for if a repair goes wrong. If he had not been born into the business, he said it is unlikely he would be doing the work he does now.

“If you had to start your own shop right now, well, daunting would be the word, if you are looking at making $40 an hour. For someone to get out of high school and learn the trade, I do not want to say it would be impossible, but it would be really tough,” he said.

Gallerani added that many current shop owners are aging and either retiring or calling it quits after COVID-19. On the other hand, if someone was willing to put in the work, it could be a good time to pick up business.

Gallerani said his father dealt with rates of about $34 an hour in 1984.

“If it were not for my dealerships and customers, I would probably have closed it years ago.”

–Bill DeLuca

“Then they said the rate was too high, so they bumped it down to $28 and $30 an hour,” he said. “Are you going to tell me it is reasonable for the rate to have risen only about $11 in 30 years?”

Gallerani is referring to the move that birthed this whole presentday dilemma.

According to the published report from the 2008 state commission, in 1986 the Commissioner of Insurance was notified by an “outside consultant” that labor rates were too high.

According to the consultant, who is not named, the commissioner’s rate-setting system “permitted, if not actively encouraged, gross overpayments to automobile repair shops and included no incentives to lower the cost of repairs.”

The following year, the same consultant said Massachusetts rates were among the highest in the nation, third behind Alaska and San Francisco. Almost as high then as they are low today.

The report states, “The consultant concluded these overpayments were caused in part by companies’ paying repair shops directly for repairs and the lack of incentive for insureds to shop for repairs based on price, thereby limiting competition between shops.”

As a result, in 1987, the Commissioner of Insurance ordered a 3 percent reduction to physical damage and collision premiums, to “make the labor rate aspect of the repair process more competitive.” In 1988, the report states, the Commissioner found insurance companies failed to contain costs for body shop payments and again ordered the same 3 percent reduction in premiums.

The issue was then effectively silenced for years.

John Santilli, a former franchised dealer in Brockton and repair shop owner, sat on the 2008 commission as the MSADA dealer representative. He says the story today is really the same. www.msada.org

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RACE TO THERATES FINISH BELABORED “We do not want to go to the well every year or so and be at the mercy of the insurance lobby. We want rates based on the consumer price index or some factor that is out of the insurance company’s hands,” he said.

He added that insurance companies often say raising premiums will not be popular with consumers, but he does not buy that.

“They would be minuscule in scope,” he said.

“The customer would handle increased premiums no problem.”

Gallerani agrees and says shops need to better educate customers and be honest with them about rates.

“I have had customers say, you are going to work on my brand new BMW for $40 an hour? I pay $95 to have someone work on my lawnmower,” he said.

Santilli estimated less than 100 new car dealers own body shops (down 50% from 20 years ago), but said the labor rate is a dealer-wide issue.

“They are all in the wholesale parts business, which they sell to body shops,” down 20% from 20 years ago, Santilli said. He said dealers want repair shops to buy OEM-certified parts rather

than after-market parts, so it is in their best interest that repair shops flourish.

Consumer safety is also a consideration for all auto industry players, according to NABR. Their website, nationalautobodyresearch.com, states, “We see a clear link between labor rates and consumer safety, in that a proper labor rate enables the body shop to invest in the people, training, equipment, and certifications necessary to repair JULY 2021

Massachusetts Auto Dealer www.msada.org

vehicles correctly and safely.”

Two years ago AASPMA hired NABR to conduct an auto body labor rate survey in the Commonwealth to share information on what shops have been paid for various claims. Gallerani said they have collected responses from over 300 shops and the findings show an average door rate of $57 to $60. He thinks insurance companies and repair shops

alike should take note.

“The prevailing rate is what someone will pay, not necessarily the reimbursed rate,” he said.

Gallerani said many repair shops in Massachusetts are small, family-run operations that are beaten down by profitability concerns. He says asking customers to make up for the low reimbursement rate is a risky business move.

“By charging the customer the difference, you risk your reputation. Some will pay it and some will not,” he said.

Bill DeLuca is a likely candidate to sit on this year’s commission as the MSADA dealer representative. DeLuca owns three dealerships in Haverhill and Andover, including an 18,000 square-foot body shop and collision center in Andover.

With two spray booths, two frame machines, OEM certifications, and the ability to fix new aluminum body cars, the shop is, according to DeLuca, state of the art.

“The place is spectacular,” he said. “The only problem is it is not profitable. If it were not for my dealerships and customers, I would probably have closed it years ago.”

Along with several government officials, the commission will include three members of the auto insurance industry, three members of the auto repair industry, one member representing a vocational school, and one member representing dealers. Seats have yet to be named.

The commission will hold at least two public hearings and report their findings and recommendations by December 31, 2021.

Even with year after year of rates remaining relatively unchanged and no guarantees this year’s commission will come up with the solutions he wants, O’Koniewski is ready once again to take a stand on behalf of all dealers and repair shops.

“It is far better to have a seat at the table as part of the process than be on the table getting carved up,” he said. “Time is of the essence to reform this current situation. The commission hopefully is the first step to getting that job done.” t

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www.msada.org

Massachusetts Auto Dealer

MARCH 2021

18

NEWS NEWS the NEWSfrom from Around from Around Around the Horn Horn NEWS

NEWS the Horn WILMINGTON

er Auto Group. The full profiles are available at www.automotivenews.com.

Emily Dube Gray Named to Automotive News Top 40 Under 40 List

MARSHFIELD

Bill Dube Hyundai General Manager Emily Dube Gray has been named to the annual Automotive News Top 40 Under 40 list, alongside a next generation of industry leaders from across the country.

In an accompanying profile, Dube describes an interest in working at her family’s business from age 12. An NADA Academy graduate, she has worked her way from administrative assistant to taking on the general manager role at Bill Dube Hyundai in 2018.

Also honored was Mitchell Harris, corporate director of operations for the Shak-

Quirk Auto Dealers recently acquired a new Kia dealership in Marshfield, which is now open to the public.

The new full-service dealership is located at 955 Plain Street and provides a wide range of services, including in-house leasing/financing, online purchasing tools, electric vehicle charging stations, and automobile delivery services.

The new dealership is currently in the process of completing updates to a comprehensive onsite vehicle service center which opened earlier in July.

The Kia Marshfield facility is the third Quirk-owned Kia retail store. Quirk currently operates 16 active dealerships and service centers in Massachusetts and New Hampshire.

Quirk Acquires Kia Dealership

HADLEY

2021 Tom Cosenzi Scholarship Awarded to Three Students Carla Cosenzi of TommyCar Auto Group has announced the 2021 Tom Cosenzi Scholarship recipients: Jack Kelley of Hopkins Academy, Raechel Parent of Northampton High School, and Anthony Azzaro of Northampton High School.

The Tom Cosenzi Scholarship is offered to highly accomplished graduating high school seniors who are dedicated to leadership, community, and action. The scholarship has been paving the way for students to be successful in both their pursuit and completion of their degree.

Jack Kelly will attend the University of Massachusetts Amherst to pursue a degree in Epidemiology; Raechel Parent will attend the University of Richmond to follow her dream of becoming a Pediatric Oncologist; and Anthony Azzaro will attend Merrimack College to earn a degree in Engineering.

The Tom Cosenzi Scholarship was established to honor the memory of Thomas E. Cosenzi. When Thomas E. Cosenzi passed away in 2009, it was not only ownership of the TommyCar Auto Group that passed to his children, Carla and Thomas, but his legacy of giving back to the community.

Since its inception, the scholarship has awarded more than $16,000 to local students. The fund is open to two designated schools that are located in the communities where the Auto Group has dealerships: Hopkins Academy in Hadley and Northampton High School in Northampton.

JULY 2021

Massachusetts Auto Dealer www.msada.org

Left to right: Jack Kelley of Hopkins Academy; Carla Cosenzi, President of TommyCar Auto; Raechel Parent of Northampton High School; and Anthony Azzaro of Northampton High School.

MSADA

NEWS from Around the Horn

TURNER FALLS

Franklin County Tech to Launch Subaru Program Franklin County Technical School is selected as a partner site for Subaru of New England’s university program.

In a news release from Franklin County Technical School, the partnership was announced in a joint statement by Superintendent Richard Martin and Automotive Technology Instructor Steven Miss.

Jeff LeClair and Keith Manning of Subaru of New England toured Franklin County Technical School in early July and discussed how the program would work.

“We have been working for the past few years to build professionalism and career skills in the Automotive Technology program that go beyond technical skills,” Miss said. “We are also working to prepare students for management, customer service, and sales positions within the industry. Developing qualified technicians is a shared goal between Subaru and FCTS, and we are pleased to be able to make this program available to our students.”

Subaru of New England’s Subaru University program is scheduled to begin during the 2021-2022 school year. It will offer students access to tools, factory service information, factory level certifications, work based learning, and co-op programs through the Hadley, Brattleboro, or Keene dealerships.

“We aim to provide our students with rigorous academic programs and hands-on technical learning experiences that introduce them to and prepare them for various career paths,” Martin added. “Subaru-U will give our automotive students access to training and valuable real world experience, and we are looking forward to starting the program. I would also like to thank Steve Miss for his work to bring Subaru-U to our students and Subaru of New England for their support and partnership.”

“This case enabled Ghosn, a defendant of a serious crime, to escape overseas,” he said.

Although the defense argued the two had been merely used by Ghosn, they clearly were involved, regardless of who was making the decisions, he said.

Ghosn was arrested in Japan in November 2018 on charges of underreporting his compensation and of breach of trust in using Nissan Motor Co. money for personal gain. He says he is innocent, and he left because he could not expect a fair trial in Japan.

The Taylors were arrested in Harvard, Massachusetts, where they resided, in May 2020 and extradited to Japan in March. During their trial they apologized, saying they had been misled by Ghosn about Japan’s criminal justice system. Michael Taylor sobbed and said he was “broke,” denying they had benefited monetarily because the $1.3 million prosecutors said Ghosn paid them just covered expenses.

The maximum penalty in Japan for helping a criminal is three years in prison. Prosecutors had demanded a sentence of two years and 10 months for Michael Taylor and two years and six months for his son. t

HARVARD

Massachusetts Men Convicted in Ghosn Escape Plot A Tokyo court handed down prison terms for the American father and son accused of helping Nissan’s former chairman, Carlos Ghosn, escape to Lebanon while awaiting trial in Japan.

Michael Taylor was sentenced Monday to two years in prison, while his son Peter was sentenced to one year and eight months.

They were charged with helping a criminal in the December 2019 escape of Ghosn, who hid in a big box that was flown on a private jet via Turkey to Lebanon. Lebanon has no extradition treaty with Japan.

In handing down the sentencing, Chief Judge Hideo Nirei said they had committed a serious violation of the law, as now there is next to no chance of putting Ghosn on trial. www.msada.org

Massachusetts Auto Dealer

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20

Troubleshooting

Frequently Asked Questions

By Peter Brennan, Esq. MSADA Staff Attorney

This column will periodically review some of the frequently asked questions that MSADA answers for our members through our member counsel service.

Question: Occasionally we will deliver a vehicle to a customer before the customer’s loan has received final approval from the lender. We only do this in cases where the customer has a high credit score and the loan is certain to be approved. Is there any law against this practice in Massachusetts?

Answer: Spot delivering a vehicle, as the practice is known, is only a good idea in Massachusetts if you are in the business of giving away free cars or enjoy headaches. While the practice may be prevalent in other states, and probably happens more than we would care to know in the Commonwealth, our state laws makes the practice especially risky, and it is best to be avoided at all costs.

Under Massachusetts General Laws Chapter 90D, §15(a), a dealer may not deliver a vehicle to a purchaser unless the dealer assigns and delivers to the purchaser, the RMV, or a secured party, the certificate of title (or certificate of origin, if applicable) at the time of delivery of the vehicle.

Generally, dealership employees are aware of this requirement, unless they have previously worked in a state with a different delivery law and are not quite up to speed.

Problems can arise when an employee is eager to finalize a sale and a customer is eager to drive his or her new vehicle off of the dealership lot. Occasionally, in a financed transaction, a dealership employee will take a conditional approval from a JULY 2021

lender and register the vehicle for the customer with the lender listed as a lienholder.

If everything goes according to plan, then it could work out fine. After all, the employee only does this when they know that the lender is going to approve the loan, based on the information that the customer provided and the lender’s requirements. So long as the lender approves the loan, everyone walks away happy. Unfortunately, much like shooting off illegal fireworks on the Fourth of July, the repercussions far outweigh the benefits when something goes awry.

If the lender does not approve the loan,

“Spot delivering a vehicle is only a good idea if you are in the business of giving away free cars or enjoy headaches.” or will only approve the loan on different terms, the dealer is in a bind. The RMV’s requirements for registering a vehicle are designed in part to ensure that the financing is finalized at the time of registration.

If the lender will approve the loan only at a higher rate, then the dealership will need to convince the customer to come back and sign additional paperwork with the new rate. This is sometimes referred to as “yo-yo” financing and can constitute a 93A violation in Massachusetts – that is, if the customer agrees to return. Many stop answering the phone altogether.

Sometimes it turns out that the customer fudged some paperwork in the “employment” or “income” sections, and not only will the original lender not approve the loan, but no lender will touch it. The dealership may be able to void the contract and take possession of the vehicle, unless the customer was being “coached” by a dealership employee that encouraged the customer to falsify information to get the

Massachusetts Auto Dealer www.msada.org

deal across the finish line. The dealer has the option of accepting the payments from the customer as detailed in the motor vehicle purchase and finance contracts, but auto dealerships that hold retail installment contracts must be licensed as motor vehicle sales finance companies by the Division of Banks, pursuant to MGL Chapter 255B. Even in a simple fraud case where the customer is at fault, it will likely cost the dealership thousands of dollars and many hours of stress to recover a vehicle which, if new, is now used, and worth significantly less than it was when the customer drove it from the lot. Dealers should remind all staff that spot deliveries are always prohibited, no matter the circumstances. One spot delivery gone bad can spoil the profits from a month’s worth of good deals.

Question: We are buying cars wherever we can find them in this used car market.

Recently, a customer contacted us to sell a car that was left to her in the will of a deceased relative. How can we complete this transaction and legally take title to the vehicle?

Answer: The RMV website offers the following guidance for this situation: “If a decedent has left a will, the personal representative of the estate may transfer ownership of the vehicle. He/she must give the following documents to the new owner: (i) A copy of the appointment of personal representative; and (ii) decedent’s certificate of title assigned by the personal representative.” So, if the customer only has a copy of a will saying that Grandma left her the Lexus, it could take some time before the customer can register or transfer title to the vehicle. 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.

MSADA

LEGAL

Are Non-Competition and NonSolicitation Agreements Enforceable?

By Joseph W. Ambash, Jeffrey A. Fritz, and Joshua Nadreau of Fisher Phillips, LLC President Biden recently signed an Executive Order aimed at reining in employers’ use of non-competition agreements. Non-compete agreements are contracts between employers and employees that generally limit, for a certain period of time, where a person can work after leaving a job. According to the Federal Trade Commission, roughly one-fifth of workers in the United States are subject to such a restriction.

Massachusetts courts have long recognized a public interest in the ability of individuals to be able to carry on their trade freely. Covenants restraining competition such as non-compete and non-solicitation agreements, therefore, are enforceable, if at all, only to the extent they are “reasonable.” They generally are only reasonable if they are (1) necessary to protect a legitimate business interest, (2) reasonably limited in time and space, and (3) consonant with the public interest. Such consideration generally will depend on the facts and circumstances in any given case.

In October 2018, the Massachusetts Legislature enacted the Massachusetts non-compete law, which established significant limitations to the use of non-compete agreements and certain requirements they must contain to be enforceable. For example, they must provide for “garden leave” of at least fifty percent of the employee’s highest annualized base salary within the two years prior to termination or “other mutually-agreed upon consideration,” which phrase is not defined and on which there really is very little guidance.

But this law does not apply to, among other things, (1) covenants not to solicit or hire an employer’s employees, (2) covenants not to solicit or transact business with an employer’s customers, clients, or vendors, (3) noncompetition agreements made in connection with the sale of a business entity or substantially all of its assets,

or (4) noncompetition agreements made in connection with the cessation of or separation from employment if the employee is expressly give seven business days to rescind acceptance.

Still, just because it is in writing and signed by the parties does not mean it will be enforceable. All forms of non-solicitation agreements operate to constrain competition. Non-solicitation of customer provisions limit competition in a market to sell goods or services to potential customers.

Non-solicitation of employee provisions— also known as “anti-raiding” provisions— similarly limit competition in the market to purchase labor from qualified workers.

When such provisions are included in an employment agreement, they limit an employee’s ability to compete with his or her (former) employer, either by trying to sell to the employer’s customers or recruit the employer’s workers. As such, the same policy considerations that limit enforcement of non-competition agreements also apply to non-solicitation agreement: They must be “reasonable” to be enforceable.

This begs the question: What is a legitimate business interest worthy of protection? Courts generally construe this inquiry narrowly, to apply essentially to legitimate interests in trade secrets, other confidential information, or goodwill. Outside of those interests, which the employer must be able to clearly articulate, it may be very difficult to enforce a non-solicitation agreement. One thing is abundantly clear from the caselaw, however; employers may not rely on a generalized interest in avoiding competition. In other words, protection from ordinary competition is not a legitimate business interest.

What does all this mean for dealers?

Some dealers require their employees to sign agreements containing non-solicitation provisions. That such dealers would www.msada.org

prefer its employees, should they leave and go to a competitor, not solicit business from the dealer’s customers or try to recruit its employees, especially top talent, is perfectly understandable. Those dealers need to know, however, such agreements may not be enforceable, and should understand that, to be enforceable, they must prove they are able to tie the need for the provision to the protection of their trade secrets, other confidential information, or goodwill—which may not be an easy task.

Even if a dealer is able to make such a showing, it also must be able to show the restriction is reasonably limited in time and space. Again, this will depend on the facts and circumstances in any given instance. That said, a year is generally likely to be deemed reasonable, while longer periods of time may not (and the longer, the less likely it will be enforceable). Moreover, a geographical restriction based on the geography in which the employee operated is generally likely to be deemed reasonable, while ones beyond that may not. Indeed, the broader the restriction in terms of both time and geography, the less likely it will be deemed enforceable.

If you require your employees to sign non-competition and/or non-solicitation agreements, you should have them reviewed by competent counsel, especially if they have not been updated since October 2018. Further, you should think through how you might be able to enforce such agreements should the need arise, so as not to have to scramble if and when. t Joe Ambash, Jeff Fritz, and Josh Nadreau are Partners at Fisher & Phillips, LLP, a national labor and employment firm representing hundreds of dealerships in Massachusetts and nationally. They may be reached at (617) 722-0044.

Massachusetts Auto Dealer

JULY 2021

21

22 JUNE 2021

Patrick Manzi

NADA Senior Economist

Boyi Xu

Economist New light-vehicle sales fell for the second straight month in June. Despite strong demand from retail and fleet customers, reduced inventory levels on dealer lots limited the sales pace. The June 2021 SAAR totaled 15.4 million units—up 18% from June 2020 but down 9.9% from May 2021. June’s retail sales are expected to be up by 12.4% compared with June 2020 and roughly flat compared with June 2019, says J.D. Power. Fleet sales will likely account for 15% of June 2021’s raw volume of 1.3 million units. Through the first half of the year, franchised dealers sold 8.3 million new light vehicles, up 29.3% from first-half 2020 and down 2% from first-half 2019.

JULY 2021

Massachusetts Auto Dealer www.msada.org

MSADA

ACCOUNTING

Take Advantage of the Opportunity

By Kevin Carnes O’Connor & Drew PC

Business has been off the charts over the past twelve months, and everyone has figured out the puzzle on how to make money. The secret that has been hidden for centuries from the masses has been revealed, and everyone has mastered it.

Yeah, don’t fool yourselves. This is just simple economics. It is the law of “Supply and Demand”, and dealerships are the beneficiary. That being said, now is a good time to take advantage of opportunities that can improve your business when supply returns to normal and the competition has you giving product away again in hopes of selling enough vehicles to keep the manufacturer happy.

Below are some suggestions on items to look at during these good times to ensure that the good times continue into the future.

that this might not be the situation in the future. It has been my experience that once people make a certain amount of money they want to continue to earn it and believe they are worth this much. So, if after some time their earnings drop, this could result in turnover. Therefore, constant communication during this time is crucial.

With volume for most dealerships down from normal levels, there are less transactions running through the office staff. Now may be the ideal time to cross train staff on the different functions in the office. Cross training can help protect the office from turnover and can increase the

clude an assessment of need versus want, requiring three prices to be received from three separate individuals to ensure prices are competitive, etc.

COVID also has decreased the workforce for most dealerships. Now is the time to review the hiring process and make changes to ensure positions are necessary and decide whether they need to be filled. I would establish parameters or standards that need to be addressed before hiring individuals. These parameters should assess the need for the employee, what the function of the employee would be, what value would be brought to the company from this position, and what

“Now is the time to take advantage of the opportunity to look at things and processes that are not broken but can be improved so these great times can continue for a longer period.”

Profits

Turn your profit into cash. Establish a process where each month the profit from the previous month is taken out of the checkbook and moved into a savings or cash management account. This will not make you a lot in interest, but it will help keep things tight in the accounting office. If profits cannot be moved from the checking account, then management needs to know why. This process also assists your accountant when they come looking for tax money.

Personnel

Sales staff are making more money than they ever have before, and people are getting accustomed to making this amount of money. Make sure you communicate with sales individuals and encourage them to save so they understand

morale of office staff who will have the opportunity to learn different job functions.

Processes

With the sudden drop in expenses due to COVID and this unusual time in the business where gross profit is up and expenses are down, it may make sense to review your purchasing procedures and implement tighter controls when it comes to approving expense purchases. It has always amazed me how many people in a dealership have the ability to purchase things for their department. It may make sense to establish a procurement individual or process through which all purchases run or, if not, at least establish standards that need to be adhered to before purchases can be made. This could inwww.msada.org

the value versus cost for this employee would be. So, before your assistant has an assistant, tighten up the hiring process.

In conclusion, things are great, and, for the first time that I can recall, dealerships are in the driver’s seat. If someone does not want to purchase the vehicle you have, no worries. The next customer will. Now is the time to take advantage of the opportunity to look at things and processes that are not broken but can be improved so these great times can continue for a longer period. t Kevin Carnes is the Principal-In-Charge of O’Connor & Drew P.C.’s auto dealership practice, which services over 300 dealerships. He can be reached at kcarnes@ocd.com.

Massachusetts Auto Dealer

JULY 2021

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AIADA Brief

MSADA MSADA

In 2021, Dealers Make an Impact

By Cody Lusk AIADA President & CEO

Every August in D.C., just as the Capital reaches peak levels of heat and humidity, members of Congress turn their focus from federal legislation to establishing and reinforcing hometown relationships.

They return to their districts en masse during what is known as August Recess for weeks of critical relationship building.

At home, they engage with voters, take the pulse of their electorate, and raise funds for their re-election campaigns.

Traditionally, August is one of the best times for dealers to invite their lawmakers to visit their dealerships, meet with employees, and learn more about the positive impact auto retailers have on their communities. By inviting lawmakers to familiarize themselves with the auto retail process, dealers ensure that later, when key legislation impacting their stores is being debated, members of Congress have a personal connection to consider.

Dealer visits are one of the most important and valuable tools in AIADA’s advocacy toolbox, and this year, post-pandemic and post-Capitol lockdown following the January 6 riot, they are more important than ever. There have never been more barriers between citizens and their elected officials in Washington, D.C. As a result, the access you have to your lawmakers at home has never been

more valuable.

If this sounds at all intriguing to you, I urge you to go to www.aiada.org/visit and learn more about the process (do not worry – AIADA handles all the heavy lifting). When dealers ask me what the most important thing they can do to protect their stores from federal laws and policy, I always say, “Get to know your representative in Congress.”

The time is now and the opportunity is here. You will be glad you took it.

This Summer, AIADA is injecting new energy and urgency into our tradition-

fering dealers the ability to send self-recorded video messages right from their smartphones directly to Congressional inboxes. The no-more-than-30-second clips feature dealers recording a message about the impact of international nameplate dealers in the U.S., including the latest data from our economic impact report, as well as more personalized information about each individual dealer and store.

As I wrote last month, we are facing unique headwinds as an industry. Between chip shortages, the threat of EV tax incentives being offered to only union-made vehicles, and a new administration’s tax policy, dealers have reason to be concerned about what the future holds for their businesses. More than ever, international brand dealers need to rise up and make sure their lawmakers understand the impact they have on the U.S. economy.

AIADA’s “Dealers Make an Impact” campaign will provide you with the messaging and tools you need to reach out to your elected officials to make them aware of the impact dealers like you have in your district, state, and the national economy.

AIADA has your back in Washington.

We continue to fight for international brand dealers to sell the vehicles Americans want to buy and to compete on a level playing field. As we work across the industry to shore up the semiconductor shortage and prevent unfair tax credits from being written into law, we will rely on you, the dealer, to join our advocacy efforts.

I look forward to working with all of you to protect your stores and advance AIADA’s mission in Washington, D.C. t

“This Summer, AIADA is injecting new energy

and urgency into our

traditional dealer visit program by kicking off something we call our

‘Dealers Make an Impact’

JULY 2021

campaign.” al dealer visit program by kicking off something we call our “Dealers Make an Impact” campaign. Through our campaign, AIADA members not only can ask us to arrange a Congressional visit to their stores, they can also engage with lawmakers on a number of new fronts, including via video.

The pandemic challenged how we thought about personal interactions and forced us to adapt, but the overall goal remained the same: Put a face to a story and deliver it in a way that gets a legislator’s attention. With the click of a button at www.aiada.org/impact, AIADA is of-

Massachusetts Auto Dealer www.msada.org

MSADA

TRUCK CORNER

Your Voice Counts

By Steve Bassett Chairman, American Truck Dealers Steve

is

the

dealer

General Truck Sales in Muncie, Indiana. He also has locations in Indianapolis, I ndiana , and T oledo , O hio . H e sells V olvo , Isuzu, H ino, and M ack trucks. principal

of

ATD effectively represents and communicates dealer interests to manufacturers through the Dealer Attitude Survey. We are working hard to advance dealers’ relationships with their OEMs, but we must hear directly from you. Complete ATD’s 2021 Dealer Attitude Survey today and make your voice count. The survey is available exclusively online at www.atd.org through August 5.

Last year ATD presented the results of the survey virtually due to the pandemic; this year we are looking forward to in-person meetings. In recognition of the unique situation last year, ATD added several questions directly addressing the COVID-19 crisis. OEMs appreciated your feedback on this timely issue.

In the 2021 survey, we included questions that examine your current challenges and new business realities and how both are affecting your dealerships.

Dealers are experiencing different demands based on their respective markets, but we also have common issues we must tackle head-on. Truck dealers everywhere are preparing for an EV transition that will affect customer demand and servicing needs in the future.

On top of that, we are still working to advance our workforce initiatives and fill the critical demand for diesel technicians in our dealerships. The challenges presented by a pandemic continue to evolve each day, with dealers implementing safety standards that protect the health of customers and employees.

It is clear that building strong relationships with our OEMs and strengthening the dealer business are critical to meeting the challenges ahead.

I have said it before, and I will say it again: The annual Dealer Attitude Survey is one of the most important tools we have in our advocacy efforts with manufacturers. I encourage you to involve your department managers and provide honest and comprehensive feedback. Remember, the greater the response rate, the more weight the survey results will carry.

Your feedback will be the foundation for every upcoming manufacturer meeting. Your ATD line representatives and dealer council chairs, along with ATD staff, will share your responses during productive meetings with senior management of each OEM. All truck dealers should have received an email

from ATD with a link to take the survey for your location(s). Do not hesitate to reach out to us at ATD@ ATDsurvey.org with any questions or concerns.

ATD Economic Update In the first half of the year, commercial truck sales totaled 231,813 units, up 28.5% from the COVID impact in the first half of 2020. Medium-duty truck sales topped 120,000 units, and heavy-duty truck sales exceeded 111,000, increasing 23% and 35.1%, respectively. Sales rose because of solid freight demand, as many sectors of the economy reopened and more consumers returned to their normal routines. In June 2021, Class 8 sales were 19,840 units, the second-highest monthly total this year and just over baseline replacement demand of around 19,000 units a month.

We believe that sales in second-quarter 2021 were hampered by the lingering supply chain issues that have affected commercial truck production for months. According to ACT Research, orders for Class 8 trucks have been solid, topping 25,000 units in June 2021. Total Class 8 truck orders in the first half of 2021 were over 208,000—the third-highest total on record for the first half of a year. Nearly all order slots for 2021 have been filled, and orders should increase later this year as OEMs open their order books for 2022.

As with the light-vehicle market, shortages of new-truck inventory have led freight purchasers looking to capitalize on strong freight demand and high freight rates to turn to the used market.

Through the first five months of 2021, according to J.D. Power, pricing of four- to six-year-old Class 8 trucks at auction was up 80% from the same period in 2020. Inventory returning to market has been limited, as many freight companies are holding on to their trucks longer than normal in this hot market.

Because of the reopening and expanding U.S. economy, we expect continued strength in the commercial truck market for the rest of the year and into 2022. Demand for new-truck inventory is out there, but sales will likely continue to be somewhat limited by supply chain issues. For the whole year we see medium-duty truck sales of around 240,000 units and heavy-duty truck sales of some 260,000. t

www.msada.org

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NADA Update

By Scott Dube

We Are All-In on EVs

Dealers are more than ready for an electric future, despite the naysayers 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.

As our business community navigates an inventory shortage the likes of which we have not seen since World War II, it is frustrating to see headlines continue to roll out that cast doubt on our enthusiasm or even ability to sell electric vehicles. Like you and our other dealer colleagues, I am all in on selling EVs or whatever other powertrain my manufacturer decides to build and consumers desire. We have a long history of adapting and overcoming. The powertrain of the vehicle does not change what we do.

I will avoid diving into finger pointing, but there are, of course, elements in our broader industry that would like to see our business model fail so that consumers have fewer choices, less transparency, and less accountability from manufacturers.

Thankfully, we all have NADA on our side. I encourage you to digest NADA President Mike Stanton’s update below, and please reach out if you have any questions or concerns.

Dealers are Essential to Broader EV Adoption

By Mike Stanton, NADA President and CEO

Earlier this year, when Ford unveiled the F-150 Lightning, it did far more than just announce the newest iteration of the most popular and best-selling vehicle in America for the last 40 years. It ushered in a new—and long overdue—era of battery-electric vehicles built not to fill niches within the American car market, but for the bulk of it.

This was a watershed moment in automotive history, and maybe American history. That is because the F-150 Lightning is far more than just a truck. It is more than just an electric truck. It is the vanguard of a wave of vehicles that can finally bridge the gap between the battery-electric vehicles we have now and the BEVs that can truly make an impact on our climate over the long term by appealing to the vast majority of American car and truck buyers in a way that our current EVs JULY 2021

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simply do not.

Franchised dealers have been waiting for this moment for years. Dealers are “all in” on EVs and incredibly excited about the new electrified products that are being announced almost daily. Dealers are hungry for the sales and service opportunities that are going to come with having numerous new EV models to sell.

While today’s EVs are exceptional, particularly compared to those of just a decade ago, the reality is that almost all of them appeal primarily either to stalwart supporters of reducing greenhouse gas emissions or luxury vehicle buyers who want to be on the cutting edge of technology and performance.

One of the great mistakes we make in assessing our progress on converting America’s fleet to electric is assuming that today’s EV buyers will look like the EV buyers of tomorrow.

This simply is not true.

It is undisputed that Tesla has been extremely successful at selling its products, and the company deserves significant credit for what it has been able to accomplish. But does Tesla’s success prove that you can sell EVs in great quantities in America? Does it reveal the path to the mass adoption of EVs? Short answer: No! What Tesla has proven is that you can sell Teslas very successfully in America to a certain, and pretty small, subset of our population. To date, American EV buyers are vastly different from ICE-vehicle buyers. In particular, compared to ICE buyers, EV buyers are much wealthier, much better informed about EVs, and are acquiring their third, fourth, or fifth current car.

Not only are America’s current EV buyers willing to pay full list price, many of them wear it as a badge of honor that they have done so. They know exactly what they want, so they do not need to talk to a salesperson, either about the car or about financing. Because they tend to have multiple vehicles in their personal or family fleet, they are much more likely to be willing to wait for delivery, live with range limitations, live with the time and planning it takes to recharge, and deal with service delays.

But this buyer type is not likely to dominate the EV market over the coming years. Why? Because the vehicles are changing. As the EV market leaves luxury niche status and enters the mainstream, its customers will come to resemble the average car buyer more and more.

This is a good thing! We should all be ecstatic that going

MSADA forward, when we talk about how to foster adoption of EVs in the U.S., we will not be talking exclusively about how to market $120,000 sports cars and luxury SUVs or vehicles that compromise on utility, but instead will be talking about how to best market $40,000 pickup trucks—that just so happen to be electric.

It is the EV customers of the future who we need to cater to if we are to have meaningful and broad EV adoption.

We can finally start to think realistically about doing so.

We are essentially at the doorstep of selling EVs—real, functional, non-niche EVs—to mass-market car buyers for the first time ever. And to sell effectively to mass-market buyers, you need to capitalize on what has worked for mass-market buyers for generations.

Things like consumer education about the product, help with comparing models, working with a customer’s budget constraints, financing assistance, helping with trade-ins, allowing test drives, and—yes—even good-old-fashioned tire kicking. This is all in addition to the new challenges specific to EVs, such as the complexities of charging—the fact, for instance, that electric rates vary based on the time of day and the level of charge—and other variables that do not exist in the ICE market.

Dealers are absolutely essential in this world of new EVs. Once you get past luxury vehicles and into the mass-market, you will not achieve broad acceptance of any product, regardless of how it is powered, by rejecting the attributes of the sales and service process that mass-market vehicle buyers are not just accustomed to, but that they depend on to confidently choose the right vehicle at the right price that best meets all their needs.

We hear a lot of people argue that dealers are an impediment to EV sales in the U.S. This has never been true. Moving forward, this type of thinking will not just be wrong, it will be dangerous—if our goal is, as it should be, to sell a greater number of EVs to a broader segment of the American market.

This is a critical juncture in our march toward a cleaner future. It is a good time for policymakers and stakeholders at all levels to think critically about what it is going to take to sell EVs in greater volumes to customers who have not experienced EVs yet.

The reality is that it is going to take a lot. It is going to take a network of tens of thousands of retail and service points located in just about every corner of the country, not just a website. It is going to take hundreds of thousands of knowledgeable sales staff, not just a 1-800 number. And it is going to take hundreds of thousands of highly-trained technicians capable of providing professional service on the spot, not just mobile repair trucks.

It is going to take dealers. Fortunately, we are already here, and we are raring to go.

NADA Issues Second Quarter Sales Analysis In Q2 of 2021, sales totaled a 17.0 million unit SAAR, up slightly from the 16.9 million unit SAAR in Q1 of 2021.

“The increased SAAR in Q2 was due in part to incredibly high sales in April 2021, which had a SAAR of 18.8 million units, the fourth highest monthly total since the year 2000,” said NADA chief economist Patrick Manzi. “If inventory was not constrained, we could have seen an even higher level of sales.”

Through Q2, light-trucks, including SUVs, represented 76.9% of all new vehicles sold, and the segment is expected to continue to move towards an 80% market share. Pickups accounted for 17.6% of sales for the first half of 2021, down from 20.0% compared to the first half of 2020; crossovers represented 45.9% of sales, up from 41.8% one year ago.

Inventory, due primarily to a global microchip shortage, remains a major factor in all facets of the auto retail industry. Thus far, 4.6 million vehicles have not been produced globally as a result of the chip shortage. An additional 1.2 million losses are projected for a total of 5.8 million vehicles not produced. In North America alone, 1.5 million vehicle losses have been announced with an additional 300,000 projected for a total of 1.8 million units.

As a result, inventory levels were just over 1.5 million units at the end of May, which translates to 25 days of supply, down from 2.6 million units and a more normal 61 days of supply at the end of May 2020. According to Wards Intelligence, inventory at the end of June was depleted further and fell to 1.4 million units. By the end of the July, inventory is expected to fall an additional 7% to 1.3 million units.

“Inventory is likely to be tight into 2022 as manufacturers continue to deal with the impact of the chip shortage for the remainder of the year,” said Manzi. “Even if there is enough production to satiate current retail demand, there are still plenty of fleet customers looking for inventory whose needs will need to be met before manufacturers can begin to restock dealer lots to more normal levels closer to three million units.”

In light of strong demand and a short supply of vehicle inventory, new-vehicle average transaction prices reached record highs at the end of second quarter with many vehicles selling at MSRP or higher. In June 2021, the new-vehicle average transaction price is expected to reach a record high of $40,206, according to J.D. Power.

High trade-in values and low interest rates have helped consumers with the new-vehicle price increases and have kept average monthly payments from rising greatly. In May 2021, the average monthly payment for a new vehicle finance contract was $598 compared to $576 in May 2020.

Manufacturer incentives on new vehicles remain limited. t www.msada.org

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