ADVertiSing rAteS inquire for multiple-insertion discounts or full Media Kit. e-mail jfabrizio@msada.org
More than Numbers
Our latest Economic Impact Report shows that dealers are still driving retail in Massachusetts
By Jeb Balise, MSADA President
CDK Cyberattack Slams Dealer Operations
Franchised auto dealers matter more than ever. The statistics spelled out in our annual Economic Impact Report, available in this month’s issue on page 19, is a key tool to show who we are and how large of an impact we have on our Commonwealth. That we make up 20 percent of the retail economy in this state is usually enough to perk up the ears of those unaware of that fact. But franchised auto dealerships also employ more than 25,000 people in Massachusetts across every part of the state and are responsible for creating billions of tax dollars for the state and federal government. We represent a large and quantifiable part of legislators’ constituencies, and their agendas hit, or help, us in ways that we have to make sure they understand. Thank you to each dealer who provided the information upon which we built our report. Hundreds upon hundreds of bills get filed through the State House and Congress every year. It is an unfathomable amount of information to keep track of, and frankly most legislators can barely keep track of their own initiatives. That is why it is important to stay involved with legislators on Beacon Hill and in Washington, D.C. If we do not engage in the issues being brought to their attention, if we do not bring our own needs into the spotlight, someone else is simply going to have an easier time making our lives difficult. Our Report is a tool we use to promote our industry and economic contribution in the state.
Finally, on June 19, a shock wave went through our industry, as CDK reported it suffered a major cyberattack at the hands of nefarious parties. As a result of the ransom attack, CDK shut down DMS capabilities and other services that dealerships nationwide depend upon and use daily. Hundreds of Massachusetts dealers were forced to go oldschool and write up, by hand, sales contracts and other transactional documents and visit RMV service centers to get those sales done and vehicles registered.
From the start your Association has worked with the RMV to encourage their flexibility at the service centers to meet increased dealer visits. We also have provided our members with a continuous supply of information through our communications to make sure our members have the info they need to remain compliant with federal and state law in the face of a cyberattack on a third-party vendor.
This month’s Auto Dealer contains several articles to help you navigate the impact of the CDK cyberattack shutdown in the near- and long-terms. If you need additional information on this or any issue, please contact Executive Vice President Robert O’Koniewski at (617) 451-1051 or rokoniewski@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,
Bill Deluca family of Dealerships
Paul Bertoli, Priority chryslerJeep Dodge ram Franklin County [open]
Hampden County
Jeb Balise, Balise Auto group
Hampshire County
Bryan Burke, Burke chevrolet
Middlesex County 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
chris connolly, Jr., Herb connolly chevrolet
NADA Director
Scott Dube, Mcgovern Hyundai rt.93
OFFICERs
President, Jeb Balise
Vice President, Steve Sewell
Treasurer, Jack Madden, Jr. Clerk, c harles tufankjian
ACV Auctions
MSADA A SS oci Ate M e M ber S D irectory
Steve Sirko (856) 381-3914
ADESA
Elizabeth Morich (508) 270-5400
Albin, Randall & Bennett
Barton D. Haag (207) 772-1981
American Fidelity Assurance Co.
Kathleen Weisenbach (402) 523-5945
America’s Auto Auction Boston
Chris Colocousis (774) 218-8930
ArentFox LLP
Paul Marshall Harris (617) 973-6179
Sarah Decatur Judge (617) 973-6184
Armatus Dealer Uplift
Joe Jankowski (410) 391-5701
Assurant Dealer Services
Sean Skinner (603) 660-3647
Auto Auction of New England
Steven DeLuca (603) 437-5700
Bank of America Merrill Lynch
Dan Duda and Nancy Price (781) 534-8543
Bellavia Blatt
Leonard Bellavia (516) 873-3000
Broadway Equipment Company
Fred Bauer (860) 798-5869
Brown & Brown Dealer Services
Jason Bayko (508) 624-4344
CDK Global
Rob Steele (508) 564-1346
Clifton Larson Allen
Rick Parmelee (860) 982-9307
Cooperative Systems
Scott Spatz (860) 250-4965
Cox Automotive
Polly Penna (303) 981-1298
Creative Resources Group
Charlie Rasak (508) 726-7544
CVR
John Alviggi (267) 419-3261
Dave Cantin Group
Woody Woodward (401) 465-7000
Dealer Pay
Shannon Wischmeyer (636) 293-8038
Downey & Company
Paul McGovern (781) 849-3100
DP Sales Distributors
Andrew Prussack {631) 842-7549
Driving Dealer Performance
Kimberly Guerin (978) 760-0322
Eastern Bank
David Sawyer (617) 620-3484
EasyCare New England
Greg Gomer (617) 967-0303
Ethos Group, Inc.
Drew Spring (617) 694-9761
F&I Direct
Sean Wiita (508) 414-0706
Michelle Salas (508) 599-0081
Federated Insurance
Kevin Sundberg (559) 547-9694
Fisher Phillips LLP
Joe Ambash (617) 532-9320
Jeff Fritz (617) 532-9325
Josh Nadreau (617) 532-9323
GW Marketing Services
Gordon Wisbach (857) 404-0226
Hilb Group
James Pietro (508) 791-5566
Huntington National Bank
John Marchand (781) 326-0823
iHeart Media
Paul Kelley (757) 328-1431
ION Bank
Timothy Rourke (203) 439-9400
JM&A Group
Chris “KC” Hwang (954) 415-6961
JM Electrical Co.
Christopher Cedrone (781) 581-3328
John W. Furrh Associates Inc.
Pamela Barr (508) 824-4939
Key Bank
Mark Flibotte (617) 385-6232
KPA
Abe Cohen (503) 902-6567
M & T Bank
John Federici (401) 642-5622
Management Developers, Inc.
Dale Boch (617) 312-2100
Marcum LLP
Nichole Rene (203) 781-9690
McWalter Volunteer Benefits Group
Shawn Allen (617) 483-0359
Merchant Advocate, LLC
Dan Giordano (973) 897-2778
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
Northeast Dealer Services
Johna Cutlip (401) 243-7331
OCD Tech
Michael Hammond (844) 623-8324
Performance Management Group, Inc.
Dale Ducasse (508) 393-1400
Piper Consulting
Jim Piper (207) 754-0789
Plug In America
Joel Levin (237) 925-1364
Portfolio
J. Gregory Hoffman (800) 761-4546
Priority Payments Local
Andrew Pollina (732) 372-4352
Pullman & Comley LLC
James F. Martin, Esq. (413) 314-6160
Reynolds & Reynolds
Austin Ziske (802) 505-0016
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
Shepherd & Goldstein CPA
Ron Masiello (508) 757-3311
Southern Auto Auction
Joe Derohanian (860) 292-7500
Sprague Energy
Rick Pasquatelli (508) 768-7640
The Towne Law Firm P.C.
James T. Towne, Jr. (518) 452-1800
TrueCar
Pat Watson (803) 360-6094
Truist
Andrew Carmer (401) 409-9467
US Bank
Vincent Gaglia (716) 649-0581
Wells Fargo Dealer Services
Josh Tobin (508) 951-8334
Withum
Kevin Carnes (617) 471-1120
Zurich American Insurance Company
Steven Megee (774) 210-0092
Legislative Process Crawls Along
By Robert O’Koniewski, Esq.
MSADA Executive Vice President
rokoniewski@msada.org
Follow us on X (formerly Twitter) • @MassAutoDealers
The Massachusetts Legislature is struggling to finalize action on at least 21 important bills as its election year cutoff date of July 31, by which controversial matters must be dealt with, looms ahead. Trying to deal with a score of substantive bills, regarding such a diverse range of topics as maternal health, early education, substance abuse, prescription drug pricing, gun reform, and affordable housing, can be daunting over a twelve-month span, but becomes even more of a challenge within the remaining legislative days they choose to work in July.
There are three bills on the list right now to which we need to pay close attention: the FY25 budget (House 2), economic development (House 4789), and clean energy (Senate 2829).
The most important task any legislative body has is to pass a budget to fund governmental functions. During the appropriations process, legislators can set spending priorities, change agency policies, and establish tax functions to bring in the necessary revenues. In Massachusetts, our state government’s fiscal year begins each July 1. Unfortunately, our Legislature, for the 14th consecutive year, has missed the deadline and is operating on a one-twelfth budget while the conference committee works out the differences in each chamber’s FY25 $58 billion spending plan. Heading towards the Independence Day holiday, there was no indication a deal was imminent.
The budget conference committee has before it at least one matter of interest to new and used-car
dealers: e-titles. During the House budget debate, we were able to successfully lobby the House to include in the bill three outside sections that would call for the Registrar of Motor Vehicles to establish a process for not only accepting electronic signatures on all vehicle transactional documents, including titles and all odometer statements, but also creating an e-title process in lieu of the current paper title requirement.
Although identical language was proposed as an amendment for Senate consideration, the Senate ultimately took no action on e-titles, thinking it best to have it resolved during the conference committee discussions. The Senate also took no action on a proposed amendment regarding auto body labor rates. That amendment, based on legislation that is presently before the House Ways and Means Committee, could potentially be part of an economic development bill the Legislature is looking to complete action on before the end of formal sessions on July 31.
As for that economic development bill, the House passed its version in June, with the Senate looking to potentially take it up in July after the holiday. The Senate most likely will include language regarding insurance companies’ compensation to auto body repairers for the labor rate portion of insurance-pay repair work. The Senate included this language in last year’s FY24 budget and the 2023 economic development bill, only to be rebuffed by the House each time. Once the Senate does its bill, the two chambers will have
a fortnight to resolve their differences if they are going to beat the July 31 deadline.
One matter that lingers in the Legislature like a swarm of summer gnats is the issue of capping doc prep fees. As mentioned in prior writings, there is a bill sitting in the House Ways and Means Committee which the Transportation Committee reported favorably that would cap doc fees at $600. This language was proposed as an amendment for the economic development bill but was rejected during House debate. This issue is not going away, as I hear from more legislators relaying complaints they receive from constituents on the fees’ amounts, “grossly excessive” in their words. This is now at least the fifth session we have beat back an effort to cap these fees. If you are going to charge a doc prep fee, at least use our calculation formula to show to customers the actual amount as it relates to your cost recovery. Transactional costs will continue to rise as the government injects more regulation into the process. Dealers need to have the appropriate information in hand to counter your customers’ angst on the doc fees.
Finally, the Senate passed its version of a clean energy bill in June, jumping ahead of a more deliberative approach taken by the House, which was not doing anything. The Senate bill mainly focused on improvements to the siting of renewable energy (solar, wind, hydro) projects in order to speed up the current tortoise-like pace at which the state is struggling to meet its 100% renewable energy sources by 2050. The bill, however, did address several matters related to EV charging, especially in recognition of the point your Association has been driving home for years that a large impediment to consumer acceptance of EVs is the weak charging infrastructure network presently in existence:
• Authorizes state agencies to purchase EV charging stations for buildings owned or leased by an agency for a period of 10 or more years;
• Requires the state to come up with an estimate of the number of EV chargers that will be necessary for the state to meet its medium- and heavy-duty truck EV requirements, and establish a cost for such charging infrastructure;
• Exempts electric vehicle supply equipment from the appliance efficiency regulations;
• Authorizes government bodies to purchase electric buses and the electric vehicle charging systems;
• Provides that condominium associations may only require the installation of EV charging equipment in common areas of the property. Individual unit owners may be assessed jointly for the cost of the installation of the EV charging system. The equipment must be made available for all unit owners;
• A condominium association shall not prohibit or unreasonably restrict an individual owner from installing an EV charger in a parking space controlled by the individual unit owner;
• Directs the intergovernmental coordinating council tasked with implementing an EV charging system to strive to ensure to develop a network of convenient, affordable, reliable and equitable EV chargers across the state. On July 31, 2025, the council shall report on their efforts to develop such a system;
• Earmarks $27 million to be distributed each fiscal year from the RGGI Auction Trust Fund to the Electric Vehicle Adoption Incentive Trust Fund;
• Directs the DPU to encourage electric distribution companies to develop rightof-way and pole mounted EV charging systems. The companies must respond to the DPU with their proposal by December 31, 2025.
There has been scant discussion of when the House might do a clean energy bill. Perhaps this may occur after the July 4 holiday. Perhaps not. If it is to occur, the clock will be ticking, as it is on the score of matters that will turn to a pumpkin at midnight, July 31.
CDK Cyberattack, DMS/CVR Shutdown
On June 19, CDK systems were affected by a cyberattack. To contain the situation, CDK shut down its systems, especially DMS and electric vehicle registration and titling through CVR, thereby impacting services here and nationwide. At that time, the full extent of the attack and the specific systems affected were unknown, and there was no estimated time of restoration communicated to dealers.
Beginning with our Bulletin #85 on June 19, we communicated information to our dealers over the subsequent days provided by our several associate members such as OCD Tech, Withum, ComplyAuto, Albin Randall & Bennett, etc.
We cautioned that dealers’ primary concerns must include the protection of customer information in compliance with FTC Safeguards, as well as the continuity of service. We recommended that dealers also contact CDK to confirm the details of the incident with CDK to understand how it might affect dealers as further details were to be made available.
Finally, we included warnings to look out for any official bulletins released by CDK via email, being sure to verify the identity of any sender or incoming calls from anyone claiming to be a CDK representative and cautioned against using these systems until CDK has confirmed they have been restored and are safe to use. Attackers could use this as an opportunity to conduct a “supply chain” attack, further spreading the impact of access they may have gained within CDK’s systems, or taking advantage of auto dealers who may be desperate to restore operations and thus tempted to click on malicious links or open attachments.
In our Bulletin #90, published on June 21, we provided a ten-point “to do” list compiled by Withum discussing the key matters that dealerships needed to address as well as some not-so-obvious items to look out for so that the nightmare of the at that point two-day shutdown did not ex-
tend any further:
(1) Contact your insurance provider and work with them to determine and calculate the amount your dealership can claim for the period of time of lost work and the period of time for potential lost profit.
(2) Dealerships need to dedicate a period of time to overall reconnaissance before going back to business as usual. All departments need to help the accounting office gather the necessary information accumulated during this downtime to ensure it will be accurately entered into the system, or the dealership will face repercussions later.
(3) Once CDK comes back online, everyone at the dealership should go into CDK setups to ensure that sales tax is correct, their templates are correct, that the mapping from the accounts to their financial statements is correct, and that nothing got corrupted within their system.
(4) Do not assume that this breach only impacted data collected when CDK was down. Dealerships need to compare their May 31 statements to their June 1 statements to ensure there are no discrepancies.
(5) For any sales that did occur during this downtime, ensure that they were recorded accurately, and that sales tax was calculated correctly for the jurisdiction that you are in and recorded in the correct states. This will include reviewing all information from the manual sales to ensure all necessary accounting has been recorded.
(6) For anything done within the service department during downtime, make sure that all flag times were captured, and that this technician time was recorded accurately.
(7) Dealerships need to be strict about warranty submissions because the factory will deny claims that are incorrect.
(8) Audit your dealership’s cybersecurity measures. Ensure that you are using multi-factor authentication, not sharing passwords, not providing access rights to individuals who do not need them, and complying with FTC safeguards.
(9) If your dealership closed for the period of time that your DMS was down, you
will need to determine if these employees will be paid as a courtesy or if they will need to utilize paid time off and work with HR to resolve any conflicts.
(10) Please note that the CDK cyberattack reaches beyond your own DMS. CDK aligns and integrates with other services and platforms. At the time of this writing, Tekion is now down as a direct result of the CDK cyberattack. Please be sure to remain on top of any other system or software that integrates with CDK to ensure data accuracy and due diligence.
CDK, moreover, has directly communicated with its dealers to warn of potential phishing efforts from a bad actor, posing as members or affiliates of CVR. CVR has stated that any such emails should be immediately treated as suspicious. CDK also has asked dealers to reiterate to their employees the importance of being alert to acts of phishing and take the necessary preventative precautions. Engage with known or validated CDK and CVR associates, and do not provide sensitive information such as passwords or provide system access under any circumstances.
We continued to publish bulletins through the end of June as the CDK saga persisted plaguing dealership operations. As of this writing, most CDK services, including CVR, still were not operational. If you are not receiving our bulletins, please reach out directly to me at rokoniewski@ msada.org. Also, check your junk mail folder to make sure they were not redirected there. A number of dealers’ computer security systems have prevented delivery of our communications.
Additionally, in MSADA Bulletin #100, we provided an update on NADA’s discussions with CDK and the FTC regarding potential reporting requirements dealers may face due to the CDK cyberattack if dealers’ customer data was breached. Readers will recall the FTC Safeguards Rule was recently amended to require financial institutions (including dealers) to provide an electronic notice to the FTC as soon as possible and no later than 30 days after discovering a notification event involving the information of at least 500
consumers. A notification event is the unauthorized acquisition of unencrypted customer information.
Questions have arisen concerning whether the security incident reported by CDK on June 19 triggers this requirement. If it does, each dealer client of CDK would be required to file a breach notification with the FTC and complete its data fields including (among other entries) the types of information involved in and a summary of the notification event.
Because information surrounding the security incident is subject to an internal, ongoing investigation by CDK and, therefore, is unavailable to CDK’s dealer clients, dealers are unable to determine whether the federal notification requirement has been triggered.
Accordingly, NADA, in coordination with CDK counsel, proposed to the FTC that the FTC permit CDK to file a single electronic notice on behalf of all of its affected dealer clients should CDK conclude, based on its internal investigation of the incident, that the notification requirement has been triggered.
In such notice, CDK would complete all of the required data fields based on available information, including the identity of its affected dealer clients. A filing by CDK, or a determination by CDK that the notification requirement has not been triggered, would satisfy any reporting obligation the dealer may have under the FTC Safeguards Rule.
The FTC has accepted NADA’s proposal. Consequently, dealers have no obligation to file a breach notification with the FTC related to this matter. (Note: A dealer can opt out of having CDK handle this matter on its behalf in which case the dealer will have to file a breach notification if the dealer determines that a notification event has occurred.)
However, dealers are reminded that (i) the full range of FTC Safeguards Rule requirements remain in effect, and (ii) every state has a breach notification requirement and the FTC’s acceptance of this proposal has no effect on state notification requirements. Therefore, it is important for deal-
ers to consult with legal counsel to ensure they are in compliance with any applicable state breach notification requirements. Further, we were in continual contact with the RMV so that the agency could accommodate and assist dealers during this CDK crisis. The RMV understood that this is a tough time, and they were doing everything to be flexible, especially in attempting to deal with the influx of transactional activities during the CVR shutdown. Such a situation demanded patience on all parties, as the RMV re-allocated its resources to accommodate dealer needs, especially allowing dealers to bring in additional registration-related paperwork to be processed at the centers, including the printing of temp tags, during the CVR system shutdown. We also pointed out to dealers that there are 10 service centers that have Saturday hours as well as that many service centers Monday through Friday are not as busy as those located closest to Boston and the surrounding environs.
Finally, in this month’s Auto Dealer, beginning on page 43, we have three articles providing guidance for dealers to address immediate post-cyberattack matters as well as a game plan for the future.
ATD Fly-In
American Truck Dealers (ATD), an arm of NADA dedicated to medium- and heavy-duty truck dealers, held its annual Congressional fly-in to Washington, D.C., on June 25-26. ATD hosted 88 attendees comprising 44 dealers, including Kevin Holmes and Chris Marsh of Advantage Truck Group, and 18 Automotive Trade Association Executives, including this writer, representing 25 states. In total, attendees engaged in 95 visits with Senators and Representatives at Capitol Hill. The ATD Board also met as part of the fly-in activities. Kevin and I sit on the ATD Board as the Freightliner rep and the ATAE rep, respectively.
During our journey to our nation’s capital, we met with the staff for Reps. Jake Auchincloss (D-Newton), Katherine Clark (D-Revere), Jim McGovern
(D-Worcester), Seth Moulton (D-Salem), Richard Neal (D-Springfield), and Lori Trahan (D-Westford).
The key legislative priorities we discussed on the Hill included:
• Opposing the EPA’s final rule for Greenhouse Gas Emissions Standards for Heavy-Duty Trucks – Phase 3;
• Support for repealing the 12% federal excise tax on heavy-duty trucks (H.R. 1440/S. 694);
• Opposing the “right to repair” bill as drafted especially as it would relate to heavy-duty trucks (H.R. 906); and
• Support for catalytic converter anti-theft legislation (H.R. 621/S. 154).
Fly-In attendees heard a number of presentations from legislators and industry representatives:
• Cong. Brittany Petersen (D-Colorado);
• Cong. Randy Feenstra (R-Iowa);
• Cong. Earl Blumenauer (D-Oregon);
• Emily Clayton, senior economic analyst, and Jacqueline Gelb, VP energy and environment affairs, American Trucking Association;
• Tim Blubaugh, executive VP, Truck and Engine Manufacturers Association; and
• Dr. Wilfried Aulbur, senior partner, Roland Berger.
Finally, NADA will hold its annual Washington Conference on September 17-18, at which your Association brings a group of dealers to meet with our Congressional delegation members. If you want to participate in outreach on these federal issues with your Member of Congress, please do not hesitate to contact me.
On a side note, the ATD fly-in occurred before the June 27 presidential debate. As a result of that debate, Congressional Democrats will be tied up trying to resolve several competing undercurrents to the election season, especially as they strive for more power, never mind hold on to the White House, come November. Never a dull moment in D.C.
Connolly Hosts Sen. Pres. Spilka at Dealership
On June 13, MSADA Past President Chris Connolly hosted his state Senator,
Senate President Karen Spilka (D-Ashland), for a morning fundraiser event at Herb Connolly Chevrolet in Framingham. The Senator met with members of the business community, including dealership representatives, who attended. The event served as an effective way for our industry to stay connected with one of the three most powerful members of the Commonwealth’s government.
Annual Meeting – Nov. 1, Encore Casino
We will be holding our annual meeting on Friday, November 1, at the Encore Hotel and Casino, in Everett. We are in the process of developing our speakers lineup, running 1-5pm after our Noon welcome reception. The day will conclude with our cocktail reception, 5-8pm. Please use the registration information that will be emailed to you to sign up. We look forward to seeing you on the first.
U.S. House Committee Votes to Stop Vehicle Shopping Rule
On June 13, the House Appropriations Committee passed the FY25 Financial Services and General Government (FSGG) appropriations bill, which included an NADA-backed provision (Sec. 530) that would stop the Federal Trade Commission from implementing or enforcing the Vehicle Shopping Rule until September 30, 2025.
The FY25 House FSGG bill is expected to be considered on the House floor in late July.
NADA also successfully advocated
the roundu P
against a last-minute poison pill amendment offered by Rep. Matt Cartwright (D-Pennsylvania), which would have enabled the FTC chair to waive cutting off funding for FTC policy riders by merely providing a justification to the Appropriations Committee. While the sponsor insisted the amendment was not intended to impact the Vehicle Shopping Rule, given the FTC’s lack of reasoned rulemaking and track record of evading requirements, NADA strongly opposed the amendment since it would effectively allow the FTC Chair to use nearly any pretext to render Sec. 530 meaningless. This amendment failed by a vote of 24-33.
Dealers and their associations argue the Rule is simply terrible for consumers, as it will add massive amounts of time, complexity, paperwork, and cost to car buying and shopping for tens of millions of Americans every year.
Moreover, a recently updated Center for Automotive Research study, based on the final rule, found that the Vehicle Shopping Rule will increase costs by $24.1 billion over 10 years, which consumers and small business dealers will have to absorb. Overall, the mandates of the rule would add 60-80 minutes to the car buying process and cost consumers $1.3 billion per year in lost time.
Finally, NADA continues to challenge the rule in court. On June 12, NADA filed its final brief in response to the NADA/ Texas Automobile Dealers Association court challenge. The next step in the litigation is oral argument, which has not been scheduled.
Fed Rule on New OT Salary Levels for OT Exemption Starts July 1
As we reported in MSADA Bulletin #56, the U.S. Department of Labor, on April 23, published a final rule that raises the minimum annual salary threshold to classify an employee as exempt from overtime rules under the federal Fair Labor Standards Act (FLSA).
The new rule’s dramatic increase in salary thresholds will require dealers to
reclassify some exempt employees as non-exempt and require justification for classifying some employees as non-exempt.
• Salary threshold: Under FLSA, a worker may be exempt from overtime pay if paid on a salary basis over the minimum annual salary threshold and qualifies as an executive, administrative, professional, computer, or outside sales employee (commonly referred to as “EAP” exemptions). Beginning on July 1, 2024, all employees with a salary under $43,888 (up from the current $35,568) per year must be reclassified as non-exempt and, therefore, receive overtime pay. Beginning January 1, 2025, the salary level changes to $58,656.
• Highly compensated employees: Highly compensated employees performing office or non-manual duties are not subject to the EAP test but are exempt from the FLSA overtime rules if they regularly perform at least one of the duties of an EAP. Beginning July 1, 2024, all employees earning between $43,888 and $132,964 (up from the current $107,432) must qualify under all the factors defining an EAP employee. Beginning January 1, 2025, all employees earning between $58,656 and $151,154 must qualify under all the factors defining an EAP employee.
• Incentive payments and dealership exemptions: Employers may use nondiscretionary bonuses and incentive payments (including commissions) that are paid on an annual or more frequent basis to satisfy up to 10% of the standard salary level. Existing exemptions under federal law for salesmen, partsmen, and mechanics primarily engaged in selling or servicing automobiles remain unchanged. (Massachusetts law does not exempt salesmen from overtime pay requirements; plus, dealers must follow the Sleepy’s rules regarding minimum wage pay, OT pay, commissions, and bonuses.)
The new rule will almost certainly be challenged in court. In 2016, a federal court stayed President Obama’s attempt
to dramatically increase salary thresholds and ultimately struck it down. A future lawsuit would likely challenge the new rule on the same grounds.
New Fed Rules on NonCompetes Stalled, Kinda
In MSADA Bulletin #54 (4/25/24), we reported that the Federal Trade Commission (FTC) voted 3-2, on April 23, to issue a final rule banning employers from using noncompete agreements. The final rule bans new noncompete agreements with all workers, including senior executives, after the effective date 180 days after publication date. Existing noncompete agreements may remain in effect for senior executives but will be unenforceable for all other workers after the effective date.
The final rule indicates it is an unfair method of competition—and a violation of Section 5 of the FTC Act—for employers to enter noncompete agreements with workers after the effective date. The new rule will prohibit dealers from imposing new noncompete agreements with workers or to enforce or attempt to enforce such agreements after the effective date.
The U.S. Chamber of Commerce, with a Texas employer and several other businesses, immediately sued the FTC in Texas federal court on the grounds that it exceeded its authority—the same basis that the two dissenting commissioners voted against the rule. The Chamber described the rule as an “administrative power grab.”
On July 3, a Texas federal judge temporarily blocked the FTC from enforcing its final rule banning essentially all non-compete agreements, but the ruling only applies to the five entities in the suit. For the rest of employers around the country, nothing has changed quite yet and the non-compete ban is still scheduled to take effect on September 4.
Technically, the parties to that lawsuit won in the ruling. The court agreed that the FTC lacked the authority to issue the final rule, and that the rule is “arbitrary and capricious,” because, among other
reasons, it imposes a “one-size-fits-all approach” instead of targeting “specific, harmful non-competes.”
The court, however, refused to issue a nationwide injunction or even extend the ruling to the U.S. Chamber’s (and other organizations’) member entities. So, even though there is a preliminary injunction now in effect, it only applies to the five entities that sued the FTC and no one else.
Stay tuned for more to this story as it unfolds.
TIME Dealer of the Year Nominations Now Open –July 26 Deadline
It is that time of the year again. The highest honor bestowed on a dealer each year at the NADA convention (New Orleans, January 23-26, 2025) is the TIME Magazine Dealer of the Year (TDOY) Award.
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”.
Please help by nominating candidates for selection as the Massachusetts TODY. Here are the qualities that the judges at the national level are looking for:
• Community service: This can be civic, political, educational, or philanthropic. The more personally involved the dealer is, the better.
• Industry leadership: This can be state or national association leadership, or involvement in dealer councils.
• Quality businessperson: This means success as a dealer measured by awards, commitment to customer service, and profitability. But success is measured relative to dealership size by using benchmarks. Both large and small dealerships have been finalists or won the national TDOY.
A dealer 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 Jeb Balise, Vice President Steve Sewell,
Treasurer Jack Madden, Clerk Charles Tufankjian, NADA Director Scott Dube, Immediate Past President Chris Connolly, and At-Large Member Bill DeLuca), nor are the TDOY Recipients for the last four years (2024, Thomas Murphy; 2023, Gary Rome; 2022, Joseph Shaker; and 2021, Christine Alicandro).
Please give this your careful consideration and respond promptly via e-mail to me at rokoniewski@msada.org.
Nominations must be received at our office by Friday, July 26, 2024. Thank you for your assistance on this matter.
Our PACs - NADAPAC & NCDPAC
We appreciate the contributions we receive from our member dealers who answer our calls for donations to our PACs.
Each year MSADA expresses itself politically through NADA’s federal PAC, NADAPAC, 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.
“Accountants See Wealth Leaving Massachusetts”
State HouSe NewS Service, By MicHael NortoN
Accountants continue to sound the alarm over high-income residents leaving Massachusetts, in part to avoid the new income surtax that even the CPAs acknowledge has led to a “surge” in state tax revenues.
In its new 2024 public policy and com-
petitiveness report, the Massachusetts Society of Certified Public Accountants said two-thirds of accounting professionals surveyed reported that at least one high-income client relocated out of Massachusetts in the last year.
Ninety percent of accounting professionals indicated high-income clients are considering leaving Massachusetts, the report said, and 64 percent of respondents indicated the 4 percent surtax on household income above $1 million per year is a factor in relocation decisions.
The survey involved 128 CPAs who collectively represent 3,600 clients with annual taxable income of more than $1 million.
“The top three states to which Massachusetts residents are moving or considering moving are New Hampshire, Florida and Texas,” the report said. “Fifty-three percent of accounting professionals say that their clients are considering moving across the border to New Hampshire, suggesting that the tax burden imposed by Massachusetts plays an important part in the decision to relocate — and refuting the claims that individuals are just relocating due to a desire for sunnier weather and more coastline.”
Massachusetts collected $1.84 billion from the voter-approved surtax on the state›s highest earners through the first nine months of fiscal 2024, the Department of Revenue reported in May. Collections from the surtax appear on track to easily surpass $2 billion per year, and Beacon Hill Democrats continue to advance big plans to invest the new revenue in public education and transportation.
Last month, the Raise Up Coalition, which successfully pushed for the tax change as a constitutional amendment, used news of the $1.84 billion in collections to point to investments that it said are “making a real difference in the lives of people across Massachusetts.” Examples ranged from increased public college scholarships and free school meals to upgrades at the MBTA and road repair funding for cities and towns.
While collections are roughly aligning
the roundu P
with revenue projections that date back to 2015, the Raise Up Coalition used last month’s news to assert that those who claimed that multi-millionaires would flee Massachusetts rather than pay the new tax “are being proven wrong every day.”
Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University, said some people are leaving Massachusetts due to the new tax, but said the revenue collections show that it›s not a “tidal wave.”
The tax is too new to gauge its impact on households that earn just more than $1 million per year versus households with incomes well above that threshold. Horowitz said tax avoidance among high-income households is a “much bigger challenge” than the threat of households leaving Massachusetts for lower-tax states.
The surtax switched Massachusetts away from a flat income tax rate of 5 percent. Income over $1 million is now taxed at an effective 9 percent, putting the rate in line with “more burdensome states” such as New York, New Jersey and Vermont, according to the report, which notes the surtax was indexed for inflation so the threshold for the 2024 tax year will be $1,053,750.
In its report, the accountants group acknowledges “a short-term surge in revenues from the surtax,” while contending that “the long-term uncertainty is concerning given the share of total state revenues derived from this group of residents.”
While major tax policy changes do not appear to be a focus of top Democrats over the last six weeks of formal sessions, the CPA group is calling on the Legislature to pass three measures it says would make Massachusetts more competitive.
First, the society says Massachusetts should join 21 other states by decoupling from the federal limit on business interest expense to support companies that have already invested in Massachusetts and to “ensure that businesses based in Massachusetts deduct more interest from borrowing, which results in more infrastructure investments in our backyard.”
A 2023 tax reform law increased the estate tax exemption to $2 million and the
CPA group recommends raising it further to $5 million, and adjusting it for inflation. Neighboring states offer more generous exemptions, including New York ($6.1 million), Vermont ($5 million) and Connecticut, which is aligned with the federal threshold at $12.92 million. New Jersey repealed its estate tax in 2018.
“Despite progress, we believe there remains room for improvement,” the report said. “With the tax reform package signed into law, Massachusetts has transitioned from possessing the lowest estate tax exemption to now ranking as the third lowest in the nation.”
CPAs also continue to call on Beacon Hill to eliminate or reform the “sting tax,” an entity-level tax imposed on larger S-corporations. The group says the tax was enacted in the 1980s to safeguard tax benefits for small businesses and level the playing field between large S-corporations and C-corporations, but now “negatively sets Massachusetts apart from other states in terms of its taxation.”
“The thresholds for net income triggering the additional excise tax ($6 million and $9 million) have been neither updated nor adjusted since its original enactment,” the group said. “Consequently, an increasing number of small businesses have been adversely affected.”
With the new income surtax, many small businesses and S-corporations find themselves in a position where shareholders are subject to a tax burden exceeding the 8 percent corporate tax rate, “which is in direct conflict with the original intent of the law,” the report said.
Transpo Funding Still Unresolved
Two items on Gov. Maura Healey’s agenda are still unresolved at this time: enhancements to current transportation funding and expanding municipal finance capabilities. The former is a matter that will definitely be kicked into the second two-year’s of the Governor’s term starting in January and the latter has a closing window of opportunity as July 31 nears.
In late January, through Executive Order 626, Gov. Healey created the transportation funding task force to make “recommenda-
tions for a long-term, sustainable transportation finance plan that addresses the need for a safe, reliable, and efficient transportation system, including roadways, bridges, railways, and bus and transit systems.”
The Task Force is directed to review current and projected revenue sources for transportation funding and consider their adequacy to meet long-term transportation funding needs. In formulating its recommendations, the Task Force is to consider:
• available financing opportunities for funding the transportation system of the future;
• the clean energy transformation of the transportation system and its implications;
• how pricing mechanisms may be used to advance transportation and resiliency goals and generate sustainable funding;
• strategies for encouraging mass transit, bicycle use, pedestrian-friendly development, and transit-oriented housing and economic development, and discouraging carbon-intensive transportation uses; and
• the need to create and support a workforce capable of sustaining the implementation of a long-term transportation finance plan.
One may recall that during Gov. Baker’s second term, your Association successfully lobbied legislators against a proposal to eliminate the sales tax trade-in allowance, which represented a total $1 billion money grab by the state from taxpayers over ten years.
The current task force continues to meet in anticipation of filing a report with the governor by its December 31, 2024, deadline. Stay tuned as the rest of this story unfolds.
The governor this year also filed legislation to allow municipalities to, through local option, increase certain taxes (meals, hotel) to supplement their services. The governor’s bill included a new 5% local option Motor Vehicle Excise surcharge on top of the current excise on the value of the vehicle. The overall bill was split up into different pieces and would need to be acted upon by the end of July or be refiled in 2025.
EGISLATIVE S CORECARD
JUNE 2024
BILL# SPONSOR SUBJECT
S151
H331
H290
H329
S204
H270
H289
S150
H351
Sen Crighton Rep Hunt
Rep Finn
Rep Howitt
Sen O’Connor
Rep Chan
Rep Finn
Sen Crighton
Rep Lewis
Amendments to Ch. 93B, the auto dealer franchise law.
RTR law amendments to fix Model Year start date and consumer notice.
Creates process to appeal improperly issued Class 1 license.
Modernize on-line vehicle purchase process.
S199 Sen Moore Amends definition of heavy-duty trucks in RTR law.
S220 H400 Sen Velis Rep Walsh Open safety recalls notifications.
H354 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.”)
Joint Committee on Consumer Protection held public hearing on July 17, 2023; placed into study.
Joint Committee on Consumer Protection held public hearing on July 17, 2023; placed into extension order.
Joint Committee on Consumer Protection held public hearing on July 17, 2023. H270 reported favorably on Jan. 25, 2024; sent to House Ways and Means.
Joint Committee on Consumer Protection held public hearing on July 17, 2023. H351 reported favorably on Jan. 25, 2024; sent to House Steering & Policy Committee; House ordered to third reading on 2/12/24.
SUPPORT Joint Committee on Consumer Protection held public hearing on July 17, 2023; placed into extension order.
SUPPORT Joint Committee on Consumer Protection held public hearing on July 17, 2023. Redraft H4277 reported favorably on January 25, 2024; sent to House Ways and Means.
OPPOSE Joint Committee on Consumer Protection held public hearing on July 17, 2023; placed into study.
S688
H1095
H1118
S639
H1121
H995
Sen Moore
Rep McMurtry
Rep Philips
Sen Feeney
Rep Puppolo
Rep Donahue
Creates process to increase the insurance reimbursed labor rate paid to auto body repairers.
Protects consumer choice in vehicle service contracts.
S2219 H3255 Sen Cronin Rep Arciero Eliminates initial state inspection for new vehicle.
Joint Committee on Financial Services held public hearing on October 3, 2023; reported redraft H4412 favorably and sent to House Ways and Means.
Joint Committee on Financial Services held public hearing on October 3, 2023; H995 reported favorably and sent to House Steering & Policy Committee.
SUPPORT Joint Committee on Transportation held public hearing on Jan. 24, 2024; placed into study.
H3348 Limit doc prep fee amounts. OPPOSE Joint Committee on Transportation held public hearing on Jan. 24, 2024; reported favorably and sent to House Ways and Means Committee. Rep Howitt
S2210
Sen Crighton
Sen Creem Rep Carey
Safety shutoff for keyless ignition technology.
Joint Committee on Transportation held public hearing on October 17, 2023; reported favorably.
S25 H60 Personal data privacy and security. OPPOSE Joint Committee on Advanced Information Technology, the Internet and Cybersecurity held public hearing on October 19, 2023. On 5/13/24, Committee reported redrafts S2770 and H4632 favorably; each sent to respective Ways and Means committee.
S227 Sen Finegold Mass. Info Privacy & Security Act. OPPOSE Joint Committee on Economic Development and Emerging Technologies held public hearing on October 19, 2023. Bill sent to AITIC Committee on November 2, 2023.
S171 H311 Sen Feeney Rep Gonzalez Protect consumers in auto transactions. OPPOSE Joint Committee on Consumer Protection held public hearing on July 17, 2023; reported S171 favorably on 1/25/24 and referred to Senate Ways and Means. SWM reported redraft S2736 favorably on 4/22/24. Senate engrossed on 4/25/24.
20 2024 Massachusetts Economic Impact Report
22 2024 Massachusetts Economic Impact Report
24 2024 Massachusetts Economic Impact
NEWS from Around the h orn MSADA
BOSTON
Herb Chambers Presents Jimmy Fund scooper Bowl
On June 4-6, Herb Chambers served as the presenting sponsor for the 2024 Jimmy Fund Scooper Bowl at Boston City Hall Plaza. The Jimmy Fund Scooper Bowl is the nation’s largest all-youcan-eat ice cream festival and New England’s sweetest kick off to summer, all to benefit the Dana-Farber Cancer Institute. This iconic 3-day event, back in Boston for the first time since the pandemic, featured live entertainment, fun and games for all ages, and endless amounts of ice cream!
Herb Chambers is approaching 10 years of continuing partnership with the Jimmy Fund and Dana-Farber Cancer Institute, result-
Dana-Farber mission that will hopefully help create a world without cancer. We look forward to continuing our support for years to come.”
Later this Summer, Herb Chambers will receive the institution’s highest honor, the Boston Red Sox Jimmy Fund Award, in recognition of his longstanding support of Dana-Farber.
Herb Chambers CEO Nicolas Gennetti helped kick-off the Jimmy Fund Scooper Bowl by dishing out the “first scoop” during the opening ceremony. He was joined by Boston Mayor Michelle Wu, Dana-Farber Cancer Institute SVP & Chief Philanthropy Officer Melany Duval, Boston Red Sox Pitcher and cancer survivor Liam Hendricks and his wife Kristi, along with several other Red Sox wives.
Ice cream lovers 21 years of age and older were invited to attend Scoop at Night, also sponsored by Herb Chambers, at City Hall Plaza on the final night of the Jimmy Fund Scooper Bowl. Attendees enjoyed the sweetest happy hour with unlimited ice cream, two drink tickets, live entertainment, and games. Everyone attending the Jimmy Fund Scooper Bowl enjoyed unlimited ice cream and other treats, plus live entertainment, games, and more, while making a difference for Dana-Farber patients and families in the sweetest way possible.
HOLYOKE
Gary rome Hyundai donates $5,000 to TogetherHCC
On June 18, Gary Rome Hyundai presented a $5,000 check for the fourth annual “Together HCC: Drive to Change Lives” campaign, which was held on April 23, and ran a full 24 hours, from 12:01 a.m. to midnight. The goal of the campaign was to raise money for five areas that directly support Holyoke Community College students: academic excellence and innovation; scholarships; the Thrive Student Resource Center and Food Pantry; the President’s Student Emergency Fund; and the HCC Foundation’s general, unrestricted fund. The HCC Foundation is a 501(c)(3) nonprofit that manages the largest endowment among all 15 Massachusetts community colleges.
ing in more than $1 Million in giving to help make a difference for patients and families. The region’s leading auto dealer has provided almost a decade of support and is continuing the mission with their 2024 Premier Partnership, which will see Herb Chambers serve as presenting sponsor for several events during the year to support the institute and its mission to defy cancer by accelerating science, care, and expertise.
“The Herb Chambers Automotive Family is privileged to partner with the Jimmy Fund to support cancer care and research at Dana-Farber,” said Herb Chambers. “We are proud to support the
Gary Rome, owner of Gary Rome Hyundai in Holyoke, pledged a donation of $5,000 for the one-day campaign.
“My father always told me that no one can ever take away what you put between your ears, meaning education.
That’s why I’m honored to partner with HCC for a fourth consecutive year,” said Rome, a member of the HCC Foundation Board of Directors. “HCC students are your children, parents, co-workers, and neighbors, all of them working hard to better their lives,” he
Pictured at the 2024 Jimmy fund Scooper Bowl are, left to right, Herb chambers ceo nicolas gennetti; Dana-farber cancer Institute SVP & Chief Philanthropy Officer Melany Duval; Boston Mayor Michelle Wu.
NEWS from Around the h orn MSADA
said. “Many are the first in their families to attend college. That’s why ‘Together HCC’ is so important. It shows our students that the community is behind them.”
The HCC Foundation launched “Together HCC: A Campaign for Caring” in March 2020 to build community support and raise money for students experiencing financial distress during the pandemic. As part of that campaign, members of the HCC community – students, staff, faculty, alumni, relatives, and college friends – were asked to use the hashtag #TogetherHCC to share stories and images on social media that demonstrated the resilience of the college community in response to the COVID-19 crisis.
In its first year, the campaign raised $40,000 for the President’s Student Emergency Fund and was selected as an award finalist by the Bellwether College Consortium, which celebrates community colleges doing exceptional work to address critical issues. Since 2021, with Rome signed on, HCC has added the “Drive to Change Lives” theme and collectively raised more than $750,000 for student support programs.
“Community colleges serve the most vulnerable populations and receive the least amount of funding,” said Julie Phillips, HCC Director of Development. “With our annual drive, we have the opportunity to ensure not only that every person can go to college but that they also have an equal chance to succeed there.”
HOLYOKE
Holyoke Children’s Museum Unveils its Newest automotive Exhibit
Holyoke’s Children’s Museum recently opened its groundbreaking automotive exhibit to the community, changing how kids learn about cars. This exhibit took over two years to complete and is the museum’s first fully bilingual experience for visitors. It allows children to learn in both English and Spanish.
This attraction marks the museum’s first new exhibit since 2018, bringing innovation and hands-on learning to children of all ages. It’s also in memory of the second-generation owner of Marcotte Ford, Bryan Marcotte. This engaging experience is meant to spark curiosity and inspire future generations to pursue careers in the automotive industry. It features a fully functional Ford Fusion, donated by Marcotte Ford. Children have the opportunity to change tires, diagnose issues, and even play around with the radio.
“We are more than thrilled to see this exhibit come to life after our father Bryan Marcotte had this vision a year before he passed,” said Mike Marcotte of Marcotte Ford. “To see the children be able to play and have fun and learn a new craft makes us all smile. It was truly a magical moment.”
“It’s getting them immersed early, you know the whole model of the museum is to have the kids learn about the world around them and to learn by doing and so to get kids here in at early age, get their hands on a car, to feel what’s it like, it just couldn’t be a better time,” said Executive Director at the Children’s Museum at Holyoke, DJ Tucker.
BOSTON
report: Mass. Taxpayer Exodus Continues
By cHriStiaN wade, cNHi NewS
Massachusetts lost more than $3.8 billion in state-adjusted gross income between 2021 and 2022 as residents fled to New Hampshire, Florida and other low-tax states, according to new Internal Revenue Service data.
The IRS data, based on income tax returns, shows the Bay State lost a net of more than 45,000 residents in the 2021 and 2022 calendar years – taking with them more than $3.9 billion in taxable income. That’s the fifth highest rate of domestic outmigration in the nation following New York, Illinois, New Jersey and California.
New Hampshire and Florida were the biggest beneficiaries of Massachusetts’ transplants, the IRS data shows. More than 18,189 people moved from New York to Florida, taking $1.4 billion. An additional 23,596 Bay Staters moved to Florida, bringing more than $2.8 billion in income with them, according to the IRS.
The Pioneer Institute, a Boston-based think tank, says the data shows the largest cohort to flee Massachusetts were 26- to 35 yearolds, with 9,500 more tax filers leaving than coming into Massachusetts in 2022, more than five times the number a decade earlier.
“This loss of young talent hinders the state’s future innovation and economic growth, which will compound over decades,” said Mary Connaughton, Pioneer’s director of government transparency. “The cost of housing is a leading factor and the recent housing bill is not enough to address this critical challenge.”
“We need more innovative solutions at the local level to adequately boost the state’s housing supply,” she added.
The report is the latest in the series that highlights how Massachusetts’ population is shrinking despite a continuing influx of new
NEWS from Around the h orn MSADA
BOSTON
annual oEM awards
The recognition continues for annual OEM awards for performance. Congratulations to our award winners.
Nissan Award of Excellence for dealers’ outstanding performance:
• Curry Nissan, Bernard Curry III, Chicopee
• Kelly Nissan of Lynnfield, Brian Kelly
• Kelly Nissan of Woburn, Brian Kelly
• Marlboro Nissan, George Albrecht, Marlborough
• Mastria Nissan, Richard Mastria, Raynham
• Nissan 24, Edward Kardon, Brockton
• Nucar Nissan North Attleboro, Danial Dagesse
• Route 9 Nissan, Jonathan Stern, Westborough
• Sullivan Bros. Nissan, John Sullivan, Kingston
arrivals, many through immigration.
Still, the state’s outmigration appears to be slowing, with about 18,000 fewer residents leaving the state in 2023 than in 2022 – a 31% drop, according to the latest census data, released in May.
Experts say the out-migration has less to do with politics than it does with a lack of housing, prevailing wages and access to employment.
But federal data shows the population decline has major implications for the state’s revenue and tax collections. The state has seen its revenue benchmarks from tax collections fall short over the past year.
Massachusetts lost an estimated $4.3 billion in state-adjusted gross income in 2020-21 tax year as residents fled to other low-tax states, according to the latest IRS figures.
On Beacon Hill, state leaders have approved proposals to cut taxes and reduce the state’s high cost of living as part of a broader effort to stop outward migration and make the state more attractive to new families and businesses.
Gov. Maura Healey, a first-term Democrat, has expressed concerns about the exodus of residents and businesses in the wake of the COVID-19 pandemic.
Healey has pointed to a lack of housing as a primary reason people are leaving the state, making the case for expanding stock and making homes more affordable. She acknowledged the impact of the housing crunch on outmigration at an event in Lowell, where she and other officials announced $27 million in tax credits for new housing developments in Salem, Lawrence and Haverhill and other “Gateway” cities.
“I love New Hampshire, but I want people to stay here in Massachusetts,” Healey said in remarks Tuesday. “I don’t want them going north of the border.”
But critics point to the state’s high tax burden, including the voter-approved “millionaires tax” that set a new 4% surtax for people with incomes above $1 million a year. They say despite a tax reform package signed by Healey last year, the state needs to do more to ease the burden on residents and businesses.
Others say concerns about outmigration are overblown and point out that people leave the state for new jobs, college and other reasons other than consternation over high taxes, the cost of living or the lack of affordable homes.
A 2023 report by the left-leaning policy group Massachusetts Budget and Policy Center says IRS data from 2020 to 2021 shows that Massachusetts has a lower rate of outmigration among high-income households earning $200,000 or more a year than that of lowand middle-income households.
The report’s authors say that data suggests state tax levels have had “little impact” on the decisions of high-income households.
DEARBORN, MICHIGAN
EV about-Face: Ford Ends Controversial Program, reopens sales to all dealers
PuBliSHed By Automotive News
The death of Ford Motor Co.’s short-lived electric vehicle certification program for dealers ends what detractors say was an unnecessarily complex and costly plan that divided the automaker’s retail network, sowed confusion for customers and violated at least one state’s franchise laws.
Ford on June 13 said it was reopening EV sales to its entire retail network, nullifying the Model e program less than two years after its turbulent rollout. Since January, slightly fewer than half of Ford’s dealers have been prohibited from selling or servicing F-150 Lightnings, Mustang Mach-Es and E-Transits.
Moving forward, dealers will be asked to invest in training through the virtual Ford University platform and spend a minimal amount of money on two Level 2 chargers.
“At this point, we’re basically saying we want to lower the bar to let people get in,” Marin Gjaja, COO of Ford Model e, told Automotive News. “We’ll probably have to continue to evolve from here, but we wanted to get everyone in because what we’re seeing is a market that is evolving and the customer needs support. We’d rather have more dealers in helping us with that. Before, we tried to create focus because we were supply-constrained. But we aren’t anymore.”
Ford in September 2022 announced a series of requirements for the voluntary program that separated dealers into two categories. Retailers could choose to participate either at a level that demanded an investment of up to $1.2 million or a lower tier that called for up to $500,000, although executives later said the actual costs turned
NEWS from Around the h orn MSADA
out to be much lower. Ford eventually allowed stores to install fewer chargers and canceled plans to limit the amount of inventory available to dealers in the lower tier.
“They ought to be embarrassed with what they’ve done,” said Don Hall, CEO of the Virginia Automobile Dealers Association. “I feel bad for the dealers who spent hundreds of thousands of dollars to be in compliance only to have cars sitting in the lot.”
Hall said he understands that automakers are under pressure from the federal government to meet emissions targets but said it was wrong to prevent retailers who didn’t agree to the program from getting inventory.
“It’s just not the way to treat their partners,” Hall said. “To exclude and anoint chosen ones, it was a dumb idea.”
The program elicited widespread pushback from a majority of state dealer associations, including Virginia, as well as a number of lawsuits from dealers who argued it was illegal for Ford to withhold some of its vehicles from stores that did not sign up for the program.
The North Carolina Automobile Dealers Association was among the objectors, and some dealers in the state formally challenged it. The group’s CEO, John Policastro, said dealers he spoke with after the reversal reacted with “cautious optimism that Ford’s finally stepping in the right direction” on EVs.
“I’m really hoping this will show Ford and other manufacturers that the best way to roll out these kinds of programs is to really connect with their dealers ahead of time and really get a full sense of the pulse of the dealer body,” Policastro said.
Ford at the time said it conferred with roughly 400 dealers, along with its dealer council, before announcing the program.
Dealers in New York, Illinois and South Dakota also took legal action against the company. Last year, the Illinois Motor Vehicle Review Board found that Ford wrongly implemented changes to allocation and distribution models, among other violations of state law.
Ira Levin, an attorney representing the Illinois dealers, said the program’s cancellation “validates” the dealers’ decision to fight it.
“Ford put their dealers through a lot, and I would hope they compensate those dealers who felt [they] had no choice but to sign up for Model e or lose part of their franchise, and who then were typically required to spend hundreds of thousands of dollars on EV equipment and infrastructure that was entirely unnecessary to meet the market,” he said.
Gjaja said the company did not believe it was a mistake. He said the automaker was still in discussions regarding dealers who invested heavily from the start but declined to say if it might provide any form of financial reimbursement.
“Based on what we knew at the time, we think it was the right call,” he said. “We believe we’re pivoting at the right time to take advantage to what’s happening in the market. The market’s changed. It’s humbling, but the most important thing we can do for our dealers and our business is to change with it and not just keep pounding away with the same strategy.”
CEO Jim Farley, when announcing the program, said that the automaker’s retail model put it at a roughly $2,000 per-vehicle disadvantage over Tesla and other competitors, and he hoped the new sales standards that were part of the program would narrow that gap. He believed the certification program would better cater to early-adopting EV customers who wanted to purchase vehicles a different way than those who bought gasoline-powered cars and trucks.
“What we tried to do is use Model e to innovate on behalf of Ford and really try to understand what we needed to do to meet the customers where they were,” Gjaja said. “Net promoter scores, a measure of customer satisfaction, on our EV business have skyrocketed over the course of rolling out the program. The changes have been working. We feel very good about what we’ve done to train our dealers and shift some of these things.”
Ford’s EV sales have risen 88 percent this year, but Policastro said the certification program may have prevented more sales.
“At the beginning, Mr. Farley said something to the effect that Ford dealers could very well be the most valuable franchise in the industry and at the same time they were putting a program in place that, for practical purposes, locked out a great portion of their dealer body,” Policastro said. “If EVs really are the future like we all think they are, certainly this kind of program wasn’t designed to create the maximum amount of availability for consumers throughout our state, or throughout the nation.”
Gjaja said Ford would communicate more details about the new training requirements to dealers soon, saying they’d likely have between now and the first quarter of next year to complete them. Those details will include instructions on how to safely handle high-voltage equipment, he said.
In addition to the Level 2 chargers, Gjaja said dealers would also be required to have adapters for new charge ports the company plans to add to future EVs.
Despite its decision to scrap the certification program, Andrew Frick, president of Ford Blue, said a number of positives came from it.
“We’ve now built an ecommerce muscle in the company we didn’t have before because of some of the work we’ve done with the dealers,” Frick said. “That’s a major customer benefit.”
NEW YORK CITY
Will Price, Charging Headaches send EV owners Back to the ICE age?
PuBliSHed By Automotive News
The findings from a new McKinsey & Co. study suggest a big complication lays ahead on the path toward an electrified future. Nearly half of EV owners are likely to return to internal combustion engine vehicles.
Charging concerns, high cost of ownership and the complexi-
NEWS from Around the h orn MSADA
ty of long-distance trips are the three leading reasons why more than 40 percent of U.S. electric vehicle owners say they will likely switch back to combustion engine vehicles with their next purchase, according to the results of a new consumer survey from McKinsey & Co.
The findings suggest further complications lie ahead on the path toward an electrified future already encountering slowing sales growth — and they fly in the face of conventional industry thinking that consumers will stick with EVs once they make the propulsion leap.
The survey’s 46 percent of U.S. EV owners planning a powertrain reversal are not alone. Twenty-nine percent of EV owners globally said they’re likely to go back to combustion engine vehicles.
“I didn’t expect that,” Philipp Kampshoff, leader of McKinsey’s Center for Future Mobility told Automotive News. “I thought, ‘Once an EV buyer, always an EV buyer.’ “
That assumption may still be true. What EV owners say they will do isn’t what they are actually doing at dealerships. Most are sticking with electric. About 68 percent of EV owners shopping for a vehicle purchased another EV in the first quarter, according to an S&P Global Mobility analysis based on U.S. registration data. Among Tesla owners, 77 percent bought another EV. For non-Tesla EV owners, half bought another. The loyalty rates have been steady across the past several quarters.
However, S&P said its data doesn’t definitively show whether the vehicle purchase is a replacement for an existing EV in the household. The purchase could be an additional vehicle instead. Other surveys have also found that EV owners are loyal to the powertrain. Ninety-six percent of current battery-electric vehicle owners said they were likely to consider purchasing or leasing another one for their next purchase, according to the U.S. Electric Vehicle Experience Ownership Study conducted by the J.D. Power research firm early this year. Further, 66 percent of current plug-in hybrid owners said they were likely to consider stepping into a full-electric vehicle.
“Our data shows that EV owners are highly committed to EVs and not very likely to shift to an ICE vehicle,” said Brent Gruber, executive director of global automotive for J.D. Power.
The disparity between various EV loyalty surveys indicates changing consumer attitudes, McKinsey said. More critical coverage of Tesla overall and Elon Musk in particular this year may play a role, Kampshoff said.
If there’s a widespread pivot afoot, it’s starting with younger consumers. In the U.S., 57 percent of millennial EV owners and 42 percent of Gen Z members are likely to switch back, compared with 33 percent of Gen X and baby boomers, according to the McKinsey survey.
Charging-related woes may be a prime culprit. U.S. respondents cited “cannot charge at home” as their top reason for a likely switch in the McKinsey survey. Inadequate charging infrastructure and charging-related stress ranked among the other
top six reasons pushing those consumers back toward internal combustion engines.
In the U.S., families with children accounted for 56 percent of those likely to switch back, while singles and couples without children made up 32 percent of those likely to switch, McKinsey said. Globally, only 9 percent of respondents told McKinsey they found charging infrastructure sufficient. The firm issued its findings June 12.
In the U.S., both the federal government and automakers are working to expand public-charging infrastructure. Tesla is opening its Supercharger network, which is considered the auto industry’s most reliable and has the widest reach, to non-Tesla EVs. Separately, seven automakers have teamed up on a charging joint venture called Ionna that plans a network of more than 30,000 chargers by 2030.
The federal government is investing $5 billion in a network of charging stations spaced in 50-mile intervals along interstate highways. But the rollout has been sluggish. Only eight stations are open more than two years in.
There’s urgency in improving that rollout, because “the next generation of EV buyers will rely on public charging much more than the current one,” Kampshoff said.
Early EV adopters have tended to be homeowners who can install dedicated chargers in garages and charge during off-peak hours overnight. If an era of more mass-market EV ownership is to take hold, many experts and companies have emphasized a need for more reliable public-charging access near apartments and multifamily dwellings.
Overall, consumers are slightly more willing to consider electrified vehicles than they were two years ago, according to the McKinsey report. Thirty-eight percent of non-EV owners say they anticipate that a plug-in hybrid or full-electric will be their next vehicle. That’s up from 37 percent in 2022. But the transition from early adopters into that next generation of buyers may also help explain other headwinds for EV sales.
New EV registrations rose 5.2 percent in the first quarter compared with the same period a year earlier, according to S&P Global Mobility. That compares to a 52 percent growth rate across all of 2023, the firm said.
The declining rate has rattled automakers’ electrification progress and plans, causing some to shift toward a heavier mix of plug-in hybrids.
“This is the ultimate uncertainty right now, like almost never before,” said Kevin Laczkowski, global co-lead of McKinsey’s automotive and assembly practice.
General Motors reduced its 2024 EV production forecast in North America down from a goal of as much as 300,000 to a range of 200,000 to 250,000, the company said June 11. GM also delayed the start of electric pickup production at a second Detroit-area plant until 2025 because of the weaker-than-expected EV demand.
Ford Motor Co. postponed a new electric pickup and three-row
NEWS from Around the h orn MSADA
electric utility vehicle in April, while Volkswagen indefinitely delayed the U.S. and Canada launch of its ID7 in May.
Consumers have heightened expectations for EVs. Their minimum range expectations have grown to 291.4 miles today from 270 miles in 2022, according to the McKinsey survey. But the average distance EVs can travel on a single charge has not grown as quickly, the firm said.
Those increasing expectations are juxtaposed against consternation over high cost of ownership and declining residual values of EVs, Kampshoff said.
The average transaction price of an EV was $55,252 in April, according to Cox Automotive, while the average for cars with internal combustion engines was $48,510. Various federal, state and local incentives can mitigate the difference.
But those cannot account for the plunging residual values of EVs. Tesla’s steep price cuts to its Model Y and Model 3 vehicles have sunk the value of EVs from all brands, according to J.D. Power. The average price of a 1- to 5-year-old used EV dropped 31.8 percent year over year, according to an April study from iSeeCars.com. For a consumer that purchased a car about a year ago, such numbers are cause for angst, Kampshoff said.
Residual values are “where we’ve seen a big difference in the past 12 months,” he said on the Daily Drive podcast, and could be a component of customers’ concerns about ownership costs.
“If you have purchased your vehicle right before then, you are really taking a hit,” he said.
As part of its biennial survey, McKinsey asked approximately 200 questions to more than 30,000 consumers in 15 countries, which collectively make up more than 80 percent of global sales volume.
DELAWARE
EV startup Fisker Files for Bankruptcy, aims to sell assets
reuterS NewS
Fisker filed for bankruptcy protection late on June 18, as the U.S. electric-vehicle maker looks to salvage its operations by selling assets and restructuring its debt after burning through cash in an attempt to ramp up production of its Ocean SUVs.
The hyper-competitive EV market has seen several companies, including Proterra, Lordstown, and Electric Last Mile Solutions, file for bankruptcy in the past two years as they grappled with weakening demand, fundraising hurdles, and operational challenges from global supply chain issues. The company, founded by automotive designer Henrik Fisker, flagged doubts about its ability to remain in business in February and later failed to secure an investment from a big automaker, forcing it to rein in operations. The collapse of its talks with the automaker - which Reuters had reported to be Nissan - meant that it was denied $350 million in funding from an un-
named investor that was contingent on the automaker’s investment and forced Fisker to explore options.
“Like other companies in the electric vehicle industry, we have faced various market and macroeconomic headwinds that have impacted our ability to operate efficiently,” Fisker said.
In the Chapter 11 bankruptcy filing in Delaware, its operating unit, Fisker Group Inc, estimated assets of $500 million to $1 billion and liabilities of $100 million to $500 million. Its 20 largest creditors include Adobe, Alphabet’s Google, and SAP, the filing showed.
Fisker went public in late 2020 in a merger with a blank-check firm, valuing it at $2.9 billion and infusing its balance sheet with more than $1 billion in cash. The listing was a second chance for its Danish CEO and founder to build an auto business after his first venture, Fisker Automotive, filed for bankruptcy in 2013, falling victim to the 2008 financial crisis and a battery failure in the Karma hybrid sedan that had led to a substantial recall.
Henrik Fisker, a former design consultant for Tesla, had said at the time of the listing that Fisker wanted to be the Apple of the auto industry by outsourcing manufacturing of its cars. The “asset light model” was meant to reduce development times for vehicles and lower costs to take a vehicle to the market. Its Ocean SUV, however, was wrought with software and hardware issues, with Consumer Reports, an influential non-profit, calling the vehicle “unfinished business.” The car is also under regulatory investigation for braking issues, problems with shifting into park, and other modes and failure of doors to open at times.
After delivering less than half of the more than 10,000 vehicles it produced last year, Fisker turned to a dealership-based distribution model in January, abandoning the direct-to-consumer approach pioneered by Tesla. It had signed agreements for 15 dealer locations in the U.S. and 12 partners in Europe, but still failed to clear its inventory of more than 5,000 cars.
“Fisker has been on life support for months now, so today’s announcement doesn’t come as a surprise. It wasn’t the first EV upstart to declare bankruptcy and we don’t think it’ll be the last,” said Garrett Nelson, vice-president and equity analyst at CFRA Research.
MCLEAN, VIRGINIA
Nada academy Graduates in
May 2024
The following Massachusetts dealership employees graduated NADA Academy in June this year:
• Patrick Blake, Nucar Hyundai of Norwood
• Chadi Chakar, Chambers Motorcars of Boston
• Derek Munro, Flagship Motorcars of Lynnfield
Congratulations and good luck with your endeavors in our industry.
E A S
PlugStar com connects consumers and certified dealers to drive EV sales Designed to enhance the EV shopping experience, the PlugStar program provides dealers with tools, knowledge, and ongoing support through education, certification and resources. Plug In America, the organization behind PlugStar, represents America's deepest pool of EV drivers and is the national leader in EV consumer education
T R A I N E D sales staff sell 4 x as many EVs as U N T R A I N E D
P R O V E N T R A I N I N G
S p e c i a l i s t w h i l e d e a l e r s c a n b e c o m e a P l u g S t a r
C e r t i f i e d D e a l e r s h i p
P r i o r i t y d e a l e r o p p o r t u n i t i e s t o p a r t i c i p a t e i n P l u g
I n A m e r i c a ' s r i d e - a n d - d r i v e e v e n t s , w h i c h p r o v i d e
f a c e - t o - f a c e i n t e r a c t i o n s w i t h p o t e n t i a l c u s t o m e r s
Our convenient online training takes about two hours to complete and covers:
E V f u n d a m e n t a l s
E V c h a r g i n g b a s i c s
K e y E V
C
Since the launch of the PlugStar program five years ago, Plug In America has trained thousands of dealer and manufacturer sales staff from almost every major automaker. Each PlugStar program has recorded improvements of up to 80% in EV salesperson confidence while discussing utility rates and programs, government incentives, the availability and costs of charging at home and on the go To learn more, visit PlugInAmerica.org/PlugStar.
Advertising Strategies for Dealerships
By Matthew Brand CPA, Albin Randall & Bennett
Advertising – every business does it, and its usage is paramount for success. But how well do we manage it?
Advertising tends to be a significant expense for many dealerships and an important driver in sales. Using our Auto Dealer Business Intelligence (ADBI) report, we have started to see advertising expenses increase as the auto industry has rebounded from the pandemic. While some of this may be necessary, the question arises whether there is more that dealerships can do to manage ad spend and improve an already tight bottom line.
Establishing Clear Advertising Goals
The first thing a dealership should do when initiating an ad campaign is to have a clear objective in mind. What is the goal of the campaign? Does the dealership want to generate foot traffic and awareness to an updated showroom? Does the dealership want to advertise specific models that might be more difficult to sell? Maybe the goal is to manage the dealership’s reputation in the community? The nature of what the dealership is trying to accomplish can significantly influence the types of advertising that the dealership should be doing. Regardless of what the underlying need is, it is vital to have a specific goal in mind to allocate ad spending accordingly.
Setting an Effective Advertising Budget
Once an objective is determined, it is important to establish a realistic and
flexible advertising budget that aligns with your goals. While there is no brightline for an advertising budget, basing ad spend on relative volume is a good approach, either as a percentage of sales or a dollar amount per vehicle retailed. Factors to consider when setting up a budget include your specific goals, the competitiveness of the operating market, and the franchise of the dealership. If the market is hyper-competitive, you might need to have a larger advertising budget than an analogous dealership in a rural, less-saturated market. Additionally, if your OEM offers an advertising co-op, it is important to budget ad spend to take advantage of the program.
The budgeting process does not just stop once an amount is initially set. It is also important for the dealership to track expenses (to make sure you are meeting goals) and determine which channels have been most effective for generating sales. You may want to consider utilizing software and other budgeting tools to track and evaluate results. Once you have determined which channels have been most effective in drawing customer interest, you can allocate future spending to the most-effective campaigns and cut out expenses related to ineffective programs.
Optimizing Your Advertising Strategy
In addition to establishing a tangible goal and budget for your advertising, there are other tactics a dealership can employ to ensure that they are getting the most out of their marketing dollars, including:
• Targeted Advertising: Engage in targeted advertising to make sure you are advertising to the appropriate consumer base. If you are advertising a certain model that is popular amongst a younger demographic, you might have better success with digital ads vs. television or print.
• Focus on Content Quality: Higher-quality content can help your dealership stand out from others. Invest in professional photography and video production for your ads. Make sure that your website is user friendly and appealing, particularly on mobile devices. More expensive, high-quality advertisements can have great benefits that make them worth the price.
• Community Partnerships: Build partnerships in your community. At the end of the day, most of your volume is going to be generated from your local community. If you have a strong community presence and can build a good reputation in the local area, it can have a positive impact on sales.
• Utilize a Third Party: In order to achieve your goals, it might be most prudent to use an ad agency, especially if you lack sufficient resources in-house to effectively advertise your dealership. If you do use an agency, however, it is important to make sure that you are effectively monitoring their performance as well. Are the leads the agency is generating good for your goals, or is the agency acting in their best interest? Make sure to challenge what the agency is doing, rather than relying on them. While advertising expenditures can be a relatively large expense at a dealership, they can also be an incredibly effective means of increasing volume and ultimately help drive organizational success. However, it is important to have a conscious objective and budget in mind when advertising. Shifting your mindset and looking at advertising as an investment, instead of an expense, can go a long way to ensuring that you are getting the most out of your advertising at the right cost. Contact your financial advisor for important guidance on setting an effective advertising budget for your dealership.
Cash is Still King
By Kevin Carnes
It has been an excellent run for the new dealership industry over the past few years. Profits were at all-time highs, and you finally figured out the business. It had nothing to do with the law of economics, where the demand outweighed the supply. It had to do with the fact that you finally put your years of knowledge together and now look at the results. So it is time to move on to your next task.
It is time to go back to managing the company’s assets, particularly cash. Over the past few years, the amount of cash that has been infused into the business has been at an all-time high. Cash has not been an issue between the increased profits and the government programs (Payroll Protection Program and Employee Retention Credits). However, with the increased fusion of cash, there also has been increased cash distribution. I have noticed that owners who have gotten used to taking out more money have not really slowed this process down over the first half of the year; however, the profits have gone down between 20-25% for several dealerships. Based upon this, I recommend you implement the following:
• If you distribute money out of the company on a regular basis, you should have a formula based upon the profits of the company. This formula should take into account distributions required for taxes of approximately 40%. So for example, if the dealership makes $100,000 in a month, you need to consider that $40,000 ($100,000*40%) is already being distributed before any discretionary distributions.
• To preserve cash, management should
turn profits to cash on a monthly basis. Each month, the profit of the dealership or a percentage of profit should be moved out of the operating account and placed into some sort of offset account. This transfer should occur before the end of the following month, and if this cannot be done the office will need to explain why. So for example, if the dealership makes $100,000 during the month and you decide to move 80% of the profits by the end of the following month, $80,000 (80%*$100,000) should be moved to some sort of savings account. This is a great control over cash and also ensures you will have the cash to pay your taxes.
• Owners should make sure that banking activity is reviewed by either themselves or someone independent of the individuals receiving and paying the dealership’s bills. With today’s technology of paying bills online and not getting copies of checks with the bank statement, etc., it has become more and more difficult to monitor the accounting transactions. Procedures to review both disbursements and receipts to the support should be done on a periodic basis to ensure the
transactions are proper.
• All excess cash accounts should be reviewed to ensure the interest being earned on these accounts is appropriate. With the increase in interest rates over the past couple of years, earnings on excess accounts have become more important than when interest rates were at historic lows. Maximizing returns on any excess cash can become another profit center for the dealership with excess working capital.
In addition to the cash items above, it is also essential to re-address controls over other dealership assets. This would include ensuring new and used vehicle inventories and title checks are completed monthly. Make sure monthly reconciliations of parts inventory between the books and parts pad are completed and variances are investigated.
I guess the point of this whole article is simple. Life has been good, and for that to continue, you may need to tighten up some controls over the assets that have not been much of a worry over the past few years.
Withum
Trust LAW ®
There are over 1,500 attorneys in the United State who focus on legal actions against car dealers.
Who reviews your F&I documents for legal or regulatory changes?
What if your dealership had access to a complete suite of documents needed in F&I?
Only the LAW F&I Library™ provides:
A complete set of state-specific F&I documents in both pre-printed and electronic formats.
An industry leading team of in-house and outside legal resources reviewing forms for legally required and best practice updates.
A trained team of compliance consultants who can work with you to manage your compliance risks.
Hyundai Dealer Agreement Changes and Mass. Franchise Law
By Tom Vangel, Esq. James Radke, Esq.
Lindsey McComber, Esq.
Murtha Cullina LLP
The National Automobile Dealers Association recently released a memo alerting its members that certain changes made by Hyundai to its Dealer Sales and Service Agreements might violate state franchise laws. These changes are set forth in a Facility Renovation Addendum, a Right of First Refusal Addendum, and a Guideline on Store Owners and Managers. Hyundai has asked dealers to sign these Addenda addressing when the dealers experience certain qualifying events, including a relocation, a restructuring of dealership ownership, a sale of the dealership, or the completion of a facility upgrade. In many cases, these changes impose a significant financial burden on the dealerships, but dealers nonetheless feel compelled to agree rather than risk repercussions from Hyundai.
Many Hyundai dealers have already complied with the proposed changes, with at least three-hundred and eighty Hyundai dealers having completed upgrades and seventy percent of all dealers expected to complete them by 2025, according to Hyundai. Other dealers are wary of these changes and have refused to sign the Addenda.
On June 15, in response to dealer concerns and those raised by NADA, Hyundai rescinded a Risk of Loss and Damage Addendum it had initially proposed. That Addendum would have transferred the risk of loss from the manufacturer to the dealer after the vehicle is shipped from the final entry point. In its memo rescinding the Risk of Loss and Damage Addendum, Hyundai announced that it will continue to work closely with dealers, stakeholders,
and NADA to protect their dealers’ interests and address their concerns. Whether Hyundai agrees to make further concessions remains to be seen.
Many states’ franchise laws protect dealers against these kinds of unilateral changes and require manufacturers to take certain steps before they can propose changes to dealer agreements, which generally include things such as giving the dealership time to object to the amendments or requiring the manufacturers to file the amendments with the state’s regulatory body. However, these processes and protections vary by state, so manufacturers cannot uniformly impose changes to all of their dealers across the country without implicating certain state protections.
In response to these changes, NADA and many state automobile dealer associations have written letters to Hyundai stating that the imposition of these Addenda violates their state laws because Hyundai has not followed the required processes for making changes to the franchise agreement. Your Association has been closely monitoring the situation and actively communicating with Massachusetts Hyundai dealers and outside counsel to analyze these issues under Massachusetts law.
Massachusetts has legal protections in place to prevent unilateral changes to a franchise agreement on the part of manufacturers and distributors, which are set forth in Chapter 93B of the Massachusetts General Laws. This law was passed to balance power between the manufacturers and dealers, and it also provides some protection for consumers. Under Section 5(a)(3) of Chapter 93B, it is a violation of state franchise law for a manufacturer or distributor, without good cause, to “offer a renewal, replacement, or succeeding franchise agreement containing terms and conditions the effect of which is to substantially change the sales and service obligations, capital requirements or facilities requirements of a motor vehicle dealer[.]”
Similarly, Section 5(a)(4) makes it a violation of the statute to “amend, add or delete any other material term or condition set forth in a motor vehicle dealer’s franchise agreement” without good cause. These sections provide protection against the unilateral changes imposed by Hyundai, which require vastly different capital and facilities requirements than existing agreements.
Further, Section 4(a)(c)(4) of Chapter 93B provides that it shall be a violation of the statute for a manufacturer to coerce any dealer to enter into an agreement by threatening to terminate their franchise. Thus, if Hyundai were to issue notices of termination arising from a dealer’s failure to agree to the proposed Addenda, the dealer would have a right to bring a lawsuit under to prevent the termination from taking effect. Section 5(j) of the statute outlines the factors that courts consider in determining whether good cause exists to terminate the dealer or institute changes to a franchise agreement, which include an evaluation of dealer’s performance in the 3-year period prior to the termination, the investment made by the dealer to perform its obligations under the existing franchise agreement, whether the changes are in the public interest, and other factors. In any action brought by the dealer to challenge a termination, the burden to establish good cause is on the manufacturer.
Dealers should be extremely cautious any time they are asked to alter their existing dealer agreements or enter into new agreements that change their rights and obligations. Despite the pressure that dealers are typically under to execute the new or revised agreements, they should take the time to review the agreements with experienced counsel before signing.
Tom Vangel, Jamie Radke, and Lindsey McComber, with the law firm of Murtha Cullina LLP in Boston, specialize in automotive law and can be reached at (617) 457-4072.
Six Steps to Minimize “Joint Employment” Risk
By Jeff Fritz, Esq., and Joshua Nadreau, Esq., Fisher Phillips LLP
Many dealerships are part of dealer groups, and many of those dealer groups are engaged with an affiliated management company. Such arrangements generally allow for uniformity and efficiency in operations and group-rate savings on expenses, such as health insurance for employees. But they also expose the management company to potential liability for the wage-and-hour violations of the dealerships it manages on a “joint employer” theory and could expand the scope of a class or collective action considerably.
The Massachusetts Appeals Court just rendered a decision that significantly broadens when one entity may be found to be a “joint employer” of another entity’s employees under state wage laws. The June 13 decision, coupled with guidance from an earlier decision by the Massachusetts Supreme Judicial Court, Jinks v. Credico (USA) LLC, establishes a comprehensive framework you can follow to determine whether you might face joint employment trouble. What does your dealership need to know about the increasing likelihood you could be considered a joint employer – and what are six best practices you can follow to minimize your risk?
In Tran v. Jennings Road Management Corp., the Massachusetts Appeals Court agreed Jennings Road Management Corp. (JRM) was a joint employer of the plaintiff, Sakiroh Tran, a parts advisor at a Boston-area car dealership. The court’s June 13 opinion applied the totality of the circumstances test from Jinks, which considers four key factors: (1) the power to hire and fire employees, (2) supervision and control over work schedules or conditions of employment, (3) determination of the rate and method of payment, and (4) maintenance of employment records. The court found JRM exercised substantial control over the conditions and economic aspects of Tran’s employment, thereby meeting the criteria for joint employment. The Jinks decision and its application in Tran provide a clear message to employ-
ers – Massachusetts Appellate Courts are interpreting the concept of “joint employment” quite broadly.
• Power to Hire and Fire: In Tran, the dispositive issue was the fact that JRM drafted the employee handbook Tran’s actual employer used. Thus, even passive involvement in drafting (but not enforcing) employment policies supported the joint employment finding.
• Supervision and Control: The JRM-drafted handbook also led the Court to conclude JRM had sufficient supervision and control. Even though JRM was not the entity making decisions impacting the employee, the actual employer’s decisions were made in compliance with the handbook.
• Rate and Method of Payment: Entities involved in setting pay rates or methods, even indirectly, may be considered joint employers. The Court concluded JRM’s review of pay plans, influence over payroll decisions, and uniformity across other dealerships managed by JRM contributed to this factor weighing in favor of joint employment.
• Maintenance of Records: JRM’s management of payroll systems and employment documentation likewise reinforced the Court’s finding of joint employer status. As a result of these decisions, here are six best practices you can take to minimize the risk of being classified as a joint employer:
• Clearly Define Contractual Relationships. Draft contracts explicitly stating the independent nature of subcontractors, staffing agencies, or any related entities. Clearly outline the scope of services and responsibilities. Avoid clauses suggesting shared control over hiring, supervision, or employment terms.
• Limit Direct Control Over Subcontractor Employees. Ensure subcontractors, staffing agencies, and related entities retain primary control over their employees’ hiring, firing, and daily management. Avoid involvement in the direct supervision
or scheduling of subcontractor employees. Avoid uniform employment policies across related entities and subcontractors.
• Maintain Operational Independence. Keep separate business operations and avoid sharing management or administrative functions with subcontractors. Ensure any training or policy implementation is carried out by the subcontractor or agency, not the primary employer.
• Implement Compliance Audits. Conduct regular audits of subcontractor agreements and practices to ensure compliance with independent contractor guidelines. Document compliance efforts and corrective actions taken to address any issues.
• Educate Management and Staff. Train managers and supervisors on the importance of maintaining the independence of subcontractors and their employees. Develop policies that reinforce the separate roles and responsibilities of subcontractors.
• Consult Legal Counsel. Regularly review subcontractor relationships and practices with legal counsel to ensure they align with current laws and regulations. Seek legal advice when drafting or revising contracts to mitigate joint employment risks.
The recent decisions by the Appeals Court and SJC underscore the importance of understanding and correctly applying the joint employment test under Massachusetts law. By adopting best practices and maintaining clear boundaries in subcontractor relationships, employers can better navigate the complexities of joint employment and avoid unintended liabilities.
That said, if your preferred relationship between a management company and its dealerships makes a finding of “joint employment” likely, it is imperative that you do your best to ensure wage-and-hour compliance at the dealership level, to minimize the risk of claims generally and especially on a class or collective basis.
CDK Incident – Mass. Dealers’ Next Steps
By Cynthia Larose
Mintz Levin P.C.
By the time you read this, all of the MSADA members who have been impacted by the CDK Global ransomware attack “should” be back online. Fingers crossed….
But this is not the end of the story. Because CDK has been devoting all of its attention to remediating the ransomware and bringing its platform and the dealers safely back online, CDK has not yet communicated with its customers about the nature of the customer data that may have been impacted and whether the threat actors took customer data from the platform.
Given the nature of the CDK Global platform, it is more likely than not that customer data was compromised in this incident. This is critical information for the next act in this drama, and it is hoped that CDK provides insight sooner rather than later. Ironically, CDK has over the years touted its cybersecurity as a major differentiator.
The good news, as reported by your Association in several bulletins (particularly Bulletin #100), is that CDK has negotiated with the Federal Trade Commission to file – if necessary – the new breach notification required under the Safeguards Rule on behalf of all impacted dealers (unless dealers opt out). Your attention can now turn to whatever other reporting obligations you may have under state law under MGL Chapter 93H.
I have been asked many times in the last few weeks about the nature of this incident and how it affects dealers and their legal obligations. After all, it happened at a third-party vendor and out of the dealers’ control. Warning: legalese coming up.
Under most state data breach notification laws, Massachusetts included, the ultimate responsibility for reporting obligations belongs to the “owner” of the personal information that has been compromised. In this case, under Chapter 93H, the “owner” is the dealer and not CDK Global. CDK’s only obligation to its customer under law is to notify the customer of the breach and of the nature of the personal data compromised in
the breach. The owner of the data is then responsible (unless otherwise agreed with the third-party vendor) for notifications to state attorneys general and impacted individuals.
In Massachusetts and Connecticut, if a Social Security number was part of the compromised dataset, the provision of credit monitoring/identity restoration services is required by law. (Massachusetts only requires 18 months of credit monitoring service; however, Connecticut requires 24. If you have customers in both states, it is recommended that you cover 24 months.)
As operations come back to “normal,” dealers should analyze potential customer exposure as well as the geographic distribu-
Moving Forward
The DMS is a “single point of failure” for dealers. This incident underscores the importance of reviewing your incident response plans, backup plans, disaster recovery plans, and business continuity plans. This is the time, while the whole incident is fresh in everyone’s mind, to review all of these plans and consider options.
Also remember that Massachusetts law and the FTC Safeguards Rule require that you review your information security program at least annually and document your responsive actions taken in connection with any incident involving a breach of security, including any business practice changes
tion of customers and be prepared to notify customers and relevant authorities if (when) it is confirmed by CDK that customer data has been compromised. If you have customers in multiple states, you should work with counsel to determine what obligations you may have in various states as not all data breach notification laws are the same. Our Mintz Matrix (found at www.mintz.com/ mintz-matrix) provides a map and summaries of the 50-state landscape as a starting point. Of course, discussions with CDK and counsel will focus on who is responsible for notifying customers and paying for the notifications and credit monitoring services.
made relating to protection of personal information.
Finally, you can outsource all the functions for processing, maintaining, storing, etc. your customer data. However, at the end of the day, the responsibility for protecting that personal information rests with you. t
Cynthia J. Larose, CIPP-US/CIPP-E, a previous speaker at MSADA events, is Member/Co-Chair of the Privacy & Cybersecurity Practice at Mintz Levin, an MSADA associate member. She can be reached by email at CJLarose@mintz.com or phone at (617) 348-1732.
The CDK Breach: Lessons Learned From an Attack on the Auto Industry
By Robbie Harriman
OCD Tech rharriman@ ocd.tech.com
In October of 2023, I presented to MSADA on the state of cybersecurity in the industry, warning that the industry was under attack. On the dark corners of the internet, attackers were sharing information that auto dealers were prime targets for a ransomware payday. They point to a workforce lacking cybersecurity awareness combined with outdated and unpatched technology as the reason.
Since then, we saw a major breach at Toyota, a ransomware attack on a Midwest auto dealer, Jeff Wyler Automotive Family, and another on Findlay Automotive, a Nevada-based group whose operations and ability to sell vehicles were still reportedly impacted a month later.
On June 19, CDK Global, a major dealer management system provider, was the victim of a cyber-attack. This attack impacted about 15,000 dealerships to varying degrees, depending on how many and which CDK products they were using. As is common with these types of incidents, CDK has not disclosed a lot of the details. However, there are some things we do know, and some things we can speculate on given what we know about the attackers, and these types of attacks in general. Most importantly, there are always lessons to be learned from unfortunate scenarios like this. And sadly, this is not the first time a dealer management software company has been breached.
Let’s not forget that the catalyst for the
enhanced Federal Trade Commission’s Safeguards rule was a breach of LightYear Dealer Technologies, doing business as “DealerBuilt” back in 2019. DealerBuilt settled with the FTC, who alleged that the company poorly protected the information of consumers, leading to a breach that exposed millions of consumers’ personal information. Let’s dive into the anatomy of the CDK attack, and shed light on what action can be taken to identify and address the cyber risks we face today.
What: Ransomware
Ransomware is a specific category of cyber-attack where the attacker(s) either encrypt data, rendering systems inoperable and data inaccessible until purchasing a “decryptor” (a tool designed by the attackers to unlock the data), or stealing data at the threat of public release or sale on the darkweb. The attack group responsible for the CDK attack (called “BlackSuit”) is known for a “double extortion” approach in which they both encrypt files and threaten to leak sensitive data. This is a lethal blow as it combines the urgency of downtime, with regulatory factors such as potential fines and penalties imposed by the FTC, not to mention damage to reputation and loss of consumer and investor/stakeholder confidence (although CDK Global went private in 2022, acquired by Brookfield Business Partners).
While a ransom amount has not been confirmed, the internet rumor mill has noted amounts anywhere from $20 million up to $300 million. Given CDK Global’s market capitalization of $6.39 billion as of June 2024, any amount within that range seems feasible. This same attack group, responsible for 95 attacks since its inception March of last year, recently received a ransom of $20 million from a medical organization.
Who: BlackSuit
BlackSuit is a Russian and Eastern European organized cybercrime group reportedly responsible for the attack. These organized ransomware groups are the modern-day virtual version of the mafia. They operate as a business, with reporting structures, bonus incentives, and highly motivated and organized leadership. Located in regions difficult for US authorities to pursue them in and extradite from, they even leave trademark signatures and publicly claim their attacks. For BlackSuit, their callsign is renaming their ransom-encrypted files with a “.blacksuit” extension.
Similar to the crime groups of yesteryear, these groups disband when “bosses” are incarcerated or go into hiding, with new syndicates forming from previous underboss members. BlackSuit is an iteration of an affiliated group known as Royal, which formed after the fall of one of the most notorious Russian groups, Conti. Conti was said to have annual revenue exceeding $180 million from ransomware attacks.
When: Holidays
Organized cybercrime groups are very strategic about when and how they strike. They gather information about their targets, working to calculate the exact timing and amount to demand that will inflict the most damage, increasing the likelihood of the victim paying. Attackers know that US holidays are times when IT is often thinly staffed and “on call”, potentially creating a scenario where their guards are down. This is two-fold for automotive sales, as holidays are often the biggest days for sales. So, the strike on the US federal holiday of Juneteenth was the perfect storm for these adversaries, knowing that the 4th of July soon follows as one of the biggest days for auto sales.
How: The Human Element (Most Likely)
Again, given that details of the attack have not been released, the US Cybersecurity and Infrastructure Security Agency (CISA) reports that 91% of attacks originate from a phishing email. Anonymous sources claiming to be insiders involved in the investigation of this attack have also indicated this was the case. Combine that with the fact that BlackSuit’s most common entry point is phishing, and we have a likely suspect for how the attack originated.
That being said, most attacks employ a combination of tools and methods. As I mentioned previously, the second factor attackers have identified in the industry is outdated and unpatched “legacy” technology. Outdated software can contain known vulnerabilities and misconfigurations that allow attackers a foothold and pivot points within an environment. Honorable mention goes to easily guessable passwords and/or password reuse and lack of multi-factor authentication.
Lessons Learned
Lessons from this attack are not just limited to CDK, or even those dealers impacted by the cyber-attack and resulting outage. As I have previously warned, attackers tend to take the path of least resistance.
1. An ounce of preparation… The FTC Safeguards require you to have an Incident Response Plan in place. This should detail what actions are taken in the event of a cyber-attack. These plans should be documented, with roles and responsibilities, and tested with “tabletop exercises” where attack scenarios are talked through to identify any potential enhancements to existing processes. Another recent amendment to the Safeguards Rule now includes reporting requirements for any incident impacting 500 or more individuals.
2. Vendor Management: This is another explicit FTC Safeguards requirement. OCD Tech has been pressing DMS providers on their security vulnerabilities and compliance since the Safeguards Rule was proposed, with some more responsive than others. Many of these systems are archaic,
built on inherently vulnerable platforms and infrastructure. More modern and proactive DMS players are building solutions more in line with today’s technology and security needs. Proper Vendor Management means evaluating who your vendors are, who has access to your data, how critical they are to your operations, and subsequently, how adequate their security practices are.
3. Employee Awareness Training: Employ not only distribution of cybersecurity awareness training materials, but simulated phishing attacks to train your workforce on how to spot red flags and in-
With all the flashy tools and corresponding sales pitches out there today, it’s important to understand what threats you’re facing and what you’re paying for to mitigate the associated risk.
dicators of suspicious activity. OCD Tech has noted employee click and open rates as high as 30% during baseline simulated phishing campaigns. That means 30% or more of your employees could fall for an email sent by an attacker. We’ve seen those very same dealerships improve that rate to less than 2% over a period of 6 months of simulated campaigns. Employees should also be reminded to be on high alert going into high-volume sales and service periods such as holidays, and after events such as the CDK breach where “piggyback” attacks can follow – attackers posing as CDK representatives to convince individuals to open malicious software or grant them remote access.
4. Basic Cyber Hygiene: We cannot stress enough the importance of enabling multi-factor authentication where available and especially where sensitive customer information resides. This is typically a low-cost and low-impact change that is very effective. Easily guessable and reused
passwords could also mean that an attacker already has login information for your environment. Leverage information sources such as darkweb monitoring for leaked credentials and make sure you force password changes when such credentials for your dealership appear.
5. Assess Risk, Address Risk, Repeat: You do not know what you do not know. Contracting a third-party to evaluate your security and compliance can be an incredibly valuable tool. Measuring your cyber risk and cybersecurity maturity can provide you with a roadmap towards improvement that allows you to focus your budget and effort in the right areas. With all the flashy tools and corresponding sales pitches out there today, it’s important to understand what threats you’re facing and what you’re paying for to mitigate the associated risk. Have a contracted simulated attacker evaluate your vulnerabilities and see if they can get into your systems, before a real attacker does.
Next Steps
As always, it is important to stay vigilant. There are a lot of tools out there today that can help align you with security best practices and become compliant with data privacy and protection requirements. But it is important as a business leader to ask the difficult questions and demand answers in a language you understand. Know your weaknesses, because your adversaries sure do. It is not all doom and gloom. It is about fostering a culture of cybersecurity awareness. Remind employees about the importance of cybersecurity awareness during department meetings. Ask your IT staff or third-party provider for metrics on your cybersecurity performance. Cybersecurity is a necessity these days, but, as we have seen with this attack, it can also become your competitive edge. Some of our clients using CDK have inquired about alternative DMS solutions, and competitors in the market are so inundated with requests, one is declining to schedule demos. In a market with plenty of competition, a cyber-attack can be make-or-break.
Vendor Security Incidents
Legal, Regulatory Considerations for Auto Dealers
By Brad Miller ComplyAuto, Chief Compliance/ Regulatory Officer
The recent widely publicized security incident at CDK has brought breach response issues to the front of dealers’ minds. (The most recent press accounts suggest that the incident may involve ransomware.) As we know, dealers rely heavily on third-party vendors for various services, from customer relationship management systems to financial processing. When a vendor experiences a security incident, it can obviously have far-reaching operational implications for the dealerships they serve. But it also raises important legal and regulatory issues for dealers as well. This article outlines key legal and regulatory considerations auto dealers should consider in the immediate aftermath of such an incident.
1. Incident Assessment
The first step is to assess the scope and potential impact of the vendor’s security incident. This can be difficult, especially in the first hours and days after the event. Even for systems a business fully controls, this is a complicated and difficult process, and those difficulties are magnified when the incident occurs at a third-party service provider that you do not fully control.
Unfortunately, that reality does not relieve dealers from potential time-sensitive obligations, nor does it necessarily provide any additional time to meet those obligations. Dealers are responsible for their data, even when it is processed elsewhere and/or by a service provider. Dealers are
the regulated entity (the data “controller;” the “financial institution;” the data “owner”) under relevant federal and state law, and they need to take action to ensure that they are meeting their obligations.
In the event of a cybersecurity incident that could impact dealer data, dealers should, at a minimum:
• Request a detailed incident report from the vendor;
• Seek to determine what dealership data may have been compromised; and
• Evaluate potential risks to customers, employees, and business operations.
While the dealer may not be able to obtain a detailed incident report right away (indeed one may not even be available), it is important that they ask, and that they do so as soon as practicable. As outlined below, state and federal notice obligations are all time-sensitive. While a dealer should not be expected to obtain answers to questions if they are not yet available, they cannot do nothing. Making this formal request (and documenting it) is a good starting point.
2. Potential Notice Obligations
Asking for incident information is step one, but what happens if you do learn that dealership customer information may have been involved? Depending on the nature of what you learn, this may trigger several critical legal obligations, including potential notice responsibilities. Dealers may have legal obligations to notify:
• Affected individuals (customers and employees) under state breach notification laws;
• Regulatory bodies such as state attorneys general (or other state agency) under state law or the Federal Trade Commission under federal law;
• Law enforcement agencies.
For each of these scenarios, timely notification is critical. For example, the re-
cently enacted Safeguards Rule reporting requirement requires that dealers notify the FTC “as soon as possible and no later than 30 days” after discovery of a “notification event.” A notification event is the unauthorized acquisition of unencrypted customer information of 500 or more consumers.
Importantly, the FTC has indicated that dealers (as the regulated entities under the Rule) are still responsible to ensure that the FTC is appropriately notified, even if the event occurred at a service provider.
A key consideration here is “discovery”, and the FTC provides little clear guidance on when exactly “discovery” takes place. In the context of a publicly revealed event at a service provider, when does discovery occur so that the “clock” starts ticking? It’s far from clear. In its commentary, however, the FTC seems to distinguish discovery of an incident and a determination that the incident involved 500 or more consumers.
The FTC states that it “expects that companies will be able to decide quickly whether a notification event has occurred by determining whether unencrypted customer information has been acquired and, if so, how many consumers are affected, so there will not be a significant difference between ‘determination’ [of whether a notification event has occurred] and ‘discovery’ [of the incident].”
What does that mean in the context of the June 2024 CDK incident?
Again, this is far from clear, but it does suggest that “discovery” may occur when an incident is first “discovered”, even if at that time you have not “determined” that consumer information was involved. Again, this supports the argument that dealers should be reaching out now to CDK to determine whether any of their customer information was involved in the incident.
It is also important to note that the new
FTC reporting requirement puts the burden of proof on the dealer. It states that “[u]nauthorized acquisition will be presumed to include unauthorized access to unencrypted customer information unless you have reliable evidence showing that there has not been, or could not reasonably have been, unauthorized acquisition of such information.” Hence, there is an open question about what level of proof dealers will need from CDK (or any other vendor) to meet this “reliable evidence” standard, but it is clear that some evidence will be required.
State Law Notification Requirements
In contrast to federal law, all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands have enacted breach notification laws. Unlike the federal law, which requires notice to the FTC, these laws generally require businesses to notify affected individuals when their personal information has been com-
promised. These notice requirements are tied to residency of individual consumers. Therefore, compliance with these obligations requires an analysis of the specific customers whose information has been breached.
Timing: Many states require notification “as expeditiously as possible and without unreasonable delay,” with others including an outer time limit such as “no later than 30 [45, 60] days.” The state laws vary in determining when these time periods start. They also differ from the Safeguards Rule in terms of the type of information that they cover (generally tied to SSNs, credit card numbers, account numbers, etc.).
State notifications typically must include a description of the incident, types of information compromised, and steps individuals can take to protect themselves. Most states allow written notice, with some permitting electronic notification under certain circumstances. Many states require notification to the state attorney
general or other state regulatory bodies if the breach affects a certain number of residents.
It is crucial to note that requirements can vary significantly between states. For instance:
• California’s law applies to a broader range of data types than many other states.
• Some states, like Massachusetts, require specific security measures in addition to notification.
• New York’s SHIELD Act expanded the definition of private information and broadened the scope of businesses subject to its requirements.
Given these variations, auto dealers operating across multiple states must be prepared to comply with a patchwork of requirements.
3. Other Important Steps Dealers May Consider Dealers should review their current vendor contracts to understand:
• The vendor’s contractual obligations regarding data security and breach notification;
• Indemnification clauses and liability limitations;
• Requirements for the vendor’s incident response and cooperation; and
• Requirements for the vendor to cooperate with and produce information to the dealer about actual or suspected breaches.
If these provisions are not currently available, dealers should work with their attorneys to add adequate language in all relevant agreements.
Insurance Issues: Dealers whose business operations are interrupted may also want to evaluate whether they have business interruption coverage under any of their insurance policies that may provide coverage for losses sustained due to a breach. Such coverage might exist under property/casualty and/or cyber insurance policies.
4. Customer Relations and Reputation Management
While not strictly a legal consideration, maintaining customer trust is crucial. Dealers should:
• Develop a clear communication strategy for affected customers;
• Consider whether they will offer appropriate remediation services (e.g., credit monitoring) – a number of state breach notification laws may require this to be offered with the notice;
• Be prepared to address customer concerns and potential complaints.
5. Regulatory Investigations, Enforcement, and Litigation Risk
Dealers and their counsel should also be prepared for potential state or federal regulatory investigations. Remember that the stated purpose for the FTC Safeguards notification requirement is to assist the Commission in enforcing the Safeguards Rule against financial institutions that report. In other words, you have to tell the FTC there was an issue so that they can enforce the Rule against you.
Dealers, working with counsel, should
maintain thorough documentation of the incident response process and all communications with the vendor, affected individuals, and regulatory bodies.
Dealers should consider consulting with their attorney in the early phases of determining whether a breach has occurred and determining an appropriate response
incident? Preparation is key. In addition to reviewing and updating contracts, dealers should work now to ensure that their incident response plan is updated and effective. Dealers should also consider establishing a business continuity plan that could be put into place in the event of a future cyber incident to ensure the ability
while having a plan is crucial, its effectiveness lies in regular testing, updating, and employee familiarity with the procedures.
due to the complex legal issues implicated. Dealers and their counsel need to plan early in the process to take steps to protect the attorney-client privilege in the course of their investigation and response.
Of course, there will be a heightened risk of potential litigation related to the incident, which makes this documentation and privilege protection even more critical.
6. Ongoing Compliance and Security Enhancements
In the aftermath of an incident, dealers should:
• Reassess their vendor management practices;
• Enhance internal security measures;
• Update incident response plans; and
• Consider cybersecurity insurance options.
Remember that in addition to the new notice requirements, the FTC Safeguards Rule requires financial institutions to develop and implement an incident response plan (IRP). In the event of a vendor security incident, following this plan is crucial. In addition, dealers should consider updating their IRP after an incident to reflect lessons learned from the incident.
Lessons Learned?
What should all dealers (including nonCDK dealers) learn in the context of this
to continue operations in as uninterrupted a manner as possible.
Dealers should also take the time to double down on their efforts to fully comply with the Safeguards Rule, including oversight of service providers. While dealers often cannot control what happens at a vendor, they can (and are required to) conduct due diligence in selecting vendors, ensure that their contracts are compliant, and that they are taking steps to ensure that vendors are taking required cybersecurity steps under the Safeguards Rule as well as under many state laws.
It is important to note that, while having a plan is crucial, its effectiveness lies in regular testing, updating, and employee familiarity with the procedures. Auto dealers should conduct periodic tabletop exercises or simulations to ensure their incident response and business continuity plans remain practical and effective.
Ed. Note: This article was drafted on June 21, 2024. At the time it was drafted, the CDK “cybersecurity incident” was publicly revealed, but no details about the event have been shared publicly that would allow dealers to determine whether any of their customer data was affected by the incident.
Navigating Cybersecurity Challenges Beyond FTC Safeguards in the Auto Industry
By Scott Spatz President, Cooperative Systems
As digital technology propels the automotive industry forward, it also opens the door wider to cyber threats. Auto dealerships, which handle vast amounts of personal customer data and oversee significant financial transactions, have become prime targets for cybercriminals. Relying solely on basic compliance measures such as the FTC Safeguards is no longer sufficient; the industry must develop and implement a comprehensive cybersecurity strategy to protect its assets and secure its future.
Why Cybersecurity Matters More Than Ever
Consider an auto dealership as a data goldmine, storing everything from customer’s personal info to transaction details. If a hacker breaks in, the fallout can range from financial losses to severe damage to the dealership’s reputation. But there is more at stake than just data. Cybersecurity is also about keeping the business running smoothly, especially as cars themselves become more connected and technologically complex.
The Roadblocks to Better Security
Many dealerships grapple with outdated systems that barely meet today’s security needs. There often is a significant gap in cybersecurity expertise. Plus, let’s face it, change is hard. Shifting from old ways to new security practices can meet resistance from those who find them too complex or unnecessary. To overcome these chal-
lenges, dealerships can start with phased updates to their tech systems, making the transition less disruptive. Also, investing in regular training can turn your team into a cybersecurity-savvy workforce, ready to tackle these challenges head-on.
How to Handle Daily Security Challenges
Keeping up with cybersecurity is a daily grind. It involves regular updates, strict access controls, and constant vigilance to protect data. It is about being proactive; regular audits and embracing advanced security frameworks help you stay ahead of potential threats. Also, automating some of
er to manage. Adding new tools is not just about the purchase; it is about making sure they fit seamlessly with what you already have. This might mean centralizing the management of these tools to keep things streamlined and ensuring ongoing training for your team so everyone’s up to speed.
Why All This Matters
Adopting a comprehensive approach to cybersecurity is no longer optional; it is essential. It is about protecting not just data but also the dealership’s ability to operate without interruption. Creating and nurturing a culture that prioritizes cybersecurity involves everyone, from the General Managers to the sales floor. Regular updates,
Creating and nurturing a culture that prioritizes cybersecurity involves everyone, from the General Managers to the sales floor.
these processes can free up your IT team to focus on bigger security concerns.
Funding Your Cybersecurity Efforts
Money is always a tricky subject. Effective cybersecurity does not come cheap, but the cost of preventing attacks is far less than recovering from one. For many dealerships, making a case for a bigger cybersecurity budget involves showing the return on investment in clear, compelling terms. This might include considering cybersecurity insurance or looking for grants designed to boost small business security.
Getting the Right Resources and Tools
Whether it is hiring cybersecurity pros or finding the right tech, having the right resources is crucial. For smaller dealerships, this might mean outsourcing some of the work or opting for cloud-based solutions, which can be more cost-effective and easi-
training, and clear communication can help foster this environment. By tackling these issues head-on, dealerships can protect themselves from cyber threats, ensuring they keep their data safe, their customers happy, and their doors open.
Dealerships interested in improving their cybersecurity measures can benefit from attending specialized industry specific events, such as the monthly Coffee with Coopsys webinars hosted exclusively for MSADA members. These webinars provide valuable insights and strategies, helping dealerships understand the cybersecurity landscape and implement effective protections.
Our next Coffee with Coopsys webinar is scheduled for September 10, at 10 a.m.: Data Lockdown – Controlling Access To Your Data and How It Is Transmitted. To view the full schedule and to register for upcoming Coffee with Coopsys webinars please visit https://coopsys.com/msada/.
Leadership – Keeping It Simple
“When people respect you as a person, they admire you. When they respect you as a friend, they love you. When they respect you as a leader, they follow you.”
–John C. Maxwell
By Jaime Decker Ethos Group
As of today, there are over 57,000 books available on Amazon with “Leadership” in the title. With so many different insights on how to lead, inspire, grow, and mentor people, it can be overwhelming deciding which direction or method to use as leaders.
Where do we start? How do we continue to improve our leadership skills? Which method are we “qualified” to use at our own leadership skill level? All these questions are really important, and surely there are answers to some of these questions in at least one of those 57,000 books. But having studied leadership for over 25 years, I have concluded that the simplest methods seem to work the best.
Let me be clear, simple does not mean easy. There is nothing easy about being a
leader. When you are a leader, it is your responsibility to think beyond yourself. The goal is to get people to follow you not because they have to, but because they want to. Leaders inspire, think of others first, motivate, educate, seek to understand before being understood, and hold people accountable to do the things they do not necessarily want to do – all to achieve the results that they desire. Leaders realize “It is not about me” anymore.
Which method do we use? How should we lead? Leaders do not try to be someone they are not. Leaders are comfortable being who they are or work on improving themselves to reach that point. Yet there are actions we can take every day to guarantee we are on the path to becoming an exceptional leader – one that others will want to follow.
Here are Five Simple Leadership Principles that will help elevate you to becoming that leader. And they work. Every. Single. Time
Respect
Leaders understand that we must give respect to others before they respect us in return. Leaders show respect not only to people they are trying to lead, but to everyone they encounter.
As a leader, understand that we must earn respect. It does not come with the title or the position. People do not follow positions or titles; they follow people. They follow people who work hard for them. And the leaders
they follow give the resources to them they need to be successful.
Over 60% of people who left an organization did so because of what they felt was a lack of respect from a fellow employee, often one of their leaders. It is fine to disagree with an employee and still work together, but not respecting them leads to higher turnover and employee dissatisfaction.
Be Nice
A friend shared some advice with me from his mother many years ago: “It does not cost you anything to be nice, but it can cost you everything when you are not.” That is some incredible advice.
Leaders know that they can hold people accountable without being a tyrant. Remember, people leave people. Being kind is not that hard. Leaders understand that you must hold people accountable to their processes and their standards, but you do not have to be a jerk to do it. Leaders seek to understand the problem first, before taking action. Maybe they did not communicate their expectations well? Leaders make the charitable assumption first. It is ok to be firm. It is also ok to be nice. We guarantee that you will see better results from your people, and you will feel better about yourself as a leader. That is a win-win for everyone involved.
Laugh
Laughter as a leader is awesome! It shows you are having fun leading people. And if they are laughing with you, they are having fun as well. Laughter is also incredibly good for you physically. It releases oxytocin in your body. Oxytocin helps lower your blood pressure, creates feelings of trust and loyalty, and releases dopamine (the feel-good chemical).
Some of the best times that I remember as a leader in a dealership involved our team laughing together. A leader takes their job very seriously but does not need to take themselves too seriously. It is our job as leaders to make sure the people around us enjoy their work, feel safe and valued, and are motivated to perform at their best. Laughter helps ease the toll of the hours and the challenges that we face daily at the dealership. Our work is not easy, so let us do everything we can to make it enjoyable for everyone,
Forgiveness
People make mistakes. They say things that hurt. And sometimes they do foolish stuff that leaves us, as leaders, with our heads in our hands. These things start to pile up in our mental file cabinets until we are on the verge of exploding. We risk losing all the momentum we have gained with our team because we have not dealt with these issues properly before they escalate. Think about someone who wronged you
in the last six months. How does that make you feel? Who has the power? Who is controlling the way you think and the way you feel? They are! The easiest way to take that power away from that person is to forgive them. Leaders do not have to forget about things, as that puts us in a position for it to happen again to us repeatedly. However, it is important to forgive that person in order to take back control. It is not worth it to be overcome with emotions and feelings that get in the way of being an effective leader. Let it go, learn from it, forgive, and move forward.
Be Grateful
Leaders are grateful every day. They know they are the luckiest people in the world. Leaders are in a position to gain endless opportunities for their own success, work with people who need leaders, and give guidance to those who need it for success.
Leaders take time each day to be grateful for the people who follow them and the
contribution they make to their leadership journey. If you are leading and no one is following you, you are just taking a walk. So be grateful that there are people willing to take that walk with us and allow us to help them grow, learn, and succeed. Lastly, take some time each day to take your own grateful walk. Just a few minutes to do nothing but think about what you are grateful for in your life. It is a time just for you and nothing else. You will be grateful that you did. Leadership is hard. But the principles are simple. Implement them in your daily life as a leader. We promise, you will not only notice a difference in those you lead but also in the leader you are becoming.
For more information on how Ethos Group can help your dealership develop more leaders in your F&I office, sales management tower, and your sale’s floor in 2024, please contact Drew Spring at dspring@ethosgroup.com or 617-6949761.
Patrick Manzi NADA Senior Economist
New light-vehicle sales in May totaled a SAAR of 15.9 million units. May 2024’s SAAR is up 2.4% from May 2023 and up 0.8% from April 2024. Retail sales accounted for 82.1% of May’s overall sales total. Overall sales increases in May were driven in part by sales of more affordable car and CUV models. Year to date through May 2024, alternative-fuel vehicles represented 17.9% of all new vehicles sold, an increase of 2.5 percentage points of market share from the same period in 2023. But not all powertrains saw market share gains. Hybrids’ and plug-in hybrids’ year-to-date market share rose by 2.1 and 0.5 percentage points, respectively, while battery electric vehicles (BEVs) lost 0.2 percentage points of market share. When looking at raw sales volumes, year-over-year growth of BEV sales slowed to just 0.5% through May, while hybrids and plug-in hybrids saw their sales volumes leap by 36.1% and 37.8%, respectively.
New light-vehicle inventory declined slightly in May. New light-vehicle inventory on the ground and in transit totaled 2.73 million units at the end of May, down 0.3% from the start of the month and up 50.3% from May 2023. As new-vehicle inventory has grown, so have manufacturer incentives. According to J.D. Power, average incentive spending per unit is expected to total $2,640, an increase of 48.1% compared with May 2023.
Looking out to the rest of the year, we believe that monthto-month inventory levels will not change much throughout the summer, but will begin to build again in the final quarter of the year. For new light-vehicle sales, we expect more slow and steady growth. Our full-year 2024 forecast for new light-vehicle sales remains unchanged at 15.9 million units. .
Political Uncertainty is Giving Dealers Pause
By Cody Lusk
President & CEO, American International Auto Dealers Association
What does it take to build a successful dealership operation in the United States?
Exceptional products? Employees? Locations? Of course, the answer is “yes” to all of the above, but there is one additional element that is absolutely vital, and often underestimated.
Certainty.
Dealers, and really all small business owners, need to be confident in the stability of the laws and regulations that underpin their market. They cannot build anything lasting on shifting sands, and they cannot hire and expand when wild swings in policy impact their ability to sell. This was evident earlier this month when AIADA’s partner Cox Automotive recently released its Q2 Dealer Sentiment Survey.
As Cox Automotive Chief Economist Jonathan Smoke put it, “There is a lot of uncertainty in this market, leaving consumers and dealers alike unsure of the road ahead. On top of uncertainty about interest rates, we are heading into an election season, and this one is especially breeding more concern. In the auto business, uncertainty is the enemy – it negatively impacts sales, hurts consumer sentiment, and leaves auto dealers feeling troubled.”
In total, survey respondents gave the current market index a score of 42, indicating that most U.S. auto dealers see the market as weak. Political uncertainty, especially that surrounding the upcoming November election, seems to be having the biggest impact on dealers. In the latest survey, 36 percent of dealers cite the Political Climate as
a factor holding back business, up from 33 percent in Q1 and 29 percent one year ago. Smoke explained, “In many ways, the Political Climate is a surrogate for ‘uncertainty.’ Many dealers and consumers believe the election outcome will impact the economy and the auto market in some way – either good or bad – and that expectation of change is causing paralysis in the market and hurting sentiment.”
Dealers are right to be concerned. Partisanship is at an all-time high, and polls show a tight presidential race, with Congress hanging in the balance as well. A drawn-out election decision, as we saw in 2000, could damage consumer confidence even further.
So, what specific policies are giving dealers heartburn in the run up to election day?
Interest rates, of course, remain the biggest concern for dealers and consumers. In this latest survey, 68 percent of dealers identified high interest rates as a significant source of pain, compared with 70 percent in the first quarter.
Electric vehicle policy is also giving the industry whiplash, as the drivetrains and rebates available in dealerships is increasingly determined by whoever occupies the White House in a given four-year
period. Currently, even as President Biden mandates manufacturers to build more and more EVs, Donald Trump is telling Republicans that, if elected, he intends to completely reverse those policies. This conflicting and inconsistent approach to EV sales is not a sustainable position for brands who plan their products years, and sometimes decades, in advance.
In addition, tariffs are shaping up to be a hot-button issue in this election, and one that will certainly have a significant impact on the automotive industry. President Biden recently raised tariffs by executive order on EVs imported from China to 100 percent, laying the groundwork for what could turn into a global trade war. Former President Trump, not to be outdone, has floated the idea of eliminating the U.S. income tax entirely in favor of an “all tariff policy.”
At AIADA, we seek to establish stability for our members in Washington, D.C. and are focused on advocating for policies that allow them to plan long into the future. As a country, we cannot see-saw between political extremes every four years. We must focus on creating an environment that encourages entrepreneurs, embraces small businesses, and promotes economic growth for all Americans.
By Scott Pearson
Chairman, American Truck Dealers
ATD ChAirmAn SCoTT
PeArSon iS owner AnD
PreSiDenT of PeTerbilT of ATlAnTA
ATD Dealers Converge on Washington
I’ve been in this business almost half a century, so I’ve seen a lot of changes – and a lot of truck regulations come out of the federal government. We are certainly not short on either right now, which made it a crucial time for our annual ATD Legislative Fly-In on June 25-26. We held 95 meetings on Capitol Hill, advocating for our businesses and customers with Members of Congress, including with the office of the Speaker of the House.
At the beginning of my tenure as Chairman, I identified my key priorities for the year, a rubric for our work. We made some notable progress on these goals during our visit to the nation’s capital. Here are some highlights:
tinue and I encourage you all to remind your elected officials of the negative, unintended consequences to dealers and consumers alike of this rule.
2. Increase truck dealer outreach to build relationships and solidify member value.
Our members got a front row seat to their membership value in D.C. watching our staff and Automotive Trade Association Executives (ATAEs) at work. Reps. Randy Feenstra and Earl Blumenauer (D-Oregon) presented to our group and fielded questions from truck dealers. When we hit the Hill, we were able to meet personally with nearly 53 Members during the office visits. That means our issues
We are facing serious challenges. Now is the time to stand up and get engaged. We need your voice and your advocacy.
1. Push back on federal electric truck mandates and educate key decisionmakers at the EPA and on Capitol Hill.
Broad adoption of heavy-duty and medium-duty zero emission vehicles (ZEVs) are far from reality. The technology does not yet meet the needs of our customers, and commercial ZEVs are mostly unavailable. EPA’s de facto electric vehicle mandate puts the health of the trucking industry, our economy, and the supply chain at risk.
Challenging the EPA’s GHG Phase 3 rule was the central focus at the 2024 ATD Legislative Fly-In. Rep. Randy Feenstra (R-Iowa), a champion for our issues, joined us to discuss strategy for sharing the realities of the rule: the forced adoption of ZEVs, despite these vehicles currently being 0.3% of sales last year, and costing two to three times more than comparable diesel vehicles is extremely problematic. This regulation goes too far too fast, and we need relief.
Rep. Feenstra has led 157 Members of Congress in a bicameral letter to the EPA explaining the impact of the rule on small business and the economy and urging the agency to withdraw it. Our efforts con-
are a priority!
We had 88 truck dealers, ATAEs, and guests from 25 states in attendance at this year’s Fly-In. The energy was high, but I am challenging us to increase it throughout the year. Engagement cannot be confined to two days in June.
We need everyone active and vocal. Invite your state and federal representatives to your dealerships. Show them your business and explain the needs of your customers. Get engaged with your state and metro dealer associations. Your ATAE needs your expertise and your advocacy. Let’s combine the truck dealer and auto dealer voice to make each stronger. Attend ATD Show January 23-25, 2025, in New Orleans. When you attend, bring your team with you. This is the way we can participate and be heard.
3. Continue to grow membership and promote the ATD NextGen program.
I will close with good news. Our ATD NextGen steering committee met to discuss strategy going forward, attended the ATD Board of Line Representatives meeting, and hosted a successful packed ATD NextGen reception with guest speaker Rep. Britta-
ny Petersen (D-Colorado) while we were together in Washington. This group is growing fast with high energy and great ideas, which is no surprise. After all, they have decades ahead of them in this industry. They are invested in protecting it.
ATD NextGen is open to any member truck dealership employee, regardless of age or position, who aspires to be a leader in their truck dealership. Best of all: it’s free! This group provides professional development and opportunities for truck dealership leaders of the future by fostering peer relationships, education, social networking and advocacy, thus building a stronger industry.
Here’s your call to action: Invite one person from your dealership to join the ATD NextGen program. If you are a rising leader, take the initiative yourself. Apply at: atd-nextgen at nada.org.
We are facing serious challenges. Now is the time to stand up and get engaged. We need your voice and your advocacy. If we don’t advocate for our business, who will?
ATD on EPA’s GHG Phase 3 Rule
Below is ATD Chairman Scott Pearson’s op-ed on the EPA GHG Phase 3 Rule that ran in Transport Topics prior to the fly-in.
Perspective: EPA’s GHG Phase 3 Rule Needs Fixing
By Scott PearSoN
One of my guiding principles, both personally and professionally, is to fix the problem; don’t place blame. The commercial truck industry definitely has a problem to fix.
In March, the Environmental Protection Agency finalized its Phase 3 greenhouse gas rule that sets overly aggressive, and frankly unattainable, standards to reduce emissions from heavy-duty vehicles. The Phase 3 rule requires vehicle manufacturers to convert an annually increasing percentage of their total vehicle sales to electric vehicles for model years 2027 through 2032 — which in turn will push toward a reduction of diesel product availability and force the purchase of more expensive zero-emission vehicles. Industry leaders, including commercial truck manufacturers, fleet owners, owner-operators and commercial truck dealers, agree that this rule is unachievable, not only for our industry but for many U.S. businesses.
The country’s commercial truck dealers are not in the blame game, but we do need to fix the EPA’s rule to match reality. Commercial truck dealers already have made enormous investments to sell and service ZEVs — nearly $1 billion in this decade. We are putting our businesses on the line to support the transition to electric trucks, and we want our investments to pay off.
However, we are hearing from our customers every day that electric commercial vehicles do not meet their needs, and today’s diesel engines — the cleanest in history — are required to keep America’s trucks moving and keep shelves stocked.
New technology almost always runs into challenges in its early days. ZEVs are so new that dealers like me are often working directly with the manufacturer to determine the issue and how
Commercial truck dealers already have made enormous investments to sell and service ZEVs ... We are putting our businesses on the line to support the transition to electric trucks, and we want our investments to pay off.
to remedy it — adding to the time a vehicle is idle in the service department. The goal for most truck dealers when servicing a diesel truck is to get it on the road within 45 hours. Right now, in some cases, it’s taking up to 45 days to service a ZEV. And when a commercial truck is down, fleet operators are losing not only time, but money.
Charging infrastructure is the other major hurdle. It’s simply not ready; there are few commercial charging stations, and the chargers that are available can take up to 10 hours to fully charge a vehicle. In a business where time is money, this is a serious problem.
Further, cost is a major factor for commercial truck customers. Commercial ZEVs can be, on average, two to three times more expensive than their diesel-powered equivalents, according to the American Transportation Research Institute — an insurmountable hurdle for broad adoption considering the EPA time frame for deployment in the rule. Until ZEVs pencil out for fleets, commercial vehicle customers will hold on to their existing vehicles or purchase used trucks. This will delay fleet turnover, keeping older vehicles on the road longer and serving as a contradiction to the goal of decreasing emissions.
As truck dealers, we have our own challenges: delays in charger installations caused by parts shortages, utility upgrades, permitting hurdles and concerns about the capabilities of local power grids.
In March, the Clean Freight Coalition released research on the costs and challenges to the electrification of the commercial supply chain. The findings were unsurprising to dealers; we are experiencing the challenges and costs firsthand every day, but what was shocking was the estimated total infrastructure cost to electrify the commercial fleet — $1 trillion.
We simply can’t force the adoption of electric trucks until the technology and infrastructure works for our customers. Unfortunately, despite the many meetings that industry leaders have had with EPA pointing out the obstacles to success, this rule is final.
We are turning our attention to Congress to help fix this problem and advocating for a transition toward zero emissions at a pace that is achievable for the technology, infrastructure and industry and ensures America’s commercial trucks can keep trucking.
CDK Cyberattack Impacts Thousands of Dealerships
Scott duBe, PartNer at McGoverN
HyuNdai rt. 93, rePreSeNtS
Nada’S MaSSacHuSettS MeMBerS
oN tHe Nada Board of directorS
He caN Be reacHed at SduBe@ McGoverNauto coM
On June 19, CDK informed its dealership clients that it had suffered a cyberattack that caused a shutdown of DMS and other services. That shutdown continued through late June and may possibly impact dealerships through the Independence Day holiday.
Since the incident’s occurrence, NADA has actively communicated with CDK and the Federal Trade Commission to ensure our franchised dealers are protected, especially as it may relate to any reporting requirement dealers may have to comply with in the event that the cyberattack may have breached any customer data.
As a result of NADA’s interactions with the FTC, the FTC has accepted an NADA proposal made in coordination with CDK that permits CDK to file a consolidated breach notification with the FTC on behalf of its dealer clients if CDK determines that the FTC Safeguards Rule’s new federal notification requirement is triggered. Dealers, therefore, have no obligation at this time to file a breach notification with the FTC related to this matter unless dealers opt out of this process. (Any dealer obligations to file breach notifications under state law are not affected by this proposal.) CDK also has issued information on the topic to its dealer clients.
NADA will continue to provide updates and guidance to assist dealers in responding to this incident and in strengthening their operations moving forward. As part of this process, we are providing information from the dealer accounting firm Forvis Mazars, including an action plan dealerships can implement, which can be found at www.forvismazars.us.
As a reminder, in addition to numerous NADA webinars, there are several resources to help address data security and regulatory compliance, including:
• The NADA Safeguards Rule Driven Guide found at www. nada.org with a member log-in;
• FTC cybersecurity basics found at www.ftc.gov/business-guidance/small-businesses/cybersecurity/basics;
• Additional resources from the Cybersecurity and Infrastructure Security Agency found at www.cisa.gov.
Let this also be a stark warning to non-CDK dealers that every one of us is just one event away by a third-party vendor to be in the same boat.
NADA Legislative, Regulatory Updates
1. FTC Vehicle Shopping Rule: NADA continues to pursue an aggressive legal and legislative strategy to stop the FTC’s Vehicle Shopping Rule from taking effect. On June 3, the Center for Automotive Research released an updated study showing that the Vehicle Shopping Rule will:
• Require at least an additional hour to complete the vehicle purchasing process (divided between the sales process and the review of financial disclosures and documentation);
• Generate a net cost to consumers and dealers of $24.1 billion over 10 years; and
• Impose upon each dealership location average upfront compliance costs of $31,450, and an average recurring annual cost of $39,862.
On June 5, the U.S. House Financial Services and General Government (FSGG) appropriations subcommittee passed its funding bill for Fiscal Year 2025, which included an NADA-backed provision to stop the FTC from implementing or enforcing the Vehicle Shopping Rule until September 30, 2025. Subsequently, on June 13, the full House Appropriations Committee approved, on a 33-24 vote, the Financial Services and General Government Appropriations Act that gives the FTC $388.7 million in funding but blocks the agency from using that money to roll out or enforce its Vehicle Shopping Rule. A companion bill does not yet appear to have been introduced in the Senate or brought before that body’s Appropriations Committee.
Litigation opposing the rule continues. On June 13, NADA’s reply brief (in response to the FTC’s May opposition brief) was filed with the U.S. Court of Appeals for the 5th Circuit. NADA and TADA will continue to show the Court the many, many reasons why FTC’s Vehicle Shopping Rule violates federal law and should be set aside permanently, including the fact that the FTC:
• Unlawfully issued this rule without the advance notice required by its own regulations;
• Did not articulate a rational connection between its findings
and its decision to impose a far-reaching rule; and
• Unreasonably evaluated the rule’s benefits and costs.
2. NHTSA CAFE Rule: On June 7, NHTSA released its final rule on Corporate Average Fuel Economy (CAFE), which includes the following:
• The final rule will freeze truck and SUV fuel efficiency for model years 2027 and 2028 and increase at 2% for the following years – as opposed to 4% year-over-year increases for trucks and SUVs that were in the proposed rule.
• Passenger car fuel efficiency will increase at 2% every year, as in the proposed rule.
• By MY 2031, the projected total fleet fuel efficiency will be 50.4 MPG, as opposed to the projected 58 MPG by MY 2032 that was in the proposed rule.
The final CAFE rule is generally aligned with the EPA final greenhouse gas rule such that if manufacturers comply with the EPA rule, they will not be subject to fines under CAFE.
NHTSA’s rule, combined with EPA’s rule, creates a regulatory regime that aggressively pushes vehicle electrification far ahead of consumer demand. Dealers’ experience working with consumers every day makes us highly skeptical that consumers will adopt EVs anywhere near the levels required to meet these rules. The charging infrastructure is not ready, the current incentives are not sufficient, and high EV prices will price out millions of consumers, particularly low-income Americans, from the new-car market.
Congressional Review Act joint resolutions are expected to be introduced in both houses of Congress in June by Rep. Tim Walberg (R-Michigan) and Sen. Ted Cruz (R-Texas) to disapprove of this new CAFE rule. NADA will support these resolutions and any appropriations riders that would disapprove or prevent funding for the NHTSA’s final CAFE rule.
3. EPA Emissions Rule: The EPA’s final vehicle emissions rule, which solidifies GHG standards for model years 2027 through 2032, is far too aggressive and far ahead of consumer demand. Our experience working with consumers every day makes us highly skeptical that consumers will adopt EVs anywhere near the levels required. The charging infrastructure is not ready, the current incentives are not sufficient, and high EV prices will price out millions of consumers, particularly low-income Americans, from the newcar market.
NADA is supporting Congressional Resolutions of Disapproval of the EPA’s de facto EV mandate. On May 30, NADA sent a letter of support to Sen. Pete Ricketts (R-Nebraska) and Rep. John James (R-Michigan) for their legislation (S.J.Res. 75/H.J.Res. 136) to disapprove the EPA’s final emissions rule for light-duty vehicles. This legislation is expected to be voted on by Congress by mid-September. America’s franchised new car and truck dealers will con-
tinue to:
• Promote electrification with billions of dollars in investments in facilities, training and inventory;
• Urge the Administration to track actual EV sales versus projections and make necessary adjustments to its de facto EV mandates to reflect actual consumer demand; and
• Continue to support Congressional Review Act resolutions and appropriations riders that would disapprove or prevent funding for the Administration’s final rule.
4. Hyundai DSSA Amendments: In May, NADA learned that Hyundai Motor America (HMA) introduced several addenda implicating dealer rights and obligations to the Dealer Sales and Service Agreement (DSSA). The solicitation of these addenda by HMA to dealers bypassed any state-prescribed process for franchise modifications, raising significant concerns about dealer franchise rights. Following several direct conversations with Hyundai, NADA contacted every Hyundai dealer to make them aware of this concern. NADA also advised all Hyundai dealers that they had no obligation to sign these addenda and referred every impacted dealer to their legal counsel. While not all of the addenda are new, dealers may have recently encountered them due to a triggering event, such as the conclusion of a facility renovation or relocation, when requesting an ownership structure change or in conjunction with other triggering events. NADA will continue to monitor the situation, discussing the issue with HMA, and keeping Hyundai dealers inform
5. Hyundai-Amazon: NADA has been persistently engaged with the Hyundai National Dealer Council, Amazon, and Hyundai since the announcement of the Hyundai-Amazon pilot program for vehicle marketing and shopping. As of June 1, there has been no release of a master contract between Amazon and Hyundai dealers. NADA continues to check in with the Dealer Council and provide input relevant to their concerns as requested without yet seeing the master contract. At the request of the Hyundai Dealer Council and Hyundai, NADA’s focus has been on assisting the Hyundai Dealer Council in its efforts to address all questions and concerns about this pilot program and larger partnership. NADA is aware that these discussions between the Hyundai Dealer Council working group, Amazon and Hyundai are continuing in good faith.
US Auto Sales Set to Slow Amid Higher Rates, Dealer Cyberattack
BlooMBerG NewS
The rebound in US auto sales likely lost momentum in June as high prices, steep borrowing costs, and cyberattacks that hobbled dealerships across the country weighed on deliveries.
Vehicle sales will probably slow to an annualized rate of around 15.8 million vehicles in June, based on a consensus
of five market researchers, down from 16.1 million a year ago. Some analysts see the pace of sales holding steady, as shoppers have returned to showrooms since the Covid-19 pandemic disrupted supply chains and caused an inventory shortage.
Affordability has been the biggest hurdle for consumers, driven by higher interest rates. The average annual percentage rate on a new-car loan has risen to 10%, up 1 percentage point over the past year. Automakers have started discounting more to lure buyers, but many are waiting to see if prices drop further.
Overall pricing is still above 2020 levels, according to Erin Keating, executive analyst with Cox Automotive. That, paired with expectations for further price decline, is “quite the recipe for a market that lacks urgency with little incentive to buy right now,” she said.
Sales are unlikely to drop in the second half but will remain flat as consumers wait out discounts and any indications that the November presidential election will impact interest rates, Keating said.
The hack of software provider CDK Global shut down the company’s systems on June 19, forcing thousands of dealers in the US to temporarily halt sales and then use manual options. The company told dealers in late June that it expected to have their systems back up by July 4.
Some purchases may have been pushed into the third quarter, said Jessica Caldwell, the head of insights at researcher Edmunds. “This event is another speed bump on the automotive industry’s long road to recovery,” Caldwell said. “The good news is — unlike other black swan events that the industry has contended with in the past — sales shouldn’t be lost or severely deferred.”
Election Uncertainty May Impact U.S. Auto Industry, Report Says
reuterS NewS
Uncertainty looms over the U.S. auto industry, fueled by expectations that the presidential elections in November will reshape the economy, affect interest rates or influence inflation levels, a report from Cox Automotive showed.
Cox forecast that new-vehicles sales volume in the first half of 2024 will rise by 2.9% year-over-year and held its full-year forecast steady at 15.7 million.
Consumers in the U.S. have been reluctant to make big-ticket purchases like vehicles due to inflationary pressures. Shoppers may continue to hold back due to economic uncertainty stemming from the presidential election, the report says.
“If shoppers believe interest rates will be lower in the future, or that the economy will be improving – or worsening – post-election, they are more likely to stay on the sidelines, waiting for the dust to settle,” said Vanessa Ton, senior man-
ager at Cox Automotive.
“There is a view from consumers now that if they wait, they’re going to get a better price,” Charlie Chesbrough, senior economist for Cox Automotive, said in a media briefing.
Both shoppers and dealers believe that inflation is the top concern, with 74% of consumers and 81% of dealers believing the next election will influence it. However, auto dealers are divided on the impact of the election on vehicle sales, with about 38% expecting sales to worsen, and 31% each who expect sales will either improve or remain the same.
About 41% consumers believe that vehicle prices will rise due to the election, while 33% believe it will have no impact on prices, according to the report.
VW to Recall 271,000 U.S. Vehicles Over Possible Air Bag Issue reuterS
Volkswagen is recalling over 271,000 vehicles in the United States due to a potential wiring fault that may deactivate front passenger air bags when the seat is occupied, the U.S. National Highway Traffic Safety Administration (NHTSA) said. The recall affects the German automaker’s certain 2021-2024 Atlas and 2020-2024 Atlas Cross Sport vehicles where the passenger occupant detection system (PODS) may experience a fault in the wiring and affect front passenger air bags. The Atlas and Atlas Cross Sport are among the best-selling vehicles for the carmaker in the U.S.
Until the recall repair has been performed, NHTSA advised affected vehicle owners to avoid the use of the front passenger seat whenever possible. Volkswagen did not immediately respond to a Reuters request for comment. Earlier this year, Volkswagen had issued a recall of more than 261,000 vehicles in the U.S. due to an issue with a jet pump seal inside its fuel tank.
Car Sellers Warn Investors of Possible Financial Hit from Cyberattack
BlooMBerG NewS
Some of the largest auto dealers in North America are warning of a potential “material” impact to their finances from a cyberattack that has slowed operations at thousands of stores.
Sonic Automotive Inc. and Penske Automotive Group Inc. filed disclosures with the US Securities and Exchange Commission on June 21. Group 1 Automotive Inc., AutoNation Inc., Lithia Motors Inc., and Asbury Automotive Group Inc. followed on June 24. All six companies use CDK Global, whose so-called dealership management system was halted a week ago after a crippling hack.
The disclosures represent the first sign of potential widespread economic impact stemming from the attack against CDK, which serves roughly 15,000 North American car
dealerships. The incident is part of a growing phenomenon in which financially motivated cybercriminals have attacked critical links in the global IT supply chain — the plumbers of the Internet that you might least suspect as targets, bringing down entire industries along with them.
Shares in Sonic, Group 1, AutoNation, Lithia, and Asbury have all declined since the hack. Penske shares have risen 2.5% as the company had previously said its dealerships weren’t affected.
The incident “has had, and is likely to continue to have, a negative impact,” Sonic said in its regulatory filing. The company hasn’t yet determined whether the CDK outage will have a material effect on its finances. Sonic shares have fallen nearly 3% since the hack.
Here is what other companies are saying about the business impact of the attack:
• Penske said it uses CDK’s software for its Premier Truck Group division — but not its US or international automotive dealership operations. The truck dealership business represents lower unit volumes than its automotive dealership division, the company said.
• Group 1 said its “ability to determine the material impact, if any, of the CDK hack and the resulting service outage, will ultimately depend on a number of factors, including when, and to what extent” it can resume access to CDK’s systems. Group 1 shares have declined 2.5% since the June 19 attack.
• AutoNation said that the service interruption has been “disruptive and adversely impacted” its business. All of its locations remain open and are continuing to sell, service and buy vehicles. But they’re experiencing “lower productivity,” the company said. AutoNation stock is down 5.6% since the attack.
• Lithia said it has “not yet determined whether the incident is reasonably likely to materially impact” its finances. The company said its dealerships continue to operate but noted that the hack has had a negative impact on business operations. The stock is down 0.4% since the attack.
• Asbury Automotive said some parts of its business operations are functioning “slower than normal.” The company’s Koons Automotive sites in Maryland and Virginia don’t use CDK’s dealer or relationship management systems, so they’re operating with “minimal interruption.” Asbury hasn’t yet determined whether the hack will have a material impact. Shares have declined 1.4%.
The intrusion is the handiwork of a hacking gang known as BlackSuit, Bloomberg reported. The US Department of Health and Human Services recently declared in an alert that BlackSuit should be “closely watched” as a threat, in part because of the gang’s association with other extortion groups. BlackSuit uses malware and attack techniques that are remarkably similar to the defunct Russian-speaking
Conti gang, suggesting to cyber researchers that BlackSuit is partly made up of experienced Russian hackers.
The hackers have demanded tens of millions of dollars in ransom from CDK, which intends on paying. CDK said over the weekend that it expects restoring its systems will take “several days and not weeks.”
The group functions as a ransomware-as-a-service gang, in which members lease their technical tools to affiliates and demand a cut of any extortion payments.
CDK provides software that helps dealers manage customer records, schedule appointments, handle car-repair orders, and complete transactions, among other tasks. CDK has yet to restore full service, and the outage has forced dealers to halt or delay some services and resort to pen and paper.
Stellantis to Expand Hybrid Vehicle Line to Meet Growing Demand reuterS
Stellantis has announced it would expand its line of affordable hybrid vehicles to 36 models in Europe by 2026, to meet growing demand for this engine type, an alternative to petrol-fuelled cars and electric vehicles. The American-French-Italian automaker, created from the 2021 merger between Peugeot maker PSA and Fiat Chrysler, said in a statement it would offer 30 hybrid models this year for nine of its 14 brands, including Fiat, Peugeot, Jeep and Alfa Romeo, and launch six more over the following two years.
Stellantis, which did not say how many such hybrid models it already sells, said it was responding to the quick rampup of customer orders for hybrids in Europe. It added that its sales of this kind of vehicle in the region rose 41% in the first six months this year. The group said in June its EV sales were stable since the beginning of 2024 despite softer demand globally.
Stellantis said it was focusing on selling “mild hybrid” vehicles, those without a plug and that use a 48-volt low-voltage battery, a dual-clutch robotic gearbox and a reinforced braking energy-recovery system.
“When you compare this system to a high-voltage hybrid, it has a very similar CO2 gain at a lower cost for our customer,” said Christian Müller, Stellantis’ senior vice president of propulsion systems for the EMEA region, referring to its carbon dioxide emissions. “Our system is as good as the others but with a slightly better price-entry point.”
Stellantis’ affordable hybrid technology allows for a range of up to one kilometer in pure electric mode, compared to around 80 kilometers for the group’s plug-in hybrid technology.
