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Inside this issue
Economy to Move at a Solid Pace in 2014 and Accelerate Slightly in 2015
Dealer-backed Laws Limit Captives' Power to Compel Sales of Branded F&I Products
Tesla OK'd by Pennsylvania Assembly to Add Company Stores
Senate to Hold New GM Hearing July 17
Kansas Congressman Visits Local Ford Dealer
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Top Stories
Economy to Move at a Solid Pace in 2014 and Accelerate Slightly in 2015

According to participants in the Chicago Fed’s annual Automotive Outlook Symposium, the nation’s economic growth is forecasted to be solid this year and to strengthen somewhat in 2015. Inflation is expected to increase in 2014 and remain flat in 2015. The unemployment rate is anticipated to move lower but remain near 6% through the end of 2015. Light vehicle sales are predicted to improve moderately in 2014 and 2015.

Steven Szakaly, chief economist, National Automobile Dealers Association, presented the light vehicle sales outlook from the dealers’ perspective. Szakaly showed that although dealerships’ profits have recovered since the recession, margins remain tight. The average net profit margin for dealers is 2.2%—a mere $69 per vehicle and well below the margins of other retailers. He argued this was a sign that, contrary to popular perception, auto dealers give consumers a fair deal.

Consumers have also benefited from the proliferation of free and transparent pricing through the Internet. Since customers are more knowledgeable about cars than ever before, dealers must be experts on every detail of their products. In the past, dealers have competed with auto manufacturers as these firms have experimented with selling directly to the consumers. Szakaly said that auto manufacturers’ attempts at direct sales were largely unsuccessful and that vehicle sales would be dominated by dealers for the foreseeable future.

He contended that a more serious challenge for dealers in the future would be the growing burden of student loan debt. While auto loans and credit card debt have declined from their record highs, the total value of student loans has steadily increased. Szakaly said he worried that if student loan debt continues to grow, customers would be reluctant to take on additional auto debt. This trend, combined with reduced enthusiasm for cars among young consumers, is likely to lead to delayed purchases, but he said he was confident that most consumers would buy cars eventually.

A final source of concern for Szakaly was new emission regulations from the U.S. Environmental Protection Agency and the U.S. Department of Transportation, which he contended had the potential to raise prices and reduce demand for vehicles. Notwithstanding these challenges, sales of light vehicles are expected to stay above 16 million units for at least the next three years, according to Szakaly.
Source: Chicago Fed Letter (July 2014)

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Dealer-backed Laws Limit Captives' Power to Compel Sales of Branded F&I Products

Several new state laws are taking effect that limit the power of automakers’ captive finance companies and preferred lenders to compel dealerships to sell F&I products backed by the factory or a specific vendor. Laws took effect in Florida and in Mississippi on July 1, and one took effect in New York on June 16. A law in Oklahoma is expected to go on state books beginning Nov. 1, according to the American Financial Services Association, a Washington-based lender trade group. With some significant differences, the new laws generally make it harder for captives and preferred lenders to favor their own F&I products or to discriminate against F&I products from third parties.
Source: Automotive News

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Tesla OK'd by Pennsylvania Assembly to Add Company Stores

Tesla Motors Inc., which has battled U.S. auto dealer groups over its direct sales of electric cars through company-owned stores, was approved by lawmakers in Pennsylvania to expand retail operations there. The state House yesterday passed legislation, approved by the Senate last week, that lets the Palo Alto, California-based carmaker increase the number of stores in Pennsylvania and add more service centers, the company said in an e-mailed statement. The legislation, which allows as many as five stores in the state, passed 197-2 in the House and still must be signed by Governor Tom Corbett, a Republican, to become law. Last month, the New Jersey Assembly approved a bill that creates a loophole for direct sales of zero-emission autos, and New York Governor Andrew Cuomo signed a similar measure into law. The company this year also won an exemption to an Ohio statute banning direct auto sales and avoided a similar ban in Missouri.
Source: Bloomberg

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Senate to Hold New GM Hearing July 17

A Senate panel investigating General Motors Co.’s delayed recall of 2.6 million vehicles linked to 13 deaths and 54 crashes will hold a new hearing on July 17. The committee hasn’t announced a witness list. GM Mary Barra previously offered to return to testify before the committee when she appeared in early April and she testified before a House panel last month. Barra is almost certain to testify, but GM wouldn’t confirm that
Source: The Detroit News

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Kansas Congressman Visits Local Ford Dealer

Ford dealer North McArthur (left) meets with Kansas Congressman Tim Huelskamp at the dealership last month.

North McArthur, president of Long McArthur Ford Lincoln hosted U.S. Rep. Tim Huelskamp, R-Kan., at his dealership in Salina, Kan., on June 30. During the visit, McArthur highlighted the dealership's economic impact on the town of Salina, such as employment and local and state taxes paid. He also discussed the impact of the Consumer Financial Protection Bureau (CFPB) and its proposed changes on indirect auto lending at franchised auto dealerships. They also discussed the impact of possible tax changes to the Last In, First Out (LIFO) accounting method used by many dealers around the country. Congressman Huelskamp represents the 1st congressional district which includes central and western parts of Kansas. He is in his second term and serves on the House Small Business Committee among others. If you’re interested in hosting your local member of Congress, contact Patrick Calpin, NADA Director of Grassroots Advocacy at or (800) 563-1556.
Source: NADA Legislative Affairs

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"Dealers are hungry for quality used vehicles so they continue to make highly competitive trade-in offers, while auto finance rates remain near all-time lows."

-- NADA executive analyst Jonathan Banks, referring to an expected increase in auto sales over the Fourth of July weekend,, July 2 

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