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Inside this issue
Highway Bill Would Double Auto Recall Fines
52 House Dems Buck Obama On Auto Loan Bias Suits
Jeep Hack a Red Flag For Industry
Americans Heading Back to Work Drive at Record Pace Through May
Upcoming NADA Webinar Aims at Online Retailing
Survey: Drivers Open to Partially Self-Driving Cars
Top Stories
Highway Bill Would Double Auto Recall Fines

A compromise six-year highway reauthorization bill introduced Tuesday would make significant changes in auto safety policy including doubling maximum fines for delayed recalls to $70 million per campaign, allowing for email notification of recalls and barring rental car firms from leasing unrepaired recalled vehicles.

The compromise 1,030-page bill unveiled by Sen. Majority Leader Mitch McConnell, R-Ky., and Sen. Barbara Boxer, D-Calif., would also create a two-year pilot program that would assess the value of informing consumers of vehicle recalls any time they get license plates. It would be open to up to six states.

But the bill is far short of what Democrats had sought. Democrats on Tuesday voted against starting debate on the bill, but McConnell said he would again bring it up for debate Wednesday. The first three years of the six-year bill that will cost about $45 billion are paid for, but Congress would need to return to find funding for the final three years.

Automakers have urged Congress to reject requests by Democrats to amend the bill to add tougher auto safety provisions including lifting the cap on auto safety fines and create new criminal penalties for auto execs who fail to recall unsafe vehicles.
Source: The Detroit News

Editor's note: Sen. Richard Blumenthal (D-Conn.) is planning to offer an amendment to ground used vehicles under open recall on the Senate floor as early as this week. Dealers and their customers are urged to call their Senators at 202.224.3121 and urge them to oppose the anti-consumer Blumenthal amendment during the Highway bill debate. Contact information for the Senate offices is also available at www.senate.gov. Click here for NADA's issue brief on vehicle recall legislation and click here for talking points opposing the Blumenthal amendment.
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52 House Dems Buck Obama On Auto Loan Bias Suits

After extracting $180 million from Honda, Ally Financial and other auto lenders to settle racial discrimination charges, the Obama administration has set its sights on reordering the auto finance industry. But even many Democrats think that it's attacking a phantom foe and will end up hurting car buyers. More than 50 Democratic lawmakers — including Democratic National Committee chief Rep. Debbie Wasserman-Schultz and some Congressional Black Caucus members — have signed onto a GOP bill that restricts the administration's use of a low-proof legal theory as a basis for filing race bias claims vs. auto lenders. HR 1737 now has 119 co-sponsors and has been taken up by the House Committee on Financial Services.

Critics say that the administration is trying to upend the auto-lending process based on flimsy allegations of racism, a radioactive charge that can permanently damage corporate brands and trigger boycotts. "Absolutely none of this has to do with discrimination," National Automobile Dealers Association (NADA) spokesman Jared Allen asserted in an IBD interview. In several bipartisan letters to the CFPB which is leading the administration's auto-finance attack, lawmakers have complained that investigators have little evidence of lending bias.

The bias allegations rest on the statistics-based legal doctrine known as disparate impact, which holds that any policy or practice that results in adverse outcomes for minority groups must be racist, even if opportunities are the same, the policies are neutral and applied evenly to all customers, and there is no intent to discriminate. CFPB claims that its statistics show blacks and other minorities paying, on average, more in finance charges for car loans, so car dealers must be ripping them off in favor of whites. As little as a 10-basis-point difference in charges can trigger investigations.

Car loan applications don't actually ask about borrowers' race, so the CFPB assigns race to borrowers based on their addresses and last names. But its methods aren't foolproof. For instance, African-Americans and whites often have the same surnames. Studies show that the agency correctly IDs black borrowers only 24% of the time. Even CFPB recently acknowledged that its "proxy" method badly misidentifies African-Americans. "CFPB must manufacture the central variable in its analyses — race and ethnicity," O'Melveny & Myers financial services lawyer Christopher Craig said.

Auto lenders set interest rates based on factors including credit risks, but dealers can discount the rates at a cost to their own compensation. CFPB investigators have failed to account for a host of business factors unrelated to race that explain pricing differences at the dealer level. They include seven factors that the Department of Justice has recognized as legitimate reasons for dealer discounts. "When you do not factor in those factors, you are not comparing similarly situated customers," NADA chief regulatory affairs counsel Paul Metrey told IBD.

For example, the DOJ has said that lenders can let dealers cut retail rates to close sales with customers who have shopped around for better deals or have taken advantage of special promotions or end-of-year clearances. Such discounts are critical in the highly competitive auto market, and they save customers millions of dollars a year. Could some dealers give white customers discounts just because they're white, and not because they walk into showrooms demanding that staff meet or beat lower rates from other sources? Such localized prejudice is possible, but not likely.

Every time dealers discount rates, they shift money from their pocket to the customer's. Discounts are subtracted directly from dealer participation rates or from the compensation that lenders set for dealers to cover payroll and other expenses. So favoring whites beyond "meet or beat" deals or other business reasons would go directly against their own financial incentives.

CFPB declined comment. But in a letter to Congress, CFPB chief Richard Cordray wrote, "We cannot identify each control that we apply in the analysis to ensure that borrowers are similarly situated." Added Metrey: "That has been something industry has been crying foul about this whole period, yet they've persisted" in bringing discrimination charges against major car lenders.

Financial Services panel member Rep. Ed Perlmutter, D-Colo., has suggested that CFPB is trying to regulate car dealers indirectly in an "end around" of congressional limits. The Dodd-Frank Act, which created the CFPB, carved franchised dealerships out of the agency's jurisdiction.

CFPB has indicated that it has a broader goal of pushing the industry to adopt flat rates to curb discretion in loan pricing. But a one-price-fits-all system would cost consumers millions of dollars in lost discounts, NADA argues. After the Honda deal, Cordray cheered the carmaker's "proactive decision to move to a new pricing and compensation system" and said, "Other auto lenders should take note."

In a June 16 memo on the proposed Honda deal, top CFPB officials reportedly stated: "The significant limitation of dealer discretion ... is one of the goals we have been seeking with respect to the indirect auto matters." NADA has demanded that CFPB make the full memo public, calling it a "smoking gun" that reveals "exactly what it is they're attempting to do."
Source: Investor’s Business Daily

Editor's note: To download NADA's Fair Credit Compliance Policy & Program, click here.
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Jeep Hack a Red Flag For Industry

Fiat Chrysler Automobiles NV is vehemently opposed to hackers’ plans to reveal how they were able to wirelessly hijack a Jeep Cherokee — and potentially hundreds of thousands of other Fiat Chrysler vehicles. The apparent breakthrough is a major security issue not only for Fiat Chrysler, but all automakers. Car hacking has been demonstrated in controlled simulations in recent years -- mostly when hackers are physically plugged into the vehicle’s hardware. But security researchers Chris Valasek and Charlie Miller recently remotely hacked into a 2014 Jeep Cherokee in a real-world test that included disabling the SUV’s engine functions and controlling interior features such as air conditioning, locks and the radio.
Source: The Detroit News

Editor’s note: NADA recently submitted a letter to the House Energy and Commerce Committee in response to their recent request to NHTSA and 17 auto manufacturers seeking information about the industry’s cybersecurity preparedness and its response to emerging challenges as new technologies are developed and automobiles and transportation infrastructure become increasingly connected. In the letter to the Committee, NADA outlined dealer concerns related to cybersecurity challenges arising from the servicing and remediation of tomorrow’s vehicles. NADA will continue to work with the manufacturers and their associations in addressing cybersecurity issues.

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Americans Heading Back to Work Drive at Record Pace Through May

U.S. drivers put a record number of miles on their cars in May, helped by a growing economy and cheap gasoline. American motorists traveled 275.1 billion miles in May and have totaled 1.26 trillion so far this year, a record for the first five months of the year, Federal Highway Administration data show. Why are the roads getting more crowded? More than four million Americans have gotten jobs since the beginning of 2014, creating more daily commutes, and gasoline prices are down 26 percent from last year’s peak. “It is possible that U.S. driving may set new records all summer,” Doug Hecox, a spokesman for the highway agency in Washington D.C., said by phone [Tuesday]. “Normally, the peak of the travel season is June, July and August.”
Source: Bloomberg
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Upcoming NADA Webinar Aims at Online Retailing

As part of the NADA University Online Webinar Series, the National Automobile Dealers Association announced recently it will be hosting a webinar on Wednesday to help dealers learn how to enhance the customer experience during the online retail process. The webinar, entitled “Why Online Retailing Will Keep You in Control,” will be presented by Mike Burgiss, the founder of MakeMyDeal and the vice president of eCommerce at Cox Automotive. According to NADA, the webinar will show dealers how to offer online shopping experiences that customers want while maintaining control of the deal process.
Source: Auto Remarketing

Editor's note: The "Why Online Retailing Will Keep You in Control" will be held today, July 22, at 1 p.m. ET. To register, click here.
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Survey: Drivers Open to Partially Self-Driving Cars

A “sizable amount” of drivers are open to driverless-car technology as long as they retain some control, according to a small study from the University of Michigan. Researchers Brandon Schoettle and Michael Sivak of the UM Transportation Research Institute surveyed 505 licensed drivers and found about 41 percent said they prefer a partially self-driving vehicle with only occasional control by the driver. That compares to 44 percent preferring to retain full control, while nearly 16 percent would opt for a completely self-driving vehicle. The study found men and those under 45 are more likely to favor partially or completely self-driving cars. Responses are similar to what many auto manufacturers and suppliers have been saying for years about always “keeping the driver in the loop.”
Source: The Detroit News
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Quotable
"When you do not factor in [DOJ recognized reasons for discounting finance rates], you are not comparing similarly situated customers."

   
-- Paul Metrey, NADA chief regulatory affairs counsel, referring to the flaws in the CFPB's testing methodology for unintentional discrimination in the auto financing market, Investor's Business Daily, July 22

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