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December 7, 2015 FacebookTwitterFlickrRSSSEND TO A FRIENDPRINT
Inside this issue
WSJ: Shouting Racism is a Career Move
House of Representatives Votes to Repeal CFPBs Auto Lending Guidance and Issues Scathing Report on CFPBs Methodology and Statistics
Opinion: Dealers are a Monopoly? Come On, Man
Dealers Oppose Call for Ban on Sales of Used Cars Needing Recall Work
The Party's Not Over Yet: Market 'Just Keeps Going'
Frustration Flares For VW Dealers as Sales Nosedive
Ford Finds 0% Beats 'Friends'
Mazda's CEO seeks to Play Product, Pricing Right in the U.S.
Top Stories
WSJ: Shouting Racism is a Career Move
By Holman W. Jenkins, Jr.

A House Financial Services Committee investigation last week does a good job exposing the multiple dishonesties behind the Consumer Financial Protection Bureau crackdown on supposedly racist auto loans. But the report doesn’t get to the mind-set that would go to extremes to manufacture evidence of racism where it doesn’t exist. The CFPB is expressly forbidden to regulate auto dealers, who in turn are not permitted to collect racial and ethnic data on car buyers. This opens the door to statistical mischief as lawyers, ex post facto, assign borrowers to racial categories using methods that would never survive peer review, then blame wholesale lenders for any pattern of “disparate impact.”

In venturing down this trite and dishonest road, the new consumer bureau, a creature of Dodd-Frank, had a political goal: It would outdo its predecessors by ginning up enough cases to force the auto-lending industry to abandon dealer markups altogether. Framing people for crimes they didn’t commit presumably is justified if it serves a policy or political agenda. Stalin certainly thought so. One problem, though, is that even settling banks refused to end the practice of dealer markups. It would be “corporate suicide,” they said, because dealers would simply take their business elsewhere.

This means: Either dealers are so darn determined to discriminate against minorities that they’ll switch banks in order to keep discriminating. Or—which blows up the CFPB’s whole case—the dealer markup serves a legitimate business purpose because it makes some transactions profitable that otherwise wouldn’t be profitable and wouldn’t take place. This latter idea might seem obvious (whereas dealers leaving money on the table in dealings with 80% of clients who aren’t qualified minorities doesn’t). But it’s a consideration that disparate-impact cases resolutely refuse to entertain.
Source: The Wall Street Journal
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House of Representatives Votes to Repeal CFPBs Auto Lending Guidance and Issues Scathing Report on CFPBs Methodology and Statistics

On Nov. 18, 2015, the House of Representatives voted to pass H.R. 1737, the Reforming CFPB Auto Financing Guidance Act, which would nullify CFPB Bulletin 2013-02, entitled “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act.” The bill passed in the House with bipartisan support 332-96. CFPB Bulletin 2013-02 provides fair-lending guidance to the indirect auto lending industry. The Bulletin has been viewed by many as an effort to indirectly regulate auto dealers even though the Dodd-Frank Act expressly prohibits the CFPB from exercising rulemaking, supervisory, enforcement, or any other authority with respect to such dealers.  Following the CFPB’s issuance of the Bulletin, members of Congress and industry participants attempted to obtain the data and methodology that the CFPB used in developing its guidance.

Many believe that the CFPB’s method overestimates disparities in loan pricing. Members of Congress and industry observers claimed that the CFPB’s white paper failed to provide sufficient information to show how the CFPB’s method is applied in ECOA enforcement. The House bill was introduced in April 2014 by Reps. Frank Guinta (R-N.H.) and Ed Perlmutter (D-Colo.). It would require the CFPB to: (1) impose a public notice and comment period prior to the issuance of any final guidance by the CFPB; (2) publish all studies and data it used in reaching its guidance; and (3) conduct a study on the costs and impacts of the guidance to consumers and women-owned, minority-owned, and small businesses. The bill currently has 166 co-sponsors, including 65 democrats.

On the heels of its vote to nullify the Bulletin, the Financial Services Committee of the House issued a report on Nov. 25, 2015, entitled “Unsafe at Any Bureaucracy: CFPB Junk Science and Indirect Auto Lending.” The Report criticizes the CFPB for knowingly using unsound methodology to challenge auto lending practices based on allegations of discrimination. The bill now heads to the U.S. Senate, where industry experts believe it may face some hurdles.
Source: National Law Review
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Opinion: Dealers are a Monopoly? Come On, Man
By Cliff Banks

Apparently, someone recently declared it to be open hunting season for the media on car dealerships. Recent stories include claims of racism (in the Huffington Post) due to dealers fighting against the CFPB’s efforts to curtail financing profits to claims in the Daily Signal that removing the dealership monopoly from the sales process would save consumers $1,950 on each vehicle purchase. These are just two examples of many stories slamming dealers over the last several weeks. We all know there are bad apples in this industry– but there are unsavory characters in every business. But they aren’t the majority, despite what the media likes to write.

It’s one thing to attack less than ethical practices or people, but the media is going after the business model — and is relying on faulty data and perceptions of the industry, unfortunately. After reading the piece in The Heritage Foundation’s Daily Signal, I about had enough. The opinion piece was written by intern Max Lies.

It was somewhat surprising, because The Heritage Foundation is a conservative organization and one would think the dealership business is a model it would celebrate. Alas, that’s not the case. So I responded — click here for part of my response to the unfortunate piece.
Source: The Banks Report
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Dealers Oppose Call for Ban on Sales of Used Cars Needing Recall Work

Millions of cars have been recalled over the past few years for a variety of reasons, including problematic air bags and ignition issues. Some of them have been repaired — but not all. And some of those that still need fixes end up being traded in or sold to car dealerships, which then offer them for sale. Auto dealers and consumer advocates are at odds over whether it should remain legal to resell used cars that are covered by recalls but have not been repaired. A U.S. Senate proposal would end the practice, but the measure appears to be stalled in the face of opposition from dealers and others. Meanwhile, dealers say they are fighting an overly simplistic approach to a complex topic. “All recalls are not created equal,” said Tim Doran, president of the Ohio Automobile Dealers Association, a trade group.

“My position as a retailer is this: If it’s got a safety issue, it’s got to be fixed,” said Rhett Ricart, co-owner of Ricart Automotive, which sells new and used cars at its Groveport superstore. But he added that most recalls are not related to immediate safety issues. For this reason, he thinks a blanket ban on resale of all used cars with open recalls would do more harm than good.
Source: The Columbus Dispatch
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The Party's Not Over Yet: Market 'Just Keeps Going'

U.S. auto sales could hit an all-time record this month, but that probably won't be the end of the party. In view of the steadily improving economy, rising consumer confidence and still-unsated replacement demand, dealers and manufacturers can expect at least two more years with annual sales reaching or exceeding 17 million cars and light trucks. Analysts share that view. The National Automobile Dealers Association recently forecast 2016 volume of 17.7 million new cars and light trucks, and 2017 sales of 17.2 million. If that proves to be the case, it will be a first. The highly cyclical industry has never seen three consecutive years of sales over 17 million.
Source: Automotive News
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Frustration Flares For VW Dealers as Sales Nosedive

Uncertainty erodes once-hopeful tone

Volkswagen brand dealers are bracing for another month of pain after seeing U.S. sales tumble 25 percent in November. The question now: When will it end? VW withstood the initial fallout of its diesel emissions scandal, holding sales flat in October, the first full month after revelations of its cheating. Dealers, too, seemed hopeful they'd be able to sell their way through the crisis with the help of emergency aid from the factory, help that earned VW of America CEO Michael Horn a standing ovation at VW's national dealer meeting. But as Volkswagen drifts into a third month of a seemingly unbound scandal, that tone is changing and dealer frustrations are bubbling to the surface.
Source: Automotive News
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Ford Finds 0% Beats 'Friends'

Dealers and analysts: Promo doomed by bad timing, poor execution

Ford Motor Co. learned the hard way last month that car shoppers get more excited about no-interest financing than no-haggle pricing, especially during the annual holiday bargain-hunting frenzy. Dealers and analysts say the “Friends & Neighbors” sale on Ford brand vehicles was a victim of bad timing and flawed execution. The automaker pulled the plug on it five weeks early, switching to holiday-themed offers of 0 percent loans and $1,000 cash back on some vehicles.
Source: Automotive News
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Mazda's CEO seeks to Play Product, Pricing Right in the U.S.

Mazda Motor Corp. CEO Masamichi Kogai is completing the Japanese carmaker's transition from products co-developed with Ford Motor Co. to the new generation of in-house Skyactiv vehicles. Next spring's arrival of the redesigned CX-9 crossover, a vehicle created mainly for North America, will finish that overhaul and is expected to give the brand a needed boost in U.S. sales. Sales in Mazda's biggest market are up 3.2 percent this year, but the rise trails the overall market's, so the brand is losing share. Kogai, 61, is betting new product and a disciplined approach to incentives eventually will build brand value and lift volume.
Source: Automotive News
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Quotable
"We think there's another good, solid 22, 24 months at this level. The economics, the interest rates, the employment -- everything pretty much says that we should remain at this level" in 2016 and 2017."

    -- Bob Carter, senior vice president of Toyota's U.S. auto operations, commenting on strong auto sales in the U.S., Automotive News, Dec. 7

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