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NADA Shifts Into Crisis Mode. Is It Doing Enough?

Since its inception in 1917 to fight a proposed 5% luxury tax on automobiles, the National Automobile Dealers Assn. has been remarkably effective carrying out its mission of protecting and preserving the automotive-franchise system. For the most part, the trade association has been able to run on cruise control, only having to mash the pedal once in awhile to stay ahead of potential threats to its constituents. It was a fairly predictable existence — sales downturns every 10 or 12 years; occasional problems with a manufacturer; staving off legislation that would hurt dealers; and designing programs to help improve the dealers' image and profitability.

Since its inception in 1917 to fight a proposed 5% luxury tax on automobiles, the National Automobile Dealers Assn. has been remarkably effective carrying out its mission of protecting and preserving the automotive-franchise system.

For the most part, the trade association has been able to run on cruise control, only having to mash the pedal once in awhile to stay ahead of potential threats to its constituents. It was a fairly predictable existence — sales downturns every 10 or 12 years; occasional problems with a manufacturer; staving off legislation that would hurt dealers; and designing programs to help improve the dealers' image and profitability.

Suddenly, the automotive industry has become frighteningly unpredictable. NADA has been forced to shift into a higher gear — some members say it needs to get faster yet — as the credit collapse and subsequent problems of General Motors Corp. and Chrysler LLC threatened to overtake it and do irreparable damage to its dealers.

Some dealers tell Ward's they believe NADA should have responded faster, more vocally and more effectively to the crisis of last fall.

Many of their observations are fair — more on those later — but the reality is, the association's actions very likely kept the U.S. auto industry from collapsing and probably bought General Motors Corp. and Chrysler LLC more time to find ways to survive — and as a result, saved thousands of dealerships.

Incoming Chairman John McEleney says he has heard the criticism but says the association was “engaged quickly and quietly.” Behind the scenes, NADA President Phil Brady and other NADA officials were meeting with the White House, the Treasury Dept. and the Small Business Admin. to craft ways to free up credit for dealers.

NADA did recognize early the potential danger posed by a collapse of the credit markets. Association officials lobbied Congress hard in September supporting passage of Treasury Secretary Henry Paulson's $750 billion Troubled Assets Relief Program designed to help bail out financial institutions following the collapse of Lehman Brothers, Merrill Lynch and AIG.

In fact, Sen. Harry Reid (D-NV) mentioned the dealerships that would go out of business in his state if the TARP was not passed during the Senate debate.

The problem is, not all of NADA's actions were public and there was a perceived lack of communication early on.

Despite its early involvement in the TARP negotiations, it appears NADA didn't begin shifting into high gear until November. At the very least, its responses left dealers feeling underwhelmed and wondering if that was it.

In some ways, NADA acted too fast. On October 29th, Brady hand delivered a letter to the White House calling for refundable tax credits for vehicle buyers, restoring the deductibility of interest on consumer auto loans and funding state “cash for clunkers” programs that encourage consumers to upgrade to newer vehicles.

NADA apparently put the letter together fairly quickly. Brady invited Cody Lusk, president of the American International Automobile Dealers Assn. and Damon Lester, president of the National Association of Minority Automobile Dealers, to NADA's offices ostensibly to talk about the letter.

Instead, when Lester and Lusk showed up, Brady showed them the letter telling them he was delivering it to the White House that day.

Chairman Annette Sykora also appeared at a press conference held at a MileOne Automotive-owned dealership the week of Nov. 14 supporting Sen. Barbara Mikulski's (D-MD) “The Mikulski Auto Ownership Tax Assistance Amendment.” The bill proposes all sales/excise tax and the interest paid on automotive loans be made deductible for new car and truck purchases between Nov. 12, 2008, and Dec. 31, 2009.

The bill has since been updated and is being co-sponsored by Sen. Kit Bond (R-M). It still is in play, Brady tells Ward's.

To be fair to NADA, no one predicted the speed or even the depths to which car sales plunged last year. It was inconceivable that sales would fall by 2.9 million units — with much of the decline happening the last four months of the year.

Also, no one fully understood the danger GM and Chrysler were in until early November. NADA was in a dilemma of sorts. Its members needed money but it was becoming increasingly clear to NADA officials in the days leading up to the first round of the auto makers' Congressional testimonies in mid-November that bailout fatigue was setting in.

Certainly, NADA needed to be represented at the testimonies, but the question was how to ask for money without getting lumped in with the auto makers.

The association developed a strategy. Sykora would testify on behalf of the auto makers, but not ask for money for the dealers. “We wanted to be part of the solution, not seen as part of the problem,” she says.

Brady says the highest priority at the moment was to bring stability to the Detroit 3 and consumer confidence.

“The best chance at getting that passed was to have the least complicated and most straightforward legislation we could put together,” Brady says. Dealers would have created confusion if they had asked for money.

During her testimony, Sykora told the Senate she was not there to ask for money for the dealers but rather, to support the auto makers.

NADA officials, meanwhile, were working feverishly behind the scenes meeting with the White House, the Treasury Dept., congressional members and the Small Business Admin. to craft measures and policies to stimulate car sales and generate floor-plan assistance for dealers.

One such measure is freeing up money from the SBA for dealers by changing the definition of a small business. The current definition is based on a business' annual revenue or gross receipts. Only dealerships with less than $29 million in yearly sales are eligible for SBA loans. While many dealerships operate as small, family-run operations, their revenue (an average of $33 million) far exceeds the standard set by the SBA, primarily because vehicles are big-ticket items.

NADA is asking the SBA to base dealer loan eligibility on the number of employees, rather than revenue. NADA says it is confident the SBA will come through, but the measure is being held up due to the changing of administrations.

Perhaps, the most important measure NADA has helped craft is the $200 billion Term Asset-Backed Securities Loan Facility (TALF) established by the Federal Reserve. Ultimately, TALF, when it kicks in at the end of January, will start freeing up credit for consumers and small businesses.

The main reason credit is frozen is the unwillingness of the larger financial firms and banks to securitize loans. TALF will facilitate the issuance and sale of securitized auto loans. The Treasury Dept. will provide $20 billion of credit protection using funds from the Troubled Asset Relief Program to the Federal Reserve in support of the TALF.

A huge victory for NADA is the fact that TALF is including floor-plan financing for dealers as part of the loans it will securitize.

The most public actions NADA has undertaken are the lobbying effort the week of the second round of auto makers' congressional testimony.

NADA flew in more than 150 dealers and state association directors into Washington on Dec. 9 to lobby Congress for the bridge loan. Five of the six CEO's of the public dealer groups also participated. It was an intense few days with dealers organized into teams to visit the appropriate congressional members.

The effort ultimately failed, and some have expressed concern that NADA is losing its effectiveness.

NADA officials admit they were surprised it failed but say the effort paid off in the end because the Federal government came through.

The fact that the bill passed in the House of Representatives and garnered numerous votes in the Senate gave Pres. Bush the cover he needed to provide the money, Andy Koblenz, NADA's vice president-legal and regulatory affairs says.

NADA officials along with Sykora and McEleney reject the idea the association could and should have done more. Still they admit there are serious challenges ahead in the short term, including a significant downturn in members along with revenue, and that NADA is going to have to adapt to better serve its members.

McEleney, in 2007, created a committee to find ways for NADA to move into the future but that was tabled as the crisis unfolded and became the issue of the day.

Nevertheless, there is going to be a lot of debate at NADA this year along with some lively and spirited board of directors meetings.

Ed Tonkin, vice president-Ron Tonkin Automotive Group, decided late to run for vice-chairman because of changes he says need to happen at the association. It's likely he'll be the chairman in 2010. His win was somewhat of a surprise, dealers tell Ward's and probably is creating some anxious moments for NADA officials.

Tonkin is passionate, vocal and willing to share his opinion which means he has to be careful he doesn't overshadow the quieter McEleney this year. He certainly favors a more vocal approach.

One dealer, though, says it's one thing for the association to talk, it's another to get real work done.

To describe the situation as a rift is too strong of a term, say some of NADA's directors. There may be different opinions but they are all working for the same goal — protecting the car dealer.

“We need to be a stronger advocate on behalf of the dealers,” Tonkin says. “We need to press for action right now. More than at any other time, the dealer represents strong equity and has more leverage.” NADA's short term goal the next few weeks is to make sure it is part of discussions the auto makers have with the government regarding restructuring. “If you're not at the table, you're on the menu,” Tonkin says.

Other areas that have to be addressed is the two-tier pricing some auto makers quietly are engaging in, which sets dealer against dealer. “It's a divide and conquer strategy,” one dealer says.

Communication is another challenge for NADA, one that is frustrating. Some dealers say the association needs to let its members know what it's doing for them. “You can't make them read their emails,” says one official.

Michelle Primm, an Ohio dealer and on NADA's board of directors, says NADA is going to have to find ways to get in front of the decision makers at the dealership. “It's the same challenge we have in the showroom and service departments — getting in front of our customers,” she says.

Jimmy Gray, owner of Jimmy Gray Chevrolet in Mississippi, says NADA was great last year. “I think they are very valuable, especially with the information they've been getting to us and with the lobbying efforts that NADA did during the hearings,” he says. “I think when things are good, it's not as important, but as things got tougher NADA has been very valuable to me as far as information and keeping me abreast (of the industry). They really coordinated their lobbying efforts with their dealers, it was very effective. Ms. Sykora testified on Capitol Hill, and I think she did an excellent job.”

NADA also will have to find ways to reduce some of its bureaucracy according to some members. “It's become an ‘Old boys’ network,” complains one director. With 62 board members and numerous committees, NADA sometimes moves slowly, but the events of last year have shaken some of that up, and with a younger board, that will be less of an issue moving forward.

As with anything, there is always room for improvement. But NADA has and will continue to be a force to be reckoned with, both in the headquarters of auto makers, and on Capitol Hill.

NADA Timeline -A History of Action

1917: Thirty dealers convened at the Willard Hotel in May in Washington D.C. and convinced Congress to reduce a proposed 5% luxury tax on automobiles to 3%. In July, 130 dealers established the association (which cost $102.71) representing 15,000 dealers during a meeting in Chicago and elected Milwaukee dealer George Browne as its first president (now called chairman).

1918: Headquarters for the association are in St. Louis while the first convention is held in Chicago.

1930's: NADA almost closes as membership drops to 2,200 due the Depression. But Pres. Roosevelt's new Code of Fair Competition for the Motor Vehicle Retailing Trade helped increase membership to more than 30,000 dealers by the end of 1934.

NADA creates the first factory-dealer contracts in 1931. NADA moves headquarters to Detroit in 1936. Pressure on profit margins and factory-dealer relationships were the driving issues. A 1939 article complained about the industry having too many dealers. Sound familiar?

1941 - 1946: NADA moves to Washington D.C. Industry's 44,000 dealers stop selling cars because of World War II. Women began working in the service departments to replace the 27,000 male service employees who enlisted in the military.

Following the war, waiting lists for vehicles surpassed two years as the industry retooled from a war-time economy.

1950's: NADA fought unsuccessfully a 7% tax on automobiles to help pay for the Korean War. NADA also steps up its public relations efforts to educate the public about the importance of the automotive-retail industry.

The advent of the interstate system adds pressure to profit margins by making it easier for customers to get to dealerships located far away. Toward the end of the decade, overcapacity became a big problem. Dealers complained of having inventory pushed onto them by the manufacturers and having to sell cars often at a loss. Some things never change.

1960's: The Europeans entered the U.S. market, and domestics began to see the first erosion of their market share. The first vehicle emission laws were enacted in 1965.

NADA launches the first quality dealer awards with the Saturday Evening Post in 1960.

Frank McCarthy begins his 25-year run as the association's chief executive in 1968. NADA also started the 20-Group program the same year.

1970's: Displaying a little bit of hokiness, NADA began selling blazers to dealers to give to their employees in an attempt to help improve the image of the industry. Sort of like putting lipstick on a… well, you know what I mean.

The 1970 Clean Air Act puts a real hurting on car sales for the rest of the decade. CAFÉ standards were enacted in 1977 putting more pressure on sales.

New headquarters are built in McLean, VA and the Dealer Election Action Committee is created. The Dealer Academy opens in 1979.

1980's: NADA convinces Pres. Jimmy Carter to direct the Small Business Admin. to provide loans for seven months to distressed dealers. Factory-dealer relationships continue to be a challenge.

1990's: Memberships continues to decline as consolidation and public dealer groups become the story of the decade.

The Internet forces its way into the industry adding more pressure to dealership profit margins. Ford and General Motors announce plans to buy stores and compete with dealers at the end of the decade. NADA fought back resulting in several states passing tough franchise laws protecting the dealer.

2000 - 2009: NADA offers Internet links and Cobalt websites to dealers to fight off would-be Internet brokers who wanted to replace the dealer.

Frank McCarthy dies from cancer in 2001. Phillip Brady replaces him as NADA president.

Also in 2001, GM announces the closure of Oldsmobile. NADA urges auto makers to simplify and shorten customer-satisfaction surveys.

In 2008, Annette Sykora is installed as the association's youngest and first woman chairman.

TAGS: Dealers Retail
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