David Harkins and I attended the National Association of Dealer Counsel (“NADC”) fall conference in our home city of Nashville, Tennessee, this past week. The conference took place from Sunday, October 13^th to Tuesday, October 15^th, and conference attendees included attorneys, auto dealer principals, in-house counsel, and vendors/service providers like us. It was great to see familiar faces, meet new people, and hear how several auto groups are faring in the current environment.

Based on our time there, we provide a few takeaways from sessions we attended at this year’s conference. We believe the topics we cover are especially important for auto dealer counsel and their clients during the remainder of the year and beyond.

NADA Industry and Regulatory Update

The first session began as usual, with Paul Metry, EVP of Public Policy for NADA, giving a legislative update. He was joined by Daniel Ingber and Andy Koblenz, also from the NADA, to discuss FTC election and enforcement updates, the Vehicle Shopping Rule, the proposed Junk Fee Rule, the CDK cyberattack, EV regulations, and strategic challenges facing the industry.

Takeaway: Auto dealers must stay updated on legislative and regulatory changes to remain compliant, avoid penalties, and adapt to market shifts that influence their operations and profitability. While the NADA is protecting its interests on Capitol Hill, it is still incumbent upon dealers to be active at the state level and proactive regarding cyber security risks in light of the recent attacks.

Buy-Sell Agreements and Post-Closing Perils: Protecting Buyers and Sellers in M&A Transactions

The second session was presented by Brad Weiss and Barrie Charapp Beaty from Charapp & Weiss, as well as Gabe Robleto from Kerrigan Advisors. Their content focused on protecting buyers and sellers during and after the purchase process by addressing key issues with third parties and mitigating risks inherent in an auto dealership transaction. Some examples of their transaction-related considerations include retained liabilities, indemnification concerns, holdback/net worth requirements, post-closing access to records, management agreements, and vendor agreements.

You only sell your dealership once; it’s important to do it right.

Takeaway: You only sell your dealership once; it’s important to do it right. Auto dealers must exercise caution when selling their dealerships to protect their financial interests and ensure legal compliance. A dealership sale involves complex factors like valuation, existing contracts, franchise agreements, and regulatory approvals. Sellers need to understand their obligations, such as disclosing liabilities and ensuring compliance with state laws and manufacturer requirements. A poorly executed sale can lead to disputes, financial losses, or legal penalties, making it essential to carefully review all aspects of the transaction with legal and financial experts. Nobody likes surprises after the deal is supposed to be done.

Navigating the Digital Dealership: Website Compliance Essentials and Common Pitfalls

This session was presented by Lisa Singer, Veronique Tu, and Andrea Gumushian, all of whom are attorneys at ArentFox Schiff. This presentation focused on website compliance and specific topics related to online advertising, like “deceptive acts or practices” as defined by the FTC, the variability of state advertising laws, the “clear and conspicuous” requirement, and websites with hyperlinks and multiple web pages. The presentation also covered compliance with soft vs. hard credit pulls for consumers with online credit applications, as well as record retention and privacy concerns.

Takeaway: In the digital age, the look and feel of a website can be critical in consumers’ buying processes. Dealers must ensure their website is as inviting as their showroom, but there are also numerous legal considerations to be compliant. Auto dealers must carefully navigate website compliance with state and federal laws to avoid legal risks and maintain consumer trust. Websites must adhere to advertising regulations, privacy laws, and lending disclosures, ensuring all information is accurate and transparent. Compliance with data protection laws, like the FTC’s guidelines and state-specific privacy regulations, helps safeguard consumer information and avoid costly penalties. Failing to meet these requirements can lead to fines, legal action, and damage to the dealership’s reputation.

Considerations Related to Construction Contracts for Auto Dealers

This session was presented by Maggie Finnegan, Assistant General Counsel to CarMax, and Rocco Cafaro, a construction attorney from Hill Ward Henderson, P.A. The content in this presentation was focused on contract presentation options (AIA vs. custom) and different ways that dealers can structure their construction team (design-bid-build vs. design-build), as well as defining the work that needs to be done. Many of these issues can be viewed through the lens of risk management. Who is assuming certain risks during a construction project, and who is deferring those risks to someone else?

Auto dealer construction projects must be carefully structured to manage risks

Takeaway: Auto dealer construction projects must be carefully structured to manage risks related to cost overruns, delays, and compliance with zoning and environmental regulations. Poorly managed projects can lead to financial losses, legal disputes, and disruptions to business operations. By planning thoroughly, securing proper permits, and working with experienced contractors, dealers can mitigate risks such as contract disputes, construction defects, and safety violations. Proper risk management ensures the project is completed on time, within budget, and in compliance with all applicable laws, protecting the dealership’s long-term profitability and reputation. These projects are a significant investment for dealers who want to make sure they get a return on that investment. Due to the time value of money, a fast start improves that ROI, so dealers ought to stay on top of their construction projects even while they’re managing the day-to-day business already in place.

Damages from Malware, Cyberattacks, Software Breakdowns, and Data Theft

This session was presented by Patrick Anderson from Anderson Economic Group, Brad Weiss from Charapp and Weiss, and Andrea Gumushian from ArentFox Schiff. The presentation was focused on estimating damages from cyberattacks and data breaches, insurance policies that cover these types of risks, and privacy/data breach laws.

Takeaway: Auto dealers may need a damages expert for data breaches and cyber-attacks to accurately assess the financial impact, including lost profits and/or lost business value. A damages expert helps quantify these losses for legal claims and recovery efforts. Mercer Capital can help you with damages work, and we have an auto dealer industry group specializing in auto dealer valuations and consulting that also overlaps with our litigation support team that handles damages matters.

Navigating Partnership Disputes and Litigation

One of the last sessions was presented by Micheal Horn and Rafael Llano from Archer & Greiner PC. Their content was focused on partnership disputes and considerations for auto dealers who may be going through a partnership dispute. Considerations in the presentation included ownership agreements, transfers of equity interests, information rights, the potential dissolution or expulsion of a business partner, shareholder oppression, and fiduciary duty disputes.

Takeaway: Ownership disputes in auto dealer businesses can arise from unclear ownership agreements, disagreements over transfers of shares, or conflicts in management roles. To prevent disputes, it is essential to have well-defined ownership agreements that outline rights, responsibilities, and procedures for transfers or sales. Information rights are also crucial, ensuring all owners can access financial and operational data. Disputes may also involve the expulsion of a member or breaches of fiduciary duty, where owners must act in the best interest of the business. Regulatory compliance, financing arrangements, and adherence to manufacturer agreements are other areas where ownership disagreements can escalate if not managed properly. Clear legal frameworks and proactive communication can help mitigate these risks.

We have been involved with valuing the interests of partners in a dispute. Unfortunately, there are circumstances where our clients have learned after the fact that their agreements (like a Buy-Sell Agreement) weren’t structured as well as they could have been. If you haven’t looked at yours in a while, I encourage you to look at it, discuss it with your attorney, or give us a call to see if there are any concerns we see in the language that may not protect your interests.

Conclusion

While Mercer Capital can’t help with your dealership’s EV adoption plan or compliance with state laws, we can offer valuation services for transactions, corporate restructuring, and various shareholder disputes. Reach out to one of our professionals to discuss how valuation services could help your business plan and tax strategy.