The National Association of Dealer Counsel (NADC) annual member conference was last week in Amelia Island, Florida. My colleague, Scott Womack, and I were happy to attend. In this week’s post, we provide a few takeaways from the conference for readers to keep an eye on during the remainder of the year. At the end of the post is further reading about other topics presented at the conference.
Key Takeaways for Our Clients
Navigating the current environment can be challenging for auto dealers and their legal counsel. Some key decisions and issues are no longer on the distant horizon and must be addressed sooner rather than later. Some of these issues include the following.
Infrastructure Investments for EVs and EV Adoption Plans
Many OEMs require that their franchised dealers make significant investments in charging infrastructure and service equipment to support EV sales. In some cases, these investments are estimated to cost as much as $1 million per rooftop. Across the country, EV adoption plans rolled out by several manufacturers are under legal scrutiny. Many claim that all franchised dealers have a right to receive and sell any vehicles, regardless of powertrain, under current franchise agreements.
Another more nuanced issue is the creation of new EV-specific brands by OEMs (like Hyundai and Ioniq, for example). The introduction of these new brands could potentially lead to legal complexities. This is due to a potential loophole where dealerships are not obligated to supply electric vehicles (EVs) to their franchises because the vehicles bear a new and different brand name. If regulators and the legal system decide that creating a new brand is an acceptable reason to cut out dealers in favor of a direct sales model, the impacts of this precedent would be far-reaching.
Other dealer groups are pushing back on their OEM’s plans to sell certain models exclusively online, claiming a violation of current franchise agreements and franchise law. Time will tell how these legal battles play out, as the precedents set by these rulings could set the tone for future EV adoption.
Compliance with Data Privacy and Consumer Data Protection Laws
Data privacy laws that have historically applied to computers and smartphones are now being applied to the new age of tech-savvy vehicles and complex data storage systems within auto dealerships. These laws have come in response to the increasing technology in today’s new vehicles. The cost of compliance for dealers is significant, but the possible fines in the event of violations would certainly outweigh the costs of compliance.
Potential (and Active) Dealership Buyback Programs
Buick has offered to buy dealerships that do not wish to invest in the infrastructure to sell EVs. Will other manufacturers follow suit? These types of offers may present challenging choices for auto dealers. However, having a wider range of options generally has few disadvantages.
In an environment like this, planning ahead is more important than ever. While Mercer Capital can’t help with your dealership’s EV adoption plan, we offer valuation services for transactions, corporate restructuring, and various shareholder lawsuits. We would love to chat about how valuation services could help your business plan and tax strategy.
See the following section for other interesting topics covered during the NADC conference. We have included relevant articles and resources below for further topic exploration.
Further Reading—Topics Covered at the Conference
- NADA Principals to Guide Auto Retail’s Future: a narrative on the dynamic nature of the auto dealer industry in recent years. Topics and issues discussed include the evolving business model and franchise system for ice vehicles and EVs (highlighted earlier), the impact of downstream revenue regarding Over the Air Updates (OTAs), and OEM allocation of vehicles, including transparent pricing and delivery policies, among others.
- Constitutional challenges to franchise laws: a discussion on the franchise model vs. the direct sales model, and how 2023 could be an active year for auto dealers and auto dealer counsel.
- PART Act: a bill establishing requirements for motor vehicles related to catalytic converters and other parts that contain precious metals. The National Highway Traffic Safety Administration must revise the motor vehicle theft prevention standard for new motor vehicles to include catalytic converters among the parts that require an inscribed or affixed identifying number. Additionally, the Department of Transportation must establish a grant program through which law enforcement agencies and other entities can stamp vehicle identification numbers onto the catalytic converters of existing vehicles.
- Supply Chain Disruptions Relief Act: a bill that modifies new motor vehicle inventory liquidation as qualified LIFO (last in, first out accounting method) inventory. This gives new car dealerships the option to delay updating their inventory until the end of 2025 in order to calculate income attributable to sales from that inventory during 2020 and 2021.
- FTC Safeguards Rule: the recently issued amendments to the FTC Safeguards Rule require dealers to undertake a series of procedural, technical, and contractual steps to protect consumers and other personal data.
- Proposed new vehicle shopping rules that would create additional paperwork for car buyers and small businesses and likely lengthen the sales process at the average dealership.
- Federal mandates for cleaner, greener, and fewer vehicles were proposed by the EPA in 2023.