It was wonderful to see everyone at the recent Annual Convention at the Nemacolin Resort in Nemacolin, Pennsylvania. Many positive things are occurring within the motor vehicle dealership industry. Our new franchise law came into effect on June 10 this year, and we achieved a significant legislative accomplishment with B&O tax relief on new cars. We also have seen the implementation of electronic titling at the West Virginia Division of Motor Vehicles, that continues to engage in a significant modernization to better serve the public and assist motor vehicle dealers. The Division of Motor Vehicles deserves praise for its efforts and willingness to work with our industry.
Although you may have received updates concerning the franchise law, I wish to reiterate the many significant positive changes. The West Virginia Auto Dealer Association has attached a brochure containing the new franchise law and a summary of the significant changes. If you did not receive one at the Annual Convention or have not received one in the mail, please contact the Association, and they will forward it to you.
To mention a few, the new franchise law strengthens a dealer’s ability to receive fair compensation for warranty service, provides warranty audit protections, addresses successorship issues, and details limitations with subscriptions, reservations, over-the-air updates and selling above manufacturer’s suggested retail price. Know that your Association has worked extremely hard to give West Virginia one of the most comprehensive franchise laws in the country. On the other hand, our industry faces many challenges from the government and the manufacturers. I encourage you to consider the following items as we move into the second half of the year and prepare for the coming years.
- FTC Safeguard Rule
As was mentioned at the annual meeting, the Federal Trade Commission implemented a revised and complex safeguard rule that dealers must comply with by Dec. 9, 2022. Since I have already provided a summary to you two articles ago, I will not reiterate that I strongly encourage you to contact a vendor of your choice to assist in preparing this required safeguard plan. Most of the requirements are technical and relate to the strength of your computer technology programs and how they protect the non-public information of buying consumers. We were provided the new NADA Driven guide on the FTC Safeguard Rules, and the author of this NADA Driven guide was ComplyAuto. ComplyAuto is a preferred provider of the West Virginia Auto Dealer Association. Please understand that this is not a program that a dealer can ignore or wait to complete, its requirements are too complex and detailed. It is strongly recommended you start now with proper guidance to complete your Safeguard Program. I suggest again reaching out to the vendor of your choice. The Association stands ready to assist you and provide guidance with this process. Last, please review your policy and program to ensure proper legal compliance. - Advertising
I encourage you to undertake a review of your advertising procedures and guidelines. Train the individuals responsible for your advertising on the legal guidelines that apply to their efforts from both a federal and state level. The Federal Trade Commission is taking a more focused approach again motor vehicle dealers and has already fined many dealers over advertising practices and financing procedures. We have seen several enforcement actions recently, the most notable resulting in a $10 million penalty against a dealership for advertising and financing violations. - F&I Compliance
Speaking of financing procedures, the week of June 27, 2022, the Federal Trade Commission published a proposed new rule entitled the “Motor Vehicle Dealer’s Trade Regulation Rule.” This 126-page rule is extremely detailed and will force requirements to control what products can be sold and how voluntary protection products are presented to the consumer. To briefly summarize some of the proposed changes in the 126-page rule, the FTC stated its intent to govern deceptive advertising claims and require the dealership to specifically advertise the cost of any add-on products or services, whether financing terms are for a lease, the availability of any discounts or rebates, the actual availability of the vehicles being advertised and whether a financing deal has been finalized. Initially, these proposed rules could impact the use of conditional delivery, or what we commonly refer to as a spot delivery. In addition, the FTC has begun to call some voluntary protection products worthless and will require those voluntary protection products to be offered separately from the price of the motor vehicle. The customer will have to take clear affirmative actions to purchase these products. It is now questionable if our normal procedures with product menus will be sufficient to satisfy this proposed FTC Rule. This Rule will require more documents to be presented to a customer to clarify these new requirements. Ironically, the FTC was critical of the complexity of vehicle purchase and the number of documents that need to be signed by a customer while requiring more paperwork.
It is important to note that the Commission approved this Notice by a four to one vote and that comments are being taken over the next sixty (60) days. If passed, the Commission will have created specific rules controlling actions in the finance office. If violated, even innocently, it will be deemed “deceptive” by the FTC and result in significant administrative penalties. Your Association will be taking steps to provide comments concerning these new proposed regulations and will follow the development of these rules. - Manufacturers
Manufacturers are certainly taking steps to challenge the franchise system. Dealers have faced recent open hostility by Ford Motor Company, via its CEO Jim Farley, on pricing practices. Furthermore, Ford Motor Company proposed new rules for motor vehicle dealers to sell electric vehicles that violate a dealer’s franchise rights. Subaru has attempted to control what price a motor vehicle dealer can sell a motor vehicle through its “Love Promise Pricing Pledge.”
Recently, we learned about General Motors EV reservation requirements and Nissan’s over-the-air update contract that appears to run counter to our franchise law. I do not doubt that over the next five years, one of the greatest challenges West Virginia motor vehicle dealers — and all dealers across the country — will face is manufacturers attempting to change the franchise business model, one that has which has served the buying public for well over 100 years. Dealerships provide a pricing competition for consumers. A consumer can receive three competing offers from local dealers on virtually the same motor vehicle. This is the free market at its best. If a manufacturer can sell directly to a consumer, there will be no price negotiation and no pricing competition. A consumer must pay the price unilaterally set by the manufacturer. This will be a negative outcome for consumers.
Know that your West Virginia Automobile Dealer Association is taking significant steps to challenge manufacturers by placing them on notice of violating our West Virginia franchise law and their sales and service agreements. The Association will also continue to educate its members on these changes and is available to the motor vehicle dealer as you attempt to navigate this new environment.
Again, let me reiterate the urgency of complying with the new FTC Safeguards Rule. Please begin the process immediately and should you have any questions about the new safeguard rule requirements or other manufacturer programs or contracts, contact the Association so that we can assist.
