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NADA working hard to stabilize auto industry

November 15, 2010

By Ray Scarpelli Sr., Metro Chicago NADA Director

The NADA, along with the American International Auto Dealers Association and the National Association of Minority Auto Dealers, cosigned a March 2 letter to President Barack Obama, urging him to "immediately revitalize the asset-backed securities market for wholesale and retail auto loans and expand the Small Business Administration loan guaranty program to provide floor-planning and working capital for auto dealers."

The trade associations, which represent 20,000 U.S. franchised auto dealerships, said an unprecedented drop in consumer confidence, credit market chaos and a steep drop in lending have created an unsustainable business climate for thousands of the nation’s new-car dealers and their employees.

"Without floor-plan financing, an auto dealership will close within a matter of days, triggering additional unemployment and further erosion of the local tax base," the dealer groups stated.

They asked the Obama administration to work with the Fed and the Treasury Department to refine the Term Asset-Backed Securities Loan Facility (TALF) and undertake any other options necessary to restore retail and floor-plan lending.

Over the past year, about 1,000 dealerships have closed, forcing more than 50,000 Americans out of work. And thousands of employee layoffs have occurred at the dealerships that are still operating.

"Absent access to sufficient credit on reasonable terms, [dealerships] will sputter and die," the dealer groups wrote. "Dealers need retail credit to facilitate auto sales, because 94 percent of all vehicle purchases are financed.

"Dealers need working capital loans to meet current cash-flow requirements, such as payroll. Finally, dealers need floor-plan financing, which is the specialized credit that enables dealers to buy their wholesale inventory of vehicles from the automakers."

The average floor-plan loan is about $4.9 million, and dealers nationwide collectively are at risk for nearly $100 billion in inventory financing.

Separately, the NADA and the NAMAD met March 6 with the president’s auto task force at the U.S. Department of the Treasury on how to stabilize the auto industry.

"It’s important for the president’s auto task force to understand that the No. 1 issue facing dealers is the dire need for vehicle inventory financing," said NADA Chairman John McEleney, a multi-franchise dealer in Iowa.

In meetings with the Federal Reserve Bank of New York, NADA reps discussed TALF, which recently opened to revitalize the market for several types of securities. Because asset-backed securities (ABS) must be AAA-rated to be included and the ABS of many floor-plan finance sources have been downgraded, auto floor-plan loans haven’t been included.

The NADA highlighted the several layers of protection against a default that would threaten funds provided by the New York Fed for floor-plan ABS, including dealers’ ability to repay their floor-plan loans and the strength of the new-vehicle collateral that backs those loans.

For more on the status of the NADA’s advocacy efforts, please contact Andy Koblenz or Paul Metrey in the NADA Legal and Regulatory office at 703-821-7040.

In other legislative and regulatory news . . .

• President Barack Obama and Treasury Secretary Timothy Geithner recently announced several measures to jump-start credit flows for Small Business Administration 7(a) loan applicants, and reviewed small-business tax incentives found in the American Recovery and Reinvestment Act (ARRA). Dealers eligible and interested in SBA 7(a) guaranteed loans are urged to contact one or more lender. Visit for more information.

• NADA Chairman John McEleney recently told the Environmental Protection Agency that complying with state-based fuel economy regulations would cause additional hardship on the nation’s declining number of new-car dealers and provide little environmental benefit. McEleney’s comments came in testimony at a public hearing held by the EPA as it reconsiders the request of the California Air Resources Board (CARB) and more than a dozen states to establish their own fuel economy and greenhouse gas programs.

McEleney described the California approach as "inherently flawed," adding that a patchwork of state fuel economy regulations would ultimately pass much of the burden of compliance to dealers. He predicted the California approach would force automakers to ration certain popular large models, which would ultimately lead manufacturers to pressure dealers to accept vehicles their customers may not want to buy.

California bases compliance on what vehicles are delivered to a dealership and not what consumers actually demand or ultimately purchase. Since 2005, CARB has sought a waiver from the EPA that would permit California, 13 other states and the District of Columbia to regulate vehicle fuel economy. Such a waiver was denied by the EPA last year.

McEleney noted that there has been almost no national analysis or scrutiny on how CARB’s rule would actually work in practice, or why such regulation is even necessary since Congress increased the national fuel economy standard by at least 40 percent in 2007.

• The American Recovery and Reinvestment Act of 2009 (ARRA) provides temporary, taxpayer-funded premium relief for people otherwise eligible to elect to continue an employer’s health plan coverage under the Consolidated Budget Reconciliation Act of 1985—known as COBRA. As of Feb. 17, the ARRA creates a temporary program of premium relief for Assistance Eligible Individuals (AEIs)—those who become COBRA eligible between Sept. 1, 2008, and Dec. 31, 2009.

AEIs who elect continuation coverage may receive a 65 percent plan continuation premium discount. In other words, where employers normally require such individuals to pay 100 percent of COBRA plan premiums, AEIs may be required to pay only 35 percent under this temporary program. The Department of Labor issued a new model notice form March 19. The NADA suggests that dealers use that form to issue the new required notice to AEIs. For more, visit

• The Department of Justice has issued final rules to help deter auto fraud by connecting motor vehicle agencies in states throughout the country and requiring more insurance companies to disclose totaled vehicles. The NADA strongly supports the National Motor Vehicle Title Information System (NMVTIS) rule, which will improve the ability of dealers and consumers to track potentially dangerous salvage vehicles.

The NADA is seeking enhancements to the rule so the used-car resale market can access this information. The NADA is also seeking to modernize the rule, which was based on a 17-year-old law.

The NMVTIS rule is significant because it closes several loopholes. For example, insurers would have to report not only vehicles found to be a total loss under the laws of the applicable state, but also vehicles designated as totaled by its own policies.

While insurance companies collect data on severely damaged vehicles for their shared private databases, they have not been required to disclose the vehicle identification numbers of all totaled vehicles, permanently "red flagging" these vehicles for the public.

"Insurance companies have resisted reporting the VINs of all their totaled vehicles to the public for years," said Ivette Rivera of the NADA.

Connecting the state motor vehicle agencies under NMVTIS will help carry forward salvage information from other states and provide more transparency in the used-car market. Since state vehicle salvage disclosure laws are inconsistent and incomplete, unscrupulous sellers can wash titles and hide a salvage history by acquiring titles outside the state.

The MVTIS will aid dealers and consumers by verifying title histories and combating fraud. The NADA is still concerned that 14 states are not yet participating in NMVTIS, and that California will not allow NMVTIS to release its data to consumers. This creates a large gap in information that can be exploited by criminals.

"Unfortunately many states are reluctant to provide their total-loss information to the NMVTIS database, which is why legislation is still needed," Rivera said.

Recent legislation would require insurance companies to disclose the VINs of totaled cars to vehicle history providers before the vehicle gets back into the marketplace.