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CATA Bulletin
January 28, 2019

 

Curtains set to rise on 111th edition of nation's largest auto show

January 25, 2019

An anticipated 20 vehicles are expected to be introduced at the 2019 Chicago Auto Show, Feb. 9-18 at McCormick Place. But there will be waaay more to see and do than that at this year’s edition.
Test tracks, both indoors and outdoors, are back in a big way. Land Rover is building a new test track to showcase its new Range Rover Evoque. Kia is upgrading its drive experience — professional drivers will take attendees in customized Tellurides over obstacles. The interactive Ram track is back after a year’s hiatus to highlight the brand’s capable new full-size pickup. And, of course, Camp Jeep, a star of the show for the past 15 years, returns. 
In addition, six brands will conduct outdoor test drives. All told, perhaps 100,000 attendees will participate in one of the show’s drive experiences this year.       
  
Four automakers, including Mercedes-Benz, will not exhibit this year as those brands test other marketing strategies. The CATA will work to secure their return in 2020. Interestingly, Mercedes-Benz Vans will have a 12,000 square foot display, showing the strength of the business-to-business side of the Chicago Auto Show. 
"As always," said show General Manager Dave Sloan, "we have plans for numerous public show marketing events to extend our reach to new customers and enhance the ROI for our exhibitors. That’s the key to our show. What can we do to amplify the message of the automakers and shine a bigger and brighter spotlight on everything they bring to our show? And, in the end, do our collective efforts move the sales needle?"
Of course, lots of action takes place during the two days before the show opens to the public and the turnstiles start to spin. The Media Preview kicks off Feb. 7, with the Midwest Automotive Media Association breakfast. MAMA President Damon Bell will present the Family Vehicle of the Year award and introduce keynote speaker Michael Cole, chief operating officer and executive vice president of Kia Motors America.
"Kia Motors America is thrilled to kick off the 2019 Chicago Auto Show at the annual MAMA breakfast. This is an important show for Kia and a mainstay of the automotive calendar," Cole said. The automaker will offer rides in its new Telluride on the wild Kia Torque Track. 
Later that day, Jaguar Land Rover North America President and CEO Joachim Eberhardt will be the keynote speaker at the Economic Club of Chicago luncheon, which each February is held at the auto show. Eberhardt is responsible for the company’s North American operations including sales, service and marketing in the United States and Canada. 
"We look forward to a tremendous Chicago Auto Show this year as we debut the new Range Rover Evoque, an SUV built for consumers who live in great cities with often challenging weather conditions," Eberhardt said. 
In partnership with Women in Automotive and A Girls Guide to Cars, the Chicago Auto Show on Feb. 8 will host the third annual "What Drives Her" panel discussion and industry networking event. Influential women will come together to highlight trends and share personal experiences surrounding the impact that females have on the automotive industry. 
This year, the event’s overarching theme will focus on the major shifts that are taking place in the automotive industry, including the ways females are shaping its evolution.  
Premier Partners of this year’s show include State Farm, Wintrust Financial, and Turtle Wax (new for 2019). In addition to premium exhibit space on the show floor, each partner will have various promotional activities throughout the run of the show.  Premier Partners enjoy category exclusivity and receive additional exposure to show attendees through Premier Partner benefits packages.
The final event before the curtain is raised to the public is First Look for Charity. Now in its 28th year, the 2019 event is projected to raise more than $2.5 million for 18 local charities. Since its inception, this benevolent fundraiser has generated more than $50 million for Chicago-area beneficiaries.
 
 

Oberweis bill goes after Sunday closings, again

January 25, 2019

Hours after the state’s 101st General Assembly was seated on Jan. 9, Illinois Sen. Jim Oberweis, took a step he has repeated annually since 2014 and introduced legislation to open the state’s car dealerships to sales on Sundays.
Senate Bill 22, which Oberweis, R-Sugar Grove, refers to as the Religious Equity Act, would allow for the sale of motor vehicles on any six days of the week chosen by the business owner, instead of on any day but Sunday, as the Illinois Vehicle Code currently allows.
The legislation is a repeat of last year’s Freedom to Choose Act, which also would have allowed dealerships the opportunity to be open on any six days of the week of their choice, including Sunday. This is another Oberweis attempt to allow vehicle sales on Sundays. His focus is that if one dealership opens on Sundays, many others will follow. 
Sunday car sales have been banned in Illinois since 1984. Automobile dealers largely supported the ban when it was enacted because it gives them a chance to close one day a week, giving workers a day off and saving the business the cost of opening. The Chicago Automobile Trade Association still supports the Sunday ban.
Oberweis apparently remains surprised by that stance shared by the CATA and the Illinois Automobile Dealers Association.
"I thought I would be the hero of the automobile industry by getting (government) off their backs," he said, "only to find out instead that this is promoted by many of the car dealers. That makes it even worse in my opinion. Then what you are doing is using the power of government to thwart competition and control the marketplace."
The bill wouldn’t force dealerships to be open on Sunday, but competition might essentially force them to be.
"If one dealer is going to be open, they’re all going to be open," CATA Chairman Tony Guido said. "It can be a hardship on the smaller people. Who wants to work seven days a week?"
All of Illinois’ neighboring states have the ban, but 32 states do allow Sunday sales. Guido said he isn’t sure being open an extra day is necessary for consumers to shop for cars.
None of Oberweis’s previous bills earned a vote in the Senate, but were given hearings instead.
 
 

Radelet, colleagues change law firms

January 25, 2019

David Radelet, a name partner of Franczek Radelet P.C., and the CATA’s employee relations counsel since 2002, left that law firm Jan. 22 to join another firm in Chicago, Littler Mendelson P.C. 
A number of Radelet’s colleagues from Franczek joined him in the move, including Chris Johlie, Terry Creamer, Staci Ketay Rotman, and Jeff Nowak. All of these attorneys have been part of the core team to represent CATA member dealers in many different labor and employment matters over the past 15 years. Also joining the group at Littler is Radelet’s long-time assistant, Mary Dokianos, a familiar face and voice to many CATA members.
 
Radelet and his team will continue to represent CATA dealers as the association’s employee relations counsel. "The address has changed but the people haven’t," Radelet said.
 
Littler Mendelson is the largest U.S.-based law firm devoted exclusively to representing management in labor and employment, employee benefits, and executive compensation; and in day-to-day labor and employment counseling.
 
"All of us are very excited join Littler and have access to its impressive platform of deep experience and expansive services for our clients," Radelet said. "We believe this will position us to provide cutting edge client service in all labor and employment matters for years to come."
 
 The new contact information for Radelet and his team at Littler:
 
• Dave Radelet: dradelet@littler.com, (312)795-3244
• Chris Johlie: cjohlie@littler.com, (312)795-3230
• Terry Creamer: tcreamer@littler.com, (312)795-3233
• Staci Ketay Rotman: srotman@littler.com, (312)795-3232
• Jeff Nowak: jnowak@littler.com, (312)795-3295
• Mary Dokianos: mdokianos@littler.com, (312)795-3292
 
 

Vehicle incentives seen inching upward

January 25, 2019

Vehicle incentives, which automakers often offer begrudgingly but which consumers have come to expect, will nudge up this year, said ALG, part of TrueCar.
Incentive spending on average hit 9.6 percent of MSRP last year. It’s expected to inch up to 9.8 percent this year, 10.4 percent in 2020 and 10.6 percent in 2021, according to ALG, a company which examines the future resale value of vehicles.
Are incentives good, bad, a necessary evil or a sign of brand weakness? It depends, said Morgan Hansen, the company’s senior director of data science.
"The auto industry has trained consumers that incentives will be there," he said. Unless a vehicle is a hot seller with demand outpacing supply, "consumers expect some level of discount."
The sales lures can become a necessary evil, but Hansen differentiates between what amounts to deep discounts to move a product dud and "healthy incentive spends" to nudge shoppers to become buyers.
Current incentives "are higher than organic demand would merit," he said. "Some vehicles are pushed on the market" aided and abetted by the likes of hefty rebates and cash on the hood. "That’s a sign of weakness."
 
In its residual forecasting that’s mainly used for the vehicle-leasing business, ALG pays particular attention to how automakers "compete against each other with incentives," Hansen said.
 
Some brands, such as Subaru, enjoy greater brand strength than others and accordingly offer lower incentives. ALG measurements include a "brand pricing score" based on brand strength or weakness.
 
Automakers typically offer special discounts during sell-downs on models that are about to be replaced by next-generation versions.
 
But sell-downs can cause problems if the outgoing models’ transaction prices become too low, Hansen said. It’s "hard for the new model coming in" if customers perceive its pricing as strikingly higher than the outgoing model.
 
Incentive spending typically is highest during end-of-the-year sales events, said Oliver Strauss, ALG’s chief economist.
 
In the early 2000s, rebates ran amok as the overall industry overproduced vehicles and pushed them on the market. Back then, incentives were like a drug, and there was no rehab program. 
 
In addition to the sheer cost of excessive incentives, they clawed into residual values. That particularly hurt the leasing business. (ALG’s original name was Automotive Lease Guide.)
 
Today, the auto industry is more disciplined in keeping incentive spending under control, largely by better aligning production to demand.
 
"Avoiding volatility with incentives is important," said Alain Nana-Sinkam, ALG’s vice president of strategic initiatives.
 
 

Used-vehicle prices seen climbing in 2019 if tariff threat, rate hikes persist

January 25, 2019

December auction prices increased 4.3 percent year over year, bringing the Manheim Used-Vehicle Value Index to 137.6, the company announced this month.
"Three-year-old vehicles ended the month worth 2 percent more than they would normally have been worth had typical depreciation occurred instead of the abnormal appreciation observed last summer," Manheim chief economist Jonathan Smoke said.
Two main factors that drove higher used-vehicle prices in 2018 and will likely continue in 2019 are new tariffs, which are causing vehicle prices to increase, and the Federal Reserve’s interest rate hikes. 
"Once the news started reporting tariffs, there was a demand increase," Smoke said.
Barring the tariff and interest rate uncertainty, Manheim anticipates 2019 to be an average year for used-vehicle prices.
As for interest rates, "the Fed raised rates by a quarter-point as expected but was not as dovish as the financial markets had been expecting about the future trajectory of rate increases," Manheim noted. 
"They did revise expectations from three increases in 2019 to two, but the market had been expecting them to become more cautious and communicate, at most, one increase in 2019."
 
 

CFPB asks Congress for authority on Military Lending Act compliance

January 25, 2019

Consumer Financial Protection Bureau Director Kathy Kraninger issued a legislative proposal to Congress on Jan. 17 asking for authority to supervise compliance with the Military Lending Act. 
The move by Kraninger is another step to reverse policies implemented by predecessor Mick Mulvaney, who had announced in August 2018 that the bureau would scrap supervisory examinations of lenders in regards to violations of the Military Lending Act. Mulvaney noted at the time that the bureau lacked authority to do so.
However, under Kraninger’s leadership, the bureau expressed its commitment to the Military Lending Act in a statement:
"The bureau is committed to the financial well-being of America’s service members. This commitment includes ensuring that lenders subject to our jurisdiction comply with the Military Lending Act so our service members and their families are provided with the protections of that law," Kraninger said. "That’s why I have asked Congress to explicitly grant the bureau authority to conduct examinations specifically intended to review compliance with the MLA."
The CFPB sent the proposal to House Speaker Nancy Pelosi and Vice President Mike Pence.
The Military Lending Act has been a source of uncertainty for the auto finance industry in regards to the sale of add-on products to military service members. The Department of Defense in December 2017 changed how it regulates the Military Lending Act such that GAP waivers and other add-on products must be included in the calculation of the borrower’s military annualized percentage rate. Additionally, the law states that rate cannot exceed 36 percent. 
Since dealership F&I managers largely were inadequately trained to calculate this rate with the add-on products included, many lenders decided to stop funding loans to service members seeking GAP waivers.
The bureau provided no timeline for when it could receive the rights to supervise compliance for the Military Lending Act.
 
 

AIADA's Lusk on major happenings in retail auto, what's in store for '19

January 25, 2019

On the eve of the American International Automobile Dealers Association’s 49th annual meeting and luncheon, Jan. 27 in San Francisco, AIADA President Cody Lusk recounted automobile industry highlights from 2018 and offered a forecast of what’s to come in 2019.
In an interview with CBT Automotive Network, a multimedia platform for retail automotive professionals, Lusk called present days "kind of an interesting time."
"You have a new Congress that’s in and they’re figuring out where the restrooms are and getting their committee assignments and all kinds of stuff," he said. "But then, you know, with the shutdown on the administration side it’s been … it’s kind of a strange dynamic. You know, we’re hoping that there’s a resolution to that and we can kind of get back to regular order from our perspective."
Lusk said passage of the Tax Cuts and Jobs Act of 2017 and, within it, the elimination of the border adjustment tax, both were winners for the industry last year. He also applauded the industry coming together to work to rescind the auto guidance which the Consumer Financial Protection Bureau had enacted several years ago.
"Then we encountered some headwinds on the trade agenda," he said. "And we were able to play some pretty solid defense for the time being. It did get steel and aluminum tariffs in, but we testified as part of this 232 investigation (to determine the effects of imports on America’s national security) as to autos and whether there should be tariffs on automobiles. And we’ve been able to hold that off for the time being."
A report on the 232 investigation is expected by mid-February. President Donald Trump has accepted the Commerce Department’s recent conclusion that imported steel and aluminum "threaten to impair the national security." 
"If the President puts in 25 percent tariffs on auto imports, that’s really going to send the industry reeling," Lusk said.
A trade agreement being negotiated among the U.S., Canada and Mexico also could impact vehicle sales, the AIADA president said.
"Then you’ve got negotiations kicking off with the U.S. and Japan, the U.S. and Europe, and again, all the 232 tariff implications are all on top of that. So it’s going to be a busy, busy trade year."
A challenge for all automakers and their franchised dealers in 2019 is vehicle affordability. "You look at what’s going on in the market right now. And the affordability … what the prices are for new cars and even used cars. But what any slight increase could do to upset this market, much less what a 25 percent tariff would do, would be devastating to our industry at this time," Lusk said.
Rising interest rates also could be impactful for a generation of younger consumers who really have never witnessed that.
"Lease a vehicle, go in and get another vehicle, higher vehicle or better vehicle at basically the same rate. And now, with the rates going up, they are not really understanding — ‘Hey, why can I not … why am I going to lease a vehicle that’s the same or a little bit better and I’ve got to pay much more higher prices?’ " Lusk asked.
 
"So I think you’re seeing the interest rates, even though they’re historically low, they’re still impacting buyers in a way that they haven’t for basically a decade."
Dealers will face challenges this year and in the years ahead, of course, but Lusk is confident that successful dealers will meet the challenges.
"You know, it was just over 10 years ago that we got the iPhone. And I don’t think any of us saw what that was going to become.  There’s always been evolution. And dealers have evolved for 100 years.
"The good dealers are already focusing on what they need to do to make their businesses better every single day."
Lusk pointed to marketplace uncertainty as the industry’s greatest challenge in 2019.
"I think there’s a lot of messaging incorrectly or, you know, that sort of implies, ‘Hey, if you’re a single point dealer or you have one franchise, you’re not going to make it.’ Or you’ve got to be a giant multi-faceted dealer.
"You know, this industry is made up of all shapes and sizes."