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Some manufacturer stair-step programs a 'cancer in industry'

June 22, 2012
By Mark Scarpelli, Chicago Metro NADA Director
The National Automobile Dealers Association has had a long-standing position in support of a level playing field, meaning lawful, equal and fair treatment by a manufacturer for all dealers, both large and small. Unfortunately, history shows that, at times, manufacturers’ incentive pricing programs create short-term incentives that favor the larger, more urban dealerships to the detriment of the smaller, more rural dealerships.
Recent history also shows that the long-term effects of discriminatory programs are to marginalize the smaller dealers and place them at a competitive disadvantage in their marketplace.
These programs also have a tendency to cause confusion among consumers and dealers as to the actual dealer cost of vehicles. This leads to consumer doubt and mistrust that reduces the value of the manufacturer’s brand. It also undercuts the goodwill between consumer and dealer. This is certainly not good business for either the OEM or the dealer.
Dealers of all sizes have recognized the inherent unfairness of a manufacturer’s discriminatory pricing that tilts the playing field in favor of some dealers.
For example, Earl Hesterberg, CEO of Group 1 Automotive, emphasized the perniciousness of these stair-step programs as recently as May 21 in Automotive News, where he characterized them as “… a cancer in the industry that isn’t good for dealers or customers.”
The fact is, manufacturers can unfairly create real competitive disadvantages for some dealers and cause real customer confusion and dissatisfaction in the marketplace.
The best way to maintain a level playing field is for factories to focus on what they usually do so well: build quality cars and trucks and avoid disparate treatment of their dealers that can limit their ability to compete. Let all dealers do what they do best: vigorously compete in pricing, service and otherwise for the customer’s business.
In other news ...
• The NADA will appeal a court decision on the FTC’s Risk-Based Pricing Rule. The U.S. District Court for the District of Columbia on May 22 granted the Federal Trade Commission’s motion for summary judgment against an action brought by the NADA that challenged the agency’s broad interpretation of the scope of the federal RBPR.
The law that the rule implements (section 311 of the FACT Act) applies to persons who, among other requirements, “use” a credit report in particular credit transactions. The FTC issued an interpretation in July 2011 stating that dealers engaged in three-party vehicle financing transactions who do not obtain, receive or review a credit report nevertheless “use” a credit report based on the finance source’s use of a credit report and therefore are responsible for complying with the Risk-Based Pricing Rule’s notice requirement.
Believing this interpretation to be flawed, unnecessary and burdensome to many dealers by requiring them to purchase credit reports for no purpose other than to comply with the RBPR, the NADA subsequently initiated this challenge.
In its complaint, the NADA argued that Congress never intended the word “use” to extend to this subgroup of dealers and that the FTC lacked authority to issue such an interpretation. Although the court found that the statute is capable of supporting the NADA’s interpretation, it held that the FTC possessed authority to issue its interpretation and that its interpretation is reasonable.
Regardless of which party prevailed at the district court level, the NADA anticipated that the other party would appeal the District Court decision to the D.C. Circuit Court of Appeals. The NADA now will direct its outside counsel to commence the appeal.
• Participants in the new Dealership Workforce Study (DWS) will receive the individualized Basic Report, as well as a DWS Industry Report, beginning in July. Both documents will be released within the dealership’s NADA University account accessible from They will be located within Resource Toolbox under a new tab, “NADA Dealership Workforce Study,” and will be accessible only to user accounts authorized to receive dealer access.
NADA University will work with participating dealerships to ensure access is authorized. Participating dealerships will have the opportunity to purchase an Enhanced Report, which will provide even more comparative data, for a nominal fee. Dealerships that did not participate may purchase the DWS Industry Report. For more information, contact NADA University Customer Service at (800) 557-6232.
• Upcoming “Webinar Wednesdays” include free informational MarketINSIGHT webinars that can be viewed live or on-demand in NADA U’s Resource Toolbox. 
Here’s the upcoming schedule, with all webinars beginning at 12 p.m. CDT:
What is Your Website Hiding? with Kendall Billman, June 27; and  
Strategies for Connecting with Hispanic Car Buyers, with Univision Network, July 11.