2019's top 5 legal trends for automobile dealers. Recent developments have added to every dealer’s legal concerns, and most of the longstanding trends remain. Do you experience these too?
1. Factory Sales Performance Standards for Dealers Under Siege: Some Positive Legal Development Towards Rationality
There is hope! Court decisions have lately reflected an improving judicial understanding of how factory sales performance standards and measuring methodologies are grossly and unfairly flawed and in violation of state laws. Last year’s Top 20 publication presented great detail to explain how and why this is so. In addition to the landmark 2016 New York Beck decision (Beck Chevrolet Co., Inc. v. General Motors, LLC, 27 N.Y.3d 379 (2016) and the federal case at the Second Circuit from which it came), the Folsom case in California (Folsom Chevrolet, Inc. v. General Motors, LLC, Case No. PR-2483-16, decided Aug. 13, 2018) sets forth a detailed evisceration of GM’s standard (which is essentially the same as those of other auto franchisors). Today, most auto factories have become (a little) less antagonistic when addressing retail sales, and dealers should not acquiesce to threatening letters about sales performance. See Bottom line, below. Bottom line: The factory cudgel of sales performance metrics, flawed methodologies, and “average” minimum standards is weakening. Sooner or later, the current unfair system will need to be drastically changed or curtailed, if not eliminated. In the meantime, dealers must be alert to the danger of not responding, in writing, to factory threats based on alleged under-performance in retail sales penetration. Never leave such correspondence unanswered. Always respond civilly and with solid facts. Always put fairness and reasonability in the proper perspective in your letter to your franchisor. Dealers, their counsel, and dealer associations must continue to urge refinement of auto franchise law to make it crystal clear that auto franchises cannot lawfully impose retail sales standards and methodologies unless they can demonstrate scientifically proven accuracy. For 2019 the legal trend is positive for dealers in seeking to overcome the unfair sales performance standards of auto franchisors.
2. The Autonomous Vehicle Phenomenon Rolls Along: Where We Are, Where We Are Going, and How Soon Will AVs Be Commonplace
Judging by the eye-popping magnitude of investments, the autonomous car enthusiasm among carmakers (and others) is unabated. Comparisons between the end of the “horse era” in the early 1900s, and the supposedly lurking demise of private car ownership are plentiful. See, e.g., “VW to spend $50.2 billion on electric, autonomous vehicles by 2023,” Reuters, Automotive News, Nov. 16, 2018; Rick Tetzeli, “GM Gets Ready for a Post-Car Future,” Fortune, May 23, 2018. Automotive News attached an insert to a weekly publication dedicated to futuristic speculators “about how self-driven cars will change the way people will interact with their cars.” Sharon Silke Carty, Shift, Nov. 2018. Yet, many observers are saying, “Not so fast.” The automotive vehicles also will not make operated vehicles obsolete for many years, if ever. At the same time, the internal combustion engine (“ICE”) rolls along with plenty of loyal customers. See Richard Truet, “Industry On ICE,” Automotive News, Nov. 12, 2018. It seems that technology makes for better, more efficient ICE vehicles than ever before. When/ if a self-driving trend arrives in a big way, most likely consumers of self-driving pods will also have their ICE cars. Bottom line: It will be at least several years before self-driving vehicles will be commonplace. Even when the phenomenon happens, there will still be operator-controlled vehicles everywhere. Today, the consumer preference for ICE vehicles hovers at about 90%. The prediction of the near-term demise of franchised auto dealers (e.g., Bob Lutz) is overwrought and, I believe, far off the mark. At the same time, factories and other researchers/ developers will continue to invest many billions to capture what they believe will be a limitless marketplace for self-driving retail products. 2019 will not see a burst of autonomous vehicles available to the public. State legislatures continue to look at laws that might address the voluminous possible considerations for self-driving vehicles and comprehensive federal legislation seems to be on hold for now.
3. The #MeToo Phenomenon and Related Issues: What Dealers Need to Do
The highly publicized #MeToo trend signals only the early chapters of a lasting development. In today’s world, more and more people simply will not stand for workplace excesses or abuses of the past. Dealers must be vigilant in assuring such misbehavior does not occur, and if it happens, they must take fast and decisive action. Bottom line: At all times, sexual misbehavior, including degrading rhetoric or belittlement, must be clearly, emphatically, and absolutely prohibited by every dealer. Ongoing training, education, and published policies must be communicated to every employee, with recurrent training done each year or more often as warranted. An unambiguous “no-tolerance” policy should prevail at all dealerships.
4. The Stubborn Persistence of Regulatory Overreach, Despite Encouraging Actions and Signs
The first two years of the Trump administration were marked by steady inroads into excessive government regulation. All indications are that such action contributed to a vibrant and growing U.S. economy, reduction in unemployment figures, and business and consumer confidence reaching levels not seen in a long time (despite the precipitous drop of 20 percent or more in market indexes in the fall of 2018). Anecdotal evidence suggests that car dealers benefit in higher profits and improved workforce morale when the bureaucratic burden of hyper-regulation eases. The President promises to continue the deregulation policy, to the extent that he is able to do so without congressional cooperation. Bottom line: This trend is affected mightily by the political rancor among federal and state legislatures. Nevertheless, expect a measure of continuing deregulation–to the benefit of dealers and their employees.
5. Why National Politics Still Threatens America’s Dealers
“It didn’t used to be this way.” I hear this comment constantly from colleagues, friends, and clients, including many dealers. Unfortunately, politics at the federal level affect U.S. dealers, in big ways and small. Ask any dealer who has been subpoenaed by, or worse, sued by the FTC on a “disparate impact” theory. Or, consider the aggressiveness of the CFPB in seeking to overcome statutory bars against its regulating (and hurting) dealers. The Bureau with its new director, Kathy Kraninger, confirmed by the Senate 50-49, will continue the trajectory of less government intrusion into businesses. Rate-hiking by the Federal Reserve directly impacts auto dealers. Higher rates make mortgages and floor plans more expensive, and they discourage consumers from taking on big loans. The President has been openly critical of the Fed, and its chairman may be backing away from a series of projected rate increases for 2019. The administration’s laissez-faire attitude for business enrages some Democrats, especially Senator Elizabeth Warren. The political battles over governance of businesses see no sign of resolution. A few dealers have gone so far as to actively discourage political conversations among employees while on the job and during breaks. Bottom line: This trend of political sparring will continue through 2019 and the elections of 2020, and perhaps beyond. As this article goes to press, 2020 election rhetoric is already in full swing. In both state and federal arenas, the political battles affecting dealers have no letup in sight.
Written by: Eric L. Chase, Bressler, Amery & Ross