Some dealers wonder why main trade association doesn’t take a more prominent role, but NADA prefers a back seat here. BY JON MCKENNA
Back in 2013, Acton Toyota of Littleton in Littleton, Mass., got into a dust-up with TrueCar Inc. over the vendor’s new policy demanding payments associated with all vehicles sold to customers who had downloaded TrueCar-sponsored price offers. The dealership felt it could prove that certain car sales invoices hadn’t originated from TrueCar leads.
It wasn’t the first time that Acton Toyota had become upset over a TrueCar business model and policies that “erode the new car profitability,” recalled Justin Brun, the dealership’s marketing and e-commerce director. Around that time, it would have been helpful, he said, “for NADA to point out to dealers what they’re giving up to TrueCar.”
“I’m not being educated, then or now” about the car pricing transparency issue for which TrueCar is either the epicenter or the chief villain, depending on your point of view. Even though TrueCar is Acton Toyota’s top source of sales leads other than its website, Brun sees the company “as a top industry disruptor.”
Pricing transparency is one of the issues for which Brun and many other dealership leaders wish the National Automobile Dealers Association, as the bellwether of the industry, had taken a more out-front and public role as part of its educational mission. The transparency debate continues to burn, as evidenced by more litigation brought this year against TrueCar brought by dealership interests; and NADA has the most credibility and resources to invest in webinars, white papers, round table discussions and other informational resources.
FTC Cited As Limiting Influence
However, NADA has declined to hold any public events on pricing transparency and plans to continue that policy going forward. Its stated reason is that it can’t risk violating a Federal Trade Commission prohibition against a trade association influencing pricing by its members. Other, unstated factors could be NADA’s conservative leadership, its historic reluctance to wade into issues that ultimately are decided by state legislatures, a desire to steer clear of the anger that TrueCar inspires in many dealers, or a combination of all of the above.
Any information offered by NADA on the pricing transparency issue apparently will be handled only in meetings that aren’t presented to the general dealership public. Educational forums on this controversy have been and will be left principally to the state dealership associations.
TrueCar’s Central Role In Controversy
Santa-Monica, Calif.-based TrueCar is a third-party website to which car buyers can turn for guaranteed prices on new and used vehicles from participating dealers. While some critics of the company seem convinced that all of TrueCar’s pricing data is pulled directly from participating dealers’ DMSes, in fact the company buys information from a variety of sources such as state departments of motor vehicles and lenders.
Car buyer can go to TrueCar.com, click on a particular make and model, and be shown the MSRP, a factory invoice price, the average price that other consumers actually paid at participating dealerships for that make and model, a TrueCar price estimate and anticipated savings from MSRP. They also can view price estimates from local certified dealers and print a certificate to give to a dealer that locks in “guaranteed savings.”
Over the last few years, TrueCar has altered its business model several times (converting to a subscription model from pay-for-sale in some states) and come back from the brink of disaster, although it is still losing money. But its financial improvement hardly mollifies dealers who hate its practice of “guaranteeing” vehicle prices without giving context as to, say, why one dealership might have chosen to sell at a low price. Such a simplistic statement of pricing inevitably glosses over a host of variations and differences in car deals – the kind of value-add that quality dealership salespeople are supposed to add, critics feel.
On the one hand, TrueCar has become a near-indispensible source of leads and on the other, it undercuts the profitability of its participating dealers, they feel.
The depth of opposition to certain parts of TrueCar’s business model is underscored by the number of lawsuits the company must fight around the nation. Just to cite a couple of examples, the California New Car Dealers Association has sued in state court seeking a declaration of whether TrueCar should be regulated as a dealer or auto broker under California law. And, a federal claim alleges that TrueCar’s “no haggle” promise is untrue and the company’s advertising fails to disclose a $299-per-transaction fee.
How Much Latitude On NADA Education?
NADA, notes its Form 990 operating report filed with the federal government, includes in its mission “assist[ing] dealers in improving their sales and services” and running “training and service programs to assist dealers in improving their sales, services, and operational efficiencies.”
The NADA website shows the various ways the association pursues education and training: Panels at the annual convention and expo, webinars on dealership-management topics such as planned transitions of ownership and using technology, publication of research and trend reports. However, a dealer won’t find any past or future sessions specifically addressing the pricing transparency issue.
Car Biz Today made several requests to interview NADA officials about the association’s approach to and policy on education with this issue, and plans going forward. Eventually, spokesman Chuck Cyrill said officials had decided they could not discuss the pricing controversy without potentially running afoul of FTC restrictions on trade associations.
Generally, the FTC prevents a trade association from exchanging specific member pricing information or trying to influence its members’ pricing, and from encouraging or discouraging use of a particular vendor. That would seem to leave considerable room to safely discuss in public other aspects of the pricing transparency controversy, such as what individual state dealership franchise laws have to say or how salespeople might explain why a price quoted by TrueCar or similar business appeared low.
To some extent, it’s understandable why NADA legitimately might worry about attracting the FTC’s attention, given that a few years ago the agency investigated whether some dealers had colluded, using public blogs and forums, to organize a boycott of TrueCar.
Focusing On Data Privacy
What NADA was willing to discuss for this story is a topic that Brad Miller, associate director of legal and regulatory affairs, said is “very relevant to what you’re talking about”: privacy protections for, and authorized uses of, sales and other data residing in dealership DMSes. NADA has undertaken an aggressive educational effort on how federal privacy law governs this topic for the last 10 to 15 years, he said, and Miller personally has been talking with dealers about their obligations for seven years.
NADA also has published a number of regulatory guides on dealership information privacy, plans to issue new interpretive guidance later this year, and has posted a sample contract addendum on data protections for dealers to use in contracts with vendors that can access their DMSes.
“The reality is that dealers, to do their business, need to share data with a variety of vendors,” Miller noted. “From the aggregators to the banks to the finance companies to the DMVs to the marketing companies, there are a lot of parties that manage customer and dealer information.
“Dealers are doing a pretty good job – and frankly, a better job every day – getting control of this. They are not in the business of making money by selling information. They have a very high regulatory burden and take it very seriously. Once you agree to do the sharing, you have to agree to do it under certain controlled conditions, and even then it’s difficult to keep it from leaking out.
“The FTC is very interested in these issues. We think the bar is being raised. It is a huge moving target where frankly, the rules are being decided now. The obligations are only going to be increasing over the next few years.”
NADA Efforts Behind Scenes
Circling back to the pricing topic, Don Hall, the president and CEO of the Virginia Automobile Dealers Association, has frequently tangled with TrueCar CEO Scott Painter. A more visible NADA role in educating dealers on the myriad issues involved in pricing transparency could have helped a few years ago, he said – but that’s not the same as the national association being completely disassociated.
At an NADA-organized meeting in Chicago of state automotive trade association (ATA) executives held three or four years ago, Hall said, NADA lawyers gave attendees a considerable volume of information on the pricing transparency issue that they could turn around and share with their local dealer members. “They gave us the tools to understand the issue; it was up to us state ATAs to in turn figure out how to use the information.”
In Virginia, his Richmond-based association then created a webinar and seminars, designed by lawyers, addressing what businesses providing referrals to car shoppers can and can’t do in the state and the legal prohibition against their getting compensated for individuals car sold. “We didn’t discuss whether they should or shouldn’t exist,” Hall said.
Where Is Assn.’s Effective Role?
He believes that kind of less-formal informational exchange is a more effective role for NADA than is public educational outreach on issues involving state laws. Since Peter Welch took over as president in 2013, NADA has proved more willing to at least serve as an informational clearinghouse, Hall said. He pointed to the Tesla direct-sales controversy and NADA investing in consultants to study the benefits of the dealership franchise system, results of which were passed along to state ATAs.
“I don’t think NADA is effective with multi-state trends,” Hall said. “The NADA tends to be looked at like the federal government, the big bureaucracy. I don’t think there’s any value to them doing a general seminar on a subject” like pricing transparency. “It’s intellectually stimulating to have experts predict what it will look like five years down the road, but it’s more effective to have [state associations] discuss what their laws are.
“If you’re looking to impact more people and take the temperature of the affected dealers, the states tend to do a better job connecting with the dealers. Even though the pricing issue is national in scope, the reality is that it will be handled by each state’s legislature as to whether to follow the law or change the law.”
Programs Might Not Resonate Now
The Sacramento-based California New Car Dealers Association is litigating against TrueCar is acting as an auto broker under state law. Several years into the pricing transparency issue now, “it would be hard for NADA to put on a program that offers more than very general information that wouldn’t help us very much,” said Brian Maas, president of the California association.
“I think NADA is doing a pretty good job of walking that fine line. You can find a member who will want [NADA] to take a position on almost any issue. They’re going to get pressure to jump in. But this is a very complicated issue because … there are multiple permutations in how it’s impacted by state and federal statutes. It makes it very difficult” to put on a meaningful educational session.
In terms of the California association’s own informational outreach, Maas said it sent out two statewide memos to dealers explaining what his leadership felt were the legal issues with TrueCar. Also, the group held roundtable discussions and met with individual dealers to address where sales data is being obtained in the marketplace and for what purposes, and how it is protected. Information from NADA was not used in that outreach, he said.
AIADA Also Lets Issue Pass
While NADA is the most prominent voice for U.S. dealers, it is not the only voice. How are other trade associations approaching the pricing transparency controversy?
Given that the Washington-based American International Automobile Dealers Association’s sole official mission is to represent international-nameplate dealerships before Congress and federal agencies, there has been no need to weigh in, said Elizabeth Newman, VP of public and industry relations.
“This is not really a political issue; it’s a business issue,” she argued. Like NADA, she also mentioned potential trade restrictions. However, she informally discusses the issue with individual dealers frequently.
“It matters to them. It is a big deal to them. I get that. But, they understand our mission and that it’s not something I can lobby on. I have never heard any of them ask why AIADA is not on the forefront of the issue.”