Gabe Nelson
Gabe Nelson
Silicon Valley, Tesla, Hyundai, Kia, Mazda and Mitsubishi

Numbers add to NADA's arsenal against Tesla, CFPB

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WASHINGTON -- Sometimes the best defense is a good set of charts.

The National Automobile Dealers Association on Thursday put out its annual NADA Data report, a statistical smorgasbord that explains where America’s franchised car dealers are, how much money they make and how they make it. You can read all about NADA’s findings in this article by my colleague Amy Wilson, but what’s almost as interesting is how NADA chose to present them.

NADA is waging war with adversaries such as Tesla Motors and the Consumer Financial Protection Bureau to defend its members’ franchised dealer model from direct factory sales and new limitations on financing. And the statistics that NADA chose to highlight in today’s report shed light on the group’s talking points.

Here’s one of the highlights in the summary of the report: “As a percentage of total sales, profitability at new-car dealerships remained flat at 2.2 percent last year because of fierce price competition among dealers.”

The talk of competition makes sense at a time when the CFPB is calling for a change in how banks pay dealers for arranging loans. NADA wants to show that dealers are offering competitive rates -- not fleecing customers.

“Most shoppers continue to finance vehicles through new-car dealerships because of the competitive finance rates offered,” Steven Szakaly, the chief economist at NADA, wrote in his introduction to the report.

But look deeper in the report -- at Page 10, to be precise -- and you’ll see why dealers are fighting the CFPB so hard. Every year, they are relying more and more on their F&I offices to make money selling new and used cars.

“Combined sales from F&I, service contracts and other products accounted for 38.8 percent of gross profit in the new- and used-vehicle departments in 2013, up from 36.9 percent the previous year,” the report says.

Back in 2004, that number was well below 30 percent.

People can argue all day about the best way to pay dealers for arranging loans and the value (or lack thereof) in service contracts. But for all this talk about competition, it’s clear that dealers are vulnerable to any change in how the F&I market operates.

NADA also chose, notably, to focus on warranty repairs. “Warranty work performed by new-car dealers totaled $14.4 billion in service and parts last year -- all at no cost to the customer,” NADA pointed out.

At first blush, it’s not clear why this is a highlight. Warranty work makes up just one-sixth of dealers’ overall service and parts revenue, which totaled $84.6 billion in 2013.

And warranty work is on the decline. According to an April report in the publication Warranty Week, U.S.-based automakers spent 1.8 percent of revenue on warranty claims in 2013, down a percentage point since 2005, when warranty costs peaked.

So why does NADA see warranty work as so important? Simple: It’s about Tesla.

Warranty work is one of the strongest planks of dealers’ defense of the franchise model against Tesla’s sales and service model, in which cars get repaired at factory-owned service centers around the country.

Separating the factory from service gets rid of a conflict of interest. If automakers do their own warranty work, they have an incentive not to do the work. If there’s an intermediary that gets paid to do the work -- a franchised dealer -- then there’s no such incentive.

Dealers want to show that they’re on customers’ side. Expect to hear a lot more about warranty work in the months and years ahead, as franchised dealers make the case for their business model.

You can reach Gabe Nelson at gnelson@crain.com.

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