Study shows federal regulations cost dealers billions, jobs

In 2012, the average U.S. new-car dealership spent $182,754 to comply with federal mandates governing employment, business operations, vehicle financing, sales, marketing, vehicle repair and maintenance, a study commissioned by NADA says.
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Franchised new-car dealers in the United States spent a combined $3.2 billion in 2012 to meet federal regulations, a report released today said.

The report made no attempt to determine whether dealerships, the economy, or consumers benefited in any way from any of those regulations, however.

Dealers spent the money to comply with 61 major federal rules, the report said. As a result, consumers paid more and the U.S. economy paid in the form of 10,550 fewer dealership jobs, the research found.

“The additional costs for new-car dealerships to comply with federal regulations are passed along to our customers in the form of higher prices, which results in lower vehicle sales and reduced employment at dealerships,” said Forrest McConnell, chairman of the National Automobile Dealers Association and a Honda and Acura dealer in Montgomery, Ala.

‘Not a cost-benefit study’

NADA commissioned the study, “The Impact of Federal Regulations on Franchised Automobile Dealerships,” which was conducted by the Center for Automotive Research in Ann Arbor, Mich.

The commission was very specific, said Kristin Dziczek, CAR’s director of the Industry and Labor Group. “This was not a cost-benefit study,” she wrote in an e-mail to Automotive News. “NADA only commissioned an estimate of costs.”

Therefore, any benefits to a dealership or society from complying with the mandatory and voluntary regulations reviewed by the study -- for instance, rules about handling the asbestos in older cars’ brakes, or laws regarding the hiring of illegal immigrants -- were not recognized by the study.

On the other hand, the study excluded costs of compliance with regulations required only to receive a benefit, such as paperwork associated with the Small Business Administration’s Dealership Floor Plan Financing Program, as well as new regulations for which the cost of compliance is not yet known, such as the Affordable Care Act.

Adding jobs to comply?

Moreover, while the study sought to identify how many jobs were lost because of higher costs resulting from regulations, “employment created by compliance,” say from hiring extra clerks or accountants, “would be in the benefits category, and we were not asked to measure benefits,” Dziczek wrote. “Some case study respondents did mention these positive effects, however.”

In 2012, the average dealership spent $182,754 to comply with federal mandates governing employment, business operations, vehicle financing, sales, marketing, vehicle repair and maintenance, the study said.

The regulatory costs equaled about 22 percent of the average dealership’s pretax profits, or about $2,400 per dealership employee. The average dealership needed to sell 106 vehicles in 2012 to recoup its regulatory compliance costs, the report concluded.

Biggies: Employment, accounting, financing

Regulations on employment, accounting and vehicle financing made up nearly two-thirds of the estimated federal regulatory compliance costs, the study said.

The study estimated the overall impact of these costs on the 2012 U.S. economy at $10.5 billion in lost economic output and more than 75,000 fewer jobs.

“Automotive dealer-specific regulations cover a broad range of issues -- including environmental concerns, tax and finance rules, and various consumer protections,” the report said. It noted that among those regulations, some are mandatory, in which fines are levied for noncompliance; some are required only to receive a benefit (such as a loan or tax credit); and some are voluntary.

“There is a range of effort required to comply with each regulation -- from very low efforts (refraining from prohibited practices), to very costly process burdens (capital expenditures, documentation and filing evidence of compliance with government agencies),” it said.

8 dealerships studied

The appendices list the regulations covered, including, for example, the Americans with Disabilities Act, the Family and Medical Leave Act and workplace health and safety standards.

The compliance cost estimates were based on a study of eight dealerships: one in Maryland and the rest in Michigan and Ohio. Dealers interviewed in 2013 and 2014 were asked to estimate costs and were “encouraged to substantiate costs, where appropriate,” the study said.

The study did not analyze the cost of mandates, such as fuel economy and safety rules, on manufacturers. It also did not study state and local regulatory mandates.

James B. Treece contributed to this report.

You can reach Jamie LaReau at jlareau@crain.com. -- Follow Jamie on Twitter


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