A failure to punish fails members
NADA, NIADA must discipline to defend industry
News Editor James B. Treece oversees Automotive News coverage of auto retailing.
A Page 1 report in The New York Times on July 20 cast car dealerships once again as unscrupulous businesses. It described the sharp rise in subprime lending to car buyers, including cases where inflated claims of income left consumers unable to make payments on their vehicles.
Dealer associations insist, correctly, that the vast majority of their members are upstanding businesspeople who treat the customer right. But those associations' failure to police unethical behavior by a few of their members undercuts their defense of all dealers' reputations.
Used-car dealers were especially singled out in the article, which quoted Steve Jordan, executive vice president of the National Independent Automobile Dealers Association, as saying, "There is no place for fraud or any other nefarious activities in the industry, especially tactics that seek to take advantage of vulnerable consumers."
Indeed, NIADA's Code of Ethics is full of impressive assertions, such as, "We will have a general duty of integrity, honor and fair dealing toward the general public" and, "We will employ truth and accuracy in advertising and selling."
Likewise, the National Automobile Dealers Association's Code of Ethics says its members have pledged, among other things, to "Operate this business in accord with the highest standards of ethical conduct."
After the Times article appeared, NADA issued a statement, saying, "The NADA Code of Ethics is designed to reinforce dealers' personal commitment to quality service and high ethical standards. It is a simple, clear, and unambiguous statement of the need for new-car and truck dealers to fully comply with all applicable federal, state, and local laws and to operate their businesses in a fair, open, and honest manner."
That all sounds good. But the old USSR's constitution had a fine-sounding bill of rights, too. What matters is enforcement.
Let me be clear: I don't think anyone -- lenders, consumers or unscrupulous dealership employees -- should get off the hook for their misdeeds.
The Times article painted dealers as the guilty parties in misrepresenting car shoppers' income or finances. That's not always true.
If a consumer buys more car than he or she can afford, that raises the question of personal responsibility. Trial lawyers may tell you otherwise, but it isn't always someone else's fault.
Moreover, anytime a loan application gives incorrect info for the applicant's income or financial reserves -- whether that info comes from the borrower or the finance and insurance manager who fills in the application for a car buyer -- that's bank fraud. So it's disingenuous for a bank to say that it's a matter between the consumer and the dealer, as M&T Bank did when a consumer sought to return a car he couldn't afford and notified the bank that the loan he signed had terms different from those he had been advised of.
But the matter goes beyond the issue of who's at fault for getting consumers in over their heads on car loans. It also raises the question of how far dealer associations are willing to go to clean up the image of this industry.
I understand that associations in general aren't in the business of kicking out members, especially trade associations in Washington, D.C., that want, for lobbying purposes, to claim as large a membership as possible.
Still, let's put this in perspective. I've heard more than a few dealers bad-mouth unions. But their associations -- NADA and NIADA -- engage in one of the worst of all union practices: protecting members who misbehave.
I well remember a UAW member who had given up more than a decade of seniority to transfer to General Motors' new Saturn plant in Spring Hill, Tenn., telling me that he was tired of having to defend the worst of his local's members. That had been part of his job as a shop steward. He was looking forward to working at Saturn because he had been promised he could upbraid anyone -- in management or the union -- who wasn't helping the Saturn team achieve its goals.
Trouble is, defending their worst members, if only by silence, is how NADA and NIADA work.
I asked both associations what would happen if a member were found to be in violation of the Code of Ethics. NIADA's Jordan said expulsion of his group's members would be difficult because those members are also members of local dealer associations. NADA, in its statement, said that its Code of Ethics is "a statement of principle that is intended to help NADA members create a culture of compliance" with all laws and regulations "while serving the needs -- and earning the trust and confidence -- of its customers."
Neither association identified a single case of a miscreant member being disciplined within the last 10 years.
Even the U.S. Senate and House of Representatives have censured their members, and the public doesn't hold those bodies in high repute. Why are we surprised if dealers have a lousy reputation among the public?
That reputation hurts the industry's ability to recruit well-qualified college graduates, many of whom would rather work at Starbucks for so-so wages than enjoy a career with substantial remuneration at a dealership. It fuels the public's ire against dealers and makes people willing to believe whatever anti-dealer message Tesla Motors Inc.'s Elon Musk utters. And it makes all too many car sales that much more difficult when consumers arrive at a dealership with their guard up.
Perhaps most important, if the industry won't police itself, someone else will. In that sense, the Consumer Financial Protection Bureau's efforts to regulate automotive lenders, if not dealers directly, is a byproduct of NADA and NIADA's refusal to act.
Someday, the dealers who make up NADA and NIADA may vote to give those associations a spine in the form of disciplinary powers that can be wielded against the few bad apples that give the industry a bad name.
Until then, though, I wish dealers would stop making hypocritical slurs against unions. Pots and kettles, folks.
You can reach James B. Treece at email@example.com.