Forrest McConnell, the 2014 chairman of the National Automobile Dealers Association, takes over at a time when NADA is pushing back hard against the Consumer Financial Protection Bureau, which sees a risk of discrimination in dealership-arranged auto lending. NADA is also defending the franchise model from insurgents such as Tesla Motors Inc., which prefers to own its own stores.
McConnell, 55, sells Honda and Acura vehicles at side-by-side stores in Montgomery, Ala. He spoke with Staff Reporter Gabe Nelson.
Q. How did you get into the car business?
A. My grandfather and his brother saved $2,000 between them, and then their family loaned them $2,000. They opened a dealership in Montgomery, Ala. -- Hupmobile -- in 1919. So, a long time ago. And they made it through the Depression and World War II. Then we had DeSoto. We were the distributor for Alabama and the Florida Panhandle, along with having a dealership of our own. As I grew up as a kid, we had Fiat a couple of times; we had Chrysler.
Like any other 14-year-old -- because what else are you going to do? -- I started washing cars. It was probably against the child labor laws at the time. Then I talked my dad into letting me sell cars when I was 16. So, that's how I kind of fell in love with the business.
When you started washing cars, what franchises did your family have?
My father and my grandfather were both at the dealership at that time. We had Chrysler, Honda and BMW, too. It was 1976 when I started.
How did you get into the business yourself?
After high school I went to college at [the University of] Alabama, got a business degree, and then went to law school at Alabama, got a law degree. My second year in law school, I started a rental car and leasing company and ran it from Tuscaloosa, Ala., which is 100 miles away. I had three employees. I just always loved business a lot more than the law, even though I think the law is a good background for business.
After law school, I came back and ran my rental and leasing company. Then in '87 I got an Acura franchise on my own and went from there. I had saved money from selling cars at my leasing company and borrowed $1 million. My dad co-signed with me, but he said, "You better pay it back. It's your deal." I did that, used my savings and opened the Acura store. I had Acura and Infiniti there, in two buildings on the same lot.
Now it's a Honda-Acura store, right?
Right. We got a Honda store that was in a separate location, and I moved Honda to where my Acura store was. I sold Infiniti. My brother and I run the business now. He's 10 years younger, and he's a good business partner.
What is going to be NADA's top priority in 2014?
We're going to continue to focus on legislative and regulatory issues. As you know, one of the main issues is the Consumer Financial Protection Bureau and its desire to take away the customer's ability to negotiate a better rate. The second one would be to help dealers protect their customer data. And the third one would be to promote the franchise system.
What are you doing in the area of customer data?
We have a lot of customer data in computer systems. There's a compliance obligation on dealers, and we want to make sure that they have all the information they need to do that, that they actually own the rights to that data and that it's protected.
What is your strategy for responding to the CFPB's crackdown on auto finance?
They're a very powerful agency. What we want to do is inform them. I think they're ill-informed on what the dealer-assisted financing model does. We increase access for people, we reduce the cost. We force banks to compete and lower rates for customers, because we provide 17,000 locations where customers can come and shop rates. If that is eliminated -- if customers basically have to pay full sticker price for rates -- that doesn't benefit customers. It's going to raise their car payments and cost them money.
How are you going to get that message across?
We've had several meetings with them. We've also talked to Congress to try to get some transparency -- they have a formula [that shows evidence of racial bias] and we've asked for it. Congress has asked for it. It has been bipartisan. Democrats have asked for it. Republicans have asked for it. And they have not, so far, been forthcoming with the details of that. We want to be able to look at it and say, "OK, is this a legitimate measurement?" But before we do that, we certainly have to know what the measurement is.
We did a study using Federal Reserve data that showed that dealer rates were 50 basis points -- half a percentage point -- to 2 percentage points cheaper than dealing directly with a bank.
NADA President Peter Welch is about a year into his job. How is he doing?
NADA had a really strong team when Peter arrived. But he's kind of like [Alabama football coach] Nick Saban. He's a world-class coach. I would say on a scale of 1 to 10, the dealers who know him would give him a 15. And that's no exaggeration. He is very focused, and he has an amazing ability to grasp vast amounts of information and retain it. He's definitely someone who's well-prepared, a good strategist -- and he is a genuinely really nice person.
Are there any pieces of legislation that you want to push in 2014?
The one thing I've learned in Washington: It's a changing game. But the main thing we want is for the CFPB is to be more transparent and to understand that the current dealer reserve model works. But in Washington, new items could always come up. We have a really good legislative team and with Peter's leadership, I feel confident that whatever comes up, we can deal with that.
This time last year, NADA was talking a lot about onerous requirements from factories, such as dealership image programs. Are those relationships getting better or worse?
In general, I do think the relationships are getting better. I think our study of image programs was well received by auto manufacturers. I personally flew in with 19 manufacturers, where we said they needed to be flexible, that a one-size-fits-all approach doesn't work for all the dealers. And I think we definitely made some progress. It is ongoing work and it always will be. But I think the manufacturers that have good relationships with dealers have a strong advantage over those who don't.
Were there any areas in which you saw factories being more demanding over the past year?
We're obviously concerned about two-tier pricing. We certainly don't want to eliminate incentive plans. We just want to make them fair -- a level playing field for everybody.
I have found the manufacturers do respect NADA because we represent right about 90 percent of the franchises in the U.S. We do a dealer attitude survey that is given by the manufacturers, and we do it twice a year. Sixty percent of the dealers in the country fill out that survey.
When you go to a manufacturer and 60 percent of the dealers say what they like about you or what you think they need improvement on, they listen. You'd be foolish not to listen to 60 percent of your dealers.
The Federal Trade Commission recently cracked down on false advertising at car dealerships. What is NADA doing?
One of our missions is to help dealers understand all the laws that apply to them and give them some guidance on how to apply them. Whether it's safety in the shop or complying with truth-in-lending, truth-in-leasing laws, we give them a place they can go to comply.
Do you think that false advertising is a pervasive problem?
Honestly, I don't know enough about any of the particulars to give you an answer.
Do you think the false advertising laws are clear enough?
A lot of them are clear. I do think, with any particular situation, it depends greatly on the facts of the particular incident. Some of the laws can be very complicated to comply with. Others are a lot more straightforward. But in general, I think, keep the customer interest in mind and you'll be fine.
There have been a number of challenges to the franchise model -- Tesla, for instance. Are you confident that nearly all Americans will buy cars through dealers for decades to come?
The franchise system creates competition and saves customers money. I was service manager at our dealership for two years and I can tell you one of the keys to success at a dealership is taking care of a customer for the five, six years that they own a car. If you do that, then they're much more likely to come back and buy a car. When you buy a car from me, that's just the start of the relationship.
Why is that inherent to franchised dealerships? Can't a factory offer good service?
I'm a big believer in competition. And if an auto manufacturer owned all the stores, selling direct, then there's no price competition. It would be a single price for each model, and that would be it. You know, the biggest competitor that a Ford dealer has is the next Ford dealer down the street, and that intense competition benefits the customers.
What do you think about what's happening with health care reform?
I think there's still a lot of unanswered questions about the Affordable Care Act. We have always provided insurance for our employees.
You know, 40 percent of my employees have been with me 10 years or longer, and as you treat employees right, they're nicer to customers and you get to keep the good ones. But I think it'll be a challenge in the coming years, and I don't think it's just for dealers -- it's for every business in the United States.