NADA sets guidelines for brand relations in retail evolution

TYSONS, Va. — As auto retail evolves, largely driven by developments in online sales and technology, a shift to electric vehicles and threats from direct-to-consumer transactions, the National Automobile Dealers Association wants to dispel the notion that franchised dealers refuse to adapt.

"We're willing to grow. We're willing to change, but we're also very, very optimistic about the future of the franchise model," NADA CEO Mike Stanton said in an interview at the association's headquarters here.

NADA shared with Automotive News this week a new framework on evolving business models and the dealer franchise system to provide a more defined path forward for dealers and automakers as they navigate a fast-changing auto retail landscape. The principles, in part, are intended to jump-start deeper, more meaningful discussions between franchised dealers and their automakers. They highlight five broad areas — covering topics from subscription services and over-the-air updates to vehicle reservations and data sharing — that have become more prevalent, demanding greater clarification of the dealer's role.

NADA is trying to be proactive in advancing fruitful conversations, Stanton said.

"We can't expect that our model is going to be the same tomorrow that it was yesterday or 10, 15 years ago," he said. "The old adage of 'Hey, manufacturer, you build them and we sell them' is probably not the best way to proceed going forward. … We recognize that there is a need to evolve."

Devising the principles was a monthslong process that began with NADA leadership and later expanded to include input from state auto dealer associations, dealer councils and other groups of retailers: public and private, large and small.

"We wanted everybody's fingerprints that we could get on this," said Mike Alford, NADA's 2022 chairman. "We developed a draft. We sent that draft around and then it evolved from there."

Brian Maas, president of the California New Car Dealers Association, said the goal of the principles is to create a set of guidelines — not mandates — that can evolve over time as the auto retail model changes.

They allow state dealer association leaders working on franchise legislation in state capitals and NADA working on federal regulatory issues to "sing off the same song sheet" in conversations with policymakers, automakers and other industry participants, said Maas, who offered input as part of the drafting process.

"One of the things we wanted to make clear overall in the principles is that we're supportive of change. We have to modernize and we have to go where our customers are going, and the OEMs need to understand that we're not opposed to making improvements to our relationship with them," he said. "But it has to be in the context of allowing dealers to retail the vehicles and the OEMs to make those vehicles. And we can have a dialogue on how to improve the customer experience and those kinds of things, but it shouldn't be at the expense of shifting the responsibility for the customer relationship from dealers to OEMs."

While the document defines NADA's position on major issues confronting dealers, it's not a one-size-fits-all approach for the industry, Stanton explained.

Instead, he expects dealer councils and their dealer networks will need to work directly with automakers to navigate their evolving business models, leaning on the principles as needed.

"This takes things one step further and gives some boundaries, if you will, and some suggestions for the council to use as they open up these discussions," Stanton said.

NADA also reaffirmed its position on the future of the franchised dealership model amid a revolutionary transition to EVs.

In a dig to franchise-model disrupters such as Tesla and Rivian, which are bypassing dealerships to sell their EVs directly to consumers, Alford said NADA is against the further creation of different sets of regulatory requirements for manufacturers selling vehicles in the U.S.

"To truly scale EVs and to scale them equitably in this country, you need this network of rooftops," said Alford, who is also dealer principal of Marine Chevrolet in Jacksonville, N.C., and Trent Cadillac-Buick-GMC in New Bern, N.C.

"This franchise system is not broken," he added. "It actually works, and it works well and efficiently, and we just wanted to put a stake in the ground and say that. We are all for the franchise system."

Still, more automakers are changing their retail models as they transition to sell more EVs and better compete with direct-sales rivals.

In September, Ford Motor Co. told its U.S. dealers they must invest as much as $1.2 million on fast chargers and staff training and adhere to rigorous sales standards if they want to sell EVs beyond 2023.

Meanwhile, General Motors said it will offer buyouts to any of its nearly 2,000 U.S. Buick dealers who do not want to make the investments necessary as the brand transitions to an all-electric lineup by 2030. The company recently bought out a third of Cadillac dealers.

It's also still unclear whether Volkswagen's nascent Scout brand of electric pickups and SUVs might be sold through franchised dealerships.

"Looking forward, we all need to be aligned on fighting for the system that we all believe in," Stanton said.

NADA staff has been sharing the principles with automakers in meetings to review the association's twice-yearly Dealer Attitude Survey results. Brands that have had meetings with NADA include Ford, Hyundai, Lincoln, Mercedes-Benz, Porsche and Nissan.

So far, the feedback has been "incredible," Stanton said. "Manufacturers have been very receptive to what we are saying."

Stanton, who attended the meeting with Ford, said sharing the guiding principles changed the tenor of the discussion.

" 'Us versus them' turned into a 'we' meeting very, very quickly," he said. "And that's the reaction we want."

Shaun Bugbee, BMW of North America's executive vice president of operations, said NADA's guidelines align with those of the German luxury automaker.

"We have been very direct with our dealer body as we look at future initiatives — whether it be data sharing, digital retail — that we would do that transformation along with our network within the current wholesale franchise model."

Bugbee said that NADA's position is to support and safeguard the existing franchise model.

"They're asking for cooperation between the OEMs and the dealer partners," he said. "That's what we've been doing all along. There's nothing in that model that is contrary to … where we have been going strategically."

A number of other automakers contacted by Automotive News this week declined to comment pending their review of the principles.

NADA also has shared the document with the Alliance for Automotive Innovation, which represents Ford and other major automakers in the U.S.

CEO John Bozzella said the industry trade group "appreciates the conversation and the collaboration." He did not say whether the group fully supports the guiding principles, however.

"The desire on the part of NADA to recognize and embrace change is welcome, and I think the principles give us opportunity to talk about how we can effectively do that together," Bozzella said, noting the franchise model is a "competitive advantage" for automakers.

"We also believe that there is continued opportunity to enhance and ensure the competitiveness of that franchise model," he added, "and those are conversations we continue to have with NADA."

At the state level, some dealer associations have proposed new language in franchise laws to outline the relationship between new-vehicle dealers and automakers and better address newer concepts in the industry.

Dealers in West Virginia, for example, sought changes to their state's franchise law to define their role in vehicle reservations and when a dealership should be compensated after certain over-the-air updates are performed by an automaker. The dealer association and automakers represented by the alliance negotiated a compromise, and the state adopted legislation this year.

NADA issuing the guidelines "is the right step in the right direction," said Don Hall, CEO of the Virginia Automobile Dealers Association, who offered input in the process.

But NADA needs to take a more aggressive stance in protecting the dealership franchise model, backing up the written principles with actions that support state association leaders who work directly on legislative issues in statehouses, Hall said.

"It's great to say it, but sometimes in life, you have to back up what you say by your actions," he said. "And so what I'm saying to NADA now is, 'OK, you've said the right things, and these are the right things to be saying. Now back it up and make sure it's part of your DNA and part of your culture.' "

NADA will continue to play a supporting role for the states, Stanton said, but it's ultimately up to each dealer association and the dealer network to use the guiding principles as they see fit.

"This is not a strategic document. … It's foundational," Stanton said, "and we need to act with urgency to make traction on all of these. That's where the focus is going to be."

Lindsay VanHulle and Urvaksh Karkaria contributed to this report.