Incoming AIADA Chairman Mike DeSilva fighting for fairness amid new EV tax credits

WASHINGTON — With implementation of the Inflation Reduction Act's electric vehicle tax credits underway, the incoming chairman of the American International Automobile Dealers Association wants to make sure international nameplate dealers are treated fairly.

"We don't want to see them picking winners and losers in the market. We want to see them implement it fairly, so everybody has a level playing field," said Mike DeSilva, owner of Liberty Auto Group, a three-store dealership group that sells vehicles from Genesis, Hyundai, Kia and Subaru.

The tax credit for consumers purchasing new EVs sets eligibility restrictions on vehicle sticker price, buyer income, final assembly location and EV battery sourcing, making it harder for some international automakers to meet the requirements in the near term.

"The bottom line is everybody wants adoption of EVs," he told Automotive News.

"If they're going to pick winners and losers, that just puts the brakes on the whole purpose of the tax credit."

DeSilva, 46, spoke with Staff Reporter Audrey LaForest to discuss his priorities and outlook for dealers this year. Here are edited excerpts.

Q: What is your first priority as chairman?

A: The first one is to encourage our members to take advantage of the "Dealer Visit" program that we have because there are going to be a lot of new congressional members coming in, and we want to get them into our stores, see the dealerships, see the technology, see the new EVs that are coming to market.

The other big priority that we have is to try and get some guidance on the EV tax credits.

What is the major issue facing your members this year?

The major issue that our members are going to face this year is really going to be the EV tax credits because up until now they've been pretty discriminatory against international nameplate dealers.

The Treasury Department came out with their guidance on the use of the commercial clean vehicle credit, saying that it can be applied to consumer leases. We're waiting on guidance from our OEMs, and they're waiting on a little clarification of the Treasury's interpretation of that. With the move to EVs and the legislation in some states to completely do away with internal combustion engines in the next few years, that's going to be an important part of increasing consumer adoption of EVs.

A $7,500 tax credit makes a big difference on the affordability of it for a lot of consumers.

What about the overall outlook for dealers in 2023?

As far as availability is concerned, depending on which OEM you ask, we think it's going to get better. It's not going to be back to where we were five years ago, but it's going to continue to increase.

We are concerned about affordability and inflation. As interest rates keep going up, lease rates keep going up, finance rates keep going up, it's coming down to an affordability issue with consumers. We're looking forward to working with legislators to get solutions that are going to lower inflation and get the economy back on track.

What do you expect to happen with inventory and sales trends?

I think inventory is going to increase. Sales trends are going to continue to increase on the new-car side. That will, I think, affect the used-car side. Used-car values are starting to come down. But as far as new inventory is concerned, I think we're going to see an increase in inventory and sales.

Will dealerships be able to maintain the strong profitability gains they've made the last few years?

Dealers are pretty resilient. As inventory goes up, that pricing pressure is going to come down, but I think dealers will still be able to be very profitable in this coming year.

There's not going to be an abundance of new cars out there, where we're going to have the fire sales that we saw years ago.

I think there's still going to be some pricing pressure that we'll see, but I think we'll be profitable.

How will the role of franchised dealers evolve amid greater electrification?

If an OEM really wants to make a mark in the EV market, they're going to need franchised dealers to do it. We've had issues where we take a Tesla in on trade, and we need to bring it to Tesla to get it serviced, and we can't even get anybody to answer the phone at Tesla. We have to physically drive down to Tesla to have them tell us that they can't get the car in for months. The bottom line is the franchised dealership model is already there. It's already set up.

The infrastructure is there. We can service the cars. Franchised dealers are going to play a big part in the adoption of EVs.

Trade is always top of mind for AIADA. What's on your radar?

When Build Back Better first came out, there was the UAW component that the car had to be built by a union manufacturing facility to be included in the credit.

Look at what happened when they rolled that out: It angers our foreign trading partners, hinders efforts of free trade. It's important for us to work with them to make sure everybody understands that free trade is good, not just for consumer choice. There are millions of jobs in our country that depend on it.

Turning to the tax credit for new EVs: Is the North American final assembly requirement reasonable?

No, because like I said, when Build Back Better went down and didn't get implemented, we were obviously happy about that because most of the international nameplate EVs are not built in a UAW plant.

But then when the North American assembly requirement came out, it pretty much narrowed it down to the same handful of vehicles that actually qualify for it because those are the ones that are built in UAW plants at this point.

A lot of the OEMs are taking steps to actually get factories online in North America, in the U.S., that will build these EVs, that will build the batteries for them, but they're not going to be online tomorrow.

They take a few years. I think a lot of the OEMs are trying to make the case, to say, "Hey, we are going down that road, and we are building plants in the U.S., and we are going to be employing thousands of American workers. Let's work together and see if we can implement these tax credits fairly."

What about the tax credit's battery component and critical mineral requirements?

We're a global economy. Battery components and the minerals that go into batteries, they may come from other countries. I don't think that it really is a reasonable requirement because the reality is that battery components will be coming from places other than the U.S.

Hyundai Motor Group's EVs are currently not eligible for the tax credit because they don't meet the North American final assembly requirement. As a dealer of its brands, does that concern you?

It's very frustrating for us, but it's also very frustrating for the manufacturers. They're investing billions of dollars to again build a plant in the U.S. to employ American workers, and they're being penalized until the plant comes online. Especially for us on the dealer side, to try and explain to somebody why a Ford Mach-E has a $7,500 tax credit but our car doesn't and trying to explain that to a customer, it's not a pleasant conversation.

As AIADA's chairman, how will you be helping dealers, communicating with them and members of Congress, on a lot of these issues?

Our plan of action is to get our members to take advantage of the Dealer Visit program. A lot of legislators really don't understand what's going on, on the front lines in dealerships.

A lot of them may not really understand the impact of a North American final assembly requirement. They may not understand the impact on a Hyundai dealership in Mahwah, N.J., but it has a major impact.

The more they see that, and the more they understand that and see how that affects our businesses and our employees, I think that's how we're going to make change, and that's really what we're pushing our members to do: Get those new congressional members into our stores, and talk to our employees.