‘We absolutely believe' in franchise

Last year, Mike Alford said one of his top priorities as 2022 chairman of the National Automobile Dealers Association was to protect the franchise business model — while also helping it evolve to meet changing times.

In October, NADA shared a framework of guiding principles it drafted with input from dealers to help start conversations about the franchise system with dealers, automakers, policymakers and others. The principles outline NADA's position on a number of topics, from subscriptions to over-the-air updates, and reiterate the association's commitment to the dealer franchise system as some automakers consider revamping their sales models for electric vehicles.

Alford, 58, dealer principal of Marine Chevrolet in Jacksonville, N.C., and Trent Buick-GMC-Cadillac in New Bern, N.C., said developing the principles is one of his proudest moments in his year as chairman. And he said NADA is in good hands with Geoffrey Pohanka, chairman of Pohanka Automotive Group in Capitol Heights, Md., who takes over as chairman for 2023.

"Geoff does not need my advice," Alford told Automotive News on the sidelines of the CES technology expo this month. "Geoff's going to be a great chairman. NADA runs deep in his family."

Alford spoke with Staff Reporter Lindsay VanHulle ahead of this week's NADA Show in Dallas. Here are edited excerpts.

Q: How did your priorities play out in 2022?

A: What I'm most proud of — and I will not take credit for it because I think it was a multiyear effort — I'm so, so thankful that [NADA CEO] Mike [Stanton] and the team at NADA were bold enough to put [the guiding principles] out there. And these principles have the fingerprints of all stakeholders. We talked to [Automotive Trade Association Executives]. We talked to dealer council members. We talked to public group representatives. We talked to private, large group representatives. We talked to smaller dealers, and we've talked with our OEM partners.

What do you hope the principles accomplish?

What I've seen over the last couple of years is not only the reiteration, but a strong stance, by many of our legacy OEMs that their dealer partners are a strategic advantage going forward. Regardless of the powertrain. A lot of this is about technology. A lot of this is about efficiencies and really taking care of the customer, speed, transparency, a great outcome, great user experience. And the more that we as dealers work with our legacy OEMs on this omnichannel approach to retailing, the stronger the outcomes are going to be for both of us.

Do the principles reflect a difference in approach by dealers and automakers?

When you really start to see what's causing the friction or frustration or misunderstandings, most of it revolves around the principles that we allude to here. Whether it's future revenue opportunities and how they're going to be worked through between a dealer and their OEM partners, whether it's distribution, whether it's the franchise system in particular, we're taking a hard stance. We absolutely believe the franchise system's the way to go domestically in the United States, and we've taken a strong stance there.

We've had separate meetings with OEM leadership on the principles themselves. We've had great back-and-forth, and that's what we have to have — really good dialogue and great execution going forward. I think at this moment in time, it's pretty interesting that some of the hyperbolic valuations of the direct sellers are coming back to earth. This is a capital-intensive business. The cost of capital's going higher, and dealer operators have always relieved our legacy OEMs of the burden of inventory.

Dealers in the U.S. like to take risks, and sometimes there's great reward, and sometimes there's not, but that's sort of who we are. I don't think dealers are agents.

What's your outlook for franchised dealers this year?

This is such a different, quote-unquote, "going into a recession" dynamic than I've ever experienced as a franchised dealer. I don't have an abundance of product on my lot right now that I'm fearful of. I'm not hearing that our OEM partners are experiencing the pain of having to slow production now, because we have a supply chain issue.

I think there is some pent-up demand in the marketplace. So we'll see. Certainly, I think everyone has seen used-car valuations come off of their white-hot pace, so again, that is something that the industry will continue to deal with. We're an optimistic bunch, and I don't think I'm unrealistically optimistic, but I'm not fearful.

Will affordability be a big concern in 2023?

It's a top-of-mind issue for dealers and consumers. The great news is that, thankfully, gas prices have come back down quite a bit. That has created some relief.

Will the record levels of profitability dealers have experienced in recent years be maintained?

I think we've learned a lot about being able to sell without necessarily having a ton of vehicles on our lot. I think our OEM partners have learned the same, and, hopefully, neither one of us have selective amnesia going forward and that we take advantage of what we've learned together the last few years and apply it, even though it may be a more difficult market. We are capital-intensive, and interest rates going up makes our business tougher, no doubt about it.

What will vehicle inventory levels look like this year?

I'm cautiously optimistic that inventories are going to improve, and that's going to be good for the consumer. And it's going to be good for the industry, for sure.

Are dealers shifting their used-vehicle strategies given the changing market?

As long as you don't have aging product and you're willing to [price] to market, if you will, then you can turn around and source product at the prevailing market of a given day. And we have tools now that give us clear insight into the commodity price of a given used car at a given hour, so in that respect, I think dealers stay on top of that.

What's the electrification journey look like?

I think we as a dealer body are absolutely getting ready for it, and I think we all are very optimistic to serve our EV customers. But at the same time, I think we're also very realistic that the ICE runway is going to be long, depending on where you live in the country and the absorption of this product in terms of charging infrastructure.

I think there's a lot of opportunity for us with our OEM partners and the offerings that are forthcoming to sell a lot more EVs than we have heretofore, and I think it's exciting.

What is NADA working on regarding the revised EV tax credits?

The ball, to a certain degree, is in Treasury's court right there, in terms of defining that, from my understanding. We have been advocating, especially our legislative team and our regulatory team.

I think dealers, our OEMs and consumers need to know what vehicles qualify and what income [brackets] qualify, and it just needs to be user-friendly. It needs to be transparent. We as the dealer body need to make certain we're able to convey to our customers correct and timely information, and it needs to work in a fluid way so it doesn't create cash-flow bottlenecks.

What is NADA working on related to the Federal Trade Commission's proposed rules for bait-and-switch dealership price advertising and finance and insurance products?

NADA is continuing to urge the FTC to go back to the drawing board before forcing implementation of the FTC vehicle shopping rule as written or as proposed. We feel like these are a series of unstudied and untested mandates that will have significant negative impact on our customers.

It just needs to be worked out. We want a great customer experience. These proposed rules do not seem to fit into an omnichannel, technologically driven, transparent, quick selling process digitally.

How are dealers adapting to the digital sales transition?

Every dealer I've talked to, they've advanced so much in terms of the digital offerings that they give to a customer. A lot of folks are doing transactions 70 percent of the way. The customer comes in and finishes the transaction in the dealership. So I think most dealers, they want to meet the customer where they are with regards to their appetite for the digital experience. And we all hope to have the ability for that to be 100 percent digitally in all scenarios at some point in the future. But I think there's a lot more work to be done there.