Incoming NADA chairman Geoffrey Pohanka's agenda: Data-sharing, franchises

Last fall, the National Automobile Dealers Association published what it called the "guiding principles" for where the association stands on rapidly developing issues that auto manufacturers and their dealer networks will face as vehicles transform into computers on wheels.

Geoffrey Pohanka, who steps into the role of NADA chairman at the NADA Show in Dallas at the end of January, was the driving force behind that mission statement.

Pohanka, 65, is chairman of Pohanka Automotive Group in Capitol Heights, Md., comprising 20 stores representing 11 brands across Maryland, Virginia, Texas and Washington, D.C. Access to so many brands — both mainstream and luxury — sharpens his bird's-eye view of the changes swirling around the industry.

"I'm in a super dealer group and we had the opportunity to meet with [Ford Motor Co. CEO] Jim Farley for several hours, and [General Motors North America Vice President] Steve Hill and they articulated their concerns about where we're going in the future relations with dealers," Pohanka told Automotive News this month, adding that he also saw Honda's 10-year plan, which he called informative.

Pohanka took his insights to NADA leadership and recommended the key issues they helped shape.

"That led to our guiding principles — what we're for and what we're against," Pohanka said. "It's very important that NADA get ahead of issues." The group's manifesto captures a collective dealer voice that acknowledges new developments and protects the franchise model.

Pohanka is well-versed on what's coming in the retail industry. At the top of his agenda: ensuring manufacturers and dealers are square on data-sharing; fairly implementing over-the-air updates; getting dealers ready for the expensive transition to EVs; and staying competitive so direct sellers don't take "our business."

Pohanka spoke with Staff Reporter Carly Schaffner. Here are edited excerpts.

Q: How have you prepared for your role as NADA chairman?

A: I look at my role as a three-year term: vice chairman, chairman and immediate past chairman. I haven't waited to become chairman to start a lot of initiatives. Of course, it takes some things a while to get the ball rolling, but I've had a productive vice chairman year getting a lot of initiatives started, which certainly will continue in my chairmanship.

What is one of your top initiatives?

I started the ball rolling [on the NADA guiding principles] and was one of the authors, but it was a collective effort. I could see what important issues were going to surface. I then met with NADA leadership and suggested we get ahead of the big issues to help shape their development. That led to a focus group comprised of dealers and trade association executives, and then we determined which were most important. That led to the principles that we're now sharing with dealers, auto manufacturers and the trade associations, and it's been well accepted.

One of the issues highlighted is data-sharing. Why is that a concern?

There's a real challenge with data-sharing. The manufacturers are requiring a lot more data from dealers. And some these agreements are one-sided. For example, one data-sharing agreement gave the manufacturer unrestricted use of the data and said the dealer would have to indemnify the manufacturer in case the data was mishandled. That puts a financial burden on the dealer, and it doesn't state how the information will be used and protected.

I personally negotiated with that manufacturer and, to their credit, they rewrote the agreement. Now we give a license to the data. The data is protected, and we cross-indemnify each other — if the dealer causes the factory harm, we will indemnify them, and if they cause us harm due to a data breach, they indemnify us.

What is the issue with over-the-air updates?

There are two parts to this. A lot of cars have drivability issues, and they receive an alert to come into the dealership and we do a download to fix their car. These types of updates are not profitable for the dealer, but they're convenient for the consumer. And the manufacturer can tinker with these cars, get them to run better, and that's something we should not get in the way of.

On the other hand, as vehicles become driving computers, there's an opportunity for the manufacturers to sell subscriptions or accessories to consumers. If a consumer wants to pay money for an extra 100 hp on their electric car, that's something they can sell.

Dealers should be encouraged to sell those products, and if a consumer buys them, dealers should get credit for it. If we took over-the-air updates and split them into two parts, the dealers would not restrict drivability and warranty over-the-air updates. And for subscription and accessory sales, this is downstream revenue that dealers should be part of.

And the issue of the agency model?

Manufacturers are pursuing the pure agency model all over the world, which is the consumer buying the car from the manufacturer and the dealer being paid a stipend to deliver the car. There are benefits to the dealer in the sense that they don't own any cars. They don't have a floorplan and they don't have to advertise. But here in the U.S., the pure agency model cannot be implemented because of franchise laws in many states. However, even though that's the truth, dealers are concerned that some elements of agency model are showing up [in ways such as] omnichannel and direct ordering. That further fans dealer fears that the agency model is coming to a neighborhood near you.

A lot of these issues are linked with the coming of EVs. How are dealers feeling about the imminent transition?

There's a lot of concern about that transition. I recommend that dealers, if they haven't done so, take an EV and drive it thousands of miles. Don't just take a demo overnight. Drive it thousands of miles, experience the public charging network, have a charger at home, experience the customer experience. Know it inside and out. EVs are coming and it's going to happen for a couple reasons. One is competition — direct sellers are taking our business and we need to compete. And two, there are federal mandates that require it to happen. Dealers are concerned, but I recommend go out, get one, drive extensively to understand it from the inside out.

Are there any dealers who don't want to sell or invest in EVs? And if so, what's your response?

I would say that'd be a mistake not to want to sell them because truly there is demand. The demand may be more in California or New York than in Nebraska, but there is a demand. They will be here in a big way based on the government regulations. That's why dealers should be driving them. We've got to do a lot of research. What's the best way to set up a charging infrastructure where we spend the right amount of money, have the right amount of utility and can charge the cars readily?

We fill cars with gas when they come in off the truck. Now we'll be charging those EVs and then topping them off when we sell them. They're here to stay and they're going be a part of our business. And in some states will be a big part of our business.

I don't think it ever will go to 100 percent of our business for a lot of reasons: cost, charging and infrastructure, availability of minerals to produce them. I think it will be a hybrid system, with some electric cars and some gas. We'll let the chips fall where they may.

So you're saying that some manufacturers will not be able to go all-electric despite what they say?

Because of the cost and the lack of charging infrastructure, we will still have a lot of internal combustion cars in our future. If you come out and say you're going keep a gas car, you take a lot of heat. If you want to keep your head down, it's easy to say, "I'm going carbon neutral, and I'm going to go all electric." That's a very popular thing to say, but in reality it might not be where it ends up.

After dealing with diminished vehicle supplies last year, yet enjoying record profits, what is the sweet spot now for days' supply? And will manufacturers stay disciplined as inventories rise?

It's always better for the industry to have one less car that you need, rather than one too many. I think a 45-day supply works. Of course, that's better for a large dealer because they have more selection than a small dealer. Maybe a small dealer might need more to have enough selection. The manufacturers all talk about keeping their discipline, but when they look at lost market share, they're going to start producing cars if they can. I don't think the industry will keep as disciplined unless other factors arise, such as supply chain issues. Inevitably we'll go back to where we were before.

What is your outlook for 2023 given all the variables of the current market?

As product availability inevitably improves, it's important that dealers train up. It's been easy to sell cars very profitably the past couple of years, but it's going to be more competitive in 2023. We won't go back to pre-COVID, but it won't be like the height of COVID. That's a good reason dealers should attend the NADA convention.

It'll be a more challenging year, but it'll still be good. We'll sell more cars in 2023, but availability won't be so high that it will cause us to lose money, like we did before COVID. We certainly have headwinds — including inflation and a higher percentage of debt — but pent-up demand will help drive us through.

There are a lot of great products, and for the past couple of years, people have been driving miles and not buying cars.