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Principles to Guide Auto Retail’s Future

When it comes to selling cars in 2022, one thing we hear from dealers everywhere is clear. Auto retail is changing faster today than it has at any time since the dawn of the franchise system.

Selling and servicing cars in the future will not look like it did 30, 20, or even 10 years ago. The days of taking inventory from OEMs and selling as a lone wolf are over. Dealers recognize this.

We also know that “progressive” auto retail schemes, like direct sales, inevitably shortchange consumers on both sales and service. So-called “agency” models, trumpeted by some, won’t lure the investment from dealer entrepreneurs required to create a great experience for our customers.

How then can we as dealers evolve in a way that will take care of our customers best, while proving that the franchise model is second to none—whether we are selling and servicing ICE vehicles, EVs, hydrogen cars, or commercial vehicles?

This question has been a top priority for NADA over the last two years. We began high-level discussions among dealers in NADA’s leadership and state automotive trade association executives (ATAEs) to articulate our principles for the future of auto retail. And in 2021 we began an important dialogue with the Alliance of Auto Innovators—our counterpart trade association that represents both domestic and international auto manufacturers.

Our goal was threefold. First, to determine how dealers and OEMs can best create an unparalleled customer experience at the dealership. Second, to determine how dealers and manufacturers can work to maximize efficiencies and eliminate any unnecessary costs in the retail process. And last, but certainly not least, to determine how downstream revenue opportunities could be optimized for both OEMs and dealerships, even as new technology might require fewer in-person trips to the dealership for our customers.

If we could answer these questions in a way that made sense for both dealers and OEMs, we could prove that franchised dealerships are the future—serving customers better than anyone, with unparalleled operations, and opportunities to make our businesses more valuable than ever. Less bickering and fighting between dealers and OEMs and more focus on a great consumer experience would drive dealership values higher.

The result of these efforts is NADA’s Guiding Principles on Evolving Business Models and the Dealer Franchise System, which you can download at www.nada.org/principles. Since the summer, we have been rolling out these principles to dealers, state dealer associations, and through our industry relations arm to all manufacturers. Our goal is to move the industry toward recognition and acceptance of these principles, help dealers and OEMs work to improve the customer experience, and make the pie bigger and better for everyone. Our principles include:

Evolving business model. NADA and its dealer members recognize that the franchise dealership model is in a period of dynamic evolution, driven by technology and increased expectations of the consumer experience. NADA supports the dealer franchise system as the most consumer-friendly, efficient, and effective model of distribution for motor vehicles—ICE or BEV—in the United States. We believe both dealers and OEMs should publicly recognize and acknowledge these facts—and we are seeing this happen.

Franchise system. NADA is for using the dealer franchise system for all new vehicles sold and serviced in the United States. NADA is for each state applying and consistently enforcing its regulatory requirements to all entities allowed to sell motor vehicles in each state. And we oppose the further creation of different sets of regulatory requirements for different OEMs for the distribution of motor vehicles in the United States.

Downstream revenue. With over-the-air (OTA) update technology, we must recognize that there are two types of OTA updates. Some OTA updates repair vehicles, perform safety or emissions recalls, or improve performance at no cost to consumers or revenue to OEMs. Others deliver enhancements to vehicles in exchange for revenue. NADA believes we should work with OEMs to expand new OTA opportunities of the second type for sale through dealers—but that the first type, focused on safety and performance, should not be subject to dealer- promoted regulation that requires distribution through dealers.

Allocation-Reservations. NADA is for reservation ordering programs when the orders are placed through local dealerships that consumers choose. We are for transparent pricing and delivery policies and for requiring OEMs and dealers to honor commitments made at the time of the order. And we believe OEM allocations should be fair, transparent, and administered consistently. We are opposed to reservation and ordering systems that fail to embrace the franchise model.

Data. In the age of big data, NADA supports dealers and OEMs sharing data pursuant to NADA’s Data Sharing Principles, and we support dealers working with their respective OEMs to determine an optimal customer experience that creates win-win scenarios for dealers and OEMs. But we are against third-party vendor agreements that do not take dealer protections into account, and we are against one-sided OEM agreements that consider only OEM interests.

Efficiencies. NADA is for identifying efficiencies that may lead to a reduction in costs associated with distribution—but we are opposed to OEM-to-dealer cost shifting that benefits OEMs only.

NADA’s 60-plus member board of directors supports these principles, as do our state association partners and OEMs with whom we have shared them.

To take the future head-on, both dealers and OEMs should lean into our relationship—to put our customers first and to make our businesses lean, mean, and valuable, both today and for future generations of buyers.

Mike Stanton
NADA President and CEO

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