President Donald Trump officially abolished the U.S. Consumer Financial Protection Bureau’s Automotive Dealer Participation Guidance in May 2018. Discrimination in lending remains illegal under the Equal Credit Opportunity Act.  
 -  Photo by  geralt  via Pixabay

President Donald Trump officially abolished the U.S. Consumer Financial Protection Bureau’s Automotive Dealer Participation Guidance in May 2018. Discrimination in lending remains illegal under the Equal Credit Opportunity Act.

Photo by geralt via Pixabay

As a candidate, President Donald Trump promised to eliminate two federal regulations for every new one enacted. To date, he claims to have actually repealed 21 regulations for each new one. The New York Times disputed this statistic and reported that the actual ratio was 4:1. By either measure, Trump has certainly made good on his promise to cut red tape.

How has this process affected dealerships? Let’s take a look at a few regulatory changes and their impact on the auto industry.

Dealer Markup and Nondiscrimination

As you recall, in 2013, the Consumer Financial Protection Bureau issued its Automobile Dealer Participation Guidance, which was based on the assumption that allowing dealers discretion in the amount of finance reserve they applied to buy rate left room for discrimination against protected classes of consumers. The CFPB declared its policy that indirect lenders could be held liable for any such discrimination on the part of dealers.

To avoid such liability, indirect lenders were encouraged to eliminate markup (read: “lead balloon”), permit only uniform compensation (“flats”), or require a demonstrably nondiscriminatory markup policy. In order to preserve dealer participation as a profit center, the National Automobile Dealers Association drafted its Fair Credit Compliance Policy and Program.

The NADA program was designed to eliminate the possibility of discrimination in the area of markup over buy rate, but the process was thought by many dealers to be unwieldy. It required dealers to establish a standard dealer participation rate (or “SDPR”) to be applied to all buy rates, and to never vary from that markup level … unless they did.

If a dealer did vary the SDPR, the nondiscriminatory reason for doing so had to be documented in the file. The SDPR could never be exceeded. Every deal had to be audited within two days of funding and, if the process wasn’t properly followed, the deal had to be reworked and the resolution documented. The entire program had to be audited at least annually.

All of this sounded like a lot of extra work — it was — especially to prevent something that was already illegal anyway. The Equal Credit Opportunity Act was and remains the law of the land.

On May 21, 2018, President Trump signed the resolution abolishing the Automobile Dealer Participation Guidance. The retail automobile industry heaved a collective sigh of relief. Discrimination is still illegal, and needless paperwork has been eliminated.

Energy and Environmental Policies

Economics 101: All things being equal, if you make something cheaper, people will buy more of it. In this case, the “something” is driving and driving down the cost of doing it encourages consumers to do more of it. This benefits the retail automobile industry.

President Trump has shifted the rhetoric surrounding domestic energy production from “energy independence” to “energy dominance.” I believe this means increasing domestic energy production to the point where the United States is in a position to keep prices under control worldwide, and for a very long time.

Whether or not this will come to pass, it is undeniable that prices at the pump have been dropping significantly. (My last tank of gas cost $1.81 per gallon.) Contributing to this trend are changes to the following regulations:

• Interior Department Resource Valuation Rule: Lowers the cost of extracting oil, gas, and coal from federal lands.

• Executive Order 13840 and BOEM 2019–’24: Also known as the Ocean Policy to Advance the Economic, Security, and Environmental Interests of the United States and the National Outer Continental Shelf Oil and Gas Leasing Program, respectively, these policies opened up more coastal waters to offshore drilling, increasing production.

• 2015 Fracking Rule: Reduces the cost and paperwork associated with fracking, making that extraction process more efficient and economical.

• Air Gun Seismic Survey Authorization: Permits the use of air guns for seismic surveys of potential underwater oil fields. (Air guns had been prohibited due to concerns about potential harm to dolphins and whales.)

Finally — and this is a big one — the Safer Affordable Fuel Efficient (SAFE) Vehicles Proposed Rule. Current Corporate Average Fuel Economy (CAFE) rules dictated impressive increases in automobile fuel efficiency. For example, a mid-size sedan like a Toyota Camry would be required to drive 51.7 miles per gallon of gas. One way of doing that is to convert to electric or hybrid vehicles, though that creates a whole new set of problems. Another method is to reduce a car’s size and weight.

The problem there is that people like bigger cars. And with the lower gas prices discussed above, they aren’t as afraid to buy them.

The proposed SAFE standards would stop the progressive increases in mandatory fuel economy to the goals set for 2021 (an average of 37 miles per gallon), stop the requirements for production of electric and hybrid vehicles, and eliminate the exemption allowing some states (think California) to impose more stringent standards.

All of this will allow OEMs to produce the cars more consumers want to buy, which tend to carry better profit margins. That too is good for the retail automobile industry.

You may love President Trump or you may loathe him, and you may be more concerned about potential environmental impact than the prosperity of the automobile industry. But whatever your viewpoint, these regulatory changes will be good for the car business.

James S. Ganther Esq. is the co-founder and CEO of Mosaic Compliance Services. He is a dealer compliance expert and a prolific writer and speaker. Email him at [email protected].