Inside Automotive with Jim Fitzpatrick, powered by CBT News

Defending the Franchise: Ted Smith on State Dealer Associations

• Jim Fitzpatrick • Season 1 • Episode 17

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State dealer associations defend dealers' rights daily by monitoring industry trends, anticipating challenges, and initiating protective measures before dealers even realize they're needed. Ted Smith, President of Florida Automobile Dealers Association, explains how trade associations provide crucial support to dealers who are too busy running their businesses to track regulatory changes and manufacturer maneuvers.

• State associations monitor industry trends and anticipate challenges so dealers can focus on running their businesses
• Florida led the fight against manufacturers bypassing the franchise system with direct-to-consumer sales models
• FADA raised $4 million to win a landmark 2008 case ensuring proper warranty reimbursement for dealers
• Current battles include fighting for OEM parts usage and against EPA regulations that could disrupt dealer allocations
• The Alliance of Automobile Manufacturers' letter to the DOJ calling franchise laws "anti-competitive" raises serious concerns
• Smith challenges manufacturers to clarify if they truly support the franchise system or are planning to bypass dealers

Support your state dealer association and NADA through membership and PAC contributions to ensure they can continue fighting for dealers' rights at both state and federal levels.


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Announcer:

You're watching Inside Automotive with Jim Fitzpatrick.

Jim Fitzpatrick:

Hey everyone, Jim Fitzpatrick, Thanks so much for joining me on another edition of Inside Automotive right here at CBTNews. com. State dealer associations are on the front lines defending dealers' rights and fighting the good fight every single day and trying to ensure that there's a level playing field among OEMs and dealers and consumers and, for the most part, man for all the parts. Every state association is doing a jam-up job for dealers nationwide. Today we are joined by one of those state association presidents, Mr Ted Smith, who's the president of the Florida Automobile Dealers Association. You've seen him here before. He is one of those driving forces in our industry, does an incredible job.

Jim Fitzpatrick:

And, Ted, I want to talk to you first and foremost. Welcome back into the show. I do want to talk to you today about the importance of trade associations and the role that they play. When I was a dealer principal myself, man, I was focused on running the store, trying to make profits for my partners and dealers and running service and variable ops and finance and all those wonderful things. But I knew that the state association in which I was doing business, in the state in which I was doing, they had my back right. Talk to me about the importance and the role that you guys play each and every day for dealers.

Ted Smith:

Jim, that's you know. That's like putting candy in front of me. It's like you know, I've never really had a real job. Right out of college I went to work for a trade association in construction and then I went to insurance and now I represent car dealers for 24 years. I'm such a believer in the model of a trade association. The same way I'm a believer in the model of the franchise system versus direct selling the system of an association. It's so important because, as you said, dealers have their heads down. I mean there are more challenges today, so many things for you to think about. If you own two stores or more, you've got more than you can even possibly handle in a day. So you need an organization that can look out in the industry, see things coming before they come, develop answers as things are evolving, not wait till they happen. That's right. Dealers are so busy. They need us for that, for that ability to kind of look out, measure things, see what's going, anticipate and have the courage to jump in and initiate change before it's needed.

Jim Fitzpatrick:

Yeah, yeah, there's no question about it and for the most part, you know, dealers are just. They probably check in with you what a couple of times a year. Maybe they go to the meetings if they can, maybe they, you know, read their newsletters. But for the most part, you guys are doing the heavy lifting, you're doing the schmoozing with the state legislatures or I should say legislators and trying to bring all of that together so that the OEMs don't, you know, don't get too far out and, you know, ahead of their skis. As it relates to many of the laws that govern franchises and dealer franchises, I should say right, and man, if somebody's not watching that, as we know, they're going to take advantage of it, as they're trying to do right now.

Ted Smith:

Right, Well, absolutely. You know, we have to look at what's going on with Honda and Sony. Yeah, with with VW and Scout, with Hyundai and Amazon, with the Chinese who are, you know, kind of knocking on the door, and we've got to wait and figure out. Okay, what's that going to look like? This is stuff that NADA is working on every single day on behalf of their dealers around the country 15,000 dealers, I only have 900. That's why I still have a little bit of hair.

Jim Fitzpatrick:

900- That's got to be, you've got to be, one of the largest state associations out there with regard to the number of franchises, right?

Ted Smith:

Well, you know, it's not even so much. That is, it's just you know the geography of franchises. That might be 900 dealerships in New Jersey because they have many more dealers in a whole lot less space, right? So it's more to the. I think you have to look more at what's the culture of the state, what's going on with the business, where are the challenges, where are the legal issues? With dealers being sued by people you know inside and outside the industries, it creates a necessity for FADA to really be in touch with their members, be really connected. So we're trying to always basically let our members know that we're here for them on all kinds of issues. I mean, Jim, I get calls. I got calls recently about insurance because insurance companies in this state are refusing to pay physical loss claims on loaner vehicles. Now we went to the legislature and we handled vicarious liability on loaner vehicles because our dealers were being exposed to vicarious liability lawsuits. Now what dealer sits down and thinks about that? But it was needed to be addressed.

Ted Smith:

Now we have an issue with State Farm and Progressive in our state not paying physical loss damages on loaner cars.

Ted Smith:

Well, that's ridiculous.

Ted Smith:

The dealer can't control that. So who do they turn to? They turn to us. I'm working on it. If we need some legislation, we'll make some legislation happen, the way Texas did a few years ago.

Jim Fitzpatrick:

That's right, and you guys have had some major wins that the rest of the country has taken note of with regard to franchise laws. I mean, Florida was one of those states out there that said, hey, you're not selling. You know you're not selling direct to consumers in this state. Talk to us about that.

Ted Smith:

Well, you know, again, our job is to be proactive. Our job is to look at manufacturer activity and when we see something on the radar screen that looks like it's a bit weird, whoa, let's hone in on that. That's what we did with. Volkswagen when they wouldn't announce how they were going to distribute their vehicles in 2023, I sat down with our lawyers and our dealers and our executive leadership and I said, man, let's take a look at this. I'm concerned that if they're not announcing, they could try to go direct. So let's take a look at whether we have any holes in our franchise laws that would permit them to do an end around their dealers. And we looked at it and we thought, yeah, we see some potential for them using a subsidiary or a common entity and think that they could go around their dealers by using a subsidiary corporation. That is precisely what VW did. They purchased the rights to the Scout automobile from International Harvester and they took that on and they said, well, let's decide to distribute these cars direct to consumer.

Jim Fitzpatrick:

We're not a legacy OEM, which is absolutely comical, right.

Ted Smith:

And when we trust me, when we went to the legislature on behalf of our dealers and said, hey, members of the legislature, we don't care that Tesla is going direct to consumer, because they've never had dealers, they've never put all the costs of marketing and distribution of the vehicles on anyone. They've taken that on themselves. And, by the way, they had to put those costs where Jim, into the price of the Tesla and the Lucid and the Rivian. And our manufacturers don't have to put the costs of marketing and development and big buildings and tech shop technicians and, you know, huge workspaces to fix. Dealers took all that on. So I said to legislators does it make sense for a legacy auto manufacturer that is dependent on the backs of their dealerships in every community of Florida to have to worry about that same manufacturer going direct to consumer and avoiding them? And they said time out, heck, no, that doesn't make sense to us. Those deals made the investments. Those dealers are the footprint of GM, Ford, BMW, Nissan and all of the legacy automakers in every community in Florida.

Jim Fitzpatrick:

That's fantastic on your, you know, already plugged into your phones, that you know you can get the head of the Lee Zeldin, the head of the EPA, or whether it be the FTC or the CFPB that we saw. You know, the state associations put up an incredible fight along with NADA, and you guys have worked on so many projects like that to defend the dealers in Florida and, of course, around the country. But without a state association, dealers are lost, right.

Ted Smith:

Well, no question, and without a national association, I've got to give props to NADA. Oh sure, no question, this has been a fantastic year and every single dealer ought to be supporting NADA in every way they can, supporting it by being a member, supporting their PAC 100% Because what they did with the FTC saved dealers hundreds of thousands of dollars.

Ted Smith:

That CARS rule, had it gone into effect, would have changed the way we sell cars. The way we sell cars, the way we finance deals, the way we offer products, all of the things that are the profit centers of our dealerships and, quite honestly, Jim, the way they bring value to the consumer would have really changed.

Ted Smith:

So, I just think that state associations we're here to work on regulatory advocacy, as you're saying, legislative advocacy, but also when media groups attack the industry, we're here to respond. I do a lot of that. I take phone calls from consumers and consumer groups who might call and say, well, we don't think the franchise system is right, we think OEMs ought to be able to, and I go really Guess what. All those costs we mentioned are built into the price of the Tesla. They're not built into the price of the GM. That's why GM dealers can have intra and inter-brand competition and save the consumer money.

Jim Fitzpatrick:

That's right. That's right

Ted Smith:

If that doesn't work, Jim tell me.

Ted Smith:

I think that's what makes their system so fantastic.

Jim Fitzpatrick:

There's no question- And then the warranty work. I mean, obviously this is something that the manufacturers have been playing with for quite some time, and it's the state associations, and NADA for that matter, that have said hey, not so fast. You're not paying these dealers. You know the kind of money that they deserve on this warranty work. Talk to us about that.

Ted Smith:

Man, I appreciate that question and that topic so much. Just dial back to 2008. We really started in 2007 in Florida looking at warranty reimbursements and what is appropriate for the dealer when they do warranty work. You know everybody on this phone call on this on this Zoom session understands that warranty costs are built into the price of a car. But I'm not sure consumers understand that. Well, dealers understand it and we know that we should be properly reimbursed when we perform those jobs.

Ted Smith:

So when we initiated legislation we basically said, hey, dealers ought to have retail-like reimbursements for parts, not just labor. We always had retail for labor, but never for parts. So we put some legislation in that was very general and nonspecific and the factories didn't respond to the 2007 language. So in 2008, we said, ok, let's be real specific and we wrote provisions in there for proper reimbursement for dealers. And you know what happened we also. The biggest provision back there was if you make us pay you, we're going to find a way to get that money back through a surcharge.

Ted Smith:

And the surcharge conversation in law in 2008 was not tested in federal court. So the Alliance of Automobile Manufacturers now it's called something a little different they sued the state of Florida and said your provision is unconstitutional. I had to go to my dealerships and raise $4 million to fight the alliance in that lawsuit and make sure that our law was judged to be constitutional under federal law. We raised $4 million, we spent $3 million and we won the lawsuit and the surcharge provision was held to be constitutional. That law became the law that basically put the proper reimbursement for dealers on the map and my dealers began to see tremendous results from that obviously those results continue today so if you ask a dealer, should you be a member?

Ted Smith:

I'd say you remember 2008.

Jim Fitzpatrick:

That's exactly right. And, by the way, regardless of the size of the group, whether you've got one store or a few stores in your group, or 10 stores, or you're a publicly traded company out there, we're all in this together and it takes all of all size dealers to make up a strong dealer association, right.

Ted Smith:

It absolutely does, and you know, we know what our membership looks like. We have single points, and then a group for us is any dealer that owns two or more stores.

Jim Fitzpatrick:

Okay.

Ted Smith:

And I've been looking recently, Jim, at that because we know we have convergence, we have dealers buying other dealerships. It has not changed the way we operate as an association because, the way I view things, we should be delivering the same service to a small single point dealer as we are to AutoNation or Lithia or any of the publics, and we have great relationships with dealers at both ends of that spectrum. That I'm really proud of and we try to develop a culture that's responsive to all of those groups.

Jim Fitzpatrick:

Yeah, that's great. What is on your to-do list as you close out the year with regard to? Is there anything that you're working on right now that you want to see through?

Ted Smith:

Well, federally, we're going to be in Washington DC with NADA. We're going to be talking about this movement by the independent repair shops and those on the independent repair side of the business who want to be able to get to GM's repair information and there are a lot of memorandums of understanding.

Ted Smith:

There are things that are being done there. The challenge continues because I really believe it's about parts. You know, ultimately there are a group of people, there are a group of entities and corporations in America that don't want to see, don't want to have to use OEM parts. They'd like to use substandard parts. It saves them money. This is a huge fight. There's some federal legislation. Right now it's sitting. Still, the guy who's running it is a Floridian and, believe me, we're talking to him about that legislation. That's a huge concern for us going forward. I even believe that Amazon is in the background of that, because Amazon wants to be more and more in the parts business. So does eBay. So there's just a lot of players in that behind the scenes.

Ted Smith:

EPA regulations big fight at the federal level because if we don't do something again, thank goodness NADA challenged and we got the California system revised. But as long as EPA puts unrealistic demands on the fleets for automakers, dealers, allocations are going to be interrupted because of ICE versus EV vehicles and how those EPA regulations are administered by factories across the country. So huge issues, but locally. For us, we're really concerned about the Scout initiative. For us, we're really concerned about this Scout initiative. It continues to play out. I have a group of dealers that are in a lawsuit challenging what VW and Scout are doing, but, as you know, it takes many years for that to happen. I'm much more concerned about the things that are going on beneath the water, the conversations that Scout is having, because I'm reading their letters to the Department of Justice. We're reading, we're concerned, that they're taking messages to state legislatures that the franchise system is archaic and broken and is anti-competitive.

Ted Smith:

When I read those words, Jim, it makes me crazy because, you're either on the side of the franchise system as a factory or you are not. Right. And, as you know, the alliance letter that went to the Department of Justice.

Jim Fitzpatrick:

My next question.

Ted Smith:

Oh my gosh, what a huge concern. They're saying that the business is anti-competitive and the FTC ought to be stepping in and looking at these franchise laws because they restrict competition and harm consumers. So we are saying, and I believe NADA is saying to the factories that are members of that alliance do you believe that or do you believe in the franchise system Right?

Ted Smith:

Answer the question yes or no, that's right, that's right.

Ted Smith:

If you believe in us, then you ought to be saying so to your dealer body following a harmful letter like the one. The alliance that's right.

Jim Fitzpatrick:

That's right and it was just amazing. I think everybody was taken aback by that when they, when they saw that letter and heard about it and it was just like wow, I mean for the OEMs and their association to take that stance.

Jim Fitzpatrick:

It was just unbelievable and I know that, you know

Ted Smith:

It's unbelievable, Jim, because it's an association that represents 14, 15 automakers.

Jim Fitzpatrick:

Yep.

Ted Smith:

some of those automakers are Ford Motor Company and General Motors and companies that have been dealer dependent and dealer centric for 100 years, and so for the mouthpiece of an organization that represents great OEMs like that, who believe in our system for them to make those statements and not have to retract them or not have to say well, you know, we were really speaking for a few of our guys.

Ted Smith:

So you know, I just I'm challenging my friends at the OEMs to say where we Do not believe what was said by the alliance.

Ted Smith:

We don't sign up.

Ted Smith:

We don't endorse it in any fashion.

Jim Fitzpatrick:

That's right.

Ted Smith:

Or if they stay quiet. Maybe we ought to be asking ourselves.

Jim Fitzpatrick:

I know what does that mean.

Ted Smith:

What do they believe and you know what I'm saying to them. Look, you don't have to respond to Ted Smith and the FADA, but you have a responsibility to respond to your dealer network in Florida about how you feel about what was said and how it was said.

Jim Fitzpatrick:

Yep Demand a full retraction on that or don't, but either way, we got to know what your position is on this right.

Ted Smith:

Yeah and Jim, I don't think we'll ever see any kind of full retraction, but a positive statement that we don't agree to the dealer network. You know the alliance may never I don't think they'll ever change what they said, right, but each factory could respond to their dealer network and say we don't agree. We believe in the system that we have of independent, locally owned franchise dealers best serving our ability to sell and our ability to represent and service customers at the local community level.

Jim Fitzpatrick:

Yeah, I've had the pleasure of speaking to a couple of OEM executives on this very topic and they said that to me off air and then mentioned I don't want to talk about this on air. So, but they, but they actually expressed those feelings. Now what that's worth, you know, cause they're not taking it public is, uh, is that's up, that's up to uh, everyone listening to that, that, that comment, but, um, but I, I thought that was interesting that they said, well, no, we, we support the frame, we're not with the letter, and what have you, we don't support that. I said, great, we can talk about that on air. Oh, no, no, no, I don't want to say that, I don't want to say that on air. Then it means nothing really. But anyway, what are you going to?

Ted Smith:

But that's a fundamental battle. That's kind of going on behind the scenes, as you suggest. It needs to get some airtime because we need to know hey, are you on my team or are you on the other team, or are you trying to figure out what you want to be?

Jim Fitzpatrick:

That's right.

Ted Smith:

Volkswagen was trying to figure out what it wanted to be for a year and a half. Yeah, and look what happened they came out of the dugout with their own team and left the dealers on the sideline.

Jim Fitzpatrick:

That's right.

Ted Smith:

Well, you know, Honda's doing the same thing with the Sony and the AFEELA. They're going direct on that model. Now it's not in Florida yet, it's only in California. But again, being you know, we're very cautious about that in Florida because what happens over there will extend.

Jim Fitzpatrick:

Oh yeah, for sure, yeah, no, no question, no question.

Ted Smith:

So again, should Honda dealers be concerned about an end run around them? So again, should Honda dealers be concerned about an end run around them? If they aren't, that is a good reason why they ought to be tuned in to FADA, and NADA

Jim Fitzpatrick:

that's right, totally agree. I totally agree, Ted Smith, president of the Florida Auto Dealers Association, fighting the good fight for the dealers in Florida. Thank you so much for joining us on the show. This is the kind of programming that we want to get out to the dealers, not just in Florida, but all around the country and you guys do just an incredible job.

Ted Smith:

So keep it up. Really appreciate it, Jim. You make all this conversation possible and you do so much to support our franchise system, every single day doing what you do. Thank you very much.

Jim Fitzpatrick:

Well, thank you for those kind words.

Ted Smith:

Thanks for watching Inside Automotive with Jim Fitzpatrick.