Mike Stanton pushes back on “middleman tax” claims

Mike Stanton, CEO and President of the National Automobile Dealers Association, examines the debate סביב claims that franchised dealerships act as a “middleman tax” in vehicle pricing. He challenges recent findings from the International Center for Law & Economics, arguing that the analysis overlooks the operational realities of automotive retail and the value dealers provide.

Stanton explains how dealerships manage inventory risk, integrate sales and service functions, and support consumers throughout the ownership lifecycle. He also highlights the scale of investment required to replicate the current franchise system and discusses ongoing tensions around direct-to-consumer models. The conversation further explores regulatory developments, including FTC scrutiny on pricing transparency, and how dealers are adapting to evolving compliance expectations.

•  Why NADA disputes the “middleman tax” characterization of dealerships 
•  The role dealers play in managing inventory and distribution costs 
•  Estimated costs for OEMs to replicate the franchise network 
•  Ongoing debate around direct-to-consumer sales models 
•  FTC oversight and evolving pricing transparency requirements

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Transcript

The Middleman Tax Claim

SPEAKER_00 0:07

Welcome to Inside Automotive with Jim Fitzpatrick.

Why The Study Falls Apart

Jim Fitzpatrick 0:13

A study by the International Center for Law and Economics is claiming the dealership model is adding thousands of dollars to the cost of every vehicle, calling it a middleman tax. As you can imagine, that's uh sparking plenty of debate. Here to separate fact from fiction is Mike Stanton, CEO of and president of the National Automobile Dealers Association. Uh you've seen him here before on CBT News. Mike, thank you so much for taking the time of your busy schedule to join us once again to talk about this crazy middleman tax or the idea of it. I mean, I've been into the industry long enough to know that there's this just can't. Somebody's got some bad information here to put together this information and uh distribute it out there. So let's talk about this study. What what assumptions is this making about the dealership model that simply aren't accurate?

SPEAKER_03 1:01

Well, Jim, first off, thanks for having me. And and you already kind of you stole the lead. This is not a credible, not a credible study. Yeah, you know, and we hear this middleman argument from time to time. But I think there's some, you know, in looking at the study and and just being objective about it, which is tough for me to do because I love car dealers, I work for car dealers, but you just got to be objective about the thing. And we did a study, uh, we commissioned a study from Oliver Wyman. It's an independent study that looks at this thing. And there certainly are costs of distribution. I think we can all agree it costs money to distribute a car. But a couple of big takeaways for me is number one, to replicate a dealer network just from a fixed capital cost for a mass market OEM would cost somewhere between$25 and$45 billion. Right. And that's before you open the store and you hire the employees and you take care of the customers and do all the things that you and I both know our dealers do. So that's a big takeaway. Uh the second is there's this idea of conflation, you know, that all of these costs that are related to distribution are because of the franchise system or state franchise laws. Well, that's ridiculous. When you look at this study, these are OEM decisions, and I'd like to pick them apart one at a time as as we talk about this. These are OEM go-to-market decisions, you know, decisions based on what they're going to produce, how many they're going to produce. Are they going to uh is it going to be a lineup that's complex? That kind of thing. How much inventory do they want to stock? Uh, what's their advertising strategy? So there's this conflation between the channel and and the actual go-to-market uh strategy that's really OEM dependent.

SPEAKER_02 2:54

Right.

Inventory And Test Drives Matter

SPEAKER_03 2:55

You know, and the third uh takeaway is it's just not about channel, it's about the the uh the efficiency and the value that dealers provide. And I'm sure we'll get into that.

Jim Fitzpatrick 3:08

I don't want to make this a monologue, uh, but I'd I would like to go through the points, you know, no, I was gonna say that the the report the the report points out uh or points to inventory facilities and staffing as inefficiencies. How would you respond to that?

SPEAKER_03 3:22

Yeah, I mean, first off, how many times has a dealer had to say no to the factory? I can't take more of this because I have more than three months, four months, whatever, six months supply on the ground.

SPEAKER_02 3:35

That's right.

What Dealers Do Beyond Selling

SPEAKER_03 3:35

So it's a factory decision to build the product. And we live in a world where I mean customers want to experience the product. Uh Cox Automotive study, 88% of customers they want to drive a vehicle before buying the vehicle. Makes sense. It's a big, it's a big purchase. So it's the car car companies that are driving that, and we would have to ask them. I'm sure they are building to maximize their profitability and their efficiency. And and all of the car companies, with with few exceptions, are always probably more optimistic than than they should be in terms of their build. But that leads to more competition. That leads to, again, things that add costs, but they actually, these are costs are good for customers because that the dealers provide the inventory for them to experience as you know they buy the inventory, and then oftentimes we need to incentivize uh the the movement of that inventory, and it's the customer that benefits from those I'll say pressures that are put on on the distribution of the vehicles.

Jim Fitzpatrick 4:36

That's right. Um, what parts of the dealership operation are typically left out of analysis like this?

SPEAKER_03 4:44

Uh well, I mean, you you you gotta think about the dealership has got five or six businesses under one roof.

SPEAKER_02 4:50

Yep.

SPEAKER_03 4:50

You know, the traditionals, and then some have body shops, some don't. But these businesses are built to support the sale of a new car. You know, there's an F and I office, help the customer get financing all in one place. That's right. How do you handle the customer's trade? You either take take it in and you you you retail it as a used car or you wholesale the vehicle, uh, and then you've got to set up a a uh a situation where the customer feels comfortable to bring their vehicle in to get it to get it worked on. I mean the study talks about over-the-air updates. We're not against over-the-air updates, but there's still a lot of things that need to happen uh, you know, at the dealership to get a customer customer's vehicle safe and and moving back back on the road. You know, I I was thinking, I was just in uh uh in Louisiana, I visited a brand new Honda store. One of our directors built this thing. I don't know how many millions of dollars he spent on it. Yeah, it was gorgeous. Everything in it is brand new. Yeah, and guess who designed that that uh you know that building? Honda did.

SPEAKER_02 5:51

Honda did it.

SPEAKER_03 5:52

Yeah. So the dealer buys, he buys 10 acres of land, he spends all this money on a top-notch facility that his customers are gonna love. And he did it for one reason. He did it because he builds a reputation in the community, he wants to take care of his customers, but he is a businessman and he needs a return on investment. And if we don't have state franchise laws and a factory could build a store just down the street with him and compete with him or give the franchise to another dealer in the market, he's not gonna make that investment. And if he doesn't make that investment, Honda customers won't get that that great experience that they're going to get in uh you know in Louisiana. On his own, he picked up, he decided to move and and be in a position where he wants to sell more cars.

SPEAKER_02 6:36

Yeah, for sure.

SPEAKER_03 6:37

And do a better job. So it's it's uh it's just something again back to that$25 to$45 billion to replicate a network like Honda has out there. That's right. And the good news is, Jim, the factories are not talking to us about this, right? With few exceptions. The factories have embraced the model. Look, we sold 96.2 percent of new cars, uh, calendar year 2025. Uh, we just have to deal with this whack-a-mole stuff from time to time. It's really it's misinformation.

Jim Fitzpatrick 7:05

I guess I'd be remiss if I didn't ask, you know, that this is this is where you know the uh situation with uh Scout is is coming up, right? Because obviously that's in the headlines right now that they are choosing to bypass the franchise system to sell directly to consumers. Obviously, all of us in the industry are scratching our heads saying, why would an OEM want to do that? Because we do know you know the intra tremendous cost and time and effort that goes into operating dealerships to get that final that last mile of distribution. And uh and it's not an easy task. I mean, it's just and then to have uh you know Scout do this, which is a division of uh of VW, it's it's just crazy. Really is.

SPEAKER_03 7:44

Yeah, it's the old adage: you build them and we'll sell them, and we'll work together to take care of the customer. And why, why they I mean it's hard enough to build a car, right? Look at all the recalls out there, right? Look at the delays that have been reported with with regard to scalp. I was talking to a dealer yesterday, I was with the dealers, as I mentioned, in Louisiana. He said it'll never come to market. Just his prediction. You know, but but the arrogance that that they would be able to build a car and then set up a network, take care of customers, and as you just said, it's very complicated business. Of course. And uh to try and do it all, and I keep saying, look, we're gonna win.

SPEAKER_02 8:20

Yeah.

SPEAKER_03 8:21

We're gonna win one way or the other. You think we win through some common sense uh and through some dialogue back and forth. Well, that hasn't worked. So now we we are supporting litigation in California and uh in Florida. But when I say ultimately we're gonna win, even if they can't sell in in California, Florida, they're going to fail because they've underestimated what it takes to operate in a retail automobile industry. They should know better.

Jim Fitzpatrick 8:47

That's right.

SPEAKER_03 8:49

We'll see, but but I want your listeners to know, I mean, we've been talking about this for years. Yeah, we've been in the fight for years, and I still am very confident that when it's all said and done, and you and I are are both retired, Jim, uh we'll they'll look back and and and they'll they'll they'll uh we'll we'll have been proved right.

FTC Pricing Warning And Confusion

Jim Fitzpatrick 9:05

That's right, that's right. Shifting gears a little bit here, um the FTC has also been active recently. What's your what's your take on the latest uh warning to dealers?

SPEAKER_03 9:14

Well, I it's to take first off, we we gotta take this seriously. Yeah. I mean, this this is uh an FTC. I I've I've getting questions from dealers. Well, this is a Trump administration FTC, but if you look at what they've done uh across industries like healthcare and ticket sales and hotel pricing, transparent pricing is something that that the Trump administration wants to see enforced. They don't want to get into new regulation, into new uh rulemaking, and they told us when we met with the FTC that that's not the direction they're going. They want to enforce section five of the FTC Act, and basically they're telling us the price is the price. Yeah. The advertised price should be the price that you or me or anybody could walk in and pay at the dealership. Now that sounds really simple, but we've got, you know, we've got state laws, we've got several states that require the dock fee to be separate from the advertised price. That's the requirement.

Jim Fitzpatrick 10:13

Right, which is against what the federal uh standard would be.

SPEAKER_03 10:17

Yeah, yeah. So we've got that, we've got OEM advertising, you think ad associations, we've got third parties and the way they do business, their VDPs, there are just all kinds of things we need to get sorted. Sure. And our job at NADA is not to uh it's not to support what the FTC is doing, it's to support uh the dealers and make sure that the dealers comply with what the FTC wants them to do. But but right now there's confusion. Yeah. So we have have sent a long list of questions from my colleagues in the states and and dealers trying to get some clarification. Uh, and unfortunately, we had a you know a disaster of a webinar last week in which we submitted all the questions. Right uh, they were not in a position to answer those, but they're they're doing it make good. Chris Mufarage, the director, a trunk, a Trump appointee, will be on the call this coming Friday. I think it's at three o'clock. Is that right? Looking at my team, three o'clock Eastern, and we will get this clarification. And what they don't answer, we will make sure we press for answers in an FAQ. Because the vast majority of dealers that I'm talking to, they just want to know what the rules are. Right. And they're concerned that if they start playing by the rules, they want everybody to play by by the rules. So enforcement will be something that will be will be important as well. Uh, but we have a relationship with the FTC, we're talking with them, we're seeking clarification. We will get through this. Yeah, and and I think uh, you know, I just mentioned looking back, uh, I think this will be something that will will be a good thing for for the industry once we iron out the details.

Jim Fitzpatrick 11:52

Right. And I know Senator Marino, uh, we heard him speak at a dinner that I uh that I was at uh a couple of weeks ago, and he's in the middle of all of this as well, trying to work with you guys and the FTC on this issue as well, right?

SPEAKER_03 12:05

Yes, absolutely. You know, as as we've discussed, he's been a huge champion for dealers in a very short short amount of time.

Jim Fitzpatrick 12:13

Sure. Well, you're talking to dealers every day. What are the most uh what what are the what are the concerns that you hear out there from dealers as we uh enter into this second quarter?

SPEAKER_03 12:23

Well, there's always you know factory by factory concerns. I don't really want to get into that. Uh we don't have the time for that right now. But affordability is a challenge, I would say. I just talking with all the dealers in Texas and Louisiana, business is pretty good. It's not great, but it's pretty good. Uh there was more concern from the dealers uh that I was with last week in in New Hampshire, but they had some weather to deal with. I'd say overall, and we we of course have the profitability numbers through the first uh first quarter, it's been a good year.

Jim Fitzpatrick 12:52

Yeah.

SPEAKER_03 12:52

Uh it can always be better, but that's what I'm hearing as well.

Jim Fitzpatrick 12:55

Yeah. Yeah, yeah. I mean, that's our nature.

SPEAKER_03 12:57

We always want it to be better.

Jim Fitzpatrick 12:58

The Northeast dealers have said that now they're out from under the snow and the incre incredible weather that they've had, and that March actually shaped up to be a pretty decent month. And uh, and and April, April is the same. So uh so that that that's good news. That's good news. Gas prices, it seems, has has now uh driven more interest on EVs at dealerships. Are you hearing that as well?

SPEAKER_03 13:20

To some extent. You know, that always surprises me that that the customer is just so fickle, right? Yeah uh that's not a bad thing. No. Uh the customer's gonna, I mean, we we we're in an industry that if we're not focused on what the customer wants, we're gonna be in trouble. That's right. Uh, but it always just surprises me that that uh the gas prices spike and and they they want to trade their their big car on a small car or vice versa. Uh there's still, I just think we're in we're in a much better place with regard to EVs. And I hear there are pockets that dealers uh are saying that they're still selling and things are going well and the gas prices have helped. And then there are pockets in this country where where an EV is is never really going.

NADA Priorities Customer Experience And AI

Jim Fitzpatrick 14:02

I know. Yeah, yeah. No, no question. No question. Cool. What's uh what well what else is on your to-do list in this second quarter? Anything that you want to share with the dealers that you're working on in addition to what your your already busy schedule there?

Final Thoughts And Sign Off

SPEAKER_03 14:15

Yeah, yeah. Well, one of the things that that we've uh charted a course on uh this year was was, you know, you you've always it's our job, you want to strengthen the franchise system, and that's that's why we're we're advocates for dealers, but we're also educators, and we want to get better. I mean, we always are focused on continuous improvement. Yeah, and and one thing we want to make sure we we is begin focused on the customer. So we are doing a deep dive, already have on the customer experience, and we're ready to start to roll some things out. Uh, then the FTC threw you know threw us a uh it wasn't really a surprise. The 97 letters might have been a surprise, but but they told us that they would be be enforcing uh what was already on the book. So customer experience is something that that you'll see more, uh, more out of the NADA from. And of course, everybody's looking at AI. And we look at it from a, you know, we have to look at it from a couple of different lenses, sure. Not just educating dealers, but also from a dealer compliance perspective. And then we're right in the middle of dealer and factory relations, and we need to make sure that we've got some guidelines on on how that that works. I mean, I I say I think about a customer bot shopping at dealer, and then the dealer's got a bot, the OEM's got a bot, a customer bot. I mean, what could go wrong, right? So we need to get some policy and some some alignment on how to how to work together again in the in the customer's best interest.

Jim Fitzpatrick 15:41

Sure, absolutely. Mike Stanton, CEO and president of NADA, thank you once again for joining me on the show for this update and uh to talk about this very important issue out there that's uh and this this this study, so-called study, that's uh making uh making its rounds. So thanks so much. Really appreciate it. Best of luck, thanks for having me, Jim. Thank you. All right.

SPEAKER_00 16:07

Thanks for watching Inside Automotive with Jim Fitzpatrick.