There is an old adage (some say a curse) that says, “May you live in interesting times.” Surely we are doing so now. The $64,000 question is what does the Trump presidency mean for the automotive industry?
Some attention-grabbing headlines state that Trump will dismantle the Dodd-Frank Wall Street Reform and Consumer Protection Act. Digging deeper, however, does not provide any detail on how this will occur. Mr. Trump has repeatedly said he is against red tape and is for regulatory reform, but nothing is known besides the rhetoric.
Scant Evidence of Reform
There have been some interesting developments, which may hint of changes to come. One possible indication of the coming change has been the creation of the Financial CHOICE Act. The FCA seeks to change both the leadership and funding of the CFPB and even repeal indirect auto lending guidance! The FCA was just approved by the House Financial Services Committee in September, and some believe that Trump may pursue it or some version of it.
As many of you know, our favorite four-lettered friend, the CFPB, was “created” under the authority of Dodd-Frank. Can the CFPB, the “child” of Dodd-Frank, be dismantled under President-elect Trump? While there is no consensus, a common thread of opinion is that the CFPB may have its regulatory authority scaled back, but it will not be eliminated.
One theory is that Trump will seek to remove the CFPB’s zealous current single director, Richard Cordray, and replace him with a five-person bipartisan committee. Another proposal to control the CFPB would be to tie its funding to Congressional approval. (The CFPB is currently funded by the Federal Reserve System and is not subject to Congressional budgetary control.)
If either of these proposals come to pass, the CFPB will be subject to oversight by Congress and its policies and actions will also be subject to committee leadership.
The Line in the Sand
You may be (rightfully) asking yourself what all this has to do with selling cars. Well, although Congress provided a “carve out” in the CFPB’s authority over automotive dealers who routinely assign retail installment sales contracts to third-party finance entities, the CFPB has direct authority over buy here, pay here dealerships. The CFPB has shown a willingness to attack lending sources for the automotive industry, including American Honda Finance Corporation, Fifth Third Bank and BB&T Bank, who in combination paid over $100 million in fines and settlements regarding claims of discriminatory lending (while denying any wrongdoing).
Ironically, the CFPB itself has been charged with racial discrimination against its own employees, the very actions over which it has enforcement authority.
Another area in which President-elect Trump has promised changes which impact the automotive industry is in the area of trade. Trump has proposed a tariff for trade between the United States and Mexico, which could affect automakers such as Fiat Chrysler, GM and Ford.
According to the Center for Automotive Research, the Big Three have invested over $25 billion in Mexican operations. Some industry groups have estimated that such a tariff will add $5,000 to the cost of a $15,000 car. What will be the impact, particularly on entry- level vehicles, of such a policy? How will this affect sales on the dealership floor and, in particular, those dealerships with offshore facilities?
Interesting times can include both bad and good times. With Republican control of the House, Senate and White House, the chances of change in regulatory policy and authority are high. What remains to be seen is how the political change will affect dealerships and growth in 2017 and beyond.
Keep in mind that other regulatory agencies that impact dealerships, such as the FTC, DOJ, and state attorneys general, remain firmly in place even if there are changes at the CFPB. In the meantime, compliance with the current law and treating customers fairly and honestly will continue to be a best practice, no matter which way the political winds blow.