NADA Legislative Priorities May 24, 2017

TAX REFORM  

In 2016, the House Republican leadership released a “Tax Blueprint,” their outline for tax reform legislation expected this spring.  The goal of tax reform is to lower tax rates by closing tax loopholes and eliminating deductions.  The Blueprint maintains the LIFO (last in, first out) inventory accounting method, and eliminates the estate tax, which would be beneficial to dealers. Repealing LIFO would take working capital away from dealerships that could otherwise be used to create jobs.  The estate tax particularly hurts dealerships since assets, such as land and single-use showroom facilities, cannot be easily liquidated to pay the tax without destroying the viability of the dealership.

The Blueprint also eliminates the deduction for net interest expense, which could negatively affect dealers, and includes a border adjustability tax (BAT) that would impose new tax burdens on product importers.  If imposed, the BAT could significantly increase the cost of imported vehicles and domestic vehicles made with imported parts.  While President Trump has outlined his tax proposal, the Senate has not yet unveiled their tax reform plans. Congress should ensure that overall changes to the tax code do not negatively impact small business dealerships. 

CFPB’S ATTACKS ON DEALER DISCOUNTS FOR AUTO CREDIT MUST END – SUPPORT CFPB REFORMS IN H.R. 10

In 2013, the Consumer Financial Protection Bureau (CFPB) issued guidance that threatens to eliminate a dealer’s flexibility to discount auto loans in the showroom. The CFPB is attempting to change the $1.1 trillion auto loan market and limit market competition without prior public comment or analyzing the impact of its guidance on consumers. The guidance is based on faulty research, such as estimating a customer’s ethnic background based on last name and zip code. A nonpartisan study of the CFPB’s methodology found that it was prone to significant errors, and that the CFPB knew of these flaws yet failed to correct them. The CFPB’s actions will raise the cost of credit for car buyers and push otherwise-creditworthy consumers out of the auto credit market. 

Last Congress, NADA supported H.R. 1737/S. 2663, the “Reforming CFPB Indirect Auto Financing Guidance Act”. These bills would have protected fair lending laws, rescinded the flawed auto finance guidance, and allowed the CFPB to reissue it under a transparent process. H.R. 1737 passed the House by a veto-proof vote of 332-96 (including 88 Democrats).  On May 4, the House Financial Services Committee passed the Financial CHOICE Act, (H.R. 10) which includes the text of H.R. 1737.  The full House is expected to consider H.R. 10 in June.  NADA urges Congress to pass reforms to the CFPB, as included in H.R. 10, which will preserve consumer discounts and keep auto loans accessible and affordable. 

OPPOSE OVERBROAD RECALL BILLS   

In the 114th Congress, legislation (S. 900/H.R. 1181) introduced by Sen. Richard Blumenthal (D-Conn.) and Rep. Jan Schakowsky (D-Ill.), respectively, would have prohibited dealers from selling or wholesaling a used vehicle under open recall, even though the vast majority of vehicle recalls do not require the drastic step of grounding. Because of a shortage of recall parts, it often takes months to repair recalled vehicles. According to a J.D. Power study, enacting this legislation would diminish the average value of a consumer’s recalled vehicle by $1,210, prompting dealerships to pay significantly less for trade-ins with open recalls, if they accept them at all. Lowering trade-in values would immediately hurt car buyers by reducing the down payment a consumer could use to buy a newer vehicle. Also, since the bills do not regulate private sales, recalled vehicles would be pushed into the unregulated private market, making it less likely that the consumer will get the manufacturer remedy for the vehicle.

The Senate Commerce Committee rejected an amendment identical to S. 900 in 2015. Congress should focus on legislation that increases recall completion rates, and oppose proposals that create a tax on millions of customer trade-ins.

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