Barrie: Twenty-Five for ‘25

January 22, 2025

By Barrie Charapp Beaty
Charapp & Weiss, LLP
bbeaty@cwattorneys.com

In January 2024, we predicted that 2024 would be the year of regulation.  To the detriment of the automotive industry, our prediction proved accurate and regulatory advocates sought to complete all wish list items before the change in administration on January 20, 2025. However, the change in administration will not be the reprieve that the car business is awaiting.

We anticipate that 2025 will be a tumultuous year in the car business. In other words, it will business as usual. Dealers have become accustomed to coping with major changes. 2025 should not be much different in terms of challenges, but it can be rewarding. Here are 25 issues to which you should give attention in 2025.

Franchise Relations

As much as the franchisor relies on the dealer to get its cars on the road and fix the warranty issues from defective products, franchisors become bolder and more demanding of dealers year after year.  There are several issues critical to your prosperity as a franchisee in 2025.

1. Honda and VW. In 2024, Honda and VW announced that they want to forego the dealer network and sell the manufacturer line-makes Afeela and Scout, respectively, direct to consumers, which is a slap in the face to their dealer bodies.  In 2023, many state associations lobbied their state legislators to specifically prevent these actions through the franchise system.  Time will tell what these manufacturers will actually do, but should they move forward with circumventing their dealer bodies and sell direct, they are up for many legal battles.
2. Nissan and Honda. In 2024, Honda and Nissan made the announcement of a merger after Nissan insiders revealed that Nissan was months away from bankruptcy. The details of this merger have not been disclosed, but for Nissan dealers it’s a reprieve from possible bankruptcy rumors.
3. Support Your State and Metro Dealer Associations. With manufacturers like Honda and VW trying to sell direct to consumers, dealers will be leaning on their state and metro associations more than ever.  The associations need dealer support as they are the advocate in the state you operate and they work hard to ensure dealers have friends on both sides of the aisle, regardless of political divides. State associations protect dealers against negative legislation that challenge franchise and licensing laws. The associations introduce legislation and lobby on your behalf to improve dealer franchise protections by educating the elected officials on your business so they can understand the need for those protections.  For these reasons, you need to support the associations, financially and through personal activism by getting to know your local representatives.
4. Despite making the announcement in November 2023 of the partnership between Hyundai and Amazon, none of the lingering questions were answered in 2024 just how exactly this would be beneficial to dealers other than their vehicles would be on the Amazon platform. The logistics of the program still have not been ironed out.   Right now, consumers can only finance the vehicles through the captive lender.  Its certain that other manufacturers will follow in Hyundai’s footsteps, but they have not made the announcement yet. Monitoring the Amazon and manufacturer relationship will be critical to make certain your rights are protected as a franchise dealer.
5. Be prepared to enforce your franchise rights. State franchise act protections are not self-enforcing.  OEMs continually have documents or programs that may disregard or violate state franchise law.   OEMs have taken certain liberties over the years as to what franchise laws they want to follow and which they do not.  If you are not enforcing your rights, the manufacturer will take full advantage of dealer complacency.  Many states have protections for fair payments for performing warranty repairs. You may have to enforce your right to entitled reimbursement at retail for labor and parts.  You may have to enforce your right to incentive monies for each new program that the manufacturer introduces in states such as Virginia that allow you to receive program monies even though you do not upgrade your facility to each of the program’s requirements because you renovated your facility within the last 10 years.  Failing to enforce your rights on the facility upgrade programs could mean you are leaving hundreds to thousands of dollars per vehicle on the table while encouraging the manufacturer to continue to skirt franchise laws.
6. Performance Threats. OEMs continue their standard threats about dealer performance, particularly sales.  If you get a letter critical of your performance, respond and dispute it.  Explain why your performance is not deficient. Be clear about the negative impact of inventory shortages.  Explain why the standard you must meet is improper, for example your PMA is incorrectly defined making you responsible for sales in geographic areas where you have no advantage.  NEVER agree that you have breached your dealer agreement.
7. Warranty Audits. In 2024, many manufacturers performed warranty audits and claimed hundreds of thousands of dollars in chargebacks against dealers.  Many of the warranty audits are a result of manufacturers who are strapped for money and want to recoup it from the dealers.  Some of these audits completely violate the laws in which the dealers operate.  For those audits that are excessive or completely in violation of the law, you should be challenging them either through the internal manufacturer process (i.e., Ford’s Dealer Policy Board) or through your state administrative agency under the state franchise act.  Not only challenge those audits, but any audit is a wakeup call to the dealer to know whether their procedures and processes for warranty claims need to be fine-tuned.  If the same mistake is occurring, training and possibly hiring warranty experts may be necessary to stop the same issue from occurring in the next audit. Avoid freely giving your money back to the manufacturer!
8. Question every document you are asked to sign. When your OEM rep presents you with a document to be signed, understand what it requires.  Programs that cost you more and make you less will result as OEMs seek to make dealer income their own.  Some OEM documents may violate your state law if they have waivers of state franchise act protections.  Remember, your franchise agreement does not terminate.  During renewal of the agreement, while you cannot change a manufacturer’s form agreement, the specific terms applicable to your dealership are negotiable. If the terms are unfavorable, raise the issues with the factory and negotiate more favorable terms as part of your renewal. If your factory representative labels you as a difficult dealer, point out the factory is changing the relationship, not you.  Know your state franchise laws when it comes to new forms, such as in Virginia, the new forms need to be presented and approved by the Commissioner before the manufacturer can request that you execute them.
9. Succession and Dealer Ownership. Many dealers are in the midst of redoing the ownership of their dealerships before the gift tax exemption changes at the end of 2025.  If you are one of those dealers redoing the ownership structure for estate planning purposes, make sure you have the approval of your franchisor before you finalize the sale of or gift of stock.  Many dealers think that they only must notify franchisors of minority interest changes after they make them.  That is not the case.  Most dealer sales and service agreements require manufacturer approval before a new interest in the company is granted.  Any small interest gifted or sold requires manufacturer approval. Failing to obtain approval beforehand can be considered a breach of the dealer sales and service agreement.

Federal and State Compliance

Dealers have become accustomed to federal oversight from any one of the numerous alphabet agencies, but 2024 saw a record number of cases brought against dealers by the Federal Trade Commission.  From advertising to sales practices to personnel treatment, a dealer must have in place a strong compliance program to operate in this regulatory climate.

10. Understand the compliance challenges of the Trump transition. The Trump administration comes into power with the avowed purpose of reducing the size of the government and creating DOGE. How will that play out on your day-to-day business? Most particularly, how will it change your compliance efforts? Not sure it will. Trump has promised the American people that they will be relieved of the EV mandates and can purchase any vehicle they want, but he cannot change the CARB states federally. Moreover, revising regulations and legislation take time. Federal government enforcement priorities may change, but state and private enforcement under many laws may not. Dealers must pay special attention to changing priorities, and compliance training must consider those.
11. Vehicle Shopping Rule. On December 12, 2023, the FTC issued the Vehicle Shopping Rule.  This Rule essentially micromanages car dealers. The National Auto Dealers Association (“NADA”) and the Texas Auto Dealers Association, filed a Petition for Review of the Review and a Motion to Stay the Rule in the United States Court of Appeals for the Fifth Circuit, which has led to a stay of the Rule until the Fifth Circuit issues a decision.  The decision by the Fifth Circuit is anticipated in 2025.  Depending on how the Fifth Circuit opines, a Trump presidency and Republican Congress could also prevent this Rule from ever coming into fruition or its enforcement of the Rule.  Additionally, the FTC initially had ambitions to add the “offering price” to the companion Junk Fees Rule as well, should the Vehicle Shopping Rule be prevented by the Fifth Circuit. However, the FTC scrapped those ambitions after the election in 2024.  This is a 2025 issue that is being monitored closely.
12. Advertising. Whenever the FTC concentrates on dealer activities, a primary focus is advertising. The advertising requirements provided for in the Truth in Lending Act and the Consumer Leasing Act are black and white.  If you use a trigger term, you must make follow-on disclosures. If you do not, the FTC has you on a clear-cut violation and it can compel you to stop activities it labels unfair and deceptive and that are less clear cut in FTC consent orders.  The FTC expects advertised prices and offers to be available to all unless limitations are clearly and conspicuously disclosed.  If limitations make a price or offer unavailable to all, the price advertised should be available to all with a line that states the additional rebates that customers may meet with clear and meaningful disclosed terms, otherwise the FTC views the advertisement as bait and switch. Meaningful disclosures should be used to explain the terms and pricing, not negate the price.  If you are using third-party advertisers such as TrueCar or Cars.com, make sure those advertisements are the same as your website.  Make sure your managers in charge of advertising and your ad agencies understand the law.
13. Selling Practices. Dealers must sell the vehicle at the price advertised. Additional products and services, like extended service agreements and GAP protection, may be added to that but they must be disclosed as additions to price. Those products also must be expressly agreed to with clear disclosures that the products are voluntary.  Advertising a vehicle at a price at which the dealer does not intend to sell it is viewed by the agency as bait and switch – a cardinal sin.  Bait and switch cannot be solved with a disclaimer that admits that you will not sell vehicles for the advertised Proper disclosures explain an advertised term and they do not contradict or negate it. A statement that you will not honor the advertised price in the advertisement will be seen as an admission of a violation.   Another cardinal sin, and one on the FTC’s radar, is requiring the customer to finance the vehicle or purchase a product to get the price advertised for the vehicle.  You cannot require the customer to buy gap for the lower price you state you will sell the vehicle.
14. The FTC‘s views of add-ons differs greatly from dealers and even customers.  To the FTC, the price of the vehicle is the only thing that matters. Anything else and the FTC is quick to characterize it as a “junk fee”.  The FTC’s view is incorrect and voluntary protection products, like extended service agreements and GAP protection, are important to many consumers.  Moreover, charges for voluntary protection policies are not fees. However, dealers must be careful about other types of “creative” fees. Typically, state laws permit a dealer to charge a voluntary documentary or processing fee (however it may be labeled under state law) and a pass through of electronic titling fees. Additional fees may be a problem. The most clear examples are commission fees or used car reconditioning fees added to the advertised price of a used vehicle.  Those fees cannot be disclosed separate from the price of a vehicle. Charging any fees not expressly permitted by state law in addition to the advertised price is considered a bait and switch practice by the FTC, and it may violate state law on permissible fees.
15. Use a Fair Credit Policy. Credit discrimination is high on the enforcement list of the FTC.  The fairness of pricing vehicle financing has been criticized for years.  To deal with the criticisms, the NADA has developed a template program for fair credit. It requires a dealer to establish a standard starting point above buy rates for all customers, with downward deviations for non-discriminatory factors. If you have not adopted a policy, or if you adopted one and you no longer police it carefully, it is time to energize your fair credit compliance efforts.  Adopt a policy and enforce it.  Compliance with the policy is of utmost importance based on the recent consent orders by the FTC.
16. Establish a policy for sale of VPPs. Discrimination in the sale of voluntary protection products is also high on the enforcement list of the FTC.  Like criticisms over the terms of credit, proponents of stronger regulation of dealer practices have criticized VPP sales practices.  To address the criticisms, NADA, along with the NAMAD and AIADA, developed a template program for sale of voluntary protection products. Use the NADA/NAMAD/AIADA program to protect against charges of discrimination in sale of VPPs.  Adopt a policy and enforce it.  The FTC already views VPPs as “junk fees,” thus having a standard policy and enforcing it is necessary.
17. Credit Reports. High on the compliance list of the FTC is protection of consumers’ identity information, and an important aspect of that is protection of their credit reports. The law does not necessarily require that a business can access a credit report only with consumer written However, best practice is to obtain written consent because it eliminates the question of whether the dealer had a proper reason for accessing the customer’s report. Always have a customer provide written authorization to access a credit report. If your customer is at the dealership, get a signed consent. If the customer is remote, have access authorized through the dealership’s secure website portal.
18. Be sure deals are neat and complete. You have a form package for a transaction with a consumer for a reason. The forms are required by state or federal law, or by best practice to protect your dealership. The forms do not work unless they are used properly. Be sure personnel finalizing transactions understand the need for all documents to be completed. Use a deal completion checklist. Periodically audit deals to be sure that all forms are being completed.  Make sure your forms are up to date to address current laws.  You should seek legal advice on the disclosure requirements and form review.
19. The Corporate Transparency Act. At the end of 2024, the CTA was in a state of ping pong.  We had written throughout 2024 regarding the CTA.  Essentially, the purpose of this act, enacted by Congress on January 1, 2021, is to both prevent and combat money laundering, corruption, tax fraud, and terrorist financing.  Corporations, limited liability companies, and other entities formed or registered to do business in the U.S. had to file a beneficial ownership information report unless they met an exemption under the Act. One of the exemptions under that Act was for companies that (i) employ more than 20 full-tome employees, (ii) operate at a physical office in the U.S., and (iii) file federal tax returns demonstrating more than $5 million in gross receipts or sales. There is also an exemption under the CTA for a wholly owned subsidiary of an exempt business.  Most dealers met the exemption highlighted above but real estate affiliates or management companies did not.  On December 3, 2024, the Court in Texas Top Cop Shop, Inc., et al. v. Garland, et al. granted a preliminary injunction, which has a nationwide impact and blocked Act and the enforcement of its BOI reporting requirement from being enforced.  On December 23, 2024 the Fifth Circuit Court of Appeals reinstated the Act and the requirement to file the BOI filings with a deadline to do so by January 13, 2025.  In a complete reversal from its December 23^rd decision, the Fifth Circuit Court of Appeals reversed its December 23^rd order and reinstated the national injunction of the filing requirements for CTA and BOI filings.  As of the date of this newsletter article, the CTA filings are not required and we anticipate a final resolution from the Court sometime in 2025.
20. White-collar Overtime Exemption. In April 2024, the Department of Labor (DOL) issued a  final rule that increased the salary threshold for the “white collar” overtime exemption under the Fair Labor Standards Act (FLSA) nationwide. Under that Rule, which had an effective date of July 1, 2024, the annual salary threshold increased from $35,568 to $43,888 for employees who are exempt from overtime pay due to administrative, executive, professional, and outside sales professional exemptions, which meant for employees to be exempt from overtime pay for the administrative, executive, professional, and outside sales professional exemptions, the employee needed to earn no less than $43,888 a year.  Under that Rule, the threshold salary was set to increase to $58,656.00 as of January 1, 2025.  However, on November 15th in a Texas federal court ruling, the Court set aside the DOL’s April 2024 final rule that increased the salary threshold for the “white collar” overtime exemption under the Fair Labor Standards Act (FLSA) nationwide and thus the required escalator for threshold salary that was set to go into effect on January 1, 2025 was prevented from occurring.  As we previously reported,  the Rule did not affect many dealerships employees.  If you have an employee that is exempt currently because of the administrative, executive, and professional exemption, this Rule did not change how that person was qualified, but merely required the dealership to examine the person’s salary.  The Rule NEVER AFFECTED other dealership employees already exempt from overtime under the salesperson, parts person, service advisors or mechanic exemption of the FLSA.
21. Non-competition Agreements. The attack on employee non-competition agreements was big in 2024 with the FTC issuing the Non-Compete Rule which essentially prohibited employers from entering into, attempting to enter into, or maintaining non-compete clauses with their employees. On August 20, 2024, the United States District Court for the Northern District of Texas granted a motion for summary judgment and concluded that the FTC exceeded its statutory authority in the creation of the Non-Compete Rule, and since the rule was held to be arbitrary and capricious, the rule must be set aside nationwide. Thus, the FTC’s nationwide rule banning non-competes is set aside, but dealers need to follow state law when it comes to noncompete agreements. Generally, courts do not favor non-competition agreements that truly hinder an employees’ ability to seek work in their trade.  Dealers should adhere to state law entering into a non-compete with employees.  Additionally, dealers still should be carefully crafting any agreements with their employees and prevent the actions that they are most concerned about (i.e., recoupment of training costs, confidentiality, trade secrets, or solicitation of customers) when an employee departs, and the agreement should not function as preventing that employee from seeking work in his or her trade. Your dealership should consider non-solicitation of employees and customers (depending on state law) and confidentiality agreements (which are compliant with the NLRB and NLRA).
22. I-9 Audits. With the Trump administration, you should expect an increase in audits of I-9 Forms.  Dealers must follow the correct processes for completion of Forms I-9. Failing to give the employee the choice of documents to show identity and authorization to work can be the basis for a government enforcement action. Maintain Forms I-9 for the required time:  for separated workers, one year after termination and three years after hire, whichever is longer. Spot check periodically to make sure you have a Form I-9 for every If not, follow up and have forms completed. Keep a note with each form completed after the required date to explain when and why the form was created.  Spot check new forms periodically. If there are errors, have a procedure to correct them. Employers can only correct Section 2 and the supplement B of the form while employees must correct Section 1.  Be sure the corrections are evident to avoid claims of wrongdoing.

Operations Issues

23. Recalls will continue to be a hot issue. 2024 saw a large amount of recall activities. It is probably the highest visibility issue in the car business. Protect yourself.
    1. Ground new vehicles with open recalls. Everyone knows this, but what is your procedure to make sure new vehicles with open recalls are not being delivered?
    2. Fix the open recalls on used cars that you can. If there is not a fix or parts are not available, disclose the open recall to a buyer.
    3. If your franchisor issues a stop sale on used vehicles, pay attention to that. There is no federal law empowering a manufacturer to issue a used vehicle stop sale, but there can be consequences to your relationship with your franchisor if you disregard the mandate. Moreover, it exposes a dealer to great liability if the mandate is disregarded. Pay attention to it and seek compensation.
    4. Be sure you are checking service vehicles of your brand for open recalls. The law requires that you notify service customers with vehicles of your brand of open recalls if your franchise requires that. Whether or not your franchisor requires that (increasingly factories say they do), it is a good business practice.
24. Supplier Agreements. In June 2024, the attack on CDK’s system sent shockwaves through the automotive industry and grounding many dealers from business for more than a week.  Although it could have been any of the DMS system providers, it sent a clear message that dealers and the automotive industry was more dependent than ever on the DMS systems.  It also had dealers thinking about what kind of insurance they had coverage for.  All dealers should do an audit of their supplier and vendor agreements, including DMS and insurance coverage.  Have a detailed list of requirements and make sure the list is fulfilled. Think about how you may have to terminate your obligations and negotiate termination provisions for events like loss of a franchise or sale of a dealership.   You want favorable terms in all your supplier agreements and do not want to get stuck with unnecessary, long-term supplier contracts that could have large termination costs for events like loss of a franchise or sale of a dealership.

• Have a policy for review, approval, and execution of supplier contracts.
• For each contract, a dealer must ask why a lengthy term is required, and whether there is a benefit to the dealer.
• Do not agree to lengthy contract terms unless there is a reason that benefits you.
• Do not agree to automatic rollovers at the end to the term, except for month-to-month.
• Make sure the state in which your dealership operates is the choice of law and venue for any actions between you and the supplier

As dealers know, there are some suppliers who will not modify their form agreements.  In that scenario, dealers need to determine what they can and cannot live with.  If the supplier won’t modify the agreement, the dealer needs to assess what the supplier is providing and what the true downsides of the terms are and what that means for the dealership.  Dealers should seek legal counsel should they be concerned or need guidance on terms of supplier agreements.

25. EV Tax Credits. As of the date of this article, the EV tax credits are still in place, but we anticipate that will change under the Trump Administration in 2025. Many dealers experienced issues with the IRS portal in 2024. Dealer who sell “clean vehicles” need to ensure that their dealership is registered with the IRS for submissions of Time of Sale Reporting and any transfer EV tax credits that eligible buyers wish to use for towards the purchase of the vehicle. Both the vehicle and the consumer must qualify to be eligible for the tax credit. The IRS portal requires a “Buyer Attestation” for the Time of Sale report, and such attestation requires that the buyer (not the dealer) actually attest to questions and electronically sign on the portal. Dealers need to ensure that the Time of Sale reports are being completed at the time of sale because as many have found in 2024, failing to file at time of sale means that you are losing the credit as a deposit for the vehicle and/or not providing the customer with the report which you are legally obligated to do.