Whether they meet with me at the capital in Washington, DC, or a Granite State roundtable, members of the New Hampshire Auto Dealers Association usually have one thing on their minds: the Consumer Financial Protection Bureau (CFPB).
Currently, auto dealers can negotiate lower rates and fees with lending companies, in order to offer customers the best possible deals. A competitive market benefits most buyers. However, the CFPB claims that dealers flexibility to offer low financing rates disproportionately harms minorities.
Sen. Elizabeth Warrens comments in support earned her four Pinocchios, its lowest rating on the Washington Posts truth meter.
Even so, the agency issued a notice of liability to auto dealers. The Wall Street Journal estimates that the CFPBs efforts to restrict competition will raise the price of the average car loan by $586. That may not seem like much to a federal agency with a half-billion dollar budget, but to a middle-class family of four, the figure amounts to about a months worth of groceries.
Federal interference could drive prices even higher, preventing millions of Americans from purchasing affordable, reliable transportation. Small businesses, including minority and women- owned, would likely lose customers, and in turn, employees.
Thats one reason Rep. David Scott, my colleague in the US House of Representatives and a Democrat, joined me to introduce the Reforming CFPB Indirect Auto Financing Act of 2015, which would force the CFPB to reconsider its findings.
The African-American member of the House Financial Services Committee, on which I also serve, understands the agencys potential impact on car buyers and dealers of every race and ethnicity. In November, our bill, HR 1737, passed the House by a super-majority of Republicans and Democrats, voting 332-96 in favor, despite a presidential veto threat.
Just days after the large, bipartisan vote, the Financial Services Committee released a report describing the many reasons, legal as well as economic, why legislation to rein in the CFPB is so necessary.
The report explains that the agencys findings of auto lenders liability is based on shaky legal ground. The report reveals that the CFPB relied on faulty data and scientific analysis to prove the theory, called disparate impact, and concealed inconvenient facts, which undermine its argument, from public view.
Lacking solid evidence to regulate the auto loan market, the CFPB turned to back-room political pressure. The committee report suggests the CFPB may have coordinated with the Federal Deposit Insurance Co. to pressure Ally Financial, at the time seeking FDIC approval for a business model change, to agree to an $80 billion settlement with the CFPB as a precondition.
The last auto policy expired on June 30, 2012, and the industry has waited with bated breath for a fresh one for over three years.
The government's failure to finalise the auto policy was mirrored in its attempts to delude the industry by repeatedly giving new dates for the announcement.
APMDA disappointed at draft of auto policy
The delay can primarily be blamed on the differing views of the government and the local auto makers, with rumours over its implication gathering momentum.
Some existing players have already shared their investment plans with the government. Automakers from different countries have also shown interest in Pakistan. But the long journey will only start once the government approves a new policy.
Highlights of the year
Despite all these uncertainties, auto sales continued to grow during 2015. The figures, to be announced later, are expected to see higher sales in comparison to previous years.
One of the highlights was the popularity of Toyota Corolla's latest model that remained steadfast throughout the year. Indus Motor Company (IMC) started booking orders for the new Corolla in July 2014, and its sales were remarkably strong in December 2014 as well as in December 2015 a month in which auto sales remain lowest as customers prefer waiting for January to buy the latest model.
Pak Suzuki continued to deliver cabs for the Punjab government under the Apna Rozgar Scheme, which significantly increased auto sales in 2015. The company has to deliver 50,000 units under the scheme.
However, there are some factors that will dent auto sales in six months (Jan-Jun 2016). Apna Rozgar Scheme is going to end in February 2016 while Honda Civic lovers are waiting for its new model which is expected to be launched sometime in mid-2016.
Auto industry expects up to $5 billion investment
Despite this, auto sales have had some strong backings. Strong macroeconomic indicators and 42-year low interest rates that boosted auto car financing will continue to remain the dominant factors helping the local auto sales.
"The absence of new auto policy did affect the auto industry during 2015," Global Research analyst Asad Raza Nayani told The Express Tribune.
However, the policy draft of the new auto policy shows that it will bring many changes. "The government wants to bring in maximum number of auto manufacturers in Pakistan, which will be beneficial for customers, the government as well as the industry," he said.
All three carmakers have witnessed extraordinary growth in their gross margins, Nayani added.
Stock market update
With 13% return in calendar year 2015, the automobile industry remained the second best performing sector on the Karachi Stock Exchange (KSE), according to Topline Securities. Only the pharmaceutical sector outperformed the automobile sector which posted a 17% return in the year.
"Automobile sector remained in the limelight in 2015 due to improving car sales volume amid Punjab taxi scheme, launch of new Corolla models and increasing car financing due to lower interest rates," the report noted.
Analysts believe auto sales may hit an all-time high by the end of this fiscal in June 2016.
In fiscal 2006-07, the local auto industry posted highest sales volume of 204,212 units (including LCVs and jeeps) because of robust GDP growth rate and unprecedented auto financing from banks in Musharraf era.
Although the dynamics of Pakistan's auto industry are quite different from other countries, it is interesting to note that Pakistan's auto sales are growing at a time when car sales in other countries are suffering due to the global economic slowdown.
Pakistan's auto industry posted one of the five best auto sales numbers in the first six months of 2015, said Samin while quoting OICA, a Paris-based umbrella organization of 38 top auto manufacturing associations that virtually covers the entire motor vehicle industry of the world.
Published in The Express Tribune, January 1st, 2016.
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The Federal Trade Commission has announced plans to conduct a survey of consumers regarding their experiences in buying and financing automobiles at dealerships.
According to the supplementary information in the notice soliciting comments on the proposed survey, the survey is intended to inform the [FTC] about current consumer protection issues that may exist and that could be addressed through FTC action, including enforcement initiatives, rulemaking, or education. The survey will involve in-person interviews of consumers located by a survey research firm, who had purchased an automobile from a dealer in the previous six months and used financing offered or arranged by the dealer to make the purchase.
The interview subjects must have kept the credit documentation he or she received as part of the financing transaction. After conducting five sample interviews to test the survey questionnaire, the FTC plans to interview 40 consumers, with the option to interview 40 more if it deems additional interviews are likely to be helpful. The FTC wants approximately half of the initial 40 consumers to have prime credit scores and the balance to have subprime credit scores.
The areas on which the interviews will focus include:
- the consumers experience in shopping for and selecting an automobile;
- the process of agreeing to a price for the automobile;
- the trade-in process, if applicable;
- the consumers experience in obtaining financing;
- additional products or services offered by the dealer;
- post-purchase contacts between the consumer and the dealer; and
- the consumers overall perception of the purchase experience.
The FTC is soliciting comments in advance of seeking clearance for the survey from the Office of Management and Budget. Comments will be due on or before 60 days after the FTCs notice is published in the Federal Register.
In addition to its authority to enforce the FTC Acts general prohibition of unfair or deceptive acts or practices, the FTC has authority to enforce various other consumer protection regulatory statutes against auto dealers, including the Truth in Lending Act, the Consumer Leasing Act, and the Equal Credit Opportunity Act (ECOA). In recent years, the FTC has been aggressively using such authority by bringing enforcement actions against auto dealers for deceptive advertising and other allegedly unlawful practices.
During 2011, the FTC conducted three motor vehicle roundtables at which panelists discussed consumer protection issues related to the selling, financing, and leasing of motor vehicles. In connection with the roundtables, the FTC requested and received public comments on specific consumer protection issues. The FTC also has produced consumer education materials concerning vehicle purchasing and financing, including an informative booklet Understanding Vehicle Financing, it produced in cooperation with the American Financial Services Education Foundation and the National Automobile Dealers Association.
With the FTC now signaling its intent to step up its involvement in regulating the practices of auto dealers, the Consumer Financial Protection Bureau (CFPB) should reconsider its extra-jurisdictional efforts to regulate auto dealers through actions against assignees of retail installment contracts. Those actions have been strongly criticized by Congress. In November 2015, the House of Representatives passed HR 1737, the Reforming CFPB Indirect Auto Financing Guidance Act, which would nullify indirect auto finance guidance that the CFPB issued in March 2013. Also in November 2015, Republican members of the House Financial Services Committee released a Staff Report that is highly critical of the CFPBs automotive ECOA enforcement initiative with respect to what the guidance characterized as dealer markup.