Auto Dealers Campaign to Fend Off Regulation

After nearly a quarter-century of selling pickup trucks and cars in North Dakota, Donovan Berscht had to shut one of his dealerships last year as Chrysler downsized. Now he is worried that a second financial jolt — this time the push for toughened economic oversight in Washington — could batter his remaining Chevrolet-Buick dealership.

If President Obama has his way, loans at auto dealers would be put under the purview of a new federal consumer protection authority to guard against fraud and abuse. The prospect of increased regulations, Mr. Berscht said, “could force us out of the financing business,” and it has him so concerned that he traveled to Washington last month to ask Senator Kent Conrad, a Democrat and one of his senators, for quick relief.

The financial reforms being debated in the Senate have prompted resistance from a variety of businesses, but perhaps nowhere more intensely than in the already beleaguered auto industry, where dealers find themselves pitted against Mr. Obama in their aggressive campaign to exempt themselves from the new rules.

For some 18,000 auto dealers in the United States, who historically have made up a potent political force, the debate presents a critical test of their continued influence in Washington, as they push lawmakers to help them hold on to revenue.

Auto sales transaction
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Auto sales transaction

Through their lobbying arm, the National Automobile Dealers Association, the dealers have hired a crisis communication team, taken out full-page newspaper advertisements, and organized trips to Washington for dealers like Mr. Berscht to buttonhole lawmakers and make their case.

Their basic message, like those of many other industries threatened by tighter regulation, is that they did not cause the financial crisis, and they should not be penalized for it through a burdensome and costly new regulatory structure.

A vote on the proposed exemption for the auto dealers could come this week on the Senate floor, with neither side predicting victory.

For Mr. Obama, the issue is his latest attempt to push through broad legislative changes in Congress partly by singling out powerful players in the private sector.

In his successful campaign for a health care overhaul this year, Mr. Obama went after the nation’s major insurance carriers repeatedly as a symbol of why the health system needed to be fixed.

To try to restructure the country’s federal student loan program, Mr. Obama portrayed big providers of student loans like Sallie Mae as profiting from a “sweetheart deal” at the expense of struggling students. As in the health care overhaul, he won that debate in Congress, too.

And from the start of the current push for toughened financial regulations, he has cast the fight as an attempt to rein in the big banks on Wall Street, whose “reckless practices” he blames in large part for the economic downturn.

Last week, as the debate over financial regulation neared an end in the Senate, Mr. Obama identified a new target in a formal statement: the “auto dealer-lenders” seeking a “special loophole” in the legislation through an amendment pushed by Senator Sam Brownback, Republican of Kansas.

“This amendment would carve out a special exemption for these lenders that would allow them to inflate rates, insert hidden fees into the fine print of paperwork, and include expensive add-ons that catch purchasers by surprise,” Mr. Obama said. The proposal, he warned, “guts” the bill and encourages “misleading sales tactics.”

The administration also linked the auto dealers exemption to the exploitation of military personnel. Officials released a Pentagon letter saying that many service members, according to an informal military survey, had fallen victim to “bait and switch” tactics and other predatory practices that left them with loans they struggled to pay.

Mr. Obama’s condemnation of unfair auto loans was the first time he has weighed in with a formal White House statement on a specific amendment of the sweeping financial regulation, and it caught many dealers and industry executives off guard.

Some dealers brand the White House’s account of auto loan irregularities as “pure fiction,” saying it mischaracterizes the process by which dealers facilitate or package auto loan requests for lending companies. Moreover, they say Mr. Obama has unfairly vilified their industry.

“The way the White House is portraying us as evil, it’s just wrong,” said Michelle Primm, the general manager of a family-run import dealership, Cascade Auto Group, about 35 miles south of Cleveland.

Ms. Primm made two trips to Washington last month to speak with both of her senators and Congressional staff members about the potential harm from the auto loan provision.


She and other dealers say they are already heavily regulated, mainly at the state level, through regulations that prohibit the loan abuses cited by Mr. Obama. They said the new federal regulations would only add costs to the way they arrange loans to buyers for big lending companies like GMAC.

But the administration maintains that the new rules are needed.

An administration official said on Sunday that dealers played a critical and profitable role in arranging the loan rates for many auto buyers, often at a higher rate than they qualified for. The White House also cited industry data showing that dealers made 52 percent of their profits in 2008 from financing and insurance, more than they made on the actual car sales.

The outcome may hinge more on influence than dueling data. On that front, the auto dealers have already proven formidable.

The auto dealers’ association spent $3 million last year on federal lobbying as part of a broader effort by the auto industry as a whole. Auto dealers, their employees and political action committees made political contributions of more than $9.3 million in the 2008 election cycle, most of it to Republicans, according to the Center for Responsive Politics, a nonprofit research group.

Perhaps more important than the auto dealers’ money is their deep presence in local communities, which can have a powerful impact on the lawmakers whose communities they represent, political analysts and lawmakers said.

Brian Hart, a spokesman for Mr. Brownback, said the dealers’ strong community ties had given them in-person access to many politicians to plead their case.

“Every member was very receptive to talking to their local dealers,” he said, “because they’re truly Main Street. People drive by them every day and know who they are.”

The auto dealers already demonstrated their political muscle on the issue in October, when the House passed its version of the financial overhaul but exempted the dealers from the consumer protection provisions. The exemption was pushed by Representative John Campbell, a California Republican who is a former car dealer, and it came over the objections of Democratic leaders.

Mr. Berscht, the North Dakota dealer, is hoping for a quick resolution.

“I’m not a political guru by any means,” he said, “but there’s a real urgency to get this amendment in there on this major bill and to provide some relief for the auto dealers.”