PUB. 4 2023 ISSUE 1 THE OFFICIAL PUBLICATION OF THE VIRGINIA AUTOMOBILE DEALERS ASSOCIATION Virginia Dealers Lead From The Front! 2023 Legislative Update
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CONTENTS PUB. 4 2023 ISSUE 1 @ 2023 Virginia Automobile Dealers Association (VADA) |The newsLINK Group, LLC. All rights reserved. Virginia Auto Dealer is published four times each year by The newsLINK Group, LLC for VADA and is the official publication for the association. The information contained in this publication is intended to provide general information for review and consideration. The contents do not constitute legal advice and should not be relied on as such. If you need legal advice or assistance, it is strongly recommended that you contact an attorney as to your specific circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of the association, its board of directors, or the publisher. Likewise, the appearance of advertisements within this publication does not constitute an endorsement or recommendation of any product or service advertised. Virginia Auto Dealer is a collective work, and as such, some articles are submitted by authors who are independent of VADA. While VADA and the newsLINK Group encourage a first-print policy, in cases where this is not possible, every effort has been made to comply with any known reprint guidelines or restrictions. Content may not be reproduced or reprinted without prior written permission. For further information, please contact The newsLINK Group at 855-747-4003. 20 8 14 4 A Message From President and CEO, Don Hall In Virginia, Dealers Lead the Way! 6 2023 Legislative Update Why 2023 Was a Successful Legislative Session For Virginia Dealers 8 A Delay in the Safeguards Rule, But Dealers Should Not Wait By Hao Nguyen, Esq., CLO, ComplyAuto 11 VADA Annual Convention 2023: Register Today! 12 What You Don’t Know About Compliance Can Cost You Three Things to Think About in 2023 By Dealertrack 14 The Last Days of Non-Competes? By Mike Charapp, VADA Outside Counsel 16 The Right Time For A Risk Management Reset By Brandon Artigue, Director, Financial Risk Management, Truist Securities 18 The Franchise System is Important to Virginia and the Nation! 20 Over-Sharing in the Workplace? Why Your Company May Need A TikTok and BeReal Policy By Fisher Phillips 24 The Secret to Controlling Dealership Expenses By Sharon Kitzman, VUE DMS 27 Driving Virginia's Economy 28 Thank You To Our Program Partners 30 Allied Members vada.com 3
A Message From President and CEO, Don Hall It came as a pleasant surprise when the headline from the Richmond TimesDispatch landed in our inboxes and phone screens in early February: “First bill passes both General Assembly chambers.” We opened the link and discovered that, of the thousands of bills introduced in 2023, it was indeed the Virginia Automobile Dealers Association’s franchisestrengthening bill that completed the legislative process first. And it did so with unanimous support at every single turn. To say we expected such a thing to happen would be inaccurate. But to say we planned for it? You bet we did. VADA’s identical House and Senate bills sped through their respective chambers. It was the House In Virginia, Dealers Lead the Way! version, sponsored by Del. Jay Leftwich, R-Chesapeake, that crossed the finish line first after receiving unanimous support from both chambers. From there, it went to Governor Glenn Youngkin for signing into law; I had the pleasure of meeting with him soon afterwards to discuss the finer points of the franchise system. VADA’s legislative team, which included both our own team and outside government affairs professionals, spent most of 2022 planning for the 2023 session. By the time the session convened in early January, we were well ahead of the game. Our franchise bill is another piece of legislation from Virginia dealers that will make a difference nationwide. It is the latest addition to the legacy of Virginia dealers leading the way. Other states have long used our language to write and strengthen their own franchise laws, and this will no doubt be viewed as a precedent for other dealer associations. VADA is an association of more than 400 franchised new car and truck dealers, and our top priority is protecting these companies and their people – and by extension, consumers – from unfair trade practices. There has been no greater threat to our trade in modern history than the direct-sale, agency model we are seeing introduced overseas, and so we moved fast to stop anything of the sort from happening here. The success of this legislation is the result of vocal support from dealer leaders who came to Richmond, our industry’s long-term relationships with legislators, hundreds of letters sent from rank-and-file dealership employees, and attention from the media. And to be sure, our win also came from working closely with our friends on the manufacturer side, to compromise where we could but hold firm to our principles and protect the integrity of the franchise system. In doing so, we uphold the most important aspect of the franchise system: ensuring consumers are able to buy and sell cars and trucks at a fair price and get the service they need to repair their vehicles. To that end, we would not compromise. And despite our strong language to protect dealers from manufacturers, our relationships with those very same OEMs came in handy when rule-skirting legislation, introduced by Tesla, popped up in the General Assembly. In addition to VADA and Virginia’s non-franchised independent dealers speaking out against the legislation, an alliance of manufacturers and even a representative from General Motors itself joined us and spoke out publicly against a bill that would have given manufacturers like Tesla a separate set of rules from traditional OEMs and dealers. The company’s bill was swiftly defeated. Relationships, strategy, and sticking to your principles in the face of opposition. It’s been a winning mix for VADA over the last four decades as we continue to show this industry that Virginia dealers will continue to lead from the front. Enjoy this issue of the Virginia Auto Dealer Magazine. 4 Virginia Auto Dealer
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2023 LEGISLATIVE UPDATE From franchise system protections and untaxed diagnostic labor to home solicitation rules and a study on loud exhaust systems, 2023 will go down as a history-making and successful year for Virginia dealers in the General Assembly. VADA entered 2023 with a groundbreaking bill to protect dealers and consumers against auto manufacturercontrolled sales processes. This “agency” model removes local incentive for investment, hurts competition, and takes away local advocates for consumers in need of automotive sales or services. The bills introduced by VADA prohibit such behaviors in franchise agreements, continuing the current practices of dealers selling cars and trucks and offering financing options, extended service contracts, and ancillary products. The legislation also makes additional changes to strengthen the franchise system. Why 2023 Was a Successful Legislative Session For Virginia Dealers VADA’s franchise bills, House Bill 1469 and Senate Bill 871, sped through their respective chambers. The House version, sponsored by Del. Jay Leftwich, R-Chesapeake, was the first bill to pass both chambers — out of thousands of other bills under consideration, receiving unanimous support from both the House and Senate. The Senate version, sponsored by Sen. Scott Surovell, D-Mount Vernon, followed closely after. The bills then went to Governor Glenn Youngkin for signing into law. Beyond this precedent-setting bill, here is a recap of other legislation VADA monitored either with support or opposition. Passed Legislation HB 2372 (Wyatt)/SB 1135 (McDougle): Gives judge or jury permissive inference that possession of a catalytic converter that has been removed is a violation of a Class 6 felony. There are carveouts for motor vehicle dealers, repair shops, and salvage yards. The bill further states that if you sell or offer for 6 Virginia Auto Dealer
sale or purchase a catalytic converter from an exhaust system that has been detached from a motor vehicle, except under a scrap metal purchaser, you are guilty of a Class 6 felony. • HB 2372 Passed House (75-24) and Senate (40-0) • SB 1135 Passed House (40-0) and Senate (75-24) HB 1677 (Taylor): Clarifies that diagnostic work for automotive repair and emergency roadside service for motor vehicles is considered labor and thus not taxed. The bill passed the House and Senate unanimously. HB 2422 (Batten)/SB 1509 (Mason): Modifies home solicitation sales and creates an exemption for licensed dealers by the Motor Vehicle Dealer Board. VADA asked for and received a carveout in the bill to ensure licensed motor vehicle dealers who may, from time to time, deliver a vehicle or sign paperwork at a customer’s home do not come under the act. The bills passed the House and Senate unanimously. SB 1085 (Ebbin): Creates a study to address the issue of loud decibel levels in vehicle exhaust systems. The bill would have originally limited the decibel level to 85 (50 feet away). Northern Virginia, in particular, has had a rash of complaints from citizens about loud exhaust due mostly to highway racing. There are a dozen or so automobiles sold by dealers with systems over 85 decibels, so while we hear the pain, we also didn’t want dealers harmed by the bill. The study work group will include representatives of relevant stakeholders and will be completed by the House and Senate Transportation committees by Nov. 1, 2023. The bill passed the Senate 31-8 and House 77-21. Failed Legislation SB 815 (Surovell): Expands the definition of “consumer” under lemon law to also include a motor vehicle used primarily for business purposes. • Passed Senate Transportation 7-6-1 and Senate 27-12 • Laid on Table in House Commerce & Energy Subcommittee, 4-2 HB 1378 (Wilt): There were a number of bills in the House and Senate to repeal the 2021 law to adopt California Air Resource Board standards and its zeroemissions vehicle (ZEV) requirements in Virginia. HB 1378 passed out of the House on partisan lines and headed to a Senate committee, where the legislation died on a party-line 8-7 vote. Therefore, Virginia will remain under the EV mandates adopted by California starting with the 2025 model year. HB 1588 (Sullivan)/SB 1466 (Marsden): Would have created the Electric Vehicle Rural Infrastructure Program & Fund to assist private developers with non-utility costs associated with the installation of electric vehicle charging stations. It would have made a private developer eligible to receive grants of 70% of such non-utility costs for EV charging stations installed in a city or county that meets the criteria of a distressed locality as provided in the bill. Grants would have been capped in any fiscal year at $25 million. • HB 1588 ◊ Passed 6-0 in Agriculture, Chesapeake & Natural Resources subcommittee and 18-4 in full Committee. It was then referred to Appropriations and tabled, 12-9. • SB 1466 ◊ Passed Senate Transportation 14-1 and Finance & Appropriations 16-0, then the full Senate 38-0 ◊ Passed House Agriculture, Chesapeake & Natural Resources 17-3 and referred to Appropriations; it was not heard HB 2468 (Willett): If a manufacturer (that produces electric vehicles) operates a location to sell vehicles through an exemption where no franchised dealer is available to operate the location (as outlined in subsection 4 of 46.2-1572), then in perpetuity, the manufacturer does not need to go through the DMV Commissioner approval process. It was laid on the table 7-2 in the House Transportation Subcommittee #1 DMV. HB 1988 (Guzman): Required all employees of private employers to provide paid sick leave. It would also have required accrued paid sick leave to be carried over to the following year. The bill was laid on the table. As always, it has been a pleasure serving Virginia’s franchised new car and truck dealers. VADA’s legislative team is: • Don Hall, President & CEO | dhall@vada.com • Anne Gambardella, Esq., General Counsel & EVP | agambardella@vada.com • Ralston King, VP, Legislative Affairs | rking@vada.com vada.com 7
For those of you who traveled to Dallas for this year’s National Automobile Dealers Association Convention, I hope you are reading this article from the comfort of your own home or office. It was a trek for some of our staff as flights out of Texas were delayed due to inclement weather, but we’re back at full strength to give you a recap of the legal trade winds as we move into 2023. In this article, we discuss the Federal Trade Commission’s (“FTC”) delay of the effective date of the revised Safeguards Rule (“Rule”) and its practical impact on your dealerships. We will then explain why you should not wait to implement data protection and cybersecurity safeguards at your dealership because the FTC will still come after you under another section of the FTC Act that gives them broad authority. Safeguards Rule – Some Requirements Delayed Until June 9, 2023 The FTC gave dealers across the country an early Christmas present when it announced on Nov. 15, 2022, that it is extending the deadline for the Rule by six months. However, it is important to note that this extension only affects some of the requirements and will make them effective on June 9, 2023. Specifically, the provisions that have been extended to June include the following: • Designating a qualified individual to oversee the information security program; • Completing written risk assessments; • Monitoring the access and use of sensitive customer information; • Completing a penetration test & vulnerability scan; • Encrypting systems containing customer information; • Training employees on security awareness; • Conducting Vendor & Service Provider risk assessments; • Implementing MFA on all systems containing customer information; and • Creating and updating a device and systems inventory. A Delay in the Safeguards Rule, But Dealers Should Not Wait By Hao Nguyen, Esq., CLO, ComplyAuto This is the time to press on in reinforcing their data protection and cybersecurity practices. 8 Virginia Auto Dealer
Notably, the provisions that have not been delayed (and never were) are: • Creating a written Information Security Program (ISP) for your organization; • Obtaining signed contracts from your vendors (“Service Providers”) who collect customer information, promising to implement reasonable safeguards; • Periodically assessing your Service Providers to ensure that they have reasonable safeguards in place; and • Implementing a system capable of detecting attacks and intrusions on your network. Dealers Should Not Wait to Implement Safeguards Rule Solutions On paper, the delay sounded good. However, once you dig into the details, the delay is not as good. Because some aspects of the Rule still became effective in January, dealers should not take this delay for granted. This is the time to press on in reinforcing their data protection and cybersecurity practices. Why? Firstly, completing all requirements of the Rule can be time-consuming because so many players are involved. You will need to coordinate with the vendor to oversee compliance (like ComplyAuto), the dealership staff, any Service Providers they work with (to complete their requirements), and potentially your IT company or Managed Service Provider. Unless you are working with an efficient and responsive team, natural bottlenecks may arise as one party waits on the other. Secondly, you should not “miss the forest for the trees,” meaning that the FTC should not be the main reason why your dealership is establishing these data protection and cybersecurity protocols. Yes, we want to fulfill these requirements to keep the federal government at bay, but I would argue that the main focus should be to prevent data breaches and ransomware attacks! Think about the different forms of damage to your organization that could arise as a result of a data breach or ransomware attack: • Reputational damage. Dealerships are pillars in their community and word of a data breach will spread quickly. Additionally, vendors may be wary about working with you in the future. • Data breach mitigation. Depending on the level of your cybersecurity coverage from your insurance company (or lack thereof), you could be paying out of pocket for forensic professionals to “stem the bleeding”, so to speak, and try to recover what you can. • Dealership downtime. You can bet that your dealership will suffer significant delays as you try to survey the extent of the breach and work through the mitigation efforts. • Data recovery. If it was a ransomware attack that resulted in the loss of employee, customer, and dealership information, the road back to where you started will be a long one. Think of all the information that existed prior to the attack that you will now need to rebuild from scratch. vada.com 9
TowneBank.com/DealerServices Kevin Bonniwell Executive Vice President Director of Dealer Services & Finance Member FDIC It’s your vision... your dream. And we’re your bankers. Business_Va_Auto_Dealers_Assoc_VADA_3.625x4.625_4c_Ad.indd 1 3/17/23 10:10 AM • Consumer protection efforts. Depending on the extent of the breach, you may be legally responsible for the cost of providing identity theft protection measures to all of the consumers who suffered a release of their information. • State and federal penalties. Suffering a breach does not earn you any pity from the government. State and federal enforcement officials will come shortly thereafter to “pour salt in the wound” in the form of heavy fines and penalties. • Class action lawsuits. Always a significant concern for dealers is a class action lawsuit by harmed individuals who had their information either stolen or released. FTC Using its Broad Authority Under Section 5 for Cybersecurity Concerns Section 5 of the FTC Act prohibits “unfair or deceptive business practices in or affecting commerce.” Given that this clause has been around since 1914, it is safe to say that the authors did not consider cybersecurity during the time that it was drafted. Nevertheless, as a Nobel Prize laureate once said, “the times they are a-changin’” and the FTC has wielded this section as a sword to strike down businesses who have displayed poor cybersecurity practices. This has become such an issue that Brad Miller, General Counsel and Chief Risk Officer at NADA, spoke about this during one of the educational seminars at the Dallas convention. Defining false data security or privacy representations under both “unfair” and “deceptive” terms of art since 2002, the FTC has negotiated consent agreements since then with most businesses, as many of them never wanted to test its authority over regulating cybersecurity. It was not until 2012 when a private company that had been the victim of a cyberattack three times moved to dismiss the FTC’s lawsuit, stating that it had no authority, rather than enter into a settlement. Going all the way up to the Third Circuit, the court affirmed that the FTC does in fact have the authority to regulate cybersecurity based on factors I won’t bore you with here. Since then, there have been no direct challenges to the FTC’s authority over a business’s cybersecurity practices under this broad Section 5 and the FTC continues to use it repeatedly and effectively: • Consent order with an education technology provider for alleged poor data security practices that exposed sensitive information about millions of customers and employees – January 2023 • Consent order with an online alcohol marketplace (and its CEO, personally) over allegations that its security failures led to a data breach, exposing the personal information of approximately 2.5M consumers – January 2023 • Consent order with an online customized merchandise platform that failed to implement reasonable security measures and failed to adequately respond to several security breaches – June 2022 With the Safeguards Rule and the looming Motor Vehicle Trade Regulation Rule that the NADA is actively opposing, we believe that automotive retail is squarely in the sights of the new FTC commissioners. It is imperative that dealers continue in their efforts to expeditiously comply with all the new requirements of the Rule to achieve full compliance by the new deadline. If you’re feeling behind or overwhelmed, we’re here to help. Send us a message at info@complyauto.com or visit our website at www.complyauto.com to learn more about our “one-stop-shop” solution for the Safeguards Rule and our Compliance Guarantee. This article should be used as a compliance aid only and though its accuracy has been made a priority, it is not a substitute for professional legal advice. Each dealer should rely on their own expertise when using it. 10 Virginia Auto Dealer
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The Impact of Fraud Fraud and identity theft continue to be huge problems for dealerships, auto lenders, and consumers. So, it’s no surprise that there are increasing regulations around consumer data security. With the expectation that this trend will continue, compliance must be top of mind for every dealership. Last year ended with a flurry of new provisions of the FTC Safeguards Rule, but the deadline has been extended to next June. Still, it’s worth examining how those upcoming new requirements can be a solid framework for building policies and procedures to help your dealership bolster its compliance program. Finally, we have identified some areas of compliance where knowledge gaps still exist in the industry and will work to clear up the confusion that surrounds them. 2,789,161 M Fraud Reports* 1,434,676 M Identity theft reports* $7.7 B Auto loan fraud exposure for top U.S. auto lenders** *FTC Consumer Sentinel Network Data Book 2021 **Point Predictive 2022 Auto Fraud Trends Report What You Don’t Know About Compliance Can Cost You Three Things to Think About in 2023 By Dealertrack FTC Safeguards Rule – New Requirements as of June 9, 2023 The new provisions establish a single point of contact to take charge of compliance at the dealership, to ensure that information systems and consumer data are safe, and to make plans for worst-case scenarios. This individual will also monitor and report on the status of the compliance program. 12 Virginia Auto Dealer
Here are some considerations for meeting the new requirements: 1. Designate a program manager to lead your dealership’s information security program. 2. Conduct periodic risk assessments. 3. Create a written information security program for safeguarding consumer information. 4. Monitor the vulnerability of your information systems. 5. Implement data safeguard policies and procedures for your staff. 6. Assess and document in writing that your service providers and third-party vendors have adequate security controls. 7. Have a written response plan in case of data breaches or consumer data exposure. 8. Establish ways to detect actual or attempted attacks or intrusions. 9. Produce annual reports from the program manager on your dealership’s information security program. While dealerships work with their legal counsels on their program, it will be useful to examine how their compliance technology can help at various steps along the way, from data security to reporting to long-term secure storage. Avoiding Common Compliance Missteps Recent dealer community polls have indicated two key areas where many dealerships are not aware of their compliance obligations: • Using knowledge-based authentication, like asking out-of-wallet questions, helps verify the identity of buyers that have failed red flags. True. Out-of-wallet questions include facts specific to a buyer that they wouldn’t be able to answer just by looking in their wallet. Correct responses help verify the buyer’s identity. • Your dealership only needs to run OFAC on cash deals. False. You should run an OFAC check on every deal to ensure that the buyer can legally purchase from you. Preparing for 2023 As you review your compliance program and plan ahead for 2023, examine your compliance, data security, and storage functions to make sure they align. Start the year off right by: • Preparing your compliance program manager for their additional duties under the FTC Safeguard Rule starting in June 2023 • Ensuring that ID verification processes are in place for every deal • Checking your dealership’s compliance responsibilities with your legal counsel and ensuring it is applied consistently across all deals The contents of this article are not meant as legal advice, and we do not purport to provide any legal or regulatory analysis. Consult with your attorney or any legal, regulatory, or compliance questions you may have. …it’s worth examining how those upcoming new requirements can be a solid framework for building policies and procedures to help your dealership bolster its compliance program. vada.com 13
The Last Days of Non-Competes? By Mike Charapp, VADA Outside Counsel In January, the Federal Trade Commission proposed a trade regulation rule that would prohibit employers from entering into, attempting to enter into, or maintaining non-compete clauses with their employees. The FTC based its action on a preliminarily finding that noncompete clauses constitute unfair methods of competition under Section 5 of the Federal Trade Commission Act, affecting approximately 30 million employees. While the proposed rule does not explicitly prohibit other forms of restrictive covenants, such as non-disclosure agreements or non-solicitation agreements, it cautions that those alternative restrictions can be broadly drafted to have the same effect as a non-compete and can be de facto noncompete agreements. The proposed rule prohibits the use of any form of agreement with the effect of prohibiting workers from seeking or accepting new employment, no matter what it may be labeled by the employer. The proposed rule has limited exceptions. For instance, non-compete agreements restricting an owner, member, or partner holding at least a 25% ownership interest in a business entity would not be affected by the proposed rule. This is a significant issue for auto dealers since buyers of dealerships sometimes wish an outgoing general manager to be subject to a non-compete clause. It is not unusual for a general manager to have little or no equity interest in the dealership, making such a restriction unenforceable under the proposed TRR. The FTC’s activities in this area are controversial. Critics have suggested that regulatory efforts affecting the relationship between employers and workers are best left to agencies of the federal government dedicated to labor issues. If the FTC TRR is finalized, it is likely to lead to significant legal actions about the Commission’s authority. As the proposed rules are considered, here are some thoughts for dealership leaders when considering your policies on non‑compete clauses: • Check applicable state law. Many states, including the District of Columbia and the Commonwealth of Virginia, have already passed statutes regulating the use of non‑compete agreements. First, comply with state law. • Pay close attention to federal developments. There is likely to be some action at the federal level on non‑compete clauses. • We have long counseled dealers to consider using non‑disclosure agreements and non-solicitation agreements instead of non-compete clauses. However, given the federal proposals, one must be careful in crafting such agreements. The prohibited conduct should be limited to protecting clearly identifiable interests of the employer, not generalized practices used by participants in an industry. Preventing disclosure of customer information or financial arrangements with suppliers would probably survive, but preventing disclosure of methods of conducting business that may be common in the industry may be seen as improperly burdening the employee’s ability to work elsewhere. That is the same with non‑solicitation agreements on customers of the employer through direct contact, but prohibition by general advertising might make it susceptible to challenge. • Are you serious about your confidentiality and nonsolicitation agreements? Then take steps to protect customer and employee information from being compromised. That requires compliance with an up‑to‑date and effective information safeguards program. • The proposed TRR makes any agreement by an employee to repay training costs unenforceable unless they are reasonably related to what it cost to train the worker. Repayment agreements on training costs are often required by car dealers of technicians sent to specialized schools and courses if they fail to work for a minimum time. If you use such an agreement, be sure you are only seeking to recoup from the employee what you paid for the employee’s training. 14 Virginia Auto Dealer
• If you are engaged in a buy/sell, do not assume that you can enforce a non-compete with anyone other than a member of the seller’s control group (25% equity ownership). If the FTC TRR is finalized, any non-compete with a manager of a selling dealership without that minimum amount of equity may be unenforceable. What is not answered is how this will affect any separate compensation paid or allocated for such an agreement. Scan the QR code to get more details. https://vada.com/blog/2023/02/14/ the-last-days-of-non-compete-clauses We have long counseled dealers to consider using non‑disclosure agreements and non-solicitation agreements instead of non-compete clauses. vada.com 15
The past two years have seen auto retailers adapt to limited vehicle inventory and pandemic restrictions while driving profits to new heights. Now dealers face rising interest rates — a critical concern for an industry that relies on capital to fund operations and growth. For some, it’s time for a balance sheet review and risk management reset. Changing Conditions Dealers Must Watch The Fed (Federal Reserve) has already taken aggressive steps by raising rates to throttle persistent inflationary pressure in the U.S. In the past year, we’ve seen the Fed hike the short-term rate by 3.00% (300 basis points). But with low inventory and reduced need for floor plan loans, many dealers haven’t yet felt the full impact of rising rates. 1-month CME Term SOFR since the beginning of the pandemic As you imagine what’s next for the economy and your dealership, the impact of rising rates comes into sharper focus. For instance, if vehicle supply and demand start to realign, higher inventory levels could mean more floor plan loans on balance sheets. As you look at business assets, the recent surge in inflation strengthening real estate values could provide an additional source of funds that you can tap into if needed. Unfortunately, when it comes to expansion and new construction, inflation will cut the other way by driving up building costs and the loans needed to finance them. Sustained volatility in economic and market conditions makes planning for these possibilities and others both challenging and critical. Your risk management planning needs to focus on balance sheet moves available to you today — options that may be closed off tomorrow — to protect your dealership from economic and rate volatility and keep your cost of capital low. Actions To Get Ahead As economic and market conditions are shifting, you’ll want to ground your capital decisions in your business plans for your dealership and your personal goals as an owner. You can walk through a few steps — on your own or with your banker — to gauge the impact that rising rates will have on your business and identify actions you can take to mitigate their effect. Step 1 — Start with your goals and plans: Balance sheet risk management starts by asking, “Where will my business be in five years?” Your goals might lead you to look for funds to grow, seek ways to release capital to equity holders or lenders, or explore other restructuring moves that might accomplish a bit of both. Timing of those capital flows matters, and your options may look very different if you’re planning to exit the business versus being committed for the long haul. Step 2 — Evaluate funding flows: Look at where you need funds, where you have them, and what sources (and especially at what cost) you can tap into to find capital. What happens to your cost of capital and valuation as rates rise? THE RIGHT TIME FOR A Risk Management Reset By Brandon Artigue, Director, Financial Risk Management, Truist Securities 16 Virginia Auto Dealer
Where do you have needs in the future that will likely have to be met with additional, higher-cost capital? Have you considered ways to manage cash more strategically now that effective liquidity management can yield elevated returns? Step 3 — Envision what the future looks like for your dealership: Add the dynamics that you expect will change over the coming years. When do you think floor plan inventory will return to normal levels? One year? Two years? Potentially a longer time frame? What do higher construction costs mean for your dealership? Will the economy cool before you have to undertake your next building project? What changes will the ongoing electrification of vehicles and any regulatory shifts bring to your dealership? Step 4 — Get specific about actions you should take: When you’re protecting yourself in a rising rate environment, your primary move is to raise capital earlier when rates are lower and consider financial instruments like swaps as insurance. It doesn’t make sense for all situations, but commercial real estate and blue-sky loans are often amenable to this strategy. As you’re thinking about what works for your business, some of the strategies below might fit your situation: • If you expect inventory to return to more normal levels but want to protect your business from the risk of higher floating rates, you could target more liquidity to cushion against increased interest expense on floor plan lines. Or, to protect your bottom line, consider fixing rates on other outstanding loans that may currently be variable and subject to future rate hikes. • If you want more cash to invest in growth or to be ready for whatever comes next, you can secure loans now. Consider a cash-out commercial mortgage that, if fixed, could protect you from higher interest rates down the road and give you funds for capital expenditures like renovations or preparing for the shift to EVs. If rates continue to climb, you’ll have the peace of mind of having funds at a lower cost to cover future uncertainty. (Don’t forget that the cash-out proceeds from the loan can be earning interest all along.) • If you need cash for family/shareholder dividends or to finance a transition or succession, think about a dividend recap, particularly if you need liquidity now while you’re continuing to make moves that could help your dealership draw a higher valuation in the future. Or, as mentioned before, you could tap into increased real estate values to provide these proceeds. Step 5 — Look at all elements of financial risk: Interest rates may be front and center, but a comprehensive approach to financial risk needs to look beyond the cost of capital. Cyberfraud threats and weather events, along with business property, lot inventory, and liability exposure, can have a devastating effect on a thriving dealership. Insurance can protect you from events that can put your dealership at financial risk — talk to Truist’s McGriff Insurance to see how we can help. Preparing your dealership for a range of financial possibilities should be a priority for you and your financial advisors. With a rising rate environment, now’s the time to talk to your Truist Dealer Services relationship manager about a balance sheet risk management review. Have You Taken Measures To Keep Your Cost Of Capital Low While Rates Rise? Preparing your dealership for a range of financial possibilities should be a priority for you and your financial advisors. With a rising rate environment, now’s the time to talk to your Truist Dealer Services relationship manager about a balance sheet risk management review. vada.com 17
Tax Planning and Preparation Cost Segregation Analysis Mergers and Acquisitions Audits, Reviews and Compilations Business Process Review Succession Planning About Us Councilor, Buchanan & Mitchell (CBM) has an experienced team of tax, personal financial planning and advisory professionals devoted to the automotive retail industry. Since 1921, we have specialized in new vehicle and heavy truck dealerships, as well as motorcycle and RV dealerships. Investment management, financial planning and retirement planning services are provided by May Barnhard Investments, a subsidiary of CBM. John R. Comunale, CPA Partner | Director of Automotive Dealership Services JComunale@cbmcpa.com Keith A. Laudenberger, CPA Partner | Director of Automotive Dealership Services KLaudenberger@cbmcpa.com our CPAs and advisors have been driving automotive dealership success. 301.986.0600 Councilor, Buchanan & Mitchell, P.C. CPAs & Business Advisors 7910 Woodmont Ave, Suite 500, Bethesda, MD 20814 https://www.cbmcpa.com For more than 100 years, Our Expertise LIFO Inventory Fraud Prevention Business Valuations Financial Planning Investment Management Services Retirement Planning The Franchise System is Important to Virginia and the Nation! To learn more about what Virginia dealers have to say about the franchise system, please scan this QR code. https://vimeo.com/761078468 Read more at vada.com 18 Virginia Auto Dealer
We’re more than a financial partner. We’re an invested one. True relationships matter. We don’t take this lightly. The best are built on a deep understanding of your short- and long-term goals and always backed by thoughtful, strategic advice in support of your vision. With full-service financial solutions and a deep bench of industry expertise, we’ll build a team around your organization to focus on your success. So, let’s drive further—together. To learn more, contact Jason W. Smith, head of Dealer Commercial Services, 407-237-4011 or Jason.w.smith@truist.com. Truist.com/DealerServices © 2022 Truist Financial Corporation, Truist, Truist purple and the Truist logo are service marks of Truist Financial Corporation. All rights reserved. Truist Securities is the trade name for the corporate and investment banking services of Truist Financial Corporation and its subsidiaries. Securities and strategic advisory services are provided by Truist Securities, Inc., member FINRA and SIPC. | Lending, financial risk management, and treasury and payment solutions are offered by Truist Bank. | Deposit products are offered by Truist Bank, Member FDIC.
Over-Sharing in the Workplace? Why Your Company May Need A TikTok and BeReal Policy By Fisher Phillips B y now, many of us have seen a TikTok video filmed at someone’s workplace – a “day in the life” video, someone complaining about their coworkers, supervisors, or customers, or someone talking about an unrelated subject while at the office. And a relatively new platform, BeReal, goes a step further by encouraging users to provide an unfiltered view into their “real” everyday life at random moments throughout the day. Of course, such organic social media clips can be a valuable tool that helps market your brand and build stronger employee relationships – but where do you draw the line? These posts might include employees performing their duties during a meeting with co-workers or at a workstation, which raises privacy and confidentiality concerns. Moreover, employees flocking to social media to discuss their bosses and general work experiences – positive or negative – could lead to other troubles. When these videos go viral, employees may become unofficial spokespersons for your organizations, influencing the conversation about work norms and creating trends that impact employers globally. With these changing dynamics, you may want to set new guidelines for social media use while ensuring your policies don’t run afoul of employment and labor laws. Here are four tips for updating your social media policies to reflect this modern era and stay on top of the latest developments: 1. Ensure Policies Reflect Recent Trends In the early days of widespread social media use, your policies may have simply prohibited employees from using company equipment to post non-workrelated content online and required work posts to be business appropriate. But social media use is rapidly evolving in new ways that you may not have anticipated when your policies were first drafted. What should you know about current trends as you consider policy changes? For one thing, TikTok has quickly grown in popularity over the past two years with more than a billion monthly active users – 20 Virginia Auto Dealer
One of the most critical succession planning decisions is determining the organization’s future leadership. which means your employees are likely using the platform and are probably doing so during work hours. The app allows users to upload videos from five seconds to 10 minutes. TikTok then filters videos through their feed using an algorithm and shares them with other users. These videos may receive millions of views, comments, likes, and shares. While TikTok is popular, it’s obviously not the only platform featuring employees on the job. Unlike TikTok – where users are hoping to go viral – the BeReal app takes a less sensational approach. BeReal doesn’t have filters, hashtags, or even followers. To view someone’s BeReal, you have to request to be their friend. The app encourages users to provide an unfiltered view into their “real” everyday life. Each day at a different time, the app simultaneously notifies all users to “BeReal” and share a photo within two minutes, regardless of their location. The camera on the app will then take a photo of the user with the front-facing camera while also taking a photo on the back camera, creating a BeReal snapshot to share with friends. This app can be potentially problematic for employers. Many times, BeReal alerts occur during work hours, so users end up taking pictures of their workplace or work area. Because BeReal is shared among friends, the app may create a sense of safety, and users might forget to censor confidential information. Moreover, while BeReal doesn’t have the same “viral” nature as TikTok, that doesn’t stop users from sharing their posts beyond the app on other platforms. This trend illustrates that the new generation of workers values the transparency these apps provide, with many not considering that their candid photos may also reveal company information. 2. Strike a Balance Before you decide to curb all TikTok and BeReal posts from the workplace, you should recognize that such posts can pay dividends. Employees who are active on social media may be more equipped to understand the social pulse of the company’s customer base. vada.com 21
Additionally, allowing employees to contribute to company-sponsored social media posts shows that the company trusts them, which can increase confidence and make employees feel valued. Furthermore, social media networking may help employees collaborate, share ideas, and solve problems. This can lead to better employee engagement and retention. Moreover, utilizing social media in the workplace can make the company more desirable to potential applicants, particularly Gen Z and millennial job seekers. Social media is here to stay, and employers should recognize that policies barring all forms of social media use in the workplace may be unrealistic. In fact, about 72% of respondents to a 2021 Pew Research Center survey said they use some form of social media and 77% of respondents to an earlier survey reported using social media regardless of whether their employer had a policy in place. While not every company can allow on-the-job posts, those with flexibility might want to dedicate resources to creating a mutually beneficial, collaborative policy around social media use in the workplace. For example, allowing employees to share their experiences with your company through social media may promote transparency and provide job seekers with credible information on what it’s really like to work for your business. 3. Address the Potential Pitfalls While employers may benefit from employees’ on-the-job social media posts, you should address potential dangers, including legal and business concerns. Of the many legal concerns, the most glaring are privacy protections and confidentiality. As employees capture authentic moments during the workday for BeReal or post TikTok “day in the life” videos, they frequently walk around the workplace, recording offices, conference rooms, common spaces, the cafeteria, and more. The videos may inadvertently capture confidential information, such as audio of an internal meeting, the image of a client’s name, or a trade secret. Confidentiality issues also arise with employees who work remotely. For example, employees may take a video of their innovative at-home workspace while a Zoom meeting is in progress or while their computer screen displays proprietary information. You should also be cognizant of how allowing employees to post on the job can potentially harm your organization’s reputation. TikTok and BeReal attract users who want to be authentic rather than staged, heavily filtered, or otherwise unauthentic. Thus, employees who choose to post on these platforms do not shy away from capturing the “realness” of their job. This, in turn, can lead to your employees sharing information that negatively affects the company, such as human resources concerns (including allegations of unprofessional comments made by colleagues), complaints about working conditions, and products liability issues. All of these discussions raise reputational and legal concerns that you should consider. 4. Set Realistic Parameters With these benefits, risks, and (pop) cultural considerations in mind, what should your modern social media policy include? If you already have a solid employee handbook, a good place to start is by reminding employees that your existing policies still apply when using social media platforms. For example, an equal employment and harassment-prevention policy would cover discriminatory or bullying behavior towards colleagues whether online or in person. You should remind employees whom they should contact when they have a workplace concern. Additionally, let employees know that confidentiality policies apply when sharing content, so their computer screens and documents should not be visible in the background. However, depending on the nature of your business and your employees’ roles, you may want to create a more targeted policy on social media use. For instance, you may have different risks to manage if you encourage employees to engage with your brand, employ a younger workforce, or otherwise have a strong social media presence. As you likely know, your policy should be in writing and followed consistently. Where to go from there is more complicated. The explosion in social media use 22 Virginia Auto Dealer
has only highlighted how regulating employee speech is difficult, nuanced, and occasionally backfires. But, of course, there are still some best practices: • Develop policies in collaboration with legal counsel, HR, technology, communications, and diversity, equity, and inclusion (DEI) teams. Be sure the policy matches the company’s voice and recognize that this is not a one-template-fits-all exercise. • Use plain language and examples. “Do not share client information, even if their name is covered” is more helpful than “Posting client information will subject employees to discipline up to and including termination.”* • Keep up with guidance from the National Labor Relations Board (NLRB) – which is subject to change. Note that blanket bans on discussing wages or complaining about supervisors or working conditions are not permissible under federal labor law. The Trump administration issued an employer-friendly rule to evaluate whether a policy interferes with employees’ rights to organize and engage in protected concerted activity. However, that ruling is potentially on the chopping block in a pending NLRB case. If the NLRB reverts to the prior, more restrictive evaluation, policies currently compliant could suddenly run afoul of the National Labor Relations Act (even in non-unionized work settings). This includes seemingly benign provisions about “respectful” content and limits on who is authorized to speak to the media.* • Confirm applicable state laws. There is a legislative trend to prohibit employers from requiring employees to engage with social media as a condition of employment or even to ask for their social media usernames as part of a job application. • Develop a plan for consistently responding to policy violations. Two employees violating the same rule, in the same way, should not be treated differently based on whether they tripped the algorithm and went viral. Relatedly, consider the reputational risk of a too-harsh response – someone fired for social media content may likely use the same platforms to discuss their termination. Conclusion If you have questions regarding your social media policy, contact your Fisher Phillips attorney, the authors of this Insight, or any attorney on our Data Security and Workplace Privacy Team. We will continue to monitor developments in this area, so ensure you are subscribed to Fisher Phillips’ Insight System to get the most up-to-date information. The author wishes to thank Law Clerks Taric Mansour and Jazmin Luna for their work co-authoring this Insight. *This section has been edited to reflect the automotive industry. To see the original post, please visit: https://www.fisherphillips.com/news-insights/oversharing-iworkplace-company-may-need-tiktok-berealpolicy.html. vada.com 23
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