New NADA chairman identifies top priorities

Longtime Minnesota dealer Paul Walser says the hybridized online/in-person business model that dealers scrambled to implement during the pandemic is likely to remain — and even grow. The incoming chairman of the National Automobile Dealers Association also is focused on ensuring a smooth leadership transition this year for dealers' top trade organization.

Walser, 65, who's been a dealer since he opened his first Chevrolet store in 1985, is a partner in Walser Automotive Group based in Minneapolis, with 27 stores in Minnesota, California, Kansas and Illinois. He spoke with Staff Reporter Larry P. Vellequette. Here are edited excerpts.

Q: What are your priorities as NADA chairman this year?

A: I have four major initiatives to work on. First, we have a transition in leadership from Peter Welch to Mike Stanton, and I want to ensure a smooth transition for Mike, introducing him to the industry, to dealers and to automotive trade association executives. Mike is a great talent, and he'll do a great job for us, but at this point, no one knows him yet.

Secondly, I want to offer dealers more robust solutions related to the challenges the industry faces with diversity.

Despite strong efforts by OEMs and dealers and other stakeholders, racial and gender diversity remains stagnant, so we've got to get that moving.

Third is improving the dealer-OEM relationship, but doing so through the lens of the customer. So instead of fighting over the scraps, if you will, I want to get us to refocus and think about advancing the franchise system by really doing outstanding work in the way of connecting with customers.

And finally, like the chairman before me, I want to focus on improving dealer involvement with NADA. There are still too many dealers who don't know the full extent of what we do and how important the work is.

What are the top issues facing NADA?

First and foremost, we're facing a world right now where everything is virtual, including our convention, so we want to make sure our dealers are engaged with that virtual offering as opposed to our traditional convention strategy. Really, we could still be facing months and months of this communications strategy, and it really does change everything about what we do in our mission and how we do it.

We're in a very different world right now, so I think that's a challenge because it feels different.

But we're making efforts right now to make the appropriate connections to the new Biden administration, because we want to engage with them as much as we possibly can to make sure that they are properly informed about what auto dealers do and what our role is in keeping this economy moving along. It's a communication strategy to make sure that they're aware that we provide a million jobs in this country, about $70 billion in employee wages, almost 19 percent of U.S. retail sales and $90 billion in state sales tax revenue, so we're a pretty important piece of the puzzle.

We obviously have ongoing legislative issues, to make sure that [legislators] are properly informed and understand the full consequences of what it is they are proposing. But fundamentally, we've got to make sure that, at the end of the day, we're about protecting and promoting the franchise system and making sure that dealers are able to be successful, and that is kind of the same issues we've faced ever since NADA came into existence, and they remain the issues today.

What is the future of remote work for dealerships post-COVID-19?

It's interesting. At our company, we have centralized accounting, and we had about 200 team members working in a central office. But a lot of people really enjoy working from home, and so many of these things can be done just as well from home.

I think for dealerships, some percentage of the jobs will continue to be remote, but there are a lot of things where it's just the opposite — where people need or want to conduct business face-to-face and with a personal connection, so I think it will be a hybrid of the two for a while. Ultimately, I think dealers will need to be able to offer a way for people to work to do the best that they can do in whatever way allows us to attract and retain the best people.

The pandemic has changed the way the NADA board operates as well, hasn't it?

It's curious, and there are aspects of working this way that I like and aspects that I hate. For example, we saved a substantial sum last year on travel expenses because of virtual meetings.

Typically, we would have 63 directors from all over the country flying in two or three times a year for our big meetings, and then coming in at other times for smaller committee meetings.

All those airfares and all those hotel expenses were gone last year, and that was meaningful. I think it's important for our directors to still connect on a personal level, to get to know each other and develop relationships. But going forward, maybe some of those meetings, at least on the committee level, can remain virtual.

What do you think the long-term impacts of a virtual NADA Show will be?

I see this as a bit of hybrid as well. There is clearly energy that is produced when humans are in contact with one another, and there are aspects of that which just cannot be replaced.

But on the other hand, if you're a dealer and you've got 10 people that you want to have at this convention every year, that's a lot of travel expense.

So perhaps instead you can say that, for two or three people, it's really important for them to physically be there, but for the rest, I'm going to make it so that you can attend the make meetings and have access to the workshops and the exhibitors virtually.

I think there's a best-of-both-worlds solution to this going forward, like so many other things.

The average transaction prices of vehicles are at record highs. What should NADA do?

This gets into the conversation about electrification. There's clearly a shift going on here from internal combustion engines to electric motors.

I think that you're going to see an awful lot of electric offerings coming in the next 24 months; that will only continue to accelerate this affordability issue.

At the end of the day, we still don't have the ability to produce EVs at prices that are affordable for most consumers, and so as much as we all want to get there — particularly those that have sensitivity to the environment who are really pushing this, and for good reason — but we have to be a little bit careful as to how fast we make this journey, because if we push this too hard and too fast, we're basically going to put the price of vehicles out of reach for an awful lot of consumers.

All of this R&D spend that has been done by manufacturers to go down this path is meaningful, and the manufacturers need to be able to recover that. We need to support these improvements, but do it in a way that's affordable.

Dealers reported record profitability for the second half of 2020. What will it take to maintain those margins?

It's such an interesting wake-up call once in a while to go through a rough patch, because I think the normal thing for businesspeople to do in these situations is to attack the expense side of the business first, because that's the thing you have control over.

So dealers got their balance sheets and their expense structures in line quickly when we first saw this coming. And then we got some support on the [Paycheck Protection Program] funding, and that gave everyone a big sigh of relief and allowed us to bring our people back.

Then we adapted to this new way of selling vehicles, where we perhaps didn't need as much inventory on the ground.

Once we made those adjustments, the business came back relatively quickly — much faster than we thought it was going to and doing much better than we thought it was going to — and we've made the adjustments in our expenses, and all of a sudden, we're going: Wow, this is actually working out pretty well! I think dealers were genuinely surprised by the way the second half turned out.

Going forward, whether we will continue to be as prudent about our expenses, whether or not the shortage of inventories will continue to provide better margins, or whether dealers revert a little bit, is going to be interesting.

Are automaker facility requirements likely to change as digital retailing of automobiles grows?

It only makes sense that they would. What dealers need to do is have solutions for both in-person and online sales, because eventually, the online portion is going to continue to grow, as the younger people today become our customers of tomorrow.

In the meantime, we need to continue to transition as the customers transition. And as we move forward, those physical spaces won't need to be as big.

You'll see a shift to smaller dealerships, in both the front end and the back. I think this will be a gradual process where dealership sizes will shrink over time.