Dealers' Choice - Fall 2019

FALL 2019 Volume 60, Issue 3

O F F I C I A L P U B L I C A T I O N O F T H E T E X A S A U T O M O B I L E D E A L E R S A S S O C I A T I O N

Texas Capitol Meeting

NaturalGas Management

Dealers’ Choice OFFICIAL PUBLICATION OF THE TEXAS AUTOMOBILE DEALERS ASSOCIATION Dealers’ Choice is a publication of The newsLINK Group and is the official publication of Texas Automobile Dealers Association. Dealers’ Choice is published 4 times per year by The newsLINK Group, LLC. The statements and opinions ex- pressed herein are those of the individual authors and do not necessarily represent the views of Dealers’ Choice, or its publisher The newsLINK Group, LLC. Any legal advice should be regarded as general information. It is strongly recom- mended that one contact an attorney for counsel regarding specific circumstances. Likewise, the appearance of advertisers does not constitute an endorsement of the products or services featured by The newsLINK Group, LLC.

10

Dealers’ Choice OFFICIAL PUBLICATION OF THE TEXAS AUTOMOBILE DEALERS ASSOCIATION FALL2019 Volume60, Issue3

TexasCapitolMeeting

About the cover: Texas Capitol Meeting

6

2015

When Texas Truck Dealers are Needed, Brian Bruckner Always Answers the Call Ben Keating A Dealer Built for Speed Texas Capitol Meeting Motor Fuels Taxes in a Changing Texas Transportation Scene 86th Texas Legislature Takes Action On Big State Issues And Franchised Dealer Priorities Texas Dealer Academy Gets Down to Business

10 16 22

2015

25

33

37

Q&A with Whitney Brewster

Scan this code with your smart phone for a direct link to the TADA website.

4

Is your dealership more than an Image? Your dealership is more than a factory image program, it’s what defines your customer experience and your company culture. The magic ingredient to customer satisfaction starts with your team and their pride in their brand, their facility and their image. Your team, like ours, is an orchestra and every great orchestra needs a maestro. The maestro’s role is to set the tempo and ensure the success of the entire performance. A successful dealership is a symphony that performs for your customers. A successful construction project is also best led by a seasoned conductor, in short, our staff of maestros will turn your construction project into a world class performance.

NEVER BUILD ALONE ratliffgroup.com

When Texas Truck Dealers are Needed, Brian Bruckner Always Answers the Call S ervice comes naturally to cer- tain individuals. Such is the case with Brian Bruckner, a Brian has stepped up to make the truck dealer voice heard in the Legislature. Brian has generated grassroots opposition to the Cummins eort from fellow Texas truck dealers, made numerous trips to Austin to visit Members of the Legislature on the issue, and testi‚ed in legislative committee. Brian has been a critical player in the eort to resist Cummins’ alteration of the law. third-generation truck dealer and President of Amarillo based Bruck- ner Truck Sales. Brian is TADA’s Texas Truck Dealer Chairman and a member of the TADA Executive Committee.

At the federal level, Brian has been in a select group of truck dealers throughout the country asked to participate in Washington Fly-Ins put on by the American Truck Dealer division of the National Automobile Dealers Association. †is is an annual event started ‚ve years ago, and Brian Bruckner is one of the few dealers in the nation to make the trip every year. During his time in Washington, Brian lobbies Members of Congress on speci‚c truck dealer issues. During the 2019 visit in June, Brian advocated for the repeal of the 12% Federal Excise Tax on heavy-duty trucks, a tax in existence since 1917.  BRIAN BRUCKNER — CONTINUED ON PAGE 7

Service to Fellow Dealers and Industry Brian provides the voice for Texas truck dealers at TADA, and he is also one of the key Texas truck dealers engaged in legislative eorts at both the state and federal level. As heavy-duty truck franchise issues have become more prominent in the Texas Legislature these past few sessions with eorts by Cummins Inc. to alter the Texas franchise law to allow a manufacturer to perform sales and service,

6

CUSTOMERS COME PREPARED. BE READY AT THE DOOR.

INFORMATION IS AT THEIR FINGERTIPS, THE SUPRA ® KEYADVANTAGE SYSTEM KEEPS THE KEYS AT YOURS.

Today’s car-buying customers are better researched and have instant access to more information than ever before, which makes the time you have with those customers even more valuable. If you have to leave them to chase down keys, your customers could be checking out the competition’s inventory and pricing. Be ready at the door with the Supra ® KeyAdvantage System, the only electronic key control solution that keeps the keys with the car and keeps you with your customers. Visit ready.suprasystems.com or call 800-889-8295 to learn how to put the key to closing more sales in your hands.

800-889-8295 • © 2019 United Technologies Corporation. All rights reserved. Supra is a part of UTC Climate, Controls & Security, a unit of United Technologies Corporation.

Service aCornerstone of the Bruckner Family Business The histor y of Br uckner Tr uck Sales explains much about Brian’s and the company’s philosophy and commitment to service. B.M. “Bennie” Bruckner founded Bruckner’s Garage in Amarillo, Texas, in 1932. Backed by determination, inspiration, and a commitment to serving customers and the community at the highest level, Bennie established a business that continues to prosper to this day. Dur ing the ea rly yea rs, Bennie Bruckner believed in the value of hiring “good people” equally committed to providing a high level of customer ser v ice. Under the leadership of Bennie’s son, Ben Bruckner, Jr., dedicated employees ensured that service remained the hallmark of all the Bruckner stores. Today, the legacy of strong leadership continues to inspire Bennie’s grandsons, Brian Bruckner and his brother Chris Bruckner. In 2018, Bruckner’s celebrated their 70th anniversary as a Mack dealer, making Bruckner’s one of the oldest family-owned Mack dealerships in  BRIAN BRUCKNER — CONTINUED FROM PAGE 6

North America. As aMack spokesman said at the time, “their customer service and support are unparalleled in the industry and their dedication to community service is remarkable.” Bruckner’s leadership is evident in its home communities. Bruckner’s and its employees are active civic participants, enriching the communities where they work and live. One of their biggest fundraisers is the Bruckner’s Charity Golf Tournament, a tournament in existence for twenty years.†is past year alone, the tournament generated over $200,000 for the All Church Home for Children and A Place for Grace.

With the commitment to customer and community service, Bruckner’s continues to expand its footprint across the Southwest. With 26 locations in six states and more than 900 employees, Bruckner’s is a leading dealership in the Southwest. †e Bruckner stores provide a network for parts, service, sales, and leasing while also oering the full array of support their Mack customers need and expect. TADA, Texas truck dealers, and the entire TADA membership benef it from the service of dealers like Brian Bruckner. 

8

P O R T F O L I O R E I N S U R A N C E

My Growth. My Portfolio. “My Portfolio reinsurance companies have been the key in our expansion to six stores.” The steady equity buildup, self-directed investments, straightforward loans, and tax efficiency I get with Portfolio add up to a reinsurance service I can literally bank on. With Portfolio, I truly own the reinsurance company, and all the underwriting profits are mine to keep. It’s my asset, so I am able to borrow up to 75% of unearned premiums and 100% of surplus profit for

whatever purpose, business or personal. When opportunity knocks, Portfolio has been my door opener.

PortfolioReinsurance.com

© 2019 Portfolio Holding, Inc. All rights reserved.

A Dealer Built for Ben Keating SPEED

10

T hird-generation Texas franchised dealer Ben Keating is from one of the great car dealer families in our state. Ben’s grandfather Joe Keating and great-uncle Paul Keating started two generations ago with Ford in Crosby and Chevrolet in Winnie, Texas. Cousin John Keating was a successful Chevy dealer in Nederland, and Ben’s Uncle Calvin was a longtime Golden Triangle Ford dealer. Ben’s father, Tom Keating, owned the Ford dealership in Tomball, where Ben started out as the lot boy when he was in elementary school. Today Ben Keating has made those many family members who pioneered the car business in Southeast Texas extremely proud by taking the Keating name to 19 dealerships in nine Texas cities. One of the most successful dealers in the state of Texas, Ben and his wife Kathleen have a fourth generation of Keatings on track to continue this remarkable family legacy. Ben’s son Carter Keating, who is about to begin his senior year at his parents’

alma mater, Texas A&M University, has already joined the Texas Dealer Academy, the young dealer division of TADA. His daughter Kate, also a Texas A&M undergrad, may eventually join the ranks of Texas women dealers, which is growing by leaps and bounds throughout the state. Keating Auto Group attorney Chris Wall, and their Port Lavaca Auto Group controller Corey Boucher, are founding members of the Texas Dealer Academy, now in its ninth year. Keating ExecutiveDonWhitaker is amember of the TADA leadership team with a seat on the Board of Directors, following in the footsteps of John Keating, a longtime leader for TADA’s Executive Committee. For three generations, the Keating family has made a dierence in Texas, TADA and the industry. Ben Keating has been busy building one of the most impressive dealer organizations in the country, but he also maintains a full schedule as one of the most highly regarded sports-car road racers in the world.

In 2006, Kathleen surprised Ben with a $250 gift certi‚cate for a day at the track at Texas World Speedway in College Station. Ben drove a Dodge Viper from his showroom to the Speedway to join other uninitiated race car drivers and local amateur thrill seekers in their quest to drive fast and learn how the pros navigate a banked oval. †e dierence between Ben Keating and the other novice drivers that day was that while they went home, Ben went racing. By the next year, Keating was racing in competition in renowned racing hotbeds such as Daytona, Watkins Glen and Sebring. Ben won f ive national championships racing a Viper. He joined the Nascar Rolex Grand Am Sports Car Series in 2011 and the American Le Mans Series in 2013. By 2015 he was driving at Le Mans and by 2017 had his own racing team there. Tomy Hamon, a former TADA Chairman of the Board and close friend of Ben Keating, was especially proud that Ben drove Tomy’s favorite race car, the Ford GT, in this year’s 24

 BEN KEATING — CONTINUED ON PAGE 12

11

FALL 2019

 BEN KEATING — CONTINUED FROM PAGE 11

Hours at Le Mans. If only his grandfather and great uncle, Joe and Paul, could have seen the sleek, ultra-powerful Ford GT coming down the street in Crosby and Winnie, Texas, the circle would be complete. †e 11-year-old lot boy at his father’s Ford dealership in Tomball took his family’s original brand to the outskirts of Paris in three generations. Texas franchised dealers have made an indelible mark on car racing history, from drag racing pioneers Donnie Gay and Mike Chargois to Formula One ace Will Hardeman. More recent Texas franchised dealers like Roger Penske and Rick Hendrick enshrine Texas dealers in the pantheon of champions, both in the showroom and on racetracks around the world. Ben and Kathleen Keating ref lect the balance of family, business and sport that typif ies the excellence found in Texas franchised dealers in 289 cities and towns throughout our great state. It will be interesting to see what is in store for the next generation of this remarkable car-dealer family. 

12

9LVLW RXU ZHEVLWH DW ZZZ MGNJODZ FRP

Johnson De L uca Kurisky & Gould, P.C.

ATTORNEYS AT LAW

TEXAS ATTORNEYS TO AUTO DEALERSHIPS: LITIGATION, ARBITRATION, TRANSACTIONS, LABOR AND EMPLOYMENT, CONTRACTS AND COMPLIANCE

For More Information, Please Contact:

George A. Kurisky, Jr. - gkurisky@jdkglaw.com

Donald W. Gould II - dgould@jdkglaw.com

Johnson De L uca Kurisky & Gould, P.C. FOUR HOUSTON CENTER 1221 LAMAR STREET, SUITE 1000

HOUSTON, TEXAS 77010 Phone: (713) 652-2525 Facsimile: (713) 652-5130

LOOKING FOR THAT LAST PIECE TO THE PUZZLE? Don’t be fooled by the marketing spin of smoke & mirrors telling you to cut out the middle man (then who are they?), own your own warranty company (who doesn’t), or no one else has what they have! There are no secret plans, programs or structures out there that are proprietary to anyone .

WE ALL CAN PROVIDE THE SAME STRUCTURED PROGRAMS So what makes the difference?

Find Out What Hundreds of Dealerships Across The Country Already Know

20 years of putting YOUR dealership profits FIRST!

www.firstinnovations.com www.firstinsuredgroup.com

The First Group Family of Companies Better Products • Better Prices • Better Service

13

FALL 2019

RETAIL WARRANTY REIMBURSEMENT

ON AVERAGE OUR CLIENT ADDS $209,278* TO THEIR BOTTOM LINE

WE WORK IN 49 STATES WITH 24 MANUFACTURERS

WE ARE ENDORSED BY 14 STATE AUTO DEALER ASSOCIATIONS

WE HAVE OVER 5,600 SUBMISSIONS APPROVED

*Annual Parts and Labor Uplift

Armatus provides the industry’s only turn-key solution for retail warranty reimbursement submissions. Our dedicated staff and proprietary software guarantee you will achieve an optimized result. OUR COMMITMENT TO OUR CLIENTS: ‡ You Won’t Lift a Finger: Armatus does all the work for you. ‡ Fully Contingent Fee: You only pay when you are approved. ‡ Speed and Accuracy: We’ll have your project done in 30 days or less. ‡ Data Governance: Your customer information is safe with us.

(888) 477-2228 info@dealeruplift.com WWW.DEALERUPLIFT.COM

The First Group Family of Companies Better Products • Better Prices • Better Service

Find Out What Hundreds of Dealerships Across The Country Already Know

First Group Family of Companies 9737 Great Hills Trail Ste 240 Austin, Texas 78759 800-395-8664

www.FirstInnovations.com www.FirstInsuredGroup.com “Innovative Automotive Solutions at Work”

T he young people in our Texas Dealer Academy continue to shine. Nowhere was that more evident than their recent day at the Texas Capitol hosted by the TADA Legislative O¦ce. †e following TDA members made the trip to Austin in late March for this event: Austin Metro, Hill Country Tim Crenwelge (TDA Trustee), Julian Chargois, Will Hardeman, T. Harper (TDA Past Chairman), Jessica Kajcienski San Antonio W.B. Cavender (TDAChairman), Kate Cavender Dawson, Claire Cavender McNab Central and North Texas Cl a i re Ku ltgen McDona ld (TDA Cha i r Elec t), Brandon Tomes Houston Metro Kali Kirkpatrick, Jordan Smith, Eric Watson Coastal Corey Boucher, Porter Neessen-DeVries, Chris Wall Valley Jacob Boggus, Austin Payne, Nick Tipton Texas Capitol Meeting

†e programbegan the night before the group was scheduled to make their visits at the Texas Capitol with a dinner at Lambert’s in downtown Austin. During the gathering for dinner, the group was addressed by TADA Chairman Donnie Buckalew of Conroe, TADA Chair Elect Nancy Harper of Austin, and Rob Braziel and Kate McGrath from the TADA Legislative O¦ce. Joining the group for dinner were also the regional association executives including Pam Crail of San Antonio, Wyatt Wainwright of Houston, and Lexi and D’Anne Buquet of the Valley and El Paso. At breakfast the next morning, the group attended an informational session at the TADA headquarters building where they were given a legislative brie‚ng and discussed the dealer issues in front of the Texas Legislature. And while it just so happened that TADA Capitol Day was also one of the busiest days in the House because the budget bill was on the ªoor, these young dealers were still able to have nearly 30 meetings with legislators and their stas. Whether it was the Houston group pulling Representative Leman (Iola) and Representative Metcalf (Conroe) o the House ªoor for a visit, or the San Antonio group having a hallway meeting with Representative Barbara Gervin- Hawkins (San Antonio), or Representative Raney (College Station) coming all the way back from the ªoor to his o¦ce to visit, the Texas Dealer Academy members did what it took to make these meetings meaningful and productive. Some  TEXAS CAPITOL MEETING — CONTINUED ON PAGE 18

16

Fast credit union financing with seamless DMS integration. CUDL is...

Dealers Choose CUDL

Finance faster with the CUDL network of 1,100 credit unions. Simply launch the CUDL financing platform for real-time decisions, or tap into existing pre-approvals from credit unions ready to finance your car sale. And with the new CUDL mobile app, you can take CUDL with you for funding notifications on-the-go, or on the lot. Launch CUDL today and see how fast financing can get.

17

FALL 2019

CUDirect.com/CUDL | Booth #1737S

 TEXAS CAPITOL MEETING — CONTINUED FROM PAGE 16

of the group even got to see special guests in the Capitol that day, including Smokey the Bear. †ese young dealers made up the biggest TADA lobby contingent on any day this session, and they did a great job telling the dealer story and emphasizing the most important issues for franchised dealers. And they got results. For example, the Valley contingent, with representatives from the Boggus, Tipton, and Payne families, were able to gain a commitment fromHouse Insurance Committee Chairman Eddie Lucio III (Brownsville) to move the TADA loaner

insurance bill through his committee. Chairman Lucio did just what he told the Valley contingent he would do the following week. †at commitment was critical to the timing of getting the loaner insurance bill through the legislative process. TDA has now had two Texas Capitol Days in Austin (2017 and 2019), and next year the group plans a return to Washington, DC where they last had a National Capitol Day in DC in 2013. TADA is extremely blessed to have these young leaders actively participating in this group.

18

TEXAS CAPITOL MEETING

19

FALL 2019

DOUGLASS  PYE, INC.

Architecture  Interiors 

Planning

5 065Westheimer Road , Suite 1100 , Houston, TX 77056

www.cdi-douglass-pye.com William S. Pye, AIA, NCARB

bsp@cdi-douglass-pye.com

All your Automotive Architectural and Interior Needs

I ’s O B s P Y s ®

Find your local marketing representative

Ward’s 50®Top Performer A.M. Best®A+ (Superior) Rating

Face to face, eye to eye, delivering a modern level of service.

Federated Mutual Insurance Company and its subsidiaries* federatedinsurance.com 19.07 Ed. 12/18 | *Not licensed in all states. © 2018 Federated Mutual Insurance Company

20

Does safety drive you?

Our group closes the deal on bigger dividends and a safer workplace for you.

Members of the Lone Star Auto Dealers Safety Group are eligible to receive extra dividends, a greater discount on their workers’ comp premiums and more. If you are committed to a higher level of safety, join other leaders in your field to maximize the rewards. Be part of a safer Texas. To learn more about becoming a member, contact your agent or Brad Wicker at (325) 437-0677 or bwicker@nts-online.net.

While we can’t guarantee dividends every year, Texas Mutual has returned $2.8 billion to safety-conscious policyholder owners since 1999. ©2019 Texas Mutual Insurance Company

FiscalNotes

Motor Fuels Taxes in a Changing Texas Transportation Scene Should Texas Rethink the Way it Funds Roads? S ince 1923, Texas has used rev- enue from its motor fuels excise taxes to build and maintain our After adjusting for inªation, however, Texas’ motor fuels tax revenue has actually declined during the last two decades (Exhibit 2).

changed since 1991, while the federal rates were last changed in 1993. In the years since, fuel prices have tripled – but since the taxes are basedon volume rather than price, tax collections have risen much more slowly. Rough Roads Ahead? †eTexasDepartmentofTransportation’s (TxDOT) Texas Transportation Plan 2040 identi‚es several major challenges facing the state, including an aging transportation infrastructure, inªation, greater fuel e¦ciency and shaky funding from a federal Highway Trust Fund it describes as “near insolvency.” Today, Texas’ motor fuels taxes are simply failing to produce the revenue needed to meet these challenges. Since 1990, Texas’ population has risen by 55 percent while Texans’ average daily vehicle miles traveled have increased by 70 percent. TxDOT’s transportation plan estimates the state’s population will rise to 45 million by 2040, putting further strains on an alreadyoverburdened road infrastructure. According to t he U. S. Energ y Information Administration, the amount of gasoline used annually by Texas’ entire transportation sector (including air, auto, marine and rail uses as well as autos) rose by 49 percent between 1997 and 2016, to 329 million barrels (Exhibit 1). Its use of diesel and other distillate fuels rose by 96 percent in the same period. Texas’ annual growth rate for gasoline consumption has surpassed that of the nation as a whole in every year since 2005.

state highways, roads and bridges. In a century, our population – and our traffic – have soared. Automobiles have become much more fuel e¦cient and, increasingly, are being joined on our roads by hybrid and fully electric vehicles. But while driving has changed drastically, the taxes we depend on to fund our road infrastructure haven’t. TexasMotor Fuels Taxes In ‚scal 2018, Texas motor fuels taxes brought in $3.7 billion, about 6.6 percent of all state tax collections. In that year, theywere the state’s fourth-largest source of tax revenue after the sales tax, the motor vehicle sales and rental tax and the franchise tax. The majority of our motor fuels tax revenue is used for transportation projects. InTexas, gasoline anddiesel fuel are subject to a 20-cent tax per gallon. In addition, the federal government imposes taxes of 18.4 cents per gallon on gasoline and 24.4 cents per gallon on diesel fuel. According to the American Petroleum Institute, when taking into account the federal tax (and other applicable state taxes and fees, although Texas has none of these), Texas’ total levies on gasoline and diesel are the nation’s seventh-lowest and fourth-lowest, respectively, and by far the lowest among the 10 most populous states. Texas drivers pay total levies of 38.4 cents per gallonongasoline, versus nearly 74 cents in California and 60.4 cents inFlorida, for example. Texas’ gasoline and diesel tax rates haven’t

E x p e r t s a t t he Te x a s A&M Transportation Institute (TTI) have suggested that Texas’ motor fuel revenue is likely to peak around 2030 and then begin to fall, thanks to increasing fuel e¦ciency and an apparent leveling o of per-capita vehicle miles traveled. Since1978, the fuel economyofAmerican cars and light trucks has been governed by the National Highway Tra¦c Safety Administration’s Corporate Average Fuel Economy (CAFE) standards. Over time, CAFE standards have gradually increased; the current rule would require automakers to have an average fuel economy of 54.5 miles per gallon by model year 2025. While Congressional attempts are under way to freeze those increases, fuel efficiency is likely to continue improving–meaning lessmotor fuel use and less tax revenue per mile. Alternative-fuel vehicles – hybrids, all- electric cars and trucks and those fueled by natural gas and propane – will have a growing impact. While the number of alternative-fuel vehicles has risen by about 10 percent annually over the last few years, they made up only 1 percent of the 24.6million registered vehicles on Texas roads in ‚scal 2018. Even so, TTI predicts that these vehicles will account for 18 percent of U.S. domestic cars and trucks and 11 percent of commercial vehicles by 2040 – and that increasing use of alternative fuels could reduce annual state revenue by almost $200 million by 2035.

22

EXHIBIT 2: Texas Motor Fuels Tax Revenue 1999-2018, in Current and Constant 2018 DOLLARS

EXHIBIT 1: Texas Transporation Sector —Gasoline And Distillate Fuel Use, 1997-2016

Rising Road Costs While motor fuels tax revenue is showing little growth and may even decline, the cost of maintaining our aging highways and roads –and building more – is rising dramatically. †e Federal Highway Administration’s Nationa l Highway Construction Cost Index, used by planners and policymakers to calculate the inªation of highway construction costs for items such as asphalt andmachinery, has risen by 84 percent since 2003, far surpassing the general inªation rate of 33 percent during the same period. According to 2016 testimony from the TTI, due to rapid inªation the 20-cent motor fuels tax “now purchases less than 10 cents’ worth of construction.” While the challenge is particularly acute in Texas because of our rapid growth, it’s a nationwide problem. In ‚scal 2013, according to the Tax Foundation, state-level gas taxes, tolls and license fees produced enough revenue to cover only 41.4 percent of state spending on roads. At the federal level, the Congressional Budget O¦ce has estimated the Highway Trust Fund may be insolvent as soon as 2021, while the National Surface Transportation Infrastructure Financing Commission projects a cumulative, nationwide highway investment funding shortfall of $2.3 trillion through 2035.

Other States Look for Money Many states have recognized that existing motor fuels taxes can’t fully support rising needs and costs. In its 2016 testimony before the Texas House, TTI noted that 26 states were funding road construction projects with revenue bonds; 24 states were using general obligation bonds; and 33 had employed public-private partnerships. In addition, many states have ‚nanced projects with tools such as tax increment ‚nancing or transportation reinvestment zones, both of which use property tax growth from a specific geographic zone to pay for improvements within it. According to theNational Conference of StateLegislatures (NCSL), 31 states have raised their motor fuels tax rates since 2013, including four in 2019. But fuel tax hikes were rejected in Massachusetts in 2014 andMissouri in 2018, for instance. A 2019 University of Texas/Texas Tribune poll found that 72 percent of Texas voters wouldn’t support a similar tax increase. Many states have adopted variable-rate gas taxes. †ese tax rates are indexed to some external statistic such as the inªation rate or the price of gasoline, and canbe used alone or in conjunctionwith a volume-based tax. NCSL reports that 22 states and the District of Columbia have implemented some form of variable-rate gasoline tax (Exhibit 3) .

One type, used by several states, is a tax on the wholesale or “rack” price of gasoline. (†e rack price is the price at which refineries sell gasoline to their various clients, including wholesalers or gas stations.) While this generates more revenue when gas prices are high, it obviously leaves states vulnerable when prices fall. Since 2015, when oil prices fell sharply, Kentucky, North Carolina and California have found themselves forced to scramble for additional trans- portation revenue. Nine states have linked the gasoline tax to the Consumer Price Index (CPI) or another inªation measure. Still oth- ers have tied the variable rate to metrics such as population or certain legislative appropriations. †ree states, Hawaii, Illinois and Indiana, apply their general sales tax to gasoline in addition to the motor fuels tax. And in 2015, Georgia linked its motor fuels tax to fuel e¦- ciency standards as well as CPI. Some states have begun rethinking the gasoline tax entirely, exploring funding methods tied more closely to actual use. Examples include greater use of toll lanes or mileage-based user fees, which have been piloted in several states. †e National Surface Transportation Infra- structure Financing Commission has called such measures “the consensus choice for the future.”

23

FALL 2019

Source: National Conference of State Legislatures

TAX STRUCTURE Motor fuels tax varies with State

Gasoline Prices

Inªation Other Notes

Year of last increase

Alabama Arkansas California Connecticut Florida Georgia Hawaii Illinois Indiana Kentucky Maryland Michigan Nebraska New Jersey New York

X

Tax indexed annually to the National Highway Construction C ost Index 2019

X

2019 2017 2013 2015 2015 2017 2015 2015 2017 2016 2016 2013 2015 2015 2015 2017 2015

X

X

X X

X Tax varies with inªation and vehicle fuel e¦ciency

X General sales tax applies to gasoline X General sales tax applies to gasoline

X

X Tax varies with inªation and general sales tax applies to gaso line

X X X X X

X X

X Tax varies with gasoline prices and legislature's spending decisions X Tax varies with gasoline prices and state revenue collection

North Carolina Pennsylvania Rhode Island

X

X Tax varies with population and inªation

X

X X

Utah

X X X X X

Vermont Virginia

West Virginia

D.C.

2009

In 2015, Oregon became the ‚rst U.S. state to test a road usage charge program, called OReGO. Drivers opting in to the program agree to tracking with a mileage-reporting device and pay 1.5 cents per mile, while receiving a tax credit for the standard gasoline tax that is automatically applied to their road usage charges. Despite privacy concerns, more than 1,300Oregon vehicles are currently enrolled in the program. New Money for Texas RoadsIn No- vember 2014, Texas voters over- whelmingly passed Proposition 1, which directs more funding to the state’s transportation needs. Pri- or to Prop 1, the state’s Econom- ic Stabilization Fund (ESF), the “rainy day fund,” received 75 percent of the state’s annual oil and natural gas

production tax revenue in excess of ‚s- cal 1987 revenues. Proposition 1 now allocates up to half of that revenue to the State Highway Fund (SHF) – $1.38 billion in ‚scal 2019. †e allocations to the SHF will end after the ‚scal 2035 transfer if the Legislature doesn’t renew them. In 2015, voters approved Proposition 7, potentially the largest increase in transportation funding in Texas history. †is amendment directs the Comptroller’s o¦ce to deposit up to $2.5 billion of net revenue annually into the SHF from the state sales tax, after total sales tax receipts exceed $28 billion. †e deposits will cease in ‚scal 2032 unless the Legislature extends the arrangement. Beginning f iscal 2020, Proposition 7 further directs the

Comptroller’s o¦ce to annually transfer to the SHF 35 percent of state motor vehicle sales tax revenue above the ‚rst $5 billion collected. Without legislative action, this will expire in 2029. Federal legislation has added to Texas transportation funding as well. †e 2015 Fixing America’s Surface Trans- portation Act (FAST) provides federal funding to state and local governments to assist with mobility needs. Under FAST, Texas is receiving $18.3 billion in additional highway funding for ‚scal 2016 through ‚scal 2020. Yet even these additional funding streams won’t address the entire prob- lem. As population and tra¦c conges- tion continue to grow, Texas policy- makers may consider alternatives. FN 

24

86 th TEXAS LEGISLATURE TAKES ACTION ON BIG STATE ISSUES AND FRANCHISED DEALER PRIORITIES U nlike recent sessions that at times derailed over dif- fering agendas and politics, Governor Abbott, Lt. Governor Patrick and ‚rst-term Speaker Bonnen remained publicly united throughout the session on what they determined to be the state’s top priorities. MAJOR STATE ISSUES BUDGET

is now paying 45 percent of the total cost of public education, which is up from 38 percent. However, the Legislature paid for the increase in the state’s share using additional revenue available because the economy has been thriving, thus raising questions about how lawmakers will maintain the new spending in the future, particularly in the event of an economic slowdown. SB 2 lowers the rollback tax rate from the current 8 percent to 3.5 percent for cities and counties. If cities and counties seek additional revenue beyond a 3.5 percent annual increase, an automatic rollback election will take place so the voters can decide if they approve the increase above that amount. No direct tax relief is provided through SB 2, but the bill increases transparency by shedding light on who is raising your taxes and by how much and gives the voters an enhanced tool to limit tax increases going forward. FRANCHISED DEALER ISSUES †e 86th session was a very productive one for franchised dealerships. Under the leadership of TADA Chairman Donnie Buckalew and TADA Legislative Committee Chairman Joe Chastang, TADA bill priorities were passed, and harmful dealer provisions were eliminated in the Texas Department of Motor Vehicles Sunset process. MODERN OWNERSHIP While over 80 percent of TADA’s members are still family- owned private capital businesses, other ownership types have been acquiring franchised dealerships. In addition, organizational structures are becoming more complex across

†e only bill that is constitutionally required to pass in Texas is the appropriations bill that provides for the state budget. †e 86th Texas Legislature passed HB 1, the biennial budget for ‚scal years 2020-2021. HB 1 totals $250.7 billion and represents a 16 percent spending increase over the two-year budget approved during the 2017 legislative session. Additionally, lawmakers provided an additional $6.1 billion from the state’s Rainy-Day Fund for Hurricane Harvey recovery and infrastructure projects through the supplemental budget. SCHOOL FINANCE AND PROPERTY TAX REFORM School ‚nance reform and property tax relief were the top priority of the state’s leadership, and these priorities were addressed in HB 3 and SB 2, respectively. HB 3 allocates $4.5 billion in new funding to public schools, $2 billion in additional teacher compensation, andmore than $5 billion to buy down local property taxes, for a total cost of $11.6 billion in new spending. HB 3 also alters the formula for recapture, also known as Robin Hood. Overall, the state

25

FALL 2019

the board and in our industry. †e TADA Legislative Committee decided to proactively prepare for future ownership trends in our industry without violating the core principles of the current franchise laws that have served Texas and Texans well over the years. SB 1415 (Hancock-Geren) allows market participants to have ownerships interests in various segments of the motor vehicle industry, provided there is no vertical integration in which a manufacturer or distributor of a motor vehicle is selling and servicing the same type of motor vehicle. SB 1415 was approved in the Senate by a vote of 30-1 on April 23 and approved in the House by a vote 142-0 on May 17. It was signed into law by Governor Abbott on June 4. LOANER VEHICLE INSURANCE COVERAGE Before the session, several insurance companies writing automobile insurance in Texas eliminated primary physical damage insurance coverage on temporary substitute vehicles. †is left consumers, unknowingly, without real coverage on the dealership’s loaner vehicles. After discovering the issue, the TADA Legislative Committee decided a legislative remedy should be pursued. HB 3420 (Lambert-Menendez) requires that an individual’s primary insurance coverage for physical damage carries forward to a temporary substitute vehicle while the customer’s own vehicle is in a motor vehicle repair facility. Over the strong objections of the insurance industry, HB 3420 was approved in the House by a vote of 129-13 on May 3 and was approved in the Senate by a vote of 28-3 on May 21. Governor Abbott signed the bill into law on June 15. TEXAS DEPARTMENT OF MOTOR VEHICLES (DMV) SUNSET BILL Approximately 140 agencies are subject to the Texas Sunset Act. Agencies typically undergo review once every 12 years, and about 20 to 30 agencies go through the Sunset process each legislative session. †e Sunset Advisory Commission’s report on a typical agency must include a recommendation

to abolish or continue the agency. Beyond continuation, the commission recommends agency improvements through changes in law and management directives. †e legislature makes the final determinations if the agency should continue to exist, and if so, what statutory modi‚cations should be incorporated. SB 604 makes changes to the operations of the DMV and extends the agency until 2031. During the Sunset process for the Texas DMV, including the legislative consideration of SB 604, the following Sunset sta recommendations were identi‚ed as the ones with the greatest potential to negatively impact the dealer community: • Restructuring the current board by replacing one franchised dealer with a public member. (PROVISION ELIMINATED) • Restructuring the current board by requiring the Governor to designate a public member as the presiding o¦cer of the board. (PROVISION ELIMINATED) • Eliminating the lease facilitator license. (PROVISION ELIMINATED) • Removing the opportunity to “cure” an advertising rule violation before being penalized. (PROVISION ELIMINATED) • Eliminating the notice and approval requirements for motor-vehicle shows and exhibitions. (NOTICE IS STILL REQUIRED BUT DMV NO LONGER HAS TO APPROVE) TADA thanks all the Texas franchised dealers who serve on the TADA Legislative Committee and all the TADA members who took the time to come to Austin this past session to lobby for the Texas dealer body. 

26

TADA REVIEW OF THE 86 TH LEGISLATIVE SESSION

FRANCHISE ISSUES

SB 1415 (Hancock/Geren) Modern Ownership (TADA Priority) SB 1267 / HB 2602 (Watson/S. Thompson) Cummins HB 3420 (Lambert/Menendez) Loaner Insurance Coverage (TADA Priority) HB 259 (E. Thompson/Hancock) Named Driver

Legislation as introduced sought to allow market participants to own entities with interests in various segments of the motor vehicle industry, provided there is no vertical integration by type of motor vehicle. Legislation as introduced would have allowed manufacturers of heavy- duty truck engines, trans- missions, or rear axles to own and operate dealerships. Legislation as introduced sought to require that an individual’s primary insurance coverage for physical damage carries forward to a temporary substitute vehicle provided by an auto repair facility w hile the insured’s vehicle is in for repair. Legislation as introduced required a named driver policy to be an operator’s policy with any named driver exclusion under the policy to specifically name each excluded driver. Legislation as introduced would have prohibited certain insurer practices related to auto repair claims to ensure quality parts are used to make repairs in the body shops of the insured’s choice. Legislation as introduced extend- ed the agency for an additional 12 years and made changes to the operations of the DMV, includ- ing removing the opportunity to “cure” an advertising rule violation before being penalized and elimi- nating the notice and approval requirements for motor vehicle shows and exhibitions. Legislation as introduced would require the governor to establish a division to review certain rules proposed by state agencies that issue licenses.

SB 1415 was amended to clarify the definition of franchised dealer and dealership.

SB 1415 was signed into law by Gov- ernor Abbott on June 4 and becomes effective 9/1/19.

TADA opposed HB 2602 in the House Licensing and Administra- tive Procedures Committee.

HB 2602 was heard in the House Li- censing and Administrative Procedures Committee on 4/16, but no further action was taken. SB 1267 was never heard in Senate committee. HB 3420 was signed into law by Governor Abbott on June 15 and becomes effective 9/1/19. Provisions will apply to all policies delivered, issued for delivery, or renewed on or after 1/1/20.

INSURANCE

HB 3420 was amended to clarify that coverage carries forward while the insured’s vehicle is at the repair facility for service, re- pair, maintenance, damage, or to obtain an estimate and provides coverage for a substitute vehicle with a gross vehicle weight rating of 14,000 pounds or less. TADA supported HB 259 in both the House Insurance Committee and the Senate Business & Com- merce Committee.

HB 259 was signed into law by Gov- ernor Abbott on June 5 and becomes effective 9/1/19.

HB 1348 (Clardy) Auto Body Shops

TADA supported HB 1348 in the House Insurance Committee.

HB 1348 was approved by the House Insurance Committee on 4/17 and placed on the House calendar for 5/9 but was not heard before the midnight deadline to hear House bills that day.

SUNSET

SB 604 (Buckingham/Paddie) DMV Sunset

SB 604 as amended eliminated the provision removing the opportu- nity to “cure” an advertising rule violation before being penalized and retained the notice require- ment for motor vehicle shows and exhibitions but TxDMV no longer must approve.

SB 604 was signed into law by Gover- nor Abbott on June 10 and becomes effective 9/1/19.

SB 1995 (Birdwell/Paddie) Governor & Rulemaking

SB 1995 was amended throughout the process, but the final product reflects the intent of the bill as introduced.

SB 1995 was signed into law by Governor Abbott on June 10 and becomes effective 9/1/19.

TAX

SB 2 (Bettencourt/Burrows) Property Tax Reform

Legislation as introduced lowered the rollback tax rate from the cur- rent 8 percent to 2.5 percent and required an automatic ratification election if a taxing unit adopts a tax rate that exceeds the rollback rate. Legislation as introduced would prohibit off highway vehicles purchased outside the state from being titled unless applicants have paid to Comptroller the applicable use tax.

SB 2 was amended to limit rev- enue increases at the local level to 3.5 percent for cities and counties before a ratification election is triggered. HB 1543 as amended includes a definition for “manufacturer” and “new off-highway vehicle” and includes an authorization for the Comptroller to promulgate forms and adopt rules as necessary to implement the prohibition against the issuance of such a title receipt or certificate of title.

SB 2 was signed into law by Governor Abbott on June 12 and becomes effective 1/1/20.

HB 1543 (Springer/Fallon) Out of State Purchases

HB 1543 was signed into law by Governor Abbott on June 2 and becomes effective 9/1/19.

27

FALL 2019

HB 2915 (Springer) Tax on Labor for Auto Repair HB 3760 (Guillen/Zaffirini) Buyers Tag Use by Governmental Entity HB 3842 (T. King/Hinojosa) Consignment Location SB 1193 (Flores/Landgraf) Titling Issue Upon Cessation of Business

Legislation as introduced would have decreased property tax liabil- ity and shifted tax burden to other revenue sources, including sales tax on labor on auto repairs.

HB 2915 was referred to the House Ways & Means Committee on 3/12.

HB 2915 never received a hearing in House Committee.

DEALER LICENSING

HB 3760 was amended to in- clude a provision subjecting these agencies to the statutory provi- sions relating to the unauthorized reproduction, purchase, use, or sale of temporary tags applicable to a dealer. Legislation was amended to add SB 1193 (see below), but the surety bond increase from SB 1193 was removed.

Legislation as introduced would authorize governmental agencies to obtain a dealer general distin- guishing number to issue tempo- rary buyer’s tags for vehicles sold or disposed of by the governmen- tal agency. Legislation as introduced would require a dealer to hold a general distinguishing number for a con- signment location unless the con- signment location is a wholesale motor vehicle auction. Legislation as introduced provided for the liability of and issuance of titles and permits for motor vehicles purchased from motor vehicle dealers that go out of busi- ness and increased the dealer’s surety bond from $25,000 to $50,000. Legislation as introduced sought to clarify and streamline State law relating to the operation of golf carts, neighborhood electric vehicles, and off-highway vehicles while preserving the right of TxDOT, cities, and counties to pro- hibit operation on safety grounds. Legislation as introduced would define personal delivery and mobile carrying device and set parameters on when and where they can operate and set safety and insurance requirements. Legislation as introduced sought to set up a separate titling and registration process for various types of vehicles assembled by hobbyists, including dune buggies and kit cars with DMV making safety determinations. Legislation as introduced would have authorized a lessee under a personal, family, or household motor vehicle lease agreement to contract with a lessor for an excess wear and use waiver in connection with the lease agree- ment. Legislation as introduced sought to reduce the amount of the required financial security deposit from $250,000 to $25,000 for licensed motor vehicle dealers who offer to sell service contracts only on motor vehicles sold by the provider.

HB 3760 was signed into law by Governor Abbott on June 10 and becomes effective 9/1/19.

HB 3842 was signed into law by Governor Abbott on June 14 and becomes effective on 9/1/19.

TADA expressed concerns over the lack of definition of “gone out of business,” and its effect on the surety bond process.

SB 1193 was not heard before the midnight deadline to hear Senate bills in the House but was added as an amendment to HB 3842.

OPERATION OF VEHICLES

HB 1548 (Springer/Kolkhorst) Operation of Certain Vehicles

HB 1548 was amended to further clarify existing issues that inad- vertently took away the authority of local governmental entities to allow ATVs and golf carts on their local roads.

HB 1548 was signed into law by Governor Abbott on June 14 and became effective im- mediately.

SB 969 (Hancock/Landgraf) Personal Delivery Mobile Carrying HB 1755 (E. Thompson/Hughes) Assembled Vehicles

SB 969 as amended made small changes to the areas of operation and the device equipment require- ments.

SB 969 was signed into law by Governor Abbott on June 10 and became effective im- mediately.

Legislation was amended provid- ing for DMV rulemaking authority, requiring inspections for safety purposes, excluding off-road vehicles, prohibiting sales to or from dealers, and specifying that manufacturer or a kit maker is not a hobbyist. SB 1778 as amended revises the definition of “lease agreement” by specifying that the term includes any addendum to the agreement and adds a specification that the agreement provides for the right to such possession and use for a term of more than 180 days. HB 4120 as amended adds language specifying the security deposit is: $25,000 for a motor vehicle dealer that generated $1,125,000 or less in annual gross revenue in this state from the sale of service contracts in the preceding year; $50,000 for a motor vehicle dealer that generated more than $1,125,000 and not more than $2,500,000; and $75,000 for a motor vehicle dealer that generated more than $2,500,000.

HB 1755 was signed into law by Governor Abbott on June 14 and becomes effective on 9/1/19.

FINANCIAL PRODUCT ISSUES

SB 1778 (Paxton/Holland) Excess Loss Damage Waivers

SB 1778 was signed into law by Governor Abbott on June 10 and most provisions become effective 9/1/19.

HB 4120 (Lucio III/Menendez) Financial Security Requirements on Service Contracts

HB 4120 was signed into law by Governor Abbott on June 14 and becomes effective 9/1/19.

28

REGISTRATION

HB 3059 / SB 1910 (Holland/Lucio) VTR 136

Legislation as introduced would have repealed required form language and allowed a dealer the sole discretion to title and register a vehicle in the county where the vehicle is purchased. Legislation as introduced sought to impose an additional fee of $200 for an electric vehicle and $100 for a hybrid vehicle due at the time of registration or renewal of registration. Legislation as introduced would have allowed a county to impose an additional fee of $200 or $300 when registering an electric vehicle and would have required the fee revenue to be sent to the county. Legislation as introduced would have allowed for certain munici- palities to impose a fee on new luxury vehicles equal to 1% of the gross sale or lease price. The legislation as introduced would have allow a used car dealer to act as a salvage dealer or store or display a motor vehicle as an agent of an insurance company without a salvage dealer’s license. Legislation as introduced estab- lished a definition for a “flood vehicle” and provided for the automatic issuance of a salvage vehicle title for vehicles that meet this definition. Legislation as introduced requires TxDMV to coordinate with other agencies to ensure they have the information necessary to apply a flood damage notation to the title of repaired or salvaged vehicles using FEMA resources. Legislation as introduced would authorize the DPS to adopt rules providing for the inclusion of out- standing safety recall information on the vehicle safety inspection report.

TADA supported HB 3059 in the House Transportation Committee.

HB 3059 was postponed on the House floor indefinitely. SB 1910 was never heard in Senate Com- mittee.

ADDITIONAL VEHICLE FEES

HB 1971 (K. King) State Fee on Alternatively Fueled Vehicles

TADA supported HB 1971 in the House Transportation Committee.

HB 1971 failed to receive an af- firmative vote in the House Trans- portation Committee on 5/1.

HB 2513 (Martinez) County Fee for Electric Vehicles

TADA opposed HB 2513.

HB 2513 was never heard in the House Transportation Committee.

HB 4326 (Martinez) City Fee on Sales of Luxury Vehicles HB 1667 (Goldman/Hancock) Independent Dealers/ Salvage Dealers

TADA opposed HB 4326.

HB 4326 was never heard in the House Ways and Means Commit- tee.

SALVAGE ISSUES

HB 1667 was amended to extend statutory provisions that currently apply to a licensed salvage vehicle dealer to the holder of an inde- pendent motor vehicle dealer’s general distinguishing number if the motor vehicle dealer acted as a salvage vehicle dealer or rebuilder or stored or displayed a vehicle as the agent of an insur- ance company. HB 2112 was amended to revise the definition of “flood vehicle” to provide for the inclusion of certain vehicles for which an insurance company paid a claim as a result of water damage. HB 2310 was not amended in either the House or Senate.

HB 1667 was signed into law by Governor Abbott on 5/29 and becomes effective on 9/1/19.

HB 2112 (E. Thompson/Zaffirini) Flood Vehicle Definition

HB 2112 was vetoed by Governor Abbott on 6/15.

HB 2310 (Vo/Alvarado) Flood Damaged Vehicles/Titl e

HB 2310 was signed into law by Governor Abbott on 5/21 and becomes effective on 9/1/19.

VEHICLE SAFETY

SB 711 (Hinojosa/Leach) Vehicle Recall Information in Safety Inspection Report

SB 711 was amended to also authorize TCEQ to adopt rules providing for the inclusion of safety recall information on a vehicle inspection report for a vehicle inspected in a county that is included in a vehicle emissions inspection and maintenance program. TADA supported SB 711 in both House and Senate Committee. TADA opposed HB 2696 and SB 1599.

SB 711 was signed into law by Governor Abbott on June 14 and becomes effective 9/1/19.

SB 1599 / HB 2696 (Hall/Schaefer) Elimination of Safety Inspections

Legislation as introduced would have eliminated the state vehicle inspection program.

HB 2696 was on the agenda in House Committee but was with- drawn from the schedule. SB 1599 never received a hearing in Senate Committee.

29

FALL 2019