Motor Vehicle Dealer Board

The Department of Motor Vehicles (DMV) regulates and implements laws regarding cars, trucks, motorcycles (and other motor vehicles), along with related activities like collecting the Commonwealth’s $0.162 fuel tax. Until 1995, this included regulating the sales of motor vehicles. Particularly of interest here is that this included regulation of dealerships. In Virginia, as with many states, new cars can only be sold thru franchised dealerships.

In 1995, this regulation and oversight over the dealership industry was shifted to the new Motor Vehicle Dealer Board (MVDB), via HB 2324. The Motor Vehicle Dealer Board has generally been hailed as a success in both it’s efficiency and efforts to protect consumers. I would generally agree with that sentiment. The MVDB is revenue neutral (approximately $3 million in expenses are counteracted by fees), and has created a more positive relationship between dealers and the Commonwealth, and has helped to resolve consumer disputes more efficiently and effectively than a previously overloaded DMV.

Anyone interested can read thru the relevant sections of the law, but the MVDB’s own website provides a succinct, if biased, overview. You might note the mention of HB 2129, a unanimously-passed 2015 extension of the 1995 law to cover Motorcycle and RV dealerships. I don’t have any issue with their description, nor most of the law itself, with one notable exception: the legally-mandated makeup of the Board itself. Per the MVDB:

The Board consists of nineteen members of which the Governor appoints seventeen. Nine members are licensed franchise (“new”) motor vehicle dealers of which one is primarily engaged in the sale of new motorcycles, and eight members are independent (“used”) dealers of which one is a licensed independent motorcycle dealers and one shall be a licensed independent dealer who is also an independent trailer or recreational vehicle dealer or engaged in the rental vehicle business. One member is an individual who has no direct or indirect interest other than as a consumer, in or relating to the motor vehicle industry; and the Commissioner of the Department of Motor Vehicles, who serves as the Board’s chairman

To summarize: 9 franchise dealers, 8 independent dealers, the Commissioner of the DMV, and 1 consumer representative. To quote the MVDB’s further defense of this makeup:

Members of the Board represent all areas of the Commonwealth. In addition, they represent all levels of ownership. Board members include those that own several dealerships (“mega dealers”) to those with small operations and just a few employees. This cross section ensures that all perspectives of the industry have a voice on the Board.

While that statement is technically true, there is one important fact being glossed over. They represent every level of dealer ownership, but outside of a token “Consumer Representative” (currently an executive at Northrop Grumman), 17 of the 19 members are auto dealers themselves. The agency tasked with regulating Auto Dealerships is almost entirely comprised of individuals who own and operate Auto Dealerships.

Industry self-regulation can be a positive thing, in certain circumstances. The AMA is an independent organization of doctors that regulates doctors. The ABA, and state bar associations do the same for lawyers. ASE is a cross-industry organization that regulates automotive mechanics. All of these have led to higher standards and service in their respective industries.

A counter-example is the SEC, a gov’t agency which, despite being officially a gov’t agency, has notoriously been a revolving door with the financial industry, and has failed on several occasions to adequately regulate it’s industry. There’s a difference between organizations like the AMA, and organizations like the MVDB: the former deals with individuals and professionals, and the latter deals with corporations. The incentives are different.

I mentioned at the beginning of this post that the MVDB is efficient, and effective at responding to customer complaints. That is still true. However, examining their own reports (take care when reading them, they have tricky accounting), since the MVDB’s inception, Consumer complaints have increased year over year. Further, the number of licensed dealerships have decreased (with the notable exception in the MVDB reports of 2015, when the MVDB expanded to cover more types of dealerships), all while the number of sales and licensed salespeople have increased.

To conclude: The MVDB is an agency comprised of the very individuals and corporations it is tasked with regulating. Since the inception of the MVDB in 1995, consumers have been protected less, and instead, the Virginia Automotive Dealers Association has done a bang-up job of protecting itself against competition. And through all of this, their sales and profits have skyrocketed. In reward for their efforts, Virginia’s General Assembly unanimously voted to expand their authority even further in 2015.

This is a classic case of regulatory capture, and we cannot allow it to continue. The MVDB must have more diverse representation on it’s board, and more oversight.