Hello, first time poster long time lurker. I am an electrical engineer with 15 years in the generator business. The first question I'm asking is why you want the generator to auto-start in the first place if you're using it in a manual transfer configuration. You would be better off setting the generator to manual start, too.
I've seen a few customers try to do this kind of thing, sometimes to save money on an ATS, but usually to avoid installation difficulties of that ATS. With Generac products, the ATS is basically super-cheap (almost free) when purchased with the generator. More than likely there are problems installing the ATS which would cost way more than $700. For example, some AHJs down here in Florida require the genset amperage to match the panel amperage when an automatic transfer switch is used (does not apply to manual). We complain about that, but they won't budge. But it is true that going manual will alleviate the inspector's concern.
This has little to do with NEC and more to do with Florida inspectors seeing crappy genset installers installing gensets that are too small and then the owner complains to the inspection dept.