The Puget Sound Dealer, 2013 issue 2 by Blue Water Publishers, LLC

The Puget Sound Dealer Official Publication of the Puget Sound Automobile Dealers Association 16101 Greenwood Avenue N Bldg 2100 Seattle WA 98133 Phone: 206 542-3551 Fax: 206 542-7561 Email: jim@psada.com www.psada.com

BOARD OF DIRECTORS 2013 President Sara Carter Carter Subaru, Shoreline 1st Vice President Steve Klein Klein Honda, Everett 2nd Vice President Jim Walen Ford-Hyundai of Kirkland 3rd Vice President Dan Wilder, Jr. Wilder Auto Center, Port Angeles Trustee Position #1 Marc Ikegami Doug’s Lynnwood Mazda, Doug’s Lynnwood Hyundai, Doug’s Northwest Cadillac Trustee Position #2 Doug Byers Byers Volvo, Seattle, Immediate Past President Jim Morino Acura of Lynnwood PSADA STAFF James R. Hammond Executive Director Linda Halverson Executive Assistant Susan Leonhardi Programs and Data Base Manager Michele Foley Office Assistant

Inside this Issue

For information on advertising in this publication contact Jim Aitkins Blue Water Publishers, LLC 360.805.6474 www.bluewaterpublishers.com

Cover photo by Adam Buchanan 4

A Message from the Editor Perception is Reality Have you ever wondered what the world looked like through someone else’s eyes or through their brain? At the WSADA convention one of our group’s five-year-olds walked into the Kea Lani, a fabulous hotel, and quickly said, “This isn’t the real Hawaii. I want to go to the real Hawaii.” Her previous experience was at a small intimate Hawaiian hotel where she immediately engaged with beaches and koi ponds. Both hotels were wonderfully in Hawaii, but, because of her previous, limited experience and knowledge, she saw what she knew and it was FACT. So where am I going with this? You’ll see. Let me give you another example of “reality.” Yes, let’s call it reality. A new car dealer, who really cared about his employees, decided to upgrade his service department so his techs would have a better working environment. He was excited about doing this for his employees…so, a few months later the bulldozers and demolition team comes in, walls start coming down, and on and on. The employees are traumatized. One asks another, “What’s going on around here?” The response: “I hear this place is going under.” A third guy speaks up saying, “I am getting out of here now!” What happened? The employees perceived the worst! No one told them what was going on. It is a fact that human nature fills voids of knowledge with negatives. What does the little girl have in common with the dealership employees? That’s easy. PERCEPTION. The dictionary defines “perception” as the ability to see, hear, or become aware of something through the senses. We all have different senses. What makes sense to us, may not make sense to someone else. What might be a benign situation to one person, may be a terrifying and stressful experience for another person. Do you think about perception when you speak with other people? Probably not. Most people don’t, but we need to. Our dealerships are made up of a dozens and dozens of wonderful people – all distinctively unique from each other, each having their own way of understanding and responding to things and the truth is, whether the perception they have is correct or not, it is TRUTH to them. Our job as leaders is to understand that people filter and relate to information differently and situations differently. The more we know our employees, the more time we spend among them, rather than above them and speaking at them, the more they will understand how we filter and relate to them and everything around them. The way people perceive things is your greatest asset. Use these assets to develop and create a dealership that is insightful, progressive and dynamic. Listen. Watch. Understand. Celebrate the diversity in the way your employees think and discover what “being on the same page” is really about. James Hammond Executive Director

Message from the President - Sara Carter

Answers to Nine Dealer Questions About Marijuana

Coaching to Maximize Performance

Jerry Korum - Friendship is the Bottom Line

State and Local Tax Rulings that Impact Your Business

Used Vehicle Inventory Management Using One Key Indicator...ROI

Places Auto Consumers Go Today

Is Your DMS System Boring A Hole in Your Budget?

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Message from the President

Sara Carter Carter Subaru

PSADA’s Wage, Benefit and Dealership Operations Report Gives Dealers Critical Planning Data in New Digital Formats

In this issue of our dealer magazine I would like to take a moment and talk to my fellow dealers. Recently PSADA sent you a digital copy of PSADA’s Wage, Benefit and Operations Analysis Report (WBS). This has been one of our regional industry’s most important management tools for over 30 years. I am bringing this up because this year PSADA took an amazing technological step into the 21st Century by converting all of the data gathered into a series of graphs and summary information to visually show how the data financially impacts individual dealership employee groups. The Report also pinpoints bottom lines in dealership key operations and profit centers. • • • • • •

You can instantly see, at one time, where employment dollars go, the weight of expense by classification of employees, and how you compare to those dealers in your immediate region. You can see how other dealers are diversifying employee responsibilities and combining job responsibilities. You can instantly see wage growth by department and employee group over the past eight years. You are able to measure your dealership’s profitability by department against combined averages for the same departments in all other dealerships in your immediate region. The WBS gives you a measurement of DMS providers and measures them by cost to dealers. The WBS examines Express Service operations.

The fact is that nowhere else in the US, including from our own manufacturers, can we get usable and dependable wage and benefit averages specific to our immediate area for all employees in all of our stores that can be used for budgeting and planning. NADA refers to PSADA as the pioneer in wage, benefit and dealership operations analysis studies. So, be sure to open the document. If you need another digital copy, call PSADA at 206-542-3551 and request one be sent to you. This is a proprietary document only available to dealers. Use it and benefit from it. On behalf of the PSADA Board, we are very pleased to have produced such an important management report which our dealers can use in confidence.

ANSWERS TO NINE DEALER QUESTIONS ABOUT

MAR

RIJUANA

In November 2012, Washington State legalized recreational use of marijuana. Even before that, Washington legalized medical use of marijuana. Since the passage of these laws, many dealers have asked questions about how these new laws affect them. Below are answers to nine dealer questions about marijuana laws. 1. Has much really has changed since these new marijuana laws were passed in Washington? Almost nothing has changed for employers. Marijuana is still an illegal drug under federal law and nothing in Washington changes that. 2. Does the legalization of marijuana use have any effect on my dealership’s drug-free workplace policies? No. Employers still can have and enforce drug-free workplace, zero-tolerance policies. Dealers with such policies may want to remind their employees that despite the legalization of marijuana in Washington, the dealer’s policies have not changed and it is still against company policy to allow any drug use, including marijuana.

By Britenae Pierce Ryan, Swanson & Cleveland, PLLC

1. Can our dealership still test employees and applicants for marijuana use? Yes. Dealers can test both applicants and current employees for any drug use, including marijuana. You should review your policy about drug testing and consider including language that any detectible amount of marijuana is prohibited, rather than simply prohibiting employees from being “under the influence” of marijuana. This is to avoid any friction with whether someone is “high” or just has marijuana in his or her system (as the drug stays in a person’s system for some time after the “high” has worn off). Employers can discipline or terminate an employee for having any detectible amount of marijuana in his or her system. 2. What can our dealership do if an employee shows up to work under the influence of marijuana? You can do anything that you would otherwise do for an employee showing up to work under the influence of alcohol or any other type of drug. For example, you can require immediate drug testing, discipline, or termination. Be sure to look to your policy for guidance. 3. Does our dealership have to accommodate medical marijuana use? No, there is no duty under Washington law, federal law, or the Americans with Disabilities Act for employers to accommodate employees that have prescriptions for medical marijuana. 9

4. Can our dealership decline to hire an otherwise strong job applicant that either tests positive for marijuana or has a prescription for medical marijuana? Yes. Employers can uphold their drug-free workplace policies and refuse to hire applicants that test positive for marijuana use, even if the detectible level is low, indicating prior marijuana use that remains detectible in the applicant’s system. Employers can refuse to hire applicants that use medical marijuana because medical marijuana users are not a protected class, thus they are not subject to any special protections under federal or state law.

6. So if nothing much has changed, does our dealership have to do anything? At a minimum, you should review your policies and update them as necessary to properly reflect your dealership’s policies on drug use. For example, you may want to revise your definition of “illegal drugs” to include drugs that are “illegal under federal, state, or local law,” or to state that illegal drugs are those “illegal under the federal Controlled Substances Act.” Dealers also may want to remind employees that marijuana use is still prohibited, despite the legalization of it in Washington.

5. What if our dealership wants to hire someone that tests positive for marijuana or has a prescription for medical marijuana? You can choose to hire someone that tests positive for marijuana use or has a prescription for medical marijuana, but your policies should be consistent with such practice. In other words, do not make an exception from your drugfree workplace policy for a single applicant. Also, a word of caution: dealers should consider whether the potential employee will be operating machinery, driving cars, driving customers, or otherwise putting the dealership, employees, and clients at risk in any way. If that is the case, then hiring such applicant is not recommended.

7. Anything else I should know about marijuana and how it affects our dealership? Yes. This is an area of law that is changing so be sure to keep informed of all future decisions and changes in law in this area. Also, because the legalization of marijuana use is so new, there may be future challenges to employer practices and policies, such as by employees filing grievances for adverse action taken based on their testing positive for marijuana use. No dealer wants to be a test case or subject to an investigation based on a grievance. Dealers are advised to seek legal counsel when faced with a question about employee marijuana use, especially for those questions that may not be covered by this article. Britenae Pierce is a partner practicing in Ryan, Swanson & Cleveland, PLLC’s Employment Rights, Benefits and Labor Group. She can be reached at 206.654.2289 or pierce@ryanlaw.com.

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COACHING TO MAXIMIZE PERFORMANCE

By John Strom

Coaching is any action that influences future performance. The goal is to get consistent excellent performance. Everyone can benefit from coaching whether it’s bringing below standard performance up to standard, making improvements on average performance or taking high performance up as high as it can go. Most every team member has areas where their performance falls into each of these three categories – they’re high performers in some areas of their job, average in some areas and can be below standard in some areas. Most managers spend too much time working with team members in areas where their performance is below standard and not enough time working with them in areas where they excel. And yet it’s been proven time and again that the greatest performance gains come from “doing more of what you do best,” not fixing weaknesses. Yes, managers get paid to ensure things are working as they should, and yes, it is their job to resolve problems and work to prevent them. And there definitely is the expectation to maintain a minimal level of performance. But the main focus of coaching should not be here; it should be equally on taking high performance as high as it can go. ASK-ADD COACHING PROCESS Consistent excellent performance comes when team members clearly understand what’s expected of them, have the necessary knowledge and skills, have the necessary resources (tools, equipment, etc.) and receive positive, future-focused coaching as they do their work. The coaching process I recommend using is a simple one based around two words – ask and add. The principle here is that you “ASK first” to get the team member’s thoughts, “then ADD” your own. Let me share the framework in which this approach is used. 13

WHAT, HOW, WHY The “What” on the job is what you expect to be done and it’s non-negotiable. It’s the outcome you need, the results from the team member’s effort. It’s set out in their job description1 and through their goals and objectives (these are somewhat negotiable, see related article4). Minimum standards of performance should be clearly understood along with what’s considered higher performance levels. Each should have clear consequences – negative for failing to meet minimums, positive rewards for higher performance. Coaching feedback is appropriate about each team member’s achievement of their “What.” Some coaching questions to ask about the “What:” • • • •

What is it that we expect you to do in the area of [specific job performance area]? What are the outcomes from your efforts in that area? [how much? when?] What are your performance goals and objectives in the area of [specific job performance area]? What is your achievement level of those goals and objectives? What can you do to increase your output?

The “How” is how the individual team member achieves the “What.” Since each person has unique strengths and capabilities, the how is definitely negotiable. Each team member’s approach to achieving their “What” should be discussed and agreed-upon with their manager. And as performance takes place, this should be the focus of continual coaching – always focused on improving future performance. Some coaching questions to ask about the “How:” • •

How will you go about achieving the outcomes we expect of you? What specific actions will you take? How can you adjust what you’re doing to increase your output in the area of [specific job performance area]?

The “Why” is why it’s important to achieve the “What” – the benefits to the customer, the organization and to each individual team member. When people know why they should act as they do, they’re much more committed to taking those actions on a consistent basis. In coaching the “Why” it’s important to have the team member tell you why. You ask them why, then add to what they say as necessary to complete the case for taking the action as agreed. Some coaching questions to ask about the “Why:” • • 14

Why it is important [to our customers] [to our organization] [to you] to take those actions? What will be the benefits [to our customers] [to our organization] [to you] of taking those actions?

In each case, to achieve the best performance improvement results from your coaching ASK first, then ADD your own thoughts and suggestions. You’ll often have to ask a number of clarifying questions when your team member responds to fully “think through” their responses together. Some clarifiers to ask: • • • •

When you say [repeat their specific words], what do you mean? Tell me more… For example…? What will be the upsides of taking that action? What are the potential downsides? (discuss and resolve any downsides)

And be sure to confirm the points they make that you agree with before adding your own. This demonstrates that you agree with them and want them to take those actions. TWO IMPORTANT REMINDERS Remember to ALWAYS BE FUTURE-FOCUSED! Take people into the future, review together what they’ll say/do and why that’s important, and you’re done. And when you see them say it or do it right in the future tell them about it! ALWAYS GET SPECIFICS – specific things they’ll say, things they’ll do that will get the outcomes you both agreed upon. The key is for them to understand what to do, how to do it and why it’s important – and for you to hear them say it. Coaching in the manner I’ve outlined here will produce wonderful results. It puts both you and your team members on the right track – the track to greater effectiveness (things are done better) and greater efficiency (things are done quicker). A track of consistent positive performance leads to greater productivity and greater profits! John Strom has been helping retail automotive managers improve their performance for over 25 years. He has held a number of management positions in both single-point and multiple franchise operations, including General Manager. His company, Strom & Associates, is a member of the Performance Development Group. To learn more about their services, visit www.perdevgrp.com. 1 - How Clear are Your Job Expectations, in Vol. 2011, No. 4 and Using Job Descriptions to Drive Performance, in Vol. 2012, No. 1. 2 – Team Member Assessment & Development, in Vol. 2011, No. 2. 3 – Future Focused Brings Better Results, in Vol. 2009, No. 1. 4 – Set Goals & Objectives to Increase Productivity, in Vol. 2012, No. 4.

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By Craig Chastain

JERRY KORUM

Friendship is the Bottom Line

Jerry Korum remembers his first day in the car business with vivid clarity.

Jerry credits much of the Korum success to a “relational rather than transactional” approach.

“Saturday, January 5th, 1963,” he recalls with a broad grin. “I sold a ’51 Pontiac and a ’54 Dodge pickup and I was hooked.”

“We talk about it here every day – the importance of building a relationship with the customer,” he says. “When you demonstrate that you really care about his or her needs, the business – the transaction – will follow.”

Hooked, indeed. Just five years after his first sale, Jerry would purchase Moreland Motors in Puyallup and become – at that time - the youngest Ford dealer in North America. He was 25 and just getting started. “Working with my father (Mel Korum) at his Dodge and Plymouth dealership gave me the chance to learn the business from top to bottom,” says Jerry. “His most important lesson was to care for the people that come into your life even more than you care for the cars.” The Korum family of dealerships steadily expanded as Jerry worked with others, including father Mel, brother Bill and local business partners, to bring in the Dodge, Toyota, Datsun, and Lincoln Mercury brands. For a time, Korum’s Camper City was a regional destination to find everything from truck canopies to motor homes. Today, the Korum Automotive Group showcases Ford, Lincoln, Mitsubishi and Hyundai products in the heart of downtown Puyallup. Their dealership is a particular standout in the Ford family, the recipient of the 2012 President’s Award, the Salute to Dealer’s Award, three consecutive 100% Blue Oval Certifications, along with more than 20 years of winning the coveted Diamond Chapter of Excellence from Mitsubishi Motor Sales of America.

For fifty years, the quality of caring has extended beyond the Korum showrooms and into many northwest communities. High on Jerry’s list of charitable priorities is the Korum for Kids Foundation, established with Germaine - his beloved wife of 44 years– to promote and improve the health, welfare and future of the community’s young people. “Our daughter Sophia manages Korum for Kids these days and she does a wonderful job,” says Jerry with fatherly pride. “Three to four hundred thousand dollars a year is gifted to a broad range of special needs programs related to kids and very few requests are declined.” The walls of Jerry’s office host an array of plaques, awards and statements of gratitude, including the Boys and Girls Club, Pierce College, Good Samaritan Hospital, the Mel Korum YMCA, Mary Bridge Children’s Hospital, Bellarmine Prep, the South Hill Rotary, Life Center Church, and the state Leukemia and Lymphoma Associations. He recently served as president of the Western Washington Fair Association and is a long-time board member. Jerry also finds time to be a teacher and mentor. He wrote and distributes freely his A-Z of Success in Life 17

collection of insights, from “Attitude trumps ability” to “Zest is the passion that energizes our purpose.” In addition, he teaches classes at Pierce College primarily for women transitioning into the workplace, including a day-long, hands-on experience in the dynamic environment of an auto dealership. He challenges his students, as he does his dealership team, to dream big dreams. “Never, ever give up on your dreams,” he says in A-Z of Success. “Like a wonderful plant, a dream takes off and must be nourished with good thinking, care, vision and determination.” Fifty years to the day on which he sold his first car, more than 500 friends of Jerry descended on the Korum complex to celebrate five decades of dealership success and community service. Secretly planned to perfection by Germaine, daughter Sophia and her husband John Hall, the affair hosted attendees from around the country. Puyallup police were on hand to handle traffic. “Celebrating an Automotive Legend – January 5, 1963,” proclaimed the banners. “Celebrating Jerry Korum’s 50 years of personal service to the community with many friendships and great brand partners along the way.” Taking to heart his own best advice to dream big dreams, Jerry has arrived at a place, fifty years later, with no less passion for his profession or for the people he meets along the way. He’s active and visible at the dealership while his top priorities remain with his faith and his family. Always looking forward, he is confident in his team and the culture that has made them successful. “We have a solid dealership family including folks that have been with us for over 35 years,” he says. “Our son-in-law John has taken on the role of president after years of success in the banking business. He’s an extraordinary leader and businessman – we’re blessed to have him.”

The tour comes to an abrupt halt as a young couple enters the showroom. Jerry’s complete attention is now re-directed to the customers and their questions about some paperwork. Within moments, their questions are answered, their issues resolved. “Thanks, Jerry,” they say together. Thanks, Jerry. 18

Photos by Adam Buchanan

Jerry’s affection for his colleagues is obvious as he conducts a walking tour of the dealership, now encompassing all four corners of Meridian and River Road. The City of Puyallup has dedicated the intersection, which they refer to as the Gateway to the City, calling it “Korum Corners.” His greetings are warmly returned by staff and customers alike, a reflection of the “relational” culture of his business. He has made a lot of friends.

Developments in Washington

State & Local Tax Rulings That Impact Your Business

By Rachel A Le Mieux CPA | Partner Peterson Sullivan LLP RECENT LEGISLATIVE DEVELOPMENTS The state legislature adjourned the legislative session without a budget but convened its first 30 day special session. We know that the legislature must pass a budget by June in order to keep the state running on all cylinders. While not much was accomplished during the regular session one piece of legislation affecting the automotive industry was passed into law. In the regular session of the 2013 Legislature, SSB 5072 was passed and signed by Governor Inslee. The new law gives a break to disabled veterans and certain active duty personnel. Effective August 1, 2013, Washington state local sales and use taxes will not be due on the purchase or use of add-on automotive adaptive equipment, including the charges for labor and services rendered in respect to the installation or repair of such equipment. In order for the purchases to be exempt from sales and use tax, the need for the automotive add-on equipment must be prescribed by a physician. Eligibility for the exemption is limited to a veteran, or member of the armed forces serving on active duty, who is disabled. The disability of the veteran or activity duty person need not have occurred while the person was serving on active duty.1 Add-on automotive equipment is defined in statute to mean: “Equipment installed in, and modifications made to, a motor vehicle that are necessary to assist physically challenged persons to enter, exit, or safely operate a motor vehicle. The term includes but is not limited to wheelchair lifts, wheelchair restraints, ramps, under vehicle lifts, power door openers, power seats, lowered floors, raised roofs, raised doors, hand controls, left foot gas pedals, chest and shoulder harnesses, parking brake extensions, dual battery systems, steering devices, reduced and zero effort steering and braking, voice activated controls, and digital driving systems. The term does not include motor vehicles and equipment installed in a motor vehicle by the manufacturer of the motor vehicle.”2

Anyone selling add-on automotive equipment or providing the labor to install or repair such equipment must obtain an exemption certificate from the eligible purchaser. The certificate will be provided by the Department of Revenue prior to the effective date of the new exemption. The Department of Revenue will allow a seller to obtain all the information from the purchaser necessary to substantiate the tax exempt nature of the purchase by following the rules under the streamlined sales and use tax agreement. Sellers must also file their Combined Excise Tax Return electronically. Unlike other exemptions where the seller need not report the sales on the tax return, the new law requires that the seller must report gross sales of qualifying equipment, labor, and services on the tax return and then take a deduction. Please note that the new exemption is only for sales and use taxes. The seller is still responsible for reporting the gross sales under the business and occupation tax (“B&O”) section of the return and for paying the appropriate B&O tax. The new law takes effect on August 1, 2013, and is scheduled to expire on July 1, 2018. WASHINGTON STATE DEPARTMENT OF REVENUE AUDIT TRENDS Department of Revenue audits are in full swing. For the most part, it appears that new car dealers are fairing well. However, the age old problem of documenting exempt car sales remains. The Department of Revenue is being less forgiving and is generally requiring sellers to maintain pristine records. Formal published guidance provides dealers with information on the documents that must be maintained. Under audit, sometimes Department of Revenue auditors take a narrow view of what documentation will be allowed. Therefore, auditors must be continually reminded to review the law when deciding whether or not to accept certain pieces of documentation as they cannot disallow documents that the law allows.3 Dealers may sell vehicles to the following types of customers without collecting retail sales tax: • Nonresidents of Washington, including persons from other countries. 21

• • • • •

Nonresident military personnel who are temporarily stationed in Washington. ICC carriers with authority to transport across the state’s boundaries. Native Americans and their tribes. The United States Government. Foreign Governments and diplomats.4

The biggest problems arising from the audits are the documentation of sales to nonresidents, interstate and foreign sales, and sales to Native Americans. What follows is a description of what is required in the law for a dealer to document that the sale to a nonresident is exempt from sales tax. Sales to nonresidents are those sales made to nonresidents when the vehicle is delivered in Washington. Please note that the requirements listed below differ from those requirements for interstate and foreign sales when the vehicle is delivered to the buyer out-of-state. For the requirements in the law to document other exempt sales, please refer to RCW 82.08.0264. For sales of vehicles to nonresidents, the law basically requires two conditions be met in order for the seller to be relieved of the duty to collect sales tax from the buyer. Those two elements are: 1. The vehicles will be taken from the point of delivery (typically the lot of the dealer) in this state directly to a point outside this state under the authority of a vehicle trip permit issued by the Department of Licensing, or any agency of another state that has authority to issue similar permits, Or the vehicles will be registered and licensed immediately under the laws of the state of the buyer’s residence, will not be used in Washington for more than three months, and will not be required to be registered and licensed under the laws of Washington. AND 2. The dealer retains the following four types of documents, which must be made available upon request of the department: Document Type 1 A copy of the buyer’s currently valid out-of-state driver’s license or other official picture identification issued by a jurisdiction other than Washington State; Document Type 2 A copy of any one of the following documents, on which there is an out-of-state address for the buyer: 22

(i) A current residential rental agreement; (ii) A property tax statement from the current or previous year; (iii) A utility bill, dated within the previous two months; (iv) A state income tax return from the previous year; (v) A voter registration card; (vi) A current credit report; or (vii) Any other document determined by the department to be acceptable; Document Type 3 A witnessed declaration in the form designated by the department, signed by the buyer, and stating that the buyer’s purchase meets the requirements of this section (Buyer’s Affidavit); and Document Type 4 A seller’s certification, in the form designated by the department, that either a vehicle trip permit was issued or the vehicle was immediately registered and licensed in another state. The Seller’s Certificate must be signed by the person who actually deliver’s the vehicle to the buyer. SUMMARY The new sales tax exemption for disabled veterans and active duty military personnel who are disabled will take effect August 1, 2013. Sellers of qualifying add-on equipment and installers of the equipment will need to obtain documentation as evidence of the exempt nature of the sale. That documentation should be available soon from the Department of Revenue. As with any sale that is exempt from sales tax under the law, lack of adequate documentation may cause the sale to be recharacterized as taxable. When that happens, the Department of Revenue assesses tax on the seller/dealer and leaves it up to the dealer to attempt to recover the tax from the buyer. We all know how hard it can be to track down the buyer, let alone collect a tax that may be more than four years old. Don’t let that happen to you! For more information please contact: Rachel A. Le Mieux, CPA CMI, rlemieux@pscpa.com or Sarah Correia, scorreia@pscpa.com 1 See 38 U.S.C. § 101 as amended as of August 1, 2013. 2 C 211 L 13, SSB 5072 § 2(3)(a). 3 RCW 82.08.0264. 4 Washington State Auto Dealers Guide, Washington State Department of Revenue, October 2012.

Used Vehicle Inventory Management Using One Key Indicator… By Scott Dreisbach

One of the biggest challenges for dealership management is to clearly define, utilize and implement an inventory management system for arguably the largest and most volatile investment the dealership has…Used Vehicle inventory. It is also possible to more effectively manage that inventory using only one key financial indicator…gross return on inventory investment. It is no secret that the single largest consumer of your “net working capital” is likely to be your used vehicle inventory investment. Unfortunately, and for reasons I will never understand, this investment generally has the fewest controls, checks and balances and is likely to be one of the few inventories owned by

ROI the dealership that is not “actively managed” on a daily basis with an inventory management system and “by the numbers.” The results of these lack of controls and no real inventory management system, creates for many stores, a large amount of “frozen capital.” Have you ever had to “cash” some vehicles to make payroll? Are any of your used vehicles floor-planned? Do you seem to experience more “wholesale pain” than you think you should? Do you wish you really knew what your “lost sales” of used vehicles is? Do you think you would gross more if you had a different mix

of inventory? If the answer to any of these questions is yes, it is likely that your store has frozen capital that needs to be objectively identified, released and reinvested. Besides the real estate, your two largest recurring cash investments are likely to be used vehicles and parts. The average franchised automobile dealership today has a parts inventory investment that is somewhere around the $400,000.00 area. The average cost per piece is around $38.00. Dealers would not even consider for a moment not having a system that allows the manager to phase in what he / she needs and phase out what they don’t. The various inventory management systems are based on many indicators, primarily demand and movement and can quickly tell the manager many things they need to know to make inventory decisions including rate of turn, gross profit as a percentage of sales, return on investment, stocking guides, seasonality, and many more. We not only hope, but expect, to turn this inventory between four and six times per year. Turning a $400,000 parts inventory six times per year at the typical gross profit as a percent of sales of 25% means that the gross return on Inventory Investment would be about 187%, or nearly 16% per month. These numbers are real, achievable and happen in many dealerships because of diligent, daily, parts inventory management. Having the right part on the shelf at the right time is one of the keys to making this happen. The hardware and software costs for parts inventory management typically fall into the $2,000.00 per month range. You also have hopes and expectations for your much larger cash investment – used vehicles. In reality, the math here is quite different however. The average cost of used vehicles inventoried at franchised automobile dealerships today is nearly $14,000 per unit. It is not unusual for a dealer to have 100 (or more) units in inventory or a total investment of $1,400,000.00. Assuming this inventory is a 60 day supply (six turns per year) that would mean the following: •

100 unit inventory, 60 day supply = retail sales of 50 pieces per month.

•

50 per month times an average front end gross of $2,000.00 = $100,000.00 gross per month or $1,200,000.00 per year.

The formula to calculate Return on Investment is gross profit divided by the sum of the cost of sales of those vehicles that are burning gas plus the amount of the remaining investment. The result is your true return on that inventory investment. This is the only indicator that you really need to manage to. It will simplify your life and when your people truly understand this indicator and manage your inventory using this, your bottom line will grow. 24

Gross return on inventory investment (in the above example) then calculates to 85.7% per year or 7.14% per month. This is slightly less than half the return that your parts inventory generates (not to mention wholesale losses). To improve upon this indicator, you have three choices: 1) Keep the same gross while reducing the investment, 2) Keep the same investment and increase the gross, or 3) Reduce the investment and increase the gross by increasing turnover. This can only happen by having more of the “right stuff” on your “shelf” more of the time and by paying strict attention to diligent inventory management. The quicker the turn, the higher the gross and the investment required to do it becomes less. It is relatively simple: stock more of what your customers are looking for and your investment will become more active. A more active investment means quicker turnover which translates directly to improving gross return on inventory investment. Few of the used vehicle inventory management systems out there show you this key department financial indicator. I believe that this critical number is the cornerstone of the used vehicle inventory management process. You need to know this number by make, by model, by year and by vehicle category. Clearly, some investments perform better than others and true inventory management dictates that this number be known by all people who are in the decision loop. Do yourself a favor. Commit to making a change in your used vehicle department and install an inventory management system. Demand that the process is inviolable. Monitor its use and progress at least once a week. You will be glad you did. When it is running properly, and decisions are being made by the numbers, not by emotions, you will be turning your used vehicle inventory between nine and 12 times a year. The numbers you can achieve will amaze you. It is not likely that you will begin achieving different results without changing current behavior. If you would like more information about precise used vehicle inventory management systems, please feel free to contact Scott Dreisbach-Vice President, Valuinsight, Inc, sdrize@ valuinsight.com, 561 368 7810 x108, www.valuinsight.com.

LEARN MORE. EARN MORE. Looking for research, insights about online marketing or merchandising best practices? Find all this information and more at DealerLearningCenter.com. 25

CHANGING WITH CHANGE!

AN ADVENTUROUS JOURNEY

to the Places Auto Consumers

Go Today!

By Jeff Kent Business Development Manager Comcast Spotlight – NW Region

Oh, the Places They’ll Go! As Dr. Seuss once said, “You will come to a place where the streets are not marked. Some windows are lighted. But mostly they’re darked. A place you could sprain both your elbow and chin! Do you dare to stay out? Do you dare to go in? How much can you lose? How much can you win?” And this made me think about the journey I’ve been on the past couple of months. I’m fresh off what I am calling a master’s level re-education of the local automotive business, the automotive purchase cycle and the current state of the automotive consumer mindset. My current travels have taken me to national conventions, local ad association meetings and a number of NW Region market visits, sitting down with individual automotive dealers and respective agency partners. In my spare time, I have kept up-tospeed with daily Auto News Updates, scoured through pages and pages of decks and keen insights from the mostrecent Digital Dealer 14 Conference, visited a number of local dealer and

regional group websites and talked to a good cross-section of current and former auto intenders while reminiscing and picking oysters and clams on the Hood Canal over the Memorial Day weekend. What did I learn? I learned while I definitely don’t know it all, I am continuing to develop a fresh and contemporary perspective on how it all works and that the landscape continues to evolve at a rapid pace. Then I remembered something we all discussed about a year ago. The historical perspective on the first time we all went car shopping. Most likely we all learned about different makes and models when we saw them in TV commercials or glossy magazine ads. We compared prices on the back page of the local news or sports section of the local newspaper. But we could only get so much information about vehicle options from the available media. Once we were really ready to start comparison shopping, we had to visit our local dealership – and often a number of them – to narrow down our choices.

Now think about what really happens today. It’s drastically different now, isn’t it? The automotive consumer mindset has changed and is much more informed, the amount of time researching vehicles online today is staggering, Search and other lead-generating 3rd party sites are not producing qualified leads as often as they used to and automotive consumers are really only visiting one dealership when they are ready to buy. As an auto dealer, it’s important to keep your eye on this ever-changing trend in the automotive purchase cycle and decision making process, and actually implement strategic change, so you can maximize your sales, marketing and advertising opportunities.

THE CURRENT AUTOMOTIVE CONSUMER MINDSET What is the mindset of the local automotive consumer that you are most likely to reach today? All consumers, and a growing number of automotive consumers, are still recovering from the housing recession and maybe even hungover from an individual foreclosure. Even though consumer confidence has gained great positive momentum lately, economic after-effects are still lingering. Car shoppers are much more conscious of how they spend their money. They have access to more data, whether it’s regarding the stock market, interest rates or even grocery prices. They are constantly glancing at cost per gallon gas prices on gas station signs around the country. They do not like to wait in line or wait for anything. They are consuming more video and media on multiple screens, tablets, devices and televisions and spending more time researching every single product before they consider spending their hard-earned dollar. So, I challenge you to ask yourself which consumer mindset are you speaking to, what is your message and how are you getting through to them?

THE AUTOMOTIVE SHOPPING PROCESS & EXPERIENCE OF TODAY When you think about your media strategy, remember to consider a holistic approach that accounts for where your target audience is spending their

time researching their purchase decision. Online advertising, when used in conjunction with other media like television, extends your brand’s reach. The internet is no longer just a place to generate leads for auto dealers; I will just jump straight out onto the edge of the limb and say that the internet has become the most powerful influencer for brand selection in the automotive buying process. The internet is now the most influential source of leading traffic to a dealership, delivering 50% of new car buyers and 58% of used car buyers.1 New car buyers are spending 19 hours total shopping for a new vehicle and 60% of that time is being spent online.2 Combine this with the fact that in 2008 automotive prospects visited an average of 5 dealerships within a 20 mile radius and in 2013 similar prospects will visit an average of 1.2 dealerships within a 100 mile radius.3 How are you surviving in a world where 7 out of 10 car buyers DO NOT establish contact with the dealer prior to their initial dealership visit?4 These consumers are not only surfing the internet, they are also multi-tasking and watching TV while researching automotive and everything else. If you are both places then you have increased the chances they will see your ads on both screens and retain your message more effectively. Research shows, when you advertise on TV and on the web simultaneously, brand recall increases on average 49%.5 Whether you utilize videos of vehicles, specs and reviews, or other online advertising options – the web provides advertisers a platform to have deeper engagements with consumers. So we all know that reaching everyone on every screen is expensive, just like we know that the distance automotive consumers are traveling is equally expensive to all. Challenges also exist in gaining the attention of these prospects, differentiating your dealership and your website and determining the message or hook that will drive conversion. There are a few pieces to the equation; now let’s take a look at the world of “Search” in the automotive category.

LOCAL AUTOMOTIVE DEALERS: PAID SEARCH FAST FACTS One other area I wanted to re-visit after capturing my thoughts around my recent travels and tedious PowerPoint deck reviews is the phenomenon around “paid search” and how it relates to the automotive category. From what I’ve seen over the past three years and from conducting hundreds of automotive searches online, auto dealers consistently fall into the trap of focusing online marketing on search engine optimization and keyword advertising. It sounds like a great idea, but in practice it should again be just one piece of your overall strategy. Using banner ads along with search is better than search alone. People who used search and were additionally exposed to display and online video advertising were 22% more likely to produce a sale.6 In addition, car shoppers overall want more video; 57%

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With the ever-changing landscape of today’s automotive advertising landscape and the dominant amount of media time spent watching TV and going online, and the rapid acceleration of media multi-taskers, the key to successful auto advertising is having the right mix of total media while pairing TV and online.

of car shoppers visited a dealership after watching a video online and 47% of those same shoppers searched dealer inventory after watching on online video.7 So you may ask why it is important to track the ROI on my paid search activity. Or you may still believe in the automotive dealer folklore notion of “if I don’t own that word, someone else will buy it.” Great points and ROI always matters, but based on current automotive online consumer shopping behaviors the last notion is no longer relevant. I was recently exposed to a study by a company Dataium, one of the world’s largest compilers of online automotive shopping behaviors, and was fascinated by the results. The dataset consists of over 380 Million total behaviors and over 20 Million monthly automotive consumers and 12,000+ automotive sites including dealer sites, automotive market places, local sites, websites, search engines and OEM’s. While I would never tell you this is exactly what’s happening in your dealership, I will challenge you to look at your individual business and analyze your own percentages if you happen to know what they are. Here are some highlights that should get your gears turning a little bit:

•

An average of 45%-65% of auto dealer’s digital budget is spent on paid search. - How much are you investing in SEM? This investment is only delivering 6% of search traffic to a dealer website. - Where are your website visitors really coming from? Dealer website visits (6% of search traffic) from search are only yielding .8% of leads to a dealer. - Where are your leads actually coming from? 79% of web searches contain keywords with some form of the dealer’s name and 20% are for the exact dealership name.8 - What are consumers searching for to find you or do they already know your name?

So think about the places you go with your automotive online and search investments and take a look if you are on the right path, or if you need to find out what path you are on.

SO WHERE DO I NEED TO BE? AND WHAT DO I NEED TO DO FIRST? The truth of the matter is that you need to be everywhere in the right way and at the right time. Back to our friend the great Dr. Seuss who once said, “Simple it’s not, I’m afraid you will find, for a mind maker-upper to make up his mind.” With the ever-changing landscape of today’s automotive advertising landscape and the dominant amount of media time spent watching TV and going online, and the rapid acceleration of media multi-taskers, the key to successful auto advertising is having the right mix of total media while pairing TV and online. When you align your marketing goals and media spend with the multi-screen generation’s screens of choice, you’re taking a step toward the future by engaging today’s car buyers in new places, on new devices, and on their new terms. Let’s leave with one last impactful statement from our dear friend Seuss, “Oh the places you’ll go! There is fun to be done! There are points to be scored. There are games to be won. And the magical things you can do with that ball will make you the winning-est winner of all.” 1 2012 AutoTrader.com/Polk Automotive Influence Study 2 2012 AutoTrader.com/Polk Automotive Influence Study 3 Google Auto Study 2012 4 2012 AutoTrader.com/Polk Automotive Influence Study 5 Nielsen IAG A18+ March 2011 6 eMarketer Sept 2010 7 Compete, Polk & Google, ‘2012 Automotive Buy Flow Study’, September 2012 8 Dataium 2012

By Paul Gillrie

Understanding a few MAJOR DMS issues of both security and expense in simple terms

Is Your DMS System Boring A Hole in Your Budget? Well, It Shouldn’t be!

Most car dealers are not spending sleepless nights worried about their IT and technology but, based on what we are seeing every day, they should be very concerned. Technology requires constant vigilance and a level of attentiveness that just doesn’t exist in many auto dealerships. At The Gillrie Institute, we don’t provide any IT services. For over twenty years, we have helped our dealer clients make the right choices when they are negotiating for DMS systems and other related technology. In the course of some recent projects, we have seen startling evidence of the havoc and financial exposure that a lack of cohesive IT policies can cause. This article is our attempt to help dealers understand a few of the major issues of both security and expense in simple terms. It is far from comprehensive and dealers should seek professional help as necessary.

SECURITY In today’s world, no dealer would leave the doors open when everyone has gone home for the night. You always lock up because you know you have valuable property to protect. Don’t forget to secure your most vulnerable valuable – your data and that of your customers. No theft is more perilous to your reputation and finances in this digital age.

1. Secure every desktop. You must lock them down and prevent the installation of software (including the peer to peer variants), viruses, malware, games, etc. We have seen stores where most users seem to have replicated their home computer on their workstation. Aside from the obvious distractions and wasted employee time, this kind of open access allows the desktop of even the most honest user’s computer to become the portal that invites the intruder. Don’t think that “they wouldn’t do that.” You must have a plan that prevents it or it will happen, innocently or maliciously. 2. Use strong passwords and change them often. It is truly amazing but probably half the computers in the U.S. still use passwords like “Password,” “12345,” and “User / User.” Your passwords should be complex, including numbers, letters and special characters. They should be changed at least every ninety days. And – obviously- don’t write them down somewhere on or near the workstation. 3. Install and continuously update protection software. You need virus and malware protection, along with actively managed web filtering software (e.g., Websense). These programs must be kept current as new threats arise incessantly. 4. Provide real wireless security. Most dealerships still use WEP encryption that has not been secure since 2001. Even those who use the more secure WPA protocol have a single password that everyone knows and you can find written somewhere under most desk pads. Former employees (and anyone else who has ever accessed your system) all leave with the ability to re-enter at will. The only acceptable method to secure wireless is through the use of an Adaptive Network Access Control (e.g., Edge Series) that assigns and monitors passwords, even deleting access when a user has left the company. Access to sensitive data is allowed on an “as required” basis only to authorized personnel. Many dealerships are now also using wireless equipment to make working with customers easier and more versatile. For example, service departments use wireless tablets to write up customers on the drive. However, even this open network could place the customer’s information at risk. 5. Control the use of personal tablets and smartphones to access company files. You must have a Bring Your Own Device (BYOD) policy and enforce it. We know that breaches using these devices are happening now, unknown to Dealers. Consult an expert on

implementation of your BYOD policy if you are going to allow the use of private devices. The consequences of lax security can be truly devastating. The direct and indirect costs associated with a breach of customer data can grow to seven figures and beyond, while further affecting your reputation and the level of trust your customers place in your business. Litigation often centers on the steps a business took (or did not take) to prevent the breach. Auto dealers are considered soft, data-rich targets that will yield exactly the type of information for which a thief is looking. All dealers must have a program and culture in place to both prevent the breach and mitigate any ensuing damages.

IT EXPENSE PLANNING This is an area where knowledge truly is power. We see duplication, waste and just poor planning sapping the coffers of many dealers. Technology changes unabated and those that it surprises pay the steepest price. 1. Avoid unnecessary “custom programming.” Auto dealerships and auto groups are indeed complex businesses but few are truly unique. Most contingencies and true needs have been met by perfectly satisfactory commercial solutions that are generally less expensive, more secure and easier to use than ones created in-house. Search for the existing solution before commissioning a “one off” masterpiece. Surely the occasional circumstance requiring special coding does arise. In those cases, the exact specifications should be determined, the ownership of the program unequivocally established and the result guaranteed. We have encountered dealer groups that have two or more full time “programmers” on staff. These same groups will often share a common trait. They will have “custom” programs for every purpose, some trivial, almost all duplicative. Usually only one employee knows how the code was configured – a potentially dangerous situation if that person is no longer available. Make sure you are the exception to this rule. 2. Plan hardware replacements. Workstations (usually PCs) have a limited lifespan due to use and obsolescence. Function and security can become major considerations. Hardware replacements should be scheduled and budgeted in advance. An updated DMS may require that you replace your older PCs with newly specified models. As an example, recently a larger group needed to replace over 800 desktops in a few months. Each had to have software installed and be added to the network. This rather substantial expense could more comfortably have been spread 33

over a couple of years. Other hardware, such as phone systems, should also be kept updated and current -covered under the manufacturer’s umbrella. 3. Plan software updates. Just like the hardware, software gets obsolete. Windows XP, for example, will no longer be supported (hence no updates or security patches) after April, 2014. Now is a good time to begin migrating to Windows 7 which will live until 2020. This rule applies to every type of software, including networks, phones and other vital systems as well as the utilities like firewalls, anti-virus and malware. In many cases software that has not been updated regularly will cease to function as it ages. Schedule the expense rather than reacting to a crisis when it occurs.

Dealers can’t afford to be oblivious to the challenges inherent in the technologies that they must employ to survive and compete.

4. Eliminate any software that is unlicensed or noncompliant. Think this is a trivial issue? Under U.S. federal law, each violation carries a potential fine of up to $150,000 per software title copied illegally. Individuals prosecuted for criminal copyright infringement face up to $250,000 in fines and imprisonment of up to five years - a real risk to your business. Software industry groups actually offer huge rewards for qualified reports of violations so anyone can “cash in” by reporting you. We know of one dealership group that was hit with penalties of $1,000,000.00+ after an audit. Do your own audit and delete any illegal software immediately. Replace it with licensed versions as necessary. Often employees will try to “save you money” and install unlicensed versions they may have on hand. They may mean well, but it can become very expensive for the unwary dealer. Make it very clear that this is unacceptable in every case. 5. Eliminate unnecessary computers and software. In larger groups, we often find that similar sized stores, run by different managers, have a great variance in the numbers of workstations. While there may be 34

valid reasons for such a discrepancy, it’s likely a place where a little scrutiny can save a lot of money. The savings can proliferate when unnecessary workstations and their related software are removed. While you are conducting your review, ask yourself if every computer really needs a full version of MS Office or other expensive software that may seldom be used and could be eliminated. 6. Plan networks with redundancy and recovery in mind. These days, Your Internet connection can never go down. Such a failure can be disastrously expensive. Most dealers have only a single Internet connection per site. Every dealer should have multiple discrete providers that will keep them up and running, doing business whatever the contingency. Groups tend to build a central “data center” in their main facility. While this makes it easier in some ways, it also creates a “choke point” that can shut down the entire enterprise. This critical equipment should be housed in a carrier facility so no single store is the central point of failure. 7. Consider emerging technology that can reduce cost and deliver more bandwidth. Dealers currently have Internet and phone connections. They pay for each separately. The next generation of connection (where available) is the high capacity fiber optic pipe that carries both voice and data on the same line. The advantages are greatly augmented bandwidth, added overall reliability and reduced cost. Every dealer should discuss the possibilities with their carrier. In summary, dealers can’t afford to be oblivious to the challenges inherent in the technologies that they must employ to survive and compete. Most dealers will need to seek professional help with the kind of issues we’ve discussed here. At The Gillrie Institute, we don’t provide IT services but we do work with about half the dealers in the U.S. who call on us for assistance with their DMS. We will be happy to recommend firms with whom we have worked and rely upon for our clients. For more information you may contact Paul at 800-576-6959.

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How Well Does Your Team Answer the Telephone?

Don’t know? NOT Good!

By Nancy Friedman The Telephone Doctor

Take the Telephone Doctor I.Q. Quiz Long ago a good friend once told me, “Nancy, the training your company provides is common sense that’s actually NOT very common!” There’s a lot of truth to that statement. Yet years later, rudeness and low service levels still plague businesses in every industry. We hope you enjoy taking this customer service quiz to test how common your common sense is. 1. “How can I help you?” belongs: A. In the initial greeting. B. In the message taking scenario. C. Nowhere. I’m not able to help anyone. 2. When I’m not able to help a customer, I should: A. Tell them honestly & thank them for their business and hang up. B. Give whatever information I can, right or wrong. Wrong information is better than no information. C. Get help immediately and advise the person help is on the way. 3. When I’m having a bad day, I should: A. Not bother coming into work. B. Leave my troubles at the doorstep like the song says. C. Tell all my co-workers my troubles to get it off my back. 4. Chewing gum at work is: A. OK. B. A bad breath refresher. C. Downright rude and obnoxious. Fugetaboutit! 5. A mirror at my desk will: A. Keep my ego in check. B. Remind me to smile BEFORE I pick up the phone. C. Give me bad luck if it breaks.

6. Basic customer service skills are important to me because: A. Everyone needs a refresher. B. I need a lot of help. C. I never learned any. 7. Internal customer service means: A. Be nice to others who come into my office. B. The customer is giving me a stomachache. C. Treating my co-workers as customers. 8. When using voice mail and leaving a message I should: A. Leave my phone number twice and slowly. B. Leave a good clean joke to keep them smiling. C. Not leave a message...just call back till I reach them. 9. Irate callers/customers are important to our company because: A. It’s fun to handle those kinds of calls. B. At least we get a second chance to make it right. C. I finally get to yell back. 10. Asking questions of the customer will: A. Aggravate them. B. Show I’m interested in helping. C. Be considered being too nosy.

I.Q. Quiz Answers 1. Correct answer is B. Anything after your name...erases your name. And on initial greetings, your name is very important. You have answered the phone to help them. It’s a given. Those words are best used in a message taking scenario. 2. Correct answer is C. Be sure you let the customer know that help is on the way. That’s the most important part. 3. Correct answer is B. We need to leave our troubles at the door. Arguments with a spouse or a bad hair day is your problem. Telephone Doctor calls that “emotional leakage.” That’s getting angry at Peter and taking it out on Paul. Not fair, not right and no fun. 4. Correct answer is C. No gum at work - ever. End of subject. If you have bad breath - use mouthwash. 5. Correct answer is B. The old Telephone Doctor adage...”smile BEFORE you pick up the phone,” is the way to make every phone call, or customer contact, a great one. Remember, it’s hard to be rude when you’re smiling. 6. Correct answer is A. Everyone can use a brush-up course. There’s a great saying: “When you’re through learning...you’re through.” Never stop taking those little basic skill lessons you’re offered. Even if you do know it all...look how good you’ll feel about that! 7. Correct answer is C. We need to treat our co-workers as well as we’re going to treat our external customers. Remember: We Are Customers To Each Other. We sure don’t need any internal conflicts between co-workers and departments. 8. Correct answer is A. Voice mail was meant to take an effective message. Give details and speak conversationally so the person receiving the message will enjoy it. Effective messages have concrete information - dates, times, names, situations. Leave your phone number - twice and slowly. Make voice mail work for you...not against you. 9. Correct answer is B. Getting a second chance is golden. And irate callers, while certainly not pleasant, can be the challenge of the day. And they can be satisfied. 10. Correct answer is B. Listening and questioning skills are very important to excellent customer service. Nancy Friedman, president of Telephone Doctor, is a featured speaker at association and corporate meetings. For an information packet on Nancy, please email Donna.Bryan@telephonedoctor.com or call 314.291.1012. 38

SO SHOULD YOU.

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