The Puget Sound Dealer, 2014 Issue #1 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 2014 President Steve Klein Klein Honda, Everett 1st Vice President Jim Walen Ford-Hyundai of Kirkland 2nd Vice President Dan Wilder, Jr. Wilder Auto Center, Port Angeles 3rd Vice President Marc Ikegami Doug’s Lynnwood Mazda, Doug’s Lynnwood Hyundai, Doug’s Northwest Cadillac Trustee Position #1 Vince Hanson Hanson Motors, Olympia Trustee Position #2 Mark Revord Revord Buick GMC Truck, Everett Immediate Past President Sara Carter Carter Subaru, Shoreline PSADA STAFF James R. Hammond Executive Director Linda Halverson Executive Assistant Susan Leonhardi Programs and Data Base Manager

A Message from the Editor

If You Haven’t Failed, You Haven’t Lived

If I have ever been able to share anything valuable with you, I am hoping that this message goes to the top of your list. Share it with your employees. Consider the following: • Dismissed from drama school with a note that said “Wasting your time. She is too shy to put her best foot forward.” Lucille Ball • Turned down by the Decca Record Company who said, “We don’t like their sound. Guitar music is on the way out.” The Beatles • Failed soldier, farmer and real estate agent. At 38 years old he went to work for his father as a handyman. Ulysses S. Grant • Cut from the high school basketball team, he went home, locked himself in his room and cried. Michael Jordan • Teacher told him he was too stupid to learn anything and that he should go into a field where he could succeed by virtue of his pleasant personality. Thomas Edison • Fired from a newspaper because he lacked imagination and had no original ideas. Walt Disney • Failed Twice. His fiancé died, he failed in business twice, had a nervous breakdown, and was defeated in eight elections. Abraham Lincoln Great Failures! Despite their failures and people telling them to give up, they believed in themselves and not only became successful, but changed the world around them. Want to see an inspiring video clip? Google “If You’ve Never Failed, You’ve Never Lived.” Share it with your employees. This sixty second video spoke to the core of my soul. We live in a world that often beats people down. We often beat each other down. We are quick to judge other people. We are quick to dismiss other people’s thoughts and ideas. Often we say things without thinking about what those words might do to the person we give them to. No one is stupid. No one is valueless. Everyone has gifts and talents. But, people get stuck. You would be surprised to learn how many of your employees are timid, privately carrying their own crisis, and just need a little positive push to give them the courage to show their brilliance. There is no such thing as failure. Life setbacks make us smarter and wiser. Invest in the personal lives of your employees. Let them know you value them, that they are important, that their thoughts are valuable to you, and that they can overcome any obstacle if they put their mind to it. Help them recognize their greatness. It is amazing what happy people can accomplish when they have no fear! If you’ve never failed, you’ve never lived. Life=Risks. Watch the video!

Michele Foley Office Assistant

James Hammond Executive Director

Inside this Issue

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

Message from the President - Steve Klein

Understanding Employee Wellness Programs

The Tangible Property Regulations - Changes That Impact Auto Dealers

Are Your Performance Measurements Outdated?

The Amazing Nelson Clan

Working Conditions and Management Support

Galloping Consolidation and High Stock Prices Drive Historically High Dealership Valuations

Taming the Floor Plan Monster

Gold Medal Media Performance

Using a Professional Reconditioning Services Provider Saves Time & Money and Increases ROI

Advertising Evolution - Emerging from the Economic Ice Age

Preparing for the road ahead should feel this good.

Work with Peterson Sullivan and experience the difference. Our proactive approach makes tax savings a breeze. Did you know the IRS issued new regulations on repairs and depreciable assets that contain favorable opportunities for dealerships? These changes create an opportunity to significantly reduce your tax expense. By reviewing fixed assets and adopting these new rules now, your dealership can take advantage of these new benefits.

Confidence earned. pscpa.com

Tax advice thatâ&#x20AC;&#x2122;s this good is like driving with the windows down! 5

Knowing your business is our business. Every dealership has unique legal needs. At Ryan Swanson, we pride ourselves on not only being great listeners, but in truly hearing what is affecting dealer businesses. By understanding your business goals and the auto industry, we are more than trusted advisorsâ&#x20AC;&#x201D;we are collaborative partners. Itâ&#x20AC;&#x2122;s with this collaborative style that we have built a lasting trust with auto dealers in the Puget Sound for over 20 years.

Humanese Over Legalese.

206.464.4224 | www.ryanswansonlaw.com

Message from the President

Steve Klein Klein Honda

PSADA’S New Online HR Guide Leads Nation with 24/7 Employment Issue Resources

This Spring PSADA launched its new Online HR Employment Guide and Employee Issues Resource Program. Our program will provide dealership staff with a very important resource to assist them in keeping up with ever-changing employment laws and in helping establish their individual store employment practices. PSADA is the first dealers association in the nation to launch a 24/7 online resource, such as this. The Online HR Guide consists of multiple components: •

•

• • •

The Guide has a list of the most common questions, by topic, concerning the majority of HR laws impacting dealerships, with links to PSADA forms and to federal, state, or local government agencies’ online resources for each law. The Guide is a “living document.” If you do not find the topic or question in the HR Guide, you can “Ask Jim.” Email Jim Hammond with your question. He will research it with our legal counsel, contact you with a response, and then add both question and answer to the HR Guide. That is why we are calling it a “living document” because it will continue to evolve with critical information as the Guide interfaces with our members. The Guide includes a complete directory of all required and recommended federal, state, and local forms, posters, and manuals with links to download them from PSADA at no cost. The Guide has an entire web link dedicated to the Health Care Reform Act. The Guide has recommendations for you to consider before you contact an attorney.

There is nothing like PSADA’s program in the nation. The new HR Employment Guide is designed to help dealers’ HR department staff with immediate access to a quick, always current, comprehensive employment resource to use as they navigate their way through constantly changing employment laws and assessing how best to incorporate this information into their own employment policies. The Guide is located at www.psada.com and only available to PSADA members. You will need to use your PSADA password. If you don’t remember it, contact PSADA at 206-542-3551 or ask Jim at jim@psada.com.

Understanding Employee Wellness Programs

Employee wellness programs are programs designed to keep people healthy and to avoid preventable illnesses. More and more employers are choosing to implement wellness programs, but not everyone understands what they are, the practical considerations of implementing them, and the risks involved. It is important for dealers to become informed about wellness programs to determine if such programs will be a benefit to their dealerships and their employees, and to make sure they follow the law when implementing these programs. What is an Employee Wellness Program? Employee wellness programs promote employees’ health and well-being. The goal is to help employees make healthier choices. Wellness programs are designed to address “lifestyle diseases” such as inactivity, poor nutrition, tobacco use, and frequent alcohol consumption. These types of “diseases” are increasingly prevalent in working age individuals. Wellness programs can include a variety of services such as newsletters, health risk assessments, health screenings, meetings, education, health fairs, fitness classes, and incentives. A combination of these methods is essential to making these programs successful. How do Incentives Work? Incentives are a relatively effective way to increase employee participation in wellness programs. Some studies have found incentives to be the key to successful wellness programs. Legally, it is easier to provide incen-

By Britenae Pierce Ryan, Swanson & Cleveland, PLLC

tives for participation rather than incentives for achieving results. One example of participation is undergoing a health risk assessment. An example of a results-based incentive is including rewards for something like achieving a target body weight or a minimum number of gym workouts per week. Cash, cash equivalents such as discounted gym memberships, and novelty items are all common incentives. Novelty items can be water bottles, lunch bags, tote bags, pedometers, and more. Monetary incentives over $50 also can be relatively effective at increasing employee participation in wellness programs. Incentives for health-based or wellness activities must satisfy five criteria: 1. Individuals must have the opportunity to qualify for the reward under the program at least once per year. 2. The program must be reasonably designed to promote health or prevent disease. 3. The amount of the reward available cannot exceed more than 30% of the cost of coverage (or 50% if a tobacco wellness program). 4. The program must permit individuals to achieve the reward through a reasonable alternative standard. 5. The program must provide specific information, including availability of a reasonable alternative standard and plan contact information.

Incentives for participation only, and that are not tied to a health factor and are offered to all similarly situated individuals, do not have to comply with these same stringent requirements but still must satisfy all other applicable laws. Benefits of Employee Benefit Programs Employee wellness programs may have benefits to both employees and employers. Some studies suggest that wellness programs help cut health care costs and may reduce hospital visits. These programs also may help increase productivity and decrease the cost of employer-sponsored health care plans. Happier workers work harder. In addition to health benefits, wellness programs can increase employees’ self-esteem, security, and engagement in the workplace. Generally, employees value their employer providing them opportunities to engage in health behaviors and incentives for doing so. Be Careful… Employees adopting wellness programs must be careful to comply with all other applicable laws. For example, under the Americans with Disabilities Act (ADA), individuals with disabilities must not be penalized or have an incentive withheld on the basis of their disability. Thus, programs should be designed so that all employees can participate and qualify for the incentive.

Employees adopting wellness programs must be careful to comply with all other applicable laws. For example, under the Americans with Disabilities Act (ADA), individuals with disabilities must not be penalized or have an incentive withheld on the basis of their disability. Thus, programs should be designed so that all employees can participate and qualify for the incentive.

Also, the Genetic Information and Nondiscrimination Act (GINA) prohibits employers from collecting genetic information, including family medical history, for underwriting purposes. This means an employer cannot, for example, offer an incentive for completing a health assessment questionnaire that contains questions about family medical history unless answers to those questions are not required to receive the incentive.

Health information collected for wellness programs also needs to comply with HIPAA’s security and privacy rules. Dealers should consider any way a wellness program could be seen to target a protected class, such as setting health objectives that are more difficult for older employees to meet. Such types of programs are not allowed. What next? Dealers should consider whether employee wellness plans would benefit their dealerships. To do this, dealers should obtain input from employees. Next, dealers should work to implement such plans so that they comply with all applicable laws. The benefits of implementing these plans may well result in healthier and harder working employees, and an overall culture of wellness for your dealership. 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.

By Roger Wilkins, CPA Senior Manager Peterson Sullivan LLP

The Tangible Property Regulations â&#x20AC;&#x201C; Changes That Impact Auto Dealers

Whether items purchased for use in a business must be capitalized and depreciated over a period of years or can be expensed in the current year has long been a source of controversy between taxpayers and the IRS. New regulations were issued recently by the IRS in an effort to clarify this area. The guidance discusses whether taxpayer expenditures related to the purchase of assets, materials and supplies, improvements, betterments, restorations, adaptions, and/or repairs and maintenance should be: 1) Capitalized on your depreciation schedule, 2) Deferred (inventoried and tracked) until the item is placed in service, or 3) Written off when the expenditure is made. t has been suggested that every taxpayer with fixed assets or materials and supplies is affected by these changes and will have to file one or more Forms 3115 to apply for accounting method changes. The new rules are required to be implemented no later than tax years beginning in 2014; however, some of them may be applied as far back as 2012. There may be a benefit from early adoption of the rules to take advantage of write offs available under the new regulations that were not appropriate under old law. This article is not intended to be an exhaustive explanation of the new regulations, indeed there is not enough space here for that. Rather it will provide an overview and

highlight of two provisions that may have an immediate impact reducing your tax liability: The De Minimis Safe Harbor Election, and rules for Building Refresh. De Minimis Safe Harbor Under the old rules, virtually any expenditure for an item that could be expected to last more than a year was required to be capitalized and written off over time through depreciation. This applied equally to small ticket items as well as items with higher costs. Most businesses have a capitalization policy in place that sets a dollar limit threshold; items costing more than the threshold are capitalized as assets and items costing less are expensed. Although this practice has been allowed under the concept of materiality for books, until now it has never been formally condoned by the tax law, leaving the IRS the ability to disallow deductions for small ticket items that are technically assets under the old rules. Under the new rules, items costing $200 or less are considered de minimis and deductible when acquired. Further, if the taxpayer has a written or unwritten accounting policy in place at the beginning of the tax year to expense items costing less than a specified dollar amount, a â&#x20AC;&#x153;de minimis safe harbor electionâ&#x20AC;? can be made to cover items costing up to $500. The de minimis amount

can be as much as $5,000 for taxpayers with audited financial statements; however, these taxpayers’ accounting policy must be in writing. The safe harbor provides a measure of audit protection. It means the IRS cannot disallow expenses below the threshold amount and require them to be capitalized on audit. The de minimis safe harbor election can and should be made by most taxpayers on their 2013 returns and annually thereafter. Important to note is that the capitalization policy must be followed for books as well as for tax purposes, and can be for any threshold amount. However, only items costing $500 (or $5,000) or less will qualify for safe harbor treatment. Building Refresh or Remodel Most retail businesses, including auto dealerships, upgrade and change the look of their stores periodically. Three examples in the new regulations involve improvements made to a retail building and address whether expenditures constitute a “building refresh” (deductible), or a “building remodel” (capitalizable). All of the examples point out that expenditures for property such as furniture or carpeting are required to be capitalized in any event. It’s also important to note that even when a project is considered a refresh and many of the expenditures can be deducted, those that represent a betterment such as an increase in the footprint of the building or addi-

tion of a loading dock are still required to be capitalized. In contrast, if a project is deemed to be a remodel, expenditures that might constitute deductible repairs if viewed separately are required to be capitalized as they are deemed to directly benefit or to be incurred by reason of the improvements. The examples can be summarized as follows: Example 1 – Not a betterment; building refresh. In this example the taxpayer incurs expenditures to refresh the look and layout of its store. The work performed consists of cosmetic and layout changes to the store’s interior and general repairs and maintenance to the store building to modernize the building and reorganize the merchandise displays. The work involves: • replacing display tables and racks, • lighting relocations, • floor repairs, • moving a wall, • patching holes in walls, • repainting the interior structure with a new color scheme to coordinate with new signage, • replacing damaged ceiling tiles, • cleaning and repairing wood flooring throughout the store building, and • power washing building exteriors. 13

Preparing for he road ahead hould feel his good.

Even though the new tables and racks are required to be capitalized, the rest of the expenditures are deductible because they do not represent a betterment. Example 2 – Building refresh; limited improvement. The facts are the same as in Example 1, except in addition to the refresh, the taxpayer also pays to: • increase the building’s storage space, • add a second loading dock and a second overhead door, and • upgrade the electrical system of the building, including addition of a second service box with increased amperage and new wiring from the service box to provide lighting and power throughout the new space. Although performed at the same time, construction of the additions does not affect, and is not otherwise related to, the refresh of the retail space. This example concludes that the amounts paid for the refresh are again deductible; however, the amounts paid to increase the size of the building, add the loading dock and door, and upgrade the electrical system are capitalizable as betterments. Example 3 – Betterment; building remodel. In this example, the taxpayer decides that it can no longer compete in its current store class and decides to upgrade to offer higher end products to a different type of customer. To do so it must substantially remodel its store. The work includes major items such as: • replacing large parts of the exterior walls with windows, • replacing escalators with a monumental staircase, • rebuilding the interior and exterior facades, • replacing vinyl floors with ceramic flooring, • replacing ceiling tiles with acoustical tiles, and • upgrades to increase the capacity of the buildings’ electrical system to accommodate the structural changes

continues to operate the same business, presumably offering similar products to the same customer base. There may have been some structural improvements that are capitalized in Examples 1 and 2, but that doesn’t change the overall treatment of other expenditures as a deductible refresh. Therefore the question to ask is: • What factors cause Example 3 to be considered a remodel instead of a refresh? The regulations say it’s based on all the facts and circumstances, but does it have more to do with: o the change in products and customers, or o the physical nature of the work done? The regulations are not clear on what tips the scales from refresh to remodel. If a refresh is undertaken to simply change the look and layout of the store and not to sell different products to different customers, arguably it is not like Example 3 and therefore its costs are generally deductible. However, it appears that the more structural work is done and the heavier the construction, the more the project looks like a capitalizable remodel. A difficulty in using examples in the tax regulations to define what treatment is appropriate is that there are always similarities and differences between your facts and those in the examples. As mentioned above, it is expected that most taxpayers will need to file for a change in accounting method (Form 3115) for the 2013 or 2014 tax year to adopt the new rules. If you’ve done a recent refresh/remodel, there may be a benefit to adopting the changes beginning in 2013 rather than waiting until 2014. Consult your tax advisor to see what course of action might be best for your business. For more information on this topic contact Roger Wilkins, 206-791-8452 or rwilkins@pscpa.com

The example goes on to describe the installation of more effi-

k with Peterson Sullivan and experience the difference. cient lighting and better quality and more efficient plumbing proactive approach makes tax savings a breeze. fixtures. In this example there are also expenditures for

ou knowcleaning, the IRS issued regulations on repairs depreciable patchingnew walls, replacing ceiling tiles, and painting, and s that contain favorable opportunities for dealerships? These power washing. All of the expenditures are considered tochanges be e an opportunity to significantly reduce your tax expense. By reviewing a remodel and therefore represent a betterment to the building assets and adopting these new rules now, your dealership can take and its systems. As a result, expenditures that would be considntage of these new benefits. ered repairs and maintenance if performed independent of the dvice that’s this good is painting like driving with the windows down! to remodel (such as and power washing), are required be capitalized. Obviously there are significant differences in the facts between the first two examples and the third. In the first two FINAL.indd 1 examples, the taxpayer is changing the look of its store but 14

Confidence earned. pscpa.com

2/18/14 6:06 PM

Are Your Performance Measurements Yes

No Maybe

Outdated

By Jay Rogers

Here's How to Measure Performance!

Implementing Vision, Strategy, Effecting Change Most dealership performance measurements are too short, too rigid, and are used more like a strict teacher’s ruler – used to whack rather than to motivate. In today’s market, these outdated measurements should be replaced with one that motivates continuous improvement in customer satisfaction, flexibility, and productivity - simultaneously. In short: • Are functions, departments, and teams within a dealership process doing the right things? • Are they doing them well? Your focus should be improving on the things that count most to the customer, and providing more value. In particular, measurements should be: • Focusing on the customer • Creating tighter communications within the dealership and individual departments • Being more dynamic and capable of changing when the customer expectations or strategies change • Communicating flexibility into specific measurements • Tying operations to financial results Depending on traditional performance measures will not serve you well anymore If your organization is relying on traditional performance measures, you are probably not getting the answers or information you need to help you become more effective and competitive. In an effort to change measurements or metrics, you need to expose traditional management practices, including managing by objectives, throwing money, and/or technology at problem.

First, let’s address management by objectives. Traditionally, we sit down at the beginning of each month and set agreed-upon organizational, departmental, and individual goals. Subsequently, these goals serve as a basis for performance assessment. The purpose is to be able to hold managers and their teams accountable, encouraging all employees to contribute to the departmental goals, and measuring the results. The issue with this style of management is that it fosters competition rather than teamwork, because it is a mechanism ultimately used for assessing the individual contributions at review time. Another issue is the goals often ignore the customers and are based on past performances. It also centers on the manager/team player relationship within the department’s vertical structure, rather than on the horizontal workflow independent of organizational boundaries. Objectives, once set, tend to become fixed throughout the organization, making change in the external environment more difficult. Finally, these type of measurements tend to become one-dimensional and are often only financial oriented. In short, a well-intended “manage by objectives” goal tends to isolate and fragment the information dealerships need to become more competitive. Evaluating your Competitive Position A strategic plan begins with an assessment of the dealership. Both the external and internal environments come under close review and discussions. External points of interest are items such as who are your customers, what are your customers looking for today, and how are you currently handling and satisfying those needs? You need to ask yourself: 17

• •

How do I evaluate the market I am in, and how will it change in the future? What effect will these strategic changes have on my market, the way I do business, and the way my company is structured?

Also, •

identify the core processes required to implement a particular business strategy and sustain it. You will also need to identify the areas where performance indicators will be important. It is reasonable to say the importance of each one of the values mentioned are as follows: 5. Customer experience 4. Service 3. Product 2. Price 1. Location

You will need to review the technology you are using and how it relates to what is in the market place. • You need to determine what technology is no longer providing you the information you need and what you will need to go forward in the future. • You need to ask yourself if technology will help in the In summary, recognition of core values and processes provides way you will do business in the future. all employees with: • You need to pinpoint who your competitors and how • A unified purpose your organization is perceived in the market place. • A shared sense of a larger mission • You need to know how your competitors perceive you • A sense of urgency in the market place. • The flexibility to focus on what counts the most • You need to establish a strategy for competing and growing your market share. Key Requirements to Successfully Impact Change In terms of internal points, There are five key elements needed to effect change in an • What are your products? organization. Vision, skills, incentives, resources, and an action • How do you distribute inventory? plan. Without all five, any combination of the other four will • What new products are coming to your organization provide a variety of results. For example: and how are they going to benefit your customers? • What internal opVision-‐-‐Skills-‐-‐Incen-ves-‐-‐Resources-‐-‐Ac-on Plan = Change erational plans are in -‐-‐Skills-‐-‐Incen-ves-‐-‐Resources-‐-‐Ac-on Plan = Confusion place and planned to accommodate cusVision-‐-‐ -‐-‐Incen-ves-‐-‐Resources-‐-‐Ac-on Plan = Anxiety tomers, growth, and capacity of inventory Vision-‐-‐Skills-‐-‐ -‐-‐Resources-‐-‐Ac-on Plan = Gradual Change as your market share Vision-‐-‐Skills-‐-‐Incen-ves-‐-‐ -‐-‐Ac-on Plan = Frustra-on increases? Creating a Strategy A strategy model in the automobile business has five core values to focus on. They are: • Location • Price • Service • Product • Customer Experience

Vision-‐-‐Skills-‐-‐Incen-ves-‐-‐Resources-‐-‐ =

It would be interesting if you had all of your employees number these one through five, with five being the primary focus and driver of the organization’s strategic plan, and one being the least. It is always an education to see how your employees see the strategic plan within your company. Once identifying the order of importance of your core values, you will then need to 18

False Start

Jay Rogers, JRg Jay Rogers Group, is a nationally recognized automotive marketing and development trainer. Prior to starting his own company, Jay was Director of Training and VP of Sales with a national finance services company located in Texas. He is recognized for turning companies around with processes and procedures that improve efficiencies and profitability. Jay can be contacted at njrogers@jayrogersgroup.com.

Wendy Nelson Popke & Mike Popke and Erik Nelson 20

Photo by Adam Buchanan

Experience The Difference

By Craig Chastain

The Amazing Nelson Clan

Erik Nelson, Wendy Nelson Popke & Mike Popke

For as long as people have bought automobiles in Seattle, the Nelson family has been in the car business. It was in 1922 that Stanley Nelson, Sr., started Nelson Chevrolet in Ballard where he laid the groundwork for future success by providing a friendly, trustful atmosphere in which to sell and service cars. His sons, Fred and Stan, Jr., continued that standard of excellence and today his grandchildren – Erik Nelson and Wendy Nelson Popke, along with Wendy’s husband Mike – have nurtured that tradition into one of Honda’s most honored and respected dealerships – Lynnwood Honda.

“Respect and care for our team and doing what’s right and fair for our customers,” says Mike, “we inherited that from Fred.” Indeed, the Fred Nelson legacy is central to the history of northwest Auto Dealers. After serving in WWII, Fred joined with his dad and brother to build strong dealerships in Seattle and Sedro Wooley, and he was instrumental in the formation of the Puget Sound Automobile Dealers Association. With his brother Stan, Jr., he acquired Lynnwood Honda in 1981, and he was still coming to work at the age of 94.

Honda has given the dealership their President’s Award no less than 6 times, most recently in 2013. The selection process considers all elements of the operation, from customer satisfaction to profitability, sales numbers to training. Last year, they ranked in the top 8% of all dealers nationally. Typically, the family is quick to share the credit.

“Our dad led by example, whether it was working with customers, interacting with staff, or serving the community,” says Wendy.

“Our reputation – these industry awards – are not just the three of us,” says Erik. “There are 125 great people in this building that make the difference. “To win the President’s Award, you have to be firing on all cylinders – sales, service, operations, marketing, and training. You can’t be one-dimensional.”

Erik currently serves on Honda’s National Dealer Advisory Board and their regional dealer council. In addition, they have been long-time, solid supporters of the Professional Automotive Training Center at Shoreline Community College. “We were on board with the training center from the start, including the capital campaign,” says Erik. “(The PATC) produces technicians who know Hondas, which is a huge benefit to the manufacturer and it keeps our service department staffed with the best people. The program also gives the students a career path that encourages them to stay and grow in the business.”

The “Nelson Difference” has been at the core of their longevity and success for three generations. Stan, Sr., passed his commitment to excellence to Stan, Jr., and Fred: these days, Wendy, Mike and Erik are adding their own styles and energy while remembering Fred’s methods.

Following in Fred’s footsteps, Erik and Wendy have both taken leadership roles as presidents of PSADA.

Longevity of a dealership hinges, in large part, on retaining good people. At Lynnwood Honda, many of the team members have tenures of 30 years or more. One technician recently retired after 40 years of service. Mike Popke has been with the dealership for 32 years, a longer run than either Erik or Wendy.

Unlike some who burn out in the car business, the Nelson/ Popke clan has found a balance between business and the rest of life. Wendy and Mike have two teenage children, Claire and Jack, who share their passion for boating, skiing and snowboarding. Erik and wife Tamara have two collegians – Andi (University of Puget Sound) and Greyson (Westminster University/Salt Lake City). Erik is a recreational pilot and the family spends time together enjoying winter sports, scuba diving and boating.

It’s safe to say that Wendy and Erik were raised in the business. Wendy attended the University of Washington and, with the exception of a brief stint in banking, has been at the dealership for decades. Erik learned the business from the ground up – lot boy to parts, sales to management. Today he is a voice for Honda dealers regionally and nationally. “Honda listens to us, which helps all Honda dealers to be the best they can be,” says Erik.

It should be noted that their store’s physical location has been in Edmonds since 1992. Named Lynnwood Honda because of its original Lynnwood home, over the years the dealership has been strongly urged by Edmonds politicians and business leaders to change its name. Not likely, says Erik. “We’ve all worked hard to build a brand with a solid reputation, and that brand is Lynnwood Honda,” says Erik. “We use television, radio, direct mail, email, and the Internet to stay visible and to connect with our past, present and future customers. It’s all about experiencing the difference.” 22

Photo by Adam Buchanan

Another vital Fred Nelson lesson was the importance of giving back to the community. Many charities and special events have benefited from Nelson family and Lynnwood Honda contributions, including Swedish Hospital, the Edmonds Center for the Arts, the Edmonds Community College Foundation, and annual community events like the Taste of Edmonds, Concerts in the Park, and the Edmonds 4th of July Celebration.

A first-time visitor to Lynnwood Honda might find it odd that a portion of the property is devoted to power equipment like leaf blowers, generators, and lawn mowers. For the Nelsons, it’s a part of the Honda family that helps connect the dealership to the community. “In addition to their great cars and trucks, Honda makes some of the best power equipment in the world,” says Erik. “We have trained technicians dedicated to servicing everything Honda makes.”

“We usually see an increase in traffic when the forecast calls for a storm that may have a lot of wind associated with it,” adds Mike. “There have been times when we run out of product like generators and need to make multiple trips to the warehouse. In the spring, we see a lot of landscapers who love their Honda equipment.” From state-of-the-art luxury to all-purpose utility, the team at Lynnwood Honda has learned how to sell and service at the highest levels of excellence. It’s a Nelson family legacy that traces back more than 90 years. “Customers tell us it just feels different when they come into our store,” says Wendy. “It just feels like family.”

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Working Conditions and Management Support

what the best people expect

In my last column I began the discussion of how you hire the best people by saying “first you create the best job.” The best people will only be attracted to (…and, as importantly, stay in) the best job. Because they’re the best – top performers in their chosen profession – they expect the best of everything. I identified six “bests” to consider in creating the best job – 1) pay and benefits, 2) working conditions, 3) management support, 4) working with the best people, 5) working for a company with a great reputation for customer service, leadership in the industry and community service, and 6) working with the best products and services. Last time I discussed why best pay and benefits is important. This time let’s address working conditions and management support. Best Working Conditions The best people expect to work in the best environment possible for their type of work. They expect a clean, comfortable, fully equipped work space with the best equipment available. For example, the best technicians expect to work in a fully equipped shop that allows them to be fully productive. They expect to be reasonably warm in cold weather and cool when it’s hot. They appreciate clean lockers, rest rooms and break areas. Top sales consultants expect their own work areas where they can keep the tools of their trade – computer access, supplies and easy access to the things they need to effectively present, demonstrate and sell the products and services they represent. What’s important to understand here is the only way to know if you have these “bests” is to ask your people what they need to be the most productive they can be and then provide them with it! Interestingly, according to research done by Gallup,

By John Strom

having the right tools and equipment to do the job right is highly correlated to turnover.1 If you don’t give people what they need, they leave. As with pay and benefits, great working conditions are necessary to attract the best people, but not suffient to keep them. Poor working conditions can cause the best to leave – they simply do not have to put up with it. Best Management Support The best people expect their managers to help them be more successful, to recognize their superior productivity and encourage their continued development. This means recognizing their talent, knowledge and skills and letting managers use them to be the most effective they can be. Great managers describe the outcomes they want to achieve, then work with each team member to achieve these results in their own unique way. This requires that managers fully understand how to engage each team member so they consistently produce their best work. Managers must know what work their people do best – where they’re the most productive – and what work they’re less productive doing. Where do they “soar with their strengths” and where do they need to “manage around their potential weaknesses.”2 They expect management to give them the opportunity to “do what they do best every day.” The best people respond to managers who encourage rather than criticize, teach rather than direct, coach rather than command. They leave managers who don’t do these things.3

The best performers expect their managers to recognize specifically what you value in them. This recognition needs to be individualized to each person. You must know how and when each person likes to be recognized and rewarded. What do they appreciate and respond to; what motivates them to do more? This is different with each person and even changes over time. The only way to know you have it right is to ask them regularly, at least once per year. That sounds a bit simplistic, but it’s important, and it works!

Recent research suggests that younger employees today place higher value on opportunities to learn and grow (not necessarily promotions) and doing interesting work. But appreciation for work done and feeling “in” on things still leads nearly everyone’s list! Simply put, you’re best when you manage by the platinum rule: Manage your people they way they want to be managed. (Don’t follow the golden rule by managing them the way you want to be managed – that’s not nearly as effective!)

10 AREAS TO ASK ABOUT

to provide the management support your people need to be most productive (and stay with you) 1 2 3 4 5 6

What do you think your strengths are (talent, knowledge, skills)? What aspects of your word do you like best? What parts don’t you like as well? What do you need to do to give you more opportunities to use your strength? What are your goals and objectives for your current job? Do you have any personal goals or commitments you would like to tell me about? Where do you see yourself in two years, five years, 10 years from now? How can I help you achieve these goals? 7 What keeps you here? What can we do to make your work experience here better? 8 What motivates you to do your best work? What kind of recognition or praise do you like best? 9 How often would you like to meet with me to discuss your progress? 10 Is there anything else you want to talk about that might help us work well together?

Do managers know what their people want in their job? The table below suggests there may be some gaps.

WHAT PEOPLE WANT IN THEIR JOBS AND WHAT MANAGERS THOUGHT THEY WANTED

A study was done in 1946 about what people wanted in their job and what managers thought people wanted in their job. Interestingly, the study has been repeated many times since then with similar results. The results below are in order of importance: What Employees Say They Want: What Managers Think Employees Want: 1 Full appreciation for work done 1 Good wages 2 Feeling “in” on things 2 Job security 3 Sympathetic help on personal problems 3 Promotion/growth opportunity 4 Job security 4 Good working conditions 5 Good wages 5 Interesting work 6 Interesting work 6 Personal loyalty to workers 7 Promotion/growth opportunities 7 Tactful discipline 8 Personal loyalty to workers 8 Full appreciation of work done 9 Good working conditions 9 Sympathetic help with personal problems 10 Tactful discipline 10 Feeling “in” on things

To summarize what we’ve discussed so far… When you pay the best you get the opportunity to hire the best people, so be the leader for compensation in your area. Provide working conditions that allow for the best productivity. And manage people so that every day they get to do lots of what they do best. Next time we’ll discuss why it’s so important to have your “best people” working with other “best people.” 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 See First, Break all the Rules, Marcus Buckingham & Curt Coffman, Simon & Schuster, New York, 1999. 2 See Now, Discover Your Strengths, Marcus Buckingham & Donald O. Clifton, Ph.D, The Free Press, New York, 2001. 3 Research by the Gallup Organization has consistently shown that the number one reason the best people leave a job is because of their manager. 1

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By Pete Grimm Premier Performance Groups

Galloping Consolidation

and High Stock Prices Drive Historically High Dealership Valuations

The Blue Sky portion of the price of a dealership has historically ranged from a multiple of 1-3 times Adjusted Weighted Average Earnings*. In today’s market, however, it is not uncommon for a dealership with the right franchise(s) to command a Blue Sky Multiple* of 4-5, and exceptional opportunities a multiple of 7+. Will the factors driving this increase remain, or will multiples recede to their historical range? Is this the right time to sell your dealership, or to buy another one? Understanding how dealerships are valued is key to developing an exit plan, or a strategy for growth. Demand for quality dealerships is historically high and there are fewer dealerships for sale. This imbalance drives transaction prices higher. In the last decade the industry lost many brands, among them: Oldsmobile, Pontiac, Mercury, Plymouth, Saturn, Suzuki, Hummer and Saab. The loss of brands, and the shakeout of sub-optimal dealerships during the 2008-2009 recession, continued an historical consolidation into fewer, more profitable dealerships. Not since its infancy, has the US automobile industry had as few dealerships and as few dealer-owners as it has today, and this shift is accelerating. Great Changes and Immense Consolidations Rule the Industry From a high of 47,500 in 1951, the number of US dealerships dropped steadily. Dealership count had dipped by more than half to an estimated 22,800 by the mid-1990s when public dealership groups like United Auto Group (now Penske), AutoNation, Asbury, Sonic, Lithia and others found acceptance and went on a buying binge, snapping up many of the highest volume dealerships and further reducing the number of dealer-

owners. Strong, privately-owned dealership groups accelerated their buying as well. After a brief respite during 2008-2009, consolidation is galloping again. Today, there are an estimated 17,760 dealerships representing 31,376 franchises, and many are already part of public or private dealership groups. Generally, surviving single-point dealerships emerged from the 2008-2009 recession leaner, more profitable, with wider market opportunity, and able to choose whether and when to sell, thereby commanding higher prices. Demand comes from Wall Street’s almost insatiable requirement that public auto companies continue to grow by acquisition, plus the growth strategies of privately-owned dealership groups. Both increase the likelihood that a seller will discover multiple qualified buyers, instead of experiencing the single-buyer OEM “arranged marriage” so prevalent in the past. Obtaining a valuation during a Buy-Sell is almost universal, but a determination of Fair Market Value may also be required for capital financing, estate planning, succession planning, shareholder agreements, etc. A thorough valuation uses multiple methods and often the Capital Asset Pricing Method is among these. This method requires systematic development of a risk-return rate called the Capitalization Rate which should entice buyer(s) to a specific investment. When this rate is divided into a company’s Adjusted Weighted Average Earnings, it yields a valuation for a company as a whole (excluding real estate). Valuating Companies and Increasing Risk Can Depend on Dealership or Dealership Group Size Twenty years ago there were no publically-traded auto retail

stocks in America. Today, the market’s valuation of these stocks provides a means to calculate the underlying risk factor we use when developing a Capitalization Rate for dealerships and dealership groups. For example: the market recently valued AutoNation at 13.3 times Cash Flow. If we were to base our calculation on the value of AutoNation alone (we do not), the first element of our Capitalization Rate would be 1/13.3 = 7.5%. This factor represents a risk-return rate that currently entices investors to buy AutoNation stock. In most cases, an investment in a much smaller dealership or dealership group will be riskier than investment in a larger public auto retailer and investors will expect a higher return. So we systematically evaluate other risk factors, like franchise(s) held and company-specific limitations, to calculate a rate that should entice investment. For example: company-specific limitations and franchise risk might collectively add another 6.5%, bringing the Capitalization Rate to 14%. This rate would value a company (excluding real estate) at just over 7 times its Adjusted Weighted Average Earnings (1/14). As opposed to a Fair Market Value determined by a valuation, transaction-specific factors will affect an ultimate selling price. For example: a public-company buyer may see no immediate value in a purchase

unless its terms lie well within the multiples at which the public company’s stock currently trades. That rationale, however, might unduly discount the desire of another buyer for control of a specific company, in a specific location, and its anticipated cash flows, which is not available investing in public stock. It Is Not Necessarily True that a Currently Unprofitable Dealership Cannot Command Any Blue Sky Using the Capital Asset Pricing Method might seem to suggest that a currently unprofitable dealership cannot command any Blue Sky, since any multiple times zero equals zero. That is not necessarily true, and one reason multiple valuation methods should always be used. A currently unprofitable dealership cannot be valued easily using the Capital Asset Pricing Method, but may still possess elements of Goodwill and Blue Sky. Historically, new vehicle sales wax and wane on a five year cycle, and the industry is now into its fifth year of recovery. Interest rates are historically low. This drives auto retail stocks higher and holds down floor-plan expense. If new vehicle sales fall and interest rates rise, will auto stocks fall and take Blue Sky Multiples back to historical levels? Whatever the economy brings in the short-term, I believe the acquisitive appetites of dealership groups and public auto retailers will remain strong. Start today to develop (or review) your strategy for growth, or prepare to be gobbled up. Consolidation is coming at a gallop. *Adjusted Weighted Average Earnings – Earnings for the last five years are “adjusted” for prospective changes in facility expense, excess compensation to owners, unusual

one-time expenses and depreciation, LIFO and other fac�� tors. They are then “weighted” to place five times as much “weight” on the most current year’s earnings, four times the previous year’s earnings, and so on, and a “weighted average” calculated. *Blue Sky Multiple – The amount a buyer pays for a dealership above an adjusted value of company assets (excluding real estate) divided by Adjusted Weighted Average Earnings.

Evaluating Franchise Risk The first of the additional elements of risk we evaluate is franchise risk. Franchisors mitigate risk by requiring standardized accounting practices, and by providing advertising, marketing, financing and credit support. On the other hand, franchisors increase risk by apportioning dealer market opportunity, and by requiring relatively large investments in single-purpose facilities, tooling, training and brand identifica-

For more information about this topic, you can contact Pete Grimm at petegrimm3@gmail.com or at 206-617-6487.

tion. Franchise agreements can be one-sided and temporary. An OEM relationship cannot be changed, terminated or replaced quickly. Success often depends on the acceptance of a

About Pete Grimm A West Point graduate and Vietnam veteran, Pete carried the leadership principles learned there into civilian life. He started his civilian career in 1975 with the Lincoln Mercury Division of Ford Motor Company, serving in management positions in the Southeast and Western Regions. As CFO of a Bay Area Honda franchise, he oversaw the conversion from hand to electronic accounting, divested two business units and managed cash flow as the business tripled in size. As general manager of a large Chevrolet dealership, he took the dealership from a six figure monthly loss to a small profit in three months. He has been a recruiter and moderator to 20 groups, the founder of a substandard credit finance company with a field sales force serving dealers in five western states and $45M in footings, and a dealer principal with Lincoln, Mercury and Volkswagen franchises in Washington and Oregon. He bought his first auto dealership in 1980 and, while developing other interests, managed that business until selling it in 2006. He designed and programmed an integrated sales, service, accounting and CRM program in a 4Gen Unix-based language to help operate his businesses. He has trained salesmen, sales managers, and controllers. A member of the LM Advertising Committee, he placed millions of dollars in marketing annually in the Northwest, and as a member of the National Dealer Council, he advocated for dealers with Ford Motor Company. In 2004, he and his wife founded and continue to direct the Lion Foundation, channeling over $1M annually in donations to conservative-oriented projects. 30

manufacturer’s products, which may or may not cover all market segments, or appeal to all demographic groups. A lack of acceptance of a manufacturer’s products can threaten a dealer’s existence. The recent bankruptcies of General Motors and Chrysler, the failure of Plymouth, Pontiac, Oldsmobile, Mercury and Hummer franchises, and the withdrawal of Suzuki and Saab from the market, illustrate franchise risk. Today, some question whether Mitsubishi and Volvo will abandon the US market. Clearly, investment in a dealership (or dealership group) carries different degrees of risk based on which franchise(s) they represent, and whether they effectively mitigate franchise risk by representing multiple franchises and/or controlling multiple facilities. Accordingly, we calculate a factor based on the franchise risk of a specific investment. We also quantify specific dealership risk. A dealership may be large with multiple income streams from a wide market area, or be small and more susceptible to economic fluctuations. A dealership might serve a depressed DMA, or one anticipated to have superior growth. It might have or not have control of its own facilities. It might be required to relocate or to upgrade facilities by a franchisor, or have just completed such facility actions. It might have experienced widely variable profitability or have consistently high returns. It might have high personnel turnover, a poor reputation in its DMA and low customer loyalty, or low turnover, a sterling reputation and high customer loyalty. It might rely upon the expertise and relationships of a few key individuals, or have a sustaining culture. We evaluate these and other criteria to determine a dealership-specific risk factor for inclusion in the Capitalization Rate.

LEARN MORE. EARN MORE. Looking for research, insights about online marketing or merchandising best practices? Find all this information and more at DealerLearningCenter.com. 31

By Scott Dreisbach

TAMING THE FLOOR PLAN

R E T S N O M

There is a beast among us. It is ever-present and lurks within the shadows of our business. All of us who are in the franchised new vehicle retail business are well aware of its presence. It rears its ugly head from time to time and we all have to deal with the consequences it brings down upon us. It infects our mind, body, and spirit. It feeds on vehicle inventory management decisions that were made without objective facts. It eats our cash. It has its way with managers and dealerships that still order vehicles by “gut feels” and factory recommendations. It wreaks havoc to one of our most coveted items – our bottom line. It is the Floor Plan Monster. I have been engaging in battle with this worthy adversary for over 30 years and have come to learn many things. It is cunning. It is self-replicating. It is demoralizing. Just when you think you have it under control, it rebounds stronger than Shaquille O’Neal and knocks you down again and again. But the most important thing that I have learned is, it can be tamed, harnessed, and even become one of your revenue producing allies. Its weakness is information. Information, however, without implementation, will not defeat it. Its Achilles heel is a new vehicle inventory management system that is implemented and used every day on every new vehicle inventory management decision that we make, both buying and selling. Can you imagine what life would be like if your parts manager was stocking your shelves by “gut feel” or what the manufacturer wants them to stock? It would be total chaos. He/she uses a stocking guide everyday. It is the absolute bible for the department. The average cost per part you stock is less than $40.00 and your store manages over 8,000 part numbers with precision. Do your new vehicle department managers use an objective, data driven, easy to use, stocking guide on a daily basis? Have you ever heard them say,

“I know what sells?” Are you running on floor plan credits month after month? The average cost per new vehicle now exceeds $25,000.00. Are you managing your new vehicle department inventory with precision? Over the past 12 years I have literally been in hundreds of new vehicle dealerships across the country. I have sat through many “wholesale /consensus /inventory allocation” meetings, and most of them were basically the same. The dealer would ask the members of the management team two basic questions. “How many did we sell in the previous period?” and “How many do you think we are going to sell in the coming period?” Once those two numbers were determined, the decision was made as to how many they were going to purchase and commit to for that particular period. This is not an effective new vehicle inventory management system. This type of decision- making process simply “feeds the Monster.” What is Power? It was once thought not long ago, that “knowledge was power.” That changed in the 90’s to the belief that “information was power.” We now know that true power is earned by coupling knowledge and information through “implementation.” Knowing what needs to be done and doing it are two very different things. The entire thrust of this article is to expose you to the ways in which hundreds of new vehicle dealerships across the country are working on keeping the majority of the floor plan credits in the house and operating on a floor plan credit balance YTD. Virtually all of the manufacturers today have the ability to make a vehicle appear on your lot between 4 and 6 weeks from the time you order – some even much quicker. Sure, there are a few exceptions – material holds, constraints, etc., but, by and large, normal system fill is less than 45 days. Depending on the manufacturer, those that have a floor plan assistance program will generally allow you enough floor plan credit to carry up to 71-days’ supply before incurring “net floor plan charges.” The secret, then, is to implement a system that will allow you to carry more of the right inventory more of the time and not exceed a 71-days’ supply on the ground. Ideally, we shoot for a 60-day supply of ground stock and no more than a 60-day supply in the supply chain system. Sound like a pipe dream? It is not. It can, and does happen, but not without diligent daily implementation of a new vehicle inventory management system. The basic principle of any good vehicle inventory management system is to quickly give information to management that will lead to implementation and help accomplish the following:

To continually phase in what we need and phase out what we do not. 1. Make it easy to read, use and understand. 2. Recommend some specific action that needs to be taken. 3. Make decisions based on actual data, not “gut feel.” Below is a graph of an actual dealership comparing the previous four years calendar YTD in net floor plan charges. As you can see, there was over a $300,000.00 net swing from the end of 2010 to the end of 2013. This store averaged a little over 120 new vehicle sales per month for both 2012 and 2013. The difference? Days’ supply and precise inventory management!! This store decided to implement inventory management into their daily process and sold roughly the same number of units as the prior year. The days’ supply of inventory for 2012 averaged 105. Days’ supply for 2013 was reduced to, and maintained at, 63. Their gross went up per unit by over $100.00 simply because their quickness of turn increased. The additional $300,000.00 net floor plan savings swing all fell directly to their bottom line. They tamed the floor plan monster. You can, too.

If you would like to see what the impact to your revenue looks like, simply visit www.valuinsight.com and click on the Revenue Impact Calculator. With this tool you can plug in your own numbers and see for yourself. Don’t let the floor plan monster into your store again. Develop and implement an inventory management system and insist that the system become inviolable. For more information, please contact Scott Dreisbach-Vice President,Valuinsight, Inc., sdrize@valuinsight.com, 561- 368-7810 X108, www.valuinsight.com

By Jeff Kent Business Development Manager Comcast Spotlight â&#x20AC;&#x201C; NW Region

Gold Medal Media

Performance How the 2014 Winter Olympics & Premium Sports Programming on TV continue to deliver advertising opportunities to drive your automotive business forward

We all know that sports programming consistently draws huge television audiences, especially when fans are rooting for their local professional teams, college teams and tuning in to watch the athletes of the world compete on the Olympic stage. Nowhere is this more apparent than on television, where entire networks are committed to sports programming – all day, every day. As an auto dealer, these legions of sports fans are prime targets for your advertising message. Most recently, there was no better place to communicate your latest financing offer or new vehicle launch to qualified auto consumers in your primary marketing area than during the 2014 Winter Olympics. NBCUniversal’s Exclusive Coverage of the 2014 Sochi Winter Olympics The best athletes in the world descended on Sochi, Russia, in early February to compete for 17 days of non-stop action. They produced a wealth of unforgettable moments both on and off the field of play. From triumphant victories and heartbreaking defeats, to brutal crashes, thrilling rides and viral sensations, there were countless and unforgettable moments that kept us all tuned in and engaged during the 2014 Sochi Winter Olympics. NBCUniversal’s Winter Olympics coverage included a record 18 days of programming, which featured an unprecedented 1,500+ hours of multiplatform coverage – on the NBC broadcast network, four cable channels (NBCSN, CNBC, MSNBC and USA Network), NBCOlympics.com, and the NBC Sports Live Extra and NBC Olympics Highlights and Results apps.

Lina Federova, Russia’s premier figure skater at the Sochi Olympic Games This unparalleled television and advertising opportunity picked up right where the automotive category left off in 2013 and carried the torch right into 2014 with outstanding performance and memorable events throughout. There were more ways to consume, more hours shown, and more Americans experiencing the XXII Olympic Winter Games from Sochi, Russia than ever before for a Winter Olympics. The Sochi Games generated�� 242.3 million media exposures across the platforms of NBCUniversal – a 3.5 million increase over the 2010 Vancouver Winter Olympics.1 There is no other category in the world that understands digital like the automotive category, and the Olympics coverage consumed on digital devices and 2nd screens was astonishing alike. There was a Winter OlympicsRecord 61.8 Million Unique Users who consumed content across NBC Sports Group’s Digital Properties Highlighted by the Largest “TV Everywhere” Verified Streaming Audience in U.S. History for Team USA-Canada Men’s Hockey Semifinal game.2 35

Sports Fans & Consumers in the Puget Sound Followed Suit This trend continued right here to Western Washington as scores of sports fans and automotive consumers alike tuned into the coverage locally on popular cable TV networks such as NBCSN, CNBC, MSNBC and USA Network. In addition, Xfinity.com subscribers across the entire Puget Sound region followed results and highlights across the multiple layers of the local Xfinity.com platform. Here in Seattle, Comcast Spotlight carried 320 hours of coverage across the four NBCU networks during the 2014 Sochi games. Overall, HH ratings in Seattle grew 48% from the 2012 Summer Games to the 2014 Winter Games.3 Broadcast TV Highlights: NBC Prime Time Delivers1 • In primetime, the Olympics generated record-setting advantages of 45% in viewers, 32% in household rating, and 51% in Adults 18-49 over the combined primetime totals of ABC, CBS and FOX, according to live plus same day official national data released by The Nielsen Company. • Comparing primetime competition on a nightly basis, NBC’s Sochi Olympics was the #1 show on all 18 nights based on household rating. • The thrilling women’s gold medal hockey game between the United States and Canada at noon ET on Feb. 20, averaged 4.9 million viewers on NBC to rank as the most-watched hockey game in the U.S., excluding Stanley Cup Finals, since the 2010 Vancouver Olympics men’s gold medal game. Cable TV Highlights: NBC Sports Networks Smashes Olympics Records1 • NBC Sports Network averaged 1.6 million viewers for the Sochi Games in the 6 a.m.-3 p.m. ET time period – a 134% increase over the network’s comparable daytime coverage of the 2012 London Games (692,000 viewers). • The Team USA-Canada Olympic men’s hockey semifinal on Feb. 21 posted a 2.7 household rating/8 share to rank as the highest-rated hockey game in NBCSN history -- exceeding Olympics competition as well as the ratings for any Stanley Cup Playoffs or Stanley Cup Finals game in the network’s history. • NBCSN averaged 4.1 million viewers for the thrilling Feb. 15 USA-Russia Olympic men’s hockey game – setting a record for the most-watched hockey game 36

in the network’s history, peaking at 6.4 million from 10-10:30 a.m. ET during the tension-laden, eightround shootout and is the most-watched half hour in NBCSN history. Digital Highlights: 61.8 Million Unique Users on NBC Sports Group’s Digital Platforms2 • NBC Sports Group’s digital platforms amassed nearly 62 million unique users (61.8 million) – a record for a Winter Olympics and topping the 2010 Vancouver Games by 29%. • A Winter Olympics-record 10.8 million hours of video were consumed on NBC Olympics’ digital platforms, more than triple the hours of video streamed for the Vancouver Games. • “TV Everywhere” played an important role during the Sochi Olympic Games with verification rates being significantly higher than the 2012 London Olympic Games. The Feb. 21 verified live stream of the Olympic men’s ice hockey semifinal generated more than 2.1 million unique users – believed to be the largest “TV Everywhere” verified streaming audience in U.S. history. Simply put, the Olympics rocked this year and offered new and innovative advertising opportunities with access to audiences of great magnitude like never seen before. Given the quantity and variety of sports programming available on television, auto dealers have many options for reaching local customers. As we’ve seen, consumers across the country, and Seattleites specifically, tuned into this year’s Olympics with record-breaking engagement and passion, and if you were there they saw your advertisement. This audience is ready and willing to buy a new vehicle, so they will pay attention to your commercial. Let’s take a look at other targeted and outstanding sports TV advertising opportunities in the Puget Sound. Sports in Seattle: Using TV Advertising to Score More Auto Buyers What’s the last big game you watched on TV? That’s a question almost everyone can answer and if you were anywhere in the Universe on February 2nd you most likely tuned into Super Bowl XLVIII where the Seattle Seahawks dominated the Denver Broncos. Sports programming of all shapes and sizes consistently draws huge television audiences, especially when fans are rooting for their local professional or college teams. Nowhere is this more apparent than on cable TV, where entire networks are committed to sports programming around the clock. As an auto dealer, these legions of sports fans are a prime target for your advertising message.

What Sports Fans & Automotive Consumers in Seattle Are Watching Sports programming consistently plays well in the Seattle television market, which makes it a popular place to advertise. Over 2.9 million Seattleites have watched sports on TV in the last year4, and more than 60 of the top 100 cable TV programs each year are sporting events. In fact, the most-watched cable program in 2013 was the ESPN Monday Night Football match-up between the Seattle Seahawks and the New Orleans Saints, and thus far in 2014 was the BCS National Championship game on ESPN between Florida State and Auburn. In fact, 74 of the top 100 cable TV programs in Seattle for all of 2013 were sports programs. Sports are not only popular, they are also unique – because they are one of the last forms of appointment TV. Viewers, including auto buyers, still schedule their time to sit in front of the television and watch these events live, rather than using a DVR to delay viewing. Sports viewers are not just fans – they’re car shoppers. Sports viewers are consistently more likely to purchase cars, especially higher-end models. This trend can be seen nationally, and it’s even more prevalent in the Puget Sound region. Here, 82% of new vehicle buyers watch sports, which is 3% higher than the national market average5. Cable TV Delivers College Sports Fans to You For auto dealers, advertising in cable television sports programming just makes sense. It’s like being right back on campus on game day– you put yourself there because that’s where all the action takes place. Cable is consistently growing, and this is especially true of college sports programming. In Seattle, 6% of college sports TV viewers plan to purchase a new vehicle in the next year, and are 9% more likely to spend more than $25,000 on that new car or truck.5 Here’s a few highlights of the top college sports programs that are offered primarily on cable TV in today’s modern media landscape, and how they can fit into your advertising strategy: • Pac-12 Network – With the power of multiple networks ESPN, ESPN2, ESPNU, Pac-12 Network and the new national sports network Fox Sports 1, EVERY Pac-12 Football game is available to football fans. The Championship Game alternates each year between ESPN and broadcast. As anyone living in Washington can tell you, Husky and Cougar fans are very serious about their sport, fiercely loyal to their favorite team, and committed to watching every game. Seattle residents who have attended or enjoy following other Pac12 schools watch their teams with the same dedication 38

•

and enthusiasm. Pac-12 is a great place to be to target these loyal fans, because there is a great chance they are a loyal fan of your auto brand as well. Bowl Championship Series – The BCS moved away from ABC and FOX and began airing exclusively on ESPN in 2010. The BCS Series is a consistently valuable advertising resource that becomes even more valuable when local teams land a spot at or near the top. In fact, over 500,000 Seattleites age18+ watched the Bowl Games on Cable last year. NCAA Basketball Tournament – The big change came in March 2011, when a whopping 41 of the 67 tournament games aired on cable networks TNT, TBS and TruTV. For now the Championship Game remains on CBS, but beginning in 2014, TBS will share coverage of the Elite 8 and will have exclusive coverage of the National Semi-Finals (the Final Four) during the 2014 Tournament. Over 300,000 Seattleites age 18+ watched the NCAA Men’s Tournament on Cable last year.7 Through these changes, it is safe to say that Cable TV is THE home of March Madness!

More Professional Sports Have Made the Shift to Cable TV The same trends that we identified in college sports offerings on TV hold true when we look at the professional sports television landscape. In recent years a number of major professional sporting events have moved from broadcast to cable. For auto dealers, advertising in professional television sports programming is another natural fit. It’s like being in the front row with courtside seats – again, you put yourself there because that’s where all the action happens. Likewise, 7% of professional sports TV viewers plan to buy a new car in the next year, and are 23% more likely to pay over $30,0004. Once again, here are a few highlights of the top professional sports programs that are offered primarily on cable TV in today’s modern media landscape, and how they can fit into your advertising strategy: • Monday Night Football – This is consistently one of the top sporting events on television. It moved from ABC to ESPN in 2006 and has been a top-rated cable program ever since. Monday Night Football viewers tend to be the consumers you want to reach. They are predominantly upscale married homeowners, and nearly half of them – 46% – have a household income over $75,0004. • Major League Baseball & Mariners– For the past six years, TBS has been the exclusive home for the MLB Division Series. The network alternates hosting the American League and National League Championship Series every other year. In 2014, it will be the AL Championship Series. The Seattle Mariners consistently deliver strong local ratings each and every year,

and the local loyal fan base continues to tune in with passion and interest. These M’s viewers have money to spend, too, with over half of them earning an annual household income that tops $75,0008 Get in the Game to Reach Auto Buyers As an auto dealer, these legions of sports fans are a prime target for your advertising message. And as we saw on televisions around the country and reinforced in this article, the best athletes in the world descended on Sochi, Russia, in early February while millions of viewers descended on their televisions, tablets, mobile phones and computers simultaneously to keep up with the action. As they produced a wealth of unforgettable moments both on and off the field of play, while advertisers were provided access to millions of new eyeballs. This same phenomenon holds true in the local premium sports landscape. Whether you are a Husky or a Coug, prefer the Mariners and/or the World-Champion Seahawks; you are tuning in and advertisers have unmatched access to valuable consumers through these avenues. Sports programs are now more readily available and useful to you as an advertiser – especially when you consider cable’s ability to target your message to a specific local geography. You have the ability to reach sports fans all across the Seattle DMA, or just in the specific geographic zones where most of your fans live – and where most of your new vehicle registrations originate. Given the quantity and variety of sports programming available on cable, auto dealers have many options for reaching local customers. As we’ve seen, Seattleites are watching

sports religiously, so they will see your advertisement. They are ready and willing to buy a new vehicle, so they will pay attention to your commercial. Most importantly, they are motivated, so they will act on your message. Use the power of television, and particularly premium sports and cable TV sports programming, to score your next sale. Sources: 1 Nielsen & The Total Audience Measurement Index (TAMi), February 2014 2 NBC Sports Group’s Digital Properties is provided by Adobe Analytics. 3 Nielsen Overnights, Seattle DMA, Live+3 eDMA, 2012 Summer Games actuals (7/27/12 – 8/12/12) and 2014 Winter Games actuals (2/7/14 – 2/23/14. Ratings adjusted to full DMA. Extrapolated by Strata Marketing. 4 Scarborough Seattle-Tacoma DMA Sep12-Aug13. Target: Sports watched on broadcast or cable in past year: Any 5 Scarborough Seattle-Tacoma DMA Sep12-Aug13. Target: Vehicle HH plans to purchase in the next year: new. Sports watched on broadcast or cable in past year: Any. 6 Scarborough Data Seattle DMA Sep12-Aug13 Adults 18+ cable subscribers: Sports View Cable TV Networks PsYr: Bowl Games 7 Scarborough Data Seattle DMA Sep12-Aug13 Adults 18+ cable subscribers: Sports View Cable TV Networks PsYr: NCAA Men’s Tournament 8 Scarborough Data Seattle DMA Sep12-Aug13 Adults 18+ cable subscribers: Sports View Cable TV Networks PsYr: Seattle Mariners 9 Scarborough Data Seattle DMA Sep12-Aug13 Adults 18+ cable subscribers: Networks View Cable TV PsYr: NFL Net 10 Scarborough Data Seattle DMA Sep12-Aug13 Adults 18+ cable subscribers: Sports View Cable TV Networks PsYr: Seattle Sounders

By Kevin Iden Idenâ&#x20AC;&#x2122;s Dealership Services

Using a Professional Reconditioning Services Provider Saves Time & Money and Increases ROI

Because managing the reconditioning and detailing of a dealershipâ&#x20AC;&#x2122;s new and used inventory is time-consuming and costly, many dealers are beginning to outsource these services to professional all-in-one companies. Instead of employing their own detailers and having to manage multiple vendors to handle additional reconditioning services, dealers are saving time and money by teaming up with a professional dealership reconditioning services provider to staff an on-site reconditioning program.

By choosing to team up, dealers are finding that they can expect consistent quality and faster turnaround time, which improves their bottom line. Using multiple vendors to accomplish your vehicle reconditioning is inefficient and stretches the time it takes to get your vehicles on the lot to sell. If managing the reconditioning process is taking your used car manager off the sales floor, thatâ&#x20AC;&#x2122;s dollars lost. Hiring a company to manage this process will make your dealership more profitable.

Imagine having an in-house department that can take care of all vehicle reconditioning and detailing on-site, but not having to staff or manage it!

Some benefits of hiring a professional dealership reconditioning services provider: • Vehicles are “retail ready” within a few days, instead of a week or two, which can translate to quicker inventory turnover. • Only one vertically integrated partner to work with, instead of multiple vendors. • Less labor/payroll to manage – a growing concern due to increasing employment costs.

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Quick installation of non-cancelable products protects and increases F&I profits. During busy times, the number of reconditioning staff can be easily increased by larger companies with multiple locations (during sales events, surge of cars, etc.). Service drive profits are captured by offering retail services. Use of specialized dealership scheduling systems offered by some providers streamlines the process and solves logistical challenges. (continued on page 42)

• • •

The provider is liable for regulatory compliance in this department instead of the dealer. Dealership owners and customers get the benefit of a clean, professional reconditioning facility. There is increased ROI on reconditioning due to higher quality of work and faster turn-around time.

How to pick a professional dealership reconditioning service provider The benefits of hiring a professional dealership reconditioning services provider are many, but providers aren’t all created equal. When selecting a company to manage your reconditioning processes, here are some questions you should ask your potential provider: • Scheduling: Do they provide a scheduling system that replaces the need for multiple phone calls per car, and minimizes the chance of miscommunications? • Quality Control: Do they have a QC process to insure work is done right the first time? • Staffing: Do they have the ability to bring in extra staff when needed? • Training: Do they have a training process in order to provide consistent results? • Professional Personnel: Do they have uniformed employees who will professionally communicate with you and your customers? Do they have a drug testing policy and perform criminal and driving background checks of their staff? • Insurance: Do they maintain adequate insurance to cover an accident/injury? • Compliance: Do they work with a compliance company to prevent problems with regulatory inspections? • Market Focus: Do they focus on dealership services, or will you take a back seat to their retail customers? • Experience: How long have they been servicing dealers? • Standard Operating Procedures/Processes: Do they maintain a work area that is clean and organized? Will they integrate with your systems and staff, to function as if they’re a department within your dealership? Teaming up with a professional dealership reconditioning services provider enables your staff to focus on what they do best. It cuts costs and inefficiencies from the reconditioning process which translates to increased ROI. Now, more than ever, customers expect the highest quality service and the quickest turnaround. A professional dealership reconditioning services provider can empower your dealership to meet these expectations while generating the highest profit. Kevin Iden is the President of Iden’s Dealer Services which is the largest provider of dealership reconditioning, detailing, and protection services in the Northwest. Kevin can be reached at kevin@idensmail.com and will provide PSADA members a free consultation/evaluation. www.idensdealerservices.com

An Adult Spends the Majority of Their Daily Time Consuming Media on TV and Online.

37% 19%

19%

12% 5%

Are your advertising efforts focused appropriately?

Contact Jeff Kent to launch your Multi-Screen Campaign today! 206.858.6582 Jeffrey_Kent@cable.comcast.com Source: eMarketer report - US Time Spent with Media, The Complete eMarketer Forecast for 2013, July 2013 43

ADVERTISING EVOLUTION

Emerging From the Economic Ice Age

Is your advertising “outdated” and stuck in a rut?

By Jeff Bullock

Have you felt it? Perhaps you’ve seen it. One thing’s for sure. We’ve all been waiting for it. The thaw of the current economic ice age has begun. This fiscal ice age is something that we certainly haven’t enjoyed and hopefully, won’t have to endure again for a long, long time. However, navigating this road to recovery won’t be easy. There will be potholes, detours and bumps in the road along the way. It’s time for dealerships to position and prepare themselves for success by adapting their advertising efforts to become effective and engaging. To assist you in this process, I’ve developed a short ‘checklist’ that will help you get the most out of your advertising dollars.

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1. RESOLVE TO EVOLVE The automobile industry continues to evolve at a breakpace. So why do so many dealerships continue to advertise the way they did in the past? This year, resolve to evolve; in other words, plan to change. Don’t allow your advertising to get stuck in a rut. Do something different. Do something daring. Do something that will get people talking about your dealership again. Allow your advertising to evolve in order to attract new clients. 2. CREATIVITY RULES THE WORLD The past few years, I’ve noticed a disturbing pattern. Most dealership ad campaigns are uninspiring. That’s a nice way of saying that these ads are boring, dull, humdrum and flat. Whether you are using television, radio, print or digital, yawning is not the desired response. Automotive ads are in need of a stiff shot of creativity, because when it comes to attracting consumers, make no mistake about it, creativity is king. So don’t settle for ad campaigns and concepts that are commonplace. Unleash the creativity, and get ready to rule! (continued on page 46)

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3. BEWARE OF THE SOCIAL MEDIA MONSTER Like it or not, social media is here to stay. Facebook, Twitter, YouTube, Google+, Pinterest, Tumblr, and Instagram are just a few of the expanding list of social media sites competing for our time and attention. The majority of these sites were created to introduce, connect or reconnect people, not necessarily to conduct business. However, many dealerships have implemented an unproductive social strategy that I call the “Jump & Dump.” They have prematurely jumped onto, and recklessly dumped their cash into, the social media bandwagon, hoping to gain momentum. I’m not against social media, but like any other area of business, a strategy is essential for success. Before hiring a pricey social media firm to ‘post,’ ‘tweet,’ and ‘like’ for you, have a solid social strategy in place and stick to it. Engage the Social Media Monster only after careful planning and preparation or risk being devoured.

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Vehicle Wraps You probably have loaner cars and/or shuttle cars available to your clients. Why not uniquely ‘wrap’ these vehicles with vinyl decals, to advertise your dealership wherever these cars are driven? Use your logo and tag line, with stripes, swooshes and shapes, to create a one-of-a-kind look for these client-driven vehicles. At around $2,000 each, wrapping a vehicle isn’t cheap, but it will attract thousands of looks from potential clients in the area of your dealership.

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Good Student Giveaway One of the well-known dealerships in my area sponsors a Good Student Giveaway. Students’ names from a local high school are collected and narrowed down by criteria like GPA, leadership skills, and community involvement, until just five names remain. Then at the homecoming football game, these five students are brought down from the grandstands to stand by the brand new car to be given away. Students are given a keyless entry device that they press one at a time as instructed by the dealership representative. The student whose device causes the car to ‘respond’ wins, and the car is theirs for the duration of the school year.

Before hiring a pricey social media firm to ‘post,’ ‘tweet,’ and ‘like’ for you, have a solid social strategy in place and stick to it. Engage the Social Media Monster only after careful planning and preparation or risk being devoured.

4. EXPLORE ALTERNATIVE ADVERTISING OPTIONS Teamed with fresh creativity, television and radio are still tops in getting your message out to consumers. In fact, air time for these two mediums is a bargain right now as networks work hard to reestablish relationships with clients. Television and radio are still absolutes in a dealership’s advertising arsenal, but a wide range of more moderately priced options are available that will supplement your television and radio ads and elevate their effectiveness. I call them Alternative Advertising Options. Here are just a few of my favorites: •

Cinema Pre-Movie Ads People love going to the movies. The Motion Picture Association of America reports that in 2012, US/ Canada box office admissions totaled $10.8 billion. This means that roughly 1.36 billion people are going to the movies annually. Nearly all of these cinemas have pre-movie advertising that allows for still or video ads to be displayed in each auditorium before every showing, every day. In a 15 screen cinema, showing approximately five movies per auditorium daily, your ad would play 75 times daily, 525 times weekly, 2,100 times monthly and 25,200 times annually. Cinema advertising is a viable advertising option at $200 to $500 a week per theater.

What a great idea! The dealership receives recognition for their support of students and at the same time, embeds its name in the community as a generous, philanthropic business. The dealership also gets this car back at the end of the school year, which means that this graduating student will be in need of, you guessed it, A NEW CAR! As the economy continues to recover, a healthy bottom line will be a welcome change when contrasted with the dark ages of the recession. With some specific tweaks to your advertising plan, partnered with new and clever creativity, your dealership will be strategically positioned to capitalize in the warming economic climate. Jeff Bullock is the founder of Vibewit Creative, a boutique advertising firm that specializes in creative advertising. For more information, visit their website www.vibewit.com or email Jeff at jeff@vibewit.com.