F&I and Showroom NADA 2011 Special Edition by Kelly Bracken

S A L E S D R I V E R : P L A N O F AC T I O N | N A DA 2 011 S P E C I A L E D I T I O N | E D I T O R : O U R F I N E S T H O U R

A BOBIT PUBLICATION FI-MAGAZINE.COM

DOING WITH

LESS

When New-Vehicle Sales Began to Suffer, the JM Lexus Team Shifted Gears. Learn How Greg Zeigler, Lance Digges and Bob Glasser Helped the World’s Largest Lexus Dealership Survive and Thrive Through the Downturn.

RETHINKING

FAILURE TO

OBJECTION

Say Goodbye to Five Common Misconceptions That Run Counter to the Department of Labor’s New Guidelines

Connecting Technology With Compliance Is the Key to Protecting Your Customers and Your Store in the Digital Age

7 New Strategies You Can Use to Increase Your Acceptance Rates on Service Contracts and GAP Coverage

NADA 2011 $10.00

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Contents

Endorsed as the official publication of the Association of Finance & Insurance Professionals

NADA 2011 Special Edition

Features NADA 2011

6 Internet in the Spotlight at NADA 2011 The annual industry show moves to San Francisco, where the Internet will take center stage inside the Moscone Center. Dealer Profile

8 Lexus Giant Adapts to the Times A new approach to F&I, CPO sales and online marketing helped the world’s largest Lexus dealership survive the Great Recession.

Technology

14 Social Media’s True Calling Learn how social media can rally your customers around your brand. Finance and Insurance

16 10 Fixes to F&I’s Biggest Challenges Get the answers you need to put your department back on track.

Finance and Insurance

22 Turning Objections Into Sales Learn seven techniques to get customers into a buying mood. Dealer Management

26 Pay Plan Reboot Get your pay plans up to speed before the DOL comes calling. Compliance

28 Connecting Technology and Compliance A dealer’s guide for airtight compliance processes in the digital age.

Departments 4 Editorial Page 36 Ad Index 39 Sales Driver 40 Mad Marv

22 F&I and Showroom (ISSN 2154-1728) (USPS 018-706) (CDN IPM# 40013413) is published monthly, by Bobit Business Media, 3520 Challenger Street, Torrance, California 905031-1640. Periodicals Postage Paid at Torrance, California 90503-9998 and additional mailing offices. POSTMASTER: Send address changes to F&I and Showroom, P.O. Box 1068 Skokie, IL 60076-8068. Please allow six to eight weeks for address changes to take effect. Subscription Prices: United States $20 per year; Canada $35 per year; Foreign: $35 per year. Single copy price: $10; Fact Book: $30. Please allow six to eight weeks to receive your first issue. Bobit Business Media reserves the right to refuse nonqualified subscriptions. Please address editorial and advertising correspondence to the executive offices at 3520 Challenger Street, Torrance, California 90503-1640. The contents of this publication may not be reproduced either in whole or in part without the consent of Bobit Business Media. All statements made, although based on information believed to be reliable and accurate, cannot be guaranteed and no fault or liability can be accepted for error or omission.

2 F&I and Showroom NADA 2011

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One Complete Source for F&I Products, Technology, Training, Reinsurance, Administration & Claims. Every dealership has F&I. Every dealership with IAS F&I products & technology has more.

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Letter from the Editor

Stop Chasing the ‘New Normal’ The editor believes it’s time to call off the search for the ‘new normal’ and reflects on what he believes was the industry’s defining moment. By Gregory Arroyo

eing a business-to-business journalist has provided me with a unique perspective on the business, especially when I get to rub elbows with my consumerleaning colleagues at shows like the National Automobile Dealers Association (NADA)’s annual convention. Yes, I have to report all my findings back to you, but I also get to see what the newsstand reporters are saying about our business. Such was the case when I traveled to New Orleans for the 2009 conference. It was my third time at the show, but things were different that year. The credit crisis was in full swing, and the possibility of General Motors and Chrysler going belly-up was being floated around. And, as you know, that year turned out to be the worst year for auto sales in three decades. The industry was trying to put on a good face at the show that year, but my colleagues from the other side of the fence sounded like they were ready to pound the last nail in the auto retail coffin with each question they posed to unsuspecting dealers. “Will you survive?” they asked. I’ll never forget Fred Frederick’s response to one of those questions before a throng of reporters. “Listen, we, including you guys, need to get off the devastation,” said the Maryland-based Chrysler dealer. “I’m telling you, we got the people to get the job done and I think we’re going to get it done.” He was right. Yes, the “new normal” has yet to be determined, but the end of our industry never materialized. Yes, we lost some people along the way, but we’re still here. And it took a collective effort for that to happen.

That’s why I’d like to take a moment to applaud the NADA, because it has done one heck of a job guiding us through one of the toughest periods in our history. Speaking at the F&I Conference and Expo last September, Stephen Wade, the incoming chairman, recapped the industry’s 18-month campaign to keep

You know the “This was their finest hour” speech Winston Churchill gave before the House of Commons in 1940? Well, I think emerging from the crisis was our own finest hour. the industry afloat. It started with efforts to stabilize the credit markets during the crisis and ended with the exemption it secured for dealers from the newly formed Bureau of Consumer Financial Protection. And to think, when the NADA began mounting its campaign to get dealers excluded from the bureau’s oversight in late 2009, it had already spent more than a year educating Congress, the Obama administration, my friends in the consumer media and the public about the vital role dealers play in this country’s economy and communities. There was the multi-front battle the association led in 2009 to expand the Federal Reserve Board’s Term AssetBacked Securities Loan Facility to get lenders back in the game, and to get the White House and the Small Business Administration to help restore dealer financing. Then there was that day back in May 2009 when the

NADA led more than 100 new-car dealers to Washington, D.C., to meet with members of Congress to slow down General Motors’ and Chrysler’s plans to cut their dealer networks. I’ll also never forget that early-morning call I received on Saturday, March 14, 2009. It was one of my dealer contacts on the East Coast. (Yes, I do get calls from readers on Saturday and even Sunday mornings, which doesn’t make for a happy wife.) My contact was frantic. He told me that a New Mexico Kia dealer named Bob Cockerham was going to testify five days later before a Senate committee. He was going to try to get lawmakers to help jump-start the credit markets, and he was hoping to collect 1,000 dealer letters to support his testimony. My contact wanted me to help get the word out. That was one instance where I didn’t hesitate to make myself part of the story, which goes against the journalistic code. But how could I not help? No industry means there’s no need for what I do. I guess you can say my decision to help was based on the realization that I, too, was part of “Main Street.” But here’s what I’m getting at: You know the “This was their finest hour” speech Winston Churchill gave before the House of Commons in 1940? Well, I think emerging from the crisis was our own finest hour. Are there other more defining moments in our history? I’m sure there are, but, given what I witnessed the last three years, I feel safe in my assessment. Will we ever realize our new normal? With the collective response we just put forth, does it really matter?

4 F&I and Showroom NADA 2011 Au

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NADA 2011 The annual industry show moves to San Francisco, where the Internet will take center stage inside the Moscone Center. By Jennifer Washington

nline sales and marketing will get a lot of attention over the next three days, as the National Automobile Dealers Association (NADA)’s 94th annual convention and expo looks down the road with its “Bright Future Ahead” theme in tow. The Internet will be the focus of nine workshops under the newly created “Online Presence” track that kicks off on Friday, Feb. 4, at 1:30 p.m. Speakers from such compa-

chase by TD Bank Financial Group and AmeriCredit making its first appearance at the show under the GM Financial banner, auto finance also will dominate the discussion. “In our collective race back to prosperity, the NADA convention provides a tremendous opportunity for dealers, automakers and suppliers to rebuild the industry,” said 2010 NADA Chairman Ed Tonkin, whose Feb. 5 keynote will officially open the show. Other notable speakers at this year’s event include Jim Lentz, Toyota Motor Sales’ president and COO, former U.S. Secretary of State Condoleezza Rice, and incoming NADA Chairman Stephen Wade. Jonathan Banks, executive analyst for the NADA Used Car Guide, will also join the association’s chief economist, Paul Taylor, in delivering his 2011 sales forecast.

Internet in the Spotlight a nies as Google, DrivingSales.com, J.D. Power and Associates, AutoTrader.com and ActivEngage will lead the sessions. “The economy has made more car shoppers information seekers, and auto dealers competing in today’s marketplace need to ensure they are building value and becoming online-relevant,” says Howard Polirer, director of industry relations for AutoTrader.com. Polirer will present “Influencing Car Shoppers Beyond the Click,” on Feb. 4, 6 and 7. How far along the industry is on its road to recovery is also sure to steal some of the spotlight. And with Chrysler Financial expected to get back in the game this year after its recent purOregon dealer and NADA Chairman Ed Tonkin addresses the crowd at last year’s event.

The event will feature more than 400 exhibiting companies, as well as more than 100 educational sessions.

The following are some of the topics being covered at this year’s event: Best of 20 Group Ideas

NADA/ATD 20 Group consultant Lycia Jedlicki will present a seminar on what other dealers have done to successfully change their businesses. Friday, Feb. 4, 3:15 – 4:30 p.m.; Saturday, Feb. 5, 11 a.m. – 12:15 p.m.; Monday, Feb. 7, 8:30 – 9:45 a.m.

Preventing and Detecting Fraud

Workshop leaders Dan Cheyney and Nancy Young of Moss Adams LLP will share techniques for fraud detection and prevention and map out a plan to follow if you discover fraud at your dealership. Friday, Feb. 4, 1:30 – 2:45 p.m.; Sunday, Feb. 6, 11 a.m. – 12:15 p.m.; Sunday, Feb. 6, 2:15 – 3:30 p.m.

6 F&I and Showroom NADA 2011

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Additional “Online Presence” Workshops

The following is a list of the seven other “Online Presence” workshops being offered as part of the educational slate at NADA 2011: ■ Blogs and SEO — Brian Pasch (Pasch Consulting) ■ Fixed Operations Retention in the Digital World — Kevin Root

(DriverSide.com) and Mike DeCecco (Dealer.com) ■ Increase Traffic and Engagement Through Video — Sean Brad-

ley (Dealer Synergy Inc.) ■ Influencing Car Shoppers Beyond the Click — Howard Polirer

(AutoTrader.com) ■ Perfecting the Online Lead Mix — David Kain (KainAutomotive.

com) and Anna Zornosa (Dealix) ■ Web Analytics: Improve Your

t at

while turning a special finance prospect into a satisfied customer at the same time. The workshop will be led by Mike Tamas of American Financial and Automotive Services and The Automotive Training Academy. Friday, Feb. 4, 3:15 - 4:30 p.m.; Sunday, Feb. 6, 2:15 - 3:30 p.m.; Monday, Feb. 7, 2:15 - 3:30 p.m.

Success Without Boundaries: Maximizing Aftermarket Sales

Specialty Equipment Market Association (SEMA) Council Director Zane Clark will outline the importance of a successful accessory program and creating goal alignment amongst the various departments. Friday, Feb. 4, 3:15 – 4:30 p.m.; Sunday, Feb. 6, 11 a.m. – 12:15 p.m.; Monday, Feb. 7, 8:30 – 9:15 a.m.

NADA 2011

Federal Regulatory Developments Affecting Dealerships

NADA attorneys Doug Greenhaus and Paul Metrey will detail the latest federal government rules and requirements and share cost-effective tips for avoiding legal trouble. Saturday, Feb. 5, 11 a.m. – 12:15 p.m.; Monday, Feb. 7, 10:30 – 11:45 a.m.

Social Media 101 and 201

Led by Jared Hamilton, founder of DrivingSales.com, these two workshops will cover a wide variety of topics, including starting a successful social media strategy, location-based mobile networking, and generating and tracking ROI. Social Media 101 Friday, Feb. 4, 1:30 – 2:45 p.m.; Sunday, Feb. 6, 11 a.m. – 12:15 p.m.; Monday, Feb. 7, 8:30 – 9:45 a.m. Social Media 201 Friday, Feb. 4, 3:15 – 4:30 p.m.; Sunday, Feb. 6, 2:15 – 3:30 p.m.; Monday, Feb. 7, 2:15 – 3:30 p.m.

Alan Mulally, president and CEO of Ford Motor Co., greets visitors at the OEM’s display at NADA 2010 in Orlando, Fla.

Conversion Rate — Todd Smith

(ActivEngage Inc.) Increase Special Finance Volume and Profit

This session will provide attendees with the tools to increase gross profit

For more information on the 2011 NADA Convention & Expo, including a schedule of events, registration, travel and accommodations, a list of exhibitors and more, visit www.nada. org and click on the “Training & Events” tab. NADA 2011 F&I and Showroom 7

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Dealer Profile

The magazine takes a look inside the world’s largest Lexus dealership to learn how a new approach to F&I, CPO sales and online marketing helped it survive the Great Recession. By Joan Shim

Giant

Lexus Adapts to the Times

hat does the Lexus volume leader do when the volume just isn’t there anymore? That was the question facing JM Lexus in 2008. The Margate, Fla., dealership had just come off its highest volume new-vehicle year ever, having sold 7,722 new Lexus vehicles in 2007. But toward the end of that year, when the downturn took hold, business started to slow down.

“I could feel an undertow — that business was starting to change,” recalls Jim Dunn, vice president and general manager. “And then we went from selling almost 8,000 new Lexuses in 2007 to a little over 5,000 in 2008.” The drop in new-car sales was a wake-up call for JM Lexus. So, in 2008, the dealership shifted gears and made adjustments. Rightsizing the business and boosting service to current and long-standing customers Department heads Greg Zeigler, Lance Digges and Bob Glasser, above, each played a role in boosting JM Lexus’ revenue from CPO units when new-vehicle sales began to slip.

were major components of its strategy, but Dunn says there also was a lot of potential among the departments that had yet to be tapped. “Prior to 2008, the focus was always on our new-car department,” Dunn says. “So we had a lot of opportunity to pay attention to other areas of our dealership, and they really picked it up.” Everyone was challenged to “do more with less,” and Dunn cites the pre-owned, finance, service and parts as the game changers. He says those departments “really answered the call” and helped the dealership end the year on a high note despite new-vehicle sales dropping further in 2009 to 3,996 units sold. Ramping Up Pre-Owned

In early 2007, when new-vehicle sales were still strong, JM Lexus bought a piece of property kitty-corner from its new-car facility. The lot had housed a shuttered car dealership. Dunn says the dealership was originally looking for more space to store vehicles, but the new property also allowed it 8 F&I and Showroom NADA 2011

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Dealer Profile to expand its body shop and service facility, as well as retail operations. “We were committed to Lexus Certified Pre-Owned, and we felt that was an opportunity,” Dunn says. “We were already the largest volume Lexus dealership in the world. We knew we had a shot at doing the same thing in our pre-owned department, but we needed more space.” The JM Lexus Certified PreOwned Superstore opened its doors in June 2007, complete with a dedicated reconditioning center for preowned vehicles. The timing of its launch proved to be fortuitous, with the drop in new-car demand and sales just around the corner. In true recession fashion, JM Lexus’ preowned sales increased 21 percent in 2009 over the previous year, while new-vehicle sales declined even further industrywide. “It’s turned out to be a really great strategy for us, and the numbers are certainly proving that,” Dunn says. “We’re now the No. 2 Lexus Certified Pre-Owned dealership in the world, and we’ve moved up nicely in the last couple of years.” Another reason for the rapid rise in pre-owned sales is online marketing. “Most of our business right now, probably about 80 F&I Business Director Lance Digges works exclusively with his captive lender to get JM Lexus’ customers financed — even those in the below-prime credit tiers.

Internet Manager Bob Glasser recently sold a pre-owned Lexus to a sheep herder in Kazakhstan. “These things are becoming more and more common,” he says.

percent, is somehow tied to the Internet,” says Greg Zeigler, JM’s preowned sales director. The vast majority of car shoppers will do their homework online, and Zeigler says they come into the dealership with a specific stock number in mind. For those customers, JM Lexus’ Internet department ensures that each car is well-represented on the dealership Website and partner sites. Its secret? Photos — and lots of them. “Many sites that we use have 21 photos of every pre-owned car,” says Internet Manager Bob Glasser.

Zeigler also puts great care into setting the online price for each vehicle. He uses vAuto’s pricing tool, which provides a live snapshot of consumer buying and competitor pricing trends. “We want to make sure that we are definitely the frontrunner in our area as far as having the largest amount of inventory and having it priced to market online,” Zeigler explains. “That’s where the majority of our business is coming from.” F&I Boosts Bottom Line

Another bright spot for JM Lexus is its F&I department, which saw its profit per vehicle retailed rise during the recession. The department’s PVR for new vehicles has increased from $716 in 2008 to $804 in 2010. For pre-owned units, it has jumped from $989 in 2008 to $1,053 in 2010. Product and finance penetrations have also gone up over the last few years. The financial support the department received from Lexus Financial, which the dealership works with exclusively, is a big reason for its success. “Fortunately, we haven’t felt the effect of any adjustment to buying procedures or policies,” says F&I Business Director Lance Digges. “Our lender has been nothing but supportive through everything that’s gone on.” Digges says his department doesn’t use a secondary source because Lexus Financial buys all of his subprime business. Even so, the F&I depart-

10 F&I and Showroom NADA 2011

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SERVICE

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OF SERVICE

TS. IT’S

A T

YEARS

Helping dealers carry home bigger profits for 20 years. Give us a call or visit us online and we’ll share our story of industry leadership, and more importantly, our passion for relentless customer service. Service Contracts. It’s What We Do.®

800.826.3207 www.aulcorp.com

Visit us at booth #433S NADA Convention & Expo January 5 - 7, 2011 Moscone Center San Francisco, CA

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Dealer Profile ment knew it had to pitch in more when new-car sales slowed. “We knew our volume was down and we needed to do whatever we could to make up for the loss of sales volume and impact the dealership’s profitability,” Digges recalls. To that end, the dealership invested heavily in training through Deerfield, Fla.based JM&A Group to ensure that the store’s 13 business managers were at the top of their game. “All our finance managers go through JM&A training, and it’s worth every nickel that we spend in training and coaching them to provide world-class service to their customers,” Dunn says.

especially well thanks to the dealership’s high lease penetration. For pre-owned vehicles, the leading F&I products are GAP, service contracts and prepaid maintenance. Rounding out the department’s offerings are life, A&H, road hazard and tire, DataDot theft-deterrents, and a key replacement product. Internet Sales Soaring

Even while foot traffic in the JM Lexus showroom has been light, customers have been consistently shopping for cars online. The best source of leads has been the dealership’s own Website, jm-lexus.com, but it also generates leads through the

The dealership’s service department will likely be asked to handle more volume as the finance office continues to make gains in sales of pre-paid maintenance plans.

The department’s success is especially noteworthy, considering it has only been in existence since 2005. Prior to that, salespeople would handle the deal from “tip to tail,” according to Dunn. After separating the F&I function, the dealership’s customer satisfaction levels rose. Dunn takes pride in JM Lexus’ F&I process, describing it as “untraditional.” The dealership doesn’t have separate finance desks or offices; instead, the business managers go directly to the customer while he or she is sitting at the salesperson’s desk. “We don’t have to shepherd them anywhere and there’s nothing behind closed doors, so it’s more comfortable for the customer,” Dunn says. According to Digges, the strongest F&I products on the new-vehicle side are prepaid maintenance and excess wear and tear. The latter performs

usual third-party sites such as Cars. com and AutoTrader.com. The Internet department’s staff of 12 newcar salespeople and nine pre-owned salespeople handles these leads as well as the phone traffic generated online. “We try to convert them into appointments or even sales,” Glasser says. “Lately, getting the sale from that initial call is becoming more common, and we’re able to accommodate it.” Total vehicle sales over the Internet have risen from 1,648 in 2009 to roughly 2,200 in 2010. The preowned volume for the Internet is growing particularly fast, according to Glasser. For example, in May 2008, the department sold 44 preowned vehicles over the Internet. That number rose to 63 in May 2008 and to 103 in May 2010. Glasser says new vehicles are at a disadvantage

online because they are not marketed as well as pre-owned vehicles. But he is working to bridge the gap by including more photos and information with new-vehicle listings. The Internet also has expanded JM Lexus’ customer base internationally, even to the most remote places. “We recently had a chat through our Website with someone in Kazakhstan,” Glasser recalls. “It was a shepherd on the side of a hill minding his sheep. He had his laptop with him and decided to see what was going on at JM Lexus.” The shepherd saw a pre-owned vehicle he was interested in and made an inquiry. A few days later the funds were wired in and the vehicle was shipped. “These things are becoming more and more common,” Glasser says. More of JM Lexus’ marketing budget is being dedicated to the Internet, including social media. One full-time associate exclusively oversees the dealership’s social media efforts, including its Facebook and Twitter presence. JM Lexus also has a strong reputation on DealerRater.com, where the store has garnered 103 overwhelmingly favorable reviews and earned a rating of 4.9 out of 5.0. “The potential of social media is huge, and we’re investing our marketing money in it because we have to be sensitive to our next generation of customers,” Dunn says. On the Upswing

Things are finally looking up for newcar sales; the dealership was up about 500 new units by the end of 2010. “Through the last half of 2010, we saw customers coming back,” Dunn says, “And it looks like we’re starting to see a healthy, robust turnaround here.” The dealership ended 2010 on a high note, with sales of roughly 700 new cars and 250 pre-owned cars in December alone. “We’re really bullish on 2011,” Dunn says. “It’s a matter of time. It’s not going to correct itself overnight, but we are seeing steady improvement in our new-car business.”

12 F&I and Showroom NADA 2011

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“ My focus is running my dealership—not worrying if my business is protected or how to generate income in my ﬁnance department. Zurich lets me do that.”

One insurance company for your business insurance and F&I product needs In 2010, more than 1,300 dealerships purchased both business insurance and F&I products from Zurich. Products such as our Unicover® policy, which packages most of the coverages needed by dealerships into one policy. Or our Streamlined Selling System®, which can help you drive increased F&I proﬁt. One company for all your needs, backed by more than 85 years insuring dealerships. Visit www.zurichna.com/NADA or call us at 888-266-7527 for more information.

Visit us at the 2011 NADA Convention & Expo Booth #4223N to pick up a FREE business insurance checklist.

Insurance coverages and non-insurance products and services are underwritten and provided by individual member companies of Zurich in North America, including Universal Underwriters Insurance Company and Universal Underwriters Service Corporation. Certain coverages, products and services are not available in all states. ©2011 Zurich American Insurance Company.

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Technology

Social Media’s

True Calling Social media is a great marketing tool, but it shouldn’t be treated as such. Expert explains why linking social media to your community outreach efforts might be the way to go. By David Johnson

ocial media hit the mainstream in 2010. Some dealers embraced it, others were frustrated by it. For the dealers who found success with this new word-of-mouth marketing medium, the winning formula was simple: less pitch, more engagement. Trying to use social media as an extension of your traditional marketing efforts will only get you so far. You can’t build an online community with advertising dollars and costly promotions, but that doesn’t mean that type of “community marketing” doesn’t have its place in your marketing strategies. Those types of promotions do get things moving. The problem is that participation stops in its tracks once the promotion ends. By anchoring your social initiatives into something larger than your brand — a higher calling, if you will — you can create a common bonding point between your dealership and your market. That’s the best way to increase your ROI — and I don’t mean return on investment. Community outreach creates what I call “return on influence.”

Case Study: Metro Honda

All this talk about passion and outreach might sound like pie in the sky, but it works. Just ask the team at Indian Trail, N.C.’s Metro Honda of Union County. The dealership sprang into action last year after Walmart launched its nationwide “Fighting

Hunger Together” campaign. The big-box retailer promised to donate $1.5 million to six communities that Facebook users would vote on from a list of 100. The leading community would be awardedd $1 million and the other five would get $100,000 each. During the campaign, which ended in December, Metro Honda created videos, sent out e-mails and engaged its Facebook fans to attract as many “likes” — each counting as one vote — to its community’s page as it could. The strategy worked. The dealership’s number of daily active users (i.e., people consuming the dealership’s content) increased from an average of 200 per day to more than 1,000, and its daily post views on Facebook increased from about 5,000 per day to upwards of 25,000. Even after the Fighting Hunger Together campaign concluded on Dec. 31, the number of daily active users on the dealership’s community page was still double the amount the page attracted before the campaign began. That’s what return on influence is all about. It’s easy to fall into the trap of judging the success of your Facebook strategy by the number of “likes” you garner. The statistics you should concentrate on are the number of daily and monthly active users. As you look for a cause to sup-

port, make sure you find one that aligns with what your dealership is all about. You don’t want your community members to think you’re exploiting a cause to sell more cars. Be sinc sincere in your efforts to raise awareness. That Visitors to Metro Honda of Union County (N.C.)’s Website can watch videos detailing the store’s work with local schools, as well as contests, giveaways and more.

m might sound counterintu tuitive, especially since marketing is all about pushing your brand’s agenda, but the goal of social media marketing is to spur organic growth and create goodwill. Remember, there is more to your dealership than the lot it sits on and the inventory it moves every month. There also are people who make up the business, and it’s these people that will be your connection point with your customer base. You can foster this connection by redeveloping the core message of your dealership to something that goes beyond selling cars, service and F&I products. What you want is a message people can rally around and become passionate about. David Johnson is director of e-commerce for Next Generation Dealer Services, a firm specializing in special finance training. He can be reached at david.johnson@bobit.com.

14 F&I and Showroom NADA 2011

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Finance and Insurance

idn’t do as well as you hoped in 2010? Well, you’re not alone. There are plenty of valid reasons things didn’t go as planned last year, but each has a solution. To find it, you have to consider how you think and act. To help get you thinking and acting the right way, let’s count down the top challenges you faced last year and see if we can find a fix.

The lenders are capping all my deals and won’t let me sell any products.

The Cause: Given the credit crisis we

just came out of, it shouldn’t surprise you that lenders are trying to limit their exposure as much as possible. The easiest way to do that is to limit your F&I products. The Answer: What you need to do is keep a detailed log of the deals you were capped on. Be sure to note how much income was lost and present your findings to your dealer or general manager at the end of the month.

The truth is, lenders do have some flexibility here. Sometimes a call or a meeting with your boss is all it takes to get them to loosen up. At the end of the day, lenders need your business, and they will only cap your products as long as they feel they can.

Half my customers are paying cash.

The Cause: Yes, interest rates are

incredibly low, but you have to remember what the recession did to the consumer psyche. The Answer: The key here is to work the percentages and offer those low rates to every buyer, every time. Sure, cash conversion percentages are low, but you will find that some will convert if they are offered a low enough rate.

We’re selling too many cheap cars.

The Cause: Put simply, consumers

today are buying out of need, not

want. That means the cars you would have wholesaled two years ago are now your best sellers. Obviously, that doesn’t bode well for your F&I penetration and income-per-unit numbers. The Answer: Make sure management knows how many of your total units were under, let’s say, $12,000. While you can’t alter your actual profit per retail unit number, you want to make sure management is aware of the impact those vehicles have on your numbers.

The sales department isn’t turning people over to me at the time of the sale.

The Cause: Doggone those salespeo-

ple, right? Well, you don’t run the sales department, the sales managers do. The Answer: Remember, it’s all about money. As suggested in the capping solution, you need to keep a log. Every time someone isn’t turned over to you, make a note of it in your log. Then, at the end of the month, multiply those people you didn’t see by your average income per financed

Fixes to F&I’s Biggest Challenges

‘Control what you can control’ is the usual answer to most problems. F&I expert shows you how to take control of the 10 biggest challenges F&I managers faced in 2010. By George Angus

16 F&I and Showroom NADA 2011

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Finance and Insurance

deal. Then show your dealer or general manager the potential income lost because customers weren’t turned over to you at the time of the sale. Believe me, the numbers will speak for themselves and the problem will get solved.

You don’t understand. Our customers are different.

The Cause: Every time I hear this, I

know of a dealership down the road that is producing more — sometimes double — the F&I income per retail unit delivered. The Answer: This is one problem where you are often the cause. The best way to solve this is through training, because there are customers out there who want your products — you just have to know how to present and deliver them.

My pay plan stinks.

The Cause: If you can get your dealer

to give you more money, great. However, after what’s transpired the last few years, good luck! The Answer: I once had a student who stood up in front of my class and stated what I think is the true solution to this problem: “Give me a pay plan and I’ll give myself a raise.” If you work on commission, the easiest way to make more money is to sell more stuff.

These products are too expensive. People won’t buy them.

The Cause: F&I products are expensive, but they need to be to pay for the benefits they provide. The manner in which you present them is the key. The Answer: Moving product is not so much about “selling” as it is about evoking the proper “psycho-neuro” response, which is an unconscious reaction to a given stimulus in a particular environment that can be measured and modified. Take this dealership I once visited. Hanging from the wall of the F&I of-

It’s important that you do some research and find the training that fits your style of learning. Just remember that you can’t rationally expect to improve your results if you keep doing the same thing. fice was a sign with the heading: “The Benefits of Credit Life Insurance and Accident and Health.” What followed was a list of all the features and benefits of those products. For added effect, the F&I manager made sure all his awards and accolades were there for all to see. So what’s the problem? Well, every customer fears getting ripped off by the finance office, right? So anybody walking into this office is going to think, “Not only am I going to get ripped off, but I’ve got the world champion doing it.” People will pay. Just don’t give them a reason not to.

My dealer won’t pay for training right now.

The Cause: If you paid $3,000 to send someone to an F&I school and didn’t see any improvement in F&I income, would you do it again? In this economy, I don’t think so. The Answer: Talk to the agent who sells you your F&I products. You can bet he or she will be willing to help you get some training. After all, if you sell more of the agent’s products, he or she makes more money.

I hate training.

The Cause: Well, the fact is, the training you tried might not have been what works for you. Just remember, you can only get what you put in. The Answer: It’s important that you do some research and find the training that fits your style of learning. Just remember that you can’t rationally expect to improve your results if you keep doing the same thing. My dad had an old farm saying I’ve never forgotten: “Learn something new today, or you’ll be just as uneducated tomorrow as you were yesterday.”

We still aren’t selling enough cars.

The Cause: This certainly was a

common complaint in 2010. It’s also the most frustrating, because we can’t do much about it. We don’t control the number of units sold; the sales department does. The Answer: The key here is to control what you can control. Let’s say a dealership that normally moves 150 units per month now sells only 100 because of the economy. Well, what if you figured out how to increase your F&I income per retail unit by 50 percent? Is that not, for the sake of your paycheck, the same as selling 150 units? The answer to a better 2011 is simple: hone your skills, keep a positive attitude and do your best every day. More importantly, take advantage of every training opportunity you can so you have the tools needed to be successful. Remember, this is still the greatest business in the world and you’ve got the best job in the dealership. And hey, 2011 looks like it might just be the best year in a long time for this business. George Angus heads Team One Research and Training, a company that specializes in scientific, researchbased program development and training programs. E-mail him at george.angus@bobit.com.

18 F&I and Showroom NADA 2011

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PVR VSC As we’ve done for over 45 years, Resource Automotive makes an immediate impact in every department in your dealership — fixed or variable, we do it all. As part of The Warranty Group, a 2000 employee and $5 billion asset global enterprise, we provide world-class claims administration, plus, we have Virginia Surety Company,Inc., rated A- (Excellent) by AM Best, as a wholly-owned subsidiary. In addition, we’re the leader in participation programs and facilitated payouts of $100 million — just last year. It’s critical to understand that you can’t realize your potential until improvement opportunities are identified. That’s where we come in. We help you assemble the people, processes and products to not just compete, but win. Then we coach your team to victory, every time. Now is the time to reach the next level of performance. Contact Charlie Robinson today to arrange an in-depth, no-charge business analysis. charlie.robinson@TheWG.com 312.560.9182 The game is on. What do your stats look like?

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Finance and Insurance

Turning

Objections

Sales Into

F&I trainer runs through seven objection-handling techniques for selling service contracts and GAP, and offers advice for closing the customers who listen. By Ronald J. Reahard

&I managers make their living on the word “No,” especially since most of their customers enter their offices armed with a variety of ways to say it. What successful F&I managers understand is that most objections are simply an indication that the customer has yet to believe he or she needs the product — or that its value exceeds the cost. Where they make their money is in their response to those objections. To turn an objection into a sale, you must first welcome the objection, sympathize and demonstrate an understanding of it through your response, tone of voice and body language. Your ability to overcome an objection will depend primarily on your ability to provide the customer with valid reasons why they need your products. Let’s run through some objectionhandling techniques for service contracts and GAP coverage: 22 F&I and Showroom NADA 2011

FINADA11reahard.indd 22

4 Common Objections for Service Contracts Objection No. 1: “With a three-year/36,000-mile factory warranty, I don’t need it.” The Response: Your “in” here is to focus on the customer’s driving habits, especially if the customer drives more than 12,000 miles a year, plans on keeping the vehicle or is financing it for longer than the factory warranty. Here’s how to proceed: F&I manager: I know what you mean. (Toyota) builds a fantastic vehicle. And with that warranty, you are protected for a significant amount of time. Unfortunately, the warranty covers you for three years or 36,000 miles, whichever comes first. And since you drive 20,000 miles per year, you’ll be out of warranty in how long? Customer: A little less than two years. F&I manager: That’s why, in your

case, the service agreement is absolutely critical. Because you’re not financing the car for two years, you’re financing it for five, right? Customer: That’s true.

Warning: Always ask a trial closing question that will elicit a positive response before going for the close. Assuming a “Yes” before the customer indicates he or she is ready to buy will get you an adamant “I don’t want it!” To a customer, that feels like sales pressure. The Close: So, do you just want to go with the preferred option, or would the standard option work better? Objection No. 2:

“I just don’t think I need it. I’ll probably trade it in before the warranty expires anyway.”

The Response: Make sure to dem-

onstrate empathy and an understandPHOTO ©ISTOCKPHOTO.COM / PEEPO

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Finance and Insurance ing for the customer’s concern before overcoming this objection. Here’s how to proceed: F&I manager: I understand. If you’re only going to keep it three or four years, you don’t want to buy a service agreement for the next owner. Let him buy it, right? Customer: Right. F&I manager: Actually, that’s the best thing about this protection. If you do trade, you can cancel the unused portion and get a refund. If you sell it, you can transfer it to the next owner, which turns an “As-is” used car into a pre-owned vehicle with three or four years of coverage remaining, dramatically increasing its value and your return on investment. If you decide to give it to your daughter when she goes off to college, she’ll be covered while she’s away at school. And whether you sell it, trade it or give it to your daughter, you want it to be worth as much as possible, right? Customer: Right. [Proceed to the close.] Objection 3: “That’s why I’m buying a Ford, because they don’t break down. If it did, I wouldn’t want the car.” The Response: Tread carefully here. Saying the car will break down could cost the dealership the sale, or, at a minimum, kill your chances of selling a service contract. However, agreeing with the customer means there’s no need for a service agreement. Here’s how you proceed: F&I manager: I understand. That’s why you’re buying a Ford, because you don’t want any problems. If you thought you were, you’d be buying something else, right? Customer: Absolutely. F&I manager: I have to agree with you. The new Taurus is definitely one of the finest vehicles on the road today. Hopefully, you’ll never have any repairs. Unfortunately, if you have even a minor problem, it can be extraordinarily expensive. Customer: Why is that? F&I manager: Just like every other carmaker, our technicians have be24 F&I and Showroom NADA 2011

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come component replacement experts. If the air conditioner only has one speed, you don’t replace the fan switch; you replace the climate control module. That’s why a service contract is absolutely critical. It’s not that you have a lot of repairs; it’s that when you do, it’s a lot more expensive to fix. And you don’t want to buy a climate control module if you don’t have to, right? Customer: Right. Objection No. 4: “This is the fifth Subaru I’ve bought from this dealership, and I’ve never had any problems.” The Response: This is just another variation of “I don’t need it.” Here’s how you proceed: F&I manager: Wow! Five Subarus and you’ve never had a problem. That’s fantastic! I can certainly understand why you think you don’t need the additional coverage. I’d feel the same if I were in your shoes. That’s why you keep buying Subarus, right? Customer: Right. F&I manager: Now, the Legacy is all new this year from the ground up. And since you do plan on keeping it for a while, you’re going to be putting on a lot of miles, which means you’ll own it long after the warranty expires. And you don’t want to pay for any repairs if you don’t have to, right? Customer: Right.

3 Common GAP Objections Objection No. 1:

“I’ve never had an accident.” The Response: Since that might be

true, make sure to recognize the feat and stroke the customer’s ego before overcoming this objection. Here’s what you do: F&I manager: Wow! Thirty years without an accident. That’s amazing, especially considering the way people drive around here. I think the worst drivers in the country live right here in Tennessee, don’t you?” Customer: No kidding. F&I manager: Obviously, you’re a very good defensive driver. You’ve

also been extremely fortunate, since studies show most people will be involved in two auto accidents before the age of 50, which means you’re past due. Unfortunately, even though you are a safe driver, someone else’s negligence could put your streak in jeopardy. You could be rear-ended at a stoplight by a 17-year-old kid who’s texting while driving. You could also have your vehicle stolen on your next trip to the mall. After all, auto theft is the No. 1 property crime in the country. [Note: If the customer is not aware of that stat, you can tell them that a car is stolen every 39 seconds. If he is, it’s time to go for the close.] Inside the Strategy: Notice how we shifted the customer’s focus to the possibility of his or her vehicle being stolen. While every customer is familiar with their own driving record, most are not familiar with crime statistics. You, on the other hand, have to be. Objection No. 2:

“I’ve never had a car stolen.”

The Response: We have to help this

customer realize that vehicle theft is always a possibility. F&I manager: I’m glad to hear that, especially since auto theft is the No. 1 property crime in the United States. That’s why virtually every new vehicle we sell comes standard with a factory-installed security system. PHOTO ©ISTOCKPHOTO.COM /

1/7/11 11:25:07 AM

Remind your customers that GAP coverage isn’t just for accidents, and that auto theft remains the nation’s No. 1 property crime.

Most victims of a vehicle theft, by the way, are first-timers. And unfortunately, your car is much more desirable to thieves because it’s still fairly new, which puts you at a greater risk since your loan balance will be at its highest point. If your car is stolen or totaled, GAP can protect you from having to pay any deficiency out of pocket, plus you’ll be reimbursed for your deductible. Wouldn’t it be great if you didn’t have to pay your deductible? [If the customer says “Yes,” then proceed to the close.] Objection No. 3:

“I’ll take my chances.”

The Response: This is not even an

objection, but a statement indicating the customer doesn’t feel he or she needs the protection. It could be that the customer has never been in an accident or had a vehicle stolen. Here’s how you proceed: F&I manager: I can understand why you want to take your chances. If you’ve never had an accident or had a vehicle stolen, why would you need GAP? Customer: Right. F&I manager: I think I’d feel the same way if I were in your shoes. Why buy something you don’t need. However, we do find it’s absolutely critical to have it on today’s vehicles for two very important reasons. Customer: Why is that? F&I manager: First, today’s vehicles are made with component parts.

Have you ever watched those news shows where the National Insurance Institute backs a minivan into a pole at five miles per hour and causes $5,600 in damages? Customer: Yeah. F&I manager: How could that be, right? The answer is component parts. See, bumpers are plastic, so a damaged bumper gets thrown away, not repaired. And if a piece of broken glass cuts the seat cover, well, on most vehicles, you can’t buy a new cover. You know what you then have to replace? Customer: The seat? F&I manager: Exactly. See, even a minor accident can be extraordinarily expensive, increasing the chance of your vehicle being totaled. Second, every new vehicle today is made with crumple zones. It used to be that if you hit a tree with your Crown Victoria, you’d put a big “V” on the front of your vehicle and your face would be splattered all over the dash. If you hit a tree today, your car gives it a big hug and a pillow pops out of your steering wheel. You’re okay and the tree isn’t too bad either, but your new Taurus is totaled. And you don’t even need to be moving for your vehicle to be totaled. You could be sitting at a stoplight when your new Taurus is rear-ended by a 17-year-old kid who is texting while driving his dad’s SUV. That’s a big problem these days, right? Customer: Boy, it sure is. [Since we got a positive response, it’s time to circle GAP on the menu and go for the close.] Armed with the techniques described above, you’ll be on your way to improving your acceptance rates for both products — and sending each customer home with a more secure purchase.

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Have UCC TAILOR a custom program to fit YOUR needs. Call 1-800-571-6412 jvecchioni@unitedcarcare.com

www.unitedcarcare.com Ron Reahard is president of Reahard & Associates Inc., a F&I training company providing F&I classes, workshops, in-dealership and online training. E-mail him at ron.reahard @bobit.com.

Designed to fit your profit goals. NADA 2011 F&I and Showroom 25

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Dealer Management

Pay Plan Reboot The Labor Department is gearing up. The question is, will your pay plans be ready? Here’s a primer to help you get them up to speed. By Lon Leneve

iven the attention auto retailing has received over the years, it might be difficult to fathom that there’s one area that has escaped rigorous attention from federal regulators: pay plans. Recent actions by the Department of Labor and heightened awareness for wage and hour laws among employees could change that. The subject of pay plans was covered in a recent Webinar co-hosted by my company, Compli, and John Donovan, a partner at noted labor law firm Fisher & Phillips LLP. The goal of the presentation was to highlight common misconceptions and best practices to help dealers in an area that’s often challenging, especially when dealing with poorly written, out-of-date and, sometimes, undocumented pay plans. But there’s good reason to plug this noncompliance hole. The Department of Labor recently hired 250 new investigators to more aggressively investigate employee complaints. Employees also are more aware of employment laws these days, and wronged staffers no longer have to discuss employment matters with their bosses; they can go straight to their lawyer. 26 F&I and Showroom NADA 2011

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Also remember that if a dealership employee sues for wage and hour violations because his or her pay plan didn’t comply with the law, the dealer can be on the hook for three years’ worth of wages. Even if your new guy or gal has been with you only six months, you can bet his or her attorney will track down his or her predecessors until they can build three years’ worth of claims. Remember, a prevailing lawyer automatically gets all of his or her fees paid. Let’s review some common misconceptions about pay plans: Misconception No. 1:

“We’ve used this pay plan for five, 10, maybe 15 years, and we’ve never had a problem, so I’m sure it’s okay.” Reality: Most payroll managers will

tell you they learned their job from their predecessor, which means their bad practices get carried on from year to year. Misconception No. 2:

“Well, he signed the pay plan and he signed his timecard, so he agreed to this amount.”

Reality: If an employer pays an em-

ployee at variance with what he has

previously agreed to, it is a potential contract claim. Misconception No. 3:

“Oh, everyone in my 20 Group does this.”

Reality: The “everyone else does it”

excuse doesn’t provide you with any protection, because regulations vary from state to state. Misconception No. 4:

“This is an ‘at will’ state.”

Reality: Yes, a manager can change

his pay plan tomorrow, but he can’t go back and change the pay plan and make it retroactive to the first of the month. A change to a pay plan can only apply to future earnings. Misconception No. 5:

“He’s paid a salary, so he’s exempt from overtime.”

Reality: That’s the furthest from the

truth. Before we get into some best practices, there are two things you need to remember about pay plans: First, pay plans are wage and hour documents that have to comply with both state and federal wage and hour laws. Second, pay plans are contracts. When you write up a pay plan and hand it to your employee, you are PHOTO ©ISTOCKPHOTO.COM / SONDRAP

1/7/11 11:04:23 AM

When you write up a pay plan and hand it to your employee, you are effectively telling him or her, “If you do these things, I will pay you this much money.” Not only is that document legally binding, it’s enforceable in court. effectively telling him or her, “If you do these things, I will pay you this much money.” Not only is that document legally binding, it’s enforceable in court. Even if it’s not in writing, it’s at least a verbal contract which is enforceable in court. One thing people don’t realize is a contract is construed against the party that drafted it. That being said, let’s review some best practices: ■ EVERY employee should have a written pay plan that’s signed and dated by the employee. ■ The pay plan should be drafted so that even a layperson who is unfamiliar with the car business can understand what it means. ■ The pay plan should spell out in detail how the employee will be paid — salary, draw or commission — and how the money will be calculated.

■ The pay plan should include all aspects of the compensation: hourly, salary, commissions, bonuses and spiffs. If it’s not clearly delineated in the pay plan contract, there could be a problem. ■ If there are special contests that aren’t in the pay plan, they should be documented with the same amount of seriousness and accuracy as a regular pay plan. ■ If a guarantee is included, make sure the plan states that it is a guarantee of compensation, not employment. ■ Decide if the employee is exempt from overtime or not, and be sure he or she is aware as well. ■ Pay plans shouldn’t contain nonpay-related matters such as vacation or insurance. Those items should be covered in your employee handbook. ■ Pay plans are prospective in nature. The contract is formed the moment the salesperson sells a car and the business is obligated to pay in accordance with that sale. ■ Revise and resign a pay plan whenever there is a change. Don’t issue amendments on top of amendments. I know it’s mind boggling to sift through all these misconceptions

and best practices, so let me leave you with some excellent advice to get your pay plans up to speed: First, call your local or state dealer associations and find out what requirements apply to your state. Then pull up all of your pay plans and review them to make sure they’re up to date. If they’re not up to date, fix them. It doesn’t have to be today, but make it your goal to have all pay plans updated and signed by employees by early 2011. You won’t just be cleaning up your files from 2010; you’ll be starting the new year off cool, calm and compliant. Lon Leneve is president & CEO of Compli, a provider of human resources and compliance management software for auto dealerships. E-mail him at lon.leneve@bobit.com. Nothing in this article is intended to be legal advice and should not be taken as such. All legal questions should be addressed to competent counsel. All the issues discussed in this article are addressed in the “Pay Plans: Best Practices, Rules & Misconceptions” Webinar. To watch for free, visit: http://bit.ly/buu7T3. NADA 2011 F&I and Showroom 27

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Compliance

A Dealer’s Guide to

Connecting Technologyand Compliance Before you select your next compliance software tool, read this primer on connecting technology to your dealership’s compliance processes. By Joe Bartolone

he Federal Trade Commission (FTC)’s RiskBased Pricing Rule is the latest example of how compliance creates industries, as a slew of solution providers lined up to help dealers navigate the industry’s newest regulation. The technology they developed will undoubtedly add efficiency and accuracy to their dealer clients’ compliance efforts, but it can’t be effective without the right processes and procedures in place. Before you begin your search for new software, let’s review some areas of the sales and F&I processes where technology can support your dealership’s compliance efforts.

Sales: Discriminatory Lending and UDAP Claims The Goal: Although dealers escaped litigation from the

class action discrimination lawsuit filed against five captive lenders early last decade, they need to be careful that the processes they use to quote payment avoids any hint of discriminatory practices. The suit, which ended in a multimillion-dollar settlement, is still fresh in the minds of plaintiffs’ attorneys and regulators, so expect the new Consumer Financial Protection Bureau to continue to monitor auto lending practices.

The multimillion-dollar ar settlement against five captive ve lenders for discriminatory ry practices early last decade will ill be fresh in regulators’ minds ds for years to come. Dealers who ho demonstrate a willingness and d ability to play within the rules es will benefit as auto lending g continues its comeback. k.

28 F&I and Showroom NADA 2011

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Compliance

Dealerships are vilified by the courts when staff members are accused of fraud, but customers who know how to work the system also represent a potential area of exposure.

Second, dealers need to be cognizant of potential claims of Unfair and Deceptive Acts and Practices and enact procedures that foster full disclosure. Remember, attorneys are on watch for these types of issues because UDAP awards typically provide for treble damages if the court finds evidence of willful misconduct.

Sales Finance: Bank Fraud The Goal: Falsifying credit app information, stips, down payments and collateral are potential areas of exposure for dealers. However, your employees are not the only ones you need to watch. There are customers who’ve been around the block a few times and know how to work the system.

The Process: If your dealership runs credit before present-

ing the first pencil, a good best practice for avoiding charges of discrimination is to develop a rate matrix based on credit scores. The matrix can be broken down in increments of 25 or 50 points. One method would be to take a captive finance rate matrix and add two points to the tier-two buy rates. So, in practice, every customer who has a 625 score should be quoted a payment using the same first pencil rate. If your store doesn’t run credit before the first pencil quote, then establish a “store” rate that is used for all customers. This rate could be based on an average rate of sold deals over the last 90 days. The key here is consistency. Full disclosure is critical to avoid UDAP claims when the deal reaches the negotiation stage. That means giving each customer all the necessary deal terms, including the selling price, trade allowance, payoff, down payment, rebate, the amount financed, payment, term and rate. Transparency will not only help answer any future questions about what the customer agreed to, it also will eliminate the potential for payment packing or using hidden or unrealistic terms or rates to calculate payments. Technology Breakdown: A computer desking system can

be your greatest weapon against discrimination or UDAP claims. Look for a solution that integrates with your dealership management system, as this will allow desk managers to quickly and accurately work a deal while computing multiple combinations of finance and lease terms. Built-in rate matrices are another nice feature, allowing managers to compute first-pencil payments based on credit scores. When a solution is selected, be sure to lock down the defaults on the rate matrices, and to retain the first-pencil and final agreed-to term worksheets.

The Process: There are two key processes to consider:

First, have customers complete their own application. Second, when an application must be completed on the customer’s behalf, have him or her sign the application and initial key credit determinates, such as time at address and job. This is not a legal requirement, but it will provide a nice defense if the customer provides false information. Dealers also must institute safeguards to ensure that hold checks, deferred down payments and credit cards aren’t accepted without the lender’s knowledge. Not only is this found to be in violation of dealer-lender agreements, but accepting these types of payments and disclosing them as a cash down on the retail installment sales contract could be a violation of the Truth in Lending Act’s Regulation Z. Dealers must also take steps to ensure the value of the collateral is properly stated. That’s why it’s a good practice to create a book-out sheet for trades and purchased used cars added to inventory. These sheets should be signed by the manager who created and submitted them to the lender. Additionally, all stipulations should be authenticated. Benefit letters from the Social Security Administration can be authenticated by understanding the codes embedded in the letter. Stips such as pay stubs, utility bills and tax statements also should be scrutinized. Technology Breakdown: A solution to electronically sub-

mit credit applications will definitely speed up the process, but the real benefit of these tools is they can print out the data in a format that discloses the credit app, deal terms and the collateral description. This can serve as an exceptional auditing tool to ensure the information provided and submitted match up.

30 F&I and Showroom NADA 2011

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Compliance Automated inventory systems also provide protection against powerbooking, a practice where the seller artificially inflates a vehicle’s value by listing a higher trim level or nonexistent options. The right system will timestamp any modifications made to each vehicle’s record and record the name of the person who made the change.

Rebates/Dealer Incentives: Eligibility Checks

IRS and FinCen Reporting: Form 8300 The Goal: Reporting to the Internal Revenue Service and the Financial Crime Enforcement Network (FinCen) transactions for which more than $10,000 is received from a single buyer can’t be overlooked. Those who intentionally disregard the rule’s requirements could be fined $25,000, or the amount of cash they received but failed to report, whichever is greater. The required reporting document is called the Form 8300. Check out the IRS Publication 1544 for more instructions on complying with this rule.

The Goal: Most new-car sales are tied to some form of factory rebate and/or dealer incentive, so it’s critical that you take measures to ensure that Automated your dealership, the customer and the inventory systems vehicle are eligible for the incentive also provide protection claim submitted to the factory. The Process: Ensuring that no

The Process: Your cash receipting

system should provide a detailed

description of the form of cash tenagainst powerbooking, dered, as disclosing that money a practice where the seller received was cash, check or credit artificially inflates a vehicle’s card does not provide enough devalue ... The right system will tail to support a good Form 8300 timestamp any modifications process. That’s why each cashier made to each vehicle’s record should be provided with a set of standard abbreviations to properly and record the name of identify the form of cash received — the person who made was it currency or a personal check, the change.

mistakes are made requires a joint effort between sales, F&I and the administrative office. First, sales should print a copy of the inquiry to the incentive program, confirming the amount of the rebate, promotional rate or dealer incentive available. Sales should then be required to collect any of the required documentation for consumer-specific programs. The finance office should then ensure that the incentive is properly applied to the deal and that the customer properly executes documentation confirming the amount of the rebate and assignment to the dealer. Following the delivery, all rebate documentation should be collected and attached to an acknowledgement form indicating that all three departments agree that the rebate is valid. Also, be sure to file the paperwork in the deal jacket. As for dealer incentives, remember that they are vehicle-specific and may have a volume bonus attached.. Eligibility is usually tied directly to the vehicle’s delivvery date and the incentive payable is generated when n the dealer writes up a retail delivery report. That’s why hy it’s critical that your dealership’s RDR reconciliation on process ensures that vehicles reported monthly to the factory match the sold vehicles detailed in the DMS and then eventually match the credits applied by the factory. ory. Remember, charge-backs resulting from factory audits dits can be the most expensive penalty a dealer will face.

cashier’s check, money order, bank draft, credit card or something else?

Technology Breakdown: Most DMS offerings include

an automated cash receipts application, which generally provide for multiple classifications of the type of money received. This will assist the accounting office in making sure the Form 8300 is filed within 15 days after receiving a payment, as mandated by this requirement. The IRS requires the completion of Form 8300 for any transaction in which more than $10,000 is received from a single buyer. Dealers who fail to comply can be fined upwards of $25,000 per violation.

Technology Breakdown: Gaining knowledge of the factory applications and working with your DMS providers ders can provide you with exception reporting tools to manage nage this important component of your operation.

32 F&I and Showroom NADA 2011

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Compliance

Id Identity theft remains a key concern for government g agencies and a consumer privacy advocates, a and should be for fo dealers as well. With the moratorium on Red t Flags enforcement lifted F as a of Dec. 31, 2010, there is i no excuse left for not implementing a written i policy for protecting p your customers against y identity thieves. i

Identity Check: Red Flags Rule The Goal: The enforcement moratorium the FTC placed

on the Red Flags Rule was finally lifted as of Dec. 31, 2010. That means dealers must have a written “Identity Theft Prevention Program” in place to identity, prevent and mitigate ID theft. Currently, the law sets $3,500 as the maximum civil penalty per violation, but that doesn’t include civil liability. The Process: This rule requires dealers to designate a

compliance officer and perform a risk assessment to identify the threats of identity theft relevant to their operation. Dealers must also develop written policies and procedures for detecting, preventing and mitigating identity theft, and employees must be trained to follow them. Audits on the effectiveness of the dealership’s program must be performed periodically, and an annual report detailing the success and shortcomings of the program — as well as any required improvements — must be submitted to the dealership’s board of directors or senior management. Technology Breakdown: Many companies offering con-

solidated credit reports, F&I menus and specialty ID theft

34 F&I and Showroom NADA 2011

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services have incorporated automated “Red Flag” tools. These solutions use a variety of indicators to suggest the likelihood of identity theft. Some tools display pass or fail indicators, while others will use proceed-with-sale or a do-not-proceed indicators. Other solutions use a numerical value (e.g., buyer index score, customer identity score). It’s important to remember that these indicators are generated as a result of searches conducted by data aggregators that track fraud-related activities from other industries and other public records. In other words, these solutions may miss discrepancies in the customer’s credit report. They also can’t measure Red Flag behavioral patterns detected during the sales process. Out-of-wallet questions are another great weapon against ID thieves. These questions are typically based on information available in public records. They’re a good way to catch customers who may be posing as someone else. You probably can think of a few such questions yourself, but most solution providers can electronically generate a set for you. Joe Bartolone is an associate with gvo3 & Associates, a nationally recognized sales and F&I compliance consulting firm. He can be reached at joe.bartolone@bobit.com.

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Sales Driver

Inside the Sale Sales success isn’t always about what you know; it’s about how you think. Expert lays out a plan of action for sales, management and dealers. By Cory Mosley

o, what kind of year is it going to be? What kind of sales professional, manager or dealer are you going to typify? What major goals would you like to achieve? Have you written them down? Have you even had that conversation with yourself yet? As you might have noticed by now, optimism is back in our industry. But if you have plans to cash in on the big year the pundits are predicting, you will have to stretch yourself. As the saying goes, “To do something you’ve never done, you have to be someone you’ve never been.” I subscribe to the philosophy that it’s 80 percent psychology and 20 percent mechanics — a potentially controversial view, you might say. But think about it: How effective would someone be if a trainer loaded him or her up with the best word-tracks and rebuttals in the business, but that person didn’t believe or, worse yet, care about what he or she was doing? What am I getting at? To answer, let me review how the right mindset for three critical positions will always trump mechanics: Salesperson

To be successful this year, you must be focused on enhancing the customer experience and your own personal brand. You will also need to rethink your belief system when it comes to closing sales and asking for gross. Success also will require fine-tuning your interpretation of what a customer really wants. As you know, I’m a big advocate of continuing education. However, I believe you can have a breakout year

without learning a single new wordtrack or sales technique. What will make a difference is a shift in your belief system, which means breaking through myths such as, “Customers buy within 72 hours of visiting a dealership” and “You’ve got one shot to sell them.” It also means breaking through the idea that a prospect isn’t

Optimism is back in our industry. But if you have plans to cash in on the big year the pundits are predicting, you will have to stretch yourself. interested and shouldn’t be followed up with if he or she hasn’t returned your call after one or two attempts. The problem is, those beliefs are still being employed daily, and they’re costing salespeople a lot of money. What you need to do is break down what you need to sell by year, month, week and day, and map out long-term goals to achieve results. Sales Manager

The decisions that sales managers make on a daily basis can make or break a dealership. In my opinion, too many sales managers use fear or archaic control methods to engage salespeople, which can be ineffective. “Leadership by example” needs to be the name of your game. One of the biggest challenges for the sales staff is working with a manager who thinks his or her title means he or she has nothing left to learn. This is another psychological issue — and myth — that kills the incomes

of managers and the teams they lead. As a manager, ask yourself: When is the last time I brought something new to my team to help them and myself? Dealer Principal

Most dealers today aren’t new to the game. Many of the names we know are generational and, in most cases, have been successful for a long time. However, with time comes complacency, an aversion to change and a resistance to taking risks. As the title of leadership coach Marshall Goldsmith’s 2007 book reads, “What Got You Here Won’t Get You There.” Now, that doesn’t mean you have to abandon your principles and fundamentals. What it does mean is that you must accept that you don’t have all the answers to make your dealership better and that it’s okay to seek out and trust people who do. The 2011 NADA Conference and Expo is upon us and there will be plenty of companies with the cure to what ails you and your business. Be willing to listen and learn, but don’t forget to do your due diligence. And don’t be afraid to make tough decisions. You never know if they may lead to the breakthrough you need. I will leave you with this final thought: The next time you look at a plate of bacon and eggs, realize that while the chicken was involved, the pig was committed. Which one will define you this year? Cory Mosley is principal of Mosley Training LLC, a nationally recognized training provider focused on new-school techniques, products and services. E-mail him at cory.mosley@bobit.com.

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Mad Marv

It’s Show Time F&I’s from-the-trenches columnist provides some tips on how to make the most of the 2011 NADA Convention & Expo. By Marv Eleazer

h, it’s that time of year again: The opportunity to network with your peers and meet new ones at the annual NADA Conference & Expo. It’s also a time to be motivated and inspired by the fact that the worst times in the automotive business are finally behind us. But what lies ahead, right? What kind of SAAR (seasonally adjusted annual rate) can we anticipate? Will lenders loosen the purse strings? These and many more questions will most certainly be addressed at this year’s show. Those who attend will join a pensive and cautiously optimistic crowd. After all the dealership closures we’ve seen the last couple of years, the industry has been completely redefined from the manufacturer level to the detail department. Dealers who survived are paying closer attention to every dollar, which means this year’s conference will certainly be well observed by all. So, what are your plans for this year’s show? If you need a little advice, here are a few of my suggestions for getting the most out of NADA 2011:

Bring Store Managers: As a deal-

er or general manager, I’m certain you’ve already pored over the schedule of events, looking for anything to enhance your business model. However, I’d like to offer one suggestion: Bring some of your department managers. Not only will the show serve as a nice networking experience for your managers, it will also allow them to discover new ways to conduct business.

Now, given what dealership budgets are these days, I realize this may not sound like a good idea. However, the investment in extra plane tickets could easily pay off. Your managers are more familiar with day-to-day operations. That means they could be a nice reference for you as you’re checking out the latest tools lining the aisles.

Think Compliance: If you’re late to the party regarding the Red Flags Rule or the new Risk-Based Pricing Rule, the conference will serve as a great place to get up to speed. All your favorite compliance software providers will be there, so stop by their booths and have them explain how their solutions can be implemented in your store. Word on the street is the Federal Trade Commission will be sending out mystery shoppers to test your compliance models, so be prepared.

Educate Yourself: F&I managers who are fortunate enough to attend this year’s conference should take some time to jot down areas of deficiency and make plans to attend the various workshop sessions the conference is offering. You also don’t want to miss the opportunity to get a read on the auto finance landscape. There is strong evidence lenders are looking for more business, and they’re armed with smarter algorithms to hedge against the huge losses they experienced over the last three years. It’s critical that your finance personnel understand how these updated formulas work.

Just remember that lenders need to loan money, but they also deserve a clear picture of the customers they’re financing. In many instances, we are their eyes and ears, so it’s incumbent upon us to make certain the data we submit is correct. We also need to better understand their individual business models, which is why a visit to their booths could go a long way in helping to bridge the communication gap.

Don’t Come Back Empty-Handed:

You should make it your goal to bring back at least one good idea that can be immediately implemented in your department. See, one of the problems with attending a conference as big as the NADA Conference and Expo is that there are so many companies to see. And some of these companies spend obscene amounts of money to grab your attention. So, make sure you’re spending your time with the right vendors, those that will work for you based on substance and not glamour.

Have Fun: There will be a lot of entertainment, adult drinks, freebies and a host of new-vehicle models on display. Work can be fun and San Francisco is a terrific place to unwind when the day’s events are over, so have a great time while picking up some new ideas. With all that said, let’s get ready for a terrific year, because it’s gonna be a good one! Marv Eleazer is the finance manager at Langdale Ford in Valdosta, Ga. He can be reached at marv.eleazer@bobit.com.

40 F&I and Showroom NADA 2011

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