F&I and Showroom August 2011 by Kelly Bracken

ED I TO R: TO P T R A INER S W ILL O FFER BES T EDUC AT ION A L SL ATE YE T AT IN DUS T RY SUMMIT 2011

A BOBIT PUBLICATION FI-MAGAZINE.COM

BREAK THE CYCLE

AUTO FINANCE INSIDER’S STERN WARNING

HOT CARS

THAT SELL THEMSELVES

TRIAD EXECS

START FRESH WITH CARFINANCE

CAPTAIN CREDIT

SOCIAL MEDIA MEETS SPECIAL FINANCE

THE

LADIES‘ MAN

KEN MEADE IS MICHIGAN’S FIRST ASKPATTY.COMCERTIFIED DEALER

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Contents

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

August 2011 Volume 14, Issue 8

Features Dealer Profile

16 She’s Buying It’s been a year since Meade Lexus earned AskPatty.com’s “Seal of Approval,” and the dealer group’s CSI is now approaching 100 percent. Special Finance

20 Character Development Chris ‘Captain Credit’ Cochran struck gold for Haddad Dealerships with a social media promotion that grew into a standalone special finance department.

Special Finance

24 Ending the Cycle Things are looking up for the below-prime segment, but our analyst warns that there still may be trouble ahead for the finance companies and dealers who serve that segment.

Executive Q&A

30 A New Breed CarFinance Capital is new to the auto finance world, but the people behind the nonprime/subprime finance source are not. The editor gets the skinny. Dealer Executive

34 Buy-Sell Mistakes to Avoid

Before you think about selling or expanding your operation, check out this buy-sell primer for avoiding four possible landmines on the road to a sale.

Departments 6 Letters 8 Editorial 10 Developments 14 Industry Trends 36 Sales Driver 38 On the Point 40 Legal 42 Bottomliners 51 Ad Index 52 Mad Marv

20 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 90503-1640. 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 June 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.

4 F&I and Showroom August 2011

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Letters Questionable Future TO THE EDITOR: Great editorial (“Rime of the Ancient Dealer”) in July, Greg. The industry is changing and we as dealers must be proactive instead of reactive. Yes, we’ll face adversity in the coming year, but I also think we’ll be presented with equal or greater opportunities.

Heidi Williams General Sales Manager Underriner Honda Billings, Mont. TO THE EDITOR: I thought your July editorial was right on. I’ve had many arguments with family and friends who question the profits dealers earn. What they fail to grasp is the overhead and property taxes associated with the prime commercial land on which dealerships are located. They also fail to consider what dealerships spend on utilities, washing 300 cars a day, running 78 commercial phone lines, and buying 93 computers at a time. However, while Dale Pollak may be on to something, I do believe his vision of the future is at least 10 to 15 years away.

Jim Dirks Account Manager Dealer Direct Services TO THE EDITOR: Regarding your July editorial, Pollak certainly has an intriguing vision of the future. However, folks like him won’t be happy until there’s a Ford vending machine down the street. What rubs my fur backward is that business models like his want to remove the human element. As “Mad” Marv Eleazer mentioned in the past, human beings will never change so much that they’ll hand their emotions over to technology.

Tom Wilson F&I Director McDonald Auto Group Castle Rock, Colo.

Going Mobile TO THE EDITOR: Do you know of any iPhone apps for F&I Managers, maybe

one that offers a payoff listing of all the major banks? Chad Mitchell Finance Manager Studebaker Buick Pontiac GMC, Inc. Richmond, Ind.

Chad, I haven’t heard of anything for an iPhone, but I have heard of business applications for the iPad that they do offer lease-return functions and the ability to showcase F&I products. Mercedes-Benz Financial Services introduced a lease-return iPad tool last year and unveiled in February a software tool that turns the iPad into an interactive F&I product brochure. BMW Financial Services, Warrantech and Innovative Aftermarket Systems also have introduced similar solutions. — Gregory Arroyo

When Opportunity Knocks I’ve been reading F&I and Showroom recently because I may get a job offer to work as an F&I manager at a dealership that sells up to 500 units a month. It currently employs 10 F&I managers. I have no prior experience in this field, so I’m not sure if I should take the position. The position is commission only. Current staffers make between $75,000 and more than $100,000, on average. What do you think? TO MAD MARV:

Saheb via e-mail Congratulations on the opportunity, Saheb! With 10 managers in a 500-car store, there is plenty of opportunity for you to excel. Obviously, my advice is to accept the job if offered. Once trained, you will easily exceed your current annual earnings and, depending on your ability and desire to succeed, can become a top performer making a lot more. The dealership obviously sees talent in you or they wouldn’t be considering you. Yes, its commission, but the down months should exceed where you’re currently budgeted, so I would jump in with all four feet. — “Mad” Marv Eleazer

Vice President Group Publisher, Auto Group Sherb Brown Publisher, Dealer Group National Sales Manager David Gesualdo 727-947-4027 david.gesualdo@bobit.com Executive Editor Gregory Arroyo 310-533-2592 gregory.arroyo@bobit.com Managing Editor / Art Director Tariq Kamal 310-533-2470 tariq.kamal@bobit.com Assistant Editor Jennifer Washington 310-533-2496 jennifer.washington@bobit.com Great Lakes Sales Manager Robert Brown Jr. 248-601-2005 rbrown8799@aol.com Sales & Marketing Coordinator Tracey Tremblay E-Media and Print Production Manager Brian Peach 310-533-2548 brian.peach@bobit.com Web Manager Sam Kim 310-533-2492 sam.kim@bobit.com Audience Marketing Manager Tony Napoleone

Chairman Edward J. Bobit President & CEO Ty F. Bobit Chief Financial Officer Richard E. Johnson Business and Editorial Office Bobit Business Media 3520 Challenger St. Torrance, CA 90503 Phone: 310-533-2400 Fax: 310-533-2503 Change Service Requested Return Address: Bobit Business Media PO Box 2703 Torrance, CA 90509 Subscription Inquiries 888-239-2455 BobitPubs@Halldata.com Printed in U.S.A.

6 F&I and Showroom August 2011

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Letter From the Editor

Improve Your Odds In September, the best sales and F&I trainers in the business will converge in Las Vegas for the magazine’s annual conference. Not being there is a gamble you can’t afford to take. By Gregory Arroyo

t was two years ago. I was in Orlando for the 2009 F&I Conference and Expo. It was after hours and I was at the hotel bar with “Mad” Marv Eleazer and an F&I manager from Ohio named Jeremy Addis. Because I remain a student of this business, it’s very rare that I’m able to stump you pros out there. But the stars aligned that night. We were talking about how many products they offer on their menu. Marv focuses on core products and doesn’t venture too far into those intangibles. It’s not that he’s opposed to those newer product categories. He limits his selections because he knows his customers’ attention spans are short when it comes to non-core products. Jeremy holds a similar view. Key prices were on the rise at the time, so I asked whether they had ever considered key replacement. To my surprise, Jeremy said he had never heard of such a product. It was my time to shine, I guess, as I filled him in on what I knew. I like telling that story because it’s one of the benefits of coming to our annual conference. Yes, Jeremy picked up a lot of information, but he shared some as well. That year, we invited a representative from the Federal Trade Commission to talk about the Red Flags Rule, and Jeremy gave him an earful. His main complaint was that the rule was a moving target, making it difficult for dealers to know what to shoot for. Jeremy had a point. And by raising his hand that afternoon, he spoke out on behalf of his industry. Unfortunately, I think a lot of you out there have

never had that chance. And that, my friends, is why we created our conference — to give F&I professionals a place to learn, network, pick up new ideas, product information and be part of a community. Yes, those Web training classes are definitely convenient, but I doubt they can deliver the feeling you get when you’re at our conference. And after being at the helm of this magazine for four years, I know you guys and gals sometimes feel like you’re on an island in your dealerships. Now, if the 200 respondents to a survey one of our competitors conducted is a reflection of how all dealers feel, then more than half of your bosses believe that the main purpose of F&I training is to sell more products. If that’s the case, then let me tell you why they need you to join us in Las Vegas. See, last year we made a big change. Knowing that being with us in September is quite an investment, we decided to create an agenda that gave you the best bang for your buck. We cut down on our panel discussions, limited our compliance sessions and began inviting the best trainers in the business to lead more than 20 educational sessions dedicated to helping you move more product. And just check out some of the names on our agenda this year: George Angus (Team One Group), Luis Garcia (Safe-Guard Products), Gerry Gould (UDS, selected as the top training outfit seven years in a row by Auto Dealer Monthly), Heather Haynes (JM&A Group), Rick McCormick (now with Automotive Financial

Services), Ron Reahard (Reahard & Associates), and John Vecchioni (United Car Care). David Johnson, social media strategist for Next Generation Dealer Services, will be there to talk about social media marketing. He’ll be joined by legal expert Brian Casey, who will talk about the legalities of operating in the social media realm. Jim Ganther of Mosaic International also will be there to provide a dealer’s guide to digital compliance. Also on the agenda is the magazine’s legal wiz, Michael Benoit. He will provide an update on the DoddFrank Act, the Consumer Financial Protection Bureau it created and the new rulemaking powers the Federal Trade Commission will assume because of it. Cory Mosley, the magazine’s “Sales Driver” columnist, returns to talk about new-school training ideas, which I know is important for those of you still struggling with the Internet and Gen-Y era of auto retailing. And there’s one more surprise: Jim Ziegler will be at this year’s show. Yes, “Da Man” will throw in his two cents about marketing in the digital age. By the way, check out page 38. That’s right, Mr. Ziegler is our newest columnist and he’ll be directing his message to dealers every month going forward. So, do me a favor. Walk this issue into your dealer’s office and show him or her this page. We’re going to be offering one heck of a program, and I promise you it will be worth every penny it takes for you to get to Las Vegas. See you there.

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Developments ALG: Used-Vehicle Pricing Bubble Not Just a Theory THE MAGAZINE WENT ONE-ONone in July with ALG’s Eric Lyman to find out if a used-vehicle bubble described in a competing publication is for real. According to the company’s director of residual value solutions, the bubble does exist. When it will burst is anyone’s guess. Here are some excerpts from that July 12 interview:

F&I: So, is this bubble for real? Lyman: Well, as we saw during the downturn, demand for both new and used vehicles really took a hit, with new-car demand feeling it the most. Coming out of the recession, used demand began to recover faster than new, which is what’s contributed to the existence of this used-car bubble. And as we see that demand shift start to return back to pre-recession levels, we would expect that new-car demand will increase and used demand will soften a bit.

F&I: When do you see this bubble bursting? Lyman: It’s difficult to say. But what we’ve done is taken out some value [in our tracking of market values] in anticipation that there will be a correction. By doing this, we won’t have to make a sweeping adjustment to our forecast when the bubble does burst. F&I: What should dealers be doing now? Lyman: Things vary by region and by brand, but the one thing I can say is that supply will continue to be an issue, which will continue to support higher values. Ultimately, the dealers are going to have to stock their used-car inventory. So, these high wholesale values are a cost of doing business in the current environment. To read the full interview, go to fimagazine.com/bubble-economics. 10 F&I and Showroom August 2011

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Industry Preps for Round Two of FTC Roundtables

Georgia dealer showed its support in July for a customer segment that will be at the center of discussions when the Federal Trade Commission’s “Listening Tour” arrives in San Antonio this month. Teaming up with Ally Financial, Carl Black Buick GMC — part of the four-store Car Black Automotive Group — handed out on July 23 $10,000 worth of backpacks and school supplies to children of military personnel at its Roswell, Ga., location. “We recognize the toll taken on families of our active duty and National Guard personnel, and it’s nice to show our appreciation for their sacrifices by getting involved in this valuable community event,” said Mike Bowsher, dealer principal at Carl Black. The industry’s past dealings with military personnel will be under the spotlight at the St. Mary’s University School of Law on Aug. 2, the first day of the FTC’s two-day roundtable event. Officials with the FTC will host consumer advocates, military leaders, dealers and auto finance representatives to discuss consumer

protection issues related to auto sales and financing. As a result of the Dodd-Frank Act, the federal law that created the Consumer Financial Protection Bureau (CFPB), the FTC will assume expedited rulemaking authority with respect to auto dealers. The FTC launched its Listening Tour to help

On July 23, Carl Black Buick GMC donated $10,000 worth of backpacks and school supplies to children of military families at its Roswell, Ga., location.

it determined where it should focus its resources when it assumes its new powers on July 21. Dealers came under fire last year for their treatment of military personnel and their families during Congressional proceedings to determine whether auto retailers should be exempt from the CFPB’s oversight. Many of the issues raised during those discussions will be at the center of this month’s roundtable. PHOTO BY NGOOD

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Developments Mazda Offers PPM Program MAZDA NORTH AMERICAN

GARRET LACOUR, CO-

Operations (MNAO) launched Mazda Total Advantage (MTA), the company’s first prepaid maintenance program for new, used and certified pre-owned Mazda vehicles. The program is only available for 2007 and newer models and is available in one-tofive-year increments on Schedule I and Schedule II maintenance plans. Customers also have the option to finance MTA into their vehicle purchase through Mazda Capital Services.

founder and former CEO of IAS, launched RoadVantage, an aftermarket company that offers dealerships traditional aftermarket programs with 90 days of free consumincludes both liability and physical damage coverage, covers the vehicle and anyone who drives it with the owner’s permission for the full year, according to General Motors.

GM Offers Auto Insurance in Oregon, Washington

Prestige Gets $150 Million Funding Facility

CAR BUYERS IN OREGON

Services Inc. has established a $150 million funding facility with Wells Fargo Securities, which will fund the Salt Lake City-based auto finance company’s consumer lending activities. The facility has a renew-

and Washington who purchase a 2010-2012 Chevrolet, Buick, GMC or Cadillac vehicle before Sept. 6 will receive a free one-year insurance policy from MetLife Auto & Home. The policy, which

for a service contract at the time of purchase.

IAS Co-Founder Launches New Company

PRESTIGE FINANCIAL

er warranty offerings. RoadVantage’s product offerings include key replacement, tire-and-wheel protection, GAP, windshield, interior/exterior protection and a multishield offering. able one-year term and will assist Prestige in growing its loan portfolio and completing periodic asset-backed securitizations, according to the company.

Eos Group Supplying VSCs to Tuttle-Click THE 16-STORE TUTTLE-CLICK

Automotive Group will now offer Eos Group Inc.’s service contracts at its stores in Southern California and Arizona. The magazine’s 2007 F&I Dealer of the Year announced in July its deal with Eos, which targets vehicle owners who didn’t opt

GWC, Southern Auto Finance Announce Partnership GWC WARRANTY CORP.

and Southern Auto Finance Co. have forged a strategic alliance to offer GWC service contracts and GAP through SAFC dealers. The partnership, according to GWC officials, will aid in the F&I product providers expansion into 12 additional states in the next 12 months.

PEN Adds MaximTrak OPEN DEALER EXCHANGE’S

Provider Exchange Network (PEN) announced that MaximTrak’s F&I menu and reporting system is now integrated into the company’s econtracting platform. The integration now allows MaximTrak to offer its dealer network electronic rating capabilities, forms and contract origination.

Moves and Hires The Warranty Group Inc., an underwriter, administrator and marketer of service plans and related programs, has named Craig Robinson executive vice president for Latin America. Robinson joined the company in 2000 as a business development executive and had previously served as vice president of auto and non-auto third-party administration.

BMW Group named Ludwig Willisch as president of BMW North America. He will take over for retiring Jim O’Donnell. Willisch most recently oversaw BMW Group’s European sales region and has been working with the company since 1996. He also served as president of BMW M GmbH. Willisch officially assumes his new position on Oct. 1, 2011.

Tracey Matura was named general manager of MercedesBenz USA’s new U.S.-based sales and marketing team for the company’s smart products. A 16-year employee with the automaker, she will be responsible for the brand’s distribution, sales and marketing activities. She will report to Michael Slagter, vice president of sales.

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Industry Trends

This Summer’s Hottest Models If any of these six vehicles are on your lot, their features, depreciation values, availability and incentives should sell themselves.

■ 2011 Acura TL: Selected for its 19 percent first-year depreciation rate, Acura’s Total Luxury Care roadside assistance and more.

ar shoppers are being told to wait until after the summer to get the best deal on a new vehicle, but the NADAguides’ “Second Quarter Car Buyers Market Report” identifies six vehicles that offer customers the best bang for their buck. The slowly recovering economy, fluctuating gas prices and uncertain vehicle availability have put a new emphasis on sustained value. In the second quarter, these six vehicles offered low depreciation and several other features high on buyers’ wish lists: Vehicle

Price

■ 2011 Dodge Challenger R/T:

Selected for its 8 percent first-year depreciation rate, financing incentives, $1,000 bonus cash and more. ■ 2011 GMC Terrain SLE-2: Selected for its 16 percent first-year depreciation rate, low customer financing and its 46 days-supply. ■ 2011 Hyundai Azera Limited:

Selected for its 21 percent first-year depreciation rate, Hyundai’s Trade-

Dayssupply

In Value Guarantee and more. ■ 2011 Toyota Tacoma Double Cab V-6: Selected for its 10 percent

first-year depreciation rate, Toyota Care roadside assistance and more. ■ 2011 Toyota Venza I-4 AWD:

Selected for its 12 percent first-year depreciation rate, customer financing incentives and Toyota Care. Vehicles chosen for this list touted a first-year depreciation rate of 21 percent or less, a competitive MSRP and manufacturer warranty, financing incentives, high safety ratings and additional features.

Financial Incentives

Manufacturer’s warranty

NHTSA rating

Additional incentives

1.9%/36 mos.; 2.9%/48 or 60 mos.

4 years/ 50,000 miles

Not rated

N/A

3 years/ 36,000 miles

★★★★

$1,000 bonus cash

3 years/ 36,000 miles

★★★★

6 mos. free OnStar service

5 years/ 60,000 miles

★★★★★

$1,500 value coupon

N/A

3 years/ 36,000 miles

★★★★

N/A

$500 Cash or 0%/36 mos.; 1.9%/48 mos.; 2.9%/60 mos.

3 years/ 36,000 miles

★★★★

N/A

2011 Acura TL $35,305

2011 Dodge Challenger R/T $29,895

1.9%/36 mos.; 2.9%/48 mos.; 3.9%/60 mos.; 5.9%/72 mos.

2011 GMC Terrain SLE-2 $26,300

2.9%/36 mos.; 3.9%/48 mos.; 4.9%/60 mos.; 5.9%/72 mos.

2011 Hyundai Azera Limited $30,095

103

Assurance Trade-in Value Guarantee

2011 Toyota Tacoma Double Cab V-6 Manual $26,145

2011 Toyota Venza I-4 AWD $28,575

Days-supply of inventory as of the end of May 2011 with the exception of the Dodge Challenger (inventory as of June 15, 2011). Financial incentives stated are based on California data.

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Dealer Profile

She’s Buying It’s been a year since Meade Lexus earned AskPatty. com’s “Seal of Approval,” and the dealer group’s CSI is now approaching 100 percent. By Jennifer Washington

aving exited the economic downturn relatively unscathed and realizing how it changed the game for marketers, Ken Meade decided to get a better understanding of his customer base. What the owner of Meade Lexus discovered was an opportunity to improve how his Lakeside and Southfield, Mich., Lexus dealerships treated a segment that accounts for 60 percent of his business. It wasn’t Gen Y, Gen X or even baby boomers that Meade identified as his best customers; it was women. The discovery led Meade to call on Jody DeVere and her AskPatty.com certification program. His goal was to have every customer-facing associate — from his service and marketing departments to his front-end staffers — trained on the finer points of retailing to his female customers. “With any marketing, it’s imperative to understand your audience, their needs and their buying habits,” Meade says. “If we know women communicate differently — that they make decisions in different ways — it only makes sense to tailor our messages to them in a way that complements that, in ways they can relate to.” Founded in 1989, Meade’s twostore dealer group became the first 16 F&I and Showroom August 2011

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auto retail operation in Michigan to be certified by AskPatty.com. The group’s Lakeside store, located off the Highway M-59 — one of the busiest freeways in the Detroit metro area — rolls, on average, 60 new and used vehicles per month. Thee Southfield location, situated near the Northland Center Mall — one of the oldest shoppingg centers in North America — also enjoys a good deal of foot traffic. Since completing thee straining, the group’s customer satisfaction index has ercent Cusimproved to almost 99 percent. tomer loyalty also is reaching new heights. Michaela Reardon, service manager for the Lakeside location, attributes the improvement to one realization the dealership made after completing the AskPatty.com training. “We learned that 70 percent of buying decisions are made by females,” she says. The AskPatty Way

Reardon’s comment is one of the many truths DeVere has passed along to the more than 500 businesses AskPatty. com has certified since its founding in 2006. Another truth DeVere’s program preaches is that women tend to communicate through body lan-

guage, which can be problematic for men. The problem, she says, is that men tend to avoid direct eye contact for extended periods of time. “Women interpret that to mean that the man is not trustworthy because he’s shifting his ey eyes,” she says. “There are a lot of o different, subtle skills we teach that help people become more effective be ccommunicators.” AskPatty.com takes sseveral different appproaches to bridging the gap between the “way business has always been busin done” and th the way female customers would prefer it to be done. The auto research site accomplishes that through online interactive video training and topic-specific Webinars. Clients also receive advertising support and a co-branded microsite. Dealers who sign up for the certification program are given 60 days to complete the initial training. In that time, clients are assigned a support team, including a regular account manager, a social media specialist and a marketing consultant. DeVere says dealerships will begin employing the lessons learned within the third month of training. AskPatty.com isn’t just about certification, either. It also doubles as PHOTOS BY ANTHONY NOWACK

8/2/11 10:11:32 AM

Above, Keith Baer, Meade Lexus of Lakeside’s business manager, and Kate Houlihan, Lakeside’s sales manager, were surprised to find that women take about 17 weeks to make a buying decision. At left, Dan Kilian and Kristina Reid, members of Meade Lexus’ marketing team, have improved the dealer’s online presence since completing the training.

an online resource for women, providing a range of advice — from selecting a mechanic and collision center to auto and tire dealers. The site also offers a dealer rater, forums where site visitors can seek out advice, a “Get a Quote” section, a direct link to a AAA-approved auto repair center and more. “The training is about creating a culture that makes women feel comfortable,” she says. “It’s also about creating marketing and advertising that women respond to.” DeVere says businesses who sign up aren’t necessarily looking for quick profits, but rather a new way to appeal to their female customers. That means eliminating several assumptions that have lingered in the industry, such as assuming female customers aren’t knowledgeable about the vehicles they want or how to maintain them. Another misconception DeVere and her team works to correct is that every female customer is married and that they need to consult with their husband before making a final decision. Demonstrating what she’s learned, Meade’s Reardon says a simple question works a lot better than assuming. “You’re going to get answers back,” she says.

Men Buy, Women Shop

Meade Lexus completed the certification program on Aug. 2, 2010. And when it renewed its partnership with AskPatty.com on June 16, it remained the only dealership in Michigan to garner the AskPatty “Seal of Approval.” Meade says that separating his two stores from the competition is a nice bonus, but getting certified was more about meeting the company’s objectives of always improving on customer service. “We are constantly on the lookout for new methods of improving our services to our customers,” says Meade, whose customer base is made up of individuals with credit scores in the mid-700s. “So, when we became aware of this program, we immediately thought this was one of those ways to improve.” One of the things to come out of the training was the realization that the dealership’s hottest selling vehicle, the Lexus RX 350 crossover, was a favorite among its female customers. Sales staffers also learned that women typically take 17 weeks to make a buying decision, a realization that stunned even Meade’s female associates. And female customers shopping the Internet take even longer, says Kate Houlihan, Lakeside’s sales manager.

Through AskPatty.com, the dealership’s sales staffers learned that female customers can take twice as long to make a buying decision if they’re shopping on the Internet. Houlihan, however, thinks she has figured out a way to shorten her female customers’ decision-making process. “Provide the information that they’re asking for and do it in a timely basis,” she says. But not all the lessons learned through AskPatty.com’s training were related to women. For instance, Kristina Reid and Dan Kilian, members of the dealer group’s marketing team, realized they weren’t taking advantage of everything the Internet had to offer. “We had a very minimal Internet presence at the time — a few mentions on some third-party sites and some links that appeared on our own Websites,” Reid says. “By taking advantage of tools such as social networking, social bookmarking, video and photo sharing, user reviews, and more, we have significantly enhanced our online growth and marketing reach. The results have been great.” Certification also has been a big help to the group’s male staff members. Keith Baer, Lakeside’s business manager, recalls an incident in which a female customer requested a female August 2011 F&I and Showroom 17

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Dealer Profile

Michaela Reardon, service manager, says the training her department received from AskPatty.com has definitely made a difference in how staffers approach women. In a good month, her department will see about 500 cars rolling through the lanes, or about 23 cars per day.

salesperson. The male salesperson who had approached her was not only able to tell her the dealership was certified by AskPatty.com, but that it also co-hosted a site with the Thousand Oaks, Calif.-based company. “The customer didn’t have a problem with that and the salesman was able to sell her a car using the AskPatty training,” says Baer. For Baer, who has spent his entire 13-year industry career at Meade Lexus, the training only served to confirm what he always knew about working with a customer in the F&I office — that customers appreciate a low-pressure approach when it comes to the F&I presentation. Meade Lexus has more than held its own the last two years and continues to see modest increases in sales and F&I income despite stiff competition from Cadillac and Lincoln stores in the area. The service department would also like to continue to see increases, which is why Reardon embraced the training she and her staff received from AskPatty.com. “Women dread the whole service experience,” Reardon says. “To sell the benefits of why you need to maintain the car [to women], it’s not necessarily about price. It’s about ‘Why do I need this?’” Staying on Target

Arranging the training schedule wasn’t easy, but Meade and his management team committed themselves

to making sure all customer-facing staffers were trained by DeVere’s team. Because Baer’s and Houlihan’s F&I and sales teams all have computers at their desks, their departments were able to take the training whenever they weren’t working with a customer. “They would take one or two modules, and, if a customer came in, they would just take a break,” Baer says. “Most people completed the modules in a day or two.” Between the two dealerships, about

Top 10 Ways to Lose a Female Car Buyer 1 Don’t listen. 2 Assume that all women are soccer moms. 3 Assume that the man is actually buying the car. 4 Talk down to them. 5 Assume that women are not knowledgeable about vehicles or maintenance. 6 “Profile” women that are single or come in alone. 7 Assume that all women are married. 8 Ask them to check with their husbands first. 9 Don’t have a clean play area for children. 10 Assume you know what they’re looking for.

85 employees completed the training in about a month’s time. To get the entire service department trained, computer stations were set up to allow staffers to review lessons at a designated time. “We blocked their schedule and made it a priority,” Reardon says. “Most people finished within about three hours.” Like most dealerships, successful implementation of any new process or strategy must start from the top. It’s clear that’s how things run at Meade Lexus, especially since Meade’s office sits in the center of the showroom at his Southfield location. His office’s location also provides a sense of just how involved he is in everything that goes on in the dealership. “There is an understanding that when the company succeeds, the individuals succeed,” Meade says. “There is a lot of teamwork going on and I think our employees feel a sense of camaraderie as a result.” AskPatty.com is not for dealerships that need it, says DeVere. Rather, the program works best for dealers who understand how important women are to their bottom lines and market share growth, which, she adds, was the case with Meade Lexus. “Women are a big category. We’re talking about a large demographic breakdown of age groupings and economics,” she says. “You can’t just market to ‘women.’ You have to market to the segment of women in your local market appropriately.”

18 F&I and Showroom August 2011

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Chris ‘Captain Credit’ Cochran struck gold for Haddad Dealerships with a social media promotion that grew into a standalone special finance department. By Tariq Kamal

Character W

ith only six years in the business, you might suspect that Chris Cochran’s rapid ascent from sales associate to finance director for all three stores in the Pittsfield, Mass.-based Haddad Dealerships family was a matter of good luck, a bad economy or both. Cochran won’t deny that timing played a part, but most of his success is the result of hard work and one very good idea. It almost didn’t happen. A Pittsfield native, Cochran first sold cars for owner George Haddad before starting college in 2000. After graduating, he left New England to study chiropractic medicine at a school in Iowa. Unfortunately, funds ran out before he could complete his degree,

and he soon found himself back in his hometown. Cochran decided to get back into the car business. He first worked at a local used-car lot, then put in a call to Haddad when he heard they were hiring. He was hired as an F&I manager at Haddad Toyota in August 2006 before being promoted to general sales manager at the Subaru store. And when the opportunity came to direct F&I for all three dealerships from the Toyota franchise, Cochran didn’t hesitate. “I wanted to be in the finance department,” he says. “F&I is fast-paced. It requires cognitive thinking.” Trial By Fire

Cochran moved into the F&I office in the summer of 2007, just months be-

fore the credit crisis would derail the industry. A year earlier, Haddad was booking used units at 150 percent loan to value. By 2008, they were lucky to still be in business. Cochran says the key to survival was the dealer group’s three principal lenders: Toyota Motor Credit, Hyundai Motor Finance and a local credit union. “They saw us through,” Cochran says. “But even working in the finance office, my income was capped on others’ motivations.” He felt that Haddad was missing out by not marketing to the subprime segment. As the economic picture worsened, he decided to take matters into his own hands. With no marketing budget to work with, Cochran turned to Facebook. He created a page around a cartoon

20 F&I and Showroom August 2011

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The “Captain Credit” Facebook page has garnered h d 349 ffriends i d since i H Haddad dd d D Dealerships’ l hi ’ finance director, Chris Cochran, launched it in 2008. The initial success of the platform was enough to convince management to create a separate ad budget and, in the coming months, a separate lot for subprime sales.

Development superhero he named “Captain Credit.” His primary superpower? Getting subprime customers approved for loans. “It was quick,” Cochran says. “Suddenly, we were selling four or five cars a month because of Captain Credit.” Building On Success

With his no-cost social media campaign bringing in new customers, Cochran was able to convince management to give him a marketing budget. He spent the money on billboards and bus, radio and newspaper ads, and, finally, a full vinyl wrap on his Toyota Tundra. Before long, Captain Credit was moving 15 units per month at an average of $2,100 per deal, including up to $900 on the back end.

Cochran didn’t take his hit campaign for granted. He immersed himself in the world of special finance, reaching out to lenders such as AmeriCredit Corp., Exeter Fi-

It’s not advertising. We’re not tracking leads. The point is to have a presence, to be there when your friends and their friends need a car. nance Corp., Auto-Use and Santander. He also sought out new ideas online, which is how he found trainer, consultant and F&I and Showroom contributor Rob Hagen. “Up to that point, it was trial and error,” Cochran says. “Then I started

e-mailing Rob, just asking questions and picking his brain.” Hagen remembers the exchanges well. “Dealers need a way other than price to market themselves against their competition,” he says. “Chris markets Haddad’s reputation and their position in the community.” Hagen and David Johnson, cofounders of Next Generation Dealer Services, were among the first trainers to push social media as a dealer marketing tool. He believes the format will prove to be especially effective among credit-challenged car buyers. “Historically, those customers have visited the dealership for more information,” Hagen says. “By spending time with people, you kept them from visiting other dealerships. Now, they can connect with dealers like Chris August 2011 F&I and Showroom 21

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on Facebook. They can ask questions about credit repair, payments, vehicles, etc. They view him as an authority and want to do business with him.” Cochran took the advice to heart. “It’s not advertising,” he says. “We’re not tracking leads. The point is to have a presence, to be there when your friends and their friends need a car.” With 349 friends as of press time, word will likely continue to spread quickly. Moving Up the Ranks

Captain Credit now represents 10 percent of Haddad Dealerships’ revenue. That’s a respectable figure for many special finance departments, but not good enough for Cochran. His goal is to get to 30 percent. The first step will be moving from his office inside Haddad Toyota to an adjacent lot, the former home of a GMC dealer. “We’ll move in as soon as we get the license,” Cochran says. “We won’t call it ‘Captain Credit,’

Cochran is flanked by F&I manager Ken Kaczenski (left) and sales manager Doug Hakkinen on the Haddad Toyota lot. An adjacent lot, the former home of a GMC franchise, was recently leased by Haddad Dealerships to serve as a standalone used-car lot for Captain Credit customers.

because we don’t want to discourage walk-in traffic, but it will be ‘The Home of Captain Credit.’” Cochran envisions a lot filled with rows of special finance units. And like a first-year college football coach drawing up plays for his predecessor’s recruits, Cochran is moving whatever metal the dealerships have on hand. That includes high-mileage tradeins and off-lease units that Haddad would have sent directly to wholesale in years past. Ultimately, he wants complete control of the inventory.

“What I really want at the new lot is a service tech dedicated to Captain Credit,” Cochran says. “Reconditioning, repair, whatever it takes to stock the lot.” At September’s 2011 Industry Summit, Chris Cochran will join “Mad” Marv Eleazer’s panel of top F&I professionals, and Next Generation Dealer Services’ David Johnson will be on hand to lead a social media workshop. Visit www.Industry Summit.com for details.

Auto Finance Market Trends: 2009 vs. 2010 (New- and Used-Vehicle Sales) FOR THEIR LATEST INDUSTRY REPORT, THE NATIONAL Automotive Finance (NAF) Association and Benchmark Consulting International polled 26 national finance companies to find out which direction the market was headed at the end of last year. Analysts found marked Indicator

Average total number of accounts at year end Average outstanding principal balances at year end Average origination FICO (dollar weighted) Average amount financed Average term (mos.) Average loan-to-value ratio Average contract rate (dollar weighted)

improvement in the number of accounts, amount financed, terms, delinquencies, charge-off and repossession rates and more. The average loan-to-value ratio, however, continued to decline, slipping by more than 5 percent from the prior year. 2009

2010

Change

74,383

80,567

+8.3%

$835,677,909

$896,909,319

+7.3%

538

537

‐0.2%

$12,209

$13,223

+8.3%

+6.0%

117%

111%

‐5.1%

21.80%

21.46%

‐1.6%

Average dealer reserve

$458

$479

+4.6%

Annualized 30-day account delinquency

4.18%

3.53%

‐15.6%

Annualized 30-day dollar delinquency

4.22%

3.41%

‐19.2%

Annualized 60-day account delinquency

2.08%

1.42%

‐31.7%

Annualized 60-day dollar delinquency

1.65%

1.37%

‐17.0%

Annualized 90-day account delinquency

1.11%

0.76%

‐31.5%

Annualized 90-day dollar delinquency

1.13%

0.75%

‐33.6%

Annualized net charge‐off rate (dollars)

8.87%

6.77%

‐23.7%

Average annualized repossession rate (units)

13.37%

11.52%

‐13.8%

22 F&I and Showroom August 2011

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Things are looking up for the below-prime segment, but our analyst warns that there still may be trouble ahead for the finance companies and dealers who serve that segment.

Cycle

By Jim Bass

Ending the

ecent data points to it and the atmosphere at two recent auto finance-related conferences confirmed it: nonprime auto finance is back. But how long will it last? And how soon will the lessons learned during the credit crisis three years ago be forgotten? From the speaker presentations to the positive vibes flowing throughout the exhibit hall at the National Automotive Finance (NAF) Association’s Below-Prime Conference Scot Seagrave, formerly with Prestige Financial, says the company is looking to grow its market share by adding more dealers, not by venturing outside of its preferred credit spectrum.

24 F&I and Showroom August 2011

FI0811sf_bass.indd 24

in Fort Worth, Texas, in June, the mood of the nonprime auto finance industry is as upbeat as I’ve seen in the last 15 years. The same was true at the National Alliance of Buy Here, Pay Here Dealers (NABD) Conference in Las Vegas in May. And that’s in spite of the supply shortage of used vehicles, which has resulted in higher prices at both wholesale and retail. Expanding Once Again

Renewed interest among institu-

tional investors is driving the auto finance industry’s improved mood. The deep-pockets of this community is once again making their millions of dollars available to finance companies; in fact, here are three recent examples: ■ In March, Prestige Financial Services Inc. completed a $222 million asset-backed securitization (ABS) transaction at a favorable funding rate and interest rate, followed by a $150 million deal with Wells Fargo Securities on a warehouse line of credit in July. ■ GM Financial/AmeriCredit Corp.

completed a $1 billion securitization in June at favorable interest rates and credit enhancement requirements, the third transaction the company has completed this year. ■ A number of experienced management teams have successfully secured funding from investment bankers to begin new companies. Notable mentions are Flagship Acceptance Corp., led by auto finance industry veteran Michael Ritter, and CarFinance PHOTOS BY GREGORY ARROYO

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Capital, which has four former Triad

Finance Corp. execs, including founder Jim Landy, at the helm. Word is that more companies will enter the market before the end of the year. The fact that below-prime portfolios performed well through the credit crisis and ensuing recession is, in my opinion, the driving force behind these new investments — well, that and the fact that higher yielding investments are always attractive to investors. Whatever the reason, it’s all good news for the industry. Finance companies now have the funds to purchase the paper, while dealers have more options to place that paper than they’ve had in the last two years. However, having been around this industry for a while and observing several cycles firsthand, I’m already a bit nervous about the competitive landscape. It seems inconsistent, doesn’t it? Fear of a Replay

Things are moving in the right direction. My concern is that, as in most cycles, the industry and investors will soon throw caution to the wind. Here’s how things are playing out based on my analysis of the current cycle: Investors see an opportunity to earn higher yields on their funding of the nonprime segment, and, led by respected institutions, begin to invest more and more funds. That’s when the “herd” syndrome sets in among investors, which eventually leads to an oversupply of capital in the market. Then, particularly for publicly funded or private equity-funded companies, the pressure to put a lot of business on the books and gain market share intensifies. And, as you know, the more finance companies there are, the more competitive the purchasing programs become at the dealer level. That’s exactly what happened in 2006 and 2008, when dealer advances and term lengths spun out of control. Basically, companies were offering higher prices for finance paper that was dropping in credit quality.

The capital markets are running again. Driving the auto segment, says Amy Martin, a senior director at Standard & Poor’s, is prime and subprime auto.

Dealers were able to shop finance contracts around and receive multiple bids from the finance community, and loan-to-value (LTV) ratios of 140 percent or higher and terms of up to 84 months on higher priced vehicles became commonplace.

Underwriting standards are currently holding up well. However, pressure is building to amass larger portfolios of loans, generate higher profits for investors and increase market share. About the only thing that didn’t get out of control was dealer participation, which was, more or less, held in line by the regulatory climate. Otherwise, that too would have spun out of control. Those were some highly profitable years for knowledgeable dealers, but they ended up hurting finance companies. Ultimately, those fast times would hurt dealers as well. Looking at the 2009-2010 period, LTVs were more likely to be less than 100 percent, while average loan terms were greatly reduced. Underwriting guidelines also were tightened on items

such as debt-to-income and paymentto-income ratios. Many franchised and independent dealers found that they could no longer access financing for the belowprime customer, while the finance sources they once relied on were forced to curtail production due to the loss of the secondary market for ABS securitizations. The equity investment community also retreated from anything with the term “subprime.” Was the auto finance community to blame? No. It was the out-of-control subprime mortgage industry, which tarnished everything associated with that term. Holding the Line

Underwriting standards are currently holding up well, which will result in acceptable loss statistics on the paper finance companies are currently originating. However, pressure is building to amass larger portfolios of loans, generate higher profits for investors and increase market share. Manufacturers also are desperately trying to increase their production and are offering favorable terms to qualifying customers through their captive finance companies. Enticed by attractive rebates, cash-back offers

28 F&I and Showroom August 2011

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and low-cost financing, customers set on purchasing a used vehicle are being driven to the new-vehicle lot. So, you can expect finance companies — particularly those serving the nonprime and subprime segments — to slowly loosen underwriting standards in the quest for more business. This will be accompanied by higher LTVs and longer terms. What will inevitably follow, perhaps within a year or so, is a rise in defaults, repossessions and portfolio losses. Once that begins to happen, the investment community will once again begin pulling back. This will manifest itself in ABS securitizations with higher interest rates and greater credit enhancement, increasing the cost of financing for auto finance companies. Providers of warehouse lines of credit also will become more cautious, raise their rates and underwrite more carefully. Equity investors also will flee the subprime auto finance arena again, signaling the move into the negative part of the cycle. What can prevent this from happening? First, auto finance companies must maintain their discipline by holding quality standards on credit requirements, LTV percentages and terms of finance. If some competitor decides to “buy” the market, let them fire up the rockets and burn out by themselves. That’s the discipline that is required by the companies who are in business for the long haul. There are some wise CEOs in this industry that understand the causes of cycles like the one we experienced and will choose not to participate.

Their companies may not reach the heights of the high flyers, but they will stay in business during the low parts of the cycle. Am I advocating a 1950s-like, financially conservative atmosphere with sleeve garters and green eyeshades? No, but this is a season to responsibly enjoy the good times and do the things that keep those good times rolling as long as possible. Will holding the line on credit pricing harm dealers? Not in the long run. The emphasis at the dealership should be on obtaining a fair price for the vehicle and securing a sufficient down payment from the customer to enable subprime companies to reasonably and prudently purchase finance contracts. If all of that happens, losses will remain in an acceptable range, the investment community will continue to show interest in the subprime arena, and the entire system — from car buyers to the securitization bondholders — will be better off. This will allow interest in the investment community to be sustained. So, the solution is fairly simple. And although it is almost impossible to defeat economic cycles, we should try our best to do just that. Jim Bass is CEO of Auto Acceptance Corp., treasurer of the NAF Association and a licensed CPA. He is a frequent speaker at industry events and a leading voice for the subprime, nonprime and BHPH segments. E-mail him at jim.bass@ special-finance.com.

Jack Tracey, the NAF Association’s executive director, says the credit crisis proved to investors how well the auto finance industry operates.

August 2011 F&I and Showroom 29

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8/2/11 10:21:06 AM

Executive Q&A

New Breed

CarFinance Capital is new to the auto finance world, but the people behind the nonprime/subprime finance source are not. The editor gets the skinny. By Gregory Arroyo

n 1989, he founded Triad Financial. And after a two-year stint at another independent finance source, Jim Landy is at it again. This time, he’s opened up a new finance company in Irvine, Calif., called CarFinance Capital. It represents a new breed of finance sources that are rising from the ashes of the Great Recession.

F&I: I keep hearing that nonprime remains a problem for dealers. Why is that? Landy: The market is de-

frosting a bit, but the problem with nonprime is you need Landy scale, which means you need a lot of capital. That’s not the case with deep subprime. You don’t need scale and you can get to cash-flow neutral a lot sooner. So, that tends to thin out potential partners for the nonprime segment. We’re starting to see a couple of banks drop down into that space a bit, but a dealer needs a few sources to be effective and banks tend to be inconsistent in the category. F&I: So, where is CarFinance operating? Landy: We operate where most of the

commercial banks stop and the deep30 F&I and Showroom August 2011

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er subprime guys begin — in the high 600s to the mid-500s. That represents a third of the market, so it’s a lot of the current traffic at dealerships. F&I: So, how did it all happen? Landy: We started in early 2009. And

by “we,” I mean myself and Dennis Morris, our chief operating officer. We knew there was a need, so we put our heads together and, by early 2010, leased an office and started putting in full days. At that point, we were building our infrastructure and reaching out to folks we had worked with in the past. But at that point, the capital markets were still closed. In late 2010, a good friend of mine introduced us to Perella Weinberg Partners, a privately owned asset management and corporate advisory firm. We got along really well and had a similar take on the market. It took a few months to put everything together, then we hit the streets in May. F&I: In California, correct? Landy: That’s right. Then we opened

in Texas the month after. Right now we have seven reps in California and five in Texas. We’re focused on executing our strategy in those two PHOTO ©ISTOCKPHOTO.COM / PRODAKSZYN

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Executive Q&A states, but we expect to be in Arizona, Washington, Oregon and Colorado by the end of the year. F&I: You mentioned Dennis, a

former colleague of yours at Triad. Who else did you bring with you and how much did having your former team in

place help when you entered into discussions with Perella? Landy: It helped a lot. In fact, I would

describe the launch of CarFinance as more of a restart of Triad. So, aside from Dennis, there’s John O’Dowd, who was the director of risk at Triad. We also have Jeff Butcher, who served as CFO at Triad. And right

CarFinancial’s lending strategy includes a “back-end” advance of up to $2,000 to cover core F&I products such as vehicle service contracts and GAP.

now we’re up to 30 employees, 25 to 26 of whom are former Triad employees. So, our team is strong, and there is a lot of continuity. F&I: How disappointed were you when Triad bowed out of the indirect channel in May 2008? Landy: We had an outstanding group

of people at Triad in 2005 and Ford Motor Credit was a wonderful parent company. After I left in May 2005, the company ran into some issues in terms of asset quality, which made it difficult for them to make it through the cycle. I think the fact that the servicing platform remains in place says a lot about the team we had. I’m very proud of founding that organization. F&I: So, what happened, exactly? Landy: There was some mispricing,

but the economic crisis was pretty tough. A lot of it was the mortgage contagion, which gave anything “subprime” a negative connotation. And then you hear “securitization” and it’s like a double negative. It’s taken a while for folks to realize that there wasn’t one auto securitization where the investor didn’t get paid. I think once people started to understand that not everything tanked like mortgage, things started to improve. This business is about execution, and I think we’re certainly maturing as an industry in that respect. When we first started in the early ’90s, we 32 F&I and Showroom August 2011

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our reps help educate dealership personnel on the nuances of qualifying these customers. And because I know your readers are focused on F&I as a profit center, I want to let them know that we’ve carved out a ‘back-end’ advance — depending on the tier — of up to $2,000 solely for service contracts

had a good idea of how the asset was going to perform, but we really didn’t have a firm idea. We learned a little bit during the 2001 downturn and we learned even more between 2007 and 2009. So, now we have two down cycles of data with which to work. F&I: What’s your origination

target this year, and what’s your current dealer count?

Landy: I would say $100 million this year and about $450 million the following year. As for dealers, we have

We want to be predictable. We want the dealer to have all the confidence in the world that the customer profile we financed last week will be financed the following week. 350 today and we hope to double or triple that by the end of the year.

and GAP for the F&I office. F&I: What is your mileage limit? Landy: Our limit is 80,000 miles.

But we’ll be very flexible for dealers who consistently send us customers. So, if you have an eight-year-old vehicle that has 90,000 miles, we’ll help you. But it’s a two-way street.

G S F S Our name doesn’t really stand for that. But, it’s what you can expect.

F&I: How would you

characterize your buying strategy?

Landy: We want to be predictable.

We want the dealer to have all the confidence in the world that the customer profile we financed last week will be financed the following week. We’re also focused on funding speed, being flexible and customer service. We know that some dealers are just coming back into the nonprime market, which isn’t an exact science. So,

Gulf States Financial Services (GSFS) is focused on delivering a simple and exceptional customer experience to our general agents, dealers and the end consumer. For 29 years, our quick response time has helped GSFS become more than an expert reinsurance administrator. We’re a trusted partner. GSFS offers a suite of products – service contracts with Dealer-Owned Warranty Company, Dealer Obligor, CFC,

NCFC, Retro programs, GAP, Pre-Paid Maintenance, Credit Insurance, and Tire & Wheel. To ﬁnd out how easy it is to switch to us, contact Tony Orozco at 713-580-3023 or torozco@gsfsgroup.com. Agent and dealer inquiries welcome.

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August 2011 F&I and Showroom 33

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8/2/11 10:28:23 AM

Dealer Executive

Buy-Sell Mistakes

he industry’s dealer count definitely took a hit through the economic downturn, with the National Automobile Dealers Association estimating that more than 3,000 dealerships shut their doors from 2008 to 2010. What you may not realize is that while market challenges may have signaled the end for some, they also created a nice opportunity for many to expand their current operations. Whether you’re in the market to buy or sell a dealership, it’s important to understand which pitfalls to avoid if you’re planning to step into the fastmoving buy-sell arena anytime soon. In a recent Compli Webinar, Mark Johnson, president of MD Johnson Inc., a dealer-centric financial advisory services firm, discussed how many mistakes in buy-sell situations could be avoided with due diligence and a little transparency. Here’s a sampling of points to consider from that Webinar. Mistake No. 1:

Communication Breakdown A breakdown in communication between dealer principals and their key staffers is a common problem. Owners are often afraid to tell their people what they’re planning to do, which can be a huge source of problems. Remember, your people will figure out what you’re doing no matter how secretive you think you’re being, especially in the age of social media. And if you don’t get out in front of what’s being said, rumors can spread quickly. Just remember to be upfront with your key staffers and make sure they know how you will accomplish your task, the amount of documentation you will need 34 F&I and Showroom August 2011

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and who will be involved. Selling a dealership takes a lot of work and you need to have everyone on the same page to ensure you are productive, successful and able to properly execute the deal. Mistake No. 2:

Inadequate Data Accumulation Accumulation of key data in a single place is a process that’s been used by banks and law firms for years. Unfortunately, the same can’t be said for most auto dealers. You need to accumulate every single piece of due diligence prior to putting your operation on the market. This is the key to driving — and keeping — your sale price. Remember that every document you give a buyer after you negotiate a price could change the terms, so make sure all the information is disclosed upfront. Conduct an exhaustive search of all due diligence pieces, get them posted and have the buyer take a look prior to negotiating any sort of deal.

An example of a typical contract that sellers should make available and buyers should ask for are the dealership’s computer-related contracts. Let’s say the dealership uses ADP or Reynolds and Reynolds. If the buyer doesn’t need the system, it can cost him between $100,000 to $150,000 in penalties and fees to get out of the assumed obligations of the contract. That could mean the sales price you think you can get will be whittled away during the due diligence process. Here are three other items you need to put together during the due diligence or data acquisition period: ■ Fixed-asset schedules: Oftentimes, these schedules have not been worked. For example, if you are closing in September, a fixedasset schedule for August may lack depreciation, additions and deletions. Clean up all entries and get all postings completed for the financial statement that will be used for the closing entries. ■ Inventories: Add-backs are simply one-time expenses. You also need to understand your tax exposure, so get your accounting firm involved with a financial review and audit. Your lawyer also should be involved. ■ Special tools: Be sure to get a copy of your special tools list and provide it to the buyer. Unfortunately, there are not a lot of audited dealerships out there, so it’s critical you make sure your accounting firm has not taken the financial information straight from the dealer without conducting its own review. A buyer will often come back and say the review documents are meaningless, which could create an embarrassing situation. PHOTO ©ISTOCKPHOTO.COM / FEVERPITCHED

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s to Avoid Mistake No. 3: Mispricing Mispricing assets, the store and real estate can stretch out the time it takes to sell a dealership. It could also mean lower-than-expected offers, especially since the first couple of people that look at the store are usually the buyers. It’s important to get your financial house in order before you go through a buy-sell situation, because most buyers are extremely thorough in this market. Mistake No. 4:

Prepaid and Lifetime Problems Prepaid programs can be a major

Before you think about selling or expanding your operation, check out this buy-sell primer for avoiding four possible landmines on the road to a sale. By Lon Leneve

landmine on the road to a deal, especially if they are not backed by an insurance product. One dealer I know gave away free oil changes for life. He hoped that the more customers used his service department, the more money the dealership would make. Instead, he lost money every month. So, again, understand the programs, quantify them and put together everything that supports those expenses. You must understand what the actual costs are — and try to limit them — before asking a buyer to take them on. Once you’ve got your team, your finances and your programs in order,

the hard part should be over. You’ll be better prepared to sell, and you can take comfort in knowing you have put your best foot forward with any prospective buyer. Lon Leneve is the president and CEO of Compli, a provider of compliance management software. He can be reached at lon.leneve@bobit.com.

All of the issues discussed in this article are addressed in the “How to Prepare for a Buy-Sell” Webinar. To watch for free, select “On Demand Webinars” under the “Events” tab at www.Compli.com.

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8/2/11 10:30:00 AM

Sales Driver

It’s OK to ‘Think Different ’ F&I’s resident sales expert delves into the two most important topics relevant to developing and retaining fresh talent. By Cory Mosley

t’s as if Marshall Goldsmith, famed leadership development guru, read my mind when he titled his best seller, “What Got You Here Won’t Get You There.” We agree that, to excel in today’s constantly changing marketplace, you’re going to need to change things up. Strategies must be reworked. The status quo must be challenged. Are you up to it? Do you have the stomach to rethink the way it’s always been done? The good news is, I’m here to help. Picking up where we left off last month, let’s look at two more areas where the status quo needs to be challenged to develop and retain fresh talent.

Training and Development

“Training” is a four-letter word to some and misunderstood by many more. To be effective, your training providers must go beyond factory test taking and shadowing a veteran salesperson for a week. Recently, a dealer remarked that she wanted to wait to see how many of the seven salespeople she hired would survive the first two weeks before determining which ones would be sent to training. Yeah, pretty amazing, right? People, there are plenty of sound, fundamentals-based training programs on the market, many of which will never see the inside of her dealership and many others. Why? Forget the multitude of nonsensical reasons. The fact is that decision makers (and not only dealers) just don’t believe in third-party training programs and don’t have the leadership skills to implement or execute their own. To paraphrase what famed manage-

ment expert Peter Drucker once said, decisions are made solely by those who are empowered to make them — not by the smartest or most qualified person, just the person who can. Another former client of mine was having trouble finding a quality F&I manager. He had gone through several hires over a couple of months. He had concerns about the “business practices” of the past F&I managers and wanted someone to do it the way he believed would best serve customers. To help, I identified one of their salespeople with a financial background, strong CSI and a good sales track record. I also recommended an F&I company who could train the candidate I suggested. I felt this candidate’s experience doing it the dealership’s way on the sales floor would transition well into the F&I office, and the training would seal the deal. It seemed like a no-brainer. Unfortunately, management just couldn’t get their arms around the idea and, to this very day, F&I managers continue to come and go. Look, I get it. You may have had a bad experience, or the previous training program you paid for just didn’t stick. Or, it could be that the last team you spent money on to train left for the competition. Whatever the case, there is absolutely no reason for you to give up on training your people.

Cleaning House

My personal philosophy and commentary on the car business has been shaped over the last seven years while traveling to and working with a diverse group of dealerships across the country — from those selling 1,000

units a month to those selling 50. And throughout that time, one thing remains constant: The smaller the dealership, the smaller margin for error. See, large stores sometimes make decisions too quickly, while smaller dealers tend to move too slow — especially when it comes to personnel decisions. Turnover is a problem in our business, but, in my opinion, we sometimes put too much stock in loyalty. To me, loyalty is a bonus earned when someone excels at their job and maximizes profitability for their dealership. The idea that someone needs to be carried or paid for mediocre performance in the name of loyalty is crazy to me. You either expand or become expendable; it’s that simple. The reality is that tough choices will need to be made in the coming years. Everything will need to be scrutinized, which means no topic should be off limits. More opportunities will be availed to those who want to be first rather than those who wait for someone else to try it first. You often hear that, in today’s marketplace, it’s more important to dominate than compete. Do you agree? If you answered “Yes,” I can say with certainty that domination will never be achieved if you color inside the lines and wait for the other person to show you theirs first. Cory Mosley is principal of Mosley Automotive Training, a company focused on new-school techniques, products and services. He also is the creator of the “Control Your Sales Destiny” seminar series. E-mail him at cory.mosley@ bobit.com.

36 F&I and Showroom August 2011

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8/2/11 10:31:22 AM 3/23/11 4:27:37 PM

On the Point

Too Cool for ‘School’ The magazine’s new columnist says the battle between ‘new school’ and ‘old school’ needs to stop. The reality, he says, is that both schools of thought are necessary in today’s retail environment. By Jim Ziegler

e’re living in a society where social blackmail and political correctness trump common sense. Thoughts and opinions are suppressed by the fear of being labeled. The retail automobile business is no exception, and lines are being drawn in the battle for sales department domination.

marketing and technology. Sales managers and dealers who ignore technology’s influence on our business are like dinosaurs eating the last brown, shriveled tree leaves before they’re swallowed up by the tar pits. On the other hand, a sales team that relies entirely on Internet technology at the expense of process and

Social media is a good example of how technology is helping dealers humanize their operations in the eyes of consumers.

The “new-school” crowd, driven by technology, considers themselves superior to the point of arrogance, while the “old-school” crowd — driven by sales, persuasion, closing and process — are close-minded to the point of technophobia. Name calling and labeling escalates. Saying someone is “old school” has become the new-age insult to invalidate anyone who isn’t completely and blindly onboard. In fact, I have seen experienced and highly competent managers and dealers be ridiculed and labeled because of this, and it needs to stop. The truth of the matter is the only successful people in this new-millennium car business are those with a complete skill set in all areas of sales, 38 F&I and Showroom August 2011

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personality would send a dealership spiraling into bankruptcy. That’s because selling strictly by the numbers — without emotion, persuasion, presentation and real-world sales and social skills — doesn’t work. Think about it. Why is social media so important to our business? It creates a virtual personality that helps humanize the dealership in the eyes of consumers. And the message that needs to be conveyed is: Know me, like me, trust me and follow me. And it needs to be in that order. That’s why traditional sales departments and the technology buffs inside the dealership need to work as a harmonized group, because that can’t be accomplished if both aren’t working together.

For those of you who believe the “Road to the Sale” is an outdated concept, let me just say that I strongly disagree. If that means I’m old school, so be it. Remember, I’m on the road 200 days a year speaking, consulting and working in dealerships, so my feeling on the matter has been shaped by firsthand observation. Hey, even in the most rigid oneprice, no-negotiation dealerships, there’s still movement in the numbers. And the idea that average people with well-defined processes can achieve incredible results is still as true today as it ever was. Again, I base these statements on fi rsthand observation, not theory and conjecture. As for managers, the best ones are those who take charge of the selling effort and make themselves responsible for the activities of the sales force, real world and virtual. F&I managers also play a critical role in that effort. They are, in fact, sales managers who specialize in finance, not hermits who hide out in the back office until a deal appears. One of the things I teach in my sales management seminars is that all departments must work together in harmony under well-defined processes, word-tracks and procedures. The goal of this column will be to expand on that philosophy, and I’ll do that by sharing some of the best practices employed by the most successful dealerships in the nation. Jim Ziegler is the president of Ziegler SuperSystems Inc. E-mail him at jim. ziegler@bobit.com. PHOTO BY JUSTINA LY

8/2/11 10:32:41 AM

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Legal

To Charge or Not to Charge Can you charge a customer’s down payment to a credit card? The magazine’s legal wiz says the answer has more to do with economics than the law of the land. By Michael A. Benoit

nquiring minds have been asking whether customers can charge the down payment for a new car to a credit card. The answer to this question — like so many others — is, “It depends.” There is no federal law I’m aware of that prohibits the use of a credit card for this purpose. Theoretically, if a down payment is made on a credit card and the customer also is signing a retail installment sales contract, it could give rise to an argument that the Truth in Lending Act disclosures on the RISC are incorrect. But I think that’s a stretch. State laws may have something to say about the practice, so it wouldn’t be a bad idea to check with your local counsel to see if your state imposes any restrictions or prohibitions. I know from personal experience that dealers are of two minds about the practice. About 10 years ago, I

asked to put my own down payment on a credit card — after negotiating the price and the rate to rock bottom. I don’t think they were happy about it, but it was the only way the deal was going to get done, so they were willing to do it. Normally, accepting a down payment on a credit card is a bad deal economically for the dealer. They have to pay the usual bank fees and interchange fees every time they accept a card, and those fees can severely eat into already razor-thin margins. This is true even if you limit the amount of a down payment that can be charged. There’s also the possibility that the customer will dispute the charge, especially if they are not happy with the vehicle they purchased and if you have not managed the customer appropriately. That can mean months of holdbacks by the card issuer. Dealers also need to be concerned about their obligations under their agreements with their finance sources. Virtually every dealer agreement I’ve ever seen contains a representation by the dealer

that no part of the down payment was made with a loan or other credit instrument. When the customer stops paying on the RISC because he’s drowning in credit card debt, your finance source may be inclined to suggest that you’re in material breach of the dealer agreement. Dealers also should check whether their merchant agreements with the card issuers permit the card to be used for this purpose. There was a time when you couldn’t make a debt payment on a credit card. We all know those days have passed, but it’s a good idea to check out your obligations under the merchant agreements. At the end of the day, most dealers are going to want to balance their need to move the metal with the economic costs of permitting credit card down payments. A discussion with your local counsel could potentially put any legal concerns to bed. Once you know you’re on solid legal ground, look at what your contractual limitations are. If you can get over that hurdle, look at the economic impact of a credit card down payment on your bottom line. I’m sure that will provide you with the answer you’re looking for. Michael Benoit is a partner in the Washington, D.C., office of Hudson Cook LLP. He is a frequent speaker and writer on a variety of consumer credit topics. He can be reached at michael. benoit@bobit.com. Nothing in this article is legal advice and should not be taken as such. Please address all legal questions to your counsel.

40 F&I and Showroom August 2011

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8/2/11 10:33:44 AM

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Bottomliners CNA Unveils New VSC Program CNA NATIONAL’S NEW “Z SERIES”

vehicle service contract program includes first-day rental car benefits, options for “sign and drive” roadside assistance, an expanded definition of commercial-use coverage, and coverage for new and used vehicles with up to 150,000 miles on the odometer. The program also includes seal and gasket coverage, expanded coverage for certified used vehicles and an extended powertrain warranty, according to the company. For more information, visit www.cnanational.com.

CAR-Research XRM Updates Service Manager CRM Module CAR-RESEARCH XRM HAS RELEASED

an updated version of its Service Drive Control Manager. The new module is integrated with the company’s CRM and provides a variety of features, including real-time tracking of repair orders, workin-process reporting and various system alerts. Staffers also can easily access a customer’s complete service and purchase history. For more information, visit www.car-research.com.

Return of the Four-Square Worksheet EDMUNDS.COM’S SIMPLIFIED PRICING

is an online calculator that resembles the old four-square worksheet. The program uses a market finance rate to determine monthly payment, total interest and expected total price based on the new vehicle, trade-in and down payment. Designed for consumers, the calculator also could serve as a tool and credibility builder for front-end staffers. Try it out at www.edmunds.com/calculators/ simplified-pricing.html.

Ford Launches Mobile Device Shopping Tool FORD MOTOR CO. AND FORDDIRECT,

a joint venture between Ford and its franchised dealers, have launched iPad- and smartphonecompatible apps of the Ford and Lincoln “Build & Price” online shopping tool. The app was designed to allow shoppers to virtually build a car, calculate a price estimate and locate a dealership. For more information, visit www.ford.com.

Product Feature Izmocars Blazes New Online Trails IZMOSTUDIO, THE VEHICLE PHOTO

division of izmocars, says it has developed a way to deliver colorcorrect, trim levelspecific vehicle images to any online platform. Car shoppers can use the software to view an exact image of the vehicle hi l they h have configured on a third-party or dealer Website. The company

also unveiled a new solution designed to deliver high-resolution vehicle animations that work with Apple’s iPhone A or o iPad, allowing mobile shoppers m to t utilize those devices’ 360-degree d “spin” views, touch“s able “hot spots” and colorization bl “h features. For more information, visit www.izmostudio.com.

42 F&I and Showroom August 2011

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FIC06-44.11

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Ag e n d a Keynotes, and Execu , Leadershtive Progra ip informatim o inside! n

8/2/11 11:11:52 11:14:22 AM

September 26-28, 2011 Las Vegas Hilton www.IndustrySummit.com

Three of the most powerful conferences in automotive finance — the F&I Conference and Expo, Special Finance Conference and Vehicle Service Contract Administrators Conference — will converge in September for the first-ever Industry Summit! Join hundreds of F&I professionals at this unparalleled once-a-year gathering and you’ll be armed for the year with information, training, new contacts and a renewed energy for success!

Keynote Speakers Monday, September 26, 2011

Tuesday, September 27, 2011

5:00PM – 6:15PM

9:10AM – 10:10AM

2:00PM – 3:00PM

No Shortcuts: Building a Sustainable Auto Franchise

After the Storm: Rebuilding the Automotive Industry

The Future of Dealer-Assisted Financing

Capital One Auto Finance’s Kevin Borgmann will share his analysis of industry trends and his vision for a successful franchise in the new economy.

John Gray of Experian Automotive will discuss how some dealers and lenders were able to prevail through the downturn and make the most of the recovery.

NADA’s 2011 chairman, Stephen Wade, will outline the association’s efforts on behalf of dealers and provide an up-to-date report on the state of the industry.

Executive Leadership Program 8:00AM – 4:00PM

Control Your Sales Destiny Celebrated trainer and F&I and Showroom columnist Cory Mosley is bringing his new seminar series to this year’s Industry Summit. The daylong event will tackle a range of sales-related topics, from showroom, Internet and phone sales to social media and time management. Dealers will leave with a game plan for attacking many of the challenges facing dealerships in the digital age. Includes lunch. Additional charge of $299 for full-conference passholders.

10:00AM – 4:00PM

12:30PM – 4:30PM

AFIP Certification Program

Buy Here, Pay Here for Franchised Dealers

The AFIP Certification Program is a college-level continuing education program for in-dealership F&I professionals as well as lender and vendor support personnel. Attendees will get the regulatory and legal knowledge they need to excel and a strong foundation for industry-specific ethical practices. Basic and Senior certification is available for franchised and independent dealers as well as motorcycle, RV and marine. Additional charge of $460 per level for full-conference passholders. 3:00PM – 3:30PM

Networking Break

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