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Contents
J A N U A RY 2 0 1 7
Features
28 The Future Is Now
Digital retailing is no longer the future of auto sales – it’s here today, and it’s what customers expect.
36 It’s In There
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Are you making the most of your CRM? DealerSocket’s Peter Ord says chances are it can do more for your dealership than you know.
44 Write It Down
Steve Roennau of EFG Companies says having written policies and procedures and documenting training can make sure you’re ready for a compliance audit.
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52 Don’t Look Back
Keep your focus on the future with a certified preowned program that gives independent dealers an edge with millennial car buyers.
56 Worth the Trip
Dealers are ‘blown away’ by the educational impact of NIADA’s inaugural National BHPH Summit.
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In Each Issue 6 Frontline
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A federal judge blocks the Department of Labor’s new overtime rule from taking effect; AutoNation backs away from its wellpublicized promise not to sell vehicles with open recalls; a survey finds dealers’ ideal time for completing a sale doesn’t match reality; deep subprime lending falls to a record low; Penske makes a move into the used car market; and more.
58 Event Spotlight
Check out the auto industry’s upcoming big events, highlighted by this month’s NADA Convention in New Orleans.
What’s Inside 08 10 12 14 16 18 20 22 26
The Road Ahead Washington Update Legal Musings Joe’s Garage Driving Traffic Compliance Corner Management Matters Industry News Association News
Feedback
Used Car Dealer Wants To Hear From You.
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Tell Us What You Think! Used Car Dealer encourages its readers to send comments, opinions and suggestions about the publication for reprint. Letters can by emailed to editor@niada.com. Include your full name, address and phone number. We are unable to publish all letters and may edit letters for length and clarity. This is a great opportunity to hear back from our readers on what you think about the articles and what topics you would like to see covered in future issues.
/ JANUARY 2017 / WWW.NIADA .COM
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NIADA SERVICES BOARD MEMBERS 2O16 - 2O17 CHAIRMAN David Andrews dandrews@cityllc.com VICE CHAIRMAN Andrew Gabler writeitupandy@gmail.com PRESIDENT Steve Jordan steve@niada.com SECRETARY/TREASURER Sandra Moss sandrafmoss@yahoo.com BOARD MEMBER Louis Tedeschi aspided@aol.com BOARD MEMBER Dan Reel dan@reelsauto.com BOARD MEMBER Luke Godwin luke@godwinmotors.com
NIADA EXECUTIVE COMMITTEE 2O16 - 2O17 CHAIRMAN Frank Fuzy centurymotorscar@aol.com PRESIDENT Billy Threadgill billythreadgill@netzero.net PRESIDENT-ELECT David Andrews dandrews@cityllc.com CEO Steve Jordan steve@niada.com SENIOR VICE PRESIDENT Andrew Gabler writeitupandy@gmail.com REGION I VICE PRESIDENT Louis Tedeschi aspided@aol.com REGION II VICE PRESIDENT Billy Graham billy@grahamautos.net REGION III VICE PRESIDENT Gordon Tormohlen goodpeople@aeroinc.com REGION IV VICE PRESIDENT Marc Powell marc@recarnationabq.com SECRETARY Joe McCloskey joe@bigjoeauto.com TREASURER Scott Allen scotta@goodwheelsgooddeals.com
USED CAR DEALER MAGAZINE PUBLISHER EDITOR V.P. OF MEDIA SERVICES MAGAZINE LAYOUT PRINTING
Steve Jordan Andy Friedlander Chase Tidwell Christy Haynes Publishers Press
A Division of NIADA Services, Inc. Used Car Dealer (ISSN 0279425X) is published monthly with one additional special issue, Used Car Industry Report, that is published in May by the National Independent Automobile Dealers Association Services Corporation, 2521 Brown Blvd., Arlington, TX 76006-5203; phone (817) 640-3838. Annual subscription rates for NIADA members: $8 per year. Non-member subscriptions $80 per year. Periodicals postage paid at Arlington, TX, and at additional offices. POSTMASTER: Send address changes to Used Car Dealer, 2521 Brown Blvd., Arlington, TX 76006-5203. The statements and opinions expressed herein are those of the individual authors and do not necessarily represent the views of Used Car Dealer or the National Independent Automobile Dealers Association. Likewise, the appearance of advertisers, or their identification as member of NIADA, does not constitute an endorsement of the products or services featured. Copyright © 2017 by NIADA Services, Inc. All rights reserved.
online
Read us online at:
www.usedcardealermagazine.com
Click on ads to link directly to their website. Visit us on Facebook and LinkedIn
WWW.NIADA .COM / JANUARY 2017 /
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Frontline JUDGE BLOCKS NEW OVERTIME RULE
A federal judge in Texas has issued a nationwide injunction that stops the Department of Labor’s rule to extend mandatory overtime pay to more than 4 million salaried workers from taking effect. The rule, which was scheduled to take effect Dec. 1, would have doubled the maximum salary a worker can earn and still be eligible for mandatory overtime pay to $47,500. It would have had a significant impact on nearly every sector of the U.S. economy, including automotive dealerships. U.S. District Judge Amos Mazzant’s ruling agreed with a lawsuit filed by 21 states and a coalition of business groups that includes the U.S. Chamber of Commerce, which contended the rule is unlawful and arbitrary. Mazzant, who was appointed by President Obama, ruled the federal law governing overtime does not allow the Labor Department to decide which workers are eligible based on salary levels alone. The Fair Labor Standards Act says employees can be exempt from overtime if they perform executive, administrative or professional duties, but the rule “creates essentially a de facto salaryonly test,” Mazzant wrote in his 20-page ruling. “For now, this 11th-hour federal court injunction is a meaningful step to protect our dealer members and their small businesses from an unfounded mandate to pay higher wages,” NIADA CEO Steve Jordan said. “Blocking this rule supports the idea that business owners and their employees know better how to classify and manage their workers than the federal government. We couldn’t agree more.”
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AUTONATION RECALLS ITS BAN ON RECALL SALES
AutoNation’s well-publicized promise not to sell any vehicle with an open recall is over. The company began selling used vehicles with unrepaired recalls in November, 14 months after CEO Mike Jackson publicly pledged not to do so, saying such sales were “not a responsible solution.” Jackson said Donald Trump’s victory in the presidential election made it clear there would be no forthcoming
federal legislation requiring dealers to repair recalled vehicles before selling them, prompting the decision to resume sales. “If parts are available, we repair them,” Jackson told Automotive News. “If the parts are not available, we’ll either auction or retail it. In both cases, we use full disclosure if we retail or auction it without having made a repair.” AutoNation, the country’s largest new car retailer, widely advertised its no-recall-sales policy, and Jackson had said he hoped it would start a trend among dealerships. “I’m not big enough to change
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how the recall system works,” he told Automotive News. “I try. Valiant effort. “We’re at a better place than we were when we started, but it’s not everything we hoped it would be.”
SALES TAKING LONGER THAN DEALERS WOULD LIKE A nationwide survey of dealers found a significant difference between what dealers say is the ideal length for a vehicle sales transaction and the actual time a sale takes. According to the study, conducted by eLEND Solutions, 36 percent of the dealers surveyed said the ideal amount of time shoppers should spend in their dealership during the buying process is less than an hour, and 79 percent said a sale should take less than two hours. But it also found the sales process of more than half of those dealers takes more than
two hours. An overall account of actual transaction times given to eLEND Solutions from the same group of dealers showed only 11 percent of them get their buyers out in an hour or less, and 42 percent complete the sale in two hours. Still, the study found, transaction times reported by dealers are improving – in 2014, 40 percent of dealers surveyed said their sales process took more than three hours, compared to 25 percent in 2016. Almost three-fourths of the dealers said the F&I process was the main culprit behind the long transaction times.
DEEP SUBPRIME LENDING FALLS TO RECORD LOW
Auto financing to customers with subprime and deep subprime credit scores fell to its lowest level in years, according to the Experian’s latest State of the Automotive Finance Market report. The report showed subprime financing in the third quarter of 2016 dropped 4.5 percent from the previous year to its lowest level since 2011. Deep subprime financing sank 2.8 percent from Q3 of 2015 to its lowest point since Experian began tracking those numbers in 2007. Lending to prime borrowers rose
2 percent to account for almost 60 percent of contracts financed in the third quarter. As a result, the average credit score for used vehicle buyers climbed five points to 655. National Alliance of Buy Here-Pay Here Dealers founder Ken Shilson said those results indicate “better days are ahead for independent BHPH operators who can capitalize on the opportunities,” and said the change in the market allows independent dealers to regain market share that was lost to franchise dealers when credit was looser.
/ JANUARY 2017 / WWW.NIADA .COM
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COMPETITION INCREASES IN USED CAR MARKET
Just weeks after AutoNation announced it will launch a chain of used car-only dealerships nationwide, another auto sales giant took a big step into the used vehicle market. Penske Automotive Group, the nation’s second-largest auto retailer behind AutoNation, agreed to acquire CarSense, a stand-alone retailer of used vehicles with stores in Pennsylvania and New Jersey. Terms of the deal were undisclosed, but Penske estimated it would generate some $350 million in annual revenue. CarSense features no-haggle pricing, which AutoNation has said its used car stores will use. In addition to brick-andmortar retailers like Penske and AutoNation, online sellers are pushing harder into the used vehicle market. In November, online platform Carvana opened a delivery facility in Indianapolis, the 20th market in which it offers free next-day vehicle delivery. Eleven of those came on board in 2016. Carvana said it has delivered vehicles to shoppers in 46 states – buyers outside its 20 markets must pay a delivery fee. Not all of those stories are success stories, however. Last month, TechCrunch reported online used car marketplace Beepi shut down all of its operations outside of California and will merge with Fair.com, a new venture that has not yet been launched.
USED CAR SALES HEADED FOR RECORD YEAR
The final count is not yet in, but 2016 appears to be a record year for used vehicle sales. Cox Automotive chief economist Tom Webb projected U.S. used car sales to approach 41 million units for the year, the most ever. “This is almost certainly a record year,” Webb told CNBC. “And the number of sales will likely go higher in the future because there is a large number of vehicles coming off lease over the next
couple of years.” Sales of certified pre-owned vehicles were also poised to set a record for the sixth consecutive year, according to figures released by Autodata Corp. Sales were up more than 10 percent year-overyear in November, bringing the 11-month total to 2.41 million units – 144,000 short of the record of 2.55 million vehicles set in 2015. Last year, 226,967 CPO units were sold in December.
NEGATIVE EQUITY SKYROCKETS ON NEW CAR TRADES
New car sales in 2016 will approach the previous year’s record high, but the trade-ins on those sales are leaving more car buyers than ever dealing with negative equity on their new vehicles, according to data from Edmunds.com. Edmunds said new vehicle sales through November matched 2015’s record total of 15.8 million units. But Edmunds also reported 32 percent of all trade-ins being rolled into a new vehicle purchase were under water through the first three quarters of 2016, the largest percentage on record, and said the average of $4,832 in negative equity was also the most ever.
“It’s curious to see just how many of today’s car shoppers are undeterred by how much they owe on their trade-ins,” Edmunds.com senior analyst Ivan Drury said. “With today’s strong economic conditions at their back, those shoppers are willing to absorb a significant financial hit to get into a newer vehicle.” Drury said those shoppers might be better off leasing, which has also exploded at record levels. Edmunds said leasing accounted for 33 percent of 2016’s new vehicle transactions through October, saving those consumers an average of $77 on their monthly payment.
ELECTION RESULT HAS LITTLE IMPACT ON CAR CHOICES The election of Donald Trump as President will undoubtedly affect our nation. But CarGurus decided to find out how it would affect consumers’ attitudes regarding the automotive industry and their plans to buy a vehicle. The online auto shopping platform’s survey of more than 1,000 U.S. consumers found 35 percent of the respondents believe auto prices will increase, compared to only 8 percent who think they will decrease, and 70 percent said the election’s results will have no impact on their decision whether to buy a U.S. or foreign-made vehicle. Some 75 percent expect to see fewer government incentives to buy electric cars,
hybrids and other “green” vehicles, but 67 percent said that would not alter their decision about buying one. The survey showed younger respondents were more skeptical in their post-election opinions. Shoppers 18 to 24 years old were more likely than those 55 and older to believe gas prices will increase (60 percent-44 percent). Almost 10 percent of younger shoppers said they would delay a decision to buy a vehicle, and almost 10 percent of 25- to 34-year-olds plan to spend less on the vehicle following the election.
WHAT’S NEW ON NIADA.TV
COULDN’T MAKE IT TO USED CAR WEEK IN NOVEMBER? CHECK IN AT NIADA.TV TO CATCH UP ON WHAT YOU MISSED. We’ll have 25 educational sessions on various channels encompassing all four of the Used Car Week Conferences – the National Remarketing Conference/NAAA Convention, the CPO Forum, the SubPrime Forum and the Re3 (Recovery/Repossession/Remarketing) Conference – available in the coming weeks.
Keep checking NIADA.TV to find all the insights and updates of Used Car Week.
WWW.NIADA .COM / JANUARY 2017 /
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THE ROAD AHEAD
An Investment in Our Industry’s Future As I was driving to work one day not long ago, I noticed a curious – and disturbing – thing. It seemed the driver of every car I came across was concentrating on something other than driving. They were fumbling with a cellphone or glancing down at a tablet or trying to eat breakfast. Their focus was everywhere except where it should have been.
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We live in a day and age in which it is very easy to be distracted by things – your phone, your e-mail, Facebook… Just open your browser and you can easily get so caught up in one of the “top stories” or viral videos that pop up that you forget what it was you were about to look up in the first place. With all that going on in the palm of our hands, it’s all too easy to get distracted from the things that are really important. For NIADA, something that is really important to us is pushing our charitable foundation forward and supporting young people who are working hard to get their education – and setting our industry up for the future. For years, we’ve done that through annual scholarships awarded to four deserving high school seniors selected for academic and community service achievements, as well as a Northwood University student pursuing an automotive-related degree – by the way, you can find applications for those scholarships, as well as more information, at www. niadafoundation.org. Now the NIADA Foundation is adding a new component toward that goal. Last fall, the foundation board voted to create an endowment to fund scholarships for students in the University of Texas at Arlington’s College of Business, specifically those who have an interest in the auto industry. You can find the details of the NIADA Foundation Endowment in the Association News column on page 26 of this magazine.
You can find the details of the NIADA Foundation Endowment in the Association News column on page 26 of this magazine. The condensed version is that the foundation will make five annual contributions, which will be matched dollar-for-dollar by the university, until the endowment is fully funded at $250,000. We anticipate the first scholarships will be awarded for the 2017-18 academic year and will grow from there. But there is a bigger picture here. In addition to its proximity to NIADA’s Arlington headquarters – a 10-minute drive from the campus (depending on traffic, of course) – UT Arlington was selected because of the quality of its business school and its connection with the automotive industry. But it is far from the only university with a strong business program and an interest in educating future auto industry leaders. Which is why the UTA endowment is just the beginning. Once it is funded, the plan is to establish a similar endowment at another university, followed by another, until there is an NIADA Foundation Endowment in each of the association’s four regions. The long-term view is even more ambitious. Our vision is to set up these endowments at many institutions, taking the blueprint we’ve created at UT Arlington and extending it nationwide. Ultimately, the goal is to have millions of dollars in endowments continually providing financial assistance to encourage young people to get involved in the automotive space – students who one day will drive our industry forward into a brighter future. By the way, you can be part of making that vision a reality – the endowment can be increased through additional funds donated by individuals as well. For more information or to contribute, visit www. niadafoundation.org. All donations are tax deductible (consult your tax attorney or accountant for details). This initial endowment is a great opportunity for the NIADA Foundation to invest in the future of the automotive industry by supporting some of the best business-minded students at UTA who want to pursue a career in the automotive industry. As the foundation’s president, I am excited to see how these investments will affect the future of our industry, here at home in North Texas and, eventually, around the country. Steve Jordan is executive vice president of NIADA, president of NIADA Services, Inc., president of the NIADA Foundation board and publisher of Used Car Dealer magazine. He can be reached at steve@niada.com.
/ JANUARY 2017 / WWW.NIADA .COM
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WA S H I N G T O N U P D AT E
Washington D.C. Update Shaun Petersen
Sante Esposito
Here’s a rundown of some of the latest governmental issues and activity affecting the used car industry from NIADA lobbyist Sante Esposito of Key Advocates and NIADA senior vice president of legal and government affairs Shaun Petersen.
LEGISLATIVE REPORT BY SANTE ESPOSITO
ELECTION IMPACT
At press time, the full impact of the November elections on the legislative process was still unclear, as Congress deals with a unique situation in which the traditional model of government seems to have changed. On the positive side, when it comes to issues like reining in the CFPB, fending off efforts to ground recalled vehicles, supporting small business, etc., a Republican administration coupled with a Republican Congress is the best political scenario for NIADA. President-elect Donald Trump campaigned on repealing the Dodd-Frank Act, thereby dismantling the Consumer Financial Protection Bureau. If that is pursued a likely outcome is that the Democrats will push back and accept many of the CFPB reforms proposed in Rep. Jeb Hensarling’s (R-Texas) Financial CHOICE
Act, making the bureau subject to the annual appropriations process, replacing the single director with a five-member commission, revoking the 2013 auto finance guidance and more. With a coming change of party in the White House, Congress is expected to punt on the major legislative items, including S.2663, the Reforming CFPB Indirect Auto Financing Guidance Act, which would rescind the aforementioned 2013 guidance, during the lame duck session. The only must-pass bill is the continuing resolution to fund the government, likely until early next year.
SALES OF RECALLED VEHICLES
While Senate action on motor vehicle recalls is unlikely before the new Congress begins, NIADA continues to work with NADA, NAAA and other stakeholders and
interested parties to ensure the issue is not raised in legislation during the lame duck session.
COMMITTEE LEADERSHIP
With the new Congress set to begin this month, the House committees have been busy electing their leaders for the upcoming session. Two committees will have new chairmen – Appropriations, which will be headed by Rep. Rodney Frelinghuysen (R-N.J.), and Energy and Commerce, to be led by Rep. Greg Walden (R-Ore.). Both of those committees have jurisdiction over issues important to NIADA. Other important committee chairs include Hensarling of Financial Services, Rep. Bill Shuster (R-Pa.) of Transportation and Infrastructure, Rep. Steve Chabot (R-Ohio) of Small Business and Rep. Mac Thornberry (R-Texas) of Armed Services.
REGULATORY REPORT BY SHAUN PETERSEN
CONSUMER FINANCIAL PROTECTION BUREAU
Sales and production incentives guidance: In the wake of the recent Wells Fargo scandal, the CFPB issued a guidance document warning financial institutions that creating incentives for employees and service providers to meet sales and other business goals can lead to consumer harm if not properly managed. The guidance document offers examples of unfair, deceptive or abusive practices that could result from unchecked incentives, such as opening accounts without consent, misrepresenting benefits of products and steering consumers toward less favorable products or terms. The document is available at www.consumerfinance.gov/ documents/1537/201611_cfpb_Production_ Incentives_Bulletin.pdf Debt collection lawsuit: The CFPB and New York attorney general filed a lawsuit in federal court against several companies and individuals the regulators allege were engaged in a debt collection scheme. The lawsuit alleges the individuals operate a network of companies that harass, threaten and deceive millions of consumers across the nation into paying inflated debts or amounts they might not owe, falsely threatened legal action against consumers and falsely impersonated law-enforcement officials, government agencies and court officers.
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CFPB seeks rehearing: The CFPB has formally requested that the entire Court of Appeals for the D.C. Circuit rehear the decision in PHH Corp case, in which the court ruled the structure of the CFPB was unconstitutional. In addition, 21 current and former members of Congress, including Sen. Elizabeth Warren (D-Mass.), Rep. Nancy Pelosi (D-Calif.) and former Rep. Barney Frank (D-Mass.) also filed a petition asking the entire court to rehear the case. PHH Corp has the opportunity to respond to the request before the court makes a determination on whether it will grant the CFPB’s request.
FEDERAL COMMUNICATIONS COMMISSION
Robotext enforcement: The FCC released an enforcement advisory reaffirming that text messages are regulated as telephone calls under the federal Telephone Consumer Protection Act. The TCPA requires “prior express written consent” for text messages used for advertising/soliciting and “prior express consent” for other types of text messages. Under the TCPA, “the term automatic telephone dialing system” or “autodialer” covers any equipment that has the capacity to store or produce numbers to be dialed and dial them without human intervention – but it does not need to have the present ability to do so.
Under that provision, the FCC reiterated its position that the TCPA prohibits autodialed calls or text messages, as well as prerecorded calls, unless made with the prior express consent of the called party, to any telephone number assigned to a cellphone or other mobile device, unless the calls or text messages are made for emergency purposes; are free to the end user and have been exempted by the FCC, subject to conditions prescribed to protect consumer privacy rights; or are made solely to collect debts “owed to or guaranteed by the United States.” The FCC reminded businesses that contact consumers with an automated text message and claim they have prior express consent that they will need to prove they have consent. The advisory specifically states, “The fact that a consumer’s wireless number is in the contact list of another person’s wireless phone does not, by itself, demonstrate consent to receive robotexts.” The advisory said callers who inadvertently dial a reassigned number are not liable for the first call or message to a consumer who did not provide consent. But the FCC has noted businesses will be liable for any further calls or text messages to a reassigned number, regardless of whether or when the business learns of the reassignment. The guidance is available at http:// transition.fcc.gov/Daily_Releases/Daily_ Business/2016/db1118/DA-16-1299A1.pdf.
/ JANUARY 2017 / WWW.NIADA .COM
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LEGAL MUSINGS
More Highlights Ahead in 2017 The crossroads that arrives at the end of each year and the start of the next is always a time for reflection, on both the events of the past 12 months and what to expect in the months ahead. I am going through that exercise both personally and professionally, and as I do, I can hardly contain my excitement for the future. That excitement is born of what we were collectively able to accomplish in 2016. Let’s hit some of the highlights: During 2016, NIADA was active in responding to initiatives floating through Congress and various regulatory agencies. Through our collective efforts, we were able to once again fend off a legislative effort that would have prohibited the sale of used motor vehicles with any open recall. In addition, we mobilized as an association to oppose the CFPB’s proposed arbitration
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rule, which would prevent class action waivers in mandatory pre-dispute arbitration agreements used in dealerships across the country. Through written testimony, we expressed our disapproval of the proposal to Congress, and NIADA and more than 300 of our dealer members flooded the CFPB with comments pointing out its flaws. In September, NIADA had its greatest National Leadership Conference and Legislative Summit yet. More than 175 dealers and industry leaders descended on Capitol Hill and met with 90 Congressional offices to voice concerns about recall legislation and advocate for reforming the CFPB. Never before has NIADA’s presence on Capitol Hill been so strong. Perhaps our greatest success was the continued development of the NIADA Political Action Committee fund. During 2016, we eclipsed $100,000 in the PAC account for the first time. We raised nearly $90,000 over the course the year. And, most important, we were able to invest those funds in congressional candidates from both political parties who will support and fight for independent used vehicle dealers. In the weeks leading up to the November elections, the NIADA-PAC made donations to 30 candidates. Of those, 28 went on to win – a 94 percent success rate. You’d better believe your donations made a difference in those races and earned the attention of some high-profile movers and shakers in Washington. Certainly, the candidates who received your contributions were appreciative – many of them called to personally thank NIADA. That said, this story might offer the best illustration of the influence of NIADA and its members. In the days before the election, NIADA CEO Steve Jordan took a call from an aide to U.S. Rep. Pete Olson (R-Texas). The aide told Steve the congressman had received a text from the Speaker of the House asking him to make sure NIADA was personally thanked for its generosity in supporting pro-business candidates. And thanked we were.
NIADA will also continue to find and support candidates who will rally to our cause. So the third-highest ranking member of the federal government specifically mentioned our association by name. If anyone you come across ever asks you about the value of the association and its PAC fund, that should dispel all doubts. So what lies ahead in 2017? In the coming days, Donald Trump will be sworn in as the 45th President of the United States, and Republicans will control both chambers of Congress. One has to believe the climate in Washington will become more business-friendly. But that does not mean regulation will cease and we can turn our back on compliance. Notwithstanding a court decision finding its structure to be unconstitutional, the CFPB is not going away. Senate Democrats will not allow it. But it’s likely the CFPB will operate more cautiously, particularly if a Republican-controlled Congress can pass the Financial CHOICE Act, which would restructure the bureau, or if President Trump can remove the director and install new leadership. With Republicans in control in Washington and in more states, Democrats in state attorney general’s offices are likely to be more active in enforcement and other initiatives that for the past eight years have been handled by the CFPB or FTC. Regardless, now is not the time to rest on our laurels. NIADA will continue to advocate on important issues such as recalls, reforming the CFPB and preventing government from overburdening small businesses. NIADA will also continue to find and support candidates who will rally to our cause. In order to do so, we must continue building our PAC fund. In 2017, we are going to ask each NIADA member to contribute $100 to the PAC. Certainly, if you are able and willing, we would appreciate any donation, up to the maximum of $5,000. But if every member gave that small amount, we would have more than $1 million in the PAC fund to support candidates who will defend our industry. A great man said, “Your future is as bright as your faith.” I have faith in our collective efforts to make 2017 as bright as the sun at noon.
BY SHAUN PETERSEN
Shaun Petersen is NIADA’s senior vice president of legal and government affairs.
/ JANUARY 2017 / WWW.NIADA .COM
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JOE’S GARAGE
Preparing for a Busy Season On your mark, get set … bang! You’re barely catching your breath from completing the marathon that was 2016, and the 2017 race is already under way. Economists are predicting healthy new car and truck sales for the year ahead, but they’re also anticipating exceptionally strong used car and truck sales. That is great news, considering the average age of cars and light trucks is now 11.6 years old and is projected to rise to 16 years by 2021, according to IHS Markit.
A successful tax season will be determined by the degree of preparation a dealer has completed by now.
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Economists are predicting healthy new car and truck sales for the year ahead, but they’re also anticipating exceptionally strong used car and truck sales.
All that should be very exciting for dealers who look not only at the potential for this year’s business but also to the future. While tax season is the highlight of every year for most independent dealers, the past three years haven’t necessarily produced the tax season they had hoped for. So what can independent dealers expect from this year’s tax season? That depends. As noted, economists are predicting an especially good year for used cars, but independent dealers are likely to get more competition from franchised dealers as their interest in used vehicles strengthens and new vehicle sales hold steady with slimmer profit margins. As a result of anticipated stable new vehicle sales, used vehicle prices are expected to weaken. For that reason alone, independent dealers must have an aggressively planned tax season strategy in place. Buying a bunch of vehicles and doubling your inventory without a strategy in hopes of strong sales could lead to catastrophic financial losses and a bunch of aged inventory, leading to higher-thannormal floorplan interest expenses, fees and holding costs as well as a significant amount of frozen capital. While I am a strong proponent of turning inventory quickly to keep cash flowing and wholesale losses minimal and believe inventory should not be permitted to age beyond 60 days, I’m also a proponent of increasing acquisition of inventory and exceeding 60 days – if there is a sound business reason to do so, such as building up inventory ahead of tax season. I think it’s prudent to take advantage of purchasing inventory when prices are low. Dealers must be mindful that even if they do not take advantage of floorplanning their vehicles, there are still built-in holding costs associated with inventory. On average, a traditional retail dealership will accumulate a daily holding cost per unit in stock of around $29 per day. So at 45 days, just one vehicle has accumulated approximately $1,305 worth of holding costs. With that in mind, a dealer needs to maximize the profit opportunity on each
unit sold, through careful pricing practices, peak reconditioning and presentation, a prepared and knowledgeable sales staff, and an efficient and positively memorable selling experience for customers. It takes cash to build up inventory but it also takes cash to be able to pay sales tax, payroll and normal and unanticipated business expenses. I suggest dealers have at least 1½ months’ worth of average monthly operating expenses available in the form of cash on hand, cash in bank and contracts in transit. A successful tax season will be determined by the degree of preparation a dealer has completed by now. Buying the right inventory – vehicles that sell in the shortest period of time and earn the highest gross profit possible – is essential, but planning the marketing and selling strategy is just as important. Dealers should not get carried away by the excitement of sales and find themselves ignoring legal processes and procedures. Careless paperwork that is not in compliance with regulations has the potential to wipe out any profits through fines and wrangling with the legal system. By now dealers should already have arranged for a tax service if they intend to have one on-site to aid guests with their tax returns. Dressing your brotherin-law in a Statue of Liberty costume and assigning him to curb duty in front of the dealership to promote your tax preparation services and tax season sale is also sure to pay off. I went to the IRS website to see when the first refund checks will be sent to those who filed early in January (credit for that great idea goes to Illinois dealer and NIADA Region III vice president Gordy Tormohlen). Dealers should do that, too. You can prepare marketing efforts, staffing needs, reconditioning efforts and inventory levels by checking IRS.gov, as new refund mandates have been enacted for 2017. That’s just one example of how diligent dealers can beat the competition by getting as much information as possible to plan for a successful selling season instead of hoping to have a great season. Success is not an accident. I’ve yet to meet a dealer who planned to fail, but I have met plenty of dealers who failed to plan.
B Y J O E L E S C O TA
Joe Lescota, a veteran of more than 25 years in the automotive industry, is NIADA’s director of dealer development and instructor for NIADA’s Certified Master Dealer program. He can be reached at joe@ niada.com.
/ JANUARY 2017 / WWW.NIADA .COM
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DRIVING TRAFFIC
Two Marketing Tactics You Need To Quit Right Now With more than 20 years of experience in the automotive marketing industry, you’d better believe we’ve heard it all. Look, the hard truth is most automotive marketing tactics are not going to help you sell more cars or make more money. Why? Because they were created by agencies and vendors more concerned with keeping you on the hook and meeting their targets than with helping you meet yours. If you really want to drive more traffic, sell more cars and be hugely successful, you need to quit those stale marketing practices and start making moves that actually generate results.
So stop advertising prices and payments and start creating a real buying preference.
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So here are the top two things most dealerships are doing but should stop doing immediately – not next week, not tomorrow. Today. So let’s get started.
FALL OFF THE PRICE BANDWAGON
Take a look at a mailer from one of your competitors. What do you see? We’ll bet there are a lot of pictures of cars with prices in bright, bold fonts. How did we know? Because most automotive marketing looks the same. And that is a big problem. Why? Well, first and foremost, that form of marketing relies on you having the lowest prices. But it’s almost impossible to always have the lowest price, and even if you could, is that a competition you really want to win? If you win that race to the bottom, how will you keep the business afloat? How will you buy more vehicles? Or pay your employees? Or support your family? You won’t. At least not for long. The thing is, you don’t have to compete on price. But you must create a reason other than price for customers to choose you over any other dealership. You see, buying a car is an emotional experience. It’s the biggest purchase some people will make in their lives. It has a huge impact on our perception of ourselves. And it has the power to change our life. But by making it all about the car and the price and the features, today’s automotive marketing has taken all of the emotion out of the purchase. And on top of that, we’ve trained the public to use price as the differentiator. Now that’s what they think they should make a decision on. But it’s not. People will make a decision based on price because they don’t know what else to ask about or compare. And since price is what you’re advertising, it’s the easiest thing for them to latch onto.
The human brain has this incredible ability to run through patterns and routines without us even noticing.
So stop advertising prices and payments and start creating a real buying preference. Become an expert your customers can count on for valuable information that will help them make the right decision about buying a car, and customers will flock to you because you’re more than just a vending machine for cars.
DARE TO BE DIFFERENT
There’s another problem with having your advertising revolve around cars and prices, like every other dealership – your ads are going to be ignored. How do we know? Science. Neuroscience, actually. Now hold on, stay with us. Because this could have a huge impact on the results you get from your marketing. You see, the only way you’re going to attract more customers is if you can get their attention. And if you want to get their attention, you have to understand how their brains work. So let’s explore that a little bit. The human brain has this incredible ability to run through patterns and routines without us even noticing. That’s what makes a habit. It’s the reason you can drive to work but not remember the ride when you get there. And why you can back out of the garage without stopping to think of all of the steps it takes to actually do it. Convenient, huh? But that same ability often makes us numb. It means we block out all the stuff we see over and over again. It’s just noise, so why waste brain power on it? That means if you want people to notice your ads, you need to make them look different than all of the other automotive ads. You need to create something that stands out and shouts, “Hey! Wake up!” Yep, in order to sell more, you have to stand out. You have to do something different and get noticed. So quit using the same old, lame old advertising and start thinking differently about how you market your dealership. That idea might seem contrary to traditional marketing practices, but that’s exactly what makes it hugely successful – it puts the emotion and the person back in the car-buying process.
BY JIMMY VEE AND T R AV I S M I L L E R
Jimmy Vee and Travis Miller are the founders of Rich Dealers® and authors of Gravitational Marketing. Visit www. trafficinstitute.com for more tips, tricks and techniques to generate traffic, leads and sales.
/ JANUARY 2017 / WWW.NIADA .COM
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COMPLIANCE CORNER
Are You Complying With TCPA? It’s a Tough Call If you want to strike fear into the heart of any business that calls customers or sales leads, just say, “TCPA.” Cases involving the TCPA – the Telephone Consumer Protection Act – were the second-most common filing in federal courts in 2016. Those lawsuits have resulted in millions of dollars in judgments and settlements, with an average settlement of approximately $5 million. Add to that the likely hundreds of thousands of dollars in legal fees to defend against such an action and TCPA can lead
The only relevant exception is if the calling party has the consent of the called party to make the call.
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to expenses, fines and damages that can mean the end of a small business. The TCPA, enacted in 1991, restricts telephone solicitations and telemarketing as well as the use of automatic telephone dialing systems (ATDS) to call or text telephone numbers for which the called party is charged for the call – including calls to cellphones. The only relevant exception is if the calling party has the consent of the called party to make the call. The fine for violations of the TCPA is $500 per call, which is tripled to $1,500 for willful violations. Because the fines are a set amount and do not rely on specific harm to a consumer, TCPA lawsuits have become a very attractive venture for class action attorneys, who generally retain 50 percent or more of any judgment. There are several complicating factors regarding compliance with the TCPA. First, the definition of an ATDS is not clear. The TCPA defines ATDS as “equipment which has the capacity (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.” However, that definition, especially as it relates to the meaning of “capacity,” has never been interpreted clearly and coherently. The Federal Communications Commission, which enforces the TCPA, and numerous federal courts have issued conflicting opinions related to the definition of an ATDS. Despite the statutory definition of ATDS, which requires the capacity to “store or produce telephone numbers to be called, using a random or sequential number generator,” some of those opinions have held that a predictive dialer is an ATDS because it has the capacity to dial numbers without human intervention. The FCC has even speculated that a cellphone can be considered an ATDS because it has the capacity to automatically dial without human intervention through various apps that are available. That means before you call a cellphone, you must either have consent to call the number or use a manual dialing system to call. And before you decide a system is a manual dialing system, it should be
Dealers must ensure they have consent before texting or are using a manual platform for sending texts. reviewed by an expert to confirm that it does not have the capacity to function as an ATDS. If consent is relied on for telemarketing calls, the consent must be written, and it’s required to be clear, conspicuous and not a condition of purchase. Written consent can be attained with a written signature or through email, a website form or a voice recording. For non-telemarketing calls, express consent is required, which generally means the called party has directly provided the dealership with his or her cellphone number during the ordinary course of business and has not instructed the dealership to stop calling. TCPA prohibitions against calls to cellphones also apply to text messages. Because text messages are very effective – studies show 97 percent of texts are opened and read within three minutes, vs. 22 percent of emails – it is tempting to text without regard for the TCPA or its consent requirements. But dealers must ensure they have consent before texting or are using a manual platform for sending texts. Again, it is best to have your system reviewed before relying on the fact it is a manual system, not an ATDS. To make matters more complicated, the FCC has ruled if a company uses an ATDS to call a number for which it has consent, but dials the wrong number or the number called has been reassigned, it is a violation of the TCPA. The FCC’s logic is that the company placing the call does not have consent to call the wrong number or whoever has assumed the reassigned number. For reassigned numbers, the FCC further ruled it would allow only one call (regardless of whether the call is answered or provides notice that the number has been reassigned) before liability can be imposed. There is currently no comprehensive list for reassigned numbers, making compliance impossible. Before initiating any calling campaign, make sure you understand the rules that apply to calls to cellphones or consult with competent legal or compliance counsel. Calling cellphones using an ATDS and without the appropriate consent can be a very costly mistake.
BY MICHELE SHUSTER
Michele Shuster, a partner in the law firm of Mac Murray, Petersen and Shuster, formerly managed the Ohio attorney general’s Consumer Protection Division and has extensive experience assisting clients in heavily regulated industries.
/ JANUARY 2017 / WWW.NIADA .COM
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M A N A G E M E N T M AT T E R S
Is Your Dealership Prepared for Disaster? Disaster can strike with or without warning, and large-scale problems such as fire, flooding or tornadoes can have significant and long-lasting effects on a dealership. One thing people don’t realize is that systems can be among the hardest things to replace following a catastrophe, especially if a plan hasn’t been put in place. Buildings can be rebuilt, equipment and inventory replaced, but data often can’t be recovered. While lost revenue as a result of a data loss can be a temporary financial hit for some businesses, it can also significantly impact both large and small businesses over the long term. For example, Hurricane Sandy caused
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more than $50 billion in damage and losses, and it resulted in years of recovery for businesses along the coast. An estimated $30 billion of that loss came in the form of closed offices and factories and shutdowns in transportation and electricity. To help make sure your dealership is prepared and able to recover quickly in the event of a natural disaster, here are a few things to consider: Know your risks and identify vulnerabilities: Visit sites like floodsmart. gov and hurricanes.gov to know if you are in a flood or surge zone. Determine your vulnerability and assess your mitigation capabilities. Have a written plan and make sure everyone has a copy: Writing a plan and educating staff will make sure everyone understands what their roles are and the steps they need to take in an emergency. Check your preparedness: Designate a primary and backup person for each of your critical systems (computers, network devices, security systems, etc.) before a disaster hits. Ensure they have proper access and their emergency contact numbers are up to date. Also, consider keeping copies of other important system and critical vendor information in a secure location. Dealers should have materials and processes in place to do business the old fashioned way – on paper – until power is restored. Designate teams for key business operations: Before, during and after the disaster period, your most crucial operational need will be communications. Without it, you can’t do much else. Designate a team to be responsible for key communications, as well as your day-to-day business operations (payroll, parts, service, etc.) and data recovery.
Buildings can be rebuilt, equipment and inventory replaced, but data often can’t be recovered. Data recovery will require coordination between various departments in order to get things put back together correctly. • Accounting: Following the disaster, repost all documents posted during the lost time. Coordinate with each department to determine which documents will post automatically due to their data recovery process and which documents need to be posted manually. Re-enter any updates to accounts receivable and accounts payable. Update account balances, post missing payable checks, re-enter any payable invoices and re-enter any receipts or purchase orders. • Finance and insurance: Re-enter deals that were done manually, check all nonfinalized deals for any updates. • Payroll: Re-enter any payroll that was not entered into your accounting system. Use an offsite location to back up your on-premises data and paper records: In case of a power outage or system failure, have your data backed up in a secure environment or on physical media sent to an offsite storage location where your paper records are also stored. Make sure your offsite storage vendor is taking items to areas that won’t be impacted by the same threats as you – for example, if you’re in a hurricane zone, use a site that is farther inland. Evaluate your disaster insurance coverage: Review policies with your insurance agent to make sure the dealership is covered for different types of disasters and record the proper values of your building contents, inventory, etc. If you have a repair facility, your customers will look to you if there is any damage to their vehicles following a disaster. You need to be prepared. If you don’t do vehicle service, there might be a need for new methods of transportation within the community that you can fulfill. Auto dealers who have been through disasters large and small say the worst thing to do is underestimate the damage that can occur. Preparation, including the simple steps discussed here, can make a big difference. No matter the location or the potential threats, preparing for the worst will always help ensure any negative impact is managed and mitigated as much as possible.
BY CLINT FRANSEN
Clint Fransen is director of global business resiliency for CDK Global, a provider of integrated information technology and digital marketing solutions for the automotive retail industry. For more information, visit www.cdkglobal.com
/ JANUARY 2017 / WWW.NIADA .COM
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I N D U S T RY N E W S
NIADA Q4 Business Confidence Survey NIADA’s fourth quarter Business Confidence Survey shows a growing number of independent dealers were confident economic conditions would improve in 2016’s final quarter. More than 125 independent dealers shared their outlook on general economic conditions and business concerns in the latest survey. More than one third of them said they believed the economy would improve in the fourth quarter, up from 23 percent in the previous quarter’s survey. That percentage had decreased in each of the previous two surveys. Dealers are primed to take advantage of that optimistic outlook – 87 percent said they expected their cash flow to improve or stay the same, up six percentage points from the previous quarter, and 93 percent expected their credit availability to remain the same or expand. The positive economic outlook was reinforced by the continued high performance of auto loan originations.
According to Equifax’s National Consumer Credit Trends Report, auto loan delinquency rates remained below 1.1 percent and auto loan write-off rates remained below 23 bps from March through August. In addition, Automotive News reported new car sales reached 1.38 million in November – a record for the month. However, dealers expressed concern that inventory sourcing could keep them from meeting anticipated demand. Lack of quality retail inventory tied economic conditions as the top answer when respondents were asked to identify the most important problem facing their business today. That was echoed in responses to a new question added to this year’s survey, which asked respondents what they would most like to learn from fellow members of NIADA. Nearly a third – 31.8 percent – said they want to learn how their peers are sourcing inventory and navigating challenges in wholesale marketplaces.
Overall, does your dealership expect economic conditions to improve, stay the same, or decline in the auto industry over the next quarter?
Do you anticipate your dealership will invest in more, the same, or less retail inventory to meet anticipated retail demand over the next quarter?
Q2 Q3 IMPROVE 28% 23% STAY SAME 51% 57% DECLINE 21% 20%
Q4 34% 44% 22%
Does your dealership plan to expand its business over the next quarter? (i.e. add new equipment, enhance your building/property)
MORE STAY SAME LESS
Q2 34% 53% 13%
Q4 41% 51% 8%
Do you anticipate your dealership’s retail sales to grow, stay the same or decrease over the next quarter?
Q2 Q3 Q4 YES 37% 35% 33% NO 63% 65% 67%
GROW STAY SAME DECREASE
What percentage of the following categories makes up your total retail automobile sales?
Will your dealership increase, hold, or decrease vehicle retail prices over the next quarter?
PRIME BHPH SUBPRIME
Q2 42% 32% 26%
Q3 44% 29% 27%
Q4 44% 32% 24%
Q2 44% 43% 13%
INCREASE HOLD DECREASE
Q3 46% 44% 10%
Q4 46% 40% 14%
Q2 Q3 Q4 15% 13% 10% 70% 70% 72% 15% 17% 18%
Do you expect your dealership’s credit availability to expand, stay the same or reduce over the next quarter?
Do you see your dealership’s cash flow improving, staying the same, or declining over the next quarter?
EXPAND STAY SAME REDUCE
Q2 Q3 Q4 I MPROVE 41% 32% 34% STAY SAME 40% 49% 53% DECLINE 19% 19% 13%
Q2 20% 74% 6%
Q3 23% 71% 6%
Q4 23% 70% 7%
Do you anticipate your dealership’s total expenses (cost of business) to increase, stay the same or decrease over the next quarter? Q2 INCREASE 55% STAY SAME 40% DECREASE 5%
Q3 Q4 55% 56% 40% 40% 5% 4%
Increase
Hold
Decrease
*DIGITAL 34% 63% 3% TV 5% 71% 24% RADIO 6% 68% 26%
BY SCOTT LILJA AND PETER OBURU
Peter Oburu
Hold
Decrease
NEWSPAPER 8% 62% 30% OUTDOOR 13% 58% 29% DIRECT MAIL 8% 61% 31%
Q2 NO 66%
Q3
YES 34%
Q4
YES 33%
NO 67%
YES 34%
NO 66%
In which department does your dealership anticipate hiring new staff over the next quarter? Q2 Q3 Q4 SALES 53% 47% 32% FINANCE 4% 5% 7% SERVICE 39% 30% 44% 4% 18% 17% OTHER
What is the single most important problem facing your business today? Q3
Q4 4%
4% 13%
16%
17%
15% 6%
15%
14%
9%
7% 15%
GOVERNMENT REGULATIONS/ RED TAPE HEIGHTENED COMPETITION FROM FRANCHISE DEALERS
10%
7%
14%
ECONOMIC CONDITIONS
Q2 Q3 Q4 INCREASE 34% 38% 36% STAY SAME 48% 45% 49% DECREASE 18% 17% 15%
Increase
Scott Lilja is NIADA’s senior vice president of dealer services. He can be reached at scott@niada. com. Peter Oburu is leader of Equifax Automotive Vertical Analytics, leading, designing and managing the development of advanced analytical solutions for Equifax clients.
Scott Lilja
Does your dealership anticipate hiring any new staff over the next year?
Does your dealership expect customer traffic to increase, stay the same or decrease over the next quarter?
Considering the following marketing channels, please indicate the level of investment your dealership plans to make over the next quarter. *ONLINE AND MOBILE
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Q3 36% 54% 10%
Dealers seem intent on responding to the issue of sourcing inventory – 41 percent planned to invest more in retail inventory to meet anticipated demand over the next quarter, up from 36 percent in the previous survey. The end of the year typically includes a seasonal jump in transactions, and positive dealer sentiment on the economy was a precursor to that expected sales lift. While sourcing quality inventory is a growing concern, the results of the Q4 survey indicate dealers will be actively dedicating resources to overcoming that obstacle.
10%
8% 16%
LACK OF QUALITY WHOLESALE INVENTORY
LACK OF QUALITY RETAIL INVENTORY
INCREASED COST OF DOING BUSINESS
LACK OF FINANCING/ CREDIT RESOURCES
LACK OF CUSTOMER PROSPECT TRAFFIC/ LEADS OTHER
What would you most like to learn from your NIADA peers?
INVENTORY STRATEGY: 31.8%
BUSINESS STRATEGY: 15.9%
CUSTOMER GROWTH STRATEGY: 14.8%
FINANCE/F&I STRATEGY: 6.8% DEALER INFORMATION/METRICS/BENCHMARKS: 6.8%
/ JANUARY 2017 / WWW.NIADA .COM
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PA I D A D V E RT O R I A L
Tips for a Profitable Tax Season As more consumers find stronger financial standing, their purchasing power increases. However, their credit scores don’t always reflect the same progress. The end result is a massive pool of subprime and deep subprime consumers ready to buy cars this tax season.
Even large lenders are relaxing their credit score requirements in order to attract the subprime market. That’s a pretty big indicator that there’s opportunity to go around, whether you’re a Buy Here-Pay Here dealer or own a small franchise. It also shows there’s a lot of competition out there. So with more car loan options now available to subprime buyers, how do you increase sales and make the most of tax season? If you’re smart and proactive, you can bring in up to 50 percent of your annual sales in just 8-12 weeks. That’s money in the bank or money you can reinvest in your business by adding to your inventory.
TIPS FOR A PROFITABLE TAX SEASON
Have a plan in place to secure every deal. Competition is on the rise and every customer who walks onto your lot is a golden opportunity.
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• You need to be able to say yes to subprime and deep subprime buyers. With technology like GPS vehicle tracking protecting your assets, the inherent risk of serving those types of buyers is drastically reduced. Without it, you lose a large pool of taxseason buyers. • Have a plan in place to secure every deal. Competition is on the rise and every customer who walks onto your lot is a golden opportunity. If your sales process is long and cumbersome, they’ll walk off the lot and you’ll be out of the sale. To make your sales process run smoothly, have GPS pre-installed on all of your
vehicles to eliminate wait time for your customers. • Don’t let things slip just because sales are on a roll. While a buyer might have money for the down payment, it’s important that they can also afford the payments. You want airtight underwriting guidelines from your applications to your follow-through on STIPs verifications. GoldStar’s Reference Genie can save you time by verifying work and home addresses without picking up the phone. • Remember the sale is only the beginning and profits are only profits after they’ve been collected. Have policies in place regarding partial payments, at what point recovery becomes an option and whether a GPS vehicle tracking solution should be used to support your collection efforts. • Think out of the box. If you hadn’t heard, the PATH Act is now a federal law. That means tax refunds won’t be sent out prior to Feb. 15. Instead of letting the new rules delay your tax season surge, start now. Yes, now! You can get way ahead of the rule and your competition by partnering with a tax and technology professional who can estimate refunds for your buyers. Once you’ve determined the refund schedule, you can set up irregular or later payments based on when the refund will come in. Layer that with an industry-trusted GPS solution provider and you’ll have peace of mind when it comes to your bottom line. At the end of the day, it’s all about maximizing your revenue while maintaining the peace of mind that your business and investments are safe. During tax season more than ever, the opportunity is there and the time is right. Don’t let the downside of selling to subprime buyers stop you from reaping the profits! A solution like GoldStar GPS can help minimize your risk with automated reference checks up front, and the ability to keep buyers current using in-vehicle payment reminders on the back end. Of course, you’ll also be able to find and recover assets when necessary. Say yes to more buyers with confidence this tax season and maximize your potential profit.
B Y D AV E M E Y E R
Dave Meyer is Executive Vice President of Automotive Technology Solutions for Spireon GoldStar GPS.
/ JANUARY 2017 / WWW.NIADA .COM
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A S S O C I AT I O N N E W S
CMD GOES COASTTO-COAST IN 2017
NIADA’s Certified Master Dealer class will span the nation in 2017. As it has since 2013, the used vehicle industry’s premier dealer training program will be held at various sites throughout the U.S., thanks to NIADA’s commitment to make CMD and the unmatched industry expertise of instructor Joe Lescota more accessible to dealers. This year, those sessions literally go from coast to coast. The road trip begins on the West Coast with a Feb. 9-11 class in Portland, Ore., followed by sessions in Atlanta, May 15-17, and Dallas, Sept. 12-14. It winds up on the East Coast, in Tampa, Fla., Dec. 11-13. Lescota, an industry icon, provides information, skills and practices that are now essential for an independent dealer trying to survive and thrive in an increasingly competitive market. His knowledge and experience have helped make the CMD course the most respected – and effective – dealer training program in the independent space. The CMD program teaches dealers how to take their business to a higher level by providing strategies for sustainable success in a more efficient and profitable dealership, from effective management practices and business planning to marketing to finances, offering new ideas for analyzing your business and increasing profitability. For more information or to register, contact Diann Flanders at diann@niada.com or 800-906-8283, or visit www.niada.com and click on “Certified Master Dealer” under the “Training” tab.
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NIADA INTRODUCES NATIONAL AFFINITY PARTNERSHIP PROGRAM
NIADA Member Services has created a new partnership program designed to offer association members a wider array of companies whose products and services they can trust. The NIADA National Affinity Partnership Program includes highly vetted and best-in-class partner providers that provide a broad portfolio of the products and services independent dealers use on a daily basis. The partners offer innovative, leading-edge, impactful solutions that can help NIADA member dealers make the transition needed to meet the latest changes and challenges facing the used vehicle industry. NAPP partners undergo the same scrutiny and due diligence as the companies in NIADA’s successful National Corporate Partnership and National Member Benefit programs, adding a new roster of vendors that have earned the association’s approval. The inaugural NAPP members
NIADA FOUNDATION ENDOWS BUSINESS SCHOLARSHIPS The NIADA Foundation, which for years has invested in education through its scholarship program, is taking that investment to another level. The foundation’s board of trustees authorized the creation of an endowment to fund scholarships for students at the University of Texas at Arlington’s College of Business who have shown interest in a career in the automotive industry. The NIADA Foundation Endowment was created with an initial gift of $25,000, which will be followed by four more annual donations. The university will match the donations dollar for dollar until the endowment is fully funded at $250,000. The endowment fund is managed by the University of Texas Investment Management Company, which oversees investments for the University of Texas and Texas A&M systems and has more than $37 billion under management. The initial scholarships from the endowment are expected to be awarded for the 2017-18 academic year. “This gift to UT Arlington provides the foundation of support that is invaluable to our students,” university
include AutoPoint, Berkshire Risk Services LLC, DealerRater, Frazer Computing, High Tech Locksmiths, Keystone Automotive Operations, Northland Used Car Leasing and Daily Rentals and Reynolds and Reynolds Document Services. “This new affinity partnership initiative focuses on firms that serve certain segments of the insurance/ financial services markets as well as new leading-edge entrepreneurial firms entering our market,” NIADA senior vice president of member services Scott Lilja said. “We are excited to kick off 2017 with this innovative and powerful new member services initiative.”
president Vistasp M. Karbhari said. “Through its commitment to the NIADA Endowment and the marketing department in our College of Business, the NIADA Foundation is ensuring that UT Arlington continues on its path toward becoming the model 21st century urban research university.” UT Arlington, located minutes from NIADA’s Arlington, Texas headquarters, boasts an enrollment of more than 57,000 students and is one of the largest campuses in the University of Texas system. NIADA Foundation chairman Henry Mullinax said the UTA endowment is the first of what the board hopes will be many. “Our dream is to partner with the best universities across the nation and establish similar endowments that are easily accessed by all who share our love and concern for the automotive industry,” he said. The endowment can be increased through additional funds. For more information or to contribute, visit www. niadafoundation.org. All donations are tax deductible (consult your tax attorney or accountant for details).
/ JANUARY 2017 / WWW.NIADA .COM
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F E AT U R E S T O RY
When Christopher Columbus set out on his world-changing voyage in 1492, he didn’t have a map. He had a vague idea of where he wanted to go – he just had no idea how he was going to get there. All he knew was he was sailing west, assuming the curvature of the earth would eventually bring him all the way around to the Indies and China in the Far East. And while Columbus’ journey landed him in the history books as the man who opened the New World for European colonization, the fact is he never did reach his intended destination. So what can we learn from this? To get where you’re going, it’s vital to know where you’re headed and what lies between you and that goal. And it helps immensely to have a map to guide you and an understanding of the winds and currents along the route so you can chart an accurate course. Which brings us to our theme for Used Car Dealer magazine and NIADA in 2017: Chart Your Course. Like those sailors of old, independent used vehicle dealers need maps (metaphorically speaking) to guide them as well as knowledge of the conditions they’ll have to deal with and the obstacles they’ll encounter in order to arrive at their ultimate destination – success. Our job at NIADA is to provide the maps and knowledge – through our educational content in Used Car Dealer as well as the unmatched dealer training of the NIADA Convention and Expo, NIADA Dealer 20 Groups, the Certified Master Dealer program and much more – that can help you chart a course to steer your dealership to whatever your definition of success looks like. Throughout the year, you’ll find tools and ideas you can use to push your voyage forward, such as speeding up your sales process through digital retailing, or avoiding troubled waters by being prepared for a compliance audit. So let’s get started and set sail toward your goals!
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/ JANUARY 2017 / WWW.NIADA .COM
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Digital Retailing Is No Longer the Future of Auto Sales – It’s Here Today, and It’s What Customers Expect
By Mike Wilson
T
he Amazon effect has reached the automobile market. The retail selling and buying process is unrecognizable from what it was just a handful of years ago, and there’s plenty of evidence to suggest the U.S. auto market is headed in the same direction. If houses can be bought and sold online – with purchase offers being signed digitally nowadays, we’re essentially there – why can’t cars? “I don’t think everyone wants to purchase a car online,” said Jennifer Lee, vice president of product development for NIADA National Corporate Partner DealerSocket. “Our Independent Dealership Action Report shows 71 percent of independent buyers still want to negotiate in the store with the dealer. Which leaves the other 29 percent doing something different or wanting a different path to purchase. “Not everybody is expecting to consummate a deal online, but I certainly think that 29 percent is going to grow over the next three to five years as more people are used to making larger purchases online – televisions, washers and dryers and, ultimately, a vehicle.”
DIGITAL RETAILING: CONSUMERS INCREASINGLY DEMANDING IT
The entire concept of digital anything in the used car industry - a digital showroom with photos of inventory, an online loan qualification process, a “Contact Us” option on a dealer’s website – can still seem revolutionary to some independent used car dealers. So what is digital retailing? It’s the most advanced use yet of computer-based tools in the used car sales process, in which every step – selecting a vehicle, receiving an appraisal on a trade-in, qualifying for financing, determining a monthly payment, buying aftermarket products such as F&I – can be done on the customer’s terms, in the customer’s home, before he or she sets foot in a dealership. CONTINUED ON PAGE 30
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“We’re talking about the full process minus the pickup of the vehicle,” said Joe Lescota, NIADA’s director of dealer development and instructor for the Certified Master Dealer program. Dealers need to offer digital retailing options to meet their customers’ evolving demands. It comes down to communication, consistency and customer service, RouteOne chief strategy officer Todd Mason said, citing the increased availability of information about cars – from OEM and third-party websites, online reviews and “hundreds of different sources” – that has leveled the playing field between buyers and sellers. “The consumer is increasingly in control of the overall sales process,” Mason said. “Because they’re more in control of the sales process, it’s becoming more about the consumer – what they want, what they want the experience to be – and how they want to interact with the dealer.” What the consumer wants when buying a car, just as when buying clothes or books or appliances on Amazon, is a relatively quick sales process at the dealership. How quick? Twenty minutes isn’t out of the question, according to Lee Hagler, owner of Fresh Rides Inc., an independent dealership in Evans, Colo. “For the most part now, most of our sales are done online,” said Hagler, who became an NIADA Certified Master Dealer in September. “We have the trade value and the financing figured out. When the people
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show up, it’s just a very simple process, like 15 to 20 minutes.” The customer shows up, test drives the vehicle and, if all goes well, signs the paperwork and buys it. “If I can provide a service and a quick, easy process for people, that’s what they’re looking for,” Hagler said. “Time is one of the most valuable things out there. You can’t buy any more of it. Everybody is worried about time. If you can make it easier and you can do all the processes before they come to the dealership, that’s how you win.” It’s a win for the consumer, too. As RouteOne’s Mason said, when consumers are able to explore a vehicle on their terms, at a place and time and on a device of their choosing, “It becomes their idea. It becomes, ‘Yes, I want this.’ They can consider it in a way they can’t, in many cases, in the dealership.”
REQUIREMENTS FOR A DIGITAL RETAILING SYSTEM
Andy MacLeay, director of digital marketing for Dealer.com, referred to the amount of time consumers used to have to spend inside dealerships as a challenge digital retailing can solve. “The more time they have to spend inside the dealership, the less satisfied they are with the process,” MacLeay said. “There are some steps in the car-buying process about which people have expressed to us, ‘Hey,
why can’t I do this at home?’ “For us, the question is: How do we bring those in-store processes that maybe people want to do in the comfort of their own house, online? So it’s that online-tostore transfer process that we’re looking to solve.” But, MacLeay added, it’s important to remember that digital retailing doesn’t necessarily mean all aspects of the deal are handled through a computer. For example, perhaps a consumer prefers to get a trade-in value in person rather than online. Digital retailing, MacLeay said, means “being able to service each one of the steps of the sales process in whatever way a person wants to shop for a car. It’s not a one-size-fits-all process.” A digital retailing application, regardless of whom a dealer buys it from, has to be platform-agnostic. That is, it has to work seamlessly whether a consumer accesses it via a phone, a tablet or a traditional laptop or desktop computer. And a consumer has to have the ability to interrupt the process and resume it at another time – perhaps with a different device – picking up where he or she left off. In addition to flexibility, any digital retailing solution needs to meet basic operational standards. There are considerations about handling personally identifiable information and legalities CONTINUED ON PAGE 32
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of contracts that make building a digital retailing tool best left to experts. “Those same things that happen in the store need to happen online in some fashion,” RouteOne’s Mason said, referring to disclosures, notifications and other legal and regulatory requirements. “And as dealers are considering technology providers, they have to consider that as part of it: What does the provider know about compliance, security and so on, and how much of that is embedded into the process? “My advice for anybody who is curious about this is to work with a vendor that has been doing this already. And there aren’t a lot of them. There are a lot of moving pieces to this,” he said, and not paying attention to details “could get you in some trouble.” Whatever digital retailing solution a dealer chooses has to play well with others. The data a customer inputs must be integrated into the dealer’s other systems. When a customer does end up making personal contact with the dealer, the dealer has to be aware of the customer’s online journey to that point and not make him or her retrace any steps. “Consumers have a high expectation when it comes to the experience,” said Kerri Wise, vice president of dealer marketing for NIADA National Corporate Partner TrueCar. “We’re in a world where I can get anything customized. When I’m at Starbucks, I can get my coffee exactly how I want it. So I think consumers’ expectations are much higher in
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terms of the experience they expect. “Digital retailing used to be about having a website. Now you have to have a website that not only works on my desktop, it has to work on my iPad and it also has to work on my phone. It’s much more complicated than it used to be.”
COST OF SOFTWARE SHOULD NOT BE THE QUESTION
Executing a digital retailing strategy will cost money. How much? “That’s not how I look at it,” Lescota said. “What’s it cost you not to do it?” RouteOne’s Mason said he has seen dealers all across the spectrum with respect to their buy-in to a digital presence. “What worries me,” he said, “is those dealers who are doing it just because they feel they have to. “It really has to be a part of the overall strategy of the dealership as a way they’re going to make sales and serve their customers going forward. It can’t be viewed as, ‘Yeah, I got that thing over there. Maybe it does something for me, maybe it doesn’t, but someone told me I had to do it.’ ” Independent dealers need to accept – if they haven’t already – that the days of a consumer rolling onto the lot on a cold-call basis is over. Research shows the average car shopper does 18 hours of online research before purchasing a vehicle. CONTINUED ON PAGE 34
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“They know more about the vehicles when they show up than the salespeople do,” said Hagler of Fresh Rides. Dealers need to embrace that shift in the competitive landscape of the car-buying process, especially in light of the fact that, according to DealerSocket’s action report, 29 percent of independent shoppers don’t trust their salespeople. “A digital retailing tool is a way to build trust with an online shopper,” DealerSocket’s Lee said. “The more transparent we can be about our pricing online, the more information we can give that shopper about that car and about the process, the more likely they’re going to come into your dealership ready to buy a car and have a much better experience with our dealers.” Lescota encouraged dealers to take the necessary steps to become digital retailers – if they haven’t already. “Other dealers have done this,” he said. “It’s happening. It’s here. It’s now. It’s not
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like I have to sit here with pencil and paper and sketch things out. I have to figure out what I want to do and implement.” And the time to do that is now. Because if independent dealers don’t claim the digital retail space, others are ready to. “There are other third-party used car websites that offer an online experience – Beepi, Carvana, Shift – companies that are entering into our space,” Lee said. “Which is really the first time we’ve seen that in our industry. Someone from outside the automotive industry is trying to deliver an online shopping experience to the used car buyer. “For the most part, they’re delivering the kind of shopping experience I think we’re trending toward. … So if we don’t become transparent online, if we don’t give the shopper the kind of process they’re looking for, on their timeline, my concern would be that these other companies can get a foothold in our industry.”
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F E AT U R E S T O RY
Y
ou already pay a pretty penny for CRM. Chances are, though, you still have some seriously untapped potential in your current system. Every day, there are dealers who boost their sales simply by leveraging the full functionality of their existing software. Are you ready to take a long, hard look at your use of CRM? Let’s maximize your investment with these steps:
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Select a CRM that focuses on user experience: User experience (UX) and user interface (UI) are some of the most important considerations when it comes to evaluating a CRM. Case in point: I would be willing to bet your current system already offers features you don’t know about, but would like to use. When we were conducting user testing for DealerSocket’s most recent product release, Blackbird CRM, a good number of
users thought the ability to filter your daily workplan by specific customer categories was a new feature. But that capability is already included in many existing CRMs. Your best bet is to partner with providers that invest in user experience through dedicated teams of UX/UI designers and indepth user testing. Ask your managers to manage out of the CRM: Regardless of the technology you employ, if your managers don’t use it to hold
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IT’S IN THERE Are You Making the Most of Your CRM? Chances Are It Can Do More for Your Dealership Than You Know
By Peter Ord
team members accountable, you won’t see results. Owners should implement daily checkout processes to track how employees perform on all the metrics that lead to a sale. Can you easily see how many texts a team member sends or how many calls he completes from his daily workplan? Most important, can you see whether your managers are pulling those reports to manage their own employees?
That bit of functionality is unavailable in most CRMs, but it’s crucial to the success of your system. You hold your managers accountable and they hold their team members accountable. That ensures everyone is on board and participating in the steps necessary to succeed. Measure the metrics that matter: I have one word for you: appointments. According to DealerSocket data, more than 80 percent of a store’s success is based on
how many appointments are set, whether for service or sales. Gone are the days of a customer dropping by your store without contacting you first. The vast majority of your foot traffic now results from a phone call, an Internet lead or some type of digital outreach. That means you’ll gain much more traction by holding team members accountable for the number of appointments they set, or the number of activities they perform that you CONTINUED ON PAGE 38 WWW.NIADA .COM / JANUARY 2017 /
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know lead to an appointment. If you really want to rev up your revenue, consider creating an “appointment controller” role. That person confirms all open appointments each day, calls no-show appointments and follows up with anyone who visited the store without buying a car. In order for them to buy, they must come in again via – you guessed it – another appointment. To be most effective, the appointment controller should be at least a mid-level manager, not an entry-level employee. The role works best when it is a separate position, not just a set of job duties that are doled out to multiple staff members, with each person handling his or her own appointments. Think about it. If you’re calling customers who came in but didn’t buy, the reason there was no sale probably falls into one of three categories: the price was too high, you didn’t have the vehicle they wanted, or the customer didn’t like the salesperson. Your salesperson can’t do anything about those complaints beyond what he or she already offered the first time. But a manager can. Tailor your marketing content: I’m not talking about sending happy birthday emails. Most CRMs are full of actionable data that simply needs to be tapped. What do you think would happen if you pulled a list of all customers who spent more than $500 in your service shop, and you sent an email the next day offering to put that
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$500 toward a new vehicle instead? Even better, what if you sent another email to those same prospects, but tailored it further to just the customers who are nearing finance termination and have not been repoed? The best part is all of that can be automated. It’s about effectively reaching out to the right customers at the right time – when they are most likely to buy. If you do, you can completely eliminate your competition because the buyer isn’t officially in the market for a new car yet. Review individual emails and texts: You can’t possibly read every single individual communication sent out each day by your staff. That would be more than a full-time job. But you can look at every employee’s response rates. Do you have one particular team member who seems to receive favorable replies on most of the emails or texts he or she sends? That person likely employs some best practices your entire team could learn from. On the other hand, is there someone who has an exceedingly low response rate on his or her communications? It’s time to dig deeper because you can bet those emails and texts need a lot of work. Please note that I am recommending you evaluate response rates, not open rates. That will reveal which communications deliver the right content that pushes prospects to the next step in the buying process.
ELEMENTS OF A HIGHLY EFFECTIVE MARKETING EMAIL Fully answer the customer’s questions: The correct response to “Do you have any red Tacomas?” is not “We have lots of Tacomas. When can you come take a look?” • Give multiple vehicle options: Based on what the customer is requesting, provide her with exactly what she asked for, as well as some close alternatives she might also be interested in. • Include personalized language: Maybe it’s an offer to bring the vehicle to his house for a test drive, since he lives right around the corner. Or perhaps you can comment on his trade-in. Do all you can to make the email sound more like a personalized note and less like a template. • Mention third-party references: A nice spot to do this is with the price. Mention how valuation sites like Edmunds price the vehicle so the customer knows she is getting a solid deal. • Push for the phone: Real relationships require some phone time, so try to get the consumer on the phone where you can build a stronger connection than through email. CONTINUED ON PAGE 40
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Listen to customer calls: Multiple services exist to do this for you if you don’t have the time, and they can integrate with your CRM. Assess how long it took for each customer to reach a person who could answer his or her question. How many calls does each salesperson make and how many appointments are set from those calls? Even better, how many appointments are set from the calls each salesperson receives? That number should be at least triple, since the customers are reaching out on their own. Fully integrate your CRM and website: The data available from your CRM and website is plentiful. The only question is whether you effectively leverage it. Today’s technology allows you to be notified when known CRM leads visit your website. You’ll learn what pages they go to, what links they click, how long they stay and more. That can be especially helpful if someone initially visited your store looking at sedans, but you notice she is now viewing 10 trucks on your website. Use that data to customize follow-up emails. The latest solutions even allow you to build business rules, as well as automate marketing campaigns, around the data you receive. CONTINUED ON PAGE 42
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Enhance your Internet lead management: Make sure each lead is matched with the right salesperson. For example, if a lead comes into your queue for one of your highest-grossing vehicles, will it go to your newbie salesperson or your tried-and-true closer? Today’s most sophisticated CRMs allow you to route leads based on year, make, model, stock number and more. Automated routing can also be used to encourage customer follow-up. Some dealerships require salespeople to hit certain marks as a prerequisite to receiving repeat customer leads. If a salesperson does not consistently follow up with his sold customers, those leads will be routed to someone else when the customer returns for another vehicle. In a similar way, routing rules can protect your top performers. I used to help install DealerSocket products, and I remember one dealership whose best salesman refused to use a CRM. But he was selling 20 to 25 vehicles per month, so no one bothered him. He actually kept shoeboxes of notecards in the trunk of his car to keep track of customer follow-up. However, he was frustrated that some of his repeat customers would come in through the website and be randomly routed to his colleagues. I asked him what he would think if the CRM could notify him any time one of his sold customers submitted another lead on
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the website. He was astonished that was even possible and became an immediate adopter of the software. He now sells 30 to 35 vehicles per month. Shore up your response times: Some dealers will adjust their response times based on their hours of operation. But we all know consumers don’t have business hours. They don’t care that you’re closed. They just want answers to their questions. So you either need an afterhours team or you need to give your staff the capability to respond through mobile technology. There is a third option, and it’s one of my favorites. I once worked with a dealership that sent out an auto-responder from the store owner when it was closed. It said something to the effect of: “Our store is currently closed. However, we want to be sure you are taken care of. If you have a question that needs an immediate answer, feel free to call my cellphone at …” and went on to give his cell number. I think he received at most two phone calls from that auto-responder. The more common reaction from consumers was to share how impressed they were that the owner would give them his cell number, and most just waited until the next day to be contacted by a salesperson. The intent was not to position the owner to field constant phone calls at night. He knew that wouldn’t happen. But the first
impression of above-and-beyond customer service was made quite clearly, and was well worth the risk. Enable your salespeople to sell outside the dealership: With mobile CRM, your employees should be able to accomplish anything they can do at work outside the dealership. So when a friend or family member reaches out with a trade-in inquiry, your salesman can push the deal forward right then and there. Remember, the kinds of salespeople who move the needle are also the ones who share with all their family and friends that they sell cars. They become the go-to person whenever someone is in the market for a vehicle. They are go-getters and they want to work at a dealership that enables them to surpass all their goals. I believe when you provide the tools your team needs to succeed, you will attract even stronger talent moving forward. That concept epitomizes the strategies behind maximizing your CRM. It’s a fantastic piece of software – but it requires a human touch to become a true gamechanger. Peter Ord (pord@dealersocket.com) has installed, implemented and managed the DealerSocket system at more than 2,500 dealerships in his 13 years as DealerSocket’s director of sales operations. To download DealerSocket’s free Independent Dealership Action Report, visit info.dealersocket.com/idar.
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F E AT U R E S T O RY
Write It Are You Prepared for a Compliance Audit? Having Written Policies and Procedures and Documenting Training Will Make Sure You’re Ready
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T
Down By Steve Roennau
he past few years have been big years for compliance in the auto finance space and 2017 should be no exception. Since the Consumer Financial Protection Bureau was formed in 2011, it has worked with the Federal Trade Commission and Department of Justice to share findings and strategies for each entity’s jurisdictions, including independent dealers. While BHPH dealers have been hit harder by the CFPB, independent retail dealers need to understand their insulation is waning. Just because you might not have seen or heard about the changes in the compliance landscape, it doesn’t mean they aren’t happening. In January 2016, the CFPB announced one of the bureau’s largest enforcement settlements in the independent space, forcing Herbie’s Auto Sales, a single-lot BHPH dealership, to pay a total of $700,000 to past purchasers. By September, the CFPB had the tables turned after announcing a $185 million settlement with Wells Fargo for creating fake accounts. Dealers and industry pundits jumped on the fact that the Los Angeles Times had reported on Wells Fargo’s deceptive practices in 2013, nearly three years before the CFPB investigated, calling the bureau’s methods into question. In November, immediately following the Wells Fargo bombshell, the CFPB’s structure was ruled unconstitutional by a U.S. Court of Appeals. The CFPB is challenging the court’s ruling, which would make it possible for CFPB director Richard Cordray to be removed from his post by the President at any time and for any reason. Now as we begin 2017, everyone is waiting to see what a Trump presidency, a Republican-held House and Senate, and a potentially more conservative Supreme Court will mean for the CFPB and auto finance compliance. Will the CFPB challenge result in a reversal of the appellate court ruling? Will the Senate pass the Reforming CFPB Indirect Auto Financing Guidance Act, which would nullify the CFPB’s bulletin that claimed dealer-assisted financing creates a risk of disparate impact discrimination? CONTINUED ON PAGE 46
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Whatever happens, it’s certain there will be changes. Regardless of what occurs with the CFPB’s structure, the FTC, Department of Justice and numerous other federal and state agencies will still have their eyes on our industry. One thing we can expect to continue is an emphasis on general oversight, which could include random audits and “mystery shoppers” at both independent and franchise dealerships. For dealers who haven’t already developed compliance processes and procedures, take the time now to complete your compliance due diligence to be as prepared as possible for a compliance audit. Ask yourself:
• Are my compliance policies written, with clearly defined consequences? • Do my pay plans support my compliance initiatives? • How is private information being handled in my dealership to ensure its security? • What training documentation is available to demonstrate that I have taken the necessary steps to train my team? • How often are internal audits performed to ensure compliance? • Is my team prepared to handle an audit? If you don’t know the answers to those questions, it’s time to rectify that situation, starting with designating a person responsible for managing your compliance
efforts as part of his or her daily duties. Ideally, that person should not be a part of the sales and finance process – an office manager could fit the role nicely. This person should have a 50,000-foot view of your operations and be responsible for coordinating your compliance efforts. That includes maintaining deal documentation to ensure every form, notice, etc., is accounted for, and ensuring all compliance processes are documented and easily accessible.
WRITTEN COMPLIANCE PROCEDURES
You are probably sick of hearing about the importance of documenting your processes, so if all your processes are documented to the letter, feel free to skip to the next section. If not, consider that all compliance measures hinge on accurate documentation. So until every dealership takes compliance process documentation seriously, expect to keep seeing articles discussing the importance of written procedures. Of course, it can be difficult to conceptualize a formal process. For example, think about how you would describe your sales process. I’m guessing you would say your process is to greet the customer, discuss what he wants in his vehicle, let him test drive a vehicle, negotiate and close the deal. And that is a good start. But within each of those steps, there are tons of smaller processes that go into every deal. With so many processes to document, where do you begin? Take it one bite at a time, starting with a checklist for your deal jackets. Once you have your checklist, define and write down the process behind each item on the list. Each process should consist of three components: What you do, why you do it and how you do it. Here’s an example of a defined process with driver’s license and insurance verification. What: We verify that every potential buyer has an active driver’s license. Why: To protect the dealership and the eventual lender from the risk of potential liability to people and property. How: • The salesperson informs the customer we need his or her driver’s license and proof of insurance to protect the dealership from liability. • With the driver’s license and insurance card in hand, the salesperson makes a copy to include in the deal jacket. • The salesperson verifies the dates to ensure the driver’s license and insurance card are valid. • If handed off to another team member to finish out the financing and F&I product presentation, the new team member doublechecks that the driver’s license and insurance is included in the deal jacket and verifies the dates again.
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Maintaining accurate and up-to-date documentation is one of the most important steps to making an audit move smoothly.
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• The office manager also checks that the driver’s license and insurance information are valid and checks the deal jacket checklist, showing completion. It’s important to note that no one is asking dealerships to all abide by the same processes – rather, simply to write them down. Once all your processes are documented, make sure they are easily accessible. Maintaining accurate and up-todate documentation is one of the most important steps to making an audit move smoothly. Why? Because your team will be more prepared to provide an auditor everything he asks for in a timely and efficient manner. Now, some dealerships might be tempted to make an auditor’s job more difficult than it needs to be by providing inaccurate or out-of-date documentation, or by lengthening the time it takes to find documentation. I would highly discourage that course of action. No matter how long it takes, auditors will review all the documentation they ask for. The last thing you want is an angry person, tired of having his time wasted, auditing your dealership with the thought of making your life as miserable as you’ve made his.
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Some of the most common documentation auditors ask for include: • Fair credit programs. • Sales policies. • F&I policies. • Safeguards and red flags. • Training processes and programs. • Internal audit results and action plans.
TRAINING DOCUMENTATION
When it comes to your training documentation, remember simpler is better. Auditors are looking for three things: a training agenda (what you trained on), attendance and the date. For every training course you put your team through, the training provider should have a record of attendance. The trainer should provide you with training agendas, worksheets or powerpoints from each class. After all, if you don’t know what your team members are being trained on, how can you ensure any training program’s success? Take the time now, before an audit occurs, to have your compliance manager gather up all that documentation and organize it in an orderly fashion. Implement a process in which after every training session, your compliance manager is provided with the training agenda and attendance sheets with the training dates written on the first page. Your compliance CONTINUED ON PAGE 50
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manager can then ensure all training records are up to date and ready for review at any moment. Those records should be gathered and used for every type of training, not just compliance. Beyond the work production benefits of having sales and F&I training materials on hand, it’s also important to remember that pretty much every training program touches on compliance in some form or fashion.
INTERNAL AUDIT DOCUMENTATION
One of the biggest roles your compliance manager can fill is acting as an internal auditor. With that in mind, it’s important to be able to demonstrate the results and action plans that follow each audit. Just like with training, make it a priority now to gather all of that documentation and have your compliance manager take ownership of maintaining it going forward. Once again, take note of the date of each compliance audit, the findings and the resulting action plan. In addition, have your compliance manager follow up on those action plans to ensure the recommended procedural changes and/or training took place, documenting those dates, as well. Essentially, your compliance manager should have three “file cabinets” – one for process documentation, one for training documentation and one for internal compliance audit documentation. Once all of that documentation is organized and maintained, be prepared to hand it all over to an auditor. One of the last things an auditor is likely to ask for is access to your deals or deal jackets for a given date range. That is where most dealerships pucker. Here’s the good news. If you are diligent about your process documentation, training, internal compliance audits and ongoing measurements and retraining, your deal jackets will reflect those efforts. So simply ensure your deal jackets are properly filed and easy for your compliance manager to access and provide to an auditor with everything needed to wrap up the audit as efficiently as possible.
PREPARING YOUR TEAM
Lastly, prepare your team to answer all the auditor’s questions directly and honestly, giving the auditor exactly what he asks for. Remind them the auditor is probably unfamiliar with all the ins and outs of a dealership, and not to get frustrated when he asks multiple questions about a single topic. Give your team an overview of how the audit will proceed and remind them no one is in trouble. If anything, an audit is just a fact-finding mission and no more. You can even use your internal audits as practice to get your team used to audit procedures. That will help alleviate the stress that inevitably comes with an outside audit. Remember, simply showing an effort greatly reduces any potential repercussions of an audit. By simply providing auditors with your processes, training documentation, audit results and deal jackets, and answering questions honestly and directly, you’ll go a long way toward demonstrating compliance to the best of your ability. Steve Roennau is vice president of compliance for EFG Companies, a provider of F&I products, services, administration and training to independent dealers nationwide. He can be reached at sroennau@efgusa. com or (972) 445-8379.
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F E AT U R E S T O RY
DON’ T LO O K BACK
By William Carr
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Keep Your Focus on the Future With a Certified Pre-Owned Program That Gives Independent Dealers an Edge With Millennial Car Buyers
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n axiom of military history says generals spend their time planning to fight the last war, making them ill prepared for the next war. That same thing is happening to vehicle dealers today. They are planning for the future as they did for the past. The past was the baby boomers. The future belongs to the millennials, and they are very different shoppers. Unlike their parents, millennials are ultra-frugal about their purchase of vehicles. Big box dealerships with their $20 million price tags that impressed their parents are a turn-off and an unneeded expense to this group. The millennial generation likes to buy vehicles others have taken the depreciation on – but they also show a tendency toward the security provided by new car warranties. That makes the millennial group perfect for the used car industry for a couple of reasons. For one, used car dealers can couple vehicles that have already depreciated with a remaining factory warranty. And they can use certified pre-owned vehicles as a viable way to let millennial buyers enter into vehicle ownership. Two factors make the millennial demographic predisposed to looking at the certified pre-owned option. The first is their propensity to buy used cars, and with that, a higher rate of acceptance of CPO vehicles. The second is their desire to be secure from the added expenses caused by mechanical breakdowns. That makes a majority of millennial used vehicle purchasers open to a certified vehicle purchase. Millennial buyers consider themselves much savvier buyers than their parents were because of their ability to use mobile devices. But they are not necessarily as educated on all aspects of CPO as their predecessors. A study conducted this year by NADA Used Car Guide found 50 percent of 18- to 34-year-olds – millennials – said they were slightly or not at all familiar with CPO programs, a higher percentage than older generations. They are, however, willing to learn, and they will add value to the product and increase their purchases of CPO vehicles when they are educated on those aspects. Even though they are looking for the security provided by CPO, they are not sure
about the parts of the certification process that provide that security. Millennials are much less likely to understand the value of the inspection aspect of the program, nor do they in general grasp the warranty portion. But, like other buyers, when those components of the program are explained, millennials’ chances of purchasing a CPO unit rise. According to Autotrader’s 2015 CPO Study, 68 percent of used car shoppers said they would consider buying a CPO vehicle from the beginning, but once they learned the definition of what CPO really means, that number rose to 83 percent. One of the most compelling aspects of marketing to the millennial generation is its willingness to learn and accept new concepts – that is, as long as the learning can be done via the Internet. That’s where millennials shop and learn about products. Autotrader’s 2015 Automotive Buyer Influence Study found 74 percent of online shoppers say they use a smartphone or tablet to do their research – almost double the percentage from the previous year’s study – and millennial customers are at the forefront of that trend. The Internet is the most likely place for a millennial to find out about certified pre-owned, other than a personal visit to the dealership. The problem with customers finding out about the benefits of CPO after they’ve done their dealership research is, while it helps sell the vehicle, it doesn’t help convince customers to visit your store. Marketing to social media outlets with an educational message about CPO is the best way to reach that very valuable group of consumers. Millennial shoppers are much more likely to get their information from those sources – and to process and believe it – than preceding generations. Reaching millennials means getting those customers to your website. While they very much rely on an in-person sales experience, their purchase process begins on their tablet or smartphone, long before they arrive at the dealership. Carrying certified pre-owned vehicles that hit that group’s “cool factor” is the best way to reach the segment. Using search criteria millennials prefer increases the likelihood they will see you first. Millennials may dream of Audi, Mercedes and BMW, but they are more likely to search for Honda, Chevrolet, Toyota and Ford, in that order. They also have a penchant for off-brand or
discontinued vehicles like the Chrysler Pacifica, Dodge Magnum and Chevrolet TrailBlazer. Factory certification programs only certify up to six years, so independent used car dealers who can find a reputable national certification program that will certify back to the mid-2000s and beyond, such as the NIADA Certified program, can attract customers who are looking for those special vehicles and still want the safety and reassurance provided by CPO inspections and warranties. Millennial customers are going to spend more time on third-party and dealer websites than their older counterparts. People who spend the most time on those sites tend to be CPO shoppers – or they become CPO shoppers during the shopping experience. The more time customers spend looking on the Internet, the more they are able to focus on specific models and equipment and the more time they have to learn the advantages of a particular dealer’s services, commitments and ethics, which can be broadcast on dealers’ sites and are an integral part of a CPO program. Millennial shoppers are looking for security in their vehicle purchase and ownership, and having a warranty can create that peace of mind for buyers who cannot afford a new vehicle or just want to spend as little as possible to avoid the depreciation attached to the purchase of a new vehicle. CPO is more important to this frugal generation because they don’t want to save money by buying a used vehicle only to discover they have bought someone else’s problems. Using tools such as Carfax, AutoCheck or any of the vehicle history reports gives a sense of the vehicle’s past, and an inspection and warranty provide additional peace of mind. That has a real tangible value in the view of the millennial buyer. Even frugal car buyers see a real monetary value and willingly pay a premium for a certified vehicle. In fact, according to Autotrader’s 2014 Certified Pre-Owned Study, millennial CPO purchasers pay an average of $2,000 more for a vehicle that has been certified. Finding the right vehicles for that group of buyers and a certification process they can buy into – along with announcing on your website a commitment to the certification process and a great partnership to deliver the coverage to CONTINUED ON PAGE 54
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the customer – is a sure way to attract millennials’ business. The most common reason consumers don’t purchase certified vehicles is simply a lack of awareness of CPO programs. Autotrader’s 2015 CPO Study showed that while consumers’ familiarity with CPO is steadily rising, only 49 percent of the used car shoppers surveyed said they were familiar with certified pre-owned vehicles. But when they learn about what’s involved in the CPO process, most consumers see the value in the inspection and warranty. That same Autotrader study found the peace of mind that comes with certification and the warranty are the two top reasons cited by customers for buying CPO vehicles. That means if you can get millennial customers to your website, it becomes a matter of setting the customer on the right car – one that fills their needs but still leaves room for the protection that generation demands in the products they buy. In other words, if you can get your message to where millennials shop, 90 percent of those shoppers are going to see value in the CPO inspection process and the warranty attached to it. It is very apparent from market research that the places millennials prefer to get their information are online third-party sites, and the dealer’s own website is the next-most popular place. Where they
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do not go much for information are OEM sites – they prefer unbiased accounts to what they perceive as propaganda from the manufacturer. Millennial customers are the future of the automotive industry, which should be music to independent used car dealers’ ears. Those buyers are not going to behave as their parents did. Things that turn on their parents, such as the glitz and glamour of new car facilities and the prestige of new car ownership, are not the kinds of things likely to ensnare millennials. While many auto dealers continue to approach their target marketing from a baby boomer mindset, those who tailor their marketing and operations toward the millennial generation will find their stores staying relevant to a huge vehicle buying demographic for many years. So how do independent dealers move forward from yesterday’s playbook of success and prepare for this buying segment’s preferences? They must first recognize this is a different generation that is going to behave in a different manner from its predecessors and must therefore be approached in a different manner. Independents will have to find ways to reach millennials in their favorite social media spots. Dealers might have to stock vehicles to which today’s younger buyers assign a certain cache of ownership. Millennials are not willing to forgo the
security of warranties and service contracts to get those older vehicles. That makes it important to find a national partner for the certification process that has the three items it takes to be a good finance product – claims, coverage and an overall drive toward customer service – and can reach back to the early 2000s to cover the vehicles the millennial generation values and can afford. Aligning with a program like NIADA CPO that does all that allows independent used car dealers to attract millennial buyers to their vehicles and deals using their lower overhead. Millennials want to be able to shop using smartphones and texting for communication until they are ready to meet face-to-face, but they also want a dealership experience and a demo ride when it is time to buy. Millennial buyers care most about the warranty and inspection and will pay a premium for it, and will become your loyal customers for life. While others are still chasing the boomers, you can set up a program geared toward the future, selling to the millennial generation via the media they dwell in. William Carr is longtime auto industry veteran in sales, management and training and a regional training manager for Warrantech Automotive, Inc., administrator of the NIADA Certified Pre-Owned program. For more information on the NIADA CPO program, visit www.niadacertified. com/dealers.
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F E AT U R E S T O RY
WORTH THE TRIP Dealers Are ‘Blown Away’ By the Educational Impact of NIADA’s Inaugural National BHPH Summit When Mike Siddiqi drove 18 hours from his home in Virginia to North Texas for the inaugural NIADA National BHPH Summit, he figured all he’d get out of it was a nice travel experience with his family. Turns out he got a whole lot more than that. “I didn’t expect all this,” said Siddiqi, general manager of Crown Motors in South Chesterfield, Va. “When I got here, I was blown away by the amount of good stuff they had – a lot of people with a lot of knowledge. It helped me a lot. It’s going to help my business.” That was the idea behind the Summit, which was held Dec. 6-8 in Grapevine, Texas, near the Dallas-Fort Worth International Airport. The event brought Buy HerePay Here dealers, managers and staff members together for an agenda packed with education sessions from experts in various aspects of BHPH operations, led by NIADA national director of 20 Groups Chuck Bonanno and NIADA 20 Group moderators Mark Dubois and David Brotherton. Those sessions covered everything from underwriting, collections best practices and credit reporting to cyber security, remote payment options, getting more ROI from GPS technology, and much more. Longtime dealer John Hattan
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said he paid particular attention to the legal and regulatory update provided by NIADA senior vice president of legal and government affairs Shaun Petersen. “Regulatory issues are a big deal with us,” said Hattan, who owns Family Motors in Wichita, Kan., with his wife, Debbie. “We got our hand slapped real good this year locally, so we’re highly attuned to those issues. “After 50 years in the car business, I found out that I don’t really know the rules. I can’t keep up with them. So we’re here to find out what’s happening regarding legal issues that are affecting our industry.” Like the Hattans, Siddiqi discovered that simply being in the BHPH business a long time doesn’t make education less of a priority. “When you’ve been in business awhile – I’ve been in the business for 10 years – you start feeling comfortable and you stop doing certain things,” he said. “We get lazy and get into bad habits. So this was a really nice refresher course, a reminder of what I had forgotten. “But on top of that, I learned a lot of new stuff – ways to do things better. I can take this, re-train my staff and do some things in the dealership that will make a positive change. It was worth the drive.”
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EVENT SPOTLIGHT
NADA Convention and Expo JAN. 26-29, NEW ORLEANS
When you get to be 100 years old, you’re entitled to celebrate. NADA will do exactly that for its upcoming 100-year anniversary at the 2017 NADA Convention and Expo. And the association has picked the perfect spot for such a monumental party – New Orleans. While the convention’s main events will be held at the New Orleans Ernest N. Morial Convention Center, its opening day wraps up with the NADA 100 Carnival, a king-sized celebration at Mardi Gras World featuring the iconic rock band Foreigner along with Cowboy Mouth and, of course, New Orleans jazz. The keynote speakers include comedian Jim Gaffigan, star of the semi-autobiographical The Jim Gaffigan Show on TV Land and a bestselling author, and Paralympic athlete Amy Purdy. Purdy lost her legs to bacterial meningitis at age 19 and was given less than a 2 percent chance of survival. She not only survived but became the top-ranked adaptive snowboarder in the U.S., a three-time World Cup para-snowboard winner, a Paralympic bronze medalist and the author of New York Times best-seller On My Own Two Feet. Her inspirational story will show how to use challenges to push past limits and live a life without barriers. Of course, the convention is all about the dealers and auto industry professionals – some 24,000 attendees are expected – who come to learn and network. As always, the schedule will be packed with workshops, panels and speakers on a wide variety of topics. This year it closes with a digital innovation summit led by Erik Qualman, the acclaimed author of Socialnomics and Digital Leader whose latest book, What Happens in Vegas Stays on YouTube, was nominated for a Pulitzer Prize.
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INDUSTRY EVENTS CALENDAR
Here’s a list of the events coming up in the automotive industry. For an interactive calendar, including links, contract information and more, visit www.niada.com and click on the Events tab.
JANUARY 10-11 12-15 20-22 24-26 25-27
Automotive News World Congress Georgia IADA Board Meeting Nebraska IADA Convention AFSA Vehicle Finance Conference and Expo SAE Government/Industry Meeting
26-29 NADA CONVENTION AND EXPO 30 Texas IADA Board of Directors Meeting
FEBRUARY
9-11 NIADA Certified Master Dealer Class
Detroit Pine Mountain, Ga. Kearney, Neb. New Orleans Washington, D.C.
NEW ORLEANS Austin, Texas Portland, Ore.
MARCH
1-2 NAAA/Conference of Auto Remarketing (CAR) Las Vegas 10 Ohio IADA Dinner and Poker Tournament Columbus, Ohio
APRIL
4-6 SAE World Congress and Exhibition 23-25 Consumer Financial Services Conference 24 Texas IADA Board of Directors Meeting
MAY
5-7 Georgia IADA Board Meeting 12 World Automobile Auctioneers Championship 15-17 NIADA Certified Master Dealer Class
JUNE
12-15 NIADA Convention and Expo
JULY 9-11 13-15 14 20-22 23-25
Women in Automotive Conference Georgia IADA Convention and Expo Ohio IADA Golf Outing Alabama IADA Convention Texas IADA Annual Conference and Expo
AUGUST
10-13 Carolinas IADA Annual Convention and Expo
SEPTEMBER
12-14 NIADA Certified Master Dealer Class 25-28 NIADA National Leadership Conference
OCTOBER
13-14 IADA of California Fall Convention
NOVEMBER
15-17 NAAA Convention/NRC Conference
DECEMBER
11-13 NIADA Certified Master Dealer Class
Detroit Baltimore, Md. Austin, Texas St. Simons Island, Ga. Manheim, Pa. Atlanta
Las Vegas Orlando, Fla. Stone Mountain, Ga. Columbus, Ohio Orange Beach, Ala. San Antonio, Texas Myrtle Beach, S.C.
Dallas Washington D.C. Lake Tahoe, Nev. La Quinta, Calif. Tampa, Fla.
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PRODUCTS & SERVICES
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