Dealer Business Journal April 2014 by Dealer Business Journal

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DealerBusinessJournal.com

Contents Volume 11, Issue 3

IN EVERY ISSUE the at will oks, wh our eye on the bo t er is in e? We’ve go ies that are t quart nit lik The firs ar look and opportu the ye s 20 rest of s, challenge ge Pa d. nd the tre the roa down coming

April 2014

SIDE:

IN ment your pay re from Get mo g provider. sin proces riting Page 8 underw ier. ing and Underst collections eas ke can ma

ALSO

Page 26

4 DEALER

April 201

LEGAL & LEGISLATIVE

ess ...Your Succ

14 Undertakers, Garbage Collectors and Lawyers Learning a lesson from a dealer who seems to have forgot the basics.

By Tom Hudson

General Counsel 16 What You Need in a Nondisclosure Agreement There are specifics about what should be included in a NDA, and paying attention to the details will safeguard your information.

By Debra Dawn

LEADERSHIP & TRAINING Learn to Lead 18 Why Your Team Can’t Execute and How to Fix it Anyone can get their team excited about a new vision, but true leaders can keep them going and eventually achieve it. By Dave Anderson

...Your Success Is Our Business

By David Wiggins

Financing Fitness 26 Understanding the Underwriting Process A well-working, well-paying BHPH portfolio starts with underwriting. By Jay Rose

Female Perspective 34 Waiting for Your Cat to Bark? The growing group of women shoppers need “Nordstrom-quality” service everywhere they shop— including your dealership.

By Jody DeVere

Social Networking 36 The Right Recipe for Social Media Success Social networking served the right way takes the right ingredients, preparation and execution.

Customer Communication 28 Awesome Emails Boost Conversion Don’t waste your time sending mass-mail templates that will get stuck in the inbox. Send emails that will actually be opened instead. By Greg Wells

By Christy Taylor

FEATURE ARTICLE

ReInsurance 30 How to Ride the Wave of the CPO Tsunami To be competitive, you need a good Certified Pre-Owned program, and there are options for independents.

L|1

S JOURNA

BUSINES

SALES & SERVICE

BUSINESS OPERATIONS ness Is Our Busi

Business Basics 24 Do You Need a Stress Test? Don’t neglet your fiscal fitness. Schedule an annual exam of your business operations today.

Legal Opinion

4 CORNER OFFICE 6 BHPH Boot Camp 8 payment PROCESSING 10 DEALER SPOTLIGHT

20 Leedom Market Report Leedom Group CEO Chris Leedom reviews the first quarter, looking down the road to what’s coming next.

By Tim Byrd April 2014 DEALER BUSINESS JOURNAL | 3

LEEDOM GROUP

Corner Office Thank You From the Bottom of My Heart

elcome to a very special issue of Dealer Business Journal. This issue is our special BHPH WORLD Convention issue. Many of you will be reading this at the beautiful Bellagio Hotel in Las Vegas during the 20th Annual BHPH WORLD Convention. I look forward to being there as well. Nearly 20 years ago I had the privilege of founding this industry convention. Back then there were no national events dedicated to the BHPH industry. There was virtually no national data available. There were not even starter interrupt or GPS devices in our industry â&#x20AC;&#x201C; wow that sounds like a long time ago. I launched the BHPH Convention with one goal in mind. To give dealers a forum to network, interact and identify best practices to incorporate into their businesses to run more efficiently and improve profitability. I never stopped to think about the fact it would be a 20 year journey. We simply tried to improve each annual event and do things a little bit better than the year before so our dealers, sponsors and exhibitors would continue to attend. Since then over 15,000 dealers, vendors and industry insiders have attended this event. Our production team has grown from a staff of two (counting me) the first year to over 30. We consistently hear this is one of the premier, best-attended events in the industry. For this I owe each of you a sincere thank you from the bottom of my heart. It is a tremendous privilege for us to serve each of you that are in attendance at this our 20th event. Quite a few of you have been here for virtually all of them. A special thanks to you for your long-standing support. I also want to especially thank the industry insiders and dealers that speak or participate in panels this year. You give of your time and energy with no remuneration. Thanks for your dedication to our industry and to improving the image and knowledge base for all of BHPH. I also want to thank our staff. We start production on this event about six months prior to arrival. The Leedom Group team puts thousands of hours in to make sure it comes off without a hitch. From the program developed by Chuck Bonanno, our conference chairman, to the food and beverage you will enjoy it all takes a great deal of effort. So thanks to the entire team for another most successful event. Now for the most important part â&#x20AC;&#x201C; a special thanks to you if you are reading this issue at the 20th Annual BHPH WORLD Convention. Your attendance and support makes this event thrive and helps our industry out in a tremendous way. I truly appreciate the opportunity for us to serve you as an attendee and I hope you find a wealth of information and strategies to take back and implement in your operation. If you are not at this event we sure hope to see you here in the future. It is the center of the universe when it comes to BHPH. Enjoy the BHPH WORLD Convention, have a great month and remember to make it happen!

dealer BusinesS JOurnal

A L e e d o m G r o u p P u b l i c at i o n

Dealer Business Journal 3700 S. Tamiami Trail, Sarasota, FL 34239 Ph: 800.966.8733 | Fax: 941.371.2874 Executive Publisher

Christopher M. Leedom | chris@twentygroups.com Associate Editor Buy Here-Pay Here

Chuck Bonanno | chuck@twentygroups.com Contributing Writers

FOR QUESTIONS REGARDING SUBSCRIPTIONS CALL 800.966.8733

or subscribe online at DealerBusinessJournal.com ADVERTISING INQUIRIES CALL 941.371.7999 OR SALES@DEALERBUSINESSJOURNAL.COM

DISCLAIMER: The information included in this publication is obtained from sources believed reliable and has been produced with reasonable care in production and editing. It is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult a professional for application in their particular situation. Copyright 2013 Leedom and Associates, LLC. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Dealer Business Journal is a publication of Leedom and Associates, LLC. POSTMASTER: Send change of address form to Dealer Business Journal, 3700 S Tamiami Trail, Sarasota, FL 34239

Chris Leedom

Executive Publisher 4 | DEALER BUSINESS JOURNAL April 2014

DealerBusinessJournal.com

Calendar APRIL

SEPTEMBER

April 14-16, 2014 20th Annual BHPH World Convention Las Vegas, NV

Sept. 2, 2014 Buy Here-Pay Here Sales Training Boot Camp, Atlanta, GA Sept. 3, 2014 Buy Here-Pay Here Manager’s Boot Camp, Atlanta, GA Sept. 4, 2014 Buy Here-Pay HEre Collections Boot Camp, Atlanta, GA

April 23, 2014 Buy Here-Pay Here Leasing Academy, Sarasota, FL

JUNE June 3, 2014 Buy Here-Pay Here Manager’s Boot Camp, Dallas, TX June 4, 2014 Buy Here-Pay Here Collections Boot Camp, Dallas, TX June 5, 2014 Buy Here-Pay Here Sales Training Boot Camp, Dallas, TX

AUGUST Aug. 5, 2014 Buy Here-Pay Here Leasing Academy, Sarasota, FL

NOVEMBER Nov. 3-5, 2014

BHPH SuperGroup, Sarasota, FL

DECEMBER Dec. 8-10, 2014 Credit and Collections Conference Dallas, TX Find out more about these events and register to attend online at www.TwentyGroups.com and click on events.

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April 2014 DEALER BUSINESS JOURNAL | 5

LEEDOM GROUP

BHPH Boot Camp

By David Brotherton

Fighting Losses in Today’s Market

eeping our customers in their cars (and paying for them) is tougher than ever. Buy Here-Pay Here has become more complicated and cashintensive and our customers just don’t seem to try as hard to stay in those cars as they used to. As businesses and markets evolve, paradigm shifts present themselves that shouldn’t be ignored but neither should their effects on the portfolio. I’ve outlined a few such unintended consequences that should be planned for. Electronic Payments Automated payments are wonderful low-cost, easy and secure ways to help our customers pay. The very reason that makes them so attractive (cost) is also what creates the problem. They are cheap

because people aren’t involved except on the margins. Great for the bottom line. Bad for staying in contact with your customer base. One huge benefit of automated payments is that you generally don’t have to fret the 1-3 day late accounts that clog the collection queues on Monday morning and can focus on the more seriously delinquent accounts. Lots of automated payments mean less actual contact with your customer. Less contact means less up-to-date information when you need it and no real relationship to draw on. Solution: Regularly touch base with your paying customer base. Take care of these people. The paying customers are the ones that pay you. Repairs Our industry has made it amazingly easy for someone with no good credit to finance a vehicle with relatively little cash at delivery. We will gladly spend thousands of dollars to generate a sale. Once it

is on the books, however, a funny thing happens: we don’t want to spend any money keeping it there. In BHPH today it is very easy to buy a car. Why do we have to make it so hard for a customer to get help fixing them when they break? We will continue to have mechanical repos as long as it is easier and cheaper for the customer to buy a car than it is to fix one. Solution: BHPH is an annuity business and we have to be prepared to reinvest to protect that payment stream. When you repossess a vehicle that has mechanical issues, you will more than likely fix what is wrong so you can resell the unit. In other words: you are going to fix it anyway. Why not have a real warranty program and encourage your team to help keep your customers (and their payments) coming in? Customer Service Our customers are people too. People who often face financial hardships. The most successful dealers have a high percentage of repeat and referral customers. Why do you think that is? Our customers are the ones who pay the bills for all of us. Period. Never lose sight of that. Solution: Regular customer appreciation programs, drawings, referral incentive contests and, most importantly, consistent follow-up. Taking a service approach to your customer will generate a lot of good will (and referrals) if you ask for them. Collections So often I see collectors taking a

6 | DEALER BUSINESS JOURNAL April 2014

DealerBusinessJournal.com

“cash or keys” approach to their customers. You don’t have to be mean to be a good collector. You have to be thorough and consistent. When you tell a customer that knows they have other purchase options to pay you or turn in the car, they will often just turn in the car. After all, your competitor down the street will be glad to sell them one too. Solution: Collections should be about contacts and the results of real discussions. Why is the customer late? What is the real problem? How can we help? We have access to so much wonderful technology today. Why not use it to talk to our customers instead of just to repossess them?

...Your Success Is Our Business

Underwriting Ultimately, we have created our own monster here. When I got started in BHPH, we tried to make sure that customers could afford to be in our program and we tried to separate the habitual offenders from good people who had had bad things happen to them. We paid attention to credit history. We cared if you’d had a previous repo. We even used to interview our customers and try to find out how they lived their lives and spent their money. It used to be a big NO-NO to sell someone a car so they could turn a vehicle in somewhere else. Times have changed….and not for the better. Business has become so hypercompetitive that we are often so

afraid of losing a potential sale that we don’t care about anything other than how much down payment they have and whether they can get insurance before delivery. Solution: Not all innovations are good ones and everyone is better off passing on some deals once in a while. The bottom line is that everyone can’t possibly be a deal. Risk is fine, but knowing what you are getting into is essential. David Brotherton is a consultant and Twenty Group moderator with the Leedom Group Contact him at davidb@leedomgroup.com

April 2014 DEALER BUSINESS JOURNAL | 7

LEEDOM GROUP

Payment Processing

By Jessica Sweeney, ETA, CPP

Payments as a Service

ayments as a service—it’s more than just transactions. The payments industry is always evolving and has recently dove head first into the technology space coming up with new and convenient ways to accept payments. No longer are the days that your merchant service provider is just giving you rates and a credit card terminal. They get more involved now, learning about how your company runs, your day-to-day operations, the software you use, how your customers pay or how they’d like to pay and finding a unique set of products that will not only make you more efficient but make

8 | DEALER BUSINESS JOURNAL April 2014

you more money. With everything that is available now, take advantage of how your merchant service provider can help you. For example, if the software you use every day to manage your business’ finances would be even better if you could take payments directly through it, why not ask? Many providers out there are more than willing to integrate services to benefit you. In most cases if an integration can accommodate one business who uses the software, it can benefit all that use the software. How about websites? In this day and age your site is your business card, your book cover, your customer’s 24 / 7 portal to your company. Why not take payments there? Your merchant service provider can facilitate this for you with capabilities like a small payment portal embedded right on your page to a button leading to a secure payment page that your customers can log into knowing their information is safe and secure. Speaking of a 24/7 portal, have you ever called to pay a bill at 11 p.m.? Chances are you are not going to get a live person, but in some cases you can make a payment through recorded scripted prompts. An Interactive Voice Response system is something

you can set up for your business through your merchant service provider in less than a week! With technology like this payments don’t just stop at 5 p.m. So, it’s great that there are plenty of new avenues to accept your payments, but what about the back end? What is out there to support the reconciling or headaches on the back end? We all know in this industry not every electronic check is good and we will have some that return NSF. How about a product that will take care of that pesky return fee? Paymaxx Pro has recently launched a product called NSF Retriever. When a payment returns NSF, Paymaxx Pro will go after that return fee for you, automatically attempting to collect it three times and better yet, if we do not collect it we take care of it. There are so many technological advancements out there in the payments world. It is no longer a card swipe and you are on your way. There are products out there that can revolutionize the way you take payments and in turn save you time and make you more money. All you have to do is reach out to your merchant service provider and ask. Jessica Sweeney, ETA CPP, is the relationship manager for Paymaxx Pro, the national payment processing division of the Leedom Group. sweeneyj@paymaxxpro.com

DealerBusinessJournal.com

L EE

JUNE 3, 2014

Manager’s Boot Camp

Presented by: Chuck Bonanno

O M GR UP

DALLAS, TX

BOOTCAMPS

BUY HERE-PAY HERE

MINAR

rials!

*New Mate

Keeping your managers up to date in today’s fast-paced and competitive market is essential. This one-day seminar will immerse your management team in the most current processes, procedures, technology, compliance and industry benchmarks to help you keep your competitive edge.

JUNE 4, 2014

Collections Boot Camp

Presented by: Chuck Bonanno

Staying abreast of proven technology and techniques is essential to keeping your collections team performing at a high level. Your collections managers and account representatives will receive training on how to best keep your customers current and how to collect the money instead of the car. This seminar is a can’t-miss opportunity for collection professionals.

JUNE 5, 2014

Sales Training Boot Camp

Presented by: David Brotherton

With more purchase and financing options available to the BHPH/LHPH consumer today, a passive approach to sales isn’t going to get it done. This seminar will highlight the prospecting tools and proven sales methods that will give your sales team an edge over the competition.

www.twentygroups.comApril• 2014 800.966.8733 DEALER BUSINESS JOURNAL | 9

...Your Success Is Our Business

DEALER SPOTLIGHT

Gus Camacho Camacho Auto Sales Lancaster/Palmdale, CA Twenty Group member since 2003

f it’s true that you can’t know where you’re going until you know where you’ve been, then Gus Camacho is fully prepared for the future. With a healthy respect for the history of Camacho Auto Sales and a clear vision of where he wants to take it, Gus and his staff are poised to go from great to exceptional and become one of the leading car dealers in the country. When Gus tells the story of how Camacho Auto Sales was founded by his parents, you can hear respect and appreciation in his voice. His father, Gustavo Camacho, Sr., the patriarch of the Camacho clan, left his home in Mexico in 1963 to discover the American dream. What he found was a Kansas sheep farm, where he worked for a few years before heading west to California’s wine country area. It was while working with the Southern Pacific Railroad that Gustavo Sr. discovered his true talent; he was really good at buying and selling cars. What started as an on-the-side hobby eventually led to a full time position at Lancaster Ford in the Antelope Valley area of California, and then later the chance to open Camacho Auto Sales. Gustavo Sr. took all his savings, bought Lancaster’s used car inventory and set up a lot across the street. Gus grew up at that dealership, cleaning bathrooms, detailing cars and a host of other positions. Originally, he

10 | DEALER BUSINESS JOURNAL April 2014

The Camacho family (from left to right): Gus Camacho, Sr., Cesar Camacho, Joe Camacho and Gus Camacho was planning a career in law and even had a scholarship to law school, but ultimately decided the family business was the better fit. He became Vice President in 1994 and has helped take the dealership to the next level, along with his brothers Caesar and Joe. With four independent dealerships focusing on Buy Here-Pay Here, and recently opening a franchise dealership this past February, Camacho Auto Sales is living its motto: improving the lives of their customers and their community. Always trying to do something unique and different, the Camacho’s are look for ways to help their customers enjoy the experience of buying a car from Camacho Auto Sales. Sales are marked with an announcement over the speakers and a loud gong. The goal is for customers to feel not like just another sale, but excited and happy to be a part of the Camacho Auto Sales family. “For most people, the purchase of an automobile is the largest purchase they will ever make, with the exception of a house. We want to make sure when they leave they have a ‘smile on their face,’Gus said. There are plenty of gongs going off at Camacho Auto Sales, with average monthly sales around 300 cars a month and $454 Continued on Page 12. DealerBusinessJournal.com

...Your Success Is Our Business

April 2014 DEALER BUSINESS JOURNAL | 11

GUS CAMACHO continued from Page 10

million in revenue. There are 125 employees who work between the five stores . Gus says the business would not be as successful without them. He is quick to admit Camacho Auto Sales’ success is not about him, but his team. In fact, Gus says keeping his employees happy is at the top of his list of best business advice. “Number one, make sure you take care of your staff. Employees are very important and without them you won’t make it,” Gus said. “Number two, make sure you take very good care of your customers and the last thing is you’ve got to hold yourself and your staff accountable. The best way to do that is joining a Twenty Group.” Gus joined a Buy Here-Pay Here Twenty Group moderated by Chuck Bonanno a decade ago. He went to the first meeting thinking his business was doing well with a portfolio around $3 million. After he joined and started learning from the group, he realized his delinquencies were higher than they should have been and his collection department could have been a lot tighter. Working with Chuck and the other members of the group, Gus kept a watchful eye on where he was in relation to industry benchmarks and has since raised his receivable to now over $20 million. “Joining the Twenty Group was one of the biggest and most important things I’ve ever done. There are so many incredible ideas. It’s like having our own board of directors to gather ideas from. The other dealers become your best friends and you can approach them with any question and know they will guide you in the right path,” Gus said. Because Twenty Group members are matched up from non-competing markets, there is a lot of freedom and openness in sharing books and business practices in the spirit of helping propel each other to the next level. Gus has hosted several of his Twenty Group members to his dealership and has visited most of theirs. The delicate mix of entrepreneurial encouragement and friendly competition make Twenty Group members better and more successful dealers. Another byproduct of Twenty Group membership is the respect it earns from leaders in the industry. Gus says his membership strengthened relationships with banks and lenders especially, helping him to acquire the capital he needed to grow his business. Gus hopes all of these factors will help him reach an aggressive goal he has set for the company over the next 10 years. The plans are to open four more locations and hit $100 million in receivables. He’s also exploring the world of franchise sales, starting with his newest 12 | DEALER BUSINESS JOURNAL April 2014

“Joining the Twenty Group as one of the biggest and most important things I’ve ever done. There are so many incredible ideas. It’s like having your own board of directors to gather ideas from.” —Gus Camacho location Camacho Mitsubishi. As if all of these projects and plans weren’t enough, Gus currently serves on the Board of the Independent Automobile Dealers Association of California (IADAC) and will be the Association’s President next year. Involvement with the state and national dealers associations is something Gus would encourage all dealers to do. “We need to stand together. There is a lot of tough legislation in our future on both the state and federal level. We need to show that we are all good people trying to do the right things,” Gus said. The right things according to Gus are something his father taught him many years ago: Give 110 percent in everything you do. Respect those around you. Give back to those who helped get you where you are. Camacho Auto Sales has always tried to be a good neighbor by participating in community organizations like Rotary Club, Boys and Girls Club and the local schools’ education foundations. It’s hard to select just one aspect of the business that Gus gets fired up about. He has a genuine love and admiration for his profession that is electrifying. “Every day is different and I’m always excited to go to the office,” Gus said. “We get to help people grow and become leaders in our company as well as improve the lives of customers and the community by providing outstanding transportation, service and financing” That may be the legacy that Gus hopes most to leave, with two of his four children already working at the dealership and the desire to one day maybe pass it along to them. He is doing everything he can to run his leg of the race as best he can, respecting the past and making preparations for the future. “I am proud of carrying on a family tradition. My parents worked hard to plant the seeds of our company,” Gus said. “I hope in some way I’ve helped the seed become a tree that will grow into an orchard.” DealerBusinessJournal.com

...Your Success Is Our Business

April 2014 DEALER BUSINESS JOURNAL | 13

LEGAL & LEGISLATIVE

Legal Opinion

By Tom Hudson

Undertakers, Garbage Collectors and Lawyers

recently wrote an article about how my job security ranked right up there with undertakers and trash collectors. The article was inspired by a Florida dealer’s advertisements – ads that were exactly like the ads of a dealer who had been nailed by the Federal Trade Commission a month earlier for advertising violations. If dealers were that cavalier about enforcement risk, I mused, I’d never lack for work. Then another month goes by, and a report sails across my desk of a dealer whose actions were so bizarre that I could scarcely believe the report. Here’s what happened. On March 14, the FTC charged an Arkansas auto dealer, Abernathy Motor Company, and its two principals, with failing to display a “Buyers Guide” on used vehicles offered for sale, as required by the FTC’s Used Car Rule. Each violation could result in a civil penalty of up to $16,000. The Used Car Rule has been around since before the invention of fire. The window sticker requirement is about as easy to comply with as any regulatory requirement anywhere. You simply buy forms that meet the FTC’s regulations for content, font size and type style from a reputable vendor, complete them properly (there’s plenty of help on the FTC’s web site about proper completion), place the forms in or on your cars as required by the Rule, and you’re

14 | DEALER BUSINESS JOURNAL April 2014

done. If you negotiate deals in Spanish, you’ll need two forms – one in English and one in Spanish. “Used car dealers are required to post a Buyers Guide providing warranty and other important information on the cars they offer for sale. That’s the law,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “Consumers have a right to receive this information up-front to help them make an informed buying decision.” The FTC’s Used Car Rule specifically requires used car dealers to disclose whether the car comes with a dealer’s warranty or is being sold “as is.” If the car is sold with a dealer’s warranty, the Rule requires the Buyers Guide to list its basic terms and conditions, including the duration of coverage, the percentage of total repair costs to be paid by the dealer and the exact systems covered by the warranty. OK, so maybe this dealer is new to the business, and hadn’t gotten around to doing his compliance homework. That’s a bit like going off the high dive before filling the pool, but it can happen. But no. This dealer had been an FTC target before, and fairly recently. In January 2013, the FTC announced that its Southwest Region Office had warned 11 used car dealerships in Jonesboro, Arkansas, that their sales practices violated the Used Car Rule. All but Abernathy Motor Company subsequently came into compliance. Abernathy Motor Company has four used car sales locations in Arkansas. The FTC’s complaint also names the company’s owners, Wesley

Abernathy and David Abernathy, and an affiliated dealership, Ab’s Best Buys AMC Inc., as defendants. According to the complaint, the FTC visited an Abernathy dealership in November 2012, and found that none of the vehicles offered for sale displayed a Buyers Guide. The agency informed the dealership of that fact, and sent the dealership a copy of the Guide and the FTC publication, A Dealer’s Guide to the Used Car Rule. In May 2013, the FTC re-visited the Abernathy dealership, and visited Ab’s Best Buys AMC Inc., and found both dealerships were offering used vehicles for sale that did not display a Buyers Guide. Dealers like this are why undertakers, garbage collectors and credit lawyers will never be out of a job. Here, the FTC accused these folks of violating the law and fired a shot across their bow, only to have the dealership ignore the warning. Now it looks like the FTC will be firing for effect. And before I leave this topic. note Ms. Rich’s comment, “That’s the law.” The FTC’s Used Car Rule is the law, as are the Red Flags Rule, federal privacy rules, the risk-based pricing rule and several others, yet we frequently review dealer operations and find that dealers have not complied with these laws, some of which have been in place for years. Tom Hudson, Esq. (tbhudson@hudco. com) is the author of several compliancerelated books that are available online at www.counselorlibrary.com. He is also the publisher of Spot Delivery®, a monthly legal newsletter for auto dealers, and the Editor in Chief of CARLAW®. Reach him by phone at (410) 865-5411 or visit www. counselorlibrary.com. DealerBusinessJournal.com

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SWORD, the paradigm shift in the evolution of banking. Bridging the gap between Alternative Financial Services and main stream banking! ...Your Success Is Our Business April 2014 DEALER BUSINESS JOURNAL | 15

LEGAL & LEGISLATIVE

General Counsel

By Debra Dawn

What You Need in a Nondisclosure Agreement

corporate entities are named. In the he idea behind a Nondisclosure Agreement: By identifying data as alternative, you can add language to Agreement (NDA) is that proprietary and confidential, only the NDA which includes affiliated there is certain half the battle has been met. If entities. proprietary and/ you disclose certain information, You Have To Limit the or trade secret the NDA prevents the use of Timeframe: Traditionally, courts information that information but does not have held NDAs to be reasonable if which is so necessarily prevent the recipient their timeframe is two years or less important to from attempting an end run around from the date of disclosure. your dealership the provider. For example, if you You Have to Provide that sharing it are jointly attempting to solicit a Exceptions: An NDA must with outside client with another entity and the have exceptions which, if they third parties deal falls through, you do not want occur, would not result in would be detrimental, either to be in the position of having your liability for the recipient. The financially or otherwise, to your partner complete the transaction traditional exceptions are: (a) If the business. Unfortunately, after with another entity or cut you out information is publicly available; disclosure many recipients may try of the deal altogether. To avoid (b) If it was previously known by to treat the information like it was this outcome, you may want to the recipient; (c) If the information their own. incorporate non-circumvention was received from a different party You Have to Clearly Identify language into the document. who was not under an obligation What Information is Confidential: You Should Require Return of confidentiality; or (d) If the The best way to insure that your of Information Upon Expiration: recipient independently develops NDA is enforceable is to mark the If the information you provided the information. information â&#x20AC;&#x153;Confidentialâ&#x20AC;? and to the recipient was in hard copy, You Should Couple an attach an exhibit to the document you should mandate its return NDA with a Non-Circumvent which clearly identifies what upon expiration of the NDA. If information falls within the confidential information the purview of the NDA. was furnished in electronic Nondisclosure Agreements This could be a customer form, you should request can protect your business list, financial statements a certification from the or a business plan. If while allowing for expansion of recipient stating that the attaching an exhibit is not opportunities, but it must address information has been practicable, then describe destroyed. all important issues to effectively You Should Limit Access with as much specificity as possible what information secure your trade secrets. to the Information to those is being disclosed. with a Need to Know: One You Must Carefully of the provisions in the NDA Identify the Parties: This should be that only those is especially important employees or agents of the when there are separate recipient with a reason for corporations whose viewing the confidential employees and/or data should be allowed to do agents may receive the so. Not only does this limit information. Only parties the chances of unauthorized to a contract are bound disclosure, but in the event to it so be certain that all there is a breach of the NDA,

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DealerBusinessJournal.com

it allows the leak to be more carefully tracked. You Should Incorporate Both a Venue and Choice of Law Provision: In the event the NDA is breached and litigation ensues, you want to be sure that you can commence the action in your local court, not that of the recipient. Under traditional legal theories, the provider would have to sue either where the recipient is located or where the breach occurred. Chances are that would not be in your own state which means the cost of litigation would be increased for your dealership. You Must Include the Standard of Care for the Disclosed Information: Somewhere in the document, you must inform the recipient of the standard of care expected with regard to protection of the confidential information. This explanation can be detailed or a simple statement saying that the recipient will treat your confidential information with the same degree of care as he would his own information of like type. Provide Amendments to the NDA where Appropriate: If you have identified specific information that is confidential, but continue to supply additional documents outside the original categories, that new information may not be deemed to be confidential. Safeguard your proprietary information by either amending the existing NDA or identifying the additional documents as confidential by means of a supplemental exhibit. An NDA can be an invaluable tool in simultaneously protecting your business while allowing for expansion of opportunities. Just be sure that all important issues have been addressed in the document that you are relying on to secure your trade secrets. Debra Dawn is Leedom Group’s General Counsel and Compliance Director Debra Dawn has formed AUTOLAW Group to assist dealers in all facets of dealership compliance. debra@leedomgroup.com ...Your Success Is Our Business

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LEADERSHIP & TRAINING

Learn to Lead

By Dave Anderson

Why Your Team Can’t Execute and How to Fix It

or twelve years I’ve taught a three-day Strategy Summit in the fourth quarter to help clients prepare for the upcoming year. The format is simple: The first day covers how to create a compelling vision that unites and inspires the team for the upcoming year. Day two covers strategies to reach the vision. I present dozens of sample strategies and teach implementation principles to ensure they succeed. On the final day I teach tactical execution; how to convert the strategies into results. Since a significant number of attendees return each year with their leadership teams to again plan the upcoming year, they are comfortable sharing with each other their biggest challenge with the process: “We would start the year with a forecast people were excited about, and the strategy was sound. We knew what we needed to do; we simply didn’t know how to do it—and when we did do the right things we rarely did so consistently. Overall, we did a poor job of executing.” Here are twelve reasons your managers, like so many we’ve trained to do better over the years, can’t execute as effectively or consistently as they’d like. Face reality about which may have prevented you and your team from achieving bolder goals and make the adjustments necessary to take execution

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disciplines in your dealership to a far higher level. 1. Front line employees aren’t clear about the goals they’re supposed to execute. Franklin- Covey research shows that only 15% of employees could name even one of an organization’s three top goals. How can one execute and move successfully towards goals they’re unclear about? 2. Team members aren’t passionate about the goals, leaving roughly half going through the motions. Why would anyone give their all for goals they’re indifferent towards? 3. A staggering 81 percent of people surveyed admitted they were not regularly held accountable for progress on organizational goals. Since people do what they’re held accountable for, failing to apply consequences for poor performance makes effective or consistent execution unlikely. 4. Leaders fail to create a culture that changes the behaviors necessary in order to bring about effective execution. Bain and Company reports that an estimated 65% of initiatives require significant behavioral change on the part of front-line employees—something that managers often fail to consider or plan for in advance. 5. When a team does set clear goals, they tend to set too many, bringing about a Law of Diminishing Returns: the more goals you have the fewer you’ll

reach because you haven’t the focus or resources to pursue any with excellence. 6. Their day job gets in the way. The daily fray, absolutely necessary for keeping an organization’s engine moving, crowds out the focus necessary to execute new initiatives. Thus, flavors of the month come and go like the changing seasons. 7. Managers focus too heavily on lag measures (the numbers) rather than the lead measures (the daily behaviors) necessary to achieve the lag measures. By confusing the scoreboard for the game, these leaders typically react to outcomes rather than proactively execute right strategies to create the desired outcomes. 8. Team members are not engaged in the “what to do and how to do it” aspect of execution. While it’s essential that leaders create clarity by establishing a handful of essential goals—the ultimate few—on a top-down basis, it’s just as important that team members in the middle and at the front line help create their own goals, strategies and tactics to support the objectives created from the top. High levels of execution are never reached when strategy is devised solely by senior leaders and then pushed down the ranks. The high level of commitment and engagement necessary for successful execution requires that strategies and commitments to execute them evolve from DealerBusinessJournal.com

the bottom-up. While the leaders may veto any strategies not effectively supporting key organizational goals, they must not dictate them. 9. Leaders mistake opportunity for obligation and never learn to say no to good, or even great, ideas that detract from executing towards the best initiatives. Steve Cook, CEO of Apple wisely observed: “We say no to good ideas every day. We say no to great ideas in order to keep the amount of things we focus on very small in number so that we can put enormous energy behind the ones we do choose. The table you’re sitting on today, you could probably put every product on that Apple makes, yet Apple’s revenue in 2013 was $171 billion.” The late Steve Jobs taught Cook well and was famous for saying, “I’m as proud of the things we don’t do as those we do.” 10. Leaders errantly choose their ultimate few goals by asking, “What’s most important?” rather than asking, “If every other area of our operation remained at its current level of performance, what is the one area where

...Your Success Is Our Business

change would have the greatest impact?” This question changes the way you think and lets you clearly identify the focus that would make all the difference when executing. 11. After choosing key goals leaders fight too many battles and on too many fronts to win the war. They wrongly ask, “How many things will help us win this war?” instead of the far more effective question: “What are the fewest battles necessary to win this war?” With fewer key battles to fight, a team’s focus is narrowed, resulting in faster and more effective execution. 12. There isn’t an “X to Y by when” element to the goal. In other words, a desired outcome isn’t defined clearly enough, nor is it time-based resulting in scattered focus, lethargic execution and no accountability for failure. Author Sean Covey explains how in 1958 NASA had eight primary goals that guided the space agency; none of which were particularly specific or had deadlines. Russia was beating the pants off the U.S space program at the time by sending the first rockets

and men into space, while NASA was still exploding rockets on launching pads. In 1961 President Kennedy outlined ONE goal that was specific, bold and time-based; it energized and focused not only NASA, but the entire country: “We will land a man on the moon and return him safely to earth by the end of the decade.” The resulting success, ahead of schedule, leapfrogged America to the forefront of a space program it still dominates five decades later. There may be no greater single example in the modern age of how to productively set up a bold vision and successfully execute it than this. Taking your dealership to its fullest potential requires that you do likewise. Dave Anderson is President of LearnToLead which provides in-person and virtual training to many of the world’s best dealerships. Dave speaks to dealer groups over 125 times each year and has given seminars in 15 countries. He has spoken at eleven NADA Conventions and is the author of twelve books. Follow Dave on Twitter @ DaveAnderson100 and visit his website at learntolead.com for free articles and videos on sales and leadership.

April 2014 DEALER BUSINESS JOURNAL | 19

FEATURE ARTICLE

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DealerBusinessJournal.com

LEEDOM Market Report Heading into the second quarter of 2014, makes now a good time to take a look at the past three months and watch for patterns and trends coming down the road. Good dealers can react quickly to the market when it changes. Better dealers anticipate what will happen and prepare a plan. Dealer Business Journal sat down with Leedom Group CEO Chris Leedom and asked a few questions about what is in store for the remainder of the year. His answers are insightful and can help you put your road map together in order to reach your goals before year-end. ...Your Success Is Our Business

The first quarter of 2014 is now in the books, how do you think the industry fared compared to this time last year? We are finalizing our data collection but my initial impression is the overall BHPH market is off four to six percent. Many consumers appear to be migrating to third party special finance programs and buying at franchise dealers. We also saw voluntary repos increase slightly for the first quarter. My biggest concern is many of these national companies are extending contracts to 72 and 84 months on customers that are accustomed to 36 to 42 months. The impact of that remains to be seen. What does that mean for the rest of the year? I think the rest of the year should hold up pretty well for dealers. Auto sales volume is picking up and new car volume is increasing. With an increase in new car volume comes more trades and this can favorably impact the wholesale price of used vehicles which should help dealers attract used car, more cost-sensitive buyers. I think overall 2014 will be a good year for new and used car dealers. What are the biggest challenges facing the industry right now? (i.e., lack of inventory, increased regulation, credit-worthy customers, etc.) Without a doubt increased regulation. It is creating so Continued on Page 22. April 2014 DEALER BUSINESS JOURNAL | 21

FEATURE ARTICLE LEEDOM MARKET REPORT continued from Page 21

There are great opportunities for dealers who serve small to midsize communities. Taking care of your customer has and always will pay big dividends. Dealers on Main Street USA have great opportunity if they just focus on their niche, serve it better than anyone else in their community and run a good business. much uncertainty and we hear about it every day. I was recently speaking with a dealer that sells about 30 cars per month and an attorney recommend he hire a full time compliance person. This is not an inexpensive new hire. I think we are also on the front-end of a shift to third-party financing for subprime buyers but I have deep concerns about the terms. Folks are going to have a hard time paying $575 per month for 84 months when they will likely be tired of the car somewhere around 36 to 42 months. It definitely concerns me. Do you see any opportunities? I think there are great opportunities. For the dealer that serves a small to midsize communityâ&#x20AC;&#x201D;taking care of your customer has and always will pay big dividends. Metro market dealers have a lot more competition from big box operators but dealers on Main Street USA have great opportunity if they just focus on their niche, serve it better than anyone else in their community, and run a good business. Whether you are in BHPH or traditional retail, that model still works and we see a lot of successful dealers that operate that way. Twenty Group members consistently say one of the benefits they like the most of their group is receiving quarterly financial reports to compare their performance with other members in the group. Can you give us some benchmarks for first quarter for small, medium and large dealerships? Probably the most important number right now for any size dealer is total overhead per retail unit sold. We have tracked this number for nearly twenty years. This is essentially what it â&#x20AC;&#x153;costs a dealer to sell a carâ&#x20AC;? in that it expressed as all overhead (payroll, rent, advertising, etc.) divided by number of units sold in a month. That number has gone from around $1,700 to over $2,400 in the past five or so years. That is an increase in operating expense of over 35 percent and is mostly due to insurance, fuel, HR and compliance costs and health care. I see this as a number that dealers will really need to watch in the coming years. The bad news is margins are not growing; they 22 | DEALER BUSINESS JOURNAL April 2014

DealerBusinessJournal.com

are shrinking so expense management skills are critical. A Twenty Group really gives a dealer an advantage as we show them what should be budgeted line by line on the income statement. What is your prediction for retail prices for the remainder of the year? (i.e., stay the same, increase, decrease). Does there seem to be more demand for one type of vehicle over another? I think they will stay about the same. The highest demand right now is for what I call the bread and butter portion of the market, the $9,000 to $14,000 vehicle. Cars are built better than ever and are lasting longer so the average consumer can find a very desirable car in that price range. What is your best advice for dealers as they move forward in 2014? Review your financial statement every month, control and monitor expenses and make sure your operation is dialed in. I think a dealers ability to drive prospective buyers via the internet is also giving some operators an edge as the cost of a prospect is less. We see some great examples of dealers harnessing the web and driving traffic with excellent campaigns. Overall this helps drive down advertising expense. Also I think it is critical in this environment dealers really train their staff and make sure the performance expectation is set and understood. Training and compliance will remain hot buttons for years to come. How can dealers stay on top of the trends and spot them as or before they happen? Attend conventions, participate in a Twenty Group and be part of your state and national associations. The more we network and interact with each other and develop best practices the better our industry becomes across time. I love seeing the benefits of these types of programs impact dealers and drive profitability. It never stops so you have to constantly stay ahead of the curve. Chris Leedom has worked with thousands of dealers since 1995 and is a nationally recognized industry expert. He is the Founder and CEO of the Leedom Group of Companies.

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Leedom & Associates provides consulting services and guidance for dealers just like you by helping you review your operation and provide an action plan to help your dealership achieve benchmark performance. Call us at 800.966.8733 to set up an onsite consultation and create net profit improvement at your dealership. ...Your Success Is Our Business

April 2014 DEALER BUSINESS JOURNAL | 23

BUSINESS OPERATIONS

Business Basics

By David Wiggins

Do You Need a Stress Test?

e normally think of this question with regard to an annual physical exam with a physician; however the benefits are just as important for your dealership. What is a stress test for your business? It’s an analysis to determine how vulnerable your dealership is to a number of current or future factors. It is similar to the stress test that we take for our personal health. What we are doing is adding different business factors that can provide stress on profitability and trying to anticipate how your business will perform. Some of the key items that you may want to test for are: • Rising interest-rates • Continued increased used vehicle prices • Increasing charge-off and repossessions • Decreasing sales • Continuing increased payoffs on your vehicle loan balances • Increasing personnel or expense costs In order to stress test your business you will need to create financial models and/or projections for the business. This should be done for either a three or five-year period. Preparing such models can be difficult, so be careful when choosing the assumptions and

24 | DEALER BUSINESS JOURNAL April 2014

to improve marketing efforts. calculations. These models should Hopefully you get the idea. be set up to provide you with the Using this analysis, will also ability to imput input different let you know if you are unable to assumptions for the key items change one of the economic factors listed above. listed above, what profitability Once you have the planning or losses can be expected. For model set up, then you should example, if you determine that look at the effect on your A business stress test adds different balance sheet and income factors that can provide stress on statement profitability and help anticipate how under different your business will preform. estimates of the above charge-offs increasing by five items. Start by looking at this on an percent for the year will drop isolated basis for each item. Then profitability from say $800,000 look at the effect when several to $500,000; you at least know different items occur at once. . that renewing your five year lease Having done this, you should should be prudent as you are still see how the various items could profitable. If your business stress impact your business on an test showed that such an change ongoing basis. Use this information resulted in a loss to the business, to determine the biggest risks to you may want to re-think signing your business. It will also allow such a lease. In essence it allows you to plan what actions you for you to make decisions with should take should some of these more clarity of what you may scenarios play out. encounter in the future. This exercise will also highlight As our business and industry the most significant risk to your have gotten more mature, it is more dealership so that you can work to important than ever to stress test minimize the risk where possible. to determine long-term business For example you may health. As all of us business owners determine the most significant know, good business health is also risk your business faces is from good for our personal health. higher borrowing cost due to rising interest rates. If so, then you may want to look at options to Dave Wiggins is an automotive try and lock in your interest rates CPA with CliftonLarsonAllen and or alternatively, determine ways has expert knowledge of the innerto reduce your leverage. If your workings of both retail and Buy biggest risk is from decreasing Here-Pay Here operations. sales, then you can focus on ways DealerBusinessJournal.com

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BUSINESS OPERATIONS

Financing Fitness

By Jay Rose

Understanding the Underwriting Process

verything we do as a Sub-Prime or BHPH dealer is to deliver, collect and service customers who will pay us on time. We are not here to “sell cars” but to underwrite the best paying customers. A dollar or repossession doesn’t care whether it is the second of the month, weekend or last day of the month. The pain is the same for the Account Manager (Collector) and the customer if we set them up for failure. “loose” or “aggressive” underwriting will only hurt the portfolio. We need to be aggressive with lead generation, not underwriting. Approving a customer with a “low affordable” just because it is a weekend and we are pacing behind a delivery goal is a big mistake, and it shows in the first payment defaults and repossessions. Everything starts with the Accounting Department to determine how much cash our dealership has to lend each week, each month and each year. Then the Payment Center’s ability to keep the customer contractually current (not $1/1 day delinquent) is critical to determining how aggressive or defensive the underwriting needs to be. Purchasing the right ACV Vehicles, reconditioning the right volume to match delivery needs at the right recon dollar average, and

26 | DEALER BUSINESS JOURNAL April 2014

servicing the customer when the vehicle breaks all effect each others’ department. Having protection on the vehicles and financing (Liability Coverage, CPP, Service Contract, and Auto-Pay) will keep the customer’s financial fitness program paying on time and driving for the term of the loan. Lead generation and lead management will determine the quality of leads that will be brought through the purchase and underwriting process; affordability, stability of residence and income, and appreciation. It is important to have an Underwriting Guideline in writing for the Finance Department and sales team so they know exactly what we are looking for in a minimum requirement with income, job history, residence history, current state driver’s license, proof of income, debt to Income ratio, bankruptcy status, etc. If your dealership uses a scoring system, it is important to make sure that we check the accuracy and methodology that each dealership employee scores a guest application the same, otherwise we are making decisions based on poor information. It takes everyone working together to make this happen. There are some important steps to underwriting you should take for a good paying “Financial Fitness Plan” whether you keep or sell the receivable. First, make sure lead generation develops the proper volume of leads (email, phone, and in-person) that match the target customer. Then, make

sure you have the right team in place. Here are some key positions and what their responsibilities should be: The Finance Specialist will assist the guest through the underwriting process, or customer purchase process. The Finance Specialist should build value that you are different than a traditional dealership through showing you have higher quality vehicles, added investment in reconditioning, warranty, value of getting approval before vehicle selection, value of establishing or re-establishing credit, acceptance test drive and appreciation of the dealership vehicle financing program. If the Finance Specialist doesn’t do their job of managing the guest emotions, perception of the finance program, the value of the vehicles, selecting a vehicle that is affordable or of value in your Financial Fitness Plan, the guest will give your dealership a bad reputation or the customer will default. The Finance Specialist will get assistance from the Branch Manager or Sr. Finance Specialist in selecting affordable vehicles based on a complete budget sheet and keep the customer moving through the purchase/underwriting process. If the customer waits on you then bad things happen. The Branch Specialist is responsible for approving the applications that fit the underwriting guidelines. The Branch Specialist will get the Branch Manager to approve the deal either in person or by phone DealerBusinessJournal.com

on any deal that is outside of the underwriting guidelines. If the Branch Manger is not available, the Payment Center Manager will assist in the approval, conditioned or declined decision. The Branch Specialist will help the Finance Specialist by double checking the needed information on the application and budget sheet, run credit report, Autozoom, copy of Driver’s License or Passport, proof of residence, proof of income and copy of title to trade if applicable. They will also make sure the verification of job and residence is done by them or assistants. The Branch Specialist will confirm any needed information with the customer directly in the underwriting process or get assistance from the Branch Manager. The Branch Specialist will be trained to look for inconsistencies on the credit bureau paperwork submitted for proof of income or residence. It only takes 30 seconds looking at a completed budget sheet to determine what their affordability is for a vehicle and for your program. It should only take two minutes while the guest is driving a vehicle to determine whether the customer needs more proof or has the stability of job or residence. The Branch Assistant, BDC or Protection Specialist may assist the Branch Specialist in calling to verify the job or residence and enter the reference sheet in your DMS. This information will be given to the Branch Specialist to either support the decision to deliver, condition or not-approve the guest. The Branch Manager is ...Your Success Is Our Business

is a critical part of the ongoing ultimately responsible for the lead success of the Underwriting and generation, lead management, Payment Center performance. customer purchase process and These meetings will also increase underwriting process along with effective communication the results of those decisions. The between departments to help Branch Manager will be involved more customers stay on their with every aspect of the process and assist and fill in for every teammate in the The keys to effective process if they can’t do it. underwriting: affordability, The Branch stability of job and residence Assistant may assist the Branch Specialist and appreciation of your in credit reports and finance program and vehicle. updating underwriting. They may also assist in “Financial Fitness Plan” so they taking an application in your DMS can establish or re-establish their with the guest. They may assist credit. Another key item that will in calling to “verify” the job or help the underwriting process is residence and enter the reference to have daily one-on-one’s with sheet in your DMS. the Finance Specialists to make The Business Development sure you are training and testing Department may assist the Branch their interviewing questioning and Specialist in calling to “verify” have them demonstrate bringing the job or residence and enter you though the underwriting the reference sheet in your DMS. process. Every manager needs to They are phone specialists that demonstrate how to do it first, then are primarily responsible for lead coach on how to get better. generation, lead management, Above all else, always handling all incoming email and remember the three keys to phone leads. effective underwriting: 1) The Payment Center Manager affordability, 2) stability of job and will assist the Branch Manager residence, and 3) appreciation of in the approval, conditioned or your finance program and vehicle. declined decision if the Branch Manager is not available in person Jay Rose is the President of Global or by phone, or if their opinion is Training Solutions based in Houston, asked on a deal. TX. Having trained over 1900 Every Week, the Branch dealers, Jay is recognized as an Manager needs to have an industry leader in the Sub-prime underwriting meeting with the and BHPH in-dealership training. Branch Specialists and the Payment Jay will demonstrate with customers Center Manager to review the and coach every technique that underwriting log along with he teaches. Contact Jay today at the approved, conditioned and jrosegts@gmail.com or y phone at declined deals, first payment (904) 955-7666. defaults and repossessions. This April 2014 DEALER BUSINESS JOURNAL | 27

BUSINESS OPERATIONS

Customer Communication

By Greg Wells

Awesome Emails Boost Conversion

ffectively communicating with your online customers via email is extremely important. The battle of the inbox is a tough one to begin with, and if you are fortunate enough to get your email opened it needs to be awesome or it gets deleted. People don’t flag spam and they don’t reply to blah blah blah. The DNA of an awesome email is a mixture of personalization, relevancy and congruency. It should be personalized because that’s a “person” on the other end. Relevant to be, well, relevant. Your email should be congruent in that it makes sense as a component of an ongoing conversation, or has a place in a story line. Take a few minutes and browse through ten emails in your CRM that have gone out to customers. This is safest while sitting down. It might not be pretty but the good news is you can make it better. In fact, you too can send awesome emails. Burn your templates. In 2006, I witnessed a template burning and it was pretty cool. We printed out all of our templates, put them in a trashcan, took it outside and set ‘em on fire. Why? They didn’t work. What you are calling a template is spam. A template, according to Dictionary.com, is a preset format for a document or file, used so that the format does not have to be

28 | DEALER BUSINESS JOURNAL April 2014

recreated each time it’s used. Think of a template as a piece of stationary, not as a message. Your canned emails that go out on day whatever to whoever is a waste of cyberspace and your customers time. Please stop. Use personalized subject lines. Your customer is going to skim their inbox looking through the clutter for something that catches their attention, either the sender or the subject line. Nothing will catch their eye like their name. One of the best subject lines is simply “Hi John, its Ashley at BDC Motors”. This subject line has a great open rate. We recently tested it and had a 62% open rate, not bad for something so simple. By the way, the number one open rate for a subject line in that study was “Happy Birthday.” How personal is that! Type like you talk. David Kain says type like you talk and talk like a fifth grader. Good advice. I recommend thinking about what you would say to this person, in person. Would you say we have an exceptional selection of quality preowned vehicles or would you say we have a lot of nice used cars? Avoid the “ten dollar words.” You’ll find customers are more likely to respond when you are having a conversation than when you are speaking ad-speak. Be Relevant. For heavens sake think about what you are saying.

Relevancy starts with reading their comments, identifying whether or not they are already your customer and if they are local or live some distance away. Inviting someone to stop by for a test drive when they live 90 miles away isn’t going to work. It probably hurts you. Talking to someone who has bought from you before like you just met is the same as saying “I have salesheimers.” Be congruent. I know I said don’t use ten dollar words and here I am talking about congruency. What I mean is your emails should have a pattern, and be in a logical sequence with the last email you sent them. For example, if the last email you sent a customer contained valuable information they requested, the next email shouldn’t be about the big sale, checking out your specials, browsing your inventory or liking you on Facebook. A better message would be “did you have a chance to review the information or did I send you everything you need?” One BDC Manager I know sends a price quote on day one, asks for a tradein on day two and offers finance options with a down payment/ payment matrix on day three. Very congruent and it works. Which is in DealerBusinessJournal.com

congruence with selling more cars. Be brief. People are reading your emails on their smart phone or another mobile device. Use short paragraphs in your emails; be twitter-like. Leave some wiggle room around your CTA’s and your phone number to make it easy for readers to click if they are on a mobile device. If you practice “type like you talk” this will be easy. Test your formats. Again, people are reading your email on their mobile device. Test your stationary and see how it looks on mobile devices. A good idea is to format your emails in a table. This will usually center the email on any type of screen and makes it look crisp, uniform and professional. The email can be personal and professional.

Ask questions. If you don’t ask a question technically speaking they can’t respond! Questions evoke responses. Questions motivate customers to reply. A question begs to be answered; it’s human nature. Try one of these; should I be looking for a different car? Was the information I sent yesterday helpful? Describe your process. Let customers know your process. What the next step is and how easy you are to do business with. Since you want to be brief, consider a link to a landing page with more information about your process. How about a link to a video explaining your process, or your priority appointment, your pre-approval process or trade-in evaluation process? Talk about something other

than price. If not, the cheapest dealer will win the sale. Create chemistry, not conflict. The tone of your emails is as important as any other element in its DNA make-up. If you are truly trying to be helpful it will come through. Be the dealer that can, not the one that can’t. Your customer should feel like they are being served, not sold. The paradox is that they are being sold—on your great service. Greg Wells is the President at AllCall Automotive Contact Center. A US based outsource BDC serving dealers in the US and Canada. Greg is a popular industry expert on BDC’s, Internet Sales and Digital Marketing.

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April 2014 DEALER BUSINESS JOURNAL | 29

BUSINESS OPERATIONS

ReInsurance

By Tim Byrd

How to Ride the Wave of the CPO Tsunami

rustrating isn’t it? Franchise dealers are rocking the world with CPO cars. News reports are saying that Certified Pre-Owned sales topped $2 million in 2013 and the demand is rising! AutoTrader. com reports that two thirds of all consumers begin their search looking for a certified vehicle. The majority of used-car buyers intend to purchase a certified vehicle. Statistically those consumers admit they are willing to pay an average of $1,380 more for a certified vehicle over a comparable non-certified vehicle. Sixty-five percent of buyers start their search looking for a certified vehicle, yet only one out of 20 used cars sold are certified. The demand is greater than the supply. The industry needs more certified cars—your certified cars. So why is there such a huge, ongoing demand? Many car buyers are looking for the best of both worlds, a reliable like new car with a warranty but at a used car price. The certified car meets that objective for an overwhelming number of buyers. Experts agree, this is not a fad but a permanent and growing segment of used car sales. Customers are drawn to certified for the security of a preinspected, warranted car and the simplicity of having their dealer pre-screen their car for hassle-free

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shopping. That peace of mind, for many consumers, is worth the added price of purchasing a Certified Pre-Owned vehicle. As an added bonus, banks also substantiate the added value and will generally advance more for a certified vehicle. So how much more is a certified vehicle worth? The premium price for certified vehicles vary widely depending on its age and class. The facts show that consumers can pay over $3,000 more for the satisfaction of a certified vehicle. The industry average is over $2,000, and rising every year. What if you only increased your gross by half the national average? Do you think that an extra $1,000 per car would make a difference in your bottom line? Many of those cars are already in your inventory. We all know how important it is to turn your inventory. What if you could turn your inventory 40 percent faster? According to the automotive research firm CNW, certified units stay in inventory an average of 25 days, compared to 41 days for the same age and model non-certified vehicle. We all know how important that is, 40 percent more important. You have to admit, these are some pretty compelling facts. So why isn’t every dealer doing a certified program? As I mentioned first, most of the franchise guys are. Traditionally certified programs are a factory or OEM sanctioned program for franchised dealers only. In December 2013 certified sales were up over nine percent from the previous year. It is hard to compete

with that, especially when you are unable to compete on a level playing field. Many independent dealers know the value of certified and try to go it alone. That’s a hard sale. Buying certified is synonymous with buying peace of mind. The customer’s “peace of mind” needs something more than the backing of the dealership. Something more than an oval “Certified” sticker on the windshield like ever car lot in the country. So do the lenders. A growing number of states, like California, now have or are considering statutes outlawing dealers from having an in-house, slap a sticker on the car, “Certified” program. Unfortunately most attempts to organize a certified program for the independent dealer have failed, even on a national level. Even with all the benefits listed above, these programs failed for a few reasons. First, they lacked a true lack of understanding of the independent market by the warranty companies. Second, they sent used car warranty salespeople, used to getting one or two warranty sales out of each account who truly didn’t know anything about the independent automobile business. Many independent stores have 30 different service contracts available and are loyal to none. If you go in their store, there is a rack of brochures which would rival the tourist brochure stand at the roadside rest stop. Third, because of one and two, there are not enough warranty Continued on Page 32. DealerBusinessJournal.com

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BUSINESS OPERATIONS CPO Tsunami continued from Page 30

Sixty-five percent of buyers start their search looking for a certified vehicle, yet only one out of 20 used cars sold are certified. The demand is greater than the supply. The industry needs more certified cars—your certified cars.

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sales and warranty companies do not reserve enough, because rates were established based on an expected large volume. That leads to the last reason, claims exceeding reserve. This is all prompted by the fact that the dealer has no skin in the game. It becomes a cost of sale, an expense. So, to offset the expense, some dealers file claims on everything that comes up, i.e. “recon” their cars. The warranty company in an attempt to keep the Titanic afloat appeases the dealers by paying what would otherwise be called good will. Claims exceed reserve, game over. The honest dealer is then left with a defunct program. There is a better way. There is a national company who has over 25 years in the car business, a managing agency who are experts not only in franchise and the independent car business, but are also experts in Dealer Owned Reinsurance Companies. It’s who they are. It’s what they do. They have recognized the problem and have now provided a foolproof solution: A Dealer-Owned Certified Program. This nationwide Certified program, through reinsurance, is individually owned by each dealer. Turnkey, the managing agency sets up the entire program. You the dealer get the best of both worlds. You own the company, so what you provide as coverage on your vehicles is an actual warranty, not a service contract. The premium cost for your warranty is ceded into your trust account. Only your premium goes into your account and only your claims are paid out of that account. The great thing is no one needs to know that you own the company because the managing agency, along with their expert partners, take care of everything:

claims adjudication, accounting, training, ongoing support, etc. All you do is sell more cars. In addition, more good news is that you can up-sell your own service contract and reap the underwriting profits on that as well. Here’s an example of how it would work: When you sell a service contract for let’s say $1,595 and your dealer cost is $995 your store makes an immediate $600 profit. Then you send the $995 in to your warranty company. Around $200 goes to overhead and administrative cost which is typical of any warranty company. The remaining $795 goes into reserve. If you sell 20 per month you would reserve $15,900 per month or $190,800 in a year. Even if you have claims of 50 percent, you would have $397.50 per contract or $95,400 annual additional profit. In other words, the sale you used to make $600 profit on, you would now make $997.50. Now you know why your service contract company loves you so much. Add to that your certified warranties and you’re looking at more like $150,000 in additional profit. So, to recap, sell more cars, turn your inventory faster, make more gross profit per car sold, and make additional profit on the sale of warranties and service contracts. Now you got skin in the game. Dealer-Owned Certified, is finally a smart approach to CPO for independents. Tim Byrd is Founder and President of Tim Byrd & Associates, Inc., DealerRE is a managing agency located in Gloucester, Virginia. An Auto Industry Expert on Dealer Owned Reinsurance Companies, BHPH Operations and F&I Development. A 25+ year veteran of the car business, Tim is a trusted advisor to many car dealers. DealerBusinessJournal.com

Four Simple Rules of High-Turn Inventory Management Market forces are driving the used car business toward a system of high-turn inventory management. The focus is not on maximizing profit for each vehicle, but on maximizing profit by quickly and efficiently selling all your inventory, then restocking and repeating. While adopting this style of inventory management can be challenging, it is something anyone can learn if they approach it correctly, invest in the right resources and focus on the proper aspects. Here are some simple rules to follow if you are interested in adopting the high-turn approach for your dealership.

Rule #1: Look at prospective purchases through the eyes of a consumer/customer. The impetus behind high-turn inventory management was informed customers. The rise of Internet advertising and resources that give retail buyers more information about vehicles than ever before have caused used car margins to shrink — necessitating the turn toward efficiency in dealer operations. As a result, it’s critical to think about inventory in the way that customers do: the appeal of a particular unit when compared to the whole market. That appeal includes characteristics like trim and color, but pricing is the major factor for most consumers. They can learn almost anything about a particular model’s performance and features. The only thing they can’t do: test-drive a specific vehicle.

Rule #2: The goal is NOT to sell vehicles cheaply, but competitively. Wholesale pricing is a useful measure for transactions between dealers, but it’s only part of the picture. Consumers are thinking of vehicles in terms of market retail pricing, so dealers must as well. Cost to market is what you want to determine for each piece of inventory. Cost to market is measured by taking the cost to acquire and prepare a vehicle for sale (purchase price, transportation, any repairs, etc.) and dividing it by the average retail asking price for that model. So let’s say it cost you $8,000 to acquire a vehicle with an average retail asking price of $10,000: Cost to acquire vehicle $8,000 = Average retail asking price $10,000 = 0.8 or 80% This vehicle would have an 80% cost to market. An average range is usually 80–85,% but note that cars with a higher average retail asking price typically have a higher cost to market than cars that retail for lower prices. You should do anything you can to lower your cost to acquire because this in turn will lower your cost to market. One simple way to do this is by reducing transactional costs like reconditioning and buy fees, which are connected to your method(s) for sourcing inventory. Continued on Page 35.

...Your Success Is Our Business

April 2014 DEALER BUSINESS JOURNAL | 33

SALES & SERVICE

Female Perspective

By Jody DeVere

Waiting for Your Cat to Bark?

ne of the basics I know about when marketing to women is that marketing, (in the traditional sense), is just one step. You can create a fantastic advertisement or marketing promotion, even incorporate compelling features based on feedback and input from women, but if the experience at the dealership is uncomfortable or stressful, you won’t get the sale. In their book, Waiting For Your Cat to Bark?, co-authors Brian & Jeffrey Eisenberg help marketers understand how to deal with the reality that the customer is in control. They suggest becoming your own customer and go through your own dealership buying process. Pretend that you’re a prospect just at the beginning of a purchase, searching for information. What

search terms would you use? What stores would you visit? What questions would you ask the salesperson? Then, how does your business line up to this? Dealerships that want to succeed must take every interaction into account and understand that for today’s consumers, (and I’d add, especially when it comes to women, who make 80 percent of the purchasing decisions), it’s action not words that motivate. “The experience has become the brand,” say the authors, “it’s about experience... theirs,” and I couldn’t agree more. According to the authors, like cats, today’s consumers are independent, unpredictable and finicky but many marketers are still approaching them as if, like Pavlov’s dog, all they have to do is create a compelling message. However, delivering an outstanding experience for women is the best marketing of all. Here are three quick tips to remember: Patience: Women consider how a vehicle is going to fit into their long-term lifestyle before making a purchase. They’re a lot more cautious and careful than men are and usually take longer to make their decision. They’re going to buy a car they’re happy with for years. Refrain from high pressure closing tactics, be patient and don’t rush her process.

Listen: Women buyers like to tell “their whole story” to sales people. Having outstanding listening skills helps build a relationship, understand her lifestyle car buying needs and create friendly, enjoyable experience. Trust: Women have become nearly every family’s chief purchasing officer. She looks for a salesperson who wants to be a part of her buying process, who shares her values regarding honesty, respect and trust. A study, “Elevated Expectations: The New Female Value Equation”, found 97 percent of women expect good customer service everywhere they shop. Eighty-three percent buy more when in a store with good customer service. The study also found that 89 percent of women choose one store over another, with similar merchandise and prices, if it offers better customer service. When women have bad customer service experiences, 80 percent say they will not go back to that store, even if it was just one bad encounter. And 94 percent say they will tell other people about the bad experience. Women expect ‘Nordstrom-quality’ service everywhere they shop, but they rarely find it. There is great opportunity for dealerships to raise the bar by focusing on how to improve the experience of women customers and increase your dealership’s positive “brand image,” grow market-share and increase positive word-of-mouth on and off-line. Jody DeVere is the CEO & president of AskPatty.com. Contact her via email at jdevere@askpatty.com.

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DealerBusinessJournal.com

A high-turn operation not only needs inventory — it needs inventory that is in demand right now. This is not a new issue; dealers have always had to stock cars that customers want. The difference is that external pressures are forcing this to happen more rapidly and with a lower profit per unit. If you cannot quickly obtain the cars your customers want, you risk losing those customers to your competitors. So you ultimately need a robust, reliable and responsive inventory acquisition model. Efficiency is key, as you can’t take too much time away from selling cars. You need to be able to seamlessly transition from selling the cars you have to getting new ones, preferably without leaving your office. You need to invest in technology that makes it easy for you to evaluate the marketplace and quickly secure retail-ready cars. You need a massive pool of vehicles that are easily searchable and ready to sell. And you need a network of trusted sellers who routinely have the cars your customers demand.

Rule #3: Determine what makes customers pay average, above average or below average prices. Most people understand intuitively how supply and demand determine the price for which you can sell a product. But supply and demand also determine how quickly you can sell a given product, how many of that product you should acquire to sell and how frequently you should restock that product.

These concepts are absolutely critical, as your ultimate goal is 100% turn every month if possible. This is especially important because you’re selling a product whose value depreciates over time, a fact known all too well by any dealer who has ever been burned by aging inventory. Supply is easier to determine than demand thanks to auction data and information from sites like AutoTrader.com and DealerMatch. Demand is more challenging, since you have to track of every vehicle of a specific model that passes through an auction or website, then see whether it is wholesaled or retailed.

Rule #4: High-turn management depends on your ability to successfully merchandise your inventory. When you list cars online, it takes many sets of eyes to achieve 100% turn. Once you’ve secured your inventory, you need to get it in front of Internet shoppers as quickly as possible. Your intake and reconditioning process needs to be seamless. Make sure you post sharp, pleasant pictures of your cars so that customers see them in the best possible light — literally and figuratively. It’s also important to describe you inventory clearly and effectively. Note that competitive pricing often puts you on the first search results page because Internet shoppers frequently sort by price low to high. If you can follow these four rules, you will have a viable opportunity to successfully implement a system of high-turn management. © 2014 DealerMatch

dealermatch.com/LeedomBHPH2014 888.457.4404 | 2 Concourse Parkway, Suite 200, Atlanta, GA 30328

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April 2014 DEALER BUSINESS JOURNAL | 35

SALES & SERVICE

Social Networking

By Christy Taylor

The Right Recipe for Social Media Success

o you remember the early 1990s? The internet was just starting to catch on and a majority of people still used dial-up service to connect (cue the unmistakable sound of auto-dialing tones, earpiercing highpitch squeals and the final satisfying hisses of a successful connection). In those days, websites were an expensive luxury, and only a handful of visionary dealers had them. Cell phones were only used for emergencies and Facebook and Twitter weren’t yet a twinkle in any young nerd’s eye. Fast forward 20 years and a lot has changed. Websites and email are as much a business requirement as a dealer license and a surety bond. We carry the internet around in our pocket and spend our spare time swiping through updates on what our best friend had for breakfast and who was on Jimmy Fallon last night. We have evolved from a shaky, isolated analog courtship with a brave new digital world to a constant, streaming obsession that requires us to know what our friends are doing, saying, eating, wearing and buying. It is essential for dealers today to not just have a social media presence, but actually engage in it. A Facebook page or a Twitter feed are useless if they are not being used correctly. Recognizing and creating social media best practices for your business is an essential first step

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in the process of connecting with potential customers. Just like having a gourmet kitchen full of the latest and greatest gadgets and equipment will not make you a great chef, having an account on every social media outlet and a shiny badge for each one on your website, will not make you any more relevant. Chefs spend a lot of time in the kitchen perfecting old recipes, taste-testing new creations and pairing the right elements to make the perfect meal. Dealers should spend just as much time cooking up their menu of crowd-pleasing posts that should focus on content, connection and call to action. Content. If there were a Golden Rule written specifically for social media it would have to be, “post it for others, as you would want them to post it for you.” Content is the first important ingredient in your social media mix. It shapes the way the audience sees you. If your content is dull and boring, then your followers will think you are too. Make sure your content falls in one of these categories: enlightening, entertaining, engaging or educational. Your followers already know you sell cars, so enlighten them on things they don’t know about you. Look for the stories that tell who you are as a dealership, not what you do. Share with them that your office manager is celebrating her 15th year with the company. Praise your detailer for the meticulous way he cleans a car (don’t forget to show the photo). Reflect on how much you appreciate being a part of your community. You want followers to see you as

people who sell cars, not just a place that has cars for sale. One of the main reasons people flock to social media sites is to be entertained. They want to laugh (and sometimes cry), with their friends. They want to be “in” on what’s happening around them. They want to be a part of something. Posting and/or reposting funny or touching video clips, photos and graphics are an excellent way to provide entertaining content to your followers, just make sure that it has broad appeal and is not offensive. When followers know they can count on you for something entertaining, they will be more likely to take a second-look at what you have to say when they are scrolling through a never-ending sea of sameold, same-old. Stop looking at social media as a way to just tell everyone about how great you are, and start treating it like a conversation where you can hear them back. Every person has a desire to be acknowledged. When you overlook the chance to engage with your followers by commenting on their posts, or giving them a way to talk to you, then you have missed the entire purpose of what social media is. Ask sincere, open-ended, or creative questions that dare people not to stop and respond. Examples could include, “what did you love (or hate) about your first car,” “if you could drive any car you wanted, regardless of price, what would you choose,” or “what was the best road trip you ever took?” These kinds of questions allow your followers the chance to tell you something about themselves and for you to show DealerBusinessJournal.com

them that you are listening. Who doesn’t want to learn something new? Use your social media content as a way to educate your followers and they will not only appreciate your wisdom but start to see you as an expert. Posting tips for getting better gas mileage, details on an on-going manufacturer recall or how to know when you need to replace your tires are all examples of valuable information that followers would like to know and look to an expert to provide. Connection. The purpose of great content is to make a connection with your followers and turn them into potential customers, but not always at the same time. Social media is not the same thing as an online classified service. When someone is ready to buy a car, they don’t go to Facebook to shop for one. They do, however go there, and other social sites, to figure out where to shop for one. Here are the statistics. A 2012 study on social media’s influence of the auto buying process by Dealer.com says that “28 percent of the buying population feels that social media greatly influences the narrowing of their brand or model consideration. Twenty-seven percent said social media greatly influences their identification of a dealership from which to purchase.” Couple that with the fact that the same survey found that nearly “twothirds of those who use Facebook in the automotive purchase process indicated that a friend’s favorable post about a brand or vehicle positively impacts their own opinion of that brand or vehicle and 69 percent indicated that a friend’s favorable post about a dealership positively impact their opinion of ...Your Success Is Our Business

the dealership.” Sixty-nine percent! Wonder what the percentage rate is for shoppers who buy from a dealership that they are already fans of and follow regularly. The fact is people want to do business with people they know and trust. Just as you make a connection and take continual care for your current customers knowing their satisfaction leads to repeat and referral business, your connection with social media followers should be cultivated as well. Call to Action Every good advertising agency or marketing consultant knows that if you want good results you have to have an effective call to action. You must tell the audience exactly what you want them to do with the information they have been given. The same is true for social media engagement, with one added step; you have to make it easy for them to do what you want them to do. Remember, the majority of today’s users are interacting with your website, your social media profiles and your emails on a mobile device. The Neilson Company’s 2013 Mobile Consumer Report says that 96 percent of smartphone owners have a data plan and web browsing (82 percent), email (75 percent) and social networking (63 percent) are the top three activities users report using their phones for, so make sure

whenever you are communicating an digital call to action you are doing it with the mobile user in mind. For example, if you are running a special in your service department, you need to include an easy-to-find link that will take the reader to a page that tells them how to make an appointment. Make sure the links you include work and that they bring the user back to your (mobilefriendly) website not someone else’s. Avoid making the user follow a chain of links to get them where you want them to go. If they have to follow more than two taps (or clicks), you’ll usually lose them. Social media provides one of the most effective, affordable and engaging ways to reach your market, but you get out of it what you put in. Use the right ingredients, with the proper technique and you’ll be serving up sales in no time. Christy Taylor is a freelance writer and Editor of Dealer Business Journal.

April 2014 DEALER BUSINESS JOURNAL | 37

INDUSTRY NEWS

Market Watch Used Vehicle Prices Will Remain at High Level

verage wholesale prices of used cars and light trucks up to eight-years-old will decrease by a range of 0.5 percent to 1 percent in 2014, according to the NADA Used Car Guide in its latest report, 2014 Used Vehicle Price Forecast. This modest drop will keep levels on par with 2012 and 14 percent higher than 2010. “Economic growth is expected to accelerate to its fastest pace since 2005, keeping demand for new and used autos high,” said Jonathan Banks, executive automotive analyst for NADA Used Car Guide. “A strong economy, combined with other positive factors, leads to a more positive outlook for used vehicle prices in 2014.” Late-model used vehicles will be more plentiful, but supply will stay well below pre-recession levels, NADA predicts. Last year’s 15.4 percent rise in manufacturer certified pre-owned vehicle sales, predominantly derived from this age group, indicates there will be a

strong appetite for these units, Banks said. These factors will help counter the downward pressure associated with higher supply. “A decline in the supply of older models along with greater demand for older used vehicles in recent years will keep prices high,” he added. NADA expects that new market pressure and a higher supply of used vehicles will lead to a more substantial one to two percent decrease in prices for one- to five-year-old vehicles, while the tight supply of six- to eight-year-old units will result in prices being flat or rising slightly. At a segment level, annual changes in price will remain largely influenced by supply levels. Segments with a higher supply of late-model vehicles on both an annual and historical basis will experience the greatest decreases in price, including subcompact, compact and luxury mid-size cars, as well as compact utilities, NADA predicts.

Vendor Update PassTime’s Announces TRAX Auto Protection for Consumer Theft Recovery

assTime, an industry leader in GPS tracking and Automated Collection Technology products, has expanded its solution offering to include consumer theft recovery technology. TRAX Auto Protection utilizes advanced GPS tracking technology within a vehicle to assist law enforcement agencies locate the vehicle in the event of a theft. The unique program, offers benefits to both car dealer- as a way to monitor vehicle inventory on its lot until the vehicle is sold- and to the consumer as a GPS theft recovery system installed on their new or used vehicle. Unlike many theft recovery systems, TRAX Auto Protection’s value isn’t only in the event of a theft. With PassTime’s patented geo-fence technology, and speed and direction information which are standard with the TRAX Auto Protection solution, consumers are provided valuable information about their vehicles

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from day one. These powerful features are great for new teen drivers in establishing boundaries and safe driving behavior. “We are really excited about the new TRAX Auto Protection program. Dealers love that they can keep track of their lot inventory- test drives, parts vehicles, loaner cars. Consumers love the safety and security of the device, knowing they can find their vehicle when they need to and can utilize all its features from day one,” stated Jerry Morgan, executive VP of product development for PassTime. TRAX Auto Protection can be purchased through an authorized vehicle dealer. To find an authorized dealer near you or if you are a dealer who would like to join the TRAX Auto Protection reseller program, contact PassTime at 888-800-3848 or visit http://trax. passtimeusa.com DealerBusinessJournal.com

...Your Success Is Our Business

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