Dealer Business Journal August 2014 by Dealer Business Journal

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ALSO INSIDE: What Does a Good Banking Relationship Look Like? PAGE 18

...Your Success Is Our Business

August 2014 DEALER BUSINESS JOURNAL | 1

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DealerBusinessJournal.com

Contents

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Volume 11, Issue 8

IN EVERY ISSUE

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August 2014

ALSO

INSIDE

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CORNER OFFICE UPCOMING EVENTS BHPH BOOT CAMP PAYMENT PROCESSING

PAGE 18

August

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S JOURNA

BUSINES

LEGAL & LEGISLATIVE

BUSINESS OPERATIONS

Legal Opinion

Business Basics 18 Good Banking: An Accountant’s Perspective Maintaining a strong relationship with your bank and financing sources is important if you are looking to grow or need more capital.

ReInsurance 30 Managing Repossessions Taking lessons from successful dealers provides insight on how to build customer relationships that will survive repossessions.

ess ...Your Succ

12 More Scrutiny on Dealer Advertisements The Fed’s aren’t cutting any slack when it comes to dealer advertising, but neither are state authorities.

By Tom Hudson

General Counsel 14 Negotiating Your Next Bank Loan Agreement Before you sign on the dotted line, make sure you have these 10 items in place for your protection.

By Debra Dawn

LEADERSHIP & TRAINING Learn to Lead 16 Four Ways to Measure Managers It is important to measure effectiveness with results, but it is as equally important to examine their performance in four key areas of leadership and success. By Dave Anderson

...Your Success Is Our Business

ness Is Our Busi

By David J. Wiggins

Skip Tracing 26 Who’s In Your Group? The company you keep has a profound impact on the level of your success. By Alex Price Market Trends 28 Economy Falls and Used Car Prices Go Up Used cars are in high demand and pre-owned sales are outpacing new. The result is higher prices at the auctions and smaller gross profits. By Dani Sherrod

By Tim Byrd

SALES & SERVICE Smart Strategy 34 Be a Marketing Sniper and Aim for Precision Gone are the days of bulk mailouts that bring in droves of prospects. Today’s dealers are more effective when they streamline the process and make targeted marketing the goal.

By A.J. Ager

Female Perspective 36 Shifting Gears to Succeed Inspiration on how to drive any obstacle or challenge into your favor.

By Jodi DeVere

The Subprime Lending Bubble Subprime and deep subprime customers are easier to place than ever. It’s good news now, but could it burst later? August 2014 DEALER BUSINESS JOURNAL | 3

LEEDOM GROUP

Corner Office Thoughts and Observations on the Marketplace

ow, that last issue generated a lot of feedback. Our July issue on the impact of regulation was our most talked about issue in several years. One general trend we heard was “as a small business, I can’t afford much more regulation and bureaucracy.” I would humbly submit the only way to make a difference is to get involved. Too often as small business owners we do not fully appreciate the impact our voice can have – particularly on the state and local level. I felt it timely to offer this viewpoint given we are headed into the 90 day election cycle where advertising costs go up for us as dealers. Shift a small portion of your budget into backing the candidates that you believe in. Enough said about that topic. The marketplace is heating up. For some reason, subprime auto is starting to get lots of attention – and not all of it is accurate or even close to accurate in some cases. I see the third party subprime lenders in full swing. This actually is when Wall Street money backs subprime, in complete contrast to BHPH. We hear our BHPH dealers feeling the impact. Many dealers are seeing customers migrate upstream to traditional lenders, but it is slightly different this time. I have observed more lenders disregarding a BHPH loan or simply accepting the consumer will just return the car. I am sure many in the press see no issue with this trend and will spin it as “yes, but they are getting a new car.” The one thing that is virtually a certainty is when that same consumer is tired of that next, newer car we all know what will happen. The cycle will continue as they will return a car that had a 72 month loan in the 30th to 36th month when they are in a huge negative equity position. At that point the next subprime bubble burst will occur. I just hope some of these smart folks remember where to point that blame! As a dealer you must simply hunker down, ride out the storm and continue to make the same good decisions that got your business this far. It could get painful as the market heats up, the lending pendulum shifts too far and you feel the impact. Trim your expenses now, protect your financing and you will succeed in the long term. Speaking of succeeding, in this issue you will see the press release for the 21st Annual BHPH WORLD Convention. This event has been helping dealers succeed since 1995! The event will be held in New Orleans on April 12-14, 2015. I am privileged to serve as chair and keynote speaker for this year’s event and I want to solicit your thoughts on what we should include in the program. If you have a suggestion email me at chris@leedomgroup.com. I appreciate the feedback and look forward to seeing you at this premier industry event. Until next month, 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 Contributing Writers

Dave Anderson | dave@learntolead.com David Brotherton | davidb@leedomgroup.com Debra Dawn | debra@leedomgroup.com Tom Hudson | thudson@hudco.com Guest Columnists

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 August 2014

DealerBusinessJournal.com

Calendar AUGUST Aug. 19, 2014

Buy Here-Pay Here Leasing Academy

Sarasota, FL

Buy Here-Pay Here Sales Training Boot Camp

Atlanta, GA

For Buy Here - Pay Here Dealers, Managers and moderated by David Brotherton.

SEPTEMBER Sept. 2, 2014 Sept. 3, 2014

For Buy Here - Pay Here Dealers, General Managers, Sales and Finance Managers.

Buy Here-Pay Here Manager’s Boot Camp

Atlanta, GA

Sept. 4, 2014

Buy Here-Pay Here Collections Boot Camp

Atlanta, GA

Collection Managers, Collectors and Buy Here - Pay Here Dealers.

DECEMBER Dec. 8-10, 2014 Credit and Collections Conference For Dealers Principals, General Managers, Collections Managers, Collectors, Skip Tracers

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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LEEDOM GROUP

Upcoming Event 21st Annual BHPH World Convention Headed to New Orleans

he Leedom Group has announced the dates for the 21st Annual BHPH WORLD Convention to be held at the exquisite Hyatt Regency New Orleans from April 12-14, 2015. The BHPH WORLD Convention was founded two decades ago and has been the most attended industry event for dealers serving the BHPH and nonprime finance segment of the auto industry. The 21st annual event will feature an incredible array of speakers and workshops as well as an expo hall with over 100 booths. This year Chris Leedom, the convention founder, will offer the keynote address. This is the premier industry event that attracts the best and the brightest in the industry. “We are excited to return to the Big Easy once again. Many of our attendees requested we revisit New Orleans as we have done Vegas for the past 10 years. We listened and secured the premier property in New Orleans and I am looking forward to building our best program ever”, said Leedom, the Chairman for the convention. “We heard incredible feedback about last year’s event and we are going to keep that momentum going. We are planning to have over 40 workshops and presentations as well as our largest Grand Expo Hall ever. We are recognized for having the preeminent offering in education and best practices that this event has become known for since 1995.” added Leedom. The firm announced it will once again host a special celebration of the industry on Monday, April 13th, which is expected to draw nearly 1,000 attendees. Sponsorships and exhibit space are now being reserved and early registration is available by visiting www.bhphworld.com or calling 1-855-627-0809. We look forward to seeing you there.

Images courtesy of the New Orleans Convention and Visitor’s Bureau. From top to bottom: St. Louis Cathedral in Jackson Square, Bourbon Street Sign by Jeff Anding, Streetcar by Jeff Anding 6 | DEALER BUSINESS JOURNAL August 2014

DealerBusinessJournal.com

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August 2014 DEALER BUSINESS JOURNAL | 7

LEEDOM GROUP

BHPH Boot Camp

By David Brotherton

Run Your Recon and Repairs in Harmony

o have a successful BHPH Service Department you must do two things well: Cost-effectively and consistently recondition inventory to maintain sufficient lotready units at an acceptable quality level and support the collections function by providing superior customer service by handling customer repair issues in a timely and cost-effective manner while retaining the customer’s participation in the repair process and building value in your program. The really interesting part is that both of these have to be done at the same time. One or the other can be achieved but NOT at the expense of the other. They have to be done in harmony. Now let’s take a look at some of the underlying pieces that, together, make this possible.

Philosophy “If the car stops running, the customer stops paying.” I guarantee everyone reading this has heard this maxim at some point. Most of us probably use the phrase regularly. The real question, however, is not whether we say it; it is whether we believe it. Here’s another one: “this is a cash flow business.” The largest ingredient to our success lies in how effectively we can collect our

portfolio over time. Sales volume is critical to this. Without sales, we have no receivables to collect. Without effective collections, we all run out of money and go out of business. What is the service angle to this? Think of it in terms of investment. Reconditioning is an investment in your ability to attract and sell customers. A good reconditioning effort helps maintain your reputation (nothing creates headaches like major mechanical issues immediately after sale) and helps remove the vehicle component to early collection issues. Service work is an on-going investment in the portfolio. The accountants call this policy/ goodwill and warranty/service contract expense. Taking care of the customer after the sale is critical to the collections/cash flow equation. Leverage the customer into maintaining on-time payments by using policy/goodwill work. This can go a long way toward maintaining on-time portfolio performance. Customer Participation There are three ways to handle a non-warranty repair: Provide service at no charge to the customer, provide it at full charge to the customer to share some of the cost of repair. No Charge to the Customer This is an easy way out. We just fix it and the customer goes away happy, right? The problem

8 | DEALER BUSINESS JOURNAL August 2014

with “just fix it” is two-fold: We aren’t getting any value for what we are doing and we are enabling the entitlement mentality that makes everything our fault and we always will have to bend when the customer doesn’t want to pay. Word will get out that all someone has to do is scream a little and they will get it fixed for free. Full Charge to the Customer This option costs a lot less in the short run and it certainly eliminates the entitlement argument. Since our customers tend to not have cash available for auto repairs, however, it also tends to result in a lot of dropped off voluntary repos, which decreases cash flow in the long run. The word will get out that XYZ Auto won’t help anybody and its cars are defective. “Just say no” works for drugs. It doesn’t work in our business. Customer Participation in the Repair This is a case where taking the middle road will pay the greatest dividends. Working with the customer to determine what they can afford to pay for a repair takes more time (and certainly requires a good service manager) but it reinforces the notion that this is their car and they are responsible for taking care of it. Word will get out quickly that XYZ Auto will help you, but you aren’t getting it for nothing. Every opportunity an organization has to beat back the entitlement mentality is ultimately a win for the collections team and it reinforces DealerBusinessJournal.com

the idea and responsibility of ownership. I think you can tell that I lean toward having the customer participate in the repair. This works well provided that you have the right service manager who has been trained on how to close a customer on paying part of a service bill. As much sales skill is required here as you expect from your sales managers. The customer has to be shown value for their part in the repair or it is useless. We want the word getting out that you can get a fair deal from XYZ Auto…not the opposite! Staffing Staffing a BHPH service department requires a team that can serve two masters and a manager that can do both at the same time. A good service practice is to run the shop as two departments: Reconditioning and Service. Reconditioning Your reconditioning operation is about quality and quantity. A sufficient quantity of units reconditioned to an acceptable quality standard produced consistently to keep pace with sales is required. Units should be reconditioned to your cosmetic, drivability and safety standards. Reconditioning technicians should be hired with an eye for speed and accuracy. They should be able to consistently perform above “book” standards. Did I leave something out? Sure I did. Who inspects the vehicles? ...Your Success Is Our Business

In a split shop environment like the one I am describing, a qualified recon inspector would be a tremendous asset to the operation. This technician needs to be one of the better ones. Preferably a thinker with strong diagnostic skills, your inspector should be trained to know your standards and to identify what needs to be done quickly and consistently. They will write up the recon estimate and order the parts. The car goes back in line until all the parts are in and then it is assigned. Techs are far more products, when an inspector is ordering the work and the parts. Service Service technicians are your trouble-shooters and your heavyline technicians. Service technicians have to accurately and quickly diagnose customer issues and have the experience to know how to fix the problem. This doesn’t mean just throwing parts at a problem. To keep costs as low as possible, a diagnostic service technician has to understand the underlying causes of problems and know when a small repair is needed over a large one. Service techs will have a lot of tickets thrown their way. Everything from major electrical system issues to oil changes have to be handled quickly and properly. Most importantly, this team must have the attitude that the job isn’t done if it isn’t done right. Your customers expect the repair to be done right the first time. So do your collectors! Good service techs can really make

the difference when it comes to keeping a customer in their vehicle. Admittedly, splitting the shop is very difficult in the beginning but dedicating your labor to specific tasks allows you to play to your strengths instead of trying to make every technician do everything. Specializing your shop labor helps your manager wear both of the hats at the same time. Bringing It All Together Successfully managing a BHPH service operation is dramatically different from the retail environments that many shop personnel and managers understand. You cannot forget this! Even the most basic building blocks of the shop structure change when transitioning to BHPH. It is about selling the customer value, not up-selling repair jobs. It is about maximizing efficiency and production and not profits. Training your team to have excellent customer service and sell the value of what the customer is getting for their dollar, will go a very long way to keeping them in their vehicle longer. Collections and service need to work hand in hand to keep customers paying. Your service department is there to take care of your customer base, not the other way around! David Brotherton is a consultant and Twenty Group moderator with the Leedom Group Contact him at davidb@leedomgroup.com

August 2014 DEALER BUSINESS JOURNAL | 9

LEEDOM GROUP

Payment Processing

By Jon Leedom

Understanding Your Payment Processing Statement

erchant Processing Statements come in many shapes and sizes and most of the time they are very difficult to understand. Having a better idea of what your statement is saying may give you the upper hand in finding better pricing. One of the most important things you should know is your pricing model. There are three standard possibilities: Tiered, Fixed and Interchange Cost Plus. Paymaxx Pro exclusively uses Interchange Cost Plus because it gives you the benefit of the federal Durbin Amendment. In October of 2011, the government passed an amendment regulating

Another important part of your statement are any fees with the acronym (E.I.R.F.) next to it. An Electronic Interchange Reimbursement Fee indicates that specific transactions were charged at higher rate based on the way they were processed. These higher charges can be lowered or avoided all together by following a few simple tips. Be sure that the transaction date is not greater that two days from the authorized date; ensure the authorized amount and the settled amount are the same; and do not process any payments after you have batched for the day. These are a just a tips to keep in mind, and lower your processing fees. Recently, a prevalent cost found on many statements is for PCI Compliance. The Payment Card Industry is really beginning to enforce information security Having a better idea of what on its merchants. your payment processing Most processors statement is saying may give are not asking you to become you the upper hand in finding Certified PCI better pricing. Compliant, which is a very tedious “Big Banks” allowing them to and expensive process. PCI only charge 0.0005% on volume Compliance, however, does and $0.22 per transaction of result in the highest standard debit card transactions. This of information security. Most benefit only applies to those on processors simply ask you to Interchange Cost Plus pricing. go online and fill out a PCI If you are on Tiered or Fixed Compliance Questionnaire. Pricing you could be paying They now charge up to a $50 upwards of 2.55% for the same monthly fee to those who have transaction. not filled out the questionnaire.

10 | DEALER BUSINESS JOURNAL August 2014

Save yourself the money and peace of mind and be sure to fill out the questionnaire. This alone could save you up to $600 per year. Paymaxx Pro can provide you with the information and assistance to complete this with ease, and we are Certified PCI Compliant! Early Termination Fees, though not on your monthly statement, can result in a large charge to your dealership. Most merchant processing contracts have a three-year term; if you choose to close your account prior to this you can be charged anywhere from $50 to $495. What you should know is that while in most cases you cannot negotiate the term, the termination fee is negotiable and can sometimes be avoided in certain circumstances (i.e. better pricing found elsewhere, unhappy with services, and never began processing). Take a look at your next statement and see if you are really getting the best rates possible. If you’re not, send you statement to Paymaxx Pro and we’ll give you a side-by-side analysis (free of charge) showing you how much you can save. Jon Leedom is the coodinator of Paymaxx Pro with the Leedom Group. He has 15 years experience in the financial services industry as well as the buy here-pay here business. He can be reached at 800.966.8733 or via e-mail at jon@leedomgroup.com DealerBusinessJournal.com

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LEGAL & LEGISLATIVE

Legal Opinion

By Tom Hudson

More Scrutiny On Dealer Advertisements

he Federal Trade Commission has been on the warpath when it comes to dealer advertising. Its national program, Operation Steer Clear, has gotten a lot of recent press coverage. The FTC isn’t the only lawman in the posse, though. State authorities also have jurisdiction over dealer advertising. Because they are frequently more familiar with what dealers in their states are doing, they are often very attuned to questionable advertising practices. A good and recent example of this state interest in dealer ads comes from Oregon. A July 24 release from the Oregon Department of Justice started with the following warning: It has come to the attention of the Department of Justice that dealers have been failing to accurately disclose the offering price of vehicles. Motor vehicles

are generally a negotiable price item and dealers do not need to advertise a set price for vehicles offered for sale. However, when a dealer advertises a vehicle at a certain offering price, it must disclose that offering price to prospective customers and permit customers to purchase the vehicle at that price. Additionally, any reference prices used by the dealer must be accurate. The DOJ release identified several specific practices that it identified as “violations of the law.” Readers of Spot Delivery will recognize some of the bad practices as ones we’ve harped on for years. DOJ’s first example involved a dealer advertising an “internet price” on its website. Sometimes, noted the DOJ, the “internet price” is accompanied by a statement that

Dealers everywhere should take note of this release. Make sure you know the rules, and don’t depend on some ad agency for your compliance.

12 | DEALER BUSINESS JOURNAL August 2014

a consumer must print the price or a coupon to receive the advertised price. This special deal for Internet buyers runs afoul of Oregon law, which requires that when a dealer advertises a sales price for a vehicle, that price must be posted on the vehicle and all consumers must be able to purchase the vehicle for that price. The DOJ’s second gripe involved dealers who advertised a “cash price.” The DOJ pointed out that offering a different sales price to cash customers than the price offered to “financed” customers violates the federal Truth in Lending Act and Oregon rules. Finally, the DOJ targeted what it called “reference pricing,” in which a dealer states a “market value” either in comparison to an offering price or as the offering price. This “market value” price is typically wholly unrelated to a price guide value (such as KBB) for used cars, MSRP for new cars, or the average sales price of a similar vehicle. More specifically, the DOJ appears to be going after dealers who falsely claim, for example, that a car’s price “was $12,000” but “is now $10,995.” That sort of pricing can be done under Oregon law, but only by following very strict guidelines set forth in the regulations. Not content to merely identify the sorts of ads the dealers shouldn’t use, the DOJ went on to scold dealers like an angry schoolmarm: “It is simple to DealerBusinessJournal.com

follow the law and there are no excuses for failing to do so. When a dealer advertises a sales price for a vehicle, that price must be posted on the vehicle and all consumers must be able to purchase the vehicle for that price.” Dealers everywhere should take note of this release. Oregon is just the latest state to zero in on dealer advertising practices. Make sure you know the rules, and don’t depend on some ad agency for your compliance.

...Your Success Is Our Business

Good sources of help for advertising compliance? Your first stop should be a visit with your lawyer. In addition, many state new car and independent dealer associations have complied advertising guides. The Federal Trade Commission has some very useful material on its website, www.ftc.gov. Smart dealers designate someone to be responsible for dealership advertising, learn the rules and review all this helpful advice, and

give that person a hotline to the dealership’s lawyer for difficult questions. Not-smart dealers don’t. 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.

August 2014 DEALER BUSINESS JOURNAL | 13

LEGAL & LEGISLATIVE

General Counsel

By Debra Dawn

Negotiating Your Next Bank Loan Agreement

n general, bank loan agreements are adhesion contracts--you have to agree to their terms or take your business elsewhere. However, this does not mean you should not attempt to obtain compromise language, at least for the more onerous provisions. As the saying goes, “nothing ventured, nothing gained.” Accordingly, I have provided my top 10 list of egregious financing terms for your review.

No Prepayment Penalties: The danger of this provision is not that you will no longer need financing (although that would be nice), but that you find a bank willing to lend funds at a lower rate during the life of your contract. All loans have a term and even a significant interest rate differential can be offset by prepayment penalties in existing loan documentation.

No Personal Guarantee: Unless this is your first business loan, there is no reason for the corporate principals to provide a bank with a personal guarantee. Not only does the guaranty subject you to financial liability in the event the dealership or RFC defaults on a covenant, but it can pose a problem to your personal net worth in the event

you are attempting to finance a house. Or boat. Or private jet. By the way, I feel the same way about cross company guarantees.

No Automatic Renewal: At first glance, an automatic renewal provision might seem to be desirable insofar as there is no danger of funding being pulled out from under you. However, it is far more likely that you will not remember to notify the bank 90 (or 180) days prior to expiration and your high interest rate will not be up for renegotiation. More importantly, in the event you are researching alternate funding sources, you may not be able to move for an extended period of time – at least without significant prepayment penalties. (See Number 1).

Venue: This is a provision that is too often ignored in a contract negotiation. It is a term which requires any disputes to be brought in a certain location. That is fine if the location is in your state. However, far too frequently bank venue provisions require you to go to a far off land in order to either sue or arbitrate. This will not only significantly increase your cost of bringing or defending an action, but it will require augmented outlays of travel time. If you cannot agree on venue, leave it out altogether to be argued if and when a dispute takes place.

14 | DEALER BUSINESS JOURNAL August 2014

Prohibitions Against Indebtedness: This is a

typical financing covenant that is acceptable if and only if there is a clear definition of what types of indebtedness are permissible. For example, a corporate credit card is indebtedness, but one that should be acceptable in the normal course. Likewise, any already existing personal loans made to, or by, principals should be excluded.

Auditing: In all loan documents, banks insist on receiving financial statements and being able to audit those statements. However, traditional loans frequently require that those statements be GAAP (Generally Accepted Auditing Principles). If your business is not run using GAAP, this must be disclosed to your financing institution and an exception set forth in the loan documents.

Litigation: Traditional loan documents likely contain this provision, “There are no actions, suits, or proceedings at law or in equity or by or before any governmental authority pending, threatened against, or affecting Company.” If an angry customer threatens to sue, wouldn’t that violate this codicil? Likewise, if the CFPB decides to pass a regulation affecting all BHPH dealerships, that too would result in your being in default of this loan covenant. It is overbroad. Instead, you need to insert language which limits the reach of this proviso. DealerBusinessJournal.com

Wherever The Road Takes Them... You’re Connected.

Materiality: This is a word that should appear repeatedly throughout your loan document. If there is a requirement that you report all litigation, the word “litigation” should be preceded by the word “material.” If there is a provision stating that financial adverse changes must be disclosed, once again the word “material” must be inserted before “financial adverse changes.” Not only does this prevent you from having to repeatedly report minutia to the bank, but it can prevent you from being held in default.

Cure Periods: Let’s face it. With the plethora of provisions contained in a loan agreement, chances are that at some point in the life of the loan (especially if you leave in the evergreen provision), your dealership will be in default of at least one covenant. A back-up to the materiality language is to ensure that there is sufficient time to cure a default before onerous penalties (such as default interest rates) are instituted. The appropriate time for cure may vary depending on what covenant has been violated. Feel free to request separate cure periods for separate covenants or draft an entire Right to Cure section.

Do Not Agree to Waive Your Rights in Advance: Typical waiver language in a bank financing contract is as follows: “To the extent permitted by applicable Law, Company waives protest of this agreement and notice and opportunity to be heard before exercise by Bank of the remedies of self-help or set-off permitted by law. Company further releases Bank from all claims for loss or damage caused by any act or omission on the part of Bank or its respective officers, attorneys, agents, and employees.” Do not sign a contract with this language. You are smarter than that. 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

Four Ways to Measure Managers

ltimately, we all are measured by results. However, results alone can be a misleading indicator for how effective a manager is in his or her role. For instance, while speaking recently in the UK, I cautioned that the fact they have the fastest growing economy in the western world, and are having their best automotive retail sales year since 2005, is very possibly disguising the stench of mediocre management within aspects of their operations. Hot economies, popular products and favorable incentives make the terrible appear tolerable, the subpar look good, and the good appear great. To gain a more objective view of your manager’s actual effectiveness you must dig deeper and examine four key areas that serve as an acute and telling report card of their true abilities and impact. Culture A leader is the chief architect and primary influencer of his or her culture. They can either shape it productively, or have it destructively shaped by outside forces like indifference and entitlement. Culture is palpable; you feel it before you see it. In high performing cultures the following traits are common fare: • Clear, high,

• • • • • • • • • •

standards in writing for daily, weekly and monthly expectations. Very little gray area. Very little entitlement. Very little, if any, dead weight. Swift and firm accountability. Strong team work. Strong peer pressure to perform. High integrity. Great customer experience resulting in outstanding CSI. A “second mile is standard” work ethic. Leadership acts as a catalyst and is daily engaged in the trenches.

Weak cultures, on the other hand, are the result of complacent leaders who lead from their office chair and ride market momentum, going through the motions rather than maintain a daily killer instinct intent on running up the score. Traits common within such cultures may be any of the following: • Unclear standards and expectations. • Lots of gray area, confusion over what’s expected and poor communication over all. • Entitled employees who believe tenure, experience and credentials should substitute for results today. • Deadweight producing standards unworthy of the organization is routinely tolerated.

16 | DEALER BUSINESS JOURNAL August 2014

• • • • • • •

Little accountability. An “every man for themselves” outlook. Peer pressure to conform. Sloppy ethics. Also-ran customer experiences resulting in average or below CSI. A “just enough to get by and get paid” attitude. Disengaged leadership; aloof, inaccessible, unavailable and indifferent.

At the end of the day, culture makes up a significant portion of a leader’s report card because it directly reflects the image of the person responsible for it. Strong products, robust consumer demand and aggressive incentives can disguise cultural infections like those listed, and the deficient leader creating, or enabling, them. The quality of people they’ve attracted and developed Without question, the quality of culture a leader creates helps determine the quality of people they’re able to attract and retain. Thus, evaluation points one and two in this piece are cousins. Here are some checkpoints to evaluate this key leadership responsibility: • The team members grow under the leader’s watch; they consistently improve skills, habits and attitude. • Negative, selfish, divisive

DealerBusinessJournal.com

• • •

cultural cancers aren’t tolerated; regardless how high their production. There is very low turnover. People working for the leader are often given more responsibility and/or promoted. The leader consistently trains, coaches and mentors; he has installed these disciplines within his culture and views them as non-negotiable and not something he’ll get around to after “all the important stuff is done.”

In my book, Up Your Business: Seven Steps to Fix, Build or Stretch Your Organization, I explain the business Law of Attraction which states that: Leaders don’t attract who they want, but who they are. In other words a “6” leader is not going to attract 8’s, 9’s or 10’s; nor can he develop someone to those levels. Thus you can greatly judge the quality of your leaders by objectively evaluating the quality of the people they’ve attracted and developed; like culture, they are in his or her image. How they’re getting results. Most dealers are so delighted when a manager gets results they fail to look closely at how he’s getting them. That can blind a dealer to future problems with this manager because the how shows where he or she is headed. Let me explain: • If he gets results because he’s

•

built a great team that excels when he’s away, or off work, that’s a big plus. However, if he gets results because he works bell to bell every day, never takes a day off, and has made his people so dependent on him they’re useless when he is gone, he’s headed for trouble. If she gets results because she’s set clear expectations, has trained people to reach them, and holds them accountable for getting the job done, you’ve got a winner. If, on the other hand, she gets results because she micromanages, threatens, bullies and berates people into performing well, a train wreck awaits. If he gets results because he’s got a hot product and strong incentives you may be vastly overestimating his true abilities. If, however, he’s getting results because he maximizes each opportunity and has learned to play a poor hand well you have someone special.

I know in our fast-paced world we like to glance at results, see that they’re good, declare that we’ve got a racehorse manager, and move on to what’s next. But to accurately

evaluate your manager’s abilities you’ve got to dig deeper into the how. It portends the manager’s future. Their performance versus market. If Audi sales are up by 23 percent nationally, and my Audi manager’s department was up by 18 percent, I may have a problem. When Nissan sales are down 8 percent, but my Nissan manager’s department is flat, I may have an eagle. Obviously, you can’t look only at market conditions, but they must be weighed into the four-part equation. There are always “exceptions”, “we’re unique because…” and other “yea-but’s” that can excuse, explain, or acclaim performance. This is why to get a true picture of your manager’s worth you must evaluate all four of these factors: culture, people, the how, and market performance. While there are a host of other helpful criteria, these four are simple, easy-to-measure, and will go a long way in telling your manager’s real story. 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.

August 2014 DEALER BUSINESS JOURNAL | 17

BUSINESS OPERATIONS

Business Basics

By David J. Wiggins

Good Banking: An Accountant’s Perspective

fter the recent recession and bank crisis that occurred, maintaining a strong relationship with your bank or other financing source is more important than ever. For many of us, our bank is our partner in the truest sense of the word. If they decide they will not continue to lend to us, it will often result in our dealership or related finance company (RFC) closing. At a minimum, it creates stress for us as we search, and work to get approved, by another bank. With the understanding of how important it is to have a good bank relationship, why is it so many of us don’t understand, or give enough attention, to the most important items necessary to secure financing or keep our finance source satisfied? What am I talking about? Your financial statements, accounting and other financial information.

performance. Over two-thirds of the time I am not able to get this information, or it does not exist. Many bankers tell me that half of the reason they cannot finance a Buy HerePay Here dealer’s operation is that the accounting and financial information is not trustworthy, timely or sufficient for their review. Many people make the mistake of assuming if they keep a strong relationship with their banker that they will obtain or keep their financing. This only goes so far. It is the superficial part of the bank relationship. It is good to have, but will disappear, as many of us found out over the past few years, when your banker moves to another position or leaves the bank. The keys to a good relationship are accurate timely financial statements, strong accounting personnel or external accounting support, and preparation of other financial information needed by your bank. Many dealers do not succeed in this area primarily because it is

Many bankers tell me that half of the reason they cannot finance a Buy Here-Pay Here dealer’s operation is that the accounting and financial information is not trustworthy, timely or sufficient for their review. Dealers looking for assistance in getting financed send more people to seek out our firm than any other. I normally meet with a new dealer or financing client and ask to see their financial statements, bank reconciliations and static pool or other information on portfolio

not a strong focus of theirs. They are too focused on sales, collections, personnel or other operational issues. These are obviously important, but will all disappear if they lose their finance source. The key financial information banks need are two to three years

18 | DEALER BUSINESS JOURNAL August 2014

of financial statements, bank reconciliations, loan loss history and current information, and personnel financial statements for the dealer himself. If you are a BHPH dealer with a related finance company (RFC), you should be able to provide year-end combined financial statements as well as additional information showing the separate statements of the dealership and RFC. Monthly financial statements should not be vastly different than year-end financial statements and should be timely. It is clear the dealership and RFC are integrally related, and that one could not exist without the other, therefore the best format for a bank to review your operation is as one business with everything together. A combined, properly formatted financial statement allows the bank to run its analysis easily and understand your financial position. If you are seeking new financing, I would suggest you have two to three years of combined year end financial statements, and that these show some profitability for each year. You may want to consider waiting to apply for financing until you do show consistent profitability and have a good story to tell. Don’t create a first impression with the bank until you have “your ducks in a row” and can show good results. Try to have all of the information we have discussed ready in advance of your meeting with your banker. Nothing looks worse than when you court a bank and develop a good relationship and then can’t quickly provide the information they are looking DealerBusinessJournal.com

for. This immediately starts the bank questioning the accuracy of your information and leaves them wondering if you really have a good understanding of your business. Assuming you have now prepared good financial statements, be certain that the information used to prepare the financial statements is accurate. Bank reconciliations must be current. It amazes me how often I see financial statements, but when I ask for the most recent month’s bank reconciliations I get excuses and ultimately find out they are not up-to-date. If they are not done, I start to wonder if the statements I am seeing are accurate. Many larger organizations will be surprised how often bank reconciliations are not kept up to date or are not complete. Most dealerships should be able to provide detail reconciled information for every account on their balance sheet. This means the amount of cash should be able to be tied out, reports of the amount and age of inventory should be easily to obtain, the company’s liabilities and shareholder debt can be tied out, and retained earnings shown on the financial statement agrees with last year’s tax returns. It’s surprising how many times a banker says “it concerns me that the amount they show on their financial statement as owed to our bank doesn’t agree with what we show at the bank.” If you are now able to provide good financial statements and can support the numbers shown on those statements, the next piece is to gather financial data to support your business operating fundamentals. This will generally include some or ...Your Success Is Our Business

all of the following: • Static pool or other loan loss analysis, • Inventory reports that show value and aging • Bank loan covenant testing • Eligible borrowing base information • Shareholder personal financial statements • Current note receivable listing that shows delinquency and aging These reports, along with your financial statements, will allow the bank to understand your business and lead them to trust your reporting to them. If you are able to provide this information, and your bank still doesn’t like the results, it may mean they feel your business isn’t strong. Even though unpleasant to hear, this may represent a warning that there is work to be done at your company and lead you to start working to shore up your operations. I think you will find if you work on all of these items before meeting with your banker, or trying to find a new banker, it will greatly assist you in developing a good sound relationship with your bank. It will lead to trust in you and your operation. Many people also find if they handle these items well, that their bank will work with them through the tough times--not just the good ones. Dave Wiggins is an automotive CPA with CliftonLarsonAllen and has expert knowledge of the innerworkings of both retail and Buy HerePay Here operations.

Dealer Business Journal is a publication you will find in the hands of over 20,000 dealer principals, general managers and dealership executives each month. It is a magazine read by the decision makers of the industry. Don’t miss out on an opportunity to connect with this educated, experienced group of professionals in one of our many media outlets:

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August 2014 DEALER BUSINESS JOURNAL | 19

COVER STORY

20 | DEALER BUSINESS JOURNAL August 2014

DealerBusinessJournal.com

The used car sales market is hot again, and financing is flowing. Conditions are pointing at a subprime bubble, but no one knows when or if it will pop. By Christy Taylor

here seems to have been a rebirth in auto sales over the past few years. The headlines say it all: “Used car market expected to roll in 2014” and “Forecast Strong for Used Car Sales Through 2020.” Cue the ticker-tape parade and bigband swing because Happy Days are Here Again! Right? Customers are coming into dealerships today looking to buy cars, but most of them do not have the cash to pay in full. As a result, the credit spigot has been turned back on and it is flowing with financing for nearly all segments, especially the deep sub-prime. It’s the scenario everyone has been praying for over the past five years. It’s finally here, ready to be ceased. While this is all good and welcomed news (who would ever say that increased sales were bad?), smart dealers know to not get too excited, yet. If the last half a decade has taught the industry anything, it is not to count your chickens before they’re hatched, or rather, don’t bank on your customer’s payments until the checks are cashed. Current trends in the auto financing world may be suggesting that the cycle has finally hit an upswing, but they might also be warning that what goes up must come down. ...Your Success Is Our Business

The total dollar amount of auto loans outstanding reached $811 billion in 2014. That is an all-time high, up $84 billion from 2013. It’s the largest open portfolio balance since the data started being tracked in 2006. — Experian Automotive

Anatomy of a Bubble When a child suds up a bubble wand for the first time, purses his lips and blows he witnesses something really amazing. He sees a magical, iridescent, lighter than air, bundle of bliss that causes such delight and wonder. The second attempt brings just as much enjoyment and satisfaction as it drifts off into the air and out-ofsight. After a few minutes, the initial euphoria starts to wane and he has to amp up the excitement. He starts slowly, adding air a little at a time until it gets bigger, and bigger. Confidence builds and he continues to blow. There’s a blatant confidence developing and he believes that the more air he puts in, the bigger the bubble will get. His excitement makes him completely oblivious to the fragility of this scientific wonder and when it finally pops, he is in tears, confused and not sure what to do next. Sound familiar? Just like the kid trying to blow the biggest bubble, pre-recession banks and mortgage companies were financing loans faster than the hammers could nail or the realtors could write the contracts. Values skyrocketed to unbelievable levels. Homeowner’s were cashing in on their new-found equity like they had

hit the lottery. People were living the high-life without consideration that the bottom would ever drop. But it did, and it was devastating. Looking for a Sign It has been over five years since the loose-lending mortgage industry’s house of cards came crashing down and this country’s long, slow recovery started. Some would argue that it’s still not over, but every quarter the flatlining economy seems to be willed back into a pulse. The auto industry has suffered greatly during the Great Recession. Cars became scarce, and so did customers. Lenders left the scene and took away the capital. Dealerships either closed or adapted. For the survivors, the used car landscape has changed a lot. Dealers, and lenders, have had to do what they have to do to stay in business. Longer payment terms. Looser credit standards. Rising vehicle costs. It might be risky, but Continued on Page 22

August 2014 DEALER BUSINESS JOURNAL | 21

COVER STORY SUBPRIME BUBBLE continued from Page 21

first quarter of 2014 was $17,927 this is what the new normal for the according to Experian, a $395 auto sales industry looks like. increase over the past year. According to Experian Automotive, the majority of used car Who’s Blowing the Bubble? loans on the books today have terms Most dealers remember how between 61 to 72 months, reaching credit markets froze up in 2008, 38.5 percent in 2014. That makes causing sales to plummet and a five-year loan now the standard. dealers scrambling to get customers Loans with terms between 25 to 36 financing. Even if there was a months are the smallest percentage customer ready to buy there were no at 7.1 percent. What might be the lenders able to lend. most noteworthy of the Experian As part of the strategy to statistics is that the greatest stabilize a downward-spiraling percentage of change was in the 73 economy, the US Federal Reserve to 84 month term category, growing created a program called the Term over 25 percent from this time last Asset-Backed Securities Loan year. Facility “Longer-term loans continue to dominate the market,” Experian Automotive Senior Director Melinda Zabritski said. In addition to longer terms, it looks as if lenders are having to go deeper as well. Larger percentages of loans are being issued to borrowers in the sub-prime credit score range. As deep subprime (<550) loans have increased 21 percent over last year, super prime loans decrease by six percent, according to Experian. Another factor to add in the mix is the average amount being financed. Inventory shortages and over last year. market demands have driven — Experian Automotive used car prices to higher numbers. The average amount financed for a used car in the

61-72 months

is today’s average auto loan term.

Terms of

73-84 months

are up 25%

22 | DEALER BUSINESS JOURNAL August 2014

(TALF). Under TALF, the Federal Reserve Bank of New York lent up to $1 trillion to holders of top-rated ABS loans (which included student loans, auto loans, credit card loans and SBA loans) and re-opened the market for auto loans. Auto financing started with prime credit borrowers but eventually, by 2011, had trickled down the FICO scale and subprime auto lending started to pick-up again. It’s been hot ever since. A recent Standard & Poor’s report commented that rated subprime auto loan ABS issuance through June 30, 2014 reached $11.4 billion, up 15 percent from the first half of 2013. Today’s field is comprised of both large and small firms, as well as veterans (like Security National Automotive Acceptance Co., LLC and Byrider Finance) and first-time issuers and newbies (e.g. Exeter Finance Corp. and Flagship Credit Acceptance LLC). “Wall Street is virtually throwing money at lenders, who are enthusiastically offering that money to dealers,” says a quote from Manheim’s 2014 Used Car Market Report. “Will lenders and dealers push this credit cycle too far and start making silly loans? Absolutey! But the bubble hasn’t been reached yet; might as well make the most of it while it lasts.” When Will It Pop? Continued on Page 24 DealerBusinessJournal.com

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August 2014 DEALER BUSINESS JOURNAL | 23

COVER STORY SUBPRIME BUBBLE continued from Page 22

There is no need to hit the panic button yet, but there are indicators that it may be time to start planning for a less-than-great future. The Standard & Poor’s report says credit metrics in recently issued 2013 and year-to-date 2014 subprime retail auto loan ABS are deteriorating, raising questions about whether

the subprime auto loan sector has overheated. Fueling the concern are increases in payments 61 days or more delinquent in securitized subprime auto loan ABS rated by Standard & Poor’s, rising 37 percent in May. The report also cited static pool cumulative net losses that are trending higher as lenders continue to ease their credit standards and return to their historical lending activities. “Wall Street is virtually throwing The improving money at lenders, who are economy could also put added enthusiastically offering that pressure money to dealers. Will lenders on the subprime and dealers push this credit market. cycle too far and start making S&P says that some silly loans? Absolutey! But the lenders have been bubble hasn’t been reached yet; growing might as well make the most of it rapidly and it remains to while it lasts.” be seen if they — Manheim’s 2014 Used Car Market Report are originating and collecting loans with adequate discipline and controls in place. Some lenders have also been observed lowering dealer discounts

and raising allowable LTVs, which are tell-tale signs of increasing competition as they fight for dealer business. Putting it in Perspective Though it is large, the size of the subprime auto loan market is a tiny fraction of what the subprime mortgage market was in the boom before the bust, so even if a Doomsday, worst-case-scenario were to happen for most people the aftermath would not be as great. A repossession doesn’t bring down the values of the other cars in the lot and force families in the streets like a foreclosure can, but it can pose a black-eye to the dealer who was counting on the payment. As always, the dealers who pay attention, have a plan in place and position themselves for opportunity will be the ones to prosper, whether the bubble pops or not. Article Sources: State of the Automotive Finance Market First Quarter 2014, Experian Automotive 2014 Used Car Market Report, Manheim As Subprime Auto Lending Heats Up, ABS Transactions Remain Adequately Protected Against Increasing Credit Risk, Standard & Poor’s

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BUSINESS OPERATIONS

Skip Tracing

By Alex Price

Who’s In Your Group?

love the verse in the Bible found in Proverbs 27:17: As iron sharpens iron, so one person sharpens another. This is one of my favorite scriptures as it reminds me to keep my inner circle full with positive, forward thinking people. Ones that challenge me mentally, physically and spiritually but as life take us down different paths there are times when those in our circle takes a different path and we must make changes for continued growth. In my Skip-Tracing classes I teach that it is human nature for each of us to have a core group of people, both professionally and personally, that we surround ourselves with. It is the skip-tracer’s job to locate those people in order to gain the subject’s new location. We all have the core group of people and the beliefs and attitudes of those within it affect our personal and professional life. It is important to take a look at your own core group and know as we go on our various paths of life, the people within this group change as we lose contact with some friends and make new ones. Despite the rotating roster, we always have a few that remain within the group for a lifetime. When one of these core people becomes a negative force, their toxicity can contaminate you. I am certain each of you have a friend, a client or a co-worker who

can suck the happy out of a room just by entering it. They are the Debbie Downers, always ready with bottomless pits of bad news and judgmental perspectives. They can magically/tragically turn any positive into a negative. There’s also the sly manipulators, who figure out how to push your buttons to bring out your anger. Then you have the narcissists who are so completely focused on themselves that they function as a black hole, swallowing up any positive energy that you may harbor. Those who aren’t building you up are bringing you down. A much-publicized example is the melt-down actress/actor who spends the big bucks on extended stays in rehab to become clean and sober, only to return to the same negative group that enabled the behavior in the first place. Predictably they almost always return to their usual bad habits. There are many types of negativity and many ways to model the behavior. These undesirables with their destructive energy will affect you both personally and professionally, as you expend more time and effort dealing with them, deflecting them, and trying to avoid contact with them altogether. I remember my father telling me when I was a kid that, “You are known by whom you hang with, young man.” As an adult, that simple advice guided me in building a core group of beneficial relationships among people who foster positive growth and share common goals. If you have someone toxic in

26 | DEALER BUSINESS JOURNAL August 2014

your group, may I suggest that you take a play from baseball and change your line-up? Taking that player out of your game will measurably improve both your personal and business relationships, and ultimately boost your winnings. I can’t take credit for the post or the title this week. While attending an American Recovery Association conference. I had the honor of meeting and listening to Chris Hogan of the Dave Ramsey Group. Mr. Hogan’s topic was leadership, and during his keynote address he made the simple statement about ‘Changing Your Line-up’, really hit home for me and I had to share this enlightening concept as it is something we skip-tracers must do in order to grow our rolodex and our business but as humans we also need to practice this concept to build fruitful lives! It is also important to take a long look in the mirror at times just to make sure that you are part of the solution rather than part of the problem. Do yourself a favor and check our Chris Hogan’s blog at www.chrishogan360. com, or follow him on Twitter at @chrishogan360. You won’t be disappointed. Alex Price is a nationally-recognized expert on the Art of Skip Tracing. Currently he is the Executive Vice President for MasterFiles and author of Skip Tracers National Certification Program, The Florida Records Guide, The Military Installations Guide and blogger with over 25+ years of experience in skiptracing, collections and public speaking. Contact alex.price@masterfiles.com or call (972) 735-2353 for more information. DealerBusinessJournal.com

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BUSINESS OPERATIONS

Market Trends

By Dani Sherrod

Economy Falls and Used Car Prices Go Up

sed car salesmen are getting more business than new car salesman these days because used cars are in top demand. That is good and bad news for the car business because the demand has driven up the used car prices at the auctions, therefore the gross profit has hit a sharp decline. While new car sales fall, many dealers are finding that a lot of people are willing to jump at a good used car deal instead of a new car deal. Autoshopper.com, an online listing site for used vehicles, says it’s seeing the same price trend at retail, especially for smaller used cars. “ The average price of all used Honda Civics listed on our site is up 2.9 percent from January; it seems like since the economy has fallen the used car prices has risen, ” spokesman Dani Lunsford, director of Marketing for Showcase Publications, Inc., said. The number of used car sales sold through dealers rose 3.1 percent in February compared to last year marking the first year-over-year increase in 12 months, according to CNW Market Research. By contrast, new car sales fell 41.1 percent in February from a year ago. Wholesale used cars have been gaining since October, including 1.1 percent rise says Tom Konotos, chief economist for Adesa Analytical

Services, though they remain lower they are holding on to every one than in February. of their cars longer just to save cash. “People are trying to be a bit Poor new car sales also cut supply. more responsible in their major “Dealers aren’t getting any trade-ins,” purchase,” Kontos says, making used says Tom Webb, chief economist cars more attractive. It’s “another for Manheim Consulting. As a sign of prudence.” consequence “they are bidding up AutoNation is seeing gains in prices at auctions” to have used cars sales of “certified” cars, the newest to sell. pre-owned cars that are checked out and come with a warranty. Sales Desperation were up 15 percent last year and Dealers can buy any used car they are single digits this year, Mike they think will sell fast, but with Maroone, AutoNation president and the sharp decline in gross profits, CEO, says. The program is being they are getting desperate to try and spurred, as well by 2.9 percent loan take a risk on higher mileage, older rates offered by General Motors used cars. On the downside, with certified used vehicles including new cars, they often have to take buyers with imperfect credit. Toyota auto makers slow sellers if they want just begin a certified program for more of new hottest models on their used hybrids which will get a more lot. thorough and specific inspection Used car sales rose 3.1% of the drivetrains. in February compared to The acquisition of last year, marking the first buying a car boils year-over-year increase down to necessity, in 12 months. scarcity and desperation. Necessity A used car is more of an economical alternative if your current car breaks down. “There are people who need vehicles” says Maroone. Scarcity Rental car agencies are a top source for late model used cars and

28 | DEALER BUSINESS JOURNAL August 2014

Dani Has been in the retail automotive Industry for 16 years and is a National Sales and Marketing Executive with Showcase Publications. She can be reached by email at dani@autoshopper.com. DealerBusinessJournal.com

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BUSINESS OPERATIONS

ReInsurance

By Tim Byrd

Managing Repossessions

he can, along with his very capable and trusted General Manager Jeanie. If you have been to any recent events, you have seen Jeanie scooting from class to class on her little scooter. Recently I had the opportunity to speak with my good friend and to pick his brain about how they manage repossessions. The first thing he pointed out was that repos are an absolute last resort. They try very hard to work with their customers to help them get past what they call “life changes.” In the BHPH world, repossessions can be broken down into three major categories. Life changes, mechanical breakdown and lapsed insurance. “Life changes” can consist of loss of job, illness or injury, divorce, unexpected major expense, etc. In my last article, I mentioned that a dealer should love their customer. Helping people through a tough time by being patient for a couple of weeks or a month to help them get back on their feet is a The bottom line comes down to way of having good collections. Good showing collections can make up for bad people that you care, underwriting, but good underwriting which cannot make up for bad collections. really goes a long way towards customer loyalty. The Credit Auto Sales where he sells problem comes when people won’t around 60 cars per month and has talk or try to skip out. somewhere near 900 accounts. The bottom line, he says, Rick belongs to at least two comes down to having good different Leedom Twenty Groups collections. Good collections can and attends every conference, make up for bad underwriting, show, or BHPH educational event his is a subject near and dear to the BHPH dealer’s heart and a fitting subject for this month’s Dealer Business Journal. One can only imagine how wonderful life would be if all your customers made their payments on time, there was no need for debt collectors, you sold the tow truck and had no repo man or need for skip trace. Unfortunately, that is not the case. I have always heard that if you want to make a million dollars you don’t go ask a guy who makes $30,000 a year how to do it. You ask a millionaire. I have a great dealer friend whom I refer to as the Buy Here-Pay Here Professor, Rick Johnson. Rick has a little store in Portsmouth, Virginia called Earl’s

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but good underwriting cannot make up for bad collections. So, life changes can best be managed with patience, understanding and a good engine shut-off payment reminder device. What about mechanical breakdown and lapsed insurance? Rick’s solution is owning a DealerOwned Reinsurance Company. A Dealer-Owned Reinsurance Company can provide a warranty for the mechanical breakdown and Debt Cancellation Coverage for collateral coverage, on a monthly payment schedule that the customer can afford. Mechanical breakdown and lapsed insurance can constitute two thirds of the repos out there. Rick says that it’s important to remember that most BHPH customers just want reliable transportation while they make their payments. They want to be able to get to work, get to church and get to the grocery store. As Rick points out, “if they ain’t riding, they ain’t paying.” By having a reinsurance company and providing a warranty (which the customer pays for), when the customer calls in with a mechanical problem you can say “no problem, we can fix that” because there is always enough cash there to take care of the problem. Repossessions for mechanical breakdown constitute around 35 percent for most dealers, but only 15 to 17 percent for Rick, and those are usually due to lack of maintenance. Continued on Page32 DealerBusinessJournal.com

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BUSINESS OPERATIONS MANAGING REPOSSESSIONS continued from Page 30

Now, I do business all over this great land of ours and have the opportunity to counsel with many BHPH dealers. The average BHPH dealer’s book of accounts is uninsured by 50 percent and constitutes a third of their repos. Rick’s repo rate for uninsured is only around 15 percent. Why? Because 80 percent of Rick’s customers buy Debt Cancellation Coverage through his reinsurance company. The DCC product allows a dealer to forgo the requirement for full coverage insurance if the customer elects this option. DCC is an agreement between the dealer and the customer to forgive their debt should the car be stolen or totaled, in return for a small fee they pay as part of their payments. Just as owning an RFC (Related Finance Company) allows a dealer to profit from lending, improve tax consequences, and circumvent dealing with lenders, a DealerOwned Reinsurance Company can

provide dealers with underwriting profit, improved tax consequences, and DCC that nearly eliminates the need to talk to an insurance adjuster. If there are any old bass fisherman out there, you might remember Bill Dance. Bill Dance is an angler and host of Bill Dance Outdoors, a fishing television series on NBC Sports. He used to say “you ain’t bass fishing if you ain’t getting hung up.” In other words if you want to catch bass, you have to go in the brush and around logs where the bass are and take the chance of getting your hook hung up on something. Today with the secondary lenders digging a little deeper, it is important for BHPH dealers to take a few more chances on the underwriting side. If you’re having very few repos, you are missing sales. Remember what Rick said, “good collections can make up for bad underwriting, but good underwriting cannot make

up for bad collections”. Nearly 60 percent of Rick’s repos are due to life changes, but by taking more chances, working with people, having a warranty to cover most problems, and having DCC to cover the collateral, Rick sells a lot of cars and has a lot of payment makers. And his reinsurance company keeps plenty of capital available when he needs it. Tim Byrd is Founder and President of DealerRE a Tim Byrd & Associates company, 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. Tim is a sought after speaker and co-author of the best-selling book “Unfair Advantage.” Tim can be reached at www.DealerRE.com or by calling 804-824-9533.

Have a question? The answer is right at your fingertips. The Leedom Group’s online resources can help you find it. LeedomGroup.com TwentyGroups.com PaymaxxPro.com DealerBusinessJournal.com 32 | DEALER BUSINESS JOURNAL August 2014

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AUGUST 19, 2014

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SALES & SERVICE

Smart Strategy

By A.J. Ager

Be a Marketing Sniper and Aim for Precision

few years back if you wanted a big traffic influx you would send out a 50,000-piece mailer over a weekend with a promise of someone winning a spa. They would flock in just to see if they won, and the winner would leave with a blowup swimming pool. Maybe they were trying to see if the key you sent them would fit in the new car they could win, and they would leave with a small tool set. (By the way those tool sets were great for sales people taking off plates from the trade-ins.) It was possible to drive traffic by blanketing a market with a message. But then something changed—people quit coming. Today, people throw away important documents because they got mixed up with the tons of junk mail. They have hundreds of radio stations, hundreds of TV stations, hundreds of ad messages of all types hitting them up all the time and they tune out messages that do not specifically intrigue them. The best way for a dealer to increase traffic is to start being a “sniper” with the marketing plan and aim at specific groups. You may not be able to drive a hundred customers in a day to your lot through one marketing campaign, but you may be able to drive 25 from each of four smaller campaigns. Many times these smaller campaigns are easier to manage, more cost-

effective, and are more-efficient ways to sell cars leading to higher closing percentages. It is important to identify key segments in your market. Each market is different. Here are some examples (of many) that you can use for marketing campaigns. Bankruptcy There are many good BK programs out there, both finance and marketing wise. What many people who are successful have done is start taking the marketing to the BK lawyers. Some lawyers do not like this, but many have student loans to pay off and don’t mind taking a referral fee when a client buys from you. Get good at counseling these customers and when you land them on the right vehicles they will be loyal customers and offer up decent size grosses. Don’t counsel and let them pick out whatever they want. If you do, you run the risk of not getting your deals put together or making no money off of them when you do get them bought. BK lists are cheap and public. Letters to the customers do not have to be fancy and remember they are being marketed to the second they file. Military This depends on the town that you live in, but marketing directly to military business can be a huge business. Again you better make sure you get good at counseling and building rapport because this segment is notorious for choosing vehicles out of the budget range.

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They are a loyal, not transient, group that will send friends your way when they believe they have been treated right. Sponsoring events on a military post, military barracks, or putting up a military only Web site in military towns are cost-effective ways to target the military and can keep your business running when civilians are worried about elections or summer vacations. Lender Mail Events Many lenders out there have their own mailer programs. Many of them guarantee you your money back or they pay the difference. The important thing to remember with these mailers is that the lenders have done soft pulls on many of the people on the list. They know they are on the hook for the program so they are prepared to buy deeper. They don’t want to send mail out to people that will make you never participate in the program again. I watched a mailer work six months ago with a lender I do absolutely no business with and haven’t done any since. The program, however, did make my dealership close to $30,000 profit in a weekend. Local Credit Union Members I was recently on a Credit Union Web site looking for their membership qualifications when I noticed they had an auto buying service. Looking into it more I saw that the auto buying service lead to the link of a small independent lot that carried clean cars. I called them up and at least half of this DealerBusinessJournal.com

lot’s business comes from links off of the Credit Union Web site and they all average a 720 or better credit score. There are plenty of Credit Unions out there trying to offer their customers something that other Credit Unions can’t, plus they can capture financing on their own members. Make sure they get to keep their own members in financing whenever possible and don’t burn the customers. Big Companies In most regions there is some kind of company that is the largest

employer. Put together a plan where employees of that company get special deals and make sure they get flyers in their paychecks or around their place of business. We have all seen how loyal customers from places such as USAA, GM, and Ford etc. can be when they think they are getting a deal that they can’t get anywhere else. The same can be done for example with your local city municipal workers. I have heard dealers say they know that 90 percent of their advertising doesn’t work they just don’t know which 90 percent. When

you specialize your marketing to niche marketing and track it, you can make tweaks much easier and lead to a more efficient plan. A.J. Ager is Finance Director at Joe Ferguson Buick GMC in Colorado Springs, Colo. He has been a leader in special financing for over 12 years at both franchise and independent dealerships. He is the founder of New Wave Funding and Colorado Credit Zone. His production company is also responsible for many internet marketing programs.

BHPH EXCLUSIVE!

Is Debt Cancellation Coverage! Exchange Problems for PROFIT This 2 min. video Shows you how

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SALES & SERVICE

Female Perspective

By Jody DeVere

Shifting Gears to Succeed

s I was driving in my car recently, I was thinking about life lessons and changes in my life. I grew up with dreams to be a teacher, or have a career in the creative arts like producing live theater. I have always been comfortable speaking to large groups, but my role as CEO of AskPatty.com has incorporated all of my childhood dreams and I feel so fortunate to be a successful entrepreneur speaking frequently and delivering training to my clients. Believing in myself and my potential in spite of many life changes and holding that thought consistently through life’s ups and downs is what has helped me to continue to succeed as an entrepreneur. I believe that when you start to define your success by an unshakable belief in your abilities and potential you will succeed. I started my first company at 28 and did five million dollars in sales the first year! Detours in life and business can always be turned around to have a good outcome. Prior to starting that first business, I discovered that I was being paid less than an equal male counterpart, I took action. It made me “shift gears” and gave me the fuel to take charge of my income and launch out on my own. I adapted and switched gears to start my own business. I was determined to support my family as a single

parent to my three children and was armed with laser focus to shift around or drive through barriers to be successful. Sooner or later, everyone faces challenges in their personal life that can have an influence on their business. Whether it is a serious illness, death of a loved one, divorce or some other life trauma, you can’t just toss these problems in your trunk! What helped me succeed and weather all the storms of life? Recognizing and leveraging opportunity, adapting to change, staying flexible, building

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relationships, building a strong supportive team, asking for help (this one can be the toughest for many), developing mentors, consistency of focus on the big picture goals, keeping a sense of humor and unshakable determination. To quote Ridley Scott: “That’s part of the policy: To keep switching gears.” Jody DeVere is the CEO & president of AskPatty.com. Contact her via email at jdevere@askpatty.com.

Detours in life and business can always be turned around to have a good outcome.

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INDUSTRY NEWS

Generation Gap GM Announces Six Safety Recalls

en Y consumers are now accounting for a larger percentage of U.S. new-vehicle retail sales than their older Gen X counterparts, according to an analysis by J.D. Power. Year to date in 2014, Gen Y (born 1977-1994) has accounted for 26 percent of new-vehicle retail sales, putting sales to that generational group ahead of those to Gen X (born 1965-1976) for the first time. Gen X buyers purchased 24 percent of new-vehicles in the same period, according to data collected by the Power Information Network® (PIN) from J.D. Power. Boomers (born 1946-1964)

are still the largest group of buyers of new vehicles, accounting for 38 percent of new vehicles sold during the first half of the year. In 2013, Boomers accounted for 40 percent of new-vehicle retail sales, followed by Gen X at 24 percent and Gen Y at 23 percent. Gen Y sales volume is on pace to grow 17 percent for the full year 2014, compared with 2013, while Gen X sales volumes are expected to increase 6 percent during this time frame. “As Gen Y consumers enter new life stages, earn higher incomes and grow their families, their ability and desire to acquire new vehicles is

increasing,” said Thomas King, vice president of PIN. “As new-vehicle demand among Gen Y consumers increases, it will be important for automakers to respond to the needs of these consumers, not only in terms of the vehicle design, but also the marketing, sales and service experience.” PIN data shows that Gen Y customers tend to favor smaller vehicles, with compact/small vehicle segments accounting for nearly half of all Gen Y purchases. In contrast, Gen X slightly favors midsize vehicles.

Program Partners PassTime and SendMeAFriend.com Announce Partnership

nder a new partnership with PassTime and SendMeAFirend LLC, customers will have access to PassTime’s new 3G device solution – the Elite 3 - as well as all of its GPS tracking and Automated Collection Technology solutions as well as the streamlined Send Me a Friend referral program which allows dealerships to sign up just about anyone for a referral program, compensating them if a vehicle is purchased. The Elite 3 builds upon the foundation of the Elite line which PassTime customers have been using to enhance collection processes and reduce delinquencies and repossessions through its unique Automated Collection Technology (ACT).

PassTime, which has been in business for over twenty years, prides itself on offering highquality and reliable products to the subprime vehicle financing industry along with unmatched 24/7 live customer care for its customers and end users. “This partnership is a great fit for PassTime,” said Chris Macheca, executive VP of operations for PassTime. “A streamlined and easy to use referral program is perfect for our customer base. SendMeaFriend.com does it better than anyone in the industry. More referrals equals more cars soldand that makes everyone happy.” “We are excited about partnering with the premier GPS provider in the country,” said

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Gary Brophy, President/CEO of SendMeAFriend LLC, a Texas based corporation. “Referrals have always been an important and integral part of the car business, and it’s the life blood of the subprime arena. This consumer will send three to four times more referrals than any other customer category. And what we’re doing is giving independent dealerships a way to leverage their relationships with their customers and their community, to bring in new prospects who are in the market for a used vehicle.“ “One of our subprime dealers in Dallas has received over 500 referrals in a little more than 90 days,” Brophy said. DealerBusinessJournal.com

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