Dealer Business Journal, December 2014 by Dealer Business Journal

The New Year is approaching. Time to look forward to what it may bring to the industry.

...Your Success Is Our Business

December 2013 DEALER BUSINESS JOURNAL | 1

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Leedom University CoUrse desCriptions 9 2 | DEALER BUSINESS JOURNAL December 2013

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IN EVERY ISSUE

Contents Volume 10, Issue 12

December 2013

LEGAL & LEGISLATIVE Legal Opinion 10 Predicting the Predictable What’s likely, and not likely, to happen in 2014.

By Tom Hudson

General Counsel 14 Compliance Check List Answering these questions will help you determine if your business is a target for reglatory agencies and attorneys.

4 6 8 10 38

By Debra Dawn

LEADERSHIP & TRAINING

CORNER OFFICE BHPH BOOT CAMP payment processing IMPROVING PROFITS Industry News

BUSINESS OPERATIONS Stop Loss 22 Deck the Halls, Don’t Burn Them Down Tis the season for holiday decorations, but don’t forget to take the right safety precautions.

Business Basics 30 The Future of BDCs Using BDCs as the voice of the dealership by delivering quality interaction every time a customer or prospect is touched.

By John Krivacsy

By Greg Wells

Tax Planning 24 Tax Planning to Avoid Year End Surprises Tax law changes will usher in a large tax increase for upper income taxpayers, starting in 2013.

Website Building 32 Using Wordpress for a Dealership Website If you need flexibility and more options on your website, see if Wordpress can help.

By David Wiggins

By Sally Striegnit and Cliff VanMeter

Learn to Lead 18 Strategic Pruning for Profits Think about tending your business like you would a garden, then watch it bloom.

Security Measures 26 How to Stop Grand Theft Auto Using a combination of key control, video surveillance and GPS tracking can increase security at your dealership.

Inventory Control 28 Simple Rules of High-Turn Inventory Management Turning inventory is critical. Here are four rules to help.

Tax Season Sales 36 Cash In on Tax Refund Opportunities How dealers can benefit from their customer’s tax refund.

By Dave Anderson

...Your Success Is Our Business

Managing Collections 34 The Best Bang for Your Buck Key permormance indicators (KPI) that can boost your collections.

By Steve Singleton

By Bill Reidy

By Jason Anderson

SALES & SERVICE

By Chip Wiley

December 2013 DEALER BUSINESS JOURNAL | 3

LEEDOM GROUP

Corner Office See You in 2014!

o all of our Dealer Business Journal readers, Merry Christmas and Happy Holidays!! This truly is my favorite time of the year. Not just because of the festivity, but because it provides a chance for us all to take pause and enjoy time with our families and loved ones. So please, make sure you take time to enjoy what is most important to you. We appreciate you, our readers, and all of the support and feedback you provide for us here at Dealer Business Journal. This year has been a great year for us. It has been exciting to report on developments in our industry and participate in such an exciting time in our business. Most dealers we meet are excited about their dealership and community. Given the market landscape, we see so many dealers going out of their way to make sure they are “doing things right.” It is very rewarding to be able to report on the best practices we identify across the country. Throughout the course of my recent travels, I hear many dealers starting to wonder “what will 2014 hold for our business?” I think this is a very good question. There are certainly a lot of factors - inventory, third party lenders deciding to lend again (for now), and the regulatory landscape. I firmly believe there will be tremendous opportunity as we head into 2014. I think that the owner-operators that research the market, network, and identify and implement best practices will be the ones that capitalize and see gains next year. Between now and the end of the year I have three assignments for you. First, thank your family, employees and customers for all that they do to help you succeed. I recently stopped at a farmer’s market near our house that for an entire week, was giving every single customer a free ice cream cone simply because they appreciated their business throughout the year. So think about what you can do to thank your customers. Second, take stock of what you have accomplished this year, and, sometimes painfully, what you have not. Figure out what you want to accomplish next year and set some aggressive goals. Finally, take time to enjoy this month. It certainly goes by too quickly. Before you know it the New Year will be upon us and it will be off to the races to have a great 2014. One last suggestion and I know I am repeating myself from earlier this year—do the single most important thing you can ever do for your business and join a Leedom Twenty Group. These groups are helping dealers navigate their businesses through difficult waters, compete in the market, and improve profitability. I figure I have participated in well over 800 Twenty Group meetings, and as you might guess, I am a believer. Set a goal to at least attend a meeting next year and investigate how the Twenty Group process can help improve your business. It may be the best thing you ever did for your business. I’d like to truly wish each of you a Merry Christmas and a Happy Holiday season. This is a time to spend with family and friends and to share the fruits of all your hard work. Merry Christmas, Happy New Year, and enjoy what you do! See you in 2014

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 December 2013

DealerBusinessJournal.com

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LEEDOM GROUP

BHPH Boot Camp

By David Brotherton

Lessons from Apple

just finished Walter Isaacson’s biography of Steve Jobs and was struck by Job’s passion and his commitment to his vision. I was also struck by the fact that he was not the easiest person to work for. He had no tolerance for mediocrity. None. Not in his products, his services, nor in his people. He demanded the best. Only “A” players needed apply. There was no room for “B” and “C” level players at Apple and Jobs ruthlessly eliminated them when they showed themselves. He recruited, motivated and pushed the “A” players to share his vision and produce feats of innovation that have dazzled the world. Isaacson’s work outlined several important business lessons from Steve Jobs’ life. “A” Players Like to Work with Other “A” Players Strong performers need to be surrounded by other strong performers. One of Joe Verde’s maxims is to avoid average and below average people and this makes a lot of sense in our environment. Having teams of strong, “A” players working together and striving for better customer relationships, better collection strategies and better service turnaround will pay you much higher dividends than trying to bring “C” level employees up to that same level. An “A” player doesn’t mean

“experienced.” It means driven to succeed with the talent base to learn the skills of the job and work with your customers successfully. It means hiring individuals that want to learn and have the capacity to absorb the inner workings of the Buy Here Pay Here model. It also means working to retain this talent pool and have them grow with the company. Great people like to work with other great people. Your Product Should Be As Perfect As You Can Make It One of the things that has helped make Apple successful is that it obsesses about details that the customer cannot see. Many people adhere to the principle of good enough and most will do the minimum required to complete a task rather than focus their energies on making their project/task the very best it can possibly be. This is what separates true leaders from followers: you can and must always strive to be better. I’m not suggesting that we have to produce perfect cars. This is going deeper than that. What I mean is that we should always be innovating to provide our customers a better experience and to share that experience with more and more customers. Growth is essential in business and we should be working to make our businesses as efficient and customer friendly as possible. Don’t settle. Always look to be better and surround yourself with people who feel the same way.

Growth is essential in business and we should be working to make our businesses as efficient and customer friendly as possible. Don’t settle. 6 | DEALER BUSINESS JOURNAL December 2013

DealerBusinessJournal.com

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Customers Don’t Know What They Want. You Have To Define it for Them Customers can’t tell you what they want because they don’t know what it is yet. Focus groups and surveys are of limited utility in determining consumer preference. A consumer’s preference is framed by the innovation that you bring to the market. A perfect example of this is warranties. Ten years ago, most dealers were still selling vehicles “as is” and were doing minimal reconditioning. Now warranties are prevalent in the market place and customers routinely ask about their warranty/ service agreement options. Will your customer want to make a payment at a kiosk in the mall? Will your customer want to be able to conduct most of the transaction electronically? What will be the next great technological/process innovation in our industry? Don’t Let the Competition Define Your Vision I see this frequently. Dealers worry about what everyone else in town is doing rather than focusing on doing what they do well. Rather than defining their product and market, they let the competition define it for them and, since it is the competition setting the rules, they usually come off second-best. What sets you apart? What do your customers respond to? There can only be one person with the lowest price but there can be many with the best value. Don’t be defined by the competition. Find what is going to resonate with your customer base. The 99 cent Down dealer is NOT the only one who sell cars. There are many more business lessons to take from the life of Steve Jobs and it’s important to note that his constant push for innovation led to some spectacular product failures as well as tremendous successes. The point is not that he always succeeded. The point is that he always tried to bring the finest products to market. Does this apply in the culture of “good enough?” Nope. It does, however, define the entrepreneur’s real product: innovation. We have to push ourselves to be better, to be more efficient and to enhance our customer’s experience more and more.

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Payment Processing

By Jessica Sweeney, ETA, CPP

Technology Is the Trend in 2014

s we look forward to 2014 and where the payment industry is headed there are a few notable trends that will be explosive in the coming years. Technology is going to be the game changer in all aspects of business, from accepting a customer’s payments to knowing how and where to market to your audience. Everything is moving towards digital streamlining; it won’t be long until we are no longer carrying around those crisp dollar bills. Statistics suggest that the more payment avenues you provide to your customers the more likely they are to make their payments, and make them on time. If the only way a customer can make a payment is to come into your store with a money order or cash, you are losing out on too many opportunities to collect that payment faster and more efficient. Using technology to do something as simple as setting up a recurring payment option, whether it be via automatic withdrawals from a customer’s checking or savings account or taken directly from a credit card, could improve your delinquency on average, by 7 percent! You are instantly improving your bottom line by getting the payment and getting it on time. There are so many options out there that help you receive payments more efficiently and also don’t require extra labor hours. For example, for $49.99 per month you could have a secure web payment

page that allows your customer to go online and make their payment, twenty four hours a day seven days a week. They don’t have to go through the routine of getting cash out of the bank or purchasing a money order and driving to your store during business hours to make that payment. At that rate you would spend $600 per year on the site and most likely retrieve more payments than the cashier you have to hire paying $20,000+ per year, and who doesn’t work around the clock. Another great technology advancement that will take off in 2014 is text communication and payments. Let’s first look at the statistics: 9.8 trillion text messages were sent in 2012, of those text messages 95 percent were opened and read within one minute! A recent study also shows that 30 percent of consumers interact with a brand or business via text messaging. So what does all this mean? Texting is the new way to communicate, and for most of the younger generation it’s the only way. Let’s leverage this and begin talking to our customers via text messaging. There are new products out there that enable this communication via a portal on your computer, along with products that automate a payment text reminder to go out based on a customer’s loan payment structure. For example, if a customer is to pay $150 bi-weekly a payment text can be initiated three days before the due date every two weeks and all the customer would have to do is reply “Y” and the payment is made. For those of you that are not quite text savvy but would still like the automated reminders to your

8 | DEALER BUSINESS JOURNAL December 2013

customers, an Auto Dialer that is integrated with an IVR system is a great option. IVR stands for Integrated Voice Response, and is a system that uses automated prompts to guide customers through making a payment. By utilizing an Auto Dialer along with an IVR system, you can schedule calls to go out to your customers that will allow them to make payments through the IVR if they answer the phone, or leave a customized voice mail if they do not. The good thing about technology is that most features can be tailored to meet your needs. Another thing to keep an open mind about is “Big Data.” Essentially, Big Data is a marketing tool that will help you pin point how and who you market to based on data that has been collected and analyzed. This data could be based on something as large as your industry or as small as your own day-to-day business. A great area to collect such data is in your payment processing. For example, what type of payments are you taking, when and how are you taking them? New technology is being developed for small businesses to harness this information, help guide your marketing approach, and change processes if needed. With all these advanced technologies on the horizon it is important that you understand how they work and how they work for your business. 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

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LEEDOM GROUP

Improving Profits

By Jay Prassel

The Paradigm Effect and Embracing Change

recently was invited to speak at a Twenty Group on paradigms and embracing change. While working with dealers on the Net Profit Improvement Program back in 1994, I often had to overcome some roadblocks when trying to change processes and procedures. I quickly became a student of Joel Barker. Joel Barker was the first person to popularize the concept of paradigm shifts for the corporate world. He began his work in 1975 after spending a year on fellowship, meeting and working with visionary thinkers in both North America and Europe. He discovered that the concept of paradigms could explain revolutionary change in all areas of human endeavors. First, let’s define a “paradigm.” The Oxford English Dictionary defines the basic meaning of the term paradigm as “a typical example or pattern of something; a pattern or model. Barker offers us an extended definition: A paradigm is a system of rules and regulations that does two things: First, some of the rules set limits or establish boundaries—just like a pattern sets the edges. Then, the rest of the rules offer you guidance on how to be successful by solving problems that exist inside those boundaries—in a sense, they offer you a model for

problem solving. So a paradigm is a problemsolving system. And a paradigm shift is when you change from one set of rules to another. A paradigm is simply the way we perceive how the world and business should operate. Paradigms are very common and we experience them every day. Paradigms are different for nations, organizations, departments, and even families. The sales staff may offer discounts to close the deal and feel it is the ordinary course of doing business, but others may find it unnecessary and detrimental to the business. According to Barker, paradigms can be useful tools. They help us navigate our day-to-day lives and make sense of the barrage of information that comes our way. He continues “…While paradigms play a useful role in our lives, rigidly holding onto them can limit our thinking. We overlook or dismiss ideas and facts that fall outside the paradigms to which we’ve become accustomed.” This isn’t surprising. If we’ve been successful under an existing paradigm, we will resist challenges to it, no matter how valid. We see the world through our paradigms, and often, any data or information that does not fit our paradigm has a difficult time getting through our filters. However, if we blindly adhere to a particular paradigm or set of paradigms, we end up in a state of inaction or paralysis. Joel Barker observed that it’s those at the fringes, rather than

10 | DEALER BUSINESS JOURNAL December 2013

those in the mainstream, who generate and adopt new paradigms. History is filled with examples of outsiders who successfully challenged existing paradigms and established new ones. These include scientists, such as Albert Einstein, and entrepreneurs, such as Jeff Bezos, founder of Amazon.com. There are many more examples of those who have challenged accepted paradigms. Michael Dell of Dell Computer and Sam Walton of Wal-Mart both changed the way the businesses are now being run. Dell took on an industry where he had no prior experience and no brand name. By building computers made to order and managing inventory, he changed the way the computer industry operated. What does any of this have to do with the automobile industry? We’ve seen some dramatic changes and they are happening very quickly. Some say it started with Toyota and Honda sending General Motors and Ford back to zero with their manufacturing processes and quality. Technology has forever changed the way we do business, starting with the Internet back in the late 1990’s. I will never forget the paradigms that we had to overcome when I started the first two Twenty Groups for Internet managers. There were people who believed the Internet was just a fad, that it was going to crash and disappear and they didn’t want to discuss it in their meetings. While it still may bother some auto industry experts, DealerBusinessJournal.com

the playing field has changed on how consumers shop and purchase a vehicle. The automobile buying paradigm has certainly changed over the years. Many of the products and services that we have come to view as “standard” were once only available as “optional equipment.” Automobile Buying Paradigm 24 Hour Roadside Assistance Free Oil Changes Air bags Navigation System Heated Seats Back-Up Camera Automatic Transmission There are even vehicles that can parallel park themselves! What’s next? (from Wikipedia) An autonomous car, also known as a driverless car, self-driving car or robot car, is an autonomous vehicle capable of fulfilling the human transportation capabilities of a traditional car. As an autonomous vehicle, it is capable of sensing its environment and navigating without human input. Robotic cars exist mainly as prototypes and demonstration systems, but are likely to become more widespread in the near future.

Potential advantages An increase in the use of autonomous cars would make possible such benefits as: • Fewer traffic collisions, due to an autonomous system’s increased reliability and faster reaction time compared to human drivers. • Increased roadway capacity and reduced traffic congestion (due to reduced need for safety gaps), and the ability to better manage traffic flow. • Relief of vehicle occupants from driving and navigation chores. • Higher speed limit for autonomous cars. • Removal of constraints on occupants’ state – in an autonomous car, it would not matter if the occupants were under age, over age, blind, distracted, intoxicated, or otherwise impaired. • Alleviation of parking scarcity, as cars could drop off passengers, park far away where space is not scarce, and return as needed to pick up passengers. • Elimination of redundant passengers because humans are not required to take the car anywhere, as the robotic car can drive independently to

• • •

•

wherever it is required, such as to pick up passengers or to go in for maintenance. This would be especially relevant to trucks, taxis and car-sharing services. Reduction of space required for vehicle parking. Reduction in the need for traffic police and vehicle insurance. Reduction of physical road signage as autonomous cars could receive necessary communication electronically (although physical signs may still be required for any human drivers). Smoother ride.

Challenges In spite of the various benefits to increased vehicle automation, some foreseeable challenges persist: • Liability for damage. • Resistance for individuals to forfeit control of their cars. • A car’s computer could potentially be compromised, as could a communication system between cars. • Reliance on autonomous drive produces less experienced drivers for when manual drive is needed. You may ask yourself this question. How well has your dealership embraced Paradigm shifts and technology? To be continued……. Jay Prassel is the Leedom and Associates Vice President, Director of Operations. Jay has 37 years of automotive experience and has worked with over 300 dealerships as a profit improvement consultant and Twenty Group moderator. jay@leedomgroup.com

...Your Success Is Our Business

December 2013 DEALER BUSINESS JOURNAL | 11

LEGAL & LEGISLATIVE

Legal Opinion

By Tom Hudson

Predicting the Predictable

t’s the time of year when every editor of every magazine asks the regular writers for the publication to turn out another “here’s what’s gonna happen next year” article. When I got that predictable assignment last week, I started thinking about what’s likely to happen, and not likely to happen, in the automotive sales, financing and leasing legal world in 2014. Let’s start with the easy stuff. The Consumer Financial Protection Bureau will finally grind out its proposed rule identifying the “larger participants” among the car financing companies that are not depository institutions. Under the Dodd-Frank Act, the Bureau must identify the larger participants before it can exercise its supervisory jurisdiction over them. The process is sort of like asking your teenager to set his or her own curfew, so look for the Bureau to adopt a very liberal definition of what constitutes a “larger participant” so as to give itself the broadestreaching jurisdiction possible. The Bureau just might finish its “study” of the use by dealers and creditors of mandatory, predispute arbitration agreements in 2014. The study was mandated by the Dodd-Frank Act, which also gives the Bureau the authority to regulate, and even to ban, the use of such arbitration agreements. This one’s going to follow the same plot line that we’ve seen in many

a western movie – the Bureau will give arbitration agreements a fair trial before “stringing them up” and prohibiting them. Look for the Justice Department to land with both heels on a few hapless Buy Here Pay Here dealers, charging them with violating federal anti-discrimination laws in their vehicle-financing activities. This prediction’s a bit like shooting fish in a barrel – Justice Department personnel have said in several public forums that this one’s coming. The last couple of years have shown us that there’s some sibling rivalry between the CFPB and the Federal Trade Commission. It’s sort of an open secret in D.C. that the “new” regulators at the CFPB think the “old” regulators at the FTC have been asleep at the enforcement switch for the last few decades when it comes to enforcing the federal consumer protection laws

12 | DEALER BUSINESS JOURNAL December 2013

that apply to auto sales, financing and leasing. The FTC hasn’t been entirely displaced by the CFPB in the car space – it still has some room to operate, and it has flexed its enforcement muscles several times in the last year, especially in the area of dealer advertising. I’m betting we’ll see the FTC’s focus shifting to an area such as abusive spot delivery transactions or payment packing. And, finally, I’ll predict what will not happen. Despite what all of the Bureau’s critics say and how loudly they complain about its actions, the CFPB is not going away, and it isn’t going to back away from its aggressive enforcement of federal consumer financial services laws. The cost of compliance at regulated entities will increase substantially, and the economics of compliance spending will begin to drive industry consolidation in response. Remember, you heard it here. And if somebody bothers to check next year and it turns out I got any of it wrong, you can have your dime back. Tom Hudson, Esq. (tbhudson@ hudco.com) is the author of several compliance-related 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®, a monthly report of legal developments in all states for the auto finance and leasing industry. For information, call (410) 865-5411 or visit www.counselorlibrary.com.

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December 2013 DEALER BUSINESS JOURNAL | 13

LEGAL & LEGISLATIVE

General Counsel

By Debra Dawn

Compliance Checklist

s we leave 2013 and enter the new year, now is an ideal time to run through a basic compliance checklist with your dealership and RFC. For 2014, compliance is not just keeping a Red Flags policy on the shelf (and it needs to be on the shelf of each location), but maintaining mandatory logs on a daily basis and training front line personnel to administer these programs. A good compliance program runs the gamut from human resources to advertising. It includes operations, collections, corporate governance and bankruptcy issues. It mandates reviewing your forms (even if they are provided to you by a third party DMS) in order to ascertain whether they meet the current standards and if they contain all the protections your dealership wants and needs. The following is a small sampling of the questions you should answer to ensure that your business does not become a target for the DOL, CFPB, AG or the plethora of plaintiff â&#x20AC;&#x2122;s attorneys who are ready to exploit weaknesses in your compliance programs:

YES

Is your dealership reporting new hires to the new hire reporting center? Are all required employee notices posted in conspicuous places (EEO, minimum wage, unemployment compensation, workersâ&#x20AC;&#x2122; compensation, child labor, etc.)? Do hiring managers know what questions one can and cannot ask job applicants and which questions should be asked? Does your dealership check all job and personal references and conduct a criminal background check before hiring? Does your dealership have complete job descriptions which describe the essential functions of each job and do you update them periodically? Are your dealership employees properly designated as exempt or nonexempt under the Fair Labor Standards Act? Does your dealership have an employee handbook? If so, is it regularly updated, and does it include a clear statement that employment is not guaranteed? Does your dealership have a written sexual harassment policy, and are your employees aware of it? Does your dealership test for drugs or alcohol in compliance with both state and federal law? Does your dealership have a progressive discipline policy, and do Company supervisors understand it and apply it consistently?

Does your dealership have an electronic mail, Internet and other electronic communications policy? 14 | DEALER BUSINESS JOURNAL December 2013

DealerBusinessJournal.com

YES

Does your dealership have an FTC Buyer’s Guide displayed on every vehicle on your lot? Are they in Spanish if you conduct business in Spanish? Do you keep a complaint log for the CFPB? Do your forms comply with TILA? Is your dealership transferring title ownership within 30 days of transaction? Does your dealership have a bill of sale and odometer statement signed for every vehicle purchased? Is the dealership sales staff complying with the Telemarketing Sales Rules? Is your dealership keeping all copies of transaction paperwork for the state mandated time? Does your dealership deliver adverse action notices? Is your dealership distributing GLB Privacy Notices to customers as required by federal law? Is your dealership mailing the GLB Annual Notices to every customer whose account is still open? Does your dealership send out 1099Cs upon debt forgiveness? Does your dealership have a written customer information security and red flags policy? Does your dealership employ password-protection software and encryption programs? Do your dealership’s forms request adequate customer information to verify the identity of your dealership’s customers? Does your dealership comply with the federal Disposal Rule and shred documents containing customer information and store it in a secure area until an authorized disposal service picks it up? Are customers required to sign a written estimate for service before any work is done? Do your advertisements (print, television and internet) all contain the mandatory disclaimers under Regulations M and Z? Do your pricing policies comply with FCRA? Does your dealership comply with FDCPA? Do you know if it has to? 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

December 2013 DEALER BUSINESS JOURNAL | 15

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...Your Success Is Our Business

December 2013 DEALER BUSINESS JOURNAL | 17

LEADERSHIP & TRAINING

Learn to Lead

By Dave Anderson

Strategic Pruning for Profits

n Dr. Henry Cloud’s book, Necessary Endings, he stresses the necessity of pruning to create a healthier business. Pruning is a proactive process that allows an organization to reach its fullest potential. In the dictionary, pruning is defined as: a function of cutting away to reduce the extent or reach of something by taking away unwanted or superfluous parts. I’ve long liked the concept of pruning as it allows leaders to leverage strengths and narrow focus on the people, processes, strategies and business units that bring the greatest return to an organization. To maximize people, processes, strategies or business units within a dealership a leader must intentionally and purposefully prune “branches and buds” that fall into any of the three following categories. Use the gardening metaphors as calls to action where necessary within your dealership. Pruning Scenario One: Healthy entities that are not the best ones. These may include processes, strategies, daily tasks, business units and more. In the gardening world, rosebushes and other plants produce more buds than the plant can sustain. The plant has enough life and resources to feed and nurture only so many buds to their full potential; it can’t bring all of them to full bloom. In order for the bush to thrive, a certain number of buds have to go. The gardener constantly examines the bush to see which buds are worthy of the plant’s limited fuel and support and cuts the others away. Result of pruning: The gardener frees the needed resources so the plant can redirect

18 | DEALER BUSINESS JOURNAL December 2013

them to the buds with the greatest potential to become mature roses. Without this type of pruning, you don’t get the best roses. Possible pruning opportunity: Engaging too much time in tasks that bring some return during the day (reviewing reports, budgets, forecasts) and not enough time working on higher-return tasks like motivating, training, coaching and mentoring your human capital; a classic example of how the enemy of what’s best is what’s good. Reflection question: Which “good” daily tasks do you or others in your dealership spend too much time with that get in the way of what’s best and need to be pruned? How can you more highly structure your days so priorities are scheduled, and the day worked around them; rather than trying to squeeze priorities into the day? Pruning Scenario Two: Sick entities that are not going to get better. These may include underperformers, low-return tasks, ineffective strategies, weak business units, outdated processes and more. Some branches are sick or diseased and are never going to make it. For a while, a gardener may monitor them, fertilize and nurture them, or otherwise try to make them healthy. But at some point he realizes that more water, more fertilizer, or more care is just not going to help. For whatever reason, they are not going to recover and become what he needs them to be to create the final picture of excellence he wants for the garden; they must go. Result of pruning: The bush now has even more resources and life to pour into the healthy buds. The plant is now fully on its mission, focusing its energy every day on feeding and growing the buds that are destined to reach full potential. Possible pruning opportunity: “Profit” centers (or products) needing to be pruned because they aren’t profitable but drain so much time, talent and resources away from your strongest units that you’ll never realize your full potential with your most promising assets. Reflection question(s): Based on past history, where are you locked in tactical struggle; where you’re pouring more and more into something and not getting a return? If this entity hasn’t made measurable progress in reasonable time, what grounds do you have for believing something will change in the future? DealerBusinessJournal.com

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Pruning Scenario Three: Dead entities that are taking up space needed for the healthy ones to thrive. These may include underperformers, low-return tasks, ineffective strategies, weak business units, outdated processes and more that are beyond hope. In most dealerships, as on most plants, there are branches and buds that are dead and taking up space. The healthy branches need that room to reach their full height, but they cannot spread when dead branches force them to bend and turn corners: they should be growing chased a vehicle. straight for the goal. To give the healthy blooms and In addition to ramping up its marketing, TrueCar noware looking branches unobstructed room to grow the dead is ones at a related though as yet relatively untapped market — independent cut away. dealers. Potter said TrueCar has always had the ability to provide pruning: Pruning what’s enablesis gearing Result this service to of independent dealers, but now“dead” the company other plants their full potential. up.rosebushes It purchasedand a new booth for to thereach independent dealer trade show circuit and was a sponsor at the June National Independent AutomoWithout it, they are just average at best, and far less than bilethey Dealer Association Convention and Exposition. were designed to be. “The total loss product we have fits in very well with used veperennial Possible hicles since the pruning average opportunity: total loss unitThe runs between five-car $8,000 and Fred, orPotter five-hour in service who never getstheany $12,000,” noted.Fred “Independents typically have lower-cost better yourreplacement investmentsvehicles.” in them; and because units that despite fit well with Because easily you spendTrueCar so muchcan time withwork themwith you franchise have nonedealerships’ left to DMS systems, the pay-per-deal model works best in the states mentor and stretch those on your team with the talent, where it’s allowed. Fragmentation among DMS systems among indrive and skillsrequires to become exceptional. dependent dealers a subscription-based model. Pricing can question(s): Considering Reflection range from $299 to $2,500 a month dependingthe on Native the volume of inAmerican When the horse you’re riding on ventory at the proverb: dealership. “Atdismount, the NIADA show our longer booth are wasyou literally overcrowded,” dies, how much willing to rob Potter said. “Dealers know about us, and were excited to learn and ignore your best performers in hopes that taking a we had a product available for them. We will continue to roll out our stronger to the deadathorse at events the bottom product line whip to independents various acrosswill the move country.” it?The Have you setisyour objectives withready deadlines company alsoclear testing and getting to rolland out napre-established consequences so that if expectations aren’t tionally a private-party to private-party and private-party to dealer vehicle purchase program.will Theessentially idea camefire about from the military met underperformers themselves? members theirofaffi nity portfolio oftenpain, have but to move Theingoal pruning is neverwho to cause in from base to base or get deployed overseas. They very much like the idea realityable thattodoes happen. Reality makes us sell faceitthings of being put their vehicle on the site and quickly, easily that can hurt, and that can be very healthy at the same and get a fair price, Potter said. time. The harm pruning savestoother team members and re“Would-be sellers are asked answer about 50 questions garding the vehicle,”can he said. “Was the vehicle smoked in? Are the the organization be substantial in the long-term. headlamps We ask time for a to Carfax or so AutoCheck and dealers There is fogged? never a perfect prune, I recommend and other private individuals can purchase the vehicle.” you for setting neededand action nowmember It’sevaluate done in all an three onlinescenarios auction-like another advice of former CEO/Chairman Jack of and theirfollow credit the union or other affinityGE partner can purchase the veWelch observed: Good leaders hicle or a used car manager can buylook it.” reality dead in the eye Theact program runasfor threespeed months a beta test and several and upon ithas with much as in they possibly can.

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BUSINESS OPERATIONS

Stop Loss

By John Krivacsy

Deck the Halls, Don’t Burn Them Down

s we begin another holiday season many businesses will make their buildings more festive and cheerful by using attentiongrabbing decorations to increase awareness and sales in this gift-giving time of year. As a member of the community one takes pride in how your business is perceived and everyone wants to participate. Decorations, lights and large show-pieces may be pleasing to the eye, boost the morale of your employees and attract customers, but, there is also risk associated with participating in these traditions. With all the joy that the holidays

bring, there is also the tragedy caused by fires that seem to spike at this time of year. One of the most devastating losses a business can incur is fire: a vicious circle of flames, smoke, water and aftermath. Take simple steps to be safe while decorating for the winter holiday and participating in the spirit of the season. Prepare a Checklist: One of the easiest tips you can do to protect your business during the holiday season is to have a written checklist of what activities and decorations need to be hung and/or installed and which person is responsible for each task. Many decorations require the use of ladders, electricity and tools to be used to install them. Use your discretion; assign these judiciously to the right person. If you use an outside service for installing and possibly providing decorations, make sure you confirm what insurance they have if any and you understand each other’s responsibilities for any damages or injuries. Bright Lights: “Electrical failures or malfunctions were involved in 31 percent of the home Christmas tree structure fires. Nearly 18 percent occurred because some type of heat source was too close to the tree.” ( http://www.nfpa.org/ research/statistical-reports/majorcauses/christmas-tree-and-holidaylights) Don’t over-extend your electrical system. Always inspect your holiday lights for frayed cords, broken sockets or loose connections. An inspection of all decorations should take place every year. Every extension cord should be rated properly for the location where they

22 | DEALER BUSINESS JOURNAL December 2013

are being used. Extension cords inside and outside of your buildings can become a trip hazard and should be routed to avoid customer and employee traffic areas. All installed/ lighted decorations must be safely secured against extreme weather conditions. You may think it is a good marketing technique to leave all your decorative lighting on continuously, however, temporary, ornamental electrical devices must be turned off before closing and leaving your building unattended. Trimming the Christmas Tree: “In 2006-2010, U.S. fire departments responded to an estimated annual average of 230 home structure fires that began with Christmas trees. Home Christmas tree fires caused an average of four civilian deaths, 21 civilian injuries, and $17.3 million in direct property damage per year.” (http://www.nfpa.org/ research/statistical-reports/majorcauses/christmas-tree-and-holidaylights ) Many businesses put up the Christmas tree even before the Thanksgiving turkey is consumed. Don’t expect a live tree to survive that long of a period of time. The risk of a fire breaking out is higher with real trees than artificial trees. Opt for an artificial tree instead. Keep in mind, the tree itself needs to be made from non-combustible or flame-resistant material and utilize LED lights if possible. These types of lights use less electricity and they don’t generate as much heat. Also, unplug the Christmas tree lights at the end of the day. Do not leave them on 24/7. Potlucks, Buffets & Cocktail Parties, Oh My!: It goes without saying that the holidays are a time DealerBusinessJournal.com

to be around friends, family and coworkers. What about the infamous potluck? A never ending fold-out table with crock pots, warming trays, Bunsen burners, hot food and plates; probably some red candles for atmosphere. Do not place paper products or loose decorations above an open flame or direct heat source. Be extra careful of hot appliances, extension-cord burn-out and unattended candlelight. Turn all the appliances off, unplug and blow all the candles out when you are finished. Common sense and good judgment go a long way in preventing holiday fires due to carelessness, over used appliances, indoor and outdoor decorations and lighting. Below are standard items that will alleviate the outcome if a fire erupts: Automatic Sprinkler Protection: Fires happen. They are accidental and unexpected. FACT: Buildings which are equipped with working automatic sprinkler systems are normally not involved in major fires. Sometimes automatic sprinkler systems lack proper maintenance, so be sure to inspect your sprinkler system quarterly by a professional. In some states, automatic sprinkler systems are required to be inspected and licensed with periodic follow up inspections. If possible, your automatic sprinkler system and water flow alarms should be connected to a central alarm service. Smoke and Heat Detectors: If it is impractical to install a completely monitored automatic sprinkler system to your buildings, the next best thing is to install a monitored heat and/or smoke detection system. Smoke detectors usually react faster than heat detectors. They ...Your Success Is Our Business

and data can be destroyed; structural are preferred to all areas of your damage to your building and/ dealership, except in garages where or property that are ascertained; exhaust from engines could initiate the loss of your customer base an alarm. because they bring their business Fire Extinguishers: It’s elsewhere; are many reasons why recommended that your business it’s not uncommon for a business has specific extinguishers for to fail or never re-open after a different types of fires; even major fire: Talk with your insurance computer equipment. Fire extinguishers’ and signage During the holiday season your must legally business can be bright and festive; be placed just be sure to have fire safety throughout the business. precautions in place. Contact your local fire agent about what your businesses department or the company that specific insurance needs are. Obtain services your fire extinguishers additional coverage if necessary. to determine if you have enough Having adequate insurance coverage fire extinguishers on hand on the will be life-saving for your business property, that they are the right to rebuild. type and that they are placed Fire is serious, quick and deadly. properly. Annually service your fire Inventory, building, property loss; extinguishers’ for malfunctions by a maybe even life can be lost in an licensed fire extinguisher servicing instant. When decorating, the best company. thing to do is to become educated Fire-Prevention Plan: One about your individualized fire of the safest things you can do to concerns: adopt a fire-safety plan, protect your business is to have a obtain adequate insurance coverage written fire prevention plan. A fire and have a sprinkler system and/ prevention plan may not only be a or or smoke detector and fire necessity, but in some cases can be extinguishers’ in place. Yes, during a requirement for your business. the holiday season your business can Contact your own insurance be bright and festive; just remember agent, local fire department, the this is the season to “deck” the halls, NFPA or Ready.gov for tips, ideas, not burn them down. strategies and training to draft a comprehensive plan. Make sure to include a specific checklist that John Krivacsy is a senior vice meets the needs of your business. president and Claims and Loss Your plan should be in writing, Control Manager with Automotive publicly displayed and available Risk Management and Insurance for employees, customers and Services, Inc., (ARM) based in consumers to see. Stockton, Calif. To reach Mr. Fire Insurance Coverage: When Krivacsy, send an e-mail to a fire strikes many different things jkrivacsy@armonline.com. can happen. Important documents December 2013 DEALER BUSINESS JOURNAL | 23

BUSINESS OPERATIONS

Tax Planning

By David Wiggins

Tax Planning to Avoid Year End Surprises

ased on a number of tax law changes that have taken place over the past couple of years, the largest tax increase for many so called “upper income” taxpayers over the last ten years will occur in 2013 and forward. This will leave many taxpayers with large tax bills that will have to be paid by April 15 of next year. To plan for and try to avoid this it is important to be reviewing

finance company (RFC) before year end. If you are a Buy Here Pay Here dealership and have not created an RFC you may have the opportunity to create an RFC and sell some or all of your notes before year end. Generally BHPH vehicle notes are sold to the RFC at a discount to face value. The discounts often range between 25 to 40 percent of the principal balance outstanding. The sale of these notes may generate a significant loss that you A number of tax law changes over can use to the last few years will bring the reduce or largest tax increase for many “upper eliminate all of your income” taxpayers in 2013 and current year forward, meaning large tax bills to income taxes. be paid come April 15. Time is of the essence in and projecting your tax situation setting up an RFC before year end before year end. This should reduce since most states require a finance surprises and allow for work on license to allow the RFC to operate. strategies to minimize the impact of In some states this process can these tax increases to you. Following take two to three months to receive are some suggestions that may be approval from the state. helpful to many of you. If you currently have an RFC You will want to start by setup and are discounting notes reviewing your current vehicle note we would suggest you review your portfolio to determine uncollectable portfolio loss histories and other loans that should be written off market data to determine if your before year end. To be deductible prior year discount rate is still in the current year, we would advise representative of fair market value. you to repossess the vehicle and If not, it should be adjusted up or charge-off the debt before year down as considered representative of end. It is possible to charge-off the market value. note by year end if the repossessed If you sell service contracts vehicle is taken shortly after year to customers or provide warranty end. In any event, the charged off coverage on vehicles you sell there installment note must be written off may be opportunity to reinsure of the company’s books at year end, some of this risk. By reinsuring it cannot just be written off on the this risk you are able to claim a tax tax return. deduction equivalent to the value Consider the setup of a related of the warranty coverage provided.

24 | DEALER BUSINESS JOURNAL December 2013

There are a number of issues to be considered with your tax advisor in making this decision, but it could provide an effective way to reduce your tax liability this year. Frequently a dealership or RFC have loans between various companies or shareholders of the companies. Such loans should provide that interest is paid from the borrower to the lender. The Medicare net investment income tax (NIIT) has been enacted this year which provides that individuals with taxable incomes over $250,000 (married filing joint) will be subject to an additional 3.8% tax, on top of the normal income tax rate. This tax applies to interest, dividends, capital gains, net rental income and passive income. As such you may want to consider reducing the interest rates you are charging on these loans to effectively reduce the NIIT. Such interest must meet the IRS minimum rates that are published monthly. Depending on the terms of each loan it is likely the interest rate can be set as low as one to two percent per annum. The same NIIT mentioned above also applies to rental income applicable to buildings rented from you to your dealership. You will want to determine possible fair market value rents and where possible consider reducing your rental payments as necessary to reduce your corresponding rental income and the related NIIT. 2013 still contains some significant deductions with regard to claiming immediate Section 179 expense deductions for equipment purchased during the year. Currently $500,000 may be DealerBusinessJournal.com

DealerCentric Unveils ID Scanner Technology

DealerCentric Solutions, the consumer finance management system innovator, today launched ID Drive, a patent-pending ID scanforthat 2013. is muchthe most nerexpensed technology givesThis dealerships greaterprotection than most dealerships powerful against fake IDsneed and identityfor theft imaginable.Based on this, you equipment. ID want theft is a national epidemic, and may to now consider purchasing more criminals are using fake IDs to test-drive, and placing in service equipment, and even buy, cars. Developed in partnership computer or other furniture with AssureTecsystems Technologies, an ID authenticaand fixtures before year end. tion technology firm, ID Drive is theThis first solution thatallow givesyou dealerships theoff same, state-of-the will to write such artamounts protectioninused Homeland the by current year Security and the U.S. military. resulting in immediate tax savings. With one scan at ID Drive, dozens of comThe Section 179 expense limit plex tests for thousands of ID types are automatfor performed, 2014 and leading forwardto isinstant currently ically validation or redscheduled flags goingto up.beBut the dealer reduced to benefits $25,000don’t stop perthere: year.with that one swipe, a customer’s information is put into serious action: it’s extract Many of you own several ed, purified and enhanced, and can be pushed companies established as Ssystems. into a dealer’s CRM and finance corporations. If you have S pre-existing The customer, the vehicle, any lead or credit app data, the sales and F& I decorporations, be aware of those partments, and sales management companies that are reportingare all electronically connected and able to communicate. operating losses for the year. We So, when that test-driver returns, the right deal structure can already be in place, shrinking

time-to-close by hours. data is present on a card, not that it’s valid. And “The ID thieves hitting dealerships today dealers are forced to make time-consuming calls are super-sophisticated and so is their technol- to organizations like the DMV to verify identhatarewill allowonforweekends frequently see ID such loss situations ogy. But dealer verification processes aren’t”to establish tities, but“basis” most cars bought the use of such losses. with to dealerships that said regard Pete MacInnis, CEO of DealerCentric. when these organizations are closed. It’s beIn summary, the tax expensive, increases scary prob“WithRFCs all that endless an increasingly have setup. Thephotocopying, dealership barcode- coming scanning and verification lem: some lenders requiring dealers to this year willarebenow significant may be generating a losscalling, whilethey the have re-enacted mained in the Dark Ages, powerless against thisfor buy back ID-theft-related deals. many of you. For this reason it is RFC is generating profit. Nothing fast-growing and incredibly costly problem. ID ID Drive’s Extreme Technology: ID Drive than ever to project isDrive as disheartening as sit finding out but it’s themore may be small and on a desk, wasimportant created through an exclusive auto retailyour taxes and work to plan for such that you have to pay tax on the most potent anti-fraud and test-drive security ing partnership with AssureTec Technologies, increases. only listed a solution chosolution ever for dealerships.” which isWe thehave ID authentication income, but invented can’t deduct the loss. National & Dealership Epidemic: ID theft sen by the Department ofplanning Homeland Security, few of the more common Such company losses can only be is an American epidemic. According to the FBI,strategies the Department of State, the and DMVs above. You shouldNYPD consult deducted by shareholders on the it has overtaken the drug trade as the most cost- nationwide. ID Drive incorporates the world’s your tax advisor to review your and softpersonal income tax returns the Securitywithmost ly U.S. crime. According to an to Open powerful ID-scanning hardware specific situation and those planning extent the shareholder has what Foundation report in 2013, more than 267 mil- ware and customizes it for auto retailers, so they available you and they yourneed to fight consumer records were exposed, have the extremefor technology islion termed “basis” to deduct such and a re-options cord, 60Ifmillion of personal back against the fake ID wave. losses. you dopieces not have basis toID woundbusiness. “At DealerCentric we’re on a mission to up in the hands of identity thieves, last year. deduct such losses they cannot be And more dealerships are reporting that more innovate solutions that will make the test-driveDave Wiggins is an automotive claimed the presenting current year and must to-sales-to-financing process radically more effraudstersinare impeccable-looking CPA with CliftonLarsonAllen and customers,” be carried forward. In loose terms both dealers and their (fake) IDs for test-drives, and then driving off… ficient for has expert knowledge of the innerMacInnis said. “ID Drive is a key component in or even successfully purchasing vehicles with “basis” is money invested and prior what will ultimately be the first end-to-end dealthem. workings of both retail and buy hereyear net profits. With good year end solution that bridges the gap between the The government requires dealers to takepayership here operations. planning, you can usually find ways steps to flag identity fraud. But dealerships use auto sales and financing processes, at the pint barcode scanners, which can only verify that of sale.”

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BUSINESS OPERATIONS

SecurityMeasures

By Steve Singleton

How to Stop Grand Theft Auto

he two men entered the Georgia car lot at 2 a.m. Systematically, they went car to car before stopping at a 2012 silver Chrysler 300c. Bypassing the car’s electronic lock system, they started the car. Then, after cutting through a chain link fence and breaking a gate lock, they drove the $40,000 automobile off the lot. Luckily, not all car thieves are as ingenious. Some just crash through fences, hot wire a car, and drive off. Others steal keys off a pegboard or a salesman’s desk or drive off with an unattended vehicle left running. No matter how they occur, car thefts are costly to dealerships. Car lots are easy targets, but by focusing on key control, video surveillance, and GPS tracking, dealers can minimize their exposure and stop playing Grand Theft Auto.

Key Control The secret to key control is a meticulous key control system that tracks a vehicle’s keys from the minute the vehicle is delivered to the minute it’s sold and driven off the lot. Key systems today vary in type, style, and functionality, and can range from a simple homemade pegboard to the high end, computerized, integrated key system. Experience proves that to ensure keys are secure at all times, a dealership needs a system that controls keys and: 1. Tracks keys at all times. 2. Limits access to key system. 3. Records key in/key out details. 4. Assigns personal ID’s to managers, sales staff, technicians, etc.

26 | DEALER BUSINESS JOURNAL December 2013

5. Provides daily key management reports. 6. Provides a daily report of keys and vehicle inventories 7. Secures customer vehicle keys, and 8. Limit personnel to one key at a time. Selecting the right key control system isn’t difficult if dealers follow three rules: 1)Find a key system company with considerable experience in the automotive business, 2)Make sure the system that does more than just secure keys, and 3)Partner with a key control company that is known for its stellar customer service. Video Surveillance Another essential in protecting a dealer’s fleet and inventory is video surveillance. Because cameras record what happens in and around the dealership and lot, video surveillance systems are also vital for securing vehicles, risk management, and liability protection. Video surveillance, a proven theft-deterrent, can be used to protect customers, employees, and buildings as well as track customers and visitors 24/7. While some may feel that a surveillance system is too expensive, in the long run, not having a record of what happens or happened can be extremely expensive, even bankrupting. Video surveillance isn’t something new. Dealers, like most other businesses, have been doing this for years. Unfortunately, too many dealerships are using out-dated analog cameras that aren’t capable of live monitoring. To do video surveillance right, camera equipment needs to be is digital, Internet-connected, and high resolution. More importantly, the video should be a live feed, not an incident replay, and be monitored off-site and online. When buying a video surveillance system, vehicle dealers should: 1. Look for a camera system that is motion-activated and a live feed, and be monitored anywhere, including on mobile devices, via the Internet. 2. Ensure that the system is easy-to-operate and easy-tomaintain. 3. Ensure that the system has a large capacity for video storage. 4. Utilize cameras to monitor employee productivity, prospect wait-times. Check camera systems regularly to see 5. that all are recording properly. Once a camera system is in place on the lot and DealerBusinessJournal.com

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other key locations, it is time for the next step: Developing a response plan. Who does what when an intrusion or theft occurs? If a monitoring company views the theft, do they verbally confront an intruder or notify the policy? Fortunately, the video system companies can answer these questions as well as help and determine the best locations for the video cameras and monitoring. GPS Tracking Remember the Georgia dealer who had his car stolen? He offered a $2,500 reward to hunt down the car’s thieves. However, if he had a GPS tracker in the car, he could have turned on the GPS system, located the car’s coordinates, and sent the police to the exact location. For many dealerships, GPS tracking systems play a dual role – as a consumer add-on and as a tracking device for the vehicles on their dealership lots. The process is relatively simple. A GPS tracking device installed in a vehicle sends out information about the location of that vehicle. That information goes to a GPS satellite, which sends the data to an operations center. From here, dealers can view the location of every vehicle in real-time. Often, the dealership uses the GPS system to create a geo-fence that triggers an alert should a vehicle leave that designated area. If the movement is unauthorized, the dealer can remotely shut down the vehicle or engage the alarm. GPS tracking is not new to the dealership marketplace. For years, Buy Here Pay Here dealerships have used GPS to track vehicles and remotely shut them down when owners failed to make payments. Because of how well these GPS programs work and because of technology advancements, other dealers are using GPS devices for security. Vehicle theft is up in the U.S. In fact, according to the FBI, every 44 minutes a car was stolen in 2012. This rise in auto theft, coupled with increased vehicle costs, makes protecting a fleet or lot inventory all the more important. Key control, video surveillance, and GPS tracking are three proven ways to protect a dealership and its investment. Steve Singleton, who has more than 25 years experience in the automotive business, is both the Founder and the Director of Operations of Security Key Systems. He and Security Key Systems have sold and installed thousands of key control, GPS and video surveillance systems dealerships across the United States. ...Your Success Is Our Business

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BUSINESS OPERATIONS

Inventory Control

By Bill Reidy

Simple Rules of High-Turn Inventory Management

arket 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 unprecedented information about vehicles 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: testdrive 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 percent cost to market. An average range is usually 80 – 85 percent, 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. A high-turn operation not only needs inventory – it needs inventory

28 | DEALER BUSINESS JOURNAL December 2013

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 percent turn every month if possible. This is especially important because you’re selling a product whose value DealerBusinessJournal.com

When it Comes to GPS: Disclose, Disclose, Disclose!

of installation. These documents provide information about the devices, By Jeff Karg how they operate and what responsibilities the customer has in relation Passtime USA In today’s technology driven world, using GPS to track assets and to the devices. Additionally, a benefit of disclosure is the psychological aspect that Collection technology to help customers make their payments and assist in vehicle recovery is common practice in the subprime finance and affects a customer who knows a device is installed on their vehicle. This is a powerful tool. When a customer knows their vehicle has a GPS deBHPH space. depreciates over time,inathe facttechnology, known alllower too prices, well byand any alsothat important to describe inventory While improvements additional It’svice can determine their location and/or clearly prevent and them from driving if dealerhave whomade has utilizing ever been burnedfor byasset aging inventory.and track- effectively. features technology management they do not stay current on their loan, they have good incentive to make ing mainstream, has also the than need to fully disclose these If you don’t disclose the device, tool disapSupply isiteasier toincreased determine demand thanks to sys- payments. Note that competitive pricing often this putspsychological you on tems to the consumer. pears. The method of disclosing is also important. Many device providauction data and information from sites like AutoTrader. the first search results page because Internet shoppers Informing the consumer of the device, how it operates, and how it ers offer written disclosure forms that can be used. A signed consent from com and by DealerMatch. Demand more challenging, sortisby lowtotoensure high.that the customer understands and will be used the lender, is essential to is maintaining a good customer ex- frequently the consumer theprice best way since you have to trackand every vehiclecompliance of a specific If you can four rules, you will have a perience for the consumer addressing andmodel liability con- agrees with thefollow use of these a device. thatforpasses through an auction or website, and then see cerns the lender. recent, independent survey study -addressed the issue viable A opportunity to successfully implement a system ofof discloAnd if you not disclosing, your argument against it is likely: ei- high-turn sure. Ninety-four percent of the asurvey respondents indicated that they whether it isare wholesaled or retailed. management. ther customer will object tomanagement the device anddepends you will lose a sale or the use written disclosure forms from device providers. The use of disclo theRule #4: High-turn on your customer will tamper with the device if they know it is in vehicle. Even sures improves the customer experience and leads to referrals and repeat ability successfully your that being to said, there are twomerchandise distinct reasons thatinventory. you should be fully dis- business. Not “leaving your customers in the dark” can create a better, Billlong-term joined DealerMatch thistreated year from he informed of When you list cars online, it takes many sets of eyes to closing these devices to your customers: customer if early they are withvAuto, respectwhere and fully led the sales efforts for their industry-changing decision-support achieve percent turn. Once you’ve secured your 1. It’s a100 good business practice, and their obligations and the consequences if those obligations are not met. increasing in will usedlose car dealerships 2. It’s the you best need way totolower liability a lendershoppers against poten- tools. Focused I know on what you are profitability thinking: you customers if you tell inventory, get ityour in front of as Internet tialaslegal action regarding the device them about the device. However, the study has found that customers rarethrough velocity management via the vAuto software platform, quickly as possible. Your intake and reconditioning First off, disclosing the use of a GPS tracking and/or Collection Billlyexpanded object to vAuto’s the installation the device whatsoever. Specifically, when footprintofnationwide. Bill is a sought after process needs seamless. sure you post sharp, Technology deviceto is be a good businessMake practice. responders the surveyindustry were asked customers to the installation speaker in thetoautomotive for ifhis expertiseobject in profitable pleasant your cars that customers seedevices is to inventory One of pictures the singleof best ways to so succeed utilizing these of a device as a condition of their financing/leasing, 99processes. percent answered acquisition and transparent dealership selling them the in the besttopossible light Disclosing – literally the anddevice figuratively. disclose device the customer. in a positive no or infrequently. Only 1 percent answered that their customers object to way can help get “buy-in” from the customer, which can reduce the like- a device as a condition of financing. lihood they will become delinquent. Many technology providers offer So, disclosing is a good business practice, and customers rarely written disclosure forms for lenders to have customers sign at the time Turn to page 27

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Journal | 29 17 September 2013 December 2013Dealer DEALERBusiness BUSINESS JOURNAL

BUSINESS OPERATIONS

Business Basics

By Greg Wells

The Future of BDCs

s we prepare for 2014, BDCs are a hot topic with many dealers. More than ever before, the next generation BDC will be driven by technology. The scope, structure and processes of BDC’s have to change to keep up with the consumers continued shift in how they shop and how companies retain their valuable customers. You must get beyond phone and Internet to develop a BDC that cares for all your customers before, during and after the sale and service of a vehicle. The truly profitable BDC’s are the voice of the dealership by delivering quality interaction every time a customer or prospect is “touched.” 1. The scope of BDC’s will expand. So many times I see a “BDC” that includes an appointment setter or two taking phone-ups and working Internet leads. There may be a dedicated manager but sometimes a sales manager or someone outside the department manages the reps. For a BDC to be effective it needs outbound campaigns and service. Service puts instant revenue in the department, and outbound campaigns create incremental sales and gross profit. Think of it this way; inbound captures and outbound creates. Core processes such as showroom follow up, database

marketing, direct mail and conquest marketing are truly developing business; à la business development. See the difference? It’s hard to make a small BDC profitable because of the lack of incremental business. Service BDC’s are very effective, usually boosting appointment setting by 30 to 40 percent while simultaneously liberating service advisors from the ringing phone. A Service Advisor, being a mere mortal, cannot give his undivided attention to the customer standing in front of him and the customer on the phone. 2. Processes are changing. Don’t take this the wrong way but your processes are over 400 years old! Look at your schedules; they are based on the calendar whose current version dates back to 1582. Do you think it’s time for a change? In the future, follow up campaigns will be behavioral driven instead of by the clock. New technology providing insight in customer online behavior allows a shift in thinking to a more relevant and timely follow-up strategy. At AllCall, we modify follow up based on how long the shopper has been in market, their vehicle consideration set, price range, shopping intensity and predicted purchase date. This wasn’t possible before but again technology drives change, innovation and improvement. Another example of change in processes would be to adapt a “higher view” of your sold customer and make your sold follow up campaign more effective. You can do

30 | DEALER BUSINESS JOURNAL December 2013

this with a BDC by letting them do all the follow up. Sold customers are literally being bombarded with follow up, most of which has no value to the customer! It’s a spider web of everyone trying to get involved. Several calls from different people at the store (plus the OEM), letters and emails from the owner, GM and Service Manager plus a survey from the OEM is too much! I’ve actually had a customer tell me “all I did was buy a car.” Ouch. A fully staffed and effective BDC can whittle all that wasted motion down to one high quality follow up call and/or email. Then transition in to service follow up and eventually referral and equity position campaigns. You should develop a simple process that doesn’t annoy your customer. 3. Communication channels are changing. The Gatlin gun method is going away. Pounding your customers inbox with email after email and leaving tone deaf voicemails just doesn’t work very well now and will definitely be less and less effective as consumers respond to more personalized ways of communicating. Personalized videos, texting and social messaging are much more effective than email and voicemail in making the initial connection. Spark emotion with wow tactics and you’ve captured your prospects attention. The next generation BDC will be a social service providing useful information while influencing the shopper’s choices in dealerships. Call flow itself is changing. DealerBusinessJournal.com

Future BDC’s will be the switchboard, controlling every interaction and delivering excellence in every call. 4. Compensation in the BDC is changing. Highly effective BDC’s have more focus on hiring the right people for the job and less focus on spiffing mediocre employees to do their job! Managers don’t spend valuable hours tracking down data and documenting spiffs for kept appointments and solds. Skillful service-minded employees cheerfully convert shoppers to showroom visitors for a fair wage. It’s all in who and how you hire.

5. Outsourcing enables any dealer to have an effective BDC model and digital strategy. For many dealers launching a BDC just isn’t going to be easy. Finding the right people, the space and the time and money isn’t feasible but outsourcing is a very real solution. Managing your website content, social and digital marketing strategy in house is also a challenge for many dealers. You don’t produce your own TV spots or newspaper ads so why wouldn’t you let an expert handle your digital content and marketing? BDC outsourcing can save you tens of thousands of dollars and eliminate a lot of headaches and do-overs. No personnel costs,

no turnover, no training costs, no bonuses or ramp up time make an outsource BDC very cost effective. So re-think you BDC strategy for 2014. Go beyond phone and Internet and develop a fully operational BDC either internally or externally. You’ll need it to keep up with your shoppers and your competitors. Greg Wells began BDC Masters, Inc. in July, 2009 to help dealers set up and maintain highly effective and profitable business development centers.

Calendar JANUARY Jan. 7, 2014 Jan. 8, 2014 Jan. 9, 2014 Jan. 14-15, 2014

Manager’s Boot Camp, Houston, TX Collections Boot Camp, Houston, TX Sales Training Boot Camp, Houston, TX Used Vehicle Academy, Sarasota, FL

FEBRUARY Feb. 4-5, 2014 BHPH Training School, Sarasota, FL Feb. 6, 2014 LHPH Training School, Sarasota, FL MARCH March 11, 2014 Manager’s Boot Camp, Chicago, IL March 12, 2014 Collections Boot Camp, Chicago, IL March 13, 2014 Sales Training Boot Camp, Chicago, IL APRIL April 14-16, 2014 20th Annual BHPH World Convention Las Vegas, NV April 23-24, 2014 BHPH Training School, Sarasota, FL JUNE June 3, 2014 Manager’s Boot Camp, Dallas, TX June 4, 2014 Collections Boot Camp, Dallas, TX June 5, 2014 Sales Training Boot Camp, Dallas, TX ...Your Success Is Our Business

JULY July 9-10, 2014 BHPH Training School, Sarasota, FL AUGUST Aug. 5, 2014 LHPH Training School, Sarasota, FL SEPTEMBER Sept. 2, 2014 Sales Training Boot Camp, Atlanta, GA Sept. 3, 2014 Manager’s Boot Camp, Atlanta, GA Sept. 4, 2014 Collections Boot Camp, Atlanta, GA NOVEMBER Nov. 3-5, 2014

BHPH SuperGroup, Sarasota, FL

DECEMBER Dec. 1-3, 2014 Dec. 9-11, 2013 Dec. 18, 2013

Credit/Collections Conference Dallas, TX Credit & Collection Conference Dallas, TX Sales Training Academy, Sarasota, FL

Find out more about these events and more online at www.TwentyGroups.com. December 2013 DEALER BUSINESS JOURNAL | 31

BUSINESS OPERATIONS

Website Building

By Staci Striegnit and Cliff VanMeter

Using Wordpress for a Dealership Website

ost every dealership has, or has had, a website built on a template made specifically for used car dealers. When these website providers came on to the market, it created an easy way for a car dealer to get a website, without requiring a lot of technical know-how to develop it. Just as a business evolves, so do the needs of a website. Considerations like traffic, and conversion rates have to be factored in. For dealers who are looking to win on the web, it becomes a game to make the website as optimized and usable a conversion tool as possible so that website traffic will bring real buyers into the dealership. For dealers who want to take a hands-on approach, tweaking, measuring, and reanalyzing their site to attract and convert website traffic, using template websites may feel too constraining. It often means having to work through a support team for changes, and sometimes being limited within the template to change graphics, layout or the location of your site’s calls to action. In 2013, our respective dealerships, Express Auto (expressauto.com) in Kalamazoo, MI and Mark’s Auto Sales (marksautosales.com) in Lakewood, CO made the transition to Wordpress powered websites. Wordpress is a robust content management system that powers over 60 million websites, across industries and around the world. In fact it is now estimated that 20 percent of all blogs worldwide run on Wordpress. As “open source software,” the core software is

contributed to, and made better by the Wordpress community, continually improving the functionality that a Wordpress site can provide. Before choosing to power our respective dealership websites with Wordpress, we each, Cliff VanMeter at Express Auto and Staci Striegnitz at Mark’s Auto Sales, had worked within Wordpress firsthand. So we would like to share what we’ve learned extending Wordpress for our dealerships, to dealers who want to further push the limits of their website. Conversions The robust nature of Wordpress allows more flexibility to edit and make additions to the website. Changes on your website, from operating hours, to a customized landing page for a sale or special can be done in house depending on your tech/marketing team’s comfort with Wordpress. Another advantage of Wordpress is how layout and content are handled separately. While complex layout changes might require your tech-team to tinker with code, most content changes are simple enough that non-technical staff is able to make updates at any time. Many dealerships that are focused on improving their site to be a lead generator use Google Analytics, setting conversion goals. The knowledge gained from digging into analytics isn’t lost on the website, but changes can be made within the site content, and design to match what customers are looking for, and help them find

32 | DEALER BUSINESS JOURNAL December 2013

it easier on the website. Ultimately for dealerships using their website as a lead generator, the goal is to increase the percentage and volume of website conversions. Dealerships that compete in the pay-per-click marketplace can easily modify their landing pages, to find what layout, webpage copy, and calls to action result in the most applications or inquiries to their internet sales department. A pretty website is nice, but conversions are essential for business. Visual Campaign Consistency Many car dealers take advantage of multiple marketing mediums for a single campaign, from direct mail, newspaper, television or website display advertising. If your ad has the call to action to visit the website, whether it be to apply for a loan, or browse inventory included in a sale, the best website conversion will come from a consistent campaign where visitors can easily find what they were originally looking for. If you plan sales events, and target advertising to promote them, the website needs to follow through the call to action you had for that sale. A flexible platform such as Wordpress makes it easier to carry through a campaign across your website, from the look and design, to specials, offers and content, without having to rebuild the website or change the site’s core architecture. Evolving Needs of a Website A website isn’t ever really finished, once launched, but rather development is just paused between DealerBusinessJournal.com

ditional regulations and cover your business before it becomes an issue.

Buy Here-Pay Here From page 8 digest the first one. You have to look at reports, see what is available and see the integration for yourself. This is the most critical point in the relationship it’s time to make commitment. versions.where Between versions ofayour website, you can

assess the site’s performance with website traffic, search

Training engine optimization, andpeople conversions, Will your provider send to you towhich installwill and lead train? How yousupport your next priorities to build or fine tune for your much is included?

CONFUSED ABOUT

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website. As the needs from your dealership’s website

Fear of Change evolve, you may choose to make changes to the aesthetics Being afraid of change is a good thing when considering changing or functionality of the website. your DMS solution. Every single person in your organization will have back At that time,Everything and depending your needs, youeffi may to start at zero. will be on different. Speed and ciency Wordpress and to developer make willchoose drop infor theashort-run and designer you may have do a lot oftodouble-entry to ensure that thedesign data is maintaining its integrity and the new DMS is to build and these new features or functionalities working advertised. Accounting integration won’t be the same, etc. on theaswebsite. But it shouldn’t be any problem to find Knowing all of this means you should not make this sort of decision Wordpress designers and developers to turn your website cavalierly: it is a big deal to change systems and you need to make sure to reality—the Wordpress thatambitions the new features are worth the price. platform has been

around for ten years now, and almost one in five of all Growth Plans websites on the web, are powered by it.

Does your DMS have new functionality in mind? Are they enhancing reporting,isintegration or analysis? Your DMS needs to be in Staci Striegnitz the Web Marketing Manager for Marks Auto a position to grow with you. Do you want an innovator and industry Sales in Lakewood, Colo, and is an independent web marketing leader (read more expensive here) or are you satisfied with a follower consultant since 2010. She can be reached via e-mail at staci@ As I said before, our business runs on data. How that data is captured, marksautosales.com. VanMeter is the Marketing PR interpreted, utilized and Cliff analyzed is absolutely critical to& growing your Manager Express Auto in competitive Kalamazoo Michigan. canisbe business andatmaintaining your advantage.He This the most reached on his blog, critical system you willhttp://www.cliffordblog.com make in your business.

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December 2013 DEALER BUSINESS JOURNAL | 33 September 2013 Dealer Business Journal

BUSINESS OPERATIONS

Managing Collections

By Jason Anderson

The Best Bang for your Buck

s the economy continues to improve, do you find that your debtors are more likely to switch jobs, move residences, or even voluntarily repossess knowing that the competition will finance a new car at the drop of a hat? This is the time when you need to look at your collection department and make sure that you are getting the best bang for the buck. There is no shortage of benchmark information regarding collections. It’s what you do with that information that matters. Do you have a KPI matrix? Are your bonuses tied to KPI’s? Are you asking what a KPI is? KPI stands for key performance indicators. Here is a short list of KPI’s that you should be looking at daily, weekly, monthly, quarterly and annually: • • • • • • • • • • • • •

Accounts out for repo Repossessions on hand Delinquency Recency Cash collection versus goal Charge off percent Charge off percent by collector Charge off percent by underwriter Charge off percent by location Static pools overall Static pool by underwriter Static pool by collector Static pool by location

Many dealers ask about cash collection. It is important to know what your cash collection

expectation is for each month. Do you know how much money you should be collecting each month? If not, then make a note to yourself to have the answer to that question before the sun sets today. In its most basic format, it’s quite simple. You will need to know the average payment of your portfolio and multiply it by the number of loans in your portfolio. This will give you a very general number that you should be achieving. I have developed a spreadsheet that has additional variables such as payoffs, one day/one dollar calculations and per collector goals. Shoot me an email and I will be happy to send it to you. At the end of the day, we all just want to sell more cars. But let’s face it, without a strong and compliant collection department, it all becomes charity work if we do not collect payments. There is an alternative to managing your collection department, it is called outsourcing. Just as you are a professional at selling cars, there are professional collectors and professional collecting companies that do nothing but collect. Do you call your past due accounts on the first day of delinquency? Or do you call when you are short on cash?

As Dr. Phil would say….”how’s that working out for you?” Most outsourcing companies have a very consistent schedule and will call on the first day of delinquency and will continue efforts until arrangements are made. Depending on the outsourcing company pricing, costs are usually comparable to operating your own collection staff. More importantly, your cash flow should increase, and with constant, professional, compliant collections, your charge offs and delinquency should improve. Jason Anderson is a partner in Pivot Rock Solutions. He has over 20 years of automotive and finance experience. Pivot Rock specializes in collection outsourcing, consulting and, loan servicing. jason@pivotrocksolutions. com

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December 2013 DEALER BUSINESS JOURNAL | 35

SALES & SERVICE

Tax Season Sales

By Chip Wiley

Cash In on Tax Refund Opportunities

ax season is off to a roaring start for many dealers across the country. Even though it is early in the holiday season, thousands of customers are being taken out of the market and driving before the IRS even opens. The legion of dealers who are cashing in on the early tax season is steadily growing. No, this is not a dangerous ‘zero down’ promotion, although it does tie into pick-up payments, deferred downs, irregular payments, and bonus payments by customers. The number of opportunities to cash in on the early tax season is seemingly

are often more than willing to promise out $1,000 of their future tax refund in order to have a vehicle before the first snowstorm hits. Oftentimes, a person’s mentality will change during tax refund season and the months leading up to it. That money has burnt a hole in their pocket before it was even put there. Reason being is that the average bonus check from Uncle Sam averages over $5,300 when children are on the return. For the single parent who reports $18,000 with three young children and zero Federal Income Tax withheld, that refund is over $7,900. Withholdings, Much of the tax season money daycare, or college is pre-spent in this country, expenses take you up because most people expect it towards $10,000. and plan on it. While that number sinks in, think endless and remarkably simple. about how that money is spent by Best of all, it requires little, if any, a paycheck to paycheck individual. additional risk to the dealer or What would you do if you knew that related finance company. kind of money was coming, being Say your customer wants a car an annual change in your financial that requires $1,500 down and only picture? has $800 in hand. What do you Much of the tax season money normally do? Most dealers let the is pre-spent in this country, because car go for $800 and increase the most people expect it and plan on it. payment structure or extend the Dealers who have the flexibility in contract length. But in the fall, that financing are able to take advantage is the incorrect answer! of this phenomenon before any of In order to maximize the their competition. The percentage of upcoming tax season, forward franchise dealers who promote tax thinking dealers are taking the refund season before the holidays is smaller $800 down that many others less than one percent. would. The key to making this work Buy Here Pay Here dealers own is to get the buyer to pledge part of this market. their upcoming refund to bridge the So how have your last few gap. The genius of how this works is tax seasons been? Are they in that you are dealing with “Monopoly decline? Now you know why. Money” in many cases. Although Your competition is stealing your your customer is $700 short, they customer from underneath you

36 | DEALER BUSINESS JOURNAL December 2013

without taking any additional risk to their bottom line. Bill Neylan of Tax Max explains that this 4th Quarter Tax Season has been growing for more than 10 years now. “We provide our dealers the ability to calculate future tax refund estimates that the dealer can use to underwrite sales in October, November, and December. Our management team trains and guides sales managers to help them avoid any pending bumps in the road,” says Neylan. “The best part is, the dealer is not really taking on any additional financial risk. All it takes is two or three minutes of time to lock in a deal. The United States Treasury Department even provides a hotline to alert you to any government liens.” The final piece of the puzzle is getting paid. A number of options exist in terms of partnerships for dealers to get made whole on a deferred tax refund deal. Preferably, finance managers are best to print the tax refund itself for the customer. This takes away any uncertainty as to when the money will arrive. Facts are facts. If every customer were always truthful, you would not need a collections staff. Therefore, helping the customer handle their tax return and getting paid first is the way to do business. Regardless of whom you partner with during the January and February portion of tax season, make sure they can guarantee that you get the check first. Chip Wiley is a Corporate Trainer at TRS Tax Max. Find out more at TaxMax.com | 866-642-4107 DealerBusinessJournal.com

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INDUSTRY NEWS

Market Watch Study Finds Dealers Missing Opportunities With Customer Relationships

ccording to a new study by Maritz Research, the automotive industry is missing an opportunity to build long-term customer relationships, with one in five customers never hearing from their dealer immediately after their purchase. The study also found that 75 percent of in-market customers were never contacted by dealers who already know them. “It’s clear that dealers who focus on a single sale miss the bigger picture of the customer journey,” said Chris Travell, vice president of strategic consulting for the Automotive Research Group

the deal on a new vehicle, one in five people said they were not contacted right after the purchase. “We never heard from the dealer after the sale; no service offers, no purchase follow-ups, nothing,” said one respondent. “Everyone always calls right after you buy a new vehicle when there should not be any problems. No one ever calls 12 to 36 months later asking if everything is alright.” More customers are in the market than you’d think. One year after purchasing a new vehicle, 40 percent of customers are already thinking about their next purchase, even if it is a few years away. “A Customers want helpful purchase anniversary information throughout the follow-up … would lifecycle of their ownership, not have been a big plus. Maybe we are ready just immediately after the sale. for a new [car] and at Maritz Research. “People will perhaps a call would help us decide,” buy numerous vehicles in their said one consumer. Dealers should communicate lifetime, so staying in touch with them throughout the ownership of more, as long as it’s relevant. One their current vehicle — not just after in five vehicle owners received too making the sale — will put a dealer little communication. The study in the right place at the right time also found the longer someone to assist customers with their next went without contact, the more purchase.” dissatisfied they became and the The Automotive Customer less likely they were to buy again Journey Study polled more than from the same dealership. “Too little 4,200 car buyers on what they think, contact may mean the dealer doesn’t feel, want and need when it comes care about [my] satisfaction … more to purchasing a new vehicle, as well personalized customer service would as what they need to hear as owners help promote loyalty for the product throughout their journey. and dealership.” The following are the study’s key Dealers need to use the findings: information they have. Seventy Dealers aren’t thinking beyond five percent of customers were the sale. After dealerships closed never contacted by their dealer

38 | DEALER BUSINESS JOURNAL December 2013

or manufacturer when they were actively looking or thinking of buying a new vehicle, despite the dealer knowing when the lease was up or the finance term was over. “I would like someone to contact me closer to the end of my lease to discuss options for a new lease and prices,” one respondent said. Communication changes over time. Customers expect to hear from the brand and dealership throughout the ownership of their vehicle. The desired communication changes over time, whether they’ve owned the vehicle six months or six years. “I wanted them to contact me, just to see if I had any complaints, problems or input,” a respondent said. More and more, prospective buyers go online to research potential purchases and read reviews of others’ experiences. Some avoid dealerships altogether. Because of this, the customer is more prepared than ever and expects the relationship with a dealer to provide them value. The good news is consumers want a stronger relationship with their selling dealer, with 62 percent of those not contacted after their vehicle purchase indicating that they would have liked to receive some form of communication. “This increase in communication doesn’t mean more direct mail,” Travell noted. “Customers want information that’s helpful to them depending on where they are in their ownership lifecycle. It’s about the right type of communication at the appropriate time.” DealerBusinessJournal.com

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December 2013 DEALER BUSINESS JOURNAL | 39

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