Dealer Business Journal December 2014 by Dealer Business Journal

One year ends, and another begins. Get your dealership ready for the annual transition.

...Your Success Is Our Business

December 2014 DEALER BUSINESS JOURNAL | 1

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Contents Volume 11, Issue 12

IN EVERY ISSUE 4 5 34 35

ther and ano ip r ends, One yea t your dealersh n. tio Ge begins. ual transi the ann ready for

December 2014 er Decemb

LER 2014 DEA

CORNER OFFICE UPCOMING EVENTS CLASSIFIED ADS INDUSTRY NEWS

L|1

S JOURNA

BUSINES

LEEDOM GROUP

LEGAL & LEGISLATIVE

BUSINESS OPERATIONS

BHPH Boot Camp

Record Keeping 12 Year End Records Review Advice on what files you’ll need to keep for the new year and years to follow.

Business Basics 18 Year End Preparation and Tax Planning Annual changes to tax law is a topic you should be reviewing with your accountant now. By David Wiggins

6 New Year Benchmarks Make 2015 the best it can be by trying to reach these industry benchmarks.

By David Brotherton

Financial Control 8 Ho, Ho, Ho! Year End is Coming to Town Santa shouldn’t be the only one checking off his list. Get your year end to-do’s ready.

By Rick Boucher

Dealer Operations 10 Enhance Your People, Process and Product The first in a three part series, this time focusing on how to hire, and lead, the right people.

By Paxton Wright

Closing Thoughts 30 Time is Ticking Away to Plan For the New Year The New Year’s countdown is on. Get your plan in place before the ball drops with a few resolutions you can actually keep. ...Your Success Is Our Business

ess Is Our ...Your Succ

Business

Legal Opinion 14 Ready, Fire, Aim! Arbitration Agreements are under attack, again. This time by a handful of State Attorney’s General. By Tom Hudson LEADERSHIP & TRAINING Learn to Lead 16 Remember: “It’s the Culture, Stupid!” Building a strong culture for your business is not some motivational mumbo jumbo. If you want results, you need to create an environment that will get them.

By Dave Anderson

ReInsurance 22 Grow Without Hurting Your Cash Flow There may be a way to expand your reach, without emptying your pockets. By Tim Byrd SALES & SERVICE Big Data 24 Enhancing the Auto Shopping Experience With Help From Big Data Get on board with the new trend of analyzing consumer web habits to create an individualized marketing approach.

By Dani Sherrod

Online Reputation 28 Turn That Frown Upside Down How to handle negative online reviews.

By Christy Taylor

December 2014 DEALER BUSINESS JOURNAL | 3

LEEDOM GROUP

Corner Office It’s the Most Wonderful Time of the Year!

o all of our Dealer Business Journal readers, Merry Christmas and Happy Holidays!! This is truly one of the most wonderful times of the year and many of you know from past years this is personally my favorite time of the year. I am excited about another holiday season. As we reflect on 2014 it has been quite a year! Most dealers are starting to see positive momentum as we head into 2015. Hopefully the election results in November will create a market landscape that will bring good things in the New Year. We see a host of positive market indicators as we analyze the past twelve months. Wholesale prices are easing up – typically good news for sales. Used car sales are strong. Our data shows most (63%) dealers are having a better 2014 than 2013. There is a lot of good news. I personally believe 2015 will hold a great deal of opportunity for dealers across the country. Make sure you are positioned for success. I want to thank all of our contributing writers that provide insightful articles throughout the year. We have a great list of contributing writers and it helps us produce one of the best read trade publications available. As I travel I constantly get feedback on Dealer Business Journal and it is always very positive. These writers contribute their knowledge and expertise so that you the dealer can be better informed. We will keep up the effort and continue to bring you articles, thoughts and strategies from the best in the business. I know I say it every year in this final issue but above all things take time to enjoy this month. At this time of year we all slow down a bit and have a chance to enjoy family, friends and loved ones. Make sure you don’t miss the opportunity. Everyone works so hard throughout the year and this is a chance to enjoy the fruits of those efforts. Think of something you have wanted to do and go do it. Enjoy the season. Also, think about what your forecast and budget should look like for next year. Think about what changes you should make to be more successful. Analyze the financial performance of your business and see where you can improve. Take time this month to chart your course for 2015 and lay the foundation for another prosperous year. Finally, one last suggestion and I know I am repeating myself — do the single most important thing you can ever do for your business—join

4 | DEALER BUSINESS JOURNAL December 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 Contributing Writers

Guest Columnists

Tim Byrd| DealerRE.com Dani Sherrod | Live Marketing David Wiggins | CliftonLarsonAllen

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

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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 one meeting next year and investigate how the Twenty Group process can help improve your business. It will likely be the best thing you ever did for your business. Please allow me to again wish each of you a truly Merry Christmas and Happy Holiday season. Best wishes for 2015!

Chris Leedom

Executive Publisher

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LEEDOM GROUP

BHPH Boot Camp

By David Brotherton

New Year Benchmarks

ne of the most telling differences between working on your business instead of working in it is being able to focus some energy on planning for the coming year. The typical dealer in 2014 has struggled with increasing delinquency and charge off and has continued to see an erosion in their customer base as some of your best longterm customers have moved on to other programs via early payoff or voluntary surrender. Inventory remains a challenge and the industry continues to struggle to maintain down payment in today’s competitive environment. 2015 looks to be no different with no real easing of competitive market forces driving customers toward subprime financing and the resulting demand for wholesale inventory. Planning for the new year requires that we take expected market conditions into account and to work on ways to make our businesses become more efficient as a result. I’ve outlined three general areas that you should look at going into the new year to make 2015 the best it can be. Benchmarks Rather than talk about delinquency, recency, etc., I want to focus on some of the other benchmarks that should be reviewed in your planning. Take a look at the 2015 Benchmarks for some starting points.

2015 Benchmarks PROFITABILITY: Net Profit per Employee Net Profit per Vehicle Sold Net Profit as % of Total Sales

$75,320 $3,078 25.50%

DIRECT EXPENSE: Sales Commissions per Vehicle Sold Advertising Expense per Vehicle Sold Warranty Expense per Vehicle Sold Policy Expense per Vehicle Sold

$289 $207 $312 $92

INVENTORY: Number of Days Supply in Inventory

COLLECTIONS: Number of Active Accounts per Collector Cash Collected Per Active Account Average Contract Payment Cash per Account as % of Contract Payment Collateral Disposition % Collateral Recovery Rate Finance Charge - C/O Ratio C/O Rate - # C/O Rate - $

Tie these into your plan for next year and see how close you can come to benchmark. Every benchmark may not be applicable to your operation but it does give you information on where the benchmark performers in the industry are headed.

6 | DEALER BUSINESS JOURNAL December 2014

381 $401 $394 102% 29% 74.40% 104.70% 26.40% 18.00%

Get Your Compliance Straight This is the perfect time to review all of your policies, procedures and vendor contracts for the upcoming year and update the following items: • Are you still getting the best deal possible in your vendor DealerBusinessJournal.com

• • • •

agreements? Update Employee Manual Redflags and Safeguards policies & training acknowledgements Conduct employee evaluations Plan training for 2015

make but it is essential that you reach out actively and pursue them. For the dealers that continue to pursue efficiency and service as they expand their outreach to the

customer, 2015 will be a fantastic year. Be the outstanding dealer that everyone thinks of first! Best Wishes and Happy Holidays!

David Brotherton is a consultant and Twenty Group moderator with the Leedom Group Contact him at davidb@leedomgroup.com

Prepare For “Tax Season” Tax Season isn’t what it used to be. If you still get a big burst of sales with high down payments, consider yourself fortunate and you can stop reading this article now. For the rest of the industry, “tax season” has become more of a “lax season” where you get plenty of traffic that in no way qualifies for the high-dollar inventory you acquired in anticipation of down payments that are going to Hyundai and Kia. I’ve seen a lot of dealers who have experienced a significant hit in charge off this fall that resulted directly from “tax season” business that went bad early. The most important consideration in underwriting this year is to actually underwrite! Don’t compromise your standards or common sense just to pursue down payment money. Customers still have to be able to afford your payments if you expect them to succeed in your program. Take this time to make sure your documents are updated and ready to go. Continue to update training and ready your team to handle the increased traffic. Most of all, make sure you are capturing all of the information you can in a CRM and use this information to drive toward your targets next year. Passive sales activity does not get it done in this type of environment. There are still many good sales to ...Your Success Is Our Business

December 2014 DEALER BUSINESS JOURNAL | 7

LEEDOM GROUP

Financial Control

By Rick Boucher

Ho, Ho, Ho! Year End Is Coming to Town

hen you read this article the Holiday Season will be in full swing. In the business world, that means year end is just around the corner. Will you be ready? Between now and that magical day we call year end, make sure you as business owner have completed this checklist: q Visit with your Tax Accountant to discuss any major tax law changes (especially rate changes). q Review with your Tax Accountant and estimate year end tax liability. q Review your operation for any major equipment purchases that are needed, which if completed by year end may generate additional depreciation expense. q Review your personal investment portfolio for tax purposes. q Sit down with your CFO/Controller and thoroughly dissect your financial statement making sure to complete the following: q Review of Bank Reconciliation with special attention to outstanding checks. q Schedule a year end parts inventory (if necessary). q Scheduled a year end vehicle inventory. q Review all fixed asset schedules for proper reporting and classification of asset. q Review all prepaid accounts and checked balances to be in order. q Review Accounts Payable for proper expense set up, as well as vendor authorization. q Review expenses to make sure all are being set up and accrued if necessary. q Verify Notes Payable statements to book balances. q If RFC is in place, review Bad Debt Reserve. q If RFC is in place, make sure proper ratio for shared expenses has been applied and booked correctly. q If RFC is in place, confirm intercompany accounts in balance. q Review Accounts Receivable or charge-offs on accounts over 90 as well as skips. q Decide if vehicle inventory needs to be written down to lower of cost or market. q Order W2’s. q Order 1099’s. q Establish January schedule with dates and personnel assigned to complete year end tasks. It is understood that the accounting department bears the burden of year end. However you as owner owe it to yourself and or fellow partners/stockholders to take the necessary steps to make sure that yearend financial statements reflect accurately the dealerships performance as well as allow for proper tax preparation.

Rick Boucher is a professional Twenty Group Moderator and consultant with over 30 years of experience in various segments of the auto business. Rick has owned and operated dealerships and has served as CFO for several large BHPH organizations. He moderates several Twenty Groups and provides outsourced “CFO/Controller” services for small to mid-size dealerships. As a Certified Public Accountant, he provides consulting services relating to finance and accounting issues as well. rick@leedomgroup.com 8 | DEALER BUSINESS JOURNAL December 2014

DealerBusinessJournal.com

BHPH SALES TRAINING BOOT CAMP Tuesday January 6, 2015 Your entire sales team will benefit from the training and tools presented in this academy as we help your managers and sales people get the most out of your advertising dollar. This training will focus on learning to work and manage a proven sales process that will help capture more leads and deliver better deal.

BHPH MANAGERS BOOT CAMP Wednesday January 7, 2015 We will train your new managers before they hit the “Front Line” and we will add to the knowledge base of your experienced “War Veteran” managers.

BHPH COLLECTIONS BOOT CAMP Thursday January 8, 2015 Ensure you are collecting every dollar possible. Boot Camp Graduates will be lean, mean, collecting machines. ...Your Success Is Our Business

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December 2014 DEALER BUSINESS JOURNAL | 9

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LEEDOM GROUP

Dealer Operations

By Paxton Wright

Enhance Your People, Process and Product

n last month’s Dealer Business Journal, I discussed the necessities of planning for next year and evaluating your capital needs to execute that plan. I then provided you with the appropriate tools for gaining access to capital through a line of credit. You’ve been equipped with a detailed guide that walks you through the loan process from preparing required documents to due diligence, closing expectations and time frames. Now that you have a plan in place and the cash you need to get it done, what’s next? People, process and product! Throughout the last few years, I’ve seen many dealers experience

declining sales, collections and profits. During that same time, other dealers have been able to sustain growth in their portfolios and their bottom lines. The difference, like in any other business, is enhancing your people, process and product. These “Three P’s” are the pillars of a successful dealership. All three components are equally critical; be deficient in any one area and the business will certainly suffer. My objective is to motivate each of you to do the following: • Ask yourself the tough questions • Honestly evaluate your

10 | DEALER BUSINESS JOURNAL December 2014

dealerships “Three P’s” Be brave enough to take action and make changes By doing so, you can get on track to creating a more efficient and profitable dealership! This article is the first of a three part series centered around the three P’s. Here, I will offer some practical insights on hiring, developing and retaining your people. •

People Having the right people, in the right job, is crucial to your business’s success. A common mistake is taking too long to hire new employees and even longer to fire those who disappoint. Finding the best people can be difficult, you must know what you are looking for. Each role in your organization serves a specific need and often requires distinctive talents to excel. Even so, bear in mind that some traits should be shared by all your staff members. Hire people who believe in your business model and appreciate your customer base. Find individuals that you believe to be diligent, responsible, creative problem solvers that will perform well under pressure. I know what you’re thinking, where do I find these super stars? Oftentimes, attracting and retaining the best employees begins with the employees you already have. Happy employees are the best recruiters. Staff members that are willing to share positive stories about your business and its culture can have a tremendous impact on attracting new talent. Finally, people enjoy doing DealerBusinessJournal.com

things that they are good at! As an owner, take responsibility to boost the performance of your employees by training your people frequently. Many positions require specialized expertise, seek outsourced trainers to maximize their education and productivity. By doing so, this can have a positive impact on your people, efficiency and the bottom line. Watch and listen to your people, ask them questions to get a feel for their attitude and effectiveness. Poor attitudes create tension that will negatively affect the rest of your team and even your customers. On the contrary, by rewarding the right behavior, you create a road map for all employees to follow. Provide incentives for those individuals that support the culture you are trying to build and those that improve your customer’s experience. Always keep in mind, your people are on the front lines. They represent you and your brand to the community. Your people are the first point of contact for your prospects, customers, vendors and partners. Given that, there is no doubt that having the right people, in the right job is a critical factor in your dealership’s success or failure. Next month, we will take a close look at the second “P”, process. It’s vital for your dealership to design, develop and solidify processes before you begin to think about growth. Without key processes in place, accelerated growth could be the demise of your business.

Paxton Wright is a professional Twenty Group Moderator and consultant with over 10 years of experience in lending, finance and BHPH operations. Paxton has worked with numerous lenders and understands BHPH financing and how to fund BHPH dealerships. He has deep operational knowledge and consults on an array of topics including credit facilities, asset sales, portfolio performance as well as general dealership operations. He is a recognized industry leader and has been featured at numerous national conventions as a speaker. paxton@leedomgroup.com

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LEGAL & LEGISLATIVE

Record Keeping Year End Records Review

he end of the year is here, and it is a great time to review your policy regarding records retention. This policy should be in writing and contained in your operations manual and address such subjects as: • the policy’s purpose • whether it applies to the entire dealership or specific departments • whether a litigation or audit hold provision is appropriate • the employee or department responsible for administering the policy • how records should be destroyed and by whom • a retention scheduled (i.e. the length of time certain records should retained). If your dealership does not have a written policy, then this article will serve as a good basis from which to construct one. As a rule of thumb, the record retention policy should apply to the entire dealership and be administered by your human resources department or compliance officer. You should schedule document destruction on January 1 of each year in order

to minimize cost of storage and standardize your procedure. The policy also must contain a litigation hold provision to suspend application of the policy during pending litigation. You will have to examine both federal and state law to determine what documents should be retained and for how long. Although individual states may vary, use these guidelines for the length of time certain records must be retained. The Age Discrimination in Employment Act (ADEA), American with Disabilities Act (ADA) and Title VII of the Civil Rights Acts (Title VII) requires retention of records for one year concerning job applications, resumes or employment inquiries; failure or refusal to hire an applicant; promotions, demotions, transfers, layoffs, terminations, and discharges; rates of pay; selection or

12 | DEALER BUSINESS JOURNAL December 2014

denial to a training program; employment tests; results of physical exams; job orders submitted to an employment agency or unions; job opening advertisements; and reasonable accommodation requests for disability or religious observance and, if applicable, the granted accommodation. You should also retain any new employee hire report for at least one year after submission. You must retain records regarding employee benefit plans (insurance and pension plans), seniority systems and merit systems as required by the Age Discrimination in Employment Act (ADEA) for at least one year after the plan terminates. The Fair Labor Standards Act (FLSA) mandates retention of supplementary wage and hour records for two years, such as time sheets, straight time or salary rate schedules, bonus or commission structures and documents reflecting scheduled employee work times. You must also retain all records used to determine additions or deductions to an employee’s wage as well as the records evidencing said additions or deductions. The FLSA and Family Medical Leave Act (FMLA) requires you to retain DealerBusinessJournal.com

payroll records listing employee’s full name, home address, birth date, sex, job title, regular rate of pay, total earnings, overtime premiums, total wages per pay period, and date of payment/pay period, for three years. The I-9 Employment Eligibility Verification Form must be retained for at least 3 years or 1 year after employment ends, whichever is longer. Tax records related to income tax withholdings as required by the Federal Insurance Contribution Act (FICA) and the Federal Unemployment Tax Act (FUTA), should be retained for at least four years. Records containing information mandated by your state’s unemployment agency and worker’s compensation records of all injuries and any benefits paid as a result thereof, should be kept for five years. The Occupational Safety and Health Act (OSHA) mandates retention of occupational illness or injury records for five years. Although most new and used car dealers are generally exempt from this OSHA record-keeping requirements, you may be subject to it if requested by a governmental agency. Be aware that regardless of your exemption, you are required to report and record any work related fatality. OSHA also requires records of employee exposure to toxic substances for 30 years. This includes environmental and biological monitoring information and material safety data sheets. Items to keep indefinitely include corporate governance documents including bylaws, resolutions, minutes, and unanimous consents. The question has often brought up whether you should retain original documents or if electronic documents will suffice. In general, scanned copies of documents may be retained in lieu of their written counterparts. This is specifically true for the I-9 form. However, the following exception apply: (1) employee personnel files, original signed copies of time cards, offer letters and employment contracts; (2) original signed copies of retail installment sales contracts, lease agreements, sales agreements, and service contracts; and (3) corporate governance documents.

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LEGAL & LEGISLATIVE

Legal Opinion

By Tom Hudson

Ready, Fire, Aim!

ver the last couple of decades, more and more businesses have adopted pre-dispute mandatory arbitration clauses in their consumer agreements as a first line of defense against class action claims. A well-drafted arbitration agreement specifically precludes class actions. Indeed, without such a preclusion, there would be little incentive for businesses to use arbitration agreements.

Consumer advocates and trial lawyers have ranted and raved about the evils of arbitration agreements for years. The consumer advocates’ ranting and railing, and frequent challenges to the enforceability of arbitration agreements, have resulted in an evolution of arbitration agreements from those in the ’90s, which were slanted toward business interests, to today’s agreements, which bend over backward to favor consumers. The Dodd-Frank Act reflects the consumer advocate and trial lawyer influence. It directs the Consumer Financial Protection Bureau to study the use of predispute mandatory arbitration agreements in consumer financial services contracts. That survey is underway, and while the Bureau has issued a preliminary report, it has announced no conclusions. Clearly carrying water for the consumer advocates and trial lawyers, 16 state attorneys general (all Democrats) have submitted a letter to CFPB Director Richard Cordray urging that the Bureau “protect the public interest by imposing prohibitions, conditions or limitations on the use of predispute arbitration agreements for consumer financial products or services.” The recommendation comes before the Bureau has reached any final conclusions about the subject. For anyone who has followed developments in this area over the last couple of decades, the letter elicits nothing but painful groans. I don’t think that it is very

14 | DEALER BUSINESS JOURNAL December 2014

likely, but it is possible that the Bureau might take the commonsense regulatory approach we frequently recommend—find out what responsible businesses in the marketplace are doing and determine whether the forms and practices of those businesses are fair to consumers. If the Bureau decides that such “best practices” are fair to consumers, it could fashion any rules it chooses to adopt around those best practices. If the Bureau looks at the best practices of the responsible users of pre-dispute mandatory arbitration agreements, it will see that the evils that consumer advocates and these attorneys general rail about largely disappear. The AGs’ letter argues that high arbitration costs and inconvenient venues “deter injured individuals from pursuing their rights.” You have to wonder if the AGs bothered to collect even a small sample of arbitration agreements from major businesses. If they had, they would have seen that modern arbitration agreements have very generous (and sometimes very, very generous) provisions for payment of arbitration costs by the business. As for inconvenient venues, the arbitration agreements that I see (and write) call for arbitration to occur in the federal judicial district where the consumer lives or, sometimes, simply in a place convenient to the consumer. So much for those two concerns. As another example, the letter cites “repeat-player bias,” DealerBusinessJournal.com

where, supposedly, an arbitration organization’s arbitrators will be more likely to favor the company over the consumer because such favoritism will result in repeat business from the company. If the AGs had bothered to sample arbitration agreements in use today by responsible businesses, it would, I believe, find that most of the arbitration agreements name an arbitration organization, but permit the consumer to select a

to mention that the arbitration decisions favoring businesses do not have precedential value either. In the real world, though, plaintiffs’ lawyers have networks that spread the word of successful and unsuccessful arbitration claims. The word gets around. Finally, perhaps a third to a half of the AGs’ letter consists of citations, at least two of which are to products of Public Citizen, a Washington, D.C.-based

“best-in-class” companies are doing with mandatory predispute arbitration, and fashion any regulation of arbitration agreements around those best practices, they will protect consumers while retaining the ability of businesses to avoid the high cost of class litigation, a cost that consumers end up

Arbitration Agreements are under attack as 16 state attorneys general urge the CFPB to “protect the public interest by imposing prohibitions, conditions or limitations on their use for consumer financial products or services.”

different organization if the named organization is not acceptable to the consumer. Yes, there are some trade-offs to permitting arbitration. Class action prohibitions make trial lawyers and consumer advocates mad, but I have seen way too many class action settlements where the consumers involved get “awards” that are sometimes so worthless they don’t bother to claim them, while their lawyers rush down to the nearest yacht dealer to put in orders for their new toys. And yes, arbitration decisions don’t serve as precedent. The AGs point this out in their letter, but for some strange reason fail ...Your Success Is Our Business

pro-consumer organization. Conspicuously absent is any mention of the several contrary academic and industry studies on the fairness of the arbitration process in connection with consumer transactions. I’m sure the omission was unintentional. Riiiiiiiiiight. So, here’s my advice to Director Cordray: Do what the wise old college dean did when new dormitories were built for his college. He didn’t have sidewalks put in until he saw where the students wore paths to get to and from the dorms. If Director Cordray and the Bureau take the time and effort to see what the

paying in the form of higher prices. The only ones who will suffer from this approach will be the yacht dealers. 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®. Reach him by phone at (410) 865-5411 or visit www. counselorlibrary.com.

December 2014 DEALER BUSINESS JOURNAL | 15

LEADERSHIP & TRAINING

Learn to Lead

By Dave Anderson

Remember: “It’s the Culture, Stupid!”

any dealerships have an unhealthy addiction to silver bullets, contests, quick fixes and an array of flavors of the month in an attempt to improve behaviors. These efforts range from the monthly spiff on demos or write-ups, to weekend “slasher sales”, to “we’re firing the bottom guy on the board this month”, to the latest twentygroup best-idea bandwagon, and the like. While versions of the aforementioned examples can play a role in bringing a short-term burst of adrenaline, or a sudden spike in activity; they bring no long-term solutions for building a business or sustaining results. They serve as a kind of morphine dealers use to temporarily deaden the pain of slow sales. But just as real morphine is addictive and too much of it can kill you, these tactics have a similar effect on your dealership. In life as in business, there comes a time when you have to stop killing the pain and have surgery; not cosmetic surgery, but heart surgery.

In business vernacular, “heart surgery” is about improving your culture. In fact, the next time you’re tempted to swallow some quick-fix Kool-aide, gently remind yourself, “I don’t need to chase after another gimmick or fad, I need to strengthen or fix the foundation of my business. I don’t want another “seven-day diet.” I am committing to a lifestyle change. I’ve got to remember, “It’s the culture stupid!” Sadly, some old-school types in our industry still foolishly consider culture as little more than a warm and fuzzy buzzword promoted by academics, but mostly irrelevant as an ally to sell more cars or service. To correct this misperception and put culture’s importance in perspective consider the following. Culture dictates behaviors and behaviors determine results. In other words, whatever behaviors you’re seeing consistently in your dealership are a result of the culture you’ve created. If you want to change the behaviors you’ll have to improve the culture first. In case you just skimmed this point, please re-read it slowly because this principle is HUGE. What it reveals is that whatever behaviors

16 | DEALER BUSINESS JOURNAL December 2014

you’re seeing on a consistent basis, in any given department is a result of the culture the leader has created, and if you want to change or improve those behaviors you must strengthen the culture first. One of the biggest wastes of time a manager engages in is trying to sustainably change behaviors with spiffs, gimmicks, contests or threats without first changing the culture in which the behaviors are found. In my workshops and online courses on culture I explain that to help get your hands around culture and how to improve it, consider that culture is primarily made up of five components: core values, mission, performance standards, core competencies and people. These five cultural pillars make up the foundation of your organization. Just as you couldn’t build a higher structure on a foundation filled with cracks, holes, or that has shifted onto sand, nor can you expect sustainable increases in results without continuing to improve your dealership’s foundation; your culture. Culture is never finished. Building or strengthening a culture is not something you ever

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cross off a to-do list and declare as “finished.” In fact, think of culture as you would a garden. A garden requires constant attention and if you ignore it for long the weeds, bugs, and disease will hijack it. The same is true for your dealership. Managers who ignore the mandate to continually improve the five pillars of culture put their organization at great risk. Here are signs this is a current reality in your department or dealership: • Core values haven’t been established, and if they have people are not living them out. • There is no well-defined compelling mission that unites the team. • There are no clear, written performance standards to achieve, or consequences for failing to do so. • Core competencies are not clearly identified and leveraged. • The wrong people have been hired and are being retained. Until these cultural issues are consistently strengthened any spiff, flavor of the month, management whim, fad or silver bullet designed to change behaviors will have a marginal and unsustainable shelf-

...Your Success Is Our Business

life. Again, you’ve got to go back and work on the foundation. It’s the culture stupid! Culture is a leader’s report card. A leader is the chief architect and primary influencer of the culture in which he or she leads and culture is their report card. To take an accurate measure of a leader’s effectiveness, evaluate the vitality of the five cultural pillars they’re responsible for. Shape your culture, or it will shape you. If you don’t shape culture in your image, societal trends will shape it in their image. You can’t not have a culture. The question is: who or what will shape it? If you don’t shape your cultural foundation with your values, mission, standards, competencies and quality people societal trends like entitlement, “everyone gets a trophy,” and an absence of absolutes will shape it for you. Culture gets results. A strong culture installs accountability and urgency as a fixed foundational asset. As you

continue to refine and strengthen your five cultural pillars you won’t need tricks or gimmicks to create urgency and enhance accountability. Clear core values, performance standards and stronger people will create a rhythm of accountability, urgency and positive peer pressure that continues to beat throughout your culture on an ongoing basis. Granted, diligently working on the five cultural pillars may not be fancy or as exciting as a new spiff, gimmick or clearance sale, but it’s the key to sustainable and measureable results. Fancy and exciting or not, if you want sustainable and measurable improvements in results you’ll need to embrace the mantra: it’s the culture stupid. Dave Anderson is President of LearnToLead which provides in-person and virtual training to many of the world’s best dealerships. Dave speaks to dealer groups over 125 times each year and has given seminars in 15 countries. He has spoken at eleven NADA Conventions and is the author of twelve books. Follow Dave on Twitter @ DaveAnderson100 and visit his website at learntolead.com for free articles and videos on sales and leadership.

December 2014 DEALER BUSINESS JOURNAL | 17

BUSINESS OPERATIONS

Business Basics

By David Wiggins, CPA, CFE

Year End Preparation and Tax Planning

ast year (2013) resulted in many tax law changes that significantly increased the tax liability of many Buy Here-Pay Here dealerships and their owners. This year we have virtually no tax law changes to report; thus tax rates remain historically high. Many tax deductions with regard to Section 179 expense and “bonus” depreciation have been severely reduced or eliminated. You should review your current year income to estimate your 2014 income tax exposure and evaluate ways to reduce your income. Many planning options have to be completed before year end, therefore it can be costly to wait until after year end. Doing this should reduce surprises on April 15, and allow for strategies to minimize the impact of taxes to you. Following are some planning ideas specific to BHPH dealers and finance companies that you should consider. Remember tax planning should be performed with an emphasis on making good business decisions first, tax planning decisions, second. Determine bad debt charge-offs You will want to start by reviewing your current vehicle note portfolio to determine uncollectable loans that should be written off before year end. To be deductible

in the current year, you should repossess the vehicle and chargeoff the debt before year end. It is possible to charge-off the note by year end if the repossessed vehicle is taken shortly after year end. The charged off installment note should be written off of the company’s books at year end, it cannot just be written off on the tax return. If you have CPA prepared financial statements, such notes should also be charged-off in preparation of these statements. Setup Related Finance Company Consider the setup of a related finance company (RFC) before year end. If you are a Buy Here-Pay Here (BHPH) dealership and have not created an RFC, you may be able 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 can use to reduce or eliminate your current year income taxes. Time is of the essence in setting up an RFC before year end since most states require a finance license and other regulatory approval before allowing a RFC to operate. In some states this process can take two to three months to receive approval from the state. If you currently have an RFC setup and are discounting notes we would suggest you review your portfolio loss histories and other

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market data to determine if your prior year discount rate is still representative of fair market value. If not, it should be adjusted up or down as considered representative of market value. Reinsurance of service contracts or warranties If you sell service contracts to customers or provide warranty coverage on vehicles you sell there may be opportunity to reinsure some of this risk. By reinsuring this risk you are able to claim a tax deduction equivalent to the value of the warranty coverage provided. 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. Section 179 expense and bonus depreciation For 2014, the Section 179 first year expense deduction is scheduled to be reduced to $25,000. This is down significantly from the $500,000 amount allowed in prior years. This allows a dealership to purchase up to $25,000 of new or used equipment, furniture or fixtures by year-end and expense the entire purchase price to the extent of taxable income. Once total expenditures for such assets exceed $200,000, the amount of available Section 179 expense begins to phase out. Planning note: We believe that the Section 179 expense limit will ultimately be increased for 2014 and 2015. Unfortunately we DealerBusinessJournal.com

will not know how much will be allowed until the very end of this year or sometime next year (and made retroactive to 2014). Bills in Congress suggest that the Section 179 expense amount may increase to between $200,000 and $500,000. Planning for use of this unknown amount is difficult at best. If your dealership needs to purchase equipment for business use it is likely at least $200,000 will be able to be written off against income immediately. In prior years, in addition to Section 179 expensing, there has been the ability to write off 50 percent of all new equipment in addition to the Section 179 expense allowance; this has been referred to as “bonus” depreciation. Unfortunately, there is currently no bonus depreciation for 2014. Planning note: Similar to Section 179, bonus depreciation may be reinstated for 2014 or 2015. Unfortunately we will not know until legislation is passed. Again, planning for best use of this is difficult at best.

profit. It is difficult for me to explain to clients that “you have to pay tax on the income from the RFC, but can’t deduct the loss from the dealership against it.” Losses generated by the dealership or other companies can only be deducted by shareholders on personal income tax returns to the extent the shareholder has what is termed “basis” to deduct such losses. If basis to deduct such losses does not exist the loss cannot be claimed in the current year and must be carried forward to future years. In loose terms “basis” is money invested and prior year net profits. With good planning prior to year end, this problem can frequently be overcome by restructuring loans and distributions between related companies.

end. If the services or products were received for 2014, even though the bills arrived in 2015, these can be setup and deducted for 2014. This assumes the company receiving the bill is on the “accrual” method of accounting. Your dealership company should always be on the accrual method, frequently an RFC will not be. The payment of income taxes represents a severe cash flow problem for many BHPH dealers; as such it is important to do planning to determine what effect it will have on your organization’s cash flow. We have only listed a few of the more common planning strategies above. You should consult with your tax advisor to review your specific situation and those planning options available for you and your business.

Tax basis to utilize business losses Dealers may own several companies established as S corporations. If these companies are projected to generate a tax loss for the year it is critical to determine if “basis” exists to deduct the loss. We frequently see loss situations with regard to dealerships that have RFCs setup. The dealership may be generating a loss while the RFC is generating

Accrual of expenses Many times after the year has ended the company will receive a number of bills for services performed prior to year end. This could be for items such as advertising, payroll, DMS costs, etc. Under the accrual method of accounting, it is proper to record such expenses and setup these bills in accounts payable for the prior year. We suggest you closely review your bills received after year

Dave Wiggins, CPA is a principal with CliftonLarsonAllen’s dealership and buy here pay here group team. He has extensive knowledge of the inner workings of dealership and finance company operations, including new developments regarding regulatory compliance issues. Dave specializes in federal and state taxation with the unique perspective of those specific strategies that apply to dealership, finance companies and their owners. He can be reached at david.wiggins@ CLAconnect.com or 314-925-4300.

...Your Success Is Our Business

Remember: tax planning should be performed with an emphasis on making good business decisions first, tax planning decisions second.

December 2014 DEALER BUSINESS JOURNAL | 19

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BUSINESS OPERATIONS

ReInsurance

By Tim Byrd

Grow Without Hurting Your Cash Flow

he Buy Here Pay Here business is one of the few businesses where you can sell yourself out of business. Can I get an Amen on that? This reminds me of the Seven P’s Rule of Business that you may have heard: Prior Proper Planning Prevents Piss Poor Performance. Today, we are going to talk about a universal truth in the BHPH business: cars break. No question that hurts cash flow. Then we’ll learn how this inevitable consequence can be addressed with Prior Proper Planning. Mechanical Breakdowns will stop payments, the lifeblood of this business, and cause your cash flow to suffer. Not to mention, managing an irate customer, throwing your collector in overdrive, putting a dent in your bottom-line, and a hundred other things that the ill-prepared must face, every stinking day. People don’t pay for cars that don’t run. And guess what? They are going to stop running. They are made on Earth, not in Heaven. Have you driven by a repair facility lately? Unless they are total incompetents, they stay slammed. Why? Because cars, your customers’ cars, break down. It is not a matter of if, but when. When most Americans have a mechanical breakdown, it’s only an inconvenience. But, when a

Buy Here-Pay Here customer has a breakdown, it’s a crisis. They depend on that transportation to get them to work, school, church, and the grocery store. They are, for the most part, hourly employees who do not get paid if they miss work. They certainly don’t have a pile of extra money lying around to pay a repair bill. So, what’s your Prior Proper Planning? This article is to help you grow, without hurting your cash flow. A Dealer-owned Reinsurance Company, along with a dose of discipline, will make you “wealthy, wealthy and wise”. Turnkey Dealer-owned Reinsurance Companies (also known as Producer-owned Reinsurance Companies or 831(b) corporations) are based on the Internal Revenue Code 831(b). Reinsurance has been an effective tool within the car business for 30+ years and was first used by larger dealers to reinsure Credit Life, Accident and Health Insurance, and warranty/service contract products. Reinsurance companies are formed with minimal capitalization requirements. By setting up a Dealer-owned Reinsurance Company, you get all the benefits of a third-party warranty company via claims management and accounting. You also benefit with: Administrator Obligor, structured coverage with Roadside Assistance including towing, an 800 number for customers to call, and nationwide coverage with a professional

22 | DEALER BUSINESS JOURNAL December 2014

claims team looking out for your best interest. When a claim occurs, the professional claims team will decide if the claim is covered, based on the warranty language initially agreed upon with YOUR input. This way you can custom design the coverage that is best for you and your customers. Another important difference from the third-party warranty for the BHPH dealer is that customers can finance the cost of the warranty with your warranty company. A prorated portion of the cost of the warranty is collected and forwarded to the dealer’s reinsurance company trust account. Are you beginning to see how Proper Planning could help keep customers paying? Reinsurance Trust Accounts, which are located in the United States, are, just as indicated, a Trust. Trusts do not have checking accounts nor do they make loans to others, like a bank, with your money. Trusts are recognized as the safest place to keep money, and further, the dealer reinsurance trust account funds are not comingled with anyone else’s funds whatsoever. They stand alone. The unearned premiums in a Trust account can only be used as outlined in the Trust agreement. In this case, unearned premiums pay any of your customers’ claims. The monies paid by the customer for their vehicle service contract (VSC) is set aside as reserve in your Trust account, as I indicated above. Any reserve not used to pay claims becomes DealerBusinessJournal.com

profit. As an example, let’s say you sell an average of 20 vehicle service contracts per month, and $800 goes into reserve from each customer’s VSC. Loss ratios vary, but for this example let’s say $400, or 50 percent, of every contract on average is used to pay claims. This leaves a $400 profit, which is $96,000 in additional dealer net profit per year and $480,000 additional dealer net profit at the end of five years. This does not include the retail profit made from the sale of the Vehicle Service Contract. If you sell third-party vehicle service contracts now, the earned reserve is retained by that third-party warranty company as their profit, in this case $96,000 per year. Another very important benefit to owning a reinsurance company is tax benefits. I am not a CPA, but I know some good ones. They tell me, in layman terms that these reinsurance companies are small Property and Causality companies. “Small property and casualty insurance companies with less than $1,200,000 in annual net premiums may elect to be taxed only on investment income under Internal Revenue Code 831(b).” Distributions are taxed at the dividend rate, currently 15 percent. These corporations, unlike S corporations or Limited Liability Corporations (LLC) where income flows through to the shareholders annually, are C corporations. If a distribution is not desirable, you can retain the money in your reinsurance company, or you ...Your Success Is Our Business

or your other business entities may borrow money from your reinsurance company. Earned reserve can be invested in stocks, bonds or other securities within the Trust account. These 831(b) Corporations make great retirement programs as well as great estate planning tools! So, with a Dealerowned Reinsurance Company, you have: nationwide warranty coverage which is paid for by your customer but accounted as a dealership expense; tax dollar savings on the dealership side; a new profit center that is income tax friendly, to say the least; control over policy design; funds always available to fix any car and get the customer back on the road to continue making payments; and all the while building a capital resource. Now that’s Perfect Prior Planning Preventing Pitfalls, Plus Piling Profit. Tim Byrd is Founder and President of DealerRE a Tim Byrd & Associates company, a managing agency located in Gloucester, Virginia. An Auto Industry Expert on Dealer Owned Reinsurance Companies, BHPH Operations and F&I Development. A 25+ year veteran of the car business, Tim is a trusted advisor to many car dealers. Tim is a sought after speaker and co-author of the bestselling book “Unfair Advantage.” Tim can be reached at www.DealerRE.com or by calling 804-824-9533. December 2014 DEALER BUSINESS JOURNAL | 23

SALES & SERVICE

Big Data

By Dani Sherrod

Enhancing the Auto Shopping Experience With Help From Big Data

nhancing shopping experience through behavioral data is a new concept for the automotive industry. Retail industries, have been using it, and understand that helping the consumer make a quicker qualified choice is key to gaining more customers. Incorporating data analytics into path-to-purchase and omnichannel strategies allows any organization to use behavior data to construct so-called people-topeople personas around which marketers can design engagement tactics to present customers with

an enhanced shopping experience. Omnichannel describes a system that connects stores, ecommerce, mobile apps and social media to provide a flexible and seamless shopping experience. The ability of organizations to connect data to generate information, identify patterns and personalize interactions to create intelligence has reached a high level of sophistication. Consider the process known as “nudging,” commonly referred to in the auto industry as remarketing, in which identifiable data is used to profile individuals to analyze, predict and influence their behavior. In a nudging exercise, someone with a high intensity for a fast buying

decision will be automatically served an advertisement of one the last three vehicles that have been viewed or studied, while a person with low intensity or slow buying decision, may be served with a form of medium of an offer to buy their current vehicle back at the selling dealership. Many dealers assumed they had a data manipulation product with their current CRM tool, which is used in the Internet department. These CRM’s do gather and segment data but only based on a calendar cadence, ( which means gather data according to the dates a consumer is supposed to trade or turn the lease in) the data that is now being used in a path-to-purchase is behavioral cadence (which means consumer is targeted from a change in their online shopping behavior). This profile is nudged when someone in your current customer roster, is on another dealership website, then an intelligent system will deploy a counter attack, through means of direct mail, email, phone call, text, or an ad on consumers Social Media wall. This is the next BIG thing for dealers. Don’t spend 10 to 20 thousand dollars on mass campaigns that only touch hundreds. This type of marketing is exact, without waste and drives sales up and drives loyalty in a number that cannot be measured. Continued on Page 26

24 | DEALER BUSINESS JOURNAL December 2014

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SALES & SERVICE BIG DATA continued from Page 24

According to the Wall Street Journal Risk and Compliance Journal, “Recent advances make it possible to analyze massive amounts of structured and unstructured data at very high speeds. Data analytics is benefiting and accelerating the pace of innovation as it disrupts traditional business models, while creating new business models.”

“Data analytics is a competency that enables organizations to seek out connections, identify patterns, predict behavior and personalize interactions to an extent that could scarcely be imagined just a decade ago, to resolve business issues or create opportunities,” according to Deloitte Insights. The old way of marketing will

Using data to target customer behaviors will increase one-to-one communication, help the customer to feel as though the dealer understands his needs, eliminate wasteful marketing campaigns, increase gross profit and help drive loyalty to your dealership.

be a thing of the past, the new data movement is not on the horizon, it is here! All of the data that is being gathered and segmented would have scarcely been imagined just a decade ago, now we have a new way to resolve business issues or create opportunities—Big Data! Whatever business or industry dealerships think they are in, they are more and more in the data business, operating in the data economy, where other organizations make money from offering data and behavior-based products and services. If the management team hasn’t already had long discussions about the organization’s potential role in the data economy, there is a risk that the dealership may be left behind. Dealership Data is the DNA or life blood and the longevity of a dealerships success! Appending current customer rosters to a behavior file, will increase effective one-to-one communication, help the customer to feel as though the dealer understands current needs, eliminate wasteful mail blasts and increase the gross profit margins, as well as help drive loyalty to your dealership! Disrupting your current business model, allows for new streams of increased profit!

Dani Has been in the retail automotive Industry for 16 years. She displays a blend of creativity and analytically skills consistently generating excellent ROI and frequently cutting marketing spend while increasing sales. Pioneering track record of leading high-risk initiatives to outstanding financial success. Dani is currently working with LIVE MARKETING as a Marketing and Sales Director.Can be reached at: dani@ mylivemarketing.com 26 | DEALER BUSINESS JOURNAL December 2014

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...Your Success Is Our Business

December 2014 DEALER BUSINESS JOURNAL | 27

SALES & SERVICE

Online Reputation

By Christy Taylor

Turn That Frown Upside Down

veryone likes to hear they’ve done a good job, be told they deserve a pat on the back or receive positive feedback. Give me the good news first, as they say. What happens though, when its not good news and a customer takes to the internet to share it?

The Dont’s: •

•

Don’t ignore a bad review. It will be seen by potential customers researching dealers in your area. A lack of response is a signal to them that you don’t care about your customers. Don’t be defensive. Whether it is valid or not, the customer has a right to speak their mind. Be respectful and courteous of their opinion. Don’t take the blame. Apologize for the situation and how your customer feels they were treated, but do not admit fault.

In today’s digitally connected, social media-networked world, online negative reviews aren’t just a nuisance, they can be nuclear. If left unchecked, they can all but obliterate the positive comments and high-star ratings you receive from happy, satisfied customers and throw up a red-flag to prospects. You may have ten positive reviews that proclaim your dealership to be the best in town, but one bad one can reset the score. Bad reviews and ratings are toxic and can really hurt your reputation, both online and off-line, if you let them. While it may be tempting to just “delete” any negative comments or lash out with a hasty defense, that is the worst strategy you can have. It is possible to turn a negative review into a positive opportunity for your dealership, and more importantly maintain a good online reputation, but it takes a little time, humility and technical savvy. What’s the Big Deal? If you aren’t concerned about your online reputation than you should be. Digital Air Strike, the automotive industry’s social media guru, surveys

28 | DEALER BUSINESS JOURNAL December 2014

car shoppers annually in their Automotive Social Media Trends Survey. In their latest survey, they reported that 44.8 percent of the 2,000 surveyed said they found dealership online reviews more helpful or as helpful as visiting the dealer’s website when shopping for a car and 67 percent said they use review sites like Cars.com, Edmunds.com, Google Reviews and Yelp to make their decision. Considering that review sites and customer ratings show up in general internet search results, it is highly important to monitor your dealership’s online reputation and be proactive about it. Have you Googled your dealership to see what people are saying about you? Don’t hit Delete Let’s say your search turned up a bad review. The knee-jerk response would be to delete it if you can, but that is one of the worst things you can do. Deleting a negative comment only will make other customers and prospects more suspicious and give the person who made the comment more ammunition to continue their attacks. Nothing guarantees a second negative comment faster than deleting the first. Don’t ignore it either. Ignoring an online negative comment is akin to declaring No Contest in court— you may not be guilty of the crime, but to everyone else watching it looks like you are. Before immediately responding, however, take a moment to think about the situation. Is there any validity to DealerBusinessJournal.com

what the customer is claiming? Could it be a misunderstanding? If the customer left enough information, such as name and date of the incident, go to your CRM and research what happened and the staff members involved. When you have taken an objective look at the complaint and have decided on the best course of action, craft your response. Try to keep your response simple and brief. Thank the reviewer for being a customer and for sharing their feedback. Apologize for the situation, but do not take blame. Express empathy for their concerns and commit to helping them solve the problem. Offer the opportunity to speak offline about their concerns and make it right. Your response should come from a senior manager or yourself, and should include the appropriate contact information such as email address and phone number. Never get in to a back-and-forth online. Get familiar with the terms and conditions of the host website. If the reviewer has violated them, such as posting the first and last name of a staff member, you can report it to the administrator and possibly have it flagged or taken down. Though it is rare, if the review is obviously fraudulent or defamatory, and you can prove it, you can notify the website admin and possibly take legal action. With solid proof, the hosting website has the ability to track IP addresses of reviewers and in some cases block their access to leaving feedback and reviews. ...Your Success Is Our Business

Focus on the Positive If you are committed to excellent customer service, then the chances of having a negative review online are slim. However, your happy, satisfied customers are also less likely to take the time to give you a positive review. Encouraging their participation is easier than you might think. The first suggestion is to simply ask for a good review. At the end of the deal, remind the customer to share their experience online if they can, and that evening send them a follow-up email thanking them for the sale and encourage them to leave their feedback with a short survey and/ or links to some of the top review sites where they can rate their satisfaction. Promote your positive ratings around the dealership with signage or distribute postcards and flyers soliciting feedback and how to leave it. You might even consider a special contest or incentive for participation. Put a process in place to monitor activity on your top review sites, whether it be manually or with an automated report like a Google Alert or Twitter search. Try to acknowledge the review as quickly as possible and thank each customer for their feedback. Word-of-mouth marketing is crucially important, whether its in person or online.

The Do’s:

•

Do provide an offline channel of contact. Encourage a less than satisfied customer to contact you by email or phone to “make things right.” Take the conversation offline to avoid a negative backand-forth online. Do thank every customer for feedback. Make sure to acknowledge all reviews, good or bad, to show you are monitoring comments and using them to make your dealership better. Do set up a procedure for monitoring online reviews. Whether it is manually checking sites, or setting up alerts, be sure you have a plan to aware of what’s being said online and a way to handle it.

December 2014 DEALER BUSINESS JOURNAL | 29

LEEDOM GROUP

Closing Thoughts Time is Ticking Away to Plan For the New Year

ere we are again. Reviewing the year we just had, and facing the challenge of planning for next year. It’s time to ask yourself, what went wrong or not as well as hoped? Did we forecast our revenues correctly? Did we stick to our budgets? Did we set goals for this year at last year’s year end and did we reach them? Are we prepared for the coming year? Wherever you ended up for 2014, now is the time to forecast sales and revenues for next year. Now is the time to create and implement a budget. As we have seen the last few years, it is more important than ever to plan for the future and not just “accept” it. The time we spend planning now can pay big dividends next year. Where to start? First, begin by forecasting or predicting unit sales, gross profit margins, cash collections and finance charge income and charge offs. Use historical data and incorporate all external factors that may affect the coming year’s business. Spread unit sales by month over the entire year. If you apply your gross profit target to those sales, you can determine your operational gross profit as well as project your direct (selling) expenses. Buy Here-Pay Here dealers have to forecast how well their portfolios will perform. Forecasting your portfolio growth or liquidation, cash collections, finance charge income and net charge offs will allow you to determine the level of expenditures needed to manage your portfolio. Your historical data will serve as the

basis for your forecast of how your portfolio will behave next year. This part of the process is the most difficult to complete because dealers inevitably want to be optimistic about the future. Be advised, however, that a conservative approach will work best. It is much easier to modify your forecast if business exceeds our projections than if these projections fall short. The second half of the process is preparing a budget. The first budgeting item is direct or selling expenses. These include items such as advertising and promotion, sales commissions, transportation and freight, vehicle maintenance, floor plan interest and policy work. These items should fall right in line with your sales forecast. If sales rise, these expenses

30 | DEALER BUSINESS JOURNAL December 2014

also rise and if sales fall expect these expenditures to fall as well. The next budgeting item is fixed expenses. You may see rents rise, utilities rise, taxes rise and insurance premiums rise, so take that into consideration when budgeting. These items are essentially fixed, hence the name, and there is usually not a lot of room for cost cutting. The two areas where you must control costs to maximize the net profit of your operation are your personnel expenses and operating expenses. Operating expenses are the day-to-day expenses that can nickel-and-dime you to Continued on Page 32

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December 2014 DEALER BUSINESS JOURNAL | 31

LEEDOM GROUP NEW YEAR continued from Page 30

death such as telephone, postage, office supplies, etc. Evaluate your spending in these areas line by line and ask yourself if you received maximum value for every dollar spent. If your supply room looks like Office Depot, something is wrong. Personnel expenses are typically your largest expense. Evaluate every employee, their position and their duties to determine the need for the individual employee or the position. Review your benefits package and eliminate overtime. Once you have determined these budgeting items for next year and matched them with your sales and revenue forecast, you should have a clear picture of your projected net profit. If you don’t like what you see, now is the time to address it. At this point, go back through every budgeted item to determine cost-cutting needs and make the cuts now. It is much easier to address these cuts now than to make the inevitable deep, painful cuts in the new year. When you are satisfied that you are as trim as you can be, then, and only then, should you revisit your sales and revenue forecasts to see if you can modify these numbers upward. Lastly, you must revisit your forecast and budget each every month during the coming year and analyze results and make revisions to the budget and forecast for the remaining months. If you review and revise your forecast and budget on an ongoing basis, you will be taking a proactive approach to your business and will not wake up next October or November crying, “What happened to my business this year?”

New Year’s Resolutions

ave you started your list for next year’s top goals? If not, here are a few to get you started:

Sell good products at a reasonable price. The key to good BHPH loans is matching life cycles of vehicles to terms of notes. A “good” vehicle is relative to the length of notes you write. You must, however, stand behind your product and offer solutions to the customer when, not if, the vehicle needs repairs. If you don’t work with them, your competition will. You must realize that the customer, not the vehicle, is your asset. Create an atmosphere that rewards your team for creating successful loans and happy customers. Your collection account representatives should have only one goal in mind every day: to assist customers when they encounter payment problems. Create an environment that doesn’t define collections as the “money or the car.” Change your collection team’s attitude toward helping the customer and reward team members for ensuring loan successes, not failures. Offer world-class service to your customers. Despite what some of you think about your customers, the vast majority of them are honest, hardworking people who really try to do the right thing. Many of these people have spent their entire lives being kicked around, ignored or berated. Nobody says thank you to them. You should go further than you need to let them see how valued they really are. After all, they are your profits today and tomorrow as well. Take care of those who take care of you. Don’t fall into the trap of believing that your staff is only there for a paycheck only and that the paycheck is thanks enough. Financing and collecting BHPH notes is a tough, thankless and never-ending job. People need recognition, pats on the backs and “atta-boys” or “atta-girls.” Incentives are great ways to get people to achieve company goals. Have you thought about employee needs, desires or goals? You need to achieve corporate goals while achieving the employee’s needs as well. In the end, it’s a quality, well taken care of, staff that creates a quality dealership and finance company. Offer career opportunities to your staff. All people need a job to pay their bills and maintain their lifestyle. Most people really crave a career. A career is a job that is rewarding in many ways beyond financial remuneration. Careers challenge people and help them achieve things they may not have thought possible. Careers allow people to make true contributions, create self-worth and give satisfaction in just knowing they have helped. Offer training Continued on Page 34

32 | DEALER BUSINESS JOURNAL December 2014

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Occasionally a new product, service or method comes across our desk that we feel may help your dealership’s bottom line. We share these idea’s with our email subscribers as well as post them on the DBJ web site for all of our readers to see. Check it out today to see how your dealership can benefit.

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opportunities to elevate your staff to the next level. Don’t smother your people, let them fly. Offer a great work environment. It is your responsibility to create an atmosphere where people feel good about themselves, their fellow workers, the company, the corporate goals and the customers. You will know you have achieved an excellent work environment by attaining strong employee retention, low incidents of tardiness and sick days. Clock-watchers will not exist. When people stay late to complete projects, come in early or volunteer solutions to problems they encounter, you have achieved a high-quality working environment.

This environment or culture starts with you. If you love your job, your company, your employees and your customers and employees will take notice. Be a good role model and those of similar mindsets will stay with you and the others will go away naturally. Become active in your community. Whether you get involved in local churches, schools, charitable organizations or civic organizations, do something. You all live, work and play in the same community and would be well advised to take active roles to demonstrate your commitment. If you do these things in the hope of selling more cars you will probably be disappointed.

34 | DEALER BUSINESS JOURNAL December 2014

If you do these things because it is right or because it makes you feel better, you can’t go wrong. Feel good about who you are and proud of your organization and your staff. Sales will go up and down. Collections will see its share of good times and bad. I want you to go to sleep every night knowing that you provide quality transportation for consumers with bad credit; that you help them when most others will not; that you transact your business in an honorable and ethical manner, and that you also provide great careers and good opportunities for your staff. DealerBusinessJournal.com

INDUSTRY NEWS

Federal Focus FTC Seeks Comments on Changes to Used Car Rule Proposed Buyers Guide Requires Dealers to Disclose if They Have Vehicle History Reports

he Federal Trade Commission is seeking supplemental public comments on proposed changes to the agency’s Used Car Rule and the Used Car Buyers Guide that the Rule requires dealers to display. The Commission is not adopting any final amendments to the Rule at this time. The Used Motor Vehicle Trade Regulation Rule, in effect since 1985, requires car dealers to display a window sticker, called a Buyers Guide, on used cars they offer for sale. The Buyers Guide discloses whether the dealer is offering to sell a used car “as is” (without a warranty), or with a warranty. If the sale is with a warranty, the Buyers Guide discloses the warranty’s terms and conditions, including the duration of coverage, the percentage of total repair costs the dealer will pay, and the vehicle systems that the warranty covers. In states that do not permit “as is” used car sales, dealers must use an alternative Buyers Guide that discloses whether the sale is with a warranty or with implied warranties only. In December 2012, the FTC sought public comments on

proposed changes to the Buyers Guide as part of its systematic review of all of the agency’s rules and guides. In response to the comments the Commission received, the agency now seeks comments on additional proposed changes to the Used Car Rule, including: • requiring dealers who have obtained a vehicle history report to indicate that fact in a box on the Buyers Guide, and to provide a copy to consumers upon request; • modifying the Buyers Guide description of an “As Is” sale to clarify that it means the sale of a used car without a warranty; and • placing boxes on the front of the Buyers Guide for dealers to disclose “non-dealer” warranties. The proposed changes announced today incorporate certain previously proposed amendments, including: • adding a statement to the Buyers Guide encouraging consumers to obtain vehicle history reports, to check for

safety recalls, and to visit a proposed FTC website for more information; and • adding a statement, in Spanish, on the front of the English language Buyers Guide, advising Spanish-speaking consumers to ask for the Guide in Spanish if they cannot read it in English. The Commission also invites comments on alternative approaches that public commenters proposed for the vehicle history disclosure and the “As Is” statement. The Commission vote to publish the Proposed Supplemental Notice of Proposed Rulemaking in the Federal Register was 5-0. To comment by mail, write “Used Car Rule Regulatory Review, 16 CFR Part 455, Project No. P087604” on comments and send them to Federal Trade Commission, Office of the Secretary, Room H-113 (Annex A), 600 Pennsylvania Avenue, N.W., Washington, DC 20580, or file them online. Comments must be received on or before January 30, 2015. All comments received will be posted on the agency’s website.

Sales Trends

Declining Gas Prices, Good Deals on Small Cars and SUVs

s a result of falling gas prices, there’s been a resurgence in consumer interest for large cars and large SUVs, as well as uncommonly generous manufacturer offers on small cars and small SUVs. “Small cars and small SUVs ...Your Success Is Our Business

have experienced high demand for the last several years due to elevated gas prices and overall affordability, which made getting great deals on them rare,” said Jesse Toprak, chief analyst for Cars. com, the leading car shopping site

and a comprehensive automotive digital marketing resource. “Since gas prices have started to decline, consumers are now finally able to get significant discounts, as well as great financing and leasing deals, on most small cars and SUVs.”

December 2014 DEALER BUSINESS JOURNAL | 35

INDUSTRY NEWS

Customer Dissatisfaction

More than Two-Thirds of Car Shoppers Surveyed Have Experienced Buyer’s Remorse

lack Friday typically kicks off the year-end deal season for car shoppers, but new data from AutoTrader.com suggests that many of these consumers may end up regretting their purchase decision. According to a series of surveys

hosted on the car shopping website, 69 percent of consumers have experienced buyer’s remorse after purchasing a car. Among consumers who experienced buyer’s remorse in the past, the most common reason for regretting the purchase decision

was because the car had mechanical issues. Other reasons included that they felt the car was too expensive or a bad deal, it was an impulse purchase or the car didn’t have the features they wanted.

Value Assessment Luxury Vehicle Segment’s Lowest Priced, TypicallyEquipped Vehicle Retains Highest Value After One Year

he NADA Used Car Guide published its November Perspective automotive industry report, providing a compelling group of figures on the one-year value retention of all-new or heavily revised luxury model vehicles within the U.S. market. Of the 10 luxury vehicles making the report, the 2014 Mercedes-Benz CLA 250 had the lowest typically-equipped MSRP ($35,305). Surprisingly, the allnew CLA sedan bested others in one-year retention performance, as its average trade-in value

($28,733) was an outstanding 81.4 percent of its original MSRP. The value retention performance was calculated by taking data from September through November, and dividing it by a vehicle’s commonlyequipped Manufacturer Suggested Retail Price. The MSRP data was sourced from ALG and the NADA Used Car Guide. With a typically equipped MSRP of $61,950, BMW’s much pricier SUV—the 2014 X5 35i AWD —closely followed the small CLA, retaining 80.8 percent of its value, or $50,042 on average trade-in

36 | DEALER BUSINESS JOURNAL December 2014

value. On the heels of its fellow SUV competition, the 2014 Acura MDX with Technology Package and 4WD trade-in value of $39,483 kept 79.8 percent of its $49,460 MSRP. The full report listing all values, how the retention figures were calculated, and vehicle-specific information can be downloaded for free on the NADA Used Car Guide website at www.nada.com. December’s Perspective report will complete the value retention performance picture, focusing on mainstream models.

DealerBusinessJournal.com

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December 2014 DEALER BUSINESS JOURNAL | 37

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DealerBusinessJournal.com

...Your Success Is Our Business

December 2014 DEALER BUSINESS JOURNAL | 39