Line of Credit
Succession Planning
If you have ever considered a line of credit to increase cash flow and capital, make sure you know what to expect.
Leedom Dealer Advisory Group announces a workshop on developing a succession plan and exit strategy.
SEPTEMBER/OCTOBER 2015
DealerBusinessJournal.com
How have you positioned your team as we enter the fourth quarter? Now is the time to huddle up and get in place for a strong year-end finish. Page 4.
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DEALER BUSINESS JOURNAL | SEPTEMBER/OCTOBER 2015 | 1
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2 | SEPTEMBER/OCTOBER 2015 | DEALER BUSINESS JOURNAL
VOLUME 12, ISSUE 7 SEPTEMBER/OCTOBER 2015
CONTENTS
LEEDOM GROUP FEATURES
LEGAL
4 What Tremendous Response Thank you for your feedback on the new Leedom Dealer
24 Lots of Pages, but a Single Document Some states require
Advisory Group; get your game on for the fourth quarter. By Chris Leedom
8 There’s a Perfect Storm on its Way All Buy Here-Pay Here dealers struggle with finding,
buying and recondition inventory, but add a shortage of qualified technicians and it may get even harder. By David Brotherton
10 Need a Line of Credit? Many dealers find a line of credit to be a good solution
to increasing cash flow and capital, but it does not come without a commitment. By Paxton Wright
16 EVM: The Challenges and the Benefits Customer education is key when it comes to
introducing EMV credit cards. By Jon Leedom
22 Buy-Sell Agreements If you are looking for an orderly transition of ownership
and management of a business, a buy-sell agreement is the way to go. By Jay Henderson
LEADERSHIP 26 Keep Your Commitments The first rule of
28 Tweaking Your Portfolio Sometimes market
conditions call for experimentation in your business model. By Robert N. Parnas
the tools available to succeed. By Tim Byrd
SALES & SERVICE 32
leadership is keeping your word. By Dave Anderson
OPERATIONS
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sales and financing paperwork to be in one document, and sometimes on one page. By Tom Hudson
30 Taking Control of Your Future Take full advantage of
How to Engage a Generation Disinterested in Cars It’s no secret that millenials are a unique generation. Your marketing needs to reflect that. Jeremy Anspach
36 Today’s Diversified Woman As the culture gets more
diverse, understanding how to reach different groups, especially women, is crucial. Jody DeVere
DEALER BUSINESS JOURNAL | SEPTEMBER/OCTOBER 2015 | 3
CHRIS LEEDOM EXECUTIVE PUBLISHER
CORNER OFFICE
What Tremendous Response
I
must say I was overwhelmed with the response to our feature article in the last issue of Dealer Business Journal regarding exit strategies and succession planning. We had dealer owners contact us by phone, email and even visit with us in person at industry events to discuss this most important of topics. What we learned was that this is an area where there is a real void of guidance and information specific to our industry. Our Leedom Dealer Advisory Group has added subject matter experts to our staff to help dealers in every situation adopt a successful exit strategy or exit plan. This is something that applies to dealers of all sizes, specialties and situations. If you have not considered these most important decisions I would humbly suggest you do so. It is something that each and every business owner faces and we are pleased to be in a position to provide information and guidance. Dealer Business Journal will begin featuring articles addressing the various layers and angles of this topic. In this issue you will find some interesting perspective from some well respected financial planners and money managers. We hope you find this information enlightening. It is something we plan to provide on a regular basis for our readers. As we enter the fourth quarter of this year it is also time to remember to start the forecasting and planning process for next year. Our Leedom and Associates team has been scheduling forecasting sessions and onsite visits with dealers. It is more critical than ever to have a well-crafted forecast and budget as you enter 2016. You might want to start thinking about your business and where you are headed next year. Before you know it, we will be welcoming in the New Year and embarking on another year of business. Speaking of the fourth quarter, our last issue of the year will feature our 2015 market report. This issue will give you the first glimpse of published market data for 2015 based on our extensive database of dealer operating information. We will be busy analyzing the latest data to give you the most current set of industry benchmarks to assess your business. Our Twenty Group members will see this data first and we will publish highlights in the December issue. Watch for this most anticipated issue of the year. In closing I want to thank you for your readership. We love the feedback that I mentioned in this article and it helps to get your comments as to what is important to you, the dealer owner and what we can do to continue to deliver the most informative and relevant publication for our industry. Thanks again for your support, email and readership. Until next time – have a great month and make it happen.
“It is more critical than ever to have a well-crafted forecast and budget as you enter 2016.”
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Dealer Business Journal 2601 Cattlemen Road Ste.200 Sarasota, FL 34232 Ph: 800.966.8733 Fax: 941.371.2874 Executive Publisher Christopher M. Leedom chris@twentygroups.com Contributing Writers Dave Anderson dave@learntolead.com David Brotherton davidb@leedomgroup.com Tom Hudson thudson@hudco.com Christy Taylor info@dealerbusinessjournal.com Paxton Wright paxton@leedomgroup.com FOR QUESTIONS REGARDING SUBSCRIPTIONS CALL 800.966.8733 or subscribe online at DealerBusinessJournal.com ADVERTISING INQUIRIES call 941.371.7999 or email 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 2015 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, 2601 Cattlemen Road, Ste.200, Sarasota, FL 34232
www.DealerBusinessJournal.com
LEEDOM GROUP UPCOMING EVENTS
CALENDAR JANUARY 2016 January 5 | Buy Here Pay Here Sales Training Boot Camp
Dealer’s competition has really heated up and you are fighting with conventional lenders as well as with each other for that BHPH customer. This is not an advertising course. Instead, this Camp will give your sales managers and reps real-world techniques and strategies for developing your business the way it should be developed. This Camp emphasizes lead management, prospecting, and the day-to-day activities and accountability that have proven to be successful. We will instruct on techniques of BHPH and telephone sales, facts about the BHPH business and the customers, developing consistent repeat and referral business, as well as the sales person’s role in application and underwriting procedures. Who Attends: Buy Here Pay Here Dealers and Sales Staff Location: Atlanta, GA Details: Call Meredith McNellis at 800.966.8733 for more information or go to www.twentygroups.com to register.
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January 6 | Buy Here Pay Here Manager’s Boot Camp
Knowing how the different pieces of the business come together is very important when trying to move the needle on one of more of the key drivers. This Camp will identify key drivers with an emphasis on how they impact – and are impacted by – the others. You will also receive information on industry benchmarks and what they mean for your business. We will discuss inventory management, expense allocation, pricing, management and hiring practices. There will be a lot of information here that you don’t want to miss. Who Attends: New and seasoned managers Location: Atlanta, GA Details: Call Meredith McNellis at 800.966.8733 for more information or go to www.twentygroups.com to register.
January 7 | Buy Here Pay Here Collections Boot Camp
Ensure you are collecting every dollar possible by attending the Collections Boot Camp. There have been many developments on the regulatory and legal fronts recently that directly impact the acceptable and compliant collection techniques you use every day. This Camp will identify changes and opportunities present in today’s landscape. We will discuss customer retention, alternative communication methods, relationship building, objection handling and providing a road map to your day. We will also discuss collections expectations in your model as well as industry benchmarks. Who Attends: Collection Managers, Collectors, and Buy Here - Pay Here Dealers Location: Atlanta, GA Details: Call Meredith McNellis at 800.966.8733 for more information or go to www.twentygroups.com to register
Keep up to Date:
Stay up with all of the Leedom Group’s upcoming seminars, trainings and sepcial events. Visit LeedomGroup.com and click on Training.
DEALER BUSINESS JOURNAL | SEPTEMBER/OCTOBER 2015 | 5
DBJ INDUSTRY NEWS SEND YOUR HEADLINES TO INFO@DEALERBUSINESSJOURNAL.COM
FTC ENFORCEMENT
Net Gain Idea: Auto Dealer DBJ’s Trust the tracking from your GPS Provider Settles FTC Did you know that if your your data with multi-layered processes vendor is not compliant security, and our network is to reduce Lawsuit for GPS with their data security, then comprised of multiple data access of your business isn’t compliant centers strategically located sensitive either? That means your $80,000 nationwide. consumer A West Virginia auto dealer, Ramey Motors Inc., has agreed to pay a $80,000 civil penalty to settle a Federal Trade Commission lawsuit brought in 2014. The FTC charged Ramey Motors with violating the terms of a 2012 consent order with the FTC that barred it from deceptively advertising the cost of buying or leasing cars. The civil penalty settlement resolves charges that Ramey Motors’ ads violated the consent order by concealing important terms of sale and lease offers, such as a required down payment, and failing to make credit disclosures clearly and conspicuously, as required by federal law. The civil penalty order also prohibits Ramey Motors from violating the 2012 order, where the FTC found fault with claims such as “Ramey will pay off your trade no matter what you owe ... even if you’re upside down, Ramey will pay off your trade.” The Commission vote authorizing the staff to file the stipulated civil penalty order was 5-0.
customer data might be vulnerable. So whether you’re tracking a car or a wild pig, you’ll want to make sure that your data remains private. So are you compliant or not? Data security is no joke. Here’s how you can pinpoint whether a provider is compliant: Enterprise-class data security system. You collect lots of customer information and data – so make sure that it’s locked down tight! Spireon GoldStar protects
Data Availability. Make sure you never lose connection to your fleet of vehicles with a GPS provider that backs up your data to strategically located servers. Spireon GoldStar is built on the NSpire platform delivering the highest level of service availability for the 2.4 million subscribers we support. Software with Builtin Compliance. Innovative providers continuously automate more of the manual
information. The Spireon GoldStar Reference GenieTM allows dealers to confirm loan stipulations without having to call customers’ employers or landlords. These are just a few tips to help you identify if your GPS provider is compliant. Sign up for DBJ’s Net Gain Ideas, a digital newsletter featuring products and services to help your bottom line. Go to www.DealerBusinessJournal. com/netgain.
EMPLOYMENT
CarMax Hiring for over 2,000 Positions CarMax, Inc., the nation’s largest retailer of used cars and one of Fortune magazine’s “100 Best Companies to Work For” for 11 consecutive years, is recruiting for more than 2,000 positions in locations across the country. The company is growing and offers a variety of careers. The majority of open positions are in service operations (detailers, experienced technicians) and sales, with additional positions in purchasing and the business office. Positions
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range from full and part-time, with day and evening shifts available. “Behind every CarMax stress-free customer experience is a dedicated, hard-working team of associates,” said Tom Folliard, president and CEO of CarMax. “We place a strong focus on providing developmental opportunities for everyone in the company, and on taking care of our associates by offering a healthy work-life balance and excellent benefits.”
Some of the areas with a large number of service job openings include Austin, Fort Worth and Houston, Texas; Laurel, MD; Memphis, TN; Greensboro, NC; Lancaster, PA; Parker, CO; Louisville, KY; and Newark, NJ. In addition, CarMax is currently hiring for its first Boston-area stores in Danvers, Mass., and Norwood, Mass., which will open in December 2015. CarMax plans to open between 13 and 16 stores each year for the next several years. www.DealerBusinessJournal.com
Autotrader Brings its A-Game with New Ad Campaign to Help Dealers Autotrader is bringing its A-Game to help dealers bring theirs. That’s the concept behind Autotrader’s new B2B advertising campaign, “Bring Your A-Game,” which launched this month. More than a campaign slogan, “Bring Your A-Game” is a rally cry for dealers that captures the raw emotion of working hard, giving it everything you’ve got, and ultimately, winning. It also embodies the internal motivation for everyone at Autotrader to continue delivering best-inclass products and services that help dealers succeed in the ever-evolving car shopping environment. “Dealers should have high expectations of their business partners, and this campaign is as much a commitment to them that we will bring our A-Game as it is a statement on how we are uniquely equipped to help them bring theirs,” said Jared Rowe, who leads Autotrader as president of the Cox Automotive Media Division. “We have the industry’s most well-trained sales force that partners closely with our dealer customers every day to deliver a strong portfolio of digital marketing solutions, actionable insights and local market guidance—all www.DealerBusinessJournal.com
with the goal of helping our dealers connect with, and influence, the millions of highly engaged car shoppers on our site.” Through print, digital and multimedia creative assets, the “Bring Your A Game” campaign showcases the essence of the new Autotrader and highlights four key strengths that differentiate it from the competition: Digital Marketing Solutions: Autotrader offers a comprehensive portfolio of solutions that enables dealers to develop effective digital marketing strategies to build their brands, drive traffic and connect their online and instore experiences. Shopper Insights: Autotrader’s unique and leading insights help dealers stay on top of consumer trends and better connect and engage today’s empowered shoppers. Local Market Guidance: Autotrader helps dealers understand their local markets with the most relevant information about their local market, shoppers and competition to help inform savvy business decisions. Audience & Influence: Dealers can reach the biggest online car buying and selling marketplaces with the most engaged, local shoppers.
NEWS
BRIEFS Auto Auctions Honored for Exceptional Service
As a part of the continuing reinvention of Autotrader that has occurred under Rowe’s leadership, Autotrader is evolving from being a marketplace that is focused on inventory and price to a matchmaker that will enable dealers and consumers to connect on the third dimension of the car shopping process— experience. “We will continue bringing our ‘A-Game’ to our customers by enabling them to connect with buyers in new and different ways,” Rowe continued. “As we evolve our site to give dealers more, and better, options to communicate their unique selling propositions, we are equally focused on the experience that dealers have in doing business with us. Our goal is that the new Autotrader— new in attitude as well as in appearance—will be even more satisfying for dealers.”
Enterprise Holdings, which operates the Enterprise Rent-A-Car, National Car Rental and Alamo Rent A Car brands, is honoring 14 U.S automotive auctions with its 2015 Auction Achievement Awards. This annual program recognizes auction partners that have gone above and beyond to support Enterprise Holdings’ remarketing strategy. Recipients are recognized for exceptional performance in the areas of communication, customer service, marketing and reconditioning, operational success and strategic planning. The 2015 Auction Achievement Award winners in the whole-car category are: ADESA Atlanta ADESA Los Angeles Manheim Georgia Manheim Nevada Manheim Omaha Manheim Pennsylvania Manheim Riverside Manheim Southern CA Manheim Texas Hobby
Send us your news:
Send press releases and news announcements by email to info@dealerbusinessjournal. com. Subject line: News Briefs.
DEALER BUSINESS JOURNAL | SEPTEMBER/OCTOBER 2015 | 7
DAVID BROTHERTON BHPH BOOT CAMP
THERE’S A
PERFECT STORM
ON ITS WAY Buying and reconditioning inventory are two of the toughest things to get right for Buy Here-Pay Here dealers. Add on an imminent shortage of qualified technicians who can do the work and the conditions are right for a rocky road ahead.
I
n my opinion, buying and reconditioning our inventory are the two most difficult things to execute properly in the BHPH model. Now, before anyone takes offense, this is not to say that I think sales, collections, management, or administration is easy. Everything we do presents its own set of challenges. My point is that not getting buying and reconditioning right will have repercussions in almost every area of the business. Bad cars and/or bad service efforts just seem to stick with you. Purchasing a vehicle today requires a considerable degree of dedication and experience and reconditioning requires not only good buying but efficient and productive service processes that maximize product quality at an acceptable cost. That cost factor is already high and it’s going to get worse. That isn’t the question. What has to be determined is what we are going to do about it.
It’s the Economics, Stupid Everyone has their own opinion of the future of the wholesale market. Personally, I believe that demand pressures from a very active marketplace will
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LEEDOM GROUP
continue to provide upward pressure on wholesale prices even in areas where a relative increase in supply may indicate a softening of prices in the traditional BHPH segments. In other words, thinking that car prices softening much in the coming years is wishful thinking without a significant paradigm shift on the demand side. The real issue for us is technicians. There is already a technician shortage. Just ask anyone trying to hire technicians. A shortage today is going to become much more acute in the next decade where it will resemble the lines at the gas pumps in the 1970’s. There simply aren’t enough technicians in the various technical schools and apprenticeship programs to even come close to replacing the number of today’s technicians who are due to retire in the next ten years. They. Just. Don’t. Exist. Period. This is what I mean by a perfect storm: the entire automotive industry simply won’t be able to meet their needs out of projected resources. So, regardless of whether you have your own shops or sublet all of your work out, everyone will have to deal with this ongoing issue in www.DealerBusinessJournal.com
the industry. Technicians are becoming more and more a “seller’s market” where they can work literally anywhere. Shortages of qualified technicians will affect production, efficiency and costs. All of which have huge implications on the bottom line.
The Sky Is Falling! What Do I Do?
This isn’t meant to be an End of Days speech. We have to start taking steps now to address tomorrow’s shortages. The following is an outline of ideas that have come out of our Twenty Groups when discussing this topic: Build your Bench • Develop a partnership with local technical schools and offer apprentice/internship programs that can, hopefully, get you first look at the emerging candidates. Review Your Compensation and Benefit Structures • Good techs aren’t cheap and cheap techs aren’t good. Like it or not we are going to have to pay more to get our cars worked on. This can
be offset by increases in efficiency. Tie efficiency and production to compensation in a manner that maximizes income for those who are fast and accurate. • Provide a starter set of tools for recent tech school graduates. If they stay with you a year, they are theirs. • Provide benefits to your team. As much as this notion may hurt, it is necessary. Good, experienced staff won’t work for you without benefits—in the future, they won’t have to. Network • Always be recruiting. This maxim has never been as important as it will be in the years to come. It is best to know everyone you can and make friends with the tool truck drivers. You should always be looking for technicians not happy where they currently are. Being there first can go a long way to getting them to work for you.
Shortages of qualified technicians will affect production, efficiency and costs. All of which have huge implications on the bottom line. the overall team and reward for performance. Flat-rate compensation is looking more and more like the way to go in the future. If I have to pay new-car wages, I have to have outstanding productivity to offset them to some extent. Plan for your hiring future now. Those that fail to prepare should prepare to fail. David Brotherton is a consultant and Twenty Group moderator with the Leedom Group Contact him at davidb@ leedomgroup.com
Manage Expectations • Good techs don’t like to work with slackers. Always work to improve DEALER BUSINESS JOURNAL | SEPTEMBER/OCTOBER 2015 | 9
PAXTON WRIGHT DEALER OPERATIONS
NEED A
LINE OF CREDIT? Sometimes you need to increase your cash flow and a Line of Credit makes the most sense, but for Buy Here-Pay Here dealers it can easily be the largest financial commitment of your life.
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LEEDOM GROUP
A line of credit (LOC) can be a great tool to help BHPH and LHPH dealers increase their cash flow, receivables and profits. However, if the LOC is abused or mismanaged it can also become a burden.
T
ransitioning out of summer brings many changes to our daily lives and businesses. Football season is up and running, kids return to school, clocks roll back and leaves begin to fall. Amidst these changes, many dealers are planning for what’s ahead. The next few months are critical for dealers who want to finish the year off strong, yet also need to be evaluating their businesses and preparing for the upcoming tax season. Questions dealers should be asking: What can I do today that gives me the best chance for success in the future? Do I need to revamp my policies and procedures? Do I have the right inventory for my customers? Do I have the right pay plan for my employees? Will I have the capital I need to execute my plan? These are just a few examples of excellent and www.DealerBusinessJournal.com
necessary questions to consider. In this article we will focus on your capital needs. My goal is to ensure that you, the dealer, are properly prepared and understand how to navigate the process of securing a line of credit. A line of credit (LOC) can be a great tool to help BHPH and LHPH dealers increase their cash flow, receivables and profits. However, if the LOC is abused or mismanaged, it can also become a burden. So, do you really need a line of credit to achieve your operational goals? Often
times, the answer is yes!. Over the past decade, many BHPH benchmarks are trending in ways that make it difficult for operators to remain cash flow positive and profitable. Generally speaking, vehicles are more expensive, reconditioning costs are rising, and down payments are falling. All in all, the average cash in deal has increased 63.7 percent since 2004! Using Leedom and Associates Benchmarks, let’s look at this impact, in terms of dollars, for a dealer selling an average of 50 cars per month:
2004
2014
Monthly Sales
50
50
Avg $ in Deal
$2,979
$4,877
Monthly $ in Deal
$148,950
$243,850
Monthly Increase in $
$94,900
DEALER BUSINESS JOURNAL | SEPTEMBER/OCTOBER 2015 | 11
PAXTON WRIGHT DEALER OPERATIONS Today, that business model would annually require $1,138,800 more in capital than needed in 2004. Add rising operating expenses, longer term notes and increased losses to the equation and you start to understand the significant necessity for more capital. While there are numerous ways owners can raise capital for their businesses, for many a line of credit has proven to be a fundamentally sound choice. However, for a BHPH dealer this is not always as simple as it sounds. Traditional lending options such as local banks or credit unions generally do not have an appetite for this space. Why is that? Many dealers have been profitable for years, produce substantial revenue and adhere to all state and federal regulations. So why is it challenging to secure traditional financing at low interest rates? The bottom line is that BHPH dealers originate a portfolio of accounts backed by customers and collateral that, even individually, are unappealing to traditional lending sources. Without knowledge of our industry or experience lending to dealers it is unlikely to find capital in that arena. Thankfully, there are financial institutions that specialize in providing capital to BHPH dealers. They understand our customers, collateral and
Items you should plan to deliver for the Line of Credit: q
Loan Request Letter Commitment Amount Initial Funding Usage Plan
q
Company Profile Dealership Origins and Locations Executive and Key Management Bio’s Business Philosophy
q Company Affiliations (State Assoc., 20 Groups) q Unique Competitive Advantages q Organizational Chart q Business Awards and Recognitions q Company Tax Returns, Income Statement and Balance Sheet (2 years or more) q Company Cash Flow Statement (YTD) q Company Bank Statements (90 days) q Personal Tax Returns and Financial Statements q State Licenses, including Selling and Finance License if applicable q Company Formation Documents q Policy and Procedure Manuals for all underwriting, collections and cash controls q Static Pool Loss data (report generated from DMS) q DMS Access (direct log-in for lender) business models. While the interest rates and expenses can be significantly higher than traditional lending sources, they offer the best alternative for providing the capital you need and structured in a way that allows you to succeed. Best of all, after a few years of solid financial reporting and portfolio performance, they can be a stepping stone to negotiate improved loan terms or even “bank rate”
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financing options. So, how do you get there? In my experience, with most all dealer principals, a line of credit for your business is the largest financial commitment you will ever make. With this understanding, comes significant responsibility and attention to detail in all aspects of managing this transaction and ultimately the line of credit itself. Take a look at the list
of items above that you should plan to deliver in this process. Following the delivery of these items, most lending institutions will evaluate the information provided, review credit history and determine if your business is a viable fit for their program offerings. If yes, you will likely receive a letter of intent (LOI) outlining the size, scope, and expenses associated with their line of credit. For www.DealerBusinessJournal.com
Save the Date!
April 18-20, 2016 stay up-to-date at BHPHWorld.com www.DealerBusinessJournal.com
We asked attendees of the 2015 BHPH World Convention where to go next and more the vote was to move to Orlando, Florida. O-Town here we come! Mark your calendar and join us in The City Beautiful next April for the industry’s leading BHPH event. Get BHPH World updates on Facebook. Find us under Leedom Group’s Buy Here Pay Here World Convention. DEALER BUSINESS JOURNAL | SEPTEMBER/OCTOBER 2015 | 13
PAXTON WRIGHT DEALER OPERATIONS
The purpose of the on-site visit is to validate documentation you provided, conduct management interviews, a loan file examination, and complete a payment testing review.
example, the LOI will show an anticipated commitment amount, loan term, interest rate, due diligence fees, and even legal expenses. This document will also spell out any key performance metrics and financial covenants that you will be expected to maintain. Once you have negotiated agreeable terms and executed the LOI, most lenders will schedule an onsite visit. A successful on-site due diligence is paramount in building a relationship with your lender and ultimately in receiving credit committee approval. The purpose
of the on-site visit is to validate the documentation you provided, conduct management interviews, a loan file examination, and complete a payment testing review. While each step in this process is important, I can assure you from being on the inside, the management interviews are most vital. Take this opportunity to shine a spotlight on your team’s expertise and demonstrate why you will be a solid partner for your lender. At the conclusion of this process, typically an updated LOI will be delivered and
accounts for any adjustments that needed to be made as a result of due diligence findings. Be sure to have legal representation that understands your business and how these funds will be utilized and secured. Once both parties agree on final terms, the closing will typically occur within 14 to 45 days depending on the legal team, the lender and other circumstances. While this may seem like an intimidating venture to undertake, I can assure you that it is worthwhile. In fact, all of the required documents
above should already be part of your standard operating procedures. If not, ask yourself why and then decide if you would lend millions of dollars to a business that is missing any component of what I’ve listed here. If your concern is cost versus benefit, I’m happy to assist you in completing that analysis and establishing the appropriate value. As stated earlier, my goal is to help you understand how to secure a line of credit and ensure you are properly prepared.
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. Contact him at paxton@leedomgroup.com
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Now scheduling fourth quarter forecasting and planning sessions with our team of experts. End the season with a win, call us now.
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800.966.8733 or online at LeedomGroup.com
DEALER BUSINESS JOURNAL | SEPTEMBER/OCTOBER 2015 | 15
JON LEEDOM PAYMENT PROCESSING
EVM:
THE CHALLENGES AND THE BENEFITS EMV cards are still relatively rare in the U.S. Many consumers aren’t even sure whether they have one, which suggests a need for more consumer education.
C
redit card fraud and identity theft is rampant within the United States. To help fight the problem, credit card companies have been rolling out EMV (Europay, Mastercard, Visa) cards, a global standard for cards equipped with computer chips and the technology used to authenticate chipcard transactions. Relatively new in the United States, these cards have been used a lot in Europe. Here are a few questions and answers that we have compiled to help you understand this technology better. Q. How do we know that rolling out EMV in the U.S. will have a real impact on fraud? A. Fortunately, we have a lot of realworld experience to look at. EMV is used in
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most of Europe and many other countries around the world, where it is an effective anti-counterfeiting and fraud tool. EMV was implemented in Canada several years ago. Prior to that, they had a high rate of counterfeit fraud that would increase during holiday cycles as the bad guys targeted that country in order to exploit the mag stripe environment. When EMV was adopted in Canada, the counterfeiting and fraud decreased significantly. At the same time, it increased substantially in the U.S., as the bad guys shifted their attention from Canada to this country, which does not have those EMV protections. So it’s pretty clear that it’s been an effective measure where it’s been implemented. Q. We’ve heard a lot about EMV, but not everyone may know how it works. www.DealerBusinessJournal.com
LEEDOM GROUP
How is it different from the traditional card approach? Without EMV, when a card number is read from a mag stripe card, there is no “dynamic” piece of data accompanying the transaction that the issuer can utilize to authenticate that the card is legitimate; hence when bad guys get hold of a card number— they can create an identical card and use it as if they are the legitimate cardholder. That counterfeit card can then be taken into a retail location and used to purchase something that can later be resold—gift cards, jewelry, clothing, and so forth. So you have a legitimate person’s card number being used in a counterfeit way to purchase something that can be easily monetized. EMV stops that attack at the point of purchase because a key stored in the chip on the card creates a dynamic piece of data that is sent along with the authorization message, creating a “parent-child” relationship between the card and the issuer. The issuer can “recognize” that the dynamic data is from one of its own cards and is able to confirm that the transaction is coming from an authentic card. So with a mag stripe, you have a static environment, and with EMV you have a dynamic www.DealerBusinessJournal.com
environment, where each transaction is accompanied by a unique piece of data which changes on a transaction-by-transaction basis and can’t be replicated or utilized in a “replay” attack. In this way, EMV virtually eliminates cardpresent counterfeit fraud, since having the card number is no longer enough. Q. Will consumers notice a difference in the way they use their cards? A. Yes, but nothing too dramatic. Today, you typically swipe your mag stripe card and make a series of selections saying whether it’s a credit or debit transaction and confirming the purchase amount. In an EMV transaction, you don’t swipe the card, you insert it; the card stays in the terminal for the entire transaction. So, it will be very important for merchants to train their store employees for this change. Otherwise, we’ll have cards being left behind by customers, which is something that none of us wants to see. Incidentally, there is probably a need to educate the public in general about EMV. In recent research, two-thirds of the consumers who have EMV cards said they have used their cards in chip mode in the U.S. But
forget, the bad guys are still going to be looking for ways to attack retailers, and it’s pretty clear that they will quickly learn to find and target the weak points—and that will be those retailers that don’t have EMV capabilities. there aren’t very many EMV terminals in place today, which makes that high level of usage unlikely. They probably think they are using EMV when they aren’t. Q. Implementing EMV represents a real cost to the industry—especially retailers, which will need to build out the infrastructure. What sort of return on investment can they expect? A. There are a variety of potential benefits. First, there’s the expected reduction in counterfeiting and fraud. That’s great for customers. But it’s also good for the retailers. If a retailer isn’t EMVcertified by 2015, the liability for fraud shifts from the issuer to the retailer. Certainly, retailers are aware of that deadline, but I think that some would be surprised at the figures we’re talking about here. The fraud associated with a large retailer can run as high as several million dollars a month. And don’t
Q. Beyond avoiding those costs, what are some of the other benefits? A. Retailers will be upgrading their terminals, and that gives them a chance to step back and take a big-picture look at the infrastructure. Once the retailer has the hood open on that technology, there’s an opportunity to implement improvements that might not be feasible otherwise—things like being able dynamically to convert currency in cross-border transactions or support contactless and mobile payments. Retailers also need to think about the upside in terms of the marketplace. Having EMV capabilities will make it easier for U.S. retailers to cater to foreign tourists, who typically have EMVequipped cards already. And with today’s securityconscious consumers, retailers that get out in front in terms of implementation could tout their enhanced security capabilities in their marketing messages. We’ve seen this occur
DEALER BUSINESS JOURNAL | SEPTEMBER/OCTOBER 2015 | 17
JON LEEDOM PAYMENT PROCESSING
Data breach events are making consumers more security conscious—and potentially receptive to EMV-oriented marketing messages.
very successfully in other markets. Many U.S. cardholders traveling abroad have experienced the challenge of using their mag stripe cards at an ATM, train station, restaurant, or merchant location, as they’re considered “less secure.”
terminals to do for the next 10 years?” I would also suggest taking advantage of various industry forums to find out more about the issue—organizations such as the Smart Card Alliance, the Merchant Advisory Group, and the Electronic Transactions Association.
Q. This clearly represents a lot of change in infrastructure, and there is a lot to consider. How should companies chart a path forward?
Q. What kind of time frame should companies be looking at with their planning?
A. Yes, there is a real risk of running into “analysis paralysis” in trying to understand the opportunity in the marketplace, as well as the technology itself. We recommend you start at the beginning: get educated. As an industry, we have to ensure that all the stakeholders associated with the EMV migration— the different system owners and departments being affected—are involved in the education process. The natural evolution of education is an initiation into the planning process. As EMV is such a large change, all stakeholders need to provide input into near-term and longterm strategies. This is an opportunity where retailers, for example, can look beyond compliance and ask, “What do I want those
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A. One of the main reasons for moving—ahead with EMV is that it’s good for just about everybody. The beneficiaries, in the end, will be all of us who shop and use the payments infrastructure in the U.S. I often point out that people don’t walk around with 10-year-old mobile phones, but a lot of merchants are still working with payment technology that was developed in the 1990s, especially small merchants. Just because something works now doesn’t mean that it will necessarily serve us long term, and I don’t think that 20th century technology will serve us in the 21st century. This is an opportunity for us to significantly upgrade the U.S. payment infrastructure, in one fell swoop, to create a more secure, more functional,and more future-proof payment
market for the next generation. Q. What is the impact to my dealership? A. Dealers need to keep in mind the liability shift deadline of October 1, 2015. Those merchants that are not EMV compliant, after this deadline, will have the liability/loss assigned to them. This date is written in stone and will not change. You will not be able to say that you were not aware of the requirement. Educate your staff on this upcoming change and prepare a plan to become EMV compliant. All terminals at the dealership will need to be EMV capable. Does your terminal have the EMV slot where the card gets inserted for the approval? If you are not sure or have additional questions feel free to reach out to me; I am happy to help.
Jon Leedom, CPP is the Director, National Accounts/ Business Development for PaymaxxPro. Reach him at (941) 584-8311 or by email at jon@paymaxxpro.com
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Leedom Dealer Advisory Group announces this special workshop and briefing for automobile dealer owners looking to implement a succession plan. This workshop is specifically tailored to auto dealer-owners and capitalizes on the Leedom Dealer Advisory Groups depth of automotive experience and financial strategy acumen. Members of the Leedom Dealer Advisory Group are carefully selected based on their areas of expertise and experience. We have subject matter experts in all aspects of planning including business advisory, financial planning, lending, legal and accounting. We represent the most complete resource to assist dealer-owners in developing complex strategies for succession planning. The Group has access to certified specialists, advisors and lenders that will help construct and finance buyouts as well as a network of resources for financial planning and management.
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LEAVE WITH AN UNDERSTANDING OF: What is my current business strategy? What are the strengths/weaknesses and opportunities/threats to my business?
WORKSHOP DISCUSSION LEADERS:
Who in my business are the key decision makers vs. input only vs. execute the plan? What are the key steps in developing a succession plan? How do I utilize advisors to break through key roadblocks? What options are there based on my specific business?
Christopher M. Leedom
What happens if I fail to plan? (case studies that provide insight)
CEO and President of the Leedom Group Recognized industry leader and successful entrepreneur
How do I finance a next generation or key management buy-out? What resources do I need to employ to develop a complete plan? Now that I have a plan, how to I execute? PLUS, in-depth discussion of these and other issues.
WHO SHOULD ATTEND? DEALER OWNERS, INTERESTED FAMILY MEMBERS, INTERESTED MANAGEMENT TEAM MEMBERS This workshop is an investment in your future.
$4,995
Melissa M. Leedom COO of the Leedom Group Experienced executive with twenty years of risk analysis and strategic business planning.
for two attendees. Additional attendees
$1,595
Includes registration, course materials, and two nights hotel accommodation.
Registration details and information to come. To set up a free consultation with the Dealers Advisory Group, call David Leedom at 941.371.7999 ext.317.
www.LeedomGroup.com/ DEALERADVISORYGROUP www.DealerBusinessJournal.com
Jay Henderson Vice President, Wealth Management UBS Senior Portfolio Manager Over 25 years of experience in the Financial Services Industry. DEALER BUSINESS JOURNAL | SEPTEMBER/OCTOBER 2015 | 21
JAY HENDERSON FUTURE PLANNING
BUY-SELL AGREEMENTS Buy-sell agreements can provide for an orderly transition of ownership and management of a business, protect it from internal conflicts, and restrict the transfer of ownership to unwanted third parties.
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state planning is the process of preparing personal assets for distribution to succeeding generations. Business succession planning prepares a business entity for inevitable changes in ownership and management. Good planning for individuals who are owners of businesses coordinates these two planning processes.
What is a buy-sell agreement, and why have one? An essential tool used by small business owners in the estate planning/business succession planning process
is the buy-sell agreement. A buy-sell agreement is an agreement among the owners of a business, or among the owners of a business and the business entity itself, to purchase and sell interests in the business at a price determined by the agreement on the occurrence of certain future events. Such triggering events often include: • death of an owner • disability of an owner • an offer by an outside party to purchase an owner’s interest • termination of employment of an owner • divorce of an owner • bankruptcy of an owner. Buy-sell agreements
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can provide for an orderly transition of ownership and management of a business, protect it from internal conflicts, and restrict the transfer of ownership to unwanted third parties. A separate document may not be necessary. Buy-sell provisions are sometimes included in an entity’s operating agreement or organizational documents. Accordingly, business owners and family members must review all pertinent documents to understand
how their business succession plan is structured.
What provisions should a buy-sell agreement contain? A buy-sell agreement should address who will own the business, who will be responsible for the day to day management of the business, and how and when the transition will take place. With respect to the retirement of a partner or founder,
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ADVANCED PLANNING GROUP & COMPLIANCE
a buy-sell agreement can provide a means for cash flow for the retiree through an installment sale of his or her shares. The agreement can also dictate the terms on which the children of a business owner (and perhaps only those who have been active in the business) or key employees can purchase shares over time in order to allow the founder to retire when he or she wishes without disrupting the operation of the business. Because it is www.DealerBusinessJournal.com
common for some children to be actively involved in the family business and some not, and for the founder to want to transition control and management only to those children active in the business, a sale of shares to those children can also facilitate equalizing the inheritances of all of the children. In contrast, if an owner leaves shares of the business in his or her Will only to certain children, there may not be enough other assets in the owner’s
estate to equalize the value received by all children. In addition, business owners must properly establish buy-sell agreements in order to address estate tax concerns. A buy-sell agreement can establish the method of determining the value of an interest in the business upon an owner’s death and can improve estate liquidity by assuring a market for the shares (thereby providing a source for the payment of estate taxes). There are, however, strict rules in the Internal Revenue Code for setting a purchase price of a family business that will be respected for estate tax purposes—in other words, the IRS will not accept an artificially low price specified in a buy-sell agreement as the value of an interest in a family business for estate tax purposes. Buy-sell agreements often require owners or the business itself to own life insurance on the principals in order to provide cash to pay for the purchase of shares upon the death of an owner. (Note that there may be complex tax considerations in determining whether the life insurance policies should be owned by the business versus the owners individually.) The life insurance policies themselves
should be reviewed every few years to assure that the levels of insurance are appropriate and that the specific policies and their issuing companies are sound. Owners of small businesses routinely make difficult decisions; determining the succession of ownership, management and value ranks as one of the most difficult. When personal or business succession planning is contemplated, clients with closely held businesses should seek counsel to ensure that they have up-todate-buy sell agreements in place to adequately address these issues.
The Advanced Planning Group of UBS provides comprehensive planning advice and education to ultra high net worth individuals and families. The team consists of professionals with advanced degrees, extensive planning experience and various areas of expertise. Through our publications, the Advanced Planning Group features the intellectual capital of UBS in wealth planning, estate tax and philanthropy and evaluates how changes in the legislative and tax landscape might impact our clients’ planning.
DEALER BUSINESS JOURNAL | SEPTEMBER/OCTOBER 2015 | 23
TOM HUDSON LEGAL OPINION
IT ALL DEPENDS ON WHAT AS IS IS Do As-Is clauses have real legal moxie, or are they just another box to check? The answer is anything but predictable.
“A
s is” means the car buyer takes all of the risks that the car has, right? Well, no. Read on! JNT, Inc. bought a used Jaguar at an auto auction. JNT had warranty work done on the car at a Jaguar dealership, and then listed the car for sale. Alexander Evans and JNT had several conversations about the car. According to Evans, JNT said the Jaguar had a clean repair history and that a Jaguar dealer had conducted a pre-purchase inspection, so Evans did not need to inspect the car. JNT gave Evans an AutoCheck repair history, and Evans bought a Carfax report. Neither report listed any significant damage or repair history for the Jaguar. Evans agreed to buy the Jaguar for $42,700 and wired the
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LEGAL & LEGISLATIVE
purchase price to JNT. The purchase contract stated that the car was sold “as is” with no warranties except for the balance of any factory warranty. Evans had the car shipped to himself in Nevada. When the car arrived, Evans found extensive body and engine damage. When JNT refused to fix the car, Evans sued JNT in Kentucky state court. He sued for breach of contract, intentional misrepresentation, negligent misrepresentation, breach of express and implied warranties, unfair, false, misleading or deceptive acts and practices, breach of a seller’s statutory duty to disclose damage to the car and failure to buy Girl Scout cookies (just kidding). The trial court granted JNT’s motion for summary judgment. The appellate court affirmed the trial court’s decision on the claims for breach of contract, breach of express and implied warranties, and negligent misrepresentation, but reversed the trial court’s decision on the claims for intentional misrepresentation and failing to disclose preexisting damage. The appellate court www.DealerBusinessJournal.com
found that Evans could not sue JNT for breach of contract, breach of an express warranty, or breach of an implied warranty even if he could prove JNT knew the car was damaged or defective. The court said an “as is” clause in a sale contract shifts the risk of damage or defects in the goods from the seller to the buyer. An “as is” clause eliminates any obligation the seller may have to disclose known damage or defects. The appellate court also found that Evans could not sue JNT for negligent misrepresentation. According to the court, a buyer must show that it justifiably relied on the seller’s statement about the goods’ condition to claim negligent misrepresentation. But an “as is” clause makes the buyer solely responsible for inspecting the car and determining its condition. So, Evans was not justified to rely on JNT’s statements about the goods’ condition. So, Evans was out of luck, right? Nope. The appellate court decided that Evans could make a claim for fraud. The court noted that a seller may not use an “as
The seller may not use an “as is” clause in a contract to shield itself from a claim that it committed fraud to induce the buyer to enter into the contract in the first place. is” clause in a contract to shield itself from a claim that it committed fraud to induce the buyer to enter into the contract in the first place. The appellate court also found that Evans could bring a claim that JNT violated a Kentucky statute imposing a duty to disclose damage to the car. That law requires a dealer to disclose damage to a buyer if the dealer has direct knowledge of the damage, the damage resulted in repairs or repair estimates that cost more than $1,000, and the damage occurred while the car is in the dealer’s possession and before delivery to a purchaser. Evans alleged that JNT knew the Jaguar had undergone more than $1,000 in repairs for collision damage. JNT argued that it did not know of any damage when it sold the car. It knew the auctioneer made $612 worth of repairs before it sold the car to JNT, and that some
warranty work had also been completed. JNT argued that the Kentucky law does not require a dealer to include warranty repair costs in the $1,000 threshold. The court of appeals disagreed. It found that a seller must include the value of warranty repairs completed while the car is in the dealer’s possession toward the $1,000 threshold. Evans v. JNT, Inc., 2015 Ky. App. LEXIS 124 (Ky. App. August 21, 2015)
Tom Hudson, Esq. 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 by email at tbhudson@hudco.com.
DEALER BUSINESS JOURNAL | SEPTEMBER/OCTOBER 2015 | 25
DAVE ANDERSON LEARN TO LEAD
KEEP YOUR COMMITMENTS Keeping your word is one of those non-negotiable leadership requirements. If you don’t do what you say you are going to do, you won’t be a leader your people will follow.
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n several of my seminars I cover the importance of building a rock solid character, and go over key traits to develop in that endeavor: remaining teachable, accepting responsibility, honesty in words and deeds, maintaining a strong work ethic and more. However, the section that creates the most squirms and losses of eye contact is when I discuss the non-negotiable leadership requirement to keep one’s commitments. Following are seven principles concerning keeping commitments that give you a chance to evaluate your proficiency in the vital area of keeping commitments, because you can rest assured that those you work with are measuring your leadership by whether you do, or don’t.
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If you make a commitment you are expected to keep it, regardless of the cost. The last four words of the preceding sentence is what causes most folks to compromise their integrity. They’ll keep their commitment as long as it doesn’t cost more than they thought it would, take longer than they estimated, or create undue inconvenience. But that doesn’t cut it. If you say you’re going to do it, you need to do it. Period.
2
Be careful which commitments you make. Because of the prior point, you can’t afford to make commitments thoughtlessly, cavalierly, or in a hurry. Nor should you allow yourself to be pressured into a commitment by either a customer or coworker because if you agree to do it, you will be expected to do it. Thus, commit wisely and don’t let your mouth write checks the rest of you can’t cash.
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LEADERSHIP
3
If you’ve failed to keep commitments, the people you let down haven’t forgotten. Just because they don’t bring it up, doesn’t mean they’re over it. Stephen Covey, quoting Freud, said it well: “Unexpressed feelings never die they’re buried alive and rear their heads later in meaner and uglier ways than before.”
left.” Failing to keep your word will demoralize followers and peers to the point where you’ll rarely get second mile performances from them; it will also make your higher-ups realize you’ve probably gone as far as you’re going to. After all, no one wants to give more opportunities or responsibilities to one who can’t handle what he or she already has.
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If you’ve failed to keep commitments you need to make it right. Go address it with the person as soon as possible. Admit that you recognize you failed to do what you said you’d do, apologize, ask forgiveness, promise to do better in the future, and make restitution if necessary and possible. By the way, these steps are just as relevant to your friendships and family life as they are to your work world. When your words and deeds are inconsistent you break trust and lose influence with followers, peers, and higher-ups. Frankly, no one wants to follow a leader they can’t count on, don’t believe, or who has made a habit of “talking right and walking www.DealerBusinessJournal.com
If you’re not faithful in small things, don’t expect to be trusted with more. Don’t let yourself off the hook by rationalizing that the commitments you fail to keep are “small” things, and that you come through on the big ones. It doesn’t work that way. All commitments matter, because your word should count in small things as well as large. Any higher-up would be an absolute fool to give more resources, opportunities, or responsibilities to someone who isn’t faithful in the smaller matters they’ve been given. Being late to work counts as not keeping your commitments. This is the one that creates the most squirms in my classes. Unless when you were hired you were told you could come and go as you pleased, I’m guessing you agreed to be at your post by a certain time
Stop wimping out concerning keeping commitments and do what you said you’d do, how you said you’d do it and by when you said you’d do it, or don’t say it at all. each day. When you’re not there, you’ve broken your word. Don’t think it’s just the “five minutes,” because it’s not that simple. Although I personally find the five minutes late appalling and irresponsible, what’s worse is that you didn’t keep your word to the people who hired you and you’re letting down customers and teammates who may need you. And why? Because even as a grown adult you can’t get your act together to make sure you’re where you’re supposed to be when you’re supposed to be there, when you promised to be there, and even though you’re being paid to be there at that time. While anyone can have an occasional emergency that creates a freak tardiness, if you’re known for being late you have a serious problem. I’d fire you in a heartbeat, because anyone late to work in my business violates four of our five core values: integrity, teamwork, urgency and attention to detail. If your company has similar values, you and anyone else coming to work late is violating them—and in strong cultures that should be
a big deal. Perhaps Zig Ziglar said it best, “Being late is the arrogant choice.” If any of these seven points made you uncomfortable, it’s probably because it has something to teach you. Take it as a nudge to work on this aspect of your character. Our character is never “done.” We all have areas to improve. But since character is built one right decision at a time—and lost one compromise at a time— stop wimping out concerning keeping commitments and do what you said you’d do, how you said you’d do it, and by when you said you’d do it, or don’t say it at all.
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. Dave’s 13th book: “It’s Not Rocket Science” will be available in the fall of 2015. For daily leadership tips follow Dave on Twitter @DaveAnderson100.
DEALER BUSINESS JOURNAL | SEPTEMBER/OCTOBER 2015 | 27 DEALER BUSINESS JOURNAL | JULY/AUGUST 2015 | 27
ROBERT N PARNAS ACCOUNTING PRINCIPLES
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ver the past several years, the auto industry has experienced significant record levels of productions and sales. Additionally, our economy has experienced lower interest rates and investment into the subprime industry has increased as investors are seeking higher rates of return. Subprime customers that once experienced difficulties qualifying for new or newer vehicle credit have found available financing over the last two to three years. During this time period, the sub-prime auto market has expanded as well and more competition has flooded into the BHPH marketplace. As a result, the BHPH market has experienced a customer “trickle down” effect of their customer base, top customers finding availability in newer vehicle markets coupled with other competitive forces over the past several years, leaving the BHPH operator needing to increase customer procurement efforts. During recent years, we noted many BHPH operators making changes to increase business and profitability through risk management by strengthening their underwriting and collections systems and management, streamlining their inventory
TWEAKING YOUR
PORTFOLIO AND MEASURING THE RESULTS To survive downturns in the economic cycle, you may try experimenting in your business model, but be prepared to track the data to see what works and what doesn’t. management, selling and closing processes to improve overall operational efficiency, and some BHPH operators have modified the terms of their new customer loans, purchased better quality and expensive vehicles, extended warranty terms, reallocated a portion of their business to cash only sales, etc. Essentially for many, the BHPH has evolved as a reaction to current industry economic factors. With many operators having made multiple changes, we have noted many have admitted they have not “drilled down” through analysis if the specific changes are actually beneficial. For example, some clientele have increased the ACV of their vehicles coupled with tighter
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underwriting qualifications but have not analyzed the specific outcome of their decisions (margins, chargeoff percentage, collections, etc. on higher ACV vehicles). Similar to a chemistry experiment, you need to establish your control group before you start to change the variables, in order to have a population with which to measure your future results against. In the BHPH world, when operators implement a change, the pool of loans in existence prior to that change will become the control group – the pool of loans that you will measure future results against once you have made changes. In order to have meaningful data, the BHPH operator will need to continue to measure the
results from that control pool separately from the pool of new loans with the modified variables. Without the benefit of the control group, it would be extremely difficult to determine if the changes you are making are having the desired effects. Because the population of loans is larger when a control group is not segregated from the pool with modified variables, it will take longer to notice any change in the results, and even longer to determine if the change is due to the modification of the variables. By the time a change in the results is noticed, it may have adversely affected the most current portion of your portfolio and your market share will have deteriorated. It is also important to think www.DealerBusinessJournal.com
BUSINESS OPERATIONS
through the changes you are contemplating, formulate your hypothesis on what the results may be, and then prioritize your change ideas. Changing too much at once can lead to mixed results that may prevent you from identifying a truly impactful change in your business. Once you have your pools segregated and you have made changes to your operations, do you know what you should be looking at and how to interpret those results? On at least a quarterly basis, and perhaps monthly as you implement new changes, you should consider maintaining static pool analysis separated by the parameters the BHPH operator has changed (i.e., higher ACV vehicles sold) www.DealerBusinessJournal.com
that will show you the loans originated by month, the amount of principal outstanding, and the percentage written off by month as well as collections, aging considerations as well as maintain other data such as CRR (Collateral Recovery Rates) on the pools of installment contracts underwritten under the changed variable. Over the past couple of years, we have noted many clientele changing aspects of their operating model and introducing new variables, sometimes introducing multi-variables simultaneously in reaction to current industry economic factors. In some cases, BHPH operators have indicated that they are monitoring such changes
Similar to a chemistry experiment, you need to establish your control group before you start to change the variables in order to have a population with which to measure your future results against.
on a macro basis only and not trying to perform “pin-point� on the changed variable in comparison to data prior to the change, which should be an essential part of the process. Without analysis, the changes could lead to a cluster of issues and may hinder the BHPH operator in evaluating whether the change produced the desired result.
Robert Parnas, CPA, is Principal, Dealerships, with CliftonLarsonAllen LLP and can be reached at robert.parnas@ claconnect.com. DEALER BUSINESS JOURNAL | SEPTEMBER/OCTOBER 2015 | 29
TIM BYRD DEALER REINSURANCE
TAKING CONTROL OF YOUR
FUTURE
Buy Here-Pay Here dealers have many tools available to help them succeed. Utilize them if you want to watch your business grow.
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A
dealer friend of mine, who grew from a small upstart to selling 250+ cars a month, will tell you there are three basics that build a foundation to success in the Buy Here-Pay Here business, or “leg-up lending” as I like to call it. 1. Join a Twenty Group 2. Create a Related Finance Company 3. Set up a Reinsurance Company I recently had the privilege of being the guest speaker at a Twenty Group. This passage in the Bible is a perfect description of Twenty Groups: “As iron sharpens iron, so one person sharpens another” (Proverbs 27:17). Many of you reading this are in Twenty Groups and can identify with this key to success. I witnessed this firsthand. One of the keys to failure is always working in your business and never working on your business. Several years ago I put my kids in a college preparatory
school. The number one thing they taught them that they had never learned elsewhere was not to study, but how to study. A key to learning success, wouldn’t you think? Forecasting and planning are key to your Buy Here-Pay Here success. Twenty Groups, as a most fundamental aspect, teach you how to forecast and plan. As an expert in reinsurance, I know that a Dealer-owned Reinsurance Company, a separate company that you the dealer or lender own, provides the tools you need to not only stop the bleeding, but greatly increase your personal net worth. Allow me to elaborate on some of the tools reinsurance provides. As you know, payments are the lifeblood of BHPH, and the automobiles you sell produce those payments. Therefore, when there is car trouble, there is payment trouble. A Dealer-owned Reinsurance Company can help you put a system in place with warranties and www.DealerBusinessJournal.com
BUSINESS OPERATIONS
service contracts, so that when faced with mechanical breakdown, your customers have guidelines to follow, and you have the funds necessary to get them back on the road without payment interruptions. Mechanical breakdown? You know it’s going to happen. Why not reserve for it? Why not have a system in place that, no matter where your customer drives that vehicle, should they breakdown you have a plan and the money already set aside for them to get back on the road and continue making their payments. The beautiful thing is “they” had been reserving for it, themselves! What I suggest is that you warranty your vehicles and let your customers provide the reserve to keep the cars repaired and on the road. How? Your reinsurance company will provide premium finance for your customer’s warranty. Thereby, not requiring you to pay the full price of the warranty up front like with a third party warranty company, which would deplete your lending pool. A prorated portion of the cost of the warranty is collected from the customer’s payment and forwarded to your reinsurance trust account. This will provide a constant stream of reserve to www.DealerBusinessJournal.com
One of the keys to failure is always working in your business and never on your business. ensure that when problems arise there is a well-funded system in place. Problems are taken care of and your customers happily stay on the road, continually making payments. How about lapsed insurance or insurance adjuster nightmares? Collection calls that are burning up your man hours? Repos? Why not circumvent the insurance companies, altogether? You have an RFC to circumvent the finance companies and it is very profitable and reduces tax liability. You can do the same thing with a Dealer Owned Reinsurance Company and a tool called Debt Cancellation Coverage. Your Dealer-owned Reinsurance Company can provide a GAP product or Debt Cancellation Coverage (DCC) to help you and your customer navigate a total loss. They simply pay regularly into your reinsurance trust account so that their loan balance is waived in case of a total loss or theft. You would simply tap off a little from your ever growing reserve to cover the balance. A win-win for your customer and you. DCC covers your collateral. By offering DCC
at the time of purchase, your collateral is never without coverage. Customers love it because it saves them time and money by eliminating the need for expensive outside coverage from the insurance company. They love that they will not be upside down on their loan with you if they wipe out their car. They will still need liability insurance required by the state. But you will no longer have to make collection calls to the customer, essentially “working” for the insurance company, or be at the mercy of insurance adjustors. Further, in the event of a total loss, you keep the car, not the insurance company, to scrap or whatever the situation calls for, but you are in control. Let’s not forget about another wonderful benefit to having a Dealer-owned Reinsurance Company. Capital! Your Dealer-owned Reinsurance Company will provide a great capital resource. The premium from your Warranty and Debt Cancellation Coverage provide the capital you need to take care of any business issues that arise. Additionally what is not used to pay claims becomes the profit of
your stockholders. Profit can be taken by the stockholders as a dividend distribution or can be loaned to your affiliated companies. Now, I have many great dealers that will tell you this is a no brainer. They will tell you that their single biggest regret is that they should have started a Dealer-owned Reinsurance Company years before they did. The great thing about these dealers is they love to share with others and no one more than with their Twenty Group friends. By owning a reinsurance company, you will provide your BHPH business with the tools needed to succeed and maintain control. Take control of your future, now.
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 and can be reached at www. DealerRE.com or by calling 804-824-9533.
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JEREMY ANSPACH SALES & SERVICE
HOW TO ENGAGE A GENERATION DISINTERESTED IN CARS Millennials have a reputation for going against tradition to set their own style and trends. Capitalize on their uniqueness with some smart marketing tips designed to bring them from their devices into the dealership. 32 | SEPTEMBER/OCTOBER 2015 | DEALER BUSINESS JOURNAL
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M
illennials are a diverse group, but they’re shying away from car ownership more than any other generation in recent history. While cars were once a highly sought after commodity, owning a car does not represent the sense of freedom and independence that they once did. From 2007 to 2011, the number of cars purchased by 18 to 34-year-olds dropped almost 30 percent. With the rise of a ride-sharing economy and public transit as both a green initiative and a general byproduct of city life, cars no longer feel like a necessity or a privilege. Despite millennials not showing an active interest in owning automobiles, however, dealerships cannot afford to ignore the vast purchasing power of the millennial generation. Millennials alone possess $200 billion in annual buying power. With this in mind, car dealers – more than ever before – must develop better strategies to engage millennial car buyers. Dealers do have one advantage: when millennials buy cars, they go online before they ever head to the dealership. Recognizing this, auto marketers can develop new tactics that
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speak to millennial interests. Many shoppers use online tools to conduct research, compare models or access peer recommendations. In order to persuade and engage online shoppers, dealers have to accommodate webrooming and execute digital strategies that target millennials with advertisements relevant to them. Bringing millennials from their devices into dealerships starts with adapting to a changing buyer’s journey. Marketers must use marketing tactics tailored specially to the automotive industry. For dealers, here are three proven ways to go after the millennial market.
Target the Right Crowd
As fewer millennials show interest in buying a car, each sale becomes more important. To reach invested millennials online, dealers need to focus their marketing efforts around population instead of location. This means that rather than pursuing consumers based solely on their geographic proximity to a dealership, companies should be approaching millennial shoppers as individuals and treat each vehicle as equally unique. Typically, advertisers
create a circular radius around a business where a business can show up during a consumer’s Google search. However, when dealers are looking for qualified shoppers, this approach can be inaccurate and waste ad spend. For example, ads for a Lexus dealership should never target lowincome buyers. Even if these customers fall inside of the dealer’s geographic radius, these are not highprobability shoppers. Similarly, if a suburban dealership’s radius extends into a city that features stable public transportation, targeting these shoppers will not be fruitful, either. Today’s ad publishers and platforms are powerful, but the technology is so automated and vertically agnostic that its tactics can be misinformed. There is never a one-toone relationship between location and purchase. When marketers dissect shoppers by population rather than geography, they can find the most qualified buyers and learn where the strongest opportunity for sales exists.
Speak to a Buyer’s Options Having grown up in an era fueled by accessibility and immediate options, millennials are best enticed
with variety. Dealers can engage them with features and stats rather than flashy images, selling them on practical information and real incentives to convert during the difficult selling process. For example, ad copy should include details like specific year, make and model (for both new and used cars), sale offers and a dealer’s service specials. Details like these can help millennials differentiate between cars and dealers, and push them to purchase despite their ‘indecisive’ nature. In order to impress critical shoppers, dealers have to ensure that copy is relevant and that clickable links are accurate. A millennial browser has no patience for misinformation during the research process and will quickly move on to another site when dissatisfied. Dealers should center content on trusted vehicle details pages that list features in an easy-to-read display. This information should also be updated in real time. An integrated inventory can help dealers push slow-selling cars, and it also ensures that what is available on location matches what is represented online. The more relevant the ad copy is to a shopper, the
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JEREMY ANSPACH SALES & SERVICE more likely they will be to convert. In a society attached to limitless options, dealers have to reflect this freedom of choice in how cars are advertised and interacted with online.
Use Data to Customize Content
Once online shoppers are properly targeted and engaged, dealers can use a mix of search and display advertisements to determine the specific models millennials are looking for. Dealers can then use this data to personalize advertising efforts and optimize the digital experience. No matter the approach a dealer chooses, a degree of personalization gets their foot in the door with digital shoppers. This is particularly important when working with millennials, whose vast pedigree with social networks necessitates personalization throughout the buying cycle. There are two popular approaches that dealers can choose from to target the right shoppers and engage new audiences: Audience Targeting: This approach uses data to determine a shopper’s behavior, including which web pages they’re looking at, how much time they spend on the page, what they click or interact with and
their individual interests. Audience targeting is best for consumers who are inmarket to buy, as dealers can profile consumers to specific auto segments and match them with specific product messaging. There are two types of audience targeting: Lookalike: After grouping digital users based on similar demographics or interests, dealers can target new shoppers that resemble existing audiences. This allows dealers to access untapped audiences. In-Market: Dealers can partner with leading data providers to reach in-market buyers at the peak of their buying process for a specific vehicle. Contextual Targeting: This technique serves online shoppers ads based on the content and websites that users have frequented in the past. Context targeting tracks digital movements, monitors when users look at other auto-related sites and matches keyword-, autoand vehicle- specific site content with powerful dealer messaging. With contextual targeting, a dealer can target: Keywords: Based on the unique content a shopper views, dealers can serve them targeted ads with specific brand inventory or incentives. Categories: Dealers can engage shoppers with
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categories and subcategories like make or model. Custom Channels: As a more advanced option, dealers can target visitors of the specific sites that buyers most often view before visiting their site (based upon display networks). Dealers can also use retargeting as a channel for data customization. When a shopper leaves a dealer’s site, retargeting entices them to return with the exact content (e.g. car) they were viewing. Dealers can be even more nuanced with dynamic display retargeting, which serves back messages designed around car details as specific as make, model or photographs. As 99 percent of shoppers will not convert on the first visit, it’s crucial that retailers be able to convince them to return. Personalized content can do that. Ultimately, an efficient display campaign should focus on three things: who a dealer is marketing to, what they are marketing and where they are marketing. By answering these questions, any dealer can curate unique content for every shopper who visits their site. Moving forward, dealers need to place greater focus on digital interactions. When shoppers search for cars on Google, they make up their minds on a
purchase well before they get to a lot. A dealership, like any in-store pickup location, simply becomes a place for shoppers to retrieve their purchases. This is especially true for millennials, who are even more attuned to an e-commerce shopping experience. In fact, by 2008, less than two-thirds of 16-year-olds and fewer than 50 percent of 17-year-olds even possessed a license. Many millennials have never stepped foot on a dealership lot in their lives, let alone owned a car. Millennial shoppers may deviate from the tradition of buying cars, but dealers cannot give up on this powerful generation. With strategic targeting and optioned, customized content, dealers can successfully engage the millennials who are in market. When vying for a small pool of consumers, every incremental improvement will help. Jeremy Anspach is the CEO of PureCars, a digital advertising platform designed exclusively for the automotive industry. Armed with the industry’s most extensive data library, Jeremy founded PureCars in 2007. A Detroit native and renowned industry speaker. his drive and passion has led PureCars to become one of only seven automotive Google Premier SMB Partners, powering digital for over 3,000 dealers across the country.
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Apply today! Contact Meredith at 800.966.8733 ext. 309 or www.DealerBusinessJournal.com BUSINESS JOURNAL | SEPTEMBER/OCTOBER 2015 | 35 meredith@leedomgroup.com to get started. | DEALER twentygroups.com
JODY DEVERE SALES AND SERVICE
TODAY’S
DIVERSIFIED WOMAN
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As the diversity of the female market grows, so should the way you meet their automotive needs. Here’s a look at some of the markets you’ll want to connect with.
C
learly, there is a great deal of diversity in women’s buying needs and attitudes, in every product consideration, and especially when dealing with automotive purchases. According to Miriam Muley, in her book, The 85% Niche, “Unleashing the power of women and diversity in your organization is the fastest track to sales growth, share dominance, and increased profit. The women of color opportunity will succeed only if it is measured, tracked, and carries the executive sanction and consistent attention of toplevel management.” We have a lot of groups, and a lot of diversity: African American, Eastern European, Mid Eastern, Far Eastern, South Eastern, Native American, bicultural, bi-racial, Latino, and Caucasian. With all those diverse groups, don’t www.DealerBusinessJournal.com
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throw up your hands and run in desperation thinking it’s just too much to handle. Let’s just keep this all simple and manageable. The African American Woman Buyer: A recent study by New Media Metrics indicates that African American women are more educated than ever before, entrepreneurial, more brandloyal than white women and other cultural women groups, and “are eager to share their satisfaction with family and friends, as well as to urge others to buy or use their selections.” The sharing of buying experiences is more common to women buyers than men. “(They) are swing buyers. They are coveted individuals whose brand loyalty has been earned by companies who have treated them respectfully. They can sever ties, however, if companies do not pay attention to their needs. African Americans often state that reliability, durability, quality of workmanship, and manufacturer’s reputation rate at the top of desirability lists, more so than Caucasians. In that vein, BMW, Honda, Lexus, Toyota, and Mercedes, in that order, are most frequently their target purchase vehicles. The black buyers consider these vehicles to be in the “classy” category. www.DealerBusinessJournal.com
“Unleashing the power of women and diversity in your organization is the fastest track to sales growth, share dominance, and increased profit.”— Miriam Muley, The 85% Niche The top considerations for this group include: Price and monthly payments; Audio-Video systems; convenience of controls; interest rate and credit terms; engine performance, and navigation systems. The Southeast Asian Woman Buyer: Some of the interesting differences in the Indian woman auto buyer have to do with the final decision making. According to a 2014 article in Consumer, only 48 percent of this group state they make online searches before visiting a showroom or auto dealership. They will also reconsider a purchase decision at the time they buy. And, sales staff can heavily influence last minute changes. In addition, 43 percent of this group stated that they would make final decisions on their own, while 33 percent said they consulted their spouses and close family members. The number of women buyers in this group is growing, especially in the luxury car segment. If a relationship can be successfully established with this group, they will bring family and
friends back to purchase other vehicles. They often visit dealerships in large groups, and sales personnel should be conscious of seating and extra efforts at clear communication. This buyer is most frequently family oriented, and smart and cognizant on many levels. They are internet conscious and wellinformed. In vehicles they prefer a luxury ride and good vehicle reputation. They too can be very concerned about negotiating the best price possible, and will respond to helpfulness and patience on the part of dealership personnel. Asian-Americans spend more money and time on auto purchases than any other group. They can change brands frequently. Their culture respects older people, and many times large families will live together. They tend to favor Honda, Toyota, and Lexus as first brand preferences. The top considerations for this group include bottom line negotiation for pricing, family orientation concerns, luxury, and substantial interest in technical features, especially
navigation systems. The Latino Woman Buyer: This group can be divided into two basic culture groups. One of these groups considers motherhood and family as their priority in life, and cooking and home keeping is the top consideration. They utilize electronic devices heavily. Scheduling in her activities requires organized adaptation. The second group is very techoriented, and are deeply into electronic devices, especially iPhones, away from the home. They spend a great deal of time on social networking, and tying into family connections. They also enjoy bringing their children with them when shopping, and when they visit auto dealerships. And even though they strongly influence the decisions, they often bring their husbands along for the final word. They tend to develop strong loyalty to sincere assistance, and also return with family and friends for more purchases with established rapport and trust. The top considerations for this group include prestige, interest rates, low maintenance, attention to family concerns, ease of vehicle customization and accessories, capacity, and interior storage. The Far Eastern European Woman Buyer:
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JODY DEVERE SALES AND SERVICE
So, how do auto dealerships possibly meet the diverse needs of women in buying a vehicle? We just need to go back to the things we have learned about women automotive buyers: focus on durability, reliability, safety and affordability.
Happily transitioning from a cultural role primarily of male dominance and subservient status, these women are finding freedom in their American habits, and enjoying it. They think on their own, and they make purchases on their own while still holding on to their intrinsic family values. They are compassionate and intelligent. They expect and demand that their needs be listened to, and ask for respect at all levels of communication. Some of their specific needs include attention to their size and dimensions. As they tend to be smaller with shorter arms, this needs to be addressed when fitting them into vehicles. Some autos just cannot be adjusted to accommodate them. The top considerations for this group include extreme brand loyalty with products and companies that tend to their needs and listen to what they say. The Caucasian Woman Buyer: Women in this group spend less on the vehicles than men do. Marketing to Women in 2014 states that 50 percent of these women are
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dissatisfied with the car they buy, and blame most of this on a distasteful experience and lack of openness and dialogue at the dealership from which they purchased the vehicle. These women share all of their experiences with great numbers of other women and friends to the point of boycott of an offending dealership, and can drastically affect the dealership’s business. Other studies show figures as high as 74% in dissatisfaction with the auto dealership visit and presentations. In contrast, a good experience at a dealership can greatly affect future sales and maintenance participation through their network of communication. Some dealerships experience 20 to 30% increase in sales and ROI. The women in this group spend an enormous amount of time researching vehicles, and can many times be more knowledgeable on specific vehicles than the resident salesperson. The top considerations for this group include the establishment of a relationship of trust with a knowledgeable salesperson or manager, and a direct and honest presentation driven by respect. They are more concerned with getting the right vehicle than they are in negotiating for a bottom price.
So, after all of this, how do auto dealerships possibly meet the diverse needs of women in buying a vehicle? We just need to go back to the things we have learned lately about women automotive buyers. From Kelley Blue Book: Women look for durability, reliability, safety, and affordability. They consider the sale a success if they get exactly what they want. Don’t forget that many see vehicles simply as a way of getting from one place to another. The women’s market is dynamic and expanding. Those in step with this recognition will reap the rewards, both social and economic. This can happen as soon as you make it happen.
Jody DeVere is the CEO of AskPatty.com, Inc, a website, blog, and marketing to women agency providing automotive education to women consumers, as well as training, ongoing marketing support and education, and certifications to car dealers, independent service locations, tire dealers, collision centers, and other automotive retailers. - See more at: http://www.askpatty.com. www.DealerBusinessJournal.com
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