October 2011 Independent Dealer Magazine by FIADA

SINCE 1940

October 2011

www.FIADA.com

A Publication of the Florida Independent Automobile Dealers Association

Information and Insight for Florida Used Car Dealers

Do your customers see you the way you want to be seen? Learn how to construct an image that reflects you the best. Page 16.

FULTON, MO PERMIT NO. 38

PA I D PRST STD U.S. POSTAGE

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Dealer Independent

MAILING ADDRESS TELEPHONE FAX WEBSITE EXECUTIVE COMMITTEE

1840 Fiddler Court Tallahassee, FL 32308 (850) 385-2712 (800) 237-0448 (850) 385-3251 www.FIADA.com Brandi Noegel President Christopher Leedom Senior Vice President Jim Kagiliery Chairman of the Board Dino Mercurio Secretary John Cousins Treasurer David Cox, CMD Regional Vice President Frank Fuzy Regional Vice President George Hickey Regional Vice President Steve Marbais, CMD Regional Vice President Paul Matton Regional Vice President

FIADA STAFF

Lisette Mariner Executive Director Terry Myers Educational Instructor Sarah Langley Administrative Director

Contents October 2011

For members of the Florida Independent Automobile Dealers Association

C O L U M N S & F E AT U R E S 4

President’s Message Brandi Noegel

Member News New, Renewing and Rejoining Members

2011 Annual Convention Sponsors

Arbitration: Cheaper and Less Risky? Attorney Rob Sickles looks at how arbitration could be a benefit for some.

Build Your Brand Create an image that positions your business at the top.

The Anatomy of a Postcard Direct mail postcards are affordable and effective. Make the most of this medium with these suggestions.

What Makes a Good Mobile Email? If your dealership utilizes email marketing, then make sure you have made adjustments for readers using mobile platforms.

Legislative Update The Hon. John Grant and Jennifer Lux

Legal Corner Tom Hudson and Nicole Frush Munroe

Employee or Independent Contractor? Accountant Jorge Martinez explains the differences between these two classifications and why you must make the right call.

Industry News

Alex Romans Education Director Christy Taylor Editorial/Advertising

POSTMASTER:

Send address changes to

FIADA • 1840 Fiddler Court Tallahassee, FL 32308 (850) 385-2712 • Toll Free: (800) 237-0448 Fax (850) 385-3251 • www.FIADA.com The Independent Dealer is a publication of: Florida Independent Automobile Dealers Association, 1840 Fiddler Court, Tallahassee, FL 32308 The magazine is published every month in Tallahassee and distributed to Florida new, used, wholesale and lease/retail car dealers. Advertising rates are available upon request. The statements and opinions expressed herein are those of the individual authors and do not necessarily represent the views of Independent Dealer or the Association. Likewise, the appearance of advertisers, or their identification as members of FIADA, does not constitute an endorsement of the products or services featured.

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FROM THE PRESIDENT

It’s All About the Image BY BRANDI NOEGEL

n this society, image is everything. Maybe it shouldn’t be, but it is. That is why it is essentially important for your business to put its best foot forward. If a customer drives by and does not like what they see, they may keep driving even if you have amazing customer service and unbelievably good deals. Not only do you need a strong image, but you also need the substance to back up that image. Your dealership can be state-of-the-art, your salesmen can be smart dressers and your cars can be meticulously kept, but if you are not taking care of your customers it is all for naught. Bad reviews spread faster than good ones, and there is no marketing strategy that will help you get past a customer’s horror story, especially if there is more than one. Used car dealers need a sound image more than any other industry. We are constantly the butt of jokes and the fall guys for society’s ills. I’m not sure why that is, really. The majority of us are hard-working, honest small business owners who consistently go the extra mile to take care of our customers. I guess it is the actions of the few, who do not share that same philosophy, who have overshadowed the rest of us. It also doesn’t help that sometimes our customers have unrealistic expectations that no dealer could meet. They come on the lot, looking for a car for their college-age daughter that looks nice, is dependable, sporty and fits within a $600 budget. We know that car does not exist, but when we present more realistic options to our customer they think we are trying to “rip them off.” Is there anything we can do? Sure. We can do our jobs well and build a name for ourselves within our com-

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munity. We can take such good care of our customers that they can’t help but tell their friends and families about us. We can be courteous, friendly and helpful to everyone who comes through our doors. We can keep our dealership organized; our bathrooms clean and encourage our employees to be well-groomed. We can take pride in who we are, make sure our message is true to our mission and be the example for everyone else. Oh, and there is one more thing. We can be members of the Florida Independent Automobile Dealers Association. By aligning ourselves with the number one resource for our industry, we are seen as professionals. Participating in FIADA trainings, staying up-to-date on industry rules and regulations and following the best practices of our accomplished, veteran dealers will continue to give us the edge we need. Once we become members, the next thing we can do is display our member logo with pride. Put the member sticker on our doors, our letterhead, our websites, and our business cards. Spread the word that we are committed enough to our business and our customers that we choose to belong to this elite group of independent dealers. When you have the right credentials, the right reputation and the right attitude than it is okay that image is everything. Carol (Brandi) Noegel FIADA President

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MEMBERSHIP NEWS

New Members

Renewing Members

SEPTEMBER 2011

Accurate Automotive of Jacksonville Jacksonville, FL Antonio Bethencourt Sponsor: FIADA website Auto Experts Group, LLC Naples, FL Jorge Torres Sponsor: Terry Myers Bauer Auto Sales Cooper City, FL Gary Bauer Sponsor: Terry Myers Coast Cycle Consignment LLC Jacksonville, FL Paul Nowaskey Sponsor: Kevin Scott Dennis Camara Clearwater, FL Sponsor: Terry Myers DTG Operations, Inc. dba Thrifty Car Sales Outlet Orlando, FL Lee Goldey Sponsor: FIADA Website G&N Motor Works, Inc. Orlando, FL Nabil Armaly Sponsor: DTS Class Insterstate Auto Sales Pensacola, FL Michael Mahn Sponsor: FIADA Website

Jack Smith Gainesville, FL Sponsor: Kevin Scott

30+ Year Members Tampa Machinery Auction Rob Bruce Auto Sales

Magic Imports of Gainesville, Inc Gainesville, FL Hamid Tajali Sponsor: FIADA website

20+ Year Members America’s Auto Auction Jacksonville Autorama Auto Sales Sanford Auto Dealers Exchange

MK Automotive Holdings, LLC dba Bradenton Auto Direct Bradenton, FL Michael Rouen Sponsor: Terry Myers Palm Beach Automotive Sales West Palm Beach, FL Leo Gerstein Sponsor: FIADA Website Paulling’s Auto, Inc. Leesburg, FL Kevin Paulling Sponsor: FIADA Website Sunshine Auto Sales, Inc. Aventura, FL Tomer Yaniv Sponsor: FIADA Website The Coliseum Motors Pace, FL Rodrigo Moreno Sponsor: Kevin Scott

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10+ Year Members Independent Credit, Inc. Refine Coach, Inc. Toy Store

Tampa, FL Longwood, FL Jacksonville, FL Ft. Myers, FL Sanford, FL West Palm Beach, FL Miami, FL Clearwater, FL

Under 10 Year Members A Dealer’s Journal Homestead, FL Allen MotorSports Jacksonville, FL America’s Auto Auction Pensacola Pensacola, FL Andrew Thomas Motorcar Ellenton, FL Auction Direct USA Jacksonville, FL Automotive Financial of America, Inc. Orlando, FL AutoTrader.com Tampa, FL Blown Away Sales and Service Orlando, FL CarBuyCo Charlotte, NC Cars & Credit of Jacksonville Jacksonville, FL Courtesy Auto Center Longwood, FL Damagedcars.com dba College Auto Sales, Inc. Miami, FL Encore Motors of Sarasota Sarasota, FL Florida Auto Dealer School St. Petersburg, FL J & C Auto Sales Naples, FL KS Motors Naples, FL Laser Finance Altamonte Springs, FL Magna Auto Sales Titusville, FL MRC Inc dba Cranky Ape.com Cannon Falls, MS National Auto Lenders, Inc. Miami Lakes, FL Nice Car, Inc. Hollywood, FL Nowcom Corp. Los Angeles, CA Parkway Wrecker Service Tallahassee, FL Pick N Pull Tallahassee, FL Pinellas Motors, Inc. Pinellas Park, FL Vettes Unlimited Crestview, FL

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Rejoining Members SEPTEMBER 2011

Thanks, Carmax!

Auto Mart of Ocala Ocala, FL Jeff Payton Sponsor: Kevin Scott Orange Avenue Autos Orlando, FL Bruce Preston Sponsor: Ginger White Town & Country Select, Inc. Bushnell, FL Robert Sanchez Sponsor: FIADA Office Euro Motors Jacksonville, FL Steve Sokoloff Sponsor: FIADA Office

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A special thanks to Carmax Auctions for letting FIADA Regional Vice President Frank Fuzy promote the 2011 Annual Convention to fellow dealers. Look for convention coverage in the next issue of Independent Dealer.

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CONVENTION SPONSORS Thank you to the following sponsors supporting the FIADA Annual Convention and Expo.

Marquis Sponsor

Platinum Sponsor

Saturday Night Exclusive Dinner Sponsor

Gold Sponsor

Silver Sponsors

The Only Nationwide Automotive & Powesrsports Magazine

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BY ROB SICKLES

nyone that has read my prior articles regarding arbitration or that has heard me speak on the pros and cons of the use of an arbitration agreement at a dealership may recall that two of the “cons” I ask dealers to consider prior to utilizing an arbitration agreement are: 1) the potential costs that can be incurred by a dealership in attempting to have a lawsuit stayed and sent to arbitration and 2) the risks of having a class action certified in arbitration. First, arbitration agreements do not stop consumers from filing actions in court. Rather, consumers can still file court actions, and dealers that have arbitration agreements must request that these court actions be halted, pending the completion of arbitration. This sounds like a simple process; however, Florida law requires an evidentiary hearing in order to determine certain “threshold issues” that courts have said need to be addressed before a dispute is sent to arbitration. Among these issues are questions regarding the authenticity of the signatures on the arbitration agreement, issues pertaining to the unconscionability of the arbitration agreement’s terms or the way that

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it was formed, and other factors including carve outs or limitations on the authority of the arbitrator. Because Florida recognized the right to have an evidentiary hearing on these issues, plaintiffs’ attorneys could engage in discovery related to these issues and Florida law allows for an immediate appeal of a decision compelling or denying arbitration. When all of these considerations are factored into the equation, the end result could be a dealer spending thousands of dollars just to get to arbitration. Even after a matter was sent to arbitration, there was a risk that the plaintiff would attempt to have his or her claim proceed as a class action, unless certain exclusions were in your arbitration agreement. Unfortunately, a prohibition on a plaintiff proceeding as a class representative or as a member of a class is one the issues that could be used to challenge an arbitration agreement. Two recent decisions by the United States Supreme Court have addressed these two “cons.” First, the Supreme Court has rejected the notion that a class arbitration

can proceed where the arbitration agreement is silent on this topic. Second, the process of getting an arbitration agreement enforced has been streamlined, thereby reducing the potential costs involved. In April, 2010, the Supreme Court rendered a decision in Stolt-Nielsen S.A. v. Animalfeeds International Corp, 130 S.Ct. 1758 (2010), in which it held that imposing class arbitration on parties that have not expressly agreed to class arbitration was inconsistent with the Federal Arbitration Act. Thus, an arbitration agreement that does not expressly provide for class arbitration does not give rise to the ability for someone to seek to proceed with a class arbitration. Prior to this decision it was common for plaintiffs to assert a right to bring a class arbitration if they could proceed with a class action in state court under a similar theory. While this decision may complicate the enforcement of arbitration provisions in certain instances, it virtually eliminates the likelihood of an arbitrator certifying and conducting a class arbitration, unless your Continued on Page 12.

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ARBITRATION continued from Page 11.

arbitration agreement expressly allows for it.

It will take some time for the exact impact of these decisions to be felt as Judges interpret these cases and apply their holdings to cases that are working their way through the Florida court system. Florida courts could also reach different conclusions when interpreting the Florida equivalent of the Federal Arbitration Act. It would, however, be very difficult for a Florida court to deviate from these decisions if

the arbitration clause that it is dealing with states that the Federal Arbitration Act governs its enforcement. If your dealership is utilizing an arbitration agreement in its day to day operations, then I would suggest that you have your arbitration agreement reviewed and possibly revised by your counsel in order to take full advantage of these recent decisions. It may save you money when enforcing your arbitration agreements going forward and allow you to eliminate the threat of a class arbitration in the future. Editor’s Note: This article was reprinted from an earlier publication. Robert E. Sickles is a partner in the Tampa office of Hinshaw & Culbertson LLP. He is the outside general counsel to the Florida Independent Auto Dealers Association and can be reached at (800) 237-0448.

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More recently, the Supreme Court rendered its decision in Rent-ACenter v. Jackson, 2010 WL 2471058, where it held that if the parties to an arbitration agreement expressly agree that the arbitrator determines issues relating to the enforceability of the arbitration clause itself, then the parties’ agreement to have the arbitrator make this determination must be honored, absent certain limited exceptions. Thus, if your arbitration agreement expressly states that all issues will be arbitrated, including issues pertaining to the enforceability of the arbitration clause, then the only thing that would need to be proven in order to enforce the arbitration agreement is that the customer signed it. Once that fact is established, then the case is sent to the arbitrator in order for him or her to determine the other issues relating to enforceability.

As noted above, the Rent-A-Center decision did leave open a few ways for a clever plaintiff ’s attorney to attack an arbitration provision even where the parties have agreed to have the arbitrator determine issues relating to its enforceability. However, the scope of discovery related to these issues and the breadth of any evidentiary hearing that is held on these issues would be substantially reduced based on the limited grounds for challenging the arbitration agreement or clause.

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Good brands don’t just happen. They are built. Find the secret to positioning your dealership at the top. BY CHRISTY TAYLOR

n the American West, cowboys marked their livestock be searing their unique design into the skin of their animals. They did it so that when their cows were grazing on the open range next to cattle from other ranches, that they would be able to easily separate them when it came roundup time. The branded livestock were easily identified and easy to distinguish from everyone else. Not so different from the thought of branding an image today. Companies spend millions of dollars to brand themselves with a unique look and message so that, in the open market, they can be easily identified and separated from everyone else. The American Marketing Association defines a brand as a “name, term, sign, symbol or design, or a combination of them intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of other sellers.” Branding does not necessarily mean trying to get customers to choose your service over others who provide the 16 — Independent Dealer — October 2011

same service, but rather getting them to see you as the only one who can meet their needs. Think of brands like Q-tip, Kleenex and Xerox. Their companies have become so well-branded that their very names have become the generic term given to what their products are. Their brand is synonymous with their product. For used car dealers, branding can play an important part of the way customers see your dealership. The more professional and cohesive you’re branding, the more trusting your customers are that you are a reputable business. With a little effort, your branding can make you the first dealership people in your community think of when they are looking for their next car. You do not need to have a degree in Marketing to be able to build a solid brand for your business. What you do need, however, is an understanding of who you are as a company, who your customers are and what makes you different. If you can answer those questions, then you can move on to creating your brand.

DEFINING YOUR BRAND To really develop a brand, you have to dig deep into the goals you have for your business. It is not enough to say your dealership’s mission is to sell cars. That is a given. You have to think about why you want to sell cars. If you answered, to make money, then keep thinking. You could make money selling cell phones. Why did you choose to sell cars? What are the needs of your customers that you want to meet? Use these answers to define your company’s purpose. Say you are selling cars because you love automobiles. You can name the make, model and year of any car that passes you on the highway. As a kid, you had posters of sports cars plastered on your bedroom wall. Incorporating your enthusiasm for automobiles into your company’s purpose statement may sound something like this: Helping customers fall in love with the car they purchase. In terms of branding, your purpose statement is the message you want to get across to your customers and www.fiada.com

potential customers. In the example above, you want people to know that when they come shopping on your lot, they are going to feel like they drove away in their dream car, even if it was a 2002 Honda Accord. DEVELOPING THE LOOK Human beings are visual creatures. We appreciate the way things look and are attracted to things that are pleasing to the eye. How your company presents itself graphically is an essential part of building your brand. The first place to start is with the logo. If your brand is the philosophy or mission of your business, then the logo is its face. Logos are the visual representation your brand has in the marketplace. There are three different types of logos: font-based, which consist primarily of type; illustrations that demonstrate what a company does; and abstract graphics that symbolize the company. A good logo should be able to tell others what you do just by looking at it, but also capture the essence of your business. Before you start brainstorming designs, first try to write words or even a one-sentence description of who you are. To truly create a unique brand, you need to stay away from clip-art images or template designs. These graphics are too easy to duplicate and come across to customers as generic and forgettable. Investing in graphic design services may be a good choice for someone who is not familiar with design and graphics. A professional can not only create original artwork but help you create a final image that can be transferred into a variety of platforms. The drawing you downloaded from the internet will not be able to be used for a t-shirt or produced into a sign, but a logo created in industryrecognized design programs is suitable for virtually anything. While good logos are able to speak for themselves, a tag line can compliment www.fiada.com

and enhance your overall message. Tag lines are short phrases that express your company’s most important benefits and what you want customers to remember about working with you. They should clearly tell others what you do, but also answer the question of “so what?” Take Publix Supermarkets as an example: “Where shopping is a pleasure.” Their tagline not only tells customers what they can do at their stores, (shopping) but how they will do it (with pleasure). Just as an example, a company named Auto Locators may specialize in finding the cars their customers specifically ask for. A good tag line may go something like this: We’ve found your next car. Coupled with a logo that incorporates a scope or hunting sights, the customer knows your business is prepared and equipped to find exactly what they are looking for. Stay away from slogans like “we’ve got the best deals” and “our prices are the lowest.” The truth is, there can only be one “best deal” or “lowest price” and maybe your company does not have it. Using these types of phrases is a lot like saying “you always” or “you never” in an argument; it not only loses its meaning but people tend to tune it out. DELIVERING THE MESSAGE Now that you have a look, it is time to put it out there and get noticed. The most obvious place to start is with business stationary. Put your logo and tag line on every piece of paper that leaves your office. Business cards, letterhead, envelopes, forms, flyers and any other printed material you create should have your logo on it somewhere. Every electronic communication should as well, from email footers to website listings. The more chances your customers have to see your brand identity, and interact with it, the more recognizable you become. Advertising is a completely different animal from branding, though

sometimes they work together. Large companies, such as auto manufacturers, will spend a lot of money on ad campaigns and placements to position their brand in the marketplace. Their ads may not have something specific to sell, but rather just subliminally suggest to consumers to remember who they are. More than likely your company does not have the budget, or the resources to produce branding advertisements, but any advertising you do should always be consistent with your brand. A branding message does not always have to be communicated in print, either. The way you answer your phone is an opportunity for branding. Incorporate your company’s tag line into the phone greeting, hold message or voice mail. Email addresses are also an overlooked branding opportunity. There are too many affordable web hosting plans that provide the benefit of custom email addresses to use the default address given by your internet provider. The difference between info@yourbusiness.com and yourbusiness@earthlink.com may seem subtle, but to technologically-savvy customers it is not. They may see you as out-ofdate or sometimes less reputable than others. It is an easy problem to fix, too. If you own the domain to your website, then you have the capability to create your own email accounts and you can learn how to do it by doing a quick internet search or asking your webhost for help. DEBUNKING STEREOTYPES For car dealers, there is still one hurdle on the road to branding perfection and that is the public’s image of used car dealers. Like it or not, the industry has a stigma that turns customers off before they even have the chance to hear the message. It does not hurt to add a second layer of “branding” to your company’s strategy that is beyond logos and promotional products. Continued on Page 18. October 2011 — Independent Dealer — 17

BUILD YOUR BRAND continued from Page 17.

Creating a customer experience that is beyond what is expected is an essential part of the strategy. Here are some out-of-the box ideas that might help: Understand the buying experience from your customer’s perspective: Have you spent the time in your customer’s shoes to objectively evaluate the experience of buying a car at your dealership? How are they greeted? What is the sales process? Do they feel pressured? If you cannot answer these questions unbiased, then think about using a friend or colleague to be your mystery shopper. Even without signing on the dotted line, an anonymous practice sale could help you spot areas to work on within your sales process.

• • • •

75% of recipients told others 30% of those who told others, told four to seven people 98% would recommend the brand (or vendor) to others 71% said the gift exceeded their expectations

Ensuring a great experience through the first 30 days of ownership. Buying a car is not a process taken lightly by most customers. They spend hours researching models, comparing features and determining what type of car fits their needs and their price range. Af-

ter that process, they agonize over getting the best deal, hoping you will treat them fairly and worrying about if they made the right decision. If things do not run smoothly after they bring their new vehicle home, they might question the experience. Keep them happy by developing a “first 30 days” program that shows them how you appreciate their business and will be there for them long after they drive away. At the very least, include a formal, written thank-you card a week or two after the sale and a follow-up phone call to make sure things are running smoothly. Go above and beyond by sending them a coupon for a free car wash or an oil change at the 30-day mark. Once your branding strategy is in place, it is time to start putting it into action. Use your new look on some results-getting marketing projects like postcards and emails.

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Show your customers some appreciation: Your customer walks out the door with a handshake, the keys and their paperwork. Is that enough to make them feel good about their purchase when it is time to make the

first payment? An unexpected thank you could really go much further than anticipated. Consider these statistics from Incentivecentral.org, a not-forprofit information and research site that studies how organizations can improve the motivation, engagement and performance of customers, partners, and employees. After receiving a giftafter-purchase:

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Anatomy of a

POSTCARD

Postcards can be a very cost-effective approach to branding your company while at the same time, telling your customers about things happening at your dealership. Here is a sample postcard and what makes it successful. The post office accepts a variety of sizes in the postcard class: 5½” x 8½”, 5” x 9” and 4¼” x 6” are the most common.

Interesting image that expresses the theme of the postcard. The reader can look at the picture, even without reading the words, and understand what is going on.

Incorporated the dealer’s logo into the slogan of the card. There is not a lot of room on a postcard, so target your message by focusing on just one offer or event. Keep the copy short and sweet and easy to read at quick glance. Drive traffic to your website, or give other contact information. If paired with an enticing perk or incentive, you’ll find customers more likely to log on. www.fiada.com

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Create a call to action that tells prospects exactly what you want them to do, such as “Call today” or “Visit us online.”

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What Makes A Good

MOBILE EMAIL? A recent statistic from AT&T says that 78 percent of business people use mobile phones to check their email. Mobile marketing experts mobiThinking suggests that in the United States, 25 percent of mobile web users are mobile-only, meaning they rarely log in on a traditional computer. Knowing that email marketing is a very cost-effective, profitable tool for used car dealers, how do you make your messages optimal for mobile viewing? Here are some thoughts: A small logo and one image are all that is needed in a mobile email. Choose the image that will best draw the reader in for more.

The Art of Simplicity A mobile screen is smaller than a traditional monitor, so remember that less is more. Keep your message to the point, organized well and scannable for the reader who is on-the-go.

Organize and prioritize text. Start with the most important information and work from there.

Stand Out in the Inbox Mobile users do not open every email they receive, but scan the list to decide what is important. Don’t get lost in the sort: • Create an attentiongetting subject line that is six words or less. • Use the pre-header (the text that shows on the next line after the subject) wisely. • Make sure every email your send originates with the same From Name, so readers remember who you are. The Small Picture Web design for mobile devices needs to be simple. A logo and up to three, small images is best. Choose photos with small file sizes. Downloading images can take a long time on WIFI connections and you don’t want your readers to get tired of waiting. 20 — Independent Dealer — October 2011

Use links to avoid large boxes of text and to literally put more information at your reader’s fingertips. Including your phone number gives the reader the opportunity to call you immediately. Aim for a 500-600 pixel wide message so your reader does not have to scroll across the page to see more information.

Linked In Tame the tendency to include too much text by creating links. Make sure the links are spaced out enough so they are easy for even the biggest fingers to click on a small screen.

Fingers press about 45 pixels, so make sure your action buttons are close to this size. Add about 10 pixels of space around them in case your readers miss the target.

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L E G I S L AT I V E U P D AT E

Focus on Tallahassee BY HONORABLE JOHN GRANT and JENNIFER LUX, FIADA LEGISLATIVE ADVOCATES

he Florida legislature is in full swing this fall, something that happens only once in every tenth year. By law the legislature must reapportion all house and senate seats as well as congressional seats. Reapportionment is based on the federal census.

clined thus creating another deficit of between one and two billion dollars. This will be the fourth year in a row and drastic cuts in the billions will have to be made. Legislative leaders have pledged to not raise taxes or fees in the process.

In order to get through the federal approval process in time for the elections, the legislature meets in the winter rather than in the spring, thus pushing committee meetings back to the fall. Already more than five hundred bills have been filed and referred to committees for public hearing.

All told, lawmakers will have nearly $1.6 billion less revenue to work with during the upcoming legislative session under the new estimates released this month. That includes a $600 million decline in projected revenue for the current fiscal year, and a decrease of $968.3 million in 2012-13.

So far, only one bill that deals with taxation of motor vehicle sales is on our watch list, but certainly others will follow and your FIADA team will follow each one closely.

The new projections mean the $275 million surplus state forecasters predicted during the summer has swung to a $1.3 billion shortfall for fiscal year 2012-13, which is expected to be compounded with higher projected expenditures because of such factors as growth in Medicaid costs and a drop in ad valorem tax revenue that supports the required local effort for school funding.

At the annual FIADA state convention, we were pleased to recognize Senator Jack Latvala, Chair of the Senate Transportation Committee, as our legislator of the year. Senator Latvala understands our industry and is a strong protector of free enterprise and small business. Other than reapportionment, the state’s economy and writing a balanced budget will consume much of legislators time during the upcoming session. In late summer, revenue collections and estimates were showing a slight surplus for the fiscal year. However, unemployment remains high and the economic recovery seems to have leveled off or even de-

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One of FIADA’s legislative goals is to see a fee roll-back on automotive fees which were so drastically and unexpectedly raised several years ago. However, that will be an uphill battle given the projected deficit. The upcoming session promises to be a difficult one and your FIADA legislative team will be there to encourage favorable legislation and to derail unfavorable, both as it relates to the automotive industry in particular and the challenges of small business in general.

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October 2011 — Independent Dealer — 23

LEGAL CORNER

A Look At Current Legal Issues BY THOMAS B. HUDSON AND NICOLE FRUSH MUNRO, HUDSON COOK, LLC

ere we are again with our collection of selected legislative and enforcement highlights, and a recap of some of the many auto sale and financing lawsuits we follow each month. Remember - what we report here is not every recent development. We just review the ones we think should be important to car dealers. Note that this column does not offer legal advice. You should consult your dealership lawyer with any legal questions. We include items from other states. Why? We want you to be able to see new legal developments and trends. Also, another state’s laws might be a lot like your own state’s laws – if AGs or plaintiffs’ lawyers are pursuing particular types of claims, those laws and claims might soon appear in your state. As always, though, there is no substitute for checking with your own lawyer before you rely on anything we report or if you have any questions. FEDERAL LAW Have you paid attention to the new rules on adverse action notices? The Dodd-Frank Act amended the Fair Credit Reporting Act to require disclosure of credit score information in adverse action notices and risk-based pricing notices. With respect to adverse action notices, the Federal Reserve Board published updated model notices in the Federal Register on July 15, 2011 and established an effective date of August 15, 2011 for the new model notices. At the same time, and with the same effective date, the FRB and the Federal Trade Commission published updated model notices designed to promote compliance with the Risk-Based Pricing Rule. The Dodd-Frank Act also amended the Equal Credit Opportunity Act to require creditors to collect information about credit applications made by women- or minorityowned businesses and by small businesses. The Consumer Financial Protection Bureau must implement this provision for all creditors except certain motor vehicle dealers subject to the Federal Reserve Board’s jurisdiction. A little while ago, the CFPB announced that creditors are not obligated to comply with the data collection requirements until the CFPB issues detailed rules to implement the law. On September 20, the Federal Reserve Board issued a final rule amending 24 — Independent Dealer — October 2011

Regulation B (Equal Credit Opportunity) to provide that dealers are not required to comply with new data collection requirements in the Dodd-Frank Act until the Board issues final regulations to implement the Act’s requirements. The Board amended Regulation B to apply the CFPB approach to dealers subject to the Board’s rulemaking authority. The final rule was effective September 26, 2011. On September 6, the CFPB published a Notice and Request for Information seeking information on consumer financial products and services currently being offered to or used by servicemembers and their families. The CFPB is particularly interested in information on products and services (and associated programs and policies) tailored to the unique financial needs of servicemembers and their families. The comments were due on September 20, 2011. GENERAL INTEREST The National Alliance of Buy Here Pay Here Dealers recently released a white paper discussing payment assurance devices, also known as starter-interrupt devices. The paper summarizes the results of an NABD national survey of NABD members and non-members that was conducted to determine the impact that payment assurance devices were having on the Buy Here Pay Here industry and to identify some basic best practices when using such devices. See www.bhphinfo.com for more information. STATE ENFORCEMENT ACTIONS Have you reviewed your dealership’s ads with your lawyer lately? The Washington Attorney General recently announced that his office has obtained settlements with eight dealers to resolve allegations of deceptive and misleading advertisements. Some of the allegations included: failing to properly disclose the vehicle service documentary fee; advertising “free” merchandise and prizes without adequately disclosing that consumers would need to pay shipping and handling fees; creating a false sense of urgency; misrepresenting the number of vehicles for sale; failing to provide disclosures required by the Truth in Lending Act; and offering a rebate that is not associated with a manufacturer or failing to disclose material terms in conjunction with a rebate offer. www.fiada.com

LITIGATION Arbitration Clause Not Included in RISC Deemed Unenforceable: Maryland car buyers signed buyer’s orders, which contained arbitration clauses, and retail installment sale contracts, which did not contain arbitration clauses. When the buyers found out that the cars they bought had been used as short-term rentals and that this fact was not disclosed to them, in violation of Maryland regulations, they filed a class action against the dealership and related entities. The dealership moved to compel arbitration. The court denied the motion. The dealership argued that the buyer’s orders and RISCs should be construed together as one agreement. The buyers argued that only the RISCs contained the essential terms of the agreement, including the principal amount charged and any interest, as required by Maryland law. The court held that the RISCs were the only agreement that applied to the transactions and, therefore, the arbitration clauses in the buyer’s orders were not effective. See Baker v. Antwerpen Motorcars, Ltd., 2011 U.S. Dist. LEXIS 94093 (D. Md. August 23, 2011). Class Certification Denied in Case Alleging Failure to Disclose Fees as Finance Charge Violated TILA: A car buyer filed a class action against various dealerships for violating the Truth in Lending Act and Section 349 of New York’s General Business Law by failing to disclose that processing fees and the dealer-retained portion of extended warranty fees charged to customers were part of the finance charge. The buyer moved for certification of four sub-classes of consumers, and the federal trial court denied the motion. The court found that the buyer did not show that there were questions of law or fact common to the class where the processing and warranty fees were not charged to all credit customers and were charged, in some instances, to cash customers. The court noted that in order for the buyer to prove that the fees should have been disclosed as part of the finance charge, those fees must have been “‘systematically’ charged to credit customers, but not cash customers,” requiring evidence of a “uniform policy … that distinguished credit from cash customers.” The court also found that the buyer did not prove that her claims were typical of the claims of other class members where oral negotiations over the terms of sale and financing were common. Last, the court found that the buyer did not prove that she could adequately represent the class. The fact that she pursued a lemon law claim against her car’s manufacturer could indicate that she has “an animus towards defendants concerning events that are entirely irrelevant to the instant action.” See Haynes v. Planet Automall, Inc., 2011 U.S. Dist. LEXIS 89640 (E.D.N.Y. August 12, 2011). the author of “A Dealer’s Guide to Red Flags Compliance,” a comprehensive resource tool to help auto dealers create and maintain their internal Identity Theft Prevention Programs. His practice focuses on the practical application of a wide range of consumer financial services and dealer laws and regulations to the operational realities of auto dealers, finance companies, technology providers and financial services vendors. Mr. Benoit is a member of the DealerTrack Compliance Council, the National Association of Dealer Counsel, and is a regular speaker at industry events, including the NADA Annual Conference, National Vehicle Leasing Association Annual Conference, and numerous other national programs and private client-funded engagements. He is frequent contributor to a number of trade publications and journals, including Auto Finance News and F&I Management and Technology magazine, and was the principal author of the NADA’s Management Guide to Information Safeguarding. Mr. Benoit can be reached at mbenoit@hudco.com.

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Car dealers, boat dealers, RV dealers–all businesses that sell personal property on credit–are subject to a bewildering thicket of federal and state laws and regulations. Responsibility for compliance usually falls on the general manager of the dealership or the manager of the “finance and insurance”, or “F&I” department. Sometimes the person responsible for sales and credit compliance has received some training dealing with these legal issues. But sometimes, the person shoved into the deep end of the pool as the compliance officer doesn’t have a clue what he or she is responsible for, and doesn’t know where to start.

Ed Bobit, Publisher Bobit Business Media

“Ignorance of the law is no excuse. And given the penalties for violating even one of the many legal obligations facing today’s auto dealer, including stiff fines and even imprisonment, a dealer must be well informed to make sound business decisions. There has never been a reference book for auto dealers and their professional advisors ... until now. This book is extremely well written and easy to read. It should be on the desk of every car dealer. It’s on mine.” Adam Goldfein, Host of the Nationally Syndicated Talk Show AutoScoop—The Inside to Car Buying

“If a dealer had to decide between renting an inflatable gorilla for his dealership’s rooftop or purchasing this book for every single sales manager and office manager in the dealership, I hope the dealer would make the business decision that could save him or her thousands of dollars in unnecessary legal fees.... Put the gorilla on hold and insist that every manager read this book and keep it on their desks. I’m making it required reading for every Northwood University Automotive Marketing major.”

Joseph J. Lescota, Chairman Automotive Marketing Department Northwood University

“The F&I Legal Desk Book is the official course text for the AFIP Certification Program. Hudson Cook, LLP, is now the course authority for the applicable state and federal regulations. I can count on one hand the law firms in the United States who could have met our curriculum requirements. The F&I Legal Desk Book will dramatically reduce the time required for candidates to prepare for the 200-question final exam. Hudson Cook, LLP, has made a major contribution to AFIP’s efforts to raise the bar for regulatory compliance and ethical conduct within the F&I trade.”

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Michael A. Benoit is a partner with Hudson Cook, LLP and

Tom (thudson@hudco.com) and Nikki (nmunro@hudco.com) are partners in the law firm of Hudson Cook, LLC. For information, call 410-865-5411 or visit online at www.counselorlibrary.com.

The Answer Book for Finance and Insurance Professionals

Thomas B. Hudson has practiced consumer vehicle sales, finance and leasing law since 1973. Mr. Hudson chairs the law firm of Hudson Cook, LLP. He is President of CounselorLibrary.com, LLC, and is the Founder and Editor-in-Chief of CARLAW®, an Internet service that reports auto finance and lease legal developments. He has served as President of the American College of Consumer Financial Services Lawyers, and Chair of the American Bar Association Consumer Financial Services Committee’s Personal Property Finance Subcommittee. He represents the National Automotive Finance Association, Reynolds & Reynolds, auto finance companies, major banks and independent finance companies and many companies who supply services to the auto finance and lease industry. He is a frequent writer and speaker on topics relating to vehicle finance and leasing. He is also author of the book: CARLAW® ~ A Southern Attorney Delivers Humorous Practical Legal Advice on Car Sales and Financing! Mr. Hudson can be reached at thudson@hudco.com.

Court Upholds Lease’s Choice of Law Provision: A New Jersey resident leased a car from a New Jersey dealership. The lease, which was ultimately assigned to a finance company that had its principal place of business in New Jersey, contained a New Jersey “choice of law” provision. The lessee, who had moved to Florida and took the car with her, was billed for excess wear and tear after she returned the car at the end of the lease. She refused to pay and instead sued the leasing company, alleging violations of New Jersey consumer protection laws. The leasing company moved to dismiss, claiming that Florida law applied and that the lessee failed to establish a claim for relief under Florida law. The trial court granted the motion, but the appellate court reversed, relying on the fact that New Jersey had a substantial relationship to the parties and the transaction. The appellate court found that the agreement was executed in New Jersey by a New Jersey resident, the car was returned to New Jersey, and the lease contained an explicit choice of law provision. See Eisenberger v. Boston Service Company, 2011 N.J. Super. Unpub. LEXIS 2302 (N.J. Super. App. Div. August 24, 2011).

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Thomas B. Hudson

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CARLAW® F&I Legal Desk Book: 360 Things to Know About Auto Dealer Finance provides a compliance roadmap for “green pea” and seasoned compliance officers alike. Each chapter addresses a topic of crucial interest to dealerships. The topics cover the compliance waterfront, and include: ● The Truth in Lending Act and Regulation Z ● The Consumer Leasing Act and Regulation M ● The Equal Credit Opportunity Act and Regulation B ● The Fair Credit Reporting Act ● The Federal Trade Commission’s Used Car Rule ● Federal Advertising Rules ● The Magnuson-Moss Warranty Act ● Arbitration ● and more . . . Each chapter is authored by lawyers who deal with that chapter’s subject every day and in detail. The authors present their information in an easy-to-follow, Q&A format, with as little “legalese” and as much useful and practical information as possible. The goal each time is to give the reader a solid, basic working knowledge of the topic covered. For years, dealers have needed a source for comprehensive, no-nonsense information on the legal requirements they face. Now they have one that quickly will become their principal resource for credit compliance information:

Thomas B. Hudson

CARLAW ® F&I Legal Desk Book: 360 Things to Know About Auto Dealer Finance.

October 2011 — Independent Dealer — 25

Employee Or Independent Contractor? How to know for sure if you have classified your employees correctly BY JORGE MARTINEZ, CPA

eriodically, it’s critical for an employer to review the status of its workers and see if they are properly classified. An employer must withhold federal income tax, social security taxes, and federal unemployment taxes on wages it pays workers who are employees. You also may have to provide them with the same fringe benefits and retirement plan coverage available to its other employees. There may be state tax obligations as well. By contrast, these responsibilities don’t apply for workers who are independent contractors. The business simply cuts them a check for their services and sends them a Form 1099-MISC. Under the “common law” rules developed by the courts, a worker 26 — Independent Dealer — October 2011

generally is an employee for federal tax purposes if the employer has the right to control and direct the worker regarding the job he is to do and how he is to do it. The employer doesn’t have to actually direct or control how the services are performed; it’s enough if the employer has the right to do so. IRS usually applies the following factors to see if the employer has the right to direct and control the worker: A worker who must comply with instructions about when, where, and how he or she is to work is ordinarily an employee. This control factor is present if the business has the right to make the worker follow instructions. However, instructions regarding government standards are given little weight, as is the absence of

instructions for professionals such as attorneys, who must follow the rules of their profession. •

Training a worker by teaming an experienced employee with the worker, by corresponding with the worker, by requiring him or her to attend meetings, or by using other methods, indicates the business wants the services performed in a particular method or manner. Ongoing training is a particularly strong sign of an employer-employee relationship, but orientation or information programs about company policies aren’t.

•

Integration of the worker’s services into the business operations www.fiada.com

•

generally shows the worker is subject to direction and control. •

If the services must be rendered personally, the business probably is interested in the methods used to accomplish the work as well as in the results.

•

A business that hires, supervises, and pays assistants for a worker is exhibiting employer-like control over the worker on the job. Conversely, an independent contractor relationship is indicated if a worker is contractually obligated to hire, supervise, and pay assistants.

•

A continuing employer-employee relationship between the worker and the business may exist where the worker is called in at frequently recurring, although irregular, intervals.

The fact that a business requires work to be performed on its premises suggests control over the worker (if the work could be done elsewhere). Work done off the premises, such as at the worker’s office, indicates some freedom from control. The importance of this factor depends on the type of services involved and whether an employer generally would require employees to do similar work on its premises. A business exhibits control over a worker if it requires him or her to perform services in a specific order or sequence.

•

A business’s requirement that the worker submit regular or written reports indicates a degree of control over the worker.

•

Payment by the hour, week, or

month generally points to an employer-employee relationship, if this method of payment isn’t just a convenient way of paying a lump-sum agreed upon as the cost of a job. Payment by the job or on a straight commission basis generally indicates a worker is an independent contractor. •

A business exhibits characteristics of an employer if it supplies a worker with significant tools, materials, and other equipment, or ordinarily pays the worker’s business and/or traveling expenses.

•

A worker exhibits independent contractor status if he or she invests in facilities that aren’t typically maintained by employees (e.g., renting his or her own office). By contrast, an employee usually Continued on Page 29.

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EMPLOYEE OR INDEPENDENT CONTRACTOR continued from Page 26.

There is no litmus test for exactly how many of these factors must be satisfied, nor are these factors uniformly applied each business, especially where the businesses are part of the same service arrangement.

relies on the employer to provide the facilities needed to do the job. •

A worker who can realize a profit or suffer a loss as a result of his or her services generally is an independent contractor, but a worker who can’t is an employee. The risk that a worker won’t be paid isn’t factored in.

•

A worker who performs more than • minimal services for a number of unrelated businesses at the same time generally is an independent contractor. However, a person who works for more than one business may be an employee of

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•

The fact that a worker makes his or her services available to the general public on a regular and consistent basis indicates an independent contractor relationship. The right to fire a worker is a factor indicating that he or she is an employee. An independent contractor on the other hand, can’t be fired as long as he or she produces the work that was contracted-for.

There is no litmus test for exactly how many of these factors must be satisfied, nor are these factors uniformly applied. Please call our offices if you would like to arrange for an appointment to see whether your workers are classified properly. This article was prepared by Martinez & Associates, CPAs, P.A. Please note that any tax advice contained in this publication is not intended or written to be used by, and cannot be used by, the recipient for the purpose of (i) avoiding penalties under the Internal Revenue Code, or applicable state or local tax law provisions, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. The information included is general in nature and abbreviated and is not intended to be considered tax advice. Anyone reading this information is advised to seek advice from our office or from his or her own tax professional regarding applicability of this information to his or her own circumstance.

October 2011 — Independent Dealer — 29

INDUSTRY NEWS Charleston Auto Auction Raises Money for Ronald McDonald House Charleston Auto Auction and its dealers helped raise over $2000 for the Ronald McDonald House of Charleston, SC while also celebrating a record breaking sale. On Friday, October 7th Charleston Auto Auction held its Hoedown Mega Sale. This sale featured over 600 dealers, 1400 vehicles and $50,000 in Cash & Prizes. A record was set with over 400 new car dealer trades consigned. “All our dealers had a great time and many vehicles were bought and sold.” stated Laura Taylor, General Manager, Charleston Auto Auction A check was presented to the Ronald McDonald House at the beginning of the sale. Money was collected from 50/50 raffles held prior to this event with the Charleston Auto Auction matching all money collected. All proceeds went to help seriously ill children and their families. “The Ronald McDonald House is a great organization and both the auction and our dealers were happy to help them,” Laura Taylor, general manager said.

CFPB Releases Supervision and Examination Manual The Consumer Financial Protection Bureau recently released the CFPB Supervision and Examination Manual, the guide for its examiners to use in overseeing companies that provide consumer financial products and services. The CFPB announced that it would use the manual initially to examine the more than 100 “large” (total assets over $10 billion) banks, thrifts, and credit unions, as well as their affiliates, that are subject to CFPB supervision. The announcement states that when the CFPB is ready, its examiners will also use this manual as a tool to look at other providers of consumer financial products and services that are not depository institutions, such as mortgage lenders, payday lenders, and Scan this code to private education lenders. View the manual read the online online at www.consumerfinance.gov/guidance/ supervision/manual. manual. 30 — Independent Dealer — October 2011

Off-Fleet Units Help to Alleviate Supply Issues Although the overall supply of used units is still restricted — largely due to sluggish new-car sales from the recessionary years — it seems that a flood of end-of-term fleet vehicles has led to some alleviation in wholesale pricing lately, according to ADESA’s Tom Kontos. In fact, the average wholesale price in September was $9,750, a 0.9-percent year-over-year decrease and a 1.3-percent sequential dip, ADESA Analytical Services data indicates. At the end of last year, ADESA pointed out that sales into rental fleets in 2010 climbed by 283,644 units compared to 2009, meaning fall 2011 would likely see a significant uptick in end-of-service rental units coming into the used market. Breaking September’s data down by segment, car prices rose 4.4 percent yearover-year, but fell 3.2 percent from August. Meanwhile, truck prices dipped 5.7 percent from September 2010, but climbed 0.5 percent month-over-month. Kontos pointed to gas price alleviation, which has led to the car-price declines and allowed truck prices to modestly bounce back from the fuel-price hikes earlier in 2011. As fuel costs rose, they pushed truck prices down. By seller type, prices in manufacturer sales were up 3.4 percent year-over-year and down 3 percent from August. For fleet/lease units, prices fell 1.9 percent from August and 0.8 percent from September 2010. Dealer consignment prices were down 4 percent month-over-month and up 5.5 percent year-over-year. Looking at auction inventory levels, these came in at an estimated 31 days’ supply at the end of September, up from 26 days at the end of the previous month, according to ADESA Analytical Services. From May through July, auction inventory was at a record low of 24 days. –Source: Autoremarketing.com www.fiada.com

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