Arkansas Car Business by NIADA

JANUARY/FEBRUARY 2011

ARKANSAS

CAR BUSINESS

OFFICIAL PUBLICATION OF THE ARKANSAS INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION

PREPARING FOR THE FUTURE ALSO Marketing Your Vehicles Beyond the Dealership PLUS How Much Can Just One Curbstoner Cost Your City?

DALLAS, TEXAS Permit No. 2079

PAID

PRSRT Standard U.S. Postage

Visit us at w w w.arkiada.org

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BOARD OF DIRECTORS

INSIDE

MAGAZINECONTENTS 6 Preparing for the Future 10 Marketing Your Vehicles Beyond the Dealership 12 BHPH: Choosing Your Financing Path 14 How Much Can Just One Curbstoner Cost Your City?

NIADA/Manheim Community Service Award Manheim, the world’s largest provider of vehicle remarketing services, cares about its employees, the environment and the communities it serves. From fund

raising drives to tutoring kids after school to supporting long-term conservation efforts, Manheim and its employees are dedicated to giving back to their communities and knows independent vehicle dealerships across the country share in this commitment. For the first time this year, Manheim is recognizing and honoring those dealerships by awarding the 2011 National Manheim Community Service Award at the 65th NIADA Annual Convention and Expo. For information on how to nominate and to obtain more in-depth information, please contact Georgia Brown, NIADA director of education, at 817-640-3838.

ADVERTISERSINDEX ADESA............................................................ 11 71B Auto Auction.............................................. 7 AutoTrader.com.................................. Back Cover Cars.com...................................Inside Front Cover Manheim.com.......................... Inside Back Cover SmartAuction ....................................................9 Southern Pioneer Insurance . ..............................5 United Acceptance ..........................................13 Western General / Protective .............................3

NATIONAL INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION WWW.NIADA.COM • WWW.NIADA.TV NIADA HEADQUARTERS: 2521 BROWN BLVD. • ARLINGTON, TX 76006-5203 PHONE (817) 640-3838 FOR ADVERTISING INFORMATION CONTACT: TROY GRAFF (800) 682-3837 OR TROY@NIADA.COM.

THE ARKANSAS CAR BUSINESS IS PUBLISHED BI-MONTHLY BY THE NATIONAL INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION SERVICES CORPORATION, 2521 BROWN BOULEVARD., ARLINGTON, TX 76006-5203; PHONE (817) 640-3838. PERIODICALS POSTAGE PAID AT DALLAS, TX AND AT ADDITIONAL OFFICES. POSTMASTER: SEND ADDRESS CHANGES TO NIADA STATE PUBLICATIONS, 2521 BROWN BOULEVARD., ARLINGTON, TX 76006-5203. THE STATEMENTS AND OPINIONS EXPRESSED HEREIN ARE THOSE OF THE INDIVIDUAL AND AUTHORS AND DO NOT NECESSARILY REPRESENT THE VIEWS OF ARKANSAS CAR BUSINESS OR THE NIADA. LIKEWISE, THE APPEARANCE OF ADVERTISERS, OR THEIR IDENTIFICATION AS MEMBERS OF NIADA, DOES NOT CONSTITUTE AN ENDORSEMENT OF THE PRODUCTS OR SERVICES FEATURED. COPYRIGHT 2011 BY NIADA SERVICES, INC. ALL RIGHTS RESERVED.

EXECUTIVE COMMITTEE Chairman of the Board Kenneth Caruthers Caruthers Auto & Equip. Sales McRae

Region Two Al Pledger Al Pledger Motors Russellville

President Jim Bullard Spa Auto Sales Hot Springs

Region Four Kurt Weiand Pioneer Auto Auction Hardy

State Vice President Sylvia Curry Jacsil Motors Pine Bluff

Region Five Fran Chatman Don Cavenaugh Motors Walnut Ridge

Secretary Dane Reed Dane’s Auto Sales Pine Bluff

Region Six J. W. Spencer J. W. Spencer Motor Co. Wynne

Regional Vice Presidents Region One Heather Healy Vehicle Title Services Little Rock

Region Three (Open) For information on how to become a member please contact: AIADA Executive Director Lamar Murphy

Region Seven Kent Stegall Kent Stegall Used Cars El Dorado

Phone: 870-234-9468 Web Site: www.arkiada.org P.O. Box 147 Magnolia, AR 71754

Region Eight Wilt Leak Magnolia Motor Co. Magnolia

AUCTION DIRECTORY ADESA Little Rock/ ADESA Springdale Satellite Auction 8700 Highway 70 North Little Rock, AR 72117 Call: 501-945-2444 Fax: 501-945-2605 Gen. Mgr.: Bill Smith Asst. GM: Phillip Willis Sales Mgr.: Angela Sims Fleet/Lease Mgr.: Mike Davis Springdale Satellite Sales Mgr.: Donna Johnson 479-725-1330 Fleet/Lease and Consignment Every Thursday in Little Rock at 9:00am Weekly Tuesday Satellite Auction in Springdale, AR at 9:00am Inoperative Auction Every Other ursday 8:00am Recreational and Specialty Auction Every Thursday in Little Rock at 8:30 am Heavy Truck and Equipment Auction Monthly. Contact Angela Sims for dates and times. Featuring: VRS-CAC, Arvest Bank, Drive Financial, Americredit, ARI, GE Capital, Enterprise RAC, Simmons Bank, PAR Remarketing, SST Remarketing, HSBC, Key Bank, and Arkansas Federal CreditUnion. AFC Financing On-Site Restaurant Airport Shuttle Service Full Service Detail Dept. Body Shop Title Services On-Site Mechanic Shop Local/Nationwide Transport Web site: www.adesa.com

STATE MAGAZINE MGR./SALES Troy Graff • troy@niada.com EDITOR Mike Harbour • mharbour@niada.com PRODUCTION MGR. Jacob Kerns • jacob@niada.com ART/PRODUCTION MGR. Christy Haynes • christy@niada.com PRINTING Nieman Printing

DON’T FORGET TO VISIT OUR WEBSITE FOR IMPORTANT INFO: WWW.ARKIADA.ORG

Central Arkansas Auto Auction, Inc. Independent 205 Foster Drive - Beebe, AR 72012 Mail: P.O. Box 250 Beebe, AR 72012 Telephone: (501) 882-6447 Fax: (501) 882-5008 Web site: www.naaa.com

Dealers Auto Auction 1028 S. Portland Oklahoma City, OK 73108 405/947-2886 Fax: 405/943-8370 www.daaokc.com

PRIMARY CONTACTS: Delane Hooten, General Manager Debi Mitchell, Business Manager Type Of Sales Fleet/Lease Contact: Kim Miller & Neal Smith, Sales Consignment: Wednesday 9:30 a.m.

PRIMARY CONTACTS: Owner/ President: Gary Smith General Manager: Bruce Beam F/L Manager: Mike Egdahl Consignment Sale – Thursdays, 8:30am Featuring: Ford Credit, GMAC, AmeriCredit, Avis Budget Group, CitiFinancial, Hertz Carco, Hertz Corporation, RSA, LK Auto Remarketing, R.B. Leasing, W.M. Sales and Leasing, Bank Repos, Bob Howard Auto Group, Bob Moore Auto Group, David Stanley Auto Group, Joe Cooper Auto Group, Enterprise Holdings, Auto Advantage/ Express Credit Auto, Santander Consumer, Midwest Car Corp, ARI, Thrifty Car Rental, Finance Point, Liberty 1, Littleton, Automotive Solutions, BF Remarketing and many more. INOP Sale held weekly. Highline, Import and Special Interest sale as scheduled. GM Sponsored Closed Factory Sale - Every other Tuesday, 10am Auction Access accepted. A proud member of www.auctionpipeline.com Online purchasing available through Pipeline Simulcast. Full service Recon Facility (Paint/ Body, Mechanical, Detail)

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Future P R E PA R I N G F O R T H E

By Jan Kelly, president of Kelly Enterprises

new year brings new goals, and new hopes for improved sales, more lenders, and more profits for everyone. As with any change in the

Education is not a one-time event. Plan a continuous relationship with your education resource. Every process should be monitored, measured, and modified as required. After the modifications have been made, the new process needs to be re-implemented, monitored and the producers need to be held accountable.

SALES: From all I’ve read, the customers are back. People are once again going to the dealerships to replace their old vehicles with smaller, more fuel-efficient models, and some are adding to their family fleet so they can meet the weather challenges. The great news is the customers are back from their long hiatus. What are they finding at the dealerships? The customers are finding store personnel stretched, and the once-many choices of inventory they enjoyed in the past now cut. The product selection step in the selling cycle will need to stress selling what you see in front of you. During the past few years, those dealerships that survived have learned how to manage inventory more effectively, as well as turning it more quickly. They’ve also learned how to operate in a lean environment.

LENDERS: The industry needs more of them, and we need them to approve loans. Dealerships will need to continue to seek local credit unions and other local lenders to approve consumer financing. Credit unions may not be use to the independent dealerships, but this is an opportunity to put your best face forward and sell yourself and your business acumen to the lenders. I was asked how important relationships with lenders are; they’re critical to your success. Lenders again wish to become a close business advisor to your operation. They’re going to want a piece of every banking transaction you have; wholesale, retail, merchant services, checkings and savings, personal and business. When you think of lenders, what was old is now new again. Keep your ears to the wind; contact every source prospect for lenders at every opportunity.

marketplace, dealerships must prepare their team to meet the current demands of the marketplace.

PERSONNEL: Plan on hiring sales personnel and educating them. Personnel are stretched to the point of having job descriptions blurred. I think the time is coming to redefine the roles and create a work environment where they can focus upon the job at hand and cease worrying about what additional items will be asked of them. Multitasking can become dysfunctional after awhile. Sales processes while basic never change, I find each dealership has a specific culture and the process often must be modified to reflect the culture so management will support the process after the educator leaves.

COMPLIANCE ISSUES: Spend the time it takes to create a binder with your policies and procedures regarding the plethora of federal regulations we must meet. The following is a beginning checklist for those policies and procedures: ______ ______ ______ ______ ______ ______ ______

DISPOSAL RULE P SAFE GUARD RULE P OFAC SDN LIST P RED FLAG RULE P ADDRESS DISCREPANCY RULE RISK-BASED PRICING RULE P ADVERSE ACTION LETTERS P

ONCE A POLICY AND PROCEDURE IS PLACED IN WRITING, THE COMPANY IS BOUND BY THE WORDS IT WRITES. With the creation of the new credit protection agency, I think we’ll begin to see enforcement of the rules and regulations and perhaps some additional items will be added to the list of required written documentation. Review your existing policies and verify what’s written is what’s actually happening. If not, then change either the policies or your practices. Once a policy and procedure is placed in writing, the company is bound by the words it writes. Conduct self-audits as written in the policies and procedures. Document the education content and the timing of the education of new hires. Document any breaches of security, or failure to adhere to the company policies. As you know, I am not an attorney and this is not to be used as legal advice. These words are meant to be educational only. Please consult your legal counsel for all legal issues. The future is once again bright. Prepare for success. Jan Kelly is an educator and consultant, international convention speaker and writes frequently for industry publications. For information about educational venues or joining our F&I 20 Group, call 800-336-4275 or visit www. JLKelly.com.

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“Wall Street/Consumer” Financial Services Reform Bill

Federal Advocates January 2011 Lobbying Report

On November 17, NIADA General Counsel Keith Whann and Federal Advocates met with senior staff of the FTC as a follow-up to the September 21 meeting. A series of questions had been provided to NIADA for discussion at the November 17 session. At the meeting, Keith walked them through the process of buying a car and provided samples of purchasing documents. The FTC is in the middle of formulating questions for public comment regarding various aspects of the auto industry as it relates to consumers. FTC staff was not forthcoming as to the timing of that effort, its scope and its intended purpose. The results of the November 17 meeting were reported to NIADA’s Legislative Committee by conference call on November 23. To review, on September 21, Keith Whann and Federal Advocates met with FTC staff regarding implementation of the above bill and its impact on the auto industry. Following discussion of various issues, with Keith Whann leading the discussion and answering various questions as to how the auto industry works (including the auction practice itself), it was decided to schedule a half-day session to allow for a more detailed discussion of issues (i.e., the November 17 session). To review further, on July 22, President Obama signed into law the so-called Wall Street Reform Bill. As reported previously, the new law exempts some auto dealers from increased oversight with respect to dealer-assisted financing. To get to that result, advocacy activities included numerous meetings, strategy phone conference calls, letters, talking points, legislative alerts, etc. The law does grant increased powers to the FTC regarding dealer oversight. Also, it requires coordination with the Department of Defense to ensure service members and their families are treated fairly by automobile dealers.

Senate Motor Vehicle Safety Act of 2010

NIADA is reviewing this bill pending possible Senate floor action in December. To review, on June 9, the Senate Committee on Commerce, Science and Transportation marked up and order reported S.3302, the so-called Toyota Bill. In earlier drafts of the bill and just prior to markup, language was included (section 310) which would have specified that a dealer may not sell or lease a used passenger motor vehicle (both wholesale and retail sales) until the dealer first notifies the purchaser or lessee in writing of any recall notices. Working primarily with Sen. John Thune, R-S.D., his staff (Brenden Plack), and committee staff (Alex Hoehn-Saric and Chris Herndon), and as a result of concern raised by Whann and his proposed suggestion, language was included in the final reported version of the bill exempting wholesale transactions from the section’s application. While an initial victory, the remaining provision is still very troublesome and we continue to advocate on behalf of NIADA’s interest pending further action on the Senate bill as well as a possible House companion bill. The latest Senate draft and the companion House bill (H.R. 5381) are being reviewed by NIADA.

Small Business Jobs and Credit Act of 2010

On September 23, the House passed the Senate-passed bill, which includes an increase in the amount the Small Business Administration’s (SBA) Dealer Floor Plan Financing program can guarantee. This permits the SBA to guarantee bank and finance company loans up to $5 million, which should help, the committee believes, expand dealer access to floorplan lines of credit. We worked with Louisiana Democrat Sen. Mary Landrieu’s committee and personal staff, in conjunction with others, on this. This bill may be the subject of subsequent meetings with the Hill and the SBA on how the program really works.

White House Reform Request

On September 23 and September 29, Federal Advocates was contacted by the White House, which is still trying to organize and schedule a meeting to include “people who are working to set up the CFPB.” This meeting is in response to a letter sent by NIADA to President Obama requesting “the opportunity to work with you to reform our industry in common-sense ways that achieve real safeguards for consumers, that promote accountability and transparency, and that work.”

Department of Defense FEDERAL ADVOCATES IS NIADA’S GOVERNMENTAL ADVOCACY PARTNER. To read past lobbying reports, visit http:// www.niada.com/legislative_and_legal.php

Regarding the issue of “how to ensure that service members and their families are treated fairly by automobile dealers,” Keith Whann and Federal Advocates also met on September 21 with the Defense Department’s Frank Emery in the Office of Personal Finance, Family Policy Outreach Directorate. Whann relayed a specific example of how he helped a service member at Fort Bragg with an automobile situation, working with the JAG and others. He also talked about his plan for a special program to teach dealers on how to deal fairly with service members and their families. The DOD continues to remain interested in looking for opportunities where Whann could lend his expertise. Details are to be finalized at a later date.

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Marketing Your Vehicles Beyond the Dealership By Clayton Stanfield, eBay Motors In today’s digital world, it is becoming increasingly challenging for dealers to drive car shoppers from online browsing into their dealerships. It is also growing increasingly im-

RESEARCH SHOWS the majority of consumers now start major purchase decisions with online research.

portant for dealers to widen their reach beyond prospective customers in their own backyards. To find success in today’s changing market, dealers need to broaden their reach and build relationships with consumers who may be hundreds of miles away. Nearly every customer considering an automotive purchase now turns online first to research, find and even buy. To reach those customers, many dealers take advantage of third-party automotive websites, such as eBay Motors, to promote their inventories and services to be introduced to a broader range of potential customers. According to the 2010 J.D. Power and Associates Used Vehicles Market Report, 68 percent of used vehicle buyers use the Internet in their shopping process. This is an increase of five percent from 2009. Online classified ad use to shop for used vehicles has increased to 51 percent, up from 41 percent in 2006. Among the online resources customers use in their shopping process, independent automotive websites, such as ebaymotors.com, receive more visitors than dealer websites. Marketing your vehicle inventory, parts and your dealership on the Internet requires new ways to establish the same reputation and trust it takes to get consumers on the showroom floor. Build awareness. When you want to reach customers in your hometown, you work hard to let them know you’re there. Billboards, commercials, classified advertisements or a combination of these are often used. The same premise remains true when marketing to online consumers. When you want consumers to visit your virtual showroom, dealers need to pay close attention to search engine optimization (SEO). Search engines such as Google, Yahoo and Bing regularly visit websites with automated tools to index key words and phrases consumers often use when searching. To optimize your listings so the search engines can match your terms to what consumers are searching for, it is important you use everyday words and phrases that consumers are likely to type into a search. This way, your listings are more likely to appear in searches and more likely to be noticed by more potential buyers. Search engine optimization can help a dealership reach new customers during the consideration and research phase and also to

build a loyal customer base that will return to your site or come to your dealership when they are ready to make a purchase. eBay Motors regularly uses search to drive more than 14.8 million unique visitors – and potential buyers, looking for new and used vehicles, parts, accessories and services – each month to its website. Show your reputation. When a customer visits your lot, chances are good they already have some degree of interest and trust, either with a previous relationship or based upon a recommendation. Their friend bought a car there, your children go to school together, or they know your dealership’s reputation from active community involvement. To build trust online, it is vital to provide as much information available as possible about not only the vehicles you sell but also your dealership and the people behind the dealership. When developing online listings to sell vehicles or parts and accessories, use highquality, professional photographs and wellwritten descriptions. This helps to boost consumer confidence and purchase potential. If customers cannot clearly see what they are purchasing, chances are higher they’ll move on to the next item with better images. Also, provide complete disclosure as if customers were looking at the vehicle with you in person. Customers will expect most used cars have some sort of imperfection, so don’t try to camouflage any issues with a buyer. By being truthful and transparent with listings, dealers create a sense of trust and a willingness to conduct business. Offer timely responses. While customers in your dealership may wait for you to call back and track down information, online customers expect a high level of service and responsiveness, even if it’s a response to say you are looking for information to answer the question. Since communication methods such as e-mail and cell phones are the norm, buyers expect quick answers. A buyer ready to make a purchase may be more willing to engage in business with a dealer who is responsive to questions with timely communication. Remember, online customers may be shopping in a different time zone, so regular business hours may not apply. Research shows the majority of consumers now start major purchase decisions with online research. Now that consumers are shopping online, businesses have been quick to follow. With a SEO strategy, an online reputation that encourages trust, customer service and responsiveness, dealers can build a virtual business that drives real results and encourages new customers to shop with ease.

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BHPH

CHOOSING YOUR FINANCING PATH The struggling economy, a troubled housing market and skyrocketing car and truck prices were all factors in Daryl Spear’s decision to offer Buy Here-Pay Here (BHPH) at his new dealership.

His base clientele was the working poor. They had low-wage jobs and damaged credit histories, but they needed cars and wanted reliable, pre-owned General Motors vehicles to transport them to their jobs safely without breaking their families’ already-tight budgets with high repair bills. Spear’s Auto Sales moved to a larger location in 2009 and there are a few Toyota, Honda, Saab and Subaru vehicles sold alongside GMs these days, but the Spokane Valley, Wash., dealership’s business model and philosophy remains largely unchanged nearly 28 years later. “When people are down with economic woes, it’s great to be able to give them the chance to start over with us and build back their finances,” said Courtney Spear, Daryl’s daughter, who took the reins as the dealership’s president in 2004 when her father retired. “People just want a chance, and they can be very loyal customers if you put trust in them.” The dealership has second- and thirdgeneration return customers to prove the late Spear’s business decision successful. But establishing BHPH operations and making them work in the long-term require much more, said his daughter and other BHPH veterans. Build a well-planned cash forecast to provide an understanding of how much money you’ll need during the first 24 to 36 months to operate a business that often caters to frazzled single moms, overworked factory workers and tired waitresses all struggling to afford reliable transportation, said Chris Leedom, founder and president of The Leedom Group, a Sarasota, Fla.-based consultancy specializing in pre-owned car sales, special finance and BHPH. “The single-biggest mistake that somebody makes is they say, especially if they are already a dealer, ‘How complicated can this be? I’m selling cars,’” said Leedom, who owns several BHPH dealerships. “Even in 25 months to three years, a dealership can consume as much as $1 million in cash. “A lot of people miscalculate how much cash it’s going to take them as a dealer.” Leedom said both those entering BHPH

for the first time in 2011 and BHPH veterans must maintain Excel spreadsheets monthly. That way, they understand the cash demands of BHPH and effectively can develop cash forecasts and their own business models. Leedom’s firm counsels about 150 new dealers and non-dealers each year, ranging from cardiologists to certified public accountants, since 1995. “We typically tell them that if they don’t have readily available at least $500,000 or $750,000 of working capital, and they can’t see in the first 12 months of operation where they have that at their availability not where they can go out and borrow it--- they are probably going down the wrong path,” he said. “You might call that the price of admission. If you don’t have $750,000, which is pretty much the price of admission on a new start up, you’re probably pursuing the wrong business opportunity.” Leedom said existing dealers should set aside $250,000-$500,000. Even automotive industry veterans often fail to factor financial realities in BHPH situations, he said. In an average BHPH scenario, the customer may pay $500-$1,000 down, but that doesn’t cover costs associated with reconditioning the vehicle or taxes; so, the real cost is likely more than $3,000 per vehicle. With the typical BHPH customer paying about $300 per month loan payments, if paying as agreed, it takes nearly a year to recoup costs. Multiply that by 25 units, and it’s nearly $1 million not including overhead costs of running any store. The flipside is BHPH helps dealerships in slow sales months because they can expect previous customers’ loan payments each month. And as long as dealers are cognizant of the cash considerations, Leedom said BHPHonly models are easier for new dealerships to adopt when the store is opened. “The advantage is now all of your inventory, all of your marketing and your entire business effort, is narrowly focused on one type of business,” he said. “You are strictly trying to attract customers (who really) need financing for vehicles, and you can craft your marketing that way. “Where it becomes difficult is if you are trying to become all things to all people. It can be challenging to attract the Buy Here-Pay Here customer who requires financing and the same time try to sell me a 2-year-old Chevy

By Stephanie Patrick

Tahoe for $22,000...you are probably not going to be able to carry that type inventory. “There are two completely different marketing paths there.” Ken’s Kars, which opened in Dayton, Ohio, in the 1940s, offers pre-owned vehicles that range from $2,000 Chevy Cavaliers to $30,000 Chevy Tahoes. But, third-generation owner Ken Smiley said the dealership is moving away from its long tradition of offering BHPH-only loans. Smiley said most cars are too expensive to finance via BHPH these days, and the Cash for Clunkers program now has too many new car dealers keeping more of their used vehicles and purchasing additional used units at auctions. Ken’s Kars sells 15-20 vehicles each month under BHPH with 18-month terms, compared to about 60 vehicles per month five years ago. “Typically, I try to only BHPH finance cars under $9,000,” he said. “I also stick with American cars, such as the smaller SUVs, Bonnevilles and Chevy Impalas because they last longer and they don’t break down as often. “Most of the Buy Here-Pay Here that goes bad is because the car breaks down. If the car breaks down, the customer just gives it back; (the customer) doesn’t have any remorse because they are going to run across town and buy something from someone else.” The dealership’s revenue was good when offering more BHPH, but losses mounted when the housing market started to fall apart a few years ago. The vehicle repossession rate reached 20 percent, but now it’s down to 2 percent or less because Smiley chooses his loan recipients more carefully and sends others to subprime lenders. “My best advice is not to do Buy Here-Pay Here right now,” he said. “If you are, proper screening of the customers is most important because people’s credit situations are so bad; it’s a great time to find customers but if they can breathe, they can get financed. “I have people with multiple bankruptcies that I can get financed through subprime companies. To me, it seems crazy to put your money out (with BHPH loans) when you can make good profits through a subprime company.” There’s still a need for financing, but some people asking for BHPH now have gotten to the point where they haven’t paid any bills, he said. In addition, gone are the days when a 600 or higher credit score is needed.

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“Now, you are looking at 450s and you’re getting them financed through the banks,” Smiley said. He and Leedom said customers have grown to expect “more cars” for their money, a trend that has most BHPH dealers increasing the average cash value of the vehicles on their lots. Loans for BHPH are typically between $5,000 and $10,000, and Smiley is increasing the quality and average price of his vehicles to compete with new car dealers in his area. “There’s huge profit in (BHPH), but banks are realizing that, too,” Smiley said. “If they can get somebody with a couple credit dings, they are going to jump all over them at 25 percent interest; that’s what they are doing.” He recently sold a car to a woman with a 490 credit score, who was bank-approved for a $15,000-$16,000 car. “I don’t want to lend her a $15,000 car,” Smiley said. “You have to get the money collected, and it takes you forever to get it collected.” Casey Skapik, Smiley’s cousin, understands the frustration. While he runs Keowee Auto Sales in Dayton as a more traditional BHPH operation, the former banker considers preowned car sales to be more finance-oriented than sales-oriented. Increased government regulations and the shortage of affordable cars to sell have him considering offering service contracts and insurance products to generate more revenue in 2011. The 65-year old, family owned

dealership sells 15-20 cars a month, and the average price is about $7,000. “I could sell three times more cars than I do, but I would have 10 times more headaches,” Skapik said. “I tend to be more selective who I will sell to.” He said dealers need to look for signs of financial stability, such as steady jobs and stable housing or rental histories. Skapik requires BHPH customers to provide, on average, a 22-percent down payment and offers 30-month terms. “There are a lot of people who come in with $400 or $500 for a down payment but if you let them drive away, you’ll have that car back in a few months because they can’t afford it,” he said. “And they aren’t as committed to the car because they only had $400-$500 invested in it, where my average customer has $1,200$1,400 in it; they are going to be more attentive to making the payments.” Keowee’s repossession rate is about 10 percent. Meanwhile, the dealership has a large number of return customers who purchase 1997-2004 vehicles such as Buick Park Avenues and LeSabres, Chevy Impalas, Tahoes and Suburbans, as well Dodge Durangos. Each dealer also develops a few unwritten rules to protect the dealership’s best interest. Smiley avoids BHPH loans to the younger crowd and home health nurses, whose jobs often have them traveling to new communities and make them more difficult to track. Leedom’s Florida dealerships opt not to loan

to anyone without a Florida driver’s license because that state’s population is so transient. “Generally, you need to avoid people who are in your area less than six months or a year,” Leedom said. “They are the ones most likely to leave.” In addition, a BHPH dealer must be flexible, said Spear, whose dealership also began dabbling in non-BHPH finance options a few months ago. Even well-intentioned customers have financial disasters affect their abilities to pay their loans, and each late-paying situation should be handled with respect and consideration. “Our business is tough right now in general, but so is everyone else’s business,” she said. “We have to remember that because our buy here pay here customers really do need us.” The dealership has about 60 cars on its lot at any time and records about five repossessions in a month, and customers can get them back if they pay their accounts. The repossession rate decreased steadily as the dealership increased the value of its vehicles, selling them for $5000-$14,000. Spear still wants to sell less expensive cars, those in the $3,999-$5,000 range without salvage titles, because there’s customer demand. However, like the many other dealers nationwide, she can’t find enough now. “You can’t just go after the quick buck,” she said. “If you get into car sales, it’s because you like people; if you get into Buy Here-Pay Here, it’s because you care about people.”

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“

Complying with the Risk-based Pricing Rule

BY LEE DOMINGUE, CEO OF INDIRECT LENDING, WOLTERS KLUWER FINANCIAL SERVICES

As the new Risk-Based Pricing Rule takes effect this month, auto dealers need to make sure they have information, resources and tools in place so they are ready to comply. Applying to Buy Here-Pay Here (BHPH) dealers

and those who do business with third-party creditors, the rule requires dealers to notify consumers when they receive materially less favorable credit terms than others based on consumer report information. According to the new rule, a risk-based pricing notice must be provided to the consumer before signing the credit agreement (direct lending note or indirect retail installment sales contract). The notice must: Include information about the elements of a credit report. State the annual percentage rate and other terms were set based on the consumer’s credit report. State the terms offered may be less favorable compared with the terms offered to consumers with better credit histories. Encourage the consumer to verify credit report accuracy. Identify all consumer reporting agencies that supplied a consumer report used in the credit decision. Inform the consumer of the right to a complimentary copy of a consumer report from those agencies for 60 days after receipt of the notice. Provide guidance on obtaining a consumer report. Direct the consumer to the Federal Reserve Board and Federal Trade Commission’s websites. Dealers can use a case-by-case method, a credit score proxy method or a tiered pricing method to identify which customers must receive a notice. For more info, a Adobe PDF is available at www.ftc.gov/ os/2009/12/R411009riskbasedpricingfrn.pdf. An exception to the Risk-Based Pricing Rule allows dealers to provide a credit score disclosure notice to all customers who apply for credit. This option is only available to dealers who use credit scores in the decision to extend credit. This exception notice must include the consumer’s credit score, the date it was created, its source, and information about the range of scores and how lenders use them. In addition, the notice must provide a description or graphical representation of how the applicant’s credit score ranks in comparison with other consumers. For this, dealers will need data from their consumer credit report suppliers. The exception notice may be the easiest path to compliance for many dealers, as it avoids the analysis of who is required to receive a risk based-pricing notice. However, each dealer should look at its own unique business to determine which compliance option will work best. While dealers may be concerned that the new rule will create more paperwork and administration, risk management platforms can help automate indirect lending, credit approval and compliance processes. By unifying lending transactions and simplifying documentation, a technology platform can enable quicker decision making and help prevent financial and legal penalties resulting from non-compliance. Whatever notice option your dealership pursues under the new rule, automating credit approval and compliance processes can help you ease the regulatory burden on staff resources, reduce your risks of non-compliance, and safeguard your dealership’s reputation. Lee Domingue is CEO of indirect lending at Wolters Kluwer Financial Services. For more information, visit www.wolterskluwerfs.com/ilsolutions.

HOW MUCH CAN JUST ONE CURBSTONER COST YOUR CITY?

Curbstoned cars are often cheap, but state and local governments pay a high price. A new case study from Stop Curbstoning reveals the true cost associated with a single curbstoner. A recent California Department of Motor Vehicles (DMV) curbstoning investigation ended with a felony arrest on 12 counts of perjury and filing false documentation, but for Stop Curbstoning, that was just the beginning. The organization examined the financial impact of curbstoning using this single real-life case as an example. It found cities in which the curbstoner operated lost more than $56,000 in sales tax revenues alone, and the state of California lost $168,000. Other financial costs included lost license revenue, lost local business and potentially increased emergency response burdens due to unsafe vehicles – all from just one curbstoner. “Because there are so many curbstoners out there, even small things add up to a lot,” says Charles Redden, president of AutoTec, one of the companies behind the effort to stop curbstoning. “Take the annual state license fee for used car dealers. In California, it’s $176 for the first year and $126 to renew. But for every thousand curbstoners, that’s over a quarter-million dollars every two years.” “With local governments increasingly strapped for cash, enacting and enforcing anti-curbstoning laws can be a quick way to boost revenues and enhance their communities at the same time.” The community enhancement and public safety aspects of enforcing anti-curbstoning laws are harder to quantify, but should not be underestimated, Redden says. “Getting curbstoned vehicles off the streets frees up parking for local businesses, reduces obstacles to traffic, and eliminates eyesores,” Redden says. “It also eliminates a major source of unsafe vehicles – cars that look OK, but have major structural damage or missing safety equipment. How do you place a dollar value on all that? It’s priceless.”

For more information about the case study, curbstoning and efforts to put a stop to this illegal practice, visit StopCurbstoning.com.

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