C A ROL IN AS INDEP ENDEN T AU T OMOBIL E DE A L ERS ASSOCI AT ION D E C E M B E R 2 016
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AUTO DEALER NEWS
S TAT E A F F I L I AT E
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Auto Dealer News / December 2016
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INSIDE
06.....................................................Employee or Contractor? 08.........................................................Security Starts Within 10....................................CRM Technology vs. CRM Mindset 12................................................Bank More on the Back End 14................................. CFPB Limits Arbitration Agreements 18................................................ NIADA Government Report 26............Strategic Ways to Drive Leads with Social Media 30.........................................................Compliance Overdrive
WHAT’S NEW NIADA.tv
NEW CPO CHANNEL AND USED CAR WEEK
NIADA.tv just introduced a new channel devoted to CPOrelated programming, including marketing strategies and value perception of CPO. In addition, the site now offers 19 education and training sessions from the recent Used Car Week Conferences. Check out NIADA.tv for these videos and much more!
ADVERTISER’S INDEX
Ace Motor Acceptance ........................................................21 ADESA..................................................................................... 9 Auto Auction of New England ................................................7 Auto Use ................................................................................14 AutoZone............................................................................... 28 Black Book................................................................................3 CARFAX ...................................................................................5 Carolina Auto Auction...........................................................IFC Charleston Auto Auction......................................... Back Cover Manheim.......................................................................... 10, 11 Manheim Pennsylvania..........................................................13 NextGear Capital....................................................................12 Paymaxx Pro...........................................................................16 Spireon .....................................................................................8 STARS GPS.............................................................................17 VAuto.................................................................................... IBC
OFFICE
5643 Harrisburg Industrial Park Dr. Harrisburg, NC 28075 Phone: 704-455-2117 or 1-800-432-4232 Fax: 704-454-5567 www.theciada.com CIADA is a non-profit 501(c)6
NIADA HEADQUARTERS NATIONAL INDEPENDENT AUTOMOBILE
DEALERS ASSOCIATION WWW.NIADA.COM • WWW.NIADA.TV 2521 BROWN BLVD. • ARLINGTON, TX 76006-5203 PHONE (817) 640-3838 The Carolinas Independent Automobile Dealers Association is published bimonthly by the National Independent Automobile Dealers Association Services Corporation, 2521 Brown Blvd., Arlington, TX 76006-5203. Periodicals postage paid at Dallas, TX and at additional offices. POSTMASTER: Send address changes to NIADA State Publications, 2521 Brown Blvd., Arlington, TX 76006-5203. The statements and opinions expressed herein are those of the authors and do not necessarily represent the views of CIADA or 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 © 2016 by NIADA Services, Inc.
SAFETY WATCH
FORD RECALLS HATCHBACKS May Accidentally Unlatch
Ford Motor Co. is recalling 64,038 model year 2013-17 Ford Focus hatchback vehicles manufactured Feb. 14, 2012 to Aug. 26, 2016, and equipped with a manual transmission. The hatchback of the affected vehicles may be unlatched with a single press of the interior latch release button. As such, the
vehicles fail to comply with the requirements of Federal Motor Vehicle Safety Standard (FMVSS) number 206, “Door Locks and Door Retention Components.” With only a single press needed, the driver may accidentally unlatch the hatchback, increasing the risk of injury to any unsecured passengers in the back. Ford will notify owners, and dealers will reprogram the Body Control Module with updated software, free of charge. Ford’s number for this recall is 16C13.
EXECUTIVE COMMITTEE Immediate Past Chairman Luke Godwin Godwin Motors Inc. Columbia, SC
Chairman
Will Davis G & B Auto Louisburg, NC
CIADA STAFF SC Vice President
Executive Director
NC Vice President
Controller
Treasurer
Education & Membership Services
Darryl Jackson Crown Automotive Sales and Finance Rock Hill, SC Steve Matthews Matthews Motors Inc. Clayton, NC
President
Darla Booher Deal Depot, Inc. Greer, SC
President-Elect
Kim Bradshaw 1st Nations Auto Sales Burlington, N.C.
John Brown 5643 Harrisburg Industrial Harrisburg, NC
Debbie Braswell
Kevin Pendergrass Carolina Auto Sales of Myrtle Beach Myrtle Beach, SC
Jenny Myrick
Secretary
Jayne Harris
Steve Wetmore McAdenville Motors Gastonia, NC
Education & Membership Services DRIS Insurance Martha Brown
MISSION STATEMENT The Carolinas Independent Automobile Dealers Association was organized in 1955 to assist members in enhancing their reputation in the marketplace, gain political influence and provide opportunities to interact with and meet other dealers for the purpose of sharing
business and marketing ideas. As a mature and long-standing Association, we are proud to maintain the ideals and principles set by the founders. But today, we offer more…far more. With a fulltime professional staff, modern technology and world class educational programs, we have become a strong,
effective and influential organization that exists for one reason only: To represent the independent, non-franchised automobile dealer! CIADA is the only not for profit association that represents the independent automobile dealer in the Carolinas with a National affiliation.
THE CIADA EXECUTIVE COMMITTEE
STATE MAGAZINE MGR./SALES
Troy Graff • troy@niada.com EDITORS
Jacinda Timmerman • jacinda@niada.com Andy Friedlander • andy@niada.com MAGAZINE LAYOUT & GRAPHIC ARTIST
Christopher Hanley • chris@niada.com
SENIOR ART DIRECTOR / PRODUCTION MANAGER
Christy Haynes • christy@niada.com PRINTING
Nieman Printing
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LEGAL MATTERS
BY SHAUN PETERSEN
EMPLOYEE OR CONTRACTOR? The Answer Matters Do you W-2? Several years ago, I was helping a dealer with some litigation in which a former body shop technician claimed he was wrongfully terminated. The tech was seeking back wages and unemployment compensation from the dealer. As I began to sift through the facts with the dealer principal, I was repeatedly told the tech was not an employee of the dealership – he was an independent contractor whose income was reported to the IRS on a Form 1099. I filed that statement away and didn’t think much about it until I was at the dealership a few weeks later. The dealer principal walked me around the sales lot and then took me behind the office building to an old warehouse he designated as his body and repair shop. While giving me the guided tour of the shop, I asked the dealer principal about oversight of the tech’s work. He told me the tech came to the shop every day and generally put in an eight-hour shift. The tech was required to submit a time sheet to dealership management and inform the dealership if he was not going to be in on a given day. The tech furnished his own tools, but the only cars he worked on were those the dealership provided him. Armed with that information, what say you? Was this tech an independent contractor or should he have been classified as an employee? Your ability to properly answer that question, either on your own or with legal assistance, is becoming more critical. According to the Department of Labor, misclassification of employees is on the rise and leaving workers without key benefits and protections such as overtime and minimum wage. Currently, DOL, the IRS and a majority of state governments are collaborating in an effort to ensure workers are properly classified. During Fiscal Year 2014, that collaboration resulted in more than $79 million in back wages being paid to more than 109,000 workers. DOL has clearly indicated its intent to investigate companies’ misclassification of workers and pursue enforcement. So for you small business owners who must properly designate your workers: How do you answer the question of employee vs. independent contractor? DOL recently issued an interpretive document from the Wage and Hour Administrator’s office intended to provide guidance on how you can answer that question correctly. The guidance document starts from the premise that most workers should be classified as employees because the employer
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AUCTION NEWS is “suffering or permitting” the worker to work. DOL relies on a federal court decision that states an employer “suffers or permits” an individual to work if, as a matter of economic reality, the individual is dependent on the entity. So how does one determine whether something is a matter of economic reality? Have no fear – DOL pulled six factors from the federal court decision and instructed companies to consider them in determining whether that worker is in business for himself/herself (independent contractor) or is economically dependent on the employer (employee). No one factor outweighs another, but all should be carefully considered. Is the work an integral part of the employer’s business? If you answer yes, it is more likely than not the worker is an employee. Does the worker’s managerial skill affect the worker’s opportunity for profit or loss? Independent contractors in business for themselves face the possibility of not only making a profit, but also experiencing a loss. They are ultimately responsible for determining the jobs worked, contracts negotiated, etc. Employees generally do not have such a burden. How does the worker’s relative investment compare to the employer’s investment? Independent contractors typically make investments that support their business as a business beyond any particular job. Does the work performed require special skill and initiative? A special skill offered to a variety of entities can be indicative of an independent contractor relationship. Is the relationship between the worker and employee permanent or indefinite? Permanency or indefiniteness in the worker’s relationship with the employer suggests the worker is an employee. What is the nature and degree of the employer’s control? A worker who controls meaningful aspects of the work performed, such as wage earned for work performed or when the work is performed, is likely to be deemed an independent contractor. Now that you know what factors Uncle Sam will look at in reviewing your workers, should this dealer’s tech have been designated an employee or an independent contractor? As it turned out, the court never got to make that decision – the case was settled before that. If it had, though, it’s a safe bet it would have ruled the tech was an employee. Don’t be the dealer who cuts corners trying to save a few bucks – the one who replaces two tires instead of all four, ignores the brakes because they’re really not squeaking that badly and pays his mechanic as a contractor because he has his own tools. Those decisions can come back and deliver a severe bite. → Shaun Petersen is NIADA’s senior vice president of legal and government affairs.
MANHEIM TRIPLES IMAGING OFFERING AVAILABILITY FOR CLIENTS Expansion in Response to Client Demand
In response to client demand, Manheim has nearly tripled the availability of Enhanced Vehicle Imaging, expanding from 25 to 74 auction locations throughout North America. EVI provides a consistent set of quality high-resolution images that showcase vehicles in an optimal way. Manheim said the service leads to a higher conversion rate for sellers and increased confidence about purchases for online buyers. “The Enhanced Vehicle Imaging service we use from Manheim Milwaukee has proven to be a big boost to our bottom line and has grown our online attendance,” Napleton Automotive Group remarketing manager Jeff Ricchio said. “And we love the positive feedback we get from buyers about the photos.” Manheim’s EVI produces photos superior to those traditionally available via the device used to take standard condition report photos. Using high-quality, state-of-the-art programmable cameras and software, certified photography staff members shoot the images after vehicles have been reconditioned. They display one car at a time and include a consistent set of views most important to buyers. High-resolution images, available in-lane and via Simulcast and OVE, enable viewers to pan the vehicle and zoom in and out to areas of interest on the vehicle. “Dealer interest in improving online sales and their success stories compelled us to broaden our EVI footprint and be an even better business partner,” Manheim senior vice president of inventory services Grace Huang said. The addition of Enhanced Vehicle Imaging helps consignors move vehicle inventory more efficiently, reaching up to 80 percent more online buyers with increased bids per sale, Manheim said. Manheim data also showed Simulcast listings with EVI images convert 16 percent better than two or three low-resolution photos, and 50 percent better than no photos. Dealers using EVI sell 27 percent more vehicles online than those who use two or three low-resolution images. EVI supports dealer efforts to sell less desirable, aged vehicles online – vehicles with expected low AutoGrade scores, high mileage or lower prices.
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TECHNICALLY SPEAKING BY DAN DOMAN
SECURITY STARTS WITHIN Six Steps to Protect Your Dealership’s Data
According to data security firm Virtru, even as hackers become more and more sophisticated, much of the threat to your business actually comes from inside. The company notes that up to 28 percent of enterprise data security incidents come from inside an organization. They’re not saying any of your employees has malicious intent – though that is possible. What they are saying is your staff could be inadequately trained or your data security policies might be incomplete or not enforced. So here are six training and enforcement policies to help protect your dealership from possible threats: Strong passwords: While you’ve heard it before and it might seem obvious, enforcing strict password requirements – such as requiring a minimum of eight alphanumeric characters with symbols – and prompting users to change their passwords regularly are easy ways to protect against unauthorized access. A 2015 survey by TeleSign found 47 percent of people use passwords that are at least
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five years old. Don’t let your dealership’s employees be among them. Authentication: Require multi-factor authentication on every device that accesses your dealership’s data. The process requires users to register their devices to a particular user ID and password. Registering a device requires employees to select and answer a series of “security” questions not easily guessed by anyone but the employee. In the event a user name and password was compromised, a hacker would still be unable to access your dealership’s systems unless that device was authenticated to those credentials, adding another layer of security.
IP blocking: Use IP blocking to limit user access from only dealership-approved IP addresses. That helps prevent unauthorized access from remote or mobile locations. Implementing IP blocking is a great opportunity to review and audit your dealership’s policies regarding remote access to integrated dealer systems and appropriate purposes and use. Now that you have secured the devices that are coming into your system, focus on your dealership’s employees’ day-to-day use. Check your user permissions: Not every employee needs access to all of your dealership’s data. Assign employee permissions and access to specific dealership systems that suit your business processes and
the employees’ respective responsibilities. That will help control their ability to access personal and confidential customer data. Use your systems’ notification or activity alert tools: They can be configured to alert you of potentially suspicious employee activity, such as changes to a user’s “setup” or “preferences.” Run a report: Regularly run a user report to ensure all who have access truly need it. The reports should provide detailed information on users including dealer ID and dealer name (for dealer groups), user name, last successful login date, no user activity for more than 60 days, and admin. It is a sound security practice to check your user reports against your active employee list. You should never have an ex-employee authorized to access your systems. Secure dealerships are successful dealerships, and maintaining a secure dealership begins with fundamental security practices. By implementing the six practices explained here, your dealership will be well on its way to helping ensure the security of your customers’ information – and a successful future. Dan Doman is chief legal and privacy officer of RouteOne LLC (www.routeone.com), a joint venture created by Ally Financial, Ford Motor Credit Company, TD Auto Finance and Toyota Financial Services. He is responsible for managing the legal, governmental, privacy, and security affairs of RouteOne LLC.
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MANAGEMENT MATTERS BY SCOTT BERGERON
CRM TECHNOLOGY VS. CRM MINDSET It's a Tool, Not a Crutch
Have you ever wondered how dealerships sold in volume before CRMs, before the Internet, before websites and Internet leads? I consider myself an old-school car guy who
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knows how to use technology. I still believe there’s a place in this business for pen, paper and all the high-tech programs that make our lives easier. I started my career in the ‘80s and was lucky enough to work for a top 100 nationally-ranked dealership. We sold 500 vehicles, both new and used, per month. We did it directing our focus on advertising, ordering correctly, training, and a CRM mindset. In other words, we wanted all the information and we collected as much as we could. It wasn’t efficient compared to the tools we have now, but it worked because everyone was on the same playing field. Technology today works like a champ, when
it’s used as a tool and not a crutch. There are more ways than ever for potential customers to connect with a dealership. Online shopping is, by all estimations, the starting line for over 80 percent of all transactions. In the dealership, the CRM software is used to track, assess, notify and persuade consumers. It also lets you track the steps of the sale as well as who’s performing on your sales floor, and who needs help. We’ve all heard the phrase “garbage in, garbage out.” Technology is only as good as the information that goes in, and the process to get the information back out to reconnect with is where most dealerships lose deals. I’ve been in dealerships where their CRM reported a 100 percent closing ratio. They must have some pretty great salespeople, or they’re only entering their sales into their CRM, and forgetting about the other 80 percent of unsold prospects. And even if the leads automatically populate into the CRM, it doesn’t do any good unless someone is following up. CRM technology is limited without a common sense process within the dealership to make sure everyone gets touched, whether they’re Internet leads or face-to-face prospects. One thousand online leads and 300 visits in a month should show as 1,300 prospects, less the conversions to sales, which likely won’t show a 100 percent closing ratio. I’ll take bad news that’s accurate any day over grossly inflated closing ratios. An article on Adexchanger.com elaborates on the importance of dealership CRM as an all-encompassing relationship tool, not just technology, concept. Headlined “CRM: A Philosophy That Goes Beyond Data, Technology and Channel,” the article by digital specialist Mayur Gupta notes, “CRM software is not enough… Establishing a lifelong customer relationship and loyalty is not just a technology problem. Marketers need to bring the strategy, data and technology together to establish and operationalize a CRM capability. To do this, they must establish a customer relationship and experience strategy.” In the dealership, it’s as simple as asking, “What’s happening to my customers? Is my CRM helping me make more deals, or is our process breaking down?” So how does a dealer combine technology with a selling mindset that provides customers your undivided attention and connection before they say yes?
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How much tech is too much tech? How do you feel when someone is talking to you, but texting? How would you feel in a selling environment if your salesperson was entering data into their phone while they were showing you a vehicle? Probably not very good. But it’s reality in many dealerships that have invested fortunes in high tech, thinking it will “revolutionize their sales process.” Most customers aren’t buying it. No matter what a salesperson is doing on their phone, a vast majority of customers think they’re being ignored. In my opinion, when a salesperson is in front of a customer, their eyes need to be up and directed toward their customer. Look down at your phone and you’re likely to lose a deal. So the challenge really is how much technology do we need, and when is it best to use good old-fashioned rapport building and eyeball-to-eyeball selling? Old school or new school – It’s all good, if it’s done right. Once the sales force has learned (or relearned) the more traditional side of relationship-building and management, it’s time to show how mindset and technology together can forge a highly successful sales program. Technology can be a catalyst to help build traditional relationships to reach more people in more ways. When done right, it results in more deals. Used properly, tools such as Internet Lead Modules and CRMs can prime the pump efficiently. Using prospect and customer information, a smart CRM can store critical information about a prospect’s wants and needs, as well as timeline and budget. Technology does the heavy lifting, while customer engagement closes the deal. High Tech & High Touch High tech allows your sales team to be efficient. High touch, or client engagement, is what’s required to be effective. In other words, it doesn’t matter how efficient I am at auto responding to prospects if they don’t show up and buy. Most of us still want to do business with people we like, respect and trust – and that requires one-on-one interaction. For the best and most effective results, brainstorm about how best to use/blend the two – high tech and high touch. Then, test it in your next sales training session. Here’s one scenario using email as the springboard: Do what the others don’t. Instead of
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canned auto-responders for inbound leads, try a catchy, clever and, most importantly, personalized email that will spur a visit or at least put you higher up on the radar than the other guys. Try a subject line like, “Scott, I’ve been waiting for you to email me!” Most prospects shop online because they fear entering a dealership. They don’t want some pushy salesman. But, knowing you were low-key and fun to work with could help start a dialogue. Today’s customers don’t want the old sales gimmicks, but they also don’t want to be ignored, or feel like they’re going through a line at Walmart to buy
a car. This is a huge buying decision. They deserve your attention, your personality and the best experience you can provide. Remember, they can go anywhere in the world to buy their vehicle. Give them every reason to buy from you. Ultimately, it’s CRM technology and a selling mindset together that make customer relationship management work effectively in today’s auto sales world. Former dealer executive Scott Bergeron is the founder and principal at Daily Gameplan. com - a sales team performance company. Scott can be reached at 303.918.3169 or scott@dailygameplan.com.
December 2016 / Auto Dealer News
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ACCELERATE
BY GWC WARRANTY
BANK MORE ON THE BACK END The Ultimate Customer Satisfaction Experience
So much of what you do on a day-to-day basis is to preserve your front-end gross. You act with discipline when acquiring inventory, you carefully manage reconditioning costs, you price your cars based on demand and market and you work to sell them in a timely fashion. But what are you doing to make more profit on the back end of your deals? Statistics show very few dealers offer service contracts on every sale. But why? Beyond the fact you can better protect your customers after the sale, there are countless benefits that put more profit in your pockets. Think about the extra commas in your bottom line if you apply the same effort to your back-end profits as you do to protecting your front-end gross. Nice mental image, isn’t it? It starts with having a process: Think 300 percent. That means you offer 100 percent of your service contract menu to 100 percent of your customers 100 percent of the time. That doesn’t mean you’ll end up getting every single customer to purchase a service contract. But if you can bump your penetration from 25 percent to 50 percent, you’ve just doubled your profits from the back end of deals. Not to mention the more service contracts you sell, the more you stand to get back in return. You get out what you put in: A portion of every service contract you sell is set aside in the event a claim is paid on that particular vehicle. Check with your service contract provider to see what portion of that reserve, if any, you can get back when the contract expires.
GWC Warranty dealers who qualify for our Elite Dealer Program begin earning a portion of those reserves back when they reach certain service contract volume milestones. Create enough service contract volume and WealthBuilder dealers can qualify for up to 100 percent of their underwriting profits. Service contract volume isn’t the only driver of that profit center. Selling quality vehicles and focusing on reconditioning will help keep reserve accounts full, as fewer claims are paid from them. Up your game with upsells: When it comes to immediate profits, upsells to richer coverage levels with longer terms will help build up reserve account balances. If you’ve followed the first two steps of this process and you work in upsell opportunities, you’ll be offering better contracts more often, making more underwriting profits available and, perhaps most important, improving post-sale satisfaction, setting you up for long-term profitable benefits as well. Repeat, refer, rejoice: Where you stand to benefit the most from a standardized back-end profit approach is when it comes back to you on the front end. How does that work? Imagine the customer you protected for a longer term with richer component coverage. Now think about how he’ll feel when two, three, four or even five years down the road, the service contract you sold is still saving him money on unexpected repairs. It’s the ultimate customer satisfaction experience, and one customers will tell family and friends about. So when their cousin, friend or colleague needs a quality vehicle, where will they go? You guessed it – they’re coming to you. And when they’re in the market for another vehicle, you can be sure they’ll start their search where their last one ended – on your doorstep.
SAFETY WATCH
BMW RECALLS MORE THAN 100,000 VEHICLES Fuel Pumps May Have Loose Wires
BMW of North America, LLC (BMW) is recalling 136,188 model year 2007-11 BMW X5 3.0si, X5 4.8i, X5 M, X5 xDrive30i, X5 xDrive35i, X5 xDrive48i and X5 xDrive50i, 2008-11 X6 x Drive35i, X6 xDrive50i and X6 M; 2010-11 X6 ActiveHybrid, 535i
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xDrive Gran Turismo, 535i Gran Turismo, 550i xDrive Gran Turismo and 550i Gran Turismo, 2011-2012 528i, 535i, 535i xDrive, 550i and 550i xDrive and 2012 535i ActiveHybrid, 640i Convertible, 650i Convertible, 650i xDrive Convertible, 650i Coupe and 650i Coupe xDrive vehicles. The affected vehicles have in-tank fuel pumps that may have insufficiently crimped wire contacts. The loose wires may cause the connector to melt, resulting in a fuel leak. Additionally, the fuel pump may stop working, possibly causing an engine stall and increase the risk of a crash. BMW will notify owners, and dealers will replace the fuel pump module, free of charge. The recall is expected to begin Dec. 5.
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LEGAL UPDATE BY JEFF INGRAM
THE CFPB LIMITS ARBITRATION AGREEMENTS How it Might Affect Dealers From its inception, the CFPB has been expected to take some action to limit or ban pre-dispute arbitration agreements. It first undertook a “study” of arbitration agreements. As expected, that study confirmed, at least in the eyes of the CFPB, exactly what everyone expected the CFPB to conclude – that arbitration agreements hurt consumers. Reaching that conclusion seems to have been the CFPB’s goal from the start. The CFPB has now proposed a rule limiting pre-dispute arbitration agreements that prohibit consumers from filing or participating in class actions. If there was any dispute as to the CFPB’s view of arbitration agreements, that should now be eliminated considering the CFPB calls such agreements “contract gotchas.” The CFPB claims these contracts allow companies to “sidestep the legal system, avoid accountability, and continue to pursue profitable practices that may violate the law and harm countless consumers.” The proposed rule has three basic
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points. First, the rule would prohibit most independent dealerships from enforcing or relying on a pre-dispute arbitration agreement in any way regarding class actions. Second, the rule would require a disclaimer in any pre-dispute arbitration agreement that says the agreement does not apply to class actions. Third, the rule would require submission of certain records to the CFPB regarding pre-dispute arbitration agreements as well as certain details of arbitration proceedings. What does this mean for an independent dealer? If the rule becomes final, it would apply to most independent dealers. If you are not a Buy Here-Pay Here dealership and you are primarily engaged in the sale and servicing of motor vehicles, the rule might not apply to you directly but the rule might still affect even those dealers because of new requirements from their financing sources. If the rule applies to your dealership, you will not be able to enforce an arbitration agreement made after a certain date to stop a class action suit. If a court ruled the case could not proceed as a class action, you should be able to enforce the arbitration agreement thereafter as to that claim. If the court certifies a class, the arbitration agreement could not be enforced. Second, you will be required to include language in all arbitration agreements clearly telling the consumer they may participate in a class action in court. Finally, you will be
required to submit certain information about all arbitration proceedings to the CFPB, including the claims and counterclaims, and the amount of any judgment. One benefit of arbitration has always been its non-public nature. The proposed rule would certainly threaten the confidential nature of arbitration as we know it. The rule is not in effect now. It will likely be close to a year before it becomes effective, if it becomes effective. During that time, dealers will have to evaluate how they want to proceed. Do you want an arbitration agreement that only applies to individual claims? Will your financing sources allow you to use arbitration agreements that only apply to individual claims? Do you want to continue to use arbitration agreements if those agreements allow class action claims in court? These are all decisions that will have to be made. Until the new CFPB rule becomes final, you can continue to operate as you have always operated. But be on the lookout for changes. They are coming.
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Day one mile one protection on all service agreements. Nationwide coverage.
Not an RRG. Ask your current provider about their insurance.
Available for 15 model years back. Mileage and coverage terms available from 3 months and up to 48 months, and Factory Wrap Protection up to 7 years. Over 75 years of combined automotive and service agreement experience to serve you and your customers needs. No hassle claims payment, paid direct to repair facility. Devoted to our dealers needs.
SALES MATTERS JOHN CHAPIN
SELLING IS CHANGING… NOT REALLY Facts That Remain the Same
This past week I’ve received three separate emails from various sales gurus talking about how much sales has changed. While the Internet, social media and advances in technology have altered some of the peripheral aspects of selling, the foundational principles and keys that lead to sales success have remained the same. FACT: SALES IS STILL A NUMBERS GAME Failure in sales is due to a lack of activity 99.9 percent of the time. In other words, not making enough calls. Now that we have the Internet, I know sales reps who spend hours looking up background information on prospects before they call them. That is a mistake. Look up the information a prospect would reasonably expect you to have, but don’t spend hours being perfect. Just look up some quick information and make the call. Another way technology can work against us is some people believe they have to be technical experts before they call anyone.
An insurance agent I know spent a full six months in the office studying cyber liability because he had to know everything before he could speak to anyone. The insurance agent is a producer (salesperson) first, not an underwriter (technician). The reality is you will never know everything and this is usually just an excuse to avoid doing the hard work of making lots of calls. Just because you have the Internet to look up information doesn’t mean you should be spending hours “preparing” at the expense of making calls. Just get some basics and make the call. Learn what you need to learn so you don’t make any careless or “stupid” mistakes, but focus more on activity than on being technically proficient. FACT: YOU’RE STILL THE EXPERT While it’s true that today’s consumer is, generally speaking, better informed than in years past, you’re still the expert who has probably forgotten more than they will ever know. The famous author Malcolm Gladwell once said it takes roughly 10,000 hours of study to master one’s craft. While you might not be at the 10,000-hour mark yet, you are still far better off than someone who has spent five, 10 or even 40 hours on the Internet studying your industry and products. You live in your business every day – the prospect doesn’t. People still need an honest, straightforward salesperson who
understands the subtleties and idiosyncrasies and can educate them on what’s best for them. FACT: FACE-TO-FACE AND PHONE ARE STILL THE MOST EFFECTIVE WAYS TO SELL Have you ever not received an email someone swore they sent you? It just happened to me again two weeks ago. In addition to the fact you can’t always rely on email, LinkedIn in-mail, or other Internet communication, you also lose the most important parts of communication, such as voice tone and body language. Plus, electronic communication distances you and dehumanizes the experience. For those reasons, in-person communication is always the most effective, followed by Skype and other face-to-face apps, then by phone communication. Electronic communication serves its purpose – short-sweet, non-critical communication in which you are simply conveying information. What kills me is when I see salespeople using email for initial communication or during an important part of the selling process. In that case, they are simply hiding behind technology because they are afraid to make a call. Also keep in mind that even non-critical electronic communication has to be backed up with a phone call or in-person contact to ensure it was received. You have much more impact when people can see and/or hear you. Don’t hide behind technology and spam people on the initial and other important communications. FACT: IT IS STILL ALL ABOUT RELATIONSHIPS AND DOING WHAT’S BEST FOR THE OTHER PERSON There is no “new relationship selling” or “solution selling.” The best have always focused on the long-term relationship and the best possible solution for the prospect, even if it involved sending someone to the competition. The best have always been seen as a peer and business partner looking out for the best interests of the prospect. THE BOTTOM LINE: THE ONLY WAY SALES HAS CHANGED IS FOR THOSE DOING IT THE WRONG WAY Years ago you could pull the wool over someone’s eyes, get away with not knowing as much, have subpar sales and people skills, and not work as hard. That said, the people who have always done it right have found little has changed over the years. For them, being great at sales still requires you work hard and make the calls, communicate effectively, build the personal relationships, practice professionalism, be knowledgeable, put the other person first and embody the character traits of honesty and integrity. John Chapin is a sales and motivational speaker and trainer with more than 27 years of sales experience as a No. 1 sales rep. He is author of the 2010 sales book of the year: Sales Encyclopedia. For more information, visit www.completeselling.com or email johnchapin@ completeselling.com.
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Auto Dealer News / December 2016
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AUCTION NEWS
CHARLESTON AUTO AUCTION EXPANDS WITH NEW RECON CENTER Enables Auction to Better Serve Clients
XLerate Group recently announced the debut of Charleston Auto Auction’s new 6,500 square foot detail and reconditioning center. This facility further augments Charleston Auto Auction’s capabilities to serve both dealer and institutional clientele.
“For years, Charleston has provided its dealer and institutional clients with exceptional service, despite not having a dedicated reconditioning facility,” said XLerate CEO Cam Hitchcock. “XLerate’s expansion of the Charleston facility demonstrates our commitment to invest in our auctions and expand our services to exceed the expectations of our clients.” “Our new detail and reconditioning facility brings exciting new capabilities and supports our continuing growth,” said General Manager Laura Taylor. “With the new land and building, we have immediately increased our production capacity and added resources to support our institutional clients generally and these clients’ CPO programs specifically. “The detail shop offers a multi-line production process and is outfitted with the most modern equipment. Next to the detail shop is a 3,000 square foot building that houses fleet/lease operations and is available to Charleston’s auction partners. I could not be more pleased to offer this to our clients.”
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December 2016 / Auto Dealer News
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WASHINGTON UPDATE
NIADA GOVERNMENT REPORT
Latest Governmental Issues and Activity Here’s a rundown of some of the latest governmental issues and activity affecting the used car industry from NIADA senior vice president of legal and government affairs Shaun Petersen and NIADA lobbyist Sante Esposito of Key Advocates.
REGULATORY REPORT By Shaun Petersen
FEDERAL TRADE COMMISSION A federal court judge approved the FTC’s $10 billion settlement agreement with Volkswagen over the company’s deliberate cheating on government emissions tests. The approval formally starts the process for owners of certain Volkswagen and Audi 2.0 liter diesel vehicles – including independent dealers with those vehicles in their inventory – to get compensation. In most cases, the owners of VW and Audi diesel cars fitted with the emissions defeat devices will receive between $12,500 and $44,000 each, depending on the model, year, mileage and trim of the car, as well as where the owner lives. A post on the FTC’s consumer blog, www.consumer.ftc.gov/blog/vwbuybacks-and-lease-terminationsbegin, provides additional background information on the settlement order, along with detailed instructions for affected owners about how and where to file a claim and the claim-processing timetable. It also tells consumers how and where they can pick up buyback checks and noting those funds do not have to be used to buy a new Volkswagen.
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Auto Dealer News / December 2016
CONSUMER FINANCIAL PROTECTION BUREAU Supervisory highlights: The CFPB released its latest supervisory highlights report, which showed recent supervisory actions returned more than $11 million to more than 225,000 harmed consumers. The report outlined violations found in auto loan origination and servicing, including a claim that servicers refused to return personal belongings from a borrower’s repossessed car until the borrower paid a storage fee. If borrowers did not pay the fee in the allotted time, usually 30-45 days, depending on the state, the companies would dispose of the property instead of returning it to the borrower. The CFPB said it is an illegal and unfair practice to refuse to return a consumer’s personal property until a fee is paid. Service providers bulletin: The CFPB reissued its compliance bulletin on service providers, saying the amendment was needed to clarify that entities have flexibility, allowing for appropriate risk management of service providers. The new bulletin includes the same list of expectations for managing service provider relationships, such as verifying that service providers understand and are capable of complying with federal laws; requesting and reviewing service providers’ policies, procedures and training materials; and including in contracts clear expectations about compliance. The revised bulletin gives entities some flexibility and discretion when determining the level of oversight needed, based on the circumstances of the relationship and the particular activities of the service provider, as well as the potential for harm to consumers. Comments on payday lending rule: NIADA joined with NADA and the RV Dealers Association to submit comments to the CFPB regarding its proposed payday lending rule. Our comments raised concerns that the CFPB’s proposed rule needs greater clarity to ensure retail installment contracts for the purchase of personal property, such as automobiles, are not covered by the proposal. We also told the bureau the purchase money exemption must include all components of the transaction, including the purchase of voluntary protection products such as GAP, as well as negative equity.
LEGISLATIVE REPORT By Sante Esposito
S.2663, REFORMING CFPB INDIRECT AUTO FINANCING GUIDANCE ACT Advocacy efforts heading into the lame duck session, which begins in midNovember, have been focused on urging Sens. Joe Donnelly (D-Ind.) and Heidi Heitkamp (D-N.D.) to cosponsor the bill, which rescinds the controversial auto
financing guidance action taken by the CFPB in March 2013 and provides for a more transparent and accountable process for addressing the issue of indirect auto lending. The effort is the result of a recent meeting with Sen. Richard Shelby (R-Ala.), chairman of the Senate Banking Committee, which has jurisdiction over the bill. In that meeting, Shelby committed to marking up the bill in committee during the lame duck session if two Democrats would cosponsor it. Donnelly is a small business advocate who was a featured speaker at NIADA’s 2016 National Leadership Conference and Legislative Summit. NIADA will also keep pushing its request for the Senate to convene a series of meetings with the CFPB and stakeholders to explore the possibility of an administrative solution to the issue. The CFPB’s guidance claimed dealer discretion on interest rates in indirect auto financing creates a “significant risk” of unintentional disparate impact discrimination. S.2609, MARKETPLACE AND INTERNET TAX FAIRNESS ACT This bill would allow states to charge sales tax on so-called “remote transactions,” such as Internet sales, but thanks to NIADA’s efforts it now specifically exempts vehicles, aircraft, vessels and business purchases – all cases in which states currently collect a use tax either when the vehicle is registered or because businesses pay their use tax. A summary of the text refers to the exemption as preventing “double taxation.” The Senate Judiciary Committee has received comments back from a wide range of stakeholders and is still deciding its legislative strategy. Rep. Bob Goodlatte (R-Va.), chairman of the House Judiciary Committee, and Rep. Anna Eshoo (D-Calif.) have developed a discussion draft bill on the remote sales tax issue. H.R. 6094, THE REGULATORY RELIEF FOR SMALL BUSINESSES, SCHOOLS, AND NONPROFITS ACT The bill, introduced on Sept. 21 by Rep. Tim Walberg (R-Mich.) with 76 cosponsors, would postpone the effective date of the Department of Labor’s rule revising income thresholds for determining overtime pay for executive, administrative, professional, outside sales and computer employees exempt from regular minimum wage and overtime pay requirements from Dec. 1 until June 1. The bill passed the House on Sept. 28 by a vote of 246-177. Seven Democrats, including National Leadership Conference speaker Rep. Henry Cuellar (D-Texas), voted in favor.
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GOVERNMENT NEWS
CFPB’S STRUCTURE RULED UNCONSTITUTIONAL District Court Rules Structure Violates Separation of Powers
A federal appeals court issued a ruling declaring the current structure of the Consumer Financial Protection Bureau unconstitutional. In an Oct. 11 ruling, the U.S. Court of Appeals for the District of Columbia Circuit said the CFPB’s structure violates the Constitution’s separation of powers because the bureau’s lone director is not sufficiently answerable to the President. The court’s opinion relied on the historical practice of independent agencies being headed by multiple commissioners or board members, and raised concerns of the threat to individual liberty posed by an independent agency led by a single director with little accountability to the President. “We applaud the court for recognizing the overreach created when too much power is vested in an agency virtually unaccountable to
anyone,” NIADA CEO Steve Jordan said. “NIADA supports a common sense approach to consumer protection and fair dealing in the financial marketplace, but the current structure of the CFPB accomplishes neither.” The court’s decision allows the CFPB to continue operating, but orders it to operate as an executive agency like other executive agencies headed by a single individual. During NIADA’s National Leadership Conference and Legislative Summit in Washington D.C., association members met with members of Congress to advocate for passage of the Financial CHOICE Act, which would restructure the CFPB to be led by a bipartisan, five-member commission like most independent federal agencies. The bill would also subject the CFPB’s budget to Congressional oversight through the appropriations process. NIADA encourages all of its members to contact their Senators and member of the House of Representatives and ask them to vote for the Financial CHOICE Act.
EDUCATION CLASS SCHEDULE
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Auto Dealer News / December 2016
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oF Tip THE Month
Using Social Media to Boost Sales: There is no better way to target a specific audience than social media. Facebook, Twitter, Google+, YouTube and LinkedIn are all great ways to find customers looking to purchase a car. A dealership should invest at least one to two hours per day into social media to increase sales. This means daily posting, responding to potential buyers and purchasing targeted ad campaigns to solicit potential buyers. Like most advertising not everything will work, but being consistent and measuring your success will certainly increase sales.
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SALES MATTERS BY ALAN RAM
PHONE UPS THAT SHOW UP The Goal is Not Simply an Appointment
Every time I ask a group, whether it be dealers or salespeople, what the goal of a sales call is they tell me it’s to “set an appointment.” No, it’s not! Let me explain with two scenarios. Scenario A: You take a sales call. Everything goes great: You get a name, you get a number and, yes, the caller sets an appointment. You hear barking in the background, and you start talking to the caller about his dog. Now you’ve got some Golden Doodle-rapport. Unfortunately, that appointment does not show up. Scenario B: Someone calls and you get her name and number. That’s no problem – you again use the highly effective technique that I call “asking them for it,” which works just about every time. This customer will not set up an appointment no matter how hard you try. She just won’t commit. But later on that evening, she comes in and buys. Which would you rather have? And that’s not a trick question. Clearly Scenario B, right? But she didn’t have an appointment. So what? The goal of a sales call is not to set an appointment but to have someone actually show up at your dealership. SHOW-UPS COUNT, NOT APPOINTMENTS. There’s a big difference between setting up appointments and having people arrive. I’ve had plenty of salespeople come up to me excited because they just used one of my word tracks on a customer on the phone and it worked great. My question is always, “Did the caller show up yet?” If not, nothing has worked “great” yet. Not until they show. Now, I’m not telling you not to set up appointments, so relax. Of course you want to set up appointments. But let’s face it, nobody comes into your dealership because you got their name and phone number. “Hey honey, that salesperson at Friendly Kia just got our phone number! Let’s get down there!” MESSAGING MATTERS By the same token, nobody comes into your dealership simply because
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Auto Dealer News / December 2016
you set up an appointment. They come in because of everything else you say. What reasons are you giving customers to come to your dealership, other than to see you? If you can’t answer that question, you need to figure it out. Most telephone training in the automotive industry is simple: 1. Get their name. 2. Get their phone number. 3. Smile, because a smile can be heard over the phone – that is true, by the way. 4. Then set up an appointment they probably won’t show up for. You need to step up your game. To get people to come to the dealership, you must give them solid reasons to show up. The next time someone asks you what your goal on a sales call is, I want you to say: “It’s to get someone to actually show up.” Alan Ram is president of Proactive Training Solutions.This article originally appeared on NCM’s Up to Speed blog (blog. ncminstitute.com) and is reprinted with permission.
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Auto Dealer News / December 2016
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SOCIAL MEDIA BY KATHI KRUSE
10 STRATEGIC WAYS TO DRIVE LEADS WITH SOCIAL MEDIA Leveraging the Power
One of the most overlooked and underutilized practices in digital marketing is leveraging the power of social media to drive leads and sales. There are a lot of obstacles for dealers to overcome, including a true appreciation of the value, a lack of skills, and certain business cultures that don’t lend themselves to being social. However, if a dealer can eliminate the stumbling blocks, there are strategic, lucrative ways to drive leads with social media. Unfortunately, many dealers and GMs think of social media as an afterthought. Many believe its only value is in creating interest in the dealer’s brand. If this is your mindset then listen up because you’re leaving money on the table. Social media is a quickly evolving beast. Forty percent of marketers believe social media has become increasingly difficult in the past 12 months. Platforms are constantly changing algorithms, releasing new features and “changing the rules.” This requires dealership marketers to think on their feet and quickly adapt their approach at the drop of a hat. The landscape to grow your business with social media has never been more fertile: • 70 percent of the U.S. population has at least one social networking profile. (Statistica) • 52 percent of online adults now use two or more social media sites. (Pew Research) • In 2015, Facebook influenced 52 percent of consumers’ online and offline purchases, up from 36 percent in 2014. (The Drum) Laying the required groundwork is the key to driving leads with social media. Listening to understand your customers improves marketing success. Leveraging social media to engage people before you try to sell them something keeps customers coming back. You save big money because you laser-focus on interested buyers instead of blasting unwanted messages to strangers. Groundwork produces seedlings and the opportunities become plentiful. The next steps are to enact strategies to drive leads with social media. Be open to the possibilities here. Your level of willingness to adapt to the new ways of reaching customers has a direct effect on your results. 10 STRATEGIC WAYS TO DRIVE LEADS WITH SOCIAL MEDIA 1. Begin with a good plan. So many dealers admit they don’t have a marketing plan. They know how valuable marketing is in general, and make some marketing efforts, but inevitably they feel like they need to spend all their time on operations and sales.
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Auto Dealer News / December 2016
I totally understand how the day-to-day activities involved in running a store can make you wish there were more hours in a day. The irony is you can actually save time with a marketing plan because you’re operating more proactively rather than being in reactive mode. Mapping out a plan also means you can more easily hand off the work of implementing it to somebody else. Better time management is just one perk of a marketing plan and here are six additional ways a marketing plan can benefit your business: • Reinforces your brand. • P ositions your company in the marketplace. • Nurtures current customers. • Attracts new customers. •P repares company for growth. • Helps to analyze what works. 2. Publish useful, highquality, original content. Content strategy means getting the right messages to the right customers at the right time. This involves everything from your website content, blog, social media, and social advertising. High-quality content does not happen without a content strategy. Here are some benefits of developing a content strategy: • Influences buying decisions. • I mproves brand equity and reputation. • Earns customer loyalty. •A ttracts more of the right buyers. • Competitive advantage. • Increased leads and sales. 3. Be social. Always genuinely engage with your audience. Yes, you really do need to be social on social media. Instead of broadcasting the “benefits” of products and services to strangers, add the steps to attract interested buyers
by engaging with them on social media. • 71 percent of those who receive positive social care are likely to recommend your brand to others. • Only 19 percent of those who don’t get any response are likely to recommend that brand. When comments show up, respond. When online reviews are posted, respond. Be more accessible and you’ll notice more customers engaging. 4. Incorporate social selling tactics within your sales process. Social selling is the act of developing referrals, leads and sales using social media. Seventy-nine percent of salespeople who use social media in the sales process outperform those who don’t. Social selling is just like any other sales process. Salespeople build a network (online or offline) to increase referrals and leverage relationships to create warmer leads. Talented sales professionals already have an offline network they’ve nurtured for years. Savvy social salespeople have already been working social media to develop leads. But these individuals are your top performers. What will you do to engage the bottom 90 percent of your team? To attract, engage and sell to today’s hyper-connected buyers, dealers need to build a social selling process within their organization. 5. Leverage the awesome power of Facebook ads. No matter what your Facebook marketing goals are – grow page likes, boost reach and engagement, drive leads, etc. – Facebook ads will help achieve those goals. Facebook ads are by far the most powerful way to advertise your business on social media.
When a shopper is in the final stages of their research and ready to take action, strategic landing pages guide them further down your sales funnel. continued on page 28 www.theciada.com
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6. Use well-designed landing pages to capture leads. When a shopper is in the final stages of their research and ready to take action, strategic landing pages guide them further down your sales funnel. Capture their attention through Facebook ads and convert buyers with actionable, urgent offers they can’t resist. Don’t forget the allimportant call-to-action and include a lead form to track and follow up. 7. Re-market to people who visit your website with Facebook ads. The more advanced Facebook ads strategies are difficult to master but the results are hard to ignore. Perhaps one of the most powerful tools Facebook has to offer is the ability to serve personalized ads to people who have visited your site. Use the targeting option “Custom Audience – Website Traffic” to re-market to people who have visited your site within a set time frame. Once you’ve placed a Facebook pixel on your site (a piece of code that
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tracks visitors), you can set up specific audiences with filters based on pages they’ve visited. 8. Leverage the power of LinkedIn. If you’re a salesperson, there is no reason not to use LinkedIn to build your network as one of the ways to drive leads with social media. Make sure you have a 100 percent complete profile – no “lazy bones jones” on this one. People want to know about you and a well-constructed profile with a nice picture says, “Hey, I’m here to help.” Don’t waste time trying to connect with “everyone.” Be deliberate and thoughtful about who you’d like to know and who can introduce you or recommend you. Pro tip: write and publish a weekly article on LinkedIn that displays your knowledge and expertise. It will develop your “personal brand” as a thought leader and trusted resource. 9. Use Twitter for prospecting. To many companies and their salespeople, it seems like Twitter is a huge waste of time. And sometimes it is – if
Auto Dealer News / December 2016
you’re just messing around on the social network and pitching folks to get on a demo, it probably won’t be that helpful to you. Why? Because the goal of using Twitter isn’t to sell something at the very second you tweet. By using Twitter wisely, you can be part of the most relevant conversations as they happen. Spot opportunities first, build relationships, deepen customer trust and make a name for yourself. However, just having a presence on Twitter doesn’t lead to conversions. It’s how you use it that makes the difference between tweeting into the void and generating leads. Spend the time and effort to: • Find prospects. • Discover buying signals. • Gain insight on companies. •A ccelerate deals with conversation. • Build your following. •B uild relationships with influencers. 10. Show another side of you on Instagram. Instagram is a great place to promote your company’s
personality. Spend 10-15 minutes each day engaging with other users. I know a dealership that has gotten leads via their Instagram content. Ready to convert leads? Instagram now has more advertisers than Twitter. Facebook (who owns Instagram) allows ad creation and publication through the Facebook Ads Manager platform. Are you ready? These 10 strategic ways to drive leads with social media make it possible to eliminate the obstacles to converting your fans into customers. If you’re ready to take it to the next level, Kruse Control helps companies just like yours navigate the social media landscape. Please email me at kathi@krusecontrolinc.com. Kathi Kruse is an automotive social media marketing expert, blogger, consultant, author, speaker and founder of Kruse Control Inc. Kruse Control coaches, trains & delivers webinars focused on integrating social media and online reputation management into dealership operations.
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COMPLIANCE OVERDRIVE BY CHIP ZYVOLOSKI
AVOID THE “ONE SIZE FITS ALL” RETAIL SALES CONTRACT MINDSET Address Your Specific Terms Avoid compliance violations and potential fines by setting aside time to review your retail sales contracts. Wait, aren’t all forms “one size fits all?” Your credit documents need to address the specific terms of credit you offer – matched with state and federal disclosures and provisions. Mismatching your credit terms and contract provisions could cost you thousands of dollars in fines, damages and legal fees as well as harm your business reputation. Here are a few features you should review to make sure your retail sales contracts match the credit terms you offer. Type of Property Sold Motorcycles, autocycles, off-road vehicles, RV’s and other motorized vehicles may not be “motor vehicles” under your state’s retail sales laws. Required contract and disclosure terms can vary depending on whether you are selling a “motor vehicle” as defined in your state’s retail sales laws. With the variety of motorized vehicle types available, make sure the contract you are using is designed for the type of personal property you sell. The same is true of your license to sell motor vehicles. Make sure your dealer’s license covers the property you sell. Cash Down Payments Usually, the cash down payment is received at closing, but dealers sometimes allow buyers to make one or more down payments after closing. Under the Truthin-Lending Act and Regulation Z of the act, these “deferred down payments” or “pickup payments” must be made no later than the due date of the second regularly scheduled payment. They also cannot be subject to a finance charge. It’s helpful to have a contract provision with buyer’s promise to make deferred down payments. It must also be a line item in the Itemization of Amount Financed, which treats it as a credit even though it hasn’t been received yet. Although it’s not required, dealers should include the date and amount of a deferred down payment in the Fed Box Payment Schedule. If you allow deferred down payments, be sure your contracts support them or are flexible enough to handle them. Note: some states do not allow deferred down payments or require them to be paid sooner than under Reg. Z.
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Auto Dealer News / December 2016
Negative Equity Trade-Ins Under Reg. Z, a down payment in the itemization can never be less than zero. As a result, negative equity trade-ins require special handling. Reg. Z allows two methods of calculating the down payment. One way is to net all the cash and other credits against the negative equity in the trade-in (“netting”). Another way is to add all credits but not subtract any negative equity in the trade-in (“nonnetting”). The method used will affect the calculated down payment and the amount of a separate line financing the balance owed on the negative equity trade-in. You may not have much choice in selecting a contract with your preferred netting or non-netting method, but it’s important to understand which method your contract uses so you can explain it to buyers. Equal Installments. Balloon Payments. Equal monthly payments are a common payment frequency. Changing to more or less frequent equal payments can sometimes require changes to contract terminology and disclosures. Be sure to review your documentation and completion tools carefully if you require equal periodic payments other than monthly. Balloon payments are generally structured as a final payment that is more than twice as large as the average periodic payment. A balloon payment schedule can lower periodic payments, but the buyer might have problems paying the balloon. Dealers and lenders sometimes provide options for buyers who can’t pay the balloon amount. Those options may be included in the contract, especially if they are required by law. For example, one option is to allow a buyer to pay the balloon amount plus interest in installments, usually in an amount no greater than the prior installments. States sometimes require additional disclosures to warn the consumer of the final payment amount. Be sure to review your documentation if you offer balloon payment features. Arbitration Not all contracts include an arbitration provision. You should review your contract to confirm it has one if you want it. The CFPB has proposed a regulation that would preserve the buyer’s ability to join a class action lawsuit even if the dealer/ creditor has a contract right to require arbitration. If the CFPB’s proposal becomes final, you will want to review your decision to include an arbitration provision and either update or remove it. Conditional Delivery – Spot Delivery Is your retail sales contract conditioned on your ability to sell the completed contract to an assignee? If so, your retail sales contract should include a provision telling the buyer about it. If you do conditional deliveries, it can be risky to use a retail contract that doesn’t include a spot delivery provision
or specifically cross-reference a separate spot delivery agreement. In that case, someone reading the retail contract alone will not know it’s subject to another agreement. (The same concept also applies to arbitration provisions.) If spot delivery is an important element of your credit programs, make sure your contract addresses it in some way. Note: some states do not allow conditional delivery provisions. Fees and Charges Your retail sales contract probably has blank lines in the itemization and in other places. That does not mean you can put anything you want in the blank lines, especially fees. In many states, only specific fees with specific names are allowed. You should review your retail contracts to determine if they have any required disclosures or contract provisions for the specific fees you charge. What if there isn’t a contract provision or disclosure for your fee and it only appears on a blank line in the itemization? That may be okay for some fees in some states. The point is that you should research your state to determine what fee information is required and to confirm your retail contract has it. Like the seasons, your credit programs and terms can change over time. Now is a good time to review your credit documentation to make sure it is up to date. Chip Zyvoloski is a senior attorney for Indirect Lending at Wolters Kluwer. For more information, please visit www. wolterskluwerfs.com/indirect.
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