DEALER’S EDGE
S TAT E A F F I L I AT E
MAGAZINE
I L L I N O I S I N D E P E N D E N T A U T O M O B I L E D E A L E R S A S S O C I AT I O N NOVEMBER/DECEMBER 2016
CRM TECHNOLOGY vs. CRM MINDSET Page 10
DALLAS, TEXAS Permit No. 2079
PAID
PRSRT Standard U.S. Postage
VISIT US AT W W W.IL- IADA.ORG
INSIDE
06......................................................... Tackling Compliance 08............................................................. You Can’t Do That 09.................................Simple Tech Tools with Serious ROI 10................................. CRM Technology vs. CRM Mindset 12..........................................................Dealership Blogging 15.........................Americans Driving Flood Damaged Cars 16................................................................ ADESA Chicago
WHAT’S NEW NLC Content Online
If you missed the National Leadership Conference in Washington D.C. in September, we have all the education filmed, edited and available for viewing on NIADA.TV! Highlights include the U.S. Department of Labor speaking about the new overtime rules and other wage issues, the FTC talking about marketing, the Department of Justice discussing fair lending regulations and servicemember issues, and the CFPB covering collections. You can view these and other industry related education sessions 24/7 on NIADA.TV.
ADVERTISER’S INDEX
ADESA.....................................................................................7 AutoZone...............................................................................15 Autotrader............................................................................IFC Black Book...............................................................................3 Dyer Auto Auction................................................................14 Manheim.com...................................................................10,11 Manheim Minneapolis...........................................................5 Manheim Pennsylvania........................................................13 NextGear Capital...................................................................12 Protective............................................................................IBC Spireon.................................................................................... 9 Veros Credit............................................................................8 VAuto..................................................................... Back Cover
OFFICE
For information on how to become a member of IIADA, please contact Bruce Eklund at 800-987-6627 or lilcheeper5@aol.com.
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 Dealer’s Edge is published bi-monthly by the National Independent Automobile Dealers Association Services Corporation, 2521 Brown Blvd., 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 Blvd., Arlington, TX 76006-5203. The statements and opinions expressed herein are those of the individual authors and do not necessarily represent the views of The Dealer’s Edge, the Illinois Independent Automobile Dealers Association, or the National Independent Automobile Dealers Association. Likewise, the appearance of advertisers, or their identification as members of IIADA or NIADA, does not constitute an endorsement of the products or services featured. Copyright ©2016 by NIADA Services, Inc. All rights reserved. Visit the NIADA Website at www.niada.com.
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
ASSOCIATION NEWS / BY JOE MOK
LOOKING FORWARD TO 2017 >> From The President Dear dealers,
ONE OF MY OBJECTIVES as president is to unify our dealers and vendors. In the past we may have looked at each other as competitors, but I think it’s important to find a common ground and work together, sharing ideas that may help your business elevate to the next level. Recently I visited a fellow member dealer and was impressed with the way his employees dressed and the organization of the CRM department. I believe by touring other facilities we can build relationships and learn at the same time. In 2017, one thing I would like to see happen is to have monthly workshops sponsored by vendors. These monthly workshops would be available to any paying member of NIADA or one of their store employees. I have already been in touch with some vendors, such as the following: • ALLY: a class on buying and selling on Smart Auction. • ADESA: walk through the new facilities, tour of departments and OPENLANE. • Major Manufacturer: educating us on aftermarket products. Other continuing education classes I would like to have include: • Financing rights and wrongs.
BOARD MEMBERS Chairman
Gordon Tormohlen Tormohlen’s Good People Automotive 1800 S Ihm Blvd Freeport, IL 61032 815-232-5543 goodpeople@aeroinc.net
President
Joe Mok G Motor Cars 2411 E. Oakton St Arlington Heights, IL 60005
Vice President
Eric Nelson Nelson Automotive Inc. 1801 S Busse Mt Prospect, IL 60056 eric@heycars.com
Treasurer
Lori Chignoli-Cora Chignoli Auto Sales 1850 Essington Rd Joliet, IL 60485 lori@chignoli.com
Secretary
Alex Tovstanovsky 8959 Hanslik Ct Naperville, IL 60564 (630) 631-2535
4 DEALER’S EDGE / NOVEMBER/DECEMBER 2016
• Education on the new law of mandatory warranties. • Sales people training. • New product review board. Other items we will be working on include the 2017 IIADA Conference, which I would like to host as a one day conference with vendors, lunch, breakout sessions, and dinner somewhere in the Chicagoland area. Any help with these would be appreciated. Good luck on closing out 2016 strong! We will talk to you soon.
Executive Director
Bruce Eklund IL-IADA Headquarters 129 S Phelps Ave Suite 706 Rockford, IL 61108 (800) 987-6627
Czar
Dana Eklund IL-IADA Headquarters P.O. Box 7266 Rockford, IL 61125 (800) 987-6627 iiada302@gmail.com
Board Members
Paul Gluchowski Turner Acceptance 4454 N. Western Ave Chicago, IL 60630 (773) 290-5002 paul@turneracceptance.com Amy Goodnight Lohman Companies 3901 15th St. Moline, IL 61266 (309) 764-8331 x 220 amy@lohman-companies.com
Ginger Higgins Integrity Motor Cars 1302 Sandyhollow Rd Rockford, IL 61109 815-397-5555 integritycars3@yahoo.com Brad McCorkle 4th Ave Auto Sales 4130 4th Ave Moline, IL 61265 (309) 736-7550 4thaveauto@gmail.com Paul Schmidt Nationwide Acceptance 3435 N Cicero Chicago, IL 60657 pschmidt@nac-loans.com Rockie Tincher Major Manufacturer VSC PO Box 516 Dyer, IN 46311 800-410-0274 fimgr1015@att.net
www.il-iada.org 800-987-6627 www.il-iada.org
www.il-iada.org
NOVEMBER/DECEMBER 2016 / DEALER’S EDGE 5
COMPLIANCE MATTERS BY DANIEL J. DOMAN
TACKLING COMPLIANCE Best Practices to Keep Consistent Standards
Process, by definition, means “a series of actions or steps taken in order to achieve a particular end.” Think about that for a moment, and then think about your dealership’s compliance strategy. Does it follow a regimented process that helps ensure your dealership’s employees are taking the necessary actions on every deal to meet your dealership’s compliance requirements? Managing your dealership’s compliance requirements can be daunting. Regardless of the size or complexity of your dealership, ignorance is not an excuse. Adverse action, privacy policies, identity verification, risk-based pricing – there is a lot to comprehend and consider implementing on every deal. Below is a list of key compliance items your dealership should fully understand and some best practices for implementing them on every deal. Privacy Policy According to the FTC website, “auto dealers that extend credit, arrange financing or leasing, or give financial advice must notify customers about the information they collect, who they share it with, and how they protect it.” Any personal information you collect to provide the above-mentioned services is covered by the Privacy Rule. Personal information includes “name, address, phone number, or other information that could be used to identify them individually.” Your privacy policy should be offered at any point of entry when gathering consumer data, including both your online credit application and in-store experience. If you don’t already have a privacy policy in place, your credit application system can provide you with a complimentary privacy policy form builder you can tailor to your dealership’s policies and procedures through the use of the Federal Reserve Board’s Model Privacy Notice. If your dealership already has a privacy policy, it can be easily uploaded into your credit application system to be presented when gathering consumer information. OFAC Checks Before conducting business with a potential purchaser, dealers must run a check with The Office of Foreign Asset Control to ensure they are not unintentionally conducting business with a specially designated national. These checks can be run for free online or you can set preferences to automatically run an OFAC check upon every credit application submission in your credit application system. Automation in this arena can help ensure your dealership’s employees are
6 DEALER’S EDGE / NOVEMBER/DECEMBER 2016
taking required actions and following your dealership’s compliance process. Identity Verification Today, identity fraud is big business. For example, a 2016 identity fraud study by Javelin Strategy & Research, found $15 billion was stolen from 13.1 million U.S. consumers in 2015. Under the Red Flags Rule, “many businesses and organizations [must] implement a written identity theft prevention program designed to detect the ‘red flags’ of identity theft in their day-today operations, take steps to prevent the crime, and mitigate its damage.” Help reduce your dealership’s risk by validating every consumer’s identity. This is another step in your dealership’s process that can be automated with every credit bureau request. Choose an identity verification solution that has customizable settings and allows you to set tolerances for alerts to best suit your dealership’s risk strategy. Credit Score Disclosure Notice (RiskBased Pricing) The Credit Score Disclosure Notice can be used as one process for complying with the Risk-Based Pricing Rule under the Fair Credit Reporting Act. The CSDN should be given to “all consumers who apply for credit and contains their credit score as a way to provide greater understanding of how they are evaluated during the lending decision process.” CSDNs can automatically be generated in your credit application system by selecting your credit bureau(s) and risk model(s). Once you have selected these settings, it can automatically generate a CSDN upon display of each credit bureau report. Adverse Action Notice When using a consumer credit report to make a credit decision, you have legal obligations under the FCRA and Equal Credit Opportunity Act. In particular, “if you deny a consumer credit based on information in a consumer report, you must provide an ‘adverse action’ notice to the consumer.” Generating an adverse action notice and manually printing is a complimentary feature in your credit application system. However, to ensure adverse action notices are consistently generated for all deals necessary, you can additionally subscribe to a mailing service that will identify, generate, print and mail notices on your dealership’s behalf based on the compliance strategy your dealership selects. Again, automating these compliance activities can help ensure your process is consistently executed. Fair Lending Due to recent political changes and resulting enforcement actions, your dealership may have decided to take actions to address its fair lending obligations under the ECOA by setting a standard dealer participation rate for all of your retail installment contracts. As a result, your credit application system has provided you with the ability to set
a standard dealer participation rate that will be applied to every deal. In the event your standard dealer participation rate is deviated from in a downward manner (only), completing a dealer rate exception form can document the good faith, competitive reason for the downward deviation from that standard. Electronic Document Storage Now that you’ve generated several key compliance documents electronically, it only makes sense to securely store your documents so they can be easily accessed at any time. Credit applications, decision details, credit reports, disclosures, adverse action notices, identity verification documents, privacy policies, eContracts, and ancillary uploaded documents can all be electronically stored to create a complete audit trail for each customer. It can all happen with the click of a button from your credit application system. There is the additional benefit of reducing your dealership’s risk of a security breach due to “physically” stored customer information in and around your dealership. Whether perceived as a burden or not, your dealership’s back office needs to comply with federal and state regulations. Set up and maintain a compliance process that best suits your strategy and make it as easy as possible for your staff to follow. All of the actions listed above have the ability to take place within your credit application system, along with the ability to monitor if the actions were taken, not taken, or not needed. Most of these compliance actions can be set up to automatically run on every deal, by every user in your dealership. Automation is there to assist you and will help you control consistency in the series of actions needed to execute your dealership’s compliance process. Dan Doman is Chief Legal and Privacy Officer for RouteOne, a joint venture between Ally Financial, Ford Motor Credit Company, TD Auto Finance, and Toyota Financial Services. He is responsible for managing all RouteOne’s legal, governmental, privacy, and security affairs.
www.il-iada.org
DEALER PERSPECTIVE / BY GORDON TORMOHLEN
YOU CAN’T DO THAT!
>> A Phrase that Equals Opportunity ONE OF MY FAVORITE PHRASES is “You can’t do that!” Now, before you start thinking I’ve lost it, let me explain. When I hear someone say something can’t be done, I hear opportunity. Think about it! When your competitors say something can’t be done, aren’t they really saying they’re not willing to do it? Recently I came upon an old article by business guru Tom Peters. Peters is the author of several books, including Liberation Management and In Pursuit of Wow. The article focused on simple ways to overwhelm your competition. One of the examples he used was the “most successful” selfserve gas station in Los Angeles. We’re not talking “better than the competition” here. This station was dominant, selling nearly five times more gasoline than any other self-serve station in L.A., despite having three competitors located at the same intersection! How did they do it? The cashiers took turns pumping gas for the customers! Can you hear the competition? “You can’t do that!” For decades we have been offering free service pickup and delivery at our
dealerships. It costs us very little, and our customers love it. Other dealers say that picking up service cars as far as 50 miles away is impossible. Yet that very simple idea fills our service department every day, helps close sales, and draws hundreds of customers to our dealership! The truth is anybody can succeed if you’re smart enough to see things
from the customer’s point of view. When businesses (or employees) limit what they’re willing to do for a customer, they really limit themselves. So when was the last time you heard somebody say “you can’t do that”? Opportunity may be knocking… Good selling!
SAFETY WATCH
MAZDA RECALLS CARS FOR AIR BAG ISSUES Moisture May Damage Unit
Mazda North American Operations is recalling 41,918 model year 2009-10 Mazda6 vehicles manufactured Feb. 4, 2008, to Dec. 3, 2009. The protective coating may not have been properly applied to the air bag control unit and, as a result, moisture may damage the unit causing it to malfunction. Failure of the ACU would illuminate the air bag warning light and prevent the air bags from deploying in the event of a crash, increasing the risk of injury. Mazda dealers will replace the ACU, free of charge. Parts, however, are not currently available. Mazda will send interim notifications to owners beginning Oct. 3 and will mail a second notice when remedy parts are available. Mazda’s number for this recall is 9816H.
8 DEALER’S EDGE / NOVEMBER/DECEMBER 2016
www.il-iada.org
ACCELERATE / BY GWC WARRANTY
3 SIMPLE TECH TOOLS WITH SERIOUS ROI >> Simple Tools that Yield Big
EVERY BUSINESS is in search of a golden ticket – that tactic or tool that requires little time or monetary investment but yields major financial returns. Enter technology. Understandably, some technology is easier to use than others. And large scale technology changes to something like your website or DMS could take more time and money than they’re worth. But when you find an easy-to-use technology that’s affordable and has real profit opportunity tied to it, you’ve struck gold! To help simplify your ROI gold-mining expedition, here are three simple technology tools that can yield fast and impactful bottom line gains. Video Video is no longer a way to stand out from other dealerships. Rather, it’s quickly becoming a must-have just to compete. But just because video is becoming a necessity doesn’t mean your video needs to have Spielberg-like quality on a studio film budget. Take a tool like Covideo, for example.
www.il-iada.org
For a manageable monthly subscription, you’ll get a custom video platform and all the equipment you need to quickly film and email vehicle walk-arounds, sales follow ups, service reminders and more. And since Covideo is proven to increase unit sales by 7 percent and showroom shows by 27 percent, it’s a breeze to recoup your monthly investment several times over. Online Reputation Management From time to time, you’ll encounter aspects of your business out of your control. For example, a vehicle breaks down despite a solid inspection or a competitor undercuts you on price. But one thing in your control is effort – and that’s all it takes to manage your online reputation. A negative review can be severely damaging, but only if it goes ignored. Be sure to respond to online reviews and negative social media mentions quickly, professionally and, most importantly, empathetically. It will go a long way toward showing past and future customers you genuinely care about their satisfaction. Mobile Technology According to Autotrader, 43 percent of car buyers use multiple devices to shop for cars. That’s up from 24 percent just two years prior. At this rate, it won’t be long before almost all your website traffic is coming from mobile technology users. But you already know how important a mobile responsive website is. Where you stand to get a leg up on the competition is integrating this technology into your sales
and F&I processes. For the price of a tablet or two for your dealership, you can begin using mobile apps during both the sales and F&I processes – many of which are free. You’ll quickly begin to see how customers appreciate their preferred shopping method being carried over into their experience on your lot, not to mention the customer satisfaction rewards you’ll reap after the sale.
NOVEMBER/DECEMBER 2016 / DEALER’S EDGE 9
MANAGEMENT GAMEPLAN 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 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.
CR
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?
10 DEALER’S EDGE / NOVEMBER/DECEMBER 2016
www.il-iada.org
RM 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
www.il-iada.org
in your next sales training session. Here’s one scenario using email as the springboard: Do what the others don’t. Instead of 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.
NOVEMBER/DECEMBER 2016 / DEALER’S EDGE 11
ONLINE MARKETING / BY CHELSEA MAGEE
>> Does it Really Work?
>>
DEALERSHIP BLOGGING
EVERYONE LOVES FREE INFORMATION. And free information brings in customers. In fact, 90 percent of future car buyers report they search online for answers to their questions about their next vehicle purchase or service. THREE STRATEGIES FOR BLOGGING SUCCESS Because of this push for knowledge, blogs are no longer a luxury. But you have to do it right if you want to get the best results for your dealership. 1. Become an industry expert. Defy the stereotypes! Show future buyers that dealing with car dealers actually can be better than eating worms! Online research can frustrate customers, partly because we often let third-party sites educate them with inaccurate and confusing information. Blogging is one of the best ways for your dealership staff to establish authority and expertise. Once Google realizes you’re an authority on the topic(s) customers are searching for, you’re going to see increased traffic from search engines. And who doesn’t want to drive more traffic to their website? 2. Stick to a schedule. I often see dealerships post a few blogs and end
up quitting. You have to blog regularly and remain focused on providing high-quality information. Did you know that Google knows the difference between high and low quality? This is one of Google’s 200 ranking factors! Make sure you create a schedule you can maintain by creating an editorial calendar. 3. Tackle current issues. Talk to your staff and find out the “top 10” questions they answer on a regular basis. You can do this for both sales and service. Make sure to write posts about your local area and events because this will also boost your local relevancy. Another hint? Review everything! Customers often add the word “review” to many of their searches. Keep in mind that you must write fresh content instead of copying and pasting from your manufacturer’s website. Google and your customers know the difference. The icing on the cake? Ongoing communication is like marketing: You have to stay top of mind with your clients. How else are you going to provide customers with a steady stream of information without scaring them away? Customers may ignore your ads, but blogs include content they actually want to read. Supplying this content gets them to your website and helps humanize your dealership. Chelsea Magee has been involved in digital throughout her career. She is the Client Success Director at NCM and oversees their online training website, digital marketing and social media. This article originally appeared on NCM’s Up to Speed blog (http://blog. ncminstitute.com) and is reprinted with permission.
1. 2006 Toyota Avalon 2. 2007 Honda Accord 3. 2010 Honda Civic 4. 2008 Toyota Corolla 5. 2008 Ford Crown Victoria 6. 2006 Subaru Outback 7. 2007 Nissan Maxima 8. 2007 Subaru Impreza 9. 2006 Mazda MX-5 Miata 10. 2010 Kia Soul >> KBB.com editors noted the Avalon is “big, quiet and comfortable,” as well as highly reliable. TODAY’S NEW CARS may be chock-full of the latest “Our master mechanic suggests that obtaining technology and features, but that comes at a 200,000 miles of largely trouble-free driving is a price. In fact, the average price of a new car is distinct possibility,” they said. $33,801. The other Toyota on the list, the 2008 Corolla, Because many people cannot afford a large was noted by KBB mechanics as “a great choice monthly payment (let alone buy a new car for a used car if all maintenances have been outright), there exists a healthy market for performed. affordable used cars. Still, prices for used “Like most Toyotas, the Corolla seems to be vehicles run the gamut. ‘overbuilt’ compared to other cars in its segment, With affordability in mind, the editors at and that translates to solid reliability with few Kelley Blue Book’s KBB.com have named this problems,” they continued. year’s 10 Best Used Cars Under $8,000. Coming in at No. 10, the Kia Soul’s aesthetics “While spending $8,000 or less won’t get were likened to a common kitchen appliance. you the newest tech or the shiniest paint job, it “Some would tell you it looks like a toaster, can buy you solid, reliable transportation that but if it does it is a very useful toaster,” KBB said. will last for the next several years if you play “Larger than you might guess it is, the Soul will your cards correctly,” said KBB.com executive swallow up a lot of cargo and haul five passengers editorial director and executive market analyst in surprising comfort. If you can’t swing the cost Jack Nerad. of a small SUV (and don’t need all-wheel drive), “For those who feel a keen ache in their the Soul will fill the bill.” checkbook thinking about the prospect of a big To see KBB.com’s full coverage of the 10 Best monthly payment, this year’s list of KBB.com’s Used Cars Under $8,000 for 2016, including vehicle 10 Best Used Cars Under $8,000 should provide photography, pricing details and editorial reviews, some relief, because there are good used car visit www.kbb.com/car-reviews-and-news/topalternatives to a more expensive vehicle.” 10/best-used-cars-under-8000/2100000852/.
MARKET WATCH / BY AUTO REMARKETING STAFF
KBB’S BEST BETS FOR USED VEHICLES UNDER $8K
12 DEALER’S EDGE / NOVEMBER/DECEMBER 2016
>>
Good Affordable Used Cars
www.il-iada.org
BHPH PERSPECTIVE / BY DAVID MEYER
HOW MUCH RISK ARE YOU WILLING TO TAKE?
>>
>> A Way to Cut Costs and Mitigate Risk
AFTER YEARS OF declining sales, the automotive industry is once again on the rise. Fueling much of the resurgence in vehicle sales is the recent growth in subprime automotive financing. So what is fueling the increase in subprime auto loans? In the wake of the recent economic crisis, increasing numbers of car buyers found themselves saddled with poor credit resulting from job loss, foreclosure, bankruptcy and other financial woes. While still struggling with low credit scores, many of those customers are now moving toward financial recovery. They’ve found new jobs and careers, are earning decent salaries, have wiped the slate clean and are lowering their debts. Despite that progress, those creditchallenged customers still cannot qualify for traditional auto financing. But they still need vehicles. To meet that demand, increasing numbers of dealerships and lenders are approving more subprime auto finance, and are going deeper and deeper in the process.
According to a recent report by Experian, “The percentage of auto loans to buyers with the poorest credit ratings is growing faster than the rest of the auto finance market.” Almost 21 percent of open auto loans are held by individuals with subprime and deep subprime credit ratings. However, with the uptick in auto loans, we are also witnessing one of the largest increases in auto loan delinquency rates on record. According to Fitch, increased loan originations, higher lender competition and looser underwriting standards in the subprime loan market have caused an influx of higher auto delinquencies. That’s a problem. Higher delinquencies mean higher rates of default. Which leads to the question: How can you better manage your portfolio and risk for success? As subprime auto lending continues to gain momentum and loans dive deeper, the associated risks continue to rise. Dealerships and lenders who offer subprime auto financing should be prepared for an increase in delinquencies, defaults, repossessions, collection staff time and resources – all of which come with significant costs that cut into profitability. BHPH dealers and lenders are now turning to GPS tracking as a smart business strategy that cuts costs and mitigates risk while also encouraging their customers to pay on time and improve their credit.
GPS tracking, in its most effective form, is a system that enables dealerships and lenders to verify customer information faster, ensure more on-time payments and locate vehicles in real time to manage their liability with high-risk vehicle collateral. The more advanced GPS vehicle tracking and collateral management systems include additional features such as payment reminders and advanced reporting. Those features further reduce business costs while also promoting ontime payments that help customers stay in their vehicles and rebuild their credit. In a study conducted on Spireon’s GoldStar GPS vehicle tracking, 87 percent of vehicle finance customers saw an increase on their return capital. Further, 77 percent saw a significant improvement of their customers’ credit ratings. The right type of GPS vehicle tracking can improve business profitability, reduce risk, help maintain CFPB compliance and help customers improve their credit. David Meyer is executive vice president of sales and client services for Spireon, bringing more than 28 years of vehicle finance and BHPH industry experience to his role overseeing the company’s Automotive Solutions Group.
SAFETY WATCH /
FORD RECALLS VEHICLES WITH ECOBOOST
>>
>> Fuel Pump Electric Module
May Overheat
FORD MOTOR CO. IS RECALLING 77,502 model year 2013-15 Ford Taurus, Ford Flex, Lincoln MKS and Lincoln MKT vehicles equipped with 3.5L GTDI EcoBoost engines and 2013-15 Ford Taurus Police Interceptor vehicles. A component within the fuel pump electric module may overheat causing a loss of electrical power to the fuel pump. A loss of power to the fuel pump will cause the engine to stall or prevent the vehicle from starting, increasing the risk of a crash. Ford will notify owners, and dealers will inspect the fuel PEM part number and replace the fuel PEM, as necessary, free of charge. Ford’s number for this recall is 16S31. 14 DEALER’S EDGE / NOVEMBER/DECEMBER 2016
www.il-iada.org
AMERICANS DRIVING FLOOD DAMAGED CARS New Carfax Research
Hundreds of thousands of previously flooded vehicles are believed to be in driveways, on the road or up for sale around the country right now, according to new research from Carfax. The data suggests more than 271,000 cars reported as flood damaged by a state’s department of motor vehicles, insurance companies and more are back in use. It’s a nearly 30 percent increase from 2013. While waterlogged wrecks have made their way to every state, these 10 states have the most:
1. Texas: 43,000 2. Pennsylvania: 20,000 3. Florida: 17,000 4. Kentucky: 14,000 5. Illinois: 13,000 6. South Carolina: 11,000 7. Michigan: 11,000 8. New Jersey: 10,000 9. New York: 9,000 10. Louisiana: 9,000
www.il-iada.org
“Flooded cars are a buyer’s worst nightmare,” said Carfax communications director Larry Gamache. “They’re ticking time bombs because when you least expect it, the electrical, mechanical or safety systems on these cars will fail, often without warning. Consumers everywhere need to be vigilant about checking a vehicle’s history for flood damage and getting a pre-purchase inspection to avoid buying cars that rot from the inside out.” Increasingly powerful storms and historic flooding in major areas are creating more opportunities for professional con men to clean up and resell flooded vehicles. Demonstrations show it takes only a few hours to restore them cosmetically, at a minimal cost to the criminals. However, buying one of these dangerous cars costs unsuspecting consumers thousands. “A customer was requesting a loan on a used car, so we ran a Carfax Report as part of our underwriting procedures,” said PriorityOne Bank in Mississippi president Willie Macko. “We discovered that the car had been a total loss and the title was branded as a flood vehicle. By using Carfax, we were able to save both our bank and our customer a lot of money.” As a service to consumers, Carfax lets you check for flood damage free of charge at carfax.com/flood.
SAFETY WATCH /
>>
MARKET WATCH
GM RECALLS 4.3 MILLION VEHICLES >> Airbag Software Defect
GENERAL MOTORS RECENTLY SAID it is recalling 4.3 million vehicles for a software problem that can prevent airbags from deploying in a crash. The defect, which affects all of GM’s current full-size pickups and SUVs, is linked to one death and three injuries.
NOVEMBER/DECEMBER 2016 / DEALER’S EDGE 15
>>
AUCTION SPOTLIGHT /
ADESA CHICAGO >> Now Open In Hoffman Estates
ADESA CHICAGO , a wholesale used car auction facility, is now open for business in Hoffman Estates, Illinois. Located just off I-90 at 2785 Beverly Road, between Prairie Stone Parkway and Trillium Boulevard, the new auction is close to a large number of car dealerships. ADESA Chicago general manager Troy Peterson said the location creates a much-needed and convenient outlet for those dealers to sell their excess inventory. “The Chicago market has shown us they really want us here,” said Peterson. “A lot of dealers have expressed their desire to bring us their cars.” The facility is the first site in the Chicago market for ADESA, which owns and operates more than 75 auctions in the United States, Canada and Mexico. IIADA members may have visited ADESA locations in Portage, Wisconsin; Cleveland, Ohio; Lansing and Bay City, Michigan; Indianapolis, Indiana; St. Louis, Missouri; or Des Moines, Iowa. By opening this new facility, said Peterson, ADESA can serve a larger number of dealers and provide buyers and sellers in the Chicago area with an ADESA location closer to home. Weekly sales are Fridays at 9:30 a.m. ADESA Chicago is a dealer-only, used car auction. Dealers must register with ADESA to be able to buy or sell at the auction. Dealers not yet registered can do so at adesa.com or in person at ADESA Chicago. Peterson said inventory at the weekly sales includes vehicles from institutional customers such as off-lease vehicles, repossessed vehicles, and rental and other program fleet vehicles. He expects all types of makes and models to be available at the weekly sales. “The right consignors are interested in bringing cars to auction with us,” said Peterson. “They know the demand for certified pre-owned is growing in Chicago, and they know we have the perfect location for getting those vehicles to the dealers who need them.” The 65-acre facility, with an option to expand to 150 acres, includes four buildings totaling about 167,000 square feet of space. The main building houses eight auction lanes. Peterson explained the lanes are configured in a unique layout that results in less windy conditions inside the arena, meaning the lanes of ADESA Chicago will stay warmer during Chicago winters. All lanes are fully equipped with video, allowing dealers to follow the action live online. Dealers can bid on-site from the lanes, on the company website (adesa. com) or via the ADESA mobile app. Video monitors throughout the facility allow dealers on-site to watch the action at all times, so they know when to enter the lane to bid live on a vehicle they are interested in. 16 DEALER’S EDGE / NOVEMBER/DECEMBER 2016
Josh Warner
Kevin Parmenter
Napoleon Delacruz
Troy Peterson
The main building also houses a cafeteria, a cyber lounge where dealers can conduct business, offices for related services and company offices. Peterson said the cafeteria and lounge are uniquely positioned in the middle of the auction lanes. This layout allows dealers to step away from the lanes for a rest or refreshments, but still be close enough to head back to the lane when a vehicle of particular interest comes onto the block. On-site services include vehicle financing, a full-service eight-bay mechanical shop, a four-lane detail and body shop, glass repair/replacement, paintless dent repair, key cutting services, post-sale inspections, transportation and a photo booth. The site features a 24hour, state of the art security system. Peterson said the photo booth has a proprietary design that will increase the convenience and transparency of vehicle condition reports. The photo booth takes 11 exterior shots in 10 sections, with lighting intelligently controlled for each
shot. Interior photos are taken with a control device. Peterson has hired a crew of 100 for this new facility. Several key staff positions are held by experienced ADESA employees from other locations, such as assistant general manager Napoleon Delacruz (ADESA Concord), dealer sales manager Josh Warner (ADESA Wisconsin) and fleet/lease manager Kevin Parmenter (ADESA Des Moines). “We made it a point to put the experience where it’s needed,” Peterson said. ADESA is a business unit of KAR Auction Services, Inc., which also includes Insurance Auto Auctions, Inc. (IAA), and Automotive Finance Corporation (AFC). ADESA handles virtually every stage of the used vehicle life cycle through its related subsidiaries of PAR North America, RDN, AutoVIN, Dent Demon, High Tech Locksmiths and CarsArrive Network.
www.il-iada.org
www.il-iada.org
NOVEMBER/DECEMBER 2016 / DEALER’S EDGE 17
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.
18 DEALER’S EDGE / NOVEMBER/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.
www.il-iada.org
www.il-iada.org
NOVEMBER/DECEMBER 2016 / DEALER’S EDGE 19