DRIVELINE M I C H I G A N I N D E P E N D E N T A U T O D E A L E R S A S S O C I AT I O N
THE OFFICIAL MAGAZINE OF MICHIGAN INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION
DOES
YOUR RFC
PASS THE IRS VALIDITY TEST?
Don’t Let Your RFC Become a Liability PAGE 14
DALLAS, TEXAS Permit No. 2079
PAID
PRSRT Standard U.S. Postage S TAT E A F F I L I AT E
W W W. M I A DA .US
SPRING 2018
SOCIAL MEDIA
| BY KATHI KRUSE
PROS AND CONS OF BUILDING A FACEBOOK PAGE Tips to Decide The time has come to get real about Facebook. Gone are the days of it being “free” other than all the time you put into it. Today, the investment required to build a thriving Facebook page full of active, engaged members can be costly. Dealers must determine whether building a Facebook page makes sense for them and re-evaluate their decision on a quarterly basis. Building a Facebook page is an investment. If you’ve spent any time in the Facebook marketing ecosystem, you know there is a time investment. Building relationships through trust takes time and if Facebook is your chosen platform – after all, it is where your customers spend an average 50 minutes per day – be prepared to make an investment.
ONCE YOU
SPEND T IME IN T HE FACEBOOK ECOSYSTEM AND BEGIN SOME PROMOTIONS, YOU WILL REALIZE Y O U C A N E A S I LY S P I N Y O U R WHEELS, INVEST TIME AND RESOURCES, AND END UP WITH VERY LIT TLE TO SHOW FOR YOUR EFFORTS.
A Facebook page should be considered a valuable company asset and, as such, there are other investments required to retain its value: •S trategy and planning. •F inancial resources. •H uman resources. Assessing the results of your Facebook investment is crucial. Once you spend time in the Facebook ecosystem and begin some promotions, you will realize you can easily spin your wheels, invest time and resources, and end up with very little to show for your efforts. Pro tip: Always begin with a plan. Set goals and establish your strategy first and you’ll be much more successful in achieving your goals. Ongoing measurement and analysis of specific key performance indicators and metrics will determine if you’re meeting the goals you’ve outlined. Should I make the investment in building a Facebook page or not? I hear from many dealers who are truly in a quandary about making the investment in Facebook, and with good reason. It’s difficult to decide if something is right or wrong for your store when you don’t have all the information. It’s even worse when you don’t know what questions to ask. I’ve outlined the pros and cons of building a Facebook page so you can determine the best route for your dealership. Pros of Building a Facebook Page • It’s ideal for reaching car shoppers: The average U.S. consumer spends 50 minutes per day on Facebook. It’s embedded in our culture and part of our everyday lives. The key to successful marketing is reaching the widest audience interested in what you sell. Facebook is where your customers spend their time. • Engage customers long before they’re buyers: With a solid content strategy to reach shoppers at every stage of the buying cycle, including postpurchase, Facebook can’t be beat for engaging people. •C ommunicate who you are: Today’s consumers want to know your story. By leveraging the right content mix, your Facebook presence allows potential buyers to learn more about you. •O pportunity for transparency and authenticity: Consumers have had enough of fakes and phonies. The more real you are, the closer people will come to you. It makes them more comfortable about their decision when they feel a connection. •G enerate leads and sales: Facebook ads drive shoppers to purchase and there’s no reason you shouldn’t capture some of that magic. While they take serious skills to master, it’s worth your time to consider the opportunities in Facebook ads.
Cons of Building a Facebook Page •M ajor investment: Building a Facebook page takes commitment. It’s not only time consuming but it requires a financial investment – especially Facebook ads budget and management fees – and human resources, someone to manage and interact with the community you’re growing. •C onstant change: If you’re not comfortable with constant change, building a Facebook page will be one of the most infuriating experiences you’ll ever have. They roll out updates without any notice. They make changes to things that don’t necessarily need changing. There are bugs that cause unexplained issues. • It won’t work without a content strategy: The old adage “If you fail to plan then plan to fail” couldn’t be more relevant than with Facebook marketing. Useful information is one of your store’s biggest assets and delivering quality content to buyers via Facebook takes a solid content strategy. • I t’s pay to play now: Facebook has changed dramatically, even from just a few months ago. Perhaps the biggest change is that now posting great content is only half the job. Paying to promote your content effectively is the other half. Bonus insider’s tip: Growing your likes was a huge investment that didn’t pay off. Many dealers judge the success of a store by their number of Facebook likes. For years, people have spent millions of dollars on growing their likes, but now that Facebook has shifted their focus to advertising, the amount of likes on a page isn’t as valuable. Some, such as myself, will view this situation as less-than-forthright, but remember, it’s Facebook’s movie and we’re just in it. If you invested in growing your likes over the past few years, treat your investment accordingly. Leverage the community you’ve grown and work on increasing its engagement. If you haven’t built a lot of likes, don’t despair. You can still reach car shoppers through Facebook ads. Building a Facebook page is not for everyone. I hope these tips will help you decide what’s best for your dealership. As always, reach out to me if you need advice on next steps. Kathi Kruse is an automotive social media marketing expert, blogger, consultant, author, speaker and founder of Kruse Control Inc., which coaches, trains and delivers webinars focused on integrating social media and online reputation management into dealership operations. She can be reached at kathi@krusecontrolinc.com. www.miada.us
Spring 2018
DRIVELINE
3
ASSOCIATION NEWS |
p
NEW DEALERS
Welcome to the following new dealers! 03...................Pros and Cons of Building a Facebook Page 06........................The Most Important Sales Conversation 07.... How to Contend (And Win) Against Big Competition 08............................................ NIADA Government Report 10.... Why it’s Time Your Store Invested in a CRM System 14..................... Does Your RFC Pass the IRS Validity Test?
WHAT’S NEW
CONVENTION ROOM BLOCK FILLING FAST RESERVE YOUR ROOM NOW
The NIADA room block at Rosen Shingle Creek is quickly filling up. Make sure you secure your spot at the special NIADA rate. Also, a preliminary agenda for the 2018 NIADA/NABD Convention and Expo is now online! Review the agenda and reserve your room today at www.niadaconvention.com.
ADVERTISERS INDEX
ADESA............................................................................... 5 FastLane Auto Exchange................................................ IFC Greater Kalamazoo AA...................................................... 9 Lakeside Insurance.........................................................IBC Manheim ........................................................................ 11 NextGear Capital............................................................. 12 VAuto.................................................................Back Cover
AUTOSTART Walker, MI BEST DEAL AUTO SALES Detroit, MI GREAT LAKES COMPANIES Portage, MI HC MOTORS Royal Oak, MI INTEGRITY WARRANTY LLC Ooltewah, TN NATIONAL VEHICLE WHOLESALE Riverview, MI SOUTHERN MOTORS Ypsilanti, MI
BOARD OF DIRECTORS
OFFICE
For information on how to become a member of MIADA please contact us at (248) 828-7010 or www.miada.us.
NIADA HEADQUARTERS NATIONAL INDEPENDENT AUTOMOBILE
DEALERS ASSOCIATION WWW.NIADA.COM • WWW.NIADA.TV 2521 BROWN BLVD. • ARLINGTON, TX 76006-5203 PHONE (817) 640-3838 Driveline is published by the National Independent Automobile Dealers Association Services Corporation, 2521 Brown Blvd., Arlington, TX 76006. Periodical postage is paid at Arlington TX, and at additional offices. The statements and opinions expressed herein are those of the authors and do not necessarily represent the views of the Michigan Independent Automobile Dealers Association or NIADA. Likewise, the appearance of advertisers, or their identification as members NIADA does not constitute an endorsement of the products or services featured. Copyright ©2018 by NIADA Services, Inc.
CHAIRMAN OF THE BOARD Ray Campise Certified Motors 23509 Little Mack St Clair Shores, MI 48080 586-775-7000 sales.cmotors@gmail.com
DIRECTORS Rick Rynberg Rynberg’s Car Co. 3880 Holton Rd Muskegon, MI 49445 231-744-1441 rickandwendy1@verizon.net
PRESIDENT Otto Hahne City of Cars 1695 Stutz Dr Troy, MI 48084 248-458-1500 otto@cityofcars.com
Tony LoBretto Alamo Valley A/S 6100 West D Ave Kalamazoo, MI 49009 269-344-8250 alamovalley@gmail.com
Jerry Drouillard Autohaus of Royal Oak 4411 Delemere Royal Oak, MI 48073 248-549-3636 gdro999@hotmail.com
Darvin Mileski NextGear Capital 11799 N College Ave Carmel, IN 46032
Jeff Baker Muskegon Car Credit Inc. 1515 28th St SW Wyoming, MI 49509 616-249-2000
VICE PRESIDENT Ted Cooper Genesys Systems Inc 360 E Maple Rd Troy, MI 48083 248-597-1003 ted@gensystems.com TREASURER Joe Kuhta GWC Warranty 8865 Reese Rd Clarkston, MI 48348 248-670-1133 JKuhta@gwcwarranty.com
STATE MAGAZINE MGR./SALES
Troy Graff • troy@niada.com EDITORS
Jacinda Timmerman • jacinda@niada.com Andy Friedlander • andy@niada.com MAGAZINE LAYOUT
SECRETARY Ed Ophoff Ophoff Motor Sales Inc. 2921 S Division Wyoming, MI 49548 616-452-7761 edwoph@aol.com
Christopher Hanley • chris@niada.com PRINTING
Nieman Printing
Maurice VanCoillie Van’s Used Cars 23509 Little Mack St Clair Shores, MI 48080 586-773-0560 586-773-0660 Bob Vincent Automotive Dealer Services LLC PO Box 102 Milford, MI 48381 586-477-8282 robertvincent@live.com Nicole Renee Rite On, Inc 4680 W Jefferson Ave Ecorse, MI 48229 313-649-7308 nicole.riteon@gmail.com
Mission Statement
EXECUTIVE DIRECTOR Lisa Michael 5119 Highland Rd PMB 393 Waterford, MI 48327 248-828-7010 lisamichaelmiada@gmail.com
The Michigan Independent Automobile Dealers Association is committed to promoting growth and preserving the vitality and integrity of the independent motor vehicle industry through education and legislation as advocates for consumers and dealers.
4
DRIVELINE
Spring 2018
www.miada.us
SALES MATTERS | BY JOHN CHAPIN
THE MOST IMPORTANT SALES CONVERSATION Self Talk There is a much overlooked aspect of sales success that is rarely talked about and people pay little attention to. It is self-talk. The most important conversation is the one you have with yourself. The reason that conversation is so important is because the words and language you use both reveal and reinforce your beliefs about yourself and the world. Those beliefs dictate the action you take, or don’t take, and ultimately determine success or failure. If you have a problem selling, you more than likely have a self-talk problem. The difference between top salespeople and everyone else is the top people became aware of their negative self-talk and beliefs and reprogrammed their language and beliefs to positive ones, or they were one of the lucky few who received positive programming right from the get go. The latter is the exception. Most of us received negative programming growing up. Either way, if you want to become a champion, you need to ensure your self-talk is positive, upbeat, and supports you. HOW TO IDENTIFY AND SOLVE POSSIBLE SELF-TALK ISSUES Step 1: Awareness. Like everything else in life, awareness is step one. You can’t fix a problem you don’t know you have. If you are overweight, but don’t think you are, the problem won’t get fixed. If your finances are wrong, but you don’t know there’s a problem, you won’t get them right. If you have a self-talk problem, you need to be aware of it before you can change it. The first thing you want to do is monitor your self-talk. What do you catch yourself saying about yourself and the world around you? Are most of your conversations negative or positive? Do you find yourself saying negative things about the economy, your particular market, your industry, or your product? How about your self-talk about you? Do you believe you aren’t smart enough, young enough or old enough? You don’t have enough energy or have too much energy? Do you believe bad things always happen to you, or the odds are always stacked against you? Your beliefs will be your reality. Step 2: Getting your self-talk right. If you realize you have a self-talk problem, here are some ways to work on it. Positive Affirmations Many people are familiar with affirmations and have either tried them in the past or use
6
DRIVELINE
Spring 2018
www.miada.us
them currently. In a nutshell, positive affirmations are a series of positive statements that reinforce a belief you want to have about yourself. For example, if you want to have more self-confidence, you might use affirmations such as: “I am confident,” “I believe in myself,” “I feel my confidence increasing every day,” and other similar statements. Positive “Afformations” Noah St. John coined the phrase “afformations” in his book by the same name. Afformations are similar to affirmations but they are in the form of questions versus statements. In the case of afformations, if you wanted to have more self-confidence, you would use questions such as: “Why am I so confident?”, “Why is it so easy for me to believe in myself and do the things I need to do?”, and “Why do I have so much talent and ability?” The theory is that while your brain may be able to argue with a statement, as in affirmation, it searches for an answer to a question. You can check out Noah’s book for a list of afformations for most areas of life people struggle with. Note: There are four ways to work with affirmations and afformations: listening to a recording of them, reading them, writing them, or saying them to yourself, either out loud or silently. Ideally if you are vocalizing them, you want to say them with as much feeling and emotion as possible. It’s best to work with affirmations and afformations first thing in the morning, right before going to bed, and then, if possible, during the day. Psycho-Cybernetics The most popular psycho-cybernetic technique to shift self-talk is to cancel out negative statements. You do this by saying the word “cancel” after you catch yourself saying something negative and then following the word “cancel” with a positive statement. For example, if you catch yourself saying, “Why do things always go wrong for me?” you’d say “cancel” – out loud if possible – and follow with either an affirmation – such as, “Things always go right for me” – or an afformation, such as, “Why do things always go right for me?” Clean up your environment. Specifically eliminate negatives and negative people from your environment. Where you end up five, 10, or 15 years from now will come down to what you put in your brain and who you hang out with. You cannot watch the evening news and be positive. You also cannot hang out with negative people and have positive self-talk for any length of time. Finally, keep in mind everyone has some
LIKE EVERY THING ELSE IN LIFE, A WA R E N E S S I S S T E P O N E . Y O U CAN’T FIX A PROBLEM YOU DON’T K N O W Y O U H AV E .
negative self-talk occasionally. In fact, the majority of champions have had self-talk problems caused by major self-esteem and self-confidence issues. Many were plagued by insecurities constantly reinforced with negative self-talk. The key is that they recognized it and did something about it, and that’s the key for you too. Become aware of these thoughts, catch yourself in the act, and shift the conversation. Reinforce the positive until it becomes your new habit. This does not happen overnight and takes work, but if you commit yourself to positive words and language, you should see a fairly substantial and positive shift in about 30 days. By the way, another great book related to self-talk is What to Say When you Talk to Yourself by Shad Helmstetter. John Chapin is a sales and motivational speaker and trainer. He has over 27 years of sales experience as a number one sales rep and is the author of the 2010 sales book of the year: Sales Encyclopedia. For more information, visit www.completeselling.com or email johnchapin@completeselling.com.
ACCELERATE | BY GWC WARRANTY
HOW TO CONTEND -AND WINAGAINST BIG COMPETITION Level the Playing Field Being an independent dealer in a world of new big box stores, online retailers and nearby competitors can feel like being the small fish in an ocean of competition. You can level the playing field, though, with nothing more than an open mind and a willingness to adapt. Keep It Simple And by this, we mean keep it simple for your customers. Is it easy for them to get to your website? Is your inventory laid out in a way that’s intuitive for customers to browse? Can they contact you with just one click and limited information? Today’s customer wants the information they need exactly when they desire it. Your website is the most important piece in making sure they get information quickly and easily. Merchandising As an independent dealer, you don’t have
the luxury of manufacturer certified preowned programs. But that shouldn’t stop you from merchandising your inventory the same way. This goes for both on the lot and online. Having a certified pre-owned program in place helps you make the same promises as bigger stores while giving your customers the confidence that comes with the perception of a certified vehicle. Communication Flexibility Not every customer will want to send messages through web form. And not every customer will want a phone call. Some will want to send you a Facebook message, others might want to tweet at you and some might want a text message. Being able to communicate with your
customers in their desired format lets you reach more potential leads. But it’s dependent on your commitment to learning how to communicate in all these different formats. Unique Experience The advantage an independent dealer will always have over bigger competition is a truly unique experience customers can’t get anywhere else. When done correctly, independent dealers can offer a more intimate, lower-pressure experience than big box stores to go along with a friendly local feel that only an independent dealer can provide. Once you’ve used tools and merchandising to attract the same business as bigger competition, use your friendly, comfortable environment to bring it all home.
ASSOCIATION NEWS |
NOMINATIONS OPEN FOR COMMUNITY SERVICE AWARD Deadline for Nominations Is May 1 Nominations are open for the 2018 NIADA & Cox Automotive Community Service Award presented by Manheim, the used car industry’s most prestigious award honoring community service by independent dealers. The deadline for nominations is May 1. Nominations of NIADA member dealerships can be submitted at www.coxautoinc.com/ community-service-award. The national award recognizes a dealership that goes above and beyond to give back to its community through its donations of time, money and leadership to charitable efforts, and works to find innovative and meaningful ways to collaborate with community partners to help further its mission. The award includes a $10,000 donation to the charity of the winning dealership’s choice from Manheim. The winner will be announced during the 2018 NIADA Convention and Expo, June 18-21 at the Rosen Shingle Creek Resort in Orlando, Fla. Last year the award was presented to Matthews Motors in Clayton, N.C., owned by
Steve and Dale Matthews accept the 2017 NIADA & Cox Automotive Community Service Award from Cox Automotive’s Janet Barnard (right).
Steve and Dale Matthews, with Clayton Area Ministries receiving the $10,000 donation. Cox Automotive’s Janet Barnard said Matthews Motors “embodies the principles of helping shape a better world through individual actions and demonstrating how every person, every organization, every day can make a difference when it comes to serving your community.” If you know of a dealership that makes an extra effort in community service and charitable work, let us know. Nominations are accepted from individuals, dealerships, community organizations, agencies or vendors. For more information or to nominate a dealer, visit www.coxautoinc.com/communityservice-award or www.niada.com. www.miada.us
Spring 2018
DRIVELINE
7
WASHINGTON UPDATE | BY SHAUN PETERSEN
NIADA GOVERNMENT UPDATE
Latest Government Issues and Activity
NIADA IS YOUR VOICE IN WASHINGTON D.C., ADVOCATING FOR INDEPENDENT DEALERS, THE USED VEHICLE INDUSTRY AND SMALL BUSINESS. HERE’S A LOOK AT THE LATEST NEWS AND NIADA EFFORTS REGARDING LEGISLATIVE, REGULATORY, PAC AND GRASS ROOTS ACTIVITIES.
REGULATORY Department of Labor: DOL has proposed a new rule that would permit small businesses and selfemployed individuals to join together in an association health plan. The proposed rule, issued in response to an executive order by President Trump, would allow those associations to purchase cheaper health insurance that’s not subject to some of the current limitations in federal law. The rule would expand the types of groups that can form an AHP and allow for membership across state lines. It would also allow self-employed individuals to take part in a large-group AHP. The proposed rule has the support of many in Congress, including Sen. Lamar Alexander (R-Tenn.), chairman of the Senate Health Committee. “If made final, this rule should help up to 11 million hard-working Americans who don’t have access to employersponsored coverage,” he said, “and in addition, provide new, more affordable options to Americans in the individual market who are getting hammered by skyrocketing premiums.” NIADA submitted comments supporting the proposal with some changes designed to provide small businesses greater access to less expensive health care. CFPB: The retooling of the Consumer Financial Protection Bureau continues under acting director Mick Mulvaney. The CFPB has now issued seven requests
8
DRIVELINE
Spring 2018
for information, seeking public comment on enforcement, supervision, external engagements, reporting on consumer complaints and rulemaking in addition to the original two – civil investigative demands and administrative adjudication. The requests are aimed at assessing those processes and identifying changes that need to be made. The bureau also announced it has formulated a five-year strategic plan that includes three primary goals: • Ensure all consumers have access to markets for consumer financial products and services. • Implement and enforce the law consistently to make sure markets for consumer financial products and services are fair, transparent and competitive. • Foster operational excellence through efficient and effective processes, governance and security of resources and information. Mulvaney said the CFPB will focus on equally protecting the legal rights of all – including the businesses regulated by the bureau – and will use its rulemaking authority rather than “regulation by enforcement.” “We have committed to fulfill the bureau’s statutory responsibilities, but go no further,” Mulvaney said, adding that doing so will help guard against “the misuse of our unparalleled powers.”
www.miada.us
GRASS ROOTS RAGA meeting: Republican state attorneys general from across the country gathered in Washington, D.C. in February for meetings of the Republican Attorneys General Association. NIADA had a front row seat as a panel of AGs from Utah, South Carolina, Nebraska and Arizona discussed their office’s role in consumer protection – particularly in light of the recent changes at the CFPB. They engaged a representative of the White House to discuss how the President’s regulatory reform initiatives are impacting the states in the private and public sectors. Republican candidates for attorney general from several states were also present, giving NIADA the opportunity to discuss the virtues of our industry and the good independent dealers do in their communities. Of course, the campaigning was not limited to potential future AGs. Many of the current AGs attending the meeting are running for higher offices, including governor and the U.S. Senate. The relationship NIADA has developed with them as attorneys general can certainly benefit the industry as they move on to new positions. Colorado: Over the past several legislative sessions, the Colorado IADA has been working with the state legislature and Gov. John Hickenlooper to strengthen and revamp
laws aimed at preventing curbstoning, including increasing penalties and permitting additional law enforcement authorities to enforce the statute. This session, CIADA won the unanimous support of the legislature for an amendment allowing the DMV to share penalty revenues with the agency that initiates the enforcement proceedings. The governor is expected to sign that bill. LEGISLATIVE CFPB funding: The President’s proposed budget for fiscal year 2019 calls for reduced funding for the CFPB over the next two years as the administration seeks to restrict the bureau’s enforcement authority to prevent burdening the financial industry and consumer choice. The budget would cap agency’s budget at $485 million for FY 2019 and $610 million for 2020. For comparison, the CFPB’s FY 2018 budget request under Obama-appointed director Richard Cordray was $630.4 million. The White House said the two-year “restructuring period” will create an “efficient transition” as the CFPB imposes “financial discipline” and reduces “wasteful spending.” The administration is hoping the bureau undergoes legislative overhaul that would bring its budget under Congressional oversight. Currently, the CFPB is funded from the Federal Reserve. Interim CFPB director Mick Mulvaney requested a $0 budget for the first quarter of 2018, saying the CFPB will draw from
reserves. Recall issues: The Trump Administration released its plan for a massive infrastructure bill Feb. 12, and Congress is expected to take up the issue soon. The infrastructure bill is likely to be the platform for Sen. Richard Blumenthal to try once again to introduce an amendment that would prohibit the sale or lease of a motor vehicle subject to a recall until the recall defect has been remedied. The Connecticut Democrat has attempted unsuccessfully to attach the so-called Blumenthal Amendment to a number of bills over the past three years. NIADA has worked with Congressional leaders to help block the amendment in the past and will continue to monitor any action on the recall issue. Shaun Petersen is NIADA’s senior vice president of legal and government affairs.
ASSOCIATION NEWS |
AUCTION NEWS |
SAVE THE DATE MIADA’s Annual
GREATER ROCKFORD AUTO AUCTION INVESTS IN SAFETY IN THE LANES Completion of Bollard Project
Awards Dinner
Save the date! MIADA’s Annual Awards Dinner will be held October 6, 6:30-10:30 p.m. Tickets are two for $150 or one for $100. Tickets include dinner, drinks and entrance to the museum. Call today to get your tickets: 248-828-7010.
The Greater Rockford Auto Auction has invested in safety for their customers and employees in the sale lanes with the completion of a bollard installation project. To protect people from vehicles, 161 total bollards were installed in the six lane facility, on both the sale apron approach and inside the sale lanes. The bollard project had been in the planning and design stages since June 2017 with a completion in December. This initiative is part of what GRAA is promoting as their “Customer Care Project.” The Customer Care Project includes a full comprehensive plan for the safety of customers, employees, and vendors of GRAA. “We are excited to complete our bollard installation as a piece of our Customer Care Project,” said general manager Chad Anderson. “The safety of our customers and employees is a top priority and the response from everyone has been nothing short of outstanding. We continue to work on new and improved safety initiatives daily as we move forward.” More information regarding the Greater Rockford Auto Auction can be found at www.graa.net.
www.miada.us
Spring 2018
DRIVELINE
9
MANAGEMENT MATTERS | BY ZACH KLEMPF
WHY IT’S TIME YOUR STORE INVESTED IN A CRM SYSTEM Help Your Dealership Succeed Over the past several years I have had the opportunity to travel across the United States as well as Canada speaking with independent and BHPH dealerships of all sizes. The most evident observation I have had is most of these dealerships operate without a CRM system. In the franchise dealer world, customer relationship management is a de facto mandatory system critical for managing a dealership’s sales pipeline. Typically, used car dealerships believe they are too small or CRM is too expensive for their store. In fact, these dealerships need CRM/ILM technology the most. Historically, most industry-focused CRMs were built for new car stores and large independent operations. The complexities of these tools were barriers to entry for independents. In recent years, that has dramatically changed with more costefficient options entering the marketplace. When I talk with an independent dealer manager I often ask the following three questions: • What is your customer acquisition cost across your different marketing channels? • What lead provider is performing the best and what is its close rate? • What is your cost per sale across the different lead providers you work with? The majority of the time the manager cannot give a concrete answer to these questions, which points to a deficiency in their business. Many used car dealerships spend the majority of their marketing budget on Internet lead providers like TrueCar, Car Gurus, and Autotrader. However, they don’t invest in tracking these data sources, which could save thousands of dollars per month as well as provide key performance indicators for their business. With fierce competition from franchise dealer pre-owned departments and automotive e-commerce players like Carvana, used car dealers need to be more data driven in their day-to-day operations. A decrease in front/back margin means all of the “fat” of the business must be trimmed, and making an investment into tools that provide analytics is key. If your dealership is making the marketing investment into multiple lead providers there is a real need to track how many deals close rather than how many overall leads you are receiving. Often I hear a dealer say they get the most leads from “X” lead provider but when further reviewing the data many of those
10
DRIVELINE
Spring 2018
www.miada.us
leads are not closing as high and it may not be the best overall performing lead provider. When looking at the performance of a lead provider it cannot solely be based on the number of leads, which is a vanity metric. It should be attributed to deal conversion, and unless there is a CRM or other system in place this is very difficult for an independent dealership to track. One of the most fundamental components of effectively implementing any CRM, especially in a smaller independent store, is the “garbage in, garbage out” philosophy. Paradoxically, this tends to be a cause of churn in independent dealerships fully leveraging the capabilities of a CRM. Let me run through the three most common CRM implementation and usage issues I have observed with independent dealerships’ adoption of a CRM program. Onboard training: This is one of the most crucial components of the CRM setup process. Often dealerships do not take this call as seriously as they should. During the onboard call everyone who plans on using the CRM should be present, attentive, and listening carefully. This is where the nuances of the system will be explained and important features like lead reassignment rules will be set up. Missing out on this call or not paying attention will hinder a dealership from reaching the true potential of the CRM.
Hold your team accountable: Often dealerships will get set up on a CRM, excited about the “idea” of implementing a CRM, and let the system primarily be used only by the salespeople. Management should also be involved in using the platform and oversee whether salespeople are completing follow ups and are on task. While a CRM adds some automation to this, it is up to management to enforce usage. Always greener on the other side: Some independent dealers make a decision on an impulse and terminate a vendor on a whim. It’s important to realize each CRM system will have its own quirks. Constantly changing vendors “to find the right fit” can lose momentum and unnecessarily take employee bandwidth with setup. Be sure to vet and research your new CRM provider before signing up. Then allow 3-6 months for your store to adapt to the new system. Implementing a CRM is sometimes a painful process, especially if technology has not been previously embraced in the dealership. Nonetheless it’s important to understand that being more data driven and putting the proper systems in place will ultimately help your dealership succeed in today’s competitive marketplace. Zach Klempf is founder and CEO of Selly Automotive. He can be reached at zach@ a1softwaregroup.com.
MARKET WATCH |
KELLEY BLUE BOOK BEST RESALE VALUE AWARD 2018 Winners Announced Kelley Blue Book recently announced the 2018 model-year brand and category winners of the annual Best Resale Value Awards, which recognizes vehicles for their projected retained value through the initial five-year ownership period. “Once again, Toyota and Porsche earn top honors in the brand and luxury brand categories, respectively, with the highest average projected resale value among their full model lineups,” said Kelley Blue Book director of residual values Eric Ibara. “The top 10 vehicle winners are predominantly trucks, reflecting the high demand that exists for these models. Despite the higher incentives available on trucks today, used car buyers are willing to pay more for trucks, relative to the initial MSRP, than they are for sedans. Without the prospect of higher gas prices, this trend doesn’t appear to be slowing.” This is the third Best Resale Value: Brand win for Toyota, which previously won in 2014 and 2017. This year marks Porsche’s second consecutive Best Resale Value: Luxury Brand win.
2018 BEST RESALE VALUE: Luxury Brand Porsche
2018 BEST RESALE VALUE: By Vehicle Category
Subcompact Car: Honda Fit Compact Car: Subaru Impreza Sporty Compact Car: Subaru WRX Mid-Size Car: Honda Accord Full-Size Car: Toyota Avalon Entry-Level Luxury Car: Lexus RC Luxury Car: Lexus GS High-End Luxury Car: Porsche Panamera Sports Car: Porsche 718 Cayman High Performance Car: Porsche 911 Hybrid/Alternative Energy Car: Toyota Avalon Hybrid Electric Vehicle: Chevrolet Bolt EV Subcompact SUV/Crossover: Honda HR-V Compact SUV/Crossover: Jeep Wrangler Mid-Size SUV/Crossover: Jeep Wrangler Unlimited Full-Size SUV/Crossover: Chevrolet Tahoe Luxury Compact SUV/Crossover: Porsche Macan Luxury Mid-Size SUV/Crossover: Lexus RX Luxury Full-Size SUV/Crossover: Lexus LX Mid-Size Pickup Truck: Toyota Tacoma Full-Size Pickup Truck: Chevrolet Silverado HD Minivan: Honda Odyssey
2018 BEST RESALE VALUE: Top 10 Cars Chevrolet Colorado Chevrolet Silverado Ford F-Series GMC Sierra Honda Ridgeline Jeep Wrangler Subaru WRX Toyota 4Runner Toyota Tacoma Toyota Tundra
CHEVROLET BOLT EV
s
Toyota
s
2018 BEST RESALE VALUE: Brand
HONDA ACCORD
s TOYOTA TUNDRA
Note: Residual values used for award calculations are based on the 2018 model-year vehicles that appear in the January/February 2018 Kelley Blue Book® Residual Value Guide. Top 10 models appear in alphabetical order. The 2018 Jeep Wrangler and Wrangler Unlimited honored in this year’s Best Resale Value Awards is the JK model. Depreciation often is the greatest expense incurred by drivers during the first five years of vehicle ownership. An average 2018 model-year vehicle will only retain about 35.1 percent of its original value after a five-year ownership period. Vehicles with average or below-average resale values are generally plentiful in the marketplace. However, certain vehicles are projected to hold their value better than others. While much of a vehicle’s resale value is based on supply and demand, as well as current and projected future market conditions, vehicles that retain their value best are typically discounted the least and tend to generate high levels of consumer interest. By comparison, all vehicles in Kelley Blue Book’s Top 10 for Best Resale Value are projected to retain more than 46 percent of their MSRP after five years. Kelley Blue Book’s Best Resale Value Awards are in their 16th year and are based on projections from the Kelley Blue Book Official Residual Value Guide. These values are established by experienced automotive analysts that review the output from statistical models built upon millions of transactions. Vehicles that earn the highest five-year residual values, expressed as a percentage of their original Manufacturer’s Suggested Retail Price, are selected for these prestigious awards. Low-volume vehicles are excluded from award consideration, except in the electric, luxury, sports car and high-performance categories. For more information about Kelley Blue Book’s Best Resale Value Awards, please visit www.kbb.com/new-cars/best-resale-value-awards/.
12
DRIVELINE
Spring 2018
www.miada.us
F&I MATTERS
| BY SCOTT BATES & MIKE RIZKAL
DOES YOUR RFC PASS THE IRS VALIDITY TEST? Don’t Let Your RFC Become a Liability
WE FIND MANY RFCS AND DE ALERS
DO NO T REGUL A RLY RE V IE W T HEIR OP ER AT ING AGREEMEN T S OR OP ER AT IONS T O COMP LY W I T H VA L IDI T Y FAC T ORS FOR T HE RFC A ND I T S T R A NSAC T IONS.
14
DRIVELINE
Spring 2018
www.miada.us
Related finance companies were not designed to be a tax-planning vehicle to reduce or defer auto dealership income. If the IRS validity test discovers noncompliance that cannot be explained in the RFC’s or dealership’s documentation, additional taxes and penalties can be severe. We find many RFCs and dealers do not regularly review their operating agreements or operations to comply with validity factors for the RFC and its transactions. The process is understandably time consuming and complex. You can rest assured, however, that if the RFC receives an IRS query, a dealership query often follows. RFCs are usually set up as S Corporations. The RFC acts as the lender in the dealer’s financing of used vehicles. The notes are sold to the RFC at a discount due to the higher risk the RFC incurs in the transaction. The RFC accrues the income as it is earned from the car buyer’s weekly or bi-weekly payments. The dealership collects cash up front then books a current and deducted loss for the difference between the full contract and the discounted contract. According to the IRS, a valid RFC must have the following characteristics. • When the finance contract is sold to the RFC, title has been transferred to the RFC in accordance with title and lien holder laws. • The discounting of the car dealer’s receivables is sold to the RFC at their fair market value. • There is a written arms-length contract between the dealership and the RFC. • The finance contracts are normally sold without recourse between the two related parties. • The RFC is responsible for repossessions. • The RFC is operated as a separate entity from the dealership and has the following characteristics: •A dequate capital to pay for the contracts. •M eets all state and local licensing requirements. • Maintains its own bank accounts. •H as its own address and phone number and operates as a separate entity from the dealership. •M aintains its own books. •H as its own employees who are compensated directly by the RFC. •P ays its own expenses. •C ustomers make payments to the
RFC, not to the dealership. The IRS Audit Technique Guide cites two common issues that put the validity of the RFC into question. Either the dealership and RFC do not treat and record the sale and financing properly or the RFC is operating like a shell company rather than a legitimate separate entity: • At the time of each transaction, the RFC must show actual cash reserves in its own bank accounts to pay the dealer. The dealer in turn must record receipt of payment for the note. Each entity must have separate journal entries for the transaction. If journal entries don’t match up, the IRS may disallow the transaction. • As for its validity as a separate entity, if the RFC doesn’t have a separate address and does not advertise itself as a separate company, it factors into the validity test. It must also be proven the RFC is directly collecting payments and paying actual employees.
T H E R F C M AY B E C O M P L E T E LY VA L ID, A ND T HE L EG A L FOR M A BL E TO BE PROVEN, BUT DEALERS AND MANAGERS MUST BE CONFIDENT IN THEIR ABILIT Y TO SHOW P R O O F A N D D O C U M E N TAT I O N IN THE EVENT OF AN IRS QUERY O R A U D I T. S H A R I N G S TA F F O R RUNNING RFC BOOKKEEPING AND A D M I N I S T R AT I O N T H R O U G H T H E DE A L ER SHIP T O S AV E NOW C A N P R O V E C O S T LY I N TA X E S A N D P E N A LT I E S L AT E R O N . If the IRS does not view the RFC as a separate entity by these tests of validity, it will not allow the dealership to claim a deduction for losses on the sale of discounted vehicles to the RFC. It will defer to related party rules under IRS code 267 that do not allow loss deductions in transactions made between related persons. Without proper structuring as a separate operation, an RFC can become a liability. The RFC may be completely valid, and the legal form able to be proven, but dealers and managers must be confident in their ability to show proof and documentation in the event of an IRS query or audit. Sharing staff or running RFC bookkeeping and administration through the dealership to save now can prove costly in taxes and penalties later on. The IRS may determine the RFC is not a valid separate entity. This finding, in effect, invalidates the cash method of accounting for the sale of notes to the RFC. Interested in more details about RFCs and auto dealership accounting? Download our whitepaper at http://info.cornwelljackson. com/rfc-irs-target. Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department. Contact him at scott. bates@cornwelljackson.com or 972-202-8000. Mike Rizkal, CPA, is a partner in Cornwell Jackson’s Audit and Attest Service Group. Contact him at Mike.Rizkal@cornwelljackson.com or 972-202-8000.