DRIVELINE
THE OFFICIAL MAGA ZINE OF MICHIGAN INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION
S U MME R 2 018
THE RIGHT
WAY T
GET MORE MILLENNIALS DO IT RIGHT AND YOU’RE CAPITALIZING ON A DEMOGRAPHIC WITH LOADS OF DISCRETIONARY INCOME. | PAGE 12 |
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
SALES MATTERS | By John Chapin
SALES SUCCESS LESSONS I LEARNED FROM MY MOM
Principles for Success
My mom passed away recently. As I was writing her eulogy, I realized a lot of what she stood for and taught me led to my sales success as well as success in life. Here’s what I learned.
MOM’S LESSONS FOR SALES AND LIFE SUCCESS
Perseverance and Stick-To-Itiveness My first job out of college as a stock broker I was having a really tough time and was going to quit. Mom said, “John, anything in life worth having isn’t going to be easy. It’s going to be tough. Life will test you to see how serious you are, how badly you want it, how committed you are to your dream. And here’s the thing: all you have to do is hang in there long enough without quitting. If you hang in long enough, eventually the tide will turn in your favor and you’ll win – every time.” I stayed, and the tide turned shortly thereafter. Within two years I was the youngest branch manager in the country. I started my speaking business in Fall 2008. The economy subsequently dropped off the cliff and the speaking business imploded. I remembered what my mom said, “If you hang in long enough, eventually the tide will turn.” And it did. She was right again. Mom’s lesson: The bigger and more important the endeavor, the more difficult the journey and the more likely there will be temptation to quit at some point. You don’t fail until you quit. To succeed you need to persevere and hang on after others have let go. Commitment My mom was a substitute teacher for many years. One time they called her to substitute and she was really sick with the flu, but she felt an obligation to help out. So she put herself together as best she could and went to work. Later I asked her why she agreed to teach when she was that sick. She said, “John, people rely on me when other people are sick. I’m not supposed to be sick. In life it doesn’t matter how you feel physically or mentally, what matters is the commitments you make and that you live up to them – in good times and bad, whether you feel like it or not.” Mom’s lesson: Commit and be all-in. The client doesn’t care how you feel, or about any other excuses you have as to why something didn’t get done. They just want what they were promised when they were promised.
Go Above and Beyond – Add That Little “Extra” My mom believed if you’re going to do something, you do it right and you do it all out. She always pushed herself to continually improve and be the best she could be. It started in school where she was her high school class valedictorian. In college she got straight As. But it wasn’t just the “big” things she took seriously. She always believed in doing even the smallest things at the highest level. One Halloween I wanted to be a ghost. That’s easy, right? A sheet with two holes for the eyes – done. Not my mom’s ghost. I mean, I was the ghost but the ghost outfit was going to represent my mom. She had that sheet on me four nights in a row, adjusting, cutting, sewing, tailoring, and changing. On Halloween she put that sheet on me and made a few final changes before sending the perfect ghost off into the night. Mom’s lesson: If something’s worth doing, it’s worth doing right. Always take it to the next level by doing more than you get paid for and delivering more than people expect. Everything you do reflects back on you. Leave no stone unturned. You want to make sure you do everything you can to win a sale. As a last-ditch effort, any time I lost a sale I used to ask, “Is it a done deal? Is there anything I can do to still get the business?” This led to me getting the “lost sale” back about 40 percent of the time. Be a team player. Make people feel important and special. In public my mom always had a smile on her face and a spring in her step. She was positive and upbeat. She wanted to leave a good impression on people and she wanted to make sure they felt good and important when she was talking to them. What people didn’t see behind the scenes was the enormous pressure my mom put on herself to be the perfect mom and wife. She never let people see the weight she carried on her shoulders. Regardless of that weight, she put her game face on in public, and got done what needed to get done, from coaching softball, to teaching, to everything she did in the church, to everything she did for her family. She always put others first. She was a team player and always wanted to help. She understood it wasn’t just about her – she had an obligation to her family, those she worked with, and those she made commitments to. Mom’s lesson: At the end of the day it’s all about people and relationships. As Zig Ziglar used to say, “You will get all you want in life, if you help enough other people get what they want.” This is also another great example of commitment. Finally, if you find yourself in a comfort zone because you think you’re making enough money, remember: it’s also about being in a position to help others. I always said I got my backbone from my mom. My mom projected a solid character and inner strength. She exemplified in her words and deeds how important it is to have
MOM’S LESSON: AT THE END OF THE DAY IT’S ALL ABOUT PEOPLE AND REL ATIONSHIPS. AS ZIG Z I G L A R U S E D T O S AY, “YOU WILL GET ALL YOU WANT IN LIFE, IF YOU HELP ENOUGH OTHER PEOPLE GET WHAT THEY WA N T.” a strong belief in yourself and what you stand for. My mom’s legacy is one of perseverance, commitment, and keeping your priorities straight along with your obligations – doing what you do what you need to do and what you committed to do, without complaining and regardless of how you feel physically or mentally. You keep going, no matter what, and never quit until you succeed. Your word is your bond. And at the end of the day, help as many people as possible. Thanks, Mom. 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
www.miada.us
Summer 2018
DRIVELINE
3
INSIDE
DRIVELINE
THE OFFICIAL MAGAZINE OF MICHIGAN INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION
NEW MEMBERS WELCOME!
06..................................................................President’s Letter 06.............................................. The End of the 1-Star Review 08.............................Common but Costly Facebook Mistakes 09..................................................Auction-Buying Challenges 10................................................. NIADA Government Report 12 ..............................The Right Way to Get More Millennials 14....................................................Smart Debt Management
ACV AUCTIONS Buffalo, NY
WHAT’S NEW National Policy Conference
JONES PREOWNED AUTO SALES Saginaw, MI
Dates Announced The 2018 National Policy Conference will be held September 24-26 at the Ritz-Carlton Pentagon City. Make plans now to join NIADA in Washington, D.C. as we meet legislators face to face to make your voice heard! Stay tuned for more details.
ADVERTISERS INDEX
ADESA.....................................................................................7 Automotive Finance Corp................................................... IFC FastLane Auto Exchange....................................................... 5 Greater Kalamazoo AA...........................................................9 Lakeside Insurance..............................................................IBC Manheim ...............................................................................11 NextGear Capital.................................................................. 12 VAuto......................................................................Back Cover
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.
STATE MAGAZINE MGR./SALES
Troy Graff • troy@niada.com EDITORS
Jacinda Timmerman • jacinda@niada.com Andy Friedlander • andy@niada.com MAGAZINE LAYOUT
Christopher Hanley • chris@niada.com PRINTING
AUTOMOTIVE CREDIT CORP Southfield, MI IAAI Livonia, MI
MICHIGAN DIRECT AUTO Livonia, MI SPRIENSMA AUTO Jenison, MI SUMMIT DEALER SERVICES Novi WRIGHT CHOICE AUTO SALES Detroit, MI
ASSOCIATION NEWS
MIADA’S ANNUAL 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.
Raffle
Grand Prize: $5,000 2nd Place: $500 3rd Place: $250 Only 200 tickets will be printed. The raffle will be held on October 6, 2018, at 8 p.m.
BOARD OF DIRECTORS CHAIRMAN OF THE BOARD Ray Campise Certified Motors 23509 Little Mack St Clair Shores, MI 48080 586-775-7000 sales.cmotors@gmail.com
DIRECTORS Dennis Craig Instant Car Credit PO BOX 146 Acme, MI 49610 231-938-2627 dcintc@gmail.com
PRESIDENT Otto Hahne City of Cars 1695 Stutz Dr Troy, MI 48084 248-458-1500 otto@cityofcars.com
Rick Rynberg Rynberg’s Car Co. 3880 Holton Rd Muskegon, MI 49445 231-744-1441 rickandwendy1@verizon.net
VICE PRESIDENT Kelly Herb Tom Stehouwer Auto Sales 7000 S Division Ave Grand Rapids, MI 49548 616-455-7000 TREASURER Joe Kuhta GWC Warranty 8865 Reese Rd Clarkston, MI 48348 248-670-1133 JKuhta@gwcwarranty.com SECRETARY Ed Ophoff Ophoff Motor Sales Inc. 2921 S Division Wyoming, MI 49548 616-452-7761 edwoph@aol.com
Nieman Printing
Save the Date
Tony LoBretto Alamo Valley A/S 6100 West D Ave Kalamazoo, MI 49009 269-344-8250 alamovalley@gmail.com Darvin Mileski NextGear Capital 11799 N College Ave Carmel, IN 46032 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
MISSION STATEMENT
Nicole Renee Rite On, Inc 4680 W Jefferson Ave Ecorse, MI 48229 313-649-7308 nicole.riteon@gmail.com Jerry Drouillard Autohaus of Royal Oak 4411 Delemere Royal Oak, MI 48073 248-549-3636 gdro999@hotmail.com Jeff Baker Muskegon Car Credit Inc. 1515 28th St SW Wyoming, MI 49509 616-249-2000 Ted Cooper Genesys Systems Inc 360 E Maple Rd Troy, MI 48083 248-597-1003 ted@gensystems.com 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
Summer 2018
www.miada.us
ASSOCIATION NEWS |
By Otto Hahne
PRESIDENT’S LETTER
Convention and the MIADA App
Hello to all our members. I hope all is well! Our annual awards banquet is coming up! This year’s banquet is going to be held at the Henry Ford Museum and will be a fantastic event. I know I plan to spend time going through and looking at everything the museum has to offer! I’m calling on my board members and directors to help out as well as looking for any volunteers. Let’s make this a wonderful awards banquet! Raffle tickets are available now. Contact Lisa Michael at our office to purchase them before they’re gone! On another note, by the time you read this, we’ll have returned from the annual NIADA convention in Orlando. I hope we were able to spend some time together. I always enjoy being with our members. Have you tried out the MIADA app? If so, we’d love to hear your feedback! If not, please download your mobile app for the MIADA today and start using your VIP cards! If you have an Android phone you can go to your Play Store and search MIADA. For Apple phones, visit https://itunes.apple.com/us/app/iada-independent-auto-dealers-association/ id1188883705?mt=8. As always, I’d like to thank all of our devoted volunteers and our executive director Lisa Michael for all of their hard work.
ACCELERATE |
By GWC Warranty
THE END OF THE 1-STAR REVIEW
Maintaining Your Online Reputation Online reputation is more important today than ever before. If you take your eye off the ball for even a second, a small number of customers can have a severe impact on your online image. That’s why you need to do whatever it takes to stop 1-star reviews before they pop up online. When it comes to online reputation, sometimes the best offense is a good defense. By putting in place the right steps and procedures, you can simultaneously prevent bad reviews while also potentially turning these negative experiences into positive ones.
YOU CAN’T HELP CUSTOMERS YOU NEVER HEAR FROM A bad review could catch you by surprise. You sold a car and it was uneventful, but before you know it that customer is leaving a stain on your online reputation. It’s frustrating for you since the customer never voiced their issues to you, but there is something you can do. Give all your customers a chance to come to you first with their complaints or issues. This requires regular follow up on your part. Whether it’s by phone, email or old-fashioned direct mail, checking in with your customers
6
DRIVELINE
Summer 2018
www.miada.us
will help you get a chance to proactively address any issues that come up. ARTFULLY CRAFT YOUR ASK If you’re plugged into your online reputation, you’re likely doing something to ask your customers for reviews. Sometimes it’s in person and other times it could be with email or text messages. Whatever you do, having an electronic method for customers to leave negative feedback will help you capture these issues before they turn into online complaints. If you ask electronically, start with a question about whether the customer had a positive experience. If they had a poor experience, direct the customer somewhere he or she can vent to you. If it’s positive, continue them on the way to leaving a positive review. RESPOND TO THE NEGATIVE Sometimes, poor reviews will slip through the cracks. When they do, respond quickly and personally, apologizing for the poor experience and providing a way for the customer to contact you. If you can identify the customer based on the review, you can also reach out directly to the customer. It’s a delicate situation, but try to identify what went wrong for the customer and see if there is anything you can do to resolve the situation. You may even be surprised by a customer revising their negative review into a positive review once you’ve shown how much you care about their experience.
OUTRUN THE BAD REVIEWS Above all else, the best way to limit the impact of 1-star reviews is to outweigh these stories with the positive ones that tell the true story of your business. It’s no secret that upset customers are more likely to leave a review than happy ones, so it’s incredibly important to ask as many customers as possible for reviews. By building a consistent process for asking for reviews, you’ll land enough positive to improve or maintain your positive online image.
SOCIAL MEDIA | By Kathi Kruse
COMMON BUT COSTLY FACEBOOK MISTAKES
Top Pitfalls to Avoid
If there’s one thing that's constant about Facebook, it’s change. It seems like every week there’s a new feature or advertising element, some new trick to learn, or a new way to be more visible. Many dealers unknowingly make several common Facebook mistakes, and it's hindering their success. Facebook is a valuable tool for business but there are a lot of potential pitfalls. Here’s a list of common Facebook mistakes you should avoid. Taking Off Without a “Runway” Facebook success is in the details. Before you take to the airwaves of social media, you need a plan. It's like this: if you're taking a trip and you don't know the way to your destination, you check the GPS app on your phone. You do this because it saves time, expense and a whole lot of needless suffering. Social media strategy works the same way. Begin with the end goal in mind. For most dealers, the goals are to gain more site visits, engage more customers, and generate leads. Once you've determined your goals, you'll need a social media strategy “runway” to reach them. Making It All About You Facebook marketing is successful when you've provided entertaining, useful, sharable content. Think about the Facebook pages you follow and why you follow them. It's not so you can see sales promotions. Fans and customers are no different than you! People stay engaged when the posts they see are meaningful to them. Pro tip: Avoid violating Facebook's terms of service. I can't tell you how many dealership pages I see that are broadcasting sales messages through the newsfeed. Save those messages for Facebook ads and you'll avoid the pain of having your people click the nearest exit. Failure to Engage Regularly One of the best ways to build a lively, loyal community on Facebook is by engaging regularly with your fans. Facebook is not a one-way communication tool. Create a solid engagement strategy that includes designating someone to engage with the people who comment on your posts. Respond to all page messages timely. Do not rely on the autoresponder. Respond to all reviews – both positive and negative. Every negative comment is an opportunity to turn a critic into a fan. Abandoning your customers on Facebook tells them either you're not paying attention or you don't care. No Serious Investment If you've spent any time in the dealership Facebook marketing ecosystem, you know there is a time investment. Building
8
DRIVELINE
Summer 2018
www.miada.us
relationships through trust takes time, and if Facebook is your chosen platform, be prepared to make an investment. A Facebook page should be considered a valuable company asset and, as such, there are other investments required to retain its value: • Strategy and planning. • Financial resources. • Human resources. • Attention. In fact, sometimes a dealership will need to restructure their operations to accommodate social media. If your team doesn't have the expertise, you may need to invest in training. Pro tip: It's not healthy to think that Facebook is “free.” That thinking will only allow your competitors to take all the customers. Not Completing Your “About” Section Your Facebook “about” section projects the image of your dealership. This is an incredibly important step when setting up and optimizing your page. You want to ensure your “about” is complete and sends the right message to anyone visiting your page: • Add your founding details. How did your dealership begin and when? What’s your mission and what drives your operation on a day-to-day basis? • People will quickly scan your content. Add your most important details within your first paragraph. • Add keywords, terms and phrases that anyone searching for your products would use. Keywords matter in social media as much as they do within your website and blog. Don’t overlook them! • Answer questions your community needs answered to make an educated decision. This is a place to create differentiation and separate you from your competitors. • Keep industry jargon out of your “about” section. Your customer doesn’t work in the auto industry, so don’t speak to them as if they do. Keep your language relatable and easy to read. Not Using Facebook Ads Facebook advertising can be a smart complement to your current advertising budget. Facebook ads let you grow your page and generate leads without adding a hefty expense. Part of your investment in Facebook is for Facebook ads. Simply put, you will not succeed (i.e. improve customer engagement and generate leads) without Facebook ads. Why? Ten years ago, social media was a fertile field of wildflowers, brimming with kittens and unicorns. The marketing landscape was wide open for dealers who wanted to capture attention and engage like-minded customers. Today, social media is a dense, crowded, noisy, smoggy urban jungle. Simple tactics alone are no longer effective. You must pay to promote your content and products on Facebook. The good news is that Facebook ads work! It's a mistake not to leverage this powerful tool.
FACEBOOK MARKETING IS POWERFUL, BUT O N LY I F Y O U 'R E A L L I N . THIS AWESOME POWER O N LY W O R K S T O Y O U R ADVANTAGE WHEN YOU'RE FIRING ON ALL CYLINDERS. Failing to Track, Measure and Analyze Your Results Too often dealers jump onto Facebook without a plan or clear idea of what success really means for them. Look for success markers on your Facebook marketing journey. Just like the maps app on your phone shows the best route to take to your destination, Facebook key performance indicators guide you to what success looks like for your Facebook marketing. KPIs give you a solid foundation from which to measure results. Develop a process – including the tools you'll need – to track, measure and analyze. Facebook allows you to figure out what's working and what's not in real time. Facebook mistakes don't have to happen. Facebook can help build a bridge between your dealership and your customers. Facebook marketing is powerful, but only if you're all in. This awesome power only works to your advantage when you're firing on all cylinders. 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.
MANAGEMENT MATTERS | By Dale Pollak
AUCTION-BUYING IS MORE DIFFICULT THAN IT SHOULD BE
Four Contributing Factors
You might think that with rising supplies of wholesale vehicles dealers would have an easier time seeking out auction cars to fill gaps in their inventories. But the reality is different. Dealers still struggle to acquire cars that will appeal most to buyers in their markets, and purchase them at prices that will yield respectable margins. Competition accounts for part of the struggle. Even with more available cars, there are more dealers vying for them. But the difficulties dealers face also owe to four factors that encompass the ways dealers prepare for auctions, their auction expectations, and the inherent inefficiencies of sourcing vehicles from remote locations. Knowing Exactly What to Buy Despite technology that can efficiently tell dealers the exact vehicles they should acquire before they go to an auction, many dealers and their buyers just show up. They do little homework. Instead, they rely on instinct to size up cars they believe they need. This approach is far less efficient than using technology to determine the precise
cars to pursue. Likewise, it’s not uncommon for dealers who rely mostly on instinct to find that their auction units contribute significantly to inventory age issues. Finding the Right Inventory It’s one thing to know the exact used vehicles you need. It’s another task altogether to locate these vehicles at auctions across the country. While some dealers have adopted new technologies to efficiently identify the auctions where the cars they need reside, many still rely only on auctions closer to home. This preference may help minimize transportation costs, but in today’s wholesale market it also limits selection and concentrates competition for the same vehicles. The end result: Dealers restrict their opportunities to acquire the right inventory when they stay local. Buying at the Right Price A dealer recently shared that while he’d love to pay less to acquire near-new vehicles for his certified pre-owned program, he’s come to understand that’s impossible if he wants to maintain his retail sales velocity. “I’ve found the ‘right’ price at auction translates to a roughly $1,000 front-end gross,” he said. “To me, they’re ‘spinner’ cars that we buy and then spin them through the shop and sell fast. Then, we repeat the cycle.” The key take-away: The dealer’s determined the “right” price for himself with every car. He uses technology and tools to calculate each unit’s profit potential (accounting for the costs
of acquisition, transportation, reconditioning, etc.), and the maximum he might pay, before he places his bid. When dealers complain they can’t acquire auction vehicles for the “right” money, I typically find they haven’t conducted a dispassionate calculation of the “right” price for themselves, or their expectations for a front-end profit don’t match the realities of today’s market. Reducing the Time Required Dealers who proactively address each of the preceding factors will, by design, become more efficient as they source vehicles from auctions. But the level of efficiency dealers achieve will depend primarily on how well they use the technology and tools that facilitate faster acquisitions. I would add that auctions, as well as solutions providers, could do more to make the wholesale marketplace a more efficient place for dealers to do business. It’d be pretty cool, I think, if dealers could count on a system that, almost automatically, began the work of re-supplying their inventories when a retail used unit heads home with a customer, if not sooner. Until that day, however, there’s much dealers can do themselves to become more effective and efficient at acquiring the cars they need at auction. Dale Pollak serves as executive vice president for Cox Automotive, a position he’s held since the company he founded, vAuto, became part of the Cox family in 2010. Dale pioneered the Velocity Method of Management, which has been adopted by thousands of dealers.
www.miada.us
Summer 2018
DRIVELINE
9
WASHINGTON UPDATE | By Shaun Petersen
NIADA GOVERNMENT REPORT
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.
LEGISLATIVE Luetkemeyer seeking Financial Services Committee chair: Rep. Jeb Hensarling (R-Texas) is retiring at the end of his term, which, if the Republicans hold their majority in the House, will leave a key leadership position open. Hensarling is chairman of the House Financial Services Committee, which includes auto finance in its jurisdiction, and several committee members are already indicating interest in that position for the 116th Congress. Among them is Rep. Blaine Luetkemeyer (R-Mo.), who is currently chairman of the Financial Institutions and Consumer Credit Subcommittee. Last month, Luetkemeyer told the American Bankers Association he is “actively pursuing” the full committee chair. NIADA has engaged with Luetkemeyer regarding various legislative issues in recent years and has developed a solid relationship with him. NIADA-PAC has contributed to his campaign.
10
DRIVELINE
Summer 2018
www.miada.us
The committee’s vice chairman, Rep. Patrick McHenry, (R-N.C.), is also considered a prime candidate for chairman. Speaking at the same ABA conference as Luetkemeyer, McHenry declined to comment on whether he would seek the position. Luetkemeyer said he would “be more than happy to support” McHenry if he is interested. Dodd-Frank reform: The Economic Growth, Regulatory Relief and Consumer Protection Act was signed into law by President Trump on May 24, providing the first major reform of the Dodd-Frank Act since the wide-ranging financial services bill was enacted in 2010. The new law, which passed by wide margins in both houses of Congress (258-159 in the House, 67-31 in the Senate), loosens the regulatory burden on small and mediumsized banks – which were hit hardest by the restrictions to the financial sector imposed by Dodd-Frank – and reduces compliance costs. Mick Mulvaney, acting director of the Bureau of Consumer Financial Protection, praised the measure. “I applaud my former colleagues in Congress for coming together to pass the most significant financial reform legislation in recent history,” he said. “This new law will improve consumers’ access to credit, reduce regulatory burdens on credit unions and community banks, and fuel economic growth and job creation across the nation.” The bill did not address restructuring or reform of the CFPB, a topic that continues to be discussed and could be included in future legislation. REGULATORY Debt collection rulemaking on CFPB agenda: The Bureau of Consumer Financial Protection’s recently issued spring rulemaking agenda shows that while new rules related to debt collection are still on the radar, a notice of proposed rulemaking is not expected until March 2019. The bureau did say it is “engaged in research and pre-rulemaking activities regarding the debt collection market, which continues to be a top source of complaints,” and added it is “preparing a proposed rule focused on Fair Debt Collection Practices Act collectors that might address such issues as communication practices and consumer disclosures.” The CFPB has been considering debt collection rules since 2013, when it released an advanced notice of proposed rulemaking about the debt collection system. Mulvaney likely to stay into fourth quarter: CFPB acting director Mick Mulvaney told the Association of Credit and Collection Professionals he expects to remain in that position into the fourth quarter of this year. Speaking at that organization’s annual Washington Insights Conference on May 22, Mulvaney said he was confident President Trump would name his choice for a permanent CFPB director before June 22 – the last day Mulvaney could legally serve as acting director unless a permanent
replacement has been nominated – and will stay on as acting director until the confirmation process for the new director is completed. During his session – which I attended as a representative of NIADA – Mulvaney said the bureau is serious about enforcing the law and holding bad actors accountable, but added, “We are not going after people who are not breaking the law.” GRASS ROOTS New York bill: A bill introduced in the New York Assembly would require dealers using starter-interrupt devices to give 10 days’ notice before using the device to disable a vehicle. It calls for that notice to be sent by registered or certified mail “to the address at which the debtor will be residing on the expected date of the remote disabling of the vehicle.” The bill is problematic for several reasons, including the fact that finding the address of the debtor is often not an easy task given the transiency of Buy Here-Pay Here customers in general – especially those in default. NIADA and the New York IADA are monitoring the situation. New York attorney general resigns: Eric Schneiderman, who aggressively pursued enforcement actions against car dealers since becoming New York’s attorney general in 2011, resigned last month in the wake of accusations he had assaulted four women while in office. Schneiderman targeted more than 100 dealerships with allegation of regulatory violations in 2017, including selling vehicles with open recalls without disclosing those recalls. He has also been an outspoken critic of President Trump, challenging parts of the Administration’s agenda in court. Shaun Petersen is NIADA’s senior vice president of legal and government affairs.
ACCELERATE |
By GWC Warranty
There’s a right way and a wrong way to go after more millennial business. Do it right and you’re capitalizing on a demographic with loads of discretionary income. Do it wrong and you could miss out on a gold mine of profit opportunity. A recent study by eBay found that despite delayed tax refunds, most millennials filed before the technology incidents that caused a delay for others. Furthermore, the research reported 37 percent of millennials planned to use their returns to buy a car and 80 percent planned on rewarding themselves with their returns. But are you ready to pounce on this limitedtime opportunity? Advertise in the Right Places Millennials won’t be able to find you unless you make the effort to get noticed where they’re looking. Social media advertising can be an affordable way to reach a highly targeted audience with a highly targeted message. You can select the age, location and other characteristics of your audience and speak directly to their needs and wants. Have the Right Cars If you often look back to see what sells well before you head off to auction, now’s the time to take it to the next level. Go back in the books to see if there are any trends in what past millennial buyers have purchased from you. If you don’t have much of a history with this group, some research from outside the car industry could help. It’s been widely reported how much millennials rely on recommendations, how much they research a purchase of this size and how image-conscious they are. Making sure you have vehicles that are reliable and competitively priced with all the right perks will go a long way.
12
DRIVELINE
Summer 2018
www.miada.us
Cover Story
Communicate the Right Way Millennials, more so than most audiences, are bombarded with emails, text messages, phone calls and more on a daily basis. So before, during and after a sale, your messages need to stand out. Tools like Covideo, which embeds personalized video messages into emails, can make your messages stand out from the crowd and get noticed. Using these kinds of messages throughout the buying experience can help a millennial customer stay more engaged with your dealership. Appeal to the Right Sensibilities We mentioned earlier how 80 percent of millennials are looking to reward themselves with their tax returns. This supports the idea that millennial decision-making is driven by emotion and self-image. Playing to this personality trait while millennials are on your lot or interacting with you online is an effective practice to get them in a car from your lot. Let them know how their image will benefit from this purchase and it could pay dividends. Provide the Right Protection Perhaps more so than anything else, millennials have high expectations after pouring hours upon hours of research, negotiations and time on the lot into making a vehicle purchase. Because of this, you don’t want a repair – big or small – after the purchase to put a damper on your millennial customer’s entire experience. This makes getting a service contract on every millennial deal an absolute necessity, especially since this demographic is also more likely to leave a review online.
MANAGEMENT MATTERS | By Dale Pollak
MARGIN COMPRESSION
TAKES A BITE
How Will You Bite Back?
For many dealers, margin compression in used vehicles has been a bit like a leaky water line. The truth is the line’s been slowly dripping for years. But no one really noticed it until now – after a ceiling or wall has started to bubble, crack or crumble. Dealers’ awareness of margin compression seems to have taken hold this year, following the realization that despite a fairly strong year of used vehicle sales in 2017, they actually made less money. You can see this picture in end of year financial data from the National Automobile Dealers Association. Their December 2017 financial profile shows two disturbing yearend stats: • Average net profit per used vehicle retailed in 2017: -$2. I can’t remember ever seeing used vehicle net profit as a negative number. But it’s been dropping for the past few years. It was $164 in 2014, $132 in 2015 and $65 in 2016. Can you hear the sound? Drip. Drip. Drip. • Front-end gross profit declined. NADA reported the average retail gross profit dropped $78 to $2,337 last year, down from $2,415 in 2016. The average was $2,444 in 2015. Drip. Drip. Drip. (Note: NADA’s numbers include F&I income, which means the margin decline would be more pronounced, given many dealers’ efforts to increase F&I sales in recent years.) The numbers wouldn’t be so disturbing if they were just a temporary blip. But like the leaky water line, the problem’s more chronic than coincidental. The key question on the minds of dealers in my conversations is now that they’ve recognized the problem, what steps can and should they take to fix it? I’ll answer the question with some bad news. Unfortunately, there isn’t really a “fix” for margin compression. It’s now the nature of our ever-more competitive, efficient and transparent used vehicle marketplace. But there are ways to mitigate the problem and stop leaks that often erode used vehicle profitability. Here are four recommendations.
MEASURE/MANAGE EFFICIENCY OF ACQUISITIONS
At many dealerships, there are at least a handful of individuals, if not more, who have the authority to appraise vehicles. From my observations, there’s a fairly wide degree of variance among the appraisers when you judge their decisions based on their cost to market ratios.
PRODUCTS & SERVICES
Cost to market measures your cost to acquire the vehicle against the prevailing retail asking prices for the unit, a calculation that yields your potential profit margin spread. If you acquire a vehicle for $8,500 and the retail asking price is $10,000, the cost to market is 85 percent. There’s margin to be gained by managing and measuring the consistency of your appraisals, as weighed against your cost to market targets. I recognize there are real-life pressures to allow a little more for trade-ins. But I would submit those pressures will fade as you use the current market to establish the fair value of your acquisitions.
TRIM RECONDITIONING COSTS
I’ll put aside the question of how much you can rightfully charge for labor and parts for your internal reconditioning work. But when was the last time someone asked your third-party vendors for a little haircut, perhaps a 5 percent to 10 percent reduction? Chances are those invoices get paid without too much question – an area of oversight that offers some margin opportunity. It’s worth remembering part of the NADA-reported net loss on used vehicles amounts to someone else’s gain.
MINIMIZE DISCOUNTING
Just as some appraisers seem to acquire more cars for the right money than others, some sales associates are better at avoiding discounts than others. When you price your used vehicles to the market, there’s simply less room for negotiation, and your average showroom/other discount should reflect this reality. The key, of course, is to manage and measure your discounts. Everyone who puts their initials on a deal should be held accountable for the discounts they approve – and be properly trained to know how to maintain your margin.
REDUCE INVENTORY AGE
In today’s margin-compressed market, retail speed is the only way to take advantage of the age-old truth that fresh cars deliver the best gross. Dealers who sell a larger share of fresh vehicles would maximize each unit’s gross profit potential. It’s really a black and white proposition. No doubt, that’s why top-performing dealers maintain at least 55 percent of their inventories under 30 days. Their gross profits tend to look better than dealers who carry a larger share of older vehicles. As I mentioned, these recommendations won’t completely eliminate margin compression. But they can help slow its harmful effects and help you avoid profitability leaks that make the problem even worse. Dale Pollak serves as executive vice president for Cox Automotive, a position he’s held since the company he founded, vAuto, became part of the Cox family in 2010. Dale pioneered the Velocity Method of Management, which has been adopted by thousands of dealers.
BLACK BOOK PARTNERS WITH SERVICE TOOL
Enables Better Resale Opportunities
Black Book has partnered with Mobility Sales Solutions and its new Vin-Up solution for automotive dealers and their service customers. Under the agreement, automotive dealers are immediately alerted to each vehicle’s latest Black Book value when vehicles come in for service, enabling better resale opportunities with their service customers. Service valets at automotive dealerships are equipped with Vin-Up portable scanners and printers, handing the vehicle owner a VinUp ticket as they exit their vehicle. The ticket displays the latest Black Book value of their vehicle, and dealers have the option of offering incentives to that customer to take a few minutes to discuss the sale of that car. “A turnkey automotive service customer vehicle buyback program that combines technology such as Vin-Up and the most accurate vehicle values from Black Book will foster a more productive dialogue for dealers and their returning customers,” said Black Book executive vice president Jared Kalfus. “Customers returning for service aren’t typically in the shopping mindset, so the ability to create a dialogue with an accurate value of their vehicle creates a less adversarial environment to begin a discussion, creating a win-win scenario for both parties and fostering an environment of trust.”
INDUSTRY NEWS
COX AUTOMOTIVE HIRES PRODUCT CHIEF
Marianne Johnson
Marianne Johnson is joining Cox Automotive as chief product officer, reporting to executive vice president and chief operating officer Mark O’Neil. In her new role, Johnson will partner with the Cox Automotive executive team to focus on building products. As a 30-year veteran in the fintech field, Johnson joins Cox Automotive from First Data, where she was head of product innovation and technology for the network and security solutions line of business and senior vice president of enterprise commercialization. Prior to First Data, Johnson was an executive vice president at Elavon, a U.S. Bank company. Before Elavon, she served as a key driver of strategic growth at Equifax as senior vice president of U.S. growth and operations where she successfully delivered new product innovation that resulted in significant revenue growth and served as an impetus for future innovations.
BHPH PERSPECTIVE | By Scott Bates, CPA
SMART DEBT MANAGEMENT
Top Pitfalls to Avoid
In the life cycle of any auto dealership, there will be times when cash flow is tight. Buy Here-Pay Here dealers in particular face complexity in ensuring enough inventory is on hand to attract buyers – and offsetting that investment with a healthy flow through collections and debt management. This balance is never perfect. Dealers need strong banking and/or equity relationships that will extend credit to fill in the cash flow gaps. Debt Management is Proactive Even if their balance sheet is healthy, dealers on the shy side of $1 million in receivables will likely get a less favorable interest rate on credit than more established or larger dealers. This does not mean smaller dealers should accept rates of 10 to 15 percent. It pays to shop around and understand how the bank or private equity firm will consider these characteristics to justify their terms. By working with your CPA, you can provide the lender with financial statements and accounting that aligns with their expectations. As part of the terms of the loan, dealers may be required to provide reviewed or audited financial statements. Because of this additional expense, and also to get more favorable terms, it’s important for dealers to actively seek lower interest rates. It is perfectly acceptable to shop around. Contact competing banks as well as your existing lender and ask about new credit options. Talk to colleagues about the banks they are using. Request multiple offers. Strong accounting, tax and compliance practices help with this process. On the accounting side, owners need regular financial statement preparation to view trends and forecast cash flow – helping them prepare for lending conversations and extensions of credit at the right time each year. On the tax side, the number one tax planning technique for Buy Here-Pay Here dealers is the discount (or loss) on the sale of notes from the dealership to the RFC, which requires cash. Dealers may also qualify for opportunities such as bonus depreciation and deductions with regard to employee perks and compensation. Management may also consider a review of operational efficiencies or gaps in controls that can affect cash flow. Keep in mind every dealership is different when it comes to managing cash flow, so best practices must occur within your own dealership. As BHPH dealerships grow to portfolios of $4 million and above, more favorable financing opens up. But it’s not a guaranteed scenario. Dealers should weigh the benefits of obtaining more financing against the extra administrative costs of public accounting services. Once you have the credit you need, there are various ways to reinvest in your business.
14
DRIVELINE
Summer 2018
www.miada.us
Some dealers may decide to purchase their location – adding real estate holdings that support the extension of credit in the future. If the dealership also has a service department, cash flow can be set aside to cover repairs and maintenance on recently sold cars. Some dealers choose to cover repairs on cars shortly after purchase to support the customer’s ability and willingness to keep making monthly payments. For example, a repair may cost $800, but it leads to another six to 12 months of customer payments. Compensation is another area that cash flow can support. Attracting and keeping good back office personnel supports collections, which in turn supports the business. Dealers may also consider additional compensation for good salespeople. Let’s say you’ve done as much proactive management as you can. At certain points in the life of a dealership, you will still experience challenges. Some of these challenges can’t be handled alone. Whether you’re with a big bank and have secured a favorable interest rate or your dealership is still considered high risk for lenders, don’t ignore cash flow problems. Your CPA can help you formulate a plan to show numbers and communicate effectively with lenders in a way that is focused on solutions rather than the immediate problem. Lenders don’t like to call a loan for a shortterm issue, and there is usually room for negotiation on loan modifications that will support cash flow as well as repayment. However, year-over-year problems make lenders less willing to keep taking a risk on default. As soon as an issue comes to light, prepare your strategy to keep a strong lender relationship. Work through it like you and your lender are on the same side. It’s in the best interests of you and the lender to find a solution. Debt Management Supports Valuation It is also in the best interests of the dealership long-term to show a consistent history of loan financing, healthy cash flow and debt management. Owners want to show a return on investment and consistent profitability, tied to valuation of the business. There are different approaches to valuation. A key component, however, is determining equity value, which is the market value of the dealership assets minus the market value of its liabilities. Assets include such things as the dealership’s auto inventory and fixed assets, including real estate. They can include intangible assets such as the goodwill value of the dealership’s name and location, sales and service agreements, and also synergies such as multiple locations and strong management. Liabilities will include debt, any excess compensation, tax and rent issues, inventories and contingent liabilities such as environmental issues related to the storage and disposal of fuel, oil or batteries. The bottom line is that a well-performing portfolio, a good location and healthy foot traffic – combined with properly managed
IF YOUR DEALERSHIP STRUGGLES WITH DEBT MANAGEMENT OR CASH FLOW – EITHER I N T E R M I T T E N T LY O R THROUGHOUT THE YEAR – DON’T LET IT HINDER OPPORTUNITIES TO GROW. debt – will be attractive to a potential buyer. A dealership that is attractive to lenders is also attractive to buyers or outside investors, even with debt factored in. If your dealership struggles with debt management or cash flow – either intermittently or throughout the year – don’t let it hinder opportunities to grow. Speak to the professionals, such as the team at Cornwell Jackson, to help you understand the proper structure of financial statements to support proactive lender conversations. Scott Bates is an assurance and business services partner for Cornwell Jackson. He supports the firm’s auto dealership practice. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.