DRIVELINE M I C H I G A N I N D E P E N D E N T D E A L E R S A S S O C I A T I O N
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WHAT LENDERS WANT TO KNOW ABOUT YOUR DEALERSHIP Vendor Management PA G E 12
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VISIT US AT W W W.MIADA.US
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INSIDE
06...................................................What to Post on Facebook 08............................................................... NIADA Convention 10..................... Tradition and Trends Need to Work Together 12.........What Lenders Want to Know About Your Dealership 14............................................................. Washington Update 17..........................................................Tips to Convert A “No” 18......................................................Secret to BHPH Success
WHAT’S NEW
The NIADA National BHPH Summit will be held
Dec. 6-8 in Dallas, Texas. This year’s theme is “Reaching New Levels of Excellence.” The conference features industry leading speakers covering best practices in various BHPH related topics as well as industry updates and strategies for the upcoming year.
For more information contact Diann Flanders at diann@niada.com or (888) 906-8283.
ADVERTISERS INDEX
ADESA...................................................................................IFC AutoZone ...............................................................................15 Black Book................................................................................3 Greater Kalamazoo AA..........................................................16 Lakeside Insurance............................................................... IBC Manheim ..........................................................................10, 11 Manheim Pennsylvania..........................................................13 NextGear Capital ...............................................................9, 12 PassTime...................................................................................7 Protective..................................................................................5 Spireon................................................................................... 17 VAuto....................................................................... Back Cover
OFFICE
For information on how to become a member of please contact us at (248) 828-7010 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 The Driveline is a publication of the Michigan Independent Automobile Dealers Association Inc., but is also mailed to non-member dealers in Michigan in an effort to encourage them to join and support our efforts to improve the profit potential for the industry. The 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 individual authors and do not necessarily represent the views of the Michigan Independent Automobile Dealers Association Inc., Automotive Dealers Resource of Michigan, or the National Independent Automobile Dealers Association. Likewise, the appearance of advertisers, or their identification as members of the Michigan or National Associations does not constitute an endorsement of the products or services featured. We have worked to represent the independent automobile dealers in Michigan. We need your support.
STATE MAGAZINE MGR./SALES
Troy Graff • troy@niada.com
AUCTION NEWS /
MANHEIM OPENS RETAIL SOLUTIONS CENTER IN FLAT ROCK >> Reinforces Company Investment in
Industry and Region
MANHEIM RECENTLY opened its new Retail Solutions Center in a renovated 50,000 square-foot facility in Flat Rock, Mich., to provide Detroit-area dealers with greater access to high-quality services that produce retail-ready vehicles. Retail Solutions’ offerings include acquisitions, inspections, reconditioning, merchandising, transportation and more. This facility, the creation of jobs and expanded services reinforce Manheim’s investment in the auto industry and region. “By bringing together other Cox Automotive brands, Manheim’s Retail Solutions is in a unique position to deliver end-to-end services that clients value,” said senior vice president of inventory services Grace Huang. “It’s a natural extension of our wholesale auction activities, and dealers have told us that the service choices help with their inventory
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
Bob Vincent Automotive Dealer Services LLC PO Box 102 Milford, MI 48381 586-477-8282 robertvincent@live.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
EXECUTIVE DIRECTOR Lisa Michael 5119 Highland Rd PMB 393 Waterford, MI 48327 248-828-7010 lisamichaelmiada@gmail.com
EDITORS
VICE PRESIDENT Vacant
MAGAZINE LAYOUT
TREASURER Joe Kuhta GWC Warranty 8865 Reese Rd Clarkston, MI 48348 248-670-1133 JKuhta@gwcwarranty.com
Jacinda Timmerman • jacinda@niada.com Andy Friedlander • andy@niada.com Christy Haynes • christy@niada.com Christopher Hanley PRINTING
Nieman Printing
readiness and logistics needs.” Manheim is the only Retail Solutions provider in the remarketing space. Its flexible back-end services enable dealers to fill service capacity gaps and focus on engaging customers, as well as reduce vehicle turn time and overhead by lowering personnel and fixed costs. The property was recently transformed to build out the Flat Rock Retail Solutions Center. The remainder of the site will continue to serve as a marshaling operation for several of the company’s clients. “This new operation exemplifies Manheim’s commitment to be a strong business partner and area employer,” said Mandy Savage, general manager of nearby Manheim Detroit who also oversees the Flat Rock facility. “It feels amazing to be part of something that will create business opportunities and jobs, positively contributing to the comeback of this region.” Manheim Retail Solutions was established at Manheim Denver in 2015, and soon after expanded to Manheim Chicago. As a result of its success, earlier this year, the company announced a plan to invest $5 million to serve larger geographical markets through Manheim Darlington, S.C. (opened May 2016) and Manheim Flat Rock (opened July 2016), as well as Manheim Orlando, Manheim St. Louis and Manheim Houston (scheduled to open by year’s end).
SECRETARY Ed Ophoff Ophoff Motor Sales Inc. 2921 S Division Wyoming, MI 49548 616-452-7761 edwoph@aol.com
Maurice VanCoillie Van’s Used Cars 23509 Little Mack St Clair Shores, MI 48080 586-773-0560 586-773-0660
BOARD MEMBER Jeff Baker Muskegon Car Credit Inc. 1515 28th St SW Wyoming, MI 49509 616-249-2000
Mission Statement
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.
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Review your list
and discover you've just experienced what it's like to know what to post on Facebook.
SOCIAL MEDIA / BY KATHI KRUSE
5 WAYS TO FIGURE OUT WHAT TO POST ON FACEBOOK >> Engage Your Customers and
Reach Your Goals
ONE OF THE most common challenges for independent dealers is social media. It’s actually a challenge for most companies simply because it’s a medium not well understood. Not to oversimplify it, but Facebook and other social channels are just another medium to connect with customers. If you think about the “traditional” media such as TV, radio, print, billboards, email and phone, they are all places where customers spend time, and it’s your job (through marketing and advertising) to attract them to your store. Once a dealer has decided to venture out into Facebookland, the first question that comes up is “What do I post on Facebook to attract more customers?” The answer is a simple one but not so easy to find. Engagement is king on Facebook. It drives everything. There are two types of Facebook engagement: organic and paid. Organic simply means you did not pay to promote your post. Organic is the best kind of engagement and it’s the hardest to achieve. Solid, original, high-quality content achieves organic reach and engagement. People like, comment and share, which builds more authority with Facebook’s algorithms. It’s key to pay close attention to what’s working and what’s not. You must learn through data how best to promote (pay for) your content to improve on what’s happening organically. But what do you do when you hit a brick wall for ideas? These five ways will help you figure out what to post on Facebook to engage customers and reach your goals. 1. It all begins with your why. If you’ve done the work to determine your true why – why you’re participating in this race, and why your customers choose you over your competitor – the search for what to post on Facebook gets so much easier. Simon Sinek said, “People don’t buy what you do, they buy why you do it. The goal is 6 DRIVELINE / FALL 2016 MI_1016.indd 6
not to do business with people who need what you have. The goal is to do business with people who believe what you believe.” Without inspiration, motivation and passion to craft meaningful content, your Facebook page falls flat. Pro tip: If you’re new to determining your why, take a look at your online reviews. Look and listen for commonalities from what your customers are saying – that will help you know why your customers choose you. 2. Determine what your target customers want to know. Building relationships with buyers is how business gets done (with or without Facebook, right?). Knowing your customers’ interests and challenges helps you create content for your page that matters to them. Whether you realize it or not, there’s a story happening in the mind of your customer. They are the hero of their story, and when you actively participate in that narrative in a meaningful way (which Facebook is ideal for), you position your business within your customer’s story... and have a great shot at the sale! Pro tip: Begin to notice ideal customer experiences within your store and find a way to document them. 3. Identify and develop your resources. Part of your plan for what to post on Facebook is sitting down and assessing just what it is you have available. Failing to identify and develop your resources makes it even harder to know what to post on Facebook. Answer these questions: • Who will produce our content? • Who’s in charge of our content? • Who will maintain our content? (Content is a business asset!) • Examine and describe what forms of content are most comfortable right now (written, images, audio, video). • What types of content do you want to focus on in the next 12 months? • What do you need to do to get there? 4. Encourage employee participation. Most dealers agree they need to A) produce more content and B) connect on a deeper, personalized level with today’s hyperconnected buyers. Shifting your internal processes to engage employees (especially salespeople) in content creation helps with both of these challenges. When you showcase employees as thought leaders in the automotive industry, the company receives more recognition online. Employees reap the benefit of their voices
being broadcast, paving the way for more referrals, leads and sales. The company looks smarter because its employees look smarter. 5. Don’t make it too complicated. If you’ve been managing a Facebook page for a business, chances are one or more of these statements apply to you: •Y ou’re a current or potential customer of that store. •Y ou possess similar attributes to the customers you’re trying to attract. •Y ou have empathy for customers’ struggles and feel a connection. This means you are uniquely positioned to understand your customer (because they’re just like you). You have an idea of what would be valuable to post on Facebook and you need to give it wings. Try this: identify four to five Facebook pages you like and what it is about them you admire. Write down your answers. Review your list and discover you’ve just experienced what it’s like to know what to post on Facebook. Those pages you identified are successful for the reasons that attracted you. They are the same or similar to the reasons customers like your page. Brainstorm with others within and without your organization to come up with a game plan to create content that elicits the same interest, excitement and belonging you feel when you visit those pages on your list. Pro tip: We all get busy and it’s nice to have one place to refer to our game plan. A content calendar helps you think through what to post on Facebook, gives you the room you need to plan your strategy and allows you to schedule posts into the future to save time. Fact: figuring out what to post on Facebook is a creative process. Not everyone is cut out for it, but those who are usually realize it’s fun once you get things in place. Don’t be afraid to test different types of content with your fans. This will build your self-confidence and motivate you to keep going. The answer to “what to post on Facebook” is simple, but not easy. Do the work, test your ideas and make good use of a content calendar. You’ll soon stop struggling, find the answers and become a Facebook superstar. Kathi Kruse is an automotive social media marketing expert, blogger, consultant, author, speaker and founder of Kruse Control Inc. Kruse Control coaches, trains & delivers webinars focused on integrating social media and online reputation management into dealership operations.
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ONLINE MARKETING / BY CHELSEA MAGEE
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DEALERSHIP BLOGGING >> Does it Really Work?
EVERYONE LOVES FREE INFORMATION. And free information brings in customers. In fact, 90 percent of future car buyers report they search online for answers to their questions about their next vehicle purchase or service. THREE STRATEGIES FOR BLOGGING SUCCESS Because of this push for knowledge, blogs are no longer a luxury. But you have to do it right if you want to get the best results for your dealership. 1. Become an industry expert. Defy the stereotypes! Show future buyers that dealing with car dealers actually can be better than eating worms! Online research can frustrate customers, partly because we often let third-party sites educate them with inaccurate and confusing information. Blogging is one of the best ways for your dealership staff to establish authority and expertise. Once Google realizes you’re an authority on the topic(s) customers are searching for, you’re going to see increased traffic from search engines. And who doesn’t want to drive more traffic to their website? 2. Stick to a schedule. I often see dealerships post a few blogs
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and end up quitting. You have to blog regularly and remain focused on providing high-quality information. Did you know that Google knows the difference between high and low quality? This is one of Google’s 200 ranking factors! Make sure you create a schedule you can maintain by creating an editorial calendar. 3. Tackle current issues. Talk to your staff and find out the “top 10” questions they answer on a regular basis. You can do this for both sales and service. Make sure to write posts about your local area and events because this will also boost your local relevancy. Another hint? Review everything! Customers often add the word “review” to many of their searches. Keep in mind that you must write fresh content instead of copying and pasting from your manufacturer’s website. Google and your customers know the difference. The icing on the cake? Ongoing communication is like marketing: You have to stay top of mind with your clients. How else are you going to provide customers with a steady stream of information without scaring them away? Customers may ignore your ads, but blogs include content they actually want to read. Supplying this content gets them to your website and helps humanize your dealership. Chelsea Magee has been involved in digital throughout her career. She is the Client Success Director at NCM and oversees their online training website, digital marketing and social media. This article originally appeared on NCM’s Up to Speed blog (http://blog.ncminstitute.com) and is reprinted with permission.
EDITORIAL NOTE /
COMPETING WITH FRANCHISE DEALERS AND COMING OUT ON TOP >> Correction
THE ARTICLE Competing with Franchise Dealers and Coming Out on Top in the Summer issue inadvertently listed the wrong author. It was actually written by Kathy Tafolla of Lobel Financial. Our apologies.
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ASSOCIATION NEWS ///
ASSOCIATION NEWS /
>>
NIADA CONVENTION RECAP
Kris “Tanto” Paronto, one of the heroes of the infamous Sept. 11, 2012 terrorist attack on the U.S. diplomatic mission in Benghazi, Libya, told the harrowing story of those 13 hours in a gripping keynote address >> that left the overflow crowd standing and cheering. Paronto discussed courage and handling adversity and crisis situations, as well as the decision of himself and his CIA Annex security FROM THE VENUE TO THE CONTENT , the 2016 NIADA Convention and team to speak out about what happened that night in the face of Expo was all about reinvention. conflicting reports from government and media that told a different While the theme of “Success By Reinvention” was created with the story. idea of helping dealers thrive in the rapidly changing used car business, Attendees also had a chance to celebrate, dance and loosen up at it fit the industry’s biggest event just as perfectly. the Cigars and Martinis and Margaritas welcome reception in a lush, NIADA celebrated its 70th annual Convention in a new venue – the tropical setting at poolside, and at a disco-themed closing party recently renovated Mirage, which provided a larger yet more intimate following the crowning of Florida’s Scott Lanier as the 2016 National setting – as well as a sold-out 60,000-square foot Expo Hall with more Quality Dealer. than 170 exhibitors and the most extensive dealer education agenda in In addition to the NQD ceremony – webcast live as always on history, featuring more sessions on more topics than ever before. NIADA.TV – the previous night’s National Leadership Awards Banquet It also included more attendees than ever before. The 2016 introduced new NIADA president Billy Threadgill as well as honoring Convention obliterated the event’s attendance record, sailing past the NIADA scholarship recipients and the winners of awards for the top previous mark, set in 2006 at the Las Vegas Hilton, by a staggering 24 performers within the association and the used vehicle industry. percent. The number of dealers and first-time attendees both rose by “I can honestly say my experience was far above and beyond my 30 percent or more. expectations,” said Daniel Johnson of LiteHouse Auto in Lakewood, “I got what I came for,” said Sean Schuetz of Klass Motors in Santa N.Y., a first-time attendee. “We will not miss a Convention from here Ana, Calif. “I wanted to learn new ways to take my business to the next on out.” level, and I’ll be spending the next several months implementing what The 2017 NIADA Convention and Expo will be back at The Mirage and I learned at my dealership. It was the most informative convention I is scheduled for June 12-15, 2017. Save the date and don’t miss your have attended.” chance to be part of the used vehicle industry’s biggest event of the While the education is always the focus, there was, of course, a lot year! more happening.
Reinvention Creates Success for 70th Annual NIADA Convention and Expo
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MANAGEMENT GAMEPLAN / BY SCOTT BERGERON
TRADITIONS AND TRENDS NEED TO WORK TOGETHER
>>
>> Finding a Successful Blend
THERE’S A REASON traditions exist. They grow out of established, credible and time-tested circumstances. Trends, on the other hand, can be today’s hot attraction, which may or may not stand the test of time. How can a dealership capture the best of today’s trends and blend them successfully into a tradition-based program that drives more
sales on a consistent basis? CRM and Personal RelationshipBuilding There’s no question technology-driven Customer Relationship Management programs are firmly established as a trend. In all likelihood, CRM will become a tradition over time. But for now it’s still a relatively new and shiny toy many dealerships have embraced as a bedrock organizational and sales tool. CRM enables data mining about customers as well as regular communication with them. In essence, it can serve as the engine that drives relationship-building because it brings evidence-based intel to the table. Depending on the CRM used (and how consistently and completely it is adhered to), salespeople can gain valuable information about buying history and preferences, and communication preferences. It’s gotten to the point where CRM can tell a dealership how often to communicate with a customer via email, and what not to do (e.g., overwhelm with too many emails that end up alienating the customer). But without tires the vehicle won’t move very far. All the technology-driven protocols in the world can only go so far toward the time-honored tradition of relationship-building. This is the ability through interpersonal contact to establish and maintain trust, comfort and likeability with prospective and present customers. In the rush toward technology trends (e.g., Internet car-shopping and pricing tools), there’s a tendency to embrace the former and forget the latter. The truth is successful salespeople need both – the “scientific” piece that CRM systems can bring to the table and the “artistic” ability to develop rapport one-on-one. When the two work in harmony, dealerships get the best of both worlds. Buyers are “primed” by the CRM outreach that shows the dealership understands them and gives them useful information. In-person relationship-building then seals the deal. Here’s what can happen if the two aren’t working side by side: a prospective buyer walks into a dealership and is basically ignored by salespeople nearby because they’ve been schooled not to be too pushy or aggressive. (In some cases, it’s just plain laziness.) Armed with the amount of information available online, salespeople today too often assume a prospect will seek them out if interested. In the interim, they give them space. In reality, this is the worst way to proceed. It’s happened to me. I wound up feeling ignored rather than valued. Instead, a salesperson could have introduced himself/herself and offered to help – without coming across as pushy. This would have set the tone for a pleasant and productive discussion and potential sale.
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The trend is no-haggle pricing.
The tradition is to play the negotiating game. Both are valid. It depends on buyer preferences.
a lower price through negotiation, they won’t buy at all – or at least they will be reluctant. Here’s another perfect example of how trend and tradition can complement each other perfectly. The trend is nohaggle pricing. The tradition is to play the negotiating game. Both are valid. It depends on buyer preferences. So find out what those preferences are, then go one direction or another – or both. Read the prospective buyer carefully, then adjust as gut feelings dictate. If someone comes in and is adamant from the get-go about a firm price, so be it. If it’s unclear what their preferences might be, ask. (Then, have an option to fit their preferences. If they want to negotiate, be prepared to shift gears from one-price shopping.) Then, of course, there’s the hybrid – a
buyer who wants the firm price and wants to negotiate from there. Decide if/how to address this scenario. In short, prepare your salesforce to deal with all types of buyers. Because just as the U.S. is a melting pot of different ethnicities, so is the car buying population a melting pot of preferences. Those preferences can best be addressed by honoring both trends and traditions. Former dealer executive Scott Bergeron is the founder and principal at Daily Gameplan (www. dailygameplan.com), a sales team performance company. Daily Gameplan’s Red Books and cloudbased CRM have been used in thousands of dealerships throughout the United States. Bergeron can be reached at 303.918.3169 or scott@dailygameplan.com.
Internet Shopping vs. Instinct Another “trend” (yes, many will say it’s here to stay) is Internet-based car shopping and pricing. There’s no doubt the abundance of Internet information has led to much more savvy and educated buyers. This is great because it opens the door for a salesperson to build rapport based on instincts instead of just answering pedestrian questions about a potential car or sale. However, exercising those traditional instincts seems to be a lost art in too many dealerships. Salespeople often are cast as order-takers, there to follow through on customer requests. As with the CRM example above, this is leaving a big (some would say the biggest) piece of salesmanship on the salesroom floor. Instincts can be wonderful because they work at a level technology doesn’t. Properly tuned in, a salesperson can intuit buying clues just by observing a prospective buyer’s body language, movements, gestures and actions. For example, a prospect is viewing pricing information on a particular vehicle, then throws up his hands. That well could indicate frustration, or is it exhilaration? The alert salesperson will make sure to find out, and take the conversation in the direction it needs to go from there. While instincts themselves can’t be trained, awareness of when and how to use them can. This needs to become, once again, a key part of salesforce training – at the time of hiring, and periodically thereafter. Even if the new hire is a seasoned pro, the “hows” of exercising instinct may need to change depending on previous experience and current dealer aims. Iron-Clad Internet Pricing vs. Art of the Deal Following through on the trend of all things Internet, one-price-no-dickering shopping has become the rule, not the exception. Why? Yes, I know a gazillion surveys have said buyers don’t want to haggle or be hassled in the price-shopping arena, and that a one-price policy makes them feel much more at ease and trusting. Well, that’s great for those people. But what about those who like to haggle? There are still many buyers out there who live for the art of the deal. If they can’t feel like they’ve achieved
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DEALER BEST PRACTICES / BY CHET HEUGHAN
VENDOR MANAGEMENT
>>
>> What Lenders Want to Know
About Your Dealership
VENDOR MANAGEMENT has become somewhat of a buzzword in the consumer lending industry, especially around auto lending. It has always been a financial institution’s responsibility and obligation to know who they are doing business with and how loan applications are reaching their institutions. The Consumer Financial Protection Bureau, however, has further emphasized financial institutions are responsible for the end product. This is to say that any negative actions taken by the dealer will become a problem for the lender. Within franchised dealerships the vendor management requirement is aided by a strong presence from the manufacturer. For example, a franchise dealer has certain covenants that require financial reporting, including minimum capital thresholds, required training and certifications. Franchised dealers also benefit from the monitoring of customer satisfaction surveys, detailed inventory tracking and industry benchmarks provided by other franchise dealerships selling the same brands. Independent auto dealers represent a unique challenge for many lenders. Independent auto dealers often vary in size, financial strength, operational models, inventory and experience. Unlike most franchise dealerships, independent auto dealers do not have the support of a franchise offering multiple checks and balances. It is easy to understand why lenders then tend to gravitate toward independent dealers that look and act more like a franchise dealership. As indirect auto lending has become more competitive and lenders struggle to increase yield, many have had to broaden their credit spectrum and move closer toward subprime lending or expand their dealer network outside their traditional relationships. To do this lenders have had to modify their dealer underwriting and dealer management models to fit smaller dealerships with more diverse revenue and sales models. In years past independent auto dealers had to meet the same minimum criteria for doing business with the lender as a franchise dealership, but times are changing. Many lenders have multiple programs and mitigate the risk of smaller dealerships with low working capital and minimal experience by using a third-party risk mitigation platform. With many of these platforms, small or new independent dealerships can gain access to the same national programs as large franchised stores. Lenders are able to serve independent dealers because thirdparty risk mitigation platforms are helping bring efficiency and transparency to the transaction. 12 DRIVELINE / FALL 2016 MI_1016.indd 12
For example, independent dealers may be subject to more frequent underwriting, additional verification steps and less direct access to loan underwriters. While there is more work on the dealer’s side, these steps also benefit the stores’ owners by helping identify fraud attempted by customers or rogue employees. The days of simply signing a lender’s dealer agreement and providing a few supporting documents to gain access to their retail financing program are drawing to a close. Lenders are being required to truly know and manage their dealer relationships. This means updating key pieces of data and underwriting each dealership on an annual basis. As an independent auto dealer it’s important to understand what lenders are looking for and be prepared to provide the documentation needed annually to avoid disruptions in your lenders’ retail financing programs. Lenders will be evaluating the dealer principals, the dealership itself and inventory. They will be looking at credit reports that indicate bankruptcies, tax liens, past-due accounts, and potential fraud or identity theft. In addition, lenders will check criminal history reports and verify addresses, property ownership, bank statements, business financial statements and tax returns. Lenders will also be looking at more subjective data such as references from your auctions, floor plan lenders, warranty providers and personal references. You should be prepared to provide proof of insurance, copies of bonds and licenses, and expect a yearly site visit and basic inspection of your facility. Lenders really want your business, but they must first know who you really are. Creating your own internal process for managing due diligence requests from lenders and thirdparty risk mitigation service providers will make this process easier and more efficient for you. Understanding what lenders are looking for and providing it in a timely manner goes a long way toward building a strong profitable relationship along with the ability to compete with your neighboring franchise stores. Chet Heughan is director of AppOne® Risk Mitigation Services and Indirect Lending for Wolters Kluwer. For more information, please visit www. wolterskluwerfs.com.
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WASHINGTON UPDATE /
NIADA GOVERNMENT REPORT
>> Latest Governmental Issues and Activity Here’s a rundown of some of the latest governmental issues and activity affecting the used car industry from NIADA senior vice president of legal and government affairs Shaun Petersen and NIADA lobbyist Sante Esposito of Key Advocates. REGULATORY REPORT Federal Trade Commission The FTC has warned dealers about misrepresenting the scope of Volkwagen’s settlement with the FTC regarding buybacks of VW and Audi diesel vehicles that were equipped with devices designed to cheat emissions tests. The terms of the settlements between VW and the FTC, other government agencies and private owners can be found at vwcourtsettlement.com. The FTC has also published a blog, available at www.ftc.gov/news-events/blogs/ business-blog/2016/08/dealers-vw-ownersdeserve-straight-story, explaining dealers’ expectations concerning the settlement and buyback opportunities. Department of Labor Enforcement for misclassifying employees: DOL settled an enforcement action against a plastering company for paying workers as independent contractors as opposed to employees. The workers, hired as independent contractors, did work only for the company and provided no services to any other business. In addition, the company supplied all of the materials and paid hourly rates set by company staff. The company was found to have violated the overtime pay requirements and was required to pay $365,291 in back wages. Consumer Financial Protection Bureau The CFPB settled an enforcement action against First National Bank of Omaha related to ancillary products associated with credit cards. For a decade, the bank offered debt cancellation products with its credit cards, which the bank promoted as providing a monthly payment to the cardholder’s account in the event of certain hardships like involuntary unemployment, hospitalization or disability. Cardholders were charged a monthly fee. The bank also offered credit monitoring products to monitor cardholders’ credit for potential identity theft or fraud and to provide consumers with copies of their credit reports. The CFPB alleged the bank engaged in unfair billing practices and deceptively marketed the debt cancellation add-on products to consumers.
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The bureau claimed the bank forced consumers to listen to sales pitches about debt cancellation products by implying they had to stay on the phone while their cards were activated, when that was not the case. It said the bank led some consumers to believe they would not have to pay for the debt cancellation products or they were eligible for the product when that was not the case. The CFPB also claimed the bank made cancellation difficult and billed for services that were not provided. The bank is required to refund $27.75 million to 257,000 customers and pay a $4.5 million penalty. DEPARTMENT OF JUSTICE Dealer pleads guilty: Timothy Williams, owner of Lindsey Street Motors in Norman, Okla., and finance manager Stephen Butz pleaded guilty to bank fraud. Court records say Williams entered into a floorplan agreement with the Bank of Union on behalf of Lindsey Street Motors, then he and Butz sold collateralized vehicles out of trust without the bank’s knowledge or permission. Williams and Butz obtained duplicate vehicle titles, which they provided to buyers, without notifying the bank of the vehicle sales or repaying on the floor line. Both men admitted their conduct caused a loss of $550,000 to $1.5 million. The defendants face up to 30 years in prison, a $1 million fine and up to five years of supervised probation. They will also be ordered to pay restitution. Repossession settlement: DOJ settled with HSBC Finance Corporation over allegations the company violated the Servicemembers Civil Relief Act by repossessing 75 cars owned by protected servicemembers without obtaining the necessary court orders. DOJ claimed HSBC conducted repossessions without court orders even when it had evidence in its own records suggesting a borrower could be a protected servicemember. HSBC will pay up to $11,000 per repossession and repair the credit of all affected servicemembers. LEGISLATIVE REPORT Return from Recess Congress returned from its annual summer recess after Labor Day and began work on the fiscal year 2017 appropriations bills, arguably the most important legislation. At press time, however, those bills were considered unlikely to pass before FY ‘17 began on Oct. 1. As in most prior years, Congress will have to pass a short-term continuing resolution to keep funding flowing to federal agencies. CRs usually provide funding at current levels. The big question was how long the CR will be. Some were pushing for a short CR through December with the hope Congress can complete some or all of the individual agency funding bills during the post-election lame duck session – perhaps packaged together in a series of “mini-bus” bills. Others wanted to extend the CR into the
The fiscal year
2017 appropriations bill passed by the House in July includes provisions to curb the CFPB’s authority. spring to give the new administration a chance to get settled in and establish its funding priorities. Still others suggested a yearlong CR. Congress is expected to meet in a lame duck session after the November elections, but until the results are known and it is clear which party will control the White House and the Senate, it is difficult to speculate on what might be accomplished during that short session. Any legislation not signed into law by the time the 114th Congress concludes in late December is dead. H.R. 5485 Financial Services and General Government Appropriations Act, 2017 This bill is among the FY 2017 appropriations bills still pending after passing the House in July. As previously reported, the bill includes provisions to curb the CFPB’s authority – among them, a provision that the CFPB would be funded through the annual congressional appropriations process rather than through transfers from the Federal Reserve as currently provided by DoddFrank in order to make the bureau more accountable. It would also require the CFPB to report quarterly to various House committees about funding, obligations made during the previous quarter and actions taken to achieve its goals, objectives and performance measures. And it would change the bureau’s leadership from a single director to a five-member board appointed by the President. Another provision would require the CFPB to further study pre-dispute arbitration agreements before issuing any regulations on that issue. After conducting a controversial study, the bureau in May proposed a rule that would prohibit arbitration agreements that bar consumers from filing or participating in class action lawsuits and would require the lender to submit arbitration records to the CFPB. None of those provisions were included in the Senate’s version of the bill.
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AUCTION NEWS /
WEST MICHIGAN AUTO AUCTION HONORED BY NAAA
>> Midwest Chapter Auto Auction of the Year WEST MICHIGAN AUTO AUCTION of Wayland, Mich., has earned the inaugural 2016 Midwest Auction of the Year Award from the National Auto Auction Association. The award honors excellence in community service. West Michigan Auto Auction is one of four auctions – one selected from each of NAAA’s membership regions – to win the award. Each regional chapter award winner receives $5,000, which will be donated to the charity or charities of its choice. The NAAA’s National Auction of the Year Award will go to one of these four regional award winners. The auction that earns the national honor will receive an additional $10,000 to be donated to the charity or charities of its choice. In addition, NAAA’s On the Block magazine will feature a January 2017 cover story about the auction and its charitable efforts. The auction will also grace the cover of the 2017 NAAA Member Directory. NAAA Midwest Chapter President Jason
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Cotton said West Michigan Auto Auction’s efforts have helped so many people and have been an inspiration to many. He felt honored to be able to announce them as the award winner during National Auto Auction Week. “West Michigan Auto Auction stands out for their efforts, and we are pleased they will represent the Midwest Chapter for the inaugural Midwest Auction of the Year Award,” said Cotton. “Everyone from the Midwest Chapter wishes them well.” NAAA President Mike Browning said he is pleased to be president during the creation of this new award. “We want to congratulate West Michigan Auto Auction and thank those involved at the auction who consistently give unselfishly of their time, effort, and money to so many wonderful community service organizations,” Browning said. WMAA engages in numerous charitable and community service activities, not the least of which was an employee who befriended a dealer client and later donated a kidney to the man. Other efforts include raising $42,000 for the family of a Michigan auction worker who died in a car accident, and each year holding a memorial ride for his family’s continued support. WMAA raised $12,000 for a dealer client whose wife contracted terminal cancer, and the amount raised was matched by the auction. Numerous vehicle repairs for financially challenged individuals in the community also have been made. Contributions and fundraising activities have been numerous and have not been
limited to weeks, but years, of giving. Other efforts include charity golf sponsorships, food pantry collections, and raising $3,000 for a nonprofit that donates water filtration systems to countries where people don’t have access to clean water. For the past eight years, the auction has donated $100 for each vehicle sold in a special lane for Rights for Kids, a service organization that provides underprivileged children with a safe environment and opportunities to develop for future success. NAAA Chief Executive Officer Frank Hackett said this award is designed to not only honor the efforts of NAAA members, but to boost awareness of the many worthy causes that auctions around the country support. “I’m continually pleased to see the efforts our member auctions take to support their local community’s charities and service organizations,” Hackett said. “If we can play a small role in helping them help others, it’s a very good result.”
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BHPH PERSPECTIVE / BY DAVID MEYER
HOW MUCH RISK ARE YOU WILLING TO TAKE?
>>
>> A Way to Cut Costs and Mitigate Risk
AFTER YEARS OF declining sales, the automotive industry is once again on the rise. Fueling much of the resurgence in vehicle sales is the recent growth in subprime automotive financing. So what is fueling the increase in subprime auto loans? In the wake of the recent economic crisis, increasing numbers of car buyers found themselves saddled with poor credit resulting from job loss, foreclosure, bankruptcy and other financial woes. While still struggling with low credit scores, many of those customers are now moving toward financial recovery. They’ve found new jobs and careers, are earning decent salaries, have wiped the slate clean and are lowering their debts. Despite that progress, those creditchallenged customers still cannot qualify for traditional auto financing. But they still need vehicles. To meet that demand, increasing numbers of dealerships and lenders are approving more subprime auto finance, and are going deeper and deeper in the process.
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According to a recent report by Experian, “The percentage of auto loans to buyers with the poorest credit ratings is growing faster than the rest of the auto finance market.” Almost 21 percent of open auto loans are held by individuals with subprime and deep subprime credit ratings. However, with the uptick in auto loans, we are also witnessing one of the largest increases in auto loan delinquency rates on record. According to Fitch, increased loan originations, higher lender competition and looser underwriting standards in the subprime loan market have caused an influx of higher auto delinquencies. That’s a problem. Higher delinquencies mean higher rates of default. Which leads to the question: How can you better manage your portfolio and risk for success? As subprime auto lending continues to gain momentum and loans dive deeper, the associated risks continue to rise. Dealerships and lenders who offer subprime auto financing should be prepared for an increase in delinquencies, defaults, repossessions, collection staff time and resources – all of which come with significant costs that cut into profitability. BHPH dealers and lenders are now turning to GPS tracking as a smart business strategy that cuts costs and mitigates risk while also encouraging their customers to pay on time and improve their credit.
GPS tracking, in its most effective form, is a system that enables dealerships and lenders to verify customer information faster, ensure more on-time payments and locate vehicles in real time to manage their liability with high-risk vehicle collateral. The more advanced GPS vehicle tracking and collateral management systems include additional features such as payment reminders and advanced reporting. Those features further reduce business costs while also promoting on-time payments that help customers stay in their vehicles and rebuild their credit. In a study conducted on Spireon’s GoldStar GPS vehicle tracking, 87 percent of vehicle finance customers saw an increase on their return capital. Further, 77 percent saw a significant improvement of their customers’ credit ratings. The right type of GPS vehicle tracking can improve business profitability, reduce risk, help maintain CFPB compliance and help customers improve their credit. David Meyer is executive vice president of sales and client services for Spireon, bringing more than 28 years of vehicle finance and BHPH industry experience his role overseeing the company’s Automotive Solutions Group.
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ACCELERATE / BY GWC WARRANTY
5 TIPS TO CONVERT A “NO”
>> It Takes Discipline, Patience and
a Calculated Approach
F&I SALES can sometimes feel like a war of attrition. If you just ask the same question enough times, you’ll eventually wear down a customer into buying a product. But is that really the approach you want to take? It’s one that puts pressure on the customer and leaves them unsure whether they truly needed the product they just spent their hard-earned money on. Overcoming a “no” and converting it into the coveted “yes” is a difficult proposition that takes discipline, patience and a calculated approach. Once you have it down, though, you stand to create a more profitable business with happier customers. Find out if it’s really a “no.” Oftentimes, the real objection lies well behind the initial one-word negative response. Don’t be afraid to ask additional questions beyond your initial presentation. Investigate whether the customer had one in the past. Do they know a mechanic and that’s why they’re turning it down? Were they burned by a disreputable company in
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the past? It’s extremely rare one of these examples isn’t the true objection hiding behind those two ugly letters. Be nimble. Once you’ve uncovered the true objection to a vehicle service contract, ask a few more questions about their specific situation. You’re taking on the role of detective in uncovering more information about their individual situation and how the experience and products you offer can change the perception they have of what you’re offering. Be prepared to pivot and address any number of potential true objections. Be ready with evidence. If you’ve gotten to the bottom of why a customer really is declining a service contract and you’ve gotten to know their objections on a more personal level, be ready to pounce with supporting evidence. If it’s someone who was burned in the past, bring up your reputation and show past repair invoices that were covered by a VSC. If they say another VSC didn’t cover anything, know the details of what’s covered with your products – especially non-component items like rental car or lodging reimbursements. Make a U-turn. If a VSC really isn’t hitting the mark with a customer, try talking about other protection options you offer. If they continue to decline, circle back to the VSC and explain why it’s even more valuable than the ancillary products they’ve also declined. Sometimes the comparison in coverage can shed light on the value of VSC protection.
Don’t make it about yourself. It can be difficult to hear “no” from a customer three, four or even five times in the F&I presentation. It’s even more difficult to maintain focus on the customer’s needs while continuing to push a service contract. Be sure your questioning is always focused on the customer and their specific situation. The moment a customer feels you’re pushing products for your financial gain rather than their benefit, you run the risk of losing a sale, referrals and a lifelong customer.
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>>
Success depends on your available capital and your day-to-day involvement, your commitment to collections, and so much more.
BHPH PERSPECTIVE / BY DUSTIN KERR
WHAT’S THE SECRET TO A SUCCESSFUL BHPH BUSINESS?
>>
>> Some Best Practices for Success
I HAVE THE PLEASURE of meeting Buy HerePay Here dealers all over the country when I travel. I see owners of both small and large operations. Sometimes, I meet a BHPH owner who is just starting out. Other times, I meet one who’s been going strong for many years. I’ve even encountered retail dealers who are seriously considering a jump into our industry. Even with all these differences, there’s one universal question that unites these people: What’s the best way to run a BHPH business? You may not like my answer. It’s a question I take very seriously, so I answer it honestly. And I’m not going to lie. So, generally speaking, they aren’t very satisfied with my answer! Why? Because I genuinely believe there are many successful ways to run this business. There’s no cookie-cutter solution. Success depends on your available capital and your day-to-day involvement, your commitment to collections, and so much more. How the business performs is heavily influenced by your temperament and your market – there are dozens of factors that can make or break BHPH dealerships. I see different business models every day that are highly successful. Pick your method – but follow best practices. Even though I heartily believe the right success model depends on your circumstances and attention to detail, each of the profitable BHPH businesses I’ve encountered operate with a few best practices I believe you should follow to maximize your business and mitigate your exposure to risk. 18 DRIVELINE / FALL 2016 MI_1016.indd 18
1. Understand this is a collections business, not just a sales business. I see more dealers struggle with this idea than any other because they just don’t understand this simple, but crucial, point. It’s especially hard sometimes for someone who has built a successful franchise or independent business where sales, gross and expense control were the keys to success. In the BHPH business, we cannot just sell our way out of bad collections! To make the most of the business, our collectors have to be the dealership’s most talented, best trained and best compensated employees. A well-run collections department can make up for a lot of mistakes in other areas. 2. Get serious about compliance. If you don’t have the wherewithal to devote time every day to compliance, I suggest not getting into this business. If you’re already in and still not serious about compliance, I suggest getting out while you still have a business and a choice! The CFPB and the Department of Justice will do everything they can to put you out of business if they even think you are not following their rules. Ignoring compliance puts everything you have in jeopardy. If you can’t (or won’t) manage that reality, you shouldn’t have a BHPH dealership. 3. Be an advocate for BHPH businesses. Reread No. 2. If you want life in the BHPH industry to be easier, you have to fight for it. One way is to join the state and national associations that are fighting for your business’s survival against the likes of the CFPB and DOJ. Not only should you be a member, but it is very important you contribute financially to these associations so they can fight for your rights. Connect with your city council members, senators and state/national representatives and other important political figures in your area. Make sure they understand just how much your business contributes to the local economy – and educate them about the industry, so they realize you aren’t the “bad guy” consumer advocacy groups like to make you out to be. Find out their stance on the
CFPB and DOJ and vote accordingly. Remember the quote by Edmund Burke: “The only thing necessary for the triumph of evil is that good men do nothing.” Stand up for yourself and others. 4. Join a 20 Group. The best career move I ever made was joining a 20 Group. Nothing else I tried made me a better operator – or provided a better ROI – than the insights I gained from that group. The power of peer collaboration and accountability you receive in a 20 group setting is magnificent. Imagine sitting in a room with 20 other dealers talking about your business. You get to see the good, the bad and the ugly, and have literally hundreds of years of experience in the room with you! The one warning I will give you, though, is that you must have an open mind and be ready to go back to your dealership and make meaningful change because your fellow 20 group members will hold you accountable to making your business better. Even when you’d prefer they didn’t. BHPH success is possible – and important. I love this industry. Although we often get a bum rap, BHPH dealerships provide a valuable service to the vulnerable in our community. We help people learn to be financially responsible, and we give them the means to get up on their feet and improve their lives. It’s amazing. So, no, there’s no perfect business model for success in this industry, no matter how many times people may ask me to show them the way. But if you take our work seriously, commit to helping people while making a profit and follow the best practices I’ve outlined above, you’ll make it. And if you encounter bumps along the way, give me a call and I’ll help you out! Dustin Kerr has been in the automotive industry for 15 years with the last 10 spent exclusively in the Buy Here-Pay Here and Lease Here-Pay Here industry. Dustin serves as an NCM consultant and sales and collections trainer to the Buy Here-Pay Here industry. This article originally appeared on NCM’s Up to Speed blog (http://blog.ncminstitute.com) and is reprinted with permission.
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