New Mexico by NIADA

DEALER INSIGHT

THE OFFICIAL MAGAZINE OF NEW MEXICO INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION

MARCH/APRIL 2018

DESIGNING A SUPERIOR MEET AND GREET

CRAFTING AND REVIEWING THE PLAY PAGE 14

NEW RULE FOR SALES TO MILITARY SERVICE MEMBERS

DOD SAYS “CREDIT-RELATED” PRODUCTS ARE SUBJECT TO MLA REQUIREMENTS PAGE 13

DALLAS, TEXAS Permit No. 2079

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VISIT US AT W W W.NMIADA.COM

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March/April 2018

DEALER INSIGHT

REGULATORY ALERT

05........................Pros and Cons of Building a Facebook Page 06..........................Does Your RFC Pass the IRS Validity Test? 07........................................................ Missing Repeat Buyers 09........................................ Crafting Your Auction Game Plan 10................................................. NIADA Government Report 13............... New Rule for Sales to Military Servicemembers 14................................. Designing a Superior Meet and Greet

What’s New

NIADA NABD Convention & Expo Register Now! Registration is open for the NIADA/NABD Convention & Expo, June 18-21 in Orlando! With the forces of NIADA and NABD combined, it promises to be the most robust convention yet. Learn more and register today at www.niadaconvention.com.

Advertisers Index

AmTrust Financial ............................................................... IFC Automotive Finance Corp. .................................................IBC Lobel Financial........................................................................ 3 Manheim ...............................................................................11 NIADA.TV ............................................................................... 7 NextGear Capital.................................................................. 12 VAuto .....................................................................Back Cover

Office

New Mexico Independent Automobile Dealers Association 608 Chama NE • Albuquerque, NM 87108 Phone: 505.232.0809 • Fax: 505.232.0810 email:marc@nmiada.com website: www.nmiada.com

NIADA Headquarters NATIONAL INDEPENDENT AUTOMOBILE

DEALERS ASSOCIATION WWW.NIADA.COM • WWW.NIADA.TV 2521 BROWN BLVD. • ARLINGTON, TX 76006-5203 PHONE (817) 640-3838 For advertising information contact: Troy Graff (800) 682-3837 or troy@niada.com. NM Dealer Insight is published bimonthly by the National Independent Automobile Dealers Association Services Corporation. 2521 Brown Blvd., Arlington, TX 76006-5203. POSTMASTER: Send address changes to NIADA State Publications, 2521 Brown Blvd., Arlington, TX 76006-5203. The statements and opinions expressed herein are those of the authors and do not necessarily represent the views of NMIADA or NIADA. Likewise, the appearance of advertisers, or their identification as members of NIADA, does not constitute an endorsement of the products or services featured. Copyright © 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

Christy Haynes • christy@niada.com PRINTING

DEALERS REQUIRED TO BEGIN USING NEW BUYERS GUIDE Revised Forms Dealers are now required to display the new version of the federally mandated Buyers Guide form on all used vehicles displayed for sale to consumers. Following a lengthy review of the Used Motor Vehicle Trade Regulation – commonly referred to as the Used Car Rule – in November 2016, the Federal Trade Commission released a revised rule that includes changes to the Buyers Guide form. The FTC gave dealers until Jan. 28, 2018, to exhaust existing supplies of the old Buyers Guide before requiring the revised form. NIADA worked extensively with the FTC on its review of the Used Car Rule to ensure any change to the rule did not impose a new regulatory burden on dealers. Through NIADA’s efforts, the amendments to the rule do not change its essential requirements – but the Buyers Guide form has changed.

BOARD MEMBERS CHAIRMAN

Pat Martinez All Star Auto Center Inc. 2307 E Main St Farmington, NM 87401 (505) 325-2300 pmartinez@allstarcars.net

PRESIDENT

VICE PRESIDENT

James Schrimer The Car Store, Inc. 1650 N. Valley Las Cruces, NM 88007 (505) 524-2283 thecarstorelc@gmail.com

Rob Martinez ABQ Auto Deals, LLC 169 Griegos NW Albuquerque, NM 87107 (505) 554-2428 rob@abqautodeals.com

TREASURER

Marc Powell marc@nmiada.com

OPERATIONS MANAGER Victor E. Saenz 604 Chama St NE Albuquerque NM 87108 505-232-0809

DEALER INSIGHT

March/April 2018

Thomas Hawkins AutoMax Farmington 5210 E Main St Farmington, NM 87402 (505) 327-0500 thomas@4automax.com Luis Soto Sun City Motors 8504 Central Ave SE Albuquerque, NM 87108 (505) 256-1200 suncitymotors@yahoo.com

EXECUTIVE DIRECTOR

DEALER BOARD MEMBERS

James Santistevan Zia Auto Wholesalers LLC 4913 Menaul Blvd NE Albuquerque, NM 87110 (505) 889-9653 ziawhsl@cs.com

Aaron Flores A-Star Motors LLC 5700 Menaul Blvd NE Albuquerque, NM 87110 (505) 503-6846 aaron@astarmotors.com

Nieman Printing

The revisions to the form include: • A recommendation consumers get a vehicle history report before buying a used car that sends them to ftc.gov/usedcars for more information on how to get one. • Directions for consumers to visit safercar. gov to check for safety recalls before purchasing a used car. • A new description of an “as is” sale to clarify that “as is” refers only to whether the vehicle is offered with a warranty from the dealer. • Boxes dealers can check if they wish to indicate whether a vehicle is covered by a third-party warranty and whether a service contract may be available. • A box dealers can check to indicate an unexpired manufacturer’s warranty applies. • A statement in Spanish on English versions of the form advising Spanishspeaking consumers to ask for the Buyers Guide in Spanish if the dealer is conducting the sale in Spanish. • Addition of air bags and catalytic converters to the list of major defects that can occur in used vehicles. Dealers can obtain an English version of the new Buyers Guide at https://www.ftc.gov/ system/files/documents/plain-language/pdf0083-buyers-guide.pdf.

www.nmiada.com

Rodger Barkoff Affordable Auto Sales 4525 Lomas Blvd NE Albuquerque, NM 87110 (505) 266-2886

ASSOCIATE BOARD MEMBERS Vanesa Alarid (Board Advisor) Po Box 36778 Albuquerque, NM 87176 Maxine Vega Manheim 3411 Broadway Se Albuquerque, NM 87105 (505) 242-9191

Mike Godin Godin Dealer Services PO Box 67440 Albuquerque, NM 87193 (505) 710-7295 mike@godindealerservices.com

SOCIAL MEDIA

| BY KATHI KRUSE

PROS AND CONS OF BUILDING A FACEBOOK PAGE Tips to Decide The time has come to get real about Facebook. Gone are the days of it being “free” other than all the time you put into it. Today, the investment required to build a thriving Facebook page full of active, engaged members can be costly. Dealers must determine whether building a Facebook page makes sense for them and re-evaluate their decision on a quarterly basis. Building a Facebook page is an investment. If you’ve spent any time in the Facebook marketing ecosystem, you know there is a time investment. Building relationships through trust takes time and if Facebook is your chosen platform – after all, it is where your customers spend an average 50 minutes per day – be prepared to make an investment.

ONCE YOU

SPEND T IME IN T HE FACEBOOK ECOSYSTEM AND BEGIN SOME PROMOTIONS, YOU WILL REALIZE Y O U C A N E A S I LY S P I N Y O U R WHEELS, INVEST TIME AND RESOURCES, AND END UP WITH VERY LIT TLE TO SHOW FOR YOUR EFFORTS.

A Facebook page should be considered a valuable company asset and, as such, there are other investments required to retain its value: • Strategy and planning. • Financial resources. • Human resources. Assessing the results of your Facebook investment is crucial. Once you spend time in the Facebook ecosystem and begin some promotions, you will realize you can easily spin your wheels, invest time and resources, and end up with very little to show for your efforts. Pro tip: Always begin with a plan. Set goals and establish your strategy first and you’ll be much more successful in achieving your goals. Ongoing measurement and analysis of specific key performance indicators and metrics will determine if you’re meeting the goals you’ve outlined. Should I make the investment in building a Facebook page or not? I hear from many dealers who are truly in a quandary about making the investment in Facebook, and with good reason. It’s difficult to decide if something is right or wrong for your store when you don’t have all the information. It’s even worse when you don’t know what questions to ask. I’ve outlined the pros and cons of building a Facebook page so you can determine the best route for your dealership. Pros of Building a Facebook Page • I t’s ideal for reaching car shoppers: The average U.S. consumer spends 50 minutes per day on Facebook. It’s embedded in our culture and part of our everyday lives. The key to successful marketing is reaching the widest audience interested in what you sell. Facebook is where your customers spend their time. •E ngage customers long before they’re buyers: With a solid content strategy to reach shoppers at every stage of the buying cycle, including postpurchase, Facebook can’t be beat for engaging people. • Communicate who you are: Today’s consumers want to know your story. By leveraging the right content mix, your Facebook presence allows potential buyers to learn more about you. • Opportunity for transparency and authenticity: Consumers have had enough of fakes and phonies. The more real you are, the closer people will come to you. It makes them more comfortable about their decision when they feel a connection. • Generate leads and sales: Facebook ads drive shoppers to purchase and there’s no reason you shouldn’t capture some of that magic. While they take serious skills to master, it’s worth your time to consider the opportunities in Facebook ads.

Cons of Building a Facebook Page •M ajor investment: Building a Facebook page takes commitment. It’s not only time consuming but it requires a financial investment – especially Facebook ads budget and management fees – and human resources, someone to manage and interact with the community you’re growing. • Constant change: If you’re not comfortable with constant change, building a Facebook page will be one of the most infuriating experiences you’ll ever have. They roll out updates without any notice. They make changes to things that don’t necessarily need changing. There are bugs that cause unexplained issues. • It won’t work without a content strategy: The old adage “If you fail to plan then plan to fail” couldn’t be more relevant than with Facebook marketing. Useful information is one of your store’s biggest assets and delivering quality content to buyers via Facebook takes a solid content strategy. • It’s pay to play now: Facebook has changed dramatically, even from just a few months ago. Perhaps the biggest change is that now posting great content is only half the job. Paying to promote your content effectively is the other half. Bonus insider’s tip: Growing your likes was a huge investment that didn’t pay off. Many dealers judge the success of a store by their number of Facebook likes. For years, people have spent millions of dollars on growing their likes, but now that Facebook has shifted their focus to advertising, the amount of likes on a page isn’t as valuable. Some, such as myself, will view this situation as less-than-forthright, but remember, it’s Facebook’s movie and we’re just in it. If you invested in growing your likes over the past few years, treat your investment accordingly. Leverage the community you’ve grown and work on increasing its engagement. If you haven’t built a lot of likes, don’t despair. You can still reach car shoppers through Facebook ads. Building a Facebook page is not for everyone. I hope these tips will help you decide what’s best for your dealership. As always, reach out to me if you need advice on next steps. Kathi Kruse is an automotive social media marketing expert, blogger, consultant, author, speaker and founder of Kruse Control Inc., which coaches, trains and delivers webinars focused on integrating social media and online reputation management into dealership operations. She can be reached at kathi@krusecontrolinc.com.

www.nmiada.com

March/April 2018

DEALER INSIGHT

F&I MATTERS

| BY SCOTT BATES & MIKE RIZKAL

DOES YOUR RFC PASS THE IRS VALIDITY TEST? Don’t Let Your RFC Become a Liability

WE FIND MANY RFCS

A N D D E A L E R S D O N O T R E G U L A R LY R E V I E W T H E I R O P E R AT I N G A G R E E M E N T S O R O P E R AT I O N S T O C O M P LY W I T H V A L I D I T Y FAC TORS FOR T HE RFC A ND IT S TRANSACTIONS.

DEALER INSIGHT

March/April 2018

Related finance companies were not designed to be a tax-planning vehicle to reduce or defer auto dealership income. If the IRS validity test discovers noncompliance that cannot be explained in the RFC’s or dealership’s documentation, additional taxes and penalties can be severe. We find many RFCs and dealers do not regularly review their operating agreements or operations to comply with validity factors for the RFC and its transactions. The process is understandably time consuming and complex. You can rest assured, however, that if the RFC receives an IRS query, a dealership query often follows. RFCs are usually set up as S Corporations. The RFC acts as the lender in the dealer’s financing of used vehicles. The notes are sold to the RFC at a discount due to the higher risk the RFC incurs in the transaction. The RFC accrues the income as it is earned from the car buyer’s weekly or bi-weekly payments. The dealership collects cash up front then books a current and deducted loss for the difference between the full contract and the discounted contract. According to the IRS, a valid RFC must have the following characteristics. • When the finance contract is sold to the RFC, title has been transferred to the RFC in accordance with title and lien holder laws. • The discounting of the car dealer’s receivables is sold to the RFC at their fair market value. • There is a written arms-length contract between the dealership and the RFC. • The finance contracts are normally sold without recourse between the two related parties. • The RFC is responsible for repossessions. • The RFC is operated as a separate entity from the dealership and has the following characteristics: • Adequate capital to pay for the contracts. •M eets all state and local licensing requirements. • Maintains its own bank accounts. •H as its own address and phone number and operates as a separate entity from the dealership. •M aintains its own books. •H as its own employees who are compensated directly by the RFC. •P ays its own expenses. •C ustomers make payments to the RFC, not to the dealership.

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The IRS Audit Technique Guide cites two common issues that put the validity of the RFC into question. Either the dealership and RFC do not treat and record the sale and financing properly or the RFC is operating like a shell company rather than a legitimate separate entity: • At the time of each transaction, the RFC must show actual cash reserves in its own bank accounts to pay the dealer. The dealer in turn must record receipt of payment for the note. Each entity must have separate journal entries for the transaction. If journal entries don’t match up, the IRS may disallow the transaction. • As for its validity as a separate entity, if the RFC doesn’t have a separate address and does not advertise itself as a separate company, it factors into the validity test. It must also be proven the RFC is directly collecting payments and paying actual employees.

T H E R F C M AY B E C O M P L E T E LY VA L ID, A ND T HE L EG A L FOR M A BL E TO BE PROVEN, BUT DEALERS AND MANAGERS MUST BE CONFIDENT IN THEIR ABILIT Y TO SHOW P R O O F A N D D O C U M E N TAT I O N IN THE EVENT OF AN IRS QUERY O R A U D I T. S H A R I N G S TA F F O R RUNNING RFC BOOKKEEPING AND A D M I N I S T R AT I O N T H R O U G H T H E DE A L ER SHIP T O S AV E NOW C A N P R O V E C O S T LY I N TA X E S A N D P E N A LT I E S L AT E R O N . If the IRS does not view the RFC as a separate entity by these tests of validity, it will not allow the dealership to claim a deduction for losses on the sale of discounted vehicles to the RFC. It will defer to related party rules under IRS code 267 that do not allow loss deductions in transactions made between related persons. Without proper structuring as a separate operation, an RFC can become a liability. The RFC may be completely valid, and the legal form able to be proven, but dealers and managers must be confident in their ability to show proof and documentation in the event of an IRS query or audit. Sharing staff or running RFC bookkeeping and administration through the dealership to save now can prove costly in taxes and penalties later on. The IRS may determine the RFC is not a valid separate entity. This finding, in effect, invalidates the cash method of accounting for the sale of notes to the RFC. Interested in more details about RFCs and auto dealership accounting? Download our whitepaper at http://info. cornwelljackson.com/rfc-irs-target. Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department. Contact him at scott.bates@cornwelljackson.com or 972-202-8000. Mike Rizkal, CPA, is a partner in Cornwell Jackson’s Audit and Attest Service Group. Contact him at Mike.Rizkal@cornwelljackson.com or 972-202-8000.

ACCELERATE | BY GWC WARRANTY

HELP! REPEAT BUYERS GONE MISSING Did You Disappear? Used car dealers are well aware just how important repeat buyers can be. But are you really getting the repeat business you’d like to see? Far too often when repeat buyers go missing, it’s because the dealer disappeared in the months and years following a sale. To tell the tale of the missing repeat buyer, you first must look at what happened with the dealer after a sale. Whether customers engage with you or not, maintaining front-of-mind awareness with them keeps you relevant while ensuring the lines of communication are always open. Post-sale communications can range from a variety of topics, such as service reminders, trade-in offers or just a friendly note to say hello. But if you’re not at least getting started with the basics, the likelihood of your repeat business fading off into another dealership’s lot increases with every passing day. Be strategic. Knowing what to send customers and when is the first step in making sure you don’t disappear from their memories. A good example of a relevant, timely follow up message is checking in with a customer if you’ve sold them a vehicle service contract. Checking in at the expiration of a contract gives you the opportunity to

SAFETY WATCH

inform the customer of their expired coverage while offering the opportunity to trade that vehicle in for one with a new service contract. At the very least, this scenario allows you to offer a service contract renewal, where you can still land some unexpected profit. Be creative. A simple text-based email or an unsuspecting voicemail won’t do the trick. But a video-based email or personalized text message might strike the right chord. Anything you can do to stand out from the countless phone calls, emails and solicitations customers receive on a daily basis will help prevent your message from getting glazed over like the rest of them. Be persistent. But not too much. It could be a while until your customers are in the market for a new vehicle, so they may not want to hear from you every week or even every month. Set a messaging cadence that ensures your customers never forget about you. Because even if they aren’t in the market for a vehicle, landing messages with them consistently could remind them of a friend or family member who is in the market. So the next time you’re asking yourself where all the repeat buyers have gone, take a step back and see if your customers should be asking where their selling dealer has disappeared to. Often the mystery of the missing repeat buyer can be solved by finding the dealer who went missing after the sale.

COOPER RECALLS TIRES FOR SEPARATION Incorrect Rubber Compound Cooper Tire & Rubber Co. is recalling 41,014 Cooper Cobra Radial G/T tires, sizes P215/70R14, P225/70R14 and P225/70R15, Cornell 1000 tires, size P235/75R15, El Dorado Golden Fury GFT tires, size P205/75R15, Futura GLS Super Sport tires, size P225/70R14, Mastercraft Avenger G/T tires, size P225/70R14, Mastercraft MC-440 tires, sizes 185/60R15, 215/60R16, 225/60R16, 225/60R17 and 205/55R16, Starfire RS-C 2.0 tires, sizes 215/60R16 and 205/55R16, Starfire SF-340 tires, sizes P215/65R16, P185/60R15, P215/60R16 and P225/60R16, Cooper Trendsetter SE tires, sizes P205/75R15 and P235/75R15, Mastercraft A/S IV tires, sizes P205/75R15 and P235/75R15, and Vanderbilt Turbo-Tech G/T Radial tires, size P225/70R14. These tires were manufactured with an incorrect belt rubber compound that may result in poor adhesion of the rubber to the belt wires, potentially resulting in a belt separation. Cooper will notify owners, and dealers will replace the tires, free of charge. The manufacturer has not yet provided a notification schedule. Cooper’s number for this recall is 170. www.nmiada.com

March/April 2018

DEALER INSIGHT

SALES MATTERS | BY JOHN CHAPIN

OVERLOOKED SALES TIPS More Success in 2018

THERE ARE NO CHALLENGES

OR GROW TH ON THE E ASY ROAD. THE EASY ROAD DOES NOT BUILD PERSISTENCE AND RESILIENCE, WHICH YOU NEED WHEN LIFE GETS TOUGH IF YOU’RE GOING TO BE SUCCESSFUL OVER THE LONG HAUL.

DEALER INSIGHT

March/April 2018

Here are four sales tips to make you more successful in 2018. Stop working smart and get back to working hard. Most salespeople use “working smart” as an excuse to avoid hard work, especially the traditional methods of prospecting such as cold calling. They think work smart means work easy. As a result, they look for shortcuts and safe alternatives to prospecting on the phone and in person. They try to prospect via social media and email and kill so much time looking up information on prospects they don’t have time to make the number of calls necessary for success. While there are times you want to look up information on a prospect, use email, and be on social media, the average salesperson takes it way too far because these activities are easier than talking to a live human being and facing possible rejection. In one case a new insurance agent was spending two hours looking up information before he made his initial call on a prospect. Instead of making the necessary 25 calls a day, he was making two. Ouch! Stop looking for the easy button – the half-the-work, 10-times-the-leads scheme or the next breakthrough prospecting method – and stick to the tried-and-true – lots of calls in person and on the phone. Hard work. The most successful salespeople work the hardest and spend the business day talking to people who can buy from them, not working on a sales letter, their phone script, social media, cleaning their desk, or doing research. Again, there are times for social media and technology. Just don’t get in the habit of using them at the expense of talking to the number of people necessary to make the number of sales you need to make. Also, don’t do it during prime calling hours. Get your daily dosage of fear, pain, and discomfort. Every single day you need to be stepping out of your comfort zone, doing things that scare you, and growing personally and professionally. The good news is many of these things overlap so usually one or two activities will fit the bill when it comes to this tip. For salespeople it is typically cold calling, or making that particular call that for some reason they’re afraid to make, that is the most fearful and uncomfortable. The better you get at handling fear, discomfort, and mental pain, the better and stronger you and your business will be. Cold call every day. As a salesperson, cold calling is likely the thing you dread most and the most difficult thing you do. If you get great at cold calling, most other things in your sales career will be a breeze.

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While you may be great at getting referrals, using LinkedIn for leads, and have more business than you can handle, you should never stop cold calling. Why? Nothing keeps you as sharp as cold calling, nothing builds your intestinal fortitude like cold calling, and nothing will give you more confidence and success than being able to cold call and get the interest and attention of a complete stranger. No matter how many people you know, there may be a time in life when you can’t rely on your LinkedIn network, Facebook friends, a center of influence, or your uncle. Like my friend who had to talk his way into a secure area reserved for executives during a mass shooting, there will be a time in life when you have to sell a stranger. Or as my first manager Don Roche Jr. used to say, a true salesperson can sell the stranger on the street first and foremost. Stop wishing it was easier. The person you become over the span of your life will pretty much be determined by the obstacles you’ve had to overcome and whether or not you overcame them. Believe me, if you want to do anything significant with your life, you don’t want the easy road. There are no challenges or growth on the easy road. The easy road does not build persistence and resilience, which you need when life gets tough if you’re going to be successful over the long haul. This doesn’t mean you hope for tragedy to befall you. It means when you run into plane delays, personal issues, professional obstacles, and anything else that life throws at you, you accept them as part of life on planet Earth. No amount of wishing will make them go away. Rise above any negative feelings, move on, and realize you’ll probably grow and learn something in the process. What stops most people from reaching their dreams is their inability to mentally overcome everyday roadblocks and problems they encounter along the way. They simply get beaten down until they give up. Get back to the basics. • Put people first and always do what’s best for them. • Have annual, monthly, and weekly goals. Break that down to daily activity and get those daily activities done no matter what. • Spend 80 percent of prime calling time prospecting, presenting, and closing. • Get great at selling, knowing your product, and your solutions. • Build relationships and your network. • Work hard… okay, and smart, but make sure it’s intelligent work that builds your business, not easy work that has you looking for the sales version of a unicorn or Bigfoot. John Chapin is a sales and motivational speaker and trainer. He has over 27 years of sales experience as a number one sales rep and is the author of the 2010 sales book of the year: Sales Encyclopedia. For more information, visit www.completeselling.com or email johnchapin@ completeselling.com.

ACCELERATE | BY GWC WARRANTY

CRAFTING YOUR AUCTION GAME PLAN Be Ready for Game Day The auction is every independent dealer’s game day. The adrenaline. The sounds of anxious buyers pacing and analyzing every vehicle before it heads down the lane. But just like the best athletes prepare for each contest, the best dealers never head to auction without a game plan. Know where to go. Don’t be afraid to stray from your home field. Trying an online auction or one that’s a bit farther from you can help you score a deal. In each of these instances be sure to consider the cost of travel, transportation and delivery when deciding on a car’s overall value. Don’t go it alone. Your vehicle acquisition is only as good as the team you’re on. If you have a great eye for what to look for in a vehicle, bring along someone who can keep an eye on the budget. Conversely, if you have a grasp on the finances, bring along someone who can give an honest opinion about what it would take to get a vehicle lot-ready.

MANAGEMENT MATTERS | BY DALE POLLAK

THE USED VEHICLE DONUT HOLE Three Ways to Work Around and Through

I’ve been struck by three trends in the current used vehicle market. First, late-model – three years and younger – vehicles account for almost 60 percent of retail sales, a fact affirmed in the latest Used Car Market Report from Edmunds. You can trace this development to the rise of offlease supply, which many analysts expect to continue, albeit at a slower clip than recent years. Second, the prevalence of late-model inventory is a bit tricky. Lower-mileage, nearnew used vehicles are facing competition with heavily incentivized new vehicles. As a result, the near-new vehicles aren’t selling nearly as fast as similarly aged units with higher miles. The Edmunds report affirms this trend. It said, “High levels of lease returns coupled with increasingly stringent mileage limits will feed an expanding pool of low-mileage used vehicle inventories that have proven to have a limited buying audience.” Third, there’s strong demand and interest for older, higher-mileage vehicles, but they aren’t nearly as plentiful as the later model

year inventory. The consumer demand for these vehicles isn’t surprising. There’s always strong demand for cheap, reliable transportation. Indeed, Edmunds noted these vehicles are turning faster than most other used vehicle inventory. In many ways, these trends force dealers to work around and through what might be described as a “donut hole” in today’s market. Here are three recommendations to help dealers address these market conditions: Re-assess your inventory strategy. The best Velocity dealers have been evaluating whether their inventory allocations for vehicle types and cost segments are truly correct and sufficiently precise for the current market. In some cases, dealers realize they’ve effectively given up on lower-cost vehicles and their buyers as they’ve placed a greater priority on higher-cost, late-model inventory. Inevitably, as dealers examine their allocations they find corrective opportunities to right-size segments they’ve overlooked, overstocked and understocked. Examine your inventory age/days to sale by segment. This analysis can affirm and illuminate inventory strategy assessment takeaways. Which vehicle segments are moving faster or slower than they used to and why? How do the Market Days Supply and Price to Market metrics compare to those of your fastest sellers? Dealers who conduct this analysis often find one of two factors, and sometimes both,

Never show your hand. It’s important to hide your emotions and never tip your pitches when it comes to winning at auction. Don’t get too excited when bidding for a vehicle and don’t get too disappointed if you miss out on one. Both reactions can tip off savvy buyers who can use that emotion against you. Have an eye for the odometer. The National Highway Traffic Safety Administration estimates upwards of 450,000 vehicles have altered odometers. Keep an eye on a vehicle’s mileage and look for red flags. If a car has low tire tread and bad brakes with under 20,000 miles, it might be a sign something’s afoot. Don’t discount repo cars. When a driver unwillingly gives up a car, it might still be in great shape. Bank-owned repo vehicles could be a solid opportunity for a home run of a deal since banks are usually motivated to get the vehicle off their books. Stick to your game plan. Treat your auction budget like a salary cap. Set a spending target and don’t stray from it. There’s always another auction and another chance to find the right purchase for your lot.

account for slower-movers – either the vehicle itself or its merchandising/pricing isn’t “right” for the market. Both suggest an opportunity for process changes. Dealers who apply these lessons learned are more likely to achieve the goal of retailing at least 55 percent of inventory in less than 30 days. Address Cost to Market creep. I have written before about the rise of inventory-level Cost to Market metrics climbing close to 90 percent, leaving only a maximum 10 percent spread for front-end gross profit. Dealers often know they should strive to maintain an inventory level Cost to Market ratio of 85 percent, but the creep occurs nonetheless. It’s true the prevalence of near-new inventory contributes to the Cost to Market increase. But it’s also true these vehicles are the easy pickings and perhaps reflect a lack of desire, discipline or interest in finding vehicles with more favorable Cost to Market ratios. I also recommend dealers revisit their reconditioning costs, particularly those associated with outside vendors, to find additional savings to help reduce Cost to Market ratios. The good news is that most forecasts call for a relatively robust used vehicle market in the months ahead – a suitable environment to make inventory management adjustments that help you work more effectively around and through the donut hole. Dale Pollak is the founder of vAuto and an executive with Cox Automotive. This column originally ran on his blog. For this story and all his posts, visit www.dalepollak.com.

www.nmiada.com

March/April 2018

DEALER INSIGHT

WASHINGTON UPDATE | BY SHAUN PETERSEN

NIADA GOVERNMENT UPDATE

Latest Government Issues and Activity

NIADA IS YOUR VOICE IN WASHINGTON D.C., ADVOCATING FOR INDEPENDENT DEALERS, THE USED VEHICLE INDUSTRY AND SMALL BUSINESS. HERE’S A LOOK AT THE LATEST NEWS AND NIADA EFFORTS REGARDING LEGISLATIVE, REGULATORY, PAC AND GRASS ROOTS ACTIVITIES.

REGULATORY The Consumer Financial Protection Bureau is taking a hard look at itself under acting director Mick Mulvaney. Mulvaney, the White House budget director filling in as CFPB head until President Trump appoints a permanent director, has issued a “call for evidence” to determine whether the bureau is “fulfilling its proper and appropriate functions to best protect consumers.” To gather that evidence, the bureau is posting a series of requests for information, seeking comments on various aspects of its enforcement, supervision, rulemaking, market monitoring and education activities. Mulvaney said the RFIs give the public a chance to submit feedback and suggest ways to improve outcomes for both consumers and businesses. The first RFI asks for comments about the CFPB’s civil investigative demands, which the bureau issues when collecting information from an entity during enforcement investigations. The comments will help the bureau evaluate its CID processes and procedures and determine if any changes are needed. The CFPB has since posted an RFI regarding its administrative adjudication procedures. The RFIs represent a rare opportunity for independent auto dealers to make their voice heard by a regulatory agency that has left a large imprint on the auto finance industry in recent years. Tell the CFPB about your experience with a CID, the issues you’ve faced in responding as a small business and how the process could be improved to become more efficient. To make a comment on the CFPB’s RFIs, visit www. consumerfinance.gov/ policy-compliance/noticeopportunities-comment/opennotices/call-for-evidence.

DEALER INSIGHT

LEGISLATIVE The Senate will soon be voting on whether to confirm four candidates nominated by President Trump to serve as commissioners of the Federal Trade Commission. Trump sent their names to the Senate on Jan. 25. Among those names is that of Joseph Simons, a former FTC antitrust attorney whom the President said will be his choice for chairman of the commission. The others are Rohit Chopra, a senior fellow at the Consumer Federation of America and former CFPB student loan ombudsman; Noah Phillips, chief counsel to Sen. John Cornyn (R-Texas); and Christine Wilson, senior vice president for regulatory and international affairs for Delta Air Lines. The FTC is led by a fivemember panel that can include no more than three members of any political party. Simons, Phillips and Wilson are Republicans and Chopra is a Democrat. Currently, there are only two FTC commissioners – Republican acting chairman Maureen Ohlhausen, who has been appointed by the President to serve as a judge on the U.S. Court of Federal Claims, and Democrat Terrell McSweeny. Both will leave the commission when their successors are confirmed. There has not yet been a nomination for the fifth spot on the commission, which will be filled by a Democrat. Reuters News Service recently reported Senate Minority Leader Chuck Schumer (D-N.Y.) has recommended his chief counsel, Rebecca Slaughter, to the White House as a nominee.

March/April 2018

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PAC The day before NIADA’s Winter Leadership Meeting opened in Dallas in January, CEO Steve Jordan, president-elect Andy Gabler and executive committee members Joe McCloskey and Scott Allen met for lunch with Rep. Michael Burgess (R-Texas), a member of the House Energy and Commerce Committee. Rep. Burgess is a champion of small business who has engaged with NIADA on issues that impact dealers, such as used vehicle recalls. A longtime physician and member of the Subcommittee on Health, he discussed health care policy and sought to understand more fully the challenges independent dealers face due to rising health care costs. In addition to Burgess – to whom the NIADA-PAC made a campaign contribution – the meeting included a special guest: Rep. Kevin Brady (R-Texas), chairman of the powerful House Ways and Means Committee and author of the recent Tax Cuts and Jobs Act. Rep. Brady thanked NIADA for pushing Congress to keep the tax deduction for net interest expenses for floorplan-related costs and advocating for a small business exemption for all other interest-related expenses. He asked the NIADA dealers how the legislation was impacting their businesses and requested NIADA to continue to engage him on any issues related to the tax legislation. GRASS ROOTS Georgia IADA is mobilizing its members to fight a bill under consideration in the Georgia House that would change the way the state’s title ad valorem tax is calculated. The bill proposes switching the tax calculation from the vehicle’s fair market value to its retail selling price, which, according to the state’s legislative fiscal report, would result in a tax increase of more than $300 per vehicle. GIADA’s legislative team and lobbyists have begun introducing arguments and testimony against the bill and are gearing up for an extended battle. Meanwhile, the association has contacted dealers throughout the state and provided them with the names and contact information for all 12 members of the Georgia House Ways and Means Public Finance Subcommittee so the dealers can tell them to vote no on the bill. It is also encouraging dealers to contact their state representatives and senators. GIADA has supplied its members with talking points to make sure key issues are understood by the legislators. Among them: The tax change would mean consumers who buy a used vehicle from a dealer would pay hundreds of dollars more in taxes compared those who buy from a private seller, which would encourage more curbstoning by unlicensed sellers – a practice that can negatively affect consumers. GIADA is calling for all Georgia dealers to make their voice heard on this important issue.

MARKET WATCH |

KELLEY BLUE BOOK BEST RESALE VALUE AWARD 2018 Winners Announced Kelley Blue Book recently announced the 2018 model-year brand and category winners of the annual Best Resale Value Awards, which recognizes vehicles for their projected retained value through the initial five-year ownership period. “Once again, Toyota and Porsche earn top honors in the brand and luxury brand categories, respectively, with the highest average projected resale value among their full model lineups,” said Kelley Blue Book director of residual values Eric Ibara. “The top 10 vehicle winners are predominantly trucks, reflecting the high demand that exists for these models. Despite the higher incentives available on trucks today, used car buyers are willing to pay more for trucks, relative to the initial MSRP, than they are for sedans. Without the prospect of higher gas prices, this trend doesn’t appear to be slowing.” This is the third Best Resale Value: Brand win for Toyota, which previously won in 2014 and 2017. This year marks Porsche’s second consecutive Best Resale Value: Luxury Brand win.

2018 BEST RESALE VALUE: Luxury Brand Porsche

2018 BEST RESALE VALUE: By Vehicle Category

Subcompact Car: Honda Fit Compact Car: Subaru Impreza Sporty Compact Car: Subaru WRX Mid-Size Car: Honda Accord Full-Size Car: Toyota Avalon Entry-Level Luxury Car: Lexus RC Luxury Car: Lexus GS High-End Luxury Car: Porsche Panamera Sports Car: Porsche 718 Cayman High Performance Car: Porsche 911 Hybrid/Alternative Energy Car: Toyota Avalon Hybrid Electric Vehicle: Chevrolet Bolt EV Subcompact SUV/Crossover: Honda HR-V Compact SUV/Crossover: Jeep Wrangler Mid-Size SUV/Crossover: Jeep Wrangler Unlimited Full-Size SUV/Crossover: Chevrolet Tahoe Luxury Compact SUV/Crossover: Porsche Macan Luxury Mid-Size SUV/Crossover: Lexus RX Luxury Full-Size SUV/Crossover: Lexus LX Mid-Size Pickup Truck: Toyota Tacoma Full-Size Pickup Truck: Chevrolet Silverado HD Minivan: Honda Odyssey

2018 BEST RESALE VALUE: Top 10 Cars

Chevrolet Colorado Chevrolet Silverado Ford F-Series GMC Sierra Honda Ridgeline Jeep Wrangler Subaru WRX Toyota 4Runner Toyota Tacoma Toyota Tundra

CHEVROLET BOLT EV

Toyota

2018 BEST RESALE VALUE: Brand

HONDA ACCORD

s TOYOTA TUNDRA

Note: Residual values used for award calculations are based on the 2018 model-year vehicles that appear in the January/February 2018 Kelley Blue Book® Residual Value Guide. Top 10 models appear in alphabetical order. The 2018 Jeep Wrangler and Wrangler Unlimited honored in this year’s Best Resale Value Awards is the JK model. Depreciation often is the greatest expense incurred by drivers during the first five years of vehicle ownership. An average 2018 model-year vehicle will only retain about 35.1 percent of its original value after a five-year ownership period. Vehicles with average or below-average resale values are generally plentiful in the marketplace. However, certain vehicles are projected to hold their value better than others. While much of a vehicle’s resale value is based on supply and demand, as well as current and projected future market conditions, vehicles that retain their value best are typically discounted the least and tend to generate high levels of consumer interest. By comparison, all vehicles in Kelley Blue Book’s Top 10 for Best Resale Value are projected to retain more than 46 percent of their MSRP after five years. Kelley Blue Book’s Best Resale Value Awards are in their 16th year and are based on projections from the Kelley Blue Book Official Residual Value Guide. These values are established by experienced automotive analysts that review the output from statistical models built upon millions of transactions. Vehicles that earn the highest five-year residual values, expressed as a percentage of their original Manufacturer’s Suggested Retail Price, are selected for these prestigious awards. Low-volume vehicles are excluded from award consideration, except in the electric, luxury, sports car and high-performance categories. For more information about Kelley Blue Book’s Best Resale Value Awards, please visit www.kbb.com/new-cars/best-resale-value-awards/.

DEALER INSIGHT

March/April 2018

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LEGAL MUSINGS | BY SHAUN PETERSEN

NEW RULE FOR SALES TO MILITARY SERVICE MEMBERS DoD Says “Credit-Related”

Products Are Subject to MLA Requirements

WHEN CONGRESS

P A S S E D T H E M I L I TA R Y L E N D I N G A C T, I T I M P O S E D A S E R I E S O F REQUIREMENTS FOR EX TENDING CREDIT TO MEMBERS OF T H E M I L I TA R Y A N D T H E I R DEPENDENTS.

In mid-December, the Department of Defense issued a new interpretation of the Military Lending Act, impacting sales to members of the military and their dependents. When Congress passed the Military Lending Act, it imposed a series of requirements for extending credit to members of the military and their dependents. However, Congress also created several exemptions to those limitations, including one for the extension of credit that is expressly intended to finance the purchase of a motor vehicle when the credit is secured by the motor vehicle purchased. Congress included a similar exemption related to credit extended for the purchase of personal property. The new interpretation drastically alters the scope of what the industry previously understood the motor vehicle exemption to include. Before, dealers and finance companies understood the motor vehicle exemption to include the extension of credit for all things included in a motor vehicle transaction, such as the purchase price of the car, taxes and other state fees, negative equity and voluntary protection products like service contracts, GAP, etc. Now, DoD has turned that on its head. At issue is whether financing above and beyond the actual purchase price of the vehicle takes the transaction out of the safety net of the exemption. DoD’s interpretation says it depends on what is being financed. “Generally, financing costs related to the object securing the credit will not disqualify the transaction from the exceptions,” it reads, “but financing credit-related costs will disqualify the transaction from the exceptions.” So what are “costs related to the object securing the credit”? DoD provided some examples of costs that fit firmly within the exemption. Items such as negative trade equity, extended warranties or service contracts, and “optional leather seats within that vehicle.” What about “financing credit-related costs”? DoD said financing items such as GAP, credit insurance and “additional ‘cashout’ financing” are not included within the exemption.

According to DoD, any dealer who finances those credit-related costs is subject to the Military Lending Act regarding transactions as far back as Oct. 3, 2016 – even though the new interpretation is just weeks old. So what should you do? Dealers selling and financing credit-related products such as GAP and credit insurance should determine whether customers are members of the military or dependents of military servicemembers prior to offering F&I products for sale. Dealers can check by entering the customer’s social security number and birthdate into DoD’s MLA website at https:// mla.dmdc.osd.mil/mla/#/single-record. While other services might be available to provide that information, checking that website or subscribing to an MLA offering notated on a credit report from a credit reporting agency provides a safe harbor for determining covered persons. If customers are covered by the rule and you decide to sell credit-related products, specific disclosures must be provided in writing and orally. In addition, the transaction is subject to the military APR rate cap of 36 percent and other contractual limitations will be imposed, including a ban on arbitration provisions. One of the options many are considering to ensure compliance is simply not offering credit-related products to those covered by the rule. Many dealers, once they determine a consumer is covered by the MLA, are simply informing the covered customers that creditrelated products are not offered for sale. Regardless of which compliance option they choose, dealers should consult with their attorneys to determine which products are “credit-related” and thus potentially subject to the rule. Your individual lawyer can provide you with specific legal advice tailored to your business. In the meantime, rest assured NIADA is working with other interested industry partners, members of Congress and federal regulators to express our concerns with the new rule and the lack of process involved in issuing it. DoD did not provide notice of the interpretation nor an opportunity for interested parties to comment before it was issued, precluding NIADA and other stakeholders from pointing out the harm that will come to both the military servicemembers and the industry. One of our strategies in explaining our position is to illustrate the value of those credit-related products. So if you as dealers are aware of any of your military customers who have directly benefited from GAP, credit insurance or other similar products, please contact me at (817) 640-3838 or shaun@niada.com. Shaun Petersen is NIADA’s senior vice president of legal and government affairs.

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March/April 2018

DEALER INSIGHT

RETAIL READY | BY JUSTIN M. OSBURN

DESIGNING A SUPERIOR MEET AND GREET Crafting and Reviewing the Play Recently I was on an airplane and the lady next to me struck up a conversation. She asked what I did for a living and I told her I consulted independent auto dealers. She became very inquisitive about the car business. She quickly offered her fear of car shopping and told me about her recent experience that turned into a nightmare. I asked her what emotions she felt when thinking about driving onto a car lot to purchase a vehicle. She said, “Fear of being screwed.”

This information is nothing new. However it is the building block of how critical an effective meet and greet can be to our prospects. An additional BHPH fear from the prospect is fear of getting turned down. Our first impressions and ability to gain trust set the sales process up for success or failure. While there are certainly dealerships full of sales professionals who open with a competitive meet and greet, there are some that struggle to offer a consistent and superior greeting to prospective buyers. Why? Why do some nail it time and time again while others struggle to get even one sales professional on the team to conduct a first-class meet and greet? Here are a few steps your dealership can take to improve the overall execution of the meet and greet on the lot, right now! Leadership must decide the expectations of the meet and greet. Team members do not usually wake up each morning and say, “Self, today I am going to have a horrible day and do everything I can to be disruptive and not follow my manager’s instruction.” Actually, most team members come to work each day willing to follow great leaders and the tactics that produce results. A pitfall easy to overlook is no structured script or direction for the sales team to learn, practice and perfect their meet and greet. A critical step to improvement is the leadership deciding, with clarity, how the meet and greet should be conducted and then teaching and coaching the team members to replicate that vision with repetition and practice. Consider regular, short sales meetings each morning. This gives the leadership an opportunity to see who is at work, who is not, who is late and who came dressed for success as well as get a pulse of the team’s attitude for the day and offer some quick and structured practice. Coach the sales department on how to run “the play” of meet and greet. When team members are confused or don’t know what to do, it’s human nature to do nothing, to stand still in the confusion. This is very apparent when a sales team member demonstrates hesitance to take an “up.” They are not sure what to do.

DEALER INSIGHT

March/April 2018

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You could fire them, or yell, or, worse, quietly remain bitter toward them as you both drown in failure. An alternative approach is to coach them how to run “the play” of meet and greet laid out in the first step. Then, rehearse it with them until they demonstrate perfect practice. If a mystery shopper walked on to your lot today and was greeted by the sales team, what would it sound like? Evaluate what works and does not work. If there is a well-crafted meet and greet plan and the team is demonstrating perfect practice, leadership should consistently encourage feedback on what parts of the play work and which parts could be improved.

THE GOAL

OF A MEET AND GREET SHOULD BE TO OFFER A G R E AT F I R S T I M P R E S S I O N , O P E N U P THE ABILIT Y TO BUILD RAPPORT AND U LT I M AT E LY M O V E T H E P R O S P E C T T O THE NEX T STEP IN THE SALES PROCESS. In football, a coach draws up a play and shows it to the team, then they practice all week and run the play in the next game. Certainly it doesn’t end there. The coach and the team are interested if the play resulted in big yardage, short yardage or even a loss of yards. They watch film after the game to review how the opponent responded to the play and what parts worked or did not work. If the play lost yards, it is not necessarily scrapped. Perhaps the blocking assignments need tweaking, a different player needs to touch the ball or the play needs to be run in a different situation. Once leadership at the dealership has drawn up a meet and greet, shown it to the team and rehearsed it, there should be a review with the team after it is has been used to see if it needs to be tweaked, changed up and/or improved. What are the results? What is the goal of a meet and greet and how do leadership and the team know if it was a successful play or not? The goal of a meet and greet should be to offer a great first impression, open up the ability to build rapport and ultimately move the prospect to the next step in the sales process. What is the next step? Can your leadership and team answer that question, consistently? Tip: A great opening question: “Hi, my name is Justin. Have you been to our dealership before or is this your first time?” I’d love to hear creative plays your team is running on the meet and greet. Typically a sincere and prepared opening has great results. For a few more opening questions that work, email me at justin@niada.com. Justin Osburn is a moderator, consultant and trainer for NIADA Dealer 20 Groups, offering more than a decade of experience in retail and Buy Here-Pay Here executive management. He can be reached at justin@niada.com.