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T H E O F F I C I A L M A G A Z I N E O F N E W M E X I C O I N D E P E N D E N T A U T O D E A L E R S A S S O C I AT I O N NOVEMBER/DECEMBER 2016
CRM TECHNOLOGY vs. CRM MINDSET Page 10
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INSIDE
06...............................................NIADA Government Report 08.................Reasons You Need a Substantiated Valuation 09................................... Letter from the Executive Director 10.................................. CRM Technology vs. CRM Mindset 15..................................Simple Tech Tools with Serious ROI 16...........Strategic Ways to Drive Leads with Social Media 18....................................................... Compliance Overdrive
WHAT’S NEW NLC Content Online
If you missed the National Leadership Conference in Washington D.C. in September, we have all the education filmed, edited and available for viewing on NIADA.TV! Highlights include the U.S. Department of Labor speaking about the new overtime rules and other wage issues, the FTC talking about marketing, the Department of Justice discussing fair lending regulations and servicemember issues, and the CFPB covering collections. You can view these and other industry related education sessions 24/7 on NIADA.TV.
ADVERTISER’S INDEX
Autotrader............................................................................ IBC AutoZone................................................................................15 Alliance Inspection Mgt.........................................................14 Lobel Financial.......................................................................IFC Manheim ..........................................................................10, 11 Manheim Pennsylvania......................................................... 13 New Mexicao Mutual .............................................................7 NextGear Capital....................................................................12 Precision Auto Inspections .....................................................5 Spireon .....................................................................................9 VAuto....................................................................... Back Cover
INDUSTRY NEWS BY USED CAR NEWS
HYUNDAI DONATES $250,000 FOR CHILDREN’S HEALTH Hope On Wheels Seeks to End Childhood Cancer
Hyundai Hope On Wheels (HHOW) and Atlanta-area Hyundai dealers will present Dr. Cheng-Kui Qu of Children’s Healthcare of Atlanta with a $250,000 Scholar Grant to be used to improve care and increase treatment options for kids with cancer. Children’s Healthcare of Atlanta was one of 24 recipients across the country selected
by a rigorous scientific review panel to receive this highly competitive Hyundai Scholar Grant. “Our mission at Hyundai Hope On Wheels is clear: end childhood cancer,” said president and CEO of Hyundai Motor America Dave Zuchowski. “These individual awards to hospitals and organizations across the country are pivotal to ending childhood cancer. “Although there remains a lot more work to be done, the innovation that comes from this research will ultimately help us find a cure. To all the kids, families and cancer researchers fighting this terrible disease – you are not alone and we remain committed to this important cause.” This year alone, HHOW will award more than $13 million in new pediatric cancer grants. Since 1998, the program has funded $115 million in research to Children’s Oncology Group member institutions nationwide.
BOARD MEMBERS Chairman
Secretary
Associate Board Members
New Mexico Independent Auto Dealers Association 608 Chama NE • Albuquerque, NM 87108 Phone: 505.232.0809 • Fax: 505.232.0810 email: james@nmiada.com website: www.nmiada.com
President
Dealer Board Members
Alan Clark Zurich Direct Markets PO Box 30846 Albuquerque, NM 87190 (505) 328-2387 Alan.clark@zurichna.com
NIADA HEADQUARTERS
Vice President
Luis Soto Sun City Motors 8504 Central Ave SE Albuquerque, NM 87108 (505) 256-1200 suncitymotors@yahoo.com
OFFICE
NATIONAL INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION WWW.NIADA.COM • WWW.NIADA.TV 2521 BROWN BLVD. • ARLINGTON, TX 76006-5203 PHONE (817) 640-3838 NM Dealer Insight is published bi-monthly by the National Independent Automobile Dealers Association Services Corporation. 2521 Brown Blvd., Arlington, TX 76006-5203; (817) 640-3838. POSTMASTER: Send address changes to NIADA State Publications, 2521 Brown Blvd., Arlington, TX 76006-5203. The statements and opinions expressed herein are those of the individual authors and do not necessarily represent the views of NMIADA or the 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 © 2016 by NIADA Services, Inc. All rights reserved. Visit the NIADA website at www.niada.com.
STATE MAGAZINE MGR./SALES
Troy Graff • troy@niada.com EDITORS
Jacinda Timmerman • jacinda@niada.com Andy Friedlander • andy@niada.com MAGAZINE LAYOUT
Pat Martinez All Star Auto Center Inc. 2307 E Main St Farmington, NM 87401 (505) 325-2300 pmatrinez@allstarcars.net James Santistevan Zia Auto Wholesalers LLC 4913 Menaul Blvd NE Albuquerque, NM 87110 (505) 889-9653 ziawhsl@cs.com Felicia Richesin A Quality Auto Sales 921 Eubank Blvd Albuquerque, NM 87112 (505) 275-9999 aqualityautosales@gmail.com
Treasurer
Aaron Flores A-Star Motors LLC 5700 Menaul Blvd NE Albuquerque, NM 87110 (505) 503-6846 aaron@astarmotors.com
Rob Martinez ABQ Auto Deals, LLC 169 Griegos NW Albuquerque, NM 87107 (505) 554-2428 rob@abqautodeals.com Thomas Hawkins AutoMax Farmington 5210 E Main St Farmington, NM 87402 (505) 327-0500 thomas@4automax.com
James Schrimer The Car Store, Inc. 1650 N. Valley Las Cruces, NM 88007 (505) 524-2283 thecarstorelc@gmail.com Dan Fiske Airport Auto Center 130 Airport Drive Farmington, NM 87401 (505) 325-3799 dfiske@goautoairport.com
Gene Lujan Manheim Auto Auction-NM 3411 Broadway SE Albuquerque, NM 87105 (505) 400-6965 Eugene.Lujan@manheim.com
Alan Rumm ION GPS 5925 Phelan Blvd, Suite G Beaumont, TX 77706 (409) 866-6116 alan@ionmycar.com Ken Star Sunstar Capital Inc. PO Box 53279 Albuquerque, NM 87153 (505) 292-0611 ken@sunstarcap.com Mike Godin Godin Dealer Services PO Box 67440 Albuquerque, NM 87193 (505) 710-7295 mike@godindealerservices.com
Christy Haynes • christy@niada.com Christopher Hanley • chris@niada.com PRINTING
Nieman Printing
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NOVEMBER/DECEMBER 2016 / DEALER INSIGHT 3
COMPLIANCE MATTERS BY DANIEL J. DOMAN
TACKLING COMPLIANCE Best Practices to Keep Consistent Standards
Process, by definition, means “a series of actions or steps taken in order to achieve a particular end.” Think about that for a moment, and then think about your dealership’s compliance strategy. Does it follow a regimented process that helps ensure your dealership’s employees are taking the necessary actions on every deal to meet your dealership’s compliance requirements? Managing your dealership’s compliance requirements can be daunting. Regardless of the size or complexity of your dealership, ignorance is not an excuse. Adverse action, privacy policies, identity verification, risk-based pricing – there is a lot to comprehend and consider implementing on every deal. Below is a list of key compliance items your dealership should fully understand and some best practices for implementing them on every deal. Privacy Policy According to the FTC website, “auto dealers that extend credit, arrange financing or leasing, or give financial advice must notify customers about the information they collect, who they share it with, and how they protect it.” Any personal information you collect to provide the above-mentioned services is covered by the Privacy Rule. Personal information includes “name, address, phone number, or other information that could be used to identify them individually.” Your privacy policy should be offered at any point of entry when gathering consumer data, including both your online credit application and in-store experience. If you don’t already have a privacy policy in place, your credit application system can provide you with a complimentary privacy policy form builder you can tailor to your dealership’s policies and procedures through the use of the Federal Reserve Board’s Model Privacy Notice. If your dealership already has a privacy policy, it can be easily uploaded into your credit application system to be presented when gathering consumer information. OFAC Checks Before conducting business with a potential purchaser, dealers must run a check with The Office of Foreign Asset Control to ensure they are not unintentionally conducting business with a specially designated national. These checks can be run for free online or you can set preferences to automatically run an OFAC check upon every credit application submission in your credit application system. Automation in this arena can help ensure your dealership’s employees are
4 DEALER INSIGHT / NOVEMBER/DECEMBER 2016
taking required actions and following your dealership’s compliance process. Identity Verification Today, identity fraud is big business. For example, a 2016 identity fraud study by Javelin Strategy & Research, found $15 billion was stolen from 13.1 million U.S. consumers in 2015. Under the Red Flags Rule, “many businesses and organizations [must] implement a written identity theft prevention program designed to detect the ‘red flags’ of identity theft in their day-today operations, take steps to prevent the crime, and mitigate its damage.” Help reduce your dealership’s risk by validating every consumer’s identity. This is another step in your dealership’s process that can be automated with every credit bureau request. Choose an identity verification solution that has customizable settings and allows you to set tolerances for alerts to best suit your dealership’s risk strategy. Credit Score Disclosure Notice (RiskBased Pricing) The Credit Score Disclosure Notice can be used as one process for complying with the Risk-Based Pricing Rule under the Fair Credit Reporting Act. The CSDN should be given to “all consumers who apply for credit and contains their credit score as a way to provide greater understanding of how they are evaluated during the lending decision process.” CSDNs can automatically be generated in your credit application system by selecting your credit bureau(s) and risk model(s). Once you have selected these settings, it can automatically generate a CSDN upon display of each credit bureau report. Adverse Action Notice When using a consumer credit report to make a credit decision, you have legal obligations under the FCRA and Equal Credit Opportunity Act. In particular, “if you deny a consumer credit based on information in a consumer report, you must provide an ‘adverse action’ notice to the consumer.” Generating an adverse action notice and manually printing is a complimentary feature in your credit application system. However, to ensure adverse action notices are consistently generated for all deals necessary, you can additionally subscribe to a mailing service that will identify, generate, print and mail notices on your dealership’s behalf based on the compliance strategy your dealership selects. Again, automating these compliance activities can help ensure your process is consistently executed. Fair Lending Due to recent political changes and resulting enforcement actions, your dealership may have decided to take actions to address its fair lending obligations under the ECOA by setting a standard dealer participation rate for all of your retail installment contracts. As a result, your credit application system has provided you with the ability to set
a standard dealer participation rate that will be applied to every deal. In the event your standard dealer participation rate is deviated from in a downward manner (only), completing a dealer rate exception form can document the good faith, competitive reason for the downward deviation from that standard. Electronic Document Storage Now that you’ve generated several key compliance documents electronically, it only makes sense to securely store your documents so they can be easily accessed at any time. Credit applications, decision details, credit reports, disclosures, adverse action notices, identity verification documents, privacy policies, eContracts, and ancillary uploaded documents can all be electronically stored to create a complete audit trail for each customer. It can all happen with the click of a button from your credit application system. There is the additional benefit of reducing your dealership’s risk of a security breach due to “physically” stored customer information in and around your dealership. Whether perceived as a burden or not, your dealership’s back office needs to comply with federal and state regulations. Set up and maintain a compliance process that best suits your strategy and make it as easy as possible for your staff to follow. All of the actions listed above have the ability to take place within your credit application system, along with the ability to monitor if the actions were taken, not taken, or not needed. Most of these compliance actions can be set up to automatically run on every deal, by every user in your dealership. Automation is there to assist you and will help you control consistency in the series of actions needed to execute your dealership’s compliance process. Dan Doman is Chief Legal and Privacy Officer for RouteOne, a joint venture between Ally Financial, Ford Motor Credit Company, TD Auto Finance, and Toyota Financial Services. He is responsible for managing all RouteOne’s legal, governmental, privacy, and security affairs.
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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 BY Shaun Petersen CONSUMER FINANCIAL PROTECTION BUREAU The CFPB finalized an enforcement action against online lender Flurish, Inc., doing business as LendUp, for failing to deliver the promised benefits of its products. The company marketed its loans as a way for consumers to build credit and improve credit scores, and offered those who participated in the program the ability to progress to loans with more favorable terms, including lower rates and longer repayment periods. The CFPB said those claims were false – consumers could not improve their credit because Flurish failed to report credit information to credit reporting agencies. The CFPB ordered the company to provide more than 50,000 consumers with approximately $1.83 million in refunds and pay a civil penalty of $1.8 million. DEPARTMENT OF JUSTICE Wells Fargo settlement: DOJ reached a settlement agreement with Wells Fargo Bank N.A., doing business as Wells Fargo Dealer Services, over allegations it violated the Servicemembers Civil Relief Act by repossessing 413 cars owned by protected servicemembers without obtaining a court order between Jan. 1, 2008 and July 1, 2015. The agreement requires Wells Fargo to pay $10,000 to each affected servicemember, plus any lost equity in the vehicle with interest. Wells Fargo also must repair the credit of all affected servicemember and pay a $60,000 civil penalty. Auto loan scheme: Three people were convicted of money laundering for participating in a 2011 auto loan fraud scheme centered in Houston. One of the men claimed to be a used car dealer who sold luxury vehicles through his alleged Houston dealerships “EZ Auto Group” and “1st Choice Motors.” The alleged dealerships, however, existed only as websites. They had no physical existence, owned no cars and made no actual auto sales. The other two conspirators acted as “straw buyers,” and applied to lenders for auto loans in order to purchase nonexistent used Mercedes and Lexus vehicles from the supposed dealerships. Once the loans were funded and the funds had been deposited into the fake dealerships’ bank accounts, the
6 DEALER INSIGHT / NOVEMBER/DECEMBER 2016
phantom dealer kicked back a portion of the loan funds to the straw buyers, who then defaulted on their loans. The straw buyers applied for 16 fraudulent auto loans with a combined value of almost $700,000. FEDERAL TRADE COMMISSION The FTC filed a lawsuit against nine Los Angeles-area auto dealerships and their owners related to spot delivery – or, as the FTC called it, “yo-yo” financing. The FTC claimed the dealers used deception or other unlawful pressure tactics to coerce consumers who had signed contracts and driven off dealership lots into accepting a different deal. The FTC also alleged the defendants packed unauthorized extra charges for aftermarket products and services, adding extended warranties, GAP and maintenance or service plans and charging customers without their consent, falsely claiming the products were required or free. The dealerships allegedly enticed consumers – particularly financially distressed and non-English speaking consumers – with print, Internet, radio and television ads that made an array of misleading claims, including that vehicles were generally available for the advertised terms and consumers could buy vehicles for low prices, finance with low monthly payments or make low down payments. The FTC claimed the defendants used phony online reviews to tout their dealerships and discredit negative reviews that highlighted their allegedly unlawful practices. With respect to spot delivery, the defendants allegedly represented falsely that consumers were required to sign a new contract with different terms. In other instances, the defendants allegedly told consumers who completed finance contracts that the contracts were cancelled and falsely represented that the dealerships were permitted to keep consumers’ down payments or trade-ins. When consumers requested compliance with the terms of the contract, the defendants supposedly falsely represented that consumers would be liable for legal action, including lawsuits, repossession or criminal arrest for a stolen vehicle. LEGISLATIVE REPORT BY Sante Esposito S.2663, REFORMING CFPB INDIRECT AUTO FINANCING GUIDANCE ACT NIADA continues to advocate for Senate passage of S.2663, which would rescind the auto financing guidance action taken by the CFPB in March 2013 and provide for a more transparent and accountable process for addressing the issue. On Sept. 13, NIADA legislative committee chairman Henry Mullinax, senior vice president of legal and government affairs Shaun Petersen and Key Advocates met with the offices of Sen. Jon Tester (D-Mont.) and Sen. Bob Menendez (D-N.J.) in support of the legislation. The following week, NADA held a series
The fiscal year
2017 appropriations bill passed by the House in July includes provisions to curb the CFPB’s authority.
of supportive meetings on the Hill with its membership. And NIADA followed with its Day on the Hill on Sept. 28. Coupled with those meetings was a key fundraising event co-hosted by NIADA and NAAA, as well as various interaction events with key members of Congress. The strategy is to keep the pressure on the Senate to pass the bill this year, or to keep pushing on the request made by NIADA and NAAA for the Senate to convene a series of meetings with the CFPB and stakeholders to explore the possibility of an administrative solution to the issue. CFPB/FY17 APPROPRIATIONS PROCESS Prior to the pre-election recess, Congress passed a “clean” continuing resolution to fund the government until Dec. 9 at the current levels. “Clean” means there were no new major policy issues included (except for Zika and natural disaster funding). It also means several provisions intended to curb the CFPB’s authority, which were included in the fiscal year 2017 Financial Services and General Government Appropriations bill that passed the House in July, are on hold pending final resolution of the appropriations process in December. Among those provisions is one that would fund the CFPB through the annual congressional appropriations process – making it accountable to Congress – rather than through transfers from the Federal Reserve as currently provided by the DoddFrank Act. None of those provisions, however, are included in the Senate’s version of the bill.
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MANAGEMENT MATTERS BY LAURA LEMCO
THE GOOD, THE BAD AND THE UGLY Reasons You Need a Subtantiated Evaluation
I grew up in dealerships. My parents owned a Honda, Suzuki and Harley-Davidson motorcycle dealership, and were among the first in the country to start selling Honda cars. They grew the automobile dealership into Honda, Buick and a line of motorhomes. Fast forward a few years… I have been a consultant in the motorcycle and automotive industries, first working with my dad in the consulting firm he built, then on my own when he got back into retail by buying three Harley-Davidson dealerships. Dad was a master at analyzing the numbers and advising dealers on the actions needed to be more efficient and make more money. In short, he was a dealer advocate, helping them combat “the swirl.” I have spent the last three years studying with the American Society of Appraisers and the National Association of Certified Valuation Analysts to get accredited as a business appraiser. After years of assisting with dealership transitions, I have seen several reasons a dealer needs a substantiated valuation of their dealership. I have broken the reasons down to the good, the bad, and the ugly.
THE GOOD
Retirement: Do you plan to retire someday? How? A retirement plan and/or a succession plan require an appraisal – a base valuation so you can see where you are and plan how you want to accomplish your plan. Transition: Do you have a son, daughter or protégée you want to see successfully transfer in? A valuation serves as a foundation from which to construct that transition plan. Expansion: Are you having so much success you are looking for more? What could a capital infusion do to your expansion plans? Providing a well-supported valuation to investors helps them understand how well you have succeeded so far, and that the risk of backing you is well justified moving forward. Sales: Maybe it is time to move into something else and you are starting to consider selling your dealership. A valuation provides you a way to plan for a sale, as well as a third-party appraisal you can use to work with a broker in setting your price, and with a potential buyer in negotiating your price.
THE BAD
We don’t always have control over everything that affects our businesses and sometimes we have to be reactive instead of proactive. Unfortunately, you, your friends
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and/or fellow dealers have gone through divorces, lawsuits or court proceedings that required a business appraisal. Sometimes a downturn in the economy causes the bank to require extra financials and assurance their risk is mitigated before they will extend your line of credit. None of these are pleasant circumstances, and having had a recent valuation can sometimes fill the need. Even if an updated valuation is required, it takes less time, effort and expense than having to start from scratch.
THE UGLY
I call them the 4 D’s, and I’m sorry, they really are ugly: • Death • Disease • Disability • Disaster You can, of course, imagine that if any of these things happened, you (or those close to you) will have to scramble to keep everything going as best as possible. There are things you can do ahead of time that make it easier on everyone – most importantly, having a will and a succession plan in place. Both use a dealership valuation to establish base values and a foundation from which to plan. Having a valuation done annually or even bi-annually before one of the ugly D’s strike will save you and your loved ones a lot of hassle. Let them focus on the things that really matter during those tough times. Somehow squeeze some planning and organization into your hectic life to be prepared. Hopefully, none of the ugly D’s will touch your life, and you can put your dealership valuation to use for some of the good reasons! What goes into a dealership valuation? Any appraisal must answer the question: Value to whom and for what purpose? Value to an investor who wants to continue the business? Value to a developer who wants someone to move the business out of that location, scrape the lot and build a hotel? A valuator not only assesses the performance of your dealership, but also the environment (local, national and even international if it has an effect on your dealership). They analyze the risks that affect your dealership, what benefits are most likely in the future, and then determine a value after applying the research and analysis. There are three methods of doing a valuation: market, income and asset. You are familiar with the market method used in real estate appraisals. Appraisers look at comparable properties in the neighborhood and use these “comps” heavily in deriving a value. Income approach looks at a benefit stream such as free cash flow, EBITDA or seller’s discretionary cash flow. They quantify the risk in a discount or capitalization rate, and apply that to future benefit streams. This is the most complicated, but also the method most relied upon by the IRS, financial institutions and the courts.
The asset approach typically applies to asset-heavy businesses or a business that will no longer be a going concern. Basically, all the assets are appraised and added up. This method can apply to your dealership’s new unit inventory. When someone says “a multiple of earnings plus inventory,” they are including all three methods in one phrase (perhaps without realizing it) – earnings (income method), multiple (income method and market method) and inventory (asset method). Depending on the availability and quality of information, appraisals can take anywhere from a couple weeks to a couple months. Honestly, I understand there is never a convenient time to get a valuation done. No dealer wakes up in the morning and says “Hey, I think I’ll get a valuation today!” Most of my engagements arise from an urgency or outside requirement. I get it. But the valuations I have done for proactive reasons are more valuable and less stressful for the dealers. I am not saying, “Drop what you are doing and pick up the phone now!” But I do encourage you: weave a valuation into your next strategy planning session, or start thinking a bit about where all your hard work is going. From growing up in dealerships, I know when I walk into a dealership it is not just a nice building with inventory and staff. This is an owner’s blood, sweat and tears over many years. This is someone’s dream and they made it happen. When you can, find out its value to help you chart your course to maximize that value into the future. Laura Lemco is a business consultant focused on helping improve dealership operations and providing financial analysis and business valuations. Call Laura at (303) 9946919 for a free, confidential consultation. Learn more at www. DealershipValuations.com.
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ASSOCIATION NEWS
involved in the litigation started in 2014. While having any new regulation in place was not the best solution for us as independent dealers, after much discussion with our legal team, having this final product in place is a satisfactory alternative to the inspection regulation that was enacted in 2014 by then attorney general Gary King and his office. NMIADA has produced for your use an exact duplicate form that should be used in your inspection process. They are on sale To all our dealer members and partners: now and can be purchased in our office or Fall is here! The air is cool, and online at www.nmiada.com. Thanksgiving is just around the corner to Recalls kick off the holiday season. NMIADA has While there is no specific change in any been hard at work the past two months laws or regulations nationally or locally facing change in our office that came in at this time that creates any requirement the form of TAPESTRY, the State of New regarding fixing and/or disclosing open Mexico’s new registration suite for all recalls on used vehicles in your inventory, vehicles. NMIADA is highly recommending as a Change is always a hard pill to swallow, best practice to get recalls fixed as best as especially when at first it creates possible. If fixing the recall is not an option inefficiency. Change is all around us in our at this time, then you need to be sure and industry, and I say that to make you keenly disclose any open recalls to your consumers aware of more change that has hit our so you have proof in your deal jacket the industry in New Mexico. vehicle was delivered with the consumer Inspection Regulation having full knowledge of what the details of By now, you all should have seen the new that recall are, and what needs to be done to inspection regulation in place for our state get the recall fixed. being enforced by the Office of the Attorney NMIADA has produced a recall disclosure General. The inspection is the culmination form we feel is a needed best practice in your of over three years of work by this office, dealership and should be incorporated into myself, and countless others in our industry. every deal. Those are also available in our NMIADA is proud to be a part of this office or online. compromise solution agreed to by all parties NMIADA is here to serve your needs
BY JAMES ZANIOS
LETTER FROM THE EXECUTIVE DIRECTOR
Inspection Regulation and Recalls
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and ensure you always put your best foot forward in your efforts to be informed about what is going on in our industry. Please feel free to call me and ask about the above issues or anything else that might be affecting your business. Sincerely,
James Zanios
NOVEMBER/DECEMBER 2016 / DEALER INSIGHT 9
MANAGEMENT GAMEPLAN BY SCOTT BERGERON
CRM TECHNOLOGY vs. CRM MINDSET It’s a Tool, Not a Crutch
Have you ever wondered how dealerships sold in volume before CRMs, before the Internet, before websites and Internet leads? I consider myself an old-school car guy who knows how to use technology. I still believe there’s a place in this business for pen, paper and all the high-tech programs that make our lives easier.
CR
I started my career in the ‘80s and was lucky enough to work for a top 100 nationally-ranked dealership. We sold 500 vehicles, both new and used, per month. We did it directing our focus on advertising, ordering correctly, training, and a CRM mindset. In other words, we wanted all the information and we collected as much as we could. It wasn’t efficient compared to the tools we have now, but it worked because everyone was on the same playing field. Technology today works like a champ, when it’s used as a tool and not a crutch. There are more ways than ever for potential customers to connect with a dealership. Online shopping is, by all estimations, the starting line for over 80 percent of all transactions.
In the dealership, the CRM software is used to track, assess, notify and persuade consumers. It also lets you track the steps of the sale as well as who’s performing on your sales floor, and who needs help. We’ve all heard the phrase “garbage in, garbage out.” Technology is only as good as the information that goes in, and the process to get the information back out to reconnect with is where most dealerships lose deals. I’ve been in dealerships where their CRM reported a 100 percent closing ratio. They must have some pretty great salespeople, or they’re only entering their sales into their CRM, and forgetting about the other 80 percent of unsold prospects. And even if the leads automatically populate into the CRM, it doesn’t do any good unless someone is following up. CRM technology is limited without a common sense process within the dealership to make sure everyone gets touched, whether they’re Internet leads or face-to-face prospects. One thousand online leads and 300 visits in a month should show as 1,300 prospects, less the conversions to sales, which likely won’t show a 100 percent closing ratio. I’ll take bad news that’s accurate any day over grossly inflated closing ratios. An article on Adexchanger.com elaborates on the importance of dealership CRM as an all-encompassing relationship tool, not just technology, concept. Headlined “CRM: A Philosophy That Goes Beyond Data, Technology and Channel,” the article by digital specialist Mayur Gupta notes, “CRM software is not enough… Establishing a lifelong customer relationship and loyalty is not just a technology problem. Marketers need to bring the strategy, data and technology together to establish and operationalize a CRM capability. To do this, they must establish a customer relationship and experience strategy.” In the dealership, it’s as simple as asking, “What’s happening to my customers? Is my CRM helping me make more deals, or is our process breaking down?” So how does a dealer combine technology with a selling mindset that provides customers your undivided attention and connection before they say yes?
10 DEALER INSIGHT / NOVEMBER/DECEMBER 2016
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RM How much tech is too much tech? How do you feel when someone is talking to you, but texting? How would you feel in a selling environment if your salesperson was entering data into their phone while they were showing you a vehicle? Probably not very good. But it’s reality in many dealerships that have invested fortunes in high tech, thinking it will “revolutionize their sales process.” Most customers aren’t buying it. No matter what a salesperson is doing on their phone, a vast majority of customers think they’re being ignored. In my opinion, when a salesperson is in front of a customer, their eyes need to be up and directed toward their customer. Look down at your phone and you’re likely to lose a deal. So the challenge really is how much technology do we need, and when is it best to use good old-fashioned rapport building and eyeball-to-eyeball selling? Old school or new school – It’s all good, if it’s done right. Once the sales force has learned (or relearned) the more traditional side of relationship-building and management, it’s time to show how mindset and technology together can forge a highly successful sales program. Technology can be a catalyst to help build traditional relationships to reach more people in more ways. When done right, it results in more deals. Used properly, tools such as Internet Lead Modules and CRMs can prime the pump efficiently. Using prospect and customer information, a smart CRM can store critical information about a prospect’s wants and needs, as well as timeline and budget. Technology does the heavy lifting, while customer engagement closes the deal. High Tech & High Touch High tech allows your sales team to be efficient. High touch, or client engagement, is what’s required to be effective. In other words, it doesn’t matter how efficient I am at auto responding to prospects if they don’t show up and buy. Most of us still want to do business with people we like, respect and trust – and that requires one-on-one interaction. For the best and most effective results, brainstorm about how best to use/blend the two – high tech and high touch. Then, test it
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in your next sales training session. Here’s one scenario using email as the springboard: Do what the others don’t. Instead of canned auto-responders for inbound leads, try a catchy, clever and, most importantly, personalized email that will spur a visit or at least put you higher up on the radar than the other guys. Try a subject line like, “Scott, I’ve been waiting for you to email me!” Most prospects shop online because they fear entering a dealership. They don’t want some pushy salesman. But, knowing you were low-key and fun to work with could help start a dialogue. Today’s customers don’t want the old sales gimmicks, but they also don’t
want to be ignored, or feel like they’re going through a line at Walmart to buy a car. This is a huge buying decision. They deserve your attention, your personality and the best experience you can provide. Remember, they can go anywhere in the world to buy their vehicle. Give them every reason to buy from you. Ultimately, it’s CRM technology and a selling mindset together that make customer relationship management work effectively in today’s auto sales world. Former dealer executive Scott Bergeron is the founder and principal at Daily Gameplan.com - a sales team performance company. Scott can be reached at 303.918.3169 or scott@ dailygameplan.com.
NOVEMBER/DECEMBER 2016 / DEALER INSIGHT 11
ONLINE MARKETING / BY CHELSEA MAGEE
>> Does it Really Work?
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DEALERSHIP BLOGGING
EVERYONE LOVES FREE INFORMATION. And free information brings in customers. In fact, 90 percent of future car buyers report they search online for answers to their questions about their next vehicle purchase or service. THREE STRATEGIES FOR BLOGGING SUCCESS Because of this push for knowledge, blogs are no longer a luxury. But you have to do it right if you want to get the best results for your dealership. 1. Become an industry expert. Defy the stereotypes! Show future buyers that dealing with car dealers actually can be better than eating worms! Online research can frustrate customers, partly because we often let third-party sites educate them with inaccurate and confusing information. Blogging is one of the best ways for your dealership staff to establish authority and expertise. Once Google realizes you’re an authority on the topic(s) customers are searching for, you’re going to see increased traffic from search engines. And who doesn’t want to drive more traffic to their website? 2. Stick to a schedule. I often see dealerships post a few blogs and end
up quitting. You have to blog regularly and remain focused on providing high-quality information. Did you know that Google knows the difference between high and low quality? This is one of Google’s 200 ranking factors! Make sure you create a schedule you can maintain by creating an editorial calendar. 3. Tackle current issues. Talk to your staff and find out the “top 10” questions they answer on a regular basis. You can do this for both sales and service. Make sure to write posts about your local area and events because this will also boost your local relevancy. Another hint? Review everything! Customers often add the word “review” to many of their searches. Keep in mind that you must write fresh content instead of copying and pasting from your manufacturer’s website. Google and your customers know the difference. The icing on the cake? Ongoing communication is like marketing: You have to stay top of mind with your clients. How else are you going to provide customers with a steady stream of information without scaring them away? Customers may ignore your ads, but blogs include content they actually want to read. Supplying this content gets them to your website and helps humanize your dealership. Chelsea Magee has been involved in digital throughout her career. She is the Client Success Director at NCM and oversees their online training website, digital marketing and social media. This article originally appeared on NCM’s Up to Speed blog (http://blog. ncminstitute.com) and is reprinted with permission.
1. 2006 Toyota Avalon 2. 2007 Honda Accord 3. 2010 Honda Civic 4. 2008 Toyota Corolla 5. 2008 Ford Crown Victoria 6. 2006 Subaru Outback 7. 2007 Nissan Maxima 8. 2007 Subaru Impreza 9. 2006 Mazda MX-5 Miata 10. 2010 Kia Soul >> KBB.com editors noted the Avalon is “big, quiet and comfortable,” as well as highly reliable. TODAY’S NEW CARS may be chock-full of the latest “Our master mechanic suggests that obtaining technology and features, but that comes at a 200,000 miles of largely trouble-free driving is a price. In fact, the average price of a new car is distinct possibility,” they said. $33,801. The other Toyota on the list, the 2008 Corolla, Because many people cannot afford a large was noted by KBB mechanics as “a great choice monthly payment (let alone buy a new car for a used car if all maintenances have been outright), there exists a healthy market for performed. affordable used cars. Still, prices for used “Like most Toyotas, the Corolla seems to be vehicles run the gamut. ‘overbuilt’ compared to other cars in its segment, With affordability in mind, the editors at and that translates to solid reliability with few Kelley Blue Book’s KBB.com have named this problems,” they continued. year’s 10 Best Used Cars Under $8,000. Coming in at No. 10, the Kia Soul’s aesthetics “While spending $8,000 or less won’t get were likened to a common kitchen appliance. you the newest tech or the shiniest paint job, it “Some would tell you it looks like a toaster, can buy you solid, reliable transportation that but if it does it is a very useful toaster,” KBB said. will last for the next several years if you play “Larger than you might guess it is, the Soul will your cards correctly,” said KBB.com executive swallow up a lot of cargo and haul five passengers editorial director and executive market analyst in surprising comfort. If you can’t swing the cost Jack Nerad. of a small SUV (and don’t need all-wheel drive), “For those who feel a keen ache in their the Soul will fill the bill.” checkbook thinking about the prospect of a big To see KBB.com’s full coverage of the 10 Best monthly payment, this year’s list of KBB.com’s Used Cars Under $8,000 for 2016, including vehicle 10 Best Used Cars Under $8,000 should provide photography, pricing details and editorial reviews, some relief, because there are good used car visit www.kbb.com/car-reviews-and-news/topalternatives to a more expensive vehicle.” 10/best-used-cars-under-8000/2100000852/.
MARKET WATCH / BY AUTO REMARKETING STAFF
KBB’S BEST BETS FOR USED VEHICLES UNDER $8K
12 DEALER INSIGHT / NOVEMBER/DECEMBER 2016
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Good Affordable Used Cars
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BHPH PERSPECTIVE / BY DAVID MEYER
HOW MUCH RISK ARE YOU WILLING TO TAKE?
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>> 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 ontime payments that help customers stay in their vehicles and rebuild their credit. In a study conducted on Spireon’s GoldStar GPS vehicle tracking, 87 percent of vehicle finance customers saw an increase on their return capital. Further, 77 percent saw a significant improvement of their customers’ credit ratings. The right type of GPS vehicle tracking can improve business profitability, reduce risk, help maintain CFPB compliance and help customers improve their credit. David Meyer is executive vice president of sales and client services for Spireon, bringing more than 28 years of vehicle finance and BHPH industry experience to his role overseeing the company’s Automotive Solutions Group.
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ACCELERATE / BY GWC WARRANTY
3 SIMPLE TECH TOOLS WITH SERIOUS ROI >> Simple Tools that Yield Big
EVERY BUSINESS is in search of a golden ticket – that tactic or tool that requires little time or monetary investment but yields major financial returns. Enter technology. Understandably, some technology is easier to use than others. And large scale technology changes to something like your website or DMS could take more time and money than they’re worth. But when you find an easy-to-use technology that’s affordable and has real profit opportunity tied to it, you’ve struck gold! To help simplify your ROI gold-mining expedition, here are three simple technology tools that can yield fast and impactful bottom line gains. Video Video is no longer a way to stand out from other dealerships. Rather, it’s quickly becoming a must-have just to compete. But just because video is becoming a necessity doesn’t mean your video needs to have Spielberg-like quality on a studio film budget. Take a tool like Covideo, for example.
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For a manageable monthly subscription, you’ll get a custom video platform and all the equipment you need to quickly film and email vehicle walk-arounds, sales follow ups, service reminders and more. And since Covideo is proven to increase unit sales by 7 percent and showroom shows by 27 percent, it’s a breeze to recoup your monthly investment several times over. Online Reputation Management From time to time, you’ll encounter aspects of your business out of your control. For example, a vehicle breaks down despite a solid inspection or a competitor undercuts you on price. But one thing in your control is effort – and that’s all it takes to manage your online reputation. A negative review can be severely damaging, but only if it goes ignored. Be sure to respond to online reviews and negative social media mentions quickly, professionally and, most importantly, empathetically. It will go a long way toward showing past and future customers you genuinely care about their satisfaction. Mobile Technology According to Autotrader, 43 percent of car buyers use multiple devices to shop for cars. That’s up from 24 percent just two years prior. At this rate, it won’t be long before almost all your website traffic is coming from mobile technology users. But you already know how important a mobile responsive website is. Where you stand to get a leg up on the competition is integrating this technology into your sales
and F&I processes. For the price of a tablet or two for your dealership, you can begin using mobile apps during both the sales and F&I processes – many of which are free. You’ll quickly begin to see how customers appreciate their preferred shopping method being carried over into their experience on your lot, not to mention the customer satisfaction rewards you’ll reap after the sale.
NOVEMBER/DECEMBER 2016 / DEALER INSIGHT 15
SOCIAL MEDIA BY KATHI KRUSE
10 STRATEGIC WAYS TO DRIVE LEADS WITH SOCIAL MEDIA Leveraging the Power
One of the most overlooked and underutilized practices in digital marketing is leveraging the power of social media to drive leads and sales. There are a lot of obstacles for dealers to overcome, including a true appreciation of the value, a lack of skills, and certain business cultures that don’t lend themselves to being social. However, if a dealer can eliminate the stumbling blocks, there are strategic, lucrative ways to drive leads with social media. Unfortunately, many dealers and GMs think of social media as an afterthought. Many believe its only value is in creating interest in the dealer’s brand. If this is your mindset then listen up because you’re leaving money on the table. Social media is a quickly evolving beast. Forty percent of marketers believe social media has become increasingly difficult in the past 12 months. Platforms are constantly changing algorithms, releasing new features and “changing the rules.” This requires dealership marketers to think on their feet and quickly adapt their approach at the drop of a hat. The landscape to grow your business with social media has never been more fertile: • 70 percent of the U.S. population has at least one social networking profile. (Statistica) • 52 percent of online adults now use two or more social media sites. (Pew Research) • In 2015, Facebook influenced 52 percent of consumers’ online and offline purchases, up from 36 percent in 2014. (The Drum) Laying the required groundwork is the key to driving leads with social media. Listening to understand your customers improves marketing success. Leveraging social media to engage people before you try to sell them something keeps customers coming back. You save big money because you laser-focus on interested buyers instead of blasting unwanted messages to strangers. Groundwork produces seedlings and the opportunities become plentiful. The next steps are to enact strategies to drive leads with social media. Be open to the possibilities here. Your level of willingness to adapt to the new ways of reaching customers has a direct effect on your results.
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10 STRATEGIC WAYS TO DRIVE LEADS WITH SOCIAL MEDIA 1. Begin with a good plan. So many dealers admit they don’t have a marketing plan. They know how valuable marketing is in general, and make some marketing efforts, but inevitably they feel like they need to spend all their time on operations and sales. I totally understand how the day-to-day activities involved in running a store can make you wish there were more hours in a day. The irony is you can actually save time with a marketing plan because you’re operating more proactively rather than being in reactive mode. Mapping out a plan also means you can more easily hand off the work of implementing it to somebody else. Better time management is just one perk of a marketing plan and here are six additional ways a marketing plan can benefit your business: • Reinforces your brand. •P ositions your company in the marketplace. • Nurtures current customers. • Attracts new customers. • Prepares company for growth. • Helps to analyze what works. 2. Publish useful, high-quality, original content. Content strategy means getting the right messages to the right customers at the right time. This involves everything from your website content, blog, social media, and social advertising. High-quality content does not happen without a content strategy. Here are some benefits of developing a content strategy: • Influences buying decisions. • Improves brand equity and reputation. • Earns customer loyalty. • Attracts more of the right buyers. • Competitive advantage. • Increased leads and sales.
3. Be social. Always genuinely engage with your audience. Yes, you really do need to be social on social media. Instead of broadcasting the “benefits” of products and services to strangers, add the steps to attract interested buyers by engaging with them on social media. • 71 percent of those who receive positive social care are likely to recommend your brand to others. • Only 19 percent of those who don’t get any response are likely to recommend that brand. When comments show up, respond. When online reviews are posted, respond. Be more accessible and you’ll notice more customers engaging. 4. Incorporate social selling tactics within your sales process. Social selling is the act of developing referrals, leads and sales using social media. Seventy-nine percent of salespeople who use social media in the sales process outperform those who don’t. Social selling is just like any other sales process. Salespeople build a network (online or offline) to increase referrals and leverage relationships to create warmer leads. Talented sales professionals already have an offline network they’ve nurtured for years. Savvy social salespeople have already been working social media to develop leads. But these individuals are your top performers. What will you do to engage the bottom 90 percent of your team? To attract, engage and sell to today’s hyper-connected buyers, dealers need to build a social selling process within their organization. 5. Leverage the awesome power of Facebook ads. No matter what your Facebook marketing goals are – grow page likes, boost reach and engagement, drive leads, etc. – Facebook ads will help achieve those goals.
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Facebook ads are by far the most powerful way to advertise your business on social media. 6. Use well-designed landing pages to capture leads. When a shopper is in the final stages of their research and ready to take action, strategic landing pages guide them further down your sales funnel. Capture their attention through Facebook ads and convert buyers with actionable, urgent offers they can’t resist. Don’t forget the all-important call-toaction and include a lead form to track and follow up. 7. Re-market to people who visit your website with Facebook ads. The more advanced Facebook ads strategies are difficult to master but the results are hard to ignore. Perhaps one of the most powerful tools Facebook has to offer is the ability to serve personalized ads to people who have visited your site. Use the targeting option “Custom Audience – Website Traffic” to re-market to people who have visited your site within a set time frame. Once you’ve placed a Facebook pixel on your site (a piece of code that tracks visitors), you can set up specific audiences with filters based on pages they’ve visited. 8. Leverage the power of LinkedIn. If you’re a salesperson, there is no reason not to use LinkedIn to build your network as one of the ways to drive leads with social media.
MANAGEMENT MATTERS BY KENNY ATCHESON
PLANNING FOR 2017 Make Necessary Adjustments
“If you always do what you’ve always done, you’ll always get what you’ve always got,” said Henry Ford. Albert Einstein said, “The definition of insanity is doing the same thing over again and expecting a different result.” Now is the time to plan what you will do differently next year to succeed. I’ve had conversations with dealers who spend from $5,000 to $120,000 per month in advertising. I have discovered that regardless of the budget, there are some people who are so afraid of change they choose to continue getting mediocre results in lieu of making any adjustments. The resistance to change is not budget specific, but it is success specific. In other words, most successful dealers are ready to make a change at a moment’s notice as long as there is evidence there is a need for it. An interviewer asked Lee Iacocca what order he used to make changes when saving Chrysler. Iacocca said, “Order? We did everything at the same time.” Iacocca made lots of changes at the same time. It’s a good practice when necessary.
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Make sure you have a 100 percent complete profile – no “lazy bones jones” on this one. People want to know about you and a well-constructed profile with a nice picture says, “Hey, I’m here to help.” Don’t waste time trying to connect with “everyone.” Be deliberate and thoughtful about who you’d like to know and who can introduce you or recommend you. Pro tip: write and publish a weekly article on LinkedIn that displays your knowledge and expertise. It will develop your “personal brand” as a thought leader and trusted resource. 9. Use Twitter for prospecting. To many companies and their salespeople, it seems like Twitter is a huge waste of time. And sometimes it is – if you’re just messing around on the social network and pitching folks to get on a demo, it probably won’t be that helpful to you. Why? Because the goal of using Twitter isn’t to sell something at the very second you tweet. By using Twitter wisely, you can be part of the most relevant conversations as they happen. Spot opportunities first, build relationships, deepen customer trust and make a name for yourself. However, just having a presence on Twitter doesn’t lead to conversions. It’s how you use it that makes the difference between tweeting into the void and generating leads. Spend the time and effort to:
In his book, Power to Change, Jim Jackson explains how some people only make changes after a crisis. According to Jackson, “You are right where you have chosen to be.” If you sell 40 cars or 240 cars per month, you have chosen how many cars you are going to sell. You may “desire” to sell 15 percent more cars, but that requires the decision to make changes. I’m not saying you should chase every shiny object you hear about from media agencies, a Twenty Group meeting or an article. Invest in consultations with an expert who will give you the bold truth. Don’t approach someone at an ad agency and ask what they have for sale. Carl Sewell, author of Customers for Life and owner of Sewell Automotive with dealerships located throughout the country, wrote about how important consultants have been to him. He doesn’t always take their advice, but at least he knows he is getting the opinion of an expert rather than a sales pitch for services. Another advantage to professional consultation before investing in new strategies and media is you get “outside eyes” diagnosing and analyzing your strategies and tactics. Outside eyes are typically free from bias. They are not emotionally tied to anything in particular. Let me explain what I mean by
• Find prospects. • Discover buying signals. • Gain insight on companies. • Accelerate deals with conversation. • Build your following. • Build relationships with influencers. 10. Show another side of you on Instagram. Instagram is a great place to promote your company’s personality. Spend 10-15 minutes each day engaging with other users. I know a dealership that has gotten leads via their Instagram content. Ready to convert leads? Instagram now has more advertisers than Twitter. Facebook (who owns Instagram) allows ad creation and publication through the Facebook Ads Manager platform. Are you ready? These 10 strategic ways to drive leads with social media make it possible to eliminate the obstacles to converting your fans into customers. If you’re ready to take it to the next level, Kruse Control helps companies just like yours navigate the social media landscape. Please email me at kathi@ krusecontrolinc.com. 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.
“emotionally tied.” I’ve consulted for dealers who have done something one way for up to 88 years. They are emotionally invested in a particular method. It is what got them where they are. It may be something that lifted them from poverty to riches. That creates an emotional attachment. It took an outside set of eyes, a different angle and explanation of a new strategy, to get them to realize it was time for some tweaks. Your existing strategy and plans may be good, and only require minor tweaks to be great. Find out. Kenny Atcheson is the president of Dealer Profit Pros and author of Marketing Battleground: How to Deploy an Army to Battle for Your Business. Kenny teaches workshops, speaks at conventions and 20 Groups, and his company offers several marketing and advertising programs. His website is www. DealerProfitPros.com.
NOVEMBER/DECEMBER 2016 / DEALER INSIGHT 17
COMPLIANCE OVERDRIVE BY CHIP ZYVOLOSKI
AVOID THE “ONE SIZE FITS ALL” RETAIL SALES CONTRACT MINDSET Address Your Specific Terms
Avoid compliance violations and potential fines by setting aside time to review your retail sales contracts. Wait, aren’t all forms “one size fits all?” Your credit documents need to address the specific terms of credit you offer – matched with state and federal disclosures and provisions. Mismatching your credit terms and contract provisions could cost you thousands of dollars in fines, damages and legal fees as well as harm your business reputation. Here are a few features you should review to make sure your retail sales contracts match the credit terms you offer. Type of Property Sold Motorcycles, autocycles, off-road vehicles, RV’s and other motorized vehicles may not be “motor vehicles” under your state’s retail sales laws. Required contract and disclosure terms can vary depending on whether you are selling a “motor vehicle” as defined in your state’s retail sales laws. With the variety of motorized vehicle types available, make sure the contract you are using is designed for the type of personal property you sell. The same is true of your license to sell motor vehicles. Make sure your dealer’s license covers the property you sell. Cash Down Payments Usually, the cash down payment is received at closing, but dealers sometimes allow buyers to make one or more down payments after closing. Under the Truthin-Lending Act and Regulation Z of the act, these “deferred down payments” or “pickup payments” must be made no later than the due date of the second regularly scheduled payment. They also cannot be subject to a finance charge. It’s helpful to have a contract provision with buyer’s promise to make deferred down payments. It must also be a line item in the Itemization of Amount Financed, which treats it as a credit even though it hasn’t been received yet. Although it’s not required, dealers should include the date and amount of a deferred down payment in the Fed Box Payment Schedule. If you allow deferred down payments, be sure your contracts support them or are flexible enough to handle them. Note: some states do not allow deferred down payments or require them to be paid sooner than under Reg. Z.
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Negative Equity Trade-Ins Under Reg. Z, a down payment in the itemization can never be less than zero. As a result, negative equity trade-ins require special handling. Reg. Z allows two methods of calculating the down payment. One way is to net all the cash and other credits against the negative equity in the trade-in (“netting”). Another way is to add all credits but not subtract any negative equity in the trade-in (“nonnetting”). The method used will affect the calculated down payment and the amount of a separate line financing the balance owed on the negative equity trade-in. You may not have much choice in selecting a contract with your preferred netting or non-netting method, but it’s important to understand which method your contract uses so you can explain it to buyers. Equal Installments. Balloon Payments. Equal monthly payments are a common payment frequency. Changing to more or less frequent equal payments can sometimes require changes to contract terminology and disclosures. Be sure to review your documentation and completion tools carefully if you require equal periodic payments other than monthly. Balloon payments are generally structured as a final payment that is more than twice as large as the average periodic payment. A balloon payment schedule can lower periodic payments, but the buyer might have problems paying the balloon. Dealers and lenders sometimes provide options for buyers who can’t pay the balloon amount. Those options may be included in the contract, especially if they are required by law. For example, one option is to allow a buyer to pay the balloon amount plus interest in installments, usually in an amount no greater than the prior installments. States sometimes require additional disclosures to warn the consumer of the final payment amount. Be sure to review your documentation if you offer balloon payment features. Arbitration Not all contracts include an arbitration provision. You should review your contract to confirm it has one if you want it. The CFPB has proposed a regulation that would preserve the buyer’s ability to join a class action lawsuit even if the dealer/ creditor has a contract right to require arbitration. If the CFPB’s proposal becomes final, you will want to review your decision to include an arbitration provision and either update or remove it. Conditional Delivery – Spot Delivery Is your retail sales contract conditioned on your ability to sell the completed contract to an assignee? If so, your retail sales contract should include a provision telling the buyer about it. If you do conditional deliveries, it can be risky to use a retail contract that doesn’t include a spot delivery provision or specifically cross-reference a separate spot
delivery agreement. In that case, someone reading the retail contract alone will not know it’s subject to another agreement. (The same concept also applies to arbitration provisions.) If spot delivery is an important element of your credit programs, make sure your contract addresses it in some way. Note: some states do not allow conditional delivery provisions. Fees and Charges Your retail sales contract probably has blank lines in the itemization and in other places. That does not mean you can put anything you want in the blank lines, especially fees. In many states, only specific fees with specific names are allowed. You should review your retail contracts to determine if they have any required disclosures or contract provisions for the specific fees you charge. What if there isn’t a contract provision or disclosure for your fee and it only appears on a blank line in the itemization? That may be okay for some fees in some states. The point is that you should research your state to determine what fee information is required and to confirm your retail contract has it. Like the seasons, your credit programs and terms can change over time. Now is a good time to review your credit documentation to make sure it is up to date. Chip Zyvoloski is a senior attorney for Indirect Lending at Wolters Kluwer. For more information, please visit www.wolterskluwerfs. com/indirect.
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