OHIO INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION
DEALER INDEPENDENT
JULY/AUGUST 2018
NEWS
THE RIGHT
WAY T
GET MORE MILLENNIALS DO IT RIGHT AND YOU’RE CAPITALIZING ON A DEMOGRAPHIC WITH LOADS OF DISCRETIONARY INCOME. | PAGE 06 |
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OHIO INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION
DEALER INDEPENDENT
NEWS
05.........................................................Operating Agreements 06...............................The Right Way to Get More Millennials 10.............................Common but Costly Facebook Mistakes 12...............How to Craft an Airtight Partnership Agreement 16................................................. NIADA Government Report 18....................................................Smart Debt Management
WHAT’S NEW
National Policy Conference Dates Announced The 2018 National Policy Conference will be held September 24-26 at the Ritz-Carlton Pentagon City. Make plans now to join NIADA in Washington, D.C. as we meet legislators face to face to make your voice heard! Stay tuned for more details.
ADVERTISERS INDEX
ACV Auctions .......................................................................IBC Automotive Finance Corp........................................................7 Columbus Fair AA................................................................. IFC Corry Auto Dealers Exchange................................................BC Manheim................................................................................. 11 Micro 21....................................................................................4 NextGear Capital ................................................................... 12 Protective................................................................................ 13 Value Auto Auction .................................................................3 Vauto .......................................................................................9
OFFICE
For more information, contact us at (614) 863-5800 or www.ohiada.org
ASSOCIATION NEWS
PREFERRED PARTNERS 700 Credit ACV Auctions ADESA Cincinnati / Dayton, Inc. ADESA Cleveland Auto Auction ADESA Mercer AFC-Automotive Finance Corp American Guardian Group of Companies AutoZone Carfax CARS.COM Car-Ware Columbus Fair Auto Auction Comsoft Cox Automotive Media
Executive Director Wendy Rinehart OIADA 614-863-5800
Past Chairman
Mark Meadows Miracle Motor Mart 614-337-0037
Chairman
David Adkins Wilmington Auto Sales, Inc. 937-382-7714
President
Scott Welch Lock 20 Auto, Ltd 740-498-8811
NIADA HEADQUARTERS
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
Nieman Printing
INDEPENDENT DEALER NEWS
July/August 2018
eBay Motors Electronic Merchant Systems Frazer Computing, Inc. Manheim Cincinnati Auto Auction Manheim Ohio Auto Auction NextGear Capital PassTime Pro Credit Express / ProMax ProGuard Warranty Inc. Protective Asset Protection Stolly Insurance Group The Milby Group Insurance Agency, Inc.
BOARD OF DIRECTORS
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. Independent Dealer News is published bimonthly by the National Independent Automobile Dealers Association Services Corporation, 2521 Brown Blvd., Arlington, TX 76006-5203. Periodicals postage paid at Dallas, TX and at additional offices. 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 the Ohio Independent Automobile Dealers Association 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.
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www.ohiada.org
Treasurer
Board Members
Craig Leitwein Dmitry Shilman Gahanna Auto Sales Cleveland Auto 614-475-7148 Wholesale 440-951-0808 Secretary Scott Shook Randy Shirk Shook Auto Inc. Randy Shirk’s 330-339-5711 Northpointe Auto 419-729-2688 Jay North Thomas Smith Jay North, Llc Smitty’s Auto Sales 937-325-3748 937-981-4317 Robert Fahey Fairdale Auto Sales 740-432-4185 Thomas Onesti Car Port 330-726-6633
LEGAL MATTERS | By Gene Friedman
REPRESENTING YOUR OWN COMPANY IN COURT
The Curious Case of Alan Pearlman
Imagine this scenario: you own several pieces of real estate and rent the properties out for income. Things are going well and you’ve set up an LLC or corporation as a holding company. You’re good at what you do – self-sufficient – including handling tenant disputes. You’ve filed and either won or settled upwards of a dozen small claims on your own. And then you receive a letter in the mail from the state bar association. It’s a disciplinary letter for the unauthorized practice of law. This happened to Alan B. Pearlman, a real estate investor in Ohio. But Pearlman recalled a string of laws that seemed to give him good grounds for representing his company pro se (that is, “on one’s own”), and so he went to court once more. The Legal Person Conundrum Pearlman’s logic, quite correctly, went as follows: The Federal Judiciary Act of 1789 gives all natural persons the right to represent themselves in court. U.S. Code, Article 1 Section 1 defines “person” to include “corporations, companies, associations, firms, [and] partnerships.”
DIRECTOR’S MESSAGE | By Wendy Rinehart
OPERATING AGREEMENTS
Do You Have One? Do You Need One?
Several dealers have asked recently about changes within their LLC. My response is always to ask if they have an operating agreement. And if so, what it says. More often than not, the dealer tells me they’ve never had one and go on to ask, “What is it? Where do I get it?” An operating agreement is a legal document that outlines the ownership and duties of the business owners – “members” – of the LLC. The agreement expresses the fundamental understanding among its members of the how the company will operate as well as the members’ respective rights and obligations. An operating agreement between two equal partners, both of whom will be involved in the day-to-day operations of the LLC, will look very different than that of a company with one founder providing sweat equity or an LLC with multiple financial backers. There are several things to consider when putting an operating agreement together. Since the LLC operating agreement is the governing document in regard to how the LLC is owned, operated and maintained, it is a good idea to make sure it covers all matters that could come up throughout the life of the company.
So, a company is a person in the eyes of the law, and entitled to its day in court – lawyer or no lawyer. As 99 percent owner of his company, Pearlman was surely authorized to stand in its shoes, right? As it turns out, not in most cases. We run into the “legal person conundrum” here. There is an important distinction between a natural person – living, breathing, able to act of his or her own accord – and a company as a legal person, who (or is it which?), although afforded most legal rights of a natural person, cannot act for itself and must have a representative. Couple this with the well-settled rule that one person can’t represent another in court unless he or she is licensed to practice law and you have the basis of the Ohio State Bar Association’s argument against Pearlman. Risks of Corporate Pro Se Why make the distinction between “natural” and “legal?” Why make such a fuss over a 99 percent owner acting in his company’s best interest? Several policy considerations come to mind. Pro se litigation is costly in time and funds, which runs directly counter to a company’s interest in effective dispute resolution. Beyond that, there is a clear danger that the representative has a conflict of interest with the company, or may be involved in the facts of the case directly. In contrast, an attorney owes the highest fiduciary duty to the legal
It should include how economic profits and losses are allocated among the members, how and when distributions will be made and how any assets will be distributed after the LLC is dissolved. It could also address ownership percentages, tax provisions, ownership transitions, and voting rights. As the LLC grows and changes, so too can the LLC operating agreement. It can be modified to suit the LLC’s growing or changing needs. Since the LLC operating agreement is not on file with the state of Ohio and therefore not part of public record, it can be internally changed or altered at any time during the life of the LLC. Those are just a few things an LLC operating agreement should address. Google has pages of online “free templates” for businesses to download and use. Are they legal? I’m not sure – I’m not an attorney. I recommend having an LLC operating agreement designed by an attorney familiar with automotive dealerships and Ohio automotive laws. It may cost a little more than the “free template” but it could save you thousands in the long run.
entity and cannot ethically represent it if there is a conflict of interest. Further, an attorney is bound to zealously advocate for the company’s best interest. A layperson, despite best intentions, cannot zealously advocate without understanding and wielding the laws as only attorneys can. Even attempting to do so can cause the corporate agent to run afoul of his or her own fiduciary duties to the company. Pearlman’s Perfect Record And yet, Alan Pearlman won his case. It went to the Ohio Supreme Court, but he prevailed. To be clear: in almost all cases, a duly barred attorney must represent a business entity in court. But Ohio law keeps a narrow exception for contract cases filed in small claims court, where there is a $6,000 limit on damages ($3,000 at the time of Pearlman’s case) and the Ohio Rules of Evidence and Procedure don’t apply. By nature, these cases are less formal, pro se-friendly, and generally low-risk. Pearlman fell under the auspice of this anomaly, codified in O.R.C. § 1925.17 and existing in obscurity from 1969 until he invoked it in the 2005 trial. But his perfect track record is the rare exception that proves the rule: in Ohio, a company must have an attorney representative in court. Gene Friedman is an attorney at The Gertsburg Law Firm. He can be contacted at ef@gertsburglaw.com or (440) 571-7778.
AS THE LLC GROWS AND CHANGES, SO TOO CAN THE LLC OPERATING A G R E E M E N T. I T C A N BE MODIFIED TO SUIT THE LLC’S GROWING OR CHANGING NEEDS.
www.ohiada.org July/August 2018
INDEPENDENT DEALER NEWS
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ACCELERATE |
SAFETY WATCH
By GWC Warranty
Cover Story
CHRYSLER TELLS ALMOST 5 MILLION DRIVERS NOT TO USE CRUISE
Defect Could Prevent System from Disengaging
Chrysler is recalling 4,846,885 2014-18 Dodge Journey, Charger and Durango, RAM 2500, 3500, 3500 Cab Chassis (more than 10,000 lb.), 4500 Cab Chassis and 5500 Cab Chassis, Jeep Cherokee and Grand Cherokee and Chrysler 300, 201419 RAM 1500, 2015-18 Dodge Challenger, 2015-17 Chrysler 200, 2016-18 RAM 3500 Cab Chassis (less than 10,000 lb.), 2017-18 Chrysler Pacifica and 2018 Jeep Wrangler vehicles.
THESE VEHICLES ARE BEING RECALLED TO ADDRESS A DEFECT THAT COULD PREVENT THE CRUISE CONTROL SYSTEM FROM DISENGAGING. These vehicles are being recalled to address a defect that could prevent the cruise control system from disengaging. If, when using cruise control, there is a short circuit within the vehicle's wiring, the driver may not be able to shut off the cruise control either by depressing the brake pedal or manually turning the system off once it has been engaged, resulting in either the vehicle maintaining its current speed or possibly accelerating. Chrysler will notify owners, and dealers will inspect the software, and perform a software flash on the engine or powertrain control module, free of charge. Owners are advised to stop using cruise control until the software update has been performed. In the event that cruise control cannot be disengaged while driving, owners should firmly and steadily apply the brakes and shift the transmission to neutral, placing the vehicle in park once it has stopped.
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There’s a right way and a wrong way to go after more millennial business. Do it right and you’re capitalizing on a demographic with loads of discretionary income. Do it wrong and you could miss out on a gold mine of profit opportunity. A recent study by eBay found that despite delayed tax refunds, most millennials filed before the technology incidents that caused a delay for others. Furthermore, the research reported 37 percent of millennials planned to use their returns to buy a car and 80 percent planned on rewarding themselves with their returns. But are you ready to pounce on this limitedtime opportunity? Advertise in the Right Places Millennials won’t be able to find you unless you make the effort to get noticed where they’re looking. Social media advertising can be an affordable way to reach a highly targeted audience with a highly targeted message. You can select the age, location and other characteristics of your audience and speak directly to their needs and wants. Have the Right Cars If you often look back to see what sells well before you head off to auction, now’s the time to take it to the next level. Go back in the books to see if there are any trends in what past millennial buyers have purchased from you. If you don’t have much of a history with this group, some research from outside the car industry could help. It’s been widely reported how much millennials rely on recommendations, how much they research a purchase of this size and how image-conscious they are. Making sure you have vehicles that are reliable and competitively priced with all the right perks will go a long way. www.ohiada.org
Communicate the Right Way Millennials, more so than most audiences, are bombarded with emails, text messages, phone calls and more on a daily basis. So before, during and after a sale, your messages need to stand out. Tools like Covideo, which embeds personalized video messages into emails, can make your messages stand out from the crowd and get noticed. Using these kinds of messages throughout the buying experience can help a millennial customer stay more engaged with your dealership. Appeal to the Right Sensibilities We mentioned earlier how 80 percent of millennials are looking to reward themselves with their tax returns. This supports the idea that millennial decision-making is driven by emotion and self-image. Playing to this personality trait while millennials are on your lot or interacting with you online is an effective practice to get them in a car from your lot. Let them know how their image will benefit from this purchase and it could pay dividends. Provide the Right Protection Perhaps more so than anything else, millennials have high expectations after pouring hours upon hours of research, negotiations and time on the lot into making a vehicle purchase. Because of this, you don’t want a repair – big or small – after the purchase to put a damper on your millennial customer’s entire experience. This makes getting a service contract on every millennial deal an absolute necessity, especially since this demographic is also more likely to leave a review online.
ASSOCIATION NEWS |
NEW & RENEWING MEMBERS 614 Motors/Your Car ABC Detroit/Toledo Auto Auction Action Motors, Inc. AGM Automobile + Sales Agree Auto Sales Inc. Allen East Auto Sales Allies Auto Sales ANC Auto Sales LLC Ankrom Auto LLC AppOne Ary’s Auto Sales Inc. Auto Management Group LLC Auto Plus Sales & Service LLC Auto World USA, Inc. Automatrix Dealer Software Inc. Bartley Traditions dba Low Cost Cars Bates Auto Isle Bigg Deal Sales Bill Wright Automotive LLC Binegar’s Truck Auto & Camper Sales Buckeye City Motorsports LLC Buyer’s Choice Auto Sales Candy’s Auto World CBI Chen’s Imports Chris Haus Auto Sales Chucks Car Care Cleveland Auto Wholesale Columbus Automotive LLC Correct Car Company CTMS LLC Dealertech LLC
Deiderick Motors Denny Dotson Automotive Inc. Destiny’s Auto Sales Diamond Warranty Corporation Dillon Lake Motors Downtown Bedford Auto Drive 1 Car and Truck LLC East Richland Sales ER’s LLC Enthusiast Auto Source LLC ETA Consulting Exceptional Motorcar LLC EZ Motors LLC Farmers National Bank First Choice Auto Inc. Fitzgerald Auto Sales FM Autos Friedman Auto Lease Gahanna Auto Sales Garner Sales Grahams Auto Resale LLC H & R Enterprise Heritage Motorcar Collection Higher Ground Farm Auto Sales Huber Automotive, Inc. Hydraulics & More LLC. Ideal Wheels Motor Car Co. Imports Auto Group Independent Motorsports J W Auto Sales Inc. J7 Auto LLC Jay North LLC JC’S Autos Jeff’s Motorcars, Inc. Key Truck Sales, Inc. Lake Auto Wholesale Lakeshore Auto Wholesalers Inc. Lucky Auto Inc.
AUCTION NEWS
BRETT VANMETER
In Memoriam
OIADA mourns the loss of a lifetime car guy and friend, Brett A. VanMeter. Brett was born September 27, 1959. He was a 1977 graduate of Canal Winchester High School. Brett died at the age of 58 on June 3 in Canal Winchester, Ohio. As the general manager for Columbus Fair Auto Auction from 1982 to 2005 – and most recently, general manager for Value Auction – VanMeter was known by many in the industry and will be missed. He is survived by his daughter, Brittany (David) Hunter, Chattanooga, TN; grandchildren Kaden, Easton, and Aubrey; brother Mark (Susan) VanMeter in Carroll; niece Lindsey (Nicholas) Pavlik; and nephew Blake VanMeter. He was preceded in death by his mother, Rita “Rose” (Frank) Harrington, and father, Edward (Kay) Van Meter. Friends may contribute to Wounded Warriors or the National Autism Association in Brett’s memory.
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July/August 2018
www.ohiada.org
Mac Management Inc. MacMurray & Shuster LLP Michael Ray Auto Group Inc. Michel’s Auto Group LLC Mid-Western Auto Sales Inc. Mighty of Central Ohio National Auto Acceptance NEO Leasing Nile Auto Sales & Services, Inc. NWC Holdings LLC dba Conley’s Auto Sales Ohio Limo Pat & Mike’s Auto Sales LLC Physicians Auto Group ProGuard Warranty Inc. Quality Car Sales LLC Quality Motorland of Logan Inc. R & N Enterprises LLC Rallye Motors Rick’s Place Auto Sales Inc. Rick’s R & R Wholesale LLC Ride N Shine Risner Auto Group LLC Royal Family Motors Belden, LLC Sarchione Inc Shoemaker’s A-1 Auto Inc. South Fifth Automotive LLC Tempest Motors Inc. The Auto Barn of Hartsgrove LLC The Buckeye Auto Network LLC The Carriage Company The Milby Group Insurance Agency, Inc. Tim Williams Auto Sales Towne Auto Sales Inc. TRL Rents LLC Tusc Auto Sales Tusky Auto Sales and Service LLC Vintage Motor Cars LLC
Wayne Reaves Computer Systems Westlake Financial Services Zimmy’s Auto Sales LLC Zombie John’s Killer Deals, LLC.
SOCIAL MEDIA | By Kathi Kruse
COMMON BUT COSTLY FACEBOOK MISTAKES
Top Pitfalls to Avoid
If there’s one thing that's constant about Facebook, it’s change. It seems like every week there’s a new feature or advertising element, some new trick to learn, or a new way to be more visible. Many dealers unknowingly make several common Facebook mistakes, and it's hindering their success. Facebook is a valuable tool for business but there are a lot of potential pitfalls. Here’s a list of common Facebook mistakes you should avoid. Taking Off Without a “Runway” Facebook success is in the details. Before you take to the airwaves of social media, you need a plan. It's like this: if you're taking a trip and you don't know the way to your destination, you check the GPS app on your phone. You do this because it saves time, expense and a whole lot of needless suffering. Social media strategy works the same way. Begin with the end goal in mind. For most dealers, the goals are to gain more site visits, engage more customers, and generate leads. Once you've determined your goals, you'll need a social media strategy “runway” to reach them. Making It All About You Facebook marketing is successful when you've provided entertaining, useful, sharable content. Think about the Facebook pages you follow and why you follow them. It's not so you can see sales promotions. Fans and customers are no different than you! People stay engaged when the posts they see are meaningful to them. Pro tip: Avoid violating Facebook's terms of service. I can't tell you how many dealership pages I see that are broadcasting sales messages through the newsfeed. Save those messages for Facebook ads and you'll avoid the pain of having your people click the nearest exit. Failure to Engage Regularly One of the best ways to build a lively, loyal community on Facebook is by engaging regularly with your fans. Facebook is not a one-way communication tool. Create a solid engagement strategy that includes designating someone to engage with the people who comment on your posts. Respond to all page messages timely. Do not rely on the autoresponder. Respond to all reviews – both positive and negative. Every negative comment is an opportunity to turn a critic into a fan. Abandoning your customers on Facebook tells them either you're not paying attention or you don't care. No Serious Investment If you've spent any time in the dealership Facebook marketing ecosystem, you know there is a time investment. Building
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relationships through trust takes time, and if Facebook is your chosen platform, be prepared to make an investment. A Facebook page should be considered a valuable company asset and, as such, there are other investments required to retain its value: • Strategy and planning. • Financial resources. • Human resources. • Attention. In fact, sometimes a dealership will need to restructure their operations to accommodate social media. If your team doesn't have the expertise, you may need to invest in training. Pro tip: It's not healthy to think that Facebook is “free.” That thinking will only allow your competitors to take all the customers. Not Completing Your “About” Section Your Facebook “about” section projects the image of your dealership. This is an incredibly important step when setting up and optimizing your page. You want to ensure your “about” is complete and sends the right message to anyone visiting your page: • Add your founding details. How did your dealership begin and when? What’s your mission and what drives your operation on a day-to-day basis? • People will quickly scan your content. Add your most important details within your first paragraph. • Add keywords, terms and phrases that anyone searching for your products would use. Keywords matter in social media as much as they do within your website and blog. Don’t overlook them! • Answer questions your community needs answered to make an educated decision. This is a place to create differentiation and separate you from your competitors. • Keep industry jargon out of your “about” section. Your customer doesn’t work in the auto industry, so don’t speak to them as if they do. Keep your language relatable and easy to read. Not Using Facebook Ads Facebook advertising can be a smart complement to your current advertising budget. Facebook ads let you grow your page and generate leads without adding a hefty expense. Part of your investment in Facebook is for Facebook ads. Simply put, you will not succeed (i.e. improve customer engagement and generate leads) without Facebook ads. Why? Ten years ago, social media was a fertile field of wildflowers, brimming with kittens and unicorns. The marketing landscape was wide open for dealers who wanted to capture attention and engage like-minded customers. Today, social media is a dense, crowded, noisy, smoggy urban jungle. Simple tactics alone are no longer effective. You must pay to promote your content and products on Facebook. The good news is that Facebook ads work! It's a mistake not to leverage this powerful tool. www.ohiada.org
FACEBOOK MARKETING IS POWERFUL, BUT O N LY I F Y O U 'R E A L L I N . THIS AWESOME POWER O N LY W O R K S T O Y O U R ADVANTAGE WHEN YOU'RE FIRING ON ALL CYLINDERS. Failing to Track, Measure and Analyze Your Results Too often dealers jump onto Facebook without a plan or clear idea of what success really means for them. Look for success markers on your Facebook marketing journey. Just like the maps app on your phone shows the best route to take to your destination, Facebook key performance indicators guide you to what success looks like for your Facebook marketing. KPIs give you a solid foundation from which to measure results. Develop a process – including the tools you'll need – to track, measure and analyze. Facebook allows you to figure out what's working and what's not in real time. Facebook mistakes don't have to happen. Facebook can help build a bridge between your dealership and your customers. Facebook marketing is powerful, but only if you're all in. This awesome power only works to your advantage when you're firing on all cylinders. Kathi Kruse is an automotive social media marketing expert, blogger, consultant, author, speaker and founder of Kruse Control Inc., which coaches, trains and delivers webinars focused on integrating social media and online reputation management into dealership operations. She can be reached at kathi@krusecontrolinc.com.
LEGAL MATTERS | By Nate Haskell
HOW TO CRAFT AN AIRTIGHT PARTNERSHIP AGREEMENT
Terms Indispensable for Success
A partnership, in the broad sense, is a business endeavor taken by two or more parties for profit. A partnership agreement, therefore, sets out the rights and duties for partners in business together. It outlines the “rules of the road” in much the same way other contracts do, and certain terms are indispensable for success. (Note: we can break a “partnership” down into implied partnerships, LLCs, corporations, and other for-profit entities, but for the purposes of this article, “partnership” will be a catch-all for these business endeavors.) Contributions A list of contributions by each partner to the partnership should come early on in the partnership agreement. It should read like a ledger, identifying the name of the partner, the type of contribution (capital, assets, or services, and whether it’s equity or debt), and the value of that contribution. If the contribution isn’t monetary, the partners may have to agree upon a fair market value. The contributions section should also discuss whether and at what rate partner loans will be repaid, and should identify any lines of credit to the partnership for future contributions. Competition The partnership agreement should identify whether partners can carry on competing businesses or capitalize on business opportunities that might otherwise interest the partnership. A conflict of interest often requires informed written consent, achieved by full disclosure of the business opportunity and a vote by disinterested partners. Ownership Ownership interests, voting rights, and distribution rights are not inextricable. It’s prudent to set three more ledgers – one for each type of right – in your partnership agreement. Together these ledgers will identify each partner’s overall equity, voting power, and interest in distributions as they become available. Voting Once voting rights are established, the partnership agreement needs to define which actions require votes, the quorum (the minimum number of partners required to take a vote), and what constitutes a successful vote (this can be a majority, a super-majority, unanimity, or some other threshold). Distributions Payouts from net profits are affected by many things, including repayment of loan contributions, salaries for ongoing services, and tax considerations. How you structure distributions agreement is, for the most part, limited only by your imagination and sense of fairness.
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A provision for tax distributions is recommended. Generally, this requires the partnership to pay partners at least enough to cover taxes on partnership income that is allocated to them in a given quarter or year. Management and Decision-Making This section identifies who among the partners will manage the business, and how managers will be replaced over time. The partnership agreement should list actions which any partner can take (e.g. petty purchases), those which only the manager(s) can take (e.g. entering contracts, taking on new debt), and those beyond even the manager’s power, which require a full partnership vote (e.g. amendment of the partnership agreement). Addition and Removal of Partners The partnership agreement must contemplate changes in ownership. Will your partnership have a reserve pool of shares to grant an incoming partner? Will existing partners be able to purchase additional shares to avoid dilution? If a partner is expelled for-cause, what happens to his or her partnership interest? If a partner voluntarily sells off or retires, does the partnership have a right of first refusal to repurchase those interests? As a team, you must identify these contingencies and set rules accordingly. When discussing the death or disability of a partner, you quickly enter the realm of business succession planning, which is another area of law altogether. As a helpful starting point, consider taking out life and health insurance policies on each partner to help fund buybacks or care plans. Winding Up Sometimes dissolution is unavoidable (e.g. judicial decree, bankruptcy). Sometimes it’s voluntary (e.g. by vote). You’ll want to identify when the partners can dissolve the partnership and who will carry out the “winding up” process. Nate Haskell is senior counsel at The Gertsburg Law Firm. He can be reached at nh@gertsburglaw.com or (440) 571-7540. This article is meant to be utilized as a general guideline for designing your partnership agreement. It is not intended to create an attorney-client relationship or to provide legal advice on which you should rely without talking to your own retained attorney first. If you have questions about your particular legal situation, you should contact a legal professional.
SALES MATTERS | By John Chapin
SALES SUCCESS LESSONS I LEARNED FROM MY MOM
Principles for Success
My mom passed away recently. As I was writing her eulogy, I realized a lot of what she stood for and taught me led to my sales success as well as success in life. Here’s what I learned.
MOM’S LESSONS FOR SALES AND LIFE SUCCESS
Perseverance and Stick-To-Itiveness My first job out of college as a stock broker I was having a really tough time and was going to quit. Mom said, “John, anything in life worth having isn’t going to be easy. It’s going to be tough. Life will test you to see how serious you are, how badly you want it, how committed you are to your dream. And here’s the thing: all you have to do is hang in there long enough without quitting. If you hang in long enough, eventually the tide will turn in your favor and you’ll win – every time.” I stayed, and the tide turned shortly thereafter. Within two years I was the youngest branch manager in the country. I started my speaking business in Fall 2008. The economy subsequently dropped off the cliff and the speaking business imploded. I remembered what my mom said, “If you hang in long enough, eventually the tide will turn.” And it did. She was right again. Mom’s lesson: The bigger and more important the endeavor, the more difficult the journey and the more likely there will be temptation to quit at some point. You don’t fail until you quit. To succeed you need to persevere and hang on after others have let go. Commitment My mom was a substitute teacher for many years. One time they called her to substitute and she was really sick with the flu, but she felt an obligation to help out. So she put herself together as best she could and went to work. Later I asked her why she agreed to teach when she was that sick. She said, “John, people rely on me when other people are sick. I’m not supposed to be sick. In life it doesn’t matter how you feel physically or mentally, what matters is the commitments you make and that you live up to them – in good times and bad, whether you feel like it or not.” Mom’s lesson: Commit and be all-in. The client doesn’t care how you feel, or about any other excuses you have as to why something didn’t get done. They just want what they were promised when they were promised.
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Go Above and Beyond – Add That Little “Extra” My mom believed if you’re going to do something, you do it right and you do it all out. She always pushed herself to continually improve and be the best she could be. It started in school where she was her high school class valedictorian. In college she got straight As. But it wasn’t just the “big” things she took seriously. She always believed in doing even the smallest things at the highest level. One Halloween I wanted to be a ghost. That’s easy, right? A sheet with two holes for the eyes – done. Not my mom’s ghost. I mean, I was the ghost but the ghost outfit was going to represent my mom. She had that sheet on me four nights in a row, adjusting, cutting, sewing, tailoring, and changing. On Halloween she put that sheet on me and made a few final changes before sending the perfect ghost off into the night. Mom’s lesson: If something’s worth doing, it’s worth doing right. Always take it to the next level by doing more than you get paid for and delivering more than people expect. Everything you do reflects back on you. Leave no stone unturned. You want to make sure you do everything you can to win a sale. As a last-ditch effort, any time I lost a sale I used to ask, “Is it a done deal? Is there anything I can do to still get the business?” This led to me getting the “lost sale” back about 40 percent of the time. Be a team player. Make people feel important and special. In public my mom always had a smile on her face and a spring in her step. She was positive and upbeat. She wanted to leave a good impression on people and she wanted to make sure they felt good and important when she was talking to them. What people didn’t see behind the scenes was the enormous pressure my mom put on herself to be the perfect mom and wife. She never let people see the weight she carried on her shoulders. Regardless of that weight, she put her game face on in public, and got done what needed to get done, from coaching softball, to teaching, to everything she did in the church, to everything she did for her family. She always put others first. She was a team player and always wanted to help. She understood it wasn’t just about her – she had an obligation to her family, those she worked with, and those she made commitments to. Mom’s lesson: At the end of the day it’s all about people and relationships. As Zig Ziglar used to say, “You will get all you want in life, if you help enough other people get what they want.” This is also another great example of commitment. Finally, if you find yourself in a comfort zone because you think you’re making enough money, remember: it’s also about being in a position to help others. I always said I got my backbone from my mom. My mom projected a solid character and inner strength. She exemplified in her words and deeds how important it is to have
July/August 2018
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MOM’S LESSON: AT THE END OF THE DAY IT’S ALL ABOUT PEOPLE AND REL ATIONSHIPS. AS ZIG Z I G L A R U S E D T O S AY, “YOU WILL GET ALL YOU WANT IN LIFE, IF YOU HELP ENOUGH OTHER PEOPLE GET WHAT THEY WA N T.” a strong belief in yourself and what you stand for. My mom’s legacy is one of perseverance, commitment, and keeping your priorities straight along with your obligations – doing what you do what you need to do and what you committed to do, without complaining and regardless of how you feel physically or mentally. You keep going, no matter what, and never quit until you succeed. Your word is your bond. And at the end of the day, help as many people as possible. Thanks, Mom. John Chapin is a sales and motivational speaker and trainer. He has over 27 years of sales experience as a number one sales rep and is the author of the 2010 sales book of the year: Sales Encyclopedia. For more information, visit www.completeselling.com or email johnchapin@ completeselling.com
WASHINGTON UPDATE | By Shaun Petersen
NIADA GOVERNMENT REPORT
LATEST GOVERNMENT ISSUES AND ACTIVITY
NIADA is your voice in Washington D.C., advocating for independent dealers, the used vehicle industry and small business. Here’s a look at the latest news and NIADA efforts regarding legislative, regulatory, PAC and grass roots activities.
LEGISLATIVE Luetkemeyer seeking Financial Services Committee chair: Rep. Jeb Hensarling (R-Texas) is retiring at the end of his term, which, if the Republicans hold their majority in the House, will leave a key leadership position open. Hensarling is chairman of the House Financial Services Committee, which includes auto finance in its jurisdiction, and several committee members are already indicating interest in that position for the 116th Congress. Among them is Rep. Blaine Luetkemeyer (R-Mo.), who is currently chairman of the Financial Institutions and Consumer Credit Subcommittee. Last month, Luetkemeyer told the American Bankers Association he is “actively pursuing” the full committee chair. NIADA has engaged with Luetkemeyer regarding various legislative issues in recent years and has developed a solid relationship with him. NIADA-PAC has contributed to his campaign.
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The committee’s vice chairman, Rep. Patrick McHenry, (R-N.C.), is also considered a prime candidate for chairman. Speaking at the same ABA conference as Luetkemeyer, McHenry declined to comment on whether he would seek the position. Luetkemeyer said he would “be more than happy to support” McHenry if he is interested. Dodd-Frank reform: The Economic Growth, Regulatory Relief and Consumer Protection Act was signed into law by President Trump on May 24, providing the first major reform of the Dodd-Frank Act since the wide-ranging financial services bill was enacted in 2010. The new law, which passed by wide margins in both houses of Congress (258-159 in the House, 67-31 in the Senate), loosens the regulatory burden on small and mediumsized banks – which were hit hardest by the restrictions to the financial sector imposed by Dodd-Frank – and reduces compliance costs. Mick Mulvaney, acting director of the Bureau of Consumer Financial Protection, praised the measure. “I applaud my former colleagues in Congress for coming together to pass the most significant financial reform legislation in recent history,” he said. “This new law will improve consumers’ access to credit, reduce regulatory burdens on credit unions and community banks, and fuel economic growth and job creation across the nation.” The bill did not address restructuring or reform of the CFPB, a topic that continues to be discussed and could be included in future legislation. REGULATORY Debt collection rulemaking on CFPB agenda: The Bureau of Consumer Financial Protection’s recently issued spring rulemaking agenda shows that while new rules related to debt collection are still on the radar, a notice of proposed rulemaking is not expected until March 2019. The bureau did say it is “engaged in research and pre-rulemaking activities regarding the debt collection market, which continues to be a top source of complaints,” and added it is “preparing a proposed rule focused on Fair Debt Collection Practices Act collectors that might address such issues as communication practices and consumer disclosures.” The CFPB has been considering debt collection rules since 2013, when it released an advanced notice of proposed rulemaking about the debt collection system. Mulvaney likely to stay into fourth quarter: CFPB acting director Mick Mulvaney told the Association of Credit and Collection Professionals he expects to remain in that position into the fourth quarter of this year. Speaking at that organization’s annual Washington Insights Conference on May 22, Mulvaney said he was confident President Trump would name his choice for a permanent CFPB director before June 22 – the last day Mulvaney could legally serve as acting director unless a permanent www.ohiada.org
replacement has been nominated – and will stay on as acting director until the confirmation process for the new director is completed. During his session – which I attended as a representative of NIADA – Mulvaney said the bureau is serious about enforcing the law and holding bad actors accountable, but added, “We are not going after people who are not breaking the law.” GRASS ROOTS New York bill: A bill introduced in the New York Assembly would require dealers using starter-interrupt devices to give 10 days’ notice before using the device to disable a vehicle. It calls for that notice to be sent by registered or certified mail “to the address at which the debtor will be residing on the expected date of the remote disabling of the vehicle.” The bill is problematic for several reasons, including the fact that finding the address of the debtor is often not an easy task given the transiency of Buy Here-Pay Here customers in general – especially those in default. NIADA and the New York IADA are monitoring the situation. New York attorney general resigns: Eric Schneiderman, who aggressively pursued enforcement actions against car dealers since becoming New York’s attorney general in 2011, resigned last month in the wake of accusations he had assaulted four women while in office. Schneiderman targeted more than 100 dealerships with allegation of regulatory violations in 2017, including selling vehicles with open recalls without disclosing those recalls. He has also been an outspoken critic of President Trump, challenging parts of the Administration’s agenda in court. Shaun Petersen is NIADA’s senior vice president of legal and government affairs.
MANAGEMENT MATTERS | By Dale Pollak
AUCTION-BUYING IS MORE DIFFICULT THAN IT SHOULD BE
Four Contributing Factors
You might think that with rising supplies of wholesale vehicles dealers would have an easier time seeking out auction cars to fill gaps in their inventories. But the reality is different. Dealers still struggle to acquire cars that will appeal most to buyers in their markets, and purchase them at prices that will yield respectable margins. Competition accounts for part of the struggle. Even with more available cars, there are more dealers vying for them. But the difficulties dealers face also owe to four factors that encompass the ways dealers prepare for auctions, their auction expectations, and the inherent inefficiencies of sourcing vehicles from remote locations. Knowing Exactly What to Buy Despite technology that can efficiently tell dealers the exact vehicles they should acquire before they go to an auction, many dealers and their buyers just show up. They do little homework. Instead, they rely on instinct to size up cars they believe they need. This approach is far less efficient than using technology to determine the precise
cars to pursue. Likewise, it’s not uncommon for dealers who rely mostly on instinct to find that their auction units contribute significantly to inventory age issues. Finding the Right Inventory It’s one thing to know the exact used vehicles you need. It’s another task altogether to locate these vehicles at auctions across the country. While some dealers have adopted new technologies to efficiently identify the auctions where the cars they need reside, many still rely only on auctions closer to home. This preference may help minimize transportation costs, but in today’s wholesale market it also limits selection and concentrates competition for the same vehicles. The end result: Dealers restrict their opportunities to acquire the right inventory when they stay local. Buying at the Right Price A dealer recently shared that while he’d love to pay less to acquire near-new vehicles for his certified pre-owned program, he’s come to understand that’s impossible if he wants to maintain his retail sales velocity. “I’ve found the ‘right’ price at auction translates to a roughly $1,000 front-end gross,” he said. “To me, they’re ‘spinner’ cars that we buy and then spin them through the shop and sell fast. Then, we repeat the cycle.” The key take-away: The dealer’s determined the “right” price for himself with every car. He uses technology and tools to calculate each unit’s profit potential (accounting for the costs
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of acquisition, transportation, reconditioning, etc.), and the maximum he might pay, before he places his bid. When dealers complain they can’t acquire auction vehicles for the “right” money, I typically find they haven’t conducted a dispassionate calculation of the “right” price for themselves, or their expectations for a front-end profit don’t match the realities of today’s market. Reducing the Time Required Dealers who proactively address each of the preceding factors will, by design, become more efficient as they source vehicles from auctions. But the level of efficiency dealers achieve will depend primarily on how well they use the technology and tools that facilitate faster acquisitions. I would add that auctions, as well as solutions providers, could do more to make the wholesale marketplace a more efficient place for dealers to do business. It’d be pretty cool, I think, if dealers could count on a system that, almost automatically, began the work of re-supplying their inventories when a retail used unit heads home with a customer, if not sooner. Until that day, however, there’s much dealers can do themselves to become more effective and efficient at acquiring the cars they need at auction. Dale Pollak serves as executive vice president for Cox Automotive, a position he’s held since the company he founded, vAuto, became part of the Cox family in 2010. Dale pioneered the Velocity Method of Management, which has been adopted by thousands of dealers.
– exclusive online-only content, a valuable resource that gives you more information, strategies, techniques and ideas to help you take your dealership to the next level.
The Right Tool
AmTrust Financial’s Jackie Banks shows you how a certified pre-owned program, in addition to its many other benefits, can help unlock the true value of reinsurance, a “hidden gem” that can maximize insurance profits, not to mention investment income and possible tax advantages. Visit www.usedcardealermagazine.com each month for the latest exclusive online content.
Visit www.usedcardealermagazine.com each month for the latest exclusive online content. www.ohiada.org July/August 2018
INDEPENDENT DEALER NEWS
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BHPH PERSPECTIVE | By Scott Bates, CPA
SMART DEBT MANAGEMENT
Top Pitfalls to Avoid
In the life cycle of any auto dealership, there will be times when cash flow is tight. Buy Here-Pay Here dealers in particular face complexity in ensuring enough inventory is on hand to attract buyers – and offsetting that investment with a healthy flow through collections and debt management. This balance is never perfect. Dealers need strong banking and/or equity relationships that will extend credit to fill in the cash flow gaps. Debt Management is Proactive Even if their balance sheet is healthy, dealers on the shy side of $1 million in receivables will likely get a less favorable interest rate on credit than more established or larger dealers. This does not mean smaller dealers should accept rates of 10 to 15 percent. It pays to shop around and understand how the bank or private equity firm will consider these characteristics to justify their terms. By working with your CPA, you can provide the lender with financial statements and accounting that aligns with their expectations. As part of the terms of the loan, dealers may be required to provide reviewed or audited financial statements. Because of this additional expense, and also to get more favorable terms, it’s important for dealers to actively seek lower interest rates. It is perfectly acceptable to shop around. Contact competing banks as well as your existing lender and ask about new credit options. Talk to colleagues about the banks they are using. Request multiple offers. Strong accounting, tax and compliance practices help with this process. On the accounting side, owners need regular financial statement preparation to view trends and forecast cash flow – helping them prepare for lending conversations and extensions of credit at the right time each year. On the tax side, the number one tax planning technique for Buy Here-Pay Here dealers is the discount (or loss) on the sale of notes from the dealership to the RFC, which requires cash. Dealers may also qualify for opportunities such as bonus depreciation and deductions with regard to employee perks and compensation. Management may also consider a review of operational efficiencies or gaps in controls that can affect cash flow. Keep in mind every dealership is different when it comes to managing cash flow, so best practices must occur within your own dealership. As BHPH dealerships grow to portfolios of $4 million and above, more favorable financing opens up. But it’s not a guaranteed scenario. Dealers should weigh the benefits of obtaining more financing against the extra administrative costs of public accounting services. Once you have the credit you need, there are various ways to reinvest in your business.
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Some dealers may decide to purchase their location – adding real estate holdings that support the extension of credit in the future. If the dealership also has a service department, cash flow can be set aside to cover repairs and maintenance on recently sold cars. Some dealers choose to cover repairs on cars shortly after purchase to support the customer’s ability and willingness to keep making monthly payments. For example, a repair may cost $800, but it leads to another six to 12 months of customer payments. Compensation is another area that cash flow can support. Attracting and keeping good back office personnel supports collections, which in turn supports the business. Dealers may also consider additional compensation for good salespeople. Let’s say you’ve done as much proactive management as you can. At certain points in the life of a dealership, you will still experience challenges. Some of these challenges can’t be handled alone. Whether you’re with a big bank and have secured a favorable interest rate or your dealership is still considered high risk for lenders, don’t ignore cash flow problems. Your CPA can help you formulate a plan to show numbers and communicate effectively with lenders in a way that is focused on solutions rather than the immediate problem. Lenders don’t like to call a loan for a shortterm issue, and there is usually room for negotiation on loan modifications that will support cash flow as well as repayment. However, year-over-year problems make lenders less willing to keep taking a risk on default. As soon as an issue comes to light, prepare your strategy to keep a strong lender relationship. Work through it like you and your lender are on the same side. It’s in the best interests of you and the lender to find a solution. Debt Management Supports Valuation It is also in the best interests of the dealership long-term to show a consistent history of loan financing, healthy cash flow and debt management. Owners want to show a return on investment and consistent profitability, tied to valuation of the business. There are different approaches to valuation. A key component, however, is determining equity value, which is the market value of the dealership assets minus the market value of its liabilities. Assets include such things as the dealership’s auto inventory and fixed assets, including real estate. They can include intangible assets such as the goodwill value of the dealership’s name and location, sales and service agreements, and also synergies such as multiple locations and strong management. Liabilities will include debt, any excess compensation, tax and rent issues, inventories and contingent liabilities such as environmental issues related to the storage and disposal of fuel, oil or batteries. The bottom line is that a well-performing portfolio, a good location and healthy foot traffic – combined with properly managed www.ohiada.org
IF YOUR DEALERSHIP STRUGGLES WITH DEBT MANAGEMENT OR CASH FLOW – EITHER I N T E R M I T T E N T LY O R THROUGHOUT THE YEAR – DON’T LET IT HINDER OPPORTUNITIES TO GROW. debt – will be attractive to a potential buyer. A dealership that is attractive to lenders is also attractive to buyers or outside investors, even with debt factored in. If your dealership struggles with debt management or cash flow – either intermittently or throughout the year – don’t let it hinder opportunities to grow. Speak to the professionals, such as the team at Cornwell Jackson, to help you understand the proper structure of financial statements to support proactive lender conversations. Scott Bates is an assurance and business services partner for Cornwell Jackson. He supports the firm’s auto dealership practice. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.