Texas Dealer, May 2016 by Texas Independent Auto Dealers Association

When Disaster Strikes In This Issue: –O CCC Gets Some New Bosses –R egulatory Relief for Related Finance Companies Eight Years Later –N avigating the Road to BHPH Success –T he Herbies Case from a Texas Dealer’s Perspective

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2016 TIADA Board of Directors PRESIDENT Phil Lathrop/VP Auto Sales Inc. 2921 S. Garland Avenue Garland, TX 75041 Office: 972.864.1300 Email: phillipl@vpautosales.com PRESIDENT-ELECT Kathrine Tolsch/CICO Auto Sales 11050 Harry Hines Blvd. Dallas, TX 75229 Office: 214.352.9282 / Fax: 214.352.8227 Email: cicoauto@verizon.net CHAIRMAN OF THE BOARD Brent Rhodes/Fiesta Motors 5150 Industrial Way Drive Buda, TX 78610 Office: 512.312.2201 Email: brent@fiestamotors.net SECRETARY Greg Zak/Dixon Motors 7902 North Freeway Houston, TX 77037 Office: 281.931.1300 Email: gzak@windstream.net

Volume XVI

Issue 5

texasDealer

4 Officers’ Message

contents

by Brent Rhodes, TIADA Chariman of the Board

6 News & Notes 11 Legal Corner: The Herbies Case from a Texas Dealer’s Perspective by Michael W. Dunagan

TREASURER Trey Crouch/Trey Crouch’s Wheels On Credit, Inc. 636 E. Business 83 McAllen, TX 78501 Office: 956.972.0700 Email: trey@wheelsoncredit.com

12 Upcoming Events 18 On The Cover: When Disaster Strikes

VICE PRESIDENT, WEST TEXAS (REGION 1) Paul Scott/Fiesta Motors – Lubbock 2599 74th Street Lubbock, TX 79423 Office: 806.765.3640 Email: pscott@gofiestamotors.com

23 Navigating the Road to BHPH Success

VICE PRESIDENT, FORT WORTH (REGION 2) Tommy Gregory/Abilene Used Cars Sales Inc. 497 E.S. 11th Abilene, TX 79602 Office: 325.676.8000 Email: aucsinc@sbcglobal.net VICE PRESIDENT, DALLAS (REGION 3) Wayne Meagher/M D Auto Sales 2002 W. Main Street Grand Prairie, TX 75050 Office: 972.641.9598 Email: wayne@navchiefs.com VICE PRESIDENT, HOUSTON (REGION 4) Juan Sabillon/Mi Tierra Auto Sales 7935 Gulf Freeway Houston, TX 77017 Office: 713.644.2446 Email: brentfordct@yahoo.com VICE PRESIDENT, CENTRAL TEXAS (REGION 5) Robert Beck/Stop N’Drive Motors 711 N. General McMullen Dr. San Antonio, TX 78228 Office: 210.432.1101 Email: stopdrive@texas.net VICE PRESIDENT, SOUTH TEXAS (REGION 6) Dan Keetch/Keetch Motors 1010 S. Staples Corpus Christi, TX 78404 Office: 361.882.3541 Email: dankeetch51@yahoo.com VICE PRESIDENT AT LARGE James Hobson/H-Town Motors 3714 Dyer Street El Paso TX 79930 Office: 915.564.9797 Email: htownmotors@sbcglobal.net VICE PRESIDENT AT LARGE Ryan Winkelmann/BJ’s Autohaus 5005 Telephone Road Houston, TX 77087 Office: 713.641.0980 Email: ryan.winkelmann@sbcglobal.net TIADA EXECUTIVE DIRECTOR Jeff Martin 9951 Anderson Mill Rd., Suite 101 Austin, TX 78750 Office Hours M-F 8:30am - 4:30pm 512.244.6060 • Fax 512.244.6218 jeff.martin@txiada.org

M a y 2 016

by Nick Zulovich

by Kenneth Shilson

24 TIADA Annual Conference and Expo 31 OCCC Gets Some New Bosses Compiled by TIADA Staff

35 Regulation Matters: Staying on Track by Danny Langfield

36 Regulatory Relief for Related Finance Companies Eight Years Later by Teresa Orkun

40 2016 VIP Auction Card Directory 43 Quiet is the New Loud — Time for a VDP Tune-Up by Brent Wees

44 Local Chapters 44 New Members 46 Behind the Wheel by Jeff Martin

What’s happening at w w w . t x i a d a . o r g ?

DID YOU KNOW... You can get in on the discussion with the

all-new Members Forum found under Community. This is a feature that had been requested many times by our members so we hope you use it and find it helpful. The Editor of the Texas Dealer magazine is Teresa Orkun, Marketing Communications Coordinator of TIADA. To change your address for subscription and/or for other TIADA products, call the TIADA state office at 512.244.6060 or fax 512.244.6218. E-mail: info@txiada.org. New Membership/Subscriptions: If you are a member of TIADA, you may receive this magazine free of charge. Membership year runs from Jan 1 to Dec 31. Back issues are available for $20 each subject to availability. Send a check or money order, along with your name and mailing address to TEXAS DEALER, Attn: Back Issues, 9951 Anderson Mill Rd., Suite 101, Austin, TX 78750. Sorry, no billing. Notice to all members concerning services and products: TIADA was established in 1944 to develop professional standards of service and conduct for the independent auto industry. Opinions expressed herein are not necessarily those of the TIADA management, the Board of Directors or the membership. Likewise, the appearance of advertisers or their indemnifications of TIADA does not constitute endorsement of the products or services featured.

officers’ message Growing Our Keyman Network, Good Luck or Hard Work?

ive years ago we developed a program we called our “TIADA Keyman Network.” It is a way for us to measure the effectiveness of our grassroots lobbying. The concept was pretty simple; first, we built a database that consisted of every active TIADA member and every active legislator that we wanted to build a relationship with. Second, we developed a key or a definition to measure the “relationships.” Each relationship falls into one of three categories: Political: Have attended a political function and/or made a personal contribution. Friend/Business: Have some relationship with this person. Know them through civic functions, school, friends, family, business etc. Personal Friend: Have a long term relationship with this person, could call them on the phone and they would know immediately who it is. Since 2012 the number of TIADA members in our keyman database has grown from 12 to 32 and the number of legislators has grown from 11 to 46. It’s fairly fluid since legislators and TIADA members are constantly coming and going but we are committed to growing the number and growing our influence. And the only way we can do that is with your help, a little hard work, and a little bit of good luck. You might ask why the numbers don’t match up exactly. Many dealers have relationships with multiple legislators. For example, I am currently linked to three legislators; Rep. Jason Isaac, who is a personal friend of mine, and I have attended fundraisers and had meetings with Rep. Eddie Rodriguez and Rep. Paul Workman. These legislators all represent very different constituents in and around the Austin area where I work and reside, so I have made it a point to go visit with them and talk about my business. The relationship with Jason was easy. I knew him through my brother well before

by Brent

Rhodes

iesta Motors F (Buda) TIADA CHAIRMAN OF THE BOARD

he decided to run for office so I chalked that one up to good luck. It’s taken a little more work to get to know Reps. Rodriguez and Workman. I met Rep. Rodriguez two years ago at another dealer’s dealership when we invited him over for a coffee; and I recently went with my brother, who is also an independent dealer, to visit with Rep. Workman at his campaign office. My brother lives in Rep. Workman’s district and since Workman serves on the insurance committee, we felt it was important to start building that relationship too. This year I will be adding one more legislator to my keyman list; Stan Lambert, who recently won the Republican Primary in House District 71, will be running unopposed in the general election. When I graduated from college, Stan was the first person I went to work for at Abilene Christian University. While he lives almost four hours away in Abilene, I still list him as a personal friend. He is someone I will be calling on soon to discuss our legislative issues. On numerous occasions during the legislative session, TIADA Executive Director Jeff Martin has called me and asked if I can make a phone call to explain our position on a bill. He is even more likely to simply ask that I send a text saying thanks to a legislator for supporting one of our issues. I don’t really have to pay that close attention; during the session our legislative team monitors the bills and our keyman network and, when they see a match, they get in touch with me and tell me how my contact is doing. If I need to take action they will let me know. But first, they have to know who I know, and this year I have added Stan Lambert to my list. If you have a relationship with a legislator please contact TIADA and let them know. If you don’t have one, start building one today. As you can see, it takes both a little good luck and a little hard work to grow our keyman network, but most of all it takes you.

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news & notes

Happenings in the Industry…

compiled by Texas Dealer staff

Independent Award and Community Leader Award Nomination Deadline Approaching

he Independent Award is given to an individual outside of the industry (i.e. politicians; media members; non-industry supporters) who have gone above and beyond in their support of the industry showing a true independent spirit. The Community Leader Award aims to recognize those dealerships that selflessly give back to their communities and work to make this the great state of which we are proud. The deadline to submit a nomination for any of these awards is June 1st. For complete information and form visit www.txiada.org.

functions, Wednesday Leadership Awards Reception & Banquet, and Thursday National Quality Dealer Awards Reception & Banquet and After-Party. Complete event information and registration is available at www.niada. com/convention.php.

Rent-A-Wreck Writes a Check to TIADA

NABD Offers Member Discount

IADA dealer members are eligible for special discount pricing to attend the 18th annual NABD Buy Here, Pay Here National Conference. The event will be held May 24–26 at the Wynn in Las Vegas. Visit www. bhphdealerconference.com or call 832.767.4759 for event info and registration.

NIADA Event Set for June

he National Independent Automobile Dealers Association Convention and Expo will be held June 13–16 at The Mirage in Las Vegas. Full access registration is $599 per person and includes all training sessions and materials, Expo admission, meals, social

uring NIADA’s March board meeting in Dallas, Rent-A-Wreck director of franchise development, John Poisson, presented a $2,000 check to TIADA as a result of new franchises in Texas. Every time a NIADA member dealership opens a Rent-A-Wreck of America franchise, Rent-A-Wreck donates $1,000 to that dealership’s state association. Your TIADA membership automatically makes you a NIADA member.

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legal corner

The Herbies Case from a Texas Dealer’s Perspective by Michael

s there a Buy Here Pay Here dealer in the United States that hasn’t heard about Herbies? Just how is it that a used car lot with a friendly-enough sounding name has become the focus of so many articles, blogs, and commentaries in dealer magazines and web sites? Prior to the issuance on January 21, 2016 of the Consent Order from In the Matter of: Y KING S CORP., also doing business as HERBIES AUTO SALES, the Consumer Financial Protection Bureau had focused its attention mostly on larger finance companies, and on such topics as interest rate discrimination, collection abuses, and improper credit reporting. What made the Herbies case so attention-getting to dealers was that (1) Herbies is a Colorado independent buy-here-pay-here dealer who financed the sale of approximately 80 vehicles per month over the 28-month period in question (according to the facts recited in the

order); (2) the consent order required payment of $700,000 in restitution to customers (an additional $100,000 civil penalty was suspended, contingent upon Herbies making the required restitution); and (3) the order contained the ominous and dreaded term: “hidden finance charge.” A consent order is, in general, an agreement entered into by the charging agency and the regulated business, usually with the regulated business not admitting to the alleged violations. It is commonly entered into, as any other type of settlement, to avoid the cost of protracted litigation, and to limit the downside risk of a negative outcome. In agreeing to the consent order, Herbies did not admit or deny that it violated the law. Because the CFPB is a federal agency, and because the federal Truth in Lending Act played a prominent role in the findings and conclusions in the order, it is safe

Dunagan

TIADA GENERAL COUNSEL

to assume that the case has national repercussions, and those factors can’t be down-played. However, there are some state law implications of the consent order that deserve review. We’ll talk later about how Texas law might be impacted by some of the facts of the case.

Federal Truth In Lending

First, a brief history lesson. Federal Truth in Lending came into being because of a perception that lenders and credit financiers were offering a confusing picture of what credit actually costs. There had been a long list of terms used by creditors to describe the fees added to the cost of goods, or the amounts of loans,

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Upcoming Events TIADA DEALER ACADEMY

May 2016 11 Better Buy Here

Pay Here Financials Dallas, TX

25 How to Become an Independent Dealer Austin, TX

June 2016 6 Keeping Your Dealership

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22 Better Buy Here Pay Here Financials Houston, TX OTHER TIADA EVENTS July 2016 24 TIADA Board of Directors Meeting San Antonio, TX

24-26 TIADA Annual

Conference and Expo J.W. Marriott Hill Country Resort and Spa San Antonio, TX

which offered little consistency in determining what the true cost of credit was. In addition to the use of inconsistent and varied terms, there were different ways of calculating and expressing the cost of credit which resulted in the inability of a consumer to accurately compare costs, and to shop for the best deal. Congress thus enacted the Truth in Lending Act which placed a requirement on creditors to disclose, prior to the completion of a transaction, the cost of credit using a universal and standardized method, referred to as the annual percentage rate. And, to disallow the use of certain extra charges that might be considered part of the finance charge, placed specific definitions on what was, and what was not, interest or finance charge. Central to the enforcement of Federal Truth In Lending, and Regulation Z, the rules issued by the Federal Reserve Board, was the concept that, unless a fee associated with a credit transaction was specifically authorized (such as title and transfer costs, and certain type of insurance), it would be deemed to be a part of the finance charge. And, if that amount had not been included in the finance charge by the creditor at the time of contracting, the disclosed finance charge and the resulting APR would be incorrect. Furthermore, fees that are added to financing transactions, but not to corresponding cash transactions, would be considered finance charges. A general definition of finance charge would be: Any charge imposed by the cred itor as an incident to or a condition of the extension of credit. It does not include a charge payable in a comparable cash transaction. Any discount offered as incentive to pay by a means other than credit.

The Main Allegations in the Herbies Case

Although there were numerous claimed violations, they mostly revolve around the alleged hidden finance charges.

False Advertising

Herbies was accused of advertising a lower rate of finance charge (9.9 percent) than was actually included in its financing contracts. To reach this conclusion, the CFPB found “hidden finance charges” that fell into two categories: (1) fees that were added to finance contracts, but not to cash transactions (GPS unit charges and a mandatory “repair warranty”) and (2) hidden finance charges based on differences between the handling of pricing for financed vehicles and cash sales (more on that later). When these items were added to the finance charge by the CFPB, the disclosed amount of the finance charge increased, and the APR went up correspondingly. Using a lower APR in its advertising, the CFPB alleged, amounted to engaging in “abusive” practices of false and misleading advertising.

Methodology of Qualifying Customers

The CFPB found Herbies’ practice of not disclosing the purchase price of vehicles until the very end of the transaction was an abusive practice that violated the Consumer Finance Protection Act. It found that Herbies would first qualify customers for the amount payment they could make, then show them specific vehicles that met the monthly payment qualifications, and would then sign closing documents. According to the CFPB, the customer didn’t see the purchase price of the vehicle until the end of the closing process. This methodology, the CFPB concluded, along with undisclosed finance charges, amounted to Herbies taking “unreasonable advantage of the inability of consumers to protect their interests …”

Hidden Finance Charges for Adding “Warranty” and GPS Devices to Contracts

By requiring financing customers to purchase a “repair warranty” at a separate charge of $1,650, but not requiring cash customers to make the purchase, the $1650 became T e x a s

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a finance charge under Truth In Lending definitions, according to the CFPB. And, not being included in the finance charge disclosure and in the APR calculation, it became a “hidden” finance charge. The same reasoning applied to the $100 GPS charge placed on all financing contracts, but not required on cash sales.

Hidden Finance Charge — Differences Between Financing and Cash Sales

The most difficult allegation in the Herbies consent order for dealers to understand — and the most disturbing — is the allegation that offering price discounts for cash purchasers, without corresponding negotiated discounts for financing purchasers, amounted to hidden finance charges. The allegation is based on the stated fact that it was the policy or practice of Herbies to negotiate with cash customers, but not with credit customers (according to the consent order, only two per cent of all Herbies’ sales were

for cash). It is the next leap of logic that baffles most dealers and industry commentators. “By negotiating the price of cars with cash customers but not credit customers and forcing credit customers to pay a greater markup, Herbies buried the cost of credit in the price of goods sold, thus imposing a finance charge on credit customers,” the CFPB alleged. And since the “hidden” finance charges were not accounted for in the retail installment contracts, the consent order found that the Truth In Lending disclosures were incorrect, it concluded. To get from Herbies practices to a violation, the CFPB thought process goes something like this: By negotiating cash discounts, but not discounts on finance prices, Herbies charged cash customers less. A lower cash price is the equivalent of a higher finance price. The difference between finance price and cash price is hidden finance charge.

Texas Law Considerations

As has been pointed out in these pages in the past, the Texas Finance Code allows certain “other charges” to be added to a vehicle retail installment contract if agreed upon by the parties, while certain charges can’t be added. For instance, certain taxes, title, registration, and licensing fees can be passed through, as can a documentary fee that meets regulatory requirements. Also, the Finance Code allows fees for property damage insurance, credit life and health policies, and service contracts to be added to a contract as “other charges” without being added to the finance charge. The Office of Consumer Credit Commissioner has taken the position that, for fees for insurance and service contracts to be added, there must be a “real” product licensed by the appropriate agencies (insurance is licensed by the Texas Department of Insurance and service contracts are regulated by the Texas Department of Licensing and Regulation).

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According to the consent order, proceeds from the $1,650 charge were placed in a reserve account and used to perform warranty work. The implication is that there was no service contract issued and paid for. A “repair warranty” like the kind involved in the Herbies case would not qualify in Texas, and would probably be challenged by the OCCC in an audit. The OCCC has also stated that the cost of a GPS device can’t be passed on to a customer since is doesn’t fall under an allowable charge. The argument is also made that GPS devices, whether satellite locators or a payment prompting devices, are for the benefit of the creditor and not the consumer. Texas, like most states, sets maximum rates that can be charged in the financing of a motor vehicle (see the December 2015 issue of Texas Dealer for a chart and explanation of how the maximum rates work). Depending on how close to the maximum a rate in a contract is, there may be no room for the intentional — or unintentional — adding of other charges to the finance charge. Thus, the after-the-fact additions of other charges to the finance charge, as was done in the Herbies case, may result in a state-law overcharge violations as well as Truth In Lending and Consumer Financial Protection Act of 2010 violations. Simply putting other charges in the disclosed finance charge to meet federal disclosure requirements may not solve the problem if it results in a statelimit overcharge.

Take-A-Ways for Texas Dealers

All BHPH dealers should disabuse themselves of the notion that a higher price can be charged to subprime buyers because of the extra risk involved. The risk factor is included in the higher finance charge rates allowed under the Finance Code. Any extra or higher charge to cover the risk involved of financing a credit-challenged consumer would be considered to be hidden finance charge.

As part of the consent order, Herbies agreed to post the purchase price of all vehicles. While there is nothing in the law that requires this procedure, it would be a natural assumption that doing so might demonstrate that the dealer is being up-front about pricing with potential customers. Dealers should avoid any type of dual pricing. Since cash discounts can be interpreted as hidden finance charge on financing deals, it would be wise to avoid negotiation that is based on a cash offer. If a price is lowered through negotiation, it should be lowered on financing as well as cash deals. When an “other charge” is added to a contract, dealers should ask themselves whether the charge is allowable under state law. And, since charges that are applied only to financing transactions might be deemed to be finance charges, care should be taken to add those charges to cash deals. (As an example, a documentary fee must be added to cash transactions as well as financing deals to avoid being classified as a hidden finance charge.) Use caution in advertising an APR. There are variables in contracts that can cause the APR to shift. A higher APR on a contract than as advertised could be the basis of a “bait and switch” claim. Also, be aware that use of certain credit terms in advertising can trigger the disclosure of additional terms under the federal Truth In Advertising Rules. Michael W. Dunagan is an attorney in Dallas, Texas who has represented the Texas Independent Automobile Dealers Association for 40 years. He has written a number of books and hundreds of articles for trade journals and law reviews. His clientele includes dealers, banks, finance companies, auto auctions and credit unions.

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on the cover by Nick Zulovich

When Disaster Strikes

ommy Gregory vividly remembers June 12, 2014. It was a Thursday and he left his dealership — Abilene Used Car Sales — a little earlier than usual for his home about 20 miles outside of town. Gregory’s daughter soon called multiple times to say a hailstorm had started to intensify. So the buy-here, payhere operator who began in the business back in 1991 returned to survey the damage to his two locations. Hailstones the National Weather Service reported to have grown to the size of DVDs left only two of the 132 vehicles Gregory had in inventory still in retail condition. And that’s because those two cars stayed in a garage while being reconditioned as 89 other vehicles Gregory’s insurance company later considered to be a total loss were pounded mercilessly. “We had hailstones that were so big, they went completely through windshields and busted dashes and consoles in cars. It was awful,” said Gregory, a west Texas native who still finds it difficult to describe the storm damage that fortunately didn’t lead to any injuries at his operation. “I’ve seen a hailstorm or two that was close to it maybe,” he continued. “But this was the granddaddy of all of them. It was the worst I’ve ever seen, and I’ve seen some good ones.”

Over in Fort Worth, Mark Jones recalls what weather historians call the Mayfest Storm. Back on May 5, 1995, Jones estimated that Mike Carlson Motor Co. lost 90 percent of its inventory at its six locations during the storm that cut through Tarrant County during the annual event at the Trinity River. The storm produced hail as big as softballs and impacted the business so significantly, Jones indicated the company had to downsize from six to four lots. “In order for us to survive cash-flow wise, we had to eliminate locations so we could be able to make the overhead,” he said. Whether it’s hailstorms, floods, tornadoes, hurricanes — or even some man-made events such as an employee charged with negligence — dealers can be confronted with a wide array of disasters. Operators who have survived and the experts who provide critical service during the aftermath and recovery all agree: Have a plan in place that includes the proper level of insurance so the dealership can not only survive but perhaps thrive to an even higher level than before the storm arrived. “My point is, it is up to the dealer to protect himself. Insurance agents can counsel and other loss mitigation experts can offer their advice. But in the end, the dealer makes the decisions and writes the check,” said Ann

Whether it’s hailstorms, floods, tornadoes, hurricanes — or even some man-made events such as an employee charged with negligence — dealers can be confronted with a wide array of disasters. 18

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Mullen, president of Mullen Insurance Agency located in Garland.

What to do first

The storm has just passed. Perhaps there is plenty of broken glass and dented hoods. Many dealers and insurance experts agreed on what should happen next: Contact the insurance provider immediately. “Get a hold of your agent and file a claim because time is of the essence when there are claims to be made,” said Kevin Smith, owner of Tri-State Dealer Services in North Richland Hills who has been in business for more than 30 years. Despite experiencing the worst storm in his memory, Gregory did just what Smith suggested. “The first thing I did was make a call to my insurance company and told them I needed help fast,” said Gregory, whose insurance company is based in Dallas but already had an awareness of what happened because of news coverage. “When I called, he said, ‘Hey Tommy. You had some bad hail, didn’t you?’ I said, ‘You wouldn’t believe it. We’ve never seen anything like this.’ ” The insurance provider sent extra reinforcements to

Gregory’s two locations situated on the side of Abilene impacted most by the storm. It took nearly three full days for the team of adjustors to comb through the damage and begin to process claims. “I was insured well, thank goodness,” Gregory said. For Jones, the experience after the 1995 Mayfest hailstorm unfolded a little differently because of how the company structured its protection. Back then, Mike Carlson Motor Co. was self-insured; a practice Jones now acknowledges “can be very dangerous.” The company now has eight locations — as well as an insurance policy from an outside provider. “Since then, even though we may have high deductibles, we’ve tried to have the insurance. If anything like that ever occurs again, we’re not in a position where we have to downsize the company,” said Jones, who watched hailstorms earlier this year damage nearly 150 vehicles. “Although self-insuring when you run the numbers is very attractive to do, it only takes one catastrophic storm to come through,” he continued. “I guess if you’re spread out geographically and had locations 50 to 60 miles apart

Have a plan in place that includes the proper level of insurance so the dealership can not only survive but perhaps thrive to an even higher level than before the storm arrived.

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then maybe self-insuring would make more sense. But we’re contained to a 25-mile circle. When you have one of those big supercells come through, every location could potentially take a hit and sustain damage. “Hazard insurance is definitely something dealers should have. We learned that it’s a smart thing to have,” Jones went on to say.

Finding a provider

If you’re switching from a self-insurance model or perhaps looking for a new provider, Ann Mullen offered a three-step process dealers can use to find a company that fits their needs. Ann Mullen said first, dealers should find an insurance agent who is familiar with the industry and can be trusted. “If he or she is the most knowledgeable agent on the planet and you don’t truly trust them, then they are not the agent for you,” Mullen said. “There are perhaps three people in the world to whom you should always, always be completely honest — your spouse, your attorney and your insurance agent. “If you find yourself holding back information for fear the agent may use it some way you do not approve of, find a new agent,” she continued. “This one cannot give you everything you need because you cannot give him everything he needs to do his job in the most complete fashion.” Next, Ann Mullen recommended that dealers work with their agent to find an insurance plan that will satisfy all of

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the liability exposures. For example, she mentioned how traffic accidents can happen when an employee or family member is using a vehicle owned by the dealership. “Liability losses put more dealers out of business than physical damage losses,” she said. “It’s nice to be protected in the event of a natural disaster. It’s even nicer to be around when the natural disaster hits.” Finally, Ann Mullen suggested that dealers share their insurance philosophy with the agent. Dealers can ask questions like if they prefer large deductibles or would rather eliminate as much out-of-pocket cost as possible. “If your agent knows what the dealer’s insurance budget allows him to spend — combined with the dealer’s philosophy toward loss — then he or she can better counsel the dealer to what insurance program is best suited to meet his expectations,” Ann Mullen said.

Repair or replace?

Sometimes storm-damaged vehicles aren’t considered a total loss by the insurance company, leaving dealerships with two options. They can make repairs or liquidate the inventory. When Bill Taylor experienced a “500-year flood” at his dealership in San Marcos back in 1998, he chose to repair all but one of the 20 vehicles that sustained severe damage. Taylor and his team drained every drop of fluid out of those vehicles. They made sure the engine, transmission, radiator, basically any component that held fluids and touched floodwaters were sufficiently flushed and repaired. Taylor advertised those vehicles at his store — Bills Trading Place — because his warranty company backed the repairs with a three-year, 36,000-mile guarantee. “When we sold the cars that we took through our shop, we told people about it. I sold those cars pretty fast,” Taylor said. For Jones, his preference is to leverage the auction. “Sometimes when a car is damaged, it can be a mistake to get it fixed,” Jones said. “It will look OK, but then you’ll get $3,000 into the project and realize this car is never going to be the type of product I want to have. “If you do have insurance it’s probably a smarter play to take your insurance proceeds and liquidate the car at auction, move on and get another car,” he continued. “It’s certainly much faster from a reconditioning standpoint to just go buy another car than it is to fix a lot of these cars. It all depends on the severity of the damage. “Some of the lighter storms, guys can fix a whole location in a week. But when you’ve have to send cars out, you starting tying up inventory for four to six weeks, you could have just liquidated it, taken your insurance proceeds and you’d have a car back on the lot in 10 days instead of waiting,” Jones went on to say.

Nick Zulovich is the senior editor of SubPrime Auto Finance News and BHPH Report. More industry coverage can be found at www.subprimenews.com and www.bhphreport.com. T e x a s

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perating successfully in the buy here, pay here industry has become more challenging due to increased regulatory pressures and competition. Independent BHPH dealers have lost approximately 33% of their market share during the last 24 months and best operating practices are not working like they used to! In this article I will discuss what is “driving” the increased subprime auto competition and suggest ways for independent operators to compete. The regulatory challenges are not going to disappear so the BHPH industry must face them “head on”! Increased competition by credit unions, finance companies, and franchise operators has been “fueled” by cheap money and an investor appetite for higher yielding returns. In response, Wall Street has flooded the market with subprime auto bonds which have been sold to investors who assume the credit risk. These securitizations are a mixture of investment and non-investment grade contracts packaged in tiers. The non-investment grade tiers consist primarily of low credit score customers (below 500 FICO scores) or with no credit score at all! Many of these deals are with former BHPH customers who have been lured away by newer vehicles, higher amounts financed, and longer contract terms (some up to 7 years). Independent operators should not try to replicate these securitized deals because the default risk is high and the deals are unlikely to “stay sold”. Performance of subprime auto paper is best measured by collections, not sales, and these customers (and their vehicles) will most likely return to the BHPH industry after they default. The day of reckoning cannot come soon enough for many independents. Hoping for change is not a prudent strategy. Operators need to act proactively.

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arlier this year Governor Greg Abbott appointed four new members to the Texas Finance Commission, the entity that oversees the OCCC. The Governor also elevated Stacy G. London to chair of the Commission. Via email, the Texas Dealer had the opportunity to visit with Ms. London as well as with Phillip Holt, the newly appointed commissioner who will serve in the capacity of consumer credit representative, which is the position that represents motor vehicle sales finance licensees.

Stacy G. London

Stacy G. London of Houston is president of Houston Capital Mortgage. She is a member of the Texas Mortgage Bankers and Houston Mortgage Bankers Associations. London is a past member of the Texas Savings & Mortgage Lending Advisory Board and past director of the Houston Mortgage Bankers and Texas Mortgage Brokers Associations. London earned a Bachelor of Arts from the University of Texas at Austin and a Master of Business Administration from the University of Houston. She is a Certified Mortgage Consultant. TEXAS DEALER Congratulations. Please tell us about when you got the call notifying you of your appointment as Chair. STACY LONDON First of all, I would like to thank TIADA for this opportunity to provide comments as the new

Chair of the Finance Commission. Naming a presiding officer is not akin to the business world. Many different factors impacted Governor Abbott’s decision making. I am truly honored to be selected and was extremely pleased when the call came. Historically speaking, I am proud to be the second female Chair and first Mortgage Industry Chair. TXD What do you see as the most significant achievements since your appointment? SL There are many accomplishments, some particularly noteworthy. The Commission’s agencies (DOB, TDSML & OCCC) are funded solely by licensing fees and no taxpayer dollars. The achievement of “Self-Directed SemiIndependent” status (SDSI) during the 81st Legislative Session was monumental. SDSI enhanced our levels of transparency and financial accountability. Annual Budget Day, the open public forum for comment, is an example. SDSI provided the financial tools to proactively navigate the 2008 crisis. Hiring Charles Cooper as Banking Commissioner in 2008 shepherded Texans through the meltdown. Retaining top quality examiners and managing agency staff levels safeguarded all Texas consumers. Hiring of Caroline Jones as Savings & Mortgage Lending Commissioner in 2014 enhanced regulatory oversight. Two of the three Agency’s Commissioners were selected during my tenure. Fiscally responsible governance resulted in minimal Texas bank failures and low home foreclosure rates.

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TXD As the new Chair, should we expect to see any changes in the way the board is run? SL The Finance Commission is a highly functional working body. Much credit is due to my predecessors, former chairs, Bill White & John Snider, as well as the individual members. Individual commission members have the ongoing responsibility to ensure stakeholder and public interests are heard and fairly balanced. My collaborative style will enhance productivity and initiative. In my opinion, balancing productivity with good change is sound management. Having named Jay Shands as Vice Chair, we will lead well together. While operations are excellent, areas for improvement or fine tuning can always be identified. TXD What priorities would you like to see the Commission address in the short term? SL We have experienced significant turnover with 5 new members and new Chair; our largest turnover in decades. Main short term priority is to effectively integrate new members into productive contributing members. Furthermore, to minimize operational disruption during this transition phase. Fortunately, 2016 being a non-legislative session year affords us extra time to focus on this daunting task. No matter how much one prepares, there is no substitute for on the job training. TXD What are some of your longer term goals?

SL Two major long term goals: 1) Maintain fair and balanced regulation promoting economic growth and opportunity, while protecting Texas consumers; and 2) Provide effective and responsive oversight of regulated industries. Currently, all 3 agencies are in strategic planning process, including goal setting. Having chaired the strategic planning committee for years, I have a solid foundation. Ensuring all agencies are staffed with quality, capable, skilled employees is a top priority. Preservation of the dual banking system and addressing Sunset are important matters. Relocation of the Finance Commission headquarters to a new home is a top priority. Our present facility is inadequate, dated and has been outgrown. Providing a good long term solution with a positive work environment is an essential goal. TXD What are you hoping your newest board members will be able to bring to the board? SL Having industry and public members brings a wealth of expertise and knowledge to the Commission. Building good productive members is the primary objective. All are accomplished professionals with much to offer. Identifying their strengths that can benefit us is the starting point. TXD What do you see as the role or responsibility of a stakeholder like TIADA? SL All regulation ultimately results in cost to the public; therefore need and impact to public and stakeholders must

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be balanced. Stakeholder involvement ensures fair regulatory oversight by helping shape policy. Vehicle dealers face issues and challenges every day. TIADA is tasked with protecting member interests. Working together with OCCC to provide input in the rulemaking process is a key stakeholder role. Industry concerns regarding licensing, contracts and fees are best addressed with industry input. Stakeholders have opportunity to be heard by the Commission and should always exercise their voice.

Phillip Holt

Phillip Holt of Bonham is a senior vice president of Security Finance Company. Holt is a member of the American Financial Services Association, National Installment Lenders Association, and Texas Consumer Finance Association. He serves as a volunteer for the Fannin County Children’s Advocacy Center. He previously served as a board member for the Texas Ranger Hall of Fame Museum. Holt earned a Bachelor of Science degree in Marketing from the University of Texas Permian Basin. TEXAS DEALER Tell us about when you got the call notifying you of your appointment to the Finance Commission of Texas PHILLIP HOLT The appointment process was interesting and very thorough. I had an interview with the Director of Appointments and his staff, which was a very broad discussion of my background and work experience. The interview ended with the impression that they would contact me in a few weeks once Governor Abbott had returned from his traveling schedule. I had been so busy with my job responsibilities, that I did not look at the caller ID to see it was the Governor’s office. When I realized that I had been selected, I was very humbled and honored to be given this opportunity to serve Governor Abbott and the industries which I will represent on the Commission. TXD What do you see as the most significant achievements of the Finance Commission previous to your appointment? PH I have been working with the Commission for over 12 years representing my company and have appreciated the open dialogue in which we can gather information and understand their position on rules and policies. I have always been proactive in working with the OCCC and I applaud the Commission for having the collaborative process in place to assist the industry in keeping the consumer as the top priority and allowing a level playing field for the industries. TXD Should we expect to see any changes in the way the board is run with the new board members and Chair? PH Chairman Bill White, the outgoing Chairman, has been such a strong leader and has put many policies and initiatives in place during his time for the good of the Commission. I am confident that Ms. London, as our new Chair, will follow this path and guide the members in a positive direction in the best interest of Texas lending institutions. May 2016

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TXD What are you hoping to bring to the board? PH My strength which I consider helpful to the board

is my experience with other states regulatory agencies. I am the current chairman of the American Financial Services Association (AFSA), State Government Relations Committee. In this role, I am fortunate to attend the annual meeting with the National Association of Consumer Credit Administrators (NACCA), which we meet as industry and regulators in a forum of sharing thoughts and concerns. This meeting allows me to see trends in other states that are working for the best practices of industry, what consumer groups are concerned with, and how to preserve the access to credit that the consumer is demanding. I also work at the Federal level, and my time spent with the CFPB and working with Congress should be helpful as we move forward. TXD What priorities would you like to see the Commission address in the short term? PH In the short term, my concerns are the small dollar lending rules proposed by the CFPB. The timing of these rules being released has been difficult to predict, and in these times of uncertainty, the industry tends to be forced into a “holding pattern” and product innovations are delayed, or expansion plans are on hold, all to detriment of the consumer. TXD What are some of your longer term goals? PH Long term goals are to try to reign in the compliance cost, which ultimately is passed onto the consumer. The CFPB has forced so many lending institutions in Texas to add staff and whole new departments to the payroll to adhere to the lengthy rules and regulations/ compliance. We have a great business climate in Texas, with one of the world’s largest economies to protect. The Finance Commission of Texas has provided a fair and balanced approach to the regulatory environment. I would like to see that our model, can work at the Federal level, protects the consumer, but still allows the lending industry to be creative, transparent, and provide access to credit for the millions of Texans today and those that will be relocating in the future. I feel our elected officials recognize this and I am proud to carry this message to Washington going forward. TXD What do you see as the role or responsibility of a stakeholder like TIADA? PH Stakeholders like TIADA have a major role with the Commission. I encourage all interested groups to advocate your position, to share your views and help educate the members of the Commission. I cannot be an expert on every issue, therefore I need to learn and understand the issues that face groups like TIADA, and will rely upon your representatives to keep me informed in a timely manner. I understand the process very well, and encourage a dialogue to be ongoing. I am anxious to serve and I hope to bring a new perspective to the Commission from my experiences around the country. 33

regulation matters Staying on Track

by Danny

s this year’s Annual Conference approaches, I am reminded of something we did (or didn’t do) last year which is pretty much unheard of for a TIADA Annual Conference: we did not offer a Compliance Learning Track. Don’t get me wrong, we had several compliance topics sprinkled in among the various Learning Tracks, but we did not offer a track dedicated explicitly to compliance. Well, suffice it to say that a few pointed comments from the attendees later and VOILA, a Compliance Track was established for our 2016 event. As you may have read elsewhere, we have actually significantly expanded the education on all five tracks, increasing from four sessions last year to seven this year. So five tracks with seven sessions each equals about 35 hours of education over two days. And that doesn’t even include our three general sessions or Dealer Roundtable discussions. {Quick personal side note on our opening general session presenter: It is Ingram Walters. He is, quite simply, the best speaker I have seen in the last 10 years, at any event. He is literally worth the price of admission by himself. Now back to your regularly scheduled column.} Big deal, you may be thinking; a compliance track — whoop de doo. I can get compliance training anywhere. Whoop de doo — really? Come on. The fact is there is NOWHERE you can get this variety and quality of compliance presenters under one roof — at any price, and definitely not for $495. Let’s have a look at the murderer’s row that comprises this year’s compliance track:

Tom Hudson Partner, Hudson Cook

Tom is one of the top industry lawyers in the business. He’ll be talking about the CFPB, cash vs. credit pricing and other hot-button federal issues. Hudson Cook had its own conference last month in Baltimore where you might have been able to catch Tom; bit more dear than TIADA, however, as registration runs around $800.

Bill Harbeson Enforcement Director, TxDMV Enforcement Division The rarest of the rare, Bill is a regulator who insists that dealers are his customers. The winner of the 2014 TIADA Independent Award, he and his staff will be talking about something you can’t get at the national events: Texas laws that apply to Texas dealers.

May 2016

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Langfield

TIADA DEPUTY DIRECTOR

Mike Dunagan Partner, Jameson Dunagan

Celebrating 40 years as general counsel to TIADA, and universally regarded as the foremost attorney in Texas on BHPH, Mike will dive deep into the troublesome legal issues surrounding bankruptcies and repossessions.

Curt Swenson Tax Policy Specialist,

Texas Comptroller of Public Accounts A longtime veteran of the Comptroller’s office, Curt and his staff are intimately familiar with taxability issues that arise in dealership audits, from sales tax on GPS units to RFC complexities — and everything in between.

Shaun Petersen Senior VP,

Legal and Government Affairs, NIADA Shaun’s experience in the Ohio Attorney General’s office as well as in the MacMurray, Petersen & Shuster private law firm gives him a unique perspective on consumer affairs. Now the top legal expert at NIADA, Shaun will provide guidance on the CFPB and FTC’s focus on customer complaints.

Huffman Lewis Supervising Examiner,

Office of Consumer Credit Commissioner Combining his background in the private financial sector with his 10 years of experience with the OCCC, Huff is a regulator who brings a thorough understanding of the marketplace. He will be reviewing actual deal jackets and providing a granular analysis of the documents inside. There will be plenty of good stuff on our other Learning Tracks as well (Special Finance & Retail, BHPH, Serial Entrepreneur and Technology); you can see it all at TiadaAnnualConference.com/education/learning-tracks. The 2016 TIADA Annual Conference will offer the best compliance education available anywhere — so don’t miss it! 35

feature

Regulatory Relief for Related Finance Companies Eight Years Later by Teresa Orkun

Texas Dealer Editor

hen SB 1617 passed the Texas legislature in 2007, TIADA led the charge. The association found a champion in the late Sen. Chris Harris who believed that Texas car dealers who finance in-house should be able to take advantage of a federal income tax procedure currently available to dealers in 49 other states. Under federal income tax law, dealers who finance inhouse without related finance companies (RFC) must pay income tax each year on income scheduled to be received in future years. By assigning receivables to a related finance company, dealers pay federal income tax only on collections made in that year. However, the Texas Tax Code provided that the assignment of an installment contract, even to a related finance company, had the effect of forcing the dealer to pay state sales tax on the entire amount of receivables, without any deduction for bad debt. The prospect of paying sales tax in advance had prevented many Texas dealers from using related finance companies. Still, some dealers had already formed an RFC and faced the threat of potentially having to accelerate and pay the sales tax for the past four years of receivables that had been transferred to their RFC. This only intensified the pressure to pass legislation almost ten years ago - any legislation. In the last few weeks of the session the then Comptroller, Susan Combs, determined SB 1617 would have a negative fiscal impact on the state budget. A fiscal note added at such a late date in the session is usually a death sentence for any bill. Thanks to Rep. Patricia Harless, Attorney General Ken Paxton — who was a state representative at the time, Sen. Chris Harris, and a determined TIADA legislative team the bill was saved by an amendment that allowed the Comptroller to “Establish a system that may require a RFC to annually register and charge an annual fee not to exceed $1500.” This offset the fiscal note placed on the bill and gave hope to many dealers who had been operating an RFC for years. TIADA Executive Director Jeff Martin was new to the association and had significant concerns: “It was a crazy time for the association. I had only been here for about six months and had never even heard the term related finance company. Mike Dunagan was very familiar with the issue but me, (deputy director) Danny Langfield and (lobbyist) Jimmy Evans; we were swimming upstream trying to figure out how we could help these dealers on an issue we just didn’t know that much about. I wore out Keith Hagler (owner of Taylor Auto Credit) asking him to explain it to me over and over.” Hagler remembers the stress of that period all too well.

“I lost sleep over it, no doubt. Like a lot of dealers, I needed that bill to pass. We weren’t looking at a slap on the wrist; we were looking at losing our livelihoods.” Martin recalls late night conversations trying to calm dealers; “They would call late at night, it would be ten or eleven o’clock and they would always ask how it went that day. These guys were nervous as could be and I could tell it was their dealership on the line. I just kept telling them the session wasn’t over yet but in the back of my mind I knew the sand was moving through the hourglass pretty quick.” After passage, the association worked closely with the Comptroller providing information throughout the rule writing process. The Comptroller eventually proposed rules that required each RFC to register and pay $600 annually. The association gladly agreed since many dealers where already transferring notes to their RFC and facing the threat of accelerating the sales tax. Now fast forward eight years. “I think we all knew back then that it was not a perfect system but the Comptroller was under a lot of pressure after the session to implement the new program in a very short time frame. We were just so happy it passed we would have agreed to anything,” Martin said. “This is a great time for us to revisit the issue though. Everyone at the Comptroller’s office has been great; they understand the issue and they really strive to make Texas business-friendly. It’s also nice that we are not so frantic with session.” In October of 2015, by way of a couple of tax audits, it came to the Comptroller’s attention that a few dealers had failed to renew their annual RFC registration. The Audit Department and the Texas Finance Code was pretty clear; dealers who didn’t renew their registration would have to accelerate the sales tax on transferred notes up to the last four years. A couple of dealers caught in this very situation contacted TIADA and the association quickly reached out to the Comptroller. The association explained that not renewing the RFC registration was simply a clerical error and that no customer or the state was damaged by the mistake. Darrell Moseley of Old Town Auto Sales in Lewisville was one such dealer. “I had moved and I never received a letter from the Comptroller’s office to renew my related finance company,” Moseley said. “I guess it went back to the Comptroller’s office and I just never thought about it. It wasn’t anything I would neglect to do. My CPA called me and told me it had lapsed. I just couldn’t do anything at that point. It T e x a s

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would truly have devastating consequences on my company.” TIADA explained, and the Comptroller understood, the RFC had nothing to gain by not renewing the registration. The Comptroller proved to have a very astute and business-like approach to solving the problem. After almost five months of discussions and negotiations on coming up with a better solution for Related Finance Companies to stay compliant and eliminate some of the regulatory burden, the Comptroller offered the following solution in a letter sent earlier this year: Dear Related Finance Company: Effective Jan. 1, 2016, Related Finance Company (RFC) registrations no longer expire, and the $600 registration fee will not be assessed. Accordingly, there is no annual renewal and no renewal fee. All registrations that were active on Dec. 31, 2015, and any new registrations, will remain active until you notify the Comptroller’s office that the RFC has ceased this activity or is no longer in business.

To say this is a big win for the dealers in the state of Texas would be an understatement. “The Comptroller’s new position is great! It not only saves us $600 annually, but it also deletes the risk of missing the renewal date which could accelerate sales tax for the lapsed time period.” Said Tommy Gregory of Abilene Used Car Sales, Inc. He echoed Moseley’s thoughts, “This would be very devastating to anyone with a RFC.” Greg Zak of Dixon Motors in Houston was thrilled. Zak has done a lot of work over the years educating legislators and policymakers at the state and federal level on how expensive regulation has become for the industry and the consumer. “Finally a government agency looking after the best interests of the consumers AND business,” stated Zak. “When the Comptroller’s office made the decision to eliminate the fee I thought, ‘Great - that is one less fee I have to pay,’ but the real win is not having the threat of a 2 million dollar unexpected sales tax bill one morning because you forgot to fill-out a piece of paper. Kudos to the Comptroller’s office. ” “Great news, one less compliance piece I have to keep up with,” was the first thought for Joh Riddle of Bi-Wize Auto in Dimmitt, “As an independent dealer we wear so many hats this is a pleasant surprise.” CPA Dave Keller with Clifton Larson Allen who advises the Independent Dealers Association on many state and federal tax related issues sees this as significant victory for the dealers. “This means you will no longer have to mark on your calendar when the renewal form has to be completed and submitted timely, and it also saves you $600 per year. Before this, if you forgot and you were audited then you ran a great chance of them making you pay all the sales tax up front when selling your notes to your RFC instead of deferring it. Having to pay all the deferred sales tax up front can very easily put a dealer out of business due to not having the adequate cash flow to do so.” Keller should know; his firm represents hundreds of buy-here pay-here dealers in Texas and works May 2016

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closely with TIADA to offer tax training throughout the year. “The Comptroller has taken a very dealer-friendly and practical approach to this issue,” added Steven Goldberg with SGC, a CPA firm out of Houston. “You know, TIADA did this using just the existing resources they had,” reflected Hagler. “No one hired Jeff or the association; no one contributed a dime to this cause. The association took on this challenge because they felt it was the right thing to do for this industry. Most dealers out there don’t realize just how important it is to support TIADA. We simply HAVE to have the kind of representation that TIADA gives us.” Greg Reine emphasizes compliance at his dealership, Auto Liquidators, in Dallas. He summed it up by recognizing all the parties involved, “First, I would like to say how grateful we are that our state association has such a great relationship with our State Comptroller’s office, as well as many other regulatory agencies. We are fortunate to have an association that truly understands our industry, and can share their knowledge with others so that we can all be successful and productive. This new position is great; not only do we save $600 per year, but it is one less thing, in this heavily regulated industry, that we have to manually track. We are thankful that the Comptroller’s office was able to see the burden that this policy put on us and agreed to change it in order for it to best benefit everyone involved!”

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5577 Highway 80 East Longview, TX 75605 903.553.9248, Fax 903.553.0210 General Manager: Robert Dunning Thursday, 9:00 a.m.

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America’s AA North Houston

LUBBOCK

15735 I-35 Frontage Road Elm Mott, TX 76640 254.829.0123, Fax 254.829.1298 General Manager: Darren Darnell Friday, 10:00 a.m.

1440 FM 3083, Conroe, TX 77301 936.441.2882, Fax 936.788.2842 General Manager: Buddy Cheney Monday, 6:30 p.m.

Insurance Auto Auctions*

Heart of Texas Auto Auction

5311 N. CR 2000 Lubbock, TX 79415 806.747.5458, Fax 806.747.5472 General Manager: Lori Davee Tuesday, 9:30 a.m.

2508 Old Marlin Hwy. 6 Waco, TX 76705 254.755.7713, Fax 254.755.7746 General Manager: Allan Wichkoski Thursday, 7:00 p.m.

America’s AA Houston New! www.americasautoauction.com

www.americasautoauction.com

Big Texas Auction of Houston New! www.bigtxauctions.com

2000 Cavalcade St. Houston, TX 77009 832.204.7500, Fax 832.204.7499 General Manager: Joe Lavigne Friday, 10:00 a.m.

Houston Auto Auction

www.houstonautoauction.com

6767 North Freeway, Houston, TX 77076 713.644.5566, Fax 713.644.0889 President: Tim Bowers Tuesday, 1:00 p.m. May 2016

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www.iaai.com

www.allianceautoauction.com

www.heartoftexasautoauction.com

MIDLAND / ODESSA

OKLAHOMA CITY, OK

Insurance Auto Auctions*

Dealer’s Auto Auction of OKC, Inc.

701 W. 81st Street Odessa, TX 79764 432.550.7277, Fax 432.366.8725 General Manager: Barbara Hallmark Thursday, 11:00 a.m.

1028 South Portland Oklahoma City, OK 73108 405.947.2886, Fax 405.943.8370 General Manager: Gary Smith Thursday, 8:30 a.m.

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www.daaokc.com

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4/21/16 1:07 PM

feature

Quiet is the New Loud — Time for a VDP Tune-Up by Brent Wees

FEATURED PRESENTER

f you’re a dealer who actively looks at your website analytics, it is clear that the majority of your web traffic is navigating through your vehicle inventory pages. That’s a good thing! This tells you that people are finding the necessary content they need to make a decision on their next vehicle purchase. What many dealers don’t take into account is that the VDP page design can be so overwhelming, that it serves as a deterrent! The goal is to engage a page visitor just enough to continue the conversation right through the delivery, so why do we allow our VDPs to be the loudest page on the website? Quiet is the new loud and that means having a “singleness of purpose” for your VDP pages. Here are four of the biggest culprits that contribute to a “loud” VDP page.

Buttons The easiest way to ruin a customer’s first impres-

sion, is to fill the page with as many “Call to Action” buttons as possible. Is it necessary for a shopper to assess 10+ choices in order to speak to you about a vehicle of interest — or could they reach the same outcome by filling out one simple form? A recent Canadian-based study by Time magazine (http://time. com/3858309/attention-spans-goldfish/ ) shows that a person’s average attention span has reduced down to 8 seconds due to our evolving digital lifestyles. 8 SECONDS! That’s less than a goldfish’s! If we can’t focus for more than 8 seconds, why are our VDPs shouting multiple messages and coloured buttons? Consumers need to make a connection with the vehicle, followed by an even more efficient connection to you, the dealer. This same theory goes for any additional graphics or banners that promote other aspects of your dealership. Too loud! Turn them off or ask your vendor to remove them from your VDP page.

Vehicle Descriptions Nothing screams ‘uninterest-

ing’ more than a VDP’s Vehicle Description area, filled with a repetitive list of included features or your dealership’s “why buy” message. Dealerships that are converting their web traffic are often the ones crafting unique descriptions about EACH vehicle. This section is so critical to the shopper’s discovery process, helping the visitor understand how that vehicle can be valuable to them. A CDK research study last year (http://www. cdkglobaldigitalmarketing.com/the-2014-inventory-shoppingexperience-study/) showed that 38% of dealers felt that their “why buy” messaging was the most important content in a vehicle description. Get over yourselves and remember the website’s number one goal is a HAPPY USER.

Death by a Thousand Stock Photos Do you have real live inventory on your website but continue to serve up May 2016

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stock images of said vehicles? You’re diminishing any opportunity to drive folks onto the actual VDP page! In the same study by CDK, 70% of shoppers said they didn’t click-through to a VDP where a stock photo was present in their search results. Let’s think about that for a second. Imagine a search results page on your website that is populated with Lexus RX 350s. If you’re using the same stock image, that shopper will likely assume that all of those vehicles are the exact same. Put your best foot (or photo) forward by ensuring the best representation of that vehicle is the first thing shoppers see. To expand on this, visual consistency is key. When a customer inevitably clicksthrough on a listing, that fantastic photo should be on display, with an accompanying gallery to hold their interest. Robust image galleries will engage shoppers longer, improving your chances to convert them to a true lead.

The Exciting World of Technical Specs “Yes, I’ve been dying to learn that vehicle’s engine bore x stroke was 84.0mm x 89.6mm”, said no one ever. Please stop jamming every spec and option onto your VDP pages — and especially don’t attempt to cram it above the fold with everything else. This just adds to the noise, while stealing prime real estate away from images and your lead form. You have sold and delivered enough cars to know what information your customers value. Most web vendors will automatically pull content through third party providers, to help round out the vehicle information. Partner with them to trim the fat from these feeds, to refocus on the core details that you know your customers are looking for. Don’t leave it to your vendor to decide what is most relevant. If you remain vigilant with these four common distractors, you will see your page conversions rise. Let’s break it down one more time: 1. Kill all the buttons: Simplify your VDP with one ON-PAGE form that serves your dealership best. 2. Personalized descriptions: it’s all about the car’s value to the shopper. It’s not about you, and it’s not a spec sheet. 3. Real pictures: Stock photos suck and we all know it. 4. Page layout: Keep the most important content above the fold. Vehicle photos, price and one form—that’s it. Many of you recognize that these are the biggest causes of a “noisy” VDP page. I’m not preaching anything groundbreaking here. Just as regular scheduled maintenance will improve the performance of your customers’ vehicles; apply the same logic to your webpages. 43

Local Chapters VICTORIA Dennis Schroller Victoria Autos Direct 361.578.0530 Dennis@victoriaautosdirect.com Meeting – 1st Monday (Monthly) FORT WORTH Mark Jones MCMC 817.703.7973 mjones@mcmcauto.com Meeting – 4th Thursday of Jan–May and Sep–Oct DALLAS COUNTY Kevin Mims VP Auto Sales 972.864.1300 kevinm@vpautosales.com Meetings as needed/TBD HOUSTON John Freeman Galena Park Motors 713.675.0559 houiada@houiada.com Meeting – 2nd Tuesday (Monthly) SAN ANTONIO Robert Beck Stop N’ Drive Motors 210.432.1101 stopdrive@texas.net Meetings quarterly (dates announced at www.txiada.org) EL PASO Ricardo Gardea Cars Plus 915.778.8285 cars_plus@att.net Meeting – 3rd Friday (Monthly) 44

Please Welcome Our Newest TIADA Members DEALER MEMBERS Auto Center of Texas – Dallas Chris Knox PO Box B Terrell, TX 75160 Auto Center of Texas – Kaufman Chris Knox PO Box B Terrell, TX 75160 Max Carbiz Esteban Nunez 3515 Franklin Ave. Waco, TX 76710 New Start Auto LLC Justin Taylor 1000 N Central Expwy Richardson, TX 75080 A1 Auto Deals Jason Johnson 3451 Ella Blvd Houston, TX 77018 Adonis Auto Group LLC Eric Ryan 804 N. Watson Road Arlington, TX 76011 B&M Car Company LLC Richard Dodson 815 East Davis St. Conroe, TX 77301

Byblos Auto Mohamad Arbid 608 Pebbleshire Dr. Houston, TX 77062

ASSOCIATE MEMBERS

Charlton Motors Gary Charlton 1425 Justin Rd Ste 950 Lewisville, TX 75077 City Auto Outlet Pete Chavez 3432 Hemphill Ft. Worth, TX 76110 Goings Autos Michael Goings 1010 Spring Cypress Rd Spring, TX 77373 King’s Auto Sales James King 444 N Gun Barrel Lane Gun Barrel City, TX 75156

Dealer Alert Network Robert Doggett 2005 N Bell Blvd Cedar Park, TX 78613 Omnique Shop Management Software Erik DeBoer 4800 Van Gordon St Wheat Ridge, CO 80033 STARS GPS Allen Douglas P.O. Box 10 Thomasville, NC 27361 Verifacto Enrique Castiblanco 3851 Holcomb Bridge Rd, Ste 400 Norcross, GA 30092

Texas Auto Liquidators LLC Michael Wheeless 7445 US Hwy 287 Arlington, TX 76001 Dallas Pre-Owned Auto Group Ray Chorfi 3404 Wiley Post Road Carrolton, TX 75006

resource guide The TIADA Website:

www.txiada.org Members can log in with their username/ password and access our Dealer Member Directory, Legislative Action Center, Legal Consultation Service and much more. Register for all upcoming TIADA events online at the Calendar of Events; access our online membership application; find contact information for all our Local Chapters, and find many additional resources at our Knowledge Base. Texas Department of Motor Vehicles 888.368.4689 www.txdmv.gov Office of Consumer Credit Commissioner 800.538.1579 www.occc.state.tx.us

Texas Comptroller 800.252.1382 www.window.state.tx.us NIADA 800.682.3837 www.niada.com

REPOSSESSIONS

American Recovery Association 972.755.4755 www.repo.org or contact TIADA state office

FORMS

Burrell Printing 800.252.9154 www.burrellprinting.com T e x a s

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May 2016

Garage Liability Kevin Smith Insurance is now Tri-State Dealer Services. With expansion and coverages being available outside of Texas, we’ve changed our name to better suit the areas of our growing agency.

1-800-687-3236 Tri-State Dealer Services is one of the largest writers of Garage Liability in the state. We work with several A+ rated companies which offer exceptional rates to car dealers and repair shops. Call today for a “quick” 10-minute quote!

8240 Mid Cities Blvd N. Richland Hills, TX 76180 800-687-3236 / Fax (817) 581-1921

May 2016

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WE ALSO OFFER THESE COVERAGES:

F&I • Vehicle Service Contracts • GAP Insurance • Tire & Wheel Vehicle Protection Products • Property • Wreckers 2 Car Haulers • Cargo • Dealer Bonds • Personal Lines 45

behind the wheel

Martin

Don’t Be Afraid of Change

arning! This article requires a lot of work but, there could be a huge payoff at the end. Start by jotting down your favorite quote about change. You may have one off the top of your head or you may have to go to the internet to find one. But give it some thought; spend five or ten minutes just thinking about the difficulty, the challenges and the necessity of change. If you are following instructions you should be picking this article back up 5 minutes or so after reading quotes on the internet about change, and you have yours right there with you. Of all the ones I perused on the internet I liked this one the best: “I cannot say whether things will get better if we change; what I can say is they must change if they are to get better.” — Georg C. Lichtenberg I had to look up old brother Georg C. Lichtenberg since I had never heard of him. I guess I missed that day in world history! But his words ring true today and represent our philosophy as we look at our annual conference every year. So what changes will we be making at this year’s conference with an aim at getting better?

Business of the Association

For starters, we have moved the business of the association from the last day of the conference to the first day. The House of Delegates will convene on Sunday, July 24. We will also elect officers at that time and discuss the legislative agenda. For the past five years about 75 to 100 dealers have attended this event annually and the feedback has suggested that it always feels rushed and out of place squeezed between the education and the awards banquet. We think this move will make things flow much better and it will give us ample time to discuss important legislative issues.

Expo Hall

We are making two major changes in the expo this year. Our expo has doubled in size over the last four

by Jeff

TIADA EXECUTIVE DIRECTOR

years and attendees have started asking for more quality time with our sponsors. Seems one person can’t get around and visit over 110 booths. So this year we are going to leave the expo hall open during the dealer roundtables for scheduled appointments. Dealers and sponsors will have time to demo products and have more in-depth conversations about services. We will also move the Tuesday expo to the morning and have breakfast with the sponsors instead of lunch. This will allow the sponsors who need to leave early to breakdown their booths and get out of town a little sooner.

Networking

The major change here will be how we set the rooms in our general session with more round tables. We get it — dealers like to talk to dealers. We will also host a legislative luncheon that will give you ample time to hear about legislative issues that will affect your business and network with other dealers.

Education

And the biggest change will be the amount of education we are packing into the conference this year. 15 additional breakout sessions of education will be offered compared to last year. We kept the learning tracks philosophy but changed up a few of the tracks. We ditched “Wild Card” and “The Basics” for “Compliance” and “Technology” tracks. We had all the compliance and technology training sprinkled throughout last year’s education but we still had attendees asking about it so we are going to be a little more direct this year. Now, remember that quote you wrote down? How does it apply to your dealership, your business? Do me a favor and send your quote to jeff.martin@txiada.org. Put “change” in the subject line. I am going to pick my favorite quote at the end of this month and that person will receive a free registration to conference. The TIADA Conference is a great place to explore change; it’s a great place to get better. T e x a s

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May 2016

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