TexasDealer jan2017 by Texas Independent Auto Dealers Association

85th Legislative Session:

Make Your Voice Heard Also In This Issue: – Michael W. Dunagan on Changes to Used Car Rule and Buyers Guides – Is Your Portfolio Maximizing Its Returns? – Year-end Review of Legal Developments at the Federal Level – Changes to the Current Expected Credit Loss (CECL) Standard

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2017 TIADA Board of Directors PRESIDENT Kathrine Tolsch/CICO Auto Sales 11050 Harry Hines Blvd. Dallas, TX 75229 Office: 214.352.9282 / Fax: 214.352.8227 Email: cicoauto@verizon.net PRESIDENT-ELECT Greg Zak/Dixon Motors 7902 North Freeway Houston, TX 77037 Office: 281.931.1300 Email: gzak@windstream.net CHAIRMAN OF THE BOARD Phil Lathrop/VP Auto Sales Inc. 2921 S. Garland Avenue Garland, TX 75041 Office: 972.864.1300 Email: phillipl@vpautosales.com SECRETARY Trey Crouch/Trey Crouch’s Wheels On Credit, Inc. 636 E. Business 83 McAllen, TX 78501 Office: 956.972.0700 Email: trey@wheelsoncredit.com TREASURER 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, WEST TEXAS (REGION 1) Paul Scott/Fiesta Motors – Lubbock 2599 74th Street Lubbock, TX 79423 Office: 806.765.3640 Email: pscott@gofiestamotors.com VICE PRESIDENT, FORT WORTH (REGION 2) Mark Jones/Mike Carlson Motor Company 264 Exchange Burleson, TX 76028 Office: 817.703.7973 Email: markjones_1@att.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) Ryan Winkelmann/BJ’s Autohaus 5005 Telephone Road Houston, TX 77087 Office: 713.641.0980 Email: ryan.winkelmann@sbcglobal.net VICE PRESIDENT, CENTRAL TEXAS (REGION 5) Robert Blankenship/Texas Auto Center 6809 N IH-35 Austin, TX 78744 Office: 512.280.5333 Email: bob@texasautocenter.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 Juan Sabillon/Mi Tierra Auto Sales 7935 Gulf Freeway Houston, TX 77017 Office: 713.644.2446 Email: brentfordct@yahoo.com VICE PRESIDENT AT LARGE Greg Reine/Auto Liquidators 39670 LBJ Freeway Dallas, TX 75237 Office: 972.780.0001 Email: greg@autoliquidators.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

Volume XVII

/ Issue 1

/ J a n u a r y 2 017

texasDealer

4 Officers’ Message

contents

by Phil Lathrop, TIADA Chairman of the Board

6 Upcoming Events 8 TIADA Scholarship Application 11 Legal Corner: FTC Amends Used Car Rule and Buyers Guide by Michael W. Dunagan

16 On The Cover: 85th Legislative Session: Make Your Voice Heard by Michael Spurlin

21 In Memoriam: Jack Cone 21 Local Chapters 22 Board of Directors Meeting Minutes 25 TIADA Annual Conference and Expo 26 2017 VIP Auction Card Directory 29 What Is This? New Current Expected Credit Loss (CECL) Standard by Kevin Roy

33 Is Your BHPH Portfolio Maximizing Its Returns? by Kenneth Shilson

35 E xcerpts from The CARLAWYER©: Legal Developments at the Federal Level by Thomas B. Hudson and Nicole Frush Munro

39 M ystery Shop Your Sales Automation and Lead Nurture System to Increase Sales Now by Wayne Herring

41 TIADA Member Application 42 Education Offerings Winter/Spring 2017 44 New Members 45 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... Expired members can no longer view member-only

content published on the TIADA website, such as links to previous issues of Texas Dealer? However, you can still log in with your username and password to renew your membership for 2017. It only takes a minute! The Editor of the Texas Dealer magazine is Michael Spurlin, Social and 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 Acquiring a Capital Line and Subsequent Care and Feeding of Your Lender

aising capital can be vital to the growth of your business. Once you have acquired a capital source, it is equally important to maintain that relationship to keep your capital source in place.

Acquiring a line of credit

You want to find a capital source with the best terms possible. Typically, a bank will have the best rates. I suggest you start by gathering information about which banks lend to our industry. They will know the jargon and need less education. As you search for the best fit for your business and start applying for loans, you will find out quickly if you can get a bank line. If not, look at lenders who will take on more risk and likely charge higher rates. Stay positive, but be realistic about the quality of your loan portfolio that will be the collateral for most loans. Remember a few basic concepts. A lender has three things in mind when looking at making a loan. First, what is the collateral? The loan portfolio is one, real estate is another. Second, what is the risk factor? Does the applicant have the skill level to make the business successful if a loan is made? Third, what is the outcome for the bank in the event of a default? You will need to be able to show how you make money, why you need a loan and what makes it possible to

by Phil

Lathrop

VP Auto Sales Inc. (Garland) TIADA CHAIRMAN OF THE BOARD

pay back the money borrowed. Make sure you yourself understand the processes involved. If you don’t understand it, you will not be able to explain it to your banker. If you can’t help him share your vision, you will be turned down. When you determine what lender you want to approach, find out the loan officer that handles these types of loans. Call them and ask to set up a time to meet and discuss the needs for your business. Don’t try to apply over the phone. You need a face to face. As you prepare for this meeting, this is the documentation you should have ready to go: A written opening statement introducing yourself with a brief synopsis of your history in the industry and a description of your operation Last two years of business tax returns Principle aging report detailing your loan portfolio Year-to-date balance sheet and Profit and Loss statement Personal tax returns for the last three years Current Personal net worth statement If incorporated, Articles of Incorporation and Bylaws One year Business Projection as if the loan is approved and in place (cont’d on pg. 6)

Be positive and persistent. Once you find a lender and terms are presented, make sure the requirements are something you can live up to as getting a loan is part one. 4

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Officers’ Message (cont’d from pg. 4)

This should be enough documentation for you to initiate a conversation. If the bank requires additional documentation, be prepared to produce it. Be positive and persistent. Layout your concept and answer all questions. Once you find a lender and terms are presented, make sure the requirements are something you can live up to as getting a loan is part one. Now you must perform!

Upcoming Events

The Care and Feeding of Your Lender

TIADA DEALER ACADEMY Online Registration available at www.txiada.org

January 2017 1 0 Sales Team and Sales Process

Growth Intensive Sheraton Arlington Hotel 1500 Convention Center Drive Arlington, TX 76011, 817.261.8200

1 1 Sales Team and Sales Process

Growth Intensive Sheraton Houston Brookhollow Hotel 3000 North Loop West Frwy Houston, TX 77092, 713.688.0100

1 2 Sales Team and Sales Process

Growth Intensive Marriott South Hotel 4415 S. IH35 Frontage Road Austin, TX 78744, 512.441.7900

1 6 BHPH Compliance: A Comprehensive Workshop Sheraton Suites Market Center 2101 N. Stemmons Freeway Dallas, TX 75207, 214.747.3000

March 2017 2 7 BHPH Compliance: A Comprehensive Workshop Houston, TX

April 2017 3 Collect the Cash Not the Car

Houston, TX

2 5 Better BHPH Financials Dallas, TX OTHER TIADA EVENTS January 2017 3 0 Board of Directors Meeting

Austin, TX

3 1 Lobby Day Austin, TX April 2017 24 Board of Directors Meeting Austin, TX

Now you have a bank line in place and you have agreed to meet the reporting standards and covenants, you must take care of business. This will typically require monthly reports to show how the business is doing. You will be asked to submit timely information and show you comply with all the covenants. If this is new to you or you don’t understand how to report something, contact your lender. They want you to be successful and understand you are a car dealer, not an accountant, and may need clarifications or help when dealing with accounting details. You need to fully grasp what is required and rely on your accountant to assist. The worst thing you can do is send misinformation or no information. Keep in regular contact with your lender. This is an important relationship and needs to be nurtured. Meeting for lunch and occasional phone calls are good. My experience with my banker has been positive. The more he knows about me and my business, the better equipped he is to deal with situations and provide banking advice. The most important quality is honesty. If you run into a snag, trust your banker to help. If you try to hide a problem, it only gets worse. An early hand raising can be essential to problem solving. Good luck in your search for capital. Be prepared when you go looking and protect the relationship once it’s in place. T e x a s

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ATTENTION STUDENTS!!!

$1,000 TIADA SCHOLARSHIP DEADLINE

May 5, 2017 {Applications and/or any required documents received after May 5, 2017 will NOT be accepted.} Criteria and Guidelines 1. Each applicant must be entering or currently enrolled in an accredited college or a trade school. Proof of enrollment must be included with this application. 2. Each applicant must provide a letter from their TIADA member sponsor that includes the sponsor’s address and Saturday phone number. 3. Each applicant must complete the application form.

SCHOLARSHIP APPLICATION Date: Name:

DOB:

Address: City:

State:

Zip:

State:

Zip:

Email: Telephone Number: High School Last Attended: Address: City: Dates of Attendance: Date of Graduation: Other High Schools Attended (Names and Addresses):

4. High school senior applicants must be in the top 25% of class. If applicant is currently enrolled, provide college transcripts with official copy of university imprint. In addition, a high school transcripts is required for applicants who are college freshmen. 5. Provide a detailed description of participation in any academic, honorary, civic or extracurricular activities in college. In addition, a detailed description of high school activities is required from college freshmen along with a college acceptance letter. 6. Compose an essay of no more than two typed, double-spaced 8 ½” x 11” pages. The essay should discuss the applicant’s relationship with their TIADA scholarship sponsor, current education goals and future aspirations as it relates to the applicant’s subject/training area. 7. Provide at least two (but no more than three) letters of recommendation, no older than one year, from college/high school faculty, employers or other appropriate sources (not related).

College(s) you are attending or plan to attend for admission:

Parents Name(s): TIADA Member Name (Sponsor): TIADA Member Company Name: TIADA Member Address: City:

State:

Zip:

Sponsor Signature Should you have any questions, please contact TIADA at 512.244.6060. Please return the completed application with all required documents to: TIADA Attention: Scholarship Applications 9951 Anderson Mill Rd., Suite 101 / Austin, TX / 78750

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legal corner

FTC Amends Used Car Rule and Buyers Guide by Michael

eginning January 27, 2017, dealers will be required to use an amended Federal Trade Commission Buyers Guide form. Those dealers who stock preprinted forms can use existing supplies of the prior form for up to one year. In addition to making changes to the Buyers Guide form, the FTC passed amendments to the Used Car Rule that incorporate the form changes and include samples of the new forms. Further, the new forms will be available online at ftc.gov in a “fillable” format that allows information to be typed into fields on the form and then printed out with the added information. The idea behind the Buyers Guide is that a potential usedcar buyer would be informed of whether or not a warranty would be given, and if so, what the warranty covers. The posting requirement is intended to give a shopper the information before the purchase decision is made. (As a historical aside, the originally proposed rule would have required the checking of “OK” or “Not OK” on a lengthy list of vehicle components that appeared on the proposed guide. An extensive lobbying campaign by dealer associations, including TIADA, that went all the way to the halls of Congress, resulted in the lessconstrictive current disclosure requirement.) To recap the requirements of the Used Car Rule, dealers who sell more than five vehicles in a 12-month period are obligated to

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post properly filled-out Buyers Guides on all cars offered for sale to consumers. As originally passed, the rule required posting the guides on a side window (thus, the “FTC window sticker” name that was so common for many years). The rule has been liberalized now to require that guides be displayed in a “clear and conspicuous” location on vehicles, with both sides of the form visible. The Buyers Guide is to be filled out by the dealer to indicate to a potential buyer whether the vehicle is being offered without warranty (“as is”), or with a warranty. If a warranty is given, the consumer is to be informed whether the warranty is a “full” warranty or “limited” warranty, and given a summary of what the warranty covers. (A more complete discussion on offering limited warranties and filling out Buyers Guides when such a warranty is given can be found in my article, “Offering Limited Warranties: The Dealer’s Options” in the April, 2016 issue of Texas Dealer.) In its Dealer’s Guide to the Used Car Rule, the FTC has listed some specific display methods that meet the clear and conspicuous

Dunagan

TIADA GENERAL COUNSEL

To recap the requirements of the Used Car Rule, dealers who sell more than five vehicles in a 12-month period are obligated to post properly filled-out Buyers Guides on all cars offered for sale to consumers. requirement. For instance, the Buyers Guide can be hung from the rear-view mirror inside the car, or a side-view mirror outside the car, or can be placed under a windshield wiper. And, of course, the original side window location is acceptable. The placement in a glove compartment, trunk, or under a seat does not meet the clear and conspicuous test. A Buyers Guide can be removed for purposes of a test drive, but must be replaced after the test drive. 11

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The rule also requires that all consumer retail contracts contain specific language that incorporates the disclosures on Buyers Guides as part of the contract between the parties. A copy of the Buyers Guide must be given to the retail buyer prior to consummation of the sale. It is important that dealers not attempt to create their own Buyers Guides. The size, format, ink color, and type style and size are dictated in very specific terms, and are not to be varied. One allowable change that is permitted is the addition of a customer signature line (there is no signature line on the FTC’s forms), but the customer’s signature must appear after the additional statement: “I hereby acknowledge receipt of the Buyers Guide at the closing of this sale.” The location of the customer signature line is to be at the bottom of the back side where customer complaint contact information appears. If negotiations for the sale take place in Spanish, a Spanish language version of the Buyers Guide must be posted. Some dealers with large Spanishspeaking customer bases either display only the Spanish language version or both English and Spanish on their inventory vehicles. What are some of the changes that the FTC has made to the Buyer’s Guide? Dealers are still entitled to offer a vehicle without warranty and thus check on the Buyers Guide

the box for “as is.” The description of “as is” has been changed on the new version with the expressed intention of more specifically pointing out to a potential buyer what “as is” means. The new description reads: “THE DEALER DOES NOT PROVIDE A WARRANTY FOR ANY REPAIRS AFTER SALE.” There are boxes on the face of the newer version that dealers can check to indicate whether a vehicle is covered by a thirdparty warranty and whether a service contract is available, or

If negotiations for the sale take place in Spanish, a Spanish language version of the Buyers Guide must be posted. Some dealers with large Spanishspeaking customer bases either display only the Spanish language version or both English and Spanish on their inventory vehicles. whether an unexpired manufacturer’s warranty applies. The Buyers Guide’s list of major defects that may occur has been expanded to add air bags and catalytic converters. A statement has been added that directs consumers to obtain T e x a s

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a vehicle history report and to check for open recalls. The statement includes reference to both the ftc.gov/usedcars for information about obtaining vehicle history reports, and the safercar.gov site to check for open safety recalls. The new version includes a statement, in Spanish (even on English-language forms) that advises Spanish-speaking consumers to ask for the Buyers Guide in Spanish if the sale is conducted in Spanish. A Spanish translation of the statement that dealers may use to obtain a consumer’s acknowledgement of receipt of the Buyers Guide.

Having the proper version of the Buyers Guide is of little value if it is not properly filled out or if it is not consistently posted on all used vehicles offered for sale by the dealer.

Having the proper version of the Buyers Guide is of little value if it is not properly filled out or if it is not consistently posted on all used vehicles offered for sale by the dealer. When I perform on-site compliance audits for dealers, I find that most dealers are attempting to comply, but usually fall short of 100 percent compliance simply because of the difficulty of keeping up with all vehicles that arrive on the lot (keep in mind that the dealers who go to the expense of such audits are usually the ones that are already at the top of the compliance heap). I have recommended to those having a hard time achieving 100 per cent compliance that they designate a “not for sale” area for placement of newly-arrived inventory, and where customer cars, employees personal cars, and repossessed units pending disposition are kept. One of the complaints I’ve heard from dealers about the Buyers Guide requirement is that there are apparently some dealers who ignore the rule completely and don’t seem to ever get called out. This observation may give rise to a feeling that there is no penalty for non-compliance. If anything, the FTC has indicated recently a January 2017

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stepped-up show of enforcement. For example, the FTC’s Southwest Region performed a well-publicized survey of compliance with the Buyers Guide requirements in the Jonesboro, Arkansas area back in 2013. Ten dealers were found to be properly displaying the guides on “all or nearly all” of the used cars offered for sale on their lots. Eight dealers surveyed didn’t have

The lessons here are straight-forward. If a dealer offers used vehicles for sale to non-dealers, the dealer must display FTC Buyers Guide forms on all motor vehicles offered for sale.

Dealers who are primarily wholesalers, but who make occasional retail sales, are prime candidates for enforcement actions if they fail to post guides on all vehicles on their lots. To qualify for a wholesale exemption from the

BUYERS GUIDE IMPORTANT: Spoken promises are difficult to enforce. Ask the dealer to put all promises in writing. Keep this form. VEHICLE MAKE

MODEL

YEAR

VIN NUMBER

DEALER STOCK NUMBER (Optional)

WARRANTIES FOR THIS VEHICLE:

AS IS - NO WARRANTY YOU WILL PAY ALL COSTS FOR ANY REPAIRS. The dealer assumes no responsibility for any repairs regardless of any oral statements about the vehicle.

WARRANTY FULL

LIMITED WARRANTY. The dealer will pay ____% of the labor and ____% of the parts for the coveredsystems that fail during the warranty period. Ask the dealer for a copy of the warranty document for a full explanation of warranty coverage, exclusions, and the dealer’s repair obligations. Under state law, “implied warranties” may give you even more rights.

SYSTEMS COVERED:

DURATION:

SERVICE CONTRACT. A service contract is available at an extra charge on this vehicle. Ask for details as to coverage, deductible, price, and exclusions. If you buy a service contract within 90 days of the time of sale, state law “implied warranties” may give you additional rights. PRE PURCHASE INSPECTION: ASK THE DEALER IF YOU MAY HAVE THIS VEHICLE INSPECTED BY YOUR MECHANIC EITHER ON OR OFF THE LOT.

Buyers Guides on most or all of their cars, and three dealers failed to have Buyers Guides on “a significant number” of their cars. As a result of the survey, the FTC sent warning letters to 11 dealers requiring them to come into compliance by properly displaying guides in clear and conspicuous locations on all used cars offered for sale. This past June, the FTC issued a $90,000 civil penalty against a used car dealer in Jonesboro, Arkansas (presumably one of the ones examined in the prior survey) for failing to display Buyers Guides on used motor vehicles offered for sale. In addition to the penalty, the dealer is prohibited from misrepresenting material facts about used vehicles offered for sale, and from failing to properly disclose whether or not there is a warranty. The FTC is authorized to issue penalties of up to $40,000 per violation of the Used Car Rule. State agencies have also been jumping on the enforcement bandwagon. The Texas Department of Motor Vehicles’ enforcement division, as part of its dealer audits, routinely writes up violations of the rule. The failure to display Buyers Guides has been one of the highest ranking categories of violation in terms of numbers. A review of the TxDMV violation reports that appeared in the March, 2013 edition of this magazine reflected that 13 of the 49 violations reports involved failure to display Buyers Guides. 14

SEE THE BACK OF THIS FORM for important additional information, including a list of some major defects that may occur in used motor vehicles.

FTC requirement, a dealer must make it clear that sales will only be made to other dealers, and retail purchasers would be turned away. While wholesale-only auto auctions are exempt from the Buyers Guide, retail auctions must comply. Also, dealers must display Buyers Guides on all consignment vehicles they offer for retail sale. An important consideration in complying with the FTC rule is the training and education of staff, with emphasis placed on the importance of proper display and use of the Buyers Guide. Also, employees (especially sales people) should be instructed that no sales discussion on a vehicle can take place with a consumer until a Buyers Guide has been posted. The lessons here are straightforward. If a dealer offers used vehicles for sale to non-dealers, the dealer must display FTC Buyers Guide forms on all motor vehicles offered for sale. 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. T e x a s

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on the cover by Michael Spurlin Texas Dealer Editor

85th Legislative Session:

Make Your Voice Heard 16

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Representative John Frullo addresses members at the 2016 Annual Conference and Expo.

ver since the last legislative session in 2015, TIADA staff and members have been working to foster relationships with state legislators to share the story of the valuable role dealers play in their communities. At last year’s Annual Conference & Expo, numerous legislators addressed the attendees. Those legislators included State Senators José Menéndez and Eddie Lucio Jr. as well as State Representatives Drew Springer, John Frullo, Ryan Guillen and former TIADA President Patricia Harless. Each lawmaker also had an opportunity to meet TIADA members and hear firsthand the issues affecting the industry. TIADA also worked to cultivate relationships with legislators through its political action committee, INDEPAC. Last year, TIADA supported a number of different legislators via INDEPAC contributions. Those legislators included both state senators and state representatives from both sides of the aisle. All told, TIADA members contributed more than $35,000 to INDEPAC in 2016. Currently, TIADA is preparing for Lobby Day on January 31st at the Capitol. This will be the fifth time TIADA has hosted the event. Dozens of dealers will spend the day walking the halls, visiting with various legislators, discussing specific bills and reviewing the legislative program. Over 40 dealers participated in 2015 and we anticipate even more to do so this year. The connections these dealers make

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The connections these dealers make will prove invaluable to the association as the session progresses. However, we still need your help. Only when more members get involved can TIADA grow its legislative influence. You can get started today by visiting TIADA’s online Legislative Action Center. 17

TIADA Chairman of the Board Phil Lathrop, President Kathrine Tolsch and Rep Roberto Alonzo meet during 2015 Lobby Day.

Jerry Smith, Scott Allen, State Senator Kelly Hancock, DeDe Smith and Barry Smith pose for a picture during 2015 Lobby Day. 18

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State Senator Eddie Lucio Jr. Speaks with TIADA Hall of Fame Inductee Blake Ingram prior to giving a speech at the 2016 Annual Conference and Expo.

will prove invaluable to the association as the session progresses. However, despite these efforts we still need your help. Only when more members get involved can TIADA grow its legislative influence. You can get started today by visiting TIADA’s online Legislative Action Center. This area of the TIADA website can be found on the Advocacy page under Resources at www.txiada.org. The Legislative Action Center features summaries of relevant bills, tracks progress of bills as they move through the legislative process and shares TIADA’s position on bills. Anything can happen during a legislative session. The tides can turn overnight on a bill that, if passed, would have an immediate impact on your business. By checking in at the LAC, you’ll always be up-to-speed on the latest news. In addition to being informed, the Legislative Action Center

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Whether your involvement comes in the form of donations to INDEPAC, attendance at Lobby Day or emails and phone calls to your legislators, you play a vital role in TIADA’s success. So get involved and stay involved. Help us protect your business today!

provides a platform for members to take action. By entering your address, the LAC will display the list of legislators who represent you and allow you to contact them directly to share your perspective on bills moving through the process. The engine behind the LAC will also enable TIADA to contact specific members directly with an “Action Alert” when a key piece of legislation is being considered by a committee that includes the member’s legislator. The Action Alert will notify the member of the situation, describe the bill and TIADA’s position, and enable the member to respond with one click. The Legislative Action Center is already tracking one bill affecting the industry. Visitors to the page will see an update on HB 2107 (Lucio III). This bill would authorize a fee to be charged to an owner or lien holder when a vehicle is impounded after being operated with no insurance. Member involvement in the legislative process has a profound and positive impact on TIADA’s efforts to promote its legislative agenda and defend the interests of car dealers across the state. Whether your involvement comes in the form of donations to INDEPAC, attendance at Lobby Day or emails and phone calls to your legislators, you play a vital role in TIADA’s success. So get involved and stay involved. Help us protect your business today!

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January 2017

in memoriam Jack Cone by Texas Dealer staff

ack Cone, former TIADA president and owner of Jack Cone Motor company, passed away November 12, 2016. He was 89-years-old. Cone served as president in 1989. “Jack Cone was, above all, the consummate gentleman,” recalled TIADA General Counsel Michael Dunagan of the former president. “He treated everyone, his customers and colleagues, with respect and kindness. He was the ideal representative of what an independent dealer should be.” Cone was laid to rest at Moore Memorial Gardens on November 19, 2016.

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

NIADA 800.682.3837 www.niada.com

Office of Consumer Credit Commissioner 800.538.1579 www.occc.state.tx.us Texas Comptroller 800.252.1382 www.window.state.tx.us

January 2017

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REPOSSESSIONS American Recovery Association 972.755.4755 www.repo.org or contact TIADA state office FORMS Burrell Printing 800.252.9154 www.burrellprinting.com

Local Chapters VICTORIA Butch Hartman Hartman’s Auto Sales 361.575.1009 hartmanautosales@gmail.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 Eddie Hale Neighborhood Autos 940-539-2272 ehale@neighborhoodautos.com Meetings as needed/TBD HOUSTON Rick Maroney Maroney Auto Sales 713.691.3800 rmaroney@usa.net 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) 21

board of directors meeting minutes Tuesday, October 11, 2016 | Hilton Austin Airport

compiled by Texas Dealer staff

At its meeting on Tuesday, October 11, 2016, TIADA took the following actions: President Kathrine Tolsch called the meeting to order at 12:39pm.

Minutes Of Last Meeting

Secretary Trey Crouch presented the minutes of the last Board of Directors Meeting. A motion was made to accept the minutes. Moved by Robert Beck, seconded by Robert Blankenship — PASSED

Treasurer’s Report

Treasurer Robert Beck presented the Treasurer’s report. A motion was made to accept the report. Moved by Mark Jones, seconded by Greg Reine — PASSED

President’s Report

Kathrine Tolsch updated the Board on recent NIADA Lobby Day event in Washington D.C. She also mentioned the renewal of two business partner agreements with AVP and Passtime, discussed TIADA’s donation to the Louisiana IADA’s disaster relief effort, and asked the Board to share the results of their new member phone calls.

Executive Director’s Report

Jeff Martin presented the Executive Director’s report where he: Updated the Board on legislative trips to visit Representatives Oliveira, Holland, Elkins, and Dale Discussed the “Just Get One” membership campaign. Mentioned Commissioner Pettijohn and Juan Garcia of the OCCC visited the TIADA office to discuss the OCCC budget and TIADA education offerings. Danny Langfield provided an updated on two new classroom offerings and the recently released online course, How to Become an Independent Auto Dealer.

Jeff Martin updated the Board on the association’s 2017 legislative priorities, as well as the upcoming Lobby Day at the Capitol set for January 31, 2017. He also provided information on the association’s political action committee, INDEPAC, and its goals for 2017. Jeff Martin provided stats on the last 5 years of annual conference attendance, as well as plans for the 2017 event.

Executive Session

The board recessed to executive session from 3:00p.m. — 4:16p.m. No actions were taken from executive session. Robert Beck presented the finalized FY16 budget (as a statement of activity) and the current FY17 budget.

Old Business None

New Business

A motion was made to ask staff to explore membership dues structure changes and bring options back for the board to consider at the next meeting. Moved by Robert Beck, seconded by Trey Crouch — PASSED A motion was made to adjourn the meeting. Moved by Wayne Meagher, seconded by Dan Keetch Meeting adjourned at 5:47 p.m. Respectfully submitted, Trey Crouch, Secretary A complete copy of any reports referenced in this document and more detailed notes from the meeting are on file at the TIADA office and available upon request.

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January 2017

e-Tag Supplies —

In Stock for Immediate Shipment!

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TIES FOR -in (if nega ................ part of these No.: ........ ........ trade ........ keep Stock er may = net ............... .$ ................ WARsRAN ................ lf (Sell ................ payment ................ minu 2) my beha price (1 ................ ................ Total down others on of cash ............$ ................ ................ paid to .: balance ss ................ ................ V.I.Nany.................. amounts 3. Unpaid y) ........ regardle company.. including ance ance comp Services tive equit repairs charges insurs, r and insur to any (nega to Othe $ ff 4. ... y for paid payo ance paid Accessorie insur trade-in onsibilit insurance Options,or companies damage A. Net $ damage no resp ...mes physical TOTAL company of physical er assu $ rages with CE $ insurance B. Cost ... nal cove . The deal paid to CASH PRI of optio REPAIRS t insur ance C. 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January 2017

2017 TIADA VIP Auction Card Directory

Manheim ADESA Dallas Austin Manheim ADESA DFW Dallas Manheim ADESA El Paso Houston Manheim ADESA Houston San Antonio Manheim San Antonio AA Abilene Alliance Manheim Texas Hobby AA Dallas Alliance Alliance

im ManheHousto n ew South

AA Longvi

Alliance

AA Waco

Metro AA Dallas

AA San Corpus AA Christi Antonio a’s a Americ Americ AA Austin/ antonio Can! Cars for Kidsn San Arlingto a’s Big Americ Dallas Valley AA AA Donna a’s Americ CM AA ny Houston Compa s Auction a’s Americ El Paso AA North n ndent Indepe AA Housto of Texas n AA Heart AA Waco

Housto

Metro AA Texas Lone Star AA Austin Carrollton Lufkin s Dealer r Tyler AA AA

Greate

Rockwall Auto Auction Insurance s Insurances Auto Auction Christi* Corpus Auto Auction Austin* Insurance s Insurances Auto Auction Auto Auction DFW* Dallas* Insurance s Insurances Auto Auction Houston* Auto Auction El Paso* Insurance s Insurances Auto Auction Longview* Auto Auction North* Houston Insurance s Insurances Auto Auction n* Auto Auctionk* McAlle Lubboc Insurance s Insurances Auto Auction* San Antonio Auto Auction Basin* Permian locations *valid for

ABILENE

ce AA

at Insuran

IAA*

Manheim Dallas

6657 US Highway 80 West, Abilene, TX 79605 325.698.4391, Fax 325.691.0263 General Manager: Jimmy Compton Friday, 10:00 a.m.

4701 Agnes Street Corpus Christi, TX 78405 361.881.9555, Fax 361.887.8880 General Manager: Adriana Serrano Wednesday, 9:00 a.m.

5333 W. Kiest Blvd., Dallas, TX 75236 214.330.1800, Fax 214.339.6347 General Manager: Rich Curtis Wednesday, 9:00 a.m.

C.M. Company Auctions, Inc.

DALLAS / FT.WORTH METROPLEX

2258 S. Treadaway, Abilene, TX 79602 325.677.3555, Fax 325.677.2209 General Manager: Gregory Chittum Thursday, 10:00 a.m.

ADESA Dallas

12101 Trinity Blvd., Fort Worth, TX 76040 817.399.4000, Fax 817.399.4251 General Manager: Nicole Graham-Ponce Thursday, 9:30 a.m.

Alliance Auto Auction Abilene www.allianceautoauction.com

www.cmauctions.com

AUSTIN ADESA Austin

www.adesa.com

2108 Ferguson Ln., Austin, TX 78754 512.873.4000, Fax 512.873.4022 General Manager: Steve Swanson Tuesday, 9:00 a.m.

America’s AA Austin / San Antonio www.americasautoauction.com

16611 S. IH-35, Buda, TX 78610 512.268.6600, Fax 512.295.6666 General Manager: John Swofford Tuesday, 1:30 p.m. / Thursday, 2:00 p.m.

IAA*

www.iaai.com

2191 Highway 21 West, Dale, TX 78616 512.385.3126, Fax 512.385.1141 General Manager: Geoffrey Rabb Tuesday, 9:00 a.m.

Metro Austin Auto Auction www.metroautoauction.com

8605 Cullen Ln., Austin, TX 78748 512.282.7900, Fax 512.282.8165 General Manager: Brent Rhodes 3rd Saturday, monthly

CORPUS CHRISTI Corpus Christi Auto Auction

(formerly known as Sparkling City AA Corpus Christi) www.CorpusChristiAutoAuction.com

2149 IH69 Access Rd., Robstown, TX 78380 361.767.4100, Fax 361.767.9840 General Manager: Wade Walker Friday, 9:30 a.m.

* VIP card accepted for sell fees only 26

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www.iaai.com

www.adesa.com

3501 Lancaster-Hutchins Rd. Hutchins, TX 75141 972.225.6000, Fax 972.284.4799 General Manager: Brad Garrett Thursday, 9:30 a.m.

Alliance Auto Auction Dallas www.allianceautoauction.com

9426 Lakefield Blvd., Dallas, TX 75220 214.646.3136, Fax 469.828.8225 General Manager: Christopher Dean Wednesday, 1:30 p.m.

America Can! Cars for Kids www.carsforkids.org

7100 Marvin D Love Frwy Dallas, TX 75237 972.274.5437, Fax 214.944.1950 General Manager: Jennifer Kitchens Saturday, 9:00 a.m.

America’s AA Dallas

www.americasautoauction.com

219 N. Loop 12, Irving, TX 75061 972.445.1044, Fax 972.591.2742 General Manager: Robert Hammonds Tuesday, 1:00 p.m. / Thursday, 1:00 p.m.

IAA*

www.iaai.com

4226 East Main St., Grand Prairie, TX 75050 972.522.5000, Fax 972.522.5090 General Manager: Jennifer Wesner Tuesday, 9:00 a.m.

IAA*

www.manheim.com

Manheim Dallas Fort Worth www.manheim.com

Metro Dallas Auto Auction New! www.metroaa.com

1836 Midway Rd., Lewisville, TX 75056 943.492.0900, Fax 972.492.0944 General Manager: Scott Stalder Tuesday, 9:00 a.m.

Rockwall Auto Auction

www.rockwallautoauction.com

1810 I-30 Frontage Rd., Rockwall, TX 75087 972.771.9919, Fax 972.722.4827 General Manager: Frank Post Tuesday, 7:00 p.m.

Texas Lone Star Auto Auction www.tlsaa.com

2205 Country Club Dr., Carrollton, TX 75006 214.483.3597, Fax 214.483.3814 General Manager: Jeff Dunning Tuesday, 1:00 p.m. / Thursday, 2:00 p.m.

EL PASO El Paso Independent Auto Auction www.epiaa.com

7930 Artcraft Rd, El Paso, TX 79932 915.587.6700, Fax 915.587.6700 General Manager: Luke Pidgeon Wednesday, 9:30 AM In-op Video Sale / 10:00 AM Standard Sale.

IAA*

www.iaai.com

14651 Gateway Blvd. W, El Paso, TX 79927 915.852.2489, Fax 915.852.2235 General Manager: Jorge Resendez Friday, 10:30 a.m.

www.iaai.com

Manheim El Paso

204 Mars Road, Wilmer, TX 75172 972.525.6401, Fax 972.525.6403 General Manager: Henry Valenzuela Wednesday, 9:00 a.m.

485 Coates Drive, El Paso, TX 79932 915.833.9333, Fax 915.581.9645 General Manager: Brian Walker Thursday, 10:00 a.m.

www.manheim.com

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January 2017

IAA*

MIDLAND / ODESSA

2535 West. Mt. Houston, Houston, TX 77038 281.847.4700, Fax 281.847.4799 General Manager: Michelle Casper Wednesday, 9:00 a.m.

IAA*

www.iaai.com

Manheim Houston www.manheim.com

HARLINGEN / MCALLEN Big Valley Auto Auction www.bigvalleyaa.com

4315 N. Hutto Road, Donna, TX 78537 956.461.9000, Fax 956.461.9005 General Manager: Lisa Franz Thursday, 9:00 a.m.

IAA*

www.iaai.com

900 N. Hutto Road, Donna, TX 78537 956.464.8393, Fax 956.464.8510 General Manager: Ydalia Sandoval Tuesday, 9:00 a.m.

HOUSTON

14450 West Road, Houston, TX 77041 281.924.5833, Fax 281.890.7953 General Manager: Eddie Pope Tuesday, 9:00 a.m. / Thursday 6:30 p.m.

Manheim South Houston New! www.manheim.com

9605 Galveston Rd., Houston, TX 77034 713.948.0001, Fax 713.948.0300 General Manager: Darren Slack Tuesday, 6:00 p.m.

Manheim Texas Hobby www.manheim.com

8215 Kopman Road, Houston, TX 77061 713.649.8233, Fax 713.640.6330 General Manager: Darren Slack Thursday, 9:00 a.m.

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1826 Almeda Genoa Rd. Houston, TX 77047 281.819.3600, Fax: 281.819.3601 General Manager: Rob Frazier Thursday, 2:00 p.m.

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

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6000 East Loop 281, Longview, TX 75602 903.212.2955, Fax 903.212.2556 General Manager: Jeff Loftin Friday, 10:00 a.m.

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2042 Ackerman Road San Antonio, TX 78219 210.661.4200, Fax 210.662.3113 General Manager: Mike Browning Wednesday, 9:00 a.m.

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13510 Toepperwein Rd San Antonio, TX 78233 210.298.5477, Fax 210.298.5484 General Manager: Brandon Walston Tuesday, 9:30 a.m.; Thursday, 1:30 p.m.

TYLER Greater Tyler Auto Auction www.greatertyleraa.com

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Alliance Auto Auction Waco www.allianceautoauction.com

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

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

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

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feature

What Is This? New Current Expected Credit Loss (CECL) Standard by Kevin Roy

CliftonLarsonAllen LLP

uring June 2016, the Financial Accounting Standards Board (FASB) issued a new reserve for credit loss new standard (Current Expected Credit Loss â&#x20AC;&#x201D; CECL standard) which will impact how financial institutions and other organizations, including Buy-Here-Pay-Here dealers and Related Finance Companies (herein collectively referred to as BHPH operations) record and compute their reserve for credit losses on installment contracts receivable on their financial statements. In addition to BHPH operators, the new pronouncement will impact many Lease Here Pay Here Operators under sales-type leases as well as finance companies that acquire contracts from unrelated parties. The new pronouncement is effective for fiscal years beginning after December 15, 2019 for certain public companies and for certain non-public

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business entities in fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities for fiscal years beginning after December 15, 2018. The standard has been developed as a response to the financial crisis of 2007 and 2008. The new model replaces the probable and incurred criteria under the previous guidelines with a lifetime expected credit loss concept. Therefore, the new model will require loss reserves to be recorded to include all estimated losses covering the remaining life of the contracts. Accordingly, the BHPH operator should develop a model to estimate future principal losses on a run off of the existing portfolio at any

We recommend that the BHPH operator determine the ramifications of the new pronouncement â&#x20AC;&#x153;sooner than laterâ&#x20AC;? to ensure there are no significant surprises to the company or other parties once the new standard is effective. given point in time and record those on the balance sheet. The estimated future principal losses on loans originated by the BHPH operator under the new pronouncement will be recorded as the reserve for credit losses. The new pronouncement will not impact income taxes. The new pronouncement will significantly impact GAAP financial reporting financial positions and financial results for all financial institutions including BHPH operations. The bottom line impact for BHPH operators is that their reserves for credit losses recorded on their financial statements could substantially increase, resulting in a lower the net worth of the company on its financial statements. Therefore, the BHPH operator should attempt to begin the process to determine the estimated 29

impact of the change. The change could impact lenders and loan covenant calculations, so a proactive approach in estimating the impact the change and communication with third party lenders may be prudent. Regardless of the new pronouncement, we feel that it is important and beneficial to the BHPH operator to determine, understand and monitor the expected timing and extent of projected cash collections of the loan portfolio, the projected losses based upon the origination dollar (static pool rate) and the estimated future principal losses on a run off basis to help manage the pulse of the business. Also, depending on the BHPH organization, such information may be correlated to the ACV and type of vehicle sold, related customer risk assessments, specific underwriters approving the contract and collectors that are assigned to the various pools to provide various performance data which may be useful for future decision making. Therefore, the BHPH operator should take advantage when compiling data to â&#x20AC;&#x153;think out of the boxâ&#x20AC;? on how the data would be useful in assessing strategies and making future decisions within the organization. The FASB did not provide specific calculation methodologies that must be to determine the reserve for credit losses. This was wise as financial companies vary. The BHPH operator should explore various methods and incorporate one or more models and test the results vs.

Please take advantage of beginning the process early in order to facilitate planning and provide useful information to implement the new standard and understanding the impact it will have on your financial statements. historic performance, as well as using current operational data to determine which model(s) and/or methods (look back methods) are most appropriate. The BHPH operation should take advantage of the time available before implementation of the new pronouncement to begin the process and develop a model. Now that 2017 is here, we have an opportunity to assess an entire year of data. There are numerous models and/or hybrid models which may be considered by the BHPH operator in determining their reserve for credit losses. These methods include, but are not limited to consideration of static pool analysis, vintage analysis- related to timing and extent of losses, probability of default type methods, discounted cash flow method, average charge off and historical loss analysis, consideration of CRR (Collateral Recovery Rates), etc. Included in the model/analysis should be other quantitative and qualitative factors, such as evolution of underwriting criteria and policies, collection staff and turnover, other business and organization changes and impact on effect of type of vehicle sold. The BHPH should review and seek advice from industry financial professionals in the process, which should be part of the planning process of implementing the standard. An early stage of the process will involve compiling historical data. It is very important that due care is taken throughout the process. If interpretation of the data or if the data is inaccurate and/or incomplete, the ultimate calculation will be tainted. Depending on the circumstances, the BHPH operator find it necessary to analyze several years of charge-off details by month of loan originations, dollar amount charged off T e x a s

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(outstanding customer principal balance before charge off minus ACV of repo) by month of origination and the month the note was charged off. The charge-off amount should be reconciled to the accounting records. Some operators, on a monthly basis, reconcile their rollforward on installment contracts receivable. For example, rollforward beginning of the month installment contracts receivable, originations for month, less principal cash collections, less charge-offs, less other adjustments to equals the end of the month installment contracts receivable balance. The charge-offs and other adjustments amounts on the rollforward may be reconciled to the related expense accounts and to the chargeoff report to ensure all data has been properly considered in the calculation. The originations and cash receipts report may be reconciled to other reports as well provided by the DMS. Again, once initial planning strategies have been determined to comply with the standard, historic data can be obtained and corroborated. Please take advantage of beginning the process early in order to facilitate planning and provide useful information to implement the new standard and understanding the impact it will have on your financial statements. Undoubtedly, this will give you an opportunity to gain insight in your own operation, which can only be beneficial in the competitive environment the industry is in.

Therefore, it would be prudent for a BHPH operator to consider: 1) E ngaging an industry experienced CPA or other professional to consult with the company regarding the new reserve methodology. The company could calculate and compare their existing calculation methods to the amount determined by the new reserve methodology. This will enable the BHPH operator to have an understanding of the computation as well as the estimated impact it will have on the entityâ&#x20AC;&#x2122;s financial statements once the standard is effective. 2) P roactively reviewing existing loan covenants and other relevant agreements and determine what the impact of the change will be as if it were currently made. This will allow the operator time to plan and communicate as considered necessary in the circumstances with their financial institutions (who likely are aware of the new pronouncement as it impacts their own financial statements) as with other users of the financial statements. In a nutshell, we recommend that the BHPH operator determine the ramifications of the new pronouncement â&#x20AC;&#x153;sooner than laterâ&#x20AC;? to ensure there are no significant surprises to the company or other parties once the new standard is effective.

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feature Is Your BHPH Portfolio Maximizing Its Returns? by Kenneth Shilson

President of Subprime Analytics

s another year closes, BHPH operators must focus on how to make next year better! The answers can’t be found in their year-end financial statements or even by reviewing unit sales numbers. This article will discuss what every operator should evaluate in order to improve performance and profitability as follows: Indicators that your installment contracts portfolio needs a “tune up”! Proactive ways to improve portfolio performance by using metrics as your guide. The proper accounting for bad debt losses and why charging off those losses should not be deferred. Is your business model designed for success or failure? What you can learn from your losses so you do not repeat them! Here are some indicators that your installment portfolio needs a “tune up”: Your receivables are increasing but your collections are decreasing. You are selling more vehicles but your portfolio is not growing at the same rate. Your bad debt losses are increasing and you don’t know why!

Your portfolio is more than 50% liquidated and you aren’t replacing the “run off ” with new originations. Your portfolio performance is worse than the NABD industry benchmarks which are available at www. subanalytics.com. Hoping that next year will get better is not a prudent strategy. Waiting for the competition to decline or disappear isn’t the answer either! You must take a proactive approach to improving your internal portfolio performance and not depend on the competition declining. The first step is to develop portfolio metrics: static pool, loss/liquidation, and default rates which are needed so you can compare your performance with your peers and identify performance trends. Here is what you can learn from the aforementioned metric calculations: Net Static Pool Rates — measures the frequency and severity of your bad debt losses after recoveries (in dollars) over the life of pools of installment receivables. (This is your performance report card!) Net Loss/Liquidation Rates — measures the pace of losses in your portfolio (after recoveries) in dollars before pools of receivables are fully amortized. This measurement is important for projecting cash flow, anticipating future losses, and in identifying changing trends. Default Rates — measures the frequency of bad debt losses in units (not dollars) over the life of your installment portfolio. This metric is used to measure volatility and portfolio quality. If you don’t have these metrics, your access to capital to fund portfolio growth will be severely limited. Capital providers use the aforementioned metrics to evaluate credit risk and to project loan repayment. You can’t expect to borrow millions of dollars without these portfolio barometers. The next step is to charge-off your bad debts when losses become known. Bad debts in BHPH are not like wine; they don’t get better with age. When customers become delinquent for 6090 days their ability to “catch up” is unlikely. It is important that delinquent debt be charged off when it is identified so that losses can be mitigated and the

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Your business model dictates your BHPH success! You must evaluate your business model periodically for cash efficiency. appropriate collection action can be taken. If a chargedoff account is subsequently collected the recovery should be recorded when received. A timely and consistent charge-off policy provides a realistic picture of your portfolio performance and helps you avoid financial surprises. These bad debt charge-offs are deductible for federal tax purposes so your corresponding tax liability is reduced. Your business model dictates your BHPH success! You must evaluate your business model periodically for cash efficiency. That means determining the cash return (ROI) on your portfolio investment. You would not make other EPI-TIADAhalf_Jan2017.pdf

12/4/16

investments without first considering their ROI and the same holds true for building a BHPH portfolio. These calculations require the use of static pool and loss/liquidation metrics needed to project future cash flow, after bad debts and recoveries. Such projections are used to identify capital needs and predict future financial performance. A new Credit Loss Measurement Standard passed by the AICPA in June 2016 will require you to reserve for future bad debt losses. You must determine how this new standard will affect your loan covenants and borrowing relationship as soon as possible. Metrics are needed to estimate future losses and to adjust your reserve for bad debts in your financial statements. Those who do not make portfolio adjustments periodically cannot expect better results. The BHPH industry must regain market share by learning from their bad debt losses and not repeating them. Do not enter another year without â&#x20AC;&#x153;looking under the hoodâ&#x20AC;? of your own portfolio! The more you learn, the more you will earn! Good luck! Kenneth Shilson, CPA is President of Subprime Analytics which uses data mining to perform computerized portfolio analysis for operators and capital providers to the subprime auto industry. For further information visit www.subanalytics.com or call 832-767-4759.

3:21 PM

CMY

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feature

s a new year begins, here’s our recent round of legal developments in the auto sales, finance and lease world. This month, we feature developments from the Federal level. Remember — we aren’t reporting every recent legal development, only those we think might be particularly important or interesting to industry. Note that this column does not offer legal advice. Always check with your own lawyer to learn how what we report might apply to you, or if you have questions.

FTC Moves on Spot Deliveries

On September 29, the FTC charged nine Los Angeles-area car dealerships and their owners with a wide range of deceptive and unfair sales and financing practices. The FTC’s complaint challenged the dealerships’ “yo-yo” financing tactics, described as abusive

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spot deliveries. The FTC alleged that the dealerships packed extra, unauthorized charges for “add-ons,” or aftermarket products and services, into car deals financed by consumers, used deceptive advertising practices, and used phony online reviews to tout the dealerships and combat negative consumer reviews. The FTC’s complaint also charged the defendants with violating the Truth in Lending Act and Regulation Z, and the Consumer Leasing Act and Regulation M, for failing to clearly disclose required credit information and lease information in their advertising.

Repossessing Vehicles from Servicemembers

On September 29, the Justice Department announced a settlement with Wells Fargo Bank, N.A., d/b/a Wells Fargo Dealer Services, for allegedly

violating the Servicemembers Civil Relief Act by repossessing vehicles of protected servicemembers without court orders. Wells Fargo agreed to modify its policies and pay over $4.1 million, including $10,000 to each affected servicemember, plus any lost equity in the vehicle, with interest, and a $60,000 civil penalty to the United States. Wells Fargo will also delete the repossessions for the affected servicemembers’ consumer reports.

(More) Protecting Servicemembers

On September 29, the OCC also assessed a $20 million civil penalty against Wells Fargo Bank, N.A. and ordered the bank to make restitution to servicemembers harmed by the bank’s alleged violations of the Servicemembers Civil Relief Act. The OCC alleged that the bank failed to: (1) provide the six percent interest rate limit to active-duty servicemember obligations or liabilities incurred before military service; (2) accurately disclose servicemembers’ active duty status to the court via affidavits before evicting them; and (3) obtain court orders before repossessing servicemembers’ cars. The $20 million penalty reflects a number of factors, including the duration and frequency of alleged violations, the alleged financial harm to servicemembers, alleged deficiencies and weaknesses in the bank’s SCRA compliance program, and allegedly ineffective compliance risk management. The OCC’s order also requires the bank to take corrective action to establish an enterprise-wide SCRA compliance program to detect and prevent SCRA violations.

Military Lending Act Exam Procedures On September 30, the CFPB issued the procedures its examiners

For most forms of credit subject to the updated Military Lending Act rule, the compliance date for the amended regulation is October 3, 2016. Congress passed the MLA to address a perceived problem of high-cost credit as a threat to military personnel and readiness. will use to identifying violations of the Military Lending Act rule. For most forms of credit subject to the updated MLA rule, the compliance date for the amended regulation is October 3, 2016. Congress passed

the MLA to address a perceived problem of high-cost credit as a threat to military personnel and readiness. In July 2015, the DoD issued a final rule expanding the types of credit covered by the MLA. T e x a s

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The MLA protections extend to active duty servicemembers (including those on active Guard or active Reserve duty) and covered dependents. The MLA protections extend to active duty servicemembers (including those on active Guard or active Reserve duty) and covered dependents. Under the Rule, creditors: (1) cannot charge servicemembers or covered dependents more than a 36 percent “Military Annual Percentage Rate,” which generally includes the following costs (with some exceptions): finance charges, credit insurance premiums or fees, creditrelated add-on products sold in connection with the credit extended, and other fees such as application or participation fees; (2) cannot require servicemembers or covered dependents to submit to mandatory arbitration or give up certain rights under state or federal law, such as the Servicemembers Civil Relief Act; and (3) cannot require servicemembers or covered dependents to create a voluntary military allotment in order to qualify for credit.

union falsely threatened legal action and wage garnishment, falsely threatened to contact commanding officers if borrowers did not make a payment, misrepresented the effect of default on a borrower’s credit score, misrepresented its ability to raise or lower a credit score and to affect a borrower’s access to credit, and illegally froze electronic account access after borrowers defaulted. The credit union agreed to pay approximately $23 million in compensation to affected consumers, modify its debt collection practices, and pay a $5.5 million civil penalty. So there’s this issue’s roundup! Stay legal, and we’ll see you next time. Tom (thudson@hudco.com) and Nikki (nmunro@hudco.com) are partners in the law firm of Hudson Cook, LLP. Tom has written several books and is the publisher of Spot Delivery®, a monthly legal newsletter for auto dealers. He is Editor in Chief of CARLAW®, a monthly report of legal developments for the auto finance and leasing industry. Nikki is a contributing author to the F&I Legal Desk Book and frequently writes for Spot Delivery. For information, visit www.counselorlibrary.com. Copyright CounselorLibrary.com 2016, all rights reserved. Single publication rights only, to the Association. (11/16). HC#4827-933

Federal Appeals Court Curbs the CFPB On October 11, in a case involving PHH Corporation, a mortgage lending company, the U.S. Court of Appeals for the District of Columbia Circuit declared that the CFPB’s structure, with a single director to be removed only for cause, violates the federal constitution, and declared that the Director could be removed by the President in the future. The court also rejected the Bureau’s interpretation of the Real Estate Settlement Procedures Act and the applicability of statutes of limitation to CFPB administrative actions.

Protecting Service Members

On October 11, the CFPB announced a consent order against Navy Federal Credit Union for its allegedly unfair and deceptive debt collection practices to collect from its members, including military servicemembers, Department of Defense civilian employees and contractors, and government employees assigned to DOD installations, and their immediate family members. The CFPB alleged that the credit

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feature

Mystery Shop Your Sales Automation and Lead Nurture System to Increase Sales Now by Wayne Herring

StrongerSalesPeople.com

ecently I spent some time with my brother-in-law Gerry at the BHPH dealership that he and my father operate, Skook Auto Sales. At the dealership, they have been working hard to drive leads and a following in our local community. One of the things we have been working on is Sales Automation. When you spend a significant amount of money on marketing/ advertising/lead generation from any source, such as one of the online vehicle classified sites like Cars. com or Autotrader.com or a general

When you spend a significant amount of money on marketing/ advertising/lead generation from any source, or if you are working hard to generate general brand recognition or actual leads, you want to do everything you can to nurture your leads and get them in to your dealership. January 2017

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classified site like Craigslist, or if you are working hard to generate general brand recognition or actual leads from Facebook, you want to do everything you can to nurture your leads and get them in to your dealership. Customers/leads that you receive will be in different parts of the car buying process or funnel when they contact you. Some will be TOF (top of funnel), some MOF (middle of funnel), some BOF (bottom of funnel). The pace at which they move through the funnel will vary at different times of the year and based on the customer’s situation. We need corresponding offers at each step of the process... TOFOs, MOFOs, BOFOs! Certainly, we all know that we want to try to get a customer to visit us at our dealership in person and we need to create urgency, and some of that we do with people — salespeople who can use the phone, perhaps a text tool, social media messaging, emails, etc. Also, though we should be using sales automation, auto responder sequences that you can dictate or write and “set and forget.” It is possible to nurture people along, gain their trust, and differentiate yourself from your competition, using lead nurture message sequences that work in concert with your CRM and with your people. The nice thing about an Auto Responder sequence is that you know people will not fall through the cracks, they will be reached out to. 39

So here is the practical tip that we implemented at Skook Auto Sales — have a new employee mystery shop your auto responder / lead nurture system. In this own words, this is what Gerry implemented with his new employee, Julie:

We’re going to have Julie go into our dealership’s website as a customer, enter her “lead information” in various spots, wait for the email follow-up and then tell us a little bit about her

2) Julie is going to mystery shop and she’s going to report to him what happened, how she felt about it and any other observations. 3) Gerry will make improvements to the system and emails based on her feedback. If you haven’t had somebody mystery shop your website for a while to see what the experience would be like as they submitted a credit app or any other form of lead generation you have, you should do that. Have them check all potential ways that a customer can submit their information via your website.

MYSTERY SHOPPER

experience from the customer’s perspective so that we can make sure that we’re doing the right thing for any customers out there and to maximize the conversion of leads to customers. This is what is going to happen (and you should do this also): 1) Gerry has a new employee who is detail oriented and process oriented and she has a “beginner’s mind”; she has not yet drank the Kool Aid at the dealership. 40

What You Can Do Now

Have somebody mystery shop your dealership website, record it for you, in terms of their observations, feelings, and what it’s like to be a shopper, and make the necessary changes. I hope that helps! I would love to hear the results of your mystery shopping. Drop me a line at wayne.herring@strongersalespeople.com.

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TIADA Membership Application

2017

Business Name: ____________________________________________ Select one:

Dealer Member

TIADA texas independent automobile dealers association

Associate Member

Contact Person: ____________________________________________ Address: __________________________________________________ City: _________________________________________

2017 TIADA Membership Dues:

State: _______

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$425 (Dues include NIADA membership)

E-mail address: _____________________________________________ Phone: _______________________ Fax: ________________________ Dealer P Number: ___________________________________________ Who referred you to TIADA? __________________________________ Mailing Address (if different from above): __________________________________________________________ City: _________________________ State: _______ Zip: ___________

PLEASE INDICATE PAYMENT METHOD: Check or Money Order payable to TIADA Check # __________ Credit Card Card Number: __________________________________________________ Sec.Code: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Expiration Date: ____________ Monthly Payments - $35.42 per month Via Credit Card (Please enter card information above. Authorization Agreement required - contact state office) Via Bank Draft (Authorization Agreement required - contact state office)

Mail or Fax Application To: TIADA Membership Services, 9951 Anderson Mill Rd., Suite 101, Austin, TX 78750 FAX 512.244.6218

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Dues are not deductible as charitable contributions for income tax purposes but may be deductible as miscellaneous itemized deductions, subject to IRS restrictions. It is estimated that 20 percent of your dues dollars is used for lobbying activities and is therefore not deductible.

January 2017

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Dealer Academy Education Offerings for Winter/Spring 2017

Instructor-Led Courses Sales Team and Sales Process Growth Intensive Presented by Wayne Herring, Founder of www.strongersalespeople.com

A one day workshop that focuses on growth via Sales Team build and Sales Process Automation. Work on your growth plan, mindset, and goals. Discuss building automation into your business so it is working while you are at auction, on vacation or sleeping.

$199 TIADA Members, Each Additional $149 (must be from same dealership) $399 Non-members 9:30am - 4:00pm

JANUARY 10, ARLINGTON • JANUARY 11, HOUSTON • JANUARY 12, AUSTIN

BHPH Compliance: A Comprehensive Workshop

Presented by Michael W. Dunagan, TIADA General Counsel and author of the standard-setting books, “Dealer Financing of Used Car Sales” and “Texas Automobile Repossession: A Lien Holder’s Legal Guide.” This revitalized seminar is the final answer in BHPH compliance. Mike speaks dealer, and with 40 years of experience representing hundreds of BHPH dealers, he knows your business inside and out.

$199 TIADA Members, Each Additional $149 (must be from same dealership) $399 Non-members 9:00am - 4:00pm

JANUARY 16, DALLAS • MARCH 27, HOUSTON • MAY 8, AUSTIN

Collect the Cash, Not the Car

Presented by Brent Carmichael, Executive Conference Moderator, 20 Groups. NCM Associates, Inc. It has been a challenging year in the Buy Here, Pay Here industry, aided by another odd tax season and increased apathy by our customers in regards to their payments. Dealers are finding that every collection opportunity needs to be capitalized on and that’s where this seminar can help.

$249 TIADA Members, Each Additional $199 (must be from same dealership) $499 Non-members 9:30am - 4:00pm

APRIL 3, HOUSTON

Better BHPH Financials

Presented by David Keller, CPA, a principal with the dealer group at CliftonLarsonAllen, one of the nation’s top 10 CPA and consulting firms. This ½ day seminar will demonstrate how better organizing your financial and operations structures can be the key to growing your portfolio.

$99 TIADA Members (includes up to 3 attendees per dealership) $199 Non-members 10:00am - 3:00pm

APRIL 25, DALLAS • JUNE 20, HOUSTON

Dealer Academy Education Offerings for Winter/Spring 2017

Online Courses You can quickly create an account, register and purchase these courses at our eLearning site.

How to Become An Independent Auto Dealer An On-Demand eLearning course Independent dealers across the U.S. average gross profits of about $250,000 annually, according to NIADA. But how do you get started in the business? Just what do you need to know?

$149 TIADA Members Available Anytime

AT YOUR CONVENIENCE • ONLINE COURSE • ON DEMAND

An Introduction to Transferring Titles This online course is a one hour, deep dive into the title transfer process. Want to avoid having your title transfer paperwork rejected at the tax office? This online course is designed to walk you through the title transfer process and is best suited for people new to transferring titles or those who want to brush up on the basics. This course has been reviewed for accuracy by the Tax Assessor-Collectors Association of Texas.

$49 TIADA Members Available Anytime

AT YOUR CONVENIENCE • ONLINE COURSE • ON DEMAND

TIADA

Register and/or Login at w w w . d e a l e r t r a i n i n g . t x i a d a . o r g . Contact us at the TIADA office at 512.244.6060 independent automobile or email ustexas if you need assistance. dealers association

TIADA texas independent automobile dealers association

Texas Independent Automobile Dealers Association

Please Welcome Our Newest TIADA Members DEALER MEMBERS Auto Motor Imports Carlos Oliva 1200 Basse Rd San Antonio, TX 78212 Automax Motors MCA LLC Fernando De Luna 3008 S. 23rd St. McAllen, TX 78503 Buck Auto Group Armando Esqueda 8331 Bridle Bay San Antonio, TX 78255 Capitol of Texas Motors LLC Sebastian Lebhar 801 W 5th Street 2101 Austin, TX 78703 DS Auto Sales Gerardo Solis 21750 Hardy Oak Blvd, Ste. 102 San Antonio, TX 78258

E & C Motors Eduardo Salinas 1446 Culebra Rd. San Antonio, TX 78201

InDrive Matt Vastine 122 King Ranch Ct Fort Worth, TX 76108

R&L Certified Auto Group Eric Louvin 11723 IH 35 N San Antonio, TX 78233

Enterprise Rent-A-Car Mike Elliott 1616 Willow Top Dr. Schertz, TX 78209

Lackland Motors Inc. Mauricio Cortes 3003 Colt Dr. San Antonio, TX 78227

Specialty Trucks of Lubbock Mike Crafton 7422 82nd St. Ste A Lubbock, TX 79424

F.A. Motorcars Juan Aceves 12843 Nacogdoches Rd San Antonio, TX 78216

Northeast Motor Co. William Norris 2402 Pat Booker Rd. Universal City, TX 78148

Stone Oak Autoplex Gabriel Torres 23306 Blanco Rd. San Antonio, TX 78260

Fuel Motorcars Wes Barnes 1700 Surveyor Blvd., Ste. 100 Carrollton, TX 75006

Premiere Autoplex Chris Sommers 2250 S. Business IH 35 New Braunfels, TX 78130

ASSOCIATE MEMBERS

Gold Rush Remarketing Bilal Abdallah 10050 Gulf Freeway Houston, TX 77034

Providence Auto Group, Inc. Weyland Talafuse 5801 Dick Price Road, #100 Fort Worth, TX 76140

Haleman Auto Sales Victor Aleman 5539 Enrique M. Barrerra Pkwy San Antonio, TX 78227

Q Motors Luis Romero 14391 Bulverde Rd. San Antonio, TX 78247

Southwestern Regional Insurance Center Karen Chasney 110 W Rosamond Houston, TX 77076

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

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 T e x a s

D e a l e r

January 2017

behind the wheel

Martin

TIADA, This Is Jeff, How Can I Help You?

ast month I heard from a couple of dealers who wanted me to know they had taken the compliance quiz in the December issue of the Texas Dealer. This is the sixth year we have published the compliance quiz and it has become a favorite issue for many members. My guess is there were few perfect scores. One of the dealers I talked to only missed one question and, like a good independent dealer, he was actually looking to debate the accuracy of our answers. Publishing the quiz is meant to help you navigate through the various laws, rules and policies used to regulate our industry, but more importantly, we hope it creates a heightened sense of awareness for you and your dealership by spending some time thinking about compliance. When you consider our relationship with legislators and our advocacy efforts, matched with our constant communication with the policy-makers at all the state agencies that oversee auto dealers in Texas, it’s no wonder we spend so much time focusing on compliance. No one knows the laws, rules and policies quite like TIADA. No one understands your challenges in this area as well as your association. However, compliance is kind of like taking bitter medicine. No matter how much honey you mix with it, or water you have to chase it with, you still have a bad taste in your mouth afterward.

by Jeff

TIADA EXECUTIVE DIRECTOR

o n th e co ve r

nual

The An

quiz

2016 aring us all year? Have you been he k up! See how you stac

Each of the (Editor’s note: following questions on the taken from dealer exam was Legal Corner information in Matters and Regulation ared in columns that appe azine Texas Dealer mag .) throughout 2016

sale, in 1. On a dealer icle to be order for a veh must have registered, it d in the ____ ecte insp n bee eding the day period prec sale date. a. 90 b. 120 c. 180 not required d. Inspection is ion for initial registrat

closing, not present at 2. If the title is a dealer may… in most cases omer sign a a. Have the cust ite” “wh or -secure, VTR 271 (non ) Power of Attorney omer sign a cust the e Hav b. signment secure dealer reas ) form (VTR 41-A without the c. Transfer title ature customer’s sign e omer’s signatur d. Forge the cust on the title T e x a s

D e a l e r

December 2016 PM 12/2/16 12:07

016.indb 8

TexasDealer_Dec2

No one knows the laws, rules and policies quite like TIADA. No one understands your challenges in this area as well as your association. January 2017

T e x a s

D e a l e r

We know there is more to running a successful dealership in Texas than simply trying to keep your nose clean and receiving positive audit reports from DMV, OCCC the Comptroller or whoever else might show up at your doorstep. As a successful dealer you have to constantly study best practices, adapt to changes in the market and employ strategies that will help you improve your bottom line. While the answer

building a great sales team; collections; BHPH financials and a comprehensive compliance workshop. You can find all these classes on the TIADA website under our education schedule or see pages 42-43 of this issue. This month the Texas Dealer has a more balanced approach, offering articles on best practices, advocacy and ideas to help you run and improve your dealership. (We

In 2016 we launched a new addition to our Texas Dealer Academy, an online course titled “How to Become and Independent Dealer”. It’s a great course for anyone one wanting to brush up on some basic compliance and it’s open 7 days a week, 24 hours a day.

How to Becom e

Dealer Academ y 2017 an Independen t

An On-Deman d

eLearning co urse

Independent dealers across the U.S. averag $250,000 ann e gross profits ually, accord of about ing to NIADA in the business . But how do ? Just what do $149 you get starte you need to d know? This four par t course is bro ken down as follows: • Section I – Ge tting Into Bu siness • Section II – Se lling A Vehicle • Section III – Tit les, Records & Vehicle Inv • Section IV – entory Tax OCCC, the Fed s & More Want to see some serious resources? Vis and check ou it www.txiada. t the comple org te list of all link s included in the course. Highlights inc lude: • License types • Forming Your • Your Business Business Model • Requ • Completing the ire ments for De Dealer Appli aler License cation Forms Ac • quiring Invent • The Deal Jac ory / Auction ket (every do 101 • The Basics of cument you’ll Transferring need) Titles • Recor d Keeping Re • Federal Requ quirements irements • Ad vertising Rules ... And a whole lot more!

On Demand Available an ytime

You can quick ly create an acc ount, registe r and purchase Register and this course at /or Login at w our eLearning w w. d e a l e Contact us at rtraining site. the TIADA offi .txiada.o ce at 512.244.6 rg. 060 or email us if you nee d assistance. Texas Independ ent

to best practices and business strategies are not as black and white as compliance do’s and don’ts, we are committed to introducing ideas and experts you can learn from. In 2016 we launched a new addition to our Texas Dealer Academy, an online course titled “How to Become an Independent Dealer”. It’s a great course for anyone wanting to brush up on some basic compliance and it’s open 7 days a week, 24 hours a day. We are also offering instructor-led courses with a mix of best practices and compliance, topics including: 46

Auto Dealer

will still have Legal Corner and Regulation Matters for you hardcore do-gooders). Lastly, we will continue listening to you in order to provide you with what you need. Our most successful programs, articles and classes have always come from trying to fill your needs and exceed your expectations as a member. Our goal is to help you be a successful Texas dealer. If you have a second, let us know what we can to do to help.

T e x a s

Automobile Dea lers Associati on

D e a l e r

January 2017

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DCC provides debt forgiveness in the event of a Total Loss and is offered at the point of sale.

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913.396.5480

*Substantial Discounts for TIADA Members

TEXAS INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION 9951 Anderson Mill Rd., Suite 101 Austin, TX 78750

PRSRT STD

U.S. POSTAGE

PA I D

JEFFERSON CITY, MO

PERMIT NO. 210