NJ 0414

N E W

J E R S E Y

I N D E P E N D E N T

A U T O M O B I L E

DEALER

D E A L E R S

A S S O C I A T I O N

NEWS A P R I L / M AY 2 0 1 4

magazine

DON’T MISS THE TOP NOTCH EDUCATION AT THE

FEATURE STORY ON PAGE 8

Flat Fees vs.

Discretionary COMPENSATION for Dealers

2014 NIADA CONVENTION & EXPO See Page 20-21 for more info.

u inside

• CONTENT MARKETING • WASHINGTON UPDATE • HOW TO SELECT THE BEST BUILDING

DALLAS, TEXAS Permit No. 2079

PAID

PRSRT Standard U.S. Postage

W W W . N E W J E R S E Y I A D A . O R G

NJ_0414.indd 1

3/21/14 2:37 PM

NJ_0414.indd 2

3/21/14 2:37 PM

NJ_0414.indd 3

3/21/14 2:37 PM

ASSOCIATION NEWS

Save the Date

M ARIADA CONFERENCE SEPTEMBER 13-14

Save the date for the 2014 Mid-Atlantic Regional Independent Automobile Dealers Associations conference. It will be held September 13-14. Contact Paula at paula@newjerseyiada.org or 855) 694-2324 for more information.

INSIDE

06 Content Marketing 08 Flat Fees vs. Discretionary Compensation 12 Washington Update 14 Advertising Game Plan 16 How to Select the Best Building 20 NIADA Convention

WHAT’S NEW

2014 WAAC TO WEBCAST LIVE WATCH EVENT ONLINE MAY 9

ADESA Boston will host the 2014 World Automobile Auctioneers Championship on May 9. The event will showcase the world’s best automobile auctioneers vying for the coveted titles of World Champion Automobile Auctioneer, World Champion Automobile Ringman and World Champion Team.

Free live broadcast of the 2014 championship is available at www.niada.tv; www.niada.com; www.waacnet.com and www.autoconsumer.tv

ADVERTISERS INDEX 4

ADESA.................................. Inside Front Cover Ally.....................................................................9 Auto Use..........................................................16 AutoZone.........................................................17 Black Book.........................................................3 DealerMatch.................................................... 11 Manheim.com....................... Inside Back Cover.

Manheim New York...........................................5 Manheim Pennsylvania...................................15 NextGear Capital...............................................7 Preferred Warranties.......................................13 United Acceptance..........................................18.

VAuto ................................................Back Cover

OFFICE

For information on how to become a member, please contact Paula Frendel (855) 694-2324 paula@newjerseyiada.org www. newjerseyiada.org

NIADA HEADQUARTERS

National Independent Automobile Dealers Association www.niada.com • www.niada.tv 2521 Brown Blvd. • Arlington, TX 76006-5203 phone (817) 640-3838 For advertising information contact: Troy Graff (800) 682-3837 or troy@niada.com.

The New Jersey Dealer News is published bi-monthly by the National Independent Automobile Dealers Association Services Corporation, 2521 Brown Blvd., Arlington, TX 76006-5203; phone 817-640-3838.

Periodicals postage paid at Dallas, TX and at additional offices. POSTMASTER: Send address changes to NIADA State Publications, 2521 Brown Blvd., Arlington, TX 76006-5203. The statements and opinions expressed herein are those of the individual authors and do not necessarily represent the views of New Jersey Dealer News or the National Independent Automobile Dealers Association. Likewise, the appearance of advertisers, or their identification as members of NIADA, does not constitute an endorsement of the products or services featured. Copyright © 2014 by NIADA Services, Inc. All rights reserved.

State Magazine MGR./Sales Troy Graff • troy@niada.com Editors Andy Friedlander • andy@niada.com Jacinda Timmerman • jacinda@niada.com Magazine Layout & Graphic Artist Chantae Arrington • chantae@niada.com Art Director Christy Haynes • christy@niada.com Printing Nieman Printing

DEALER NEWS

NJ_0414.indd 4

A P R I L / M AY 2 0 1 4

LEGAL

NEWS

NHTSA Requires Labels for Recall Mailings NEW LABEL DESIGNED TO IMPROVE RECALL NOTIFICATION FOR CONSUMERS The U.S. Department of Transportation’s National Highway Traffic Safety Administration announced that starting Feb. 18, all manufacturers must use a distinctive label on required mailings that notify owners of recalled vehicles or equipment.

The use of the new label is strictly limited to only the recalling manufacturers.

NHTSA says this measure is designed to protect consumers from misleading sales and marketing materials that mimic, in their wording and presentation, legitimate safety recall alerts from manufacturers that can lead

owners to purchase costly products and services that have no connection to a legitimate safety recall.

NHTSA will monitor for inappropriate materials and will work closely with state and other federal authorities, including the FTC, to address enforcement issues. The new label on safety recall notices is one of many new tools designed to improve recall notification for consumers.

NHTSA also launched an app for Android devices that will provide users free access to key safety information, including recalls and safety performance.

The new Android SaferCar

app, which joins the iOS app for the iPhone, iPad and iPod Touch released last year, helps consumers find recall information and up-to-date vehicle safety information, search the agency’s 5-Star safety ratings for vehicles by make and model, and subscribe to automatic notices about vehicle recalls, among other features.

The app makes it simple to submit complaints to NHTSA regarding possible safety problems with a particular vehicle. App users receive news and information from NHTSA on tire and child seat recalls as well.

ARBITRATION CORNER

Piecing Together the Structural Disclosure Policy Puzzle A FEW CLARIFYING POINTS Although the revised NAAA Arbitration Policy has been effective since last September, some questions linger about structural disclosures, said Manheim Director of Arbitration Matt Arias, who serves as co-chair of the NAAA Standards Committee. “There are just a few basic points to remember that can help our members clarify which disclosures we recommend be used in what conditions,” he said.

First, the Structural Damage Disclosure should be used when a component that is deemed structural has existing permanent damage with poor prior repairs that exclude refinish only, Arias stated. “This damage includes kinked metal, but not bent,” he

pointed out. “This disclosure is eventually replacing frame damage and frame/unibody.”

Apply the Certified Structure Repair/Replacement Disclosure to situations when the structure of the vehicle has been repaired or replaced according to OEM guidelines, Arias explained. “But it must also fall within NAAA’s Used Vehicle Measurement Standard, and the disclosure supersedes the Certified Frame Repaired Disclosure,” he noted.

“If the structure has poor prior repairs, please continue using the Structural Damage Disclosure.”

For any modifications made to the structure, use the Structural Alteration Disclosure, Arias said. “This includes but is not limited to

lengthening the structure, shortening the structure, welding to the structure, brazing to the structure (excluding exhaust hangers), drilling new holes to the structure and enlarging or elongating the existing bornwith (OEM) holes.”

He added that the disclosure applies to all modifications made to the structure only, even if aftermarket parts are included on the vehicle.

Aftermarket part examples include, but aren’t limited to, fifth wheel brackets, gooseneck brackets, receiver hitch brackets, snowplows, utility bumpers or suspension equipment.

If you have questions about the Arbitration Policy, please send them to naaa@naaa.com.

W W W. N E W J E R S E Y I A D A . O R G

3/21/14 2:37 PM

NJ_0414.indd 5

3/21/14 2:37 PM

MARKETING ONLINE

6

WHAT IS CONTENT MARKETING AND WHY DO I NEED IT? MORE THAN A TREND, CONTENT MARKETING IS LIKELY TO BE CENTRAL TO ANY BUSINESS GROWTH STRATEGY

BY KATHI KRUSE Content marketing is a vital component of your business’ overall digital marketing strategy. You may have heard the term “content is king” over the past few years, but what power does this “king” actually have when it comes to driving traffic, leads and sales?

At the core of your marketing should be useful information. It should attract, convert and eventually close sales. Content marketing then is your business’ ability to be the most helpful and effective teacher in the world at what you do.

The old way of delivering content to customers was to simply create an ad and broadcast it to the masses. Today, instead of broadcasting a one way message that no one trusts anymore, content marketing pulls people towards your company. Customers consume the information you provide and naturally come to trust your business.

Successful content marketing aligns what you publish with your customers’ information needs. In fact, content must serve two purposes: it has to appeal to the prospective customer (more so now than ever) and it has to appeal to search engines.

You might now be saying, “Ugh, another thing I have to do that takes me away from my business. I’ll wait until the trend fizzles.”

Content marketing is more than a trend. It’s likely to be central to any business growth strategy, at least for the foreseeable future. Great content turns visitors into customers, even evangelists. If you don’t take time for content marketing there could be a chance very soon that you won’t have a business to be taken away from!

Content marketing may be something you’ve heard about but perhaps you’re not fully convinced of its value and that’s got you stuck.

You’re not alone. I meet dealers and other business owners often who have apprehensions.

Here’s how content marketing works: Attract customers with content.

• Blog posts supply the information your customers need.

• Keywords and phrases optimize your post for better search visibility.

• Social media syndicates your content and boosts your search visibility and online influence.

Confused on what to write about? You already have a wealth of ideas in-house. Employees are on the front lines with your customers and they know what questions customers are asking. The goal is to be helpful. You don’t need to appear intelligent. Marcus Sheridan recommends these “big five” topics for best results: • Cost/Price questions • Problems/issues/concerns questions • Vs/comparison questions • “Best” questions DEALER NEWS

NJ_0414.indd 6

A P R I L / M AY 2 0 1 4

• Review/opinion-based questions Convert visitors to your site or social media.

• Create a compelling reason for them to take action.

• Use sign-up forms to collect contact info.

• Use landing pages to drive visitors further down the sales funnel.

Close sales with superior internal workflows.

• Listen.

• Engage.

• Learn to recognize leads immediately.

• Nurture leads intelligently.

Why do I need content marketing?

Content marketing is the best way to turn strangers into customers. When you answer your prospects’ questions, they remember who answered them and come back when it’s time to buy. You need content marketing because it moves the needle: • Your business gets found in search.

• Your business is seen as a “likable expert,” and you become known as a thought leader.

• People stay on your site longer when they have quality information to absorb and enjoy.

• You build trust.

• People who regularly consume your content are much more likely to buy.

Listen. Communicate. Teach.

Content marketing has been around for ages (ancient texts have given mankind useful information since time began).

Today, technology has greased the wheels of information. Every consumer has questions.

When a prospect or customer asks your company a question, you need to have solid tactics in place to answer it.

Creating content is time consuming and expensive. Distributing it is tricky. Unless you’ve already established your business as a trusted authoritative source, you may have trouble overcoming the clutter and noise of the Internet and social networks. Working with a creative marketing partner or coach can help overcome some of these challenges.

Some have come to believe that sales is a numbers game. In some respects, that’s still true. But we also have ways to develop relationships with customers during all stages of the buying cycle. Content marketing attracts and nurtures those sales relationships, digitally.

Trees that are slow to grow bear the best fruit.

Sales close faster and easier when the trust is evident. If you haven’t yet integrated content marketing into your business’ overall strategy, what are you waiting for?

KATHI KRUSE IS AN AUTOMOTIVE SOCIAL MEDIA MARKETING EXPERT, BLOGGER, AUTHOR, SPEAKER AND FOUNDER OF KRUSE CONTROL INC. SHE IS ALSO THE AUTHOR OF “AUTOMOTIVE SOCIAL BUSINESS – HOW TO CAPTIVATE YOUR CUSTOMERS, SELL MORE CARS & BE GENERALLY REMARKABLE ON SOCIAL MEDIA.”

PRODUCTS

& SERVICES

Black Book Introduces New Mobile Application APP TO HELP SPEED PROFITABLE DECISIONS Black Book recently announced Black Book Digital, the company’s second-generation mobile application.

According to Black Book, the application offers a new design with simple-to-use features to help automotive professionals make smarter decisions. Built from the ground up, Black Book Digital offers accurate and reliable vehicle data and is built to accommodate today’s speed of business.

Black Book Digital offers users quick access to more data on specific vehicles than ever before. The new application delivers a 360-degree valuation perspective, with information layers that offer vehicle valuation data and additional modules that include Carfax and AutoCheck, trends, vehicle specifications, photos, Demand Index and complete market report information.

Users are able to gain access to valuation data offline, ensuring more profitable decisions in splitsecond environments. They can also leverage Black Book Digital’s Q-List, which helps automotive professionals manage inventory and share information with others in their decision channel, no matter their location.

Mike Williams, vice president of direct sales and mobile for Black Book, believes 2014 represents a turning point for mobile within the automotive industry. “Mobile usage among automotive professionals is expected to continuously grow in the coming years, and we now have devices that offer cutting-edge technology and features. Black Book Digital is designed to enable and empower these professionals so they can think faster, think smarter, and, ultimately, make more profitable decisions whether they’re in the field, at an auction or on the sales lot.”

For more information and directions on downloading the application to an iOS or Android mobile device, visit www.BlackBookAuto.com/think.

W W W. N E W J E R S E Y I A D A . O R G

3/21/14 2:37 PM

e

NS

NJ_0414.indd 7

3/21/14 2:37 PM

FEATURE

STORY

COMPLIANCE OVERDRIVE

Flat Fees vs. Discretionary Compensation for Dealers THE DEBATE CONTINUES BY CHIP ZYVOLOSKI

8

In March 2013, the Consumer Financial Protection Bureau published guidance on compliance with fair lending requirements for indirect auto lending. Since then the issue has grown to become the industry’s most significant compliance issue in quite some time.

In December, the CFPB entered into a consent order with a large lender involving millions of dollars in damages and penalties.

Others could follow. Be prepared, because this issue may also result in lenders changing how they pay dealers for retail contracts.

The CFPB’s focus is on how lenders compensate dealers when they buy completed retail contracts. After analyzing information about a proposed credit sale, an indirect auto lender will offer to buy the completed retail contract if it has a specified (minimum) contract interest rate.

Sometimes the minimum rate is referred to as the “wholesale rate” or the “buy rate.”

Some lenders pay dealers a share of the increased interest revenues if the completed contract interest rate is more than the buy rate. This practice is often referred to as “dealer rate markup,” “dealer reserve” or “dealer participation.” The CFPB’s concern is that dealer discretion to increase interest rates may result in some buyers paying more than others – which is a violation of the law if the pricing disparities affect buyers of one race, gender or other protected group more than others.

To be clear, there is no debate about the evils of intentional credit discrimination.

Every reputable auto dealer and lender condemns discrimination against buyers on the basis of race, ethnicity, gender and all other classes protected by the law.

Intentional credit discrimination is against the law, is bad policy and has no place in this industry. Everyone agrees.

The current issue is more subtle because it involves unintentional discrimination, referred to as “disparate impact.” A dealer and lender could implement what they believe to be discrimination-free business policies and practices only to find that they result in statistical anomalies showing buyers of a certain race or gender are paying more for credit.

Unless the variations can be justified by legitimate business needs, they are violations of law because they have a discriminatory impact on certain protected buyers. It doesn’t require the dealer or lender to have discriminatory intent. It only DEALER NEWS

NJ_0414.indd 8

A P R I L / M AY 2 0 1 4

matters that their actions had a disparate impact.

The CFPB’s guidance last March and its actions since then have all focused on dealer discretion to increase lender’s buy rate and the risk that such discretion may lead to a disparate impact on protected buyers. If a dealer doesn’t have a set of rules for how and when it marks up the buy rate, then how can it ensure that buyers with similar credit profiles are being treated equally?

For example, if a dealer’s only credit pricing rule is to charge each customer as much as he/she will bear, then it is not trying to provide the same credit pricing to buyers with similar credit profiles and it is likely violating the fair lending requirements.

u W e heard from

many lenders who spent a good part of 2013 trying to figure out how to ensure compliance without negatively affecting their ability to purchase dealer contracts.

We heard from many lenders who spent a good part of 2013 trying to figure out how to ensure compliance without negatively affecting their ability to purchase dealer contracts. For better or worse, the CFPB’s guidance didn’t require a magic bullet solution. If it had, lenders might have all quickly adopted changes knowing that all their competitors would do the same.

Instead, a lender that changes its dealer

compensation method might reduce compliance risk but then takes the risk that its new compensation method would not be attractive to dealers. A bold lender could lose business if dealers negatively react to the change. These factors may have led to some hesitation by lenders on the issue.

Any hesitation probably ended in December when the CFPB entered into a consent order with a large auto lender. In the consent order, the CFPB alleges that the lender’s discretionary dealer rate markup practices resulted in a disparate impact on certain buyers in violation of the Equal Credit Opportunity Act. The CFPB’s allegations were based on its analysis of the lender’s auto loan portfolio.

The CFPB ordered the lender to institute ECOA program changes, pay $80 million to certain buyers as damages and pay the CFPB $18 million in penalties.

Now there is more pressure than ever for lenders and dealers to take action to address the CFPB’s concerns. The CFPB’s March 2013 guidance offered two alternative courses of action. They aren’t perfect solutions, but they provide a clear dichotomy of choice.

1. Lender uses a discretionary dealer participation compensation method. For example, a lender might continue to allow dealers the discretion to mark up the buy rate and compensate dealers based on the amount of the markup.

These methods require lenders to: • Impose controls on dealer markup and compensation policies. For example, controls could include a cap on the amount of markups. Other controls could be to allow dealers to use a set rate markup allowing variation only under certain authorized circumstances.

The NADA recently recommended that its member dealers implement rate caps and allow dealer discretion to decrease the markup only for certain legitimate business needs. It recommended that dealers document the business reason(s) whenever they discount the markup.

• Review and analyze their loans regularly at the portfolio level and at the individual dealer level. Depending on the size of the portfolio, lenders may need to analyze it as often as quarterly.

• Address any unexplained pricing disparities on prohibited bases. This would require finding and correcting the root cause of the disparities.

CONTINUED ON PAGE 10

W W W. N E W J E R S E Y I A D A . O R G

3/21/14 2:37 PM

NJ_0414.indd 9

3/21/14 2:37 PM

FEATURE

10

STORY

COMPLIANCE OVERDRIVE

CONTINUED FROM PAGE 8

AUCTION

If certain dealers are creating the problems, then a lender may need to restrict pricing for those dealers or stop buying their contracts. Addressing prohibited disparities also means returning money to affected buyers or providing them redress in some other way.

2. Lender compensates dealers using a formula that does not give dealer discretion. For example: • Lender could pay a flat fee so dealer is compensated the same amount for every contract sold to lender regardless of the contract interest rate. Since dealer isn’t compensated for increasing the buy rate, it has little reason to do so.

Actually, the presumption is that lender would not allow dealer to change lender’s buy rate because that would involve dealer pricing discretion. (A variation might be that dealer marks up every transaction by the same amount without the discretion to increase or decrease the marked up amount.)

• Lender could pay a flat fee to dealer on every transaction plus a percentage based on the amount financed. This would provide more compensation to dealer for larger credit transactions. Again, the presumption is that dealer would not be allowed to change the lender’s buy rate.

Solutions 1 and 2 both require lenders to have a fair lending compliance management program in place, but the first solution requires heavy monitoring and analyzing activity. Even with heavy monitoring, lenders still run the risk that their analysis will reveal credit pricing anomalies which will then need to be addressed with affected buyers and the dealers involved.

In theory, the second solution does not require those extra steps because dealers do not have discretion to change credit pricing for different buyers. Doesn’t the second solution sound like it would be much easier for lenders to implement than the first?

Obviously, lenders need to analyze how they approach this compliance issue.

The administrative cost and burden and increased compliance risk may be too much for them to keep discretionary dealer credit pricing. If they keep it, they may tweak their compensation formulas with limits or controls, maybe to something like the NADA’s recommendations. If they change to non-discretionary pricing models, the challenge will be for them to create new compensation formulas that are competitive and attractive to dealers.

As noted in prior articles, dealers must create and maintain solid fair lending policies, procedures and practices. If you haven’t done it yet, you need to make it a priority. Be prepared to prove to your lenders and your regulators that you have a solid program in place.

In addition, now you should also be prepared for changes in the compensation lenders offer when they buy your retail contracts.

ADESA Hosts Boston Auctioneers Championship

NEWS

LIVE WEBCAST OF THE EVENT AVAILABLE ADESA Boston will host the 2014 World Automobile Auctioneers Championship on May 9. The event will showcase the world’s best automobile auctioneers vying for the coveted titles of World Champion Automobile Auctioneer, World Champion Automobile Ringman and World Champion Team.

This year’s judges include ADESA CEO/ president Tom Caruso, NAAA CEO Frank Hackett, Manheim president/CEO Sandy Schwartz and Central Auto Auction CEO/ general manager Peter Saldamarco.

“These are the men and women who help fuel our business, who help us get better prices, plus describe cars, help us get cars sold,” commented Schwartz. “[In 2012] I was so amazed at the intensity, at the professionalism and, most importantly, the love that all the auctioneers and ringmen

have for our business.”

Schwartz added, “It’s so great to watch people who love their craft and are so good at it that are really the heart and soul of the business. We love our auctioneers.”

The 2014 championship will be webcast live on, May 9, starting at 9 a.m. Eastern Daylight Time. Cheer on your hometown favorite auctioneers and/or ringmen and catch all of the fun and excitement of the 2014 World Automobile Auctioneers Championship. The Free live broadcast is available exclusively at the following websites: www.niada.tv; www.niada.com; www.waacnet.com and www.autoconsumer. tv.

For more information, visit http://www. niada.com/world_automobile_auctioneers_ championship.php.

CHIP ZYVOLOSKI IS A SENIOR ATTORNEY FOR INDIRECT LENDING AT WOLTERS KLUWER FINANCIAL SERVICES. FOR MORE INFORMATION, VISIT WWW.WOLTERSKLUWERFS.COM/INDIRECT.

DEALER NEWS

NJ_0414.indd 10

A P R I L / M AY 2 0 1 4

W W W. N E W J E R S E Y I A D A . O R G

3/21/14 2:37 PM

NJ_0414.indd 11

3/21/14 2:37 PM

National Independent Automobile Dealers Association

12

DEALER NEWS

NJ_0414.indd 12

A P R I L / M AY 2 0 1 4

W W W. N E W J E R S E Y I A D A . O R G

3/21/14 2:37 PM

NJ_0414.indd 13

3/21/14 2:37 PM

REGULATORY

MATTERS

Advertising Game Plan: No Audibles Allowed FTC PUTS DEALERS ON NOTICE

14

I-formation, twins right, Z motion, halfback dive. “Omaha! Omaha!”

Now, I don’t know if Peyton Manning called the isolation dive play over the course of the Denver Broncos’ playoff run, but I do know we heard “Omaha” enough times that the Chamber of Commerce in Nebraska’s largest city owes him a key to the city.

In the days following the Broncos’ playoff win over the San Diego Chargers, reporters asked the quarterback to explain the significance of his screaming of “Omaha” before virtually every snap.

“I’ve had a lot of people ask what ‘Omaha’ means,” Manning said with a sly smile.

“Well, Omaha, it’s a run play, but it could be a pass play, or a play-action pass, depending on a couple of things: the wind, which way we’re going, the quarter and the jerseys that we’re wearing. It really varies, really, from play-to-play. So there’s your answer to that.”

While changing the play is entirely acceptable when you are a Hall of Fame quarterback trying to fool a defense, it is as taboo as it gets when you are a licensed motor vehicle dealer trying to sell cars.

So taboo, in fact, that the Federal Trade Commission put dealers on notice once again that “hiding the ball” or misdirection tactics will not be tolerated in automobile transactions.

On Jan. 9, the FTC announced “Operation Steer Clear,” a nationwide sweep that focused on the advertisements of 10 dealerships from six states. The FTC charged those dealers made material misrepresentations in print, Internet and video advertisements that led consumers to believe they could purchase or lease vehicles for certain terms when such was not the case.

What did these dealers do to “hide the ball?”

• T wo California dealers printed advertisements that prominently displayed a price for a vehicle – for example, a 2008 Chevy Tahoe LS for $17,995. However, in fine print at the bottom of the page, the dealer added this disclaimer: “Prices after $5,000 down + Tax, Lic and Doc fees on approved credit.”

So while the ad led consumers to think the price of the vehicle was $17,995, it was actually $22,995.

• Several of the dealers advertised leases with zero due at lease signing. Yet when the dealer advertised the specific models available for lease at a particular payment, the fine print said “first payment, acquisition fee, tax, title due at lease signing,” or that a down payment was due at signing to get the advertised payment.

DEALER NEWS

NJ_0414.indd 14

A P R I L / M AY 2 0 1 4

BY SHAUN PETERSEN According to the FTC, the impression left in consumers’ minds was they were not required to leave any money with the dealer to get the advertised monthly payment. But when it came time to close, the dealer slapped them with a bill for potentially thousands of dollars.

• Multiple dealers offered vehicles for $99 a month and zero down. That offer was bold and easily recognizable. Sounds like a great deal. But if consumers were able to see the fine print that flashed across the video screen or was placed at the bottom of a print ad, they would have noticed the $99 per month offer only applied to the first few months of the loan – after which the payments increased to $534 for the balance of a 72-month loan.

Lest we fall into the trap of thinking this was a one-time splash, Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said, “We have many other investigations in the pipeline. This is a priority for the FTC and you will see many other cases in the auto-related area.”

And remember, if the FTC is looking for cases, state attorneys general are right behind them.

In order to protect yourself from an enforcement action, remember your advertisements cannot change the play on the consumer. If you make a particular offer, nothing in the fine print can alter the material terms of that offer.

Moreover, all material terms of the offer must be clearly and conspicuously disclosed.

For print ads, disclosures have to be large enough and readable enough for a consumer to notice, read and comprehend them.

Disclosures in videos must be loud enough, slow enough and in a format sufficient for a consumer to understand them.

If you use a third party vendor, do not simply rely on its statements that the advertisements are compliant. Ensure the ad has undergone a thorough compliance review. Remember, it is your dealership’s name on the ad. Wonder who the FTC will chase?

As you stand in the huddle of your advertising team and the temptation to “change the play” comes, remember the FTC’s team of attorneys is roaming the landscape and will hit you harder than Ray Lewis ever did.

Adopt this game plan: No audibles allowed.

SHAUN PETERSEN IS A PARTNER WITH THE LAW FIRM OF MAC MURRAY, PETERSEN & SHUSTER LLP AND HEAD OF THE FIRM’S AUTOMOTIVE PRACTICE. HE SERVES AS NIADA’S REGULATORY COUNSEL.

AUCTION

NEWS

ADESA Reveals Management Changes at Four Auctions FOUR INDIVIDUALS ARE PROVEN LEADERS Management recently changed at four of ADESA’s locations. ADESA chief executive officer and president Stéphane St-Hilaire said, “All of these individuals are proven leaders who know what it takes to run a successful auction. I am excited to share their expertise with each of these locations and their customers.”

Jay Hinchman, previously general manager at ADESA New Jersey, will now serve as general manager of ADESA Las Vegas. Hinchman’s career in the remarketing industry spans more than 18 years.

Theo Jelks will return to ADESA Los Angeles, where he served as general manager from 2009 through 2011.

In late 2011, he joined the company’s newest auction, ADESA Las Vegas, as the auction’s general manager.

Craig Estep has been named general manager at ADESA New Jersey. He most recently served as general manager for Upstate Auto Auction. Estep began his career in the auction industry in 1991 at Statesville Auto Auction before joining ADESA Indianapolis in 1994.

Zachary Jones, previously operations/transportation manager at ADESA Great Lakes, will now oversee operations as the auction’s general manager. Jones joined ADESA in 2006. Prior to joining the company, he worked as a fleet manager, dispatcher and driver for ASR Services/Daltons Towing/Auto Site.

W W W. N E W J E R S E Y I A D A . O R G

3/21/14 2:37 PM

NJ_0414.indd 15

3/21/14 2:37 PM

MANAGEMENT

MATTERS

How to Select the Best Existing Building for Your Car Dealership KEY COMPONENTS TO CONSIDER DURING THE BUYING PROCESS

16

During the latest economic downturn, many auto malls became ghost towns as dealers of both new and used cars were forced to close their doors. As the economy turns around and starts to expand, 2014 is the time to take advantage of these great, vacant locations.

While these existing car dealerships are in prime locations, many may not be worth the debt on the mortgage, which puts the buyer in a great position to make a deal. The trick is to choose the ideal existing building to fit your needs without having to put too much money into the building to make it your own.

The following are some key components to take into account and investigate during the buying process. These points will help you avoid buying a lemon.

1. The first step is to retain the services of a commercial real estate broker with good working knowledge of your desired area and experience in automobile dealership sales.

DEALER NEWS

NJ_0414.indd 16

A P R I L / M AY 2 0 1 4

You may think you can negotiate the deal yourself but with an existing building there are always unforeseen issues. Having an experienced expert on your side will help you discover as many issues as possible during the buying process.

Also, a broker can help you locate new buildings that are just coming on the market that you would not be able to find on your own. Finally, they can assist in finding the local zoning council, getting a fair appraisal and hiring a good company to do the inspections.

2. Secondly, you want to verify the property is zoned for the specific use of used car sales. This can be accomplished by obtaining a zoning verification letter from the jurisdiction in which the site is located.

Many zoning conditions that permit automotive sales only account for the sale of new product. The sale of used vehicles could be prohibited or be a secondary use requiring a zoning variance, special use

BY SARAH ROBERTS

permits or even a rezoning.

These three procedures will take time and could cause a delayed grand opening.

It’s prudent to make your final sales contract contingent on obtaining final zoning approval from the jurisdiction prior to closing. This contingency will protect you if there are any issues with the local municipality.

If you are required to enter into zoning proceedings, check with the local jurisdiction on the timeframe as they will have strict deadlines. Hiring a zoning attorney who is familiar with the jurisdiction will make the process run more smoothly. Your broker can assist in finding good counsel.

Depending on the jurisdiction, this process may also require the review of the intended building exterior modifications. If this is required, hire an architect to produce required materials. Other zoning uses to check are fueling, washing and servicing

W W W. N E W J E R S E Y I A D A . O R G

3/21/14 2:37 PM

automobiles.

3. As you start to investigate the building, the best advice is to hire an experienced consultant to inspect it. This is another area in which your broker can assist. The inspector can help with identifying issues in the existing building, such as hazardous materials like asbestos and lead.

It is best to make sure testing is done during your due diligence process. If the test confirms hazardous materials, you may negotiate the remediation of the materials in your contract for the seller to pay the cost or have the cost of abatement reflected in the asking price. Getting rid of hazardous materials is costly in both time and money.

Other issues to address in your inspection are building components such as the electrical system, HVAC system and exterior envelope. Beware the slippery slope of renovation. Bringing a structure up to current code can be very expensive. It may be better to demolish the building and build exactly what you want.

For your building inspection make sure to hire an inspector that is registered and has a background in doing commercial buildings and car dealerships. A good inspector will be able to tell you the state of your system.

You will need to have a geotechnical engineer do a Phase 1 Environmental. This is a test of the property to make sure no fuel, oil, antifreeze or any other contaminating liquid has leaked on site (this also can be into the site from offsite properties).

W W W. N E W J E R S E Y I A D A . O R G

NJ_0414.indd 17

It is possible the seller may have this report from the original or previous sale.

Obtaining this report will help your engineer do a quicker and more accurate report.

The remediation for these spills is costly and you could later end up in a lawsuit if you sell the building without disclosing this information. These reports will also show if there are any other potential site challenges such as wetlands, unusable land on the property or protected species.

4. Signage is another factor in verifying applicable requirements before you purchase.

Every car dealer wants to make sure there are plenty of clear views to signage, whether building mounted or freestanding components.

In many locations with existing buildings, signage may be “grandfathered in,” meaning you may be able to utilize the same amount of signage that the current dealership has to offer. However, this is not always the case.

If you are unhappy with the amount of signage your building is allotted, you might consider picking another location to make sure you can be found by potential customers. One advantage to an existing building is that many customers may have already visited the location and be familiar with it.

5. When you do find an existing building that excites you, ask the seller to let you visit the property at night with the lights

on. Check what your store will look like as customers arrive in the evening. This will allow you to see how visible the current signage is in the dark and how your merchandise will look.

Nighttime lighting is important because most customers purchase automobiles on Saturdays or after work during the evening.

It is more difficult to showcase merchandise color and quality at night, so adequate outdoor lighting is critical for merchandise color.

Since the location was likely operating as a dealership previously, you could have strong outdoor lighting fixtures already in place. You can also take this opportunity to check how many of the fixtures are in proper working order.

Ask the seller about operating the cost of the current fixtures. Then include the cost of repairing or replacing the fixtures in your contract negotiations.

There will always be unforeseeable issues that arise during the buying process, but by hiring a real estate broker with experience, obtaining a zoning verification letter, doing an inspection of the building and site as well as getting a geotechnical report you will be well on your way to knowing exactly what you’re purchasing and being happy with the result. Enjoy creating your new business location!

BY SARAH ROBERTS, LEED AP SITE FEASIBILITY AND DESIGN PIEPER O’BRIEN HERR ARCHITECTS

A P R I L / M AY 2 0 1 4

17

DEALER NEWS

3/21/14 2:37 PM

MARKET

WATCH

KBB Research Shows Brand Loyalty Tied to U.S. Regions SHOPPERS MAY PREFER MANUFACTURERS WITH LOCAL TIES

18

Why are some shoppers dead set on a particular brand, while others can be swayed by a variety of factors including price, fuel efficiency and looks?

According to Kelley Blue Book, it might have something to do with where these shoppers call home.

KBB announced results of research that focused on the most and least popular auto brands by U.S. region and, overall, statistics show out of all regions, southerners are the least influenced by brand when shopping for a car.

“Perhaps manufacturers have the ability to conquest market share in the South since these shoppers are not as loyal to any specific automaker,” KBB officials asserted.

The southern trend is illustrated by the relatively small 17 percent preference for Infiniti

DEALER NEWS

NJ_0414.indd 18

A P R I L / M AY 2 0 1 4

over other brands.

This is compared to stats such as the following: • Midwest shoppers are 64 percent more likely to consider Chrysler than shoppers from other regions.

• Northeast shoppers are 56 percent more likely to consider Subaru than shoppers from other regions.

• Western shoppers are 85 percent more likely to consider Tesla than shoppers from other regions.

For some of these more brandoriented regions, KBB.com found the top brands most shopped in specific U.S. regions are often headquartered or have assembly plants in that area, suggesting shoppers prefer manufacturers with local ties to their region.

“It seems what is popular in one region is overlooked in

another,” said Arthur Henry, analyst at Kelley Blue Book.

“Westerners prefer fuelefficient brands with style, such as Tesla and Scion, but those same brands are shunned in the South and Northeast,” he added. “Those living in the South gravitate toward brands that are manufactured in the same region. Shoppers from the Midwest also have an affinity for brands headquartered or produced in their own backyard.”

KBB also reported regional tendencies towards vehicle segment.

Out West, KBB found that new-car shoppers are 66 percent more likely to consider a hybrid car, while Midwest car shoppers are 42 percent more likely to consider a full-size crossover.

Southern shoppers are 41

percent more likely to consider a full-size sport utility, followed by the Northeast which is 20 percent more likely to shop for a compact crossover.

“Based on actual shopping data on KBB.com, hybrids are synonymous with the West, as SUVs are with the South,” said Henry. “Seeing the key drivers motivating shoppers are topography, metropolitan density and government regulations, it is not surprising compact crossovers are preferred over full-size SUVs in the Northeast.

“This shows when brand choice is layered on top of segment preferences, manufacturers like Subaru rise to the top with its four-wheel drive options, along with Volvo and its high safety ratings, which help both brands drive interest in this region.”

W W W. N E W J E R S E Y I A D A . O R G

3/21/14 2:37 PM

NJ_0414.indd 19

3/21/14 2:37 PM

20

DEALER NEWS

NJ_0414.indd 20

A P R I L / M AY 2 0 1 4

W W W. N E W J E R S E Y I A D A . O R G

3/21/14 2:37 PM

21

W W W. N E W J E R S E Y I A D A . O R G

NJ_0414.indd 21

A P R I L / M AY 2 0 1 4

DEALER NEWS

3/21/14 2:37 PM

COMPLIANCE

MATTERS

Two Words - Federal Felony FALSIFYING CREDIT DOCUMENTS IS A FEDERAL FELONY - BY THOMAS B. HUDSON I suspect that I could write this article every month. And maybe I should. The word just doesn’t seem to get out. Here’s the short version of the article: Falsifying credit documents is a federal felony.

Here’s the longer version.

There is a lot of information hiding in the two words “federal felony.”

First, because we are talking about a federal crime, we aren’t dealing with local law enforcement types who may be so overloaded with work or so underfunded that they cannot or will not take the time to prosecute a nonviolent financial fraud against a business. We’re talking about

various financial institutions to obtain auto financing.

One of the classic ways these schemes come to light is to have an insider blow the whistle on the bad guys. That’s what happened here. A confidential informant who previously worked at the dealership came to the FBI with documents and tape recordings regarding the fraud.

According to an affidavit, one recording is a discussion between the sales manager and two other employees about what information was needed in order to get a specific customer approved for auto financing. The informant also gave the FBI

the FBI. That’s the Federal Bureau of Investigation. The feds. Think Eliot Ness and his friends.

And there’s that second word - felony.

A felony means the real possibility of jail time. No fine. No slap on the wrist. No community service. Orange jumpsuit jail time. Ruin your life jail time.

According to a recent news report, a former long-time sales manager at an Alabama dealership has been indicted by a federal grand jury for bank fraud.

The investigation that resulted in the indictment was described as “related to an FBI investigation into falsifying car loan documents.”

The indictment stated that the sales manager had devised a scheme to defraud Capital One Auto Finance “to obtain moneys, funds, credits, assets, securities, and other property owned by and under the custody and control of Capital One, National Association, by means of materially false and fraudulent pretenses, representations, and promises.” Cut through the legalese and the translation is, “You tried to screw over a federally chartered financial institution.”

The fact that Capital One has a federal charter makes this a federal crime.

The indictment evidently arose from a federal grand jury investigation involving the dealership, which had been under investigation for fraudulently falsifying customers’ financing documents and submitting fraudulent information to

documents that he claimed showed the sales manager had changed two customers’ monthly incomes in order for them to be able to obtain credit with a financial institution.

So the sales manager is left fighting a federal indictment. The dealership is left with some serious reputational damage and will likely face a demand to buy back affected credit deals. The dealership, though cooperating with the investigation, probably has incurred significant legal fees in connection with the matter. That’s a bad day all around for the dealership.

The report makes me wonder about what the dealership’s records will show.

Do you suppose the dealership’s training materials for its sales and F&I folks cover this topic and contain a discussion of the consequences of this sort of misbehavior?

Is someone at the dealership charged with auditing deals to make sure that someone isn’t writing fiction in the back room? Do the dealership’s policies and procedures encourage internal whistleblowing? Do those same policies and procedures call for careful scrutiny of people hired to handle the F&I process?

And those are just the questions that occur to me this month. I’ll probably have more when I write this same article next month.

22

DEALER NEWS

NJ_0414.indd 22

A P R I L / M AY 2 0 1 4

COPYRIGHT © 2014 COUNSELORLIBRARY.COM LLC. ALL RIGHTS RESERVED. THIS ARTICLE APPEARED IN SPOT DELIVERY®. REPRINTED WITH EXPRESS PERMISSION FROM COUNSELORLIBRARY.COM.

PRODUCTS

& SERVICES

NUMBER OF SUBCOMPACTS UNDER $10K AT AUCTION EXPECTED TO GROW SEGMENT BECOMING MORE ATTRACTIVE FROM A DOLLAR STANDPOINT Tax season normally coincides with high prices at auction, and this year is no exception. According to the latest Blue Book Market Report from KBB.com, used-car values started the year 1 percent higher than at the beginning of the calendar year in 2013.

That said, some of the lowest-priced models in the lanes might also be the ones getting more attention from shoppers.

One- to 3-year-old vehicles started the year off with an average auction value of $17,876 in January. And overall, prices are strong, but KBB also pointed out a group of less pricy vehicles that may be getting increased attention from dealers in the lanes, as well as consumers on the lots.

The report pointed out that with demand from consumers for cheaper and more fuelefficient cars, the subcompact car segment is “becoming more attractive from a dollar standpoint.”

MAZDA MAZDA2

KBB offered the following example: In the 2013 model-year lineup, there are four vehicles with auction values under $10,000: the Fiat 500, Mazda Mazda2, Chevrolet Spark and the Smart Fortwo.

And with model-year 2012 vehicles now two years old, the list of vehicles in the sub-$10,000 range jumped to nine vehicles, ranging from $9,700 down to $7,625, according to KBB data.

“As long as there is strong demand for lower cost and value-focused vehicles, this group of 1- to 2-year-old vehicles with auction values that fall in the sub-$10,000 range will only continue to grow,” said KBB’s Alec Gutierrez.

W W W. N E W J E R S E Y I A D A . O R G

3/21/14 2:37 PM

NJ_0414.indd 23

3/21/14 2:37 PM

NJ_0414.indd 24

3/21/14 2:37 PM