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CIADA INSIDER MARCH/APRIL 2014

magazine

F E AT U R E S T O RY O N PA G E 8

Charlie’s Auto and Truck Sales CIADA’s Quality Dealer of the Year

INSIDE

• Pointers To Improve Reconditioning Processes • How to Select the Best Existing Building • Advertising Game Plan

DALLAS, TEXAS Permit No. 2079

PAID

PRSRT Standard U.S. Postage

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FRONT RANGE CLASSES

Inside 06 Letter from the President 08 CIADA’s Quality Dealer of the Year 10 Flat Fees vs. Discretionary Compensation for Dealers 16 How to Select the Best Existing Building 20 Pointers to Improve Your Used-Vehicle Reconditioning Processes 22 Advertising Game Plan: No Audibles Allowed

Colorado Independent Automobile Dealers Association

Lakewood, Colorado Education & Training Center 950 Wadsworth Blvd., Suite 101 Lakewood, CO 80214

Pre-Licensing Certification

Colorado state statute requires anyone applying for a used motor vehicle dealer’s license or a used powersports dealer’s license be certified through a pre-licensing course. This seminar is also offered to salespeople to be able to pass the New Mastery Examination Test. Class is held at least once a week. Check our website for dates.

What’s New u

Basic Title Training Class

Join us to get updated information to learn the CORRECT way to fill out your paperwork at time of sale and other topics including title compliance, do’s and don’ts for titles and more. This class is held once a month for half a day.

Stay Strong as an Independent

NIADA CAN HELP

You work hard to make your business successful. Let NIADA help you stay strong as an independent automotive dealer. Take advantage of everything NIADA has to offer, such as dealer compliance training (www. niadadealershipcompliance.com), Certified Master Dealer training, 20 Group and the many other dealer benefits, including auto, home and health insurance. Learn more at NIADA.com.

Call CIADA for information on these classes, or to get your forms and/or Dealer/ Salespersons Bonds. Call 303-239-8000. ALL CL A SSES ARE SUB J ECT TO C HAN GE WITHOUT NOTIC E . PLEA SE C H EC K OUR WEBSITE W W W.C IADA .ORG FOR ANY C HAN GES.

www.ciada.org • phone 303.239.8000 • fax 303.237.3305

Advertisers Index

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ADESA........................................................................11 Ally..................................................................................9 Black Book..................................................................7 DAA of the Rockies...................Inside Front Cover Dealer Funding........................................................21 GoldStar GPS..............................................................5 Leedom Group.........................................................15 Lobel Financial Corporation...................................3 Loveland Auto Auction..........................................20 Manheim.com.........................................................13 Manheim Denver................................... Back Cover Manheim Littleton CO...........................................18 Manheim Pennsylvania........................................17 United Acceptance.................................................19 VAuto.............................................Inside Back Cover

Board of Directors

CIADA Office 950 Wadsworth Blvd., Suite 101

Lakewood, CO 80214 (303) 239-8000 Todd O’Connell • toddo@ciada.org

NIADA Headquarters National Independent Automobile

President Dave Cardella Mountain States Auto Group 303-887-8977

John Lindberg Auto Warehouse 970-490-2886

Peppe DeMarco Highline Motors 970-206-9963

Vice-President Stan Martin Stan’s Auto Sales LLC 303-650-1011

Deborah Thompson Automotive Search, Inc. 303-691-5622

Roger Kirlin Roger Kirlin Auto Sales 303-526-7805

Secretary Ed Couch Front Range Auto 303-659-1909

Jim Bode J. Bode Used Cars, Inc. 303-366-1535

Joe McCloskey McCloskey Motors 719-594-9400

Treasurer Dan Berkenkotter Berkenkotter Motors 303-660-8754

Lloyd Donnelly King Credit Auto Sales 303-287-5511

Bob Olds Bob Olds Motors 303-807-2388

Chairman of the Board Dean Strawn AutoTrek 303-934-5600

Jim Bahne Bahne, Inc

Wally Smith 303-659-0004 Smith Motors

Directors Dean Gunter Mile High Car Company 719-570-7800

Mike Bonicelli Nevada Auto Sales 719-635-2533

Don Walker Walker Investments 303-359-3092

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. CIADA Insider is published 6 times per year 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 6006-5203. The statements and opinions expressed herein are those of the individual authors and do not necessarily represent the views of CIADA Insider 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.

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

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ASSOCIATION NEWS

Letter from the President… u

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C  E LE BR ATING RECOGNITION AND FAC ING OB S TAC LE S

Fellow member, As we begin a new year with great expectations of profitability in the constant pursuit of one more car deal, we pause to reflect on what we accomplished last year. As an association we have many things of which to be proud. Perhaps none greater than having our state Quality Dealer of the Year, McCloskey Motors, located in Colorado Springs, also win the National Quality Dealer of the Year! This is the second time in 20 years this prestigious award has been given to one of our dealers. Joe and Ann McCloskey, owners of McCloskey Motors, competed against over 38,000 dealers to bring home this award. Once again let us recognize their great achievement and the recognition it brings to our state. We had another association member receive national

recognition as Dealers Auto Auction of the Rockies won NIADA Auto Auction of the Year. We are proud of our winners. I encourage all of our members to compete at the highest level to achieve this same type of recognition. Now I extend congratulations to our newest winner, Charles and Teri Ehmka, owners of Charlie’s Auto and Truck Sales located in Northglenn, who have been named our 2013 Quality Dealer of the Year. They won against some very strong and well deserving fellow dealers. We will see you in Las Vegas and hope you bring the National Quality Dealer Award home to our state again. In November, Todd and I traveled to Washington D.C. with NIADA on behalf of our association to express our concerns with the ever changing rules and oversight being placed

on our dealers. We had the opportunity to discuss issues with the FTC, NMVTIS, NHTSA and CFPB and also senators and congressmen. While we feel our voices were heard, we also understand that the focus on our industry seems to be becoming more intense with the formation of committees to look at all compliance issues even though some agencies were unable to provide us with clear and precise rules. We will be paying close attention to these and other issues as they present themselves throughout the year. 2014 is already shaping up as a year of issues for our industry. A title branding bill was drafted with wording we believe is harmful to our customers and members. This bill, introduced in the first week of the legislative session, currently seems to be opposed by all except insurance companies. I can assure you we are on top

of this issue and have been in contact with government officials expressing our concerns. Some other issues our association will be addressing this year are 30 day titles, spot delivery, curbstoning, professional salesperson license and advertising rules. Compliance is one thing all of us must pay close attention to in running our dealerships, now more than ever as rules and laws are being implemented on the state and federal level every day. Let’s have a healthy, safe and prosperous year as we pursue our dream of being small business owners while overcoming all the obstacles that present themselves as we provide our customers with safe and reliable transportation.

BY DAVID CARDELLA PRESIDENT CIADA

ASSOCIATION NEWS

From the Executive Director…

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H  ELPING YOU KEEP ALL YOUR PROFIT IN 2014

I hope you all are experiencing a profitable first quarter. The following information is delivered with the spirit of helping you keep all of your profit in 2014. By knowing what the “hot” compliance topics are you can evaluate your business practices in order to minimize any potential problems. In David Cardella’s message this issue, he touches on compliance issues at both the state and federal levels. For more details, I spoke with different regulatory agencies to discover the highlights from their investigations. From the state, it’s no surprise that the number one consumer complaint revolves around title delivery. There are numerous complications that contribute to a late title and a good portion of the time the fix is out of the seller’s control. But

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be mindful that with the current regulations the title is to be delivered within 30 days. While the former is problematic, the unlicensed sales/salespeople issue is relative easy to avoid. The simple solution is if there is not a current license hanging on the wall, that salesperson cannot be selling. Develop a system to keep track of the renewal dates, as the out of pocket fine is $7,500. Misrepresentation, contract/ financing and advertising round out the top five complaints the state received in 2013. These are very broad reaching with many different scenarios. Disclose what you know about the vehicle and keep a detailed written record for every transaction. Advertising rules are possibly going to be revised this year. We will keep you

MARCH/APRIL 2014

updated with any changes. The IRS is actively looking at dealerships using independent contractors. The fines and penalties can be substantial, so if there is any doubt, now is the time to consult with your CPA or attorney to make any necessary changes in your business model. The attorney general’s office is out statewide looking at late charges, the retail installment contract “insurance coverage” wording, gap insurance documents, repossession charges, deficiency values and especially the licensing and notification requirement. By the time you read this, you should already have received information detailing exactly who needs to register plus the specifics on a compliance policy being offered to all dealers who are not registered. Very near the top of the

compliance list, if not the top, is the Office of Foreign Assets Control administered by the US Department of Treasury. OFAC regulations mandate that a check be pulled on every sale. If your dealership is not familiar with OFAC, please give the association a call because the treasury is non-forgiving and the fines are substantial. In 2013 more than $137,075,000 in fines were imposed, with the smallest one being $10,000. Please call me anytime with questions and check CIADA’s website www.ciada. org for the date of our next compliance seminar. Sincerely,

BY TODD O’CONNELL w w w. c i a d a . o r g 2/13/14 2:15 PM


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ASSOCIATION

NEWS

Charlie’s Auto and Truck Sales u

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C  I A DA’ S Q UA LI T Y D E A LE R O F T H E Y E A R

The year was 1983 and Charlie Ehmka was beginning his journey in the car industry. He started off small as a lot boy. Quickly picking up on customers’ reactions to certain salespeople, he began to understand the importance and value of good customer service. Charlie sold his first car on his first day as a car salesman. He had a motto that he felt aided his success: “Make a friend, make a car deal.” His manager wanted Charlie to share the secret to his success as well as his customers with other salesmen. However, Charlie’s customers only wanted to do business with Charlie. After many years of success, managing car lots, learning how to do all the paperwork and even working as a wholesale buyer, Charlie’s wife Teri encouraged him to obtain his dealer license. Charlie was skeptical he would qualify. After several weeks of patiently waiting a response, however, he was approved. Charlie’s Auto and Truck Sales, LLC, began in a second floor office with a small parking lot. Investing $2,000 into the company’s checking account, Charlie started purchasing vehicles and always paid cash. After searching and praying for a new bigger location, Charlie found a fixer-upper in Northglenn. He offered to fix it up in exchange for reduced rent. Charlie’s business took off and he was soon able to obtain a loan to purchase the property. Charlie’s Auto and Truck

ASSOCIATION

Sales, LLC, is truly a family business. Charlie and Teri do all the car buying and handpick every unit. They are also the lot boys, salesmen, receptionists, janitors, parts manager, advertising/social media managers, customer service managers, etc. Charlie has been involved with his local church for 12 years as a drummer. Their involvement with the community has helped build the dealership’s great reputation, not only bringing back repeat customers but many referrals. Their customers appreciate the amount of time the Ehmkas spend with them and their willingness to help. Many of them consider themselves lifelong customers and have been returning for 10 plus years, highly recommending Charlie and Teri to friends and family. With pleasure, CIADA announces that Charlie’s successful business has earned him the prestigious Quality Dealer of the Year award. We at CIADA are very proud to have Charlie represent the state of Colorado at the National Quality Dealer of the Year awards program featured at this year’s NIADA convention. In addition, a special thanks to Regis University for their partnership and role in the selection process. Congratulations to Charlie’s Auto and Truck Sales, LLC. We wish you much continued success in years to come.

NEWS

Mark Your Calendars for NIADA Convention 2014 u

J U N E 2 3 - 2 6 AT C A E S A R S PA L A C E I N L A S V E G A S

You don’t want to miss NIADA’s 2014 Convention and Expo. The event will take place June 23-26 at Caesars Palace in Las Vegas. A must attend venue for dealer education, NIADA’s convention and expo offers a great opportunity to network with other dealers and industry leaders, meet with vendors, learn from industry experts and much more. CIADA CO_0314.indd 8

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In 2014, NIADA is focusing on what it means to be an independent dealer. Whether you’re from a “mom and pop,” Buy Here-Pay Here, large retail store or multi-location, NIADA has something for you to better equip you to work smarter, more efficiently, with the best tools available to ultimately make you a solid, strong dealership for the future.

MARCH/APRIL 2014

Convention events include valuable training sessions, a kick-off reception, awards banquet and various breakout sessions. Learn the latest ways to improve your business, honor the best in the business, do a bit of networking and have a great time doing it. There are also great opportunities for sponsors and exhibitors, with full

access to convention events. These events are strategically scheduled to not conflict with exhibit hours. Mark your calendar today and make plans to attend. Visit www.niada.com/convention. php for convention details. For more information regarding the convention or sponsorship, contact Holly Swanzy at holly@ niada.com or 817.640.3838. w w w. c i a d a . o r g 2/13/14 2:15 PM


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COMPLIANCE

OVERDRIVE

Flat Fees vs. Discretionary Compensation for Dealers

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T H E D E B A T E C O N T I N U E S

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 CIADA

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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 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

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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. 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 will still 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: u 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. C O N T I N U E D O N PA G E 1 2

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C O N T I N U E D F R O M PA G E 1 0

PRODUCTS

& SERVICES

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

BY CHIP ZYVOLOSKI

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

AASC Announces Standardized Vehicle Condition Grading Technology u

AUTOGRADE EXPECTED TO HELP AUCTIONS STRENGTHEN VEHICLE CONDITION PROCESSES

Through joint collaboration across the wholesale automotive industry, Auto Auction Services Corporation has introduced a new industry standard for vehicle condition data reporting available to all members. This new standard will drive consistency across the entire automotive wholesale marketplace. Through an arrangement with the National Auto Auction Association, AASC will soon distribute Manheim’s AutoGrade service to all member auctions at no additional cost. ADESA, Bel Air Auto Auction, Greensboro Auto Auction and Tallahassee Auto Auction will be first to use the service once the integration project is complete. “We are very pleased to share this new technology with the industry, which was developed through our partnership with Manheim,” said Mike Broe, chief executive officer and president of AASC. “AutoGrade will help auctions and sellers in North America maintain a consistent vehicle CIADA

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grading system and allow buyers to see condition report consistency across all channels.” The AutoGrade service becomes available at a time when wholesale volumes are increasing, buyers are embracing Internet platforms and sellers are asking for consistency and transparency in their vehicle valuation processes across all venues and geographies. Whether or not auctions have a scoring methodology of their own, they will now have the option to offer an AutoGrade on every vehicle in their inventory. Positioning AASC as the distribution source for AutoGrade will allow all auctions to easily and confidently adopt the AutoGrade methodology, ultimately improving condition report quality and consistency across the industry. An analysis of vehicle sales data shows that vehicles listed online with an AutoGrade score are three times more likely to sell than vehicles without. “The AutoGrade score is

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acknowledged as the gold standard in the industry – buyers can consistently compare like-for-like vehicles and have the highest confidence in their purchase decision,” said Charles Nichols, BSC America’s president. “AutoGrade utilizes vehicle information to calculate a consistent objective grade the same way, every time, across auction locations and online platforms,” said Paul Lips, executive vice president of operations and finance for ADESA. “This increases confidence for buyers and allows them to more effectively comparison shop vehicles. It also makes it easier for sellers to accurately price vehicles. Implementing AutoGrade as the standard for the industry should considerably improve the overall customer experience.” How it Works AutoGrade will allow auctions an opportunity to input vehicle damages to generate vehicle scores while preserving confidentiality of

certain vehicle data. Here is how the process will work: • Auctions collect and submit vehicle damage information to AASC via AutoIMS in much the same way they do today. • AASC will remove all vehicle data (including the VIN, year, make and model) along with the auction name and transmit the data to Manheim. • Manheim then returns an AutoGrade score back to the auction via AASC. To use AutoGrade, each auction must maintain a membership in AASC, which maintains the remarketing industry standard inventory management system AutoIMS. AASC continues in its 16th year serving the industry. To register for the service, please contact Jay Cadigan at Manheim (jay.cadigan@manheim.com) or Mike Broe at AASC (mike.broe@ autoims.com). For more information about Auto Auction Services Corporation, visit www.autoims. com. w w w. c i a d a . o r g 2/13/14 2:15 PM


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WHAT’S NEW ON NIADA.TV www.niada.tv

ASSOCIATION

New this month on

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NiADA.tv

If you missed the NIADA National Leadership Conference, or would like to review a session, there’s good news! Multiple videos from the conference are available online at www.niada.tv.

NIADA TELEVISION

EDUCATIONAL

PROGRAMS

Congressman Joe Barton, TX, Addresses the NIADA

Check out Congressman Joe Barton’s session during the NIADA leadership conference prior to meeting with legislators. He advises attendees to not have non-intersecting conversations with legislators, to be polite but honest.

Financial & Economic Overview - NIADA NLC, Washington, DC

Watch as Ken Shilson, CPA & NABD president, and Chris Stinebert, president & CEO of American Financial Services Association, present how the current economic environment is changing prime and sub-prime automotive finance.

UPDATE FROM THE National Motor Vehicle Title Information System (NMVTIS)

Todd Brighton, NMVTIS enforcement coordinator, and Jim Taylor, president of Auto Data Direct, provide an update. NMVTIS is designed to protect consumers from fraud and unsafe vehicles and to keep stolen vehicles from being resold. It is also a tool that assists states and law enforcement in deterring and preventing title fraud and other crimes. To view all of NIADA.TV’s monthly special program series, simply visit www.niada.tv, click on the red enter button, and then look for the “Special Programs Series” buttons on the right side of the main menu page.

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NEWS

NIADA Collects Nominations for Community Service Award u

A  S SOC IATION SE E KS TO HONOR DE ALE RSHIP S THAT SE RVE

NIADA is collecting nominations for the 2014 NIADA Manheim Community Service Award. This award was created to honor independent dealerships that contribute to their communities on a regular basis yet often receive little or no recognition for their support. Their support may come through special projects, sponsorships, financial contributions or even leading innovative community improvement activities. If you are or know of a dealership — owners, staff and even their families — that sets itself apart by its service to the community, NIADA welcomes your nomination. Nominees must be members in good standing of the National Independent Automobile Dealers Association. Nominations may be made by the dealership, a community business or organization, the state independent automobile dealers association, a community member or even a loyal customer. The deadline for nominations is April 1. For more information or to download the 2014 nomination form, visit http:// www.niada.com/community_award. php.

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MANAGEMENT

MATTERS

How to Select the Best Existing Building for Your Car Dealership u

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KEY COMPONENTS TO CONSIDER DURING THE BUYING PROCESS

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. 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 CIADA

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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 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

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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 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 issue(s) 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). 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 C O N T I N U E D O N PA G E 1 8

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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. C O N T I N U E D F R O M PA G E 1 6

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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

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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

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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 the operating 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

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MARKET

WATCH

KBB Research Shows Brand Loyalty Tied to U.S. Regions u

S H O P P E R S M AY P R E F E R M A N U FAC T U R E R S W I T H L O C A L T I E S

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 over other brands.

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This is compared to stats such as the following: u  Midwest shoppers are 64 percent more likely to consider Chrysler than shoppers from other regions. u  Northeast shoppers are 56 percent more likely to consider Subaru than shoppers from other regions. u  Western shoppers are 85 percent more likely to consider Tesla than shoppers from other regions. For some of these more brand-oriented 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.”

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MANAGEMENT

MATTERS

Pointers to Improve Your Used-Vehicle Reconditioning Processes

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You’ll get a range of responses when you ask dealers how much time it takes to recondition used vehicles. The best-performing dealers these days consistently get the job done in 24 hours or less. Meanwhile, other dealers report their reconditioning turnaround times run seven days or more. The disparity owes to two chief factors — the degree to which the dealer recognizes that time spent in reconditioning translates to lost front-end profit potential, and the extent to which a dealer implements and monitors processes that reflect the “time is money” reality of retailing used vehicles. The following are five best practices I’ve gleaned from dealers who have transformed their reconditioning processes to minimize delays and maximize the profitability potential of every used vehicle: 1. Steer clear of problem cars at acquisition. This seems an obvious point, but some dealers and their buyers lose their acquisition discipline

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when they’re desperate to fill gaps in their used vehicle inventories. The result: They look past (or don’t check) AutoCheck, CARFAX and other condition reports, bringing home vehicles that require significant reconditioning work. The dynamic amounts to “throwing good money after bad” as they pony up for costly repairs that could have been avoided. 2. Determine each car’s exit strategy right away. This best practice goes hand-in-hand with the one noted above—that is, dealers should not be acquiring vehicles at auctions that lack the condition or market appeal (e.g., Market Days Supply) that indicate positive potential as retail units. Of course, trade-ins are a trickier prospect, especially if the dealership stepped up to acquire a unit and complete a retail deal. In these instances, dealers and their managers should collectively and quickly determine if a unit has retail potential. A best practice: Gather the appraisers and decisionmakers once a day to review trade-ins and make the retail/

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wholesale determination. 3. Establish an “auto approval” for reconditioning work. This best practice helps minimize delays caused when a used vehicle manager cannot (or doesn’t) approve reconditioning work in a timely manner. Dealers who use this approach set up a baseline cost for reconditioning ($600 to $800 per car is common) and allow the service department to complete the work when estimates fall below the threshold. Some dealers resist this best practice out of a fear that their service department will “stitch up” the repair order to the maximum amount on every car. “That hasn’t been a problem at our dealership, but we monitor whether estimates match up with the final cost,” a Northeast dealer said. At dealerships where buyers consistently check vehicle condition reports before purchasing a vehicle, about 10 percent of the incoming cars will require a manager’s approval because estimates exceed the baseline. In those cases, dealers

use email or text alerts to managers and expect a yea-or-nay decision in less than two hours. 4. Make reconditioning speed a priority. For some dealers, this means giving up on the tug-of-war with service directors and managers, who often regard customer pay work as a higher priority. In these stores, dealers will create a separate team (often a manager/ writer with up to five technicians, depending on volume) who focus solely on fast, yet thorough, reconditioning work. The manager’s compensation package typically emphasizes the need for efficiency and speed, with bonuses tied to meeting the store’s 24- to 72-hour reconditioning benchmark. Other stores give the responsibility for managing reconditioning to the used vehicle manager. The manager then works collaboratively with his/ her counterparts in service to craft and execute the processes that enable the dealership to recondition vehicles in an efficient and timely manner.

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AND POLLAK’S ENTIRE BLOG CAN BE FOUND AT WWW. DALEPOLLAK.COM. ARTICLE REPRINTED WITH PERMISSION.

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u

1  I N 5 WO U LD LE T C O M PU T E R S D O T H E D RI V I N G

A new CarInsurance.com survey finds that one in five Americans would never take the wheel again if a self-driving, or autonomous, car were available. While 20 percent of the 2,000 licensed drivers surveyed said they would gladly turn over the keys, interest in autonomous vehicles soared when the prospect of dramatically reduced insurance costs was introduced. More than a third of those surveyed said an 80 percent discount on car insurance rates would make purchase of an autonomous vehicle “very likely,” and 90 percent of drivers said they would at least consider the idea. Cars that park themselves, navigate stop-and-go-traffic or avert an impending collision are already on U.S. roads today. Nissan has promised to deliver a fully autonomous vehicle — one that allows a computer to assume control under the right conditions — to showrooms by 2020. A fully automated vehicle that doesn’t need a human operator could someday follow. “Our survey shows cheaper

insurance will greatly influence consumer acceptance,” said CarInsurance.com managing editor Des Toups. “Some of the liability of operating a car will doubtless be assumed by the manufacturer,” Toups said. “But a lot of the decrease in rates could come simply because there would be many fewer accidents.” Trust will be a big hurdle, the survey results show: • 64 percent said computers were not capable of the same quality of decision-making that human drivers exhibit. • 75 percent of respondents said they can drive a car better than a computer could. • 75 percent said they would not trust a driverless car to take their children to school. The survey also asked consumers which companies they would trust most to deliver driverless-car technology. • Communications company such as Sprint or Verizon: 1 percent • Consumer products company such as Apple or Samsung: 12 percent • Software company such

as Google or Microsoft: 15 percent • Start-up automaker such as Tesla: 18 percent • Traditional automaker such as Honda, Ford or Toyota: 54 percent Asked what they would do with their additional free time, drivers responded: • Text/talk with friends: 26 percent • Other: 21 percent • Read: 21 percent • Sleep: 10 percent • Watch movies: 8 percent • Play games: 7 percent • Work: 7 percent The “Other” category included two significant write-ins. More than 10 percent of respondents wrote in some variation of “enjoy the scenery” and 9 percent wrote in “watch the road,” “hold on for dear life” or something similar. See the full article at www. carinsurance.com/Articles/ autonomous-cars-ready.aspx. CARINSURANCE.COM HAS BEEN OFFERING DRIVERS ADVICE ABOUT CAR INSURANCE AND HOW TO SHOP FOR IT SINCE 2003. IT IS OWNED AND OPERATED BY QUINSTREET, INC. FOR MORE INFORMATION, VISIT QUINSTREET.COM.

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WATCH

BY DALE POLLAK DALE POLLAK IS THE FOUNDER OF VAUTO. THIS ENTRY

Driverless Cars Study

MARKET

5. Look for ways to lower costs. Beyond profit-minded decisions that guide the scope of reconditioning work on individual vehicles, a growing number of dealers are examining their internal labor and parts costs to ease pressure on their front-end profit margins. These efforts often result in decisions to charge less-thanretail rates for labor, use lower-cost, non-OEM parts (e.g., brake pads, tires, wiper blades, etc.) and tighten their oversight of outside vendors who handle small dent/body, upholstery and window repairs. These five best practices are solid steps dealers can take to help speed up the time it takes to get their vehicles to the front line. However, dealers should also recognize that, in today’s market, there are really two front lines — the physical and the virtual. The speed required to get vehicles to the physical front line should be measured in hours and the virtual front line in minutes. Some dealers wait until reconditioning is complete before they address the description, photos, pricing and other elements each unit requires to stand tall on the virtual front line. This is an operational no-no in today’s time-ismoney environment.

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REGULATORY

M AT TERS

Advertising Game Plan: No Audibles Allowed u

FTC PUTS DEALERS ON NOTICE

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-toplay. 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?” • Two 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

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was due at signing to get the advertised payment. 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.

BY SHAUN PETERSEN 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.

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