Page 1

MAY/JUNE 2013

M A S S A C H U S E T T S/ N E W

E N G L A N D

DEALER NEWS OFFICIAL PUBLICATION OF THE MASSACHUSETTS/NEW ENGLAND INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION

Page 8

FROM THE DESK OF MELISSA OTIS

WHY SHOULD I BE A MEMBER OF THIS ASSOCIATION? AND WHAT’S IN IT FOR ME?

DALLAS, TEXAS Permit No. 2079

PAID

PRSRT Standard U.S. Postage

Visit us at w w w.miada.com

MASS_NE_0513.indd 1

4/17/13 1:46 PM


MASS_NE_0513.indd 2

4/17/13 1:46 PM


Letter from the President W E C O N T I N U E T O FA C E N E W C H A L L E N G E S O N A D A I LY B A S I S .

INSIDE u

MAGAZINE CONTENTS 03 06 08 10 14 18 22

President’s Letter Past President’s Message From the Desk of Melissa Otis Presenting Your Portfolio ACA Roadmap Washington Update Compliance Overdrive

WHAT’S NEW

Manheim recently released its 18th annual Used Car Market Report, which highlights 2012 industry trends and an outlook for 2013. A free download of the report is available for all NIADA Dealer Members at www.niada.com/dealers_edge.php

ADVERTISERS INDEX

ADESA.....................................................7 Ally........................................................15 Auto Use................................................19 CarMax Auctions................................... 18 Lynnway Auto Auction...........................4, 5 Manheim.com................ Inside Front Cover Manheim Pennsylvania..............Back Cover NextGear Capital....................................17. Persian Acceptance Corporation....Inside Back Cover Protective................................................9 Southern Auto Auction.................... 12, 13 VAuto.................................................... 11

OFFICE FOR INFORMATION ON HOW TO BECOME A MEMBER OF MIADA/ NEIADA, PLEASE CONTACT MELISSA OTIS AT 781-278-0077 OR DIRECTOR@MIADA.COM NATIONAL INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION WWW.NIADA.COM • WWW.NIADA.TV NIADA HEADQUARTERS: 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 MA/New England 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 Independent Auto Dealer or the National Independent Atomobile Dealers Association. Likewise, the appearance of advertisers, or their identification as members of MIADA or NIADA, does not constitute an endorsement of the products or services featured. Copyright © 2013 by NIADA Services, Inc. All rights reserved. STATE MAGAZINE MGR./SALES Troy Graff • troy@niada.com EDITORS Jennifer Carman • jenniferc@niada.com Andy Friedlander • andy@niada.com ART DIRECTOR Christy Haynes • christy@niada.com PRINTING Nieman Printing

Spring has finally arrived! It’s been a long, tough winter, but with spring comes the promise of a brighter horizon and the hope of prosperity for all. We continue to face new challenges on a daily basis. With the shortage of quality inventory to purchase and legislature that seems to change at a pace too quick to keep up with, it is becoming increasingly harder to do business. Rest assured the association is doing its best, working closely with our lobbyist on behalf of our dealers to keep negative bills at bay and better our industry. There has never been a better time to get involved with the MIADA. This is a time for us to unite and stay involved with every aspect of the industry. There is strength in numbers; as a whole our voice is much louder than as individuals. Remember, this is your association, and your opinion matters! We’re here when you need us to listen or answer questions. Feel free to speak to Melissa – the executive director – or me personally about any pressing issues. As always, thank you for continuing to support your Independent Auto Dealers Association. John Elefetherakis President, MIADA 617-512-5511

Quality Dealer of the Year Winners MIADA would like to congratulate the Quality Dealer of the Year Winners for 2013. Congratulations, gentlemen! We wish you luck in the National Quality Dealer of the Year competition.

MASSACHUSETTS QUALITY DEALER

South Easton Motor Sales, South Easton, MA Principal: Derek Gaultier

South Easton Motor Sales was founded in 1947 by Joseph Gaultier Sr. The dealership has been a member of MIADA since 1989. Derek began working at the dealership with his father immediately after graduating from high school. He took over as the principal in 2004 and has grown the business into the accomplished dealership it is today. South Eaton Motor Sales has a full-service repair facility and performs auto body repair. Derek prides himself on customer loyalty, and has a large repeat customer following. SEMS employs 12 people, many of whom have worked there for 10 or more years. Derek is very involved with community activities, sponsoring numerous little league teams, the D.A.R.E. program and various senior citizen programs. SEMS is a true family operation, closing as close to 6 p.m. as possible to allow its staff to have adequate time with their families.

NEW ENGLAND QUALITY DEALER Toy Store Auto Sales, Salem, NH Principal: David Chandler

Toy Store Auto was incorporated in 1982 by David. He began his automotive career as a teenager, working with his father. At 16 he built a 1932 street rod, and was then asked by Factory Five to build kit cars for its customers. David employs seven people at his dealership, most of whom have been with him for 10 or more years. He has a large base of repeat customers who have grown with the dealership as it added automobile repairs. David is heavily involved with numerous charities. He has organized food drives and toy drives, volunteered his time with the Boy Scouts, Girl Scouts, his local church and many charities. He was named Mason of the Year in 2012. He is a Shriner past president and a member of the Elks and Minuteman Sportsman Club. David has been on the MIADA board of directors for the past year and has been a member of the association for four years.

Executive Committee Board of Directors Chariman of the Board

Fred Moschetto Moschetto Brothers President

John Elefetherakis johnnycars@comcast.net Vice President

Bob Hayes bobh4433@aol.com Treasurer

Eric Schneider rickthegarage@gmail.com

State Executive

Melissa Otis director@miada.com Negash Adbelkader Royal Motors LLC Dave Chandler Toy Store Auto Sales Rich Copponi AutoUse Dana Duchak Lynnway Auto Auction

Executive Committee & Board Members Tim Hoegler Manheim New England Bob Shaw Sr. Shaw Auto Leasing Billy VanLaarhoven Martin Auto Sales Bob Ranney Southern Auto Auction David Carlucci ADESA Boston

Secretary

Larry Cunningham Aftermarket Specialists 3

w w w. m i a d a . c o m

MASS_NE_0513.indd 3

MAY/JUNE 2013

DEALER

NEWS

4/18/13 1:24 PM


MASS_NE_0513.indd 4

4/17/13 1:46 PM


MASS_NE_0513.indd 5

4/17/13 1:46 PM


ASSOCIATION NEWS

PAST, PRESENT AND FUTURE –

Through the Eyes of a Past President M I A D A I S M O R E T H A N J U S T A P R O F E S S I O N A L O R G A N I Z AT I O N . I T ’ S A N O R G A N I Z AT I O N D E D I C AT E D T O T H E C O M M U N I T Y A S W E L L .

I’m a long time member of MIADA. I even climbed up the ranks from board member to vice president to president – an office I held for four years. After more than 16 years affiliated with the association, I’ve seen some great changes and additions, and some great dealers come on board. During that time, MIADA has always worked to promote the image of the independent dealer as a professional – someone who goes to work each day with the vision of making the industry better. There’s a certain code of ethics by which we expect MIADA members to live, in the hopes that it will mold our members not just into better dealers, but into well-regarded ambassadors of the industry. We have seen hundreds of new pieces of legislation thrown at us, initiated by elected officials and grassroots organizations alike. As an association, we stood our ground and we stood united – and together have been able to defeat every law change and piece of legislation. And our membership continues to grow each year as new dealers open and existing dealers see the importance of unity. But MIADA is more than just a professional organization. It’s an organization dedicated to the community as well. MIADA has donated to Children’s Hospital, the Make-a-Wish Foundation, the Jimmy Fund and more. I have witnessed 10 very qualified children receive scholarships each of the past 12 years. We’ve held benefits for Toys for Tots, raised money for a stricken dealer, and even helped a widow and her children after the unthinkable took one of our members without warning. And many of us were there when two of our best and most influential past presidents buried two of their own boys. When times have been tough, we’ve brought the membership together and rallied our colleagues, friends and family to help ease the burdens. Great dealers have stepped up to take the MIADA reins, each bringing a new perspective and a new level of growth. That’s what makes MIADA great: members with great ideas and a board with great vision. Most members don’t have any idea what happens behind the scenes, because MIADA leadership does such a great job making it run smoothly, working all the time with a top-notch team of lobbyists and liaisons to keep new bills and regulations at bay. From 2009 to 2012, I saw many good dealers fall by the wayside due to the economic crisis. As we start to come out of that economic fog and see the light again, we’ve learned now, more than ever, we need each other. Through it all, MIADA is still going strong. The office has grown from a backroom, one-desk operation to a modern office with full-time staff five days a week. As our membership grown, so have our vendor relationships. Today, MIADA maintains strong relationships with more than 80 vendors who offer great benefits and discounts, such as coupons for several auctions. And when you become an MIADA member, you automatically receive membership in NIADA, including all of the benefits the national association has to offer. In addition to membership perks, MIADA provides a strong social network in which dealers can get to know and learn from each other. Plus, various events with vendor exhibits help members find new banks, warranty companies, advertising options, computer networking and more. It’s not all about cars, though; there’s a social and community-focused side too, including golf tournaments, holiday socials and fundraisers. The board of directors and MIADA staff are always planning for tomorrow. Our best tool is to educate ourselves, continue to move forward and work together to take the industry to the next level. In order for our industry to thrive, we need to be sure there are educated, professional dealers held to a higher standard, and MIADA is dedicated to paving the way. As many years as I have been affiliated, I’ve never understood why every dealer is not a member. The good news is it’s never too late to join. Best regards to all past, present and future members, Steve Carnes Past President

INDUSTRY NEWS

Beacon Hill Legislative Update TO LEARN MORE ABOUT SB 154 AND SB 9 5 , A S W E L L A S O T H E R L E G I S L AT I O N OF INTEREST TO OUR MEMBERS, VISIT W W W. M I A D A . C O M .

Massachusetts’ two-year legislative session commenced early January 2013; the 200-member legislature filed approximately 6000 pieces of legislation to be considered for the session. As lobbyist/legislative consultant for MIADA, Brian S. Hickey Associates, Inc. advocates for legislation supported by the MIADA board and opposes legislation deemed adverse to the interest of used car dealers. Senate Bill 154, filed by Senator James Timilty, has the support of the MIADA. Under the proposed legislation, in order to obtain a dealer license, dealers would be required to have their businesses situated within a building – open to the public – and have office space, signage and a vehicle display area. These are the same requirements that must be satisfied in order to obtain Section 5 dealer plates. Brian S. Hickey Associates has also reviewed the 6,000 pieces of legislation filed for this legislative session and has determined a number of bills MIADA will oppose during this legislative session. For example, Senate Bill 95 would allow a dealer to charge only one document fee preparation fee, capped at $75, for a variety of dealer documents. This legislation would clearly have a dramatic financial impact on dealers across the state. BRIAN S. HICKEY ASSOCIATES HAS REPRESENTED MIADA ON BEACON HILL FOR 14 YEARS, HELPING TO ENACT THE CURRENT BONDING REQUIREMENT, PERSONAL USE OF DEALER PLATES AND THE $200 CAP FOR DEALER LICENSE FEES. MIADA MEMBERSHIP FEES HELP FUND OUR CONTINUED EFFORTS BEHALF OF DEALERS ACROSS THE STATE.

6

DEALER

MASS_NE_0513.indd 6

NEWS

MAY/JUNE 2013

w w w. m i a d a . c o m

4/17/13 1:46 PM


MASS_NE_0513.indd 7

4/17/13 1:46 PM


INDUSTRY NEWS

From the Desk of Melissa Otis W E A R E A N O R G A N I Z AT I O N D E D I C AT E D T O B E T T E R I N G T H E U S E D C A R I N D U S T R Y.

State Executive | Melissa Otis

When approaching potential dealer members, I hear the same questions over and over: “Why should I be a member of this association?” and “What’s in it for me?” But my question to any non-members out there is this: Why aren’t you a member of MIADA? Whether you’re new to the industry or a seasoned veteran, the $399 investment in this association is one of the smartest business decisions you could make. Our industry is forever changing; knowing and understanding how to do smarter, better business is a way of life. I spent 7 years sitting on the MIADA board of directors before assuming the position of Executive Director. Although my title has changed, my belief in this association and the betterment it brings has only grown. I continue to learn from and appreciate the value of the association as a whole. I’m sure you’re aware of our VIP cards – valued at more than $10,000 in discounts with our affiliated auctions – but did you also know MIADA employs a lobbyist firm to oversee any and all incoming legislature bills that could impact our industry? MIADA aided in protecting our dealers from the Buyers Bill of Rights and the Excessive Noise Pollution Bill, and mediated for two years on dealers’ behalf when the banking commission stepped in and were ready to throw dealers in jail for financing vehicles without being properly licensed to do so. Did you know we have more than 80 vendor members that offer discounts things like postage, credit card processing, print and Internet advertising, auto parts, management software, legal services, financing options, health/building/life insurance and even collateral recovery… not to mention a discount on your required bonding. Need DRT forms? As a member, simply call our office and we’ll send them directly to you – no lines, no waiting. Your membership also includes membership in the National Independent Auto Dealers Association (NIADA), which has an additional list of preferred partners offering discounts to members. With a combined total of more than 450 years in the automobile business, our board of directors and staff are some of the most knowledgeable in the industry. And their knowledge isn’t limited to car sales; they have a depth of experience and knowledge in financing, warranties, auction practices, legislature, floor planning, Buy Here-Pay Here, and more. MIADA sub-committees meet throughout the year to fine tune things like charity events, Beacon Hill rallies, our annual meeting and choosing scholarship

recipients. These individuals volunteer their time on a regular basis to better the industry for all. One of our past presidents, Lou Tedeschi, even sits on the board for NIADA. They meet on a monthly basis to discuss pressing market and legislative issues that could potentially affect our business. MIADA has had many great events throughout the years. We’ve raised money for Rooms to Dream, Hope for the Warriors, Children’s Hospital, and the Make-a-Wish Foundation. This year will be no exception. Coming up in June we’ll host the 2nd annual Spring Extravaganza – a fun-filled night to help support the Dr. Lawrence Quigley Scholarship fund. To date, MIADA has given more than $175,000 to children of members, or members’ employees, who excelled and showed exceptional camaraderie in their schools and communities. In August, we’ll be host our 21st annual golf tournament. An adventurous day of golf and dinner, plus our highly popular helicopter ball drop, will be held at Indian Pond Country Club. Last year we raised $10,000 for the Dana-Farber Cancer Institute and Jimmy Fund. This year we hope to exceed that. In November, we’ll head to our annual meeting. This year’s program will include the always important vendor fair, Quality Dealer of the Year awards, educational guest speakers and more. This is an exceptional networking event, and you are guaranteed to leave with connections, knowledge, and business tools you didn’t have when you arrived. Finally, December will be our 3rd annual Toys for Tots fundraiser. In 2012, MIADA donated more than $7,000 worth of toys to the Marine Toys for Tots Foundation. This casual, low key, social event will once again be held at MJ O’Connor’s in Boston, Mass. In summary, MIADA is more than just VIP cards. We are an organization dedicated to bettering the used car industry. Our charity events help improve the public’s perception of used car dealers. Our board members and staff are always available for one-on-one help with any issue. We believe in educating and protecting our dealer members while protecting and making aware of potential negative governing forces. There is strength in numbers. At more than 500 members strong, we are a voice to be reckoned with. Get active and stay involved. Remember, this is your industry! So again, I ask: why aren’t you a member of this association? Melissa Otis Executive Director

8

DEALER

MASS_NE_0513.indd 8

NEWS

MAY/JUNE 2013

w w w. m i a d a . c o m

4/17/13 1:46 PM


MASS_NE_0513.indd 9

4/17/13 1:46 PM


INDUSTRY NEWS

Presenting Your Portfolio for the Most Floorplanning Dollars H AV I N G A F L O O R P L A N L I N E O F C R E D I T C A N H E L P YO U S E I Z E O P P O R T U N I T I E S A S T H E Y A R I S E .

The automotive industry is unique in that it is one of the few in which commercial loans are abundant and relatively easy to qualify for. Whether you are just starting out or looking to shift your business into the next gear, it is extremely likely you will be able to find the capital you need to stock your dealership. But while there is a good chance you will be able to acquire a floorplan line of credit, the size of that line of credit will vary depending on your business needs and your overall portfolio snapshot.

Floorplan 101: The Basics

First and foremost, to qualify for a floorplan, you need to have established credit. Specifically, you should have a history of using and repaying debt. Bad credit and “hiccups” on your credit report aren’t always dealbreakers, but they will likely reduce the amount you qualify for. Additionally, there is a good chance credit issues will have a negative impact on your pricing structure. The good news is that over time, with good performance coupled with adherence to the terms and conditions of any loan agreement, you can overcome those setbacks. It is also important that you are not overextended. If your credit cards are maxed out, that is a red flag even if you have not paid late. Handling your available credit responsibly is essential, so be sure to maintain a substantial amount of available credit.

Getting Started

Thinking about opening a dealership? You will want to set up a free consultation with the floorplan company of your choosing right away. Even if you are well capitalized out of the gate, having a floorplan line of credit is an amazing asset that can help you seize opportunities as they arise. If you aren’t well capitalized, you will probably be looking at starting with a smaller initial line of credit to get your business off the ground. As you turn inventory and build your reserves, submit a formal request for a credit line increase.

Growing Your Business

If you are looking to grow your

business through the addition of a floorplan line of credit, there are several other items that will play into the lending decision beyond your personal credit history. Trade references, business credit, equity, cash and the overall health of your business all come into the picture and become increasingly important in your effort to acquire more floorplanning dollars. The same principles apply if you are looking to increase your existing floorplan credit limit. However, there is another component that could either work in your favor or be held against you: performance. Commercial lenders have learned a lot about managing and mitigating risk, especially over the past several years. It is crucial to closely adhere to your lender’s terms and conditions. NSFs, late curtailments, slow payoffs and bad audits will inevitably prevent you from gaining the additional buying power you need to grow your business. Stay on top of managing your accounts and you will improve your chances of increasing credit limits. Also, those with substantial business equity should flaunt it. To a floorplan company, inventory that is owned outright is viewed similarly to cash and is a good indicator of the viability of your operation. Business equity exhibits an enhanced capacity to repay debt. When applying for a floorplan, take the time to validate your equity position. Your floorplan company might ask to see the titles and bills of sale for everything you currently own. Go with it. They might even ask to physically inspect your owned inventory. That will all play into your favor, as finance companies prefer lending to people that already have money. The more equity you have, the lower the perceived risk.

Heavy Hitters

When seeking a floorplan line of credit in excess of $250,000, both business and personal financials will typically need to be presented in addition to your standard business documents. Those financials typically include: • Personal financial statement (required for each owner/signer). • Personal tax return (two years, required for each owner/signer). • Business tax return (two years).

• Business  bank statements (three months). • Income statement (current and prior year end). • Balance sheet (current and prior year end). As you can imagine, the larger the credit line request, the greater scrutiny you and your business will be given. Though you are welcome to provide a stack of photocopies, the best way to present your financials would be to scan them and send the digital files via email or USB thumb drive. Make sure everything is clearly labeled, and when applicable, provide more detail as opposed to less. Anything out of the ordinary should be accompanied by a letter of explanation. In addition to the basic requirements, or if you are requesting a large line of credit (more than $250,000) to stock a start-up dealership, you should be prepared to provide: • A resume for each owner/signer. • Photos of the dealership. • A business plan. • Pro forma financial statements.

Presenting Bank Statements

If you have had any NSFs, they will need to be explained in detail. Also, you want to make sure your business checking exhibits positive cash flow, meaning, in general, you have more money coming in than you have going out. Take note of your average daily balance to see if that figure is strong enough to support the line of credit you are requesting. In an ideal world, you would have at least 20 to 30 percent of your floorplan line of credit in your business checking account at all times. If you fall short of that mark, business equity via owned inventory can help bridge the gap.

Personal Financial Statement

When it comes to your personal financial statement, ideally you should have some liquid assets. Cash, 401Ks, IRAs, CDs and bonds are all desirable elements to have in your portfolio because they are accessible or you may be able to borrow against them if you need to. That is ideal because it demonstrates you have reserves in place to weather the storm should you encounter a few bad months or an unforeseen industry shift. A word of caution: Some dealer C O N T I N U E D O N PA G E 1 2

10

DEALER

MASS_NE_0513.indd 10

NEWS

MAY/JUNE 2013

w w w. m i a d a . c o m

4/17/13 1:46 PM


MASS_NE_0513.indd 11

4/17/13 1:47 PM


INDUSTRY NEWS

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

If your business isn’t building and growing, you probably shouldn’t be seeking more floorplan dollars. More flooring won’t turn around a failing business model. You would just be adding more fuel to the fire. Instead, focus on perfecting your operation.

principals place an inordinate value on the shares of their dealership in their personal financial statement. Though that might beef up your net worth, a floorplan lender probably will not take that into consideration. The real value of your business is predicated on what a buyer is willing to pay for it. Hence, the stated value on your personal financial statement is merely hypothetical. And bear in mind that if your dealership were to go into default, your shares probably wouldn’t be worth much at that point. Another item to keep in mind is that if all of your assets are in the form of equities against mortgaged real estate,

you might encounter difficulties with potential lenders. Banks have become skeptical of real estate equities given the recent real estate crisis. High-dollar homes and commercial properties are slow to move and hard to appraise. Don’t exaggerate your real estate equity on your financial statements. Be realistic. Conversely, if your property is actually worth $500,000 and you only owe $100,000 on your mortgage, that would be an entirely different story. Having minimally leveraged or free and clear real assets should comfort a lender to some extent.

12

DEALER

MASS_NE_0513.indd 12

NEWS

MAY/JUNE 2013

w w w. m i a d a . c o m

4/17/13 1:47 PM


Income Statements

The income statement can be quite revealing, and often is used to help determine what the true business need is when it comes to setting a floorplan credit limit. For instance, if a dealer requested a $500,000 line of credit but only turned $500,000 in gross sales last year, that request would surely be denied unless there were some major material changes in the operation that justified the increase. Additionally, the statement shines a spotlight on the overall sophistication of the operation. If you are generating additional revenues from F&I products

MASS_NE_0513.indd 13

and repairs, for instance, that will all be itemized on the statement.

Balance Sheet

Simply put, the less you owe and the more you own, the lower the credit risk. Again, banks like to lend when the probability of repayment is the highest. Having too few assets and too much debt can become a downward spiral towards insolvency. That ties into the overall viability of your operation. A thriving business should be building equity while reducing debt. A thriving dealer principal should be building net worth, not acquiring debt to keep his business above water.

If your business isn’t building and growing, you probably shouldn’t be seeking more floorplan dollars. More flooring won’t turn around a failing business model. You would just be adding more fuel to the fire. Instead, focus on perfecting your operation. However, if your business is building equity and turning a profit, having some additional buying power can surely help you shift into the next gear.

BY GARRETT JOREWICZ

REGIONAL DIRECTOR FOR NEXTGEAR CAPITAL.

4/17/13 1:47 PM


F E AT U R E S T O R Y

THE AFFORDABLE CARE ACT ROADMAP:

W H AT T O E X P E C T F O R Y O U R S M A L L B U S I N E S S

A S W I T H A N Y M A J O R C H A N G E I N P O L I C Y, T H E P R O S P E C T O F W H AT T H E A C A E N TA I L S C A N B E O V E R W H E L M I N G F O R S M A L L B U S I N E S S OWNERS WITH LIMITED RESOURCES.

The Patient Protection and Affordable Care Act (ACA), dubbed “Obamacare” by many, was signed into law on March 23, 2010, with the intent to reform the health care industry and provide affordable health coverage for more than 40 million uninsured Americans. Under the ACA, every legal resident of the United States who is not already covered by Medicare or an employerprovided health care plan will be eligible to purchase coverage through an online health insurance exchange. Today, smaller businesses are much less likely to offer health coverage to their employees than larger companies. In 2011, according to the Kaiser Family Foundation, 57 percent of small businesses with 50 or fewer workers offered health benefits to employees, compared to 92 percent of businesses with 51 to 100 workers, and 97 percent of businesses with 101 or more workers. Because of that, some provisions of the ACA will have a larger effect on small businesses, and their employees and families. Expectations of the impact on small businesses are mixed. Some anticipate employees’ hours being cut, costs being passed on to consumers or shareholders, a reduction in hiring and more out-of-pocket costs for larger businesses. Others see benefits for small businesses and their employees. For example, the ACA rewards employees at small companies by subsidizing their purchase of health insurance. According to Casey B. Mulligan, economics professor at the University of Chicago, since those employees can’t take the subsidies with them if they move to a large company, they are “in effect, subsidies to the small businesses themselves, helping them compete more cheaply in the market for employees.” Some provisions of the ACA are already in effect. Others will begin in 2014 and beyond. As with any major change in policy, the prospect of what the ACA entails can be overwhelming for small business owners

with limited resources. So what does the ACA mean for your business? PLANNING YOUR ROUTE: DETERMINE THE SIZE OF YOUR ORGANIZATION The ACA specifically exempts small businesses with fewer than 50 fulltime equivalent (FTE) employees. By some estimates, that means more than 90 percent of businesses will be not be subject to the Employer Shared Responsibility provisions of the ACA. Before you can begin to assess the impact on your business you must determine the size of your organization. Sounds simple, right? Well, not entirely. The ACA defines a full-time employee as an individual working at least 30 hours per week on average. However, for the purposes of calculating your organization’s size, you can’t simply count the number of full-time employees – part-time employees are also factored into the equation. In essence, you have to add up the hours of part-time employees. So, for example, 100 half-time employees equates to 50 FTEs. Similarly, 40 full-time and 20 half-time employees would also be considered equivalent to 50 FTEs. If you own more than one company, in most cases, that will also be taken into account. It’s a bit like an umbrella: If an entrepreneur owns five businesses and each business has 10 FTEs, together they are considered a large business with 50 FTEs, and all five businesses are subject to the Employer Shared Responsibility provisions – even though individually they would be exempt. Obviously, determining FTE counts will be more complex for some businesses than for others. Any businesses that fall close to the 50-employee threshold would be best served by working closely with their accountants to ensure counts are accurate rather than risk penalties for inadvertently being over the threshold. While the Employer Shared Responsibility provisions do not take effect until 2014, the provisions will be applied based on employee counts from 2013, so it’s important for businesses to start planning now.

OUTSIDE YOUR FRONT DOOR: WHAT’S ALREADY IN PLACE FOR 2013 Several provisions of the ACA are already in place, or will become effective in 2013. Those of most importance to small businesses include: Grandfathered group plans: Small businesses with insurance plans that were in place prior to March 23, 2010 may keep their current plan. According to the Kaiser Family Foundation, approximately 72 percent of businesses with 100 or fewer workers had at least one plan grandfathered under the ACA in 2011. Those plans are subject to fewer requirements when it comes to coverage levels and access. Under the grandfather provision, companies are even able to change insurance carriers, provided employee costs and benefits remain mostly the same. Grants for wellness programs: Certain small businesses that did not have a workplace wellness program in effect as of March 2010 are eligible for grants to start one. Additional Medicare tax: The additional medicare tax is a 0.9 percent tax increase that applies to an individual’s wages, Railroad Retirement Tax Act compensation and self-employment income above a threshold amount based on the individual’s filing status. Small businesses making less than $250,000 in taxable profit are exempt from the tax increase. Small Business Health Care Tax Credit, phase one: The Small Business Health Care Tax Credit helps certain small businesses and small tax-exempt organizations – particularly those with lowto moderate-income employees – afford the cost of covering their employees. From 2010 through 2013, if your company has fewer than 25 FTEs with average annual wages of less than $50,000 and you purchase health insurance for your employees, you might be eligible to receive a credit of up to 35 percent of your contribution toward employee health insurance premiums. Note: In March 2013, as a result of sequestration provisions, the refundable C O N T I N U E D O N PA G E 1 6

14

DEALER

MASS_NE_0513.indd 14

NEWS

MAY/JUNE 2013

w w w. m i a d a . c o m

4/17/13 1:47 PM


MASS_NE_0513.indd 15

4/18/13 11:41 AM


FEATURE STORY

C O N T I N U E D F R O M PA G E 1 4

2014

portion of the Small Business Health Care Tax Credit for certain organizations was decreased by 8.7 percent pending the end of the fiscal year or intervening Congressional action. Flexible spending account (FSA) limits: While most small businesses don’t provide FSAs for their employees, those that do should note the new employee contribution cap of $2,500, effective in 2013. W-2 reporting: The ACA requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2. Many employers are eligible for transition relief for tax year 2012 and beyond, until the IRS issues final guidance for that reporting requirement. The amount reported does not affect tax liability, as the value of the employer-excludible contribution to health coverage continues to be excludible from an employee’s income and is not taxable. The reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers.

Businesses with less than 50 FTEs are exempt from the Employer Shared Responsibility provisions of the ACA. If you have more than 50 FTEs, here’s a quick checklist for 2014. •Keep track of full-time and full-time equivalent employee counts. •Offer health coverage to at least 95 percent of full-time employees no later than 90 days after start of employment. •Ensure employee health coverage meets affordability standards. For employee-only coverage, premiums that are no more than 9.5 percent of total wages as stated on the employee’s W-2. •Ensure employee health coverage meets the minimum coverage threshold. It must cover at least 60 percent of an employee’s medical costs; the balance can be made up of deductibles, co-pays, etc. •Provide verification of health coverage.

AROUND THE CORNER: WHAT TO EXPECT IN 2014 Insurance market changes: The health insurance market will undergo several reforms in 2014. • Plans must guarantee availability and renewal of coverage regardless of health status. • Young adults may remain on their parents’ insurance until age 26.

• Premium rating based on health status will be prohibited. • Adults may not be excluded from a plan because of a pre-existing condition. • Plans with a medical loss ratio of less than 80 percent will be required to give rebates to enrollees. Open enrollment for small business health insurance exchanges: Businesses with fewer than 50 FTEs (or 100 FTEs, in select states) will be able to purchase insurance through the Small Business Health Options Program (SHOP) exchange, which is designed to provide an easier way to compare prices and purchase plans. Employers can also purchase insurance outside of the exchange. Employer Shared Responsibility: Employers with more than 50 FTEs will be required to offer health coverage to their full-time employees and are subject to the Employer Shared Responsibility provisions. Those employers will likely be liable for financial penalties if any of their fulltime employees receives a tax credit to help pay for coverage on an exchange because: • The employer doesn’t offer health coverage. • The employer offers health coverage to less than 95 percent of its full-time employees, and as such a full-time employee wasn’t offered coverage. • The health coverage offered by the employer isn’t affordable. • The health coverage offered by the employer isn’t adequate. Remember, if you’re a small business with less than 50 FTEs or an employer who offers adequate and affordable health coverage, you will not be subject to the Employer Shared Responsibility provisions. Small Business Health Care Tax Credit, phase two: Small businesses with fewer than 25 FTEs that purchase insurance through the SHOP exchange can receive a tax credit for up to 50 percent of their contribution toward insurance premiums. Tax-exempt small businesses can receive a credit of 35 percent. THE LONG HAUL: 2015 AND BEYOND Employer Shared Responsibility payments: Employer Shared Responsibility liability for 2014 will begin being assessed in 2015. The IRS will contact employers to inform them of any potential liability and provide them an opportunity to respond before liability is assessed or notice and demand for payment is made. It is important to note that while part-time employees factor into the

determination of employer size, there is no penalty for not offering coverage to part-time employees. So if an employer with 40 full-time and 20 half-time employees fails to provide health coverage and is assessed the Employer Shared Responsibility payment, the amount due would be $2,000 times 10 employees – 40 full-time employees minus the 30-employee exclusion – or $20,000. Additional ACA provisions scheduled for 2015 and beyond include: • E xpanding the parameters of employer-provided health care to include dependents. • Auto-enrollment for companies with more than 200 employees. • Implementation of antidiscrimination provisions, which would prevent employers from offering different packages to employees based on seniority, job title/classification, compensation level or race/gender. • Choice of health plans for small business employees. • Ability for all businesses with 100 or fewer FTEs to purchase insurance through the SHOP exchange (effective in 2016). • Ability for businesses with more than 100 FTEs to purchase insurance through the SHOP exchange (effective in 2017). LOST? WHEN IN DOUBT, ASK FOR DIRECTIONS The ACA represents a major change in the way many businesses operate, and there are more than a few gray areas, so small businesses might find themselves with more questions than answers. Your best bet is to maintain a healthy relationship with your advisors: bankers, accountants, lawyers and association executives and partners. They’ll help keep you in the loop on any major changes that take effect and help you adjust your course as needed to ensure you don’t encounter any hazards along the way. Auctions and dealers looking for additional information regarding the ACA can view an online presentation developed by NAAA and the National Federation for Independent Business. Visit http://www. naaa.com/pages/naaa_events/events.html for more. Through December, National Independent Automobile Dealers Association (NIADA) members can also purchase a health insurance plan and lock in the plan and rate until the end of 2014. By locking in your plan today, you could save thousands in 2014. Visit NIADAHealthPlans.com or call 888308-9340 for additional information. Not a member? Visit www.niada.com today!

BY NIADA STAFF FROM INFORMATION PROVIDED BY NAAA

16

DEALER

MASS_NE_0513.indd 16

NEWS

MAY/JUNE 2013

w w w. m i a d a . c o m

4/17/13 1:47 PM


MASS_NE_0513.indd 17

4/17/13 1:47 PM


WASHINGTON UPDATE

NIADA Government Report THE PUBLIC CAN SEE THE SPECIFIC DETAILS ABOUT WHAT CONSUMERS COMPLAINED ABOUT AND WHY, AS WELL AS HOW THE COMPANY RESPONDED

Here’s a rundown of some of the latest governmental issues and activity affecting the used car industry from NIADA regulatory counsel Shaun Petersen and NIADA lobbyist Sante Esposito.

REGULATORY REPORT Consumer Financial Protection Bureau

Indirect lending guidance: The CFPB released a guidance document to lenders engaged in indirect auto lending, or dealer-assisted financing. The document provides guidance about compliance with the Equal Credit Opportunity Act (ECOA) to lenders that engage in dealer-assisted financing, in which the dealer can adjust the interest rate at which the lender buys the contract. The CFPB believes because the dealer is compensated in the form of a dealer reserve, the markup and compensation policies create significant risk that pricing disparities based on race, national origin or other factors that violate the ECOA will result. The guidance document does not

contend lenders or dealers intentionally discriminate against individuals on grounds that would violate the ECOA. Rather, the CFPB believes the current scope of dealerassisted financing could create a “disparate impact” statistically between different groups in a lender’s portfolio. In other words, when examining the entirety of a lender’s portfolio and looking at interest rates given to one race as opposed to another, the statistics could show a particular race received more favorable rates than another. If that is true, the CFPB opines, that would violate the ECOA. To prevent disparate impact, the CFPB tells indirect lenders to: • Impose controls on dealer markup and compensation policies and monitor the effects of the policies and controls to address unexplained pricing disparities on prohibited bases. • Eliminate the dealer’s discretion to mark up the rate and compensate dealers in a different manner, such as a flat fee. • Develop a robust fair lending compliance management program.

The guidance document can be found at www.consumerfinance.gov. Consumer complaint database: The CFPB’s consumer complaint database went live March 28. There are roughly 90,000 complaints related to mortgages, student loans, bank accounts and services, other consumer loans and credit cards. The public can see the specific details about what consumers complained about and why, as well as how the company responded – the timeliness of the response, what was done and whether the consumer disputed the company’s response. Complaints are not included in the database until the company responds or has had the complaint for at least 15 days, whichever comes first. The CFPB will not verify allegations in complaints before including them in the database, but will substantiate that a commercial relationship between a consumer and company exists before a complaint is added. More categories will be added to database as the CFPB accepts complaints about other financial products or services, such as credit reporting.

18

DEALER

MASS_NE_0513.indd 18

NEWS

MAY/JUNE 2013

w w w. m i a d a . c o m

4/17/13 1:47 PM


WASHINGTON UPDATE

The database is available at www. consumerfinance.gov/complaintdatabase.

FEDERAL TRADE COMMISSION

Used Car Rule: The extended comment period on the FTC’s proposed changes to the Used Car Rule ended March 13. NIADA submitted comments expressing our overall acceptance of the proposed changes with some minor suggestions. The comments also provided background on vehicle sales over the Internet and NIADA’s position that because there is no evidence of a prevalence of fraud in Internet sales, the FTC should decline to specifically regulate that area. Text messaging: In March, the FTC announced a crackdown on a series of scams built on text messages. Dealers must remember the same rules of advertising apply to text messages as other media. Likewise, marketing through text messages will subject dealers to additional federal and state telemarketing laws and regulations. Mobile payments: An FTC staff report highlighted the issues facing consumers and companies in the use of mobile payment systems, which is growing significantly. In using the technology, the FTC recommends companies: • Develop clear policies on how consumers can resolve disputes arising from a fraudulent mobile payment or unauthorized charge.

• Adopt industry-wide measures to protect sensitive financial information. • Incorporate strong privacy practices, consumer choice and transparency into mobile payment products from the outset of the transaction. The report can be found at www.ftc.gov/ os/2013/03/130306mobilereport.pdf.

NATIONAL HIGHWAY TRAFFIC SAFETY ADMINISTRATION

NHTSA settled with a Honda power sport dealer in Tennessee over alleged violations stemming from a 2012 investigation. NHTSA alleged the dealership was made aware of recalls but failed to make any repairs prior to selling the vehicles. NHTSA inspected 329 motorcycles sold between 2007 and 2012. While how many vehicles were sold without necessary repairs was not disclosed, the dealer will pay $125,000 in the settlement. The penalty for failing to repair known defects is a maximum of $6,000 per vehicle.

LEGISLATIVE REPORT Rental Cars

The Boxer-Schumer rental cars recall bill has still not been introduced, but that is expected soon. Reportedly, the new bill will be the same one Sen. Chuck Schumer (D-N.Y.) and Sen. Barbara Boxer (D-Calif.) drafted at the end of the last Congress. It will not address concerns raised by various stakeholders,

including NIADA. Hearings are expected after introduction. Rep. Lois Capps (D-Calif.) is expected to introduce an identical bill in the House. NIADA, in conjunction with NADA, has prepared an amendment that would exempt small businesses, as defined by Small Business Administration regulations. The net effect would be that the bill – which prohibits the sale or lease of rental vehicles subject to a recall without the defect being cured – would apply only to major rental car companies such as Avis, Hertz and Enterprise. NIADA met with Rosemary Shahin of Consumers for Auto Reliability and Safety, the primary proponent of the BoxerSchumer bill. We posed a number of questions for which she had no answers, including: • What would be the cost to independent dealers (unknown but potentially burdensome)? • What is the magnitude of the safety incidents caused by the failure to fix recall defects (other than the California incident that sparked the bill, none have been documented)? • What is the impact of the bill on small businesses (unfair to put them in the same category as entities whose primary business is leasing or selling rental cars)? • What is the political support for such a requirement?

19

w w w. m i a d a . c o m

MASS_NE_0513.indd 19

MAY/JUNE 2013

DEALER

NEWS

4/17/13 1:47 PM


ASSOCIATION NEWS

MIADA Golf Tournament Recognized On Feb. 7, 2013, the Jimmy Fund recognized more than 150 volunteer-run tournaments at the International Golf Club in Bolton, Mass., for their commitment to the Jimmy Fund Golf program. In 2012, Jimmy Fund Golf charity tournaments helped raise nearly $6.5 million for adult and pediatric cancer care and research at the DanaFarber Cancer Institute. Among those recognized for their outstanding efforts were MIADA executive director Melissa Otis of North Attleboro, Mass.; golf committee chair Ron Dial of Pembroke, Mass.; and chairman of the board Alfred Moschetto of Hampton Falls, N.H. Together, they helped organize the MIADA golf tournament at the Indian Pond Country Club in Kingston, Mass. Jimmy Fund Golf is one of the oldest and largest charity golf programs in the country. Now in its 31st year, it has raised more than $91 million to support adult and pediatric cancer care and research at the DanaFarber Cancer Institute. From traditional golf tournaments and country club member events to mini golf tournaments and day-long golf marathons, golfers of all ages and skill levels can conquer cancer through Jimmy Fund Golf. TO LEARN MORE ABOUT SUPPORTING THE DANAFARBER CANCER INSTITUTE AND THE JIMMY FUND, VISIT WWW.JIMMYFUNDGOLF.ORG OR CALL (866) 521-4653. 20

DEALER

MASS_NE_0513.indd 20

NEWS

MAY/JUNE 2013

w w w. m i a d a . c o m

4/17/13 1:47 PM


MIADA 2nd Annual  $10,000

Spring Extravaganza   Thursday  June  6th   7:00  pm  –  11:00  pm  

Venezia

20 Ericson  St.   Dorchester,  MA   $100  per  Person   Tickets  Include:  

Dinner ~  Dancing  ~  Live  Entertainment   PLUS  –  Entry  in  Prize  Drawings!   st 1  Prize  $5000  2nd  $3500  3rd  $1500   Need  not  be  present  to  win!  

Benefiting MIADA  Scholarship  Fund   For  more  information  call  781-­‐278-­‐0077     email:  Melissa@MIADA.com

F  

21

w w w. m i a d a . c o m

MASS_NE_0513.indd 21

MAY/JUNE 2013

DEALER

NEWS

4/17/13 1:47 PM


COMPLIANCE OVERDRIVE

Is it Time to Review Your Dealership’s Compliance Practices? THE LAWS AND REGULATIONS REQUIRE DEALERS TO CREATE AND FOLLOW REASONABLE PRACTICES BASED ON THEIR UNIQUE BUSINESS CONDITIONS.

As many state legislative sessions wrap up at midyear, lenders and dealers must begin watching for legislative summaries – and maybe new legislation and requirements that will be taking effect soon. Facing a regulatory landscape that continually seems to move faster and grow in complexity, dealers must be even more vigilant in making sure laws and regulations are being embedded within their business. In some cases, the laws and regulations tell us exactly what needs to be done. For example, a disclosure using specific words in a specific type size must be given to consumers at a specific time. But in other areas, the laws and regulations require dealers to create and follow reasonable practices based on their unique business conditions. Those types of requirements can be challenging to meet because they evolve as your business and the industry changes. Certain areas, though, deserve continual focus, including regular reviews of policies, procedures and processes.

Information/Data Security

Some of the most obvious risks for dealerships are related to information and data security. Dealers must view identity theft as an accident that’s always waiting to happen because of to the various types of personal and financial information they manage for their customers. Hundreds of people can walk through dealers’ sales floors, which in many cases are open, with some sales desks located in the showroom. Is your staff diligent about making sure sensitive customer information isn’t left sitting out on a desk or up on a computer screen so anyone walking by can view it? Is anyone within earshot when a potential customer is verbally providing personal information? That includes not only dealership visitors, but also employees who should not have access to specific data. In short, your information security program needs to start on the sales lot and in the showroom. Your Red Flags program should already address potential security risks, at least as they relate to potential identify theft. The Red Flags Rule

requires each dealer to have a program designed to detect, prevent and mitigate identity theft in connection with opening or maintaining an account involving an extension of credit. Reasonable program activities will evolve as technology and business practices change and as identity theft techniques and vulnerabilities change. So compliance with the Red Flags Rule will always be an evolving standard. Make sure you have data security and ID theft programs and policies. Make sure you follow them. And make sure you regularly review and update them – even if there isn’t a law or regulation change reminding you to do so.

Employee Security

Along those same lines, dealers need to be mindful of processes related to employee security. It must be clearly defined which employees have access to what. In your dealership, are F&I files password-protected so only certain employees can access them? Sales team members might need limited access to information to determine a potential buyer’s creditworthiness, but does the receptionist really need access to the same information and tools? Are there clear parameters for who has access to different types of information? Are those policies communicated and understood among employees? Employee security also involves background checks and other operational issues related to hiring and firing employees. Dealerships should use background checks in their hiring process in addition to checking references and other representations a candidate provides. Be thorough. For example, instead of just doing a criminal record check for the county where the applicant lives or the dealership is located, consider expanding it to the entire state. You should also review states of prior residence for the past several years. Remember to re-run background checks (or at least the criminal background check) periodically to note any changes. If an employee is arrested after employment begins, he or she might not tell you about it. If you don’t re-run criminal background checks, how will you find out an existing employee was convicted of misdemeanor shoplifting or DWI (with suspension of driver’s license)?

Depending on the employee’s role, that might be critical employment-related information.

Content Security

While the risks mentioned so far might seem somewhat obvious, other risks are more subtle, such as access to template documentation. Though blank standard documentation might not contain personal information about customers, they could present opportunities for criminals. For example, even without access to customer personal data, a thief might be able to create fraudulent transactions if he or she has access to preprinted retail sales contracts or the software that generates them. Dealers should consider restricting access to blank standard documents even though they don’t contain personal customer data.

Information Retention

A critical area of focus for customer personal information is protecting it at the time it’s provided by credit applicants and the points the information is transmitted to others as part of the credit analysis process. But dealers also need to focus on their retention of that information during the credit processing period and afterward. Red Flags programs should include procedures to protect personal information during and after the credit process and transaction closing. Protecting that information long after the sale requires as much vigilance as the protection you provide during the credit processing phase. All of this reminds us some compliance requirements evolve with changing business practices and technologies. It’s important to regularly review compliance efforts for these kinds of requirements even if they aren’t revised by law or regulation changes this year. The theme of this year’s NIADA Convention and Expo is “New Strategies for Tomorrow.” The world moves faster every day. Are you ready for what tomorrow brings? Knowing your dealership is continually working to mitigate business and compliance risks can bring peace of mind when considering your own preparedness.

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.

22

DEALER

MASS_NE_0513.indd 22

NEWS

MAY/JUNE 2013

w w w. m i a d a . c o m

4/17/13 1:47 PM


MASS_NE_0513.indd 23

4/17/13 1:47 PM


MASS_NE_0513.indd 24

4/17/13 1:47 PM

New England Dealer News May 13  

Massachusetts/New England Dealer News magazine for May and June 2013