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INDEPENDENT

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COMPLIANCE OVERDRIVE

Common Mistakes Can Wreck Lender Relationships Page 22

inside u

• QR CODES 101 • FIRST LENDER’S FAIR • WASHINGTON UPDATE

The Next Big Thing? Page 6

L E A S E H E R E - PAY H E R E PUTS A NEW TWIST ON THE BHPH MODEL

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MAGAZINE CONTENTS 06 LHPH: The Next Big Thing? 10 Washington Update 12 QR Codes 101 16 MIADA Lender Fair 18 The Franchise 22 Compliance Overdrive

BOARD OF DIRECTORS Chairman of the Board Lester R. Howell 301 Clinton Blvd Clinton, MS 39056 601-924-3718

Secretary Steven Watkins 5660 I-55 South Byram, MS 39272 601-923-8600

President Jimmy Boling P.O. Box 1271 Grenada, MS 38901 662-227-5637

Treasurer Madalene Daniell 1500 Broadway Dr. Hattiesburg, MS 39402 601-264-2210

Vice President Aaron Williams 1428 Mississippi Dr. Waynesboro, MS 39367 601-735-3916

Executive Director Andrew Caldecott 601-951-7676 cell andrew@mississippiiada.com

WHAT’S NEW

ADVERTISERS INDEX ADESA, Inc............................................Inside Back Cover Ally....................................................................................7 Chase.............................................................................10 Manheim.com.......................................Inside Front Cover Mid-South Auto Auction................................................ 15 Protective.........................................................................5 United Acceptance........................................................ 11 VAuto................................................................Back Cover West Insurance Center....................................................9

MIADA OFFICE

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 Spark Plug 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 The Spark Plug, the Mississippi Independent Automobile Dealers Association, 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 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

INDUSTRY NEWS

Framework to Achieve a Provisioning Mindset

About a year ago, I introduced the idea of “provisioning” inventory as a replacement for the long-held practice of dealers “stocking cars” to feed their used vehicle operations. The basic concept is that stocking cars doesn’t sufficiently capture the more holistic nature and needs of retailing used vehicles to achieve maximum return on investment and profitability in today’s more competitive and Internet-driven marketplace. If you’re still out there stocking cars, you’ll get crushed. You’re competing against dealers who use market-specific supply and demand data to know the right cars, the right price to pay and the right retail asking price to sell cars quickly and achieve their profit goals, again and again. Beyond the laser-like focus on each used vehicle’s ROI and profitability potential, those dealers have also adopted what I call a provisioning mindset for their entire dealerships. It’s a mindset that starts in used vehicles and, given early successes and roadblocks there, extends to each dealership department. I address this intra-dealership dynamic in greater detail in my soon-to-be-published book, Velocity Overdrive: The Road To Reinvention. At each provisioning-minded dealership, there are at least one or two people who effectively become the provisioning managers for the dealerships. They are often general managers, general sales managers or used vehicle managers who lead the reinvention of people and processes to achieve a significant change in the dealership’s culture. Over time, everyone becomes focused on ROI and profitability, department “silos” disappear and the dealership’s bottom line looks better than ever. All of that got me thinking: I haven’t yet seen a provisioning manager job description for a car dealership. I wondered what one might look like from a different industry. How do other businesses define a role that is, for the moment, largely a nascent collaboration between select, likeminded souls within dealerships? A quick Google search for “provisioning manager job description” yielded some extremely relevant results. For example, the responsibilities for the provisioning manager position at Cisco Systems struck me as an effective framework for the leadership required to develop a provisioning mindset at dealerships for three reasons: The scope: The job starts with a broad vision and empowers the individual to reinvent people and processes to achieve it. It also empowers the individual to change people and processes to realize the strategic vision. That is exactly the scope of the role GMs, GSMs and used-vehicle managers play as they initiate provisioning efforts at their dealerships. They often ask, “Where can we go from here?” and, “How do we get there?” to craft a broad strategy and guide the implementation of day-to-day details. The degree of collaboration: It’s pretty fair to envision the provisioning manager as someone who knows how to get buy-in and motivate other people. The job requires the person to actively engage multiple departments and get everyone on the same page. The same is true in dealerships where provisioning is standard operating procedure. When a used car hits the lot, the managers in used vehicles, service, parts, detailing and sales know the next steps. The backstops: Cisco requires the provisioning manager to provide “second-level incident management support, and ensure incidents are minimized through design, tools and processes.” This strikes me as a fancy way of saying “anticipate problems and have a process in place to prevent them, and use technology whenever possible.” For dealers, the potential problems in used vehicles are legion – auction purchases, appraisals, online merchandising, reconditioning, pricing and sales processes can all be profitability trouble spots. That’s why provisioning-minded dealers change people and processes, and adopt technology and tools, to ensure every decision drives the maximum profitability of each used vehicle at each stage of its life cycle. I’m not necessarily advocating that dealers need to create a bona fide provisioning manager position at their dealerships. But I do believe dealers who pursue and perfect a provisioning mindset will outpace other dealers who are still stocking cars.

BY DALE POLLAK

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FINANCE NEWS

HOW NEGATIVE STUDENT LOAN TRENDS COULD AFFECT THE AUTO LENDING MARKET

Subprime auto loan approvals jumped by at least 40 percent during each of the last four months of 2012, according to CNW Research, with 2012 promising to mark a five-year high for subprime lending. However, recent studies by both TransUnion and FICO Labs point to potential trouble on the horizon for lenders and dealers working with customers who absorbed significant debt to fund higher education. A recent TransUnion study revealed more than half of student loan accounts are in deferred status, with repayment of the loan principal and interest temporarily delayed. Analysts said deferred loans now represent 43.5 percent of all student loan balances. New findings from FICO Labs are even more unfavorable, determining that – as a group – individuals taking out student loans today pose a significantly greater risk of default than those who took out student loans just a few years ago. The situation is compounded by significant growth in the amount of debt that new graduates are carrying, with the average student loan debt per borrower increasing more than 50 percent between 2005 and 2012. By contrast, analysts said the average credit card and auto loan balances for U.S. consumers actually decreased during the same period. In a related finding, FICO’s quarterly survey of bank risk managers in December 2012 found nearly 60 percent of respondents expected delinquencies on student loans to increase through June 2013, even though delinquencies on all other types of consumer loans were expected to decrease. “This situation is simply unsustainable, and we’re already suffering the consequences,” said Andrew Jennings, FICO’s chief analytics officer and head of FICO Labs. “As more people default on their student loans, their credit ratings will drop, making it harder for them to access new credit and help grow the economy,” Jennings went on to say. “Even people who stay current on their student loans are dealing with very large debts, which reduces the money they have available to spend elsewhere. The stakeholders in the student lending industry have to take a hard look at the terms and repayment rules for student loans, and the industry may have to develop a new lending model to prevent a bad situation from getting completely out of hand.” With more than half of college graduates under the age of 25 either unemployed or underemployed — the highest rate in 11 years – student loan issues are fast becoming a consumer issue. “With the economy either in recession or slowly coming out of it during the study period, we had expected that student loan balances might increase as consumers frustrated with the job market went back to school to work toward a different career path,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit. “However, the rate of growth we observed was truly eye-opening.” “It is especially noteworthy that more than half the student loans in our study were in deferment, and with unemployment rates remaining high, particularly among recent graduates, the repayment of these loans remains a concern,” Becker said. “Students can defer their loans for only a certain period, often up to three years. After that, these students can find themselves in a difficult position financially.” The TransUnion study also highlighted the disparity between federally backed student loans — those guaranteed by the government — and private student loans, which are issued by private lenders and are most often used to cover the gap between funds made available by government loans and actual tuition rates. According to TransUnion’s report, federal loans made up 92 percent of all student loan accounts and 86 percent of overall balances. Between 2007 and 2012, federal loan balances jumped 97 percent while private loan balances rose only four percent. During that same time, federal loan delinquencies rose 27 percent while private loan delinquency rates actually dropped two percent. “It’s important to highlight that both federal and private student loan delinquency rates are higher than most other credit products such as mortgages, home equity lines of credit, credit cards and auto loans,” Becker said. For now, subprime auto loan candidates who currently carry a large amount of student debt are having decent success getting a vehicle contract bought by lenders or Buy Here-Pay Here dealers. But that could change. “While the focus in recent years has been on the mortgage market, lenders will need to keep an eye on student loan portfolios — and on customers who have student loan debt — as the high delinquency rates among these borrowers can spell trouble across multiple products,” Becker concluded.

A S S O C I AT I O N N E W S

AUTOMANAGER JOINS AS BRONZE PARTNER

AutoManager, Inc., a provider of dealer management software and online vehicle marketing solutions, has joined NIADA as a Bronze level National Corporate Partner. AutoManager has nearly 30 years of experience in the auto remarketing industry, having developed software and technology for auto dealers since 1984. AutoManager’s mission is to provide powerful, practical and affordable solutions to dealers’ technology needs, helping increase sales while maintaining ease of use for the dealer. To that end, AutoManager’s core products – DeskManager DMS and WebManager Online Marketing – are designed to share data, eliminating the need to enter the same information twice. The company recently released a subscription bundle of DeskManager and WebManager with technical support included, called AutoManager Suite. The suite reflects AutoManager CEO Kami Tafreshi’s concept of a total dealer management system that manages not only leads, inventory and dealmaking, but 21st century online marketing as well. In an age when dealers must distinguish themselves to consumers who are more informed and choosy than ever, AutoManager products can help a dealership become more organized, responsive and attuned to the market it serves. Call 800-300-2808 and mention you’re an NIADA member to receive a 14day free trial of AutoManager Suite. FO R MO R E I N FO R MAT I O N , V I S I T W W W. AU T O MA N AGE R . C O M .

NI C K ZULOV I C H I S A N ED I T O R FO R S U BP R I M E AU T O F I N A N C E N EW S. H E CA N B E R EAC H ED AT N ZULOV I C H @ S U B P R I M EN E W S .C O M . 4

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LHPH L E A S E H E R E - PAY H E R E P U T S A N E W T W I S T O N T H E B H P H M O D E L

THE NEXT BIG THING? In recent years, the Lease Here-Pay Here (LHPH) business model has generated some buzz in the world of subprime auto sales – and for good reason. LHPH is an offshoot of the Buy HerePay Here (BHPH) concept, but the dealer retains the title to each vehicle and charges usage fees to each customer. While the difference might seem subtle at first, it can radically change how the vehicle transaction is managed, taxed and regulated.

THE ADVANTAGES OF LHPH The LHPH model offers some distinct advantages over BHPH, including: • Deferred sales tax. • A federal income tax deduction for depreciation of your assets. • Doesn’t require a related finance company (RFC). • Less burdensome regulations. • Faster repossession times. • Vehicles can’t be claimed in a bankruptcy. Probably the most commonly cited advantage of switching to a lease program is the ability to defer sales tax payment on your vehicles. Instead of paying sales tax up front – long before you’ve received all of the customer’s money – you’re allowed to pay the sales tax in installments, every time your customer pays you. That lessens the risk of losing money when a customer defaults early, and it makes cash flow more even and manageable. George Klinke, vice president of business development for the aptlynamed San Diego-based company LHPH, LLC, said the deferred tax is LHPH’s greatest advantage.

“There are 32 states where there’s a real cash flow incentive,” Klinke said. “When you buy a car in California, you pay an 8.75 percent sales tax on that vehicle. On a $20,000 car, you’re paying $1,750. That’s money that comes out of the dealer’s or the consumer’s pocket today.” But in California and 31 other states, dealerships can pay the sales tax on each leased vehicle as payments are collected, rather than at the lease inception. Additionally, lessors can collect a security deposit, which is not subject to taxation. “This is a pool of money where if there are other expenses that come up in the lease, the security deposit can be applied against those,” Klinke said. Unless state law mandates otherwise, the only up-front tax on a lease is paid on the cap cost reduction. For years, BHPH dealers have avoided income taxes on “phantom income,” through the use of a related finance company. An RFC is a legally separate corporation an auto dealership establishes to handle financing, often for customers who would have difficulty obtaining credit from traditional lenders. Usually, the dealership sells the note from each vehicle transaction to its related finance company at a discount, thereby eliminating most of the profit on the sale for the dealership, which otherwise would have been taxable income even though no payments have been collected from the consumer. The RFC’s income on the note purchase, however, is taxed as the payments are collected, avoiding a large income tax on profits that haven’t been earned yet and creating a substantial cash flow advantage. If executed correctly, that setup is entirely legal. The IRS has even written

a guide for it, available at www.irs.gov/ businesses. But the IRS also examines RFCs carefully for evidence that they’re substantive businesses that remain at “arm’s length” from dealerships, rather than thinly disguised shell corporations. One small misstep could place you in line for an audit. For dealers wanting to avoid that compliance headache and the difficulty of establishing a legitimate RFC, LHPH is an attractive option. Because of the inherent tax advantages of leasing, it’s not necessary to have a related finance company to handle LHPH deals – though dealers can still choose to keep their RFC as a buffer against bad publicity, lawsuits and financial risk. Because the dealer is the lessor and therefore the owner of the asset (vehicle), he can claim depreciation over the term of the lease based on IRS guidelines and use it as an income tax deduction, reducing the overall tax bill. According to Jason Berger, managing partner of AK Acceptance, an RFC in Pittsburgh, LHPH deals aren’t constrained by the tougher regulatory requirements that affect BHPH dealers. At the federal level, LHPH deals fall under the less restrictive Regulation M rules that govern auto leasing, rather than the notoriously tough Regulation Z rules that govern auto sales. Under Reg M, the dealer is not obligated to disclose an annual percentage rate (APR), because there is no interest rate in a lease – just a “rent” or “lease” charge. The lack of an interest rate means you’re not encumbered by state usury limits. You can impose mileage overage charges to protect the value of the vehicle. C O N T I N U E D O N PA G E 8

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THE NEXT BIG THING? And if the lessee declares bankruptcy after starting an LHPH deal, he won’t be able to avoid repossession because he never had ownership of the vehicle. For the same reason, if a lessee breaches the contract, there’s no mandatory grace period to comply with for repossessions. “We pull the trigger faster,” Berger said, noting that dealerships can technically repossess a vehicle if a payment is even one day late – though that might not be a great way to build goodwill in the community. “My target turnaround time is 21 days from the time of default [to when the car is available to lease again]. With a loan, we’d usually let it go a little bit longer.” LHPH has some definite appeal for consumers, too. Because they aren’t paying for full, lifetime ownership of the vehicle, drivers can normally afford a better quality automobile than if they insisted on purchasing. Like the dealer, they can usually pay less cash up front. And when a customer is done with the car, he can simply return it and get another car, or become the owner by paying or financing an agreed-on residual value. Klinke said given the choice, customers should prefer to pay the security deposit on their lease rather than a down payment on a loan. “If the lessees do everything correctly,” Klinke said, “they can roll that [sum] over into a new lease or get their money back [at end of term].” Many dealers cite reasons like these when attempting to explain a rising national interest in the LHPH model. Berger’s dealership partner had operated on the BHPH model since 1999, but never saw the growth it has since it switched to LHPH. “Year-over-year, I’ve seen a 73 percent jump in originations,” Berger said. “The primary reason for that is leasing.” THE CHALLENGES OF LHPH But before taking the plunge, you should also consider the challenges: • Expensive retraining process. • Requires more advanced dealer management software. • Vicarious liability issues – requires contingent liability insurance. • Less liquidity than BHPH. As advantageous as LHPH can be, it’s not a simple change for dealerships to make. LHPH deals require more advanced dealership management systems that can perform complex lease calculations like depreciation schedules and payments that include rental charge, depreciation and sales tax. Often, those programs cost a bit

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

more than the basic deal software. Allen Lentsch, executive director of the Northland Independent Automobile Dealers Association – the NIADA affiliate for Minnesota and North Dakota – stressed that there is also some liability risk involved. “When you do LHPH, you own the title of the car, so you can be held responsible for things your customers do with it,” Lentsch said. Most notably, that includes causing an accident, a concept called vicarious liability. To protect themselves against vicarious liability and the risk of lawsuits, dealers must purchase contingent liability insurance, which many turnkey LHPH solutions provide for their dealers. The Graves Amendment, passed by Congress in 2005, was written to prevent unlimited vicarious liability lawsuits, but the law has been challenged frequently. And despite the Graves Amendment, there is still potential vicarious liability for dealers/lessors up to the state minimum financial responsibility limits. Because of that risk, it is incumbent on each dealer to make certain each lessee has proper insurance coverage. “We always make sure customers have insurance, just as much as we make sure they’re keeping up with payments,” Berger said. “We disable vehicles if [a customer’s] insurance lapses.” If you’re a BHPH dealer who sells loan portfolios to investors, you might have a tougher time drumming up interest in your LHPH leases, partly because the product is less commonly understood. “Some lenders are opening up to this,” Berger said. “From what we see, there are going to be more in the near future.” To dodge potential complications, many LHPH dealers use consulting organizations such as Northland Auto Enterprises (affiliated with the Northland IADA), LHPH, LLC and Lease It Own It to advise them on compliance issues and provide training materials, forms and access to specialized insurance. Those services can assume various levels of responsibility for a dealer’s compliance with lease regulations. LHPH, LLC even goes as far as to adopt the responsibilities of the lessor, shielding the dealership from some legal risks. Before switching, it’s a good idea to contact some LHPH services to learn the different approaches and costs associated with outsourcing LHPH implementation. Often, working with experts of some kind is the smartest way to go.

IMPLEMENTING LHPH If LHPH sounds like the right way forward for your business, there are a few things you should focus on right out of the gate. “I would recommend to any dealer to try to set the most accurate residual [value] possible,” Berger said. “If you do that, you’ll get that vehicle back and put that vehicle back on the road. [You] can get eight years out of it and lease it three times.” However, dealers should also remember that the IRS imposes limits on how low residual values can be set and still remain a “true lease.” Because dealers want to keep leased vehicles in good condition for the next lessee, high-maintenance autos are not recommended for an LHPH program. In addition to requiring lessees to purchase comprehensive coverage for their vehicles, many LHPH dealers try to package in a warranty or service agreement so they’re able to keep their vehicle in good shape while profiting from the reconditioning. Berger said the biggest challenge for the dealership he works with was persuading customers – and employees – to go along with the LHPH plan. “Your customers need to understand that the vehicle isn’t really an asset, it’s an expense for them,” Berger said. “At the end of [a three-year lease], how much will this vehicle actually be worth? “ Berger recalled employees at the dealership he works with taking about two months to get fully used to the terminology differences between BHPH and LHPH. “When you have people who have been selling cars for 16-17 years and all of a sudden you hand them a new model, of course there’s a transition,” he said. “But when they see how much this helps us sell cars, they really want to learn it.” In the end, for many dealers, the challenges involved in switching to the LHPH model are far outweighed by its rewards. “I’ve never seen anybody switch back,” Klinke said. “The benefits for the dealer, RFC and the customer are really compelling, and to switch back would just be a real headache for everybody.”

BY ALEX BRAUN

ALEX BRAUN IS MARKETING MANAGER FOR AUTOMANAGER, A PROVIDER OF INTEGRATED DEALER MANAGEMENT SOFTWARE, DEALER WEBSITES AND ONLINE VEHICLE MARKETING. HE CAN BE REACHED AT ALEX@ AUTOMANAGER.COM.

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SEMA Scholarship Applications Available KEEPING UP WITH COMPLIANCE R U L E S A N D L AW S

Applications for automotive scholarships are now available through the 2013 SEMA Memorial Scholarship Fund. Students preparing for careers in the auto or auto parts industries are eligible for financial awards of up to $5,000. The Specialty Equipment Market Association (SEMA) has raised its Top Student award to $5,000. It also offers $3,000 scholarships for students attending four-year programs and $2,000 awards for students attending two-year programs. SEMA awards are granted to eligible applicants based on academic achievements, work experience, community involvement, essay content and recommendations. Students can re-apply each year provided they still meet the eligibility criteria. A loan forgiveness award is also available to recent graduates working for SEMA-member companies and paying off existing student loans. Details and applications for all awards are available at www.sema.org/scholarships. The application deadline is March 29. For more information, visit www.sema.org/ scholarships or contact Juliet Marshall at julietm@sema.org or 909-978-6655.

Have you kept up to date with the rules and laws that could affect your dealership? The start of the New Year is the perfect time for a quick compliance refresher, and the Bureau of Consumer Protection’s Automobiles site is a quick and comprehensive reference source. Designed with dealers in mind, the site has compiled a variety of resources discussing things like the Used Car Rule, labeling guidelines for alternative fueled vehicles, and how the Privacy Rule applies to auto dealers. Examples of dealer resources available on the site include: • A Dealer’s Guide to the Used Car Rule, which provides valuable compliance tips • Copies of the required Buyers Guide, in English and Spanish • Fillable versions of the English and Spanish Buyers Guides. V I SI T H T T P : / / B U SI N ESS. F T C . GOV / SELE C T ED - I N D U S T R I E S/ AU T O MO B I LES FO R M O R E I N FO R MAT I O N .

CARFAX MOBILE APP REACHES 200,000 DOWNLOADS

The CARFAX for Dealers mobile app has exceeded 200,000 downloads by Android and iPhone users, the company announced in February. Launched a year earlier, the app gives dealers mobile access to CARFAX information with a few screen taps. Dealers can scan a barcode or enter a 17-digit vehicle identification number to help quickly evaluate cars at acquisition and find ones their customers want. “When we’re buying vehicles at auction or taking trades on the lot, we always make sure to run them through the CARFAX mobile app,” said Patrick Sullivan, sales manager at Elite Auto Sales in Raleigh, N.C. “It helps us know what we’re getting and make sure there are no surprises when we retail those vehicles.” Access to CARFAX reports is a part of many dealers’ acquisition and retail process. Vehicles run through the CARFAX for Dealers app are automatically added to the dealer’s inventory manager at carfaxonline.com. CARFAX reports are saved for up to 30 days, and dealers can mark vehicles they’re most interested in as favorites within the app. “I love being able to check CARFAX right on my phone when we’re out buying cars,” said William Wessels, dealer principal at Wessels Used Cars in Dillsburg, Pa. “It’s a helpful instrument when we’re appraising cars, too. It helps us make faster, better decisions when we’re buying product.” The CARFAX for Dealers app is a free download from the App Store and Google Play. 9

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WA S H I N G T O N U P D AT E

NIADA GOVERNMENT REPORT 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 In late January, President Obama renominated Richard Cordray to serve a full term as director of the CFPB. Cordray was originally appointed in January 2012, during a time in which the President argued the Senate was in recess. His recess appointment expires at the end of 2013. However, there is a question as to whether his original appointment was constitutional at all. At the same time Cordray was appointed, the President also filled three positions on the National Labor Relations Board. A lawsuit was filed challenging the appointments as unconstitutional. On Jan. 25, a three-judge panel of the U.S. Court of Appeals for the District

of Columbia Circuit ruled unanimously that the President’s appointments to the NLRB were unconstitutional because the Senate was not actually in recess. Though that decision does not specifically involve Cordray, a similar lawsuit has been filed challenging his appointment, and the prevailing thought is Cordray’s appointment will also be found unconstitutional. If that is the case, there is significant doubt as to whether the actions the CFPB has taken since Cordray’s appointment are valid. Federal Trade Commission Privacy settlement: The FTC settled a lawsuit with Cord Blood Bank relating to its failure to protect the privacy of customers, specifically by complying with the company’s own privacy policy. The FTC focused on the lack of precautions when transporting backup data in a way that left the information vulnerable to theft. Additionally, the FTC highlighted the absence of any meaningful safeguards for unauthorized access to the company’s computer and network.

The settlement agreement did not impose any monetary penalty on Cord Blood Bank, but required increased data safety and security measures. The settlement emphasizes the need for dealerships to have their privacy and safeguards policies in place and follow them. Department of Labor In January, the DOL investigated a car detailing company for violations of the wage and hour laws. The company was repeatedly rounding off workers’ hours in favor of the employer, keeping employees from being eligible for overtime pay and at times effectively paying employees below the hourly minimum wage. The company was required, as part of the settlement, to pay back wages of $229,475 to affected employees. LEGISLATIVE REPORT Auction Sales Sen. Mark Pryor (D-Ark.) had been exploring the impact of the auto auction sales process on consumers and law enforcement and had a staffer visit an auction in August, but in a meeting with

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INDUSTRY NEWS

NIADA’s legislative team, the senator’s staff did not mention auctions among their priorities for 2013. Rental Cars NIADA met with the senior staff of Sen. Barbara Boxer (D-Calif.), who has been the driving force behind proposed legislation to ban rentals of motor vehicles under safety recall until the defect or noncompliance has been remedied. Boxer’s staff said she has been working with senators Chuck Schumer (D-N.Y.), Claire McCaskill (D-Mo.), Lisa Murkowski (R-Alaska) and others on a revised bill that reflects the compromise they reached with the rental car industry in the fall. Boxer introduced a placeholder bill in December and plans to reintroduce it again, with Schumer as the lead, in this Congress. NIADA is in the process of reviewing a draft of the bill for comments. Legislative Topics As previously reported, with the end of the last Congress, all the bills of interest to NIADA “died” – that is, the sponsors of the bills, if reelected (and some were

not) and if still interested in the subject, would have to reintroduce them in the Congress and begin the process anew. So far, none have been introduced in 2013. Among them are the rental car acts sponsored by Boxer and Schumer, as well as bills dealing with gasoline regulations, disclosure of information of damaged vehicles, rules for donating vehicles to charity, the rulemaking process for regulatory agencies, vehicle inspections and seat belts, the availability of information and tools necessary to repair cars and the requirements for lenders’ annual privacy notices to customers. Car Guys in Congress The new Congress includes six members of the House of Representatives – all Republicans – who currently own automobile dealerships or have in the past: Scott Rigell of Virginia, Mike Kelly and Bill Shuster of Pennsylvania, John Campbell of California, Vern Buchanan of Florida, and Jim Renaci of Ohio. No members of the new Senate are current or former car dealers.

JUMP-START YOUR COMPLIANCE TRAINING OSHA requirements, workplace diversity, Gramm-Leach-Bliley, Red Flags Rules… Keeping up with all of the compliance demands can be overwhelming for any dealer. And now, with the FTC and the CFPB starting to more closely scrutinize the auto industry, it’s even more vital than ever for your entire staff to help keep your dealership compliant. NIADA wants to help ease the burden. Starting in February 2013, dealers can jump-start their compliance training with NIADA’s online suite of dealer compliance training materials. Subscribers will have access to videos, checklists, key forms, documents, and more…all at their fingertips, on demand. Don’t worry – for dealers who prefer, content is also available on disc. You’ll even be notified when new training is added, so you can stay ahead of the curve. FOR ADDITIONAL INFORMATION VISIT WWW. NIADA.COM OR CONTACT GEORGIA@NIADA.COM.

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M O U S E C H AT

QR CODES 101: POINT, SCAN, SELL Has your dealership implemented a process for engaging customers and shoppers with QR codes? If the answer is no, don’t worry. You’re not alone. If you don’t know what a QR code is or have heard of it and don’t know how it can benefit your dealership, you’ll find some answers here. QR (quick response) codes are becoming increasingly popular for businesses looking to provide information to current and potential customers quickly and effortlessly. The codes are a byproduct of the smartphone movement sweeping America. Nielsen reports more than 55 percent of U.S. mobile phone owners had a smartphone as of July 2012. QR codes optimize the way information is shared, making it easier to direct somebody to your information on-site, such as inventory, coupons, service, specials, blogs, events and more. Smartphone owners have access to a wide variety of apps and QR code readers are a standard app on most, if not all, smartphones. (Not all QR code scanners can read all QR codes, but these instances are rare.) The basis for QR codes is quite simple and nearly the same as the standard barcode seen on merchandise tags or VIN stickers on vehicles. Barcodes were developed to carry information in a very small space that is scan-able; they’re limited in that they are horizontally shaped. QR codes work the same way, but more information can be carried since

they are based on horizontal and vertical dimensions, so there is no limitation to what or how much information can be included. Common types of QR-coded information include URLs, text, phone numbers and SMS. Remember, each QR code is unique, so there is no end to the possibilities. Here is an example of how using QR codes can help you gather potential customer’s information. Say you have customers looking at vehicles after normal business hours (or on Sundays), who plan to call the following morning to learn more about a certain vehicle. Simply by having a QR code on the vehicle, you can get someone engaged in requesting more information on the spot, lessening the risk the customer will lose interest by morning. At the same time, potential customers are excited because they get to use their smartphone technology to scan the QR code. From there, they can get to your mobile website, grab a mobile coupon or check out whatever information you want to share. We recommend you have some type of quick form for people to complete to receive a coupon. Guess what? Now you have contact information; in other words, my friends, you’ve got leads! As with email 15 years ago and texting 5 years ago, people are excited about how technology is giving them more ways to communicate. During the sales process, customers may even prefer QR codes because they offer a non-invasive way of

communicating with the dealership. Because it is effortless to scan a QR code, pairing them with a marketing strategy can help you capitalize on customer excitement. You’ll see, for example, companies offering a free online book by scanning a QR code in an airport or a major advertisement in a publication with a code printed in the corner. These are all enticements that target engagement from potential customers at the peak of their initial excitement or curiosity. The more time that passes, the more distant the customer becomes. Be careful not to go overboard when requesting the customer’s information. In addition, to keep customers interested in scanning your QR codes, it’s important that you use them in variable ways. For instance, in your next mailer, create a QR code that sends customers a free car wash offer, in which they enter contact information and then receive a coupon. Or, for a softer approach create a QR code that takes a person to your Facebook page, keeping them totally in their comfort zone. The more you can keep potential – and current – customers engaged and able to interact in a way that’s valuable and convenient for them, the better off you’ll be.

BY DUSTIN JANSSON

DUSTIN JANSSON PROVIDES CONSULTING FOR E-COMMERCE AND SOCIAL MEDIA STRATEGIES FOR DEALERS, AS WELL AS PROVIDING A FULL SUITE OF INVENTORY MANAGEMENT, MARKETING, AND PHOTOGRAPHY SOLUTIONS. STAYING AHEAD OF THE TECHNOLOGY CURVE IN THE AUTO BUSINESS IS HIS PASSION. CONTACT HIM AT DJ@DEALERNETSOLUTIONS.COM.

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A SSO C IAT I O N N E W S

NIADA/MANHEIM NATIONAL COMMUNITY SERVICE AWARD

MA N H EI M’ S N I C K P E LU SO ( L EF T ) P R ESEN T S A C H EC K T O 2 01 2 C O MMU N I T Y SERV I C E AWA R D W I N N ER S RO N A N D D EBB I E R I G D O N .

A car dealership is more than a business – it’s part of a community. And for some dealers, giving back to the community is a vital part of its operation. If you know of a dealership that goes above and beyond in that area, it’s time to let us know about it. Nominations are now being accepted for the 2013 NIADA/ Manheim National Community Service Award. The winning dealership, which will be announced in June at the NIADA Convention and Expo in Las Vegas, will receive $5,000 from Manheim for the dealership’s chosen charity. “Manheim, in partnership with NIADA, created the National Community Service Award because we wanted to recognize independent dealerships – the unsung heroes of their communities – who dig deep to demonstrate kindness by giving to those who are less fortunate,” Manheim senior vice president of customer management Nick Peluso said. The 2012 award was presented to Ron and Debbie Rigdon of Ron’s Auto Sales in Lawrenceville, Ga. The Rigdons, through their Circle Heart Racing team, have raised $50,000 and helped provide toys for thousands of children through their annual Santa’s Toy Run racing event at Road Atlanta. The 2012 event raised a record $14,589 as well as 1,400 donated toys, with much of it going to children in North Georgia. Nominations will be accepted from individuals, community organizations, agencies, vendors or dealerships. The nomination form and additional information are available at www.niada.com/ community_award.php. FO R MO R E I N FO R MAT I O N , C O N TAC T G EO RG I A BROW N AT 8 0 0 - 6 8 2 - 3 8 37 O R GEO RG I A @N I A DA . C O M.

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First Lender’s Fair: What a Success!

The reviews are in, and by all accounts MIADA’s first Lender’s Fair was a success. Thirteen lenders participated in the event, which was held at Mid-South Auto Auction on Jan. 16, 2013. Toby Reiley, president of FinCo Management, moderated the lender panel, which focused on the differences between prime, subprime and deep subprime lenders. The panel also addressed Regulation Z and other compliance issues.

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First Lender’s Fair: What a Success!

Lunch, which consisted of regional favorites such as gumbo, muffalettas and fried boudin, was provided by North American Auto Finance and MyDealerSupply.com. We truly appreciate Mid-South Auto Auction and all the lenders for their participation.

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A L I G N I N G W I T H A N AT I O N A L O P E R AT I O N

e h T

OFFERS SECURITY BUT LIMITS CONTROL

FRANCHISE

When it comes to small business, used car dealers are the last cowboys – proud, independent business people who like being their own bosses, running a business the way they want to. Which is why it seems strange to many that there are companies that operate nationwide and offer franchise opportunities to people who want to sell used cars. But for the right person, franchise used car dealerships can be the way to go.

KNOW WHAT IS EXPECTED Brion Bethel owns Thrifty Car Sales of Mountain Home in Mountain Home, Idaho. He has been in the car business for 15 years. He started in the finance department right out of college. “I got a degree in finance,” Bethel said. “So when I saw that ad for a finance graduate, I thought it meant one thing, when it meant something else.” But Bethel found he liked working in auto finance, and in 2001, he and his wife Melanie decided to open their own used car dealership. They decided to go the franchise route because they liked what the franchisor brought to the table. “We wanted to have the benefits of a national brand without owning an OEM franchise,” Bethel said. “I have to say that owning a franchise has met many of our expectations, but not met expectations in other ways.” Bethel said he would recommend owning a franchise, as long as the dealer truly understands what he or she is getting into and what the rules are. “We were under the impression that we would have access to more vehicles at a better price through Thrifty,” Bethel said. “I want to emphasize that no one

promised us that.” So, Bethel said, when investigating a franchise opportunity, make sure you know exactly what your rights – and your responsibilities – are. It’s important to have a thorough understanding of the franchise’s entry requirements, and don’t forget to research the exit requirements as well. “To fully understand any business opportunity, you need to consider what it takes to get in, but you also need to understand how you can get out of the business as well,” said NIADA chief operating officer Steve Jordan, a former managing partner with a J.D. Byrider franchise group. “Before you enter into any agreement, you need to fully understand what the exit strategy is. You may not ever need to execute it, but things can change unexpectedly and knowing how to exit the business is just as important as knowing how to enter.” Overall, Bethel said, the advantages of having the Thrifty name have paid off. “When people hear Thrifty, they think rental cars, so we get people coming in all the time looking for rental cars,” said Bethel, whose operation also rents cars. “People who need rental cars often need one because their car is in the shop or has been damaged in an accident. So the franchise constantly brings people to us. If you’ve wrecked your car, we get a chance to sell you a new one.” FRANCHISE RESOURCES Mike Pearce, vice president of franchise development for J.D. Byrider, said owning a franchise means being part of a larger system and all the extras that come with that. “In our system, that includes legal protection,” Pearce said. “We are able to

hire multiple lawyers to advise people on changes in the law. We help franchisees avoid mistakes, and in our business mistakes can be very costly.” Additionally, Pearce said, J.D. Byrider – the only Buy Here-Pay Here used car franchise operation – has spent a lot of time developing standards to help guide dealers in their operations. “We can help up front with training and help people live in the standards of the system,” Pearce said. “If you’re an independent dealer moving into the franchise side of things, it can be a very big surprise learning about the standards and controls you must maintain to protect the brand.” In addition to legal assistance and training, big companies can provide all sorts of resources, from marketing assistance, warranties and help with acquiring inventory to discounts on items ranging from tires to oil filters. That kind of support can be very enticing to an independent dealer struggling for survival. “It’s a structure,” said Lee Goldey, general manager and director of operations for Thrifty Car Sales. “There’s a website that’s structured. There are partner relationships with AutoTrader, Cars.com, CARFAX, things of that sort, to give them discounted deals. We spent almost a billion dollars just on tires last year, and that allows our franchisees to get tires really inexpensively. “As an independent, they don’t get those types of deals because they don’t have the mass and volume behind them.’’ There are financial advantages, as well. Goldey said Thrifty’s relationships with Santander and TD Bank give its franchisees a leg up in securing financing, and they C O N T I N U E D O N N E X T PA G E

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also have access to the top programs from floorplan providers AFC and DSC. “Santander doesn’t sign up independent stores,” he said. “That gives our dealers a finance source they couldn’t normally get. Our relationship with TD Bank has opened that up to our franchisees, and a majority of them have been picked up because TD Bank knows we’re good people who sell good cars.” BRAND PROTECTION Joe Lescota, NIADA’s director of dealer development, said the No. 1 benefit and the main reason dealers join a used car franchise operation is name recognition. With a franchise, Lescota said, a dealer doesn’t have to spend all his money building his “brand.” For an independent dealer, creating a reputation and recognition in the community through marketing can take time and money – a lot of money. Items such as ads in various media and agencies to develop campaigns and logos don’t come cheap. By buying a franchise, the dealer is, in effect, buying the good name of, say, Payless Car Sales. A lot of the hard work has already been done, and there are people at the corporate level who can help the dealer with marketing and advertising. “Used car dealers don’t always have the best reputation,” Lescota said. “That’s the cross they have to bear. Having a franchise is a way to make headway against that.” There can, however, be a flip side to that. While having a solid brand identity is good, Lescota said, it also puts a dealer at the mercy of all of his fellow franchisees. If someone who has the same franchise in the next town over does something bad, it can spill over to your franchise. That, Pearce said, is why protecting the brand must be among a franchisee’s top priorities. “It’s really protecting your own business,” he said. “That’s just a fact of life. Anyone who wants to operate a franchise has to realize that. “When you really come down to it, all a franchise is is a set of standards and operations systems and brand awareness. Hence the need to protect the brand. It’s important to realize that when you decide to buy a franchise, you need to be a team player. You have to trust the franchisor is maintaining the brand.” That’s why J.D. Byrider has what Pearce calls a compliance team – which, he was quick to add, is not something that should be considered punitive. “The compliance team is there to make sure franchisees are compliant with all the federal and state rules and regulations,”

Pearce said. “Following the law is important. We also provide a franchise consultant to ensure our dealers operate at full profitability. We can provide dealers with a business coach, which is something an independent dealer doesn’t have.” That said, Pearce acknowledged owning a franchise used car operation is not for everyone. “When you consider being part of a franchise system, you absolutely have to consider the input you will receive from the corporate headquarters,” he said. “But input works both ways. A good franchisor listens to the franchisees.” Control from headquarters can be a tricky thing, Pearce said. Too much control can be as bad too little control. He noted that McDonald’s, perhaps the king of franchise operations, was known in the past for keeping tight control over the company’s franchisees. But in the end, they revolted. Pearce said J.D. Byrider was created because company founder Jim DeVoe, a General Motors dealer in the 1970s, was frustrated by some of the directives forced on GM’s franchise dealers by the manufacturer. So when he began his company, DeVoe made it a point to listen to his dealers. “If you are considering joining a franchise operation, ask what kind of say you as a franchisee will have in the business,” Pearce said. “[DeVoe] set up our structure to take input from dealers. “Our advertising is a separate entity from the company. It’s managed and run by a board of dealers. So even with a franchise, you can still have a say in how the business is run.” TAKE ONE FOR THE TEAM But having a say in how a franchise is run doesn’t mean being able to do whatever you want. “Sometimes there are things that are done for the greater good of the system,” Pearce said. “These things can be limiting to franchisees. “We tried things like GAP insurance and found it was too hard to run for a larger system. There are times things are done for the benefit of the system that prevent people from making money. You have to be a team player and sometimes you have to take one for the team.” J.D. Byrider, Pearce said, has a specific niche in which it operates. That means franchisees must stock a certain type of car. “There are three tiers in the Buy Here-Pay Here business,” Pearce said. “We play in the middle tier and don’t allow franchisees to deviate from that tier. We control franchisees in that way because our business

FRANCHISE

model has worked best that way and that, honestly, has frustrated some franchisees.” But the system, Pearce contends, ultimately gives franchisees almost a twoto-one advantage over independent dealers. And the company has statistical data across the dealer system that can help dealers. As a Thrifty franchisee, Bethel has access to the company’s Business Development Center (BDC), and he said that kind of help from the home office is extremely useful. “Their marketing people help us with ads, whether it’s print, TV or the Internet,” Bethel said. “As an example, just recently we wanted to send out a mailer. We called up and asked for help. In a matter of days they emailed back to us three ads for things like oil changes and other service department services. These were ads that worked for other dealers in the past. “Their BDC is something their franchisees can sign up to use. For a dealer like me – I only have the one dealership – it is very useful.” The BDC can help control costs and follow up on every email sent to the dealership, Bethel said. “That way no customers fall through the cracks,” he said. But, Lescota said, it’s a simple fact that large corporations aren’t as nimble as a small businesses. It might take a large company more time to react to new situations , and a franchise dealer can be frustrated by that pace. The bottom line, Lescota said, is that anyone interested in buying a franchise used car operation has to weigh the pros and cons carefully. Franchisors can help with finance, legal advice, business development and bookkeeping software as well as advertising, parts, websites and warranties. Brand recognition goes a long way toward establishing a dealer with the public. But the very nature of a franchise means the dealer will give up some independence. Being a franchisee doesn’t mean having no power over one’s business, but it does mean there are limits and guidelines that must be followed. Dealers who remember that, Lescota said, can do very well for themselves. “Franchises can work for dealers,” Lescota said. “You do not have to reinvent the wheel. For someone with no experience, that is great. For someone with fears about going off on your own, that is very comforting. “But there is a tradeoff. You give up some of the profits to do so. If you understand that, franchises can work for you.”

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PRE-LICENSING SEMINAR

Congratulations to those who have attended and completed our prelicensing seminar, which is required by the Department of Revenue. October Class Graduates

Acey, Bethanne LLG Auto Tunica MS Blackmon, Madison E JAMAD Supplies Canton MS Bolton JR, William E Olive Branch MS Brown, Alonzo Brown’s Auto Sales Magee MS Carr, JR, James JAMAD Supplies Canton MS Carter, Sherene G & S Auto Metcalfe MS Cooper, Tracey L Precision Auto Memphis MS Daniels, Jesse E Jeep Freaks Inc Quitman MS Davenport, Jermain Jays Auto Sales Prairie MS Dillon, Lyn P Discount Tire & Auto Sales Forest MS Evans II, Charles D Evans Auto Sales & Parts Grenada MS Gex, Kerry Picayune MS Grubbs, Mark Terry Road Tire & Alignment Jackson MS Hall, Ronnie J Big John Used Cars Aberdeen MS Jones, Christopher CJ’s Auto Kosciusko MS Jordan, Willie K & J Auto Perkinston MS Kadish, David S YCP Technologies LLC Pass Christian MS Kennon JR, Paul E Discount Tire & Auto Sales Forest MS Kinkle, Daryl Holly Springs MS Koe, Frank G Ridgeland MS Lewis, Jennie Cleveland MS McCloud, Sharlette S & F Auto Sales Olive Branch MS Meeks, Gerald Karz Oakland MS Mitchell, Jerry L Clinton MS Murry, Keith Pops Camper Sales Magee MS Odom, Reginald Odom & Odom Auto Port Gibson MS Price, Shila Jackson MS Rush, Troy Ruch’s Auto Group Greenville MS Smith, Daniel Trans Ocean Shipping Ocean Springs MS Strahan, Bryan Strahan Auto Sales Hattiesburg MS Swain, Derrick Hattiesburg MS Taylor, Ronnie Gregg GT Motors Brandon MS Toliver, Jerome Precision Auto Coldwater MS Turner, Frederick S Turner Automotive Jackson MS Vara, Jose Vara Auto Sales Laurel MS Williams Jr, Jerry Highway 7 Used Cars Lamar MS

January Graduates Adams III, Jim Jackson MS Berg, Cyndy Touch of Class Pearl MS Berry, Samuel Prentiss MS Brown, Gregory 5K Auto Houston MS Buckley, Troy Prentiss MS Collins JR, Larry A. Collins Auto Sales Yazoo City MS Davis, Geary Brookhaven MS Davis, Javvin Hwy 63 Sales LLC Moss Point MS Frain, Thomas Hernando MS Gollott JR, Gordon T Good To Go Auto Parts LLC Bay St Louis MS Hardy, David Jospeh Good To Go Auto Parts LLC Bay St Louis MS Harrison, Korey M Harrison Auto West Point MS Hawthorne, Steven Twins Auto Brokers Moselle MS Jones, William A Jones Used Cars Prentiss MS Kimber, Revell D & K Auto LLC Shelby MS Kirk, Alan Deundra Tillatoba MS Martin, Timothy Tim’s Automotive Kokomo MS McMillian, Justin Vancleave MS Montgomery, George E. Lexington MS Munka, William Safeway Auto Sales Horn Lake MS Pena, Estevan Gulfport MS Peterson, James Bruce All-Sport Motors Bay St Louis MS Russell, Antonio Mr. A Russell Auto Sales Lexington MS Smith, Robert G. Thunderbird Speed & Custom Horn Lake MS Taylor, Crystal Jackson MS Thorton, Terry KLLM Equipment Sales Richland MS Turner, Allen K Turner Auto Coldwater MS Young, Janet McCarley MS

MISSISSIPPI’S USED AUTO DEALER PRE-LICENSING SEMINAR Required by the Department of Revenue Seminar Location: MIADA Home Office 1705-A Old Whitfield Road Pearl, MS 39208 Office: (601) 939-9866 Fax: (601) 939-9882 Seminar dates are as follows:

q March 23, 2013, 8 a.m.-5 p.m. q April 20, 2013, 8 a.m.-5 p.m.

q May 18, 2013, 8 a.m.-5 p.m.

Registration Fee – $250 Please submit registrations with payment to MIADA at least seven days prior to the date of the seminar you plan to attend. Registration fee includes dealer manual. Your seat will be reserved and certificates will be received at the end of the seminar. Registration Fee does not include MIADA membership. Late Registration Fee – $25 Late registrations are accepted the week before class and walk-ins are accepted on the morning of class. However, a late fee is applied to the original registration fee. *On the day of the seminar, No checks will be accepted.* Transfer Fee – $50 If you wish to transfer your registration to another scheduled seminar date, a 72-hour notice is required and a transfer fee is applied. Cancellations – $50 All cancellations are to be made 72 hours in advance in order to receive a refund, minus the cancellation fee. *Please Note* Due to limited and reserved seating, we Can Not allow sit-ins.

Full Name_______________________________________________________________ Address________________________________________________________________ City___________________________State__________________Zip________________ Phone______________________________Fax_________________________________ Email __________________________________________________________________ Business Name__________________________________________________________ Address________________________________________________________________ City___________________________State__________________Zip________________ Phone______________________________Fax_________________________________ Email __________________________________________________________________ Payment Method ___Check Enclosed

___Money Order

___VISA

___MC

___DISC

___AMEX

Account #________________________________________________________

Exp________________

Account Name____________________________________________________

Zip_______________

Registration Fee $_________________ + C/C Proc. Fee $ 3.50 = Transaction Total $___________________ Signature of Authorization______________________________________________________________________

Aimee Smith Pruitt is MIADA’s Pre-licensing education specialist. With more than five years experience in pre-owned dealership management and more than four years in education development and instruction for MIADA, she is our greatest asset. She has made major contributions to the curriculum that was first offered in July 2007. Education class participants continually rate this class as superior.

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MIADA AUCTION MEMBERS ADESA Memphis 5400 Getwell Road Memphis, TN 38118 901-365-6300

Manheim Mississippi 7510 US Highway 49 Hattiesburg, MS 39402 601-269-7550

Dealers Auto Auction 6723 Highway 51 North Horn Lake, MS 38637 662-393-0500

Manheim New Orleans 61077 St. Tammany Slidell, LA 70460 985-643-2061

Dixie Auto Auction 15673 Highway 8 West Grenada, MS 38901 662-226-5637

Mid-South Auction 1657 Old Whitfield Road Pearl, MS 39208 601-956-2700

Insurance Auto Auction 100 Beasley Road Jackson, MS 39206 601-956-2787

Oak View Auto Auction 13451 Florida Blvd Baton Rouge, LA 70815 225-272-5139

Long Beach Auto Auction 8494 County Farm Road Long Beach, MS 39560 228-452-2030

Tupelo Auto Auction 717 Westmoreland Drive Tupelo, MS 38801 662-841-0622

Louisiana’s 1st Choice Auto Auction 18310 Woodscale Road Hammond, LA 70401 985-345-3302

M E M B E R A P P L I C AT I O N

W E B C H AT

FORD F-150 STILL MOST SEARCHED-FOR VEHICLE

The Ford-150 pickup truck was the most searched-for vehicle on carmax.com in 2012, its third consecutive year at the top of the list. Trucks and sport utility vehicles were again popular searches on the website, according to CarMax, the nation’s largest retailer of used vehicles. One new entry on CarMax’s top 10 list was the Chevrolet Camaro, which made its first appearance since it was reintroduced in 2009. The top 10: Ford F-150, Ford Mustang, Jeep Wrangler, Honda Accord, Toyota Camry, Chevrolet Tahoe, Nissan Altima, Toyota Tacoma, Chevrolet Camaro. Consumer Reports also released its top 10 auto searches, and among used cars, the list was dominated by Honda. The Civic, Accord and CR-V ranked 1-2-3 among most searched for, and the Honda Pilot was ninth. The list also included the Toyota Camry, Toyota Highlander, Toyota RAV4, Acura MDX, Subaru Forester and Ford Escape.

Business Name _______________________________________________________ Owner (s) _____________________________________________________________ Address_______________________________________________________________ City, State, Zip_________________________________________________________ Phone ___________________________Fax__________________________________ Email _________________________________________________________________

THE ASSOCIATION YOU CAN COUNT ON! Membership dues are $250 annually. Use your coupon book and other discounts and the membership pays for itself! There is so much more… All the help you need could be a phone call away. We look forward to serving you and helping make your dealership a SUCCESS!

JOIN NOW!

Payment Method:

q

VISA

q

MC

q

q

DISC

AMEX

q

Check Enclosed

Account #__________________________________________Exp._______________ Account Name______________________________________ Zip_______________ Signature of Authorization_____________________________________________ Can associate members contact you for services?

Yes

q or

No

q

MIADA 1705-A Old Whitfield Rd. Pearl, MS. 39208 Phone 601-939-9866 Fax 601-939-9882

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COVER STORY

COMPLIANCE OVERDRIVE

COMMON MISTAKES CAN WRECK LENDER RELATIONSHIPS One of the most important keys to a successful dealership is strong relationships with lenders. You may regularly get advice on what you can do to build and improve these relationships, but as a dealer, what shouldn’t you be doing? Many common problem areas can be traced back to financing documentation. First and foremost, dealers cannot forget they are responsible for retail sales contracts as the original creditor – even if they plan to subsequently assign the contracts to a lender. In fact, dealers may sometimes hear the term “assignee” instead of “lender,” highlighting the fact they are assigning a contract for which they are originally responsible. If a dealership manages the loan documentation process poorly, it may not be able to assign the contract to anyone. Or, if the contract is assigned, it might have to be bought back later because of documentation defects. Remember, when financing a sale, the dealer – as the original creditor – needs to be as careful, accurate and complete as possible. That attention to detail will help the dealership if it intends to hold the paper, and will also improve relationships with lenders to whom the contracts are assigned. But how do you avoid creating contracts your lender (assignee) refuses to buy? The simplest answer is just to avoid some of the most common mistakes cited by lenders, including: Charging incorrect fees, such as fees paid to public officials and documentation fees: States often authorize dealers to charge fees with specific names and in specific amounts for processing documents or other activities. You need to be aware of the fees allowed in your state, the amounts allowed for those fees and when they can be charged. Charging fees that aren’t specifically authorized can create problems for you (the original creditor) and also cause a lender to refuse to buy your completed contracts. You also need to stay current on the fees required for submitting title applications and other official fees. Usually, it’s fairly easy to confirm and use up-to-date fee information so you stay in your lender’s good graces. Contracting with outdated form versions or noncompliant forms: Most lenders conduct a legal review of popular base forms used for retail motor vehicle sales transactions. Lenders then require use of a retail sales form that has been reviewed and approved so they only need to review the financial terms and completion fields when an executed contract is assigned. Retail sales forms are revised with some regularity in response to state and federal law changes as well as changes in market

requirements. As a result, lenders regularly cull their lists of pre-approved forms to remove outdated or noncompliant versions. If you use an outdated/noncompliant form, your lender will not buy the executed contract. Your lender may also refuse to buy an executed contract on a base form it hasn’t already reviewed and approved. As a result, you should always use the current, lenderapproved versions of forms. Improperly listing collateral: When you finance the sale of a motor vehicle, you take a secured interest in the vehicle sold. If a buyer defaults on the terms of the retail sales agreement, one remedy available to you (or the assignee/lender) is to repossess the vehicle. The right to repossess the vehicle is a huge risk mitigation tool for a creditor and a huge factor motivating the buyer to avoid default. However, it might be difficult or impossible to repossess a vehicle if the retail sales contract doesn’t include enough information about the vehicle, such as the VIN or other key identifying information. Lenders’ funding decisions are also affected by whether a vehicle is a “Limited Edition,” has automatic or manual transmission, alloy wheels, etc. An accurate and complete description of the vehicle and its extra features is critically important for the lender to analyze the transaction. With such high stakes, it’s understandable that lenders require the vehicle description to be accurate and complete. Remember, lenders may also do post-sale audits with buyers to make sure the vehicle’s features are accurately described in the retail sales contract. If the vehicle’s features and condition were exaggerated, the lender may require you to buy back the transaction. Improperly disclosing trade value or cash down payments on contracts: A critical promise dealers make to lenders/ assignees is that the retail sales contract is an accurate report of all financial terms of the sale. The lender/assignee isn’t in the dealership to oversee the transaction, so it relies on the dealer to fully and accurately describe it. If that trust is violated on just one transaction, it can affect the entire business relationship between the dealer and lender/ assignee. As a result, it is critically important you understand and accurately report all the fees and charges, especially in the “Itemization of Amount Financed” section of a retail sales contract. An obvious deal killer for a lender is if the dealer fails to report all cash received from the buyer or manipulates the agreed-on value of a trade-in vehicle. For example, if a lender discovers a buyer paid additional cash not reported by the dealer, it will result in a rejection of that transaction and also call into

question the dealership’s integrity on all other transactions. Failing to provide signed disclosure forms in the finance package: In addition to federal notices and disclosures, every state has its own requirements for consumer retail sales transactions. Some disclosures and provisions require separate buyer or dealer initials or signatures. It’s easy to forget or overlook acknowledgement provisions during the signing process. If any required acknowledgments are not initialed or signed, the retail sales contract has a compliance problem. A lender will not buy – and will return to you – any contract missing required initials or signatures. Before the buyer drives away, double-check to ensure you have collected all required initials and signatures on all finance package documents. Problems can also result from general data entry errors within loan packages, so be sure your sales transaction documents don’t have any typos. Technology can greatly improve manual data entry errors, but if you’re using a software system to generate and print your forms, always check to ensure the system is computing everything correctly. You may even want to consider a loan documentation audit and review process for each deal. Although we are focusing on common mistakes made by dealers, it’s important to remember lenders aren’t perfect either. In fact, as you work with your lender partners, there are areas in which you can seek their help to make the process easier. For example, have they made their program guidelines clear and accessible, and do they readily provide instructions for dealers regarding the completion of contracts? If so, do their instructions include information regarding calculation methods and how payments should be disclosed? One of lenders’ biggest concerns is whether or not dealers represent consumer information and transactions accurately and honestly. So dealers who make an effort to avoid documentation mistakes will find it easier to gain the trust of lenders. Remember: lenders want to help make the process smoother, too. Consider monthly or quarterly meetings with your lending partners to discuss how portfolios are doing, address any concerns that might hinder the relationship, and determine what both parties should – and should not – be doing to make sure the relationship remains a positive and profitable one.

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.

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