DECEMBER 2010
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NORTHLAND INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION
NAAA: AUCTION INDUSTRY REPORT ALSO Marketing Your Vehicles Beyond the Dealership ALSO
s ’ n o s a e S s g n i t e e Gr DALLAS, TEXAS Permit No. 2079
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INSIDE
MAGAZINECONTENTS 6 Cash Flow: The Key to Staying Afloat 8 Marketing Your Vehicles Beyond the Dealership 10 NAAA: Auction Industry Report 12 Auction Standards
CMD Classes Dealers who demonstrate commitment and support the principles and ethical business standards of the CMD® designation complete a four-day seminar that addresses Business Management, Merchandising, Financial Management, Human Resources, and Business Planning. Northwood University provides the instructor and awards four Continuing Education units for this course. The next class will be March 10-12 at the SuperMedia Hotel and Conference Center at DFW.
THE CURRENT STATE OF THE AUTO INDUSTRY John McElroy is host of the long-running “Autoline Detroit” television program, covering all aspects of the automotive industry. In this presentation, McElroy provides a thorough and insightful review of where we’ve been, where we now are, and where our industry is headed. Taped at the Automotive Fleet & Leasing Association’s Annual Conference. Log on to www.niada.tv and Click on “OPERATIONS” Remember we have over 400 hours of quality dealer education that can be viewed 24/7 on niada.tv.
ADVERTISERSINDEX AutoTrader.com........................................................ Cover Cars.com................................................Inside Front Cover Manheim Advantage............................................... 10, 11 Manheim Minneapolis.......................................................5 SmartAuction.......................................... Inside Back Cover Western General / Protective............................................9 FOR INFORMATION ON HOW TO BECOME A MEMBER PLEASE CONTACT CINDY SIRKEL. CINDY@NIADA.COM • 800-756-4232
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 Northland Dealers 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 Northland Dealers or the National Independent Automobile Dealers Association. Likewise, the appearance of advertisers, or their identification as members of Northland IADA or NIADA, does not constitute an endorsement of the products or services featured. Copyright © 2010 by NIADA Services, Inc. All rights reserved. STATE MAGAZINE MGR./SALES Troy Graff • troy@niada.com FRONT COVER BY Mike Morgan EDITOR Mike Harbour • mharbour@niada.com PRODUCTION MGR. Jacob Kerns • jacob@niada.com ART/PRODUCTION MGR. Christy Haynes • christy@niada.com PRINTING Nieman Printing
Carfax Is Here To Help Dear Editor: Carfax is constantly looking for ways to further improve the exceptional service we provide our independent dealer customers. We have a dedicated team of professionals that handles any customer requests quickly. As a result of our tireless efforts, I am proud to say that we have streamlined our data research process. The research process is easily started with just a few simple steps. Any Carfax-subscribing dealer in Minnesota and North Dakota can access their Carfax account at carfaxonline.com. Next, click the link which takes you directly to the online Data Correction Form. After submitting the form with the 17-digit vehicle identification number and requested research, a Carfax representative will work with you throughout the data verification process and confirm the issue has been resolved. In most cases, the entire process is completed in just a few hours.
Carfax is always here to help, especially on the rare occasions that data research is needed. Inconsistent odometer readings, for example, can raise a red flag but may be the results of simple human error. We’ve made it easier for dealers to initiate the process and get a faster resolution. We’re helping our customers manage a more efficient business and keeping their operations running smoothly. Any dealer in Minnesota and North Dakota that has questions about their Carfax account or the data research process can call Carfax Business Services at 888-695-1885. It is our pleasure to serve you. Sincerely, Kenny Williams Manager, Dealer Business Unit Carfax
SCHOLARSHIPS! Information and applications for the 2011 NIADA Foundation scholarships have been posted at www.niadafoundation.org. Applications must be postmarked by Feb. 1, 2011. If you know any outstanding high school seniors graduating this academic year who are headed to college, encourage them to go online to download and submit an application. At the annual NIADA Convention and Expo each June, the foundation awards four regional scholarships. These awards, which have been for $3,500 each for the past two years, are presented to the students’ colleges of choice.
ADESA Acquires Six Auctions Six vehicle auctions located across the U.S. were purchased by ADESA, one of the nation’s top auto remarketers, from The Premier Auction Group (PAG).
“The acquisition of The Premier Auction Group demonstrates our commitment to increasing our dealer consignment business and enhancing the scale of our offerings to our national consignors,” said ADESA President and CEO Tom Caruso in announcement last month. Bay Auto Auction in Bay City, Mich., Dealers Auto Auction of Michigan in Clare, Mich., East Tennessee Auto Auction in Fall Branch, Tenn., Montpelier (Ohio) Auto Auction, Premier’s Las Vegas Auction in North Las Vegas, Nev., and Wisconsin Auto Auction in Lomira, Wis., were added to the company’s lineup.
The acquisition of PAG’s auctions strategically complements ADESA’s dealer consignment initiative and strengthens the company’s footprint in Michigan, Tennessee, Ohio and Wisconsin. It also provides ADESA with the addition of a specialty sale near the construction of the company’s new greenfield auction, ADESA Las Vegas. Over time, these six locations will be integrated into ADESA’s current infrastructure and resources, ultimately offering the full scope of ADESA’s product and service offerings. To strengthen this transition, Bob Hubregsen, former PAG president, will serve as a vice president for ADESA. Carmel, Ind.-based ADESA has 70 auction locations in the U.S., Canada and Mexico. 3
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REPORT 2010 LOBBYING REPORT • 2010 LOBBYING REPORT • 2010 LOBBYING REPORT
Federal Advocates October 2010 Lobbying Report
“Wall Street/Consumer” Financial Services Reform Bill
On November 17, NIADA General Counsel Keith Whann and Federal Advocates will be meeting with staff of the FTC as a follow-up from the September 21 meeting. A series of questions have been provided to NIADA for discussion at the November session. To review, on September 21, Whann and Federal Advocates met with staff of the Federal Trade Commission (James Dolan, assistant director; Carole Reynolds, senior attorney, Division of Financial Practices; Rebecca Kuehn, assistant director, Division of Privacy and Identity Protection; Katherine Worthman, attorney, Division of Financial Practices; and Daniel Hanks, attorney, Division of Marketing Practices) regarding implementation of the above bill and its impact on the auto industry. Following discussion of various issues, with Whann leading the discussion and answering various questions as to how the auto industry works (including the auction practice itself), it was decided to schedule a follow-up session to allow for a more detailed discussion of issues. To review further, on July 22, President Obama signed into law the so-called Wall Street Reform Bill. As reported previously, the new law exempts certain auto retailers from increased oversight with respect to dealer-assisted financing. To get to that result, advocacy activities included numerous meetings, strategy phone conference calls, letters, talking points, legislative alerts, etc. The law does grant increased powers to the FTC regarding dealer oversight. Also, it requires coordination with the Department of Defense to ensure that service members and their families are treated fairly by automobile dealers.
Senate Motor Vehicle Safety Act of 2010
FEDERAL ADVOCATES IS NIADA’S GOVERNMENTAL ADVOCACY PARTNER. To read past lobbying reports, visit http:// www.niada.com/legislative_and_legal.php
NIADA is reviewing the above bill pending possible Senate Floor action in November or December. To review, on June 9, the Senate Committee on Commerce, Science and Transportation marked up and reported S.3302, the so-called Toyota Bill. In earlier drafts of the bill and just prior to markup, language was included (section 310) which would have specified that a dealer may not sell or lease a used passenger motor vehicle (both wholesale and retail) until the dealer first notifies the purchaser or lessee in writing of any recall notices. Working primarily with Sen. John Thune, R-S.D., his staff (Brenden Plack), and committee staff (Alex Hoehn-Saric and Chris Herndon), and as a result of concern raised by Keith Whann and his proposed suggestion, language was included in the final reported version
of the bill exempting wholesale transactions from the section’s application. While an initial victory, the remaining provision is still very troublesome and we continue to advocate on behalf of NIADA’s interest pending further action on the Senate bill as well as a possible House companion bill. The latest Senate draft and the companion House bill (H.R. 5381) are being reviewed by NIADA.
Small Business Jobs and Credit Act of 2010
On September 23, the House passed the Senate-passed bill, which includes an increase in the amount the Small Business Administration’s (SBA) Dealer Floor Plan Financing program can guarantee. This permits the SBA to guarantee bank and finance company loans up to $5 million, which should help, the committee believes, expand dealer access to floorplan lines of credit. We worked with Louisiana Democrat Sen. Mary Landrieu’s Committee and personal staff in conjunction with others on this. This bill may be the subject of subsequent meetings with the Hill and the SBA on how the program “really works!”
White House Reform Request
On September 23 and September 29, Federal Advocates was contacted by the White House, which is still trying to organize and schedule a meeting to include “people who are working to set up the CFPB.” This meeting is in response to a letter sent by NIADA to President Obama requesting “the opportunity to work with you to reform our industry in commonsense ways that achieve real safeguards for consumers, that promote accountability and transparency, and that really work.”
Department of Defense
Regarding the issue of “how to ensure that service members and their families are treated fairly by automobile dealers,” Whann and Federal Advocates also met on September 21 with the Defense Department’s Frank Emery in the Office of Personal Finance, Family Policy Outreach Directorate. Whann relayed a specific example of how he helped a service member at Fort Bragg on an automobile situation working with the base JAG office and others. He also talked about his plan for a special program to teach dealers on how to deal fairly with service members and their families. Emery mentioned a November conference in Denver where Keith could give a presentation. DOT continues to remain interested in looking for opportunities where Keith could lend his expertise. Details are to be finalized at a later date.
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By Stephanie Patrick
CASHflow
the Key to Staying Afloat Your Dealership’s Life Preserver in a Turbulent Economy Business was strong for well-established Central Oregon Motors in rural Redmond. Sales grew steadily in the seven years since owner and car business veteran Dan Nicholson purchased the dealership, and he was confident about its new branding campaign.
“Half of what the dealership sold was trucks, so I started commercials at the end of 2007,” said Nicholson, who spent thousands of dollars on television and print advertising. “The commercials had the slogan, ‘The biggest little dealership in town,’ meaning we weren’t the biggest in size but we had the most trucks.” Just as the dealership’s commercials hit the airwaves and presses, disaster struck. Gas prices skyrocketed to $5 a gallon for unleaded in Oregon and rose even higher for diesel fuel. “It was like someone turned off a light switch,” Nicholson said. “My trucks were worth half of what I paid for them on the wholesale market, and that’s if I could even get rid of them. Nobody wanted trucks, especially not diesels.” To keep his dealership afloat, Nicholson borrowed from all sources he could, including the equity on his home; and slashed the dealership’s expenses to stop the bleeding. That included layoffs and convincing the dealership’s remaining employees to accept salary cuts. Amidst the pain and penny-pinching, Nicholson realized how much he’d ignored the importance of cash flow. The mistake nearly cost him the dealership on several occasions in the months to follow. Now, in addition to $300,000$400,000 in inventory, the dealership maintains another $30,000-$50,000 for cash flow, he said. Unfortunately, Nicholson’s experience isn’t unique. And with the ongoing scramble to secure sales with fewer newer cars available in the
still-troubled economy, many dealers face similar dire issues now or could in coming months, said Chris Leedom, founder and president of The Leedom Group, a Sarasota, Fla.-based consultancy specializing in pre-owned car sales, special finance and buy here-pay here. “There are a lot of dealers who don’t even produce monthly financial statements; they do them once a year when it is tax time, or they just don’t worry about them,” he said. “But, the smartest thing you can do is produce monthly financials to get a good idea of how the dealership performed; that way, you aren’t surprised and you can plan ahead.” Leedom said the industry is in its worst period in 25 years, and nearly every dealership can and must trim expenses. Maintaining at least one to two months of operating capital reserves is vital. “Really assess the financial health of your business, recognize issues and make adjustments that are necessary so you can ride out the storms when they occur,” he said. “You are never 100 percent; you are always making adjustments and reacting to the market.” Job cuts may not be necessary in a financial downturn, but restructuring pay plans, even for upper management, and tying bonuses to performance are advised by Leedom. Also scrutinize reconditioning expenses, which increase quickly. Leedom, who expects sales in 2011 on par with the past year but with more regulatory concerns and increased costs, said dealers in the high-end Buy Here-Pay Here (BHPH) market in particular need to know how much cash their dealerships consume; if a dealer wants to sell 50-100 vehicles a month at the higher end, he must understand the cash demands. “It’s one of the few businesses where sales could actually be so good that a dealer could be threatened to go out of business,” he said. “It eats up so much cash that the dealer could find himself broke.” Dealer Chris Martin, president of E-Z Auto in Fayetteville, N.C., said he’s seen many new owners make the mistake of purchasing toys for themselves, instead of saving money for their businesses’ down times. “There’s nothing wrong with toys, and you want to enjoy life, but you need to reinvest in your business to get the business as financially solid as possible and get rid of as much debt as quickly as you can,” Martin said. “Once you are able to do that, you can take advantage of good situations that you can’t otherwise.” That could mean buying more vehicles at good prices from wholesalers, investing in technology or undergoing expansions. “Right now, we are trying to buy every vehicle we can if we think it’s a good buy,” said Martin, who purchases from wholesalers such as Cash-N-Carry in Dunn, N.C. The family owned dealership is less successful at auctions, where franchise dealers bid for the same vehicles. However, Martin travels to
auctions as far as Tidewater, Va., to find deals. “We’ve been able to increase our equity in the business every year,” said Martin, co-owner of the business with his father, Buddy, who opened the dealership near Fort Bragg in May 1992. The BHPH dealership has 13 employees. It sells about 30 cars a month now, but sold as many as 40-50 cars per month just 10 years ago. Still, an aggressive collections program helps the dealership maintain cash flow even during slower sales periods. E-Z offers loans at 36-month terms or less, and the average cash value is between $5,000 and $5,500. To ensure timely loan payments, E-Z uses a payment assurance system that includes a starter interrupt program with GPS. The starter interrupt prohibits vehicles from starting if payments are more than a few days overdue. “We aren’t trying to strong arm anybody,” said Martin, a NIADA Certified Master Dealer (CMD) and vice chairman of the NIADA Services board. “As long as they are working with us and they are telling us the truth, we are going to do the same. We are normally able to work out any situation if we are communicating.” Many of E-Z’s customers can’t get vehicles from other dealers because of prior repossessions, bankruptcies or other credit issues. Still, they need solid, dependable vehicles such as the Kia Spectrums, Chevrolet Malibus and Jeep Grand Cherokees offered on the dealership’s two-acre lot. “When you are dealing with a consumer who has had credit issues in the past, it’s hard to change those habits,” Martin said. “If you can get them to pay you reasonably on time for 36 months, you’ve done a really good job.” Because there are fewer finance options for customers with damaged credit these days, E-Z doesn’t lose them to other creditors for original loans, refinancing or trades as often. “(Revenue is) probably going to by up 10-12 percent over last year and I would hope to see us up another 10-12 percent in 2011 if things continue to improve in the overall economy,” Martin said. Leedom supports aggressive approaches in a weak economy. “(Dealers) can look at all that’s going on as the glass half full or as the glass half empty,” he said. “The good news is, if you are able to survive these times, your dealership is clearly one of the stronger dealerships and has weathered another storm, and that bodes well for your business.” That certainly describes Nicholson and his dealership, which boasts three employees and improved revenue. He will hire a business manager and possibly a mechanic in the spring. Nicholson, also a CMD, has vowed never to borrow money again, except for flooring, and now has mix of cars, trucks and sport utility vehicles on his lot. SUVs, 2005 and older, and Toyotas produced between 2007 and 2009 are popular with his rural clientele.
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“I’ve never had a Toyota car on my lot that I didn’t sell,” said Nicholson, whose dealership doesn’t offer in-house financing but works with several banks to help customers secure loans. Nicholson raised the actual cash value of his units to $12,000 from $8,000, and the change attracted older customers. He keeps roughly the same number of vehicles – 30 to 35 – in stock, selling about 20 to 25 each month. “I try to keep a balance of what seems to work,” Nicholson said. “One of the counties right next to us has 17 percent unemployment, and our county, Deschutes, has about 13 to 14 percent unemployment and the housing market is really weak. “I’ve just learned to be profitable with what I’ve got. Business was up 20 to 25 percent this summer, which was helpful.” He reassessed the business throughout most of 2009. That’s when Nicholson learned to purchase vehicles like his customers. “When I went to auctions, I didn’t even pull out my (Kelley) Blue Book; in fact, I haven’t taken a Blue Book to an auction in two years,” he said. “Instead, I’ll get a list of the vehicles I want to buy and then go on the Internet and see what they sell for, and buy them in relation to that.” It retrained him to consider the retail market. “Eighty to 90 percent of buyers now look on the Internet first,” said Nicholson, who was elected first vice president of the Oregon Independent Auto Dealers Association’s executive board recently. “When I looked at the Internet first before buying a car, it was amazing the difference and how much of a better buyer I became. “It’s amazing that I’ll go to an auction and have a vehicle picked out, then go on the Internet and see what they are selling it for. Then, that vehicle will sell for just as much money, if not more, at the auction then it was on AutoTrader; sometimes I scratch my head because there are three of the same vehicle selling for cheaper on AutoTrader, and that makes a huge difference.” Following his CMD training on how to reduce wholesale losses, Nicholson also gets rid of vehicles in 60 days by pricing them below what else is on the Internet. Nicholson offers his insight to ward off financial disaster in difficult times. “My advice is not to grow too fast,” he said. “Instead, take your time, save money and keep your expenses low. As you make money, use cash to do any expanding; don’t borrow money to grow. “Once you’ve been in business a year, learn to live off the leanest month you have and make that leanest month your budget. Then, when you have good months, use the rest to invest in your business,” according to Nicholson. “It can be difficult. But, in long term, keeping everything small and simple, allows you stay in business during the lean times.”
EDUCATION AND TRAINING CONSORTIUM The NIADA Foundation is accepting membership applications for the recently formed Education and Training Consortium.
A consortium
is a group of providers who can offer more as a group than each one could provide alone. By joining together, the group can offer a comprehensive approach to training and education. If you have an educational product or program, or know someone who does, visit www. niada.com/education.php or contact Georgia Brown at 800-682-3837 or georgia@niada.com.
STAY INFORMED! DON’T MISS THESE PROGRAMS ON WWW.NIADA.TV
>> >>
Automotive Internet marketing specialist, Michael D. Jackson, CEO, AutoSearch Technologies, shares strategies you can use right now to boost your dealership’s online clout. Running time: 35 minutes Dealerships must comply with the “Red Flags Rule” by December 31, 2010. Listen and watch as one of the U.S. Federal Trade Commission’s attorneys explains exactly what you need to do and cites additional resources on the FTC’s website - www.ftc.gov.
RUNNING TIME: 8 MINUTES 7
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Marketing Your Vehicles Beyond the Dealership By Clayton Stanfield, eBay Motors In today’s digital world, it is becoming increasingly challenging for dealers to drive car shoppers from online browsing into their dealerships. It is
Research shows the majority of consumers now start major purchase decisions with online research.
also growing increasingly important for dealers to widen their reach beyond prospective customers in their own backyards. To find success in today’s changing market, dealers need to broaden their reach and build relationships with consumers who may be hundreds of miles away. Nearly every customer considering an automotive purchase now turns online first to research, find and even buy. To reach those customers, many dealers take advantage of third-party automotive websites, such as eBay Motors, to promote their inventories and services to be introduced to a broader range of potential customers. According to the 2010 J.D. Power and Associates Used Vehicles Market Report, 68 percent of used vehicle buyers use the Internet in their shopping process. This is an increase of five percent from 2009. Online classified ad use to shop for used vehicles has increased to 51 percent, up from 41 percent in 2006. Among the online resources customers use in their shopping process, independent automotive websites, such as ebaymotors.com, receive more visitors than dealer websites. Marketing your vehicle inventory, parts and your dealership on the Internet requires new ways to establish the same reputation and trust it takes to get consumers on the showroom floor. Build awareness. When you want to reach customers in your hometown, you work hard to let them know you’re there. Billboards, commercials, classified advertisements or a combination of these are often used. The same premise remains true when marketing to online consumers. When you want consumers to visit your virtual showroom, dealers need to pay close attention to search engine optimization (SEO). Search engines such as Google, Yahoo and Bing regularly visit websites with automated tools to index key words and phrases consumers often use when searching. To optimize your listings so the search engines can match your terms to what consumers are searching for, it is important you use everyday words and phrases that consumers are likely to type into a search. This way, your listings are more likely to appear in searches and more likely to be noticed by more potential buyers. Search engine optimization can help a dealership reach new customers during the consideration and research phase and also to build a loyal customer base that will return
to your site or come to your dealership when they are ready to make a purchase. eBay Motors regularly uses search to drive more than 14.8 million unique visitors – and potential buyers, looking for new and used vehicles, parts, accessories and services – each month to its website. Show your reputation. When a customer visits your lot, chances are good they already have some degree of interest and trust, either with a previous relationship or based upon a recommendation. Their friend bought a car there, your children go to school together, or they know your dealership’s reputation from active community involvement. To build trust online, it is vital to provide as much information available as possible about not only the vehicles you sell but also your dealership and the people behind the dealership. When developing online listings to sell vehicles or parts and accessories, use highquality, professional photographs and wellwritten descriptions. This helps to boost consumer confidence and purchase potential. If customers cannot clearly see what they are purchasing, chances are higher they’ll move on to the next item with better images. Also, provide complete disclosure as if customers were looking at the vehicle with you in person. Customers will expect most used cars have some sort of imperfection, so don’t try to camouflage any issues with a buyer. By being truthful and transparent with listings, dealers create a sense of trust and a willingness to conduct business. Offer timely responses. While customers in your dealership may wait for you to call back and track down information, online customers expect a high level of service and responsiveness, even if it’s a response to say you are looking for information to answer the question. Since communication methods such as e-mail and cell phones are the norm, buyers expect quick answers. A buyer ready to make a purchase may be more willing to engage in business with a dealer who is responsive to questions with timely communication. Remember, online customers may be shopping in a different time zone, so regular business hours may not apply. Research shows the majority of consumers now start major purchase decisions with online research. Now that consumers are shopping online, businesses have been quick to follow. With a SEO strategy, an online reputation that encourages trust, customer service and responsiveness, dealers can build a virtual business that drives real results and encourages new customers to shop with ease.
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National Auto Auction Association Auction Industry Report ECONOMY: SLOWDOWN?
The recovery started strong as businesses rebuilt inventories after slashing them to extremely low levels in anticipation of a worse recession than actually occurred. This is typical during business cycles, as firms do not know how bad things will get and overreact to protect themselves against the worst. Then economic growth slowed as inventories were brought into balance with sales. A slowdown in growth at this stage of the recovery also is fairly typical, as the growth driver moves from inventory building to housing, consumer spending, and business investment.
While consumer spending has not been as robust as in some past recoveries, it has been growing at a modest pace and business investment has been relatively strong. Lack of growth in housing, related to the extreme amount of overbuilding that was a major cause of the recession, has been a significant factor holding this recovery back. In addition, the uncertainty associated with the election, taxes, and health care appears to be limiting employment gains to less than what would be expected with recent real GDP growth. As the uncertainty dissipates after the election and decisions on taxes and health care are made,
we should see a pickup in hiring and a decline in the unemployment rate. If this does not occur, the Federal Reserve is ready to provide more stimulus and, whatever the election results, politicians will act if the unemployment rate stays close to 10 percent. With less uncertainty and the beginning of a true housing recovery next year, we expect real GDP growth to average around 3-4 percent during the next two years. NEW VEHICLE SALES: SALES GAINS CONTINUE!
Third-quarter 2010 new light vehicle sales came in at an annual rate of 11.6 million units, the highest quarterly total in two years. On a year-over-year basis, the third quarter gain was only 0.6 percent above the Cash for Clunkersboosted third-quarter 2009 sales rate. New light vehicle sales have recovered sharply from the 9.5 million rate in the first half of 2009. However, we will not likely see the 16 million rate the industry averaged from 1994 to 2007 until the unemployment rate moves down to around 6 percent (probably not before 2014). USED VEHICLE SALES: SALES FLAT!
Third quarter 2010 used vehicle sales were flat with last year as September sales fell 5.6 percent after being up 3.6 percent in the first half. AUCTION VOLUME: VOLUME WEAK!
Auction volume continued declining in the third quarter at about the same rate as in the first half, as a small gain in dealer consignment was not enough to offset large declines in the fleet/
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National Auto Auction Association Auction Industry Report lease and manufacturer/factory categories. Since Prices were flat with last year in the third quarter, gross value declined at about the same rate as volume Regions: Third quarter volume in the Northeast was relatively stronger than in the other regions for the second quarter in a row. Unit volume in the Southeast and North Central were both down double-digit in the third quarter. TYPE: Dealer consignment volume was only
up 0.8 percent in the third quarter, the only sales type with an increase in each of the last three quarters. Reflecting weak past new sales, fleet/ lease and manufacturer/factory volume declined in the third quarter by 17.2 percent and 25.5 percent respectively. The improving economy continued to result in reduced repos with a 24 percent decline in the third quarter, after a 32 percent increase in 2009.
Source: AuctionNet from NADA
Auction data come from a number of different sources and may not always appear to be consistent. In order to provide the most useful and up-to-date information about the industry, we utilize data from the most appropriate sources and provide you with the underlying implications. Due to their relatively small size and volatility, certain sales types are not included in the above table.
SEGMENT: Although declining in the third
quarter, CUVs and passenger cars continued to be relatively strong, while other segments were down sharply. AUCTION PRICE: NO INCREASE!
After five quarters of year-to-year increases in the 4-10 percent range, auction prices in the third quarter were flat with last year. Year-to-date auction prices are still up 4.2 percent. The move up in auction and used car prices over the past year has brought the relationship between used and new car prices to a point where buyers see less benefit in buying a used car versus a new car - - putting a cap on used retail and auction price inflation.
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By David Angelicchio
Standards to Make Auctions Better for Customers The National Auto Auction Association (NAAA) is the leading remarketer of used vehicles in the world. NAAA
member auctions sell about nine million vehicles per year through the physical auction lanes and online. Over the past several years, NAAA has been focused on developing consistent standards and practices to be applied at all member auctions to enable customers to buy with more confidence from any auction they choose, whether they buy in-lane or online. The ultimate goals are to improve buyers overall auction experience and increase vehicle residuals. In connection with this renewed focus on standards, the Auction Standards Committee (ASC) was formed. It’s comprised of representatives from Manheim, ADESA, ServNet and independent auctions. Because of the complexity of the issues and their importance to the industry, the ASC also engages an outside industry consultant to assist in the development of policy. The ASC also works hand in hand with
COMPLYING WITH THE RISK-BASED PRICING RULE As the new risk based-pricing rule takes effect this month, auto dealers need to make sure they have information, resources and tools in place so they are ready to comply. Applying to buy-here, pay-here dealers and those who do business with third-party creditors, the rule requires dealers to notify consumers when they receive materially less favorable credit terms than others based on consumer report information. According to the new rule, a risk-based pricing notice must be provided to the consumer before he or she signs the credit agreement (direct lending note or indirect retail installment sales contract). The notice must: Include information about the elements of a credit report. State that the annual percentage rate and/or other terms were set based on the consumer’s credit report. State that the terms offered may be less favorable compared with the terms offered to consumers with better credit histories.
other industry associations to help to ensure industry acceptance and endorsement of the standards and policies that are developed. The first area of focus for the ASC was the development of a revised arbitration policy. The arbitration standard was completed and approved by the NAAA board in October 2009 and became effective on January 1. This policy has been universally endorsed and adopted by NAAA member auctions and the rest of the vehicle remarketing industry. The next area of focus was the development of a standard wholesale certification standard. The ASC determined although buyers believed there was a definite value to wholesale certification, they were confused by the large number of programs and could not define them or quantify their value. In addition, the myriad of different policies created operational inefficiencies at the auction level. The ASC was charged with developing a standard certification program that combined the major elements of all the separate policies while maintaining individual company branding. After extensive study, the ASC – working with Agility Consulting and the IARA – developed the NAAA Certification Standard, approved by the NAAA board in September. This standard has been endorsed by IARA and will become effective on Jan. 1, 2011. The marketing materials for this program
are being prepared and will be available soon. The ASC also has developed a process to receive comments on all NAAA standards so they can continually be updated. The committee will continue to look at other areas of standardization including vehicle grading. As the leader in vehicle remarketing, NAAA is committed to the continued development of consistent auction standards and practices in order to provide the best possible service to the dealers. All NIADA members and dealers seeking full detail on national vehicle condition standards in place at NAAA auctions beginning next month should visit www.NAAA.com and click on Standards.
Encourage the consumer to verify credit report accuracy. Identify all consumer reporting agencies that supplied a consumer report used in the credit decision. Inform the consumer of his or her right to a complimentary copy of a consumer report from those agencies for 60 days after receipt of the notice. Provide guidance on obtaining a consumer report. Direct the consumer to the Federal Reserve Board and Federal Trade Commission’s websites. Dealers can use a case-by-case method, a credit score proxy method or a tiered pricing method to identify which customers must receive a risk-based pricing notice. More information is available at HYPERLINK “http://www. ftc.gov/os/2009/12/R411009riskbasedpricingfrn.pdf%20” http://www.ftc.gov/os/2009/12/ R411009riskbasedpricingfrn.pdf . An exception to the risk-based pricing rule allows dealers to provide a credit score disclosure notice to all customers who apply for credit. This option is only available to dealers who use credit scores in the decision to extend credit. This exception notice must include the consumer’s credit score, the date it was created, its source, and information about the range of scores and how lenders use them. In addition, the notice must provide a description or graphi-
cal representation of how the applicant’s credit score ranks in comparison with other consumers. For this, dealers will need data from their consumer credit report suppliers. The exception notice may be the easiest path to compliance for many dealers, as it avoids the analysis of who is required to receive a risk based-pricing notice. However, each dealer should look at its own unique business to determine which compliance option will work best. While dealers may be concerned that the new rule will create more paperwork and administration, risk management platforms can help automate indirect lending, credit approval and compliance processes. By unifying lending transactions and simplifying documentation, a technology platform can enable quicker decision making and help prevent financial and legal penalties resulting from non-compliance. Whatever notice option your dealership pursues under the new rule, automating credit approval and compliance processes can help you ease the regulatory burden on staff resources, reduce your risks of non-compliance, and safeguard your dealership’s reputation.
David Angelicchio is chairman of the board and past president of NAAA, which represents more than 317 auto auctions both domestic and international, with more than 8.9 million units sold each year. He is the general manager of the Pittsburgh (Pa.) Independent Auto Auction.
About the Author:
Lee Domingue is CEO of Indirect L ending at Wolters Kluwer Financial Services. For more information please visit www.wolterskluwerfs.com/ilsolutions.
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