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OCTOBER/NOVEMBER 2012

DEALER NEWS O F F I C I A L

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Be on the Lookout for Open Recalls

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• LOOSENING LOANS DRIVE SALES • BACK TO THE BASICS: FULL-SERVICE AUCTIONS • COMPLIANCE OVERDRIVE

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MARKET NEWS

Report: Expect to See More Hybrids

inside

MAGAZINE CONTENTS 04 06 10 14 18

Loosening Loans Drive Sales Lookout for Open Recalls Form 8300 Reporting Back to the Basics: Full-Service Auctions Compliance Overdrive

WHAT’S NEW

NIADA.TV Now available at www.niada.tv: • Building an Effective Dealership Website with Michael D. Jackson

• Tracking Devices with Jay Rose • L egislative/Regulatory Scene with Shaun Petersen and panel

• Avoiding The Potholes with Ken Shilson •F  eel Unstoppable in 60 Minutes with Ruben Gonzalez

NIADA Dealer 20 Groups

NIADA’s new 20 Groups program is designed for NIADA’s independent dealers as they do business today in BHPH, retail or both. Take your profits to the next level. Visit www.niada20groups.com

ADVERTISERS INDEX

ADESA.........................................Inside Back Cover Ally....................................................................... 7 AutoTrader.com......................................Back Cover Dealer Center.....................................................11 Dodah.com.........................................................13 Lobel Financial...................................................... 9 Manheim.com............................. Inside Front Cover NIADA Certified...................................................16 United Acceptance..............................................15 Voisys.................................................................18 Westlake Financial................................................ 5

OFFICE 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 Nevada Dealer News is published bi-monthly by the National Independent Automobile Dealers Association Services Corporation, 2521 Brown Blvd., Arlington, TX 76006-5203; phone 817-640-3838. Periodicals postage paid at Dallas, TX and at additional offices. POSTMASTER: Send address changes to NIADA State Publications, 2521 Brown Blvd., Arlington, TX 760065203. The statements and opinions expressed herein are those of the individual authors and do not necessarily represent the views of Nevada Dealer News or the National Independent Automobile Dealers Association. Likewise, the appearance of advertisers, or their identification as members of NIADA, does not constitute an endorsement of the products or services featured. Copyright © 2012 by NIADA Services, Inc. All rights reserved. STATE MAGAZINE MGR./SALES Troy Graff • troy@niada.com EDITOR Andy Friedlander • andy@niada.com ART DIRECTOR Christy Haynes • christy@niada.com PRINTING Nieman Printing

Expect to see more hybrids cruising around the world’s highways in the next few years. According to market research report distributor ReportStack.com, the global hybrid car market is expected to grow at a rate of 18.92 percent over the next three years. The cause for the potential double-digit growth: increasing global oil consumption, the report, titled “Global Hybrid Car Market 2011-2015,” explained. Moreover, as governments around the world try to cut down on fuel emissions, the hybrid car market has “been witnessing an increase in initiatives by governments to create awareness and acceptance of hybrid cars,” the report said. The report also cites labor arbitrage, such as the various advantages offered by the hybrid car to the end user, such as energy efficiency, less pollution, better performance, reduced dependency on natural resources and more, as reasons for the hybrid market expansion. That said, even with the push from politicians, the high cost of hybrid cars is acting as a barrier to the market growth, the report said. ‘’With the time and research on the development of the battery systems of hybrid cars, the overall cost of batteries and total cost of ownership will decrease,” an analyst from the publishing automotive team said. “By 2014, the total cost of ownership of plug-in hybrid electric vehicles with a battery of 10 kilowatt-hours will be below that of an internal combustion engine vehicle, and by 2017, the total cost of ownership of plug-in hybrid electric vehicles with a battery of 15 KWh will be lower than an internal combustion engine vehicle. “The total cost of ownership of battery electric vehicles will be less than an internal combustion engine vehicle by 2020 with the development of batteries. This reduction in cost will fuel the growth of the global hybrid car market.” Who will benefit most from this potential growth? The vendors currently dominating the hybrid market space include Toyota Motor Corp., Honda Motor Co., Ford Motor Co., and Nissan Motor Co. Ltd., the report noted. General Motors Co., BMW AG and Volkswagen Group are also expected to play a role in the future fuel-efficient vehicle market.

INDUSTRY NEWS

Keeping Cars Longer Is Here to Stay The two- to three-year vehicle purchasing cycle is gone, according to a survey of nearly 4,000 car owners by AutoMD.com. Three of four respondents to the study, conducted from March to May, agreed that buying a vehicle every two to three years is a thing of the past. And half said a better economy would not change their habit of holding onto their vehicle longer than in the past. “There is nothing surprising about the economy driving car owners to hold onto their vehicles for longer – our data has been showing this trend for the past three years,” AutoMD.com vice president of marketing Brian Hafer said. “But what is most compelling is that longer ownership has become an embedded habit for car owners, regardless of what the economy does. This significant lengthening of the ownership cycle looks like it is here to stay.” The survey showed 78 percent of drivers now keep their cars 10 years or longer, and 60 percent said their primary vehicle has more than 100,000 miles on it. Two-thirds of those surveyed said they plan to keep their car until it surpasses 150,000 miles. The survey indicated the longer ownership trend is spurring consumers to seek out independent repair shops over dealership service centers. Among customers who usually go to a service center for repairs or maintenance, 69 percent said they were more likely to use independent repair shops over dealerships (20 percent) and chains (8 percent). For more information, visit www.automd.com. 3

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AV E R A G E C R E D I T S C O R E S O F N E W A N D U S E D C A R B U Y E R S H AV E FA L L E N T O N E A R LY T H E S A M E L E V E L A S 2 0 0 8

Loosening Loans Are Driving Sales For car buyers seeking auto loans, happy days are here again. U.S. banks and auto finance companies are once again welcoming all kinds of customers, even those with lessthan-stellar credit. The average credit scores of new and used car buyers, which spiked during the economic downturn, have fallen to nearly the same level as 2008 – before the recession. Better yet, experts don’t think the credit pipeline will dry up anytime soon. Low interest rates are making it cheaper for banks to get money, which makes them more willing to lend. The federal funds rate – the rate at which banks lend money to each other – is near zero percent, down from 2 percent in the summer of 2008. Loans to subprime buyers – those with credit scores of 679 or lower – are particularly attractive, since banks can charge higher interest rates. The average interest rate for a deep subprime loan (credit score less than 550) on a new car is 12.9 percent, compared with 3.2 percent for buyers with the highest scores, according to Experian Automotive, which tracks automotive credit data. At the same time, both banks and consumers have lowered their debts, meaning even subprime loans are less risky because borrowers are less likely to be in debt and unable to pay. For example, 0.57 percent of auto loans were 60 days delinquent in the first quarter of this year, compared with 0.78 percent in the first quarter of 2009. Experian hadn’t released second quarter data at press time, but analysts said the trend will hold as long as interest rates stay low. “Consumer spending is still very conservative. People aren’t going hog wild like they did before the recession,’’

said Lacey Plache, chief economist for the auto information site Edmunds.com. Here is what buyers with various credit scores can expect if they’re shopping for a new or used car, and the estimated monthly payment, excluding sales tax, on a five-year loan if they trade in a car worth $5,000 for a new, fully loaded $24,775 Toyota Camry sedan. Super prime (740 and up): Loan rates average 3.2 percent for a new car and 4.4 percent for a used car, according to Experian. A super prime buyer can expect to pay $357 per month for the Camry. Prime (680-739): Loan rates average 4.5 percent for a new car and 6.4 percent for a used car. A prime buyer can expect to pay $368 per month. Nonprime (620-679): Loan rates average 6.5 percent for a new car and 9.5 percent for a used car. A nonprime buyer can expect to pay $386 per month. Subprime (550-619): Loan rates average 9.9 percent for a new car and 14.4 percent for a used car. A subprime buyer can expect to pay $419 per month. Deep subprime (549 or less): Loan rates average 12.8 percent for a new car and 17.9 percent for a used car. A deep subprime buyer can expect to pay $447 per month. Auto loans suffered a similar fate to home mortgages during the financial crisis. When banks sustained losses and tightened lending requirements, the average credit score for new car buyers rose nearly 20 points to a high of 776 in the first quarter of 2010. Standards have been loosening ever since, but only now are they approaching pre-recession levels. The average credit score for a new car buyer in the first quarter of this year was 760, while the average score for a used car buyer was 659. The loosening standards are good

news for the auto industry, which has seen a steady recovery despite bumpy economic news. U.S. car and truck sales are expected to climb as high as 14.5 million units this year, up from a 30-year low of 10.4 million in 2009. That’s still well below the heady days of the mid-2000s, when easy credit drove annual sales to 17 million, but analysts say the growth rate this time is healthy and sustainable, with consumers making better financial decisions. Buyers also have more options. In 2010, General Motors Co. bought AmeriCredit Inc., a Texas-based company that specializes in subprime lending, because GM’s main finance company was unable to risk taking on subprime buyers. As a result, 8.2 percent of loans for GM vehicles went to subprime customers this spring, nearly double the number before the AmeriCredit purchase. The average for the auto industry is 6 percent. GM says subprime loans, if managed properly, are good for business. “The recession created an awful lot of new subprime buyers, but it doesn’t mean they’re a bad credit risk,” spokesman Jim Cain said. Some are sounding the alarm about the easing of credit standards. In a note to investors Tuesday, Moody’s warned that the subprime auto lending market is seeing the same kind of heated competition and poor underwriting that drove unexpectedly high losses in the mid-1990s. Moody’s said loan performance has been strong over the past few years, but lenders should beware of weakening standards in order to increase profits and market share.

BY DEE-ANN DURBIN THE ASSOCIATED PRESS

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Unrepaired open recalls are an important factor in vehicle evaluations” CARFAX COMMUNICATIONS DIRECTOR LARRY GAMACHE

A T H I R D O R M O R E O F A L L R E C A L L E D V E H I C L E S A R E N O T F I X E D B Y T H E I R O W N E R S . A R E A N Y I N YO U R I N V E N T O R Y ?

Finding Open Recalls Should be a Dealer Priority Manufacturer recalls are a common occurrence, with hundreds of recalls issued every year affecting millions of cars. In fact, more than 20 million cars were recalled in 2010 alone. But what is alarming about recalls is how many go unfixed by their owners – roughly a third or more of all recalled units. And thousands of those cars are bought and sold every day. It’s believed there are anywhere from 40 million to 60 million cars out there with unfixed recalls. In just the past two years, roughly 12 million cars with open recalls were added to the growing tally. And some of those vehicles are moving daily through auto auctions and being taken in on trade. While finding and fixing open recalls is everyone’s responsibility, it’s up to retailers to take the proper steps to identify any potential issues. Many are already keeping a sharp eye out for evidence of things like flood damage, odometer rollbacks or previous accidents. But what about open recalls? In 2010, a plumber from Delaware named Bob Knotts bought a van for his business from a local independent dealership. He never asked about open recalls, never checked for them and was never told if any existed. Around midnight his wife ran into the house from walking the dog, screaming that smoke was pouring out of the van. The entire front cabin was engulfed in flames. The van was destroyed. “It caught fire from an electrical component under the driver’s seat that was recalled and never fixed,” Knotts said, standing next to the van parked less than five feet from his home. “My house could have caught on fire, or I could have been driving it. Had it spread to the back of the van, where I keep a propane torch and glue that’s highly flammable, it would’ve been a complete fireball. “Not knowing there was an unfixed recall cost me $8,000.” One way to tell if a car has an open recall is to check the vehicle history. Most manufacturers report their open

recall information to CARFAX. When you’re evaluating a vehicle or looking at the auction run list, consider getting a CARFAX Vehicle History Report to help you pinpoint which vehicles have open recalls before taking them into inventory. “We understand that recalls are a concern for our customers,” said Ryan Corey, president of Autoline Automotive in Atlantic Beach, Fla. “It’s up to us to make sure the cars we’re selling have had potential issues addressed. “As an independent dealer, we take full advantage of tools like CARFAX reports that help identify open recalls. Any recalls that show up are taken to get fixed before we retail that vehicle. In fact, as a CARFAX Advantage Dealer, we run a CARFAX report on every vehicle we sell as well as any vehicle we buy. It’s a key part of our everyday operations and builds trust with potential buyers. We know we’re doing right by our customers and are putting the best cars on our lot.” Checking the vehicle history for every unit on your lot helps you make better buying decisions and builds confidence with customers. It can be to your advantage to let your customers know upfront about an open recall and help them get it fixed. Auto manufacturers understand the importance of informing their customers about a recall. Customer safety and the company’s reputation are at stake. With so many of those vehicles changing hands before they’re fixed, most manufacturers choose to work directly with CARFAX to reach the greatest number of buyers and sellers. “Ford is committed to communicating safety recall information to vehicle owners in an open and transparent manner as part of our commitment to top quality,” Ford recall and service programs operations manager Robert Case said. “Ford was the first major automaker to establish a relationship with CARFAX to provide open safety recall information as we recognized the CARFAX Vehicle History Report as a

valuable tool used by many consumers and business entities.” Independent dealers can save time and choose the right cars by checking for open recalls through a vehicle history report prior to acquisition. If you already have vehicles on your lot with open recalls, the smart and safe thing is to take them in to be closed. Show your customers the report and the service receipt with the recall completion. Customers will appreciate your honesty and focus on safety. “Unrepaired open recalls are an important factor in vehicle evaluations,” CARFAX communications director Larry Gamache said. “Estimates are that nearly a third of all recalled vehicles aren’t fixed by their owners. CARFAX is working with leading manufacturers, our dealer customers and consumer advocates to alert people to open recalls and make sure more of these are fixed.” Used car shoppers are looking to dealers to make them aware of any issues like open recalls. Be informed about the cars you’re retailing before they even reach your lot – CARFAX can help. To become a CARFAX subscriber, NIADA members can visit www.carfaxonline. com, call 877-606-9119 or visit www. niada.com and click on the “Links” tab.

BY CARFAX

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INDUSTRY NEWS

Trade-Ins Getting Older

Car dealers are receiving trade-ins that are three to four years older than tradeins received a few years ago, according to estimates from Black Book’s analysts. And with 900,000 more trade-ins than last year expected in 2012, the majority of vehicles entering the used car market are model year 2000-2005, which makes higher mileage tradeins the new normal. Black Book estimated the majority of trade-ins now average between 125,000 and 150,000 miles, and F&I experts have reported a rise in vehicles with 200,000 miles. The analysts said Buy Here-Pay Here dealers will benefit the most from the older inventory, and there is plenty of demand as consumer credit has forced more shoppers to seek those deals. Vehicles older than 2005 are more difficult to finance. According to Black Book, the aged inventory will impact dealers through 2014 before trade-ins begin falling again in age and mileage. “Americans are holding onto their cars longer today, and this aged vehicle is what’s being traded in as we’ve seen a rise in new-car sales activity,” Black Book managing editor Ricky Beggs said.

Prepaid Plans Drive Service Loyalty

Prepaid or complimentary maintenance plans combined with excellent service delivery are among the best ways to win and retain consumer loyalty – especially “next-gen” customers, according to a survey conducted by DMEautomotive. The national consumer survey showed 56 percent of consumers with a prepaid or complimentary service plan are likely to continue servicing at dealership after the plan expires – only 20 percent said they were unlikely to do so – and 62 percent of those who use a plan for “all” maintenance are likely to stick with their dealer. Roughly one in four U.S. vehicle owners (22 percent) have a dealer/OEM prepaid or free service plan. Nextgeneration consumers – those under age 35 – are more likely to have a plan (31 percent) than those over 35 (18 percent) – and are more likely to have all maintenance done under the plan or at the dealer (72 percent) than those over 35 (61 percent).

MARKETING NEWS

Help Your Dealership Go for the Gold Think your shot at living like an Olympian ended after your high school or college athletic career? Think again. Successful Olympic athletes employ a set of traits and techniques you can still use to help market your car dealership. The elements that work together to create popular medalists, with thousands or millions of people rooting for them, can similarly elevate your dealership in the eyes of your customers. On the website marketingprofs.com, Veronica Maria Jarski showed how winning Olympians’ behavior relates to marketing, and that applies perfectly to the way your car dealership can win by adopting the same focus. Don’t believe it? Here’s how you can use what works for the gold medal winners: Share your story: The personal story behind the winners often creates massive support for one athlete or another, or sometimes an entire team. You weren’t dropped onto this earth running a successful auto dealership, so go ahead and share what it took to get there. Every dealership began with a lifelong love of cars, a careful plan or a less-than-direct route that included far-flung adventures. Whatever the story, knowing it helps people identify with you. Understanding the journey builds support for current success.

Deliver on your promises: Actions count far more than words, so prove what matters to you with every engagement, every customer and every sale. The claims you make about what distinguishes your dealership carry a lot more weight when they’re backed up in the interactions that happen minute by minute. Use the right tools: A diver can’t use a pommel horse and a gymnast doesn’t get any mileage out of a pool. Make sure your marketing messages go to the audiences that can use them best. Your brand and your message should be consistent, but it’s smart to craft and deliver the relevant points with laser targeting. Details, details: Try to think about the dealership experience from a customer’s perspective. The little details of each phone call or visit are critically important in shaping the impression visitors take away from any contact. It’s all connected: Authenticity matters everywhere your dealership has a presence. The customers who seem to disappear are still making waves and influencing your reputation long after they’ve left the premises. What happens on the showroom floor and in the finance department today will assuredly be reflected someday, somehow, in a conversation online or in person where you don’t hear it.

You can only run today’s race today: Letting go of the past, wins and losses alike, is the best way to free up energy to focus on today’s challenges. Learn from what worked and what didn’t, but greet each new customer with fresh and full intent to create a lasting asset. Remember the team: Good sportsmanship is appealing. Acknowledging all the people who make your dealership successful is as relevant as the cars and deals themselves. From the manufacturers to the service personnel, your team merits respect and appreciation. They will appreciate the recognition, too. Happy employees will work harder and are more loyal. While you might never stand on a podium and proudly listen to the national anthem while your fans cheer wildly, you can certainly enjoy strong popular support and the loyalty of customers who see you as a winner. Follow these strategies and go for the gold!

BY JIM FITZPATRICK

JIM FITZPATRICK IS PRESIDENT/CEO OF FITZPATRICK ADVERTISING, A FULL-SERVICE AUTOMOTIVE ADVERTISING AGENCY, AND FOUNDER OF FORCE MARKETING, A DIGITAL AND DIRECT MARKETING COMPANY. FOR MORE INFORMATION, CALL 1-800-917-8637, EMAIL JFITZPATRICK@FITZADV.COM OR VISIT FITZPATRICKADVERTISING.COM.

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IRS STEPPING UP FORM 8300 COMPLIANCE AUDITS

IRS Form 8300 Reporting Auto auctions today are full-service operations with a growing list of options to keep inventory rolling. The infusion of the Internet into the traditional auction business model has been, arguably, the most significant change in recent years. “The Internet keeps expanding and expanding,” said Charlotte Pyle, owner of Capital City Auto Auction in West Virginia and president of the National Auto Auction Association (NAAA). “I attended an auction recently and the entire lane was not there. They sold every car from a TV screen.” An increasing number of websites are emerging with features allowing dealers to shop for cars across the country without ever leaving the office. IndependentAuctions.com, for instance, has more than 67,000 searchable vehicles from 69 member auctions and boasts more than 41,000 registered dealers on the site. On any given week some 27,000 vehicles are sold. The site contains the inventory, postsale reporting and account management tools to help automotive professionals buy, sell and research vehicles from independently owned locations. ADESA, which operates 68 auctions throughout North America, has been one of the industry leaders in embracing online auctions. “Our biggest news as of late was the acquisition of OpenLane last fall,” said Tom Caruso, ADESA president and CEO and a recent inductee into the National Independent Auto Dealers Association Ring of Honor. “This industry-leading technology will help dealers as they expand their reach outside of their local markets in the online market. We are really excited about the progress we are making bridging our physical auctions and our online tool, ADESA OpenLane, to create a better buyer experience.” Auction Options While the economic issues of the past few years have meant fewer vehicles coming to auction, it has forced auctions to increase their level of service, Pyle said. “Volumes are down for the leases and repos, so auctions have opened up to do more outside work,” Pyle said. Auctions have stepped up floorplanning – providing the inventory loans that are a primary source of financing for dealers to purchase inventory to then resell, either from the showroom or in a wholesale format. Post-sale inspections have become an expected feature at auctions to give dealers assurance and peace of mind for both their in-lane and online wholesale purchases. “A dealer purchasing a post-sale inspection has assurance that the vehicle purchased passed a rigorous test, was properly represented by the seller and that Perry’s Auto Auction guarantees that the vehicle

meets the dealer’s expectations,” noted an item on the website of Perry’s Auto Auction in central Georgia. Most auctions with post-sale inspections follow a checklist of items that would cost $500 or more each to repair or replace. That includes checking the frame or unibody for structural damage as well as checking the paint, transmission, air conditioning system and brakes. They also check for things like odometer verification, flood inspection and emission control. Often there’s nothing mechanically wrong with a vehicle – it’s just dirty. But that’s OK, because many auctions are trumpeting reconditioning packages for dealers. At the Greater Erie Auto Auction, serving Buffalo, N.Y., Cleveland and Pittsburgh, a $95 “full detail” comes with an exterior wash, engine clean, exterior buff, interior clean and tire dressing. At a minimum, they’ll wash it for $10. Auctions also offer around-the-clock security for safe vehicle drop-offs, car title verification and transportation of vehicles. “Some of our dealers are heavily dependent on these truckers delivering the cars to the auctions, and over time the gas bill adds up,” Pyle said. Dealer Reaction Roger Montbleau, owner of Chelmsford Street Auto Sales in Lowell, Mass., buys cars at auction weekly. He’ll typically shell out money for the post-sale check his local auction offers as an extra service. “Good cars are not as plentiful as they used to be,” Montbleau said. “A lot of people mask these vehicles that come through. We need someone who can give us a certification. People aren’t as forthright as we want them to be.” If the cars he brings to the auction do not sell, Montbleau said, he appreciates the auction washing it before the next scheduled date. Stanley Thompson, owner of First Auto Sales in Bradenton, Fla., visits the auction about three times a month and sells 25 to 30 cars per month. “Auctions give you a greater selection at competitive prices you can’t get anywhere else,” Thompson said. Still, the new lineup of auction services has not exactly won him over. “We do everything in-house,” said Thompson, who has been in business for 20 years. “We know what we’re doing.” Indeed, as much as auctions keep working to enhance their services, some dealers would still rather do without. In fact, some avoid auctions altogether, choosing to get their inventory from other sources. Jay Iverson, manager of Carz Central in Estherville, Iowa, is not a fan of auctions, period. “Other than the fact that the cars are there,

there’s not a whole lot I like about auctions,” Iverson said. “There’s a lot of politics involved. The rules keep changing. There’s no consistency.” David Shoffner, owner of David Shoffner‘s Auto Sales in Redding, Calif., visits the auction twice a week. He likes the guarantee that the title is always good. “Whereas buying them off the street, you don’t know what you’re getting,” Shoffner said. Much has changed since Shoffner started selling cars with his dad in the early 1960s. He said he prefers an old-school method of buying cars. He is not impressed with online auctions – he’d rather go in person. “I pretty much cherry-pick the auctions to find what I like, and it allows me to make a good living,” Shoffner said. “I bought two or three cars from the Internet and it was a horrible experience. The cars required mechanical work that was not previously disclosed. “As for me, I like to see them and touch them first.” To be sure, online auto auctions come with risks. Similar to the other popular scams, said Kristin Judge, executive director of the Trusted Purchasing Alliance, a division of the nonprofit Center for Internet Security, there are two central themes to keep in mind when dealing with auto auction fraud: First, if an offer seems too good to be true it probably is, and second, never send money to someone you have not met in person, though that might not always be a practical rule for dealers to follow with online auctions. In 2011, the federal government’s Internet Crime Complaint Center (www.ic3.gov) received 4,066 complaints from victims of auto auction fraud. The total financial cost to those victims was more than $8 million, with the average loss being $2,000 per victim. The calls reporting the scams averaged two per hour. “Criminals misrepresent themselves as either Kelley Blue Book agents, or possibly a person moving out of town and needing to sell a car quickly before they leave,” Judge said. “Like other scams, the criminal sets up a persona that helps him appear legitimate. The price for the vehicle is usually at a great discount, too good to pass up. “When a buyer shows interest in the vehicle, he is asked to send a deposit to a third party to hold while the inspection takes place. Unfortunately, there is no legitimate third party. Once the scammer collects the deposit, the victim is left without his money or a car.” Auction Projections The future of auto auctions will place a continued focus on manipulating technology to benefit dealers. “We continue to make investments in our C O N T I N U E D O N PA G E 1 2

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

IRS Form 8300 Reporting

auction infrastructure to facilitate our buyers’ diverse business needs,” ADESA’s Caruso said. “That includes more computer terminals for customers to use, better Wi-Fi access and more reconditioning options both presale and post-sale. We will continue to evolve our business to meet the demands of our dealers.” One example is ADESA’s newly released dealer application for the iPhone. “The app combines relevant industry guide books, vehicle history reports and other useful business data with the cars running at our auctions,” Caruso said. “The evolution of mobile technology will continue to shape how we do business.” The new auto auction services have put the technology companies that develop those services in the driver’s seat. In July, vAuto, an Oakbrook, Ill., company specializing in dealer support services and a wholly owned subsidiary of AutoTrader Group Inc., announced the acquisition of Auction Genius, a web-based software solution for auto dealers buying vehicles at auction. “This acquisition advances vAuto’s mission to help dealers become more efficient and effective used vehicle retailers,” vAuto founder Dale Pollak said. With Auction Genius, vAuto promises to eliminate the inefficiencies and difficulties dealers encounter every day as they evaluate and purchase used vehicles from wholesale auctions. “Today, every dealer relies on wholesale auctions for used vehicles,” Auction Genius president and co-founder Todd Kinzle said. “This highly competitive environment requires dealers to evaluate far more vehicles than they used to, and the time it takes to do the proper research is overwhelming.” Enter Auction Genius. Kinzle says dealers can now analyze as many as 10 times the number of vehicles and zero in on the “right” cars with significantly more speed and efficiency. Typically dealers will use multiple systems and tools to create used vehicle buy lists, match the lists with cars scheduled to be sold at wholesale online auctions and gather condition/market valuation reports to assess individual vehicles for potential purchase. They also access live online auctions through a separate system to buy the cars that fit their purchase parameters. It’s a piecemeal process. Auction Genius also integrates with a growing list of industry partners, including CARFAX, AutoCheck, NADA Guide Book, Black Book, Kelley Blue Book and Galves. Current auction integration includes Manheim Simulcast, OVE.com, Manheim PowerSearch, ADESA LiveBlock and OpenLane.

BY JASON ROBERSON

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T E C H N O L O GY A N D N E C E S S I T Y E X PA N D T H E S E R V I C E S O F F E R E D B Y A U C T I O N S

Back to the Basics: On the Block Auto auctions today are full-service operations with a growing list of options to keep inventory rolling. The infusion of the Internet into the traditional auction business model has been, arguably, the most significant change in recent years. “The Internet keeps expanding and expanding,” said Charlotte Pyle, owner of Capital City Auto Auction in West Virginia and president of the National Auto Auction Association (NAAA). “I attended an auction recently and the entire lane was not there. They sold every car from a TV screen.” An increasing number of websites are emerging with features allowing dealers to shop for cars across the country without ever leaving the office. IndependentAuctions.com, for instance, has more than 67,000 searchable vehicles from 69 member auctions and boasts more than 41,000 registered dealers on the site. On any given week some 27,000 vehicles are sold. The site contains the inventory, post-sale reporting and account management tools to help automotive professionals buy, sell and research vehicles from independently owned locations. ADESA, which operates 68 auctions throughout North America, has been one of the industry leaders in embracing online auctions. “Our biggest news as of late was the acquisition of OpenLane last fall,” said Tom Caruso, ADESA president and CEO and a recent inductee into the National Independent Auto Dealers Association Ring of Honor. “This industry-leading technology will help dealers as they expand their reach outside of their local markets in the online market. We are really excited about the progress we are making bridging our physical auctions and our online tool, ADESA OpenLane, to create a better buyer experience.” Auction Options While the economic issues of the past few years have meant fewer vehicles coming to auction, it has forced auctions to increase their level of service, Pyle said. “Volumes are down for the leases and repos, so auctions have opened up to do more outside work,” Pyle said. Auctions have stepped up floorplanning – providing the inventory loans that are a primary source of financing for dealers to purchase inventory to then resell, either from the showroom or in a wholesale format. Post-sale inspections have become an expected feature at auctions to give dealers assurance and peace of mind for both their inlane and online wholesale purchases.

“A dealer purchasing a post-sale inspection has assurance that the vehicle purchased passed a rigorous test, was properly represented by the seller and that Perry’s Auto Auction guarantees that the vehicle meets the dealer’s expectations,” noted an item on the website of Perry’s Auto Auction in central Georgia. Most auctions with post-sale inspections follow a checklist of items that would cost $500 or more each to repair or replace. That includes checking the frame or unibody for structural damage as well as checking the paint, transmission, air conditioning system and brakes. They also check for things like odometer verification, flood inspection and emission control. Often there’s nothing mechanically wrong with a vehicle – it’s just dirty. But that’s OK, because many auctions are trumpeting reconditioning packages for dealers. At the Greater Erie Auto Auction, serving Buffalo, N.Y., Cleveland and Pittsburgh, a $95 “full detail” comes with an exterior wash, engine clean, exterior buff, interior clean and tire dressing. At a minimum, they’ll wash it for $10. Auctions also offer around-the-clock security for safe vehicle drop-offs, car title verification and transportation of vehicles. “Some of our dealers are heavily dependent on these truckers delivering the cars to the auctions, and over time the gas bill adds up,” Pyle said. Dealer Reaction Roger Montbleau, owner of Chelmsford Street Auto Sales in Lowell, Mass., buys cars at auction weekly. He’ll typically shell out money for the post-sale check his local auction offers as an extra service. “Good cars are not as plentiful as they used to be,” Montbleau said. “A lot of people mask these vehicles that come through. We need someone who can give us a certification. People aren’t as forthright as we want them to be.” If the cars he brings to the auction do not sell, Montbleau said, he appreciates the auction washing it before the next scheduled date. Stanley Thompson, owner of First Auto Sales in Bradenton, Fla., visits the auction about three times a month and sells 25 to 30 cars per month. “Auctions give you a greater selection at competitive prices you can’t get anywhere else,” Thompson said. Still, the new lineup of auction services has not exactly won him over. “We do everything in-house,” said Thompson, who has been in business for 20 years. “We know what we’re doing.” Indeed, as much as auctions keep working to enhance their services, some dealers would still

rather do without. In fact, some avoid auctions altogether, choosing to get their inventory from other sources. Jay Iverson, manager of Carz Central in Estherville, Iowa, is not a fan of auctions, period. “Other than the fact that the cars are there, there’s not a whole lot I like about auctions,” Iverson said. “There’s a lot of politics involved. The rules keep changing. There’s no consistency.” David Shoffner, owner of David Shoffner‘s Auto Sales in Redding, Calif., visits the auction twice a week. He likes the guarantee that the title is always good. “Whereas buying them off the street, you don’t know what you’re getting,” Shoffner said. Much has changed since Shoffner started selling cars with his dad in the early 1960s. He said he prefers an old-school method of buying cars. He is not impressed with online auctions – he’d rather go in person. “I pretty much cherry-pick the auctions to find what I like, and it allows me to make a good living,” Shoffner said. “I bought two or three cars from the Internet and it was a horrible experience. The cars required mechanical work that was not previously disclosed. “As for me, I like to see them and touch them first.” To be sure, online auto auctions come with risks. Similar to the other popular scams, said Kristin Judge, executive director of the Trusted Purchasing Alliance, a division of the nonprofit Center for Internet Security, there are two central themes to keep in mind when dealing with auto auction fraud: First, if an offer seems too good to be true it probably is, and second, never send money to someone you have not met in person, though that might not always be a practical rule for dealers to follow with online auctions. In 2011, the federal government’s Internet Crime Complaint Center (www.ic3.gov) received 4,066 complaints from victims of auto auction fraud. The total financial cost to those victims was more than $8 million, with the average loss being $2,000 per victim. The calls reporting the scams averaged two per hour. “Criminals misrepresent themselves as either Kelley Blue Book agents, or possibly a person moving out of town and needing to sell a car quickly before they leave,” Judge said. “Like other scams, the criminal sets up a persona that helps him appear legitimate. The price for the vehicle is usually at a great discount, too good to pass up. “When a buyer shows interest in the vehicle, C O N T I N U E D O N N E X T PA G E

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The evolution of mobile technology will continue to shape how we do business.”

he is asked to send a deposit to a third party to hold while the inspection takes place. Unfortunately, there is no legitimate third party. Once the scammer collects the deposit, the victim is left without his money or a car.” Auction Projections The future of auto auctions will place a continued focus on manipulating technology to benefit dealers. “We continue to make investments in our auction infrastructure to facilitate our buyers’ diverse business needs,” ADESA’s Caruso said. “That includes more computer terminals for customers to use, better Wi-Fi access and more reconditioning options both presale and postsale. We will continue to evolve our business to meet the demands of our dealers.” One example is ADESA’s newly released dealer application for the iPhone. “The app combines relevant industry guide books, vehicle history reports and other useful business data with the cars running at our auctions,” Caruso said. “The evolution of mobile

technology will continue to shape how we do business.” The new auto auction services have put the technology companies that develop those services in the driver’s seat. In July, vAuto, an Oakbrook, Ill., company specializing in dealer support services and a wholly owned subsidiary of AutoTrader Group Inc., announced the acquisition of Auction Genius, a web-based software solution for auto dealers buying vehicles at auction. “This acquisition advances vAuto’s mission to help dealers become more efficient and effective used vehicle retailers,” vAuto founder Dale Pollak said. With Auction Genius, vAuto promises to eliminate the inefficiencies and difficulties dealers encounter every day as they evaluate and purchase used vehicles from wholesale auctions. “Today, every dealer relies on wholesale auctions for used vehicles,” Auction Genius president and co-founder Todd Kinzle said. “This highly competitive environment requires dealers to evaluate far more vehicles than they used to,

and the time it takes to do the proper research is overwhelming.” Enter Auction Genius. Kinzle says dealers can now analyze as many as 10 times the number of vehicles and zero in on the “right” cars with significantly more speed and efficiency. Typically dealers will use multiple systems and tools to create used vehicle buy lists, match the lists with cars scheduled to be sold at wholesale online auctions and gather condition/market valuation reports to assess individual vehicles for potential purchase. They also access live online auctions through a separate system to buy the cars that fit their purchase parameters. It’s a piecemeal process. Auction Genius also integrates with a growing list of industry partners, including CARFAX, AutoCheck, NADA Guide Book, Black Book, Kelley Blue Book and Galves. Current auction integration includes Manheim Simulcast, OVE. com, Manheim PowerSearch, ADESA LiveBlock and OpenLane.

BY JASON ROBERSON

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T H E P O P U L A R I Z AT I O N O F S M A R T P H O N E S A N D T H E W H I R LW I N D O F A P P S H AV E E M P O W E R E D T H E I N D U S T R Y

Growing Role of Technology in Post-Recession Market Heading into the fourth quarter of 2012, industry leaders continue to point to market trends that forecast the end of the recession. As a result of increased availability of rental, fleet and new car trades at auction and continued strong new car sales, the industry will see nearly one million more vehicles in the market in 2012. The current challenge for many independent car dealers is sourcing the right inventory as wholesale used car prices decline. The industry continues to stabilize since the peak of the recession. However, the lasting effects of the recession will continue to impact the market as we once knew it. The extreme market conditions brought on by the recession has produced a unique set of challenges for the independent used car dealer. With sharply climbing gas prices since 2007 and 2008, the market

had experienced a negative impact on large truck and SUV sales. Overall used car supplies dropped substantially with the removal of more than 750,000 units by the Cash for Clunkers program. Those market changers resulted in artificially high used car prices, which made sourcing vehicles even more difficult for the average used car dealer. While the difficult market forced out many dealers during the past five years, a new crop of dealers has recently emerged. Those dealers are turning to technology to drive their businesses and maintain a competitive edge. The reliance on technology has increased significantly in the automotive sector. This permanent change has helped dealers in all areas of their business. Sourcing inventory is one of the major avenues in which dealers are using technology to assist in their “new

business� flow. Many dealers are turning to consumer direct online portals and wholesale online platforms to supplement purchases at traditional auction facilities. In addition, the popularization of handheld smartphone devices and the whirlwind of available apps have empowered the industry to source, assess, value and purchase inventory from the tools in the palms of our hands. In fact, the market is rife with smartphone app solutions for every step in the life cycle of a used car. Choosing the right products and services can take some time, but trying to run a dealership operation without the right tools to stay ahead of the competition takes even more time. With sourcing issues easing in 2012 and used car prices continuing to stabilize, the rest of the year should produce new opportunities for dealers. But staying C O N T I N U E D O N N E X T PA G E

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on top of local price trends is a must to ensure profit margins stay strong and overall sales increase. Speculating on inventory levels and pricing heading into tax season can hurt some dealers if consumer demand and prices drop sharply. Market fluctuations, softer prices and macroeconomic factors are all challenges dealers could face in the next few months. Technology can help dealers stay on top of those trends. Partnering with technology-based companies that are positioned to forecast market trends and adapt according to industry needs should be an integral part of a dealer’s success in the post-recession marketplace. Dealers should look to align with companies that not only offer technology products that fit their business needs and scale of operations, but that also back their products with superior customer service. Tech solutions should allow dealers

to be more efficient and effective so they can focus on core dealership operations. Dealers should look for solutions that focus on turning inventory faster while increasing profit margins. Today’s technology can provide dealers the real-time data needed to do just that — appraisal tools, real-time reporting, market trends on specific vehicles and days’ supply. All are things a successful dealer will find important as a way to stay on top of market conditions. Additionally, a technology platform that requires dealers to make large-scale changes to their business operations might not be the right choice for all dealers. Technology solutions should enhance a dealer’s successful business practices and provide a consistent means to providing market data. As we enter a more technologicallydriven marketplace, the resilience, determination and entrepreneurial drive of used car dealers continues to inspire

companies like DSC to provide the right products and services backed with superior customer service. Since 2005, Dealer Services Corporation has worked to bring innovative technology solutions to our dealer and auction partners to make floorplan financing a seamless business solution. With state of the art and industry-first technology offerings like the myDSC virtual office and the DSC Unplugged™ mobile smartphone application, DSC provides the support today’s dealers look for in a business partner. DSC is proud to serve independent car dealers and looks forward to long partnerships with its customers in navigating the postrecession market.

BY BRIAN GEITNER

BRIAN GEITNER IS PRESIDENT AND CO-FOUNDER OF DEALER SERVICES CORPORATION, THE LARGEST INDEPENDENT INVENTORY FINANCE PROVIDER FOR USED AUTOMOBILES, AND HAS MORE THAN 20 YEARS OF EXPERIENCE IN THE AUTO FINANCE INDUSTRY. FOR MORE INFORMATION ABOUT DSC, VISIT WWW.DISCOVERDSC.COM.

Auction Update: Manheim INDUSTRY NEWS

NIADA’s Two for One: CMD and 20 Groups in October Are you content with your current profits? Not many of us are. Most dealers are looking for the magic that will take their profits to the next level. NIADA has spent much of this summer reviewing data, talking to dealers and exploring ways to make that magic happen. The result – the first NIADA Dealer 20 Group – is scheduled to meet Oct. 11-12 at the Dallas-Fort Worth Airport. This group is unique, designed for both the retail and the Buy Here-Pay Here dealer – or the dealer who does both. It reflects the independent industry as we know it today. The composite, which will drive the group analysis, was created with your dealership in mind, analyzing the numbers crucial to your bottom line. The group will be led by NIADA director of dealer development Joe Lescota and Kenny Loveless, a 30-plus-year veteran independent dealer who recently retired

after selling his highly successful BHPH dealership in Virginia. “This approach is no nonsense,” Lescota said in a recent discussion. “It is about looking at the math of the dealer’s business and showing him where he is and helping him get where he wants to be. It’s a 20 Group, so it’s a collective effort to improve the business and the industry.” For more information, email Lescota at joe@niada.com, or call Georgia Brown, NIADA director of education, at 800-682-3837. And while you’re there, consider this: NIADA’s fall Certified Master Dealer course is scheduled for Oct. 8-10, also in DallasFort Worth. That’s right. You can get two for the price of one airfare! Attend the CMD class, then stay over for the first meeting of the NIADA 20 Groups. Same place. Visit www.niada.com for an application or send an email request to georgia@ niada.com.

The Manheim 2012 Q2 update is a quick look at web traffic, online visits and transactions at Manheim.com for the second quarter of 2012. Mobile: Mobile visits to Manheim.com are up an astounding 368 percent over last year – 4.76 million vs. 1.02 million for the second quarter of 2011. One in three customers accessed Manheim.com on a mobile device, an indication mobile is becoming increasingly popular in the auto remarketing industry as dealers use smartphones to conduct business at their convenience. More customers are choosing to do business online – 25 percent of all transactions for the quarter were made by an online buyer. Digital visits: Digital visits to Manheim are up 12 percent over last year. Simulcast turns 10: More than 4 million vehicles have been purchased via Simulcast since its launch in 2002, representing almost $60 billion worth of inventory. Buying: More than 30,000 customers bought vehicles online in 2012. Selling: More than 20,000 customers sold a vehicle online in 2012. 17

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COMPLIANCE OVERDRIVE

Regulatory Landscape Feeling Tougher? You’re Not Alone There is no denying that dealers and lenders have grown accustomed to a regulatory environment that is constantly changing, with new laws and regulations. But today’s regulatory landscape is different than it was years ago – and not just because the requirements continually change. If you feel like it’s becoming increasingly complex, you’re not alone. Here are the likely culprits: Shorter notice: Some states have started publishing regulatory changes on rather short notice. For example, in New Mexico the attorney general recently gave 30 days’ notice to add a new spot delivery disclosure to the sales transaction document or purchase order. The short notice was made worse because a proposed regulation had not been published – at least not recently – so the final regulation came as a surprise to the industry. While one month might feel

like a long time to add one disclosure, the required notice is quite large and requires substantial formatting changes to the documents affected. The attorney general eventually delayed the effective date of the regulation by 60 days, apparently after significant industry feedback. More frequent changes and updates: Across the country, there seem to be more frequent changes being made. That has clearly been the case with state motor vehicle title forms. Previously, those forms were rarely revised. But over the past few years, some states have changed their title forms as many as two or three times per year. One potential driver for that might be that technology now allows states to redesign and reissue their forms and revise (increase) the related fees more easily. But often the changes come with little or no notice, which underscores how important it is for dealers and lenders to be confident in their ability to monitor the changes that are constantly taking place. Volume of information: While it can be difficult to keep up with the pace of change and various deadlines and effective dates, it’s also quite a task to consume the volume of information and content surrounding new laws and regulations. For example, the Consumer Financial Protection Bureau (CFPB) published a proposed rule July 9 regarding integrated mortgage disclosures under RESPA and the Truth in Lending Act. It was one of the first significant proposed rules from the CFPB, and the planning process involved extensive research and solicitation of industry and consumer feedback. As a result, the proposed rule and explanatory materials total more than 1,000 pages. The good news is the proposed rule provides significant details and explanations of the changes. The bad news is that many pages of material can be overwhelming (aren’t you glad you’re not in the mortgage lending business?). Operating in a highly regulated industry, one can’t help but wonder if that is an indication of the volume of change yet to come and how dealers and lenders will absorb all of the changes and their nuances.

Disparate technology systems: Though computer technology allows us to do many things faster than before, disparate file formats, field naming conventions, calculation engines, software and hardware, and reliance on multiple vendors can make it difficult to quickly change or revise transaction documentation and its completion tools. That often means all the component parts need to be updated in sequence rather than in parallel – adding more time to make the required changes. Today’s environment is characterized not only by constant change, but by tougher enforcement as well. There is more visibility and greater scrutiny of compliance and risk management in all organizations. Dealerships and financial institutions should regularly question whether they feel confident that new laws and regulations are being embedded in their business operations. The challenges underscore a need for greater operational efficiency. Disparate systems and procedures can make even relatively simple changes more timeconsuming and complex. As you prepare for additional changes, consider reviewing your process maps, technology, vendor coordination and steps necessary to respond to compliance changes. Creating greater operational efficiency now will make it that much easier for you to respond to the inevitable next compliance crunch-time event.

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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Nevada Dealer News Oct/Nov 2012