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INDEPENDENT DEALER MARCH/APRIL 2013

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• QR CODES 101 • BHPH COMPLIANCE MOVES • WASHINGTON UPDATE

The Next Big Thing? Page 10

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THE SALE

ON THE ROAD: FOLLOW-UP & FOLLOW-THROUGH At first glance, the terms follow-up and follow-through may seem to have the same meaning. According to Master Selling’s “Road to a Sale” method, however, they couldn’t be more different – or more necessary. Let’s start with following through, which means completing an act that was started. When it comes to your customers, it’s a bit like a golf swing: if you don’t follow through on all that you say during a sale, you will eventually end up in the rough. From time to time, we all make off-thecuff statements in an effort to close a sale. But with the rush to finalize the sale, we don’t include them in the retail purchase agreement. In that moment, we forget all about the verbal promises that were made. And the customer, equally excited about buying a car, forgets as well. After the initial adrenaline rush wears off, however, the customer remembers what was promised and expects us to follow through. In most cases, this is where customer satisfaction is likely to suffer. I don’t know about the rest of you, but I never count on my memory – especially since I passed the sixty-year mark. But we can’t always count on the customer’s memory, either. After all, sometimes what the customer thinks he heard is not what we actually said. The best way to ensure proper follow-through is simply to write everything on the retail purchase agreement at the time of the sale, or to utilize a delivery confirmation form. This way, neither the salesperson nor the customer misunderstands what was said or promised, and both parties are satisfied with the outcome of the sale. So, if follow- through means finishing what you started, then what’s follow-up? Some salespeople I talk to think that following up means contacting a prospect who visited the lot the day before. Others think it means contacting past customers. They’re both right, and they’re both wrong. The real answer is that it’s not one or the

other – you need to do both. On average, most salespeople have I have been involved in many survey approximately four hours of non-selling studies about salespeople, and there is one time each day – time when they’re not common and consistent response from all actively engaged in sales meetings, emails, types of customers, whether they purchase texts or phone calls. These non-selling cars, boats, RVs or equipment: nobody hours are the perfect opportunity to follow from the sales department calls them back. up with past customers to ensure they In my experience, 90 percent of customers remain customers in the future. in these surveys received no follow-up after I have been blessed to work with some leaving the lot. very professional salespeople during my Think about what that means: a dealer career. The most successful among them can spend thousands – even hundreds of had one thing in common: they had the thousands – on advertising to increase best follow-up skills in the dealership. floor traffic, but when prospects leave Year after year they increased their sales the lot, 90 percent of them never get a by 15-20 percent. They also needed less follow-up call. I’ve heard many so-called and less floor time every year. The reason OIADA BOARD OF DIRECTORS reasons why salespeople never call a for this was simple: most of their time customer back, but in my opinion not was spent in appointments they made by one of those reasons is valid. The vast following up with past customers or by majority of salespeople don’t follow up getting referrals from those same loyal with customers who were recently in the customers. dealership because they simply don’t There are a variety of customer know what to say. Others have convinced relationship management (CRM) tools themselves that follow-up calls are a waste on the market designed to make it easy TOM it’s ONESTI JAY NORTH DAN REEL MARK MEADOWS TERRY REINEK of time. Often, because they tried to to maintain customer information. My PAST CHAIRMAN CHAIRMAN PRESIDENT VICE PRESIDENT TREASURER make follow-up calls at various points in advice to dealerships is to purchase a tool their sales careers, but failed so miserably that provides a customer information that they didn’t realize any benefit from database plus a management system that the effort. helps salespeople manage their customer The other type of follow-up is with and prospect base. The system should also customers who have purchased and taken include functionality not just for mass a delivery of a vehicle. The rule of thumb mail and email campaigns, but also for here is simple: follow up at three, 30 campaigns based on specific parameters and 90 days,JEFF and then everyBOB sixFAHEY months BOB VAUGHAN (geographic location, of vehicle, RADER GEORGE POLCE type LAUREN THOMASdate JOHN REMY RAND MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER MEMBER thereafter BOARD until they purchase again. of purchase, etc.) There BOARD are even web- BOARD MEMBER BOA Salespeople also come up with plenty based solutions for dealers who of reasons why they don’t follow up with don’t have the capacity for this type past customers. From what I’ve seen, the of storage. primary reason is fear of confrontation. Whether you use new Simply put, salespeople are afraid that technologies or no technology, in customers will complain about something, the end what matters is simple: and they don’t want to deal with problem you have to follow through and follow up. CHRISTINE Without WHITE JIM MITCHELL customers. This approach is the opposite both, you have nothing to lose EXECUTIVE ASSNT EXECUTIVE DIRECTOR of what it should be: if a customer has but prospects, and prospects are just sales a problem, salespeople should want to looking for a place to happen. know so that they can help solve it. After all, solving customer problems helps earn BY JAMES R. MITCHELL EXECUTIVE DIRECTOR trust and build loyalty. 3

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OIADA BOARD OF DIRECTORS

Board of Directors OIADA BOARD OF DIRECTORS TOM ONESTI PAST CHAIRMAN

JAY NORTH CHAIRMAN

DAN REEL PRESIDENT

MARK MEADOWS VICE PRESIDENT

OIADA BOARD OF DIRECTORS

TERRY REINEKE TREASURER

Past Chairman Jeff Rader Thomas Onesti Rader Car Company Car Port 1429 Schrock Road PO Box 9943 Columbus, OH 43229 Youngstown, OH 44513 Tel: 614-888-3111 TOM ONESTI JAY NORTH DAN REEL MARK MEADOWS TERRY614-888-3811 REINEKE DAVE ADKINS Tel: 330-726-6633 Fax: JEFF RADER BOB FAHEY BOB VAUGHAN GEORGE POLCE LAUREN THOMAS JOHN REMY RANDY GRIESD PAST CHAIRMAN CHAIRMAN PRESIDENT VICE PRESIDENT TREASURER SECRETARY Fax: 330-726-2633 Cell: 614-582-1822 BOARD MEMBER BOARD MEMBER BOARD MEMBER DAVE BOARD MEM TOM ONESTI JAY NORTH BOARD MEMBER DAN REEL MEMBER BOARD MARK MEADOWSBOARD MEMBER TERRY REINEKE ADKINS Cell: 330-565-6833 PAST CHAIRMAN CHAIRMAN jeff@radercarco.com PRESIDENT VICE PRESIDENT TREASURER SECRETARY OIADA BOARD OF DIRECTORS tomocarport@aol.com OIADA BOARD OF DIRECTORS 03 Follow-Up & Follow-Through Robert Fahey 06 Washington Report Chairman Fairdale Auto Sales 10 LHPH: The Next Big Thing? Jay North 6209 Glenn Rd. 14 Industry Insider Jay North LLC Cambridge, OH 43725 JEFF RADER BOB FAHEY BOB VAUGHAN GEORGE POLCE LAUREN THOMAS JOHN REMY RANDYCHRISTINE GRIESDORN 20 Used Vehicle Franchises WHITETOM SMITH JIM MITCHELL 501 E. Columbia StreetBOARD MEMBER BOARD MEMBER BOARD MEMBER Tel: 740-432-4185 BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBERASSNT BOARD MEMBER EXECUTIVE EXECUTIVE DIRECTOR 28 QR Codes 101 JEFF RADER BOB FAHEY BOB VAUGHAN GEORGE POLCE LAUREN THOMAS JOHN REMY RANDY GRIESDORN TOM SMIT Springfield, OH 45503 Fax: 740-435-0765 34 Compliance Overdrive BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEM Tel: 937-325-3748 Cell: TOM ONESTI JAY NORTH DAN REEL MARK MEADOWS TERRY REINEKE DAVE740-607-4011 ADKINS TOM ONESTI JAY NORTH DAN REEL MARK MEADOWS TERRY REINEKE DAVE ADKINS PAST CHAIRMAN CHAIRMAN PRESIDENT VICE PRESIDENT TREASURER SECRETARY PAST CHAIRMAN CHAIRMAN PRESIDENT VICE PRESIDENT TREASURER SECRETARY Fax: 937-398-1075 r_fahey@yahoo.com OIADA BOARDhtron435@yahoo.com OF DIRECTORS OIADA BOARD OF DIRECTORS Robert Vaughan President Vaughan Motor Car Company CHRISTINE WHITE JIM MITCHELL Daniel Reel 808 Parsons Avenue EXECUTIVE ASSNT EXECUTIVE DIRECTOR Reel’s Auto Sales LLC Columbus, OH 43206 CHRISTINE WHITE JIM MITCHELL EXECUTIVE ASSNT EXECUTIVE DIRECTOR 547 East Main Street Tel: 614-444-7839 JEFF RADER BOB FAHEY BOB VAUGHAN GEORGE POLCE LAUREN THOMAS JOHN REMY RANDY GRIESDORN TOM SMITH JEFF RADER BOB FAHEY BOB VAUGHAN GEORGE614-444-1133 POLCE LAUREN THOMAS JOHN REMY RANDY GRIESDORN TOM SMITH Orwell, OH 44076 Fax: BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER Tel: MARK 440-437-5893 Cell: TOM ONESTI JAY NORTH DAN REEL TERRY REINEKE DAVE ADKINS TOMMEADOWS ONESTI JAY NORTH DAN REEL MARK614-565-5682 MEADOWS TERRY REINEKE DAVE ADKINS PAST CHAIRMAN CHAIRMAN PRESIDENT VICE PRESIDENT TREASURER SECRETARY CHAIRMAN CHAIRMAN PRESIDENT VICE PRESIDENT TREASURER SECRETARY Cell:PAST 440-319-1247 sales@vaughanmotors.com Fax: 440-437-5759 OIADA BOARD OF DIRECTORS George Polce OIADA BOARD OF DIRECTORSdanreel@hotmail.com Jenroc Auto, Inc. Vice President 101 N. Tuscarawas Ave CHRISTINE Mark WHITE Meadows JIM MITCHELL Dover, OH 44622 JIM MITCHELL CHRISTINE WHITE EXECUTIVE ASSNT EXECUTIVE DIRECTOR EXECUTIVE ASSNT EXECUTIVE DIRECTOR Miracle Motor Mart Tel: 330-364-2525 JEFF RADER BOB FAHEY BOB VAUGHAN GEORGE POLCE LAURENJEFF THOMAS JOHNBOB REMY GRIESDORN SMITHPOLCE RADER Road FAHEY RANDY BOB VAUGHAN TOM GEORGE LAUREN THOMAS JOHN REMY RANDY GRIESDORN TOM SMITH 2380 Morse Fax: 330-364-6726 BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER Columbus,JAYOH 43229 TOM ONESTI NORTH DAN REEL MARK MEADOWSCell: 330-268-4724 TERRY REINEKE DAVE ADKINS PAST CHAIRMAN CHAIRMAN PRESIDENT VICE PRESIDENT Jenroc@wilkshire.net TREASURER SECRETARY OIADA BOARD TERRY OF DIRECTORS TOM ONESTI JAY NORTH DAN REEL MARK MEADOWS Tel: 614-437-0037 REINEKE DAVE ADKINS PAST CHAIRMAN CHAIRMAN PRESIDENT VICE PRESIDENT TREASURER SECRETARY Fax: 614-337-1063 Cell: 614-348-6503 Lauren Bowden Thomas dmarkmeadows@aol.com Bowden Motors OIADA BOARD OF DIRECTORS ADESA, Inc..................................Inside Back Cover 1426 South Main Street Ally.....................................................................13 CHRISTINE WHITE TreasurerJIM MITCHELL Bellfontaine, OH 43311 CHRISTINE WHITE JIM MITCHELL Auto Use.............................................................15 EXECUTIVE ASSNT EXECUTIVE DIRECTOR EXECUTIVE ASSNT EXECUTIVE DIRECTOR Terry Reineke Tel: 937-593-0014 OIADA BOARD OF DIRECTORS AutoManager, Inc.................................................. 9 JEFF RADER BOB FAHEY BOB VAUGHAN GEORGE POLCE LAUREN THOMAS Fax: JOHN 937-593-0514 REMY RANDY GRIESDORN TOM SMITH TOM ONESTI JAY NORTH DAN REEL MARK MEADOWS TERRY REINEKE DAVE ADKINS Rino’s Auto SalesBOARD Inc AutoStar Solutions..............................................18 BOARD MEMBER BOARD MEMBER MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER PAST CHAIRMAN CHAIRMAN PRESIDENT VICE PRESIDENT SECRETARY OIADA OF DIRECTORS JEFF RADER BOB FAHEY BOB VAUGHANBOARD GEORGE POLCE LAUREN THOMAS JOHN REMYIndustrial RANDY GRIESDORN SMITH 1610 Pkwy TOMTREASURER bowdenmotorslauren@embarqmail.com CarMax Auctions. ...............................................19 BOARD.MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER Celina, OH 45822 Columbus Fair Auto Auction................................11 Tel: 419-586-6161 Thomas C. Smith TOM ONESTI JAY NORTH DAN REEL MARK MEADOWS TERRY REINEKE DAVE ADKINS Columbus Fair’s Auction Everywhere...................31 PAST CHAIRMAN CHAIRMAN PRESIDENT VICE PRESIDENT TREASURER SECRETARY Fax: 419-586-8700 Smitty’s Auto Sales Corry Auto Dealers Exchange..............................23 Cell: 419-305-4009 668 S 7th St DealerCenter......................................................25 Dealix................................................................... 5 rinos@bright.net Greenfield, OH 45123 OIADA BOARD OF DIRECTORS Indiana Auto Auction...........................................24 CHRISTINE WHITE JIM MITCHELL Tel:(937)981-4317 JEFF RADER BOB FAHEY BOB VAUGHAN GEORGE POLCE LAUREN THOMASEXECUTIVE JOHNASSNT REMY RANDY GRIESDORN TOM SMITH EXECUTIVE DIRECTOR Insurance Auto Auctions.....................................20 TOM ONESTI JAY NORTH BOARD DAN BOARD REEL MEMBER BOARD MARKMEMBER MEADOWS BOARD TERRY REINEKE ADKINS Secretary CHRISTINE JIM MITCHELL MEMBERWHITE MEMBER BOARD MEMBER DAVE BOARD MEMBER BOARD MEMBER BOARD MEMBER Fax: (937)981-4317 OIADA BOARD OF DIRECTORS PAST CHAIRMAN CHAIRMAN VICE PRESIDENTEXECUTIVE DIRECTOR TREASURER SECRETARY EXECUTIVE ASSNT Manheim.com. ......................................................7 TOMPRESIDENT ONESTI JAY NORTH DAN REELAdkins MARK MEADOWS TERRY REINEKE DAVE ADKINS David Cell: (937)218-3658 PAST CHAIRMAN CHAIRMAN PRESIDENT VICE PRESIDENT TREASURER SECRETARY Micro 21.............................................................33 Wilmington Auto Sales Inc tommy4317@yahoo.com JEFF NextGear RADER BOB FAHEY BOB VAUGHAN GEORGE POLCE LAUREN17 THOMAS JOHN REMY RANDY GRIESDORN TOM SMITH Capital................................................ 1780BOARD Rombach Avenue BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER MEMBER Protective................................... Inside Front Cover Wilmington, OH 45177 Randy Shirk United Acceptance..............................................21 Tel: 937-382-7714 Randy Shirk’s Northpointe Auto Sales LLC JAY NORTH DAN REEL MARK MEADOWS TERRY REINEKE DAVE ADKINS VAuto.....................................................Back Cover Fax: 937-383-2392 5505 N Summit St CHAIRMAN PRESIDENT VICE PRESIDENT TREASURER SECRETARY Vehicle Acceptance Corporation. .........................22 CHRISTINE WHITE JIM MITCHELL Cell: 937-725-8512 Toledo, OH 43613 EXECUTIVE ASSNT EXECUTIVE DIRECTOR JEFF RADERINDEPENDENT BOB FAHEY BOB VAUGHAN GEORGE POLCE LAUREN THOMAS JOHN REMY RANDY GRIESDORN TOM SMITH NATIONAL david@wilmingtonautocenter.com Tel: 419-729-2688 BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER AUTOMOBILE DEALERS ASSOCIATION Fax: 419-729-2588 JEFF RADER BOB FAHEY BOB VAUGHAN LAUREN THOMAS GEORGE POLCE TOM SMITH RANDY SHIRK JAMES HOWALD WWW.NIADA.COM • WWW.NIADA.TV CHRISTINE WHITE JIM MITCHELL TOM ONESTI NORTH BOARD MEMBERDANBOARD REEL MEMBER Executive MARK MEADOWS TERRY REINEKE ADKINS Director BOARD JAY MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER DAVE BOARD MEMBER Cell: BOARD419-290-1993 MEMBER NIADA HEADQUARTERS: EXECUTIVE ASSNT PAST CHAIRMAN CHAIRMANEXECUTIVE DIRECTOR PRESIDENT VICE PRESIDENT TREASURER SECRETARY James R. Mitchell shirkshark@netscape.net 2521 BROWN BLVD. • ARLINGTON, TX 76006-5203 PHONE (817) 640-3838 OIADA FOR ADVERTISING INFORMATION CONTACT: TROY GRAFF BOB FAHEY(800)BOB VAUGHAN ORGEORGE POLCE LAUREN THOMAS JOHN REMY RANDY GRIESDORN TOM SMITH 682-3837 TROY@NIADA.COM. 2040 Brice Road, Suite 110 James D. Howald BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER Reynoldsburg, OH 43068 YES Automotive The Ohio Independent Dealer News is published 1706 W 4th Street CHRISTINE WHITEAutomobile JIM MITCHELL Cell: 614-436-3393 bi-monthly by the National Independent EXECUTIVE ASSNT EXECUTIVE DIRECTOR Office: 614-863-5800 Ontario, OH 44906 Dealers Association Services Corporation, 2521 Fax: 614-863-5801 Tel: 419-775-7186 Brown Blvd., Arlington, TX 76006-5203; phone (817) 640-3838. Periodicals postage paid at jrmitch49@aol.com Fax: 419-775-5319 JEFF RADER BOB FAHEY BOB VAUGHAN LAUREN THOMAS GEORGE POLCE TOM SMITH RANDY SHIRK JAMES HOWALD Dallas, TX and at additional offices. POSTMASTER: Cell: 419-709-0029 BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER Send address changes to NIADA State Publications, j_howald@yahoo.com CHRISTINE WHITE JIM MITCHELL EXECUTIVE ASSNTBlvd., Arlington, TX 76006-5203. EXECUTIVE DIRECTOR The 2521 Brown statements and opinions expressed herein are those of the individual authors and do not necessarily represent the views of Ohio Independent Dealer News, the Ohio Independent Automobile Dealers Association, or the National Independent Automobile Dealers Association. Likewise, the appearance of advertisers, or their identification What is National Tire Safety Week? as members of OIADA or NIADA, does not constiIt’s a nationwide event sponsored by the Rubber Manufacturers Association to raise tute an endorsement of the products or services consumer awareness about tire safety. featured. Copyright 2013 by NIADA Services, Inc. All rights reserved. Why should tire and automotive service professionals support National Tire Safety Week?

inside

MAGAZINE CONTENTS

WHAT’S NEW

ADVERTISERS INDEX

TOM ONESTI PAST CHAIRMAN

JEFF RADER BOARD MEMBER

NATIONAL TIRE SAFETY WEEK IS SCHEDULED FOR JUNE 2-8, 2013

STATE MAGAZINE MGR./SALES Troy Graff • troy@niada.com EDITORS Jennifer Carman • jenniferc@niada.com Andy Friedlander • andy@niada.com ART DIRECTOR Christy Haynes • christy@niada.com PRINTING Nieman Printing

To help consumers keep their tires safe and to demonstrate your industry’s commitment to motorist safety. TO RECEIVE A NATIONAL TIRE SAFET Y WEEK KIT, VISIT BETIRESMART.ORG

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

NIADA GOVERNMENT REPORT Here’s a rundown of some of the latest governmental issues and activity affecting the used car industry from NIADA regulatory counsel Shaun Petersen and NIADA lobbyist Sante Esposito. REGULATORY REPORT Consumer Financial Protection Bureau In late January, President Obama renominated Richard Cordray to serve a full term as director of the CFPB. Cordray was originally appointed in January 2012, during a time in which the President argued the Senate was in recess. His recess appointment expires at the end of 2013. However, there is a question as to whether his original appointment was constitutional at all. At the same time Cordray was appointed, the President also filled three positions on the National Labor Relations Board. A lawsuit was filed challenging the appointments as unconstitutional. On Jan. 25, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit ruled unanimously that the President’s appointments to the NLRB were unconstitutional because the Senate was not actually in recess. Though that decision does not specifically involve Cordray, a similar lawsuit has been filed challenging his appointment, and the prevailing thought is Cordray’s appointment will also be found unconstitutional. If that is the case, there is significant doubt as to whether the actions the CFPB has taken since Cordray’s appointment are valid. Federal Trade Commission Privacy settlement: The FTC settled a lawsuit with Cord Blood Bank relating to its failure to protect the privacy of customers, specifically by complying with

the company’s own privacy policy. The FTC focused on the lack of precautions when transporting backup data in a way that left the information vulnerable to theft. Additionally, the FTC highlighted the absence of any meaningful safeguards for unauthorized access to the company’s computer and network. The settlement agreement did not impose any monetary penalty on Cord Blood Bank, but required increased data safety and security measures. The settlement emphasizes the need for dealerships to have their privacy and safeguards policies in place and follow them. Department of Labor In January, the DOL investigated a car detailing company for violations of the wage and hour laws. The company was repeatedly rounding off workers’ hours in favor of the employer, keeping employees from being eligible for overtime pay and at times effectively paying employees below the hourly minimum wage. The company was required, as part of the settlement, to pay back wages of $229,475 to affected employees. LEGISLATIVE REPORT Auction Sales Sen. Mark Pryor (D-Ark.) had been exploring the impact of the auto auction sales process on consumers and law enforcement and had a staffer visit an auction in August, but in a meeting with NIADA’s legislative team, the senator’s staff did not mention auctions among their priorities for 2013. Rental Cars NIADA met with the senior staff of Sen. Barbara Boxer (D-Calif.), who has been the driving force behind proposed legislation to ban rentals of motor vehicles under safety recall until the defect or noncompliance has been

remedied. Boxer’s staff said she has been working with senators Chuck Schumer (D-N.Y.), Claire McCaskill (D-Mo.), Lisa Murkowski (R-Alaska) and others on a revised bill that reflects the compromise they reached with the rental car industry in the fall. Boxer introduced a placeholder bill in December and plans to reintroduce it again, with Schumer as the lead, in this Congress. NIADA is in the process of reviewing a draft of the bill for comments. Legislative Topics As previously reported, with the end of the last Congress, all the bills of interest to NIADA “died” – that is, the sponsors of the bills, if reelected (and some were not) and if still interested in the subject, would have to reintroduce them in the Congress and begin the process anew. So far, none have been introduced in 2013. Among them are the rental car acts sponsored by Boxer and Schumer, as well as bills dealing with gasoline regulations, disclosure of information of damaged vehicles, rules for donating vehicles to charity, the rulemaking process for regulatory agencies, vehicle inspections and seat belts, the availability of information and tools necessary to repair cars and the requirements for lenders’ annual privacy notices to customers. Car Guys in Congress The new Congress includes six members of the House of Representatives – all Republicans – who currently own automobile dealerships or have in the past: Scott Rigell of Virginia, Mike Kelly and Bill Shuster of Pennsylvania, John Campbell of California, Vern Buchanan of Florida, and Jim Renaci of Ohio. No members of the new Senate are current or former car dealers.

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FINANCE NEWS

HOW NEGATIVE STUDENT LOAN TRENDS COULD AFFECT THE AUTO LENDING MARKET

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

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

AUTOMANAGER JOINS AS BRONZE PARTNER

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

NI C K ZULOV I C H I S A N ED I T O R FO R S U BP R I M E AU T O F I N A N C E N EW S. H E CA N B E R EAC H ED AT N ZULOV I C H @ S U B P R I M EN E W S .C O M . 8

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

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

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

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

a guide for it, available at www.irs.gov/ businesses. But the IRS also examines RFCs carefully for evidence that they’re substantive businesses that remain at “arm’s length” from dealerships, rather than thinly disguised shell corporations. One small misstep could place you in line for an audit. For dealers wanting to avoid that compliance headache and the difficulty of establishing a legitimate RFC, LHPH is an attractive option. Because of the inherent tax advantages of leasing, it’s not necessary to have a related finance company to handle LHPH deals – though dealers can still choose to keep their RFC as a buffer against bad publicity, lawsuits and financial risk. Because the dealer is the lessor and therefore the owner of the asset (vehicle), he can claim depreciation over the term of the lease based on IRS guidelines and use it as an income tax deduction, reducing the overall tax bill. According to Jason Berger, managing partner of AK Acceptance, an RFC in Pittsburgh, LHPH deals aren’t constrained by the tougher regulatory requirements that affect BHPH dealers. At the federal level, LHPH deals fall under the less restrictive Regulation M rules that govern auto leasing, rather than the notoriously tough Regulation Z rules that govern auto sales. Under Reg M, the dealer is not obligated to disclose an annual percentage rate (APR), because there is no interest rate in a lease – just a “rent” or “lease” charge. The lack of an interest rate means you’re not encumbered by state usury limits. You can impose mileage overage charges to protect the value of the vehicle. C O N T I N U E D O N PA G E 1 2

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

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

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

BY ALEX BRAUN

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

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INDUSTRY INSIDER

HAVE A PLAN FOR YOUR AGING INVENTORY

Aged inventory is an age-old problem. The ugly truth is, if you’ve got a problem with aged inventory, you’re tying up cash and hurting your profitability because you’re sitting on a depreciating asset. Yet it’s an entirely manageable situation. With today’s tools and technology, aged inventory should be a mere blip on your balance sheet. Let’s look at what you can do to eliminate the issue of aged inventory. A SOLID EXIT STRATEGY Dealers have been buying and selling cars successfully using their well-honed instincts for generations. Today, though, you have the ability to combine your institutional knowledge of the car business with technology and tools you can use to devise a process and an exit strategy for every vehicle you acquire. Objective processes are important because they compel you to treat every vehicle you take in the same. Processes help manage risk and ensure a predictable, efficient and costeffective procedure. It’s the same approach used by every successful professional sports team, golfer, NASCAR driver, farmer and home builder. All of them, in some way, blend their experience with data and processes that help inform their strategic and tactical decisions. One of the most critical components of a sound process is your exit strategy. Typically, an exit strategy is one that minimizes losses. For every vehicle, regardless of where or from whom you buy it, you need an exit strategy that defines what you’re going to do with the vehicle if it reaches 15, 30, 45 and 60 days. MOVING AGED INVENTORY Analyze your inventory: Take stock of where and how you acquired every used car on your lot and what you paid for it, and the percentage of units by days in stock. The inventory analysis will reveal your buying pattern. It will also lay the groundwork for retooling your approach to acquiring future inventory. Organize inventory by its age status: While accepted industry practice is 60 days, you’re freezing capital. Thus, your process should address cars at 15, 30 and 45 days and beyond, including weekly monitoring of aging inventory on the search results page (SRP) and vehicle details page (VDP) of your website, as well as third-party sites. Start moving vehicles: Get your cars front-line ready, online and fully merchandised as soon as possible. Coming out of the gate quickly helps drive down the days in inventory as well as turn rate for your store. For cars at 30 days, detail a selection of aged vehicles and move them to another location on your lot. Re-evaluate your pricing. If you network with other dealers, make some calls to see if they will take any of your cars. At 45 days, detail the cars again and move them to the front line of your lot. Go online to check retail and wholesale pricing, then adjust prices down accordingly. Use AutoTrader.com’s

Trade-In Marketplace (TIM) tool to get offers/ bids. Reevaluate whether you want to keep the car or dispose of it through TIM. If your inventory is listed on a third-party site, look at the SRP/VDP reporting provided by the site to see what kind of activity you’re getting online. Determine if there’s a problem or the vehicle simply isn’t a good unit for your store. At 55 days, retail at above wholesale anticipated gross profit or loss. Spiff your salesperson: Traditionally, sales personnel get paid on gross profit per vehicle, so there’s not much of an incentive to sell a car that’s been discounted. Give the salesperson incentive with a cash credit representing the number of days the car was in your inventory. At 60 days: According to NADA, the cost of keeping a used car in inventory is around $28 per day. While that varies by market, you’ve likely sunk more than $1,600 per unit for every car that’s been on your lot for 60 days, so it’s time to cut your losses. Your options: wholesale every car after 60 days, go to AutoTrader.com’s TIM for offers or call the auction house.

MOVING FORWARD Cleaning up aged inventory can be a painful lesson, so it’s important to learn from your experience. Here are some tips to help build a process for managing used inventory: Perform a whole-lot inventory analysis: Assess the value of every vehicle on your lot so you can determine the right mix of core and non-core inventory. Use the information to determine optimal turn cycles and the right time to buy and sell inventory. It can also help you price competitively for your market. Have an exit strategy for every car: Source vehicles so you can retail them. Don’t let their wholesale price determine your pricing strategy. Instead, take into consideration whether the vehicle is appropriate for your market. Does it have the right equipment, features and options? If you live in the mountains, can you really turn a convertible in 60 days? Reset the way you look at cars: Unlike good wine, used cars don’t get better with age. Approach every used car acquisition with an eye to move it quickly. Develop a proactive strategy for managing, marketing, buying and selling vehicles: Take into account gross profit, return on investment, days to turn, average cost of sale, seasonality and an explicit aging plan. Get a state-of-the-art pricing tool, and use it: Pricing tools can be all show and no go. Get the best you can possibly afford. It will pay off because the tool will help price your vehicles to sell at a profit in the shortest time. Redefine your sourcing strategy: Instead of looking at a vehicle’s condition, use factors like a model’s past performance and aging history, current market demand and residual value. Invest in an inventory management system: Software packages from companies like vAuto can not only help determine what

vehicles you should be buying based on local demand, but can be set up to scan the market to various distances for similar vehicles and their price difference from yours. The tools will help you competitively choose and price vehicles more likely to sell. Retrain your sales personnel: You can safely assume every person who walks onto your lot has done some research online. It’s important for you and your salespeople to understand that new shopping behavior and be prepared to work with consumers who are armed with competitive prices. Everyone at your dealership should know how a car’s price is derived and be able to explain it in a transparent manner to a shopper. For more information, refer to NADA’s used vehicle turn schedule and NIADA’s daily inventory cost per day calculator.

BY EDDIE CAWLEY

EDDIE CAWLEY BRINGS 20 YEARS OF AUTOMOTIVE EXPERIENCE TO HIS POSITION AS HEAD OF AUTOTRADER.COM’S DEALER LEARNING TEAM. HE CAN BE REACHED AT EDDIE.CAWLEY@AUTOTRADER.COM

DAILY INVENTORY COST PER DAY CALCULATOR

USED VEHICLE TURN SCHEDULE CALCULATOR

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S E M A AWA R D S

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

R U L E S A N D L AW S

KEEPING UP WITH COMPLIANCE Have you kept up to date with the rules and laws that could affect your dealership? The start of the New Year is the perfect time for a quick compliance refresher, and the Bureau of Consumer Protection’s Automobiles site is a quick and comprehensive reference source. Designed with dealers in mind, the site has compiled a variety of resources discussing things like the Used Car Rule, labeling guidelines for alternative fueled vehicles, and how the Privacy Rule applies to auto dealers. Examples of dealer resources available on the site include: • A Dealer’s Guide to the Used Car Rule, which provides valuable compliance tips • Copies of the required Buyers Guide, in English and Spanish • Fillable versions of the English and Spanish Buyers Guides. V I S I T H T T P : / / B US I N ES S .F T C .GOV / S ELE C T ED I N D US T RI ES / AUT O M O B I LES FO R M O R E I N FO RM AT I O N . 16

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BHPH PERSPECTIVES

With the close of another year, most Buy Here-Pay Here operators will evaluate last year’s performance by comparing their financial results with the past. They will base their goals and strategy for the next year by looking at financial and operating metrics like unit sales, gross sales revenue, the growth of their installment portfolio and their net income. Although these represent the standard benchmarks for planning, they omit a critical element: compliance. The BHPH industry faces some important new legal and regulatory challenges from the newly formed Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC) and state attorney generals’ offices. All of those regulatory authorities will be monitoring consumer complaints to identify regulatory violations and operators who are violating the rules. The regulators will investigate complaints and have the authority to levy substantial fines for noncompliance. During 2012, regulatory activity and monitoring of subprime auto compliance violations increased significantly, and more

COMPLIANCE MOVES TO MAKE IN 2013

scrutiny should be anticipated in the future. Overall BHPH industry compliance will be judged on how each individual operator complies with the rules and regulations. To date, I have noticed operators taking different approaches to complying with the new challenges. Some are waiting to see what 2013 will bring. Others are more proactive in their approach to compliance. A few are ignoring the compliance threats altogether. Given the current circumstances, I recommend all BHPH operators: • Carefully scrutinize advertising and websites for statements that could be construed as false or misleading. • Determine if their documentation matches their internal policies and practices. •Make written disclosures of all important contractual terms to every consumer. • Update and document internal collection, underwriting and compliance policies and procedures in writing and ask employees to sign a written acknowledgment that they have read and understand them.

• Establish written consumer complaint resolution procedures and protocols. In 2012, many operators addressed the first four points and appointed a chief compliance officer, as required. Written consumer complaint resolution procedures and protocols have not been a priority in the past but need to be in the future. Dealers should have a competent attorney review their disclosures and contract documentation and help them develop a compliance management system. It will be money well spent. I also recommend establishing a welcome calling program shortly after each sale to ascertain whether the consumer had a positive buying experience. During that call, all consumer complaints should be taken seriously and addressed by the operator at that time. Consumer complaints are best resolved before they become a compliance issue with regulators. In cases in which the consumer is being unreasonable, an operator’s written policies and procedures can be used as evidence to show how that operator deals with consumer complaints. On investigation by a regulatory authority, the documented policies and practices will be considered in those circumstances. Complaint resolution is important in building a positive bond between operators and their customers. The old saying, “Treat others as you would like to be treated,” applies here. Both the consumer and the operator must work together over the life of the deal to be successful. In 2013, the regulatory authorities will carefully scrutinize collection procedures. Collectors must be particularly careful to avoid violations of the Fair Debt Collection Practices Act. That will require more individual knowledge and training. Although the year ahead is full of legal and regulatory uncertainty, prudent operators should start the year with a proactive approach to compliance. You can’t control what others do but each operator must be responsible and accountable for his or her own actions. Best wishes for a prosperous New Year!

NOTE: The National Alliance of Buy Here-Pay Here Dealers (NABD) will host its 15th annual National Conference for Buy Here-Pay Here and Dealer Academy at the Wynn in Las Vegas on May 19-23. For registration and for more information, visit www.bhphinfo.com or call 832-767-4759.

BY KENNETH B. SHILSON

KENNETH B. SHILSON, CPA, IS FOUNDER AND PRESIDENT OF NABD, THE ONLY GROUP EXCLUSIVELY FOR THE SELFFINANCE INDUSTRY. MEMBERSHIP IS OPEN TO ANYONE IN THE BHPH INDUSTRY AND TO SERVICE PROVIDERS. MEMBERS PAY NO DUES.

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INDUSTRY NEWS

CARFAX Mobile App Reaches 200,000 Downloads

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

S A F E T Y U P D AT E

NHTSA WANTS ‘BLACK BOXES’ IN ALL CARS The National Highway Traffic Safety Administration has proposed a new rule that would require event data recorders – so-called “black boxes” – to be installed in all light passenger vehicles beginning Sept. 1, 2014. EDRs track vehicle information – specifically, when it is in an accident, capturing speed, forces at impact, air bag timing, whether seat belts were in use and whether the brakes were applied. The majority of vehicles produced today already have such devices on board, and they have aided in recent investigations into safety issues, such as the so-called Toyota unintended acceleration scare, when they revealed the real problem was often driver error. But the use of the technology has also raised some concerns with privacy advocates. EDRs are expected to be installed in 96 percent of 2013 model year vehicles. Congress failed to pass legislation that would have required EDRs in 2010, prompting the NHTSA to consider its own mandate. NHTSA has listed the use of black boxes as a “priority,” and a spokesperson insisted the devices are critical to “continued improvements in vehicle safety.” The proposed rule is available for public comment for 60 days from date of publication.

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Ford F-150 Still Most Searched-For Vehicle

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

e h T

A L I G N I N G W I T H A N AT I O N A L O P E R AT I O N O F F E R S S E C U R I T Y BUT LIMITS CONTROL

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

KNOW WHAT IS EXPECTED Brion Bethel owns Thrifty Car Sales of Mountain Home in Mountain Home, Idaho. He has been in the car business for 15 years. He started in the finance department right out of college. “I got a degree in finance,” Bethel said. “So when I saw that ad for a finance graduate, I thought it meant one thing, when it meant something else.” But Bethel found he liked working in auto finance, and in 2001, he and his wife Melanie decided to open their own used car dealership. They decided to go the franchise route because they liked what the franchisor brought to the table. “We wanted to have the benefits of a national brand without owning an OEM franchise,” Bethel said. “I have to say that owning a franchise has met many of our expectations, but not met expectations in other ways.” Bethel said he would recommend owning a franchise, as long as the dealer truly understands what he or she is getting into and what the rules are. “We were under the impression that we would have access to more vehicles at a better price through Thrifty,” Bethel said. “I want to emphasize that no one promised us that.” C O N T I N U E D O N N E X T PA G E 20

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

FRANCHISE RESOURCES Mike Pearce, vice president of franchise development for J.D. Byrider, said owning a franchise means being part of a larger system and all the extras that come with that. “In our system, that includes legal protection,” Pearce said. “We are able to hire multiple lawyers to advise people on changes in the law. We help franchisees avoid mistakes, and in our business mistakes can be very costly.” Additionally, Pearce said, J.D. Byrider – the only Buy Here-Pay Here used car franchise operation – has spent a lot of time developing standards to help guide dealers in their operations. “We can help up front with training and help people live in the standards of the system,” Pearce said. “If you’re an independent dealer moving into the franchise side of things, it can be a very big surprise learning about the standards and controls you must maintain to protect the brand.” In addition to legal assistance and training, big companies can provide all sorts of resources, from marketing assistance, warranties and help with acquiring inventory to discounts on items ranging from tires to oil filters. That kind of support can be very

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enticing to an independent dealer struggling for survival. “It’s a structure,” said Lee Goldey, general manager and director of operations for Thrifty Car Sales. “There’s a website that’s structured. There are partner relationships with AutoTrader, Cars.com, CARFAX, things of that sort, to give them discounted deals. We spent almost a billion dollars just on tires last year, and that allows our franchisees to get tires really inexpensively. “As an independent, they don’t get those types of deals because they don’t have the mass and volume behind them.’’ There are financial advantages, as well. Goldey said Thrifty’s relationships with Santander and TD Bank give its franchisees a leg up in securing financing, and they also have access to the top programs from floorplan providers AFC and DSC. “Santander doesn’t sign up independent stores,” he said. “That gives our dealers a finance source they couldn’t normally get. Our relationship with TD Bank has opened that up to our franchisees, and a majority of them have been picked up because TD Bank knows we’re good people who sell good cars.” C O N T I N U E D O N PA G E 2 2

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BRAND PROTECTION Joe Lescota, NIADA’s director of dealer development, said the No. 1 benefit and the main reason dealers join a used car franchise operation is name recognition. With a franchise, Lescota said, a dealer doesn’t have to spend all his money building his “brand.” For an independent dealer, creating a reputation and recognition in the community through marketing can take time and money – a lot of money. Items such as ads in various media and agencies to develop campaigns and logos don’t come cheap. By buying a franchise, the dealer is, in effect, buying the good name of, say, Payless Car Sales. A lot of the hard work has already been done, and there are people at the corporate level who can help the dealer with marketing and advertising. “Used car dealers don’t always have the best reputation,” Lescota said. “That’s the cross they have to bear. Having a franchise is a way to make headway against that.” There can, however, be a flip side to that. While having a solid brand identity is good, Lescota said, it also puts a dealer at the mercy of all of his fellow franchisees. If someone who has the same franchise in the

next town over does something bad, it can spill over to your franchise. That, Pearce said, is why protecting the brand must be among a franchisee’s top priorities. “It’s really protecting your own business,” he said. “That’s just a fact of life. Anyone who wants to operate a franchise has to realize that. “When you really come down to it, all a franchise is is a set of standards and operations systems and brand awareness. Hence the need to protect the brand. It’s important to realize that when you decide to buy a franchise, you need to be a team player. You have to trust the franchisor is maintaining the brand.” That’s why J.D. Byrider has what Pearce calls a compliance team – which, he was quick to add, is not something that should be considered punitive. “The compliance team is there to make sure franchisees are compliant with all the federal and state rules and regulations,” Pearce said. “Following the law is important. We also provide a franchise consultant to ensure our dealers operate at full profitability. We can provide dealers with a business coach, which is something an independent dealer doesn’t have.”

That said, Pearce acknowledged owning a franchise used car operation is not for everyone. “When you consider being part of a franchise system, you absolutely have to consider the input you will receive from the corporate headquarters,” he said. “But input works both ways. A good franchisor listens to the franchisees.” Control from headquarters can be a tricky thing, Pearce said. Too much control can be as bad too little control. He noted that McDonald’s, perhaps the king of franchise operations, was known in the past for keeping tight control over the company’s franchisees. But in the end, they revolted. Pearce said J.D. Byrider was created because company founder Jim DeVoe, a General Motors dealer in the 1970s, was frustrated by some of the directives forced on GM’s franchise dealers by the manufacturer. So when he began his company, DeVoe made it a point to listen to his dealers. “If you are considering joining a franchise operation, ask what kind of say you as a franchisee will have in the business,” Pearce said. “[DeVoe] set up our structure to take input from dealers.

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“Our advertising is a separate entity from the company. It’s managed and run by a board of dealers. So even with a franchise, you can still have a say in how the business is run.” TAKE ONE FOR THE TEAM But having a say in how a franchise is run doesn’t mean being able to do whatever you want. “Sometimes there are things that are done for the greater good of the system,” Pearce said. “These things can be limiting to franchisees. “We tried things like GAP insurance and found it was too hard to run for a larger system. There are times things are done for the benefit of the system that prevent people from making money. You have to be a team player and sometimes you have to take one for the team.” J.D. Byrider, Pearce said, has a specific niche in which it operates. That means franchisees must stock a certain type of car. “There are three tiers in the Buy Here-Pay Here business,” Pearce said. “We play in the middle tier and don’t allow franchisees to deviate from that tier. We control franchisees in that way because our business model has worked best that way and that, honestly, has frustrated some franchisees.” But the system, Pearce contends, ultimately gives franchisees almost a twoto-one advantage over independent dealers. And the company has statistical data across the dealer system that can help dealers. As a Thrifty franchisee, Bethel has access to the company’s Business Development Center (BDC), and he said that kind of help from the home office is extremely useful. “Their marketing people help us with ads, whether it’s print, TV or the Internet,” Bethel said. “As an example, just recently we wanted to send out a mailer. We called up and asked for help. In a matter of days they emailed back to us three ads for things like oil changes and other service department services. These were ads that worked for other dealers in the past. “Their BDC is something their franchisees can sign up to use. For a dealer like me – I only have the one dealership – it is very useful.” The BDC can help control costs and follow up on every email sent to the dealership, Bethel said. “That way no customers fall through the cracks,” he said. But, Lescota said, it’s a simple fact that large corporations aren’t as nimble as a small businesses. It might take a large company more time to react to new situations , and a franchise dealer can be

frustrated by that pace. The bottom line, Lescota said, is that anyone interested in buying a franchise used car operation has to weigh the pros and cons carefully. Franchisors can help with finance, legal advice, business development and bookkeeping software as well as advertising, parts, websites and warranties. Brand recognition goes a long way toward establishing a dealer with the public. But the very nature of a franchise means the dealer will give up some independence. Being a franchisee doesn’t mean having no power over one’s business, but it does mean

there are limits and guidelines that must be followed. Dealers who remember that, Lescota said, can do very well for themselves. “Franchises can work for dealers,” Lescota said. “You do not have to reinvent the wheel. For someone with no experience, that is great. For someone with fears about going off on your own, that is very comforting. “But there is a tradeoff. You give up some of the profits to do so. If you understand that, franchises can work for you.”

BY JIM STICKFORD

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INDUSTRY NEWS

Framework to Achieve a Provisioning Mindset About a year ago, I introduced the idea of “provisioning” inventory as a replacement for the long-held practice of dealers “stocking cars” to feed their used vehicle operations. The basic concept is that stocking cars doesn’t sufficiently capture the more holistic nature and needs of retailing used vehicles to achieve maximum return on investment and profitability in today’s more competitive and Internet-driven marketplace. If you’re still out there stocking cars, you’ll get crushed. You’re competing against dealers who use market-specific supply and demand data to know the right cars, the right price to pay and the right retail asking price to sell cars quickly and achieve their profit goals, again and again. Beyond the laser-like focus on each used vehicle’s ROI and profitability potential, those dealers have also adopted what I call a provisioning mindset for their entire dealerships. It’s a mindset that starts in used vehicles and, given early successes and roadblocks

there, extends to each dealership department. I address this intra-dealership dynamic in greater detail in my soon-tobe-published book, Velocity Overdrive: The Road To Reinvention. At each provisioning-minded dealership, there are at least one or two people who effectively become the provisioning managers for the dealerships. They are often general managers, general sales managers or used vehicle managers who lead the reinvention of people and processes to achieve a significant change in the dealership’s culture. Over time, everyone becomes focused on ROI and profitability, department “silos” disappear and the dealership’s bottom line looks better than ever. All of that got me thinking: I haven’t yet seen a provisioning manager job description for a car dealership. I wondered what one might look like from a different industry. How do other businesses define a role that is, for the moment, largely a nascent collaboration

between select, like-minded souls within dealerships? A quick Google search for “provisioning manager job description” yielded some extremely relevant results. For example, the responsibilities for the provisioning manager position at Cisco Systems struck me as an effective framework for the leadership required to develop a provisioning mindset at dealerships for three reasons: The scope: The job starts with a broad vision and empowers the individual to reinvent people and processes to achieve it. It also empowers the individual to change people and processes to realize the strategic vision. That is exactly the scope of the role GMs, GSMs and used-vehicle managers play as they initiate provisioning efforts at their dealerships. They often ask, “Where can we go from here?” and, “How do we get there?” to craft a broad strategy and guide the implementation of day-to-day details. The degree of collaboration: It’s pretty fair to envision the provisioning manager as someone who knows how to get buy-in and motivate other people. The job requires the person to actively engage multiple departments and get everyone on the same page. The same is true in dealerships where provisioning is standard operating procedure. When a used car hits the lot, the managers in used vehicles, service, parts, detailing and sales know the next steps. The backstops: Cisco requires the provisioning manager to provide “secondlevel incident management support, and ensure incidents are minimized through design, tools and processes.” This strikes me as a fancy way of saying “anticipate problems and have a process in place to prevent them, and use technology whenever possible.” For dealers, the potential problems in used vehicles are legion – auction purchases, appraisals, online merchandising, reconditioning, pricing and sales processes can all be profitability trouble spots. That’s why provisioningminded dealers change people and processes, and adopt technology and tools, to ensure every decision drives the maximum profitability of each used vehicle at each stage of its life cycle. I’m not necessarily advocating that dealers need to create a bona fide provisioning manager position at their dealerships. But I do believe dealers who pursue and perfect a provisioning mindset will outpace other dealers who are still stocking cars.

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DEALERTRACK LAUNCHES NEW BRAND IDENTITY

Dealertrack Technologies, Inc., formerly known as DealerTrack Holdings, Inc., has unveiled a new brand identity and updated corporate website designed to represent the company’s position as a driver of innovation and progress in the automotive retail industry. The company and its products will now be positioned around a single new brand – Dealertrack Technologies. The brand is the culmination of Dealertrack’s effort to integrate the software and services compiled from more than 20 acquisitions with its originally developed products. “Our customers have told us that they’re looking to streamline their technology partner relationships,” Dealertrack Technologies chairman and CEO Mark O’Neil said. “This new identity simplifies our brand presentation as the one company, one team, one end-toend solution partner who can help automotive retailers increase efficiency and profitability by integrating data across various workflows while enhancing the car buying experience for consumers.”

INDUSTRY NEWS

JUMP-START YOUR COMPLIANCE TRAINING

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

FOR MORE INFORMATION, VISIT WWW.DEALERTRACK.COM.

FTC Warns About False FTC Emails

The Federal Trade Commission has issued a warning to small businesses that an email with a subject line “NOTIFICATION OF CONSUMER COMPLAINT” is not from the FTC. The email falsely states that a complaint has been filed with the agency against the company. The FTC advises recipients not to click on any of the links or attachments within the email. Clicking on the links could install a virus or spyware on the computer. The FTC’s advice: Delete the email. For more information on malicious software (malware), visit www.OnGuardOnline. gov/malware. 25

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OIADA Convention Day What a Success!

OIADA held its 2012 Convention Day on Dec. 8, 2012, at the Conference Center at Northpointe. The day included five seminars, an exceptional expo area with more than 32 product vendors, lunch, and refreshments – all at no charge to the attending dealers. The crowd grew as the evening approached. Everyone was served a dinner fit for a king, and then the fun started. A charity auction was held to raise money for London Maynard, an 8-year-old boy fighting a battle for his life against non-Hodgkin lymphoma, a cancer with only a 1-in-5 survival rate. Thanks to Mark Reis and Joe Vitale – two of our friends from the world of rock & roll – we were able to auction off valuable memorabilia autographed by the likes of Joe Walsh, Sammy Haggar, Keith Urban, the Eagles and Dale Earnhardt Jr. Our amazing members didn’t disappoint, proving once again that their hearts and wallets are equally big. In a very short period of time we raised more than $15,000 to help little London and his family. I am still in awe and very proud of all those who participated in this worthwhile effort. Following the auction was the annual awards presentation. First, Jeff Rader received the President’s Award. Next, we named the three recipients of the NIADA Eagle Award for Membership: Crossroads, Inc., Christine White and Terry “Rino” Reineke. All three received a plaque from NIADA for signing up at least 20 new members each. New this year was the inaugural presentation of the Lifetime Achievement Award, which went to Alexis Jacobs. Alexis was not only involved in the creation of the OIADA in 1985, but was also its first member. C O N T I N U E D O N N E X T PA G E

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OIADA Convention Day

CONTINUED

Finally, we announced the 2013 OIADA Quality Dealer of the Year Award nominees: Jason Goss, owner of Auto Direct in Columbus; David Huber, owner of Huber Automotive in Hebron; and Jeff Smiley, owner of Smiley Automotive in Norwalk. Jeff Smiley was voted the recipient of the award, and named the 2013 Quality Dealer of the Year. The evening’s grand finale was the Vegas Casino Night, with entertainment by recording artist Joe Vitale Jr. Everyone who participated in the convention had opportunities to win great prizes, which were awarded at the close of the event.

2012 OIADA Convention Day Sponsors

STARS GPS – Dinner Sponsor CARS.COM – Expo Lunch PERITUS – Casino Sponsor NATIONWIDE ACCEPTANCE – Casino Prizes NATIONWIDE ACCEPTANCE – Cocktail Party CROSSROADS - Entertainment COLUMBUS FAIR AUTO AUCTION - Seminars CARS.COM – Registration Table OIADA BOARD OF DIRECTORS – Boxed Mints (Dinner) SFG FINANCE – Bronze Sponsor FRAZER – Bronze Sponsor RINEHART, RISCHEL & CUCKLER – Bronze Sponsor MACMURRAY, PETERSEN & SHUSTER – Bronze Sponsor CORRY AUTO DEALERS EXCHANGE – Bronze Sponsor MANHEIM OHIO AUTO AUCTION – Bronze Sponsor ADESA CINCINNATI DAYTON AUTO AUCTION – Bronze Sponsor GWC WARRANTY – Bronze Sponsor ABC AUTO AUCTION – Bronze Sponsor

OIADA would like to thank the vendors and sponsors who helped to make the 2012 Convention Day such a success.

2012 OIADA Convention Day Participating Vendors Automotive Capital Resources Automotive Finance Corp Autorevo AutoTrader.com Autozone BENEFITS 1 GROUP Cars.com Car-ware Com-Soft Cooper & Elliott Frazer GWC Warranty Heritage Acceptance Corp Higher Turnover Intellinetics Lease It Own It Manheim Mighty Distributing National Auto Acceptance Corp. Nationwide Acceptance Corp. Nicholas Financial Passtime Peritus Rent-A-Wreck SFG Finance Smart Payment Plan STARS GPS Stolly Insurance Agency Teal Insurance The Milby Group Triumph Consulting Usedcars.com Warrantech

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M O U S E C H AT

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

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

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

BY DUSTIN JANSSON

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

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A SSO C IAT I O N N E W S

NIADA/MANHEIM NATIONAL COMMUNITY SERVICE AWARD

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

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

SO ME O F T H E 1 , 4 0 0 T OYS D O N AT ED D U R I N G T H E 2 01 3 SA N TA’ S T OY R U N A R E D I SP L AY E D AT RO N ’ S AU T O SA L ES. 30

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RECEIVE (2) V.I.P AUCTION CARDS THAT ENTITLE YOU TO A NUMBER OF FREE BUY AND OR SELL FEES FROM 13 DIFFERENT AUTO AUCTIONS. (Value up to a maximum of $200.00 for each fee) OIADA HELP DESK Call for help regarding legal questions, legal statutes, titles, legislative issues insurance etc. If we don’t have the answer we’ll get you an answer within 24 hours – guaranteed. Call: 614-863-5800 NOTE: PLEASE SEE THE MEMBER BENEFITS LIST FROM THE @ WWW.NIADA.COM FOR ADDITIONAL PROGRAMS AND DISCOUNTS

INSURANCE Benefits 1 Group (Workers Compensation) Michael Brown 25001 Emery Road - Suite 340 Cleveland, OH 44128 216-906-1221

Mighty Distributing David Raphael Marietta, GA 30067 724-118-9200 DOCUMENT SCANNING Intellinetics, Inc. Jim Perry 2190 Dividend Drive Columbus, OH 43228 (614)921-8170

Grafmiller & Davis Insurance Agency Sarah Mendenhall 103-A Commerce Park Drive Westerville, OH 43082 614-818-9467 David Stanley & Associates Tim Armstrong 5038 Cemetery Rd Hilliard OH 43026 (614)446-1122 AUTO PARTS Auto Zone Tim Beal 463 Waterbury Ct-Suite B Gahanna OH 43230 614-506-6699

FORMS ADR, LLC Nancy Chapman 55 E. Long Lake Road Troy, MI 48085 800-364-8833 GPS PRODUCTS Passtime J R Jones 861 Southpark Dr #2 Littleton CO 80120 877-PASSTIME INTERNET RevLocal Rod Brown 8542 Cotter Street Lewis Center, OH 43035 (740)263-5188 Ext-6104

Tradeway Auto Corp Stuart Niznick 100-3965 Portage Ave Winnipeg MB R3K2H4 (204)781-2450 LEASE TO OWN Lease IT Own IT Rob Seymour 676 S. Hamilton Rd Whitehall OH 43212 (614)395-5362 SERVICE CONTRACTS AAGI Jeff Teuscher One North Arlington 1500 W. Shure Drive, 7th Floor Arlington Heights, IL 60004 (888)442-2886 AUL Jacqueline Swank 1250 Main St, Ste 300 Napa, CA 94559 800-826-3207 x-215 Crossroads Inc, USA Brady Bulger - Brad LeBlanc 4801 Dressler Road Ste. #152 Canton, OH 44718 (877)737-2007

Diamond Warranty Corporation Jim Limonjelli - Samuel McArthur 9 N Main St Pittston, PA 18640 (800)384-5023

RENTAL CAR Rent-A-Wreck Andrew Iatridis 15315 Streetcar Ct Cypress TX 77429 469-939-6132

Triumph Consulting Services Maddy Hayworth 9218 Alton Court Fishers, Indiana 46036 800-875-3137 ext 109

CREDIT CARD PROCESSING Electronic Merchant Systems 5005 Rockside Road PH100 Independence, OH 44131 800-726-2117 x-5100

WEBSITES Higher Turnover, LLC Robert “Jake” Jacobson P O Box 997 Shelburne VT 05482 800-430-2119

TIRES American Tire Distributors Collin Gallagher 23371 Aurora Rd Suite D Bedford Hts OH 44146 (866)277-1361

F&I TRAINING & CONSULTING The Milby Group Anna Newman 212 S. PERSHING DRIVE Lancaster, OH 43130 740-652-9942

DEALER SOFTWARE CAR-WARE INC Lynn Dooney 1907 Robbins Meadows Dr Waxhaw, NC 48173 (855)504-5949

WARNING:

ComSoft Chip Cooper 5214 Western Blvd Raleigh NC 27606 (800)849-3838

R E G U L AT O R Y A L E R T

FTC Getting Serious About Compliance When the Federal Trade Commission announced Jan. 25 that it had sent letters to 11 used vehicle dealerships in Jonesboro, Ark., warning them to comply with the FTC’s Used Car Rule, it was a message to more than just those dealers, said Shaun Petersen, regulatory counsel for the National Independent Automobile Dealers Association. The warnings were the result of inspections by FTC staff of 21 dealerships in Jonesboro. According to the FTC, eight dealers were found to be violating the Used Car Rule by failing to display a Buyers Guide prominently on “almost all” of the used vehicles offered for sale. Three others were warned for having “a significant number of used cars” without a Buyers Guide. The other 10 dealers were found to be substantially in compliance with the rule, which requires all used vehicles offered for sale to have a Buyers Guide showing certain warranty information displayed at all times. Dealers can be fined up to $16,000 per vehicle for violations of the rule.

Petersen said the warnings are a clear indication that the FTC is becoming more aggressive in its enforcement efforts. “These inspections and warning letters are evidence of the FTC’s increased attentiveness to compliance and show the commission’s desire to ensure dealers are complying with even the most basic of laws,” he said. “In fact, you can take it to the next step and see that DMV and attorney general investigators of various states are beginning to become more aggressive on this as well. It’s not necessarily limited to what the FTC is doing.” Petersen advised dealers to respond to the government’s increased emphasis on rules enforcement by emphasizing compliance in their dealerships, especially because finding so many violations of a simple rule could ramp up the scrutiny even more. NIADA chief operating officer Steve Jordan said leaving off the Buyers Guide, perhaps the most obvious violation possible, is an invitation for regulators to investigate

every aspect of a dealer’s business. “It’s like if you went to a fancy restaurant and saw a rat scurrying into the kitchen,” Jordan said. “If they’ve got rats in the kitchen, there’s obviously something wrong, and who knows what else is going on back there? “Not having the Buyer’s Guide is a rat in the kitchen, and you can bet investigators are going to want to find out what else is going on.” The FTC said in a statement that the inspections were part of its “ongoing efforts to enforce the rule, in conjunction with state and local officials.” The FTC said it has brought more than 80 actions since the rule took effect in 1985, with civil penalties totaling more than $1 million. “We believe these rule requirements are important to consumers in determining to purchase a used car,” FTC Southwest Region director Deanya Kueckelhan said. “We hope the rest of Jonesboro’s used car dealerships will be in full compliance shortly.”

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Dinner Tickets are $100 each

(All proceeds benefit the Ohio Independent Automobile Dealers Association) 6:30 p.m. to 9 p.m. 6:30 p.m. to 12 a.m. 8 p.m. to 1 a.m. -

Buffet Style Dinner (All you can eat) Open Bar (Beer, wine & soft drinks) Texas Hold ’Em Poker Event

March 15, 2013 York Golf Club 7459 N. High Street Columbus, Ohio

$2,000 in Prize Money (Donated by our sponsors)

First Four Places Win 1st - $1000 2nd – $600 3rd - $300 4th - $100 ONLY 100 TICKETS WILL BE SOLD (All tickets sold on a first come basis)

For ticket information contact OIADA at 614-863-5800 OR visit our website at www.ohiada.org OR Email - jrmitch49@aol.com

Make checks payable to: OIADA

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COVER STORY

COMPLIANCE OVERDRIVE

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

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

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

BY CHIP ZYVOLOSKI

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

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OIADA Independent Dealer March 13  

Ohio Independent Automobile Dealers Association magazine for March and April 2013

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