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MARCH/APRIL 2013 REPRESENTING ALL AUTO, TRUCK, TR AILER, RV

DEALER

A ND POW ER SPOR T DE A L ERS OF OR EGON

NEWS

OFFICIAL PUBLICATION OF THE OREGON INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION

COMPLIANCE OVERDRIVE

Common Mistakes Can Wreck Lender Relationships Page 26

inside u

• PROTECT AGAINST ERRORS AND OMISSIONS • QR CODES 101 • USED VEHICLE FRANCHISES

The Next Big Thing? Page 6

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

DALLAS, TEXAS Permit No. 2079

PAID

PRSRT Standard U.S. Postage

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

FROM THE DESK OF DIANE SPARKS:

Inside

MAGAZINE CONTENTS 04 President’s Message 04 Read & Respond 10 Washington Update 12 The Franchise 20 QR Codes 101 24 Protect Against Errors and Omissions 26 Compliance Overdrive

WHAT’S NEW

As you can see, our Oregon Dealer News is a little different this month. We are proud to have joined efforts with NIADA to produce this quality publication. In addition to the new look, Dealer News will now be going to every licensed dealer in the state. Current OIADA members, we thank you. For those who aren’t members of the OIADA, we encourage you to take time to review the benefits you’ll gain through membership in both the OIADA and the NIADA. Here are just some of your annual benefits: • Discounted forms – available for purchase at one of our Oregon Auction Locations, online or by contacting OIADA direct – for savings of $100 or more annually. • Education savings up to $100 per year. • Auction punch card for discounts on buy/sell up, for savings up to $650 per year. • Access to regional meetings, which offer a variety of guest speakers and important industry updates. • All of the benefits available through NIADA (visit www.niada.com for more information). A M E M B E R S H I P A P P L I C AT I O N H A S B E E N P R O V I D E D I N T H I S P U B L I C AT I O N . F O R A D D I T I O N A L I N F O R M AT I O N , P L E A S E C O N TA C T T H E O I A D A O F F I C E AT 8 0 0 - 4 47 - 0 3 0 2 .

Executive Committee Dan Nicholson, CMD President Central Oregon Motors 1123 N 6th Street Redmond, OR 97756 541-923-3961 Fax 541-923-3964 com@bendbroadband.com

ADVERTISERS INDEX

Ally................................................................................17 AutoManager, Inc........................................................... 9 Brasher’s Northwest Auto Auction........ Inside Back Cover Brasher’s Portland Auto Auction......................Back Cover Chase........................................................................... 22 DAA Northwest............................................................... 5 Dealix............................................................................. 7 Hecht & Hecht Insurance Agency................................. 25 Manheim Portland.................................Inside Front Cover Manheim.com.............................................................. 11 Protective..................................................................... 15 United Acceptance....................................................... 18 VAuto............................................................................ 13

NATIONAL INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION WWW.NIADA.COM • WWW.NIADA.TV NIADA HEADQUARTERS: 2521 BROWN BLVD. • ARLINGTON, TX 76006-5203 PHONE (817) 640-3838 FOR ADVERTISING INFORMATION CONTACT: TROY GRAFF (800) 682-3837 OR TROY@NIADA.COM.

OIADA Dealer News is published 8 times per year by the National Independent Automobile Dealers Association Services Corporation, 2521 Brown Blvd., Arlington, TX 76006-5203; phone 817-640-3838. Periodicals postage paid at Dallas, TX and at additional offices. POSTMASTER: Send address changes to NIADA State Publications, 2521 Brown Blvd., Arlington, TX 60065203. The statements and opinions expressed herein are those of the individual authors and do not necessarily represent the views of OIADA Insider or the National Independent Automobile Dealers Association. Likewise, the appearance of advertisers, or their identification as members of NIADA , does not constitute an endorsement of the products or services featured. CopyrighT © 2013 BY NIADA SERVICES, INC. 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

Bryan Steward Executive Vice President AAA Oregon AutoSource 6 SW Centerpointe Dr. #100 Lake Oswego, OR 97035 503-973-6570 | Cell 503-709-3835 bsteward@aaaautosource.com

Staff Diane Sparks Executive Director 503-362-6839 dsparks@oiada.com

Pauline Sill Office Manager 503-362-6839 psill@oiada.com

Tommy Wilson 2nd Vice President Tommy Wilson Motor Company LLC 9215 SW Canyon Rd Portland, OR 97225 503-629-6000 Tom@tommywilsonmotorco.com

Carol Effring Dealer Forms Sales Eugene

Eric Freeman, CMD Secretary 7524 SW Macadam Ave Portland, OR 97219 503-310-5555 | Cell 503-320-1596 Eric@freemanmotor.com

Lakyn Jacoby Dealer Forms Sales Portland Metro Area

Gary Sargent Chairman of the Board Sargent’s Motorsports 10207 SE Foster Road Portland, OR 97266 503-775-9445 | Cell 503-969-5228 sargiii@sargentsmotorsports.com

OIADA Office Oregon Independent Auto Dealers Association, 1475 Capitol St. NE Salem, OR 97301 800-447-0302

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PRESIDENT’S MESSAGE

LETTER FROM THE PRESIDENT

OIADA is ramping up new data software for our website. In our industry, it seems like there’s always a newer and faster vehicle coming down the road; similarly, it’s time for us to take our website to the next level. If everything goes according to plan, the new software and website will be up and running by the end of March. Please keep an eye on your email for new and exciting updates. Our education committee held its first meeting in January, and we thank those individuals for taking time out of their busy schedule. There are some related industries out there trying to abolish our continuing education, but OIADA feels that education is paramount for our members. The education committee is

Quiz

looking at ways to improve every aspect of our educational offerings, but we’d also like to hear your opinions on the subject. Please contact Eric Freeman, the education chairman, with your thoughts and comments. I would also like to take a moment to recognize someone who has been very special to both the OIADA and me: Lisa Larkin, former general manager of Brasher’s NW Auto Auction. Lisa has been a huge supporter of the OIADA for the past 12 years. She has served as the image and legislative chairman on the board, and recently acted as the Eugene regional director. As I look through our records, it appears Lisa may be the longest standing board member with OIADA.

I am not sure that I can truly express my gratitude or fully give Lisa the credit she deserves for her efforts over the years. Those of you who had the opportunity to work with Lisa know what I am talking about. She was more than an auction general manager – she was a friend and confidant whose door was always open to dealers, whether they regularly frequented her auction or not. She will be missed. Please join with me in wishing Lisa all the best in her new endeavors.

BY DAN NICHOLSON

PRESIDENT, OIADA

Read & Respond or Certify Below Complete this test or Certify below that you have read the articles for March/April 2013

O I A D A C O N T I N U I N G E D U C AT I O N P R O G R A M

NEXT BIG THING

MARCH/APRIL

2013

What does LHPH stand for? _______________________________________________________________________________________

List 3 Challenges before you consider using LHPH ______________________________________________________________________ _____________________________________________________________________________________________________________ _____________________________________________________________________________________________________________ What Liability risk could you be taking when doing an LHPH?______ _________________________________________________________ _____________________________________________________________________________________________________________

MOUSE CHAT What is a QR Code? ____________________________________________________________________________________________

FRANCHISE Name 3 “Good” reasons for being part of a Used Car Franchise _ ___________________________________________________________ _____________________________________________________________________________________________________________ _____________________________________________________________________________________________________________

List 4 things that a franchisor can help a dealer with____________________________________________________________________ _____________________________________________________________________________________________________________ _____________________________________________________________________________________________________________ _____________________________________________________________________________________________________________

Do you lose total power and control over your business as a franchisee? ________ YES ________ NO

I CERTIFY TO OIADA THAT I HAVE PERSONALLY READ THESE ARTICLES IN THE OREGON DEALER NEWS MAGAZINE FOR #2-2013 My Name ________________________________________________ Dealership Name _______________________________________ Dealership # _______ ___________ ___________ _______Dealer License Expiration Date:(Month)_____________________________ Year)______________Signed: _________________________________________________Date _________________________________

FAX TO: 503-364-7331 or mail to OIADA, 1475 Capitol St NE, Salem, Oregon 97301 4

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

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

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

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

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

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THE NEXT BIG THING?

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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

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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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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e h T

OFFERS SECURITY BUT LIMITS CONTROL

FRANCHISE

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

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

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

franchise operation – has spent a lot of time developing standards to help guide dealers in their operations. “We can help up front with training and help people live in the standards of the system,” Pearce said. “If you’re an independent dealer moving into the franchise side of things, it can be a very big surprise learning about the standards and controls you must maintain to protect the brand.” In addition to legal assistance and training, big companies can provide all sorts of resources, from marketing assistance, warranties and help with acquiring inventory to discounts on items ranging from tires to oil filters. That kind of support can be very enticing to an independent dealer struggling for survival. “It’s a structure,” said Lee Goldey, general manager and director of operations for Thrifty Car Sales. “There’s a website that’s structured. There are partner relationships with AutoTrader, Cars.com, CARFAX, things of that sort, to give them discounted deals. We spent almost a billion dollars just on tires last year, and that allows our franchisees to get tires really inexpensively. “As an independent, they don’t get those types of deals because they don’t have the mass and volume behind them.’’ There are financial advantages, as well. Goldey said Thrifty’s relationships with Santander and TD Bank give its franchisees a leg up in securing financing, and they 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 C O N T I N U E D O N PA G E 1 4

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

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

WARNING: 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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REPRESENTING ALL AUTO, TRUCK TRAILER, RV AND POWER SPORT DEALERS OF OREGON

OIADA

MEMBERSHIP APPLICATION

Business Name_____________________________________________________________________ Dealer# ______________________________________________________Expiration_____________ Name_____________________________________Spouse__________________________________ Business Address____________________________________________________________________ City_______________________________________State/ZIP________________________________ Mailing Address (if Different) __________________________________________________________ Business Phone #____________________________________________________________________ E-mail___________________________________________________________________________ Cell____________________________________Fax_______________________________________ Signature___________________________________________Date_____________________________________ Upon acceptance as a member, I pledge to uphold the OIADA Code of Ethics and all laws pertaining to the automobile business.

PAYMENT MUST ACCOMPANY THIS APPLICATION Annual dues - $325 PAC – Political Action Committee – Keeps us strong at the Legislature! Your voluntary $50 contribution is an Oregon Tax Credit taken directly off your state tax liability. Your contribution will actually cost you nothing

___Visa

___M/C

___Discover

PAC $50 $375

___American Express

Check # _________________

Exp. ________/________ CVC __________

Office Use

Sponsor ________________

Renew Date ___/1/___

Trans _____ QB _____ PAC _____ Access _____ ODN _____ MBR_____

By completing this form, I am consenting and giving OIADA/NIADA, its affiliates and subsidiaries, my permission to contact me and provide information to me at the mailing and email address, telephone and fax numbers I have provided.

OIADA 1475 Capitol St. NE, Salem, OR 97301 | Phone 503-362-6839 | Fax 503-364-7331 w w w. o i a d a . c o m

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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 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 S S OC I AT I O N N EW S

NIADA/MANHEIM NATIONAL COMMUNITY SERVICE AWARD

SOME OF THE 1 ,400 TOYS D ONATED D URING TH E 201 3 SANTA’S TOY RUN ARE DI SPLAYED AT RON’S AUTO SALES .

MANHEIM’S NICK P ELUSO (LEFT) P RESENT S A CHE CK T O 201 2 CO MMUNIT Y SERVICE AWARD WINNERS RO N AN D D EB B I E RI GD ON .

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 RE INFO RMATIO N , CO NTACT GEO RGI A BROWN AT 800-682-3837 O R GEO RGIA@NIADA .CO M.

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INSURANCE ISSUES

ERRORS AND OMISSIONS INSURANCE AND LOSS PREVENTION Errors and omissions insurance is a special form of business liability insurance for professionals who provide a service and/or advice in addition to the products (i.e. vehicles) they sell. This form of insurance helps keep dealers and dealerships from bearing the full cost of defending against a claim made by a customer or vendor of negligence, including damages awarded in a lawsuit and when legal action turns out to be groundless. The coverage focuses on the dealer’s alleged failure to perform and the financial loss caused by an error or omission in the service or product sold by the dealer. These are potential causes for legal action that would not be covered by a dealership’s basic garage liability insurance policy, which addresses more direct forms of harm. Coverage does not include criminal prosecution, nor does it cover a wide range of potential liabilities under civil law. The exposures often covered by various forms of dealer errors and omissions insurance may be prevented by an aggressive loss prevention program. The greater the number of employees dealership retains the greater the need for loss prevention and the need for errors and omissions insurance. Hands-on supervision and control by the owner of a small dealership make it less likely there will be cause for errors or omissions. However, as a dealership grows and passes management and supervision to others, loss prevention measures need be in place and enforced. A strong loss prevention program starts with initial hiring. Dealers should have a strong employment application along with background checks, past employment history and verified reference checks. It should also include a detailed employee handbook and dealership operations manual. Each employee position should have a job description outlining in detail specific duties of the job and the steps required to abate loss, claims and other potential damage. Oregon state law requires that dealers carry a minimum amount of dealer liability insurance (ORS 822.033). The law

requires dealerships to carry bodily injury and property damage insurance. In other words, dealers are required to carry insurance in the event someone gets hurt or property gets damaged as a result of an accident that occurs within the scope of the dealer’s business. Oregon law requires dealers to have insurance on the premises on which they have their dealership and insurance for the damage caused while operating a vehicle. State law does not require errors and omissions liability insurance. Here are some incidents that might trigger loss where no accident has occurred but a claim could be made: ERRORS AND OMISSIONS Truth in lending: Provides coverage for a negligent errors or omissions resulting from civil violations of any federal, state or local truth-in-lending statutes. Title errors and omissions: Provides coverage for errors or omissions committed during title preparation. Federal odometer: Provides coverage for negligent errors or omissions resulting from any federal, state or local violation regarding accurate disclosure of mileage readings. Prior damage disclosure: Provides coverage for failure to properly disclose prior damage as may be required by federal or state law. Customer compliant defense: Provides reimbursement to insured dealer for sums incurred associated with suits filed against dealers alleging dissatisfaction with products sold or services rendered other than as a direct result of an occurrence (accident). Dealership insurance agents errors and omissions: Provides coverage for the negligent errors or omissions resulting from your activities while acting as an insurance agent engaged in the sale of credit life, accident and health or auto physical damage insurance. This coverage does not include protection from sale of most service contracts. Dealers errors and omissions coverages vary in form and format. There is no standard coverage provided by all garage

insurance carriers. Each is unique to each insurance policy. Therefore, dealers and their agents need to discuss what is or is not covered by each proposed policy. Many dealers’ policies do not extend coverage to any error or omission. Those that do may offer quite broad or limited coverage. Once coverage is afforded, dealers must also be aware and read the exclusions from what may have appeared to be covered. For example, intentional acts are not covered. So a dealer that is running a “roll back” scheme will not be covered if he is sued for an altered odometer. If a dealership wishes to have dealers errors and omissions insurance and it is not provided for in a current policy, it is possible it can be added. You can shop around for an insurance carrier that offers errors and omissions as part of its dealer package. Or you can seek out auto dealermiscellaneous errors and omission claims made insurance. This is a stand-alone policy and can be purchased separately. Loss prevention is surely the least costly method of resolving issues that may require errors and omission insurance coverage. However, it seems we live in a litigious society. Even if all our procedures are correct we can still be subjected to legal complaints and suits. The cost of insurance may seem expensive; however, it’s far cheaper than a lawsuit. Defending these types of allegations can often be substantially higher than the settlement. Do not neglect loss prevention. A prudent dealer purchases errors and omission insurance. Hecht & Hecht Insurance Agency Inc. is a full-service insurance agency serving the business and personal insurance needs in the Northwest for 40 years. We are the agent of record for the Oregon Independent Auto Dealers Association. When you have questions or insurance needs, we are here to assist. We can be reached at www.hechtins.com or by calling Evelyn Hecht at 800-609-0979 or 503288-6371.

BY EVELYN HECHT

HECHT & HECHT INSURANCE AGENCY INC.

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Associate Members ADVERTISING Affiliated Media LLC Ronald Massey 503-705-9497

AutoTrader.com Ed Merrick, 503-747-9162 Ed.merrick@autotrader.com Carsforsale.com Aaron Oestretch 605-306-3302 Cars.com 312-601-6134

Brasher’s Northwest Auto Auction Mark Melton 800-905-3901 www.brashersnw.com

Crosspoint NW Dealer Auction Brian Hardy 503-594-2800 www.crosspointnw.com Manheim Portland Auto Auction 503-286-3000 www.manheim.com

The Oregonian Rich Fryback 503-221-8486

OUT-OF-STATE AUCTIONS Adesa Seattle Auto Auction Jason Arcaro 253-735-1600 x 213

UCMLink Allison Pittman 601-812-5876 www.ucmlink.com

Dealer’s Auto Auction Northwest Steve Doyle 509-244-4500

UsedCars.com by Dealix Tamara Garris 704-243-6652

Manheim Seattle Auto Auction Julie Picard 206-762-1600

AUTO ACCESSORIES Auto Marketing Associates Northwest Gary Palaniuk 503-519-7725

PUBLIC AUCTIONS Insurance Auto Auctions, Inc. Ryan Hall 503-253-1500

PRIVATE AUCTIONS Brasher’s Portland Auto Auction Jerry Hinton 800-300-3200 www.brashersportland.com

Petersen Auction Group of Oregon Curt & Susan Davis 541-689-6824 Woodburn Auction Steve Morin 503-981-8185 www.woodburnauction.com

DEALER SOFTWARE Skywerks Martyn Olliver 425-738-0234 Frazer Computing Michael Frazer 888-963-5369

FLOORPLAN FINANCING Floorplan Xpress Sean Fodrea 503-621-9260 sfodrea@fpxus.com Dealer Services Corporation Garrett Jorewicz 866-230-0820

FINANCING Credit Acceptance John Bragg 253-279-3230

HEALTH CARE & BENEFITS The Summit Group of Oregon, LLC John Petrie 503-581-2825

Credit Concepts Jason Moon 541-342-8545 JP Morgan Chase Auto Finance Jeff DeGarmo 503-201-4370 Nationwide Northwest, LLC Mark Tischer 503-339-4165 Reliable Credit Association David Marx 503-462-3022 Gold Acceptance/ Oregon Auto Finance 1700 Valley River Dr. #300 Eugene, OR 97401 Gary Veum, 541-868-0472 United Finance Burnside, 503-232-5153 Eugene, 503-342-7671 Salem, 503-585-6411 Medford, 541-779-7391

INSURANCE & BONDING Consumer Insurance USA Robert Wells 77-431-0970

SERVICE CONTRACTS AUL Corporation Jacqueline Swank 800-826-3207 Automotive Business Developers Shannon Meany 541-944-9186 Auto Marketing Associates Northwest Gary Palaniuk 503-519-7725 Auto Services Company Dick Proudfoot 503-705-7597 A.U.L. Corp/ D.P.C. Inc. Jim Bangert 360-834-3333

Hecht & Hecht Insurance Evelyn Hecht 800-609-0979 evelyn@hechtins.com

Protective - Asset Protection Division Dylan Doran 818-836-1455

Shepard & Shepard Insurance www.shepardinsurance quote.com 509-396-0488

TRAINING Automotive Business Developers Shannon Meany 541-944-9186

LEASING Oregon Roads, Inc. New & Used Vehicle & Commercial Leasing Joseph McKinney 541-683-2277

OIADA: Continuing Education, Title & Registration & Pre-licensing Pauline Sill 800-447-0302 503-362-6839

SmartwayAdvisors Sheldon Harris 503-795-7700

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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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Oregon Dealer News March 13  

Oregon Dealer News for March 2013

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