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TIADA Board of Directors PRESIDENT Robert Beck/Stop N’ Drive Motors 711 N. General McMullen Dr. San Antonio, TX 78228 PRESIDENT ELECT Mark Jones/Mike Carlson Motor Company 264 Exchange Burleson, TX 76028 CHAIRMAN OF THE BOARD Juan Sabillón/Mi Tierra Auto Sales 7935 Gulf Freeway Houston, TX 77017 SECRETARY Ryan Winkelmann/BJ’s Autohaus 5005 Telephone Road Houston, TX 77087 TREASURER Eddie Hale/Neighborhood Autos 1717 US 287 Decatur, TX 76234 ICE PRESIDENT, WEST TEXAS V (REGION 1) Brad Kalivoda/Fiesta Motors 2599 74th Street Lubbock, TX 79423 ICE PRESIDENT, FORT WORTH V (REGION 2) Chad Lancaster/Chacon Autos 11800 E. Northwest Hwy Dallas, TX 75218 ICE PRESIDENT, DALLAS V (REGION 3) Greg Reine/Auto Liquidators 39670 LBJ Freeway Dallas, TX 75237

Vo l u m e X X I / I s s u e 1 / J a n u a r y 2 0 21

TexasDealer contents

4 Officers’ Message

by Robert Beck, TIADA President

8 Membership Corner 9 TIADA Member Application 10 Dealer Spotlight 12 On The Cover: Looking Back at 2020 by TIADA Staff

19 On The Cover: Predictions for 2021 by TIADA Staff

27 Legal Corner: Stereos, Tires, Wheels: Personal Property or Accessions? by Michael W. Dunagan

29 Ten Themes that Impacted Automotive in 2020 by Steve Greenfield

ICE PRESIDENT, HOUSTON V (REGION 4) Vicki Davis/A-OK Auto Sales 23980 FM 1314 Porter, TX 77365

32 Scholarship Application 33 Legislative Bulletin 34 TIADA Auction Directory 2021 37 Excerpts from The CARLAWYER©

ICE PRESIDENT, CENTRAL TEXAS V (REGION 5) Greg Phea/Austin Rising Fast 8024 IH 35 North Austin, TX 78753

40 Upcoming Events 41 Capital, Capital, Capital

ICE PRESIDENT, SOUTH TEXAS V (REGION 6) Armando Villarreal/McAllen Auto Sales 4215 S. 23rd Street McAllen, TX 78503

45 New Members 45 Local Chapters 46 Behind the Wheel

ICE PRESIDENT AT LARGE V Robert Blankenship/Texas Auto Center 6809 N IH-35 Austin, TX 78744 ICE PRESIDENT AT LARGE V Russell Moore/Top Notch Used Cars 900 East Davis Conroe, TX 77301 TIADA EXECUTIVE DIRECTOR Jeff Martin 9951 Anderson Mill Rd., Suite 101 Austin, TX 78750 Office Hours M-F 8:30am – 4:30pm 512.244.6060 • Fax 512.244.6218 jeff.martin@txiada.org

by Eric Johnson and Tom Hudson

by Bill Ward

by Jeff Martin

Did You Know? Dealer members get a new set of coupons on the TIADA Auction App upon renewal. Save even more in 2021 with coupons that go beyond the auctions. Turn to pg. 36 for more details.

Notice to all members concerning services and products: TIADA was established in 1944 to develop professional standards of service and conduct for the independent auto industry. Opinions expressed herein are not necessarily those of the TIADA management, the Board of Directors or the membership. Likewise, the appearance of advertisers or their indemnifications of TIADA does not constitute endorsement of the products or services featured.

Editor: Teresa Orkun

Magazine Ad Sales: Patty Huber, 512-310-9795


officers’ message by Robert

Inventory is Our Lifeline

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Beck

Stop N’ Drive Motors (San Antonio) TIADA PRESIDENT

ithout adequate sources of good inventory at prices fitting for our business model, there’s just no two ways about it: we’ll soon be out of business. We have witnessed in this pandemic year of 2020 many things not before seen in our industry. Things such as dealers being forced to temporarily shut down, or dangerously sick family members or employees, supply shortages, and the constant channeling of our inner Lone Ranger (the wearing of the mask). But

customers. Thankfully, situations like this usually go in cycles, some longer than others. I think we are starting to see signs of the metrics supporting such high prices return to normality. Unfortunately, the 2021 tax season is now on the horizon and there are different demand metrics which are driving and/or maintaining such high prices. Maybe next summer we’ll finally get back to what we all consider “normal” prices for inventory. I’ve heard of many

perhaps one of the more longer lasting and painful things has been the exponential run-up in wholesale prices for our inventory purchases. A year ago, at our lot we were stretching our business model just a bit to step up and pay $9k–10k for crew cab trucks, Tahoes or Yukons. We had no problem in 2020 selling all those trucks and large SUVs we purchased in late 2019. These are vehicles which are in huge demand within our customer base. Customers love the utility, dependability, and ease of maintenance of these vehicles, and consequently they are happy making a payment every month for them. Since around May 2020, these same vehicles have been selling at auction for $13–$15k. At these wholesale prices, they are out of reach for most of our

dealers, even large metro operations, completely abandoning these trucks and large SUVs from their inventory purchases. Currently on our lot, we only have two trucks in stock, both of which are repos. They are good trucks though and we’ve been able to recondition them to an acceptable standard. I guess this is what you have to do in the COVID era to pay the bills and make it to a time when we see normal pricing for inventory. We realized today when we wholesaled a few vehicles, that it had been months since we had legitimately wholesaled a vehicle on which we’d given up hope of being able to re-condition to our standards. We’ve been forced to do more reconditioning on repo-sourced vehicles in 2020. (cont’d on pg. 6) T e x a s

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Officers’ Message (cont’d from pg. 4)

Previously we would’ve simply auctioned them off. This brings me to what I felt moved to talk about today—the reconditioning of our inventory. With the choices available at auction having ACVs within our business model, reconditioning has become even more important and necessary in order to succeed. There are vehicles on car lots around us which appear as though there has been very

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little reconditioning done. We have customers tell us all the time how refreshing it is for them to see vehicles that have been reconditioned to a high standard. For nearly two years now, we have purchased almost exclusively from online auctions. We try to limit our purchases to new car trade-ins from franchise dealers. Of course, there are exceptions to this, but mostly this is how we buy. As soon as the new unit is ours, we order new spark plugs and new filters (oil, air,

and cabin air) for it. We find most of the inventory we buy has the original spark plugs in them, so it makes sense to change them out now that the unit has 100–120k miles on it. We also change the oil using only synthetic blend oil. After the spark plugs are installed and all the filters and oil changed, our mechanic then performs our 85-point check on each inbound vehicle. Our 85-point check consists of a detailed check of items under the hood, drivetrain and in the cabin. From engine compartment components, fuel lines, wiring, leaks, battery state, fluid levels, etc., to checking the door locks, windows, seat adjustments. We also check the suspension, engine cooling system, braking components, A/C and air flow. Our mechanic then drives the vehicle on a road-test to check the instrumentation, cruise control, shifting and so on. After driving, he looks again for any fluid leaks under the vehicle and then signs off on the vehicle being front-line ready. We follow the same procedure on vehicles we’ve repossessed. When a vehicle is placed on our front line and is available for sale, we also try to drive them periodically with a drive checklist being filled out each time. On this list, we are looking for turn-offs to customers as well as obvious mechanical problems. This is a good way to find lot rot and be able to fix such items before a customer finds the problem on a test drive and loses interest. We’re having to do a little more work than we previously did, and our vehicles are a little older than what we’ve been used to before, but we have found a workable path to next summer when prices will hopefully stabilize.

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membership corner

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appy New Year! We hope 2021 is off to a strong start for you and your business. If you already renewed your membership, thank you for your continued support. With the Texas 87th legislative session underway, your continued involvement could not be more important. If you haven’t checked off your membership renewal from your to-do list, you still have time. In fact, now is the perfect time to renew as you can start exploring your member benefits right away, including the 2021 Coupons which are now available on the TIADA Auction App. If you haven’t tapped into this member benefit, we invite you to download the mobile app (see page 36) to gain access to over $10,000 in discounts available this year. Whether your new year’s resolutions include growing your business, remaining compliant, saving your business money or all of the above, TIADA is committed to seeing your business succeed and offers benefits designed to help you do just that. EPI-TIADAhalf JAN2021.pdf

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12/9/20

Member Quick Links:

Compliance Consultation Service

www.txiada.org/compliance_consult_svc

Education Offerings

www.txiada.org/education

Online Member Directory

www.txiada.org/AF_MemberDirectory.asp

TIADA Auction App

www.txiada.org/auction_app

TIADA Blog

www.txiada.org/blog_home.asp If you have any questions about accessing your member beneifts or how you can get more involved in 2021, send us an email to: membership@txiada.org or call the state office at 512.244.6060. Here’s to a successful year!

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dealer spotlight Name:

Texas Dealer: Are you a seller finance or retail dealer? Hanson: Seller Finance Dealer. TD: How long have you been a car dealer and how did you get into the business? Hanson: I have been in the industry for 25 years when I started with a subsidiary of Ford Motor Credit, Primus Automotive.

April Hanson

Dealership:

Coast to Coast Motors

TD: What is the best or worst decision you have ever made

in the business? Hanson: One of the best decisions I have ever made was when I got with our Operations Manager Casey Allison and together we made the decision to cut our shop sublet vendor expense, which resulted in $50,000 a month in savings.

Location:

Houston, TX

Joined TIADA: February 2016

TD: Most memorable vehicle sold (or transaction)? Hanson: The day we reduced our overhead by $100,000.00 per month.

TD: How long have you been a TIADA member and what do

you think are the primary benefits of membership for you and your dealership? Hanson: I have been a member since 2016. The access to education and up to date information about compliance is the greatest value. I especially enjoy interacting with other dealers and having the comradery that comes along with it.

TD: You were recently elected as the Houston local chapter

president. What does serving in this role mean to you? Hanson: My industry has always been important to me. This is an exciting time as our industry adjusts to the “new reality� of the automotive business. Being president allows me the opportunity to seek out current information and present it to the membership of HIADA, in hopes that it will allow our members to grow and be successful. I believe HIADA, TIADA and NIADA are critical to the growth of our industry; the time and talent dedicated by past presidents is amazing. I hope my leadership with HIADA into the next decade is worthy of my predecessors.

TD: Biggest challenge facing your dealership today? Hanson: I would like to streamline the buying experience. I would

like to have a 45-minute car buying experience and have been trying to make this happen; however, the habits of our industry make it very 10

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difficult to gain buy-in. I believe streamlining the buying experience is critical to our future success.

TD: What are your thoughts on the age of the Internet? Hanson: The internet is fascinating. It has brought efficiencies to our business in so many different ways. The exciting thing is that it never stops providing efficiencies. I cannot wait to see the next innovation. The internet has made us evolve like the PC made our predecessors evolve in the last century. The great thing is that the internet never stops changing or innovating. I love the age of the internet.

TD: General thoughts on the auto industry right now? Hanson: I believe 2021 will be a year of steady growth; all of the problems we experience will improve a bit, but it will always be a challenge. Our industry has never been easy; however, it seems that we are always surprised at the challenges we face. I like to sit down with other dealers and have a conversation about how they address challenges and share insight and experience. The strength of the auto industry comes with the communication between dealers and the sharing of information.

up on Sundays and my fiancĂŠ and I will go to church, go to the grocery store and then come home and cook for my family. That is my favorite time.

TD: Anything else you’d like to share with Texas Dealer? Hanson: I believe 2021 will be a year of growth. I

believe that organizations like the Houston Independent Automobile Dealers Association make our industry stronger. I hope to see all the area dealers who have persevered through 2020 come to HIADA meetings and utilize the information that is presented to grow their business to levels that they never thought possible. I realize this is a lofty goal, but I firmly believe that the strongest industries have strong associations and I hope HIADA continues to rise up and benefit our members.

Want to share your story in an upcoming issue of Texas Dealer?

info@txiada.org

#TXDealerSpotlight

TD: If you had one piece of advice for a

female aspiring to get into the business today, what would it be? Hanson: My advice to any female getting into this business is to arm yourself with knowledge. The industry has matured, but in some cases, you will meet people who see you as a woman rather than a teammate or peer. I would tell a person to understand that is not a reflection on you but rather, this is all some people are capable of. Forge ahead, keep your goals in the forefront of your mind and understand there will be good days and bad days but, in the end, you can and will do anything you set your mind on doing.

TD: What do you like to do in your

spare time? Hanson: I love spending time with my family and fiancĂŠ. I love my family and they mean the world to me. I get

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on the cover by TIADA Staff

Looking back at 2020

I

ndependent dealers already have a lot to stay on top of as they continue to face a changing landscape related to Texas DMV rules, OCCC updates, title issues, scams, record issues, updates from the Federal Trade Commission and Consumer Financial Protection Bureau, lawsuits, and more. With COVID-19, it didn’t get any easier. Nevertheless, members this year responded to the challenge and the association has never been stronger. From most read blog posts to auction fee discounts, here are just a few of the highlights from 2020.

Most Asked Dealer Questions “In light of the changes in processes at the tax office and auctions due to COVID-19, I received the information I needed by calling TIADA and attending the Houston local chapter monthly meetings. Representatives from the Harris County tax office visited with dealers at one of the meetings; they were very insightful and pointed us in the right direction. TIADA also provided information on resources available, including webinars related to the Paycheck Protection Program loan, and Jeff answered a few questions that helped us keep our documents in order at our dealership during this time.”

Jorge Lozano Amazon Auto Sales , Houston, TX

Most Asked Dealer Questions Dealer Operations

One of the most popular member benefits, the Compliance Consultation Service, offers dealers an opportunity to submit questions related to their business. In 2020, the TIADA Compliance Team responded to nearly one thousand member calls. What were the most asked questions about?

63.71%

Repossessions

15.84%

Other

11.75%

Title/Licensing

4.94%

Attorney/Referral Program

3.75%

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70

75

Percentage

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Most Dollars Saved

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Most Dollars Saved Most Dollars Saved With a simple tap of a button, dealers can easily cover the cost of their annual membership and even turn their membership into a savings for their business. In 2020, members had access to well over $10,000 in savings from discounts on auction fees, both on-site and online — an additional $3,500 compared to 2019. Hussam A. who joined TIADA in August of 2020, saved nearly $3,000 in just a four-month period.

16% 16% Most Dollars Saved 15%

“With the auctions going online this

16%

16%

28%

year, using the mobile app was pretty

15%

easy. With just a tap of a button, we

26%

28%

were able to use online coupons. The Auction App helped our business

26%

save in 2020; that’s why we renewed

Dealers ~$78,475 on AustinSaved – $12,600 Buy/Sell Fees at the Auctions

Hussam A.

Dallas/Fort Worth – $20,300 Houston – Online $22,300 Coupon Austin – $12,600 San Antonio Dallas/Fort Worth––$10,575 $20,300 100% 95% Other Texas Cities – $12,700 OnlineHouston Coupon Redemption – $22,300

Momentum Automotive Group, 100% Houston, TX

95% Other Texas Cities – $12,700

our membership for next year as well, so we can use this benefit,”

Red

90%San Antonio – $10,575

90%

80%

80%

70%

70%

60%

100%

95% 50%

40%

90%

40%

80%

30%

84% 20%

70%

20%

10%

60%

10%

50%

0%

84%

50% Online vs. On-site Coupon Redemption 60% Redemption Online Coupon 30%

0%

5%

2019

40% 30%

Online

16%

2020 Online Coupon Redemption 2019 to 2019 ­ Compared

2020 Online On-Site

5%

0% January 2021

5%

16%

20% 10%

1

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On-Site


TIADA Membership Growth

Membership Growth in 2020 1303 1253

Dealers and other industry professionals turned to TIADA as a resource in 2020. In fact, more than 300 new members joined the association over the course of the year.

1202 1152 1101 1051 1000

Feb

Mar

Apr May Jun

Jul

Aug Sep

Oct Nov Dec

“As a new dealer, it’s nice to know someone’s there to provide support and help when I have questions. Because I’m new, I’m interested in all of the information the association offers, including the member directory, which allows me to look for services and products for my new business and connect with other dealers. Next year, I look forward to attending some of the meetings and hearing from other dealers about their experiences and maybe share my own. We all learn from each other.”

Hector Contreras Somos Motorcars LLC , Bryan, TX

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Looking back TIADA’s Most Read Blogs of 2020

Texas Dealer Fined 10 Times More Than Tax Owed

For anyone who is a regular reader of the TIADA Blog, you will already know we are talking about Special Inventory Tax (SIT). If you are new to the blog, print this one out and post on the dealership bulletin board. In the past few years, a number of local county tax assessor-collectors have taken an aggressive stance when it comes to enforcing special inventory tax penalty collections. This has led to numerous calls with dealers asking: “Was this the intent of the law?” Let’s say you owe a little over $500 in SIT in January and you fail to file a piece of paper that month with the your local tax office — a pandemic hits two months later and then in August you realize you have been penalized over $5,000. You might ask the same question. Really, 10 times what I owe in taxes? That is the exact predicament a central Texas dealer found himself in earlier this month. Remember, monthly reports for special inventory tax payments are due EVERY month — even if a dealer doesn’t sell any vehicles. And yes, many times the penalty is more than the tax. A quick reminder about SIT a/k/a vehicle inventory tax. Texas law provides for the special appraisal of dealers’ motor vehicle inventory. Special inventory appraisal is generally based on sales. Your local tax assessor collector will provide you with the local tax rate each calendar year. Dealers must file inventory declaration forms with the county tax appraisal district each year listing the total sales, leases or rentals,

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as applicable, in the preceding year and an inventory tax statement with the tax office must be filed each month. Penalties and interest can add up. A dealer who does not file the monthly tax statement by the 10th

day of the following month commits a misdemeanor offense punishable by a fine up to $100 per day until filed. In addition to any other penalty provided by law, a dealer forfeits a penalty of $500 for each month or portion of month that it is not filed. A tax

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lien can be attached to the dealer’s business personal property to secure payment of the penalty. A dealer who fails to remit the taxes due pays a 5 percent late penalty, with another 5 percent due if not paid within 10 days. And that is how you get to a $5,000 penalty on a $500 tax. The Comptroller’s office publishes the Motor Vehicle Dealer’s Special Inventory Manual to assist dealers in filing the Dealer’s Motor Vehicle Inventory Declaration (Form 50244) and the Dealer’s Motor Vehicle inventory Tax Statement (Form 50246), and prepaying property taxes each month.

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Texas Used Car Dealership Uncovers New Theft Scheme A dealer in Lewisville, Texas about 30 miles northwest of Dallas

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contacted TIADA recently after a vehicle was stolen from their location. TIADA visited with the general manager to learn more. The GM shared with TIADA that on August 21st, a man and two women arrived at the dealership. The gentleman went into the store and asked to see a couple of vehicles, while the women remained in the vehicle. At around 4:20 pm, the dealership provided the gentleman the keys. After viewing the vehicles, “the gentleman returned a key, and the remote with the tag. One of the employees here at the dealership locked the vehicle with the remote as we normally do. Then just after 5pm, our 2016 Chevy Silverado was stolen off the lot.” The vehicle was recovered with no damages. Upon getting the vehicle back, the dealership staff tested the key the gentleman had returned to them. “We didn’t

realize that when the gentleman returned the key to us, it wasn’t the key for the vehicle that he was returning.” The GM suspects the gentleman walked over to the vehicle, swapped out the key with one that looked similar. The general manager said they have since changed their process at the dealership and encourage other dealers to do the same. “We had never had an issue like this before, but what we’re doing now is making sure at least one of us has the keys in view at all times. We make sure we’re always with the customer.” It is understandable that not all dealerships go on test drives with customers. If at some point the keys are not in possession or within sight of an employee you may want to consider implementing a consistent practice that requires an employee to verify the correct key has been returned

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prior to the customer leaving the dealership.

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Texas Dealer Sued Over Employee’s Facebook Post If your employees are posting vehicles on their personal social media channels, make sure they know the law and you know the consequences. A recent lawsuit filed over language posted on a salesman’s personal Facebook page motivated us to revisit this topic of how dealers can manage social media risk at their dealerships.

MANAGE SOCIAL MEDIA RISK AT YOUR DEALERSHIP

Guest Blogger Steve Levine, Attorney with Ignite Consulting Partners

While social media is an attractive advertising forum, dealers must exercise caution and make sure that personnel understand social media posts are advertising, rules need to be followed, and failure to do so can have bad consequences for both the individual and the dealership. The most frequent social media violation we see is Sales personnel posting vehicles for sale on their personal Facebook pages. They wrongly assume that since the ad isn’t on the dealership page, they don’t need the “trigger term” Truth-In-Lending Disclosures. As a refresher, if down-payment amount, APR, payment amount or term is mentioned, then each of them need to be included. If the dealership owns the vehicle, the regulator won’t buy the argument that it’s not a dealer ad. Especially if the vehicle’s picture is taken at the dealer’s location with signage visible, as was the case in a recent matter we reviewed. Another bad habit that’s January 2021

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become prevalent is sales folks “posing” as individuals when offering a vehicle for sale. They may use Craigslist or a similar site to entice the consumer into believing this is a consumer to consumer transaction, and only bring up the dealership when it’s time to discuss financing. Of course, the contract then names the dealership. To make matters worse, these sales may happen off premises, giving rise to an argument of using an unlicensed location to conduct sales, which puts the dealership in jeopardy. Finally, we see a lot of ads that are incomplete and therefore deceptive because they don’t advise the consumer of all the relevant charges and fees, the result being the final financial terms are very different from what was originally proposed. Please keep in mind that regulators can scan social media without ever leaving their office, so don’t make their job easy. We strongly recommend that every dealership have a social media policy that explains to their personnel the rules and limitations and then provide training. Have each person sign a page acknowledging both the policy and training. By doing this, the dealership can demonstrate that it has taken steps to be compliant and that a violation by an individual is a mistake and not representative of the company’s business practices.

635 Fritz Dr. Ste 210 Coppell, TX 75019 469-637-0150

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Odometer Disclosure Exemption? Not So Fast — New Requirements Start This Month

Changes are coming to odometer disclosure exemption starting January 1, 2021 that 17


will have an immediate impact on dealers. With the new requirements expected to affect a significant number of previously exempted vehicles across Texas, we reached out to the Texas Department of Motor Vehicles to help answer key questions dealers are asking regarding this latest regulatory change issued by the National Highway Traffic Safety Administration and what actions dealers should be prepared to take at the start of the year. TxDMV provided the following to help TIADA members:

NEW FEDERAL REGULATIONS: ODOMETER DISCLOSURE EXEMPTION CHANGE AND ADDITIONAL USE OF THE POWER OF ATTORNEY FOR TRANSFER OF OWNERSHIP TO A MOTOR VEHICLE (FORM VTR-271-A) Clint Thompson, Chief of Title Services Texas Department of Motor Vehicles, Vehicle Titles and Registration Division

The Texas Department of Motor Vehicles (TxDMV) distributed Registration and Title Bulletin (RTB) #013-20 and provided webinars to communicate federal changes to the model year exemption for odometer disclosure from 10 to 20 years and additional uses of the Form VTR-271-A. The RTB and webinar recording can be found on the TxDMV website. Effective January 1, 2021, the new 20-year exemption for odometer disclosure applies to 2011 and newer model year vehicles. This means a 2011 model year vehicle will not become exempt from odometer disclosure until the vehicle is 20 years old, which will be January 1, 2031. You will need to ensure that 2011 and newer model year vehicles have a properly completed odometer disclosure statement. TxDMV is aware that not all states will implement the 20-year exemption by January 1, 2021. If 18

you purchase a 2011 model year vehicle and the out of state title was issued as exempt, the vehicle will be titled in Texas with the odometer brand as Not Actual Mileage. You should inform any potential buyer prior to selling the vehicle. You will record the mileage at the time of sale and indicate the odometer reading is Not Actual Mileage. New federal regulations also include additional permitted uses of the Form VTR-271-A. The Form VTR-271-A can now be used when the vehicle is subject to odometer disclosure and the title is lost, held by a lienholder (whether the title is paper or electronic), or an electronic title that cannot be accessed. Use of the Form VTR-271-A with electronic titles includes an electronic title when the lienholder has not released the lien or when the owner on record has an electronic title without a lien. There are no changes to how the Form VTR-271-A is completed. If the vehicle is subject to odometer disclosure and a permitted use applies, Part A is completed when the motor vehicle is traded in. If you transfer the motor vehicle and a permitted use still applies, then you will complete Parts B and C. Form VTR-271-A has been revised to accommodate the federal changes, and the revised version will become available once current inventory has been depleted. Your current inventory remains valid for use even after January 1, 2021.

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Repossessions: From Law Enforcement’s View

At least once a week we get a call from a lienholder asking the same question: my customer is hiding my car from me, why won’t the police help me? My initial thought is, welcome to BHPH. But last week, I put the same question to a retired law enforcement officer who happens to

be a friend of mine. Once a customer has defaulted on a retail installment contract, the Uniform Commercial Code or Texas Business and Commerce Code allows for a lienholder with a secured interest to collect the collateral so long as they can do it peacefully. Most debtors are well aware of this law and when a debtor falls behind on their payments, they may start securing the vehicle in a way that the lienholder cannot easily have access to said vehicle. Wouldn’t it be nice if you could simply pick up the phone, have law enforcement meet you at the debtor’s house and allow you to collect your collateral — isn’t that what the law allows? “No,” so says my contact from the law enforcement community. “When we are called to a situation like that, it’s always he said she said, and we just can’t be the judge on that sort of stuff. Unless someone is clearly in danger, we really can’t take any action until it’s resolved in the courts.” He went on to tell me, this is more like a breach of contract between the lienholder and customer. He laughed and added, the last thing you want is to have us out there settling contractual disputes. He also pointed out that when the cops are called it’s never over a “peaceful” dispute. There is a remedy though, through the courts. A lienholder, with the appropriate lien and evidence may obtain an order from the courts that will allow law enforcement to pick the vehicle up and hold it until the court decides who the rightful owner is. For a more legal explanation, see “What To Do When Peaceable Repossession Is Not Possible” here: https://bit.ly/2Mnue1S. (This article is taken from Texas Automobile Repossession: A Lien Holder’s Legal Guide, with the permission of the author. The book is available from TIADA.) T e x a s

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on the cover by TIADA Staff

Predictions for 2021

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new year is finally here and, with it, new challenges and opportunities for independent car dealers. What will this year be like for dealers? Will it be successful? Will small businesses struggle? To determine what 2021 will be like, we reached out to several dealers as well as others related to the industry who shared their expert opinions on issues such as the Texas economy in the new year and how a new presidency will affect the industry.

Jeff Stevens

Manager/Owner — Xtra Auto Center in Pampa

How will the Texas economy perform in 2021? Good thing we live in Texas because I believe there will continue to be an influx of population from other parts of the country and that is good for the Texas economy, particularly in rural areas. What will be the biggest challenge independent dealers will face in the next 12 months? Inventory. At least for me, buying inventory will continue to be the biggest challenge. Inventory is crucial and prices have rapidly gone up and, at some point, I feel like the balloon will burst as prices seem inflated, but it is difficult to predict. How much do we carry? Should we stock up? There are too many variables so, in the meantime, I’m just trying to keep it steady. By when do you anticipate things will go back to “normal”? And will that “normal” be the way it was pre-COVID or will there be a “new normal”? The short answer is I don’t know. With the recent January 2021

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vaccine news, I am hopeful that we can look into the early spring, but tying it back to the inventory challenge, this has been going on for a long time and it might just be the new normal. How will President-Elect Biden have a positive or negative impact on the independent auto industry (or small business owners)? In my opinion, a Biden administration will have a negative impact on our industry and other small businesses if he does go through with what he has promised to do, such as passing some tax laws and increasing the minimum wage nationwide to $15/hr. It concerns me and I believe these measures will increase unemployment. Will consumers have more or less buying confidence this year? This is the hardest question to predict: when COVID started, I thought that we would see a decrease in sales in 2020, but that has not been the case at all. Other than a slight decrease during the very first days, the rest of the year has been very strong. I think it will also depend on if there is a second stimulus and when. 19


Save the date.

July 25-27, 2021

Round Rock, TX


What is the most positive change we will see in our industry in 2021? For the BHPH dealer I believe there is a chance we will thrive in 2021 because the banks may become a little bit stricter with their lending, therefore increasing the pool of our prospects.

Phil Lathrop

Owner — VP Auto Sales in Garland

How will the Texas economy perform in 2021? The economy will be steady but no big peaks. Many have suffered setbacks and it will take a while to come back strong. What will be the biggest challenge independent dealers will face in the next 12 months? The biggest challenge will be collections and working with customers to strengthen loan portfolios. By when do you anticipate things will go back to “normal”? And will that “normal” be the way it was pre-COVID or will there be a “new normal”?

The new normal will likely be revived mid-summer when vaccines are proven and distributed. How will President-Elect Biden have a positive or negative impact on the independent auto industry (or small business owners)? I think President Biden will have a positive effect on the industry and the country. He understands a strong economy only comes with the taming of the pandemic. We all know the 1% aren’t buying any note cars and the stronger the entire spectrum of consumers becomes the better for BHPH. The biggest threat comes from too large a whiplash, creating credit and other regulations that may be over the top. There is no free lunch, but there should be a fair lunch for the money. Will consumers have more or less buying confidence this year? Consumers will have more confidence. What is the most positive change we will see in our industry in 2021? The most positive change we will see is how we can become more productive using the technology skills we have learned in 2020. We must use this and rebuild our “relationship lending” skills with our customers.

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Kyle Chapman

What is the most positive change we will see in our industry in 2021? The auto factories back to full production – making the pipeline as normal as it was.

Owner — Kyle Chapman Motor Sales in Buda

How will the Texas economy perform in 2021? Great.

Laura Ryan

What will be the biggest challenge independent dealers will face in the next 12 months? Getting reasonably priced inventory.

Commissioner, Texas Department of Transportation

How will President-Elect Biden have a positive or negative impact on the independent auto industry (or small business owners)? Depends on who is really running the show, him, or the party. It’s still going to be negative, question is — how much.

How will the Texas economy perform in 2021? I think any answer now is purely speculation. However, I believe it will remain neutral—some areas of the economy will grow significantly, some areas will shrink significantly, and some will remain relatively flat. The great news is Texas has a diverse economy; however, the outcome will depend on the overall impact and recovery from the shutdowns and the pandemic impact. There are still too many unknown factors that must play out at both the federal and state legislative levels. I read something recently that predicted the economic recovery to look more like a K-shaped economic recovery than a “V” or a “U”; there is no one answer or direction for the recovery—it will depend more on the industry and product.

Will consumers have more or less buying confidence this year? They will have buying confidence up until Biden changes the tax rates.

What is the biggest challenge the automobile industry will face in the next 12 months? Keeping up with the rapid pace of change will be the biggest challenge for the auto industry. Historically the

By when do you anticipate things will go back to “normal”? And will that “normal” be the way it was pre-COVID or will there be a “new normal”? When the vaccine makes an impact on our daily lives — still will be a new normal.

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automotive industry has always been slow to change, even when there is an advisable need. Since most dealers have been able to retain high or even record profits in 2020, I believe that accepting the change and advancing technology will be an even bigger challenge moving forward. So, the questions to think about are, ‘is the industry thinking ahead to what is not needed today but will be required tomorrow?’ Meaning, will the consumer driven changes be embraced or challenged? How will the industry balance supply and demand with transparency and convenience? Short-term gain vs. long-term resiliency? How will technology impact the talent you need and the processes in place? All questions that require thought now and will be difficult to execute tomorrow... the industry should get ahead of the curve. Over the past 180 days, the automotive industry has seen ten years’ worth of digital growth…only because it was a requirement for survival. The digital, online shift is showing up in all aspects of the industry from consumer online shopping, online financing, online purchase transactions, online scheduling of a delivery, or the pickup and delivery for service work. Additionally, from a B2B aspect, dealers and auctions are transacting the sale and purchase of inventory without leaving their office. Currently the market share of online auction tools is around 5%. I expect this area of the market to increase over the next year. To reiterate, keeping up with the pace of required change will be the biggest challenge. By when do you anticipate things will go back to “normal”? And will that “normal” be the way it was pre-COVID or will there be a “new normal”? I do not believe the first half of 2021 will be much different than the last quarter of 2020. However, I do believe as we near mid-year we will all be more settled into the changes that have been brought about by the pandemic. I am not sure I agree with the term “new normal” because things have always shifted and evolved, however at a much slower pace, and we have always adapted. I cannot remember looking back over a five-year time frame and thinking that nothing had changed or progressed. If technology has taught us anything it is that the only constant is change. The difference is the current situation occurred rapidly and not just locally but globally, which makes the change more visible and challenging to accept. So, I think the healthiest, and most profitable, way to view the current business dynamics is that every day is the “normal” and should be accepted and maximized as such. Those that are waiting for the past to become the present again will surely fall behind quickly with little hope of catching up. A disengaged mind and spirit are never good business partners. January 2021

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Will consumers have more or less buying confidence this year? From a financial aspect I think the economy will drive consumer confidence, as it always does, and is still extremely speculative at this time. From a process or transactional perspective consumers will continue to demand to see more transparency and customer-centered conveniences which, if the industry responds, will enhance confidence in the industry and the businesses that take this challenge head-on, thus increasing confidence. What is the most positive change we will see in our industry in 2021? As with most down-turns, the years on the uphill swing of the curve are always extremely positive with regard to growth and profitability due to rightsizing of the organizational structure and expenses. This growth and profitability, if reinvested in the business through people, training, and technology, will pay dividends in market-share and the bottom line for years to come for those businesses that embrace the current changes and find a way to lead the industry into the next stage of normal.

Phillip Holt

Chairman, Texas Finance Commission

How will the Texas economy perform in 2021? I am hopeful that Texas will continue to see signs of recovery in the economy from the pandemic. Just this week, the State Comptroller stated that the tax revenue fell by 4.8%, and not as bad as forecasted. We are still seeing strong growth in new home sales and the West Texas energy sector is holding steady. With that said, the unknown is still whether the vaccine for COVID will be distributed in a timely manner, and how the new Biden Administration will approach key business and energy sectors. For Texas, Governor Abbott and his team are still recruiting top businesses to relocate to Texas and bringing more jobs. An example of this is the recent announcement of HP’s new corporate headquarters in the Houston area. I know that several other potential relocations are in negotiations and have confidence that the Governor will be successful. What is the biggest challenge the automobile industry will face in the next 12 months? The biggest challenge to the automobile industry will be similar to what other markets will face: the consumer confidence, inventory challenges and any further setbacks from the pandemic. Fortunately, dealerships have been deemed essential business in most areas, and hopefully they have been able to maintain the service department, and continued sales. 23


By when do you anticipate things will go back to “normal”? And will that “normal” be the way it was pre-COVID or will there be a “new normal”? I believe the way we move forward post-COVID will be a new normal. Within my extended family, for example, several individuals have determined that they will continue to work remotely. I also believe that the airline (travel), hospitality industry will still suffer from the pandemic, and schools will continue to adjust their manner of educating our kids. I am optimistic that by the third quarter of 2021, we should see some stability in our lives, and that is if we can see the positive outcome of the vaccinations against COVID, and reasonable mass distribution to all individuals. Will consumers have more or less buying confidence this year? I sure hope there is more, and the upcoming holiday season will be a good measure of consumer confidence. Who will gain control of the U.S. Senate is still a variable to consider, and how Wall Street reacts to key cabinet officials being named. What is the most positive change we will see in our industry in 2021? The positive change for the industry for 2021 is continued optimism for Texas and its ability to recover and create new opportunities. We are very fortunate to have leadership in the Legislature that understands how business needs to perform, without government interference. I know that as my role of Chairman of the Texas Finance Commission, our three agencies are committed to providing a fair framework of regulations and keeping the marketplace competitive with reasonable administrative fees. I am certain that our dealers and suppliers within the TIADA, are capable of adapting to the challenges and coming out stronger than before. I look forward to continuing to work with the leadership of TIADA and Jeff Martin in this coming year.

Darren Whitehurst Texas Automobile Dealers Association President

How will the Texas economy perform in 2021? It may be a bumpy start, but I am hoping that Texas’ economies performance in 2021 is much better than 2020. I often look at the Texas economy through the lens of the Texas legislature and even though the budget doesn’t look good now, we have had other dire sessions in the past; I can recall at least a couple of them since the mid-90s. With a growing state and hopefully the worst of the pandemic behind us by mid-2021 when 24

the vaccines become widely available, the economy will start to pick up. What is the biggest challenge the automobile industry will face in the next 12 months? I’ve been in this position for almost a year and unfortunately the pandemic has limited my ability to get out there and visit the dealers as I would have liked to. I do know that for my dealers the issue of inventory, both on the vehicle and parts side, has been a huge problem. I am hoping that, as manufacturers resume production and the vaccine becomes widely available, these issues will become less of a problem. By when do you anticipate things will go back to “normal”? And will that “normal” be the way it was pre-COVID or will there be a “new normal”? There will be a new normal, at least in the short run, because any time you are subject to a pandemic, it is going to affect the way things are done. Just look at the way people interact with each other since the pandemic started. I think many of our old habits may gradually come back, but it’ll take some time…other things may never be the same. For example, many people who used to commute to work daily may decide they no longer need to do that when the pandemic is over. That is going to affect our economy. One personal example is the downloading of menus on my smartphone at the restaurant. Now the use of a physical menu is a rarity. It reflects the ingenuity of people to solve problems when a need comes up. That is what I believe my dealers are really good at—coming up with creative solutions when problems arise. Will consumers have more or less buying confidence this year? Less confidence to start off the year because there is a significant segment of the population struggling to get jobs and pay their bills. The question will be at what point will there be opportunities to improve their situation and restore their confidence so that they can be productive members of our society. What is the most positive change we will see in our industry in 2021? An outcome of 2020 was the critical designation of the dealership as an essential business and the recognition of automobiles as an essential part of our daily lives. I think this has been the case, but many people took it for granted. For 2021, I think this positive momentum continues. This resonates with me as I want to make sure my family has good, safe, reliable transportation. I know that dealers will help meet these needs through their can-do attitudes and will figure out safe ways to keep offering vehicles through 2021 and beyond. T e x a s

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legal corner

Stereos, Tires, Wheels: Personal Property or Accessions? by Michael

Dealer Question: I know that I must return personal property from a repossessed vehicle to the debtor. But what about tires and wheels, or expensive sound systems that the debtor has added? I thought that “attachments” became part of the collateral that did not have to be returned. Response: A motor vehicle lien does not (and can not) extend to the personal property of a consumer debtor. Thus, personal effects (tools, CD’s, clothes, etc.) of a debtor must be returned upon demand or the creditor faces damages for conversion. But what about the expensive stereo system that the debtor installed, or the fancy tires and wheels that are on the vehicle when it is repossessed? To what extent are these items personal property of the debtor (or of a third party, such as a company that “rents” these items to the debtor), and to what extent do they become part of the vehicle that is subject to the original car lien? There are two separate concerns here. First, there’s the claim of the debtor who wants his expensive toys back after the car is repossessed. His claim is that the stereo system (control unit, amps, speakers) is his personal property and not part of the vehicle. The other is the claim of a third person that owns the property (fancy tires and wheels) that was “rented” to the debtor, and which he now wants back. Most motor vehicle installment contracts include the grant of a January 2021

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purchase-money security interest to the creditor to secure performance. The Uniform Commercial Code prohibits creditors in consumer contracts from taking a security interest in consumer goods acquired more than ten days after the contract was signed. Thus, a car creditor could not take a security interest in, say, a boom box or CD player that the debtor acquires in the future. The UCC recognizes, however, an exception to this rule when property is affixed to the original collateral. The legal term for the goods that fit into this exception is “accessions.” Accessions are defined by the UCC as goods installed in or affixed to the other property that is the subject of the lien. One test used sometimes by courts in determining if something is an accession is whether it can be removed easily without damaging the underlying collateral. A replaced engine or transmission would appear to meet the definition of accession. Much of the recorded litigation over the question of whether something is personal property or

Dunagan

W.

TIADA GENERAL COUNSEL

Accessions are defined by the UCC as goods installed in or affixed to the other property that is the subject of the lien. One test used sometimes by courts in determining if something is an accession is whether it can be removed easily without damaging the underlying collateral. an accession has involved expensive refrigeration units and other equipment that had been welded onto truck frames. The value of the property in question justified the expense of litigation. The outcome of those cases has typically been left up to judges or juries who make factual determinations based on the evidence. Whether a CB radio or stereo installed in the dash of a vehicle is an accession has not been clearly 27


answered and remains a question to be ultimately determined by a judge or jury in a lawsuit based on the facts of each case. Certainly, the fact that a perfectly good radio that was in the dash when the vehicle was sold, and is now gone, should assist the creditor in making his case. Also, it could be argued that removal of the items would result in gaping holes that definitely devalue the underlying collateral. The same test applies to the rental tires and wheels that are found on a vehicle when it is repossessed. A few years ago, a Fort Worth rental tire and wheel shop actually filed lawsuits against lien holders who had repossessed vehicles that had the shop’s rental tires and wheels. A local justice of the peace would issue a writ of sequestration ordering the sheriff or constable to take possession of the tires and wheels. Subsequently, a deputy constable would order the lien holder to

remove the wheels or the deputy would remove them, leaving the car sitting on its hubs. Some dealers would respond to the suits claiming that the tires and wheels had become accessions that were thus subject to the vehicle lien. The rental tire and wheel shop contended that the wheels belonged to it (its serial numbers had been etched onto the wheels and tires). The shop argued that the wheels could be removed without damaging the vehicle by simply unbolting five lug nuts. Case law wasn’t very helpful in determining the outcome, although a Texas Supreme Court case from the 1800s held that since wagon wheels could easily be removed from a buggy without damaging the buggy, the wheels were not accessions. Dealers who litigated these cases won some and lost some, and many were settled. None of these

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cases went high enough up the court system to obtain an appellate court decision that might offer guidance as to the outcome of future cases. The amount in controversy just didn’t justify either side spending thousands of dollars in attorney’s fees to fully litigate the disputes. We haven’t heard of any cases recently where suit was filed to force return of the tires and wheels. Most subsequent disputes over rental tires and wheels on repossessed vehicles that we have been aware of have been amicably settled, with the rental shop replacing its wheels with original equipment equivalents in exchange for release of the rental parts. Avoidance of the expense of litigation has prompted both sides to seek solutions that would eliminate either side from suffering the entire loss of the debtor’s default. So, while the law doesn’t give us hard and fast rules that can be relied upon in deciding whether to return or not return the property in question, the answer may reside in seeking common-sense solutions. Whether the property is stereo equipment or fancy wheels and tires, and whether the claimant is the debtor or a third-party rental company, attempts should be made to resolve the dispute short of expensive litigation. A sense of fairness would seem to lead to the proposition that the vehicle lien holder, while maybe not entitled to a windfall of expensive parts or equipment, is at least entitled to get back what he put on the street. Michael W. Dunagan is an attorney in Dallas, Texas who has represented the Texas Independent Automobile Dealers Association for over 40 years. He has written a number of books and hundreds of articles for trade journals and law reviews. His clientele includes dealers, banks, finance companies, auto auctions and credit unions. T e x a s

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feature

Ten Themes that Impacted Automotive in 2020 by Steve Greenfield

CEO/Founder Automotive Ventures

L 1

ooking back on the year, we have a lot to choose from, but here are the top ten themes that most impacted the automotive industry.

COVID Crisis

The rapid spread of the coronavirus forced auto factories across North America to shut from March into May. Thousands of dealers and other small businesses received emergency federal aid. Office workers began working remotely — and many are expected to continue doing so well into 2021. Dealerships, some of which temporarily had to close all or parts of their operations under government order, reinvented themselves with new sales and service processes that minimized face-to-face interactions.

2

Resilient Auto Sales

Vehicle sales were hit hard by the pandemic before showing surprising resilience throughout the remainder of the year. After starting the year strong, they plunged to an annualized rate of just 8.8 million in April amid state- and local-government ordered dealership shutdowns. But sales shot higher again as homebound consumers flocked to generously discounted pickups and SUVs, and commuters wary of public transit opted for a privately owned vehicle instead. The annualized selling rate returned to more than 16 million by September and has stayed in that range since, despite lingering vehicle shortages caused by the spring factory closings and a fall surge in coronavirus cases around the country.

3

The Convenience Economy

While COVID forced millions of people to shelter in place, cßonsumers spent more time and money online watching Netflix, viewing ads on Google and Facebook pages, filling Amazon shopping carts, exploring online learning, finding home-exercise options, and turning to online video games. Ecommerce became a lifeline for millions of people reluctant to leave their homes, as its adoption accelerated by close to a decade in a matter of months. After years of talking about the possibilities of online sales, dealers were forced to embrace digital retailing

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efforts to keep selling vehicles while in many cases showrooms were forced to close (or consumers wanted to avoid visiting them). Public dealership groups launched online brands such as Lithia’s “Driveway” and Asbury’s “Clicklane”. Wholesale auctions also pivoted to digital formats; KAR Global sees the change as a permanent safety and efficiency improvement, while Manheim has resumed limited in-person auctions. Online players such as ACV Auctions, TradeRev and CarOffer saw tremendous growth. Dealership service departments rolled out more contactless options, from mobile check-in capabilities to mobile service vans. While auto repair generally was considered an essential service during the spring shutdowns, dealerships expanded their use of pickup and delivery of customers’ vehicles, bringing greater convenience at a time when customers were concerned about health and safety. The interest in online selling buoyed Carvana’s stock price this year, generated a lot of interest from investors outside the automotive industry, and provided tailwinds for Vroom and Shift to go public. Vroom raised $468 million through its initial public offering in June. Shift Technologies went public via a special-purpose acquisition company, or SPAC, in October. That same month, CarLotz announced it would go public through a reverse merger, which is expected to close in the first quarter of 2021.

4

EV Investments

2020 saw numerous electric vehicle (EV) manufacturers take the opportunity to go public, notably via SPACs. This year saw Fisker, Nikola, Canoo, Lordstown Motors, and Hyliion go public. Many of the legacy OEMs indicated they were aggressively increasing their bets on EVs. GM boosted its planned spending on electric and autonomous vehicles by 35 percent to $27 billion through 2025. Volkswagen committed $41.5 billion through 2025 just for batterypowered vehicles. Ford is spending $11.5 billion on EVs and hybrids through 2022. Hyundai and Kia are planning to spend a combined $43 billion through 2025 on EVs, purpose-built vehicles and other new technology. 29


5

COVID Cancels Conventions

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This year would have been my 22nd National Auto Dealer Association (NADA) show in a row, and it’s sad that I’ll miss it. It just won’t be the same attending virtually. NADA weekend is one of my favorites of the year, as I get to see industry folks that I otherwise never get to catch up. In addition to NADA shifting to virtual, so have the big auto shows. It started with the Geneva auto show’s last-minute cancellation and snowballed from there. New York, Los Angeles and Detroit were all show-less in 2020. As a result, automakers had to find new, digital ways to create excitement and awareness for new vehicles. Software vendors needed to find new ways to prospect dealer customers.

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Unprecedented Profits

7

Markets and SaaS Valuations at All Time Highs

Rolling the clock back to the beginning of the pandemic, I would have predicted that we were in for a hard year which might see thousands of dealerships go out of business, as consumer demand disappeared. Ironically, the opposite happened — dealers and OEMs reported record profitability in Q3 2020. Tight new and used inventory supply occurred as both supply dried up (auctions were either closed or running at partial capacity and new car plants were forced to close for some time) and demand strengthened. Both factors drove record profits across the dealer body and strong third quarters for most automakers, as they didn’t have to discount vehicles, and gross profit per car held strong.

The S&P 500, the Dow Jones industrial average and the tech-heavy Nasdaq all ended 2020 at or near their record highs, even as a deadly pandemic claimed the lives of more than 340,000 Americans and left millions jobless and without enough to eat. Wall Street’s resurgence has been fueled by the largest federal government stimulus ever, historic support from the Federal Reserve and optimism about how quickly the economy is likely to bounce back next year as coronavirus vaccines become widely distributed. Investors have largely ignored the ongoing pain on Main Street, including pronounced unemployment, overrun hospitals and battered small T e x a s

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businesses. On the eve of the new year, nearly 10 million people remain out of work, and we face a jobs crisis worse than anything seen during the Great Recession. Investors are focused on the future. Stocks are a forwardlooking mechanism. They don’t care about what is happening right now or what happened in the past. Goldman Sachs predicts growth of 5.9 percent next year — the best annual increase since 1984. And the unemployment rate is expected to fall to 5 percent, according to the Federal Reserve, meaning 2 million more people could return to work. Corporate earnings are forecast to balloon in the second half of the year, and crucially, stocks remain appealing for many investors because interest rates are so low, making them more attractive than other kinds of assets, such as bonds. The market’s gains have also been driven largely by a handful of superstar stocks, a scenario eerily reminiscent of the dot-com era. Three of the biggest tech giants — Apple, Amazon and Microsoft — accounted for more than half of the S&P 500’s return in 2020. Absent the top 24 companies, which are dominated by tech and digital services, the S&P 500 return would have been negative in 2020. As technology stocks have led the market higher, Software-as-a-Service (SaaS) multiples have hit an all-time high. The median public SaaS company valuation multiple was at 15.6 times Annual Recurring Revenue Run-Rate (ARR) as of year end, the highest it’s ever been. Multiples are high due to a convergence of factors, including monetary easing, trillions of dollars chasing investable targets, and an adoration of the SaaS business model.

8

Tesla Soars

9

Blurring of Lines Between Retail and Wholesale

2020 was a great year for both Tesla and Elon Musk. Elon is now the world’s second-richest person, as Tesla became the most valuable automaker by far, eclipsing long time No. 1 Toyota by 150 percent at the start of December. The California company opened its first plant in China and started construction in Germany and Texas, and Tesla remains the fastest growing auto brand, in the U.S. as well as worldwide. Tesla’s buoyant market capitalization ($669 billion at the start of 2021) has fueled more interest in other EV manufacturers, many of which went public in 2020 via SPAC.

I’ve spoken numerous times about the blurring of lines between wholesale and retail, which seems to be happening at an accelerated pace. Maybe the best example of this blurring is CarGurus’ investment in a majority of CarOffer at a $275 million valuation. The move will allow CarGurus to provide a more end-to-end used car solution for their dealers, who can now source, appraise, price, advertise and dispose of used cars on their lot. This should allow CarGurus to go deeper into dealers’ wallets and make

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the product stickier (i.e., less churn). Another trend in 2020, which really came to the forefront due to months of used inventory supply shortages are services that enable dealers to source private seller (“for sale by owner”) vehicles. Companies playing in this space include Drivably, Vettx, Boost Acquisition and Vehicle Acquisition Network (VAN). Dealers no longer need to solely rely on sourcing used vehicles from auctions or through dealer trades. Companies who might have historically been viewed as dealers are starting to blur lines into the wholesale auction space. The largest retailer of used vehicles, CarMax, runs the third largest auction company in the country, with over 70 locations. CarMax sells over 400 thousand wholesale vehicles per year through these auctions. And remember that CarMax made a $50 million dollar investment in online shopping site Edmunds in early 2020, which raised a lot of eyebrows. Carvana launched CarvanaACCESS in 2020, powered by Manheim’s OVE. Like CarMax, Carvana needs an efficient way to dispose of trade-ins and aged inventory they don’t need. Finally, used car consignment company CarLotz announced that it will be going public in early 2021 via SPAC, with a vision of offering fleet cars directly to consumers.

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2020 is The Year of the SPAC

SPACs, often called blank-check companies, took the opportunity in 2020 to disrupt the traditional IPO market. SPACs are flourishing in the electric vehicle (EV) market, helping startups to avoid the complexity and strenuous paperwork associated with the traditional IPO. Many EV companies chose to go public this year via reverse mergers with SPACs, a faster, simpler and less demanding process than the conventional means of making a debut on the stock market. We will exit 2020 with over 473 IPOs, a nearly quadrupling of IPO count, and the most in any calendar year, ever. The next closest year was back in 2000 with 397 IPOs — at the peak of the Dot.Com bubble. Much of the interest in the automotive space has been fueled by Carvana’s high market capitalization, as well as a COVID-inspired interest in online automotive shopping experiences. Specifically, Vroom IPO’d earlier this year, followed by competitor Shift Technologies going public via SPAC. And we already mentioned that CarLotz is coming to market shortly. All of these players are enjoying the tailwind of Carvana’s stock price being up 200% in 2020 to just shy of a $50 billion dollar market cap. Only time will tell if consumer demand can support all of the EV automakers that went public in 2020. But in the meantime, it definitely was the YEAR OF THE SPAC, and I don’t see this trend slowing down as we enter 2021. 31


ATTENTION STUDENTS!!!

$1,000

Marvin Norwood Scholarship DEADLINE

May 10, 2021 {Applications and/or any required documents received after May 10, 2021 will NOT be accepted.} Criteria and Guidelines 1. Each applicant must be entering or currently enrolled in an accredited college or a trade school. Proof of enrollment must be included with this application.

Date: Name:

DOB:

Address: City:

State:

Zip:

Email: (You will receive email confirmation of receipt.)

Telephone Number: High School Last Attended:

2. Each applicant must provide a letter from their TIADA member sponsor that includes the sponsor’s address and phone number.

Address:

3. Each applicant must complete the application form.

Date of Graduation:

4. A copy of high school transcripts is required for applicants who are college freshmen. If applicant is currently enrolled, provide college transcripts with official university imprint.

Other High Schools Attended (Names and Addresses):

5. Provide a detailed description of participation in any academic, honorary, civic or extracurricular activities in college. In addition, a detailed description of high school activities is required from college freshmen along with a college acceptance letter. 6. Compose an essay of no more than two typed, double-spaced 8 ½” x 11” pages. The essay should discuss the applicant’s relationship with their TIADA scholarship sponsor, current education goals and future aspirations as it relates to the applicant’s subject/training area. 7. Provide at least two (but no more than three) letters of recommendation, no older than one year, from college/high school faculty, employers or other appropriate sources (not related).

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SCHOLARSHIP APPLICATION

City:

State:

Zip:

Dates of Attendance:

College(s) you are attending or plan to attend for admission:

Parents Name(s): TIADA Member Name (Sponsor): TIADA Member Company Name: TIADA Member Address: City:

State:

Zip:

Sponsor Signature Should you have any questions, please contact TIADA at 512.244.6060. Please return the completed application with all required documents to: TIADA Attention: Scholarship Applications 9951 Anderson Mill Rd. Suite 101, Austin, TX 78750

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legislative bulletin New Protocols for the 87th Legislature

T

he 87th legislature is expected to have an unprecedented state-wide budget shortfall, which will require cuts going into the ‘22-‘23 biennium. These cuts will impact state agencies and line items included in the state budget. This session will be unlike any other legislative session we have ever experienced due to the budget deficit and the impact of the pandemic. Beyond the emergency matters the Governor will layout in his State of the State Address, legislation will be limited. Emergency matters may include criminal justice reform, budget, redistricting, and the power struggle between the executive branch and local governments. Therefore, legislation that has a fiscal note or applies to anything other than emergency matters will most likely not be considered. The House has yet to release their proposed protocols, but it is believed they will look similar to the Senate. The Senate has initially proposed the following Capitol protocols for the upcoming session: Capitol visitors will only be allowed through the North entrance No visitors in offices Those testifying during committee hearings must sign up online three days in advance, pre-test 24hrs in advance, and receive a QR code they will need to

by Mario

Martinez

Martinez & Associates TIADA LEGISLATIVE CONSULTANT

present at the Capitol Redistricting • Will be the only committee to take virtual testimony • Census might not release the numbers until July 15th The public can test at the Capitol • The results will take up to an hour, then they will be allowed in • This will be the protocol for the first 60 days

It’s quite evident that public access will be strictly monitored and limited. This also means there will be no TIADA Day at the Capitol this year. Our day at the Capitol has become such an important part of our overall advocacy program that we will continue to look for options that will allow our members to speak directly to their legislators. No matter what obstacles are presented, TIADA will continue to be your voice at the Capitol; we will monitor the 87th legislative session closely and report back to our members accordingly. We will also notify members and encourage you to take action when issues arise that will affect the industry. The 2021 TIADA Legislative Agenda can be found on the TIADA website.

No matter what obstacles are presented, TIADA will continue to be your voice at the Capitol. January 2021

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TIADA Auction Directory 2021

Save thousands on buy or sell fees at these participating auctions! * VALID FOR SELL FEE ONLY AT INSURANCE AA LOCATIONS ** ONLINE AUCTION AVAILABLE

Abilene ALLIANCE AUTO AUCTION ABILENE

www.allianceautoauction.com 6657 US Highway 80 West, Abilene, TX 79605 325.698.4391, Fax 325.691.0263 GM: Brandon Denison Friday, 10:00 a.m.

$AVE : $200

C.M. COMPANY AUCTIONS, INC. www.cmauctions.com

2258 S. Treadaway, Abilene, TX 79602 325.677.3555, Fax 325.677.2209 GM: Gregory Chittum Thursday, 10:00 a.m. $AVE : $200

IAA ABILENE*

www.iaai.com 7700 US 277, Hawley, TX 79601 325.675.0699, Fax 325.675.5073 GM: Terrie Smith Thursday, 9:30 a.m.

$AVE : up to $200 Sell Fee

Amarillo IAA AMARILLO*

www.iaai.com 11150 S. FM 1541, Amarillo, TX 79118 806.622.1322, Fax 806.622.2678 GM: Shawn Norris Monday, 9:30 a.m.

$AVE : up to $200 Sell Fee

Austin ADESA AUSTIN

www.adesa.com 2108 Ferguson Ln, Austin, TX 78754 512.873.4000, Fax 512.873.4022 GM: Rich Levene Tuesday, 9:00 a.m.

$AVE : $200

ALLIANCE AUTO AUCTION AUSTIN

www.iaai.com 2191 Highway 21 West, Dale, TX 78616 512.385.3126, Fax 512.385.1141 GM: Geoffrey Rabb Tuesday, 9:00 a.m.

$AVE : up to $200 Sell Fee

METRO AUTO AUCTION AUSTIN www.metroautoauction.com 8605 Cullen Ln., Austin, TX 78748 512.282.7900, Fax 512.282.8165 GM: Brent Rhodes 3rd Saturday, monthly

$AVE : $200

Corpus Christi CORPUS CHRISTI AUTO AUCTION

www.corpuschristiautoauction.com 2149 IH-69 Access Road, Corpus Christi, TX 78380 361.767.4100, Fax 361.767.9840 GM: Hunter Dunn Friday, 10:00 a.m.

$AVE : $200

IAA CORPUS CHRISTI*

www.iaai.com 4701 Agnes Street, Corpus Christi, TX 78405 361.881.9555, Fax 361.887.8880 GM: Patricia Kohlstrand Wednesday, 9:00 a.m.

$AVE : up to $200 Sell Fee

Dallas-Ft. Worth Metroplex ADESA DALLAS

www.adesa.com 3501 Lancaster-Hutchins Rd., Hutchins, TX 75141 972.225.6000, Fax 972.284.4799 GM: Allan Wilwayco Thursday, 9:30 a.m.

$AVE : $200

ALLIANCE AUTO AUCTION DALLAS

www.allianceautoauction.com 1550 CR 107, Hutto, TX 78634 737.300.6300 GM: Brad Wilson Wednesday, 9:45 a.m.

www.allianceautoauction.com 9426 Lakefield Blvd., Dallas, TX 75220 214.646.3136, Fax 469.828.8225 GM: Chris Dean Wednesday, 1:30 p.m.

AMERICA’S AA AUSTIN / SAN ANTONIO

AMERICA’S AA DALLAS

$AVE : $200

www.americasautoauction.com 16611 S. IH-35, Buda, TX 78610 512.268.6600, Fax 512.295.6666 GM: John Swofford Tuesday, 1:30 p.m. / Thursday, 2:00 p.m.

$AVE : $200 34

IAA AUSTIN*

$AVE : $200

www.americasautoauction.com 219 N. Loop 12, Irving, TX 75061 972.445.1044, Fax 972.591.2742 GM: Ruben Figueroa Tuesday, 1:00 p.m. / Thursday, 1:00 p.m.

$AVE : $200

IAA DALLAS*

www.iaai.com 204 Mars Rd., Wilmer, TX 75172 972.525.6401, Fax 972.525.6403 GM: Joshua Boyd Wednesday, 9:00 a.m.

$AVE : up to $200 Sell Fee

IAA DFW*

www.iaai.com 4226 East Main St., Grand Prairie, TX 75050 972.522.5000, Fax 972.522.5090 GM: Robert Brown Tuesday, 9:00 a.m.

$AVE : up to $200 Sell Fee

IAA FORT WORTH NORTH*

www.iaai.com 3748 McPherson Dr., Justin, TX 76247 940.648.5541, Fax 940.648.5543 GM: Jack Panczyk Tuesday, 9:00 a.m.

$AVE : up to $200 Sell Fee

MANHEIM DALLAS**

www.manheim.com 5333 W. Kiest Blvd., Dallas, TX 75236 214.330.1800, Fax 214.339.6347 GM: Rich Curtis Wednesday, 9:00 a.m.

$AVE : $100

MANHEIM DALLAS FORT WORTH**

www.manheim.com 12101 Trinity Blvd., Fort Worth, TX 76040 817.399.4000, Fax 817.399.4251 GM: Nicole Graham-Ponce Thursday, 9:30 a.m.

$AVE : $100

METRO AUTO AUCTION DALLAS

www.metroaa.com 1836 Midway Road, Lewisville, TX 75056 972.492.0900, Fax 972.492.0944 GM: Scott Stalder Tuesday, 9:00 a.m.

$AVE : $200

El Paso EL PASO INDEPENDENT AUTO AUCTION www.epiaa.com 7930 Artcraft Rd, El Paso, TX 79932 915.587.6700, Fax 915.587.6700 GM: Luke Pidgeon Wednesday, 10:00 a.m.

$AVE : $200

IAA EL PASO*

www.iaai.com 14651 Gateway Blvd. W, El Paso, TX 79927 915.852.2489, Fax 915.852.2235 GM: Jorge Resendez Friday, 10:30 a.m.

$AVE : up to $200 Sell Fee T e x a s

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MANHEIM EL PASO

www.manheim.com 485 Coates Drive, El Paso, TX 79932 915.833.9333, Fax 915.581.9645 GM: JD Guerrero Thursday, 10:00 a.m.

$AVE : $100

IAA HOUSTON NORTH* www.iaai.com 16602 East Hardy Rd., Houston-North, TX 77032 281.443.1300, Fax 281.443.4433 GM: Christina Nieves Thursday, 9:00 a.m.

$AVE : up to $200 Sell Fee

Harlingen/McAllen

MANHEIM HOUSTON

IAA MCALLEN*

www.iaai.com 900 N. Hutto Road, Donna, TX 78537 956.464.8393, Fax 956.464.8510 GM: Ydalia Sandoval Tuesday, 9:00 a.m.

$AVE : up to $200 Sell Fee

BIG VALLEY AUTO AUCTION**

www.bigvalleyaa.com 4315 N. Hutto Road, Donna, TX 78537 956.461.9000, Fax 956.461.9005 GM: Lisa Franz Thursday, 9:30 a.m.

www.manheim.com 14450 West Road, Houston, TX 77041 281.924.5833, Fax 281.890.7953 GM: Brian Walker Tuesday, 9:00 a.m. / Thursday 6:30 p.m.

$AVE : $100

MANHEIM TEXAS HOBBY www.manheim.com 8215 Kopman Road, Houston, TX 77061 713.649.8233, Fax 713.640.6330 GM: Darren Slack Thursday, 9:00 a.m.

$AVE : $200

$AVE : $100

Houston

Longview ALLIANCE AUTO AUCTION LONGVIEW

ADESA HOUSTON

www.adesa.com 4526 N. Sam Houston, Houston, TX 77086 281.580.1800, Fax 281.580.8030 GM: Angela Williams Wednesday, 9:00 a.m.

$AVE : $200

www.allianceautoauction.com 6000 East Loop 281, Longview, TX 75602 903.212.2955, Fax 903.212.2556 GM: Chris Barille Friday, 10:00 a.m.

$AVE : $200

AMERICA’S AA HOUSTON

www.americasautoauction.com 1826 Almeda Genoa Rd, Houston, TX 77047 281.819.3600, Fax 281.819.3601 GM: John Swofford Thursday, 2:00 p.m.

$AVE : $200

AMERICA’S AA NORTH HOUSTON www.americasautoauction.com 1440 FM 3083, Conroe, TX 77301 936.441.2882, Fax 936.788.2842 GM: Buddy Cheney Tuesday, 1:00 p.m.

$AVE : $200

AUTONATION AUTO AUCTION - HOUSTON www.autonationautoauction.com 608 W. Mitchell Road, Houston, TX 77037 822.905.2622, Fax 281.506.3866 GM: Juan Gallo Friday, 9:30 a.m.

$AVE : $200

HOUSTON AUTO AUCTION

www.houstonautoauction.com 2000 Cavalcade, Houston, TX 77009 713.644.5566, Fax 713.644.0889 President/GM: Tim Bowers Wednesday, 11:00 a.m.

$AVE : $200

IAA LONGVIEW* www.iaai.com 5577 Highway 80 East, Longview, TX 75605 903.553.9248, Fax 903.553.0210 GM: David Cooper Thursday, 9:00 a.m.

$AVE : up to $200 Sell Fee

Lubbock IAA LUBBOCK* www.iaai.com 5311 N. CR 2000, Lubbock, TX 79415 806.747.5458, Fax 806.747.5472 GM: Lori Davee Tuesday, 9:00 a.m.

$AVE : up to $200 Sell Fee

TEXAS LONE STAR AUTO AUCTION** www.lsaalubbock.com 2706 E. Slaton Road., Lubbock, TX 79404 806.745.6606 GM: Dale Martin Wednesday, 9:30 a.m

$AVE : $75/Quarterly

Lufkin

Midland Odessa IAA PERMIAN BASIN*

www.iaai.com 701 W. 81st Street, Odessa, TX 79764 432.550.7277, Fax 432.366.8725 GM: Christopher Rogers Thursday, 11:00 a.m.

$AVE : up to $200 Sell Fee

ONLINE ACV AUCTIONS**

www.acvauctions.com 800.553.4070

$AVE : $250

E-DEALERDIRECT**

www.e-dealerdirect.com chris@edealerdirect.com

$AVE : Up to $500/month

San Antonio ADESA SAN ANTONIO

www.adesa.com 200 S. Callaghan Rd., San Antonio, TX 78227 210.434.4999, Fax 210.431.0645 GM: Clifton Sprenger Thursday, 10:00 a.m.

$AVE : $200

IAA SAN ANTONIO*

www.iaai.com 11275 S. Zarzamora, San Antonio, TX 78224 210.628.6770, Fax 210.628.6778 GM: Brian Sell Monday, 9:00 a.m.

$AVE : up to $200 Sell Fee

MANHEIM SAN ANTONIO**

www.manheim.com 2042 Ackerman Road San Antonio, TX 78219 210.661.4200, Fax 210.662.3113 GM: Mike Browning Wednesday, 9:00 a.m.

$AVE : $100

SAN ANTONIO AUTO AUCTION**

www.sanantonioautoauction.com 13510 Toepperwein Rd. San Antonio, TX 78233 210.298.5477 GM: Brandon Walston Tuesday, 10:00 a.m. / Thursday, 1:30 p.m.

$AVE : $200

Tyler GREATER TYLER AUTO AUCTION www.greatertyleraa.com 11654 Hwy 64W, Tyler, TX 75704 903.597.2800, Fax 903.597.3848 GM: Wayne Cook Tuesday, 5:00 p.m.

$AVE : $200

Waco

IAA HOUSTON*

LUFKIN DEALERS AUTO AUCTION

ALLIANCE AUTO AUCTION WACO

$AVE : up to $200 Sell Fee

$AVE : $200

$AVE : $200

www.iaai.com 2535 West. Mt. Houston, Houston, TX 77038 281.847.4700, Fax 281.847.4799 GM: Alvin Banks Wednesday, 9:00 a.m.

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www.lufkindealers.com 2109 N. John Reddit Dr., Lufkin, TX 75904 936.632.4299, Fax 936.632.4218 GM: Wayne Cook Thursday, 6:00 p.m.

www.allianceautoauction.com 15735 I-35 Frontage Road Elm Mott, TX 76640 254.829.0123, Fax 254.829.1298 GM: Carmen Robinson (Sales Manager) Friday, 10:00 a.m.

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feature

Excerpts from The CARLAWYER© by Eric Johnson and Tom Hudson Hudson Cook, LLP

Federal Developments

CFPB Issues Final Rule Amending Disclosure of Records and Information Regulation

O

n October 29, 2020, the CFPB issued a final rule, effective December 24, amending its Disclosure of Records and Information regulation. The CFPB says that the final rule seeks to balance concerns regarding its need to protect confidential personal, business, supervisory, and investigative information against the need to use and disclose certain information in the course of its work or the work of other agencies with overlapping statutory or regulatory authority.

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CFPB Settles with Provider of Payment Accelerator Program Over Deceptive Sales Practices Claims On November 2, the CFPB issued a Consent Order against SMART Payment Plan, LLC, alleging that the company misrepresented its auto payment accelerator program, which deducts payments from consumers’ bank accounts more frequently than the consumers’ original payment schedule and then transmits those funds to consumers’ creditors or servicers. The consent order imposes a judgment against SMART for $7,500,000 in consumer redress, but that amount is suspended based on an inability to pay, and SMART instead must pay $1,500,000 by Dec. 31st and a $1 civil money penalty to the CFPB.

CFPB Settles with Debt Collector over Consumer Credit Reporting and Dispute Investigation Practices Buy-here, pay-here dealers should take special note of this one. On November 12, the CFPB settled allegations that Afni, Inc., a debt collector, violated the Fair Credit Reporting Act, Regulation V, and the Consumer Financial Protection Act of 2010 in connection with its consumer credit reporting and dispute investigation practices. Specifically, the CFPB alleged that Afni furnished inaccurate information about consumers’ credit to consumer reporting agencies that Afni knew or had reasonable cause to believe was inaccurate; failed to report 37


to CRAs the date of first delinquency on certain accounts; failed to conduct reasonable investigations of consumers’ disputes about furnished information or to conduct investigations in a timely manner; failed to provide required notices to consumers about the results of such investigations; and failed to establish, implement, review, or update its policies and procedures for the furnishing of consumer credit information to CRAs. The Consent Order requires Afni to take certain steps to ensure the accuracy of information it furnishes to CRAs and improve its policies and procedures related to credit reporting and dispute investigation. The Consent Order also imposes a $500,000 civil penalty.

CFPB and FRB Maintain Dollar Thresholds for Exempt Consumer Credit and Lease Transactions

On November 18, the CFPB and the FRB announced that they are maintaining the dollar thresholds in Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing) for exempt consumer credit and lease transactions. The Dodd-Frank Act provides that these thresholds must be adjusted annually by any annual percentage increase in the

...the CFPB alleged that USEA misrepresented the consumer savings from the program by failing to include the $399 enrollment fee in its calculations. The CFPB alleged that the program’s costs would ordinarily exceed any savings because of the enrollment fee.

we are. counselorlibrary.com 877-464-8326

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consumer price index. Based on the annual percentage increase in the consumer price index as of June 1, 2020, TILA and CLA protections generally will apply to consumer auto credit transactions and consumer leases of $58,300 or less in 2021.

CFPB Settles Misrepresentation Claims with Payment Accelerator Program Provider

On November 20, the CFPB issued a Consent Order against U.S. Equity Advantage, Inc., and its owner, finding that the company misrepresented its auto payment accelerator program, which deducts payments from consumers’ bank accounts more frequently than the consumers’ original payment schedule and then transmits those funds to consumers’ creditors or servicers. The CFPB alleged that these misrepresentations violated the Consumer Financial Protection Act of 2010’s prohibition against deceptive acts or practices. Specifically, the CFPB alleged that USEA misrepresented the consumer savings from the program by failing to include the $399 enrollment fee in its calculations. The CFPB alleged that the program’s costs would ordinarily exceed any savings because of the enrollment fee. The CFPB also alleged that USEA stated in advertising that it has helped hundreds of thousands of customers save $29 million or more in interest by participating in the program when it had no basis for making this claim. The Consent Order imposes a judgment of $9,300,000 in consumer redress, but that amount is suspended based on an inability to pay, and USEA instead will be required to pay $900,000 and a $1 civil money penalty to the CFPB.

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GAO Issues Report on Personal Information, Recommends Updating of Model Privacy Form On November 23, the GAO issued a report to the Senate Committee on Banking, Housing, and Urban Affairs on how banks and credit unions collect and use consumers’ personal information, share this data with third parties, and make consumers aware of the personal information they collect

and share and how regulatory agencies oversee these activities. The GAO generally concluded that current privacy notices may not provide sufficient information about third-party data sharing and recommends that the CFPB update the model privacy form.

CFPB Revamps Website

On November 25, the CFPB launched an update to its website, consumerfinance.gov. In addition to improved user functionality and

.

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Upcoming Events 2021

January 25 Board of Directors Meeting

Austin, TX

April 19 Board of Directors Meeting

Austin, TX

July 25 Board of Directors Meeting

Kalahari Resorts & Conventions Round Rock, TX

25-27 TIADA Conference and Expo Kalahari Resorts & Conventions Round Rock, TX

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layout, the Bureau’s website now includes an enforcement database that allows users to find information about the Bureau’s public enforcement actions, a page highlighting petitions for rulemaking, and the ability for users to search archived content

arbitration or to have the issue of arbitrability decided by an arbitrator. See Sanders v. Savannah Highway Automotive Company, 2020 S.C. App. LEXIS 114 (S.C. App. October 21, 2020)

Case of the Month

This Month’s CARLAWYER© Compliance Tip

In connection with her used car purchase, the buyer signed a retail installment contract (RIC) that included an arbitration provision. After the RIC was assigned to a finance company and the buyer defaulted, the finance company repossessed the car. The buyer sued the dealership where she bought the car, the car salesman, the finance company, and several individuals, asserting numerous state law claims. The dealership moved to compel arbitration, and the trial court denied the motion, finding that the dealership’s right to compel arbitration was extinguished when it assigned the RIC to the finance company. The Court of Appeals of South Carolina affirmed. The dealership argued that the trial court erred in denying its motion and that the effect of the assignment of the RIC on its right to seek arbitration should have been decided by an arbitrator. The appellate court determined that, under South Carolina law, once a contract is assigned, the assignor has no remaining rights in the contract. Therefore, the dealership had no right to compel

Eric (ejohnson@hudco.com) is a Partner in the law firm of Hudson Cook, LLP, Editor in Chief of CounselorLibrary. com’s Spot Delivery®, a monthly legal newsletter for auto dealers and a contributing author to the F&I Legal Desk Book. Tom (thudson@hudco.com) is Of Counsel to the firm, has written several books and is a frequent writer for Spot Delivery®. He is the Senior Editor of CARLAW® and Spot Delivery®. For information, visit www.counselorlibrary.com. ©CounselorLibrary.com 2020, all rights reserved. Single publication rights only, to the Association. HC/HC# 4811-8363-2851

Dealership’s Right to Compel Arbitration of Car Buyer’s Claims Under Arbitration Provision in Retail Installment Contract Was Extinguished Once Contract Was Assigned to Finance Company

Dealers should pay particular attention to the Case of the Month above. The circuit court found that although the RIC was governed by the Federal Arbitration act, state law governed the issue of assignment as to the enforceability of the arbitration clause that was in the RIC. Applying South Carolina law in this case, the court found that once the RIC was properly assigned, the assignor dealer retained no interest in the right that was transferred (the RIC). Only the finance company could’ve enforced the arbitration clause against the consumer, not the dealership. The case didn’t mention whether the dealer had the ability to arbitrate the consumer claims in a document that wasn’t assigned, such as via the Purchase Agreement. You should review your purchase and financing documents for arbitration language and see if your state law cuts off your ability to arbitrate if the RIC is assigned.

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feature

Capital, Capital, Capital by Bill Ward

President/CEO of Sterling Credit Corp

A

s the pandemic clears, probably the biggest concern for automobile dealers and finance companies is what does the future hold regarding capital. Do I have sufficient capital on hand or do I have additional capital available or a plan to obtain additional capital? After many years in the automobile business, I have found working capital to be the reoccurring issue that has to be dealt with before taking any other steps.

Your capital needs will dictate your ability to survive. The first step is to evaluate your immediate

capital needs for operating expenses, inventory needed to be competitive and your ability to purchase additional receivables if you are a finance company. It’s important to set a game plan that will be conservative and mitigate the risk to your cash flow. You should set reasonable expectations not to be exceeded even if things seem to be going well at that moment. Most car dealers’ needs are floor-planning loans and warehousing or receivable lines of credit. Let’s assume you are financing your sales as a captive; you are going to want to use your availability of cash to fund your inventory and receivables. In the 90’s, I used all the available cash and credit I had to reach a January 2021

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maximum receivable base that I would then sell off in batches to pay down either the line of credit or my floorplanner. However, I rarely increased the amount that I sold; therefore, I was able to age my portfolio. In between selling off receivables, my monthly cash flow would improve allowing me to gain more receivables or purchase inventory unencumbered. I continued to sell receivables to pay down my line of credit. These sales positioned me with a cash flow that allowed me to fund my operation and maintain a level portfolio. There is a true need for dealers to expand their working capital and have inventory paid for or a larger receivable base so that their cash flow becomes their operating cash. The more cash I would put into my business, 41


the larger the receivables and in turn the larger the cash flow. With the high cost of some credit facilities, this method should be pursued in order to balance expenses and portfolios. As you decide to grow past your original goals, applying this same method will allow you to own more of your receivables, and keep peace of mind as well as lowering your stress levels. A car dealer once told me “carrying debt is like running on a soccer ball, it’s not a matter of if you’re going to fall off, but when.” Capital or lack of capital is the most important part of any plan to go forward. There are many other challenges we will all face to recover back to pre-pandemic levels. It will take time and patience and the willingness to sacrifice immediate needs for long term gains. My personal opinion is I have never seen an environment that can be so beneficial to those that manage their operation well. By now we have all felt the affects the pandemic has caused to our businesses and how we run them. During my four decades in the credit business, I have found that somewhere between seven and ten years there is a reset to the changing environments for capital. Historically, it was typically market adjustments versus the major reset the pandemic has caused. I still hear from dealers that they cannot wait to get their sales back to the level prior to the pandemic. But let’s be realistic. Most likely a return to prior levels will not occur for some time. Therefore, your current capital needs will probably be different than they were a year ago. Banks and finance companies will begin to make changes in the way they do business. A quick change will be how they structure their

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point-of-sale operations whether requiring higher credit scores, lesser advance on contracts or higher down payments. Banks that provide lender to lender credit lines will begin to tighten borrowing requirements. Changes may include increased covenant restrictions, reduction in advance amounts or credit line limits or even discontinuing lines of credit. This period can be very stressful or can be an opportunity to improve your operation. You cannot control banks, finance companies, floor planners, or point of sale companies. Their operations will change so you need to be able to change with that environment. If you are currently carrying receivables you have two assets: cash that is being paid to you by those receivables and the future cash that will be paid by those receivables. There are strong indications that the problems the pandemic has caused will continue until the third quarter of 2021, so relying on your receivables as a marketable asset may be your best opportunity for capital. We are currently at the stage in the pandemic where your receivables could be in the best shape you have seen in many years due to the lack of new business and your problem accounts have been dealt with. By now you should be at a predictable receivable base that you are comfortable with. Now is the time to determine the amount of cash needed to pay your operating expenses, purchase new inventory and recondition your vehicles for future sales. Then decide the amount of performing receivable balances it takes to fund those needs. Any receivables over that number become assets to help you meet your capital needs going

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forward. Selling those receivables will allow you to purchase inventory without having to use a floor plan, to reduce debt owed to banks which should free up space on your credit line or to pay down high interest rate credit lines to a number that flows better in your operation. With the reduced availability to point of sale companies or the restrictions that are now being placed by those companies, you want to be sure to only sell off the receivables over the amount needed to maintain your operation. This may require selling every couple

We are seeing a pattern of lenders reducing advance rates based upon acceptable receivables. Plus, they are not in a position to raise credit lines due to the uncertainty of the market. Factor in the lack of a stimulus program and your ability to generate new originations will be harder to accomplish. With all of this uncertainty of credit lines tied to receivables, a flexible plan is needed. Let’s consider a company utilizing a credit line that is based on an advance rate on receivables or a warehouse

of months, two or three times a year or even only once year. Aging a receivable base will only increase its value. If your credit line is based on a percentage of your receivables, selling receivables will help establish a value to your portfolio and show a bank or lender their marketability. Additionally, selling receivables allows you to reduce your default rate by sharing that risk with another company. It’s very important that the cash from selling receivables is put back into producing assets. The receivables you carry between sales are producing assets. In time those receivables will allow you to carry more receivables which will in turn improve your cash flow and reduce your dependency on borrowed funds. As your receivables grow, your increased cash flow will create opportunities to enhance your operations by using your cash flow instead of borrowed funds to purchase property, better inventory, or add additional locations. An added benefit to consistently increasing cash flow through receivables is you will have the ability to obtain more favorable and secure credit lines. As always, bankers like to loan money to people who don’t need it and not to companies that are struggling to make an operation successful.

line of credit. In the past, you were able to rely on the availability on this line to expand your receivable base. In the current environment, you should be planning for slow growth that will advance to a faster growth as the market corrects. This is a good time to use your receivables, which you are in control of, as your capital. By now, your receivables have aged, and your weaker accounts have been identified. You should talk with your lender about your strategy to use your receivables to help rebuild your company. You will not be able to do what I am suggesting without their support. If you are a car dealer with a captive, you first need to determine your true cash in a vehicle. This amount will be the purchase price of the vehicle, including auction or floor plan fees, plus any improvements and fees or taxes due on the sale of said vehicle less the down payment. You will also have the cash collected from payments on these accounts. Using these variables, you can come up with your cash invested in that car. The total should be far less than the principal balance on that receivable. This is the asset that is marketable to bulk receivable purchasing companies or investors. Your next step would be to have your portfolio evaluated by and receive an offer from a bulk receivable

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purchasing company. Your buy rate from a purchaser should be greater than the rate being advanced on your credit line. This will provide enough cash to pay off those receivables with the lender and further reduce your balance allowing more credit availability. The rates we currently see being offered in the marketplace are between 70% and 85% of principal. Receivables with better collateral could bring higher than 85%. The statement I hear from dealers all the time is “I have the best receivables and they all pay me.” I can assure you these values have been consistently right in portfolios that are successful for as long as I have been doing this.

What separates the value from 70% to 85%?

There are several factors including the term of the loan, the number of payments paid, the timeliness of said payments, the proven ability to pay, and the loanto-value rate. One other very important factor is the evaluation of the dealership and its operational plan. This evaluation includes reviewing the dealer’s website and any complaints against the dealer. Once you have an estimated purchase ratio, you can determine your individual cash return. To do this, take the true cash invested as previously defined and subtract the down payment and any payments made on the

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account. Calculate the cash advance from the sale using the expected purchase ratio against the principal balance. Subtract the net cash invested from the purchase price to get your individual net cash gain. Some vehicles will have a better gain than others, but to evaluate the portfolio correctly, you should use the average of the entire portfolio being sold. Let’s assume you sold off a portfolio and have paid off your lender or floor planner. You have reduced any future losses on those receivables. You have paid down your credit line or floor plan thereby reducing interest and operating costs. You should have received a gain in cash that will allow you to purchase more vehicles and carry more receivables. Future portfolio sales will then eliminate more debt and increase unencumbered assets. Additionally, you demonstrated to your lender the value and marketability of your receivables. This plan will be your best opportunity to put yourself in a better financial position and allow you to become less dependent on borrowed funds. I would encourage you to maximize your purchase price by maintaining reasonable LTV ratios, obtaining sufficient down payments, developing good customer habits while aging the account such as paying on time and encouraging payment methods other than cash at

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the lot, and keeping accurate customer data such as addresses, jobs and phone numbers on accounts. Additionally, there are items that a purchaser is likely to require and it would be beneficial for you to obtain them at the time of sale. Examples of these items are a credit application, proof of income, proof of insurance and a driver’s license. Most companies will have a thirty-to-sixty-day recourse period. You want to do everything you can during this recourse period to not have to repurchase any accounts. Once the accounts have been transferred to the purchaser, good consistent communications between the two of you will help with the transition and should minimize the number of accounts needing to be repurchased. Additionally, your success will be greater if you can answer yes to this question: If I am unable to sell this receivable, am I willing to carry this account to the completion of their contract? Another idea that could make your receivables more marketable is to have a third-party servicing company service your accounts from conception. Some servicing companies offer to purchase accounts after a period of time or will work with other receivable purchasing companies on your behalf. Having a third-party servicer for your portfolio will allow you to focus more on your business of selling cars and less on collections and the regulations required. I believe if you use the strategies referenced in this article, along with the opportunities that will be available over the next several years, you will be able to survive the next downturn easier. Bill Ward is the President/CEO of Sterling Credit Corp., a bulk receivable purchasing and servicing company that has survived four decades in the consumer lending, auto lending, floorplanning and loan servicing industry. For more information visit www.sterlingcreditcorporation.com

Local Chapters CORPUS CHRISTI G.R. Moore The Car Shack (dates announced at

www.txiada.org)

EL PASO Cesar Stark S & S Motors Meeting – 3rd Friday (Monthly)

FORT WORTH Chris Templin Auto Land Meeting – 4th Thursday of

Please Welcome Our Newest TIADA Members

Jan–May and Sep–Oct

HOUSTON April Hanson

DEALER MEMBERS 29 Motor Company Paden Crow . . . . . . . . . . . . . . . . . . . 13800 State Hwy 29, Liberty Hill, TX 76842 Austin eAutos, Inc Justin Fosbury . . . . . . . . . . . . . . . 501 Louis Henna Blvd., Round Rock, TX 78664 Benz Auto Sales Marius Dura . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13541 Needham Pl, Willis, TX 77318 Bilo Lux Group, LLC Charlotte Besong . . . . . . . . . . . . . . . . 9701 A Honeywell St., Houston, TX 77074 BW Autos LLC Ihechiluru Osueke . . . . . . . . . . . . . . 3820 Vitruvian Way, Apt. 534, Addison, TX 75001 Dallas Skyline Auto Sales Silvano Mora . . . . . . . . . . . . 4613 E RL Thornton Fwy, Dallas, TX 75223 Fercan Enterprises LLC DBA Luna’s Auto Shop Riza Ercan . . . . . . . . . . . . . . . . . . . . . . 1410 College Ave., Houston, TX 77587 Frank’s Lobo Tire Johnathan Flores . . . . . . . . . . . . . . . . . . . 100 Pine Tree Road, Longview, TX 75604 Ipex Import LLC Fred Samiei . . . . . . . . . . . . . . . . . . . . . . . . . . . 8500 Sovereign Row, Dallas, TX 75247 Rapido Motors Danielle Baines . . . . . . . . . . . . . . . . . . . . . . 1405 N Union Bower Rd., Irving, TX 75061 Ron Montgomery Motors Scott Montgomery . . . . . . . . . . . 3325 S Shiloh Rd., Garland, TX 75041 Skylane Motorcars Jack Tong . . . . . . . . . . . . . . . . . 3227 Skylane Dr. Ste. 200, Carrollton, TX 75006

Coast to Coast Motors Meeting – 2nd Tuesday (Monthly)

SAN ANTONIO Jose Engler Irving Motors Corp (dates announced at

www.txiada.org)

ASSOCIATE MEMBERS Car Capital Guy Cesario . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9231 Willow Street, Orland Park, IL 60462 Lot2you Finance Eddie Green . . . . . . . . . . . . . . . . . . . . . . 9111 Jollyville Rd., #245, Austin, TX 78759 January 2021

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behind the wheel

Martin

Tuning in to WIFM

A

few years back I was talking to the then president of TIADA. It was around this time and we were discussing the message we would include in our renewal letters. We were coming off a very successful legislative session where we worked with legislators who passed some of the most aggressive anti-curbstoning legislation in years; they had tightened up some language related to mechanic’s liens and passed a bill that would allow for an increase in the doc fee. I was telling him that we would focus most of our renewal message on the success independent dealers just had during the last legislative session. He laughed and said, “You know most dealers out there only listen to WIFM, don’t you?” I gave him a puzzled look since I had never heard that term, acronym, or radio station. He explained that most of the independent dealers only tune into one station, WIFM — What’s Init For Me. He had a dealership in Houston and had spent months attending auctions in that area helping TIADA recruit new members. When he was talking to potential members about the benefits of joining the association, he would always focus on what TIADA could do for the dealers or, specifically, for the dealer he was talking to. He loved to talk about the education opportunities and how members receive discounts to attend any of the TIADA education including the annual conference. He would then ask dealers if they ever had a compliance question. He usually had the most recent copy of the magazine in his hand. He would quickly turn to Mike Dunagan’s article and explain how TIADA provides expert compliance advice each month. He made sure

by Jeff

TIADA EXECUTIVE DIRECTOR

dealers understood if they had any questions related to their dealership, they could call TIADA and we would get the “right” answer. But his favorite topic was the TIADA Auction App. After asking which auctions the dealer attended, he would quickly do the math and then he would either say, “this app is going to pay for your membership” or “dang, you’re going to make money when joining.” Before we printed this issue, over 50% of you had already renewed your membership. That is a bit ahead of our annual renewal rate at this time, based on the last three years, and a huge step forward as we go into this legislative session. However, we are still working to renew another 30 to 35%. So, I figured I would remind you “what’s in it for you” related to the TIADA Auction App. About 40% of you have already downloaded the app on your phone and most of you used at least 1.7 auction coupons, saving on average $298 last year. That’s half your dues already. Many of you used more than three coupons last year saving over $600, making money on your membership. And a few members saved over $1,000 in auction coupons. Thanks to all our participating auctions; a new round of coupons will be loaded in your app this month and we will be expanding the coupons to more than just auctions throughout the year (see page 36). If you haven’t downloaded your auction app on your smart phone or you don’t know how, contact us today at 512.244.6060 — we will be happy to help. When it comes to membership, make sure you are getting everything that is in it for you.

I figured I would remind you “what’s in it for you” related to the TIADA Auction App. 46

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