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ON THE WEB: SEC Settles Suit with Capital One Financial
Conditions Prime for Used Car Sales
The Securities and Exchange Commission charged Capital One Financial Corp. and two senior executives for understating millions of dollars in auto loan losses incurred during the months leading into the financial crisis. Capital One agreed to pay $3.5 million to settle the SEC’s charges. An SEC investigation found that in financial reporting for the second and third quarters of 2007, Capital One failed to properly account for losses in its auto finance business when they came in higher than originally forecast.
Buying Habits Differ for New, Used Car Buyers
A report based on CarFinance.com’s financing data indicates that below-prime, newcar-purchasing behavior differs from the car buying population as a whole: only one model, Dodge Ram, consistently topped both CarFinance.com’s below-prime and overall industry Top 10 sales lists. The Big Three dramatically overwhelmed imports.
Photo by Ted Craig BRIGHT DAY: Customers walked onto the lots at CarMax Inc. stores in record numbers earlier this year. All the public dealership chains reported strong used-car sales thanks to a good mix of credit and cars. By Ted Craig
Sales are booming for latemodel used cars. The publicly traded dealership groups are announcing record used-car sales. Sonic Automotive announced a record used-car sales month in March and a record of 26,469 units sold
at its dealerships in the first quarter. Used retail sales at AutoNation Inc. stores were up 9.5 percent CarMax Inc. reported record results for its quarter ended Feb. 28. The usedcar superstore chain’s total used unit sales rose 12 percent and comparable store
sales rose 6 percent. “It’s a terrific set of market conditions out there for both new-car sales and used-car sales,” said Paul Taylor, chief economist for the National Automobile Dealers Association. Among those factors are low incentives on new cars and a good supply of late-
model used units. Taylor said many consumers feel more flush thanks to an improving housing market and near-record stock market. That means they are shopping and, more importantly, those consumers are being approved for loans with low rates. Continued on page 3
Rush - Dated Material
Dealers Sue Carfax, Claim They Must Use Service More than 100 dealers filed suit against Carfax, claiming they were forced to use the company’s vehicle history reports. Dealership law firm of Bellavia, Blatt, Andron & Crossett, PC, has filed a $50 million mass action, anti-trust lawsuit on behalf of 120 auto dealerships, who allege that actions by Carfax unfairly and illegally preclude dealers from selecting a vehicle history report provider of their choice and negotiating a fair price. The lawsuit was filed on April 23, in the United States District Court for the Southern District of New York. The plaintiffs, led by the law firm’s founding partner
Leonard A. Bellavia, claim that dealers have been overpaying for Carfax vehicle history reports because of the provider’s monopolistic practices of tying its products to competitors such as Autotrader.com, Cars.com and nearly all of the manufacturers’ certified pre-owned programs. Furthermore, Bellavia claims the reliability and integrity of Carfax’s report data are in question, and as a result, dealers and consumers are the ones who are hurt in the process. If the case proves successful, plaintiffs participating in the mass action will recover treble damages (three times the overcharges) for six years as well as legal fees. In addition, prospective pricing will be at a competitive level.
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May 6, 2013 t3
USED CAR NEWS
Lease-Here, Pay-Here Seems Set for Growth By Ted Craig
FORT WORTH, Texas – An increasing number of dealers are considering leasing used cars, especially as an alternative to buy-here, pay-here. Used-car leasing actually grew fairly popular before the recession, reaching 8.71 percent of all sales. Today it has fallen to 3.23 percent, but the financing option is showing signs of recovery. “I would expect to see more used leasing as more late-model cars come into the market,” said Melinda Zabritski, director of automotive credit for Experian Automotive, speaking at this year’s National Vehicle Leasing Association conference. Dealers contract a third of all used-car leases through their own in-house operations. A track at the NVLA conference provided information about lease-here, pay-here’s advantages and challenges. Jim Holman, owner of The Car Store in Oklahoma City, Okla., leases cars at all three of his locations through his own company, Pinnacle Auto Lease. Holman said leasing came
naturally to him as a former new-car dealer. A main advantage of leasehere, pay-here is the dealer continues to own that vehicle, which eases the repossession process. For example, the dealer gets the vehicle back when the lessee declares bankruptcy, rather than it becoming part of the bankruptcy estate. Also, the car is considered stolen if the lessee skips town with it. Owning the car can have a downside, however, especially if the lessee’s insurance lapses. “You’re not only worried about the asset, you’re worried about the liability,” said Ken Sevier, vice president and program manager for Williams & Stazzone Insurance Agency Inc. There are nine states with vicarious liability laws, which hold the lessor accountable in some cases. There are also 20 states with their own leasing laws and 18 with tax laws that show less favor to leasing. That is why Holman recommends finding a lawyer who can learn all the specifics of state and federal leasing laws. More important, he said, is
Photo by Ted Craig SPREAD THE WORD: Dealer Jim Holman explains the opportunities and challenges presented by lease-here, pay-here. The former franchise dealer said it takes the right mindset.
finding an accountant who understands the tax implications of leasing. The most crucial law to understand concerns residual values. Attorney Angela MaynardShovein said setting the residual too close to the total value creates a “sale in disguise.”
There are also significant advertising requirements, Maynard-Shovein said, and approximately 30 specific required disclosures. If the rules are followed, there are plenty of rewards for lease-here, pay-here, Holman said. It allows dealers to offer a nicer car to consumers and
turn customers more often. The model creates repeat sales, along with repeat customers, as the same vehicle can be leased out two or three times. Holman said his record was a Daewoo Nuberia that he bought for $4,600 and grossed $32,000 by the time it was done.
Association Works with State to Solve Plate Issue By Jeffrey Bellant
Arizona dealers and state officials worked together to pass a compromise bill that protects wholesalers’ rights to use dealer plates, while setting Dave some limitations Warkentin on them. Dave Warkentin, executive director of the Arizona Independent Automobile Dealers Association, was pleased with the result. Under the original House Bill 2372, wholesalers would have lost the right to use traditional dealer plates. Instead they would have received limited use, temporary paper tags. But the Senate amended the bill in a way favorable to the IADA, Warkentin said. Gov. Jan Brewer signed the legislation into law. Dealers and wholesalers worked together in the lobbying effort that will set new rules for wholesalers,
while still allowing them to use dealer plates under specific circumstances. Warkentin said the original legislation would have unfairly hurt legitimate wholesalers who followed the rules. He said the new law requires that wholesalers must title any vehicle into the wholesaler’s name before transferring the title to another dealer or wholesaler. In order to renew their license, the wholesaler must submit evidence that they have sold at least 10 vehicles in the previous year. The wholesaler can receive two dealer plates, plus an additional plate for every 50 vehicles sold, based on reported sales in the previous year. A wholesaler is limited to no more than 10 dealer plates, the law states. The reason the DOT had pushed for the original measure is that some non-wholesalers were taking advantage of the law to avoid registration taxes on their personal vehicles, according to Arizona IADA officials. Owners of more expensive highline vehicles, for example, were
using a loophole to avoid registration costs that could be as high as $17,000 on a $300,000 vehicle, Warkentin said. So some of these owners were obtaining wholesaler’s licenses that allowing them to use dealer tags to avoid traditional registrations. Warkentin said it’s actually cheaper for them to become wholesalers than paying the registration fees. In an effort to rally association
members, Arizona IADA President Aubrey Strickstein, owner of Right Choice Automotive in Phoenix, moderated a meeting of two dozen wholesalers to discuss options to replace HB 2372. Both Strickstein and Warkentin said the association has a great relationship with the DOT. That should help as the association hopes to tackle curbstoning as its next issue.
– Continued from page 1
The used-car business is so good these days that CarMax is actually shedding its new-car stores, said George Hoffer, an economist at the University of Richmond. “When something comes up that they can sell, they sell it,” Hoffer said. The latest results from Asbury Automotive Inc. show the advantage used cars have over new for franchise dealers. The company saw revenues for both new and used cars increase by
16 percent in the first quarter. However, used-car gross profit rose by 11 percent versus 6 percent for new cars. The relative strength of used cars reflects a permanent shift in the economy, Hoffer said, as more consumers find themselves on tight budgets and new cars are out of their price range. At the same time, cars have lost appeal as a status symbol. Hoffer said his students today place more value on smartphones than cars.
4/29/13 5:27 PM
USED CAR NEWS
NEWS BRIEFS Firm Sheds Repo Business
Primeritus Financial Services has sold its remaining direct recovery repossession business to Connect 1 Recovery LLC. This transaction finalizes Primeritusâ€™ exit from the direct recovery business. Since completing three acquisitions in 2012, Primeritus has expanded and optimized its agent network. The strategy has been to focus on core business units: forwarding; skip and remarketing services.
Kia CPO Adds Satellite Radio
Sirius XM Radio and Kia Motors America announced that Kia dealers will give customers a three-month SiriusXM subscription when buying pre-owned vehicles equipped with satellite radio. Participating Kia dealers join more than 9,000 auto dealers across the country enrolled in the SiriusXM Pre-Owned Vehicle Program. Customers buying pre-owned vehicles with a factory-equipped satellite radio, regardless of manufacturer, from any Kia dealer participating in the SiriusXM Pre-Owned Vehicle Program will automatically receive NIADA Creates Insurance Exchange a three-month SiriusXM subscripThe National Independent Au- tion. tomobile Dealers Association will launch a Health Insurance Exchange for members to shop health NAAA Welcomes Members insurance rates online this summer. The National Auto Auction AssoPlans available for the rest of 2013 ciation recently announced several will include a rate and benefit lock new members. until December 2014 so members The following received regular will have more time to prepare for membership: Wisconsin State Auto the increase in rates that are expect- Auction LLC, in Lomira, Wis.; Cened in January. ter Point Auto Auction in BirmingThe NIADA will also be offering the subsidized State and Federal Exchange plans available through the C R O S S WO R D by Myles Mellor Affordable Care Act once they become available in the fourth quarter PAGE 33 of this year. This is an anticipated date. The NIADA also renewed its partnership with ShipCarsNow recently.
ham, Ala.; Manheim Jacksonville in Jacksonville, Fla.; Auctions in Motion - Santa Ana in Santa Ana, Calif.; Auctions in Motion - Thousand Oaks in Thousand Oaks, Calif.; and South Bay Auto Auction of Stockton in Stockton, Calif. Masney Auto Transport Inc. and Spireon, Inc. - Goldstar GPS received associate memberships.
Flagship Funds Growth
Flagship Credit Acceptance LLC completed an asset-backed securitization of $222 million of notes in a transaction that closed on April 18. The notes were issued in four tranches and were assigned ratings
by Standard & Poorâ€™s Ratings Services and Kroll Bond Rating Agency. This is the companyâ€™s second asset-backed securitization. Flagship also announced the recent completion of a new $100 million senior lending facility with Barclays Bank PLC. The addition of this facility increases the companyâ€™s total borrowing capacity to $275 million. Flagship announced that it will open a Western Regional office in Phoenix. This location will function as a complementary service center primarily supporting West Coast automobile dealers and consumers.
Published By General Media LLC USED CAR NEWS (ISSN 1555-7413) is published at 24114 Harper, St. Clair Shores, MI 48080 Phone: 586-772-5200 or 800-794-0760 Fax: 586-772-9400 www.usedcarnews.com Charles M. Thomas Founder (1947-2002) Lynda R. Thomas, Publisher Colleen Fitzgerald, General Manager Editorial: Ted Craig, Managing Editor Jeffrey Bellant, Staff Writer Contributing Writers: Sheila McGrath, Jenny King Columnist: Tony Moorby Advertising: Shannon Colby, Account Manager Megan Frump, Account Manager Marie Hingst, Account Manager Circulation: Helen Thomas Production: Josie Godlewski, Media Manager Tim Montie, Graphic Designer â€”â€”â€”
Used Car News is published the first and third Monday of each month. Subscribers: We print advertisements as sent to us by auctions and other advertisers. It is not possible to verify the correctness of listed vehicles in auction ads. Most lists are partial and all lists are subject to last minute changes by auto auctions, so before travelling a long distance for a particular auto auction event, contact the auction by telephone for a fax of vehicles in the sale. Used Car News assumes no guarantees or liabilities concerning the accuracy of any advertisements. All Rights Reserved. Reproduction in any form is prohibited without the written consent of the publisher. É&#x; É&#x; É&#x; Please submit clear, legible copy. Payments from first time advertisers must accompany the insertion order. Distribution is guaranteed by U.S. Postal Carriers. The advertising reservation deadline is 5:00 p.m. Friday, 10 days prior to the issue date. Camera ready ads must be received by noon on Monday prior to the issue date.
Join the Conversation! Visit Used Car News online at www.usedcarnews.com or scan this QR code with your smartphone to be taken directly to the website.
4/29/13 5:25 PM
May 6, 2013 Ă? 5
USED CAR NEWS
Bees Create Buzz at Dealership By Jenny King
When the sky briefly darkened at Casa de Autos one weekday morning in April, dealer Danny Gamboa and his son Gabriel hardly noticed â€“ until they realized it was an enormous swarm of bees. Their unexpected guests, numbering perhaps as many as 2,000, settled in a tree whose branches were over a section of their lot. â€œThey didnâ€™t build anything there but were resting atop each other,â€? says Gabe Gamboa. â€œThey were over part of our customer parking area and we were afraid they might sting customers. I had never seen anything like it.â€? So the Las Cruces, N.M., businessmen contacted the city, which suggested they reach an exterminator. â€œWe didnâ€™t want to destroy them,â€?
Gamboa explained, â€œso we called the county and eventually got some good advice: leave them alone.â€? The Gamboas were told that the bees likely were migrating and would not stay long. Danny and Gabe blocked the affected area with cones. The local newspaper heard of the incident, sent out a reporter and ran a story the following morning. Gabe Gamboa said people who heard or read about it stopped by to have a look. He wasnâ€™t sure if it might somehow help business at the 35-year-old, family-owned Casa de Autos. No visitors bought from the 60-car lot the second day. And by then, cars and trucks were all there was to see. Gamboa said the bees departed the day they arrived. â€œIn about six hours they were gone â€“ poof,â€? he said.
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USED CAR NEWS
Details Key to BDC Success
Photo by Jeffrey Bellant ALWAYS BE CLOSING: Mindy Cutshaw, owner of Beebles Inc., tells buy-here, pay-here dealers how to turn leads into appointments and appointments into sales. By Jeffrey Bellant
LAS VEGAS â€“ People, process and procedure are critical to a successful business development center, especially in the buy-here, pay-here dealership. Consultant Mindy Cutshaw, owner of Beebles Inc., based in Cornelius, N.C., said the details of every-
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thing from the location of the BDC to the ratio of leads-to-sales must be part of a dealership plan. Cutshaw spoke at the recent Leedom & Associates World Conference. Business development centers remain a key area for buy-here, payhere dealers to boost sales. Continued on next page
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USED CAR NEWS Û
– Continued from prior page
But getting it right requires diligence by dealers. The BDC and its staff must be separate from other areas of the dealership to minimize distractions. That includes a smaller office space with no windows, even if that sounds cruel, Cutshaw said. Sales staffs and BDCs should also be separate from each other so that no one’s getting preferential treatment. Cutshaw said having a steady flow of leads is crucial for business development. “The No. 1 thing you have to be sure to focus on is: be sure you can feed your BDC,” she said. “Be prepared to spend money on advertising.” Cutshaw said dealers should have some standard ratios for leadto-business development representatives. “(You should have) 200 to 250 leads per BDR,” she said. “That’s a fair assessment.” Those include all types of leads, from new incoming calls, to Internet leads, she said. “You want to make sure you have a good balance of leads and (reps),” Cutshaw said. Inbound calls should take about five to seven minutes per call, she said.
“You should expect (each BDR) to set 100 appointments, have 50 people show up and – depending on your closing ratio – have about 10 cars sold (in the first month),” Cutshaw said. After 60 days, those numbers should increase and then, again, after 90 days. “But remember, the BDC is not going to sell the cars,” she said. “It’s going to sell the opportunity, by bringing traffic into the store.” BDRs should be expected to ask for a referral from every call. “That (referral) will cost zero dollars per lead,” Cutshaw said. In terms of pay rates, dealers should offer the lowest possible pay rate they can, and use bonuses to push them. “You always want to dangle that carrot a little bit,” Cutshaw said. “You want them to be driven for that bonus.” Dealers should also use customer relationship management programs to make sure they are following up with leads. Cutshaw said there is also software available that allows a dealership to pre-record all of the outbound messages that a BDR leaves a customer. “It leaves a perfect message every single time,” Cutshaw said.
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PAGE 8 - NABD CONVENTION
Convention Offers Dealers New Perspective on Business By Jeffrey Bellant
The buy-here, pay-here industry needs a new to-do list. That’s why Ken Shilson, founder of the National Alliance of Buy-Here, Pay-Here Dealers, will introduce a “12-Step Decisions Checklist for Buy-Here, Pay-Here Dealers” during his 2013 NABD Dealer Academy. The event will kick off a five-day, two-track conference. The 2013 Buy-Here, Pay-Here Dealer Academy will run May 19 through May 21, followed by the 15th annual NABD Buy-Here, Pay-Here National Conference May 21 to May 23 at the Wynn Las Vegas. Shilson said his new 12step checklist focuses on the critical decisions operators must make to be successful in today’s marketplace. The comprehensive list covers everything from developing a business model to creating a compliance management program.
“To do this, I contacted some of the best people in the business for feedback,” Shilson said. The list will focus on changes dealers need to make to keep up with a constantly changing market.
dealers with information to help them assess the best products for their dealership is just one purpose of the checklist. “We want to help them make more informed decisions,” he said.
mental as selecting an operation location is part of Shilson’s checklist. This year’s show will offer dual tracks: one for newer operators and another for more experienced dealers. The NABD will follow up
“The old ways are just not working anymore.” Ken Shilson
“The old ways are just not working anymore,” Shilson said. For example, in the old days, getting a payment device meant just finding the cheapest item. But today, starter-interrupt devices include GPS and other tools that help both collections and recovery. Shilson said providing
The checklist also gives indepth advice and ideas on: projections, policies/procedures, alternative capital resources, financial planning, marketing plans, staffing and underwriting. Identifying staffing needs and creating a compensation plan are also critical to buyhere, pay-here success. Even something as funde-
the Dealer Academy with the national buy-here, payhere convention. The keynote address will feature Joe Gibbs, a National Football League Hall of Fame coach and founder of the NASCAR team Joe Gibbs Racing, which has won three NASCAR championships. More than 60 other speakers and experts will present
information at the convention this year. Twelve concurrent workshops will update dealers on the most important industry developments. Presentations on legal and regulatory compliance, the use of credit data, selling contracts, payment devices, accounting, DMS systems, maximizing recoveries and inventory acquisition are just a few areas featured in the conference. Shilson said he’ll also reveal some new developments in the area of vehicle recovery that will better help dealers locate vehicles, since every unit is precious in a time of tight supply. Moving toward more recent developments, experts will discuss the use of social media and digital tools to boost business. Shilson will also present his annual buy-here, payhere industry benchmarks and trends to give dealers a complete overview of the buy-here, pay-here market.
4/29/13 4:58 PM
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USED CAR NEWS
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Scrapping Cars Funds Scholars DENVER (AP) – Colorado car dealers are disabling and donating old high-polluting cars to provide industry scholarships. Dealers are contributing vehicles – 400 over the past year – to the Clear the Air Foundation, which will begin accepting scholarship applications in the auto industry later this year. The program, sponsored by the Colorado Automobile Dealers Association, has doubled in size over the past year. Dealers get a tax deduction for donating the cars. Proceeds from selling the vehicles to salvage yards – an average $300 per vehicle – are funneled to a scholarship fund that has collected $168,000 to date, The Denver Post reported. The dealers association also has agreed to contribute $1 million for a
scholarship endowment for students in auto industry training programs. “We’re basically taking these vehicles’ cash value and putting that into scholarships to train the next generation’s workforce,’’ said association president Tim Jackson. “And we are cleaning the air.’’ The donated vehicles are among the worst air polluters. The Clear the Air Foundation’s donated car engines are disabled to make sure they never run again. Titles are flagged as “salvage” to prevent their resale. “It’s kind of a neat way for dealers to have a meaningful impact on air quality,’’ said Lee Payne, owner of the Planet Honda and Hyundai dealerships. “These are cars that still could run or do run, but clearly they are high emitters and near the end of their useful lives.’’
Associations Plan Autumn Event Seven states will partner for the second Mid-Atlantic Regional Independent Automobile Dealer Associations Conference on Sept. 28 to Sept. 30 in Atlantic City. Last year, several state associations partnered for the first event, also held in Atlantic City. This year, state independent dealers associations from Delaware,
Maryland, New York, New Jersey, Ohio, Pennsylvania and West Virginia will come together for the event at Caesar’s Atlantic City. While last year’s affair was a twoday event, this year’s will span three days. The event will be open to dealers and their employees, as well as vendors, auctions and their families.
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USED CAR NEWS
Renewal Causes Relocation
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When owners of a Collierville, Tenn., used-car lot discovered that the town planned to revitalize their neighborhood without them, they didn’t get mad. They got busy. Collierville Auto Sales has been operating for 10 years at 220 S. Center St., one block south of the historic town square in the Memphis suburb. Last summer, the Tennessee Department of Transportation awarded Collierville a $756,846 enhancement grant for improvements to Center Street. City officials said the “Collierville Center Connect” project would provide an attractive gateway to the town square and help tourism and economic development. It wasn’t until the architectural drawings were unveiled at a Chamber of Commerce meeting last year that the car lot’s owners realized their business wasn’t on them. “Oh my gosh, we’re gone,” owner Mike Hamby recalled saying when he saw the plans. But Hamby said if that was going to be the future of Center Street, they didn’t want to stand in the way. So they found a new location about a mile away, a former gas
station at the corner of U.S. 72 and Poplar Avenue. The triangle-shaped property has better visibility and gets more traffic. They’re already refurbishing the building inside and out, with a new roof, doors and windows. The perimeter is getting new sidewalks and landscaping. “The gas station was a bad site,” Hamby told the Collierville Board of Aldermen when his project was up for approval. “I love fixing things up and it’s going to be nice. I want the town of Collierville to be proud of us.” Linda Spillyard, who owns the property, said the land had been in her family for generations. She wanted something special for the site, and she liked what she saw. “When we drove by the site on Center Street and saw those upscale cars, we were just so excited,” Spillyard said. She said the formerly run-down building now has hardwood floors and is filled with antique furnishings. “If you pass this, you are going to be so pleased,” she told the board. The board approved the plans, and Collierville Alderman John Worley said he was completely behind the project.
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USED CAR NEWS
Airbag Recalls Hit Imports
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