13 minute read
DIFFERENCES EXPLAINED BONDS VS. INSURANCE
by WSIADA
Over the years it has been my pleasure to participate in the new dealer training classes with WSIADA both live and by video, explaining the differences between the State required dealer bond and a garage/ dealers insurance policy. “What is a bond and why is it required?” and “Why do I need insurance if I am bonded?” are two of the most common questions we field in our office when working with dealers.
There are three major differences between a bond and an insurance policy.
#1 Involves the number of parties involved in the contract.
There are three parties involved in the bond contract. The first party is the entity requesting the bond (the Department of Licensing aka DOL). The second party is the dealer. And the third party is the surety (bond) company. In this type of contract, the dealer transfers the risk to the surety company guaranteeing they will follow the requirements as set out by the DOL. A surety bond is designed to protect the consumer.
In contrast, there are only two parties involved with an insurance policy: the insurance company and the dealer (also referred to as the insured). When a dealer causes bodily injury or property damage to a third party, the insurance company pays the damages. An insurance policy is designed to protect you (the dealer).
#2 Involves the financial restoration after a loss.
Losses are not expected to occur when a surety bond is issued as the dealer is in full control of their business practices. The nature of such a loss involves the dealer’s actions in violation of required procedures such as failing to make a pay-off on a trade-in or other willful action that harms the consumer. If this occurs, the consumer contacts the DOL and is advised to file a claim against the bond. If a claim is processed the dealer is then expected to fully restore the surety company for any financial loss incurred. In short, if a dealer suffers a bond claim the amount paid out must be repaid. In a sense a bond is more of a line of credit (up to $30,000 in Washington). Before a bond is issued, the underwriter requires proof that the dealer has the financial means to reimburse the surety company should a loss occur. Credit history and financial stability are two of several criteria the surety company will review when issuing a bond. Those with bruised credit or limited resources can expect to pay more to obtain a bond. An insurance policy is completely different. When an insurance claim is paid there is no requirement for the dealer to reimburse the insurance carrier. Insurance premiums are paid in exchange for the coverage provided. The dealer is responsible for any deductible owing in the event of a loss and the balance of the financial loss is transferred to the insurance company. An insurance underwriter relies on loss history, experience, number of employees, inventory limit, property value, and location when determining if they will offer a policy and the premiums required to purchase that policy.
#3 Involves premiums and/or fees paid for the coverage.
When a surety bond is issued, an annual premium or service fee is paid by the dealer to the surety company. The service fee allows the dealer to use the financial backing of the surety company. If there is a loss, the surety company pays for the loss, and as mentioned earlier, the dealer is required to reimburse all funds that have been paid out. This includes the cost of defense and the amount paid to settle. Keep in mind, when purchasing, you will be required to personally indemnify the bond, which means you are personally on the hook to repay the surety company for Continued on page 8
n ADESA SEATTLE adesa.com/seattle Tuesday: Consignment, 9:30AM Alternate Tuesday: Specialty, 8:30AM Thursday Night: InOp Sale, 4:45PM
n ADESA PORTLAND adesa.com/portland Thursday: Consult website
n BIDBUY DEALER AUCTIONS (844) 505-1555 bidbuydealer.com Weekly Thursday Auctions 8:00AM to 3:00PM and previews Tuesday and Wednesdays 12:00PM to 3:00PM
n COPART copart.com Times vary: Consult website
n CTM UNLIMITED ctmunlimitedauction.com See website for auction dates and times.
n DAA NORTHWEST magauctions.com/daanw Weekly auctions: Thursdays, 9:00AM Monthly promotional event auctions: Wednesday, 2:00PM & Thursday, 9:00AM n DAA NORTHWEST (CONTINUED) Monthly MotorSports auctions:
Thursdays, 11:00AM (Lane 8) Monthly RV auctions: 11:00AM (Lane 8) Heavy Metal auctions, 8:30AM as scheduled (Lane 8) NOTE: MotorSports, RV and Heavy
Metal auction For dates, visit: daanwmotorsports.com
n DAA SEATTLE magauctions.com/daasea Friday: Dealer and Fleet/Lease, 9:00AM Alternate Friday: Heavy Metal,* 9:00AM (Lane 8) Monthly GSA Public Auctions, 1:00PM *Mechanically-challenged/cosmetically damaged/non-running inventory
n EHLI AUTO AUCTIONS ehliauctions.com Last weekend of every month
n IAA - INSURANCE AUTO AUCTIONS
SEATTLE
iaai.com See website for dates and times.
Differences Explained: Bonds vs. Insurance
Continued from page 7 this loss even if your business closes (plus interest).
On the other hand, insurance premium is paid by the dealer to the insurance carrier for an insurance policy. In return, the insurance carrier promises to protect the insured from financial loss. These include liability losses such as when a driver hits or injures another party. Other insurance losses may include loss to property such as auto theft, damage to property, bodily injury, cyber losses, and even employment practice liability (discrimination, harassment) depending upon the coverage selected. The insurance company determines the premium charged for losses that are expected to occur based on the insured’s operations, characteristics, and history.
A surety bond (dealer bond) is a required by the DOL to obtain and hold a dealer license. It is in the dealer’s best interest to follow the rules and guidelines making every effort to avoid a bond claim. An open claim will often trigger a non-renewal of a bond and makes it difficult, if not impossible, to secure another bond, effectively putting the license in jeopardy.
Washington is one of the few states that has no requirement to obtain an insurance policy to apply for a dealer license. Insurance is, however, required to operate a vehicle on the road, and it is best practice to seek a policy that affords coverage to protect other assets of the dealership. Most dealers are smart businesspeople and realize the value in protecting their assets through insurance. Some choose to roll uninsured which creates an unfair advantage (fixed expenses are lower) and a very dangerous environment in the community when they or their customers operate vehicles without the protection of an insurance policy. When those drivers cause an at-fault loss there is no money to cover the expenses of an injured party causing financial hardship to that party. It is also quite damaging to the reputation of all dealers. It should be noted that a personal insurance policy is not sufficient and will not provide coverage when operating as a dealer. The type of insurance policy for dealers is called a commercial garage policy.
Some conversation has been had as to adding a requirement of a commercial garage liability insurance policy to apply for and hold a dealer license as it is in most other states in effort to protect the public, the reputation of the industry, and help level the financial playing field across all licensed dealers. WSIADA members that agree such a change in the Washington licensing requirements would be of benefit are encouraged to voice their opinion in writing to the association and state legislators. n
n IAA - INSURANCE AUTO AUCTIONS
SPOKANE
iaai.com (509) 891-2388 See website for dates and times.
n KAMAN kamanauctions.com Thursday, Noon
n MANHEIM PORTLAND manheim.com/locations/PAA/events Tuesday: Open Sale, 9:00AM
n MANHEIM SEATTLE manheim.com/locations/SSAA/events Monday: OVE Event Sales; Foothills
Toyota Mobile Sale, 1:00PM in
Burlington, WA Wednesday: General Sale Weekly, 9:00AM All sale dates and times are subject to change. Please verify with the Auction or manheim.com.
Todd Shepard is the founder Shepard & Shepard Insurance Solutions and regular contributor to the Front Row. Shepard & Shepard focuses on the bond and insurance needs of the automotive industry. For more information or a competitive bond and insurance quote visit shepquote.com or call toll free 855-396-0488
NextGear Launches New Department Focused on Independent Auctions
NextGear Capital also said that chosen to lead this new group is Sandy Moon, the company’s associate vice president of auction and floor plan services. Images courtesy of the company.
A new department several months in the making now is a part of NextGear Capital.
To strengthen its business relationships with the auction partners that support the inventory needs of its independent dealer clients, NextGear announced on Wednesday that has created an auction services department.
The company explained through a news release that planning for the auction services began last year. NextGear indicated that the work included reimagining and realigning the company’s flooring and funding departments to create collaborative consulting teams.
Executives said the goal is to build indepth relationships with auctions to better understand their unique needs and harness the collective resources of NextGear Capital to provide customized solutions.
“Our focus for creating a dedicated Auction Services team was to broaden our support and expertise to better meet the needs of our valued auction partners,” NextGear senior vice president of lending John Wick said in the news release.
“Bringing our best-in-industry knowledge and exceptionally skilled team members to the table allowed us to take a fresh approach to how we interact with our auction partners and become a collaborative, trusted resource to help both organizations drive growth,” Wick continued.
NextGear also said that chosen to lead this new group is Sandy Moon, the company’s associate vice president of auction and floor plan services.
A 17-year member of the NextGear team, the company highlighted Moon brings experience in operations management and team building to her new position.
In addition, Moon has hired Danny McNelis as the team’s auction director.
Previously serving as a senior client solutions executive for NextGear, the company said McNelis brings strong relationship-building skills to this new role. n
Financial solutions that maximize success and minimize worry.
A P P L Y T O D A Y
www.kineticadvantage.com
New Study Highlights why a Dealership’s Online Presence is so Important
By Carina Ockedahl, Canadian Auto Dealer
Digital Air Strike released its 9th Annual Automotive Customer Experience Trends study at the 2022 NADA Show in Las Vegas, Nevada, offering dealers, lenders, OEMs and providers information that they can use to improve the vehicle ownership experience.
The company said its report offers “compelling insights” on the impact of the vehicle inventory shortage, online interactions that help move the customer journey forward, and the importance of the online and digital communication experience for consumers, along with the platforms that they prefer to use.
“The vehicle researching, buying, and ownership processes have changed exponentially since the onset of the COVID pandemic,” said Alexi Venneri, Co-founder and CEO of Digital Air Strike, adding that “the data has consistently proven to be helpful for our dealers and the industry as a whole.”
The report shows that a third of consumers felt significantly impacted by the inventory shortage. Of those that were affected, 21% went to a different dealership, 8% asked the dealer to order a new build from the factory, and 21% had to wait for the vehicle they really wanted.
Of this particular group, 71% waited up to three months, while 27% waited up to a year, and 50% paid a $500 (or more) deposit. Also worth noting is that 20% of consumers said the dealer did not keep them informed about the status of their vehicle. And again, among consumers affected by the vehicle inventory issue, 32% did not get their first-choice vehicle, and 17% bought a used vehicle instead of a new one.
The study advises dealers to present alternative options to consumers, including new and used vehicle options. Some dealers also offered important information in their communication to consumers about the vehicle delivery time, delivery process, and the car’s features.
“Dealers need to ensure their pre-order process includes a plan for ongoing communication to keep their customers updated and to retail vehicle deposits,” said Digital Air Strike in its report.
As for the online environment, some of the main reasons consumers did not contact a dealership when researching their vehicle include a lack of special offers (40%), high prices (35%), a lack of dealership photos (26%), there was no easy way to contact the dealership (11%), bad reviews (8%), and a lack of COVID-19 protocols (3%).
Consumers expect to access accurate information on the first page of their search results—not outdated information, the report notes, adding that dealerships should have an updated Google Business Profile with one place to browse reviews, receive their frequently asked questions, see the store’s photos, and find special offers and announcements. There should also be an easy way to contact the dealer on that page.
“Online sources continue to be the most dominant resource in reaching consumers when making a purchase decision, while ads on streaming networks are close behind traditional media sources,” reads the report. “Without a solid online presence, consumers are more likely to select another dealership for their purchase or service.”
The study shows that consumers select dealerships based mainly on online searches and reviews—at record levels. It notes that 93% of consumers that purchase a vehicle (up from 88% in the previous
year’s study), and 87% of service customers said online review sites helped them select their dealership.
Based on consumer rankings of their top source for dealership research and reviews, Google slots number one with 60% (up from the last study), followed by Kelley Blue Book with 17% (down from the last study), Vehicles.com with 17% (down), VehicleGurus with 13% (down), and Autotrader.com with 13% (down).
“Because of the inventory shortage, consumers don’t have as much time to research because vehicles are being sold quickly. Eighty-six per cent of sales (down from 93% in the prior study) and 51% of service (down from 74% for the previous study), researched a few days or more before selecting a dealership,” said Digital Air Strike in its report.
On reviews, 58% of consumers said the dealership did not ask them to write an online review about their sales experience, while that percentage jumps to 71% for service. Thirty per cent of service customers said a dealership’s response is the “most important” part of a review. For consumers overall, a four or five star rating can impact their decision when selecting a dealership.
It is also worth noting that most reviews written by consumers are positive (81% for sales and 88% for service), and that 58% of consumers find these review sites helpful. 1. Engage in online interactions that can improve the customer journey. 2. Communicate with effective and timely messaging. 3. Increase lead conversion and protect your online presence with reviews. 4. Turbocharge your marketing game. 5. Improve your online experience.
Digital Air Strike surveyed more than 2,300 vehicle buyers and more than 2,700 service consumers from transactions conducted over the last six months for its study. These consumers were between the ages of 25-54, a near-divide of male (57%) and female (43%), had no pre-qualification criteria other than those transactions, and they were not predisposed to be online shoppers. n
