Category Archives: Dealership Business

Your State Dealers Association

Your State Dealers Association: Eight Steps in Challenging Economic Times

As the industry experiences the continued challenges of a difficult economic marketplace, many franchised dealers are looking to their state dealers association for help. Dealers may be looking for information on critical legal issues or for an opportunity to share factory information, but in most instances, the dealer is looking to connect with other dealers for resources to help survive the challenging times. In this regard, it is my pleasure to allow two of the leading dealer association executives, Robert Glaser, with the North Carolina Automobile Dealers Association and Tim Jackson, with the Colorado Automobile Dealers Association, to present their thoughts in this month’s column on how dealer associations can best assist their members in this tumultuous period in our industry. ~ Richard Sox

State and local dealer associations have long been the staunch advocates and devoted champions for dealers’ rights. But in addition, state associations have constantly served as a forum for dealers to share concerns, exchange ideas and discuss opportunities that are present in the industry. Accordingly, as the industry becomes mired in tremendously turbulent times, dealer associations have the opportunity to provide proactive resources to help dealers. The following are eight possible pro-active programs that dealer associations can implement to help dealers maximize profits in financially problematic times.

Offer educational programs on maximizing profits
While there are numerous issues that will confront dealers from the credit crisis, consolidation of manufacturers, increased consumer driven litigation, and volatile gas prices, the topic that is most important to dealers is that of maximizing dealership profitability. As the marketplace becomes more difficult, it is with renewed interest that state associations should focus on working with and educating dealers on ways to maximize profits.

While there are countless programs available to dealers, one that has received acclaim from several states is the NADA “Lifeline to Profits” seminar. Just recently, this program was conducted, in partnership with NADA in several states including Iowa, Ohio, West Virginia, Tennessee, Colorado, North Carolina and Alabama. This hands-on, high-energy, comprehensive program is dedicated to demonstrating emerging ways that dealership operations can be changed to increase profits. According to one dealer who attended the Lifeline to Profit seminar in North Carolina, “This program will save my dealership $500,000 next year.” This program, with these types of results, will help dealers survive and thrive in difficult economic times.

Act as a clearinghouse for news and information
With the advent of the credit crisis in mid-September and the almost daily news about the factories and the captive finance companies, an opportunity exists for the dealer association to act as a central clearinghouse for information, reports and emerging news. Starting in mid-September, the leadership of the North Carolina Dealers Association met on a regular Monday morning conference call to discuss the activities of the previous week. As a result of the conference calls, there was a healthy exchange of information and opportunities, as well as an action item list agreed to by the association leaders at the end of the call.

Cost effective educational programs
While the dealers may be engaged in deep and unprecedented cost cutting, one cost that the association does not want to see cut is the cost to attend the association’s educational programs. As such, the leadership of the dealers’ association should evaluate and recommend the most important educational needs and the cost/benefit of delivering these timely and affordable educational programs. It is critical that dealers have the opportunity to meet with each other, hear from experts and witness examples of effective leadership in management decisions.

Conduct a statewide make meeting
There is nothing quite like the power, intensity and opportunity when all the franchised dealers of one line-make are gathered together. State dealer associations have the opportunity to bring common linemake dealers together to discuss business conditions, statewide opportunities or emerging trends that may impact only one franchise.

In late August, the Chrysler dealers of North Carolina gathered with the association’s legal team to discuss issues that related only to Chrysler and Chrysler Financial. As a result of the meeting, not only did the dealers garner a much needed understanding of their rights under the state franchise laws, but the association also drafted a letter to Chrysler President Jim Press asking for clarification on several Chrysler related issues.

Organize a statewide, regional or local media plan
As the credit crisis unfolded during the fall months, the national media was implying that consumers were not being financed at the local dealership. This was a falsehood magnified by media coverage.

In order to offset this critical misinformation, several metro dealer associations worked to produce and air commercials or print ads that debunked the credit myth. Dealer associations in Chicago, Birmingham and Oklahoma City conducted radio and television campaigns that focused on the availability of consumer lending sources available within dealerships. In difficult times, or in times when the information in the media is misleading, a real opportunity exists for the state or local dealer association to step forward with a PR campaign on behalf of members.

Keep the federal and state legislators in touch with the industry
Legislators both in the state house and the nation’s capital generally have positive relationships with their local, hometown franchised dealers. As such, one priority many state associations have incorporated is to meet with state and local elected officials about the status of the industry, as well as pending transitions.

Within a two-year period, the Colorado dealers association organized 92 breakfast, lunch or dinner meetings involving dealers, senior managers and local state legislators. The sessions were so successful that, oftentimes, legislators promised support for the dealers’ issues even before the dealers had made a request.

This flow of information from the association to the elected official enables the local, state or federal government to be more informed and ready, should state or federal assistance be offered or needed. In fact, franchised dealers across the nation have strong relationships with their legislators and the process of keeping policymakers informed on the status of the industry encourages them to better communicate with the dealers.

Survey your members
One of the most critical roles that the dealer associations can play is that of a clearinghouse for timely information. As part of that role, the association can quickly survey members to determine pressing concerns and emerging issues. For example, as part of the GMAC floorplan issue in October, a survey was done by the North Carolina Automobile Dealers to determine what percentage of dealers received a rate increase from GMAC; the magnitude of the rate increase and the impact that GMAC’s retail policy was having on consumer financing. Overall, surveys are a key tool that allows the association to gather key information and relay that information to members in a timely manner.

Be proactive
Possibly the most important of all the steps that the state association can do is to be proactive. There are countless ways that the dealer associations can and will be proactive on behalf of the dealers. From setting up emergency board meetings to planning meetings with statewide lenders, dealers can expect their dealer association to take positive steps to forward members’ concerns. By taking a positive step to assist the dealers, the perception is that the association cares! As the saying goes, “The dealer doesn’t care how much the association knows, until the dealer knows that the association cares.”

Summary
Dealer associations are often a hidden but powerful force with the opportunity to help dealers in difficult times. From offering quality educational programs, to conducting statewide surveys, to acting as a clearinghouse for vital information, the meaningful value of the association becomes evident when the dealers need help. Dealer associations are proactive in addressing dealer concerns, are providing a forum to exchange ideas and information and are taking positive steps to help their dealers and the industry survive. This industry is blessed with some of the most competent, thoughtful association leaders and with their efforts, working together, franchised dealers can and will survive today’s economically challenging marketplace.
______________________________________________________________________________________________________________________________

Robert Glaser is the CEO of the North Carolina Automobile Dealers Association and is the former CFO of the National Spa and Pool Institute. He is a former CPA and has written and lectured extensively on association finances and management

Tim Jackson is the CEO of the Colorado Automobile Dealers Association. Prior to joining CADA, Jackson was the Colorado state director of the National Federation of Independent Business.

Your Vendor Agreements

In this day and age, dealers utilize many different software programs to track sales leads, perform follow-up after the sale and manage payroll, human resources, service reminders, accounting, F&I, etc. Additionally, dealers use many third-party vendors which have DMS access for downloading information to their software to furnish dealers with add-on products and/or reports.

Maybe it is time to inventory all these programs to find out if you are still utilizing them and if anyone is looking at their output. Start by reviewing your accounts payable bills for any data processing costs. These bills are recorded in many different areas of your financial statements, so don’t just look at your data processing expenses. Look in outside services, miscellaneous expenses, professional fees, departmental expenses, etc.

Once you have a list of vendors, find the original contracts you signed. Document the original date of the contract and the start and end dates of the contract. Then look for any amendments to the original contracts you may have signed over the years. If you can’t find these, or aren’t sure you have any and all amendments, contact each vendor and have them furnish you the copies of any existing and ongoing contracts. Also, pull a copy of the most recent bill from each vendor.

Now that you have this documentation, complete a recap of all the contracts. An example of the information to recap in columns on a spreadsheet would be:

[list:27ttjwjo] – Name of the vendor

– Original date of the contract

– Start date

– End date

– Any amended start and end dates

– Contract number

– Monthly maintenance amount

– Original term

– How many periods are remaining

– Any cancellation fees, if stated

– What financial statement account it is expensed to[/list:u:27ttjwjo]
You will probably want to contact each vendor and have them furnish you a list of the above information to make sure you have all the contracts and expiration times. It may amaze you how many different contracts you have signed. It may also surprise you how many different terms and conflicting end dates your contracts have.

The reason for this is that you or someone who works for you may have unknowingly signed contracts with staggered contract terms. This means the additional contracts you signed over the years do not have the same end date as the original main contract. This is a problem if you ever want to switch vendors. You may not be able to because you still have some contracts with a remaining term. You may be able to terminate the contracts with a remaining term by paying a cancellation fee, but this can be very expensive and doesn’t have to happen if you plan appropriately.

After reviewing clients’ bills and gathering this information from their records and vendors, I have been surprised by how many different changes, amendments and additions to the main contract they have signed over the years.

How do you contain and limit this problem going forward? Put all your managers and personnel on notice that no one is allowed to sign and/or agree to any contracts. Next, put your vendors on notice that no one except you can renew, add, modify, etc. any contracts on behalf of any of your companies and if they do get someone other than you to sign, the contract is not valid. This type of notice can apply to any of your maintenance contracts for any type of service you need to contract for. When you sign any new contracts, add a clause to the effect that no one is allowed to contract with this vendor but you.

When reviewing any additions, modifications or renewals with vendors, you should have on hand any other contracts with the same vendor, any associated vendor they rely on and their terms with end dates. You should negotiate to have any changes end at the same time as the main contract. This allows you to change vendors in the future without contract end date issues like penalties and surcharges.

Now is the time to negotiate and/or renegotiate these staggered terms with your vendors. Call and meet with them to discuss the problems you have with these staggered dates. Let them know this is unacceptable and they need to do something about it if they want to remain your vendor in the future. Have them present a proposal to you to rectify these staggered contract dates.

The other thing you want to eliminate from any new contract is language that allows the vendor to automatically renew the contract for an additional period if not notified in writing so many days before the existing contract expires. Before execution of the contract, cross through these clauses and initial and date them. And, add a clause of your own that states you will not automatically renew any contracts in this manner, and if their contract contains any language to this effect you may have missed, the contract is null and void.

Remember, you can use this same exercise to review all your vendor contracts that have monthly maintenance. Again, you may be surprised how many you or your personnel have signed. Take control of these costs and ongoing contracts now. If possible, limit them to month-to-month or a year at a time and try to eliminate any termination or cancellation fees.

Remember, what you don’t know can be an expensive lesson.
________________________________________________________________________________________________________

David Keller, CPA, CFE
Principal
Larson Allen LLP
314.336.3817
DKeller@AutoDealerMonthly.com

You Can’t Score "Wow"

I spend a lot of time talking to dealers and their management teams about benchmarks and guides. Quantitative data is easy to compare (i.e. net profits, gross profits, expenses and such).

The factories try to make it easy to compare qualitative data by assigning scores to customer satisfaction. Customer Satisfaction Indices (CSI), Service Satisfaction Indices (SSI), as well as a whole host of other indices exist to try to measure customer satisfaction and how well you are doing.

One inherent problem is that the numbers can be deceiving because they don’t measure people that don’t buy from you. Dealers can receive awards and plaques for outstanding CSI and customer service, but awards really don’t tell the whole story. They also don’t measure the “Wow!” factor. I define it as the overwhelming experience that turns an ordinary customer into a customer for life, which will have few direct ties to a great CSI score.

Being an ex-dealer who always enjoyed excellent CSI scores, I might be categorized as picky. It is hard to Wow me. Recently I had one of those experiences, and I feel compelled to relate it to our industry.

Having bought more than my share of new boats years ago, and been nailed by the extreme depreciation they suffer in the first few years, I long ago vowed to never buy a new one again. That makes shopping a little more difficult, but nevertheless it was time to do it, and this time, I did almost all my shopping online.

Compared to all the car shopping experiences I have chronicled in these columns, it was a breeze. To my surprise, nearly all brokers and sales agents responded to my e-mail requests in a timely fashion through both e-mail and by phone and with accurate details and descriptions. All in all, it was relatively easy and painless to find and purchase my cruiser at a distance. Why can’t it be that easy with autos?

That wasn’t my Wow experience though; that came later. Buying a used boat, one can expect to spend some money on recon and upfitting. Additionally, nothing is inexpensive. (B-O-A-T does stand for Bring On Another Thousand.) Since I had to pay to transport the boat across the state, I thought I might as well use the service provided by the broker’s service department, since they were the franchise dealer for the brand of boat I bought. I didn’t want to pay to ship the boat twice. Additionally, since some items were factory-only that I wanted added, it only made since. Since it was impossible to miss the plaque on the wall when you walked into their Taj Mahal of a facility proclaiming them the 2006 Boat and Motor Dealer Magazine Dealer of the Year, as well as CSI plaques from their factory, I figured they had to have something going for them.

To make a long story short, I placed three calls to their service department, talked with their service manager and let him know that I had just bought a used boat brokered through his company and that I was prepared to spend a good chunk of money with them. I was dismayed at the flat indifference offered. I couldn’t even get an estimate on a simple repair without a congressional act. When I finally discussed it with my broker, he offered that if I had someone in my area that could do the work, he would recommend it. I was stunned.

Fortunately, before I bought the boat I had bugged the service/parts manager at the franchise dealer nearest to me (an hour away). I was trying to get an idea of what items would cost, electronics, etc. In truth, I was probably being an annoyance since I wasn’t their customer and didn’t even own a boat yet. In spite of that, their service manager (Gabby) was very attentive. She called me back with prices and alternative ideas to save me money (which I hadn’t even asked about), and of course suggested that I buy one of their used boats. My Wow- experience had already begun, but I didn’t know it yet.

Heeding my broker’s comments, I called Gabby back. Additional dollar signs were spinning in my mind as I now had to pay to transport the boat a longer distance and further away from me.

All those feelings were quickly assuaged by Gabby. Despite the fact that I had not bought my boat there (they didn’t have exactly what I wanted), she quickly offered, “Don’t worry, I will find a way to get everything done, and I promise you’ll love it!” I hung up figuring I was dreaming.

For the next week, while I was on the road, she stayed in touch with me – always calling or e-mailing me before I could her. Nevertheless, the skeptic in me knew the “other shoe” had to drop. It couldn’t be this easy or this pleasant. I held my breath when I drove up to pick it up after it was finished (at the exact time it had been promised).

Gabby had done it—in Florida no less, not normally known for customer service. She had Wowed me. She thought of every detail that would be important to me and came in under budget (and much less than what it would have cost at the “Dealer of the Year”). She did suggest to me a bunch of additional stuff, which I eagerly bought, all because she Wowed me. At delivery, my initial thought was, I have a couple of dealer friends that would kill to have Gabby work with them. She is a gem that makes a difference, and she has even been selling boats on e-Bay just to help out. They would hire her in a heartbeat and probably pay her the Franklin Mint. But there I stopped, because then she wouldn’t be the service manager at my new boat dealer for life.

I learned a lot through this experience. My stores had great CSI, but they didn’t have a Gabby. I can’t imagine what that would have been worth. My charge to you, find your own Gabby. Don’t settle until you do. Great CSI is good, but to really make a difference, you have to find a way to Wow them.

Until next month,
“Wow” them!
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Written by Greg Goebel, President & CEO
Auto Dealer Monthly
Special Finance Insider
941-927-8439
Greg@AutoDealerMonthly.com

You Think Selling Cars is Hard?

A recent press release from New York Attorney General Andrew M. Cuomo announced that his office has secured and is now distributing more than $100,000 to consumers who were defrauded by a New York used car dealership. The allegations below are from the press release.

The money came from a lawsuit won by Cuomo’s office against the owners and employees of Daniels Automotive Group, also known as Howard-Oldsmobile-Cadillac-Pontiac-GMC Truck, Inc., that defrauded 38 consumers throughout the Rochester and Finger Lakes regions.

“This dealership engaged in a pattern of deception and fraud that cost unsuspecting consumers thousands of dollars,” said Attorney General Cuomo. “These practices have been put to a stop, and we have secured restitution for those the dealership ripped off.”

According to the AG’s office, from August to December 2008, Daniels Automotive used multiple fraudulent schemes when selling used vehicles. The Attorney General’s investigation found that the owner and some staff members were involved in scams regarding loan and credit applications, sales of fictitious warranties, failure to pay off traded-in vehicles and even identity theft.

According to the AG’s suit, the dealership engaged in various fraudulent practices, including:

[list:2ca4l7e6]• Obtaining consumers’ signatures on blank or partly blank documents and then inserting figures and terms inconsistent with the numbers agreed upon during sales negotiations

• Charging consumers for extended warranty repair service contracts without the customers’ knowledge or consent

• Misrepresenting to customers that they were required to purchase an extended warranty or they wouldn’t be approved by a lending institution

• Falsely promising to refinance purchased vehicles at a lower interest rate after the consumer made several monthly payments

• Refusing to refund deposits to consumers who did not wish to buy a car or who had been turned down for financing

• Submitting purchase and loan documents to financial institutions and other state agencies with forged signatures

• Pocketing consumer deposits and advance payments for purchases of automobiles

• Submitting forged credit applications with falsified and inflated financial and employment information in order to induce lending institutions to approve inflated automobile prices and loans

• Forging credit applications from consumers with fake employment and inflated salary amounts, then changing the consumer’s employer’s telephone number to the Daniels employee’s number, who would then impersonate fictitious employers and fraudulently verify employment

• Reneging on the acceptance of trade-in vehicles that were part of a vehicle purchase deal.[/list:u:2ca4l7e6]
These aren’t the, “Oh, shucks, somebody forgot to train me not to do that” sorts of violations that we frequently see. It’s hard to understand how those participating in these practices could think that they were not violating the law. Even a skunk would have a “smell test” problem with these shenanigans.

If any of these activities are going on in your dealership, it’s time to find a new place to work. When we’ve seen allegations like these in other states, we’ve often seen criminal and civil charges brought against the dealership and its employees. That’s a party you want to miss.

Selling cars is hard. Jail is harder.
__________________________________________________________________________________________________________________________________________________________

Thomas B. Hudson, Esq.
Partner
Hudson Cook, LLP
410.865.5411
THudson@AutoDealerMonthly.com

Your Most Important Customer

Your Most Important Customer: Implementing An Internal Customer Relationship Management System

Building relationships with customers is a fundamental part of this business. No dealership will last long if its employees cannot develop rapport and make a connection with the customer. Have you ever taken the time to clearly define who your customers are? It probably seems like a simple question to answer. Those people who buy products or services from you, right? Yes, but that’s a fairly limited definition. It leaves out a whole section of customers that you may be failing to notice. Your internal customers.

Internal customers are those people within your organization whom other parts of the organization connect with. Your employees are internal customers. What do I mean by this? For example, let’s say that you have a sales consultant ready to deliver a vehicle to a customer (external), but to do so many different things must fall into place. The vehicle must go through your inspection process first. Therefore, the sales consultant has now become a customer (internal) of the auto tech doing the inspection. The auto tech will not even begin the inspection if the paperwork is not delivered from the assistant service manager (ASM). He’s a customer of the ASM. The ASM does not know to prepare the paperwork if the sales manager does not let him know about it. He’s a customer of sales manager. This goes on throughout the entire dealership.

In plain terms, every one of your employees provides a service to someone else even if it’s not directly to the people buying vehicles. While ultimately you are all trying to deliver to the external customers, managing the internal customer relationships is just as important as managing the external ones.

The idea of internal customer relationship management (ICRM) is nothing new. Most large businesses have a formal quality improvement program that will deal with this, but rarely do you see much focus on this in small- and medium-sized businesses. My experience has been that most automotive dealerships put very little effort into managing internal customer relationships. This is unfortunate because the automotive industry has the tools and mindset already built in; you simply have to adapt the techniques you use for external customers to work with your internal customers as well. I won’t try to tell you the best way to deal with customers, as I’m sure you are already working on it. I will, however, outline the three key areas to remember when adapting what you already have in place to meet the needs of your internal customers as well.

ICRM is proactive.

The top sales consultants know that the worst way to sell cars is to wait for the customers to drive onto the lot and then start. The best sales people are seeking out their customers before the customers even show up and asking them “What can I do for you?” This is just as true for your assistant service manager. If the ASM (whose internal customers include the service techs) takes the time to ask the techs, “What can I do for you?”, things will move forward. The answer could be something as simple as turning the written services orders the same direction so the tech can look through them quicker or highlighting the work that needs to be fast-tracked in the computer.

Whatever it is, it takes action to find out what the customers are looking for and by taking action first, rather than when complaints start surfacing (i.e. when the internal customer comes to you), and showing an interest in the work of your customers and coworkers.

ICRM is about people.

How many times have you heard, or said, something like, “This would be so much easier if [insert name(s) here] would just get their act together”? I suspect probably too many times. It is quite easy to fall into an “us versus them” mentality, especially when dealing with coworkers. As a member of managment, it is your responsibility to control this because you know the service department is not trying to sabotage the sales staff nor is the administrative staff purposely trying to misplace paperwork.

You can break this by encouraging the realization that all people make mistakes. You need to proactively seek out solutions to issues (see #1) and treat each other as people and not nameless adversaries in that other department. If that happens, you will achieve more internal customer satisfaction. Develop your employees in a way that they can see and understand the roles of others employed. Oftentimes, people become so focused on their own work that they lose track of the fact that everyone plays an important role in the function of the dealership. Let your administrative team spend some time in sales or service and vice versa, so they can see everyone’s contribution. Remember, you are developing relationships.

ICRM is ongoing.

Relationships take time and work. I’m sure everyone realizes that from their personal lives. It carries over directly to work as well. To develop good internal customer relationships you must always work on them. It’s not as simple as asking a few questions once and thinking you are doing well. You have to keep asking questions, working with individuals, focusing on everyone’s contributions and seeking out new ways to improve. Go back to the sales example. Would you rather sell one car to a customer this year or sell a car to them every two years for the rest of their lives? Would you rather improve your workflow today only, or every day? That is what customer relationship building is about. It’s an ongoing process.

This is a simplified methodology for you to read, think about and possibly implement. If you already have a CRM training program in place, probably for your sales staff, consider adapting it for all of your employees. Every person in your dealership is a vital part of the organization. By making sure all the employees understand this on an internal level, you will find your dealership able to focus the concepts on the external customers better as well.
____________________________________________________________________________________________________

Written by Justin Spath
Human Resource Generalist
JSpath@AutoDealerMonthly.com

Worse than Worthless

Recently, while at NABD convention two of my partners, another lawyer and I had just finished an hour-long presentation and Q&A session before a large group of dealers. Our topics had included Red Flags, privacy, collections, starter interrupt devices, the sale of aftermarket products, state Attorney General actions, bankruptcy, the FTC Used Car Rule, federal and state disclosure requirements and pending federal legislation.

Then I headed for the Exhibit Hall, because we’d extended an open invitation to come to our booth if dealers had more legal questions. I always look forward to these informal Q&A sessions, because the level of legal sophistication of the dealers ranges from very high to very low, and there is no telling what you’ll hear next.

A lot of dealers took us up on the invitation, and we were close to getting talked out when a young man (he’d have looked at home in high school) approached me.

“I have a question,” he said.

“Shoot,” said I.

“My Dad and I have a buy-here, pay-here operation. We started it about three years ago. We’ve got about 80 contracts outstanding. Does that Truth in Lending stuff apply to us?”

“Uh, oh,” I thought.

“Yes,” I said. “And so do the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, the FTC’s privacy regulations, the FTC’s Used Car Rule, the Red Flags Rule and a raft of other federal and state laws and regulations. He didn’t look happy.

Sensing that his question about the Truth in Lending Act reflected the general sophistication and level of compliance of his operation, I grilled him a bit. In short order, he revealed that he had no privacy policy or privacy notice, no Safeguards Policy, no Red Flags policy and no written operations manuals of any sort, and that he had never received any compliance or F&I training.

“A guy lighting matches trying to find his way out of the dynamite factory,” I thought.

Then I asked another question. “What form of retail installment sales contract do you use?” I was hoping against hope that he’d respond by saying, “The LAW 553 form,” or “the AutoStar Solutions form.” When he hesitated, I got a cold chill, and thought, “This isn’t going to be pretty.”

“We don’t use one of those,” the child replied. “We use a promissory note and security agreement. We got it off the Internet.”

Oops. That means the document he’s using does not have the required federal Truth in Lending disclosures. It probably also is shot through with other state and federal violations.

“Let me get this straight,” I said. “You are selling cars on credit, right? You aren’t making loans to consumers who use the money to buy cars from others. You are the seller, correct?”

“That’s right. Is there anything wrong with that?”

By this time, my head was spinning. Here’s a guy (and his dad), who knew zip about the state and federal laws that regulate the credit sale of vehicles. He hops on the Internet and creates a promissory note (Why not? Nearly everyone in the business erroneously calls retail installment contracts “loans.”), and then using that document, builds a portfolio of 80 transactions, a portfolio that is worse than worthless.

Worse than worthless because no one in the car finance business would touch it with a 20-foot pole, and worse than worthless because every one of those 80 buyers has grounds for a lawsuit with potential damages that would obliterate the principal owed on their contracts. He’s a sitting duck for a class action lawsuit, and I’d be really surprised if some of the laws he has ignored don’t have criminal penalties that could put him in jail.

Well, to answer his question, I had to start somewhere, so I opened our F&I Legal Desk Book to the table of contents and started scrolling down the chapter titles, giving him a couple of sentences of explanation for each topic. When his eyes started to glaze over, I sent him on his way, book in hand.

I really felt for the guy and his dad. Life is difficult enough when you at least know what you don’t know. But when you don’t know what you don’t know, life gets downright dangerous.

Then I thought, “Wait a minute. I know that car dealers are, ahem, shall we say, frugal, but for the cost of a fairly inexpensive big-screen TV set, this guy could have bought an hour’s time from me or from somebody like me. That few hundred dollars wouldn’t have given him all the legal advice he needed, of course, but it would have at least taught him what he didn’t know, and he might well not have proceeded to develop that worse-than-worthless portfolio.”

It is better to know what you don’t know and try to figure it out than be completely blind in business. But, score one for the kid; at least he bought a book – now he’s just gotta read it.
__________________________________________________________________________________________________________________________

Thomas B. Hudson, Esq.
Partner
Hudson Cook, LLP
410.865.5411
THudson@AutoDealerMonthly.com

Wrong Assumption on Dealer Participation

Wrong Assumption on Dealer Participation Leads to Faulty “Study”

Car dealers sell stuff. First, of course, they sell cars. When they sell cars, they charge more to some buyers than to others. A buyer with good bargaining skills who has done his or her homework, doesn’t fall in love with the smell of the leather and has patience will pay less than a person who doesn’t bargain well, hasn’t bothered to do any research, has fallen in love with the car and has a bad case of "I’ve gotta have it today." Those additional amounts paid to the dealer are called “profit.”

Anything wrong with that? Unless it is a credit transaction and a dealer discriminates on a prohibited basis in setting the price of the car, I think not.

Dealers sell other stuff, like GAP, credit insurance, service contracts and the like. Some car buyers will buy anything a good salesperson offers, while others have a high level of sales resistance and won’t buy a thing other than the car.

Anything wrong with that? Again, absent prohibited discrimination in credit contracts, I don’t think so.

One of the “other stuff” services that dealers sell is financing. Do these same general principles apply to the cost of financing? I think so. Absent prohibited discrimination, a dealer can charge customer Jones an 8-percent APR and can charge customer Smith an 8.5-percent or 9-percent APR.

Consumer advocates don’t believe that dealers should be able to charge different finance charge rates to different buyers. They assert that dealer participation ought to be prohibited or limited. They need a pejorative term, of course, so they call dealer participation "the markup" or a "dealer kickback," conveniently forgetting that in a retail installment sales contract, the dealer by contract is entitled to keep the entire finance charge if the dealer decides not to assign the RISC to a finance company or bank.

The consumer advocates believe that credit grantors should be like utilities, offering credit to all comers at the same cost. And they believe that should be the case even in the absence of any statute or regulation prohibiting such varying pricing.

Consumer advocates also believe that consumers should be told that the dealer keeps part of the finance charge and should be told the amount of the dealer’s participation, notwithstanding the fact that nearly every RISC in use today discloses that the dealer keeps part of the finance charge and that the rate of finance charge is negotiable with the dealer. Additionally, the Federal Reserve Board has twice rejected the suggestion that the amount of dealer participation should be a required disclosure under Reg. Z, wisely concluding that the APR, which is a required federal disclosure, provides the best information to the consumer and that the disclosure of dealer participation would not benefit the consumer. The consumer advocates, however, claim to know better than the Feds.

If you think we’re exaggerating the positions of the consumer advocates, take a gander at a publication issued by the Center of Responsible Lending (CRL) in April 2011. The report, "Under the Hood: Auto Loan Interest Rate Hikes Inflate Consumer Costs and Loan Losses," concludes that consumers who financed cars through dealerships in 2009 paid more than $25.8 billion in extra interest over the lives of their loans because of dealer interest rate markups, an increase of 24 percent from 2007. CRL also found that undisclosed markups “increase the odds that a subprime borrower will default by 12 percent and odds that he or she will end up having their car repossessed by 33 percent.”

The report starts off with one fatal assumption, however, and that fatal assumption renders the rest of the report fit for nothing other than the round file. What is CRL’s fatal error?

CRL assumes that in auto financing, a consumer can somehow bypass the dealer and go directly to Ford Motor Credit Company, AmeriCredit, Chase or other buyers of retail installment contracts and obtain financing directly from those companies at the so-called “buy rates” (rates the companies announce to dealers as the minimum rates for the contracts that they require for retail installment contracts they buy). In effect, CRL’s position is that consumers are entitled to get their financing at the dealer’s wholesale cost of money. That isn’t so.

If the so-called “report” compared the auto finance rates available from direct lenders like banks, credit unions and finance companies to rates available through dealer financing, what would their conclusions be? We don’t know, because we aren’t favored with such an “apples-to-apples” analysis. Comparing “retail” to “retail” might explain why consumers are glad to get their financing at dealerships.

And if the report asked consumers whether the convenience and time saving advantages of dealer financing were worth paying something more than the rate available from the car buyer’s bank or credit union (a number that I’m assuming is readily available), would that affect the “study?”

And if the report noted that nearly all auto financing in the U.S. is done on so-called “simple interest” retail installment contracts (the industry incorrectly calls “interest-bearing” contracts “simple interest” contracts) that don’t contain any sort of prepayment penalties, leaving car buyers free to obtain dealer financing at, say, an 8-percent APR and refinance a week later at a 6-percent APR rate from a bank or credit union, wiping out any dealer participation and evaporating that $25.9 billion, would that affect the study?

Oh, yeah. One more thing. The Center for Responsible Lending describes itself as a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices.

They’re nonpartisan, and I’m the Easter Bunny.
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Thomas B. Hudson, Esq.
Partner
Hudson Cook, LLP
410.865.5411
THudson@AutoDealerMonthly.com

Women of Color Are Women of Economic Influence

When the Maria Shriver study entitled “A Women’s Nation” was published during the latter part of 2009, it was big news for much of the nation. Finally, the impact of the women who entered the work force in massive numbers since the 1960’s were being recognized for their impact and the information was being discussed by everyone from the Cable News Shows to the various social media.

For the first time in history, over half of the work force was female and it was reported that women controlled or influenced 85 percent of all consumer purchases and decisions in this country. Women had become more educated, held positions in upper management of Fortune 500 companies, and were also the fastest growing group of entrepreneurs. In other words, they influenced or controlled most of the consumer commerce in this country!

The Business Opportunity

Included in the overall statistics about women is a massive economic powerhouse which is “Women of Color”. This group in total represents about 35.2 percent of all women. From 2000 to 2007, over 85 percent of the females coming into this country were Hispanic, Black, Asian, Pacific Islander, or Native Alaskan. Currently the Women of Color Group in total is 54 million strong and is projected to grow to 63 million by 2020, 75 million by 2030, and to 100 million by 2050 or sooner according to the US Census Bureau projections. The non-Hispanic White Female Group is projected to begin to decline in population by 2040 and by 2050 half of the females in the United States will be women of Color.

Today, women of color as a group are about a decade younger in average age than non-white Hispanic females, which means as a business owner, you have an opportunity to reach them now and have a greater life time value as you provide them your products and services.

Additionally, today’s women of color, are more educated and attain 57 percent of the under-graduate degrees earned by students of color. More than half of them are single and make the decision on what products and services to purchase. 2.4 million businesses are owned by Women of Color and they employ over 1.6 million workers. Their businesses generate over $230 billion in sales revenue. These women own more and earn more than at any other time in history and the projections are that this will continue to grow.

This group is networked, brand loyal, and like so many women use the social media in which to communicate with each other and with the social network at large. They share information and they do it in beauty shops, grocery stores, at church, and everywhere there is an informal gathering.

Are you ready to increase your roi and row (return on women)?

As a business owner, how are you going to reach this very powerful and influential women of color market that is projected to have spent $1.2 trillion in the year 2010? What are you doing to reach the female market in general which represents 50 percent of the population and controls or influences 85 percent of purchases? How are you prepared to interact with the various ethnic cultures within the female group? Can you afford to have a place of business and the products and services that do not meet their needs? What business strategies do you have in place to earn their business, keep that business, and continue to grow your company?

Do you have a business plan that encompasses gender, diversity, and stages of life? How are you preparing your work force for these changes? Does the work force reflect the marketplace in which you do business? What type of training are you providing them? Do you have an advertising agency that understands cultural and gender relevant messages with an effective media plan that also includes social media? Do you know the language preferences and ethnic characteristics of your market place?

Have you analyzed your strengths and weaknesses? What do you know about your competitors and how do you compare with them? What can you do to make your products and your services relevant to this diverse market or for that matter how are you differentiating yourself from the rest of the competition?

Included in your business plan should be an evaluation of your place of business. Utilizing mystery shoppers to gain a third-party vantage point of your brick and mortar, to understand the employee handling of your customers, and to evaluate your messages in the market place is a very inexpensive and accurate way to get a true appraisal of the face you are presenting to the public.

Most importantly, track and measure your plan. Everyone must support the plan to make it work and if it is not measured and course corrected as required opportunities will be lost to grow your business.

Communicating with Women

Most of us are familiar with the book written by John Gray in 1992 “Men are from Mars, Women are from Venus”, which offered many suggestions for improving relationships between men and women by understanding the communication style and emotional needs of the opposite gender. It was revolutionary for its time and was a well read book, but it still offers great insight and information that we should all utilize.

Training your staff to communicate more effectively with women and understand how men and women make purchases is the first step in increasing your ROI and your ROW (Return on Women). If you are going to grow your business today and in these next decades, then you will need to have a business plan that encompasses gender and diversity. Additionally, ensure that everyone is trained, trained, trained…and also held accountable.

We have the clear signs that this country is rapidly changing. Is your business ready for this new America in which we live?
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Patricia J. Roberts is the director-business development for AskPatty.Com. She has 39 plus years of experience in the Automotive Industry which includes increasing the number of women who own and who work in dealerships.

Worms Are Simple

If you’re running a bait shop, life is pretty simple. You keep the frozen bait frozen, the fresh bait cold and the live bait alive. If you screw it up, you lose some bait.

Selling cars on credit isn’t simple. Every transaction you engage in has to comply with a double handful of state and federal laws and regulations. Those laws and regulations vary in their specificity and complexity. Some of them simply require you to have a particular warning in your credit document. Others permeate the entire transaction, from advertising through presentation, contracting, servicing, collection and repossession. If you screw it up, some attorney general or plaintiffs’ lawyer will hang you out to dry or, worse yet, you get to make license plates for a few years.

I thought about how tough a dealer’s life is as I hung up the phone from a call last week. A franchised dealer had gone to a 20 group meeting and heard that he could make some decent additional money by going into the buy here pay here business. He’d gone home and had started slowly, financing the occasional buyer whose credit was a bit too challenged to be attractive to a finance company or bank. Before long, he was holding and collecting on more than 100 contracts.

Then he got a visit from his state’s credit cops. It seems that his state is one of the few that requires a dealer who elects not to assign his contracts (a/k/a a buy here pay here dealer) to obtain a sales finance company license. Did our boy have such a license? Nope.

So, let me think this through. This dealer didn’t bother to check with his lawyer about whether his proposed new business model required a license. You have to wonder what else he didn’t bother to do.

For example, most states have pretty specific requirements that govern the activities of companies that hold and collect retail installment contracts. Sometimes states require a collection license for that activity. Most states impose strict requirements on notices that the holder of a retail installment contract must send to delinquent credit buyers – notices that may be required at specific times, such as pre-repossession, post-repossession and pre- or post-sale of the vehicle. The failure to precisely comply with the content and timing provisions of these notice requirements and with state laws that govern the repossession and sale of collateral (vehicles) can have dire consequences.

These aren’t the only new legal areas that the dealership will face with a BHPH operation. Examples of other laws the dealer needs to be on top of include those relating to collection calls, privacy and starter interrupt devices, just to mention a few. It’s an entirely new legal landscape in some ways.

Even the retail installment sale contract that the dealer uses needs to be looked at in a different way. When the dealer was creating deals and assigning the resulting retail installment contracts to banks and finance companies, the dealership really didn’t much care about the parts of those contracts that dealt with what happened after the assignment. That’s not so for dealers who hold their own contracts. Now the retail installment contract has to be consulted for a number of reasons – to see what sort of behavior on the buyer’s part constitutes a default, to determine what fees and charges (such as late charges) the dealer may impose, and to determine what obligations the dealership has that are over and above the obligations imposed by law.

The good news is that all this stuff isn’t exactly rocket science. The bad news is that the dealer going into BHPH needs to either hire someone who knows the additional businesses the dealer is getting into, or needs to do the skull work to learn the areas himself. We see too many dealers who don’t make the effort to master the new areas they are taking on, and who end up paying a heavy price for not learning what they need to learn.

If you’re thinking about BHPH, and if you aren’t ready to really go to school to learn the stuff you don’t know, now’s the time to consider an alternative. You might want to think about a bait shop. Worms are simple.
_________________________________________________________________________________________________________________________

Thomas B. Hudson, Esq.
Partner
Hudson Cook, LLP
410.865.5411
THudson@AutoDealerMonthly.com

Why So Many Demo Plates?

During the last couple of weeks we have been working a lot of extra hours in preparation for the upcoming NADA convention in Las Vegas. During this time we often revisit the fundamental reasons for being in business. In our case, the business was started some twenty years ago to put a product, patented by one of the founders, on the market. The reason for the product was to provide a solution for a problem auto dealers had never been able to eliminate. That problem was the control of dealer demo plates. Until the introduction of our product, the only certain way to ensure that demo plates were available when needed, was to have a large number of them on hand and provide each sales person with at least one plate for demo rides. The same practices are still in use today in most dealerships, with only minor changes such as the collecting of substantial deposits from salespeople.

The fundamental problem with the "one salesperson-one plate system" of providing demo plates for the sales force, regardless of whether a deposit is taken or not, is that the dealer has no control over their use. The sales force has control of them. But the sales force is not legally responsible for them, the dealer is. If the dealer is responsible for the demo plates he should have control of them. If he is going to have control of them they cannot be in the hands of the sales force 24/7, they must be in the care, custody, and control of the dealer–and only in the hands of the sales force when required for dealer business. In fact, most state regulations stipulate that dealer demo plates must be used strictly for dealer business.

If a demo plate is used strictly for dealer business, like taking customers for that all important demo drive, the demo plate is only used part time, one or two hours a day. The other 22 or 23 hours it is not required. If a dealer has 10 sales people working for him, they work 100 sales hours in a 10-hour day. That sales force might require demo plates 10 to 20 hours during that day, so demo plates are only needed 10 to 20% of the time. The other 80 or 90% of the workday, and the 14 hours the store is not open for business, those demo plates should be in the dealer’s control!

Using a secure demo plate control system that makes 3 demo plates available to all the sales force all the time, they would have plates avail-able to them for demo rides up to 30 hours a day. I m sure you would agree 30 hours of demo rides for a 10 person sales force is more than you would ever need.

With a good demo plate control system you can sharply reduce the number of plates you need, while maintaining control over them and making them readily available to your sales force.

It’s 11 O clock… Do you know where all your demo plates are?
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Bernard Boule, president of M-Tech has designed and developed products for the auto retail industry for over 20 years. He holds numerous patents, trademarks, and copyrights. He can be contacted at 1-800-642-4522 or at bboule@m-tech.ws