dealer business journal february 2015

www.DealerBusinessJournal.com DEALER BUSINESS JOURNAL | FEBRUARY 2015 | 1

Picking the Right ProductEvaluate and understand the way your dealership secures its inventory.

Poor PerformanceIt can really cost you when employees don’t live up to their full potential.

FEBUARY 2015DealerBusinessJournal.com

Every dealership needs a well-thought out business plan to act as the road map for where you want to go. Find out more about this key to success inside on page 4.

2 | FEBRUARY 2015 | DEALER BUSINESS JOURNAL www.DealerBusinessJournal.com

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CONTENTSVOLUME 12, ISSUE 2 FEBRUARY 2015

LEEDOM GROUP FEATURES LEGAL4 The Keys to Success and Profitability A good business plan should be your road map to navigate

toward your goals. By Chris Leedom

8 Repair Rescure Don’t let your repair costs eat into your profit. Collect a

deductible and involve your customer. By David Brotherton

12 Daily Duties A list of things in each area of dealership management

that should be done every day. By Rick Boucher

15 Picking the Right Product The last installment of a three-part series, evaluate the

plans you have in place for finding and securing new pieces of inventory.

By Paxton Wright

18 BHPH World Convention 2015 Registration is open for the best industry event on the

planet. Get your first glimpse at this year’s agenda and registration info.

24 Don’t Start A misguided attack on

starter interrupt devices has caused confusion.

By Tom Hudson

LEADERSHIP26 The Staggering Cost

of Poor Performance Those under-performing

staff members are cost-ing you money. Find out how to deal with it.

By Dave Anderson

30 One Word Find a new word that

says who you are as a dealer, and helps you focus on the goals that are up ahead.

By Rick Resinger

OPERATIONS32 Good Accounting:

In-House or Outsource? Evaluate your current

situation to see what’s right for you.

By Dave Wiggins

34 Simple, Safe, Secure An easy way to help

cover repairs and add to profit.

By Tim Byrd

IN EVERY ISSUE5 Calendar

6 Industry News

7 News Briefs

36 Ad Index

37 Classifieds

39 Twenty Group Application

FINANCE COMPANY

DEDICATED GROUPMODERATOR

THE STANDARD OF AUTOMOTIVE TRAINING

Twenty Groups • Consulting • Training

LEEDOMASSOCIATES, LLC

COLLECTOR TRAINING CAREFULLY MONITORED EXPENSES

STRATEGIC PLANNING

BUY HERE, PAY HERETRAINING

WEEKEND FORMATNET PROFIT IMPROVEMENT

BEST IDEA SESSIONDEALERSHIP REVIEW & EVALUATION

SPECIAL FINANCE TRAINING

NETWORKING

Interested?

Leedom & Associates, LLC o�ers consulting services and guidance for dealers just like you. Whether you are trying to take your business to the next level,

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Call 1-888-599-1720Email [email protected] www.TwentyGroups.com


ver the past 20 years I have had the privilege of working with a few thousand independent dealers. During this

time I have formed an opinion on what may be the most over-looked fundamental business practice in the independent dealer arena – proper business plan development. Many of you reading this article have succeeded based on sheer willpower (or fear). You know the story all to well. You find a piece of ground. You sign a lease. Find a few cars to start the sales process and next thing you know there are a few dollars in the bank. You are now making money. Then you start to

grow. You expand. Business begins to show its peaks and valleys. Then unforeseen problems arise. Some dealers—good dealers—do not make it past these obstacles; others do. I recently read the failure rate of dealerships in the first three years approaches 50 percent. Is there an easier way? Well I do not know about “easier” but I do know that there is a better way. Many dealers have simply never taken the time to construct a well thought out business plan. A good busi-ness plan is like having a good road map. It helps you navigate the way toward your objective. Sure, a business plan does not cure all ills, but what it does do is cause you to think through the natural ups and downs that may occur in your business, plan for them, then be prepared if they occur. Take for instance inventory financing. How much inventory financing do you need to sell 35 units per month with an average inventory cost of $8,000? What will it take to properly capitalize your dealership? By developing a business plan specific to your operation you will have a better idea of how your dealership performs relative to expectation. A key part of this business planning process is that you are forced to address the issue of proper capitalization. We believe the number one reason dealers go out of business is the lack of proper capitalization, or access to the financing necessary to operate the business. Any request for funding, whether it is inventory, capital lines or financing for customers should in-clude a copy of your business plan. This document essentially showcases your business and its performance and operating results. I recently saw a dealer share his business plan at a Twenty Group meeting and it was one of the best constructed packages I have ever seen. Once you build your own business plan you simply need to update and modify it to use over and over again. The hard part is building it the first time. At the upcoming 21st Annual Leedom Group BHPH WORLD Convention in New Orleans (April 12-14) we will present a workshop on how to construct and develop a proper business plan. If you are going to the convention I suggest you consider attending it. Or as

an alternative, give us a call and we will be happy to discuss how our firm can assist you in the creation of a first-class business plan, or as we call it a “business prospectus.” The path for independent dealers is challenging enough; a business plan helps minimize risk and improves your chance of finding lenders and others that will do business with your dealership. If you do not already have a business plan set a target date to review or create a plan for your dealership. There is no time like the present. If our team can assist you in any way please contact us at [email protected]. Have a great month!!

CHRIS LEEDOM EXECUTIVE PUBLISHER

CORNER OFFICE

“A good business plan is like having a good road map. It helps you navigate the way toward your objective.”

ODealer Business Journal3700 S. Tamiami Trail, Sarasota, FL 34239Ph: 800.966.8733Fax: 941.371.2874Executive PublisherChristopher M. Leedom [email protected] WritersDave [email protected]

Rick [email protected]

David [email protected]

Tom [email protected]

Christy [email protected]

Paxton [email protected] QUESTIONS REGARDING SUBSCRIPTIONS CALL 800.966.8733or subscribe online at DealerBusinessJournal.com

ADVERTISING INQUIRIES call 941.371.7999 or [email protected]

DISCLAIMER: The information included in this publication is obtained from sources believed reliable and has been produced with reasonable care in production and editing. It is not intended to be legal, accounting, tax, techni-cal or other professional advice. Readers are advised to consult a professional for application in their particular situation. Copyright 2015 Leedom and Associates, LLC. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written per-mission. Dealer Business Journal is a publication of Leedom and Associates, LLC.POSTMASTER: Send change of address form to Dealer Business Journal, 3700 S Tamiami Trail, Sarasota, FL 34239


LEEDOM GROUP UPCOMING EVENTS

CALENDARAPRIL 2015

12 April | Leedom Group 21st Annual Buy Here Pay Here World ConventionThe 21st Annual BHPH WORLD Convention will be held April 12-14, 2015 in a brand new destination–New Orleans! This event is the one you

don’t want to miss. Each year hundreds of industry insiders - dealers, exhibitors, vendors and executives gather to network and get up to speed on the latest trends and best practices of the industry. This convention is consistently ranked number one for content, venue and industry expertise. We will also have a special New

Dave Anderson’s 90-Day Online Hiring Certification Course!

A dealership-changing 16 hour course!

Make it mandatory for all managers in your organization!

Call 818-735-9503 for enrollment information!

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Orleans-style celebration so don’t miss out on the fun!Who Attends: Dealer-owners, Spouses, Managers and Key Staff Members, Special Finance and Buy Here-Pay Here Vendors.Location: Hyatt Regency, New Orleans, LADetails: Call 1-855-627-0809 or go to BHPHWORLD.com

Keep up to Date:Stay up with all of the Leedom Group’s upcoming seminars, trainings and sepcial events. Visit LeedomGroup.com and click on Training.

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DBJ INDUSTRY NEWS SEND YOUR HEADLINES TO [email protected]

INDUSTRY

Low Gasoline Prices Cause Shift to Light Trucks in 2015 Low gasoline prices and pent-up consumer demand will combine to drive new car and light truck sales to an esti-mated 16.94 million in 2015, says the National Automobile Dealers Association. NADA’s original sales forecast of 16.4 million new cars and light trucks for 2014 was on target. The split among the segments this year is expected to be 44 percent cars and 56 percent light trucks and SUVs because of lower gasoline pric-es, increased job growth and an improving housing market. “Consumers are more able to spend for extras because of declining gasoline prices and continued low interest rates,” NADA Chief Economist Steven Szakaly said at a press briefing during the NADA Convention & Expo in San Francisco. “We expect to see significant growth in sales of light trucks, particularly in the large-size CUV and SUV

segments,” he added. “At the end of the day, consumers like the utility and comfort that larger vehicles provide. Lower gasoline prices accelerate that shift.” The pickup truck seg-ment, in particular, is expect-ed to benefit from an improv-ing housing market, climbing to 15.2 percent this year from 13.7 percent in 2014. On the downside, small and midsized cars are likely to face a tougher market in 2015. Szakaly expects in-centives to rise on small and midsize vehicles. In addition, hybrid sales are expected to be slower as long as oil remains cheap. Midsize cars are expected to decline in share of total light vehicle sales from 18.6 percent to 17 percent, while small cars are expected to lose 1 percent of share. “The one area where prices and segment share are likely to remain stable is in the

luxury segment,” he added. “A strong luxury brand, in any retail business, will hold extra goodwill that a consumer is willing to pay for.” NADA’s economic out-look calls for gross domestic product to be up 3.1 percent in 2015, with the potential for growth to exceed that level. “The U.S. economy is poised to accelerate in 2015. The only negative remains stagnant wages. If we see some sustained rise in incomes, GDP could easily exceed our forecast,” Szakaly added. There is little threat of inflation, though key policy rates from the Federal Reserve are expected to rise 50 basis

points by the end of the year. “Interest rates have to raise, admittedly the chaos in some overseas markets and the strong deflationary pressures from a rising U.S. dollar and a slowing Chinese economy leave room for rates to rise slowly,” he said. “The bottom line is that it will be a good year for con-sumers with great products that last longer, are more fuel efficient and are safer than ever before,” Szakaly added. “It’s always been about con-sumer choice and the benefits of a competitive market, and that is definitely what we have.”


One In Five Cars Has An Unfixed RecallNew research from Carfax suggests that millions of people may be driving, buying, or selling potentially dangerous cars due to an unfixed recall. The company’s annual research on the issue shows more than 46 million cars nationwide have at least one safety recall that’s never been fixed. In fact, five million of them were

bought and sold by potentially unsuspecting consumers in 2014. One of the most alarming discoveries is that people driving or buying family-oriented vehicles – specifically minivans and SUVs – are most at risk. One in three minivans and one in five SUVs has an unfixed recall, according to Carfax.

While every state has a significant number of unfixed recalled cars, California, Texas, Florida, New York and Pennsylvania top the list. However, the risk is greatest in West Virginia, Michigan, Mississippi, Wyoming and New Jersey, which have the highest ratios of unfixed recalled cars in the nation.

TRENDS

Millennials vehicle purchasing power will reach $135 billion in 2015TrueCar, Inc. projects Mil-lennial-generation consumers will purchase 4.24 million cars and light trucks in 2015, producing $135 billion in total revenue as their impact on the market expands. Millennials, or people born from approximately 1980 through the late 1990s, are expected to reach around 25 percent of the new vehicle market in 2015, TrueCar projects. The level of unem-

ployment for this generational cohort has also improved, dropping by 12 percent in December 2014 versus a year ago. In addition to falling unemployment, the improv-ing availability of quality jobs coupled with entry into the family life-stage by older Millennials also contribute to this group’s ability to purchase new vehicles. Millennials were heavi-ly represented on TrueCar’s

mobile marketplace in 2014 making up 24.9 percent of buyers and expects to grow this to about a third of buyers in 2015. TrueCar is also at-tracting Millennial consumers at a more rapid pace than the general market. From 2013 to 2014, TrueCar’s percentage of Millennial buyers increased by 77.8 percent. This outpaced the overall auto market, which saw Millennial partici-pation grow by 50.5 percent.

BRIEFSNEWS

Insurance Auto Auctions Adds To Presence In The Northeast RegionInsurance Auto Auctions, Inc. (IAA), a business unit of KAR Auction Services (NYSE: KAR), and the leading live and live-online salvage auto auction company, today announced the reopening of its facilities in Providence, Rhode Island and Altoona, Pennsylvania. The Altoona facility is located at 15369 Dunnings Highway, East Freedom, Pennsylvania. The Providence facility is located at 160 Amaral St., East Providence, Rhode Island. Preview and auction times vary for each of IAA’s facilities and can be found online. For more information, go to IAA’s branch Informa-tion page at www.iaai.com.

Send us your news:We want to share your news. Dealers and vendors can send press releases and news announcements about promotions, mergers, accom-plishments, new products and more by email to [email protected]. Subject line: News Briefs.


REPAIRDAVID BROTHERTON BHPH BOOT CAMP

Adealer had had a good 2014. Not great, mind you, but good. Sales goals were met for the year and, even more importantly, were consistent throughout the year.

Delinquency and repossession targets were also met well as consistently hitting their cash collections targets as well. Most of us would kill for this kind of performance in our KPI’s. So, why wasn’t this a great year instead of just a good one? It was only “good” because after-sale repair costs got completely out of hand in real dollar terms for 2014. Out of hand to the tune of being half of the operating gross profit for the year and being significantly more than benchmark as well. Post-sale repair expense is a critical part of your operating budget and is an important KPI in its own right. This article isn’t about how my dealer missed this and let it surprise him at year-end. That’s obvious and, in true “close the barn door after the horse is gone” fashion, it will be closely monitored going forward. Watching and cutting are two very different things, however. How did something this important get so out of line in such a well-run organization? One repair at a time. Please

let me stress that the problem is NOT that they helped too many customers repair their vehicles when needed or that they were too generous with what they would fix. We have to be willing to invest in our customer’s post-sale to help keep them in their cars. The problems identified were more below the surface.

Deductibles Not Being CollectedThe biggest problem is that the team had taken “take care of the customer” to mean “just fix it and they will go away.” No service deductibles were collected in 2014 even though the contract stipulates $100 per covered repair. By not charging a deductible (and there are instances where it makes sense not to do so), you are reinforcing the entitlement mentality that we know and love so well in our customer base. Deductibles are meant to be collected. They present an obstacle to over-utilization of the warranty or service agreement. If the customer must pay a deductible, they are apt to prioritize repair issues by what is really necessary rather than accumulating a laundry list of items. Deductibles must be due and paid before the customer can pick up their vehicle. This will be a significant shift if you aren’t used to

Collecting deductibles will not only rescue you from high

after-sale repair costs, but also

build value and investment in the customer relationship.

RESCUE


LEEDOM GROUP


collecting them. Customers should be reminded of their deductible requirements when they make a service appointment and they should require a call from their account representative about deductible requirements as well. This may sound like overkill but literally hundreds of customers can rightfully (based on previous experience) expect to have zero-deductible repairs and it will take far less time to lessen the blow in the portfolio. Changing behavior in a portfolio takes extra effort to be done properly and positively. Instead of giving in when the customer inevitably tries to not pay a deductible, we should be selling the value of the repair instead. For example, I saw a customer say they didn’t have a deductible and that we “keep the $#@% thing if that’s how we were going to be.” The service writer countered with “This is an $800 repair that would cost you easily double that to have fixed anywhere else. We are asking you to pay $100 of that, which you agreed to do when you signed your contract. Are we really being that unfair?” The service writer so adroitly calmed the customer down and put the repair in perspective that we were able to continue with the transaction. I commended her for coolness under fire. We aren’t here to fight. We are here to help but help doesn’t mean “free” any longer.

DAVID BROTHERTON BHPH BOOT CAMP

Please let me stress that no one is advocating an “as-is” approach to our business. I am simply advocating that customers participate in their repairs. The portfolio will thank you for it.

Fixing Non-Covered Items Warranties and service agreements are designed to address common, high-dollar items that impact the safety and/or drivability of the customer’s vehicle. Bumper to bumper coverage is overkill and has usually been implemented because no one wants to fight the deductible fight described above. I’m not saying that we don’t have to occasionally bend on a non-covered item but there is a huge difference between bending “with” the customer and bending “for” the customer. An example here would be tires. They are needed but are non-covered items that require deft handling. The key is to get the customer to participate in all repair items. For non-covered ones, I recommend that you lay out the cost of the repair and have a list prepared of what the same repair would cost at other dealerships and repair shops for comparison. Then ask for the entire repair cost and see what happens. Don’t be so stubborn that you lose the customer’s attention. Use their expected reluctance as a basis for negotiation. This

takes practice and training but it CAN be done.

Shop ProcessesHaving your own service department can be both a blessing and a curse. In this case it should be considered a blessing when we have the opportunity to bring repairs in-house and reduce our costs. Don’t use new when used will do. Constantly fight for lower pricing with your parts suppliers. Fix it right the first time. An example of making the most of your shop is to not send out a vehicle for two new tires with mounting and balancing when you have a brand new tire machine and balancer in your shop. Buy the new tires if you have to but put them on yourselves.

Financing Non-Covered RepairsI have no concerns with occasionally financing customer repairs on a side-note (please refer to your state laws for additional details). Note that I said “occasionally.” Being able to finance a repair is NOT a replacement for customer participation and three items are essential to making this work:

1. Side-notes must be set up in accordance with their existing pay structures

2. Collectors must be held accountable for collecting these payments

3. There should be a limit

as to how much and how often you will finance

Financing a repair just so you can never collect it is ridiculous. Such techniques erode our credibility with each repair.

Safety ValveAs I indicated earlier, there is a definite need to allow for some exceptions. That is where the safety valve comes into play. We set up a budget for the Collection Manager to control that will allow some leeway with the deductible and repair requirements mentioned above. It is deliberately limited so it forces everyone to take the new approach first but it does allow some leeway on a case-by-case basis. Collecting part of your repair bills isn’t as hard as you may think. It takes training and effort but is well worth it. We expect to cut post-sale expenses by 50 percent in 2015 without a significant long-term impact on the portfolio. Wish us luck.

David Brotherton is a consultant and Twenty Group moderator with the Leedom Group Contact him at [email protected]


RICK BOUCHER FINANCIAL CONTROL

DAILYDUTIESIf you want to be successful, then you need daily accountability in the five main areas of dealership management.

When it comes to running a dealership the avenues of supervision

and accountability include the following areas: Sales, Collections, Accounting, Service and Parts and General With five different areas and one being no more important than the other from a standpoint of dealership contributions, how one manages his/her time when each area needs leadership and accountability is a major accomplishment. Let’s address what I as an owner/manager would want to see our dealership touch on a daily basis.

Sales• Review previous day

sold/leased vehicles.• Check average gross

margins both daily and MTD to see if maintaining desired profit margin.

• Review average term and interest rate for compliance with store policy.

• Review daily and MTD average down payment.

• Review monthly sales pace (based on current sales ) and compare to forecast/business plan.

Collections • Previous days collection

dollars (both principal and interest).


LEEDOM GROUP

• Previous day payoffs.• Previous days charge

offs (principal $$$ breakdown).

• Number of units out for repo.

• Number of repossessed units on ground not charged off.

• Review current pace for monthly cash collections.

• Review current pace for monthly charge offs.

Accounting • Review opening daily

cash position.• Review Daily Operating

Control(DOC).• Review other

receivables(Wholesale or Cash Sales).

• Review cash requirement for the week.

• Review Portfolio balance for purposes of bank covenants and funding requirements.

Service and Parts Assuming In House Service Department • Review MTD recon

expense.• Review inventory status

report for flow through shop.

• Review units to front line.• Review technician

production for front line inventory.

General • Open and review all mail.• Walk through dealership

departments and facilities.• Address any customer

issues.• Address any urgent

personnel issues.• Conduct any scheduled

manager meetings.

It is great to have a laid out plan of action on a daily basis and being prepared to investigate issues effecting daily operations. As a result of customer issues, employee issues and just plain old interruptions makes it difficult to complete your day as outlined. With a daily routine to be followed not only gives insight to your operations it lets your employees know you are holding them accountable on a daily basis.

Rick Boucher is a professional Twenty Group Moderator and consultant with over 30 years of experience in the auto business. Rick has owned and operated dealerships and served as CFO for several large BHPH organizations. He provides outsourced “CFO/Controller” services for small to mid-sºize dealerships. As a Certified Public Accountant, he also provides consulting services relating to finance and accounting. Contact him at [email protected]


PAXTON WRIGHT DEALER OPERATIONS


LEEDOM GROUP

PRODUCTPICKING THE RIGHT

The final installment of a three part series on enhancing your people, process and product. This time, the focus is on securing inventory that sells and is right for your market.

In Part 1 of “Enhance your People, Process, and Product,” we focused our attention on the value of people. Having the right people, in the right job, is critical to your business’ success.

In the December 2014 issue of Dealer Business Journal, I offered practical insights on hiring, developing and retaining your people. Maximizing the performance of your people can have a significant, positive impact on your dealership’s productivity and bottom line. As for Part 2, we concentrated on the importance of our processes. How to properly access our organization and ensure that the appropriate processes are in place for sales, underwriting, and collections. Your goal should be to have clearly defined and documented processes, as this is the key to creating a repeatable and successful result.

A large component of developing and refining a process, is the monitoring of Key Performance Indicators (KPIs). Focus your team’s attention to those KPIs that provide immediate feedback and deliver the best results. As I stated in the previous couple of months, my objective is to motivate each of you to do the following:

• Ask yourself the tough questions. • Honestly evaluate your dealerships “Three P’s.” • Be brave enough to take action and make changes. By doing so, you can get on track to creating a more efficient and profitable dealership! In this editorial, the final piece of a three part series, we put an emphasis on products.


ProductNow that your people and processes are dialed-in, you must fill your lots with the right product in order to maximize your portfolio’s profitability. Understanding your local market, competition, and customer base is essential in determining the right mix of inventory and pricing. Simply put, in the BHPH world, your inventory plays a vital role in the type of customers you attract, the number of cars you sell, the performance of your portfolio, and ultimately, the profits or losses of your dealership. Ask yourself this question, “How do we select the inventory that is purchased for our lot?” That question may sound too basic or even remedial for some of you, however I task everyone to really look at this process and evaluate WHY you are making the decisions you make. Was your answer any of the following? “I’ve personally bought every car on my lot for X# of years…I know what I need and what sells!” “My managers tell the buyers what’s really moving and we grab as many as we can!” “My team is on the front lines every day, I purchase what my customers say they want!” Too often, the inventory choices we make are based on an evaluation of our

sales goals, instead of our collection goals. Possibly, the most important factor when considering inventory choices is your historical performance collecting payments on a particular vehicle or class of vehicles. Every BHPH operator reading this article should take time to run the analysis and better recognize the top performing vehicles in their portfolio. Run static pool analysis on all the different classes of vehicles you most commonly purchase. Understanding the dynamics of how well you collect payments on different vehicle types, will guide you to a better performing portfolio and higher profits. Not only will this data identify the vehicles you should purchase, but of equal importance, it also detects those you shouldn’t. Most dealers have a specific list, or at least an idea, of vehicles they want to avoid. My advice, stay away from the costly repairs associated with European imports and some of the higher prices demanded by the Japanese manufactured vehicles. Some more obvious vehicles you should be excluding are the large four wheel drive trucks and sports cars. While they serve as excellent eye candy on the ramp, Mustangs, Z28’s, and Turbo Diesel Trucks attract a much younger buyer and thus elevates your risk on the street. Which vehicles do you think will perform better

your portfolio, contact me directly. I know many dealers across the country have embraced the challenge of enhancing their people, process, and product. I want to thank those dealers who have reached out through emails and phone calls, asked the tough questions, evaluated the Three “P’s,” and taken action towards building a better and more profitable business in 2015!

Your inventory plays a vital role in the type of customers you attract, the number of cars you sell, the performance of your portfolio, and ultimately, the profits or losses of your dealership.for your collections team, those vehicles that families NEED every day or those that young adults want? I have no doubts that you can sell as many sports cars and fancy 4X4s as you can get your hands on, but I’ll bet your data proves they aren’t as profitable in the end. Finally, once your data analysis is complete, establish and document a plan for purchasing. Create a purchasing matrix for the top performing vehicles in your portfolio. For example, if you know that large sedans, mini-vans, station wagons, and SUVs are your portfolio’s most profitable vehicles, then for every 12 vehicles you purchase, create a matrix similar to this: 3 sedans, 3 mini-vans, 3 station wagons, 2 SUVs, and 1 truck. Having a plan and understanding the benefits, will help you avoid purchasing mistakes and lowers your long-term risk. Of course, most dealers want to sell as many units as possible. My suggestion, sell as many of the RIGHT units, to the RIGHT customers, as you can! Like always, for a better understanding of static pool analysis or information on how to access this data in

PAXTON WRIGHT DEALER OPERATIONS

Paxton Wright is a professionalTwenty Group Moderator and consultant with over 10 years of experience in lending, finance and BHPH operations. Paxton has worked with numerous lenders and understands BHPH financing and how to fund BHPH dealerships. He has deep operational knowledge and consults on an array of topics including credit facilities, asset sales, portfolio performance as well as general dealership operations. He is a recognized industry leader and has been featured at numerous national conventions as a speaker. Contact him at [email protected]


SUNDAY APRIL 12TH

MONDAY APRIL 13TH


TUESDAY APRIL 14TH

MONDAY APRIL 13TH (CONT.)


START

TOM HUDSON LEGAL OPINION

A misguided attack on starter interrupt devices has caused a lot of confusion for creditors and consumers.

A consumer alleges that a starter interrupt device shut down her car in traffic. The New York Times reports the allegation. Then other publications repeat the allegation,

citing The New York Times. Suddenly, electronic devices that can stop running cars are a “fact.” Regulators predict that cars will be stopped in the middle of railroad track crossings and start railing about these dangerous devices that can put consumers in peril. Bills prohibiting the devices proliferate. Regulators initiate investigations. All of this without a shred of proof beyond the testimony of this one consumer. And without a single verified instance of a starter interrupt device being used by a creditor to stop a moving vehicle. And despite the very description of the device as a “starter interrupt device.” When a vehicle is disabled by a starter interrupt device, it comes as no surprise to the consumer. The consumer is presumably

DON’T


LEGAL & LEGISLATIVE

aware that he has not made a required payment, but to be sure that the consumer knows that a vehicle disablement is imminent, most devices warn of impending disablement well in advance of the event. Creditors usually time the disablement of a vehicle for the wee hours of the morning, a time when it is very likely that the consumer is tucked in bed and asleep. But legislators and regulators, prepped by materials from consumer advocates, ask the same, tired old questions we have heard for years. “What about the mother with the sick child who leaves her house at two in the morning to rush the child to the hospital, only to find that her car’s starter has been disabled?” The question they don’t ask is “What would the mother do if the car had been repossessed and towed?” Remember that the consumer is in default, and the finance company has the right to repossess the car for non-payment. With a starter interrupt device, the mother need only make a phone call to have a working vehicle. If the car has been towed, she likely cannot retrieve it until the next day, and then only after paying repo and storage

costs. Add to that having her credit report dinged by the repo. A few years ago, one of the consumer think tanks put out a paper alleging that vehicle repossessions had resulted in scores of deaths and other mayhem when consumers confronted repossession agents and contested the repossessions. The conclusion was that repossession by creditors and actions of the repossession agents were to blame. The report was overblown and very misleading (many of the casualties were repossession agents attacked by car owners). But if there’s a shred of truth to the report, why wouldn’t those who are pro-consumer support electronic disablement, which eliminates the opportunity for a repossession to escalate into violence? There are arguments from creditors that the use of starter interrupt devices increases the number of consumers who can be financed, and that the presence of the devices results in fewer delinquencies and defaults, resulting in improved credit ratings for consumers. You’d think that legislators interested in the welfare of consumers would determine

When a vehicle is disabled by a starter interrupt device, it comes as no surprise to the consumer. The consumer is presumably aware that he has not made a required payment and has been warned of disablement before it happens.

whether such arguments have merit before banning or limiting the devices. Some consumers who buy cars on credit will default. Unless the law changes, creditors financing those cars can repossess the vehicles that serve as collateral when those defaults occur. Rather than putting the consumer through a vehicle repossession, with the attendant cost and trouble of redeeming the vehicle and suffering a damaged credit report, why not encourage creditors to use starter interrupt devices, especially if the use of the devices results in greater access to credit and improved credit histories?.

Tom Hudson, Esq. is the author of several compliance-related books that are available online at www.counselorlibrary.com. He is also the publisher of Spot Delivery®, a monthly legal newsletter for auto dealers, and the Editor in Chief of CARLAW®. Reach him by phone at (410) 865-5411 or by email at [email protected].


Don’t let an under-performing employee hurt your bottom line. The costs of poor producers can really add up.

In nearly every workshop I lead, I ask the question: How many of you would agree that most

organizations tend to keep poor performers too long? Every time, hordes of hands shoot up. While it’s difficult to precisely quantify the cost of just a single poor performer—some researchers have attempted to—I feel safe in asserting that if managers considered the following costs they’d be inclined to more quickly prioritize either getting the person better, or getting a better person:

Lost production: This factor may be the easiest to quantify by comparing the production difference between a top and bottom performer. The fact that this cost is incurred month-in and month-out causes the penalty for delayed action in turning around or removing poor performers to escalate in a hurry.

Broken or lost momentum: How can one possibly quantify the cost of broken or lost momentum caused by someone who needs continual reprimands, creates mess after mess, or

POOR THE

STAGGERING COST OF

whose behavior brings about emergencies-of-the-moment others must stop to solve or repair. To exacerbate this factor, consider that it always hurts more to lose momentum when things are rolling along; which is, ironically, the time a manager is least likely to confront or remove a poor performer. After all, when business is good and all the seas appear calm, complacency entices managers to stay

the course and maintain rather than make the tough decisions they’re being paid to execute concerning poor performance.

Lower morale: Most would agree that a poor performer diminishes the collective self-esteem of an entire group. Most everyone, especially top producers, feel at least slightly cheapened and depleted working with those who don’t contribute

towards the organization’s goals, and make the workplace feel less special.

Your credibility: This one really stings, because credibility takes enormous time and effort to build, and is even more difficult to regain once you’ve lost it. It’s sad to hear managers boast about how they’re “number one,” and have built a “special place to work”, and how “not everyone can be one of us,”

DAVE ANDERSON LEARN TO LEAD

PERFORMANCE


and then see disillusioned teammates peruse the dealership with an inner dialogue that sounds something like this: “Number one? Special place to work? Not everyone can be one of us? Really? And Fred is still here? And Suzy? And Carl? Hmmm, the boss is talking right and walking left again. Does he really think we haven’t noticed what’s really going on here?” To compound the credibility dilemma consider this: you will lose the respect of the best when you fail to deal effectively with the worst. Guaranteed. I’ve not the space in this piece to delve into additional costs poor performers inflict on your brand, culture, customer experience, wasted training dollars and manpower hours invested in an a low return, or no-return project. It would be easier if the cost just a single poor performer caused you was a one time, lump sum payment, but it’s not. Rather, they create an ongoing misery on the installment plan that persists in picking your pocket daily. The purpose of this message has been to create a clearer perspective of the staggering costs of poor performance so you begin dealing with it faster. My past article, “How to Find the Great People You’re Looking For!” outlines steps to create the conditions for each team member’s

success and potentially turn around poor performers, so I won’t cover that ground again here. Instead, I’ll close with final thoughts I hope will add more insight to this topic.

• A key cause of poor performance is hiring the wrong person to begin with. The fastest way to prevent future poor performers is to dramatically improve your recruiting, interviewing and assessment strategies.

• Keeping a poor performer simply because you’re shorthanded poses the question: what are your plans to create a recruiting process to build a pipeline of talented people so you’re not held hostage by people who shouldn’t even be on your team in the first place?

• Your solid performers would rather be strategically short-staffed than foolishly filled up because you keep unfit people on your payroll. They’d much rather carry a bigger load personally, than their load and someone’s who shouldn’t be on the team in the first place.

• A poor performer isn’t always a low producer; he or she could be a top producer with serious character flaws who mocks your values

It would be easier if the cost of a poor performer was a one time lump sum, but it’s not. They create an ongoing misery on the installment plan that persists in picking your pocket daily.

and undermines the performance of the team overall.

• The costs you pay in unemployment or other benefits that result from terminations pale when compared to the penalties you incur by keeping someone who continues to affect production, momentum, morale, your credibility, the brand, culture, customer experience and more.

• A poor performing manager should be given less rope, and less time to get it together than a poor performing subordinate. The stakes are considerably higher when the leaders are poor performers, because of the many others they negatively impact and hold back every day.

• If you have a manager who must continually fire poor performers, he or she is the problem. They’re either hiring recklessly, haven’t created a high performing culture where great people are attracted to and can prosper,

DAVE ANDERSON LEARN TO LEAD

have failed to set clear expectations, train and/or hold accountable the people who are failing.

• The role of H.R. is to facilitate the removal of poor performers, not to block it.

• Mediocrity is dangerously seductive. When what used to cause your organization pain, starts to feel normal, something must change; in most cases that something will involve the leaders getting better at doing their job.

Dave Anderson is President of LearnToLead which provides in-person and virtual training to many of the world’s best dealerships. Dave speaks to dealer groups over 125 times each year and has given seminars in 15 countries. He has spoken at eleven NADA Conventions and is the author of twelve books. Follow Dave on Twitter @DaveAnderson100 and visit his website at learntolead.com for free articles and videos on sales and leadership.


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What one word would describe your goals for your business this year?

WORDONE

For several weeks before the New Year, I had been struggling to come up with one word that I could

focus on this coming year. One word that I could apply to all areas of my life to help keep me focused on my goals and vision. I had several words come to mind such as Focus, Drive and Passion but no one word stuck in my mind or kept reoccurring day after day. So one Sunday after talking myself into and out of attending church, which I had not attended in several weeks, a voice deep inside convinced me to attend that day. Was it a voice or was it the fact that if I didn’t go I would have to take down the Christmas lights? Driving to church that morning with the New Year approaching I was still thinking about my one word and still having no luck choosing one. After entering church with my wife and taking our usual spots I

noticed that Pastor Ben, our senior pastor, was not in his usual spot (meaning he was not delivering the message that day, which was at first disappointing because I enjoy his lessons). The message that morning was being delivered by Pastor Tim, who leads the Celebrate Recovery program at the church. (Celebration Recovery is a program that helps people struggling with addiction, abuse, depression or divorce. If that’s you or someone you know and love, please check them out.) As Pastor Tim began his message that morning he used a phrase that quickly caught my attention and I knew why I was moved to attend that morning, the phrase he used was “one word.” Pastor Tim had chosen his one word for the year and his message was based upon that word, the service ended with a song focusing on that one word. The rest of the day I kept seeing, hearing and thinking about that word. The next

RICK RESINGER FINDING FOCUS


These goals must be specific, motivating, achievable, and timely. Once you determine your goals you have to write them down and take action towards those goals. If you don’t, they then are just dreams. And one last thought on your goals is to keep what Yogi Berra said in mind, “If you don’t know where you are going you might end up someplace else.”

ExcellenceExcellence is a moving target that is pursued with integrity, relentlessness and zeal. In everything you do pursue it with a mindset of excellence. Remember that we don’t get what we want we get what we tolerate so don’t tolerate anything less than excellence in all areas of your life. Rick Resinger is the Director of Training and Recruiting for the Champion Auto Group a family owned dealership group consisting of six dealerships in southeastern Michigan. Rick has been selling cars since 1988 and has been in management for 24 of those 26 years. He can be reached at [email protected] or follow his blog at rickresinger.wordpress.com

PROFESSIONAL DEVELOPMENT

Thrive: to progress toward or realize a goal despite or because of circumstances

several nights I went to sleep with that word in my mind. Then one morning I awoke at 3:00 am thinking of that word and an acrostic for it began to formulate. That’s when I knew I had my one word for the year: THRIVE.

Thankful Most people spend time talking about what they don’t have. They use phrases like “If I only had more time.” “If only I had more money.” “If wish I was older/younger.” “If only (insert complaint here).” Let’s spend this next year talking about what we do have and be grateful for those blessings.

Hopeful Without hope there is no faith. I believe that if we Have Only Positive Expectations that more good happens then bad. It takes the same energy to be positive as it does to be negative so why not be positive.

Relentless“Success usually comes to those who are too busy to be looking for it.” – Henry David Thoreau I believe you can have anything you want if you will just work for it. Don’t wish for it, work for it! No matter what obstacles that may come before you this year, just keep

grinding. We usually face our strongest resistance right before we reach our greatest breakthrough. I read that over 90 percent of New Year’s resolutions will be broken, and more than 50 percent broken before the end of January. Don’t be a statistic; resolve to be relentless this year! But don’t get the “destination disease.” Don’t get so wrapped up in your goal that it becomes a Bataan Death March. Enjoy the trip and the type of person you will become along the way.

Impactful “It is true that you can succeed best and quickest by helping others to succeed.” – Napoleon Hill. Poor is the man who cannot leave his home, town, state or country in a better condition than the way he found it. No matter your lot in life, you can find a way to ease the burden of someone else who is less fortunate.

Vision“Where there is no vision, the people perish:” Prov. 29:18 KJV If you left the house this morning you knew the location you were headed and the “road map” to arrive at that destination. Life is the same way. You must know where you are headed. You must know your goals.


As many bankers will tell you, the problems they have in approving loans often relate to proper accounting and financial statement preparation. It’s not surprising. Financial statement preparation, accounting analysis and decision-making and

proper accounting are more complex than ever.

Large dealer challengesFor larger dealers and groups, this usually indicates the need for a full-time accountant or an accounting manager with a high level of competence. Unfortunately there has been a decline in strong accountants and bookkeepers over the years. Competition from other industries has lead people with technical accounting skills to choose other professions, while good accountants are requiring better pay levels.

Small dealer concernsSmaller dealers have a hard time justifying the expense of hiring and paying for a full-time accountant, because they don’t have the volume of transactions and paperwork to warrant a full-time person. When a person is hired, dealers sometimes find the individual does not have the industry knowledge required to properly report items related to dealership accounting. Believe it or not, most dealership accounting is complex and requires a strong understanding

Evaluate your situation to see if you should keep your accounting department in-house or send it to a firm.

IN-HOUSE

DAVE WIGGINS ACCOUNTING PRINCIPLES

OUTSOURCE

GOOD ACCOUNTING:

OR


issues related to dealership transactions. We also find problems with the proper handling of reconditioning, related finance company transactions, warranty and reinsurance programs and transactions, service repairs orders, and parts inventory transactions. We are seeing the need and market for outsourced accounting services is growing significantly. While it’s not the right answer for many dealerships, it may be a good alternative for you to consider if you’re too small to hire a high-level, full-time accountant, or are big enough to require access to higher-level controller or CFO to help with your financial analysis and decision-making.

Dave Wiggins, CPA, is a principal with CliftonLarsonAllen’s dealership and Buy Here-Pay Here group team. He has extensive knowledge of the inner workings of dealership and finance company operations, including new developments regarding regulatory and compliance issues. He can be reached at [email protected].

of the correct way to account for dealership-specific items. Without experience or industry-specific accounting training, many accountants will struggle. Based on these issues, we find that many new, used, and buy here pay here dealerships are taking a closer look at outsourcing. We typically see outsourcing occurring in dealerships in warranty handling, used vehicle purchasing, and accounting.

Just what is outsourcing? Outsourcing is the part-time contracting for particular services from an external source. Outsourcing all or a portion of your accounting services involves contracting CFO, controller, or office manager services from an external company. Outsourcing your accounting and bookkeeping services can provide you with monthly financial statement preparation, analysis of financial statements, clerical dealership duties, and other services. Although the hourly rate for such services will normally be higher than the rate of having an internal employee perform the same duties, the monthly and annual overall cost may be less.

Scale up as neededFor an outsourced controller, you will only pay for the number of days services are needed for the month, instead of a full month of services. Your dealership will also avoid many soft employee costs related to healthcare, retirement plans, payroll taxes, and other related costs to a specific employee. The use of outsourced accounting personnel may also provide you the ability to have an office manager or bookkeeper for many services, and then scaling up to higher level controller or CFO individuals when needed.

How does it work?Good communication is a key part of determining the specific duties and responsibilities between the dealership and the outsourced firm. This process may initially create some challenges but will usually be overcome within a couple of months. Once this is established, the dealership will get strong and timely financial reporting, access to higher level accounting personnel for analysis and decision making, and welcome relief from managing the monthly accounting process.

Some dealers question how it can work if outsourced personnel are not located at their dealership. In today’s virtual office environment, this can normally be easily accomplished. It requires the dealership and outsourcing company to agree on what processes will be completed by dealership personnel and what will be completed by the outsourcing firm.

Is outsourced accounting right for you?If you think outsourcing may be a good fit for your organization, make sure you select the right outsourcing firm for your dealership. We find that most outsourcing fails when the chosen firm does not have a good understanding of the industry, dealership software programs, and the specific accounting

BUSINESS OPERATIONS

OUTSOURCE

While outsourcing is not the right answer for every dealership, it could be a good alternative for some.


Iheard it again; just recently another warranty company is in financial trouble because someone embezzled all

the reserve, leaving dealers and customers hanging with worthless policies. Another black eye for our industry. Many of you who have been in this business awhile, should remember that this has happened before. One day you come to work and the GAP or Service Contract you sold is no longer any good because of various reasons, such as embezzlement or most commonly poor management of the warranty company. This has been seen in the independent CPO arena, frequently. warranty companies try to break into

the market with low prices (i.e. low reserves). Claims exceed reserve, and BOOM, they shut it down. This commonly occurs once every five years or so. Dealers many times let greed or unrealistic expectations cloud their judgment by falling for the cheap, long term warranties: 5 years and 100,000 miles regardless of age or mileage for only $295. Get real! A Dealer sells 150 of them and all the sudden no more claims are being paid (claims exceed reserve) and you have some very mad customers on your hands. I remember back in the 90’s a very large BHPH dealer, who had been selling a warranty he created, was setting aside money for claims

An easy way to help cover repairs and add another profit center to your business.

SIMPLETIM BYRD DEALER REINSURANCE

SAFESECURE


in a drawer (which believe it or not there are dealers who don’t reserve at all, but that is a different story). One day he decided to take all the reserve money and skip town leaving thousands of customers hanging without coverage. What a mess! And we wonder why car dealers rank right up there with politicians and lawyers. My mother always told me there is a right way and a wrong way to do anything. Of course that applies here as well. Don’t get me wrong, there are some very fine, well-run third party warranty companies out there. The problem is they are mostly working as a collective pool where the entire premium collected goes into one big pot. Most of them are very successful and you would never dream of them failing. Unlike Merrill Lynch, however, when warranty companies fail the government is not going to bail them out. Let me talk to you a minute about some of the reasons why I am such an advocate of Administrator Obligor (AO) Dealer-owned Reinsurance Companies or PORC, Producer Owned Reinsurance Companies. First, the structure. A Dealer-owned Reinsurance Company is a totally separate company owned usually by a car dealership or finance company owner(s). It is a “C Corp” referred to by the IRS code 831B. When establishing these companies, a

BUSINESS OPERATIONS


trust account is opened. When a warranty is sold or given to a customer by the affiliated dealership or finance company, the premium reserve is ceded to the Reinsurance Trust Account through a fronting insurance company. Now, let’s look at some of the perks.

1. Each reinsurance company and trust account is stand-alone. Only your customer’s premium reserve goes into the trust account and only your customer’s claims come out of the trust account. No other dealer’s actions have any bearing on any other dealer.

2. Having a fronting insurance company creates an arm’s length transaction. In this case an arm’s length transaction is best described as the fronting insurance company insuring that the premium reserve paid by a consumer is protected and insured until the expiration of the warranty contract. In other words, there is always money there to pay claims. The fronting insurance company is additionally responsible to step in and cover any claims in excess of premium reserve.

3. The Admin Obligor

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DAVE ANDERSON 5

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Dealer-owned Reinsurance Company is considered a small property and casualty insurance company. This preferred method is rewarded as follows: “Small property and casualty insurance companies with less than $1,200,000 in annual net premiums may elect to be taxed only on investment income under Internal Revenue Code 831B.”

4. Reinsurance helps you provide world-class service without going broke doing it. In fact, you can improve your profit while doing it. Statistics show that one third of failed relationships with customers are due to mechanical breakdown. They are sold a car, it breaks down, and they cannot afford to fix it. Now, I am not naive. Cars break. Don’t you be naive. When they break, the payments are going to stop, unless you fix their cars and get them back on the road! We all know, “Customers don’t pay for cars that don’t run!” Consider how much it costs to get a customer in the door the first time. Consider that payments are the lifeblood of the BHPH business. Then if your attitude is still “too bad so sad,” your current system is

costing you a fortune. You can fix that with reinsurance. Reinsurance allows the car dealer to warranty their vehicles by establishing a nationwide mechanism, customer funded, which insures that there are always ample funds available to fix those vehicles. This is your own warranty company, not a third party service contract, which costs you in the long run more than the repairs. Why not have a system in place that no matter where your customer drives that vehicle, should they breakdown you have a plan and the money set aside to get them back on the road. The beautiful thing is, that with reinsurance, your customer continually and painlessly reserves for the unexpected breakdown. Indirectly, they are reserving for it. For the BHPH dealer your reinsurance company will provide premium finance for your customer’s warranty; therefore, not requiring you to pay the full price of the warranty up front, which would deplete your lending pool. A prorated portion of the cost of the warranty is collected from the customer’s payment and forwarded to

your reinsurance trust account. This will provide a constant stream of reserve to ensure that when problems arise, there is a well-funded system in place. Problems are taken care of, your customers stay on the road, and they continue making payments. As you can see an Administrator Obligor Dealer-owned Reinsurance Company is Simple, Safe and Secure. Protecting and insuring you and your customers, all while providing you more control and better profits. So you don’t get caught with your pants down.

Tim Byrd is Founder and President of DealerRE a Tim Byrd & Associates company, a managing agency located in Gloucester, Virginia. An Auto Industry Expert on Dealer Owned Reinsurance Companies, BHPH Operations and F&I Development. A 25+ year veteran of the car business, Tim is a trusted advisor to many car dealers and can be reached at www.DealerRE.com or by calling 804-824-9533.

TIM BYRD DEALER REINSURANCE


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