dealer business journal march 2015

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

Employee RetentionBeat the high cost of turnover by creating an environment where your staff is happy and productive.

Delinquency and Charge-Off’sReally examine the way you collect this info to better analyze your performance.

MARCH 2015DealerBusinessJournal.com

The countdown is on to the premier Buy Here-Pay Here event of the year. Get your registration now so you don’t miss the chance to network and learn from hundreds of industry insiders. Get the details inside on Page 20.

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

• Automated Payment Reminders

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• Customer Initiated Payments

• Accept Payments 24/7

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Text to Pay sends a message to customer

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INTRODUCING THE LATEST TECHNOLOGY FOR ACCEPTING PAYMENTS

TEXT TO PAY FEATURES

HOW TEXT TO PAY WORKSSTEP ONE

Customer responds to text confirming paymentSTEP TWO

Payment is received in your bank accountSTEP THREE

ACCEPT PAYMENTS 24/7 PAYMAXX PRO’S TEXT TO PAY WILL DO THE WORK FOR YOU.


CONTENTSVOLUME 12, ISSUE 3 MARCH 2015

LEEDOM GROUP FEATURES LEGAL4 The Countdown is On The final preparations are being made for BHPH World.

You won’t want to miss it. By Chris Leedom

8 Employee Retention Turnover of employees, particularly good ones, can cost

your business more than you know. Here are some tips for keeping staff happy and productive.

By David Brotherton

12 Sub-Prime Competition Heats Up There are more financing options for sub-prime customers than ever before. Are you able to compete? By Paxton Wright

20 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.

16 Don’t Fence Me In How a settlement in

North Carolina is a sharp warning for

everyone. By Tom Hudson

18 The 5 Stages of Compliance Grief Dealers need to come to

terms with new regula-tion and the CFPB.

By Patricia Covington

LEADERSHIP26 Seven Ways to Increase Employee

Engagement Those under-performing

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

By Dave Anderson

OPERATIONS30 Delinquency and

Charge-Off’s Inspecting how you re-

cord delinquencies and charge-off’s can help you better predict perfor-mance.

By Robert Parnas

32 Assume the Best Try changing the way

you view other people to benefit your relation-ships and performance.

By Jay Gubrud

34 BHPH Bright Ideas Networking with the

brightest in the busi-ness can generate better ideas.

By Tim ByrdIN EVERY ISSUE5 Calendar6 Industry News7 News Briefs

• Automated Payment Reminders

• No Equipment or App Downloads

• Sync Texts with Billing Schedules

• Customer Initiated Payments

• Accept Payments 24/7

• Accepts All Major Credit Cards

and Electronic Checks

Text messages have quickly become one of

America’s main forms of communication. Why not

use texts to remind customers when payments are

due and offer an avenue to pay right then and there?

Text to Pay sends a message to customer

Paymaxx Pro knows the method in which you accept payments directly affects your business.

We are able to offer smarter and quicker payment processing to your company. Call us today and

let us show you how much time and money you will save.

For more information or to sign-up for services contact Paymaxx Pro877-527-5658 | [email protected]

INTRODUCING THE LATEST TECHNOLOGY FOR ACCEPTING PAYMENTS

TEXT TO PAY FEATURES

HOW TEXT TO PAY WORKSSTEP ONE

Customer responds to text confirming paymentSTEP TWO

Payment is received in your bank accountSTEP THREE

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36 Ad Index37 Classifieds39 Twenty Group Application


y the time you read this we will be just one month away or less from the 21st Annual Leedom Group

BHPH WORLD Convention. This event will be held in New Orleans, LA from April 12-14, 2015. Our team is putting the finishing touches on what promises to be the premier BHPH event of the year. It is definitely one you will not want to miss! This year the BHPH WORLD Convention will feature some special keynote speakers. I will have the opportunity to open the event with observations of where we are and

where we are headed in our industry. We will also feature Jim Jackson, a leading business coach who also has served as the CEO of one of the largest BHPH operations in the country. Steve Jordan, Executive Vice President of NIADA will address NIADA’s BHPH initiatives and the newly appointed BHPH Commission. There will also be a special guest speaker, Elizabeth McCormick. Ms. McCormick is a distinguished veteran and decorated Blackhawk helicopter pilot. She will be the featured keynote speaker on Tuesday, April 14th. This session will truly inspire you to lead and accomplish more in your business. We are privileged to have her address our convention delegates. At the convention the Leedom Group will be selecting one dealer to participate in the Leedom Group $100,000 Challenge. Applications will be accepted through April 6th to be selected. The selected dealer will benefit from the Leedom Group’s full menu of consulting and related services including participation in a Twenty Group. The challenge is to increase net profit by $100,000 by the end of the year! We have done this three times before and have been three for three. Contact us for an application by calling 800.966.8733. We will also be publishing a special issue of Dealer Business Journal. Dealer Business Journal has been published since 2003 and this year we are going to make some minor enhancements that will be launched at the BHPH WORLD Convention. One key feature of this issue will be the publishing of the Leedom Group Industry Benchmarks

for 2015. This will be information you can use to assess and improve your operational performance. Don’t miss this issue to see our new format. Finally, if you are not registered for the Leedom Group 21st Annual BHPH WORLD Convention, what are you waiting for? Once again it will be the greatest BHPH show on earth! You can register by visiting www.bhphworld.com or by calling Meredith McNellis at 800.966.8733. See you in New Orleans!

CHRIS LEEDOM EXECUTIVE PUBLISHER

CORNER OFFICE

“Our team is putting the finishing touches on what promises to be the premier BHPH event of the year.”

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

David [email protected]

Tom [email protected]

Christy [email protected]

Paxton [email protected]

FOR 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

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.

PAYMAXX PRO

Text to Pay sends messages to remind your customers of their upcoming payment. This interactive feature enables the customer to reply to the text to approve the amount due and pay.

Using our automated call-in system, your business may accept payments via phone 24/7. We offer numerous customizable features including script prompts, language choices, and company branding.

PAY BY PHONETEXT TO PAY

Stop by for interactive demos on our services:

Paymaxx Pay provides your customers the convenience of paying safely and securely online. Customers log into their account and have the ability to pay 24/7.

PAY BY WEB

BOOTH 223 AT THE BHPH CONVENTION

Call for your free Savings Analysis: 1-888-599-1720 | paymaxxpro.com | [email protected]

COME VISIT PAYMAXX PRO


DBJ INDUSTRY NEWS SEND YOUR HEADLINES TO [email protected]

FINANCE

Automotive Loan Balances Reach All-Time HighSubprime and deep subprime market share remain at low levels

Experian Automotive reports that the total outstanding balance on open automotive loans continued to rise in the fourth quarter of 2014, reach-ing an all-time high of $886 billion. According to its latest State of the Automotive Finance Market report, the volume of open loans increased across all risk tiers. However, despite the increases in volume, market share for subprime and deep subprime loans remained at relatively low levels, as much of the growth from a year ago was seen in the super-prime risk segment. “Whenever there is an uptick in the number of loans to subprime and deep-sub-prime customers, there is the potential for a ‘sky is falling’ type of reaction,” said Melinda Zabritski, Experi-an’s director of automotive finance. “The reality is we are looking at a remarkably stable automotive-loan market, in part because consumers are continuing to stay on top of their payments. With that said, keeping an eye on

consumer payment behavior and the lending community’s appetite for risk is important because these types of insights help the industry make better decisions that may affect loan terms or interest rates in the future.” While the volume of loans in the subprime and deep-subprime risk tiers were up from last year — 3.83 percent and 5.60 percent, respectively — the combined market share for the two was down slightly at 20.31 percent. On the other end of the spectrum, the volume of loans to super-prime consum-ers was up 7.90 percent from a year ago. It also was the only risk tier to see a year-over-year increase in market share. Further findings from the report showed that 30- and 60-day automotive loan delinquencies remained flat during the quarter. Thirty-day delinquencies were up just one basis point from a year ago, going from 2.61 percent to 2.62 percent, while 60-day delinquencies dropped slight-

ly, going from 0.73 percent 0.72 percent over the same time period. At a state level, the highest delinquency rates were found primarily in the South, while the states with the lowest rates were typically found in the Midwest and Northwest.

Experian’s quarterly State of the Automotive Finance Market report leverages infor-mation from its AutoCount® database, which enables insights into the automotive lending market by geography, credit score and vehicle regis-trations, among other factors.

30-DAY DELINQUENCIES

Highest Lowest

Mississippi 4.46 % North Dakota 1.23 %

Washington, D.C. 3.68 % Alaska 1.47 %

Louisiana 3.59 % Minnesota 1.48 %

South Carolina 3.52 % Oregon 1.48 %

Alabama 3.49 % South Dakota 1.52 %

COMPILED FROM EXPERIAN

60-DAY DELINQUENCIES

Highest Lowest

Washington, D.C. 1.47 % North Dakota 0.33 %

Mississippi 1.27 % Minnesota 0.39 %

Louisiana 1.15 % Oregon 0.39 %

Alabama 1.03 % Washington 0.40 %

South Carolina 0.99 % Alaska/New Hampshire 0.44 %


Certified Pre-Owned Car Sales at All-Time HighCertified pre-owned (CPO) car sales are at an all-time high, say analysts at Edmunds.com. In the company’s latest Used Vehicle Market Report, analysts noted that in 2014 CPO sales hit an all-time high of 2.3 million–even though it was not a record year for used car sales overall. Last year, CPO made up 20.8 percent of total used car sales at franchised dealerships, the highest percentage since certified pre-owned programs were introduced. “We fully expect CPO popularity to continue throughout 2015 because many leased cars are being returned to the dealership in excellent shape and lightly used cars are being traded in at faster rates than in previous years. This allows dealers to maintain a large CPO inventory,” explained Edmunds.com Senior Analyst Jessica Caldwell. Even though there are more used cars in the

marketplace than in recent years, retail prices have remained high. In fact, with a six percent gain in year-over-year used prices, 2014 generated record high average used vehicle retail values. The average price for a used vehicle sold at a dealership last year was $16,800, compared to $15,900 in 2013. In 2014, the average one-year old vehicle sold for almost $30,000, 5.7 percent higher than in 2013. “Lightly used cars are very appealing to car shoppers since they are equipped with modern technology and have already taken their biggest depreciation hit,” said Caldwell, who pointed out that 19 percent of used vehicles sold in 2014 were one or two years old, up from 14 percent in 2013. Another factor that boosted average retail used car prices in 2014 was the dramatic decline in gas prices: this drew a greater proportion of shoppers to larger vehicles, which typically cost more. In addition, low interest rates

and longer loan repayment terms allow shoppers to buy more expensive vehicles with lower monthly payments, and all of these trends were realized in 2014. Despite higher average prices, the average monthly payment for used cars financed in 2014 was $370, three dollars less than the all-time high that was reached in 2007. The Edmunds.com report also tracked the average age of car shoppers and found that Millennials are a growing customer base for used cars. “As new jobs and other changes in their lifestyles lead them to buy cars, Millennials are using their smartphones to find the best deals and are often choosing used over new,” observed Caldwell. The full Used Vehicle Market Report and other insight into recent auto industry trends can be found in Edmunds.com’s Industry Center at http://www.edmunds.com/industry-center/.

BRIEFSNEWS

ADESA Will Not Participate in Proposed MPS InitiativeADESA recently announced that it will not proceed with a currently proposed Multi-Plat-form System (MPS) for the auto remarketing industry. The company has worked for nearly two years attempting to evaluate and develop an MPS that would benefit both sellers and buyers. but has concluded it would not be prudent to further pursue this initiative. As currently structured, the proposed MPS would subject market participants to heightened technology re-quirements and expenditures. The proposed MPS structure and its associated econom-ic and governance model also poses antitrust risks by raising new barriers to entry for smaller industry players, reducing competition among the auctions and increasing costs for sellers, buyers and ultimately retail consumers.

Send us your news:We want to share your news. Dealers and vendors can send press releases and news announcements by email to [email protected]. Subject line: News Briefs.


DAVID BROTHERTON BHPH BOOT CAMP


LEEDOM GROUP

Employee turnover is a part of running any business. Absence of turnover is probably as big a sign of something wrong in your culture as too much turnover. The problem with “out with the old and in with the new” is that, unfortunately, we can lose some people who we would really like to keep instead of the ones we’d rather have

went away. Losing the good ones can be financially devastating when you consider true costs involved. A good rule of thumb is that turnover can cost you between 100 and 150 percent of an average employee’s annual compensation. For key management and productive sales positions, this can be closer to 200 to 250 percent. The costs skyrocket when you consider the direct and indirect costs of replacing that employee including recruiting, training, lost productivity during transition and training, reduced sales, etc.—they add up pretty quickly. This can become a major “stealth” expense that manifests itself in several revenue and expense categories rather than in one, easy to identify

Losing a good employee can be quite costly to your business. Make sure you are doing everything possible to ensure a happy, productive staff.

RETENTIONEMPLOYEEBEATING THE HIGH COST OF TURNOVER


line item on your P&L. If the perception is that hiring is heating up, your most productive people may be starting to consider other options. Good, productive employees have no trouble finding employment in this industry and almost every employer has a shortage of qualified, experienced talent. As a result, there is as much competition for retaining our talent pool as there is for our customers and we need to know what motivates people to stay or go from a job.

Clearly Defined ExpectationsRegardless of their employment generation, good employees thrive when they understand what is expected of them. A constantly moving target is a demotivator for most of your team. They simply cannot be expected to be focused on everything that impacts EBIT on your Income Statement. Knowing what you expect and how to get there is absolutely critical to creating and maintaining a positive work environment.

Quality & Consistency of Supervision Most of an organization’s experienced, high-value turnover can be traced directly back to poor management. Good employees leave bad managers. Some managers are gifted coaches and teachers. Some stay in

DAVID BROTHERTON BHPH BOOT CAMP

their office all day and play with spreadsheets. Others are bullies who think that showing respect and consideration is akin to showing weakness. Being disengaged from your team and not treating people with respect can kill a lot of beneficial employer-employee relationships.

Expectation of Fair TreatmentPeople who succeed by following the rules really resent it when they perceive others to be succeeding (or simply surviving) by doing a lot less than they do every day.

Career GrowthTop producers want to grow in their careers. They generally appreciate opportunities to attend outside seminars or go to

a Twenty Group meeting. They see their job as a career and want to learn the skills necessary to grow. This is a problem inherent in small businesses that, while we can provide income, there really isn’t always room for titles or growth within the company. Millennial employees in particular are prone to question where they are going in the company.

Recognition Good producers want to know that their efforts are recognized and appreciated. Don’t be sparse in handing out the praise publicly.

Security This ties in directly with quality and consistency of management. When your manager is a bully, he or she will often threaten people’s jobs or income to try and

motivate better results. What tends to happen is that either the employee takes the threat seriously and looks for another job with more security or they see the bully for what he or she is and management loses credibility—which can have the same net result. I believe in being honest with the team but consistent feedback will let people know when they are failing. There is no need to beat people up with it.

Turnover Poor PerformersOne last area that, in my experience, tends to drive a wedge between you and good performers is where you are reluctant to turn over the positions that really need it. “A” players want to work with other “A” players. They don’t want to feel that more and more expectations are heaped on them because management insists on carrying poor performers rather than recruiting for better ones. High performers understand the need for the right turnover.

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

Most of an organization’s experienced, high-value turnover can be traced directly

back to poor management. Good employees leave bad managers


PAXTON WRIGHT DEALER OPERATIONS

Sub-prime customers have more financing options than ever. Will your BHPH dealership be able to compete?

It’s no secret that over the past couple years many BHPH dealers have experienced an increase in loss percentages and a decrease in profits. One significant

contributing factor is the amount of available capital that continues to pour into our industry. Many auto finance companies have been able to increase their credit lines and thus their ability to buy more loans. Even the larger banks are getting into the mix by buying loans much deeper in the credit spectrum than is typical. This has created many problems for our traditional BHPH model. With more competition, creating more financing options for our customer base, many dealers have seen the top end of their customers purchasing newer model year cars, with longer terms, from sources that have historically ignored these opportunities. In turn, this has resulted in more

voluntary repos, less dollars collected, and fewer car sales for numerous BHPH dealers. So, how can you overcome these climate changes? Well, many operators have taken the “if you can’t beat ‘em, join ‘em” approach. By simply adding a few indirect lenders and closing a percentage of their customers via these sources, dealers are recapturing some of their profits lost by choosing not to compete. With that said, allow me to raise the caution flag. Be aware, if you decide to introduce the option of financing vehicles through third party lenders, there are numerous issues your dealership must consider:• How do we select the deals that

will and won’t be submitted to an indirect lender?

• Do I need to compensate my team differently for deals funded through outside financing?

COMPETITIONSUB-PRIME

HEATS UP


LEEDOM GROUP

SUB-PRIME


• Will my inventory be mixed or do I need a separate lot?

• Can my sales team effectively handle both options or do I need to hire specialists?

• Which lenders are best suited for my needs and my customers?

These are just a few of the questions you must answer before making the leap to indirect lenders. An alternative approach for some dealers has been limiting or even reducing their inventories actual cash value (ACV). This accomplishes two things, first it helps limit the amount of competition for the same customer, as many banks and finance companies prefer not to purchase loans on lower ACV vehicles. Second, lower cost inventory, reduces your capital risk per unit and can increase profits. How is this done? With lower ACV units on your lot, you can have more inventory without putting more cash at risk. In addition, lower ACV units typically produce higher gross profit percentages. For example it’s much easier to buy a wholesale vehicle for $2,000 and retail it for $6,000 (200% increase) than it is to buy a $5,000 wholesale vehicle and retail it for $15,000 (the same 200% increase). Sticking with this similar logic, lower ACV units allow for lower monthly payments or shorter loan terms. This means you can collect more principal dollars

in a shorter period of time, all good things! In conclusion, these are just a couple of ways to mitigate losses associated with the increased completion we’ve been experiencing. No matter which of these, or potentially other strategies, you choose to adopt, make sure you clearly evaluate all the pros and cons. Making quick wholesale changes can be disrupting to your staff and potentially even your customers. Discuss the changes with your team first and put together a new set of policies and procedures to help smooth the transition. If you have questions or need help evaluating the best strategy for your business going forward, feel free to contact me directly.

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]

PAXTON WRIGHT DEALER OPERATIONS

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TOM HUDSON LEGAL OPINION

T he U.S. Department of Justice, the U.S. Attorney’s Office for the Western

District of North Carolina and the North Carolina Department of Justice just announced a settlement of the federal government’s first-ever discrimination lawsuit involving Buy Here-Pay Here auto financing. The settlement, subject to court approval, resolves a lawsuit by the Department of Justice and North Carolina, alleging that Auto Fare Inc. and Southeastern Auto Corp., two “buy here, pay here” dealerships in Charlotte, North Carolina, and their owner violated the federal Equal Credit Opportunity Act by engaging in a pattern or practice of “reverse redlining” by intentionally targeting African-American customers for unfair and

predatory credit practices in the financing of used car purchases. The lawsuit alleged that the two dealerships’ sales prices, down payments, and interest rates were disproportionately high compared to other subprime used-car dealers. Because the dealerships did not meaningfully assess the customers’ creditworthiness or ability to repay, their rates of default and repossession allegedly were disproportionately high. Additionally, the dealerships allegedly engaged in repossessions when customers were not in default. North Carolina also alleged that the dealerships’ actions violated the state’s Unfair and Deceptive Trade Practices Act. The press release announcing the settlement says that the settlement requires the dealerships to

implement practices to ensure that the terms of their credit sales and repossession practices are no longer unfair and predatory. In many settlement agreements, that means that the defendant agrees to comply with the law applicable to its business. A look at the terms imposed on the dealer by the settlement, however, shows that the dealer is prohibited by the terms of the settlement agreement from doing a number of things that other dealers not subject to the settlement may legally do. Here are a few examples: limiting projected monthly payments to no more than 25 percent of a buyer’s income; requiring interest rates to be at least five percentage points below the state’s rate cap; mandating a lower interest rate for buyers who have specified evidence of lower credit risk; requiring competitive sales prices;

prohibiting repossessions until at least two consecutive payments have been missed, and; providing down payment refunds to buyers who quickly go into default; allowing buyers to obtain an independent inspection of the car before completing the purchase. How is it that a government agency can require that a dealership do things not required by law or refrain from doing things not prohibited by law? Good question. It is such a good question that I did not know the answer to it, so I consulted my partner Joel Winston, who was a federal enforcer for several decades before joining our firm. What Joel told me is that this is what’s known in the trade as “fencing-in relief.” The FTC has the authority in a remedial order, and frequently exercises

DON’T FENCE ME IN


prohibit behavior that is not only not expressly prohibited by law, but is not even unfair and predatory.” Where does that leave other BHPH dealers? Seems to me that they, too, are fenced in, but that the fence that constrains them is an invisible fence they can encounter even when operating on the legal side of the law.

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].

limitations imposed by the regulators in this settlement agreement? It does not. It does, however, offer a view into the regulatory mindset of the federal and state authorities now policing the Buy Here-Pay Here beat. The press release says, “the settlement requires the dealerships to implement a number of specific practices to ensure that the terms of their loans and repossession practices are no longer unfair and predatory.” My take on this statement is that this dealer is precluded from doing things that are otherwise legal, and that seems to indicate that the enforcers have concluded that actions that do not expressly violate state and federal law can be unfair and predatory. Joel suggests that I’m over-reacting, saying, “I don’t think the order necessarily suggests that. The notion of fencing-in is that it can

LEGAL & LEGISLATIVE

that authority, to require law violators to take certain actions that go beyond what the law requires in order to “close off all roads to the prohibited goal.” Fencing-in relief, Joel explained, is directed at a particular violator and is not intended to apply industry-wide generally or to enunciate an across-the-board legal standard. Decades of case law deal with how far beyond the violations alleged the government (mainly FTC) can go in fencing-in relief. The government has a fair amount of latitude, so long as the relief is reasonably related to the violations and reasonably calculated to prevent future violations. On the other hand, despite what the regulators seem to think, the relief can’t simply be a wish list of what the government thinks is good or bad behavior. That said, get a load

of this quote from Acting Assistant Attorney General Vanita Gupta of the Civil Rights Division: “It is not only illegal, but also fundamentally wrong, to target borrowers of color for predatory loans and exploit their need for a car to do essential tasks such as getting to work. Combating discrimination in all segments of the auto lending market is, and will remain, a top priority for the Civil Rights Division. I am pleased that these dealerships have agreed to reform problematic lending and servicing practices and adopt policies that promote responsible lending. I hope that other buy here, pay here dealerships will evaluate their practices in light of this settlement.” (emphasis added) So, does this action require all Buy Here-Pay Here dealers to adopt the business restrictions and

A recent settlement in North Carolina demonstrates how the FTC can impose regulations on law violators that go even beyond what the law requires.


STAGES OF

PATRICIA COVINGTON COMPLIANCE UPDATE

It’s time to accept the fact that the Consumer Financial Protection Bureau is here to stay and is ready to regulate.

W hen I consider the events leading up to and following the

creation of the Consumer Financial Protection Bureau and the reactions by dealers and finance companies to those events, I am reminded of the Kübler-Ross “Five Stages of Grief” thesis. According to that thesis, people facing a severe loss go through distinct, recognizable stages as they adjust to the loss.The “loss” in this case is the loss of a marketplace

THE 5

for selling and financing vehicles that has been highly regulated but mostly ignored by those charged with enforcing the laws and regulations. Many dealers and finance companies determined that ‘flying under the compliance radar,’ while a risk, was one that seemed worth taking since the alternative was an expensive and time-consuming compliance effort that their competitors were not making. Thanks to (i) the Dodd-Frank Act; (ii) the creation of the CFPB; and (iii) the newly aggressive

Federal Trade Commission and state attorneys general, that ‘under-the-radar’ marketplace is gone, probably for good. The Kübler-Ross stages are denial, anger, bargaining, depression, and acceptance. So far, most dealers and finance companies seem to have gone through at least the first three or four of these stages. Because the reality of a loss is hard to face, one of the first reactions to the loss is denial. As the Dodd-Frank Act was working its way through Congress,

COMPLIANCEGRIEF


LEGAL & LEGISLATIVE

many industry pundits predicted that the measure would not pass or that, if it did, it would not result in the creation of the Bureau. But if it did pass, they said, the Bureau won’t be that much different from the federal regulators that had previously been the cops on the compliance beat. Or, if it did pass, we’d elect a Republican Congress and repeal the law. The Bureau was created, has not gone away, and has turned out to be a considerably more aggressive enforcer than the ones dealers and finance

companies had faced previously. When dealers and finance companies realized that denial wasn’t working, their anger flared: “It’s not fair! The Great Recession dealt mostly with bad actors in the housing finance marketplace. Auto sales and financing were generally not implicated in the meltdown. Why is the auto industry being penalized? Why would our elected representatives let this happen?’ It’s hard to stay mad forever, and eventually a person experiencing a loss turns to action, in this instance, bargaining: ‘I’ll do as little as I can to stay off the CFPB’s radar, but I’m not going to crank up my compliance effort to a level that will be expensive and time consuming. I’ll do just enough to get by.” Bargaining can forge a path to depression. As the Bureau and the FTC announce one enforcement action after another, hammering company after company with eye-popping fines and penalties, dealers and finance companies have begun to understand the certainty of the change of the regulatory landscape and the huge burden that they must bear if they are to avoid the fate of the companies targeted by the regulators. Many dealers and finance companies I deal with are in

Some dealers and finance companies have worked through the first four stages to face the last one, “acceptance,” coming to terms with the New Order and embracing a compliance culture.

this stage of grieving. They are depressed at the enormity of the situation they are facing. Some dealers and finance companies have worked through the first four stages to face the last one, “acceptance.” They have come to terms with the New Order, embracing a compliance culture—investing the necessary management time and incurring the large expense, and sometimes the competitive disadvantages that this sort of effort requires. These dealers and finance companies have decided: “It’s going to be okay. We can’t fight it, so we may as well prepare for it.” If this observation holds true–that the five stages of grief apply to the events of the last two or three years, then eventually every dealership and finance company will work its way through to the acceptance stage and will do what must be done to survive in a more tightly regulated marketplace. If your company hasn’t yet reached “acceptance,” it’s time for a wake-up call.

Patricia E.M. Covington is a partner in the Virginia office of Hudson Cook, LLP. Patty has significant experience in the areas of dealer, credit, and privacy law. She can be reached at 804.212.1201 or by email at [email protected].

COMPLIANCEGRIEF


New Orleans, LA

April 12-14

LeedOm grOup bhph wOrLd cONveNtiON


These sessions provide a unique opportunity to learn more about some of the bestproducts and services in the industry. Our presenters are hand-picked and there are multiple sessions available. From compliance to software to Twenty Groups, thesesessions allow you to gather information and ask questions about top ratedproducts and services.

Chris Leedom, President, Leedom GroupOur Convention Chairman and Founder will oer our key note address. Mr. Leedom is recognized as one of the foremost authorities in the BHPH business. Chris is bothan industry expert and a dealer-owner so he has a unique perspectives on themarketplace. He will share with our convention attendees how the market is chang-ing, the impact of third party lenders, and how to compete for the long haul. Since1995 his comments have served as a bellweather of what is to come.

Jim Jackson, CEO – Oak Motors, IndianaWe have invited Jim Jackson to speak to our general session attendees. Jim has served as the CEO of Oak Motors, a large BHPH operation based in the Indianapolis market. Jim is unique in that he has served as a coach to many dealers in the indust-ry and now is a sitting CEO. He will go over his thoughts and observations on whatit takes to operate in the BHPH business at the highest levels. What drives peakperformance? How do you motivate your team and customers toward success?

SUNDAY APRIL 12TH

MONDAY APRIL 13TH

Vendor Spotlights

Breakfast

1:00 PM - 4:00PM

7:30 AM - 9:00 AM

5:00 PM - 5:30PM

9:00 AM - 12:00 PM

5:30 PM - 8:00 PM

First Time Attendee Meet & Greet

General Session

Welcome Reception

LEEDOM GROUP BHPH WORLD CONVENTION

Steve Jordan, Executive VP, NIADA The forefront of industry development and direction.


These sessions provide a unique opportunity to learn more about some of the bestproducts and services in the industry. Our presenters are hand-picked and there are multiple sessions available. From compliance to software to Twenty Groups, thesesessions allow you to gather information and ask questions about top ratedproducts and services.

Chris Leedom, President, Leedom GroupOur Convention Chairman and Founder will oer our key note address. Mr. Leedom is recognized as one of the foremost authorities in the BHPH business. Chris is bothan industry expert and a dealer-owner so he has a unique perspectives on themarketplace. He will share with our convention attendees how the market is chang-ing, the impact of third party lenders, and how to compete for the long haul. Since1995 his comments have served as a bellweather of what is to come.

Jim Jackson, CEO – Oak Motors, IndianaWe have invited Jim Jackson to speak to our general session attendees. Jim has served as the CEO of Oak Motors, a large BHPH operation based in the Indianapolis market. Jim is unique in that he has served as a coach to many dealers in the indust-ry and now is a sitting CEO. He will go over his thoughts and observations on whatit takes to operate in the BHPH business at the highest levels. What drives peakperformance? How do you motivate your team and customers toward success?

SUNDAY APRIL 12TH

MONDAY APRIL 13TH

Vendor Spotlights

Breakfast

1:00 PM - 4:00PM

7:30 AM - 9:00 AM

5:00 PM - 5:30PM

9:00 AM - 12:00 PM

5:30 PM - 8:00 PM

First Time Attendee Meet & Greet

General Session

Welcome Reception

LEEDOM GROUP BHPH WORLD CONVENTION

Steve Jordan, Executive VP, NIADA The forefront of industry development and direction.

We will feature an invited motivational/business speaker to address our attendees. Each year this is one of the most exciting sessions that oers fresh perspective and information you can use in your business.

We will invite some of the leading experts from various disciplines

and to answer all of your questions. This is a live interactive session with commentary and questions coming from the audience so come and join the conversation.

We will have over 20 workshops featuring leading experts, trainers and others with deep knowledge of the industry. From benchmarks to legal issues, to collections and business development concepts these sessions provide a plethora of opportunities to take back ideas and strategies to put to work in your business.

Once again we will host a special celebration of all things BHPH. This is is a chance to unwind after a long day of learning and networking with other dealers and industry insiders. This is event is most definitely the best party on the planet for this industry. Come join us in the Big Easy for the Big Party!

Lunch is held in our Grand Expo hall where you will have access to over 80 vendors & sponsors. These companies represent the best products and services in the business. This is another opportunity to work the Grand Expo Hall.

TUESDAY APRIL 14TH

MONDAY APRIL 13 TH (CONT.)

Breakfast

Workshops

8:00 AM - 9:00 AM

1:30 PM - 5:00 PM

9:00 AM - 10:00 PM

11:00 AM - 12:00 PM

5:00 PM - 6:30PM

10:00 AM - 10:45 AM

7:00 PM - 9:00 PM

12:00 PM - 1:30 PM

General Session

Lightning Round

Reception

Mimosa & Bloody Mary Break

BHPH - The Big Party

Lunch

1-855-627-0809 | BHPHWORLD.COM


Each year hundreds of dealers con-vene for the BHPH WORLD Conven-tion. This year I am happy to an-nounce we are visiting the Big Easy, New Orleans, LA, for our 21st annual event. This is the one BHPH show that everyone talks about.

It is a pleasure to once again serve as our Convention Chairman. I have worked with many dealers, vendors and leading industry icons to build a program I hope you will find most informative and rewarding. There is a lot going on in our industry this right now. There is no question the standard of operation is rising and it is events like the BHPH WORLD Convention and the keynote presen-tations, workshops and interaction with industry leaders that helps keep you well informed. I had a dealer the other day say to me “I don’t know what anyone would be waiting for, they should just sign up. I did”. So I decided that should be our message - you should just register you and your staff now.

what Are you waiting For?

chris leedom Founder & CEO of Leedom Group


But why you ask? Well for one we will have a sold out Grand Expo Hall with every product and service in the industry. It is all under one roof for you to peruse and investigate. Two, we have an incredible line up of guest speakers that you will enjoy. Three, on the last day we will have a spe-cial session where one dealer will be selected based on prior application, to participate in our Leedom Group $100,000 Challenge. We will “adopt a dealer” that attends the event and commit our full menu of services through the end of the year. The Challenge for us is we must increase your net profits by at least $100,000. It is that simple. We have done this before and we are 3 for 3. One lucky dealer will make at least $100,000 by just attending.

So take the advice - just register today! You can do so by visiting bhphworld.com or you can call us at 800.966.8733.

I look forward to seeing you in the Big Easy!

Chris Leedom

PS - don’t miss the Big Easy Party on Monday night - I always enjoy hang-ing out with a couple hundred of our best BHPH friends! See you there!


Each year hundreds of dealers con-vene for the BHPH WORLD Conven-tion. This year I am happy to an-nounce we are visiting the Big Easy, New Orleans, LA, for our 21st annual event. This is the one BHPH show that everyone talks about.

It is a pleasure to once again serve as our Convention Chairman. I have worked with many dealers, vendors and leading industry icons to build a program I hope you will find most informative and rewarding. There is a lot going on in our industry this right now. There is no question the standard of operation is rising and it is events like the BHPH WORLD Convention and the keynote presen-tations, workshops and interaction with industry leaders that helps keep you well informed. I had a dealer the other day say to me “I don’t know what anyone would be waiting for, they should just sign up. I did”. So I decided that should be our message - you should just register you and your staff now.

what Are you waiting For?

chris leedom Founder & CEO of Leedom Group


But why you ask? Well for one we will have a sold out Grand Expo Hall with every product and service in the industry. It is all under one roof for you to peruse and investigate. Two, we have an incredible line up of guest speakers that you will enjoy. Three, on the last day we will have a spe-cial session where one dealer will be selected based on prior application, to participate in our Leedom Group $100,000 Challenge. We will “adopt a dealer” that attends the event and commit our full menu of services through the end of the year. The Challenge for us is we must increase your net profits by at least $100,000. It is that simple. We have done this before and we are 3 for 3. One lucky dealer will make at least $100,000 by just attending.

So take the advice - just register today! You can do so by visiting bhphworld.com or you can call us at 800.966.8733.

I look forward to seeing you in the Big Easy!

Chris Leedom

PS - don’t miss the Big Easy Party on Monday night - I always enjoy hang-ing out with a couple hundred of our best BHPH friends! See you there!

meet Our Keynote Speakers


industry leader, consultant and dealer Simply put “one of the best minds in the business”.

executive vp of NiAdA The forefront of industry development & direction.

motivational leadership success speaker Decorated Black Hawk Helicopter Pilot, No. 1 Best-Selling author, and founding member of the John Maxwell Team of speakers.

leading coach, Author and ceo One of the top performing BHPH dealer groups in the country.

chris leedom

Jim Jackson

steve Jordan

elizabeth mccormick


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

have brought a stronger awareness of the importance of engaged

employees in the workplace. In fact, “employee engagement” has become a mantra for manufacturers and dealers alike in their quest to attract, develop and retain talent. At the same time, conventional wisdom has long asserted that happy and satisfied employees should be a priority, and many assume that if employees are happy with their work and satisfied with their workplace that their engagement is a given. This is nonsense, and here’s why: • Some employees are

happy to hang out by the water cooler much of the day and gossip, snack, and work hard at looking busy. Could you honestly call this happy employee engaged?

• Some employees are satisfied to do just enough daily to get by, just enough to get paid, and just enough not to get fired; not the behaviors any rational person would deem as engaged.

The reality is that employee engagement

doesn’t come from an employee being happy or satisfied; happiness and satisfaction result from an employee being engaged with their work, and at their workplace. To dig deeper, let’s get past the buzzword aspect of “engagement”, and examine insights into what it looks like in practice and how to create it:

1 Employee engagement happens when an employee is emotionally

invested in the company’s goals. His or her work

DAVE ANDERSON LEARN TO LEAD

SEVEN WAYSTO INCREASEEMPLOYEEENGAGEMENT


isn’t just a job, but a cause; they aren’t interested only in what they can get from the job but what they can become as a person while on the job. Yes, the employee wants to make money, but she also wants to make a difference; she doesn’t feel like just a number, but part of something special.

2The degree to which an employee is emotionally invested in a company’s

goals will depend largely on the strength of the relationship he has with his direct supervisor. It’s incumbent on the leader to initiate the relationship with an employee and take the lead to strengthen it over time. To this end, a leader must prioritize spending time with people—work over paperwork. Otherwise he’s likely to substitute rules for relationships, reaping a banquet of compliance over committed engagement throughout the ranks.

3 When a leader substitutes rules for relationships he gets

rebellion, not engagement. Rebellion manifests in many ways: from coming into work late, to doing the bare minimum to get by, to not speaking well of co-workers or the company when away from the job.

4 Empowering team members with latitude and discretion increases

engagement. Helping your people become less

dependent on you by empowering them to make more of their own decisions, solve their own problems, and implement their own ideas builds their self-esteem and allows them to take more ownership in their jobs. Empowering is more than simply telling someone it’s ok to do something; it means creating clear expectations for what you expect and helping them develop the skills to deliver.

5 Helping your team members develop a personal growth

program improves their level of engagement. Little creates more goodwill and engagement than when you take a personal, hands-on interest in helping the people on your team grow personally so they can reach their fullest potential. Helping them define growth objectives, and then determining the resources necessary to achieve them not only increases engagement, it builds a higher sense of loyalty to you personally, and to the organization.

6 Learning to motivate each team member as a unique individual,

rather than like a head in a herd of cattle strengthens engagement. Vince Lombardi was spot on when he said decades ago, “My job is to learn 40 different ways to move 40 different men.” Everyone has different strengths,

Employees motivated by being part of a special team and by the opportunity to make a real difference move from feeling enslaved to engaged.

weaknesses, aspirations and motivational triggers. You must know people to move people in these areas, and to know them you must spend meaningful time with them building a productive relationship; all of which is engaging. When an employee believes his or her boss cares enough to “get” them, engagement soars.

7 Successfully addressing the three key heart questions elevates

engagement levels. While “head” issues are naturally important to employees: compensation, benefits, scheduling and the like, “heart” issues are even more essential if you want to maximize employee engagement. Here are three questions every workplace must answer well to engage employees at their highest level: • “What will I become by

working here?” • “What will I become

a part of by working here?”

• “What difference will I be able to make by working here?”

Employees motivated by what they have a chance to become as a person; by

DAVE ANDERSON LEARN TO LEAD

being part of a special team, and by the opportunity to make a real difference move from feeling enslaved to engaged; from subordinates to followers; from driven stakes to stakeholders. There’s much more to say about employee engagement, and dozens of additional strategies and tactics one can use to create it. These seven points, however, provide both a checklist to evaluate how you’re doing as a leader; and a blueprint to begin taking more proactive action to maximize engagement in your dealership.

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.


Most Buy Here-Pay Here (BHPH) operators consider

management of delinquency and charge-off levels integral to their operations. Essentially, the operator is managing their rate of return in their investment in customer receivables which is essential to ensure viability of the entity in the long-term. It seems industry-wide, operators speak often of their delinquency and charge-off levels coupled with their static pool rate. The key to assessing this data is consideration of the data input used in such calculations. For example, if account balances are reduced by editing vs. being charged off, statistical information created or analysis using charge-off reports could be tainted. In other cases, some operators may hold charge-offs for various reasons, tainting comparability from month to month. The flip side to charge-off levels is delinquency. If charge-offs are not consistently taken and recorded, delinquency levels are affected. Most charge off timing is discretionally determined so this in itself will affect short-term charge-off data. Also, if charge-offs are aggressively

By performing higher levels of collection and charge-off analysis you can better track performance.

ROBERT PARNAS ACCOUNTING PRINCIPLES

taken, the delinquency looks very good in the short-term. Always keep in mind delinquency often improves during the busy season based upon newer originations being added more rapidly to the portfolio. Also, many operators have bonus plans for collectors and collector managers based upon charge-off and delinquency data. Therefore, delinquency and charge-off data should be assessed together, reviewing short-term and long-term trends. In assessing charge-offs and delinquency, static pool analysis is a better approach as it attempts to predict what the total charge-off is over the life of the receivable per pool of note per pool based upon an estimate. Again, if charge-offs are not properly coded or assessed or if there are changes it could affect timing and predictability patterns. Essentially, the rate should dictate the estimated total amount being charged off on any given pool of notes (i.e. based on month of origination, etc.). The key is to ensure all charge-off and adjustments to customer’s accounts are included in the analysis. Also, consider documenting the roll forward of the customer gross receivable balance, balance beginning, add new

DELINQUENCY

CHARGE-OFF’SAND


BUSINESS OPERATIONS

originations, less principal collections, less principal charge-offs, less receivables sold to a third parties equal ending balance. If other adjustments are being made to receivables to reduce balance without being charged off, these need to be analyzed and assessment separately. Correlate charge-off information and other adjustments to expense account and to reports that determine levels of charge-off as well. Often, we see that the charge-off expense reconciliation doesn’t quiet tie back to the amount in the roll forward as accounts are adjusted without running through the charge-off account. The key is that these amounts are still not being collected so they should be assessed with charge-off data. Some operators create management delinquency analysis and trends by treated on management reports aging over certain periods as charge-offs on their spreadsheet. At that point, you will be able to consistently compare delinquency (after adjusting for accounts that for management purposes are considered charge-off on the spreadsheet) and well as compare monthly charge-off statistics during all periods during the year and compare

to prior period. Some feel that this reduces differences in charge-off timing and presents a fair manner in which to compensate personnel. It seems as recency also could be used in determining the amounts used in the management report. BHPH operators seem to talk about charge-off and

delinquency percentages, but do not talk about cash collections of total principal and interest as an average percentage of the portfolio. Essentially, this is the flip side of delinquency and charge-off level and when it comes down to it, cash collection is what we care about. I have wondered why BHPH operators do not emphasize this as much. It would be easy to track this from collector to collector. After-all, we desire to have long term statistical information in order to benchmark and compare collector/underwriter

performance. It seems as comparing delinquency and charge-off percentages is more difficult for reasons mentioned above, but this is the approach commonly used by BHPH operators. After digesting the above information, a key goal is to be able to predict on a reasonable accurate basis outcomes to underwriting

and collection efforts in terms of the amount of each dollar of origination that will be collected. Some would consider that this is no different in investing funds stocks or any other investment. Once collection and static pool data has been determined on a historic global, company wide basis, pinpointing cause and effects to the extent possible can be attempted, although often complex. To start, if collector queues are randomly assigned to collectors, try to determine on collector to collector basis statistical information of

static pool percentage and collection percentage. It would seem this would be one measurement of long-term collector performance and could be a useful benchmark when comparing the performance of collector to collector. On the other side, it would be good to measure the performance of underwriters. You could perform similar calculations on an underwriter to underwriter basis. Hopefully, the essence of all the discussion is trying to perform higher levels of collection and charge-off analysis in order to try “drill down” to personnel performance and other changes within the organization. Although there are a lot of variables, it is important to perform due diligence in this area in order to strive for operational improvements.

Robert Parnas, CPA, isPrincipal, Dealerships, withCliftonLarsonAllen LLP and can be reached at [email protected].

Operators speak often of their delinquency and charge-off levels coupled with their static pool rate. The key to assessing this is consideration of the data input used in the calculations.


IIn today’s fast paced and pressurized world, in my opinion, it becomes easy to assume the worst. To assume the driver of the car that cut over two lanes and exited at the last minute is a complete idiot. Or that the person whose report you are waiting for is trying to

sabotage your success. Unlike many politicians today, I am asking you to do the hard thing: assume the best! Some people seem to be a natural or better at this than others. I believe, however, that it can be an acquired skill for all of us. While I am not big on the crazy driving maneuvers described above, it is possible that the driver didn’t have bad intentions toward other drivers. Maybe they were “spacing out” and were about to miss the exit and were panicking. Or maybe they were just being a little selfish. Maybe that person who is preparing the report is finding errors and is taking some extra time to proof read and correct it. Assuming the worst, that they are some horrible person, is the easy way. What if you … Assume the Best? What if somebody is honking their horn, not because you are a bad driver, but to let you know the light is green and that you can go? Or someone flashing their headlights at you could be letting you know that your headlights are off.

JAY GUBRUD PROFESSIONAL DEVELOPMENT

ASSUMETHE

BESTHow would your relationships, and performance, improve if you started giving people the benefit of the doubt?


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Join Dealer Business Journal and the Leedom Group in 2015 to reach the best and brightest stars of the business. Call 800-966-8733 ext 3 or email [email protected] for a copy of the 2015 Media Kit.

Yes, if somebody has a proven track record over a period of time, it is reasonable for you to make certain assumptions. But be prepared for them to prove your assumptions wrong on occasion … assume the best! Or, at the very least, assume nothing. Take all your history, beliefs and assumptions about the person or situation and set them aside for a moment. Don’t we all deserve a clean slate from time to time? If this is too hard, you can start by owning up to the fact that your assumptions can be wrong. It is ok to be wrong periodically! Admit openly that the reason someone didn’t get back to you was because of a family emergency, not because they have a grudge against you. And if applicable, admit that you said some unkind things about them in the moment. This act frees you from guilt and pride. Take a moment right now and consider all the people you have recently assumed the worst of. Now switch your assumption for the better or at least think about alternative possibilities. You can also just let the frustration or anger go by assuming nothing. If you take these steps and practice them, I guarantee you will improve your relationships and your performance! So I challenge you to assume the best!

Jay Gubrud is a catalyst for performance improvement. He is a dynamic professional speaker, trainer, author and consultant who has been presenting across industries and audiences for over seventeen years. His programs challenge participants to eliminate the everyday roadblocks to their success. Jay has an innate ability to relate the trials of life and business in a way that everyone can relate to … Cars and Driving! Find out more at www.jaygubrud.com.

Take a moment right now and consider all the people you have recently assumed the worst of. Now switch your assumption for the better and think about alternative possibilities.


I always look forward to the annual Leedom Group Convention. You see, I do business with dealers all across

this country. From Maine to California, Minnesota to Florida. Of the many conventions I attend, big and small, one thing is evident: the dealers that attend the Leedom Convention are some of the brightest in the business. They’re on top of their game, the best informed, and consequently the most profitable. What I specialize in, Reinsurance, can be difficult to grasp initially. Not surprisingly, a remarkable percentage of my dealers who have a Dealer-Owned Reinsurance Company tend

to also be the same sharp dealers who attend and participate in the Leedom Convention and Twenty Groups. Why? Because they are educated in their business, and enlighten each other. As the Bible tells us: “As Iron sharpens Iron, so one man sharpens another,” Proverbs 27:17. I have to say there are many wonderful ideas and technologies to be learned at a Leedom convention, but I think there are a few things that are essential to the Buy Here-Pay Here dealer’s success. 1. Love your customer. 2. Set up a Related Finance

Company. 3. Have a great software

provider. 4. Join a Twenty Group.

Learning from the brightest in the business can encourage new business ideas.

BHPHTIM BYRD DEALER REINSURANCE

BRIGHTIDEAS


5. Surround yourself with great people and make sure they are never in need.

6. Set up a Dealer-Owned Reinsurance Company.

With 25 plus years in the car business and having counseled with many car dealers, I could speak to many of these areas, but Reinsurance is what I am writing about today. I have identified the three greatest obstacles I’ve seen for reaching the ultimate BHPH goal of avoiding repos and maintaining uninterrupted payments: 1. The customer’s

personal financial mismanagement. There is little you can do about that which is why they are BHPH customers in the first place.

2. Mechanical breakdown. This is for the most part unexpected, and Murphy’s Law would dictate, it happens at the worst possible time. Mechanical Breakdown, I’m told, is responsible for one-third of all repos.

3. Lapsed insurance. What smart dealer can afford for their collateral to be exposed to risk of loss? So, lapsed insurance is responsible for a large percentage of repos.

4. In addressing numbers two and three above is where owning a

BUSINESS OPERATIONS


reinsurance company becomes essential.

Mechanical breakdown, you know, is going to happen. Why not reserve for it? 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 and they continue making their payments. The beautiful thing is that with a plan, they are reserving for it, not you. What I suggest is that you warranty your cars for the term of the loan and let your customers provide the reserve to keep the cars repaired and on the road. How? Your reinsurance company will provide premium finance for your customer’s warranty. This way you’re not required 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 when problems arise

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there is a well-funded system in place. Problems are taken care of and your customers stay on the road and continue making payments. Next, lapsed insurance and the related insurance adjuster nightmares, collection calls burning up your man hours, and repossessions! Why not circumvent the insurance companies? You have an RFC to circumvent the finance companies and it is very profitable and reduces tax liability, right? Well, you can do the same thing with a Dealer-Owned Reinsurance Company with an exceptional product or tool called Debt Cancellation Coverage. Debt Cancellation Coverage covers your collateral. By providing Debt Cancellation Coverage at the time of purchase, your collateral is never without coverage. Customers love it because it saves them time and money by eliminating the need for outside coverage from the insurance company. They will still need Liability Insurance required by the state. You will no longer have to make collection calls for the insurance company or be

at the mercy of the insurance adjustors. In the event of a total loss, you keep the car, not the insurance company, to scrap or whatever the situation calls for, but you are in control. Let’s not forget about another wonderful benefit to having a Dealer owned Reinsurance Company. Capital! Your Dealer Owned Reinsurance Company will provide a great capital resource. By owning a reinsurance company, you, as stockholder, will provide your BHPH business with the tools needed to succeed and maintain control. The premium from your warranty and Debt Cancellation Coverage provides the capital you need to take care of problems that arise. Additionally what is not used to pay claims becomes the profit of the stockholders. Profit can be taken by the stockholders as a dividend distribution or can be loaned to your affiliated companies. Now, I have many great dealers that will tell you “this is a no brainer”. They will tell you that their single biggest regret is that they should have started a

Dealer Owned Reinsurance Company years before they did. Many of them will be at the Leedom Convention. The great thing about these dealers is they love to share with others and no one more than with their Twenty group friends. Come to the convention; look me up at the AVP booth. While you are there, talk with other dealers from around the country and before you know it you will be recognized as one of the brightest.

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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dealer business journal march 2015

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