Illinois Dealer’s Edge

ALSO Online Auctions 101: Dos and Don’tsPLUS How Much Can Just One Curbstoner Cost Your City?

PREPARING FOR THE FUTURE

I L L I N O I S I N D E P E N D E N T A U T O M O B I L E D E A L E R S A S S O C I A T I O N

PRSRT StandardU.S. Postage

PAIDDALLAS, TEXASPermit No. 2079

V i s i t u s a t i l - i a d a . c o m

DEALER’S EDGE

JAN

UA

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EBRU

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2011

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INSIDE

NATIONAL INDEPENDENT AUTOMOBILE DEALERS ASSOCIATIONWWW.NIADA.COM • WWW.NIADA.TVNIADA HEADQUARTERS: 2521 BROWN BLVD. • ARLINGTON, TX 76006-5203 PHONE (817) 640-3838FOR ADVERTISING INFORMATION CONTACT: TROY GRAFF (800) 682-3837 OR [email protected] DEALER’S EDGE IS PUBLISHED BI-MONTHLY BY THE NATIONAL INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION SERVICES CORPORATION, 2521 BROWN BLVD., ARLINGTON, TX 76006-5203; PHONE (817)640-3838. PERIODICALS POSTAGE PAID AT DALLAS, TX AND AT ADDITIONAL OFFICES. POSTMASTER: SEND ADDRESS CHANGES TO NIADA STATE PUBLICATIONS, 2521 BROWN BLVD., ARLINGTON, TX 76006-5203. THE STATEMENTS AND OPINIONS EXPRESSED HEREIN ARE THOSE OF THE INDI-VIDUAL AUTHORS AND DO NOT NECESSARILY REPRESENT THE VIEWS OF THE DEALER’S EDGE, THE ILLINOIS INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION, OR THE NATIONAL INDE-PENDENT AUTOMOBILE DEALERS ASSOCIATION. LIKEWISE, THE APPEARANCE OF ADVERTISERS, OR THEIR IDENTIFICATION AS MEMBERS OF IIADA OR NIADA, DOES NOT CONSTITUTE AN EN-DORSEMENT OF THE PRODUCTS OR SERVICES FEATURED. COPY-RIGHT © 2011 BY NIADA SERVICES, INC. ALL RIGHTS RESERVED. VISIT THE NIADA WEB SITE AT WWW.NIADA.COM. STATE MAGAZINE MGR./SALES Troy Graff • [email protected] Mike Harbour • [email protected] MGR. Jacob Kerns • [email protected]/PRODUCTION MGR. Christy Haynes • [email protected] Nieman Printing

Dealers who demonstrate commitment and support the principles and ethical business stan-dards of the CMD® designation complete a four-day seminar that addresses Business Man-agement, Merchandising, Financial Management, Human Resources, and Business Planning. Northwood University provides the instructor and awards four Continuing Education units for this course. The next class will be March 10-12 at the SuperMedia Hotel and Conference Cen-ter at DFW. Visit niada.com for more information.

MAGAZINECONTENTS

ADVERTISERSINDEXAutoTrader.com ............................ Back CoverCars.com ............................ Inside Front CoverChicago Car Auction .................................... 5Dyer Auto Auction ..................................... 12Insurance Auto Auctions ............................. 15Insure One Independent Insurance Agency .. 14Lohman Companies ...................................... 9Manheim.com .............................................11Smart Auction ......................Inside Back CoverUnited Acceptance ..................................... 13Western General / Protective........................ 3

6 Preparing for the Future

8 Online Auctions 101: Dos and Don’ts

12 BHPH: Choosing Your Financial Path

18 How Much Can Just One Curbstoner Cost Your City?

Manheim, the world’s largest provider of vehicle remarketing services, cares about its employees, the environment and the communities it serves. From fund raising drives to tutoring kids after school to supporting long-term conservation efforts, Manheim and its employees are dedicated to giving back to their communities and knows independent vehicle dealerships across the country share in this commitment.

For the first time this year, Manheim is recognizing and honoring those dealerships by awarding the 2011 National Manheim Community Service Award at the 65th NIADA Annual Convention and Expo. For information on how to nominate and to obtain more in-depth information, please contact Georgia Brown, NIADA director of education, at 817-640-3838.

NIADA/Manheim Community Service Award

No dealer should be without the NADA Official Used Car Guide. These must-have guides feature pocket-size portability for quick and easy car-side appraisals. Additionally, NADA Online gives you 24/7 online access to used vehicle values, at your desk and out at the auction on your smart phone, while NADA e-Valuator for Dealers software combines more than 19 years of NADA values on your PC and offers an inventory feature.

NIADA offers member subscription discounts for the NADA Official Used Car Guide, as well as NADA Online and NADA e-Valuator for Dealers.

Contact your state association or NIADA at 800-682-3837 for your discounted subscriptions or complete the online ordering form at www.nada.com/niada. The promotional code for ordering discounted NADA products is NIADA199. This code will need to be entered during checkout to receive the discount.

Discount code available for NADA Guide

CMD Classes

NIAD

A199

PRESIDENTRandy CraseCrase Auto Connection25355 E Ames StChannahan, IL 60410815-467-1807

VICE PRESIDENTAnthony FerraroPayless Motorsport13449 S Pulaski RdRobbins, IL 60472708-388-2300

TREASURERMark AlcornCarlyle Auto Sales1708 BroadwayRockford, IL 61104815-397-5010

SECRETARYLori Chignoli-CoraChignoli Auto Sales1850 Essington RdJoliet, IL [email protected]

Melanie BrownChicago Car Auction2731 Belvidere RdWaukegan, IL 60085847-662-0100

Eric NelsonNelson Automotive Inc1801 S BusseMt Prospect, IL [email protected]

Patrick O’HernOne Way Auto Sales812 Conkey StHammond, IN [email protected]

Kim VanderwallManheim Arena Auto Auction200 West Old Chicago RdBolingbrook, IL [email protected]

Gordon TormohlenTormohlen’s Good People Automotive1800 S Ihm BlvdFreeport, IL [email protected]

Robert DoppeltAnything With Wheels2296 N Rand RdPalatine, IL [email protected]

For information on how to become a member of IIADA, please contact Bruce Eklund at (800) 987-6627 or [email protected].

B O A R D O F D I R E C T O R S

THE NEXT CLASS WILL BE MARCH 10-12

DON’T FORGET TO VISIT OUR WEBSITE FORIMPORTANT INFO: WWW.IL-IADA.COM

i l - i a d a . c o mT H E D E A L E R ’ S E D G E JANUARY/FEBRUARY 2011

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A new year brings new goals, and new hopes for improved sales, more

lenders, and more profits for everyone. As with any change in the marketplace, dealerships must prepare their team to meet the current demands of the marketplace.

Sales: From all I’ve read, the customers are back. People are once again going to the dealerships to replace their old vehicles with smaller, more fuel-efficient models, and some are adding to their family fleet so they can meet the weather challenges. The great news is the customers are back from their long hiatus.

What are they finding at the dealerships? The customers are finding store personnel stretched, and the once-many choices of inventory they enjoyed in the past now cut. The product selection step in the selling cycle will need to stress selling what you see in front of you. During the past few years, those dealerships that survived have learned how to manage inventory more effectively, as well as turning it more quickly. They’ve also learned how to operate in a lean environment.

Personnel: Plan on hiring sales personnel and educating them. Personnel are stretched to the point of having job descriptions blurred. I think the time is coming to redefine the roles and create a work environment where they can focus upon the job at hand and cease worrying about what additional items will be asked of them. Multitasking can become dysfunctional after awhile.

Sales processes while basic never change, I find each dealership has a specific culture and the process often must be modified to reflect the culture so management will support the process after the educator leaves.

Education is not a one-time event. Plan a continuous relationship with your education resource. Every process should be monitored, measured, and modified as required. After the modifications have been made, the new process needs to be re-implemented, monitored and the producers need to be held accountable.

Lenders: The industry needs more of them, and we need them to approve loans. Dealerships will need to continue to seek local credit unions and other local lenders to approve consumer financing. Credit unions may not be use to the independent dealerships, but this is an opportunity to put your best face forward and sell yourself and your business acumen to the lenders.

I was asked how important relationships with lenders are; they’re critical to your success. Lenders again wish to become a close business advisor to your operation. They’re going to want a piece of every banking transaction you have; wholesale, retail, merchant services, checkings and savings, personal and business.

When you think of lenders, what was old is now new again. Keep your ears to the wind; contact every source prospect for lenders at every opportunity.

Compliance issues: Spend the time it takes to create a binder with your policies and procedures regarding the plethora of federal regulations we must meet. The following is a beginning checklist for those policies and procedures:

With the creation of the new credit protection agency, I think we’ll begin to see enforcement of the rules and regulations and perhaps some additional items will be added to the list of required written documentation.

Review your existing policies and verify what’s written is what’s actually happening. If not, then change either the policies or your practices. Once a policy and procedure is placed in writing, the company is bound by the words it writes.

Conduct self-audits as written in the policies and procedures. Document the education content and the timing of the education of new hires. Document any breaches of security, or failure to adhere to the company policies.

As you know, I am not an attorney and this is not to be used as legal advice. These words are meant to be educational only. Please consult your legal counsel for all legal issues.

The future is once again bright. Prepare for success.

______ DISPOSAL RULE P______ SAFE GUARD RULE P______ OFAC SDN LIST P______ RED FLAG RULE P______ ADDRESS DISCREPANCY RULE P______ RISK-BASED PRICING RULE P______ ADVERSE ACTION LETTERS P

FutureBy Jan Kelly, president of Kelly Enterprises

Jan Kelly is an educator and consultant, international convention speaker and writes frequently for industry publications. For information about educational venues or joining our F&I 20 Group, call 800-336-4275 or visit www.JLKelly.com.

P R E PA R I N G F O R T H E

ONCE A POLICY AND PROCEDURE IS PLACED

IN WRITING, THE COMPANY IS BOUND

BY THE WORDS IT WRITES.

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P R E PA R I N G F O R T H E In today’s digital world, it is becom-ing increasingly challenging for deal-ers to drive car shoppers from online browsing into their dealerships. It is also growing increasingly important for dealers to widen their reach beyond pro-spective customers in their own backyards.

To find success in today’s changing mar-ket, dealers need to broaden their reach and build relationships with consumers who may be hundreds of miles away. Nearly every cus-tomer considering an automotive purchase now turns online first to research, find and even buy. To reach those customers, many dealers take advantage of third-party auto-motive websites, such as eBay Motors, to promote their inventories and services to be introduced to a broader range of potential customers.

According to the 2010 J.D. Power and As-sociates Used Vehicles Market Report, 68 per-cent of used vehicle buyers use the Internet in their shopping process. This is an increase of five percent from 2009. Online classified ad use to shop for used vehicles has increased to 51 percent, up from 41 percent in 2006. Among the online resources customers use in their shopping process, independent auto-motive websites, such as ebaymotors.com, receive more visitors than dealer websites.

Marketing your vehicle inventory, parts and your dealership on the Internet requires new ways to establish the same reputation and trust it takes to get consumers on the showroom floor. Build awareness. When you want to reach customers in your home-town, you work hard to let them know you’re there. Billboards, commercials, classified advertisements or a combination of these are often used. The same premise remains true when marketing to online con-sumers.

When you want consumers to visit your virtual showroom, dealers need to pay close attention to search engine optimization (SEO). Search engines such as Google, Ya-hoo and Bing regularly visit websites with automated tools to index key words and phrases consumers often use when search-ing. To optimize your listings so the search engines can match your terms to what con-sumers are searching for, it is important you use everyday words and phrases that con-sumers are likely to type into a search. This way, your listings are more likely to appear in searches and more likely to be noticed by more potential buyers.

Search engine optimization can help a dealership reach new customers during the consideration and research phase and also to build a loyal customer base that will return

to your site or come to your dealership when they are ready to make a purchase. eBay Mo-tors regularly uses search to drive more than 14.8 million unique visitors – and potential buyers, looking for new and used vehicles, parts, accessories and services – each month to its website.

Show your reputation. When a customer visits your lot, chances are good they already have some degree of interest and trust, either with a previous relationship or based upon a recommendation. Their friend bought a car there, your children go to school together, or they know your dealership’s reputation from active community involvement. To build trust online, it is vital to provide as much informa-tion available as possible about not only the vehicles you sell but also your dealership and the people behind the dealership.

When developing online listings to sell vehicles or parts and accessories, use high-quality, professional photographs and well-written descriptions. This helps to boost con-sumer confidence and purchase potential. If customers cannot clearly see what they are purchasing, chances are higher they’ll move on to the next item with better images.

Also, provide complete disclosure as if customers were looking at the vehicle with you in person. Customers will expect most used cars have some sort of imperfection, so don’t try to camouflage any issues with a buyer. By being truthful and transparent with listings, dealers create a sense of trust and a willingness to conduct business.

Offer timely responses. While customers in your dealership may wait for you to call back and track down information, online customers expect a high level of service and responsiveness, even if it’s a response to say you are looking for information to answer the question. Since communication meth-ods such as e-mail and cell phones are the norm, buyers expect quick answers. A buyer ready to make a purchase may be more will-ing to engage in business with a dealer who is responsive to questions with timely com-munication. Remember, online customers may be shopping in a different time zone, so regular business hours may not apply.

Research shows the majority of con-sumers now start major purchase decisions with online research. Now that consum-ers are shopping online, businesses have been quick to follow. With a SEO strategy, an online reputation that encourages trust, customer service and responsiveness, deal-ers can build a virtual business that drives real results and encourages new customers to shop with ease.

Marketing Your Vehicles Beyond the DealershipBy Clayton Stanfield, eBay Motors

RESEARCH SHOWS the majority of consumers now start

major purchase decisions with online research.

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Do:Look for an online auction that makes the buying process as seamless

as possible. An auction offering comprehensive services will enable you to purchase and sell vehicles more quickly and efficiently. Having services such as financing, transportation, third-party vehicle inspections and vehicle condition reports at your fingertips that are already integrated and offered on the auction site will make the buying process much easier.

Try before you buy. Peruse the inventory at different auction sites to ensure they have the kinds of vehicles you need. Online auctions source their vehicles from a wide number of consignors and providers and will offer thousands of vehicles at any given time that should meet your inventory needs. Defined search parameters should be available to help you quickly locate the cars that you are seeking.

Utilize multiple channels simultaneously to sell vehicles. Incorporating online auctions doesn’t mean it’s an either/or proposition. Consider online auctions to be a complement to your existing buying and selling practices, and you can slowly begin integrating online auctions into your operations.

Ensure the auction has a support team available to assist you during the registration and listing process. With a dedicated customer service line in place, you will have confidence in knowing you have a support team ready if you run into any problems or have any questions during the transaction.

Use market pricing to determine the accurate values for your vehicles. Before making guesses on how to most accurately price your vehicles, refer to the auction’s market pricing guidance resources to ensure you’re selling at the right price.

Take advantage of dealer networks to market your inventory online. Online auctions are shared by dealers across North America and many feature a community of dealers to purchase from in addition to consignors. Utilize existing networks and make other dealers aware of your online presence and tell them to spread the word.

Take lots of pictures. With online auctions, dealers don’t have the luxury of seeing the vehicle in person and kicking the tires. That said, with an array of 360-degree photos to accompany each vehicle, and a comprehensive third-party inspection report on the listing, potential buyers have all the information they need to make a decision.

Don’t:Rush into listing cars online without knowing the ins and outs of the

auction itself. Conduct due diligence and make sure you’re familiar with the process for each online auction you are considering. Some have extra fees you may not be aware of, so be sure to investigate all auction processes, including state regulations or arbitration policies.

Misrepresent the vehicle you are listing. Not only do your profits rest on your vehicle listings, but your reputation does, too. Be honest in your assessment of the vehicle and ensure your inspections are accurate and complete at the time of delivery or run the risk of losing sales and customers or having to go through arbitration.

Release vehicles to buyers without confirmation of payment to your dealership or the online auction. Like any other business transaction, make sure payment has been processed and cleared before releasing a vehicle to the buyer.

Forget to immediately remove a vehicle from the auction once sold to avoid double selling. To avoid any confusion about vehicle availability, make sure once a car sells, it’s removed from the auction.

Although buying and selling cars online may seem daunting to beginners, the technology is very easy to learn; once it’s been adopted into a dealership’s remarketing strategy, there is a world of possibilities.

Andrew Iorgulescu is a co-founder of OPENLANE, a leading North American online auction company for auto dealers to buy and sell wholesale vehicles. He’s the vice president of business and dealer development at the company and formerly held positions at GO Networks, Autobytel.com and GE Capital Financial Services.

Dos and Don’tsIn the recent economic downturn,

the automotive industry, like many others, was hit hard. Dealerships

around the country had to adapt to industry changes as well as adopt their business operations to grow profits and increase overall business performance.

This adaptation has prompted the incredible growth of the online wholesale auction industry. The sector made huge strides in the past five years and is continuing its upward trend. That outstanding, widespread growth, coupled with the resulting benefits dealers have reaped from buying and selling online, has made virtual auctions a mainstay in many dealers’ operations.

Although physical auctions still dominate the remarketing business, online auctions are becoming increasingly vital to dealer operations, primarily because of the time and cost savings realized by avoiding travel to physical auctions and a large, nationwide selection of inventory. With thousands of vehicles available online, dealers are privy to the freshest inventory from a wide variety of sellers and realize significant savings by buying and selling directly from the comforts of the dealership. In addition, dealers now have the luxury of using online auctions as a virtual showroom offering myriad choices to customers that extends the inventory they house or what’s found at regional auctions.

With the comprehensive services now available on the best online auction sites, dealers can take care of everything needed for a complete sale, including floorplanning, transportation, fair arbitration and transaction policies for a seamless end-to-end transaction. Not all online auctions are the same, nor do they offer the same services. Before you begin buying and selling on the Internet, it is important to do some research and find the online auction that works best for you and your dealership.

BY ANDREW IORGULESCU

Online Auctions 101:

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“Wall Street/Consumer” Financial Services Reform BillOn November 17, NIADA General Counsel Keith Whann and Federal Advocates met

with senior staff of the FTC as a follow-up to the September 21 meeting. A series of questions had been provided to NIADA for discussion at the November 17 session. At the meeting, Keith walked them through the process of buying a car and provided samples of purchasing documents. The FTC is in the middle of formulating questions for public comment regarding various aspects of the auto industry as it relates to consumers. FTC staff was not forthcoming as to the timing of that effort, its scope and its intended purpose. The results of the November 17 meeting were reported to NIADA’s Legislative Committee by conference call on November 23. To review, on September 21, Keith Whann and Federal Advocates met with FTC staff regarding implementation of the above bill and its impact on the auto industry. Following discussion of various issues, with Keith Whann leading the discussion and answering various questions as to how the auto industry works (including the auction practice itself), it was decided to schedule a half-day session to allow for a more detailed discussion of issues (i.e., the November 17 session). To review further, on July 22, President Obama signed into law the so-called Wall Street Reform Bill. As reported previously, the new law exempts some auto dealers from increased oversight with respect to dealer-assisted financing. To get to that result, advocacy activities included numerous meetings, strategy phone conference calls, letters, talking points, legislative alerts, etc. The law does grant increased powers to the FTC regarding dealer oversight. Also, it requires coordination with the Department of Defense to ensure service members and their families are treated fairly by automobile dealers.

Senate Motor Vehicle Safety Act of 2010NIADA is reviewing this bill pending possible Senate floor action in December. To

review, on June 9, the Senate Committee on Commerce, Science and Transportation marked up and order reported S.3302, the so-called Toyota Bill. In earlier drafts of the bill and just prior to markup, language was included (section 310) which would have specified that a dealer may not sell or lease a used passenger motor vehicle (both wholesale and retail sales) until the dealer first notifies the purchaser or lessee in writing of any recall notices. Working primarily with Sen. John Thune, R-S.D., his staff (Brenden Plack), and committee staff (Alex Hoehn-Saric and Chris Herndon), and as a result of concern raised by Whann and his proposed suggestion, language was included in the final reported version of the bill exempting wholesale transactions from the section’s application. While an initial victory, the remaining provision is still very troublesome and we continue to advocate on behalf of NIADA’s interest pending further action on the Senate bill as well as a possible House companion bill. The latest Senate draft and the companion House bill (H.R. 5381) are being reviewed by NIADA.

Small Business Jobs and Credit Act of 2010On September 23, the House passed the Senate-passed bill, which includes an increase

in the amount the Small Business Administration’s (SBA) Dealer Floor Plan Financing program can guarantee. This permits the SBA to guarantee bank and finance company loans up to $5 million, which should help, the committee believes, expand dealer access to floorplan lines of credit. We worked with Louisiana Democrat Sen. Mary Landrieu’s committee and personal staff, in conjunction with others, on this. This bill may be the subject of subsequent meetings with the Hill and the SBA on how the program really works.

White House Reform RequestOn September 23 and September 29, Federal Advocates was contacted by the White

House, which is still trying to organize and schedule a meeting to include “people who are working to set up the CFPB.” This meeting is in response to a letter sent by NIADA to President Obama requesting “the opportunity to work with you to reform our industry in common-sense ways that achieve real safeguards for consumers, that promote accountability and transparency, and that work.”

Department of DefenseRegarding the issue of “how to ensure that service members and their families are treated

fairly by automobile dealers,” Keith Whann and Federal Advocates also met on September 21 with the Defense Department’s Frank Emery in the Office of Personal Finance, Family Policy Outreach Directorate. Whann relayed a specific example of how he helped a service member at Fort Bragg with an automobile situation, working with the JAG and others. He also talked about his plan for a special program to teach dealers on how to deal fairly with service members and their families. The DOD continues to remain interested in looking for opportunities where Whann could lend his expertise. Details are to be finalized at a later date.

Federal Advocates

January 2011 Lobbying

Report

FEDERAL ADVOCATES IS NIADA’S GOVERNMENTAL

ADVOCACY PARTNER. To read past lobbying reports, visit http://www.niada.com/legislative_and_legal.php

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BHPH CHOOSING YOUR FINANCING PATH By Stephanie Patrick

continued on NEXT PAGE

The struggling economy, a troubled housing market and skyrocketing car and truck prices were all factors in Daryl Spear’s decision to offer Buy Here-Pay Here (BHPH) at his new dealership.

His base clientele was the working poor. They had low-wage jobs and damaged credit histories, but they needed cars and wanted reliable, pre-owned General Motors vehicles to transport them to their jobs safely without breaking their families’ already-tight budgets with high repair bills.

Spear’s Auto Sales moved to a larger location in 2009 and there are a few Toyota, Honda, Saab and Subaru vehicles sold alongside GMs these days, but the Spokane Valley, Wash., dealership’s business model and philosophy remains largely unchanged nearly 28 years later.

“When people are down with economic woes, it’s great to be able to give them the chance to start over with us and build back their finances,”

said Courtney Spear, Daryl’s daughter, who took the reins as the dealership’s president in 2004 when her father retired. “People just want a chance, and they can be very loyal customers if you put trust in them.”

The dealership has second- and third-generation return customers to prove the late Spear’s business decision successful. But establishing BHPH operations and making them work in the long-term require much more, said his daughter and other BHPH veterans.

Build a well-planned cash forecast to provide an understanding of how much money you’ll need during the first 24 to 36 months to operate a business that often caters to frazzled single moms, overworked factory workers and tired waitresses all struggling to afford reliable transportation, said Chris Leedom, founder and president of The Leedom Group, a Sarasota, Fla.-based consultancy specializing in pre-owned car sales, special finance and BHPH.

“The single-biggest mistake that somebody makes is they say, especially if they are already a dealer, ‘How complicated can this be? I’m selling cars,’” said Leedom, who owns several BHPH dealerships. “Even in 25 months to three years, a dealership can consume as much as $1 million in cash.

“A lot of people miscalculate how much cash it’s going to take them as a dealer.”

Leedom said both those entering BHPH for the first time in 2011 and BHPH veterans must maintain Excel spreadsheets monthly. That way, they understand the cash demands of BHPH and effectively can develop cash forecasts and their own business models.

Leedom’s firm counsels about 150 new dealers and non-dealers each year, ranging from cardiologists to certified public accountants, since 1995.

“We typically tell them that if they don’t have readily available at least $500,000 or $750,000 of working capital, and they can’t see in the first 12 months of operation where they have that at their availability not where they can go out and borrow it--- they are probably going down the wrong path,” he said.

“You might call that the price of admission. If you don’t have $750,000, which is pretty much the price of admission on a new start up, you’re probably pursuing the wrong business opportunity.”

Leedom said existing dealers should set aside $250,000-$500,000.

Even automotive industry veterans often fail to factor financial realities in BHPH situations, he said. In an average BHPH scenario, the customer may pay $500-$1,000 down, but that doesn’t cover costs associated with reconditioning the vehicle or taxes; so, the real cost is likely more than $3,000 per vehicle.

With the typical BHPH customer paying about $300 per month loan payments, if paying as agreed, it takes nearly a year to recoup costs. Multiply that by 25 units, and it’s nearly $1 million not including overhead costs of running any store.

The flipside is BHPH helps dealerships in slow sales months because they can expect previous customers’ loan payments each month. And as long as dealers are cognizant of the cash considerations, Leedom said BHPH-only models are easier for new dealerships to adopt when the store is opened.

“The advantage is now all of your inventory, all of your marketing and your entire business

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effort, is narrowly focused on one type of business,” he said. “You are strictly trying to attract customers (who really) need financing for vehicles, and you can craft your marketing that way.

“Where it becomes difficult is if you are trying to become all things to all people. It can be challenging to attract the Buy Here-Pay Here customer who requires financing and the same time try to sell me a 2-year-old Chevy Tahoe for $22,000...you are probably not going to be able to carry that type inventory.

“There are two completely different marketing paths there.”

Ken’s Kars, which opened in Dayton, Ohio, in the 1940s, offers pre-owned vehicles that range from $2,000 Chevy Cavaliers to $30,000 Chevy Tahoes. But, third-generation owner Ken Smiley said the dealership is moving away from its long tradition of offering BHPH-only loans.

Smiley said most cars are too expensive to finance via BHPH these days, and the Cash for Clunkers program now has too many new car dealers keeping more of their used vehicles and

purchasing additional used units at auctions. Ken’s Kars sells 15-20 vehicles each month under BHPH with 18-month terms, compared to about 60 vehicles per month five years ago.

“Typically, I try to only BHPH finance cars under $9,000,” he said. “I also stick with American cars, such as the smaller SUVs, Bonnevilles and Chevy Impalas because they last longer and they don’t break down as often.

“Most of the Buy Here-Pay Here that goes bad is because the car breaks down. If the car breaks down, the customer just gives it back; (the customer) doesn’t have any remorse because they are going to run across town and buy something from someone else.”

The dealership’s revenue was good when offering more BHPH, but losses mounted when the housing market started to fall apart a few years ago. The vehicle repossession rate reached 20 percent, but now it’s down to 2 percent or less because Smiley chooses his loan recipients more carefully and sends others to subprime lenders.

“My best advice is not to do Buy Here-Pay Here right now,” he said. “If you are, proper

screening of the customers is most important because people’s credit situations are so bad; it’s a great time to find customers but if they can breathe, they can get financed.

“I have people with multiple bankruptcies that I can get financed through subprime companies. To me, it seems crazy to put your money out (with BHPH loans) when you can make good profits through a subprime company.”

There’s still a need for financing, but some people asking for BHPH now have gotten to the point where they haven’t paid any bills, he said. In addition, gone are the days when a 600 or higher credit score is needed.

“Now, you are looking at 450s and you’re getting them financed through the banks,” Smiley said.

He and Leedom said customers have grown to expect “more cars” for their money, a trend that has most BHPH dealers increasing the average cash value of the vehicles on their lots. Loans for BHPH are typically between $5,000 and $10,000, and Smiley is increasing the quality and average price of his vehicles to compete with new

BHPH

continued on PAGE 15

“THE SINGLE-BIGGEST MISTAKE THAT SOMEBODY MAKES IS THEY SAY, ESPECIALLY IF THEY ARE ALREADY A DEALER, ‘HOW COMPLICATED CAN THIS BE? I’M SELLING CARS,’” SAID

LEEDOM, WHO OWNS SEVERAL BHPH DEALERSHIPS. “EVEN IN 25 MONTHS TO THREE YEARS, A DEALERSHIP CAN CONSUME AS MUCH AS $1 MILLION IN CASH.

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The National Auto Auction Association (NAAA) is the leading remarketer of used vehicles in the world. NAAA member auc-tions sell about nine million vehicles per year through the physical auction lanes and online. Over the past several years, NAAA has been focused on developing consistent standards and practices to be applied at all member auctions to enable customers to buy with more confi-dence from any auction they choose, whether they buy in-lane or online. The ultimate goals are to improve buyers overall auction experi-ence and increase vehicle residuals.

In connection with this renewed focus on standards, the Auction Standards Committee (ASC) was formed. It’s comprised of represen-tatives from Manheim, ADESA, ServNet and independent auctions. Because of the complex-ity of the issues and their importance to the in-dustry, the ASC also engages an outside indus-try consultant to assist in the development of policy. The ASC also works hand in hand with

other industry associations to help to ensure in-dustry acceptance and endorsement of the stan-dards and policies that are developed.

The first area of focus for the ASC was the development of a revised arbitration policy. The arbitration standard was completed and ap-proved by the NAAA board in October 2009 and became effective on January 1. This policy has been universally endorsed and adopted by NAAA member auctions and the rest of the ve-hicle remarketing industry.

The next area of focus was the development of a standard wholesale certification standard. The ASC determined although buyers believed there was a definite value to wholesale certifica-tion, they were confused by the large number of programs and could not define them or quantify their value. In addition, the myriad of different policies created operational inefficiencies at the auction level. The ASC was charged with de-veloping a standard certification program that combined the major elements of all the separate policies while maintaining individual company branding. After extensive study, the ASC – working with Agility Consulting and the IARA – developed the NAAA Certification Standard, approved by the NAAA board in September. This standard has been endorsed by IARA and will become effective on Jan. 1, 2011. The mar-

keting materials for this program are being pre-pared and will be avail-able soon.

The ASC also has developed a process to receive comments on all NAAA standards so they can continually be updated. The committee will continue to look at other areas of standardization including vehicle grading.

As the leader in vehicle remarketing, NAAA is committed to the continued development of consistent auction standards and practices in order to provide the best possible service to the dealers.

All NIADA members and dealers seeking full detail on national vehicle condition stan-dards in place at NAAA auctions beginning next month should visit www.NAAA.com and click on Standards.

David Angelicchio is chairman of the board and past president of NAAA, which represents more than 317 auto auctions both domestic and inter-national, with more than 8.9 million units sold each year. He is the general manager of the Pitts-burgh (Pa.) Independent Auto Auction.

Standards to Make Auctions Better for Customers

By David Angelicchiocontinued from PAGE 13

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car dealers in his area.“There’s huge profit in (BHPH), but banks

are realizing that, too,” Smiley said. “If they can get somebody with a couple credit dings, they are going to jump all over them at 25 percent interest; that’s what they are doing.”

He recently sold a car to a woman with a 490 credit score, who was bank-approved for a $15,000-$16,000 car.

“I don’t want to lend her a $15,000 car,” Smiley said. “You have to get the money collected, and it takes you forever to get it collected.”

Casey Skapik, Smiley’s cousin, understands the frustration. While he runs Keowee Auto Sales in Dayton as a more traditional BHPH operation, the former banker considers pre-owned car sales to be more finance-oriented than sales-oriented.

Increased government regulations and the shortage of affordable cars to sell have him considering offering service contracts and insurance products to generate more revenue in 2011. The 65-year old, family owned dealership sells 15-20 cars a month, and the average price is about $7,000.

“I could sell three times more cars than I do, but I would have 10 times more headaches,” Skapik said. “I tend to be more selective who I will sell to.”

He said dealers need to look for signs of financial stability, such as steady jobs and stable housing or rental histories. Skapik requires BHPH customers to provide, on average, a 22-percent down payment and offers 30-month terms.

“There are a lot of people who come in with $400 or $500 for a down payment but if you let them drive away, you’ll have that car back in a few months because they can’t afford it,” he said. “And they aren’t as committed to the car because they only had $400-$500 invested in it, where my average customer has $1,200-$1,400 in it; they are going to be more attentive to making the payments.”

Keowee’s repossession rate is about 10 percent. Meanwhile, the dealership has a large number of return customers who purchase 1997-2004 vehicles such as Buick Park Avenues and LeSabres, Chevy Impalas, Tahoes and Suburbans, as well Dodge Durangos.

Each dealer also develops a few unwritten rules to protect the dealership’s best interest.

Smiley avoids BHPH loans to the younger crowd and home health nurses, whose jobs often have them traveling to new communities and make them more difficult to track. Leedom’s Florida dealerships opt not to loan to anyone without a Florida driver’s license because that state’s population is so transient.

“Generally, you need to avoid people who are in your area less than six months or a year,” Leedom said. “They are the ones most likely to leave.”

In addition, a BHPH dealer must be flexible, said Spear, whose dealership also began dabbling in non-BHPH finance options a few months ago. Even well-intentioned customers have financial disasters affect their abilities to pay their loans, and each late-paying situation should be handled with respect and consideration.

“Our business is tough right now in general, but so is everyone else’s business,” she said. “We have to remember that because our buy here pay here customers really do need us.”

The dealership has about 60 cars on its lot at any time and records about five repossessions

in a month, and customers can get them back if they pay their accounts. The repossession rate decreased steadily as the dealership increased the value of its vehicles, selling them for $5000-$14,000.

Spear still wants to sell less expensive cars, those in the $3,999-$5,000 range without salvage titles, because there’s customer demand. However, like the many other dealers nationwide, she can’t find enough now.

“You can’t just go after the quick buck,” she said. “If you get into car sales, it’s because you like people; if you get into Buy Here-Pay Here, it’s because you care about people.”

BHPH continued from PAGE 13

www.iaai.com

© 2010 Insurance Auto Auctions, Inc. All rights reserved.

Stephen CortezChicago Area Auction [email protected] • 630.335.0907

The IAA Hybrid Auction Model combines live and live-online bidding into one auction event selling to buyers from more than 100 countries. Let us show you how our live auctioneers, IAA Run & Drive® lanes, and onsite previews promote your vehicles’ full value for high retentions.

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One Car One Difference turns donated vehicles into charity dollars.Make a difference in 2011 – visit 1car1difference.com

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The NIADA Foundation invites graduating seniors of the 2010-2011 school year to complete a scholarship application in pursuit of funds to be paid to the colleges of their choice in the Fall of 2011. Four regional scholarships are awarded annually in June at the NIADA Convention and Expo. Last year, each scholarship was in the amount of $3.500.

This year’s applications must be postmarked no later than February 1 and received at the NIADA office by February 10.

Eligibility RequirementsAPPLICANTS MUST:

Be classified as a high school senior during the current 2010-2011 school year and legally reside in one of the four NIADA regions; Have maintained an outstanding academic achievement record as reflected by an official high school transcript; and Demonstrate an aptitude for college work as measured by SAT or ACT scores.

Application ProcessThe 2011 Scholarship information and application have been posted on the NIADA Foundation website at www.niadafoundation.org.

Applications must be postmarked by February 1, 2011. It must be submitted in a 10-by-13-inch envelope with adequate postage to:

SCHOLARSHIP SELECTION COMMITTEE NIADA FOUNDATION 2521 BROWN BLVD ARLINGTON, TX 76006

All information must be included with the original application. No additional information will be accepted at a later date.NIADA staff will review the applications for completeness and will forward them to the NIADA Scholarship Selection Committee and

at Northwood University in Midland, Mich. They will be reviewed by regions. One applicant will be selected from each of the four NIADA regions based on the merit of his or her scholarship application and will be notified by the foundation office no later than mid-May 2011.

Information regarding the NIADA/AutoTrader.com National Scholarship to Northwood University may be obtained by contacting the Northwood University Financial Aid office.

IT’S NIADA SCHOLARSHIP APPLICATION TIME AGAIN!!!

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One of the crucial things I learned during my 30-plus years of interacting with sales-related people is quality salespeople are made, not born. Those salespeople who experience great sales success are rarely great from the start. They make themselves great because they realized they could be no better than the level of their preparation.

I firmly believe the salesperson’s life should be a life of continual learning. There is no place in a sales career where a salesperson can say there is nothing more to learn, no more skills to develop, no more techniques to improve or no more methods to try. Regardless of how long someone has been selling, it is my conviction there is always something to learn. Believe me, nothing fails like a bit of success if it keeps someone from looking for new and better ways to improve performance.

As you look at your dealership, what can you say of the results you are getting from your salespeople? Do you need to change or improve your sales culture? Is it time you became more involved in the improvement of your salespeople’s skills?

If the answer is “yes,” then think about what your goals might be. Consider a two-fold approach. First, provide an educational experience that will help your salespeople achieve mental, emotional and psychological improvement to create instant action and second, to offer your salespeople specific statements (or, as we call it “What to say when…”) for almost any situation, question or objection that they may encounter in their sales time with customers.

One approach might be to define five or six key topics you want to emphasize. May I suggest: How to Locate Customers; Getting to Know the Prospect; A Sales Presentation that Works; Close: Getting to “Yes;” Getting the Deal Done: Finance and the Delivery; and After the “Yes.” These seem to be the prominent skill areas salespersons need most in defining, and experienced – I did not say old – sales staffs often need to sharpen. You want to make sure your sales staff are following your dealership’s philosophy and are singing from the same songbook.

I don’t have to tell you there are various ways you can approach training. You probably have already done them all. You probably thought some were effective while others were real bombs. Finding the most effective way of keeping your dealership’s learning curve at its very best is a challenge for every dealer, general manager or sales manager. Squeezing in time for effective new salesperson orientation

sessions or training (perhaps retraining) the experienced just doesn’t happen as often as it should. It takes leadership to make it happen.

As you evaluate the sales practices at your dealership, consider what is really working, what needs improvement and what you need to eradicate. I challenge you to get involved in making the sales culture the best it has ever been. Be a part of the learning. Be a working leader, actively engaging the sales staff.

As a trainer, I preached that message to every group I stood before, and after years in the automotive industry; I have collected volumes of presentations. I admit some sessions were better than others, but I have always enjoyed watching a salesperson grow or hearing from a dealer with whom I have worked that his staff is really making strides in sales. Once you get hooked on promoting learning to earn, you miss it when you aren’t as actively involved. That is why when a couple of old independent automobile industry friends of mine suggested I put my knowledge and expertise into an online training program and approach NIADA about using it with it’s members, I decided to create the Pre-Owned Online Sales Training Course.

The timing was perfect because NIADA has recently initiated an Education and Training Consortium to encourage quality educational opportunity providers to join together to offer programs and products to the independent automobile industry. Consortium selection criteria focus on the needs of the dealer. I am happy to say that Lou Vickery’s Pre-Owned Online Sales Training Course met that standard and is one of the first educational opportunities to be offered. It is simple, straightforward and offers flexibility that both the dealer and the salespersons can appreciate.

Whether you use this course or select another approach, I challenge you to stay focused on growing your people. Help them become the most effective salespersons in the industry. Encourage their enthusiasm. Cultivate their energy. The profits will be yours!

Lou Vickery, an Alabama native, is a former professional baseball player and coach who worked with Merrill Lynch before going into the training and development field. He has presented his customer-focus programs to more than 30,000 people at more than 2,800 companies and dealerships in 44 states and two foreign countries. Vickery, the author of ten books, is in his sixth year of broadcasting and hosts “Lou in the Morning” in the Pensacola, Fla., market.

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Learn to Earn with NIADA’s Education and Training Consortium

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Curbstoned cars are often cheap, but state and local governments pay a high price. A new case study from Stop Curbstoning reveals the true cost associated with a single curbstoner. A recent California Department of Motor Vehicles (DMV) curbstoning investigation ended with a felony arrest on 12 counts of perjury and filing false documentation, but for Stop Curbstoning, that was just the beginning. The organization examined the financial impact of curbstoning using this single real-life case as an example. It found cities in which the curbstoner operated lost more than $56,000 in sales tax revenues alone, and the state of California lost $168,000. Other financial costs included lost license revenue, lost local business and potentially increased emergency response burdens due to unsafe vehicles – all from just one curbstoner. “Because there are so many curbstoners out there, even small things add up to a lot,” says Charles Redden, president of AutoTec, one of the companies behind the effort to stop curbstoning. “Take the annual state license fee for used car dealers. In California, it’s $176 for the first year and $126 to renew. But for every thousand curbstoners, that’s over a quarter-million dollars every two years.” “With local governments increasingly strapped for cash, enacting and enforcing anti-curbstoning laws can be a quick way to boost revenues and enhance their communities at the same time.” The community enhancement and public safety aspects of enforcing anti-curbstoning laws are harder to quantify, but should not be underestimated, Redden says. “Getting curbstoned vehicles off the streets frees up parking for local businesses, reduces obstacles to traffic, and eliminates eyesores,” Redden says. “It also eliminates a major source of unsafe vehicles – cars that look OK, but have major structural damage or missing safety equipment. How do you place a dollar value on all that? It’s priceless.” For more information about the case study, curbstoning and efforts to put a stop to this illegal practice, visit StopCurbstoning.com.

HOW MUCH CAN JUST ONE CURBSTONER COST YOUR CITY?

As the new Risk-Based Pricing Rule takes effect this month, auto dealers need to make sure they have information, resources and tools in place so they are ready to comply. Applying to Buy Here-Pay Here (BHPH) dealers and those who do business with third-party creditors, the rule requires dealers to notify consumers when they receive materially less favorable credit terms than others based on consumer report information.

According to the new rule, a risk-based pricing notice must be provided to the consumer before signing the credit agreement (direct lending note or indirect retail installment sales contract). The notice must:

Include information about the elements of a credit report.State the annual percentage rate and other terms were set based on

the consumer’s credit report.State the terms offered may be less favorable compared with the

terms offered to consumers with better credit histories.Encourage the consumer to verify credit report accuracy.Identify all consumer reporting agencies that supplied a consumer

report used in the credit decision.Inform the consumer of the right to a complimentary copy of a

consumer report from those agencies for 60 days after receipt of the notice.

Provide guidance on obtaining a consumer report.Direct the consumer to the Federal Reserve Board and Federal

Trade Commission’s websites.Dealers can use a case-by-case method, a credit score proxy method

or a tiered pricing method to identify which customers must receive a notice. For more info, a Adobe PDF is available at www.ftc.gov/os/2009/12/R411009riskbasedpricingfrn.pdf.

An exception to the Risk-Based Pricing Rule allows dealers to provide a credit score disclosure notice to all customers who apply for credit. This option is only available to dealers who use credit scores in the decision to extend credit. This exception notice must include the consumer’s credit score, the date it was created, its source, and information about the range of scores and how lenders use them. In addition, the notice must provide a description or graphical representation of how the applicant’s credit score ranks in comparison with other consumers. For this, dealers will need data from their consumer credit report suppliers.

The exception notice may be the easiest path to compliance for many dealers, as it avoids the analysis of who is required to receive a risk based-pricing notice. However, each dealer should look at its own unique business to determine which compliance option will work best.

While dealers may be concerned that the new rule will create more paperwork and administration, risk management platforms can help automate indirect lending, credit approval and compliance processes. By unifying lending transactions and simplifying documentation, a technology platform can enable quicker decision making and help prevent financial and legal penalties resulting from non-compliance.

Whatever notice option your dealership pursues under the new rule, automating credit approval and compliance processes can help you ease the regulatory burden on staff resources, reduce your risks of non-compliance, and safeguard your dealership’s reputation.

Lee Domingue is CEO of indirect lending at Wolters Kluwer Financial Services. For more information, visit www.wolterskluwerfs.com/ilsolutions.

Complying with the Risk-based Pricing Rule

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Illinois Dealer’s Edge

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