Publisher's Notes
Mike Roscoe
"Choose this day who you will serve" As for me and my magazine, we will serve the dealers. Thanks to all who called, wrote and emailed to express your support of our Dealer Advocate position after our last issue. It may be a risky, dirty job, but somebody's got to do it. Your feedback proves it is not a thankless job. One dealer even sent in a check for $100 to show his gratitude.

When I started this magazine, my primary goal was simple: I wanted DEALER to be a conduit for information to flow between the top experts and consultants and dealers, and also between dealers themselves. Most would agree that, by any standard, the goal has been achieved.

My secondary goal for DEALER was to be an advocate for dealers by allowing opinions to be expressed openly in a way that had never been done by any national publication in this market. Through our letters section, in which we run letters anonymously after verification, through our new "Dealer Undercover" feature and, of course, through Jim Ziegler's columns, my dealer advocate goal is being achieved.

Other publications in this market hide behind policies of "objectivity," "political correctness," or simply have taken up residence in the manufacturer's pocket. Why? As I stated earlier, advocacy is a risky job. What's at risk?

Advertising dollars. I lose literally hundreds of thousands of dollars in ad revenue each year. The factories and their captives avoid us (can you blame them, considering some of Ziegler's columns?). Because insurance consultant Roger Beery espouses bidding insurance coverages every year (which I believe is prudent), we can't get any of the insurance companies who spend ad money in this market to advertise in DEALER (they don't want you to bid, they want to have a relationship). Even more specifically, there are two companies which advertise in every major publication in this market but declined advertising in DEALER in 2000 because it is "controversial." DUH. That's why you read it!

The point I would like to make is thisDEALER is totally advertising-supported and without our advertisers, you don't get DEALER. By advertising, these companies have chosen to support dealers by supporting the magazine which clearly advocates the dealers' position. I don't mean they necessarily stand behind or agree with what we say, but they support your/our right to say it. They support DEALER, we support you, and all I ask is that you consider my advertisers in your purchasing decisions.

Dealer mail
Dear Jim,

DEALER magazine is a very important tool for each and every dealer this side of the factory. I look forward to my copy every month and generally turn to your comments first before reading the rest of the articles. Thanks! I feel I must comment on the alarm bells going off on GM's dealer buyout program because we have not looked at the long-term effect these stores may have on the last guys standing as independent franchised dealers. Remember, these are going to be company stores. Yes, they will get favorable treatment from the factory on all sides of sales and service, but they will not be OWNERS. Being the OWNER/OPERATOR makes all the difference in the world. Look at auctionswhen the general manager is buying, the sky's the limitbut when the dealer is bidding, watch him back off at a certain price. Examine the hours owner/operators put in at their stores. Do you really believe a GM manager is going to put the 66-hour work week in without heavy compensation? I personally was involved in dealer council and both amg and dmg advertising boards. In many discussions "off the record," GM persons were worried about their retirement pack and benefit packages and how much time until they retire. GM EMPLOYEES will not have their heart and soul in it like most dealers. In order to get the high productivity out of their managers, GM will have to pay a king's ransom to keep these folks on board. Further, techs will not be any easier for them to get and keep. And what about the UAW? I would bet the ranch that once there is a pool of GM-employed techs, they would become unionized and later the sales forces would follow. Finally, the bean counters who have never had to meet a payroll or had any real responsibility other than to count other people's money would recommend sales to an outside individual to stop the flow of red ink. Do you really think these Harvard and Wharton grads could function in the retail environment where every decision could cost the company thousands of dollars? I know too many of these guys personally. This is not an option. GM might be able to find a few good people, but not enough to make all these stores work. Just think, GM would be able to see, with all the expenses they have loaded on the dealer, that there is not enough mark-up in these cars to make a profit selling mostly new units. And lawsuitswould any jury hold back on company stores? As I see this, it is not all bad. Let GM jump in head first. This would help them see the other side of life, not just the financial statement at the end of the year. KEEP UP THE FINE COLUMNS, THEY KEEP ME INSPIRED! THANKS

Dealer name withheld upon request

Dear Mr. Roscoe:

I would appreciate it if you would pass this along to Jim Ziegler. I read his column today and was reminded of something that happened in our market a number of years ago. Although I am a little fuzzy on some of the details, it reflects poorly on the GM dealers' partner (sic), the factory.

In the late 1970's GM installed a Chevy dealer in a new point in my state. The fact is, it was very close to another Chevy store (the new dealer, it is rumored, worked for GM at some point. I do not know if that is true). It was apparent that the new dealer was the factory's fair-haired boy. Soon, the older dealer was having a difficult time obtaining hot product. While they had no hot product, the new dealer had plenty. Needless-to-say, the dealer at the older point was forced out of business within a few years. Take nothing from the newer dealer, he is a shrewd businessman. In the mid-80's he acquired a failing Cadillac-Pontiac-GMC dealership near him. Just this year, the local Buick dealer sold to GM under the guise of closing the point. Guess who ended up with it? Yep, the factory's fair-haired boy. The Chevy dealer who was forced out of business filed a lawsuit against GM and I have to applaud him. In the mid-90's, he received a verdict against GM for, I believe, 45 million dollars. He proved GM gave hot models to the other dealer and ultimately put him out of business. It takes a tenacious dealer to beat the factory. The moral is, that unless you are a factory favorite, you can very easily lose. Considering this, would any dealer be foolish enough to think the factory would not use their wealth of information to destroy a competitive dealer? If you have a full-grown grizzly bear outside your door, would you open it a crack to see what he looks like?

Dealer north of Mason-Dixon line, name withheld upon request

Dear Mike,

Please accept my check for $100 to continue receiving your fine magazine monthly. Yes, I know subscriptions are free, but I pay a hell of a lot more for other publications that I do not find as fulfilling as yours.

I'm sure you hear all the time how great your magazine is, but my compliments are 100% sincere! Thanks again for your voice of sanity in an insane business.

Bill McCroskey

McCroskey, Inc.

Chev-Buick-Pontiac-Olds-Cadillac

Chariton, IA

Dealer Advocate
Jim Ziegler
The Time Machine

Yvette Mimieux, was she hot, or what?

What a great movie. I was only 14 when I first saw it at the old Lakeshore Theater in Jacksonville, Florida. Rod Taylor portrayed H.G. Wells traveling through time in this 1960 MGM academy award winning film.

In the future, after some unknown "Great Catastrophe" had destroyed our civilization, the time traveler meets the beautiful Weena (an Eloi woman played by Yvette Mimieux)and, in the end, they find themselves fighting for their lives against the evil Morlocks in their underworld city below the great stone sphinx.

Time travel fascinated me. What ifjust what if you really could see the future?

I am convinced that the future will be the result of the choices that we make today. Most importantly, we need to be acutely aware of what the future is not going to be.

Why in the world would anyone in his or her right mind bet on the factory version of what the future holds for the retail automobile industry? These people collectively have a record for screw-ups that defies rational thought.

Let's pretend for a moment that General Motors is successful in dismantling and destroying their retail dealer network. In the immediate future, I believe that they plan to replace their physical dealerships with Internet sales. Excuse me folks "That just ain't gonna happen."

So far the Internet is mostly a lot of noise. Every where some kid announces to the media that they have the #1 automotive Web site. Recent research by reputable firms has proven that the Internet hasn't accomplished one additional sale of even one additional car.

We are already looking at the second generation of Internet vendor. In my observations, the first generation, the referral servicesa fancy name for Internet Brokersjust didn't happen. The AutoByTel and AutoByInternet type of customer, in my opinion, proved to be a major nonevent. My experience with Internet referral customers was that they were just a sophisticated telephone inquiry. The more information they were given, it appeared that there was less statistical possibility that they would actually purchase a car from the dealer who provided them with the statistics. In effect we gave these non-qualified consumers all of the information they needed to purchase elsewhere or not-at-all. The Internet referral closing ratios were terrible. Of course, I read and heard all of the propaganda about that supposed dealer somewhere in the sticks who was racking up profits from Internet referral salesBUTin reality, I believe it was a bust.

If a dealer accidentally did sell one of these grinders a car, chances are that they might, conceivably, become the legendary "Customer from Hell". Personally, if I were a dealer, I wouldn't want some of these people to ever show up in my showroom.

In the end it is still all about relationship marketing. When we're talking about buying a carwe're talking about a thirty or forty thousand-dollar investment here.

Last month they held the official grand opening of the Mall of Georgia less than ten miles from where I live in Atlanta. This mall is incredible,

rivaling the Mall of America in Minneapolis as one of the greatest, largest malls in the country. You know, they actually had traffic jams and they actually had to increase parking areas and shuttles to the mall.

Yes, the Internet is someday going to be a major factor in automobile sales. ANDyes, you had better become involved in technology-based commerce. And yesyou do need to build a business development center. BUTdon't be fooled into believing that the Internet is going to replace hands-on, service-oriented, bricks and mortar dealerships. Sure, theirs is that niche that will buy cars that way but not the mainstream majority. An automobile is not a commodity. It is a major investment decision in most people's lives. They want to see it, drive it, smell it, compare, see selection, and have the reassurance of looking into the eyes of whom they're dealing with.

If there's one thing you can be sure of about the Internet Automobile Sales Revolution, it's thisAlmost everybody in the game is "buggering" up those figures. There is more statistical "bullcrap" being fed to the dealers, the public, and the media than you'd find in a Ford Auto Connection release.

In an October 29th article on the back page of the Money Section of USA TodayWayne Huizenga was quoted as saying, "The investor does not believe in the value of the franchises that we do have, and they do not believe in the strength of our company."

Wow! Wayne and I do agree on one thingif the manufacturers are allowed to compete with their dealers and sell cars directly to the public, on the Internet or otherwise, those franchises you're holding are going to be absolutely worthless. AutoNation Dealerships are only going to be worth their real estate value if the manufacturers win this battle. The catch is that AutoNation stock is stuck at around $10.00 per shareor lessmuch lessas long as Wall Street realizes that they have not increased the profitability of the franchises. Now, with General Motors and Ford evidently threatening to totally obliterate the value of their investment value, I am sure Wayne and company are trembling.

Remember this, AutoNation and CarMax were those pioneers who were here to teach us all about the future of the retail automobile business.

What AutoNation actually taught us was how to reduce your stock's value by thirty-five per cent in the all-time record year for automobile retail sales in recorded history.

As I write these words, CarMax is sitting at a whopping 2 7/8ths per share. My kid could buy CarMax stock with his lunch money and still eat well.

Now these people and Ford and General Motors actually feel someone should take them seriously about the wave of the future?

I told you seven months ago that Ford was losing market share to General Motors and Chrysler in Tulsa as a result of their goofy one-price, no-haggle, happy-clappy, Excel 2000,

venture into Tulsa Oklahoma wellguess what? John Macdonald, senior VP of sales at Daimler-Chrysler just confirmed that Chrysler Dealers picked up 3.5% market share in Tulsa. He apparently credits Ford Motor Company's ineptitude at retailing for the boost in Tulsa. As for General Motors' ventures into retailing, he was quoted as saying "You talk about dumb and dumber." (GM in comparison to Ford)

If I were a Chrysler dealer, I would just love the position Chrysler is taking. They are going to own the market if GM and Ford keep dicking around with the retail process.

The biggest single thing that the dealers have not accomplished is that the states have not adequately strengthened their franchise laws to protect the dealers. There is a media prejudice out there that must be educated and won over. Somehow, the left wing liberal partitions within the media believe that the dealers are the reason that car prices are so high.

I am ashamed that some of you have not had the guts to stand up for your dealerships. If you lose everything you have ever worked for without a whimper or putting up a fightthen you deserve that.

Those who suck up to the factories will not be spared. Ask Jim Willingham if you can trust the factories?

If I were a dealer organization, I would get to the stockholders. Remember Stempel.

If the manufacturers ever win the battle to eliminate their dealers, the public is most certainly going to be screwed here. The manufacturers have made record profits in the face of declining market shares. What does that tell you? The dealers are not to blame; most of them are barely making a profit. It is the manufacturer that is gouging the public. If the media thinks the manufacturers are going to give the public a price break, they better think again. The independent, competitive automobile dealer is only thing that has held prices down for the consumer. ANDif the manufacturers ever were to eliminate their dealers, the level of service and quality would drop proportionately. Then every dealership might be able to achieve those stellar CSI levels similar to the Rydell Group in Southern California.

If you are a GM dealer, why don't you inquire into how Rydell's CSI is doing in California? They should be proud of itafter all this is the factory model! (Remember) I was on record in this magazine more than a year ago as saying that the Southern California market would kick Wes' butt all the way back to the frozen tundra. I ain't wrong yet, not by a long shot. Even with an obvious factory "Leg Up", he's out of his league.

Speaking of Wes Rydell, they've now created the East Coast equivalentJoe Laham. What we have here, in my humble personal opinion, is just another turtle on top of a fencepost who is swearing that no one stuck him up there. Of course, GM spokes-marionettes are saying, "There will be no favoritism!" (Regarding Laham getting preferred inventory that no one else can get) Sure, big guys, we believe that. Just ignore the little man behind the curtains pulling the strings.

This is sort of like trying to believe that GMC truck division isn't actually sending letters to customers in another dealer's market area asking them to shop at Rydell Auto Group. No Favoritism!

Oh well! Looking into the future is easy if you use the track record of the past as a barometer. General Motors is a decaying remnant of past glory. Ford is a skyrocket that will probably fizzle and burnout. Both of these companies are have become distracted and have lost that "Eye on the Ball" concentration. They have become preoccupied with changing the retail process when it truthfully was never broken. The beneficiaries will be the import manufacturers, including Daimler-Chrysler, as long as they continue to build superior product and stand out of their dealer's way and let them retail the vehicles. What we are seeing here, sadly enough, could be the ultimate demise of Ford and GM.

Oh wellraising a snifter of vintage Remy-Martin to Rod Taylor and Yvette Mimieux (God, she was hot) "Here's to fighting off the evil Morlocksor any other evil marketing Czars for that matter!"

MORE FOOD FOR THOUGHT

Surprisesurprise! I have it from reliable sources that the Ford Auto Collection in Oklahoma City is now suffering the same dealer remorse as the Salt Lake City and Tulsa Debacles.

My drift on it is that you will see Ford's ownership position increasing as they buy out their former partners who were once successful dealers.

ALSOI am sure that by now you are aware that AutoNation is spinning off it's less-than-stellar performing auto rental division. (Now, did I say this was another enormous, giant Wayne failure?) Of course, you have to chuckle when you read the press releases from just over a year ago about how they were going to crush the competition in the rental car market. Sort of like those hollow, squeaking sounds coming from AutoNation.

Have you been following the press releases where Jesse "The Body" Ventura, the governor of Minnesota announced that the company (AutoNation) would relocate the national headquarters of its rental car spin-off (ANC Rental) to Edina, Minnesota creating 175 new jobs? Well Jesse must feel a little double-crossed now that they've announced they are keeping it in South Florida.

I thought for a moment that maybe Jesse and Wayne were getting their heads together (joke). Of course, Wayne should have known, considering his track record, not to buy a company called "Alamo."

Dealer Undercover
Ford's Better Idea?
Publisher & Editor Mike Roscoe conducted this interview with a prominent and highly successful Ford dealer on the condition of complete and total anonymity. Send any response to: mroscoe@dealeronline.com or fax at (931) 388-4881.

What is your opinion of Ford's attempts to get into the retail end of the automobile business?

I disagree with it entirely. They seem to think that they can do it better than the distribution system that they have now. I don't think that they can. The proof in the pudding is the fact that their Auto Collections have been complete failures. Not only did they lose money, they were supposed to save 20-30% in distribution costs. They proved they can't do that either, probably because of all the bureaucracy that's involved in running it through a big corporation. Plus they lost an enormous amount of market share. What really bothers me is, even when the factory screws up on such a grand scale, they will never admit their mistake. Some heads should roll because this is the wrong approach; call it whatever they want to, "laboratory tests" or "experiment".

What is the real motivation for Ford getting into this end of the business?

I honesty don't know, Mike.

What do you think it is?

They may think that they can pick up extra profit in doing this by taking over the distribution system. My concern is, while they're trying to do it, even though I don't think they're going to be successful, as they've proven with Auto Collections, they can wreck havoc with the distribution system of the franchisees. They can really do a lot of harm, not only to the franchisees, but to themselves. The other side of the coin is, if they happen to start to succeed at it and create these monopolies, then the public is going to suffer. I think what's happened is, with some of these boards of directors, they get a guy on there, let's say somebody from GE, who did away with their distribution system many years ago. First they took the service business away from their dealers. Today, if you call GE to get a washing machine fixed, in our area you pay $85 for the fella just to show up at your house. If Ford were able to win with their Auto Collections, that same kind of thing would happen. Prices would go up. If those were still franchised GE dealers, they could never charge $85 just to have somebody go to a house, competition would not allow that to happen. If Ford were really able to take over this business, or any manufacturer for that matter, prices would rise. The public would suffer from it because the manufacturers would be creating monopolies and they would control the whole process.

But really, what do you care what Ford does in Tulsa or Salt Lake City or Rochester?

Because if they are successful in those marketsthey haven't been fortunatelybut if they are successful, they'd pursue it on a broader basis. Think about how General Motors has approached it. They started by saying they're going to hit 130 markets. Can you imagine if they controlled 130 markets? At first Ford said it was a "laboratory test" and they were going to try it in small numbers. Then they came out and said they were going to do it in much bigger numbers. When dealers started to get upset about that, Ford kind of backed off on it, but that was still what they were going to pursue. I have no doubt about it. Then they failed. Now they're pulling their horns in, but they don't even want to admit to that.

Let's not forget, this all started in Indianapolis.

Right. You know another thing, Mike, I could never understand is why they went into a partnership with Auto Nation in Rochester, New York.

What do you think of that?

I can't understand why they'd do that. One of their supposed reasons for starting this Auto Collection fiasco was that they were concerned about the consolidators. Now all of a sudden

They're in bed with them.

What hypocrisy that is. But the truth of the matter is, that is a total failure also. Not only are they losing money, but they're also losing market share.

What is it that predicated Ford getting into retailing?

We've been trying to tell them for 30 years that they have too many dealers, which they do.

The truth of the matter is, the whole philosophy years ago with Ford was, you never shut down a dealership, even if it closed down due to attrition. You reopened it, no matter what. Because the philosophy was that all you had to do was put in another dealership or two and you'd keep up the sales. But recently they came around to realizing that that wasn't true. I think part of it has probably been the foreign manufacturers. Take Toyota or Honda, who do tremendous volumes with far fewer dealers. Ford has gotten to the point where they can see volume can be done that way, so they realized that they were over-dealered. But they're approaching the problem from the wrong angle.

So what should they do?

What they really should be doing is backing off getting into retail, let a few heads roll of the people who created this monster and get back to trying to do business through the franchise system, which is really their most efficient way of doing it. All this talk of 20-30% savings in distribution is a lot of hogwash and what they should come around to thinking is they've got to find a way to do solve their problem through the franchise system, through attrition, through buyouts, through combinations of dealers and they should be in the marketplace spending some money doing that rather than wasting hundreds of millions of dollars making fools of themselves.

Don't you think the fact that the way that Ford has gone about their Auto Collections, the way GM has gone about their buyout, the factories are openly admitting that they don't care about their dealers? Don't you think that the gauntlet has been thrown down and they're going to do whatever they can to get these dealers out of the way? And what about their approaches to the internet?

It certainly seems that way, Mike. I can't disagree with that premise. The trouble is, I don't know how far down the road they've thought. Let's assume that what they're really trying to do is control that internet through their own pricing, as in the "experiment" that Ford is trying to do in Arizona where they are taking the average of all the dealer's financial statements, which is a ridiculous way to do it because there are people who are losing money doing this and they get thrown into the equation. E-price they're calling it. But let's assume that they are successful in doing that. Now who's going to take care of that customer once that customer buys it on the internet? If that customer doesn't buy it from me, for instance, and wants to come to me for service, I'm obligated to service them. But let's talk about the real world. Who am I going to take care of first? Am I going to take care of the customer who came into my place who bought it directly from me or am I going to take care of some internet customer who comes in and says he wants service? I won't refuse him the service, but where is he going to go? Is he going to go to the bottom of the list? Is he going to be a happy customer because he can't get the same kind of service as the guy who bought the car from me? That's the real world, Mike, and that's what's really going to happen.

How has this affected Ford dealers?

A lot more dealers are now looking to buy other franchises, more are now dueling franchises in their Ford stores. We've put on the back burner a renovation of our facility that we've been thinking about for a long time and we're starting to look at other franchises instead because, long-term, it doesn't look like a good investment. That's what's happening already. In the long-term you think about how that's going to affect Ford's market share relative to Toyota and Honda, and the other manufacturers. It's going to hurt them.

What, if anything, can an individual dealer do in the face of this attack on the franchise system?

It's very difficult, especially for an individual dealer, to do anything because the factories hold such economic leverage over us. In your last "Dealer Undercover" article with the GM dealer, he and I agree wholeheartedly that you have to try to do something to control it legislatively. In this state we have been working very hard to do that. We've probably done a better job than most states. Some states don't seem to have gotten excited about it. They're going to suffer the most, those states that don't step up to it and do something about it. They're going to have their franchises destroyed as far as I'm concerned.

The factories are going to go after the weakest link in the chain, get a foothold there and use that as a springboard to everywhere else.

Absolutely. It's critical that every single state association immediately gets up to speed.

Frankly, we've contended for years that NADA hasn't stepped up to the job that we think they should be doing on a national basis. They always contend that they can't get anything done on a national basis. They haven't tried to promote fighting this attack legislatively as vigorously as I think they should have on a state-by-state basis. They could have done a heck of a lot more in supporting states and promoting the importance of fighting this fight. Now they say they're going to, but that remains to be seen.

But the state ATAE's just can't wait to see what NADA is going to do.

Exactly. Frankly, I think NADA gets into bed with the manufacturers too often. I think NADA has to keep a "hands off" policy between NADA and the manufacturer. NADA shouldn't have any manufacturer contributing anything. In too many instances they get beholden to the manufacturer. I know a lot of dealers who are disappointed that NADA isn't taking on the dealers' interest as directly as they should and too many times NADA spends their money trying to work the legislatures for the manufacturer's benefit. For instance, environmental issues - that's the manufacturer's job to lobby for environmental issues. NADA money shouldn't have been spent on that - NADA should solely be a dealer advocate organization and they're not.

My goal is for DEALER magazine to help fill in the gaps between what NADA can and cannot do or is able or unable to do.

We sure can use the help.

Ownership/Operations
Dave Anderson
"Old World" Management: A Death Sentence In This Millennium
There's a major shift underway. Some organizations see it; others don't have a clue. It's a movement away from the conventional wisdom that built the successful dealerships of yesterday. It's a movement that minimizes the importance of "great managers" and recognizes that the key to sustaining success in a faster-than-ever industry is the ability to attract, develop and retain great leaders. In today's "turn-on-a-dime" marketplace, companies that are overmanaged and underled will die. The merciful news is that it won't be a slow, tortuous death: it'll happen so fast they won't know what hit them.

Change isn't new to our industry and leadership has always been important, so why such a change in focus from management to leadership? While both are important, leadership skills have become more valuable than ever because leaders thrive when circumstances demand rapid change, quick, hard decisions and bold action. And in case you've been preoccupied for the past couple of years, things in the car business are changing unlike any time in history: Consolidators: They're getting bigger and smarter. They are capable car people with proven track records. They're here to stay and will gain momentum as competitive forces in the marketplaces. Manufacturers: with "partners" like these, who needs enemies? A manufacturer is as qualified to run a retail operation as Orson Wells is to run Jenny Craig. But as long as they persist in their stupidity, undaunted by national humiliation, gaping losses and betrayal of their dealers, they'll continue to be disruptive and dangerous. And don't forget the Generation "X"ers and "Y"ers. Not only will we have to figure out how to sell to them, we'll have to learn to work with them as well. Even figuring out who your competition is or might be is a crapshoot. There are ambushes waiting around every corner. Your biggest competitor may not even be in business today, and next year they could be eating your lunch. Your most significant threat to survival might be Bill Gates, Michael Dell, Wal-Mart or some sophomore at Stanford Business School with a bright idea and a business plan, not the dealer down the street.

"Old World" management skills can't keep pace. Managers excel at efficiency, organizing, staffing, controlling and budgeting. They're adept at keeping things humming along. In fact, businesses would spin out of control without management. But managers resist change. They're slow to act, lack vision and are ineffective communicators and team builders. They excel at maintaining, not growth. They're equipped to keep a steady course, not to change it at a moment's notice. And that's why in today's e-market economy, "Old World" management must be subordinated to "New World" leadership.

"Old World" management practices are a mismatch for competing in the millennium. It's like racing a firefly against the space shuttle. Here are three steps you can take to replace "Old World" management with "New World" leadership in your organization:

Get The Right People In Place-Now! People are not the key to success in changing times. The right people are the key to success. "New World" leaders make fast, tough people decisions. They get people better or get better people. "Old World" managers tend to accept mediocre performances as long as the boat doesn't get rocked. "New World" leaders are always improving their roster. And there has never been a more important time to act quickly concerning hiring right people and getting rid of wrong ones.

Flatten Out And Speed Up! Flatten your structure. Toss your organizational chart and level your hierarchy. "New World" leaders are lateral leaders. They're nimble. They empower people to take action. They're quick to seize opportunities, implement change and make fast, hard decisions because they have fewer layers of bureaucracy to contend with. "Old World" managers are enmeshed in hierarchy. Hierarchy reinforces the status quo. It stifles initiative. It makes change tougher to implement. "New World" leaders move faster than managers because they're not adverse to risk. Risk violates a manager's comfort zone. "New World" leaders develop leaders at all levels to share the load. Developing leaders threatens "Old World" manager's authority and control. It's safer for them to have followers than leaders. Because leaders move and communicate quickly, they create a sense of urgency. Managers have been trained to avoid urgency, not create it. Yet without a sense of urgency, change initiatives fail and people take lethal mental naps, paralyzing their company. "New World" leaders are fast. Speed is a non-negotiable trait in the millennium. In fact, the success of organizations today won't be a matter of the big eating the small, but the swift eating the slow.

Set Higher Standards! Raise the bar high and often. Quit borrowing credibility from the past. Being "#1" has never meant less. In the ".com culture" has-beens are birthed overnight. Remember the dinosaurs. Just because they towered above their surroundings and ruled the world didn't mean they were equipped for survival. Setting higher standards creates urgency and momentum. Higher standards stretch your people. They keep things from getting too cozy. They limit the "happy hot-tub talk" about how sales are up 10% over last year-as people conveniently forget that "last year" was crummy. New World leaders spend their time charting the futures course. "Old World" managers spend their time charting past results. "New World" leaders run a meritocracy where everyone has to prove himself daily. "New World" leaders weed out entitlement takers and hire opportunity makers. They terminate people who think that tenure and credentials substitute for results. They raise the bar so high that they force change, bringing out the drive in winners and weeding out losers.

Your number one competitive advantage in the millennium will be highly developed leaders. Organizations that trivialize the importance of "New World" leadership and cling to "Old World" management will be smacked into oblivion. "Business as usual" is a death sentence. Evaluate your leaders. Can they: cast vision, build teams, communicate, remain flexible without losing focus, initiate change, take risks, empower, develop leaders at all levels, make tough, fast decisions, and attack the status quo? Do they have the guts to hire people

better than they are, ditch non-performers-regardless of who they are, and constructively destruct and reinvent every aspect of your dealership? If not, all isn't lost. Leadership is developed, not discovered. It can be learned. As a leader, it's up to you to make sure your team has the players and skills to win. If you're not willing to pay that price, instead, betting things work out because they "always have in the past," you're infected with "Old World" management disease and should quarantine yourself in your country club or be sent to the nearest golf course in exile so your organization has a fighting chance and doesn't end up in a bone pile with the rest of the dinosaurs.

Ownership/Operations
Bob Dilmore
What A Year!
In spite of tremendous competitive pressures on all dealers, the turbulence from the continuing saga of factory ownership, faulty distribution systems that make you want to "VOM"it, and shifting paradigms because of the publicly-held dealerships ­ dealers nationwide will chalk up a banner year in 1999 both in sales and profits.

MPG indices through nine months of 1999 show an increase of Operating Profit at 29.0% over 1998 ­ and 1998 was 20.4% ahead of 1997. Looking back over the past eight years, dealers in the top 20% of MPG's client base posted increases over the previous year seven out of eight years. What a phenomenal run!

The big question on everyone's mind is, "How long can this business cycle continue?" From a profit standpoint, there is no reason I can see in the immediate future for any decline in overall dealership profits. Let me explain my rationale for continuing profit increases, even if there are some general economic downside adjustments.

Dealers can enjoy continuing profit improvement if they change their focus a bit. Here are the actionable strategies to employ:

Used vehicle retail ratios continue to lag at .62 to 1 (62 used at retail per 100 new at retail). In our client base we see many dealers achieving a better than 1 to 1 ratio through effective marketing and advertising, through the realization that it takes at least 10 well-trained sales professionals to sell 100 used a month. It also demands 135% of expected sales in lot-ready inventory. The "Secondary Finance" and "Buy Here/Pay Here" segments can easily push a dealership over the top on this objective. "There's a lot of gold in them thar hills!"

The collision repair business is wide open for exploration. I just returned from speaking to the Utah Automobile Dealers Association ­ and a client of mine in Utah just opened a huge state of the art collision repair center with all the bells and whistles. Guess what? Sixty days after the grand opening, it appears he did not build it big enough. An old buddy of mine in Detroit has had a similar experience

In most markets, you are clearly leaving 15% of your dealership's total gross profit objective out of the cash register, if you don't have a state of the art collision repair facility.

These facilities when properly equipped, aren't cheap ­ BUT, bottom line profits will pay back your investment in two and a half to three years, if properly managed.

The advantages of these strategies, it seems to me, is the fact that both are not dependent on your new vehicle franchise(s) and have proven in the past to be recession-proof. Expanding in these areas now in times of great profit is a win-win situation.

Many of you are investing in business development centers, but the focus for most is on more new vehicle sales.

Why not focus on all the customers to whom you have sold new and used vehicles the past five to six years and get them coming back for service? The gross margin on service sales sure beats the heck out of 6.2% margin on new vehicles, which is the domestic margin we see. Don't get me wrong ­ let's sell all the new vehicles we can, but most dealerships are far too dependent on new vehicle gross ­ and if margins continue to diminish and/or new vehicles decrease, many dealers will see red ink, that is.

Expenses appear to be in control for most ­ but should new vehicle gross drop off, I think you would find expenses are actually quite high and getting higher. (Do the math! Reduce your new vehicle gross contribution for 1999 by 25% and then recalculate your total expense as a percent of total gross, after making an adjustment in variable gross ­ you'll quickly see what I mean.)

The culprit ­ personnel expense! Now ­ in good times ­ is the time to prune your organizational tree of dead wood. Who in your dealership team would you not rehire? Then why keep them?-"Oh, they're a relative ­ what difference should that make?"

Frankly, I can see another 25-30% increase in the profits of those dealerships that are willing to "mine" for the hidden gold which is there for the taking.

Last year was fantastic. Now is the time to consolidate your gains.

Consolidation
Sheldon Sandler
The Three Fundamental Challenges to Traditional Dealerships
Auto dealers have faced down many challenges over the past 50 years. They have triumphed over oil embargoes, 20% plus interest rates, and economic recessions. Each took its toll on the dealership body, but the basic system of privately owned, entrepreneurial franchised dealerships was never in question. Ironically, just as the dealership community is enjoying prosperity beyond its wildest dreams, three fundamental threats are quietly coalescing to imperil the traditional model of automobile retailing.

The attacks are not only direct frontal challenges from public consolidation, but also flanking attacks from assumed allies, like manufacturers and rear guard actions from new age alien armies collectively called the Internet. The result is that the traditional dealership role in selling cars to retail customers is becoming marginalized reducing long term profit potential and threatening the very existence of many dealers.

The first challenge has been consolidation, which has been accelerated by public funding of several dealership groups. Consolidation has not been localized to the dealership community, but is an inexorable tide in the entire automobile industry. Its goals are to achieve greater competitiveness through the development of critical mass.

The truly significant advantage of public dealerships, however, can be found with their financial strength. Public consolidators can access capital in larger amounts and on better terms than most privately owned dealers. For example, Group One recently announced a new billion-dollar credit facility provided in part by the captive finance arms of five manufacturers.

Just as important, there are no personal guarantees associated with that borrowing. Consequently, public consolidators can afford to be much more aggressive in acquisitions and capital expenditures. A case in point is the merger of FirstAmerica Automotive with Sonic Automotive, which included the assumption of $175 million in long-term debt. No private dealer would have made that deal no matter how big the opportunity. The personal risk would have been too great.

If anyone has thrown down the gauntlet on the traditional system it's AutoNation. AutoNation intends to be the first nationally branded dealership chain. Their goal is to offer customers a pressure and negotiation free alternative buying experience. One of the most powerful weapons in their arsenal is their AutoNationDirect Internet concept, which will integrate bricks and mortar stores with their proprietary web site. This will be the first major web merchant that will actually be able to sell, finance, and deliver cars out of their own inventory. AutoNation will empower the consumer to buy virtually any make car through any chosen process on highly competitive terms. To borrow a phrase, they are telling the customer "have it your way."

Another challenge comes from manufacturers. Given the latest attempts of Ford and GM to get directly into the retail dealership business, it's no wonder paranoia has struck the dealership body. Manufacturers have spent the better part of the decade wringing out inefficiencies from their production process by leaning on their parts suppliers to lower costs and adopting "just in time" production techniques. In order to amortize capital costs over a broader base they are sharing platforms across products like Lincoln and Jaguar. Now, their attention is being turned to the distribution channel in their quest for cost savings.

Most manufacturers are ambivalent about their network of franchised dealers. No doubt there are those in the manufacturer community who believe that some dealers are making outsized profits that should belong to them. But it goes deeper than that. This is a fundamental question as to who owns the customer. Public consolidation, as well as shifting consumer attitudes has conspired to reduce loyalty to individual brands with the resultant fear that "shelf space" will eventually be awarded only to "hot" products. This is antithetical to the historical control manufacturers have been able to exert over their franchised dealers and inconsistent with their desire for dedicated and committed product and image branding.

One response to the manufacturers' dilemma is "supply chain management". According to this theory, by determining the customer's needs first, cars could be built to demand, thus ending the wanton production of excess inventory. Costly incentives to move undesirable cars will be a thing of the past. The idea is to eliminate waste while supplying the customer the vehicle he wants at a price he will pay.

"Supply chain management" is not just ivory tower future think. In early November Ford announced a new venture with Oracle to begin putting a system in place. Ford plans to use the Internet to share their market information so that everyone in the production chain, Ford and its suppliers, can produce exactly what's needed, when its needed. And you might ask how is Ford going to get this market information? Are they going to turn to their dealers?

Well, in a word-No. They plan to leap frog the dealer and go directly to the customer. Ford has teamed with Microsoft's CarPoint for front-end information. In theory, the consumer will enter the order on CarPoint and Ford will build the car to customer specification. The dealer then becomes the delivery point and service facility. Whereas traditionally the retail customer was considered the primary relationship of the dealer, now the manufacturer wants to control that relationship.

This is the natural segue to a discussion about the rear guard action often referred to as the Internet. According to Jac Nasser, the Internet is the tool that will "break down the artificial barriers to free trade". He did not say this, but I wonder if he was referring to the franchise laws that have been the bulwark of defense behind which the dealership body has prospered.

To say that the current status of the car dealers' relationship to the Internet is in flux would be an understatement. The Internet is already beginning to subvert traditional areas of geographic dominance and with it, pricing on new and used cars. Nevertheless, the current cadre of Internet lead generators is only a way station to more sophisticated customer empowering prototypes.

Auction sites like Priceline.com or direct vendors like CarsDirect promise to force dealers to compete against other dealers irrespective of location or capital investment in

facilities. Once the customer decides on a particular vehicle, the sale will be controlled by an Internet service diminishing, if not eliminating, the traditional relationship between customer and dealer. The end game could conceivably make all vehicles no more than commodities, and in that case, the low cost provider wins. The Internet could be the biggest catalyst of fundamental change.

No crystal ball exists to predict if any of the three challenges will prevail. In some ways they are toxic to one another. Nevertheless, what is abundantly clear is that with all these fundamental challenges, the traditional dealership model is becoming marginalized and profits will be tougher to find. The conclusion is that values may have already peaked and in many cases dealerships are now eroding assets.

Succession Planning
Loyd Rawls
The Twelve Step Program for Estate Planning
The two most important steps in the estate planning process are initiation and completion. Getting this job done, in whatever way suits you and your family, is the single most important step. Furthermore, depending upon your personality, family makeup, advisor group and business circumstances, the steps in the estate planning process may vary significantly. However, 25 years as a participant and student of the estate planning process has led me to several profound conclusions. Aggressive, state-of-the-art estate planning is an essential facet of business succession planning. Estate planning in the business succession realm is a formidable challenge demanding significant commitments of time, energy and financial resources. The steps followed in the estate planning process has a significant impact upon the quality of the final product.

Before you undertake a significant challenge of any nature, it is wise to have a plan. Otherwise, as mentioned above, it is very easy to become distracted, discouraged and fall short of your initial goal. Therefore, I strongly suggest you consider these time-proven steps for your succession planning process.

1. Make a commitment to get started and communicate this commitment to someone who will hold you accountable. Estate planning is one of the most popular subjects to postpone. Procrastination may relieve current anxiety but long term, the problems will only be compounded. There is no hope for successful completion if you never get started. There is no better way to get started than to authorize someone whom you respect to hold you accountable for your commitment.

2. Select qualified advisors to facilitate your estate

planning efforts. Regardless of your personal convictions and confidence in your decisions, the quality of your estate plan will be substantially dependent upon the quality of your advisors. Estate planning is a professional discipline requiring a solid foundation of training, constant experience and ongoing continuing education. There is no reasonable room for "generalists." Effective business succession estate planning requires specialists.

3. Establish a time target for the initial implementation of your plans. With the input of your advisors, make a realistic assessment of the time required to design, develop and implement your estate plans. This assessment should provide you peace of mind during the process, that you are working within the reasonable time boundaries. This assessment should also serve as an accountability tool to assure that your advisors diligently pursue their action items to achieve implementation within the allotted time period.

4. Close each meeting with a scheduled commitment for the next meeting and a reservation time for the following meeting. Maintaining momentum is one of the biggest challenges during the estate planning process. If you can end each meeting with a commitment for the next meeting, you have reasonable comfort that your planning process is moving forward as expected. In light of the demanding nature of contemporary business and professional schedules, identify tentative times for these subsequent meetings so everyone in the planning team is committed to the next meeting. Pursuing scheduling with this diligence substantially relieves one of the greatest challenges in the estate planning process, getting all critical parties together in the same room.

5. Develop and understand a schematic diagram of your estate plan before drafting any documents. At this point in the estate planning process, a picture is worth more than a thousand words. Actually, to have a schematic picture of what you are trying to do is imperative to understanding the far-reaching implications of your plan relating to your business, your spouse, specific children, all children and employees.

6. Prior to drafting documents, develop and refine simple document summaries that stipulate pertinent document provisions. Simple summaries of the proposed documents following the schematic diagram provide better understanding of the structure of the future documents. This process will enable you to further refine your thinking and, without wasting legal fees, confirm important provisions such as trustees, executors, guardians, asset divisions and distribution dates.

7. Discuss estate planning intentions with those who will be impacted by your plans, such as spouse, children, key managers, franchisers, and lenders. Keep in mind that the estate planning process is a sacrificial effort. You are expending the time, energy and money for the benefit of others. Within reason, prior to implementation, it is prudent to discuss your intended plans with those who will be impacted. "Pandora's box" is not as ghastly as you may presume. Sharing your estate planning intentions may well generate a negative remark. However, positive or negative remarks about your estate planning intentions will be either instructional or educational. Rational, well thought out comments by loved ones may help refine the plan. Irrational, self-centered comments by loved ones can also help you modify or reinforce your plans to deal with resentment or self-centered emotions.

8. Refine plans and document summaries as dictated by discussions with those who are impacted by the plans. Going through the process of refining the schematic diagrams and the document summaries will confirm the virtue or uselessness of what you learned from discussing your estate planning intentions with your spouse and children.

9. Draft, affirm and execute the documents. Having followed the above steps, the actual preparation of the documents, and more importantly the refinement of those documents, will be greatly simplified. Moreover, you will have avoided substantial confusion due to the awkwardness of legal documents. Ideally, this step simply confirms that the documents prepared for execution conform with the previously affirmed document summaries.

10. Conform property and plans with documents. Generally after designing, drafting and executing documents, the fun just begins. "Fun" relates to the detailed process of establishing asset titling and beneficiary designations to empower the documents to achieve the estate planning objectives. In most cases, intended gifts or sales also require asset appraisals, asset transfers and the filing of gift tax returns, Crummey notices, etc. This is a very busy step that demands diligence in order to achieve the initial estate planning objectives. Usually it will be your CPA and/or attorney that will lead you through this process.

11. Make final review of documents and conform property. This step assumes that something will fall through the cracks. A final review of the executed documents and related property administration is essential to give yourself the peace of mind that all the preceding efforts fulfilled your estate planning goals.

12. Make a commitment to periodic review. The shelf life of estate planning is two years on the outside. In the absence of periodic reinvestment of time, energy and financial resources to confirm circumstances and implement needed update, plans will become outdated and ineffective. It is very important to understand that in complex family and business environments, estate planning is not in any sense a project, it is a never-ending process.

Loyd H. Rawls, CFP, CLU, ChFC, MSFS, of The Rawls Company in Orlando, Florida, and has specialized in family estate and succession planning for closely-held, family owned businesses since 1973. Well respected in his field, Mr. Rawls is a highly requested speaker and has contributes to many publications on this subject.

Personnel
Dave Braeger
Are You Sure Your 401k Benefit Plan Is Benefitting Your Dealership?
The majority of dealers are in the category of those who understand that they have fiduciary responsibility for their 401k plan, but are uncertain how it affects them.

If you're a fiduciary of a defined contribution plan, which most dealership owners are, then it is important for you to understand the ERISA 404(c) compliance rules and how they affect you.

What is 404(c)? This legislation shifts responsibility for investment results, education, and administration, from the employer to the participant. If properly followed, 404(c) compliance takes the plan sponsor out of the investment business, and gives investment choice to the employees. This limits the potential liability of the trustee.

It seems to me that every dealer would want to take the simple steps necessary to comply. But how?

There are a few common sense strategies that a plan sponsor can use to ensure that their liability should be covered. This strategy includes selecting a plan with broad investment choices, strong educational opportunities for the employees, ongoing performance evaluations, and yearly assessment of the plan's goals and objectives.

Compliance with 404(c) mandates that you offer five investment choices with materially different risk and return characteristics. A plan sponsor must allow a participant to create a portfolio with risk and return characteristics suitable to their objectives. Once you've chosen the categories, you need to pick specific mutual funds or investment managers for each slot. The selection of a manager is itself a fiduciary responsibility. Any of the major 401k vendors take this responsibility off your shoulders by doing the manager searches for you. It is important that the fund has name recognition with participants.

You also must conduct ongoing performance evaluations. Plan sponsors need to regularly review the performance of each of the investments and how they compare to the major indices. Any of the plans from the major 401k vendors will do this for you.

Most importantly, don't forget the communication. You are required to give information to participants about their choices. Take this opportunity to remind your employees that your company provides a substantial benefit by offering the plan. If your plan is lacking, use this as an opportunity to bring in a new plan that will bring benefit to your employees. In the communication category of 404(c) compliance, you should incorporate a broker of record who will conduct quarterly educational meetings and individual enrollment meetings with the employees. The broker of record should be readily available for any questions the employees might have considering their assets.

The primary reason you must offer a plan with self-direction of assets is that each employee can "customize" an investment program unique to their specific objectives and risk tolerance. There is no way a single, commingled fund with a particular asset mix could be the appropriate retirement planning vehicle for each and every participant.

As a third-generation member of family owned automobile dealership, and a full-service retirement planner, I can tell you how useful a quality 401k plan can be for your dealership. A quality 401k plan can be used as a great recruiting tool for new employees, can enhance the administrative capabilities of the individuals in your back-office and give great synergy within your employees. Furthermore, a quality 401k plan should give your employees the best chance to achieve comfort in their golden years. These simple strategies will take the liability off your shoulders and make your employees ecstatic. A great 401k plan makes for happy employees, which will make you a happy employer.

Digital Dealer
What To Do With The 90% Of Internet Leads You Don't Close
By Todd Smith

This month I wanted to take the time to provide you with a practical solution to effectively help you close more Internet leads.

Internet leads are hard to get a handle on since you really don't know much about the person; it's not as if they walked into your dealership and explained their situation allowing you to build some rapport with them. Dealerships all over the US share this same problem; what do you do with the leads that don't respond back after they have requested information from you in the first place? After much trial and error, we finally came up with a solution to the problem. For example, let's take ABCDealership.com, which receives 100 leads per month. Out of those leads the Internet manager closes 10, which is the statistical average nationwide.

The next question is what to do with the 90 leads that don't close or somehow disappear into cyber space. You don't want to stop marketing to these people, but it is difficult with the influx of new leads you receive every day to keep up. You end up dropping the people who don't respond.

What you need to do is create an automatic process that will send these non-responsive people seven letters over 8 weeks. Why seven letters and why eight weeks? In direct marketing this is how many contacts you need to have with a prospect to get them to respond. Notice I didn't say "buy," just respond, and eight weeks makes sure you have kept your dealership in front of the prospect during their entire vehicle buying cycle.

The first thing you need to do is to set yourself up with an automatic system that will send out the e-mail letters for you. Call www.aweber.com. It is easy to use and is less than $20 per month. There are other companies out there so you might want to look around, but I have had great success with aweber.com's messaging system. What you do is drop the e-mail addresses of the people who don't respond into the system and let the e-mail marketing begin.

Here are the features of the seven letters, including how you should develop them and when to send them. All letters need to have the following features:

A bold subject line and letter headline.

They should be time sensitive (meaning they should expire if not responded to within a specific timeframe), All letters need to have a call to action e.g. "click here to buy" etc.

Personalized to the individual you are sending the e-mail too. Each letter needs to build upon the previous letter. The letters should be sent as follows:

What should you offer in your marketing letters? Some offers that we found to be great to drive response are limited time low interest rates, special new car pricing promotions, service special (e.g. "buy your next car at ABCDealerhip.com and receive your first year of oil changes free"). You can use the same type promotions that you use offline online to get the hook set in your prospects. Just remember to make them time sensitive and have whatever you write call the prospect to take immediate action. Try to bundle different things together and always keep experimenting with different promotions.

Your direct e-mail marketing campaign should begin 24 hours after your prospect doesn't respond to you and continue for eight weeks or until the prospect removes himself from your list. This campaign will have a dramatic effect on the number of people you re-up due to your persistent follow up, even though the computer is doing all the work for you.

If you use a system like aweber.com it will allow people to unsubscribe automatically and will also allow you to track what people received what letters as well as allowing you to track when they dropped out. For example, if 35% of all people unsubscribe on letter 3, you might need to change the letter to make it more effective. The object is to drive more people into your dealership - period.

As an Internet consultant in a busy dealership it is impossible to follow up on every lead effectively. But by building and utilizing a system that automatically follows up on cold and non responsive leads it allows you to focus your energy on the people who want to buy now without sacrificing good quality leads that just needed a little more information.

To really get the most out of this system you need to track everything as you want to be able to uncover any chinks in the armor of your letters and address them immediately. This has been the most effective system we have ever tried and used to manage unresponsive leads. It will work for your dealership too. Take one day and set it up and start e-mail marketing for your dealership today.

Toyota's Office of the Web to Guide Company's On-Line Efforts; Dealers to be E-Commerce Partners

TORRANCE, Calif., Nov. 10 - Culminating nearly a year of careful preparation, Toyota Motor Sales (TMS), U.S.A., Inc. today announced establishment of Toyota's Office of the Web, a group of top marketing and technology professionals organized to unify the company's electronic commerce programs.

"As electronic retailing has exploded onto the business scene, on-line marketers are just now realizing that physical stores are a tremendous asset, and are essential to achieve true 360 degree marketing," said TMS Executive Vice President Jim Press. "Our on-line efforts will be customer-driven to allow people to buy our products the way they want, not the way that's most convenient for us. And we will treat our dealers as full partners in this endeavor; we will not compete with them. It is in our mutual best interest to share the responsibility of satisfying customers."

Online Customer Service: Do You Take Your Internet Customers Seriously?
John Holt

CNW Marketing/Research recently released the results of a two-year study on the effectiveness of the Internet as an automotive shopping tool. The report consists of the responses of 1.1 million people, 219,000 of whom are described as "heavy Web users."

Results show that approximately 41 percent of shoppers looking to purchase a new vehicle sent an e-mail inquiry to a car dealer requesting information but only 20 percent received a reply.

What does this mean to you? It means that too many dealerships who claim to be open for business "online" aren't. The e-mail inquiries in the study above were sent by shoppers seriously looking at purchasing a car, and they never heard from the dealerships they were considering doing business with.

These Internet customers aren't just "surfing" for entertainment or research. Today's online shoppers are Web-savvy consumers who have grown to expect results when they contact a business on the Internet.

We'll never know in dollar terms how much was at stake in not getting back to these prospective customers. But what we do know is that the dealerships that establish a system of answering e-mails in a prompt and timely manner will be the ones to win over the Internet shopper.

Answering e-mail is like answering the phone. One dealership I know of has a team of Internet sales people dedicated to shoppers using the Web. Each sales person has a pager and when an e-mail comes in, they are notified within seconds. Reply time is about 10 minutes. That's impressive. And I can confidently say that the prospective customer getting a reply back from the dealership within 10 minutes is much more likely to do business with that dealership than the ones that never responded.

Think Doing Business on The Internet And Via e-mail Is Too Impersonal?

The same CNW Marketing/Research study held seven new-vehicle focus groups across the country and found that 43 percent of the participants felt buying a car online was "too impersonal".

Surprising? It shouldn't be. Buying a car is a big financial decision for people. And most people want to purchase a car from someone they trust. Someone they can go back to if there's a problem. And someone they want to give their future business to and refer others to.

It's up to you to show your customers that your online program isn't "too impersonal". All it takes to establish that relationship is providing good customer service, just like you provide to your traditional shoppers that walk into your dealership. And go.

Blue Book Pricing on Dealership Web Sites

IRVINE, Calif., Oct. 26 - Kelley Blue Book has announced PriceLink, a new service which enables auto dealers to provide new and used car pricing directly to consumers from the dealers' own Web sites. With PriceLink, dealers can provide their Internet shoppers with several options.

Dealers can show consumers how much their cars are worth with Blue Book trade-in values, as well as offer Blue Book suggested retail values for used cars they have for sale. Another option for dealers is to show new car prices, either just MSRP or invoice and MSRP.

Auto dealers have already begun to endorse PriceLink. Lee Miller, General Manager of Showcase Chevrolet, Westminster, CA states, "We believe our customers appreciate the service and are more trusting of Showcase Chevrolet because we suggest they be informed." Matt Wolchock, Internet Manager of Holman Auto Group, New Jersey and Florida added, "What a great tool to build customer confidence."

The service, which costs $500 a year, allows dealers to frame the pricing content of Kelley Blue Book's Web site, the most popular automotive site on the Internet. All advertisements and other services are removed.

"The consumer sees the Blue Book pricing they have come to trust, but the experience stays complete within the dealer's normal site navigation," said Stephen Henson, Director of Marketing and Business Development for Kelley Blue Book. "There's no chance of the consumer wandering off to other sites."

The Cobalt Group has partnered with Kelley Blue Book to offer the service for free to its dealer clients. "Internet sites that attract and retain the most customers are the ones that provide the most information, choice and control," said John Holt, Co-CEO of The Cobalt Group.

WAIKEM Auto Group Online
Success On The Net: A Dealer Who Can Do It
By Mike Bowers

Doug Waikem is a man with a mission. The Ohio car dealer believes he has identified the best practices that are the keys not only to moving iron over the Internet, but also to making lots of money in the bargain. His mission is nothing less than to spread the word to every franchised car dealer in the country. The methods espoused by Mr. Waikem may contradict much of what passes for conventional wisdom in auto retailing today, but he has one big advantage over the consultants who have created much of that conventional wisdom ­ Doug Waikem can do it. He actually sells cars online every day!

Mr. Waikem, who is 46, owns the Waikem Auto Group and had been selling cars on the Internet for four years, but he wasn't entirely happy with the results he was getting. Nor was he satisfied with the quality of information and training available from the traditional sources. Mr. Waikem believed there must be a surefire method for Internet success and he wanted to be the one who defined the process. He didn't want half-baked theories and bits and pieces of this and that for sales techniques. He wanted results, higher closing ratios, more sales, and most importantly, more profit, period.

Enter Dan Alkassmi

Mr. Waikem commissioned Dan Alkassmi, a sales consultant from San Diego with a tremendous track record in developing methods for improving showroom sales, to develop an Internet sales technique by visiting the top 50 Internet car sellers in the nation and gleaning their best practices.

Since Mr. Waikem's stores are aligned with Autobytel.com, he directed Mr. Alkassmi to take about six weeks to visit Autobytel's most successful dealer affiliates. In the course of his investigation, Mr. Alkassmi noticed some common threads among the best operators.

"What we found was that the things that made us successful in the showrooms, made us unsuccessful on the Internet," Mr. Waikem said. The other thing they found was that much of the advice they were getting from outside sources turned out to be wrong. It didn't work in practice.

Put simply, Mr. Alkassmi told Mr. Waikem that the sales process had to change for the Internet.

A different approach

Some of the things the Waikem dealerships began offering in the Internet department were competitive pricing, low rate financing, and telephone trade-in appraisals. He gave customers 72 hours to beat the low prices he offered. He shopped interest rates for financing, trying to find the best deals. And, he and his managers developed a method for trading cars without seeing them first. Here are some of Mr. Waikem's other practical suggestions:

Instead of hiring some computer-savvy, non-salesperson to handle the Internet department, take a good sales person with strong phone skills off the showroom floor and put them in charge of online sales.

Teach the Internet rep to do a "walk around" trade-in appraisal over the phone. "Customers love it," says Mr. Waikem.

Use e-mail as a tool to support telephone sales contact, not as a substitute for the phone.

Set up the Internet group as a separate profit center with its own financial statement.

And, most importantly, at least 25 percent of any incentive pay should be tied to beating certain closing ratios.

Other little niceties Waikem Motors began offering included completing all the consumer paperwork over the phone and delivering cars to customers' homes so they could take test drives. There is even a tractor-trailer emblazoned with Waikem Motors advertising to draw some extra attention when it drives through a neighborhood to drop off a new car in a customer's driveway.

The Internet sales techniques that Mr. Waikem and Mr. Alkassmi came up with were further cemented when they met with some focus groups to fine tune their ideas. The focus groups pointed to three keys to selling cars on the Internet.

Those keys, Mr. Waikem said, were:

· Hassle-free and haggle-free transactions

· Talking to someone who is empowered to make all the decisions

· Taking the deal from A-to-Z without interruption

· And, last but certainly not least, price.

Spreading the word

When Waikem Motors began instituting these new sales techniques for Internet sales they saw immediate results. "Our closing ratios went up from 15 percent to 23 percent in just one month," said Mr. Waikem. He was so confident with the Internet sales techniques Mr. Alkassmi helped develop that it spawned a separate business entity: training other dealers in the Internet sales process.

Mr. Waikem, Mr. Alkassmi and Tom Van, of Hillsdale Chrysler Plymouth partnered to form i-Net Training Technologies. Autobytel provides support for the new training venture but the service is available to all franchised dealerships. i-Net Training Technologies offers a variety of training packages that car dealers can buy either to help launch an Internet sales division or to strengthen an existing one.

Road to the sale

A little peek into Mr. Alkassmi's Internet selling tips includes his four phases of progress to the Internet sale.

First is understanding the customer.

Second is getting an agreement.

Third is finishing or consummating the sale and fourth is generating or starting the next sale.

"After that you don't stop either," Mr. Alkassmi said. "For every five sales we generate on the Internet we get one extra referral." Mr. Alkassmi adds that the keys to successful Internet sales are dealer commitment and truly looking at the transaction from the customer's point of view.

After spending ten minutes with Doug Waikem, it is obvious that his passion for automotive e-tailing is genuine and contagious. He exudes a self-confidence bordering on braggadocio. But that confidence is born from experience and the knowledge that, unlike some industry commentators, he is actually doing the job.

CNW Study Shows: Cost of Buying Vehicles On-Line Rising; Use of Internet Doesn't Shake Reliance on Auto Dealerships

BANDON, Ore., Nov. 1 - Only 18 percent of Internet new-car shoppers are aware that vehicles purchased through on-line buying services actually come from an automobile dealer and not the factory. In addition, the cost of buying on-line is rising versus using the conventional method of visiting a dealership.

According to a national Internet study of new-vehicle buyers conducted by CNW Marketing/Research of Bandon, Oregon, better than 70 percent of Web-surfing new-car shoppers think on-line services order vehicles directly from an automaker and have it shipped to a dealership for subsequent delivery to the customer. Actually, all vehicles sold over the Internet are purchased from a dealership either by the customer or the on-line dot-com seller.

In CNW M/R's study, those who used buying services actually paid about 6.5 percent more for a vehicle during the first nine months of this year than if they had used conventional means. In 1998 the differences was slightly less than 5 percent. In 1997, the difference was negligible.

Consumers who used the Internet to research car prices and features before visiting a dealership paid nearly 4 percent less than the typical conventional customer during 1998. In the first nine months of this year, however, the difference was less than 3 percent.

"While the Internet is an important tool for collecting data on a new-vehicle purchase, the most effective way of getting the lowest possible price remains negotiating," says Art Spinella, vice president and general manager of CNW M/R.

Doing It Your Way:
How Open-Market Loan Application Models Allow You To Maintain Existing Relationships While Powering Up For Increased Profitability
David Sinclair

If you're like most dealers today, you are either on the Internet in some form or fashion, or are about to be. The Internet and the e-commerce it channels is fast becoming the major ­ if not the primary ­ business venue of our times. One recent independent research study predicts that worldwide e-commerce could reach between $1.4 trillion to $3.2 trillion in online sales by 2003. But while technology continues to streamline every aspect of e-commerce it doesn't need to totally change the ways in which the F&I manager does business today.

Electronic commerce is an exciting new channel for delivering information, performing transactions, and creating instantaneous access to new lending sources. You need to make sure the system you choose is designed to enhance, not obliterate, the relationships your dealership has worked so hard to build.

Let's take this information back into your dealership. Again if you're like most dealers, you have seen the future and have investigated some form of electronic information exchange. In the area of automobile financing, however, you may be reluctant to impact the existing and lucrative lending relationships built carefully over time. Disrupting these relationships feels analogous to demolishing a well-crafted bridge that gets you from A to B to put up a superhighway that may zoom you from A to Z, but at a pretty high immediate cost.

The good news is: you don't have to destroy business processes that work in order to become electronically enabled . There are web-based loan application models that will accommodate your existing methods of doing business while electronically enhancing the overall lending process. But you need to know what to look for.

What's In A Name?

Although it may sound simple, look for a model that uses "open market" in its description. There are two basic types of loan application models: proprietary and open market. Propriety systems are restrictive in the kind of deals or lenders they allow to be sent through the electronic channel. This makes them limiting; any process or data outside a proprietary system can not be accommodated by it. As a result, you'll often see F&I offices with these kind of systems running "dual"operations. Some information is processed electronically. Some, particularly where it involves a long-standing relationship between a lending officer and the F&I manager, continue to be handled via the old method. Instead of the new efficiency and profitability promised by a web-based loan application, you instead get double the work, and double the risk of error.

The Open Market Solution

There are electronic loan application systems designed to accommodate existing relationships. Generally referred to as "open market," these loan application models are designed to allow communications such as digital faxes among dealers and non-participating lenders. Be sure the electronic vendor is willing to add lenders that you, the dealer, suggest.

In these and other ways, an open market model will allow your dealership a gradual and relatively painless move from the fax machine to the key board for communicating with your lenders of choice.

Rapidly Growing Internet Car Company Records $280 Million Private Equity Round

LOS ANGELES, Nov. 15, 1999 - Less than six months after public launch, CarsDirect.com, the leading automotive e-tailer, today announced that it has received commitments to fund $280 million in its latest round of financing - among the largest private equity placements in dot-com history.

At the same time, the company announced that it has named Robert N. Brisco, formerly president, Universal Studios Hollywood, as its new chief executive officer, effective immediately.

All of the company's original corporate and institutional investors - which include idealab!, idealab! Capital Partners, Primedia Ventures, Foundation Capital, Michael Dell's MSD Capital LP, and Goldman Sachs - participated in this latest investment round.

New participants in the round include investment banking firms Morgan Stanley Dean Witter, Hambrecht & Quist, and E*O Investors LLC; strategic investments that include Oracle Corp., Liberty Digital, TMCT Ventures and East Peak Partners L.P; and investments from international partners Hikari Tsushin, and Soros Private Equity Partners LLC.

"The investors participating in this round of funding are a major endorsement of CarsDirect.com's strategy and will help us to aggressively pursue the company's business initiatives as well as deliver an unparalleled customer experience," said Bill Gross, co-founder and member of the board of CarsDirect.com.

CarsDirect.com is the first nationwide online service that provides consumers a complete car buying experience - from research, pricing, customization and financing to flatbed delivery of the car to a home or office.

"We will use the proceeds from this round to build our brand, enhance customer service, and expand our program with our nationwide network of dealer partners," said Painter.

CarPrices.com Declares The First Online Price War For New Car Buyers; - Dealers Bid For The Consumer's Business

SAN DIEGO--Nov. 15, 1999-CarPrices.com, announced today the implementation of the industry's first online "Reverse Auction" for new car buyers, called the New Car Price War.

This revolutionary new technology allows dealers to bid against each other for the consumer's business. The New Car Price War has started in San Diego, where nearly 80 percent of all new car dealers are participating in the program, with a nationwide rollout to follow.

"This is a revolution in car buying," said Ahmed Ghouri, CarPrices.com's co-founder and vice president. "The New Car Price War puts the power in the hands of the buyer. The buyer configures the exact car he/she wants, and dealers compete for the sale. Each dealer offers their lowest price. End of story. You just sit back and choose."

To provide the buyer with a point of reference, CarPrices.com also provides the buyer with the dealer invoice price, the price the dealer paid for the car the buyer specifies. The bidding process lasts one business day, and the buyer can access his/her account at anytime to see what bids have been received. At the end of the bidding process the buyer has the option to accept a bid, and with a single click notifies the selected dealer. Buyers also will be able to rate the buying experience with any given dealer.

"Everyone wants to get the best deal on a car," Ghouri said. "The New Car Price War and our dealer rating system give consumers exactly what they want."

Auto Dealers Drive Internet Car Shopping Growth, NADA Says

WASHINGTON, Nov. 11 - Franchised new-vehicle dealers continue to lead the development of automotive Internet retailing, according to new research from the National Automobile Dealers Association.

NADA's survey of Internet utilization found the number of dealerships with Web sites increased to 74 percent in 1999, up from 61 percent the previous year. The NADA study also determined that 45 percent of those dealerships currently without Web sites plan to be on the Internet within the next six months.

NADA found that most dealer Web sites are now interactive, letting customers view inventory and check prices. Nearly 40 percent of dealer sites allow customers to complete finance applications online and 42 percent allow customers to schedule service appointments.

While the majority of dealer sites averaged approximately 50 hits per month, 14 percent received more than 500 hits each month. Only 9 percent of dealer sites topped 500 hits per month last year. Ninety-seven percent of dealerships with Web sites have dedicated staff to maintain and monitor their sites and 95 percent have salespeople specifically assigned to handle Internet-generated inquiries.

In addition to their own sites, more than 50 percent of dealerships subscribe to one or more third-party Internet shopping services, up from 31 percent last year.

Using Technology to Retain Customers
Parts 3 & 4
By Sandi Jerome

During the previous issues, we discussed why you need a Business Development Center, how to decide who will call customers - salespeople or trained telemarketers, and how to find the right BDC manager. In this issue, we'll discuss pay plans for the department.

Before you can consider hiring a BDC manager, you need to determine what you can afford to pay that manager and the salespeople, The following are a few different options. If you would like these spreadsheets to use for your situation, please e-mail to Sjerome@dealeronline.com.

Option #1 - Simple Pay Plan for Salespeople

· Vehicles sold from CRD - 5% additional commission. It's easy to monitor. Just have the BDC manager initial the "Contacts to Call" sheet and include a copy in the deal. This method also tracks BDC sales and enables you to monitor your success of the department.

· Plus .5% of parts and service business they generate. Run a report from your Closed Repair orders and give the salespeople a bonus check based on their volume. This encourages them to call customers for service appointments and "tie" the customer to the dealership.

The next two pay plans are a little more complicated, but can provide better results of what you are looking for - customer labor sales, parts sales, etc. It uses a point system that translates into dollars. Since it is difficult to determine by the previous pay plan if the salesperson is responsible for creating labor and parts sales this plan monitors it. It also rewards salespeople for reporting to the BDC center.

During our next issue we will explore the next step to Using Technology to Retain Customers - determining if you can afford the department.

During the previous issues, we discussed why you need a Business Development Center, how to decide who will call customers - salespeople or trained telemarketers, how to find the right BDC or CRC Manager, and pay plans for the department. Now the big question is; Can You Afford a CRC Department?

The following analysis (also included on the pay plan spreadsheet) is a proforma on what a CRC can do. In a medium-sized store with just 5 or 6 salespeople doing the calling, you could sell 60 or more vehicles from the CRC center. Remember that these are not "cold calls" - but calls to customers that you know. Your salespeople know what vehicle they own, when they last had it serviced and often the customer's birthday, hobbies, and driving habits.

Although this shows a cost of about $8,000 a month - it generates over $80,000 in gross profit. Remember - this $8,000 isn't an outside expense - it is a salary for the new manager and increased commissions for your salespeople. This new manager might not just benefit your BDC or CRC department, but other departments as well. In many of the dealerships we work with the CRC manager helps manage the inventory, website, other PC's in the dealership and Internet leads. In addition, when you enable your salespeople to make more money - you retain them longer. This reduces your training costs and employee benefit costs.

During our next issue we will explore the next step to "Using Technology to Retain Customers - how to plan your contact strategy.

Cover Story
Harold Wells 2000 Chairman, NADA
Interview by Mike Roscoe

Harold, How did you get in the automobile business?

I have always had a passion for automobiles. The designs always fascinated me. I remember when they quit producing them because of World War II; it just whetted my appetite even more. In 1946, when they started up production again I was fifteen years old and I can precisely remember the sparkling new automobiles coming into my little town again. In college, I continued to feed on my passion for automobiles. I heard about The General Motors Institute in Flint, Michigan and transferred there and eventually finished my education there. While I was studying at GMI, I was hired by a Chevrolet dealer and worked with that dealership for two years until I was drafted into the service. I was assigned as an instructor in an automotive school for two years in Fort Jackson, South Carolina. I believe at that time they called it Wheel Vehicle Maintenance School. I taught classes such as the basic principles of the internal combustion engine and other basics as applied to the army vehicles. After the army, in 1956, I learned about an Oldsmobile, GMC Truck dealership, Braxton Auto Sales, that was operated in the town my sister lived in which was for sale. Lee Braxton had been in business since 1936. I was 24 years old and my brother in law said he would put up some of the money needed to purchase it. I negotiated a deal with the dealer to purchase the entire contents for $10,000. He required no down payment and the payments were $250 per month.

What made you think that, at 24 years old without any real experience, that you could run a dealership?

I never had any doubt about it and I never had anybody tell me I could do it except the Chevrolet dealer who I had worked for. When I talked to GMAC about it, they thought I had lost my mind and a few other people did too. But Mr. Roy gave me good advice and said he had no reservations that I could do it. I never looked back, I just knew I wanted to do it. I was willing to do whatever it took. I never had a plan B, I just had plan A and I stuck to it.

What did you do at the Chevrolet dealership you worked at while at GMI?

I worked on a co-op program. When I first started I was in the service department for two months then I moved around to the office and finally into sales. I was in every department at the dealership. I spent the majority of my time in selling.

Early on what did you see as the key in being a successful dealer?

Number one is credibility. You have got to build a customer base and unless people believe in you and have trust in you it isn't going to work, especially in a small market. Number two is dedication and determination. Then, lastly is being energetic. The individual entrepreneur has to have energy.

What is the difference between what it takes to be a successful dealer today as opposed to when you got started?

My philosophy has been that to succeed you have to keep doing the same things you had to do to get started. It is all about the basic fundamentals. It goes back to credibility. You have to do what you said you would do in the first place. Good work ethics and habits. When I got started at this dealership I did not figure I would stay for long. I figured I would eventually move to where the grass was greener. I fall into the lower one-third size dealers in the country. But the real basic fundamentals of running a business are the same here as it is everywhere else. Along the years I have had opportunities at larger locations but I find business is basically the same in the smaller dealerships as it is in the bigger ones. I have talked to some of the biggest dealers in the country and I find that their problems are the very same as my problems.

What was it that initially drew you to becoming so involved in NADA?

Perhaps it goes back to when I was in a high school play and I was the business manager for our high school class. My job was to go out and sell ads for the program so we could make enough money for a trip to Washington DC. I learned then that if you want the community to work with you, you have got to work with them. We had a good relationship with the businesses in our community so they placed ads in our program and we made money off of it. I think doing that stimulated me in a way that I will never forget.

What do you see as the biggest issues facing dealers today?

There is no doubt that there are a lot of issues facing us today, but we now have the ability to react faster than we have ever been able to. We can collect feedback from our dealers through our surveys very quickly now. We are living in a society that is moving faster and we have got to adjust to it. James Appleberry said something like; "We have had an opportunity at our age to have seen the United States move from an agricultural economy through an industrial economy. Now we have moved into an information and technological economy, all three of those in our lifetime. The thing that is shocking is that the information in the U.S. doubled from the year 1900 to the year 1950. It doubled again from 1950 to 1960. It has doubled about every five years since then. If it continues at the pace we see today, by the year 2020, information will double ever 73 days." We have got to be sharp enough to react faster but at the same time remain calm. I am convinced that NADA is going to do both.

What do you see as the three most critical issues facing you as leader of NADA in the year 2000?

Industry relations, government relations and legal and public affairs. What is also important to me is dealership operations. Dealers have got be schooled and educated more in information technology.

What will be NADA's position and what do you think will be the proper approach for dealers to have towards factory ownership, whether it is the Ford retail networks or Ford valets or General Motors buying dealerships?

Well number one, we have to respect the fact that we live in a free country. Each corporation and each individual has his choice. I walked into a meeting the other day and a friend of mine asked me how I was doing. I said, "Well, I am working too hard", he said, "Well, you know who makes that decision don't you?" We have to remember that each one of us has the opportunity to make our own decision. For me as a small town dealer, how do I compete against the real giants? That is a question I cannot answer. How can a dealer of any size compete against the manufacturer? Look at the mission of NADA. The mission is to be the voice of the dealer and to protect the franchise system. I don't see how we can protect the franchise system when the factory is my competitor up the street. The resolution the board of directors took on October 19th pretty well states where we are. We feel like the policies and the by laws of the committee have got to be parallel to the membership criteria in that resolution. If we lose members, we still stand for the basic purpose that NADA exist for. We face that as it comes. Each individual dealer can make his own decision as to what he does.

Even though NADA still needs to lead the charge, it looks like this my be a war of skirmishes within states as much as anything else, with the state associations really working their own state legislators to enact legislation to keep the factories from doing this.

That is why each state has to make up their mind individually. NADA will be glad to assist where they can but it has to be each individual state associations decision. There is no such thing as NADA walking into the halls of legislation anywhere and telling them what to do. We cannot tell anybody what to do, we can recommend.

What can NADA do to help these states in the battle? What are some specific things along the lines of helping the states to communicate and letting all the states know when one tactic or approach works better than another?

NADA will be as aggressive in this as they possibly can to try to ensure that the franchise system of independently owned and operated dealerships exists. Basically what we can do is assemble the information that takes place in the various states and have this information available so that when one state calls up NADA and says, "what should we do?" we can give examples of what other states have done in order to protect themselves. NADA needs to do whatever they can do to promote and encourage states to enact these laws to protect the franchise system.

Initially, the approach NADA took towards GM appears to have been misunderstood. Last year when I asked Jim Willingham what was the biggest point of contention was between dealers and manufacturers, he said "too many dealers." Obviously the answer is different today. What do you see as some potential problems facing dealers that remain unseen or lurking beneath the surface?

I think the number one thing, particularly with GM right now, is them trying to get into the retail business. Ford has taken a "hold" position. GM is apparently taking a little bit more aggressive stand on it. The Internet is such an unknown. That is one of the big things that is like a cloud over us right now. I don't think anybody has a crystal ball to get a clear vision of where we should go. I think there is an attitude among the manufactures that they would like to see the car being sold over the Internet and delivered directly to the customer, therefore reducing their distribution costs from the time it left the assembly line to the time it reaches the consumer. I have reservations about that being successful. I look at banks today, particularly the larger banks, that are trying to cultivate electronic banking and I see them losing customer base when they go forward with these initiatives. If you look back and see what has taken place with the automobile, it has been an evolutionary process as we have moved forward with the design and improvements. Now, all of a sudden, manufacturers and publicly owned groups are trying to revolutionize the way that people purchase their cars. I really feel like that it is being forced a little bit. This market has got to be driven from the consumer up.

What about the Internet?

It is an education process and we, as dealers, have got to take a strong look at it. I compare it to this; if I am selling trucks and I have got two wheel drive trucks and everybody is buying four wheel drive trucks, I am not going to sell many trucks. The same thing has got to happen in this process.

What is NADA doing to help dealers in relation to the Internet? After all, there's not a dealer in the country who worked their way up through the Internet Department.

The Dealership Academy that the NADA operates in Virginia. We have various committees that operate and our Information Technology Symposium is one way to keep up with what is going on with Internet trade. We do not interpret it as a threat but an opportunity for each dealer.

Is there something for the dealer principal or is it more on how to set up and run the Internet Department?

There are various classes that are held on this through the dealership operations committee and through the information technology committee and you will see that accelerated more and more. It is a work in progress and a dealer has got to get educated. They have got to know what is going on out there.

Getting back to the manufacturers, it almost seems as though they are not that interested in the relationship they have with their dealers.

I think that has improved. Are they doing everything we would like them to do? No. I would say the dialogue has improved this past year. I think they are more willing to listen than they have been. Whether or not actions will prove it over a period of time remains to be seen. I think the dealer attitude surveys are having more of an impact than ever before. I think there is more credibility in those surveys in the eyes of the manufacturers than ever before. When you look at the manufacturer who has good relations and is open for input from their dealer body, they typically gain a bigger share of the market. If you want to sell more cars, you have to have an excellent relationship with your dealers.

How can you have a good relationship with your supplier when they are also your competitor?

You are not going to make me work hard for you if you don't like me and I don't like you. If you want me to do a better job, you and I must have a better relationship. There must be open dialogue!

Do you think Chrysler will benefit by some of the intrusion of Ford and GM into retailing?

I think so. I am a Chrysler dealer also. They will save money on product development and now they have an initiative to help their dealers cut costs. They listen to dealer input. I don't think there is any question that if Ford and GM go stronger into the retail initiative that this would help Chrysler. I understand Ford has lost market share in every market where FRN exist.

Mercedes has new pricing, which does not allow any negotiating. What are the chances that something like that might creep into Chrysler?

I would be very disappointed, but I don't think there is a chance of that happening right now. There is a different product there. If you have got a strong enough product in design and consumer demand, you can force a lot of issues. I have been through the Oldsmobile one-price selling which did not work because we did not have a product that we could force on the market. If you have got a high demand product with a design that is exceptional and that there is a high demand for, you can do that for a while. The competition is going to catch up with you at some point with whatever your superior feature may be. And when they do catch up, people are going to say, "you are not going to tell me what to do, I'll show you." We still cannot get away from the basic fundamentals of the consumer being the ultimate driving force of what we all do.

Automobiles are sold on emotions and excitement. Unless you can get a thrill out of driving that car and seeing it, you are not going to buy it off of a computer screen at home. An essential element of the success of one price selling is that all dealers of that franchise must subscribe to that philosophy.

Some dealers I've recently spoken with are concerned with getting a fair, reasonable and competitive warranty payment process from the manufacturers. Is this something that NADA would get involved in or would want to be involved in?

Of course we have an interest in dealers being treated fairly by the manufacturer. As far as getting to individual pricing policy, that is not really what NADA should get involved in. The overall policy has got to be one that is fair and equitable to the dealer performing that service. There are some things about warranty payment that concerns dealers. Basically if you look at warranty expense, so much of it is driven by the quality of the product. The manufacturer's responsibility is to build a good product. If you build a product that is defective, the dealer should be paid a fair price to correct those problems for the manufacturer. The dealer should not be performing quality control, that has got to come from the manufacturer. If you have got repetitive warranty expense, then somebody has made an error in the design or the assembly of that car.

There have been dealers who have successfully gone to court and had it ruled in their favor in warranty payment matters. But that is expensive and time consuming and what dealer wants to go to court against their supplier? What could NADA do to try and fix this situation?

If the problem gets to be that great then the industry relations committee would review the problem and work with them to try and communicate with the manufacturer. For instance, there have been some cases where things were out of line on some of these factory held stores. It came back to NADA and we made a phone call to the factory and said "listen inequity exists here and we expect you to respond to it", and they did respond. I think if there is inequity in warranty payments and it goes before the dealer council then NADA can assist in analyzing the problem and take a look at it. I don't think that the dealer council and the NADA both would come up with the wrong answer.

Harold, in one word, how would you describe being a dealer today?

Change.

Has there ever been a more challenging time to be a dealer?

I was told in 1956 that it was not a good year to go into the car business. And what if I had listened to them? I think of a dealer as an entrepreneur. Entrepreneurship has been the driving force in American business. Sweat equity. We, as dealers, have in our operations the driving force that makes the retail end of the business work. The entrepreneur adds an invisible value to the process. Profit is not a dirty word. I am afraid some of the factory initiatives are trying to suppress some of the entrepreneur's individual initiative and that is something that should be protected, not suppressed. They are affecting younger dealers right now and may not realize that. My son has been a dealer now for three years at Toby Wells, Pontiac GMC in Pinehurst-Southern Pines. He is 33 years old and I know that when they talk about direct selling and all that they are not drawing the young good dealers into the process. This concerns me greatly.

Has there ever been a more exciting time to be a dealer?

The challenge has always been there. We are prone to look back and say things used to be so good. But as we go forward and then look back we are going to say, "you know the year 2000 wasn't as bad as I thought it was". Yes this is a challenging time but that is what makes it exciting. There will be more challenges in the future.

Has there ever been a better time to be a dealer?

There has never been a more profitable time to be a dealer.

Advertising
Jim Boldebook
Advertising in the New World

Let the beginning of the new millennium be the excuse you need to shed the skins of the "Old World" and futurize your advertising.

Despite the fact that we will probably end this century with the largest annual vehicle sales in United States history, the majority of automobile dealers don't feel they have a handle on one of their biggest expenditures, advertising and promotion.

According to author David Siegel in his new book "Futurize Your Enterprise," one of the best books ever written on the future of the Internet, you can't expect to succeed in the New World if you're stuck with the mind set of "Old World" business beliefs. Although Siegel's "Futurize" is about the Internet, it is a concept "blueprint" for futuristic thinking in every aspect of the automobile business especially advertising. If you can only read one business book this year, read "Futurize Your Enterprise" (street price of around $18 through Amazon.com).

How can you possibly begin your advertising 'planning' for the next century without taking into consideration the dramatic changes of the past thirty years, and in particular the last five years? In 1960, we had three television channels to choose from. In 1999, we had 140. Future television sets might receive 500 or more channels. In 1960, we had three or four radio stations to choose from. In 1999, we had 30 or 40. In just a few years, we'll have thousands of audio channels available as virtually every broadcast medium finds a channel on the Internet.

Up until the late 60's we had AM radio in our vehicles (and 8-track tapes). In 1999, we had AM and FM stations, cassettes, CDs, DVDs, and DATs. As we enter the new century, we're promised early introduction of wireless Internet in our vehicles as well as in-motion satellite receivers already in auto maker production plans.

In 1994, virtually no one had heard the word 'Internet'. As we enter the New World of the next century, the Internet dominates our conversation and is changing the entire economic structure of commerce and business as we know it.

At a recent automotive marketing conference, the CEO of a major automotive manufacturer talked about the proliferation of messages and information we each receive on a daily basis. In 1960 that number was around 360. Today, it's over 5000. That's a lot of information to process. In fact, too much for most people. No wonder so many of us have developed methods of bypassing this information (and advertising) stream. Do you ever mute your TV or turn down the volume during a commercial break? How many commercials in a row will you put up with before flipping TV channels or pushing the radio "seek" button. Do you throw away "junk mail" before you open it? Have you ever erased voice messages before listening to them completely? How about "deleting" e-mail that doesn't have a "subject line," or e-mail from people you don't know? Is it any wonder that customers get angry and confused over fine print when they don't even read all the big print?

There's no clear cut answer to all of the challenges in developing effective advertising and communication, but a few things are very clear:

Research. A business that does not invest in research to help determine the most effective means of reaching existing customer and potential new customers will not survive for very long in the New World.

Interactivity. Successful businesses will make advertising resources effective multi-channel communication tools, obtaining constant input and advice from customers, and enabling customers to exchange information with other customers.

Constant Innovation. Stale, sound-alike, cookie-cutter themes get lost, muted, deleted and mentally shut out. The New World requires new ideas.

Honesty. Dishonest businesses that lack integrity will not succeed in a world of unlimited information freedom. Dishonest advertising will hurt even basically honest businesses.

One-on-One Marketing. For years, futurists have talked about the concept of marketing to specific, individual tastes and preferences, but the Internet has finally provided the ultimate tool in accomplishing those goals.

Communication. Effective advertising and marketing plans must be shared with, and understood by everyone in your company. Not just a few.

The most effective advertising in the New World will provide a true competitive value proposition on issues most concerning the customer. An important function of mainstream, mass appeal media, will be to draw customers to your web site.

Sales & Marketing
Mark Tewart
How To Increase Sales 20% In One Month

Does the manager in your dealership have a written job description with clearly defined responsibilities and expectations? Does your manager know that having specific goals for their department is required? Does your manager know that daily action plans for selling, training, appointments, one-on-one coaching, save-a deal meetings, deal structuring, follow up etc. should be required? If the answer is no to most of those questions, what is their chance of success and your dealership's chance of success? Don't change managers until you can answer yes to the aforementioned questions and give your manager a chance to succeed. Making someone a manager doesn't mean they automatically know how to be one.

If you read biographies of successful people or businesses, one common thread always seems to be passion fueled by big goals. When you write specific goals down on paper, you are committing yourself mentally, emotionally and physically to the attainment of those goals. It has been proven that 95% of people in the world will never do this. Do your managers and your employees set goals for long and short term? As the dealer have you committed your dreams to paper for the month, 6 months, 1 year, 5 years, 10 years, 20 years? Speed of the boss, speed of the crew, if you make the commitment, your employees will to.

Once you have set your goals, plan your specific actions to reach them. Write a specific action plan for when to train, what to train on, who will conduct the training, how long the training will last and your expected goal of improvement for that area. Post a training schedule for the month and make it a priority. Training is not a sometimes activity. It's an everyday requirement.

Set goals for appointments and make action plans to reach those goals as a dealership. This requires goals and action plans for each salesperson as to their activities to set daily appointments. Strive for and monitor appointments and watch your sales increase.

Every salesperson should be coached daily in a one on one session. Set a game plan for who does this, when they do it and the expected results. A one-on-one session should be done for each salesperson daily. Items covered in those sessions should be, their current sales pace in relation to their goals and their percentage of success for total seen contacts, demo's, write ups, closed, and deliveries. Those items should be monitored for both yesterday's traffic and month to date totals. Does each salesperson have a day timer? The salespeople should be required to have a plan for their day, which is broken down into an hourly focus. To-do lists and follow up systems should be reviewed for both sold and unsold customers. Review yesterday's traffic for each salesperson and walk back through what happened and listen for clues that would show breakdowns in their sale process. These activities alone can increase your dealerships sales 20%.

Each morning, sales managers should be required to hold a save-a-deal meeting in the F&I office to review yesterday's sold and unsold traffic. All deals in F&I should be reviewed. Review approvals to see if they have been delivered and if not, why? If delivered, have they been booked out and turned to the office? Review finance turn downs for reasons why and any possibilities to approve those deals. Review dealer trades and the current status of those deals. Review heat sheets and contracts in transit for deals not funded and deals that have missing items such as titles etc.

The first step is to get rid of the notion that there are good and bad months. You either have good or bad goals, game plans, actions and reviews of actions. Good or bad months are directly attributed to those items and are not luck.

Green Pea Diary
Sales & Marketing
Jack Bennett
Is That The Door I Hear...Closing?

Closing, closing, closing. It is what I hear from managers all the time. They all want to know if the salesperson is a good closer. Well I believe that the actual close of the sale is a very small part of the whole picture.

Before we can talk about closing sales we need to know what closing is. What is a close? I pose that question to all my new trainees and I get a multitude of answers. Some good, some not so good. "It's when the customer signs the contract." "It's when the manager and the customer agree on a price." "It's when the customer drives off the lot." "It's when the customer agrees to buy the vehicle." While all these are indications that a sale has if fact been closed, it's really not the story.

The definition of a close is "a question or statement that demands response." That's it! That's what we are trying to do. Say something that will get the customer to make a decision on something, on anything. For example when I say to the customer, "Do you want a light or dark color?" And then customer says, "light," I have closed him on the color, haven't I? All we are trying to do from the time we meet and greet a customer until the time he drives off the lot is get him to make decisions, choices that can help us help him get the vehicle that best fits his needs. This is why I say that the road to a sale is 90% selling and 10% closing. Because, and this is going to sound a bit contradictory, we are in actuality are closing all the time.

Qualifying questions are really nothing more than closing questions, aren't they? "Were you looking for a two door or four? Automatic or manual? Were you looking for performance or economy?" These are all just qualifying questions but each one closes the sale a little bit. When your salesperson finally has the customer in their office and says, "Now Mr. Jones, did you want your payments to start on the 15th or the 30th?", it is a close, but a close that was made possible by all the little closes along the way. The better a salesperson does those little things along the way, the easier it is to get commitment in the office.

There are books like "One Thousand and One Closes" that teach closing skills, and while these are all valid in one selling situation or another, most are quite generic. I would like to share with you three closing techniques that are very specific to our industry.

The Alternate Of Choice Close. As you may have noticed in past articles I use this technique a lot, especially during qualifying. It gives the customer the opportunity to answer in a positive manner every time. Light or dark color? The customer says "Light." We've closed him on the color in a positive way. It opens the door to lots of light colored cars, doesn't it? If we say, "What color do you want?" and he says, "blue," and you don't have a blue one, you're out of luck. Alternate of choice is very effective. "Are you going to be titling this vehicle in your name or your companies?"

The Assumptive Close. As most of you have seen in my articles and in my training book, I am always in an assumptive mode. If the customer nods their head or follows me or in some cases doesn't say anything, I always assume that I am doing fine and should move forward. Your salespeople should always be moving forward. When you look at the assumptive close in its purest context, the salesperson would take the customer from the demo drive and re-presentation right into their office and start writing the contract. They would continue to write until the customer stopped them or they got to the list price of the vehicle. If the customer has not stopped them, the salesperson should just spin the contract around and tell the customer to sign it. It's not easy and I don't think a salesperson who's been on the job a week can pull it off but as they gain experience and confidence they will. The main thing to remember about the assumptive close is to always be moving forward and never stop until the customer tells them to.

The Direct Close. I have watched many salespeople struggle to close sales when in some instances they could have simply asked the customer to buy the car. The salespeople are so worried and wrapped up in doing the right things and not coming off as pushy that they talk past the close. Sometimes the best way to get a customer to buy a car is to ask. I use this close when I have been working for a while and I can't get commitment. "Mr. Jones, it's 100 degrees outside, we've been working together for three hours. Now you're going to go down the street and start this whole process over again? And for what? To save $50? Your time is too valuable, just buy the car. I'll get you into the business office and you'll be driving it in an hour." And the salesperson spins the contract around. It is that simple.

Closing is easy if a salesperson is always doing it. Remember your ABC's. Always be closing, always be getting the customer's head going up and down, and before you know it, they'll be saying, "Yeah, we'd like our payments to start on the 15th." Next month I will share a few more specific and effective closing techniques.

Good Luck and Good Selling.

Sales & Marketing
Forrest Scott
Business Development Center: Using the data you have collected

Now that you have created a BDC and have began collecting data the issue is what you do with it. When you installed your BDC you made a commitment to be proactive. Now it's time to put the massive amount of data you have collected to work.

The mining of data is a major part of the BDC's role. However, for this mining to be effective the BDC must have a clear understanding with regard to what exactly you want and what they should be looking for. Today there are BDC software programs and computers available that make the task of finding critical data simple and easy. The changes brought about by technology and competition have made some of them extremely inexpensive and in some cases require no additional start up or maintenance fees. Considering the fact that there are great packages out there that cost no more than a few thousand dollars total, it's hard to understand how any dealership can avoid the BDC concept.

To get the most out of your BDC I suggest you include your BDC manager in your marketing meetings. As an example, the next time you plan a special event or sale, bring the BDC manager into the planning sessions. The following is a scenario of what could happen if all personnel and systems are in sync. Let's say your dealership decides it's going to have a major event. If you are going to use print (newspaper or direct mail) as part of this, wouldn't it be great if your BDC took the newspaper advertisement or direct mail piece and e-mailed it to every available person in your database. While this may seem like another expense, it's not. Since most advertisements and direct mail pieces are created on a computer, the cost of the piece (attachment to your e-mail) should be free. After all, you have paid for the creative. If you are not familiar with this, here is what you should do. After you have signed off on the marketing piece tell your creative person to also save the piece as a "JPEG" file. Once this is done you can attach the "JPEG" file to the e-mail you intend to broadcast/e-mail to your database. It's easy, quick and it cost you nothing. Considering the price, how can you go wrong? By performing this one concept the BDC could actually increase your exposure several times without costing you a cent.

What reports are necessary?

Reports are one of those areas that seem to create a lot of confusion and stress. It seems most dealers and managers at first have grand and glorious thoughts. They see themselves sitting, analyzing and reading these reports. The problem is that the typical car dealer, general manager, sales manager and service manager has a tight schedule as well as an array of distractions that might put their counterparts in other industries in an institution. The fact is most managers prefer exception reports. What they really want is to know the issues. Get them fixed or resolved as soon as possible and move on to the next set of issues.

If you have the time and inclination to review and wade through reports then by all means you should have the BDC get them for you. If not, don't pay to create them. It is important to remember that each report, while generated by your computer, takes valuable time. Sure the BDC presses buttons and the computer prints them out. But someone then has to copy the reports, collate them and then disseminate them according to the distribution list. Is it difficult? No, but it does take time. With this time I would prefer to see the BDC personnel calling customers, maintaining the database and performing proactive marketing procedures that could generate appointments, build relationships and generate new business.

Please note that I am not knocking reports. There are many reports that are absolutely necessary. However, I have seen too many cases where a dealership has paid to create and distribute reports which they never use. Why not save the time and money? You can always have a report created later should you feel the need.

Security

I strongly suggest extreme care be taken when you select a BDC software package. Before you purchase a software package a few of the items I would consider are:

· Does the software allow the ability to password protect the program? Not simply one password that everyone uses. Can you have individual passwords so you know exactly who was in the system and when?

· Can you lock individuals out of certain fields?

· Do you have the flexibility to allow only certain types of entries by certain employees?

· Can you set up the system so certain people can view the contents of certain customer's files without the ability to change or alter data?

· Will the software keep the e-mail messages in a specific customer's file that has been sent out? This could become a serious issue should a claim of any type be raised?

· Will the software log the amount of time a BDC person spent on the phone with a specific customer? This is an important feature when a BDC manager has people making calls after the manager has left for the day.

· Does the software keep copies of all correspondence sent to your customers?

· Are there levels of security, which allow only certain individuals the ability to delete data and/or a customer's file?

· Does the software log the actions of the person logged into the system?

While the above items are only a few of the areas of concern, they do give you the basic areas to explore with your software provider.

BDC's are growing at a rapid rate. If you have not considered installing one I suggest you revisit this issue. When it comes to units sold, to enjoy future growth you only have two choices: increase the amount of sales per salesperson or increase the amount of salespeople. It's easy to see that it is certainly in the dealerships best interest to concentrate on methods and systems to coach and assist the sales force to become more productive. When a BDC is installed properly, managed well and supported by top management, the benefits to the dealership can be enormous.

As a closing thought: considering the changing attitudes of the buying public, is it really logical to expect the systems of the past to successfully develop the relationships that will be necessary for a dealership to survive in the future? I believe we all know we will need to get closer to the customer. I believe we all know we will need to anticipate a customers return to the marketplace rather than simply waiting for them to show up on our doorstep. Perhaps more importantly we will need to be more cost effective in doing so. If you are not going to install a BDC how will you accomplish this?

F&I

Q&A:
Michele Myers Vice President, Financial Services Dorschel Automotive Group

· 4 locations

· 13 franchises

· Average 450 units/month (new)

· Average $350-$1000 per unit gross (varies according to franchise)

· Approximately 60% financed, 30% leased.

What is your job description?

I recruit, train and build a successful business department for each of our stores as well as establish and maintain the relationships with our vendors. I oversee the business offices at all four of our locations, including our non-prime department.

What is your background?

I started in the automobile business in 1984 as a sales representative. I moved into customer relations manager for a couple of years. What the position entailed was taking all incoming sales calls that came into the dealership and I was paid a commission for getting the customers in off of the phone call. Even then I always had my sights set on the finance & insurance department. After a couple of years in that position, I moved into the position of business manager. When I moved back home after almost six years, I was pretty careful in whom I decided to work for in that I thought I had the experience and background to select the dealership that I wanted to be at. I wanted to be sure that their criteria met what I felt I needed in order to be successful.

When you came on here, did you come on as a business manager?

Started as business manager and then within a short time, based on opportunity, I became what they call a team leader, finance director in 1996 and then at the beginning of this year was awarded the title of vice president, financial services to oversee all our locations.

Michelle, in your opinion, what are the keys to a successful F&I department?

I believe that the keys are to stick to the basics. It's surprising to me when I talk with other business managers in some of the meetings that we have, that a lot of the business offices still don't have the basics down, which goes back to my very first F&I training - a strong policy for turnover, a well-trained business manager, one hundred percent solicitation of products and a system for delivering cars quickly and for tracking performance.

Training is critical.

Absolutely. As a matter of fact, next week we have three business managers attending David Lewis & Associates. We like our business managers to return to the David Lewis class at least once a year and what they've been successful at is to change their program and keep up in the marketplace so that each time the business manager goes, it's not the same old classroom material. It's something different and unique and they always come back with something new.

What is the primary responsibility of your F&I managers?

That one, too, I think is pretty simple and that is to service the sales staff in delivering cars as soon as possible and to maximize the profit on each deal.

What do you look for in an F&I manager or prospective F&I manager? What do they have to possess?

They have to have salesmanship, a strong ability to think on their feet, to pay attention to detail, to problem solve and they must be proactive, because the position is a manager's position.

And what do you think they should not have? What makes it that you say this person would not make a good F&I manager?

That's a good question because in a lot of cases it's a successful salesperson who's interested in F&I and they can't get used to being behind a desk. They don't have the mobility that they had on the sales floor. Plus, they have to be team oriented. I find there are some sales individuals or candidates for F&I who prefer to work on their own and that generally isn't going to lead to a successful long-term career as a business manager.

What percentage of your F&I managers were promoted from within the dealer group and what percent came from outside, approximately?

Promoting from within is always our first choice. Throughout my tenure here, I would say probably 60% were promoted from within. That might sound a little low, based on the fact that our primary goal is to promote from within, but it's that way because we also believe strongly in recruiting from colleges for our candidates. The majority of the balance of that percentage is going to be individuals that we have recruited from college campuses and brought into the industry and trained for a career in finance & insurance.

For the people who are recruited from outside, did they train and immediately start working as a business manager? What is the process for them?

We have a proven training program with a track record of success with these individuals. I would say it's even a higher level of success than promoting from within, because we have basically a two to three year training program where the individual comes on board and has limited responsibilities as their training program grows. That was the basics of F&I and I generally say it takes about six months to be able to have encountered every situation and to have some good numbers established as a business manager. So we have an initial training program with them where we just stick with the basics of the business office and train them.

Are they performing the job functions while they are learning?

Initially, for the first two weeks in the training program we break down each process in the business office and we will teach a skill, we'll role-play that skill and then they will actually take on that action. I might teach something as simple as calling to get a payoff and then we'll role-play it by actually doing one together and then they might do a few payoffs. And, of course, the main focus would be to train them on taking a turnover and we'll start with a simpler transaction and then we'll break down and might do a finance, we might do a lease transaction, we might do a cash transaction, then we'll train on that aspect of it, role-play through that and then actually take a turnover on that transaction. In those two weeks I also bring in the representatives of our different products so that the individual is not just getting my perspective of that product, they are also getting the representative's input too. So we train on the product, we train on the paperwork, we train on the process and overcoming objections in a two-week program. It generally takes about six months for them to master the basics and then slowly going into the second year, they get more responsibility within the department and going into the third year as well. So it's really a three-year program where we bring them in, their responsibility level grows as their performance level grows. And then their income grows as well.

What specific things do you do to keep things running smoothly between the F&I department and the sales department?

I like that question because that is the one that is probably the most consistently the challenge. It is also the most important. We find that good communication is the key and a lot of times it does boil down to Scott (V.P. of Sales) and I just being able to sit with the sales managers each morning in a meeting with the sales department and any communication or agenda that comes up, we're able to address. Probably the biggest factor other than that is that the business managers participate in the weekly sales meetings. Everybody likes to be informed and up-to-date on what's going on. The more that the business office can keep the salespeople informed of their deals and their transactions, the more the sales department can let us know what's going on with their deals and transactions.

How has the internet affected your F&I departments?

We have seen, probably within the last year, some effect as far as customers getting information concerning automobile loans off the internet and in most cases they are bringing that information to us and we're able to review the choices with them as if we would any other source.

But to this point, not really much of an affect at all on your business?

Nothing significant right now.

Do you expect that to change any in the future?

I think so. In a couple of ways ­ I think it's going to be a positive affect for two reasons. I always find that a consumer with the information is always a plus. It's really how we use it. The customer gets here and we know what our competition is. The other thing that I think will be a plus is the technology. With my involvement in the sub-prime department, the sub-prime technology that's available for the dealership's use is well beyond the technology that's available for the conventional F&I today. I can see the business managers in the near future having a PC with internet prices on their desk as opposed to just a software program or a glorified typewriter that allows them to print the contracts. A PC that enables them to be able to get information from some of the different sources and take advantage of some of the technology that we are starting to see for the conventional.

Michele, you are responsible for both the prime and non-prime and DEALER magazine has advocated a separate department for sub-prime. How are you set up?

We're behind the theory that we should have a separate sub-prime department, however, I think we have a unique twist to that. We have one special finance department that services all four of our locations. We also have a bank portfolio manager and that individual takes the deals that are turned down at our locations daily and rehashes them to gain the approval. His office is right next door to our sub-prime or special finance manager's office, so each morning, generally twice a day, they are both looking at and, if you will, they are both in competition for that deal to see who can get it approved the quickest. We're working towards a seamless process between a deal that's turned down conventionally and one that goes special.

Seamless to the customer.

Exactly. The customer is told within that day that they have an approval and to come and pick up their vehicle.

What one piece of advice would you give to dealers who want to maximize their F&I departments?

I would say to get involved. I find that generally, a dealer knows how many vehicles were sold that day, how many phone ups, how many appointments, but do they know the answers to the question every day in F&I, how much gross was generated that day? It's surprising that in my conversations with business managers that isn't the case and therefore, two to three hundred dollars a car is considered acceptable and a good job. I would say get involved would be the number one piece of advice that I would have.

And how will that make things different? How should they get involved and what exactly will that do?

By getting involved and finding out where their business office is currently. The key to a successful F&I department is getting back to the basics, a strong turnover policy, which has to come from the commitment of the dealer. The dealer can provide the training for the business managers that's needed, a 100% solicitation of the products, a good system for delivering the cars quickly and a system for tracking the business managers performance. But by getting involved in finding out where the business office stands currently and then going back to the basics of what will make for a successful F&I department, the dealer can provide what the business office needs to be successful.

I take that to mean that the F&I managers really shouldn't be depended on to make the overall F&I operation successful, they should be depended on to perform the functions of getting the deals bought and getting the turnovers done properly, but somebody has to oversee them.

I would agree with that. To simply meet with that business manager on a consistent basis, to be able to have a report turned in that tells you where the business manager is that day, where the automobile deliveries are that day. That reporting to somebody is important, whether it be directly to the dealer, to the general sales manager or to a finance director.

It's a proven fact that just measuring performance improves performance.

There are a lot of systems for selling automobiles which then allow you to track performance. The same is crucial for the business office and that is to have a system in place to track the performance and measure it and then that allows you to be able to improve it and set goals.

Any final tips for our dealer readers?

Going back several years ago in the business office, we used to be able to capture someone's loan or business by letting them know that we were more convenient than any other source that was available to them. I think the big change in the last several years is, no longer are we able to capture someone's loan simply by telling them that we are more convenient. We have to be more convenient and that's doing it right now. That's one of the techniques we learned from David Lewis & Associates that I believe has had the biggest impact on the way we do business.

So as opposed to saying you're more convenient, actually BE more convenient.

Exactly. And hopefully your readers can absorb the importance of that. I think that ties in also to the internet question in that because of the information and speed in which consumers can get their loans approved today, to have the customer come back into your dealership, pick up the car, and do the loan papers for them right then at the time of delivery isn't any more convenient today than any other source that they have available to them. We have to do it right now and show them that we are truly more convienant.

Making Presentations Non-Threatening
David Lewis

Ask your business manager if he or she knows this feeling. They're making a service contract presentation and can just feel and sense the customer squirming. It is very uncomfortable for both them and the customer. The customer doesn't want to be ignorant and stop them, and your business manager still has to make the presentation, all along having a defeated attitude.

This is not the best situation for success selling any F&I products. Check your F&I department's service program and insurance penetrations. Chances are, the percentages of non-penetration are directly from this circumstance.

This can be changed and all it takes is some examination of the question, "Why?" Why are customers uncomfortable listening to a presentation of a product that they don't even know anything about and that may be extremely beneficial to them?

If we understand the psychology of customers' defense mechanisms and their perceptions of what they can expect when put into most selling situations, we can then better understand why they are uncomfortable and how to reduce seller/buyer tensions.

Let's examine the "whys." First, what is a customer's perception of what your business manager really is? The customer perceives them as a salesperson and a salesperson is someone who tries to sell you something for profit.

What is a customer's perception of what a salesperson will do to make a sale for profit? The answer is anything, especially pressure. Why? Because it is in the Salesperson's best financial interest if the customer buys (regardless if it is something good for the customer or not), and a waste of the Salesperson's time if the customer does not.

If you can truly say your F&I Manager is a trained professional, then none of the above customer perceptions should apply to him or her, and they need to let the customer know it! This will allow them to relax and be more receptive to the presentation, which is crucial to getting good objections.

Professional salespeople do not need to use pressure. They believe, and are correct, in feeling they are offering a valuable product or service. They are prepared to respond and do respond to customers' questions and objections logically and intelligently so the customer has all the right information before being expected to make a decision.

Also, they know that regardless of the value of their product or service it will not be for everyone. They know that making a certain number of presentations is required in order to make a certain number of sales. Consequently, professional salespeople are not frustrated about spending a sufficient amount of time with a customer without making the sale, therefore do not show frustration to the customer.

How does your business manager let the customer know they are unique, different and more professional than any other dealership personnel they've encountered? We have found there are two very simple ways for this to be accomplished.

First, we want the customer to feel that we are letting them know what is available to them, what are the features, advantages and benefits, and what it will cost, because they deserve to know. Secondly, when we address their issues (objections) we are only providing them with all the information they should have before making a decision, whether to buy (enroll) or not to buy (enroll), because they deserve to know this also. Note: I prefer to use psychological verbiage, i.e., I believe customers would much rather "enroll in a service program" than "buy an extended warranty."

So how do we get this across to the customer. It's simple. Just say it.

If your business manager senses the customer is feeling uncomfortable or threatened during any of your presentations, simply have them say, "Mr. Jones, Mrs. Jones, by the way the reason I am presenting this program to you is because Mr. Lewis, the dealer, insists that every customer knows what is available to them, what it will and won't do for them, and the cost. He feels you deserve to know, then make your decision as to its benefit or lack of benefit to you."

A tremendously unique way to get this concept to the forefront is something I recommend every business manager do, which many of my clients have done with great success, and that is have a small engraved plaque on their desk that says, "OUR CUSTOMERS DESERVE TO KNOW!," and below that your signature engraved.

When your business manager tells the customer you insist that every customer be told what is available to them, what it will provide, etc., as suggested above, they then can point to the plaque and reinforce their statement. But, most of the time the customer will ask, "what does that mean, the customer deserves to know what?" This is perfect, as your business manager will be able to use the verbiage even before he or she begins their presentation.

Obviously, even if the customer has some interest after the presentation, they will have objections (requests for more information), and your business manager should be prepared to respond to their objections and counter their negative thoughts with positive thoughts. This is not pressure, it is logical and intelligent persistence, which the customer also deserves. If the responses to their negative thought processes (objections) are in fact logical and intelligent, then you are doing nothing more than providing the customer with more information to digest before making their decision, whether to enroll or not to enroll.

Tell the customer this, and it should take away their resistance. The selling process will then become more like a non-confrontational discussion and be perceived by the customer as a comfortable process that has their best interest in mind.

Remember, no customer likes to be sold anything. They would much prefer to make a decision to purchase. Create that comfort level with the customer and develop that bond and trust by taking away that feeling of personal gain, and making it one of mutual respect.

Dealer's separate spot delivery agreement violates law
Thomas Hudson

Dealers who engage in "spot delivery" transactions typically ask buyers who are not immediately approved for credit to sign a document agreeing to rescind the automobile purchase transaction if the dealer is unable to assign the customer's retail installment sales contract. These agreements, sometimes called "unwind agreements," or in this case a "conditional delivery agreement," are usually separate documents from the retail installment sales contract.

This practice can pose problems in states that have so-called "single document rules." This is legalese for a statutory requirement ­ usually found in a state's retail installment sales statute ­ that all agreements between the dealer and the retail installment sale buyer must be contained in one document. A recent case illustrates the perils of using an unwind agreement in a state with such a statutory rule.

A consumer named Scott sued a Minnesota dealer for using a "conditional delivery agreement." On August 11, 1994, Scott signed a retail installment sales contract to purchase a 1991 Dodge Caravan. The contract provided for finance charges at a rate of 11.5% and monthly payments of $335 for 60 months. Scott also signed a "conditional delivery agreement" that provided the vehicle was being delivered "conditionally subject to approval of financing." This agreement also stated that if financing was not approved, the buyer agreed to return the vehicle and any retail installment sales contract executed for the vehicle purchase would be "null and void." The intended assignee did not approve financing, but Chrysler Credit agreed to extend Scott credit at a rate of 18.4% for a term of 60 months, with monthly payments of $384. Scott was asked to return to the dealership and sign a new retail installment sales contract, which he did. When Scott later sued the dealer, he complained that use of the conditional delivery agreement as a separate document violated the Minnesota Motor Vehicle Retail Installment Sales Act (MMVRISA).

The trial court granted summary judgment for the dealer and Scott appealed the decision. The Minnesota Court of Appeals reversed the trial court's decision, finding that use of the "conditional delivery agreement" violated the MMVRISA because the separate agreement was not referenced anywhere in the retail installment sales contract and Minn. Stat. § 168.71(a)(1) "requires that the retail installment contract 'shall contain all the agreements of the parties.'" Although the conditional delivery agreement did not contradict or alter any terms of the retail installment sales contract, failure to obtain financing approval ultimately invalidated the entire contract, leading to a second RISC with significantly higher interest, the court observed.

The court seemed to imply that the dealer would have complied with the MMVRISA if a "reference" to the conditional delivery agreement had been included in the retail installment sales contract. It appears that the court's use of the term "reference" meant that it would require formal language in the retail installment sales contract "incorporating by reference" the provisions of the unwind agreement. Conversely, it did not appear that the court would require the "unwind" language itself to appear in the retail installment sales contract. The court's decision isn't a model of clarity - you will want to discuss it with counsel.

It is unclear what courts in other states with single document rules will make of this decision. The Minnesota court's opinion is binding only on courts in Minnesota ­ courts in other states may deal differently with the issue. Dealers and sales finance companies who buy contracts from dealers who use separate unwind agreements may need to review those dealers' practices and documents in light of the relevant state laws to determine whether they need to make changes in light of this case.

Used Cars
Blandon Prater

Director of Used Vehicle Operations Hendrick Automotive

· 70+ stores

· 45,000+ used units per year

· $1,500+ gross averaged across all lines

What is the primary responsibility of your used car managers?

To invest our company dollars in used vehicles to make a profit by both retail and wholesale. Each department is responsible for their own profit.

What are some of the keys to a successful used car department?

In this day and time, of course, the key is finding good people and turning inventory on a timely basis. The key is attracting good people, keeping good people, paying good people and telling them what you expect and monitoring what they do.

What do you look for in a used car manager?

We look for integrity, honesty and market savvy. There are no two alike and someone that works well for me may not work out well for the next General Manager.

What are some of the common characteristics of your most successful used car managers?

They love the business. They don't think of it as just a job. They love it.

What is the best way to develop used car managers?

Many of these people came up the hard way, someone who has done it their whole life certainly has more to offer than someone who just started in the used car department. There are many different philosophies; some think the only way to go is to hire a veteran who has been in it a long time. Others think that they can train the necessary people within their store. Recruiting good used car managers is very difficult, it is the most difficult position to fill and the most important, in my opinion.

Every market and every used car manager is different but what are some of the things that you want consistently from all your stores?

Consistent net profits. Consistency comes from learning how to manage the numbers. We make all the numbers available to each individual manager through what we call a "well report". Half of this report is filled out and sent to me by each manager each month and the other half comes directly off the financial statement. We make all the numbers available to each and every one of the managers and they learn from each other. My biggest job is not necessarily to manage any store one on one; it is to get this information on the table to where everyone can profit from it. We have a wealth of talent in this company.

What is your aging policy?

In relation to aging, the key is, sixty days. We have write down policies that take affect after sixty days and we set the limits on the inventory according to their sales for the past year. We give them guidelines and then we expect them to be within those guidelines. They report the numbers to me each week; the turn is sixty days with a maximum number of ninety days. At the end of ninety days we expect that car to be sold or charged off the books.

What is your reconditioning policy?

The most successful people in the business use the "no apology" theory. We are spending all the money necessary so there are no apologies to our customers. That is without a doubt the way to go. We spend $500 - $1,400 per unit.

What about your trade-in and appraisal policy?

In this business everybody has a different opinion. The objective is to trade for that car at the curb. Put enough money in that vehicle where we can generate a new car sale. When a new or used car deal is generated then that generates financing and service. Reconditioning runs anywhere from $500 - $1,400 per car. The dollars start churning the minute the used car manager puts that wheel in motion. It flows all the way into service and parts. We expect that used car manager to put a fair number on that vehicle, but if he does not retail it, we expect him to wholesale it or whatever he has to do without taking a loss for the company.

Tell me about the new award program you have for your used car managers.

We developed what we call the Heart of the Fist Program. This was designed to recognize the used car managers. The winners receive a statue shaped as a fist. Each one of the fingers on the statue represents a department, the thumb being the used car department, the other four fingers being the parts, service, finance, etc. The thumb is the heart of the program. Almost 85% of our deals revolve around a used car manager and their ability to put money in a trade, generate a new car sale or another used car sale. In most cases, he gets the ball rolling for all the other departments in the store. The president of Hendrick Automotive, Jim Perkins realizes the importance of the used car department. The contest that we came up with has three categories. We start this program over each quarter. Every quarter we have three areas that are up for grabs and they are: net to gross for their department, most improved unit sales over the same quota from the previous year, and the most improved per net profit to the bottom line. The statues are issued in bronze, silver, gold and the platinum. If they win four in the same category, there will be a real nice award for them in February. These people earn a good living but traditionally the General Managers or sales and F&I people were able to win trips, but what have we had for the used car managers? The only place he gets to go to is the auction! We cannot operate a dealership without a good used car department. We cannot have a good used car department without a good used car manager. If the used car department is not running correctly, the whole dealership is in trouble.

Blandon, what one piece of advice would you give to dealers who want to maximize their investment in their used car departments?

Find the best used car manager you can, pay him a fair wage and then give him an incentive to work hard. Many dealers look at the used car manager as an expense rather than the investment that he is. If you are prepared to pay him good you will reap great dividends.

Qualifying the Preowned Customer
Tim Deese

Today's consumer coming into a dealership is unlike those from any other era we've ever known. As always there are four basic guidelines that a salesperson should follow, regardless of what training system you may have in place. The four basic guidelines are: a proper greeting, a proper qualification, a proper demonstration and a proper turnover. In today's automotive climate, however, we are experiencing a customer who is already qualified prior to their arrival at the dealership. Typically, a salesperson walks out and greets a preowned customer, welcomes them to the dealership and starts the qualifying process. Today, a vast majority of these customers are already prequalified from the Internet. The individuals coming into our stores today, being greeted by a salesperson and walked through the inventory in many, many cases know more about the product they're coming to view than the salespeople in the dealerships. We put our used vehicle department on the Internet, we talk about the product we currently have in stock on the Internet and we show pictures of our inventories on the Internet. When they come into our dealerships, they have selected an assortment of vehicles that they would like to look at. Nevertheless, within our qualifying process, our consultants are unable to extract this information because they have never taken the time to stop and think, or the sales managers have never taken the time to stop and think, that this new array of customers that we have coming in today and they are knowledgeable. On average, we have a consumer stopping in 50% of the time from a visual drive-by, 16% from repeat, 19% from referral, and approximately 8% from advertising and other. But what percentage of those, regardless of what brought them to the dealership, have prequalified themselves via the Internet? I suggest you immediately start including how to qualify these new preowned customers in your next sales meeting and/or training session.

How To Qualify The New Preowned Customer

After properly greeting and welcoming the customer into the dealership, the salesperson in the qualifying process should then ask, "Did you have the opportunity to view our product or our web site on the Internet prior to arriving at the dealership?" What this does is give our sales consultant (and sales manager when T.O. time comes), the ability to understand the knowledge base of the consumer, which in turn, helps us all make this process a lot smoother and easier for everyone concerned. I recently asked a question in a management meeting, "How many of you have your inventory listed on the Internet?" All but one or two raised their hands. "How many of you have photos?" All raised their hands. "How many of you have prices?" Again, they raised their hands. "How many of you have had a sales meeting and shown your salespeople exactly which vehicles you have online and how you have them priced?" Only one in the group raised his hand. It is very important if we are going to take the time to venture onto the information highway that we learn as much about our consumers and their shopping habits as we possibly can. Everything you hear today is "Internet, online, shopping online." Our industry is not exempt from it. We have got to stop and think. This has been one of our greatest problems in our industry; we run so fast that we don't stop and think. We have to train our people in as much depth as the individual has and have them as knowledgeable of the same product that we have online that same customer has prior to coming to the dealership.

I've been doing this now for eighteen years and have seen two generations of management and dealer changes. With the advent of the Internet, recent changes have been the most dramatic. You now have an opportunity unlike any you have ever had to capitalize on this market if your salespeople are the most knowledgeable and professional in your marketplace.

Fixed Operations
Dave Dunn
Shortage of Qualified Body Shop Technicians?

The question body shop consultants are most often asked. "How do I get qualified managers and technicians?"

I believe that continuous recruiting is a key component to the success of any body shop. When a manager or owner complains to me that they can't get good help I always reply, "Tell me about your recruitment program." Usually we get nothing more than a blank stare at that point. The collision repair industry has not typically thought about a formal recruitment program. In fact the average collision repairer doesn't think about recruitment until the body man, painter or estimator walks out. At that point the manager usually puts an ad in the newspaper and waits. Because the manager was not prepared he usually is not in a position to be too selective when someone does finally apply. The new candidate typically has all the leverage knowing that the manager is desperate to hire someone. Sound familiar?

Here is a recruitment program that any dealership body shop manager can adopt.

Accept that recruiting is ongoing. Because of the shrinking workforce you must be prepared for turnover. If you develop a year round recruitment program you will not likely be caught in a pinch when turnover happens.

Develop a Recruitment Brochure. We believe that a recruitment brochure is a necessity today. This is not the same as an advertising brochure. I am talking about a brochure dedicated to the recruitment of future staff. This brochure would focus on at least 5 reasons why someone would want to work for your company. These reasons would be points of differentiation. In other words what makes working for you different than working for the competitor? This may sound simple but can you clearly quantify the differences between the employment situation you offer verses what your competition offers? You will find that there is a tendency to offer "the same as" everybody else. Remember money is just one factor. What else about your business would be attractive to a future employee? What you will find is that by simply being forced to list your real points of differentiation you will most likely have to develop some new ones. Ask yourself, why would I want to work here instead of down the street? If pay is your only answer you need to re-think your approach. A few things that are attractive to today's worker are:

· A. The physical environment. How nice is the shop and office?

· B. Safety: What about this company helps protect my health?

· C. Appreciation. Will the new employee be just another worker or will he be loved?

· D. Esteem. How will working for you enhance my self-image and the view others have of me? Will people validate my decision to work for you or will they question it?

· E. Will it be interesting? In other words will the new employee be bored or will he get to actually find meaning in his employment? Actually according to Maslow's Hierarchy of Needs, these are the things all humans need and are motivated by. Unfortunately we too often only appeal to the first level of motivation (physiological) rather than the higher levels of need and motivation.

Build a database: Always greet prospective employees in a positive fashion. (even if you are not presently looking for anyone) What I find is that most companies have no system in place for accepting applications unless they actually need someone right then. My advice is to treat every potential employee with great respect so as to be able to build a credible number of potential employees. Develop a potential employee contact form that gets filled out with every inquiry. Make sure everyone in your office takes every inquiry seriously. Do not let your receptionist do the screening of potential applicants. Many times the people who apply for jobs in the collision repair industry have not had training on how to present themselves. Consequently the "first impression" may be wrong. Keep track of these applicants in a database (computer or manual) and you will be amazed at how many people apply in a year.

4. Send recruitment letters. Every 6 months send recruitment letters to previous applicants, even if you don't have a job for them at present. A letter that says essentially that you haven't forgotten them goes a long way with a future employee. You might even target competitor's people. Send general letters that commend them with respects to their standing in the industry with no direct job offer. Enclose a recruiting brochure that they can look at or possibly pass on to someone they know who may be looking for employment.

As you can see recruitment takes several hours per month. However at Masters we teach that it is one of the highest leverage activities you can engage in.

So you say you can't get good help? Tell me about your recruitment program.

Fixed Operations
Ed Kovalchick
Tracking Productivity, Efficiency, and Technician Output Creates Profit ­ part three

In the last two issues we have been discussing how measuring time, and the management of time, are meaningful to your service operation. We have reviewed how to scrutinize time in terms of the hourly costs of each stall, and why the productivity (attendance hours vs. repair order clock hours) of each technician is so important to profitability. You now know what clock hour rate has to be produced to break even, and to be profitable.

Next on the agenda is the measurement of technician efficiency. In this case, the efficiency measurement is a calculation comparing the amount of clock time the technician spent on a vehicle vs. the amount of paid time the service department received during that clock time.

For those who do not work with paid time everyday, paid time refers to the amount of time collected when the labor rate is divided into the labor amount collected. An example would be $100 collected at a $50 per hour labor rate. In this case, two paid hours were collected, or two times $50.

Paid hours are easily identified because in most cases they are the starting point of the labor charge, such as charging one hour for a repair at the labor rate of $50 equals a labor charge of $50. There is one hour of paid time in this case. This is the formula for calculation of technician efficiency:

Technician Clock Time / Paid Time = Technician Efficiency (as a percentage)

The assigned time standard for paid time usually comes from one of several sources: warranty manual, independent pricing guide like Chilton, or even an in-house price guide. The goal of management should be to ensure that all technicians work efficiently enough to meet the assigned time standards for operations they are performing, and in some cases to actually take less time than the standard.

Meeting the assigned time standard would produce 100% efficiency, and spending more or less clock time would be more or less than 100% efficient. The efficiency level a technician performs at, affects the income per labor hour during the period of clock time the technician is working on the vehicle. The technicians efficiency times the labor's fixed hourly rate, creates the true clock hour rate the technician has generated.

Technician Efficiency X Labor Rate (fixed) = Actual Labor Rate per Clock Hour

As you can see, the efficiency which a technician produces can determine how profitable, or not, a stall is.

Target technician efficiency can vary greatly depending upon type of work, such as warranty, repair, or maintenance, and the pricing manual being utilized. Generally there are some targets to shoot at:

Warranty and Repair ­ 60 to 80% efficiency. (income of 60 ­ 80% of the hourly rate)

Maintenance ­ 130 to 150% efficiency (income of 1.3 ­ 1.5 times the hourly rate)

At a labor rate of $60 per hour the technician may produce a true hourly rate of as little $36 per clock hour at 60% efficiency, or as much as $90 per clock hour at 150% efficiency. Remember, that this measurement only applies to the technician time spent clocked on a repair order. If the technician is lower than 100% productive, the $36 hourly rate will drop even more. For example, if the technician is 85% productive (clocked on repair orders 85% of the attendance time), the hourly rate would be $36 (at 60% efficiency) times 85% productivity, or just $30.60 for all of the attendance clock time the technician worked.

As you can easily see, measuring and monitoring technician efficiency is fundamental in the science of service management, and should be performed in every shop. In the next issue we will examine technician output calculations, and how to more effectively manage time to improve the bottom line.

Ed J Kovalchick is CEO of Net Profit Inc., an international automotive manufacturer and dealer, training and management-consulting firm, located in Alabaster, Al. Mr. Kovalchick is a featured speaker and instructor at conventions, 20-Groups, associations, and other automotive related events worldwide. He is also a former six-franchise new car deal.

Sub-Prime Cuts
State of the Industry
Christopher M. Leedom

Here we are. The first DEALER issue of the new millennium. By now most of you may be sick of the "m" word. Don't worry, I will not use it again in this article. I want to highlight some key subprime finance trends for next year.

Currently I', seeing some interesting developments in the world of subprime finance. For purposes of this article I will refer to subprime finance as the process of financing a vehicle to anyone that is "unbankable". In other words, the customer that is unable to receive a financing offer from a bank or finance company under standard terms.

It appears that the corridor between "C" and "D" paper is widening. I am noticing a shift towards better qualified customers from subprime finance companies. Additionally, I am noticing some initial pricing movement toward slightly higher acquisition fees. I believe this trend is a good one even though it may result in $100 to $250 less profit for the dealer. These companies are trying to establish and identify the proper yield that will result in lender profitability. As we have witnessed in 1998 and 1999 the lenders that are unable to identify proper pricing based on buying exit the business rather quickly.

Another trend appears to be the surge of interest in the buy here-pay here side of the business. As lenders tighten credit criteria there is an increasing number of customers left to find some other alternative to finance a vehicle. I would liken it to the growth and interest in buy here-pay here fostered by Mr.Jim Devoe during the mid eighties. As more and more customers are unable to find financing, either prime or subprime, dealers are again revisiting the dealer controlled finance option (buy here-pay here) to profit from additional sales. Mr. Devoe, Chairman and Founder of J.D. Byrider, helped hundreds of dealers learn the buy here-pay here business in the eighties. Dealers must remember that the failure rate for new participants in the buy here-pay here segment is estimated as high as eight out of ten.

We believe that more dealers will be visiting buy here-pay here next year to offset the tightening of credit criteria by subprime lenders. During our 1999 National Special Finance and Buy Here-Pay Here Conference in Las Vegas we observed more dealers interested in buy here-pay here than ever. In this column we will keep you updated on these trends as they develop.

Please take time to visit our booth at the NADA Convention in January. We will be in booth #2515. Also I will spend time at the Automobile Dealer Magazine booth as well. I look forward to seeing you there. Until next time - Good Luck!

Do You Have An Internet Strategy For Your Sub Prime Department?
Steve Hall

The Internet is still a relatively new concept to most dealers. Some of the nation's largest dealer groups are just starting to develop an e-commerce strategy. Most people would think we are light years away from incorporating the sub prime customer in our e-commerce business plan. However, light years in the Internet world is only a few months in our traditional dealer world. As with most traditional bricks and mortar businesses, the customer is way ahead of our industry and waiting to take advantage of the services that our industry will offer to them. This is why some of these Internet companies are experiencing growth rates that were at one time thought to be unattainable. A recent report I read stated that over 40% of the people use the Internet before purchasing a new car. This number is expected to increase to over 80% by the year 2003. Considering 40-45% of the total population (even higher is some regions) will only qualify for sub prime financing, this tells me that there is a big opportunity to reach sub prime customers. The Internet has several advantages that will make it attractive to sub prime customers.

First of all, it is a way they can visit the "virtual showrooms" of dealers and shop for cars without going through the embarrassing and humiliating processes of selecing a car, only to find out the dealer does not even have a car that fits their need or budget. The Internet also offers the sub prime customer the ability to research what cars are available, what types of financing they qualify for, and what dealers have the right car and financing for their budget. This allows them to save time, money, and embarrassment. I believe you will see more and more sub prime customers moving to the web for these reasons.

Secondly, the growth rate of the Internet is much faster than the growth rate of television, radio or computer. In fact, the Internet took only 3 years to attract 50 million users whereas radio took 50 years, television took over 35 years, and computers took over 10 years to acquire 50 million users. The Internet will eventually replace the television as the primary advertising source. This will be a result of the fast migration of the population to the Internet.

Finally, sub prime lenders will be developing their own Internet strategies to make it attractive for their customers. You will see more and more sub prime customers applying for and obtaining credit over the Internet. Thus when they walk into your showroom, many of them may be pre-approved and ready to deliver. Raising money on Wall Street has been very tough for many sub prime lenders, but you can bet they are ready to lend for e-commerce ventures. This will create more aggressive sub prime programs and make the Internet the place for sub prime financing.

The Internet will not sell one more car. However, it will change the distribution of which dealers are selling the cars. Dealers who choose to develop an Internet strategy that neglects 40-45% of the population will find themselves losing out to dealers who are proactive in their e-commerce strategy, consider all the possibilities, and set up the right processes to handle all Internet customers on an individual basis. Remember that these are the same customers you have always had, they just have more information and with that, they have different expectations. I hope that when you develop your e-commerce strategy you incorporate the right processes and procedures to handle sub prime customers. If done successfully, it can increase your business as much as 25-30% without adding any additional resources to your current program.

Credit Scoring Primer
By Paul Snider

Recently I had the opportunity to review notes from the Credit Scoring Conference held in Washington, D.C., in July 1999. The notes from this conference clearly show once and for all why proper interviews are more important now than ever before. Credit scoring is completely uninvestigated, unregulated and unverified for accuracy, bias or legality as admitted by the Federal Reserve Board panelist present. If for no other reason than this it is imperative that customers be questioned about past credit problems and given a chance to explain changes in their life as opposed to your simply "weeding" potential buyers out because of credit scores that appear too low for financing.

Understanding the FICO score is very important. What does FICO mean? FICO is a score that was developed by Fair Isaac Company, a California based company specializing in the construction of scoring models. This score is a single number ranging from 350 to 900, and is calculated using past credit history data. Each bureau calls the score something different but the score it represents is the same no matter what bureau is used. The risk is defined in the number of accounts that default based on the score. Some examples are:

Scores below 601 yield 8 good loans for each bad one

Scores from 700-729 yield 129 good loans for each bad one

Scores at or above 800 yield 1292 good loans for each bad one

Loans reported on your customers that are reported in error or have recently been settled will impact the score; again a complete credit interview is imperative. There are 5 variable categories grouped by FICO.

Previous Credit Performance

Current Level of Debt

Amount of time the credit has been in use.

Pursuit of new credit

Types of credit available

Scores of zero (0) indicates either that no information was found, or that there was simply not enough credit history to generate a score. If the score is low there are a few things that can be done to improve it.

Pay down any credit card balances to below 50% of the maximum credit allowed.

Call all but two or three revolving accounts

Limit the number of inquiries

Pay all collection amounts

Write dispute letters on any account that might not be accurate.

By better understanding scores and how they affect your customer it is much easier to structure loans that will be approved. It is also very important to understand each lenders internal guidelines as it pertains to FICO scores. Lenders often have levels that "knock" out customers below certain scores. Ask your lender for information on their policies in order for you to send applications that meet their standards.

How do we help customers gain approval and increase deliveries?

Conducting proper interviews has been the main difference between success and failure in numerous dealerships I have visited or trained. When interviews are conducted it allows the special finance director to receive higher approvals, better gross profits and quicker funding because all credit issues are dealt with up front while the customer is seeking approval and usually is more cooperative.

Credit interviews are quick and simple if handled properly. Remember the following rules for successful credit interviews:

Verify that all information on the credit application is complete and correct.

Ask questions about credit bureau accounts. Seek positive explanations on past experiences while looking for reasons why your lender should give this customer a chance.

Explain to customer the S.A.W method and how it will impact their loan. (Sincerity to re-establish credit, Ability to re-pay new credit and Willingness to pay on time going forward.)

Explain the rules you must follow to obtain loans for credit-impaired customers such as verification of employment, income, residence and discharged BK.

Seek information that provides ammunition for getting loan approval.

Explain that down payment affects the outcome of all loan applications, i.e.: customers with large down payments will most likely get approved more quickly than those with little to no real cash down.

During the interview recommend vehicle that fit well into the customers budget. Lenders prefer 18% payment to income in most cases.

I hope this helps explain the complex world of credit scoring and provides you new tools to achieve higher approvals, quicker funding and additional gross profit.

Buy-Here-Pay-Here-A Primer
Steele Gudal

Judging by the attendance at several recent industry trade shows, more and more dealers are considering entering the potentially lucrative buy-here-pay-here segment. The mature, consolidated nature of the new car business, the "blue sky" associated with buying another new car dealership and direct internet selling initiatives begun by some manufacturers are causing many dealers to explore alternate ways to expand and diversify their businesses.

For many of these dealers, BHPH may be a viable alternative. The market is huge. In fact, the cottage nature of the industry makes it tough to get a handle on exactly how big. Estimates range anywhere from $200-$300 billion in annual sales. With the price of a new car quickly climbing towards $20,000, American working families continue to search for affordable solutions to their transportation needs. Demographic trends suggest that the segment will grow steadily over the next decade. Consistent annual increases in consumer debt levels, record annual bankruptcy filings and the shrinking of the American middle class suggest more and more consumers joining the ranks of the BHPH segment. Add to the mix the fallout in the sub-prime finance sector and the increasing social acceptance and mechanical reliability of older cars, and a largely "underground" segment of the car business makes more and more sense. This rings especially true upon the realization that the BHPH competitive environment is largely weak, fragmented, undercapitalized, and unprofessional. The market represents opportunities for professional, capitalized new car dealers to enter at minimal cost and capture sizeable market share in a market that has traditionally offered the largest profit margins in the industry.

This is the first installment in a series of articles designed to present the key success factors of the BHPH business for those currently operating in it or those interested in learning more about it.

Probably the best piece of advice I could offer a dealer-carried finance operation is among the oldest in our segment- "Take care of your tub." In the days before computers, most BHPH dealers kept customer transaction records on ledger cards organized in small file boxes, or tubs (some, in fact, still do). Savvy dealers knew there was a lot more to BHPH than just selling the car. Never has this been truer than today. Dealers who have the foresight to meticulously select their inventory and recondition their cars thoroughly will be rewarded in the long run. These processes maximize the probability that the car will last the term of the loan and beyond. Another BHPH axiom that has stood the test of time is that if the car stops running, the customer stops paying. The forward-thinking dealer views these expenditures as investments rather than expenses- investments which will pay dividends in the form of satisfied customers and performing loan portfolios. Those dealers who choose to impose minimal quality standards will surely only attract a minimal quality customer and minimal quality loan portfolios. Ultimately, this leads to minimal, if any, profitability.

While the minimum quality standard dealer may save a few bucks initially, his customers will quickly become dissatisfied with their buying experience, quit repaying their loans and bring about negative publicity for the dealer. On the other hand, the prudent dealer who invested more initially eventually begins to see the fruits of his labors: a quality loan portfolio, satisfied

customers who generate repeat and referral business and a reputation for selling quality transportation which he is proud to stand behind.

Make no mistake; it's difficult to recondition these cars properly and invest the dollars necessary to make these portfolios perform. But as time goes by the easy way gets harder and the hard way gets easier. Each dealer comes to discover what those before already had learned: Take care of your tub, and your tub will take care of you.

Next month: Capitalizing your business properly