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Tag Archive: Auto Industry

Steve Hall

Why Dealers Should Be In Express Service

Express Service

Dealers know you must provide fast, convenient, and competitively-priced service in order to retain your customer base.  They also know that oil changes and light maintenance are the most requested service items by customers.  Knowing this, why do dealers continually fight express service?

I’ve heard all the excuses: it hurts my hours per repair order; it hurts my gross profit percentage; it hurts my effective labor rate; I can’t make any money in express service; the list goes on and on.  Shouldn’t we think about it differently?

Isn’t it logical that if a customer comes to you for express services, you will have an advantage to getting the remainder of their maintenance and repair work?  Customers generally do business with people they trust.  If you start to grow that relationship from day one, when the only things that are needed are express-types of items, won’t you have the trust of the customer when the “real” repairs come into play?

We need to realize express service is the gateway to real profits, and if done properly you can make plenty of money along the way.   After all, how do you think all the mass merchandisers and independents stay in business?

Let’s look at it this way, have you ever taken a low profit (or no profit) deal on a new vehicle?  I’m sure that every dealer has, many times.  Why do you do this?  Often times it is because you are getting a trade-in you feel you can make money on.  Other times it is so you can move a unit off the lot to reduce your inventory costs, or maybe to help you reach unit bonus levels for factory incentive money.  Possibly, it was just so you would have an opportunity for the F&I department.  Whatever the reason you decided to take the short deal, you have a plan.  The loss of front-end gross on that unit gave you opportunities to make more money in the long run.  You had to make the deal to gain all of the other benefits.

Can you relate this thought process to express service?  We must retain the customer in order to get all of the long-term benefits.

But express service has an added benefit.

If properly structured, you will make money in express while retaining your customer.  That is a win-win, both short- and long-term!

Take a few minutes and examine how much money is spent on a single vehicle over the lifetime of that vehicle.  Include average warranty work, recalls, oil changes, maintenance, tires, brakes, breakdowns and everything else that happens eventually to every vehicle.  Once you add all of these dollars together and look at the complete picture, you really see what the customer is worth over the lifetime of the vehicle.  Now you must develop your plan to make sure that customer never goes anywhere else, and express service has to be part of that plan.

Let’s look at express service for what it can and should be, a profit center with long-term financial benefits.  Remember, customer retention is a good thing.  Get fast, get efficient, get competitive and get profitable!


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Permanent link to this article: http://blog.ncm20.com/2015/02/why-dealers-should-be-in-express-service/

Joe Basil

Musclecar Dream Engine Comes True in Modern Technology

LT1This column is typically reserved for “next practice” tips for better retail automotive management, but today we’re paying homage to the source of our passion for this industry — the allure of the automobile and all it signifies. It stole our hearts and captured our imagination with dreams of speed, power and freedom on the open road. For me, the passion was sparked by the Chevrolet musclecars of the 1960s and 70s.

For all you other musclecar motorheads who used to have hair with a color other than gray, the 2014 C7 Corvette Stingray LT1 engine is a motorhead’s dream come true. It’s got all of the technology you dreamed of in the day but had no idea how to bring it to mechanical life. Just go back to the 60s and early 70s, when you were 18 and building that small block drag car. Yeah, when you pulled up to the Sunoco gas pump and cranked the octane lever to 110+; when the gas filler was behind the tail light on a fin or behind the license plate; when you burned a full tank of premium on a Friday or Saturday night street racing with your hottie.

That’s when you spent hours and hours talking to the guys at the track, trying to get the latest tricks from the speed shop and spending lots of bucks building that small block to put out every bit of horsepower you can squeeze out of it. You remember, putting in that highlift cam, swapping out the stock intake for an Edelbrock high-rise topped off with an 1100+(or larger) CFM Holley. Pulling off the heads and putting on the double bump angle plug 2.02’s. And since you switched the rear end gears and you threw out the stock distributor you had to replace it with an HEI mechanical advance and had the advance curve tweaked. Oh and don’t forget those “Hooker Headers” and a couple of Cherry Bombs just for effect.

And then when it came to race day, on the track or on the street, you checked the temperature to see if you were going to swap out those jets on the Holly, reset the base advance, and maybe adjust up those rocker arms to change the cam timing. All of those little tweaks you did under the hood with tools are now being done by computers in milliseconds without ever touching a wrench.

Back in the day, I was a musclecar motorhead and even with gray in my temples, I guess I still am.   That’s why I’m so excited about a very special event coming up later this month in Tonawanda, New York.  Where the heck is Tonawanda, New York?Tonawanda is a suburb of Buffalo and it happens to be the home of the GM powertrain plant where the 2014 C7 LT1 Corvette Stingray engine is built.

The C7 LT1 has it all. Let’s start with 450 hp out of 6.2 L. By the way, that’s 378 cu in. No need to make any adjustments anymore since we now have computer-controlled direct injection, variable valve timing with 2.13 intake valves, and computer-controlled ignition timing. By the way, remember using “plastiguage” to check your bearing clearances? Now the clearances are measured in microns. A micron? Yeah, a micron; that’s one millionth of a meter.

So how would like to see these engines being built? On August 23rd and 24th the General Motors plant in Tonawanda is having an open house. So what? It’s an engine plant, you might say; well, there’s history that goes with this plant and the Chevrolet musclecar engines it produced. When they look under the hood of 60s and 70s musclecars, collectors always look for a little rectangular sticker on the valve cover that reads “Produced by Chevrolet Tonawanda.” Not only is the Chevrolet Tonawanda engine plant noted for producing 60s and 70s musclecar engines and big block marine performance engines, it holds the world record for the most number of engines produced in one day — 8,832 (in 1988).

The plant is celebrating its 75thanniversary and is having an open house and classic car show on August 23rd and 24th. You get a full tour of the plant and the actual crews that build the engines will be explaining and showing you how they do it. I was in this plant quite often in the 1970s when we had a Chevy store close by and serviced the plant cars. I went on the tour a couple of years ago and what a drastic contrast!

It’s a great opportunity to fly into one of Buffalo’s  private aviation strips, bring your off shore boat and do some “street” racing on the Niagara River or Lake Erie, or just cruise your favorite musclecar ride to the car show. Last but not least,don’t forget to visit Frank and Teresa’s Anchor Bar (where chicken wings started) for some wings and “beef on weck.”

For details just go to GM Powertrain Tonawanda Engine 75th Anniversary on Facebook (https://www.facebook.com/75thanniversary) or give me a call and let’s wax nostalgic about the days of our shared musclecar mania!

Formerly of the Basil Automotive Group, Joe Basil is a 20 Group Moderator for NCM Associates.  NCM has many GM nameplate 20 Groups including Buick, GMC and Chevrolet dealer groups. For information, call 877.803.3631 or to reach Joe directly, email jbasil@ncm20.com.

Master-Your-Destiny

Permanent link to this article: http://blog.ncm20.com/2013/08/musclecar-dream-engine-comes-true-in-modern-technology/

Gene Daughtry

Know Your Representatives

legislatureI was at an industry conference not long ago listening to a keynote presentation about our industry when the speaker said “Embrace the regulations, you cannot do anything about them.”  I was shouting to myself, WRONG!  Federally it is tough, but on a state level, you can do something.

I have been working in our state capital with my dealer association through the last two sessions of the legislature. The sessions always start slow with small bills designating post office names, highway names and recognition for sports teams. Simple bills are introduced as everyone gets acclimated to the job and procedures. As they get about half way through the session, more serious legislation starts to show up like abortion, tax reform and other, more defining bills. This is when the bills that affect the automobile industry begin to show.

Lobbyists for other industries get bills submitted that will help their industry make more money, have more control or loosen up regulations. When bills are submitted by one group to make changes, you can bet other groups are affected equally, though in different ways. Most improvements for one side are a detriment to another. You know, sales tax, towing legislation, salvage titles, driver’s license requirements, and so on.  I have worked with representatives trying to stop one bill or get another passed.  This is done by dealer association members reaching out to their representatives as local business people and asking for support or a “no” vote, depending on what is needed to help guide the lobbying effort in the right direction. Generally, your independent auto dealer association will work with other related associations that benefit from similar outcomes and reach out to their members to make calls to the politicians.

How can you as a local dealer – or any business person – help?  Know your representatives personally. Support their campaign efforts and make sure you meet with them when they are in your area. Find out who the staff members are for each representative, congressman and senator. This way, when your dealer association reaches out to you to make calls, your voice carries more weight with those who represent you.

As most legislative sessions end, shell bills (bills that are introduced without any substantive language with the intention of later being amended with the details of the proposed legislation) are piled in by everyone wanting to get consideration. This is where some really bad legislation gets rammed through via “deal making.”

Your association lobbyist and some fellow dealers are at the capital every day of the session meeting with politicians and other lobbyists working a plan of attack and trying to help guide outcomes in our industry’s favor. Is everything going to go your way? No, of course not; but there is always the next session where what you needed to have happen can come up again.

Help the people who are working on your behalf by making sure you know your representatives (and that your representatives know you) so when your association representative reaches out for help, you can make a call that counts. You can make a difference and “do something about it” if you will do a little work year-round by supporting your state dealer association and by knowing your government representatives. I have seen the results.

Buy Here Pay Here

Permanent link to this article: http://blog.ncm20.com/2013/07/know-your-representatives/

Steve Hall

Does Your DMS Match Your Actual Parts Counts?

Fotolia_36189691_XSHave you ever had this happen?  … A service advisor contacts your parts department to see if you have a specific part in stock. You check the computer system and it shows that you have it. A price is given, “Yes, we have it in stock” is told to the advisor.

The advisor proceeds to sell the job to the customer; the information is relayed to the technician who then comes to the parts counter to get the part. Your counter person goes to pick the part from the shelf, only to find the spot on the shelf is empty!

What happens now? You either have to pick the part up from another dealership, possibly hold the vehicle over while the part is ordered, or have the customer return at a later date. None of which are good end-results.

What caused this to happen and what can be done about it? If you believe that you “can’t sell what you can’t find” then you need to have systems in place to make sure that you can “find it.” Let’s look at a few basic rules for a parts department:

  1. Every part must have a “home.” A bin location must be assigned to every part that you have in stock. Even if you are cramped for space, you must designate a space for every part in your system that has an on hand quantity. This includes special ordered parts.
  2. Each bin or location should have a designated number for identification. Does the numbering system make sense? Can a new counterperson or stocker locate the appropriate bin quickly and efficiently?
  3. Each bin should be arranged in alpha numeric order. Shelves should have parts tags for each part that is stocked in it. This makes for easier, faster and more accurate stock replenishment.
  4. If space allows, leave the top and bottom shelves empty. This will allow space for growth within specific bins. You will need this as you add additional part numbers into your stock.
  5. Perform I-bin counts. Individual bin or “I-bin” counts should be a daily discipline within your department.

Items one through four are pretty basic, but I would like to expand more on item five. Parts managers should be aware of this term, whether they apply it or not. General managers or owners may not have been exposed to it, so let me explain how and why to perform these counts.

I-bin counts are used to check the accuracy of your DMS parts system vs. the actual on-hand quantity.  Ideally, they should be set up the following way:

First, make a spreadsheet listing each of your parts bins number. Have additional columns for the date the bin was counted and a column for who counted it. You should have one more column noting that there were, or were not, discrepancies found and adjustments to on-hand quantities.

Each day, the parts manager should print off and have on hand quantity or inventory sheet for the bins that need to be counted. Ideally, you should count enough bins so that you “look” at your complete inventory every 30-45 days. In most parts departments, this only a few bins a day.

Once the sheets are printed, the count should happen quickly. The reason for this is, if any parts are pulled after the sheets are printed you will show a discrepancy and have to research it before any potential adjustments are made. Normally it only takes a few minutes to count a bin, with the obvious exclusions of high-density drawers. In those cases, you may want to count a couple of drawers a day to break it into bite-size chunks.

After the count is completed, if you find any discrepancies, research them appropriately and if the count truly is wrong, make the adjustment in your system. At times you will have positive adjustments as well as negative adjustments. After you are finished with the bin, including the necessary research and adjustments, you should retain the count sheets for future reference.

On a side note, it is a good idea to have different people do counts periodically. Though we don’t like to think that any theft would happen within our store, it can happen. Having a variety of people doing bin counts will make it harder to cover up. As a general manager, be willing to go back and perform some counts yourself; it can be an eye-opening experience.

By doing the perpetual count and check, you will get to see how accurate your DMS and actual on-hand inventory really are. You might just find that the “missing” part in our example above was just stocked in the wrong location!

If you are interested in continued training for your parts manager, be sure and check out the upcoming NCM Institute Principles of Parts Management I and II courses that are launching this fall.

Parts_Acc_Sept

Permanent link to this article: http://blog.ncm20.com/2013/06/does-your-dms-match-your-actual-parts-counts/

Garry House

The Difference Between ‘Good’ and ‘Great’ Auto Dealers

good_to_greatIn the first couple of paragraphs in his book, Good to Great, author Jim Collins makes several interesting statements:

Good is the enemy of great. And that is one of the key reasons why we have so little that becomes great. Few people attain great lives, in large part because it is just so easy to settle for a good life. The vast majority of companies never become great, precisely because the vast majority become quite good – and that is their main problem.

Although I’ve worked with a lot of “good” dealers during my professional career, I’ve never been privileged to work with a “great” dealer. That is not to say there aren’t great dealers; there are a number of great dealers, they’ve just not needed my help! Not surprisingly, all of the good dealers with whom I’ve been associated wanted to be better, but most never seriously aspired to greatness. In fact, one of my good client-dealers recently said, “Garry, you wouldn’t believe how difficult it is getting my team focused on performance improvement when we’re making a million dollars a month!”

What does “great” mean at the dealership level? In my personal opinion, as a dealership resources professional, a dealer can claim “great” or “world class” status when he/she achieves ALL of the following:

  1. 100%+ of assigned market share for each new vehicle franchise represented
  2. Retail Used to New Sales ratio of 1.00 to 1.00 or higher
  3. 80%+ share of calculated Service market potential
  4. Net-to-Gross (pure) of 30%+ and/or Net-to-Sales of 4.5%+
  5. Annualized ROI of 25%+ against true projected liquidation value
  6. Measurable best practices guidelines in each inventory and receivables category
  7. Measurable highest levels of employee engagement, satisfaction, productivity and retention
  8. Measurable highest levels of customer loyalty, retention and satisfaction
  9. Measurable highest levels of recognition for community service and for service to the retail automotive industry in general

By comparison, what does “good” mean to me when looking at the dealership level? This is tougher, and certainly more subjective, but here’s my take:

  1. 80% – 90% of assigned market share for each new vehicle franchise represented
  2. Retail Used to New Sales ratio of at least 0.75 to 1.00
  3. At least 60% Share of calculated Service market potential
  4. Net-to-Gross (pure) of 22.5%+ and/or Net-to-Sales of 3.5%+
  5. Annualized ROI of 15%+ against true projected liquidation value
  6. Measurable best practices guidelines in most inventory and receivables categories
  7. Measurable average levels of employee engagement, satisfaction, productivity and retention
  8. Measurable average levels of customer loyalty, retention, and satisfaction
  9. Measurable average levels of recognition for community service and for service to the retail automotive industry in general

As you’ve probably guessed, this article, unlike Jim Collins’ book, is not about how to transition from good to great, but rather it is concentrated on differentiating good from great. At the NCM Institute Center for Automotive Retail Excellence (NCMi), we don’t spend a lot of time focusing on becoming a “great” dealership; that is a challenge that would involve a long-term commitment and relationship between the NCMi faculty and a dealer’s entire employee body. NCMi does not have the resources to undertake that challenge, nor has it ever been our mission to do so. That is a challenge that is best undertaken by the NCM Retail Operations team.

The NCMi mission, and challenge, is to help transition the managers of a dealership, one or two at a time, from good to great. We do this by focusing on world-class (great) department processes…what they are, why they’re critical, how to implement them, and how to execute them. Part two of this article series will select one or more department processes, and I’ll show you the difference between good and great. Remember, great processes that become disciplined habits produce great and predictable results!

Permanent link to this article: http://blog.ncm20.com/2013/05/the-difference-between-good-and-great-auto-dealers/

Twitter and the Auto Industry: How to Succeed in Social Media Marketing With Really Trying

how to succeed

Twitter is a powerful social networking platform and one that has become a go-to choice for businesses of all sizes and industries.

In recent months, Burger King and Jeep’s Twitter accounts were hacked and became the subject of many articles and conversations, online and off. In Jeep’s case, “Hackers replaced the brand’s thumbnail image with a Cadillac emblem, background images were replaced by a photo of men in a car branded with McDonald’s logos, and nonsensical posts began to flow into the account’s news feed.”

As Tanzina Vega and Nicole Perloth write, “The attacks raised questions about how easy it is for accounts to be compromised on Twitter and what brands can do to prevent future attacks.”

Twitter Safety Measures

Joel Gratcyk offers four points regarding how to safeguard your Twitter account:

  • Make a strong password
  • Only authorize trusted apps
  • Don’t leave your device logged in and unattended
  • Don’t use open Wi-fi without protection

Twitter Password Guidelines

As Joel says, there are no guarantees on security but the password hints below from StrongPasswordGenerator.com should help keep you safe.

They suggest the following guidelines for creating strong passwords:

  • at least 15 characters
  • has lowercase letters
  • has numbers
  • has symbols
  • is not like your previous passwords
  • is not your name
  • is not your login
  • is not your friend’s name
  • is not a dictionary word
  • is not a common name
  • is not a keyword pattern (such as qwerty, asdfghjkl, or 12345678)

Twitter: Onwards and Upwards

It’s not always easy for a business to rebound after hacking episodes such as the ones experienced by Jeep and Burger King, nor is it easy for the public to forget. (I should add that both have done a terrific job.) And, for businesses who might have been on the fence about creating a presence on Twitter, they may feel especially wary now.  But, Twitter’s positives are too great to dismiss—namely, cost-effective, far-reaching ways to engage in two-way conversations with prospects, customers, and others in the auto industry.

By practicing the kind of safety suggestions discussed above, you should be able to focus your attention on the ways Twitter can help serve your business.

Ways to Use Twitter

Let’s take a look at some effective Twitter messaging tactics along with examples of tweets:

1. Share company newscompany news

2. Announce new product features autoblog

3. Provide customer support boch honda

4. Offer your perspective
perspective

5. Promote special offers
autoguide

6. Share links to articles you recommend
ncm

7. Post jobs

hiring

8. Integrate with Facebook and collect customer photos with a call to action
clay subaru

9. Share a product video
video

10. Congratulate customer on new purchase
congratulate

11. And, last but not least, mix-up the type of content you post

How are you using Twitter? What type of messages work best for your auto dealership? Let us know in the comments below.

Now that you’re thinking about your social media execution, how are you doing responding to your Internet leads? If you’d like to improve your Internet close ratio to 20% or more, consider attending our upcoming Internet lead management training in Dallas next month, presented by Automotive Internet Management. Call 866.756.2620 to learn more!

Permanent link to this article: http://blog.ncm20.com/2013/03/twitter-and-the-auto-industry-how-to-succeed-in-social-media-marketing-with-really-trying/

Dennis Kane

When it Rains it Pours and Sometimes Causes Flood Damage

Guest contributor Dennis Kane offers Up To Speed readers insights into the complexities of flood insurance for their dealerships. Dennis is the president of SeaFire Insurance Services, which provides exclusive property and casualty solutions to the auto industry.   

storm, flooding, insuranceDespite the notorious drought plaguing the Midwest, there has been a recent trend of frequency and severity in hail and flood losses.  This makes insuring auto inventory very challenging. Many car dealers are seeing increasing hail and flood deductibles and in some cases, insurers have introduced flood exclusions for the first time.

Most insurance companies use outside vendors to evaluate flood exposure to your auto inventory. These outside vendor services have improved their capabilities over the years and are providing the underwriters better and better information to evaluate the exposures to flood.

One fundamental factor that goes into the risk equation is the flood zone assessment.  It is critical to understand that this risk IS NOT based solely on the street address of your dealership.  The more important and dispositive factor is the position of auto inventory relative to flood zones.  In other words, while a dealership itself may not reside within a flood zone; sections of the parking lot where the auto inventory is parked may  exist within a flood zone.  When this situation arises many insurance companies are issuing flood exclusions and transferring the risks of loss to your balance sheet. Even if the insurance company is willing to accept the risk with a deductible the loss to the dealership in the event of flooding can be significant.

Here’s what you should do:

  • Ask your agent to review the flood report including overlaying the flood zones to all of your dealership properties, premises and operations.  If any part of your dealership is in a flood zone, you need to take precautions to eliminate or minimize flood exposure. Your insurance agent should be able to make recommendations.
  • If you are developing an evacuation plan, review the alternative locations exposure to flood with your insurance agent to ensure that location isn’t exposed to flood.
  • If you are considering acquiring a dealership or additional property review the flood reports prior to closing.

Here’s what you should know:

It is critical that property owners do not abandon flood considerations after a loan closing. Flood plains are frequently reevaluated to reflect evolving climate changes and man-made influences.  Failure to continually re-assess zone designations is a dangerous game.  A business that exists in a minimal flood zone at the time of closing could find itself located in significant flood zone several years later — without having moved an inch — and as a result insurance may no longer respond because the policy has a flood exclusion for autos.

By all accounts finding competitive inventory coverage is getting more challenging. I would expect this trend to continue.  As a dealer, you should take the time to educate yourself about your potential exposures so there are no surprises come renewal time – or when it rains.

How are you educating yourself about your potential exposures?  Do you talk with other dealers on a regular basis about how they’re handling similar issues in their stores?  Members of NCM Associates‘ many independent, franchised, and Buy Here, Pay Here 20 Groups enjoy the benefit of discussing these types of operational issues with their group peers.  Learn more at www.ncm20.com/twenty-groups or call us at 877.803.3631.

Permanent link to this article: http://blog.ncm20.com/2012/09/when-it-rains-it-pours-and-sometimes-causes-flood-damage/

Brent Carmichael

Done Right, BHPH Can Be Your Golden Ticket

h--rek-pictures-blogs-bhph gold ticket-thumb_In the Buy Here, Pay Here business, the average dealer makes $2,000 in net profit per car sold.  Last year, the average NCM® BHPH client dealership made $1.4 million in profit.  As you can imagine, with the state of the automobile industry the past few years, and because of the lack of viable lending sources for this segment of the auto buying public, there is no better time to be in the BHPH business. However, as with any business, BHPH is not for the uneducated, unprepared and undercapitalized.

The days of a $250,000 initial investment and a business model based on selling a few cars and collecting a little money are long gone. Those ingredients in today’s BHPH market would ensure a business life of six months at most. Success in today’s BHPH environment requires a little more sophistication and a lot more understanding.

The first step to a successful BHPH operation—whether you’re just getting started or you’re currently in BHPH—is understanding the two key elements of the business. These two key elements are risk management and capital requirements. Simply put, not understanding and not maintaining the discipline to focus on these elements will lead to a short and unsuccessful foray into the business.

Of the two elements, risk management is primary. BHPH is a collection business, not a sales business. Since the BHPH customer is generally a higher credit risk, understanding how to best mitigate that risk is paramount. Even the best BHPH operators experience loss rates of close to 25%. The reduction of risk is best accomplished through underwriting, deal structure, and collection practices. Effective underwriting grades the customer’s stability and ability more so than other factors. Deal structure will fit the term, payment, and down payment to not only the customer’s needs, but more importantly, to the dealer’s financial model. And collection practices will focus on starting the customer on the right path and keeping them on it. It won’t matter how many are sold if they can’t be collected. All that will be generated is a large book of nearly worthless business.

This segues into understanding the second key element, which is the capital required to effectively operate the business. It is a fairly cash-intensive business, for obvious reasons, and can be more so if there is a lack of understanding and focus on managing risk (the first key element). To gain an understanding of your capital requirements, you must first decide what your objective is for the business—will it be structured for cash flow or for aggressive growth?  This will determine where the money will come from and where it will go.  Then, prepare a cash flow model showing a minimum of three years’ worth of assumptions.  Of course, once the cash flow model is in place, there must be the discipline to manage the business by it. Mismanagement of this aspect of the business will drastically shorten the life of the business.

These two elements go hand in hand. If the risk isn’t managed, all the capital in the world won’t matter. It’s simply throwing good money after bad. And if the capital isn’t managed, it will put the business in a dangerously over-leveraged position.  But despite the risk and capital required, BHPH can be a very profitable business and one that is becoming more appealing as evidenced by the increasing interest.

So while this is a great time to be in BHPH, as with any business, education, preparation, and proper execution of the key elements are paramount to success. The future is very bright for well-run BHPH businesses, so if you need help getting started or need to fine-tune your sales, underwriting and collections processes, consider attending my upcoming BHPH training workshops in Kansas City later this month.

Brent Carmichael is an executive conference moderator for NCM Associates’ BHPH 20 Groups and is the lead instructor for the NCM Institute’s BHPH training programs, including “Sell More, Profit More” and “Collect the Cash, Not the Cars.”  You may reach Brent by email at bcarmichael@ncm20.com or by phone at 913.649.7830.  

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Permanent link to this article: http://blog.ncm20.com/2012/08/done-right-bhph-can-be-your-golden-ticket/

Dennis Kane

Lowering Your Cost of Garage Liability Insurance


Dennis KaneToday’s Up To Speed article is contributed by Dennis Kane, president of SeaFire Insurance Services, a division of Preferred Concepts LLC, which provides exclusive property and casualty solutions for the auto industry.

After two decades of insuring auto dealers, I can tell you an important factor to getting better garage liability insurance pricing:  Lower your demo ratio. Your dealership’s demo ratio is determined by number of furnished demonstrators to total employees.  Auto liability is one of the biggest exposures at any dealership.  Your decisions about how many demos to provide, and to whom you provide them, have very important implications on your garage and umbrella insurance premiums.

First, it’s important to understand what’s creating the exposure for the underwriter. In addition to the liability exposure for business use of the auto, demonstrators also carry the added exposure for personal use.  If a dealer plate is on the car, your primary insurance carrier is providing coverage and that may include permissive users (drivers given permission to drive the car i.e., family members of the employee).  In some situations, your  umbrella coverage can be triggered.  Do you know where your demos were driven and who drove it over the weekend?  How about to and from holiday parties?  Underlying the importance of the demo ratio are the factors that influence it, including:

  • Probability of loss:  Underwriters know the more autos with dealer plates that are on the road, the higher the probability that one of them will lead to a loss.
  • Driver Profile:   Frequency of accidents and moving violations of the people driving the demos increases the probability of accidents. Certain drivers are more expensive to insure than others.  Accordingly, a dealer should consider not only how many demos are provided, but also who is behind the wheel.  The decision to furnish demonstrators to drivers ranging in age from 16 to 21 can be expensive.
  • Personal Use.  Dealers should consider the permissive users of demos and how it could impact their potential liability.  Do you have a written policy in place signed by the employees with demo that clearly explains your expectations?

An easy and immediate way to reduce your risk and premiums is to personally register demonstrators used by younger and elderly family members and insure the exposure with separate policies for them using a personal lines carrier.  Doing so can isolate your dealership’s commercial garage insurance rates.

This is significant; consider, for example, that young children and elderly adults–the most frequent beneficiaries of demos–give rise to some of the most expensive losses by virtue of factors such as health complications and the long-tail nature of serious injuries.  Insurance carriers commonly use three years of previous losses to determine your renewal pricing. An auto accident can impact your experience rating for three years.

As a dealer, you should review who in your dealership is furnished a demonstrator and consider all the costs of the benefit of driving a dealership car. The average dealership’s demo ratio is slightly over 20%.  Any ratio beneath 20% calls for a discussion of reduced premiums and a ratio under 10% may merit material premium reductions.  Many carriers have different rating structures for sales people and managers furnished demos. These rates can vary 50%-100% higher than the same employees without demos.

Many of these same principals of underwriting apply to your contract drivers as well. Always remember that while underwriting is a discipline, there is always room for negotiation, so be sure that demo ratios are part of the underwriting consideration.  Is your exposure to losses better than average?  If so, be sure your agent is negotiating with the carriers on your behalf.

Dennis Kane is our newest Up To Speed Guest Expert. To reach Dennis, email dennis.kane@seafireinsurance.com or call 913-912-5910.

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