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Dustin Kerr

Watch Out For Tax Season Temptations

Car taxes  design

It’s that time again. Right now, buy-here, pay-here dealers are in their busiest time of the year: tax season.

Although most dealers will tell you that tax season is not nearly as crazy as it used to be, there’s no denying that it’s still a major event in our business. BHPH dealers are likely to sell more cars—and collect more cash—in the next couple of months than any other month for the rest of the year.

Tax season means buyers, but what kind?

Sadly, it’s not all good news. It’s during tax season that we put our worst performing paper on the books. Flush with income tax returns, people walk into our dealerships with $1,000, $2,500, maybe even $4,000 or more down. And, just as giddy as our buyers, we completely forget about our underwriting guidelines and the fact that we are still going to have to collect on this account for the next two to three years.

Now, some dealers simply don’t care how well the paper performs. They feel that the cash down overshadows the risk of bad underwriting. And, many argue, they will just get the car back quickly if the customer defaults.

Now, I don’t entirely disagree with this philosophy. There is a certain point where the amount of cash down mitigates the risk involved. However, I always tell my consulting clients that there’s a way to do both—get the large cash down payments and properly underwrite each loan to ensure the highest probability of success.

And that approach, I think, is better.

 

Don’t lower your standards

The first thing we need to do? Slooowwww dooowwnnn! Hey, I get it. This time of year is very hectic, not only with sales but also with collections. It’s very likely we have more people in our lobby right now than any other time of the year.

When things start to get a little crazy, though, usually the first thing to suffer is attention to detail. Go back and look at the applications that were collected during tax season the last couple of years and compare them to applications collected during the rest of the year. If yours is like most dealerships, you’ll see a significant difference in the quality of information collected.

You need to discuss this situation with your staff ahead of time. Make it very clear that incomplete applications will not be accepted. (And, I mean be stern about it: It’s non-negotiable!)

Remember, you have to collect on this account for the next few years. A quality application is the first step to making sure you can do that.

The next thing I usually see that sets us up for failure is a complete disregard for payment to- income percentages. We all know by now, or should know by now, that accounts with payments greater than 25 percent of net income perform at a much worse rate than those with payments below 25 percent net income.

I’ve found that dealers and managers forget this rule when a large down payment is made. The attitude seems to be, “If they have skin in the game, they’ll make all the payments.”

Sad news, friends, but this just simply isn’t the case with most customers.

 

Don’t forget that tax money is free money

Here’s an important lesson I’ve learned after reviewing hundreds of thousands of loans over the years: The down payment amount has very little to do with how well a loan performs.

As far as our customers are concerned, that sizeable tax return is just free money. This sudden windfall isn’t a result of careful budgeting or pinching pennies for a down payment. No, it’s a bonus with very little emotional attachment.

Don’t compromise your payment to income standards just because the customer has a big down payment. Remember, all that tax money will be spent very soon, and they will only have their weekly paycheck available to make their car payment.

 

Don’t forget the delivery and closing process

Another area I see slip during tax season is the closing process. I consider the application and closing to be the most important aspect of the collections process. And, if you’ve ever read my articles, watched my BHPH Tip of Month video segments, or attended one of my training or consulting sessions through NCM, you know that I firmly believe that an improperly closed loan is a charge off waiting to happen!

In this busy time of year, it may seem like a simple solution to ask our commissioned sales team to close the loan instead of a manager or a collector. Sure, it might speed up the process, but the whole point of having a manager or collector close the loan is to double check and ensure that the salesperson hasn’t missed or skipped an item because they were afraid of losing a deal.

Don’t do be tempted to “streamline” the close; you’ll just pay for it later. Keep your processes intact, and have a dedicated person or team well-trained in the closing procedure review every application. And never let them veer off track just because you are busy.

 

Make the most out of tax season

I know how exciting this time of year is, but you can’t afford to be burned. Remember, these could be the worst-performing deals you make all year.

Make sure you have a great application process in place, follow your payment-to-income guidelines and don’t short-cut your closing procedures. If you do these three things, you can enjoy the cash windfall of February and March without the headaches that come in July and August.

Article originally published in the January/February 2016 issue of the BHPH Report. Be sure to check out the full issue!

 

Permanent link to this article: http://blog.ncm20.com/2016/04/bhph-tax-season-temptations/

Dustin Kerr

Quiz show: Using questions to increase BHPH profits

Businessman thinking

As a moderator with NCM® Associates, I make my living with questions. Not only do I challenge my clients with questions about their business practices, but I also must answer to their concerns and worries. Put simply, questions are my life.

It’s a great challenge. I think the habit of questioning things is critically important for all car dealerships, but especially for BHPH dealers who face an ever-changing and detail-oriented business subject to many rules and regulations.

Oddly enough, these rules and regs tend to invite inaction by BHPH dealers. Once we finally figure out a business process that works, it can be very hard for us to even consider changing it. That’s a problem. This reluctance to change can not only cost us potential profit given today’s complicated compliance landscape, but it has the runs the risk of costing us our business entirely.

So what things should we take a look at and question? EVERYTHING! Here’s a few to get you started.

Question your advertising

Are you still pouring the majority of your advertising dollars into television, radio and print?

I’m not saying these media are dead, but I see far too many dealers spending their budget on traditional marketing channels while completely ignoring their own website, digital marketing and social media.

We know that 90 percent of American adults have a cell phone, and more than half of those phones have internet access. In fact, practically half of the U.S. sleeps with their phone so they don’t miss a text or email!

Your BHPH customers aren’t any different. They have a phone, and they use it to shop for cars before they even think about looking in person. Unless they see your dealership online, it’s doubtful they’ll even make it to your lot.

Like everything else, advertising isn’t cut and dry for our BHPH industry. Not only do you need to pick the right platform for your ad, you must be sure to comply with industry regulations. Here’s an example:  Are you still advertising zero down to get customers in the door when in reality virtually no one can qualify for your zero down?

Just open up any industry publication and you will see stories of BHPH dealers getting hammered for this type of advertising. Transparency is the new buzz word in the industry, and if your advertising is misleading in any way you are playing with fire. Don’t get burned.

Question your collections

I could write an entire article on collections compliance but that’s not the point I want to make here. Instead, let’s talk about your collections culture.

Your entire organization needs to understand the BHPH customer. Our customers are likely to have problems making payments at some point. Does your staff understand that it’s their job to help the customer through these times? Or do they still have the attitude of “give me the money or give me the car?” More importantly, are your collectors well-trained in connecting with the customer—empathizing with them and defusing problems—while still demanding payment?

The best collection cultures can sympathize with the customer while successfully collecting payment in full. Most of the time I see departments great at being nice to the customers and truly understanding their situation, or I see collections departments that are great at collecting payment in full. I rarely see collections departments that excel at both.

The collections department is the key to your long-term success. The sales department will sell the first car, but it’s up to the collections department to sell the repeat business. Make sure your collections team is one of the best.

Question vehicle repairs

I’ve found two typical approaches to vehicle repairs: Fix everything or fix nothing.

Let’s think about the “fix everything” approach. Do you help your customer with repairs on their vehicles after the sale? Where do you draw the line? Are you financing that repair if the customer cannot pay for it?

Have you checked with an attorney to see if it is even legal for you to finance the repairs and have it paid back through a “side note?” I’m going to bet that there are a lot of you reading this right now that are financing repairs illegally.

Now, what about those of you who don’t fix anything? While you don’t want to repair all the problems, you might reduce your charge-off rate and your repeat business if you loosened up your repair policy a little bit. Complete a repossession analysis to show how many of your repossessions are related to mechanical problems – would a new repair policy improve that?

Question the sales process

Here’s a little-recognized truth: Repeat and referral business is far more effective in BHPH than in the new-car business. But, I rarely see BHPH dealers training their sales people on how to generate their own leads. Don’t let your sales people rely on you to put enough customers on the lot through advertising.

And, thinking about that customer, does your sales staff actually serve the customer or just take orders. An effective sales team will match the right customer to the right vehicle and process effectively to maximize down payment. When you sales team actually sells, there will be greater collection potential throughout the life of the loan. Use your sales team to plan for success from the beginning of the transaction.

Question accounting and legal advice

When I’m asked to explain the BHPH model, I often say that we’re in the finance business … and we happen to sell cars, too. Our clients need solid financial advice and guidance. When you do it right, not only have you helped someone out, but you’ve also made a profit.

Because finance and law play a major role in our industry, you need well-educated, reliable advisors.

Does your accountant truly understand the BHPH/LHPH model and all the tax implications that come along with it? Just because they are an accountant doesn’t mean they know what’s best in this industry.

The same goes for attorneys. Find someone that is well versed not just in the auto industry but in the BHPH industry, as well. Hire the right financial and legal experts. (And, if you think it’s too expensive, just look at what it’s costing your peers who didn’t hire them.)

Question everything

When I write that I want you to question everything, I mean everything. Don’t just stick to the suggestions I’ve listed above. I challenge you to go into your dealership and play devil’s advocate for every policy and procedure you have in place. Ask your staff how you could change things or do things differently to produce better results.

Once that’s done, take your questioning to the next level. Ask your peers to analyze and critique your business. If you don’t have an established relationship with your peers, take the time to join a 20 Group, which facilitates peer-to-peer collaboration and continuous improvement.

Then do something with your answers

No matter which option you choose—examining your business on your own, enlisting friends for help or joining a 20 group—the most important thing you can do is be willing to listen to the answers. You are likely to find items that need immediate attention. Having critically examined your business, you can start fixing these problems with confidence.

And then you should start questioning again!

Blog originally published in the September/October 2015 issue of the BHPH Report. Be sure to check out the full issue!

Permanent link to this article: http://blog.ncm20.com/2016/03/quiz-show-using-questions-to-increase-bhph-profits/

Dustin Kerr

Limbo isn’t a management strategy: Is your bar for sales too low?

growth_chart

I get inquiries all the time for BPHP sales training. When the call comes, I generally ask about the current training for salespeople, and what they have received in the past. And, to no one’s surprise, the answer is usually, “None.”

My next questions are, “What are your expectations for salespeople? And what do you expect to get out of the training?” This is the answer that surprises me.

Here are the top three tasks dealers want their sales staff to accomplish:

  • Get the customer in the door.
  • Record a little information.
  • Turn them over to a manager or underwriter.

Wait, that’s it?

How did our expectations deteriorate to such a point?

Our standards are astonishingly low considering the tough state of the market right now. Let’s be honest: It’s hard to attract quality customers. It’s even harder, I think, to attract good sales people.

I believe a major reason for the lack of good BHPH salespeople is the lack of good leadership and accountability management within our management team, but that’s another topic for another article.

Setting the bar right

As a moderator with NCM® Associates and former dealership operator, I have seen that people rise to the standards we give them. So, let’s expect the best from our employees. Here are some recommended guidelines for your sales staff.

Salespeople should be able to conduct a great customer interview that gathers all the pertinent information, builds rapport with the customer, finds out the wants and needs of the customer and sets the stage for product selection without it seeming like an interrogation.

Our sales staff should know how to conduct a personalized vehicle presentation based on the needs and wants discovered during the interview. This skill is critical for BHPH salespeople—most of the time we’re putting the customer in a car that may not be their first choice, so we have even more work to build value in the product than a new car salesperson. Too often this step is skipped completely.

A quality trade evaluation should be completed on every write up that has the possibility of a trade in. Sales staff should complete this trade evaluation with the customer, along with a ride and drive. And yes, this involves whoever is evaluating the trade to actually walk outside and put in some effort; a trade evaluation form also should be completed with every appraisal.

And, once the sale has happened, our staff should complete professional follow up. I feel so strongly about this, that I believe follow up isn’t an expectation, it’s a condition of employment. (If you are afraid of having your salespeople do post sale follow up because you don’t want to hear about your car breaking down, let’s acknowledge that you may have bigger problems than sales training. Call me, and we’ll work on that.)

Lastly, I fully believe our salespeople should be able to generate 50 percent of their own business. It is much easier for BHPH salespeople to generate repeat and referral business than it is for new-car salespeople.

Prepping for new sales heights

We must do a better job of training our salespeople to do the job we want them to do, not the bare minimum to survive.

My approach is to invest in good training. For example, teach your staff how to do a quality demonstration drive with a predetermined route where the salesperson drives first and then allow the customer to drive. More and more often I am seeing salespeople just slap a tag on the car and not even go on the test drive with the customer.

And, while I don’t recommend that salespeople do the closing of the loan, if you are going to leave it in their hands, you must train and drill them on the closing and make sure it is done correctly every time. No exceptions. A proper loan closing engages the customer and covers dealership policies on breakdowns, late payments and collections. A properly closed loan is half-way collected, and that is why I believe it is actually a collection activity and should be done by someone that has a vested interest in how the loan performs.

Don’t lower the bar—improve your employees

If you are having a hard time finding quality customers and growing your portfolio right now I challenge you to raise your expectations of what you expect from your sale people. Clearly define and communicate your expectations, measure the results and let everyone know the score. While you invest in improving your current staff, take the time to recruit talent when you find it … and then invest again.

And remember, a properly trained salesperson can recoup the money you spend on training several times over each and every month.

Blog originally published in the November/December 2015 issue of the BHPH Report. Be sure to check out the full issue

Permanent link to this article: http://blog.ncm20.com/2016/02/limbo-isnt-a-management-strategy-is-your-bar-for-sales-too-low/

Dustin Kerr

Do You Have a Business… or Just a Job with More Risks?

dealership

When I was operating dealerships in Northeast Oklahoma, there was a little hamburger joint that had some of the best hamburgers and fried squash I had ever eaten. At the expense of my girlish figure, I would attempt to eat at this burger joint about once a week. The odd thing about that burger business is that some days it would just be closed for no apparent reason. Sometimes, it would stay closed for a week or two at a time before opening back up.

We had one of the employees as our customer, and one day, I asked her what the deal was with the restaurant being closed at such odd intervals. She informed me that the owner was elderly and when he was sick or had medical procedures that he would just shut the restaurant down because he had never taught anyone else how to run the day-to-day operations. It struck me that this gentleman appeared to have built a great business with a great product, but in reality, he didn’t have a business, he had a job with more headache and risks.

You may be asking yourself what this has to do with the car business.

Well, since you asked…I recently had the opportunity to attend the NIADA convention in Las Vegas and had the pleasure of meeting a lot of independent car dealers and talking with them about the 20 Group peer collaboration concept. Many of the dealers had no idea what a 20 Group was and were very excited to potentially join a group and learn from others going through the same challenges. Everything was great until I told them we meet three times a year for a day and a half. I heard the same objection over and over again and it went something like this: “It’s all I could do to get away to this conference. I’m scared to death about what’s going on while I’m gone. There’s no way I could commit to three days, three times a year to attend meetings away from my dealership.”

Albert Einstein once said, “The definition of insanity is doing the same thing over and over again, but expecting different results.” The question is: can your dealership afford to continue facing the same challenges without viable, proven solutions?

Just like the gentleman that owned the hamburger joint, these used car dealers did not have a real business, they had a job but with more risks and a lot more headaches. As business owners or upper management, you put in a lot of hours, have a lot of investment at risk, and must overcome never-ending challenges from customers, competition, and regulators. Some people think the best way to manage all those obstacles is to just do everything yourself. It’s not. In fact, trying to manage it all yourself is a recipe for disaster. It is critical to the success of your business and, more importantly, your health, to find or identify people in your organization that can help you run your business when you need to be away, whether that is for a 20 Group meeting, illness, or simply taking a vacation.

Remember, your primary job as a manager or leader is to train and manage activities. If you are scared of what might happen if you had to be away from your dealership for a few days, you might ask yourself “Do I have a business or just a job with more risk and more headaches?”


Learn more from Dustin Kerr:

bhphtraining

Permanent link to this article: http://blog.ncm20.com/2015/07/do-you-truly-treat-this-as-a-collections-business/

Dustin Kerr

The Buy Here Pay Here 20 Group – What It Is and How It Will Help

A 20 Group is a peer collaboration model that allows you to meet with other BHPH dealers of similar size from non-competing markets to share best practices, successes, and more importantly, failures. NCM® Associates is the originator of the automotive 20 Group process, and has been empowering dealers to learn from one another since 1947.

A typical BHPH 20 Group meets three times a year at a location chosen by the group. Meetings can range from 1 ½ to 3 days depending on what the group wants to discuss and the location.

The ability to get away from the day-to-day distractions of the dealership and share ideas with some of the brightest, most successful dealers in the industry are some of the key factors that drive profitability amongst NCM® group members.

In addition to the meetings, members receive monthly financial composites that allow them to compare themselves to other group members, as well as comparing themselves against the NCM Benchmarks® across all groups.

The meetings are facilitated by a professional NCM Executive Conference Moderator with years of experience in the BHPH and LHPH industry. The agenda and hot-topic discussion is decided by members of the group.

Topics of discussion include:

  • Compliance
  • Proper Inventory
  • Advertising
  • Collections policy and procedures
  • Hiring and retaining top talent
  • Sales and collection pay plans
  • Employee productivity
  • And much more!

Why choose NCM as your Buy Here Pay Here 20 Group provider?

You have probably realized by now the power of the BHPH 20 Group peer collaboration model, but why should you choose NCM Associates to facilitate your group?

  1. NCM Associates is the originator and pioneer of the 20 Group model. We started our first Ford 20 Group nearly 70 years ago and that group is still in existence today!
  2. Data Integrity- Numbers are only as good as their accuracy. All statements are reviewed personally by a moderator before they are compiled and sent to you in your monthly composite. Our data team manages and processes your data in-house; we don’t outsource it!
  3. Access to an Industry Expert- Your emails and calls are personally answered and returned by your moderator, not an assistant or secretary. Even when we are facilitating meetings, you can expect a return email or call within 24 hours!
  4. Custom Composites- You have the ability to log on to your member website and compare yourself against as many or as few members from your group as you want in whatever categories you want.
  5. It’s All About You- The group gets to decide what goes into the composite, where you want to meet, agenda topics, and much more.
  6. Online Training- Your membership includes training from some of the top experts in the industry that would cost you thousands to obtain on your own. This training is delivered by our OnDemand virtual training site.
  7. No Contracts or Commitment- If you don’t feel like you are getting value from the group, you can resign from the group at any time.
  8. Innovation- As the industry leader, NCM is always working with the brightest minds in the industry to develop tools and strategies to help you become more profitable. As a BHPH 20 Group member, you often get access to these tools for a reduced cost or even free!

In addition to the 20 Group, NCM Associates also offers on and offsite consulting as well as BHPH training for salespeople, collectors, and managers.

If you are ready to join your peers and find out how to achieve a 50% or better ROI, click here or contact me today at 913-827-6677 or dkerr@ncm20.com.

Permanent link to this article: http://blog.ncm20.com/2015/06/buy-here-pay-here-20-group-what-it-is-how-it-will-help/

Dustin Kerr

Oregon Senate Bill 276 – How Could This Affect Your BHPH Operation?

Government building blog 4.22

The Oregon Senate recently introduced a bill that has BHPH dealers in that state up in arms, and for good reason. The bill would drastically change the way some buy here pay here dealers do business. I am not going to try to debate the merits of this bill, or the lack there of. As BHPH dealers, we have all been discussing and fearing the changing landscape of compliance for many years.

The point of this article is to focus on a couple of the provisions in the bill and ask ourselves, “Doesn’t this just make good business sense?” Keep in mind the old saying “Pigs get fat; hogs get slaughtered” and ask yourself if you are running your dealership as a fat, happy pig or as a hog headed for slaughter.

Here’s a quick rundown of the highlights of the bill:

  • Obtain the same type of license from Oregon’s Department of Consumer and Business Services (DCBS) as payday or auto title lenders.
  • Reduce interest rates to account for the amount of the consumer’s down payment.
  • Stop accruing interest once a vehicle has been repossessed.
  • Cap repossession fees at 7.5 percent of the purchase price.
  • Stop using GPS or starter-interrupt devices.
  • Wait to repossess a vehicle until after 30 days from when nonpayment has occurred.
  • Cap interest rates at no more than 20 percent or the federal funds rate plus 17 percent, whichever is lower.
  • Form a good faith belief that the consumer has the ability to perform on the contract by using underwriting standards passed by DCBS.

I want to focus on the last two bullet points of this bill and ask you, as a dealer, to think about how you are handling these two issues in your state?

Cap interest rates at no more than 20 percent or the federal funds rate plus 17 percent, whichever is lower.

Full disclosure here, I used the state max of 21% for nearly every car deal I ever financed and would have probably charged more if the state would have allowed. My question to you though is this: is it good business to charge our customers more than 20% interest? Every 20 Group meeting I have ever been a part of has included conversation on how we reduce the term of our loans and retain our good customers.

Another big conversation is about the cars not lasting the term of the note. Are we sacrificing a few thousand dollars of gross for a few hundred dollars of interest? Interest income is a big part of this business and I have always been on the side of maximizing the interest dollars collected. Although, when do we hit a point of diminishing returns?

Form a good faith belief that the consumer has the ability to perform on the contract by using underwriting standards passed by DCBS.

Now I have no idea what the DCBS will set as underwriting standards should this bill pass, but let’s look closely at the rest of that statement and change it slightly.

What if the motto of our underwriting department was something similar to this? “Form a good faith belief that our customer has the ability to perform on the contract based on our underwriting and verification practices.” Nearly all BHPH dealers want to reduce charge-off losses and regulators on the state and federal level want to make sure you are not setting your customers up for failure. Having a written underwriting policy in place that is based on industry analytics and your own loss ratios will go a long way towards achieving those goals.

Don’t forget the verification part of the process. An application is only as good as the verification to support it. There is little doubt that there are serious changes on the horizon for the BHPH industry and some that may change the way we do business forever. However, some of these items just make good business sense. Is your business a “fat, happy pig” or a “hog headed for slaughter”?


Learn more by attending these upcoming courses:

 


Permanent link to this article: http://blog.ncm20.com/2015/04/oregon-senate-bill-276-how-could-this-affect-your-bhph-operation/

Dustin Kerr

4 Tips to Supercharge Your Buy Here Pay Here Sales Training Program

Is your Buy Here, Pay Here (BHPH) sales training lousy? That is the cleaned up version of what I hear from most dealership owners and managers when I ask how they would rate their overall sales training program.

The good news is that this is one of the quicker and easier problems to fix in your dealership and I am going to give you the tools to implement a very successful BHPH training program.

1. Hiring the Right Person

If I were sitting down with you in your dealership and implementing a long-term strategy for consistently attracting and hiring quality salespeople, we would spend a great deal of time on this subject before moving to anything else.

However, for the sake of this article, I will boil it down to this: quit begging people come to work for you! When we hire out of a classified ad, the majority of the respondents have very little sales skills and then we, compound the problem by conducting a lousy interview.

So what’s the solution? RECRUIT!

You probably notice people every day who would be a good fit as a salesperson in your dealership. Why don’t you get those types of people to apply? The reason is because they are already employed.

I’m not saying there isn’t a place for classified ads, but it should only be part of your strategy. The best people I have ever hired weren’t looking for a job.

2. Proper Job Descriptions

A lot of potentially good salespeople fail because they don’t know exactly what is expected of them every day. If you do not have extremely detailed job descriptions with your sales staff, I would stop right now and get this in place before trying to proceed with any further training.

A description should tell them exactly what their job entails on a daily basis; an objective should tell them what they are expected to produce. For example, an objective might say they are expected to sell at least 13 cars per month with an average down payment of $700.

3. Road to the Sale

Every person that has ever sold a car has been told about the road to the sale, but are your sales people following it? Are they following it every time? How do you know?

It doesn’t matter what your particular road to the sale is as long as it’s in writing and continually trained on. The road to the sale is far more important in the BHPH industry than it is in the new car franchises, yet the new car dealerships train on it every day and most BHPH lots rarely discuss it.

4. “Did it Today” Sheets

Did It Today sheets (or DIT sheets) are one of the best ways to hold your salespeople accountable and to have them show you how they won at work each day.

DIT sheets should list all of the tasks they accomplished for the day such as phone calls made, customer interviews completed, appointments set, etc.

The DIT sheets should be turned in and reviewed every day by the sales supervisor and compared to the goals set at the beginning of the month.

If you will commit today to giving your sales staff complete job descriptions and objectives, making sure they are trained daily and using your road to the sale, and having them fill out daily DIT sheets, I believe you will be very pleased with the results you will see.

In future articles, I will go into more detail on hiring the right person form the beginning, the road to the sale that I teach and believe to be most effective, how to properly use DIT sheets, and much more.

If you have any questions on how to implement any of the processes above or would like me to do sales training for your staff, please contact me anytime.

 


Want to learn more from our BHPH specialists? Click the link below for a free copy of Brent Carmichael‘s whitepaper:tablet

Permanent link to this article: http://blog.ncm20.com/2015/03/4-tips-to-supercharge-your-buy-here-pay-here-sales-training-program/