To Be Fair, Hit’Em Hard!

Whether you have the absolute right candidate, wrong candidate or just can’t draw a hiring conclusion, try hitting’em hard! Nothing strips away interviewing chaff better than tough poignant questions.

Never try to embarrass any candidate and always be respectful, after all, you may be making him or her  a job offer and will want them to enthusiastically accept. However, I do ask tough questions when I think it is necessary to resolve a concern about the candidate.

Faced with several challenging questions, the meek will reveal their shortcomings, the Stars will shine, and you will have a truer picture of your candidate.

It is your responsibility to determine if a candidate is a proper fit for your position. Let’s find out during an interview, that a candidate isn’t a fit, before he quits his job, comes to work for you and gets dismissed or slow tracked 6 months later. Additionally, a Star deserves a fastball as fodder to hit an “interviewing home run”. Let’s look at several tough but poignant questions that I have asked candidates.

Please bear in mind; these are appropriate for positions where the candidate will be under pressure and performance scrutiny in their day-to-day job content.

I often start out a series of tough questions with “I have no hidden agenda, let me tell you what I am thinking”

Bill, you are leaving ABC Financial because they are experiencing problems. All companies go through challenging times, how do we know you wouldn’t leave us when we need you the most? 

I have seen this question leave seasoned executives apoplectic, however, I want the answer.

While interviewing Service Directors for a large dealership group, I pose this question: “We need a Service Director who can raise our CSI to the top in our zone. From what I have seen, your CSI scores look pretty average. Why would it be any different if you managed our service department?”

Before a candidate leaves my office, I often put my hand on a large stack or resume, (on my desk there are always several stacks), and ask:”Tom, one last question, there are several things that I like about you, I believe you could do a fine job in our position, but there are other qualified candidates whom I feel the same way about. Tell me why I would be making a mistake by hiring one of the other candidates instead of you?”

Ancillary benefit to this question is it often reduces candidate’s salary requests because they see competition for your position.

You owe it to the candidate to give him a chance to prove himself.

 

Don-JasenskyDonald Jasensky is founder and CEO of Automotive Personnel, LLC. don@searchpro1.com; www.searchpro1.com

 

Sales People : Born or Made?

I’ ll answer that shortly.

In the last 20 years, our firm has interviewed and tracked the success, or lack of success, of thousands of sales people in numerous industries. Let me share some findings.

Good sales people, the kind that consistently perform above average come in all shapes, sizes and backgrounds. Do not get caught up in the 6’4’,wavy haired, baritone voiced blued eyed stereotype!  Most of the really good career sales people tend to be more the quiet types than the loquacious types when not working.

Don’t look only for images of yourself – there are other successful archetypes! Employ them !

Do not equate “great interview” with great job performance. The former is not a good predictor of the later.

Do look for consistent and proven performance.  If they are good, there should be a track record of increasing sales volume, gross margin, expanding client portfolio, etc.  Make them show you their achievements. The best indicator of future performance is usually past performance.

Born or made? , most Sales Managers I know tell me that  great sales people are born, well, here is what my 20 plus years of tracking sales people has taught me: I don’t care if they are born or made !, when they come to me I want to see these traits:

  • Drive
  • Persistence
  • Focus
  • Enough ego strength to overcome objection (do not confuse strong ego with big ego)
  • Good communication skills
  • Understand human nature (Social Intelligence)
  • Persuasion skills
  • Hard worker
  • High energy level
  • Good attitude
  • Likeable
  • Open to re-educating
  • not too self-conscious

My personal  acid test : A nearly infallible indicator of a driven person is revealed in these 2 questions:

1) I like to ask candidates what the last book they read to help their career?  Then query them on the book – What attracted you to that book? What was it about? What did you learn?  What others?

2) Magazines, periodicals, audio programs, self-education that candidate subscribes to at his or her own expense?

It is hard to truly be dedicated to greatness and you do not bother to read about your career and study from the masters.

All High Achievers work on developing themselves !

During casual conversation  I probe for drive and energy level. I often ask candidates about their hobbies and avocations. If they are a driven person  this is often revealed in how aggressively they pursue their avocation.  If I were queried about an avocation I might discuss mountain climbing – a long time passion of mine. I would discuss summiting the Matterhorn in Switzerland, Mt. Blanc in France, solo climbing Mt. Washington in New Hampshire in mid winter at 20 below zero. Traveling to West Virginia to train with rock climbers, to the Adirondacks to train in ice and Colorado for altitude training.  I have numerous books, training videos that helped me become a better climber.  My approach to my vocation mirrors  approach to my avocation.

One person I was interviewing told me  about his hobbies : gardening. I do not know much about gardening but I asked him to tell me about it. Tell me what your yard looks like?  How did you learn so much about gardening? He reads, studies, belongs to a garden club, attends seminars.  His career is as successful as his garden. It is his nature to work hard, better himself, re-educate himself.

Don-JasenskyDonald Jasensky is founder and CEO of Automotive Personnel, LLC. don@searchpro1.com; www.searchpro1.com

Interviewing Effectively

Those of us who successfully interview and assess candidates  everyday are results driven, effective and manage to keep it as simple as possible. After all, we are not Maslow, Freud nor Jung. I suspect they may have been subject to hiring misfires themselves!

How I start each search:

I start each search by asking this question; “A year from now, what will the employee need to accomplish to be considered a great hire?”

Only when I truly know the answer to this question, can I  competetly begin a search !

Then I look for a person who I am confident will accomplish this.   Experience has taught me to explore 4 areas when assessing potential candidates.

1) Experience :

– Have or are they doing this successfully?

– What is, (was), their role?

– Do they have the required technical, educational background?

– Have they demonstrated the necessary talent to be successful for the position –leadership, managerial, sales, organization, etc?

Keep in mind, for some positions hiring for winning attitude can make up for years of experience.



2) Performance :

The best indicator of future performance is past performance. Again, keep it simple, what is the pattern of their career? Moving up? Moving down? Hit plateau 10 years ago?

We look for a demonstrable record of accomplishments

– What did they do? Can candidate explain problem, opportunity?

– Their solution

– How did they implement solution? Their specific role?

– Hurdles, challenges?
- Results?
- What did they learn?

– Can they repeat this success in our position?

This series of questions will help you gauge true job performance. I tend not to trust resumes. It always amuses me when I see 3 or 4 resumes from the same company and each claims responsibility for the same project’s success!

3) Chemistry :

– Will candidate fit in with the corporate culture?

– Get along with the manager they will be reporting to?

– Get along with associates, subordinates, the team?

– If the position interacts with clients, what will your clients think about the candidate?

– What about pace of position? Fast, slow, how will candidate fit? Will tempo of the position frustrate candidate? Cause high anxiety? Or just about right? 

Trust your gut, it is probably right

4) Personality / Mindset:

We’re not talking more chemistry here, we are instead looking for a match of   candidate’s Personality / Mindset to the needs of the position.

Please see   “Personality / Mindset”  articles for more detailed   treatise.   Basically there are 3 types of personality/mindset needs, I look for a corresponding personality/mindset match   from the candidates.   You will not find this information in their resumes, in fairness candidates will not find it in your job description either!

The 3 types of personality/mindsets are:
“Status Quo” – this person will be very steady, not likely to shake things up, will probably get along well with most everyone.   Great fit for taking over a well-run department and keeping everything running smoothly. Will not “rock the boat”.

“Star”-   Needs to “move the needle”, “raise the bar”. These are high achievers who need to make things happen. Great fit is a position where the “Star” can accomplish large things like: increase sales,   production, bring in clients, reduce losses,etc.

“Hero” – Wants to take over a disaster and turn it around.   Think Carlos Ghosn or Lee Iacocca. “Heroes” are intrinsically challenged to make wholesale changes : fire people, hire others, sell off assets, buy other assets, (“Heroes” love this part).

   
TIP: Keep your job description simple enough to be understandable; does the position  require a person to – keep things running smoothly?   Move the needle? Or turn around a mess.

As a Professional Recruiter, I have interviewed thousands of disgruntled candidates.   The majority are   good employees, working in good companies who are in a position that does not fit their personality / mindset.

Don-JasenskyDonald Jasensky is founder and CEO of Automotive Personnel, LLC. don@searchpro1.com; www.searchpro1.com

6 Elements of a Successful Direct Mail Campaign

by Denny Long

We’re all looking for an advertising campaign that just sells vehicles with little or no work.  Unfortunately, it’s unlikely you’ll ever find that program.  It’s a lot of work to convert Special Finance or Buy-Here, Pay-Here leads into sales.  But if you really focus on the individual elements of the lead conversion process using pig-headed discipline, you can make it seem easy.  Let’s look at the 6 elements and how, with a little focus on each, you can greatly increase your return on investment.

Response Rate – There are many factors that come into play when it comes to response rate.  Target audience, offer, timing, and competition are some of the main factors.  What you do to get response will also affect the other elements.  For example, if you offer gifts or a chance to win a prize, you may increase response, but you’ll greatly decrease the closing ratio.  There are many documented cases where dealers have tried deception to get response.  This is not a good idea since it will lead to fines and lawsuits (see Tom Hudson’s recent articles in this magazine for an idea of what this can cost you).  Worst of all it will lead to a bad reputation for your dealership which will have a negative affect on all of you advertising.  I have a nice collection of articles about dealers receiving fines well over $200,000.00 because they thought they could get away with deceptive advertising – DON’T DO IT!  Target the right prospects with the right offer and you’ll get a good response.  I’ve seen BHPH promotions get a 10% response rate without gifts or giveaways.  Special Finance dealers can do very well also.

Contact Ratio – This is the percentage of the leads received that someone actually talked to about an appointment.  This is where the work starts.  I can’t tell you how many stories I’ve heard about a dealer getting a great response, but not selling any vehicles because the salespeople didn’t contact any of the leads.  You pay good money to generate leads so don’t let anyone drop the ball on this.  Call early and often until you contact the prospect.  If you really want to increase your contact ratio, have your calls answered live and go for the appointment right away.

Appointment Ratio – How many of those you talked to say yes to an appointment?  Again, this is an important number and should be tracked.  Make sure you create a script that everyone uses to ask for the appointment.  This is where great training and discipline really make a difference.  You should roll play with your scripts until they are perfect.  Remember, practice doesn’t make perfect, perfect practice makes perfect.

Show Ratio – How many of your appointments actually made it to the dealership?  If you did a great job setting the appointment, you should do well here.  This is an area where it is OK to offer an incentive for keeping their appointment.  It will be well worth offering a $10.00 gas card just for coming in.  You should make a confirmation call before the appointed time and a follow up call immediately if the appointment is missed to go for a reschedule.  It’s unlikely you’ll sell any cars to people that don’t show, so do everything you can to get them to show.

Closing Ratio – I’m sure your already pretty good at this since you do it every day.  Obviously this is an area that should be tracked and trained on regardless of what advertising source generated the lead.  It’s all about having the right mix of vehicles and lenders, but most of all having the desire and ability to close sales.

Gross Per Sales – This element proves that each of these elements contain its own group of elements.  Did you buy the right cars for the right price?  Do you have the right systems to match the buyer with the right vehicle and the right lender?  We’ve seen many dealers raise their gross per copy by over $1,000.00 just by using software that handles the matching process of hundreds of vehicles in a matter of seconds.

What an Increase in Each Element Means to the Bottom Line – Improvement in any of these areas will trickle down to an improvement to your return on investment.  After all, advertising should be viewed as an investment and not as an expense.  Many dealerships have made the mistake of cutting this investment like it was an expense during the current economic downturn.  Many of those dealerships that make that mistake won’t be around for the economic upturn.  Enough about me philosophies of advertising, let’s get back to improving on your advertising investment.

The chart below starts of what many may consider as average performance for each of the elements, but I believe there’s room for improvement.  We start with a 1.00% response rate, a 60% contact ratio, a 50% appointment ratio, a 50% show ratio, a 50% closing ratio, and an average of $3,000 gross per copy.  What’s really interesting is that if you improve any of the elements by 25%, the bottom line results are the same.  You start of with a 281.25% return on investment that gets increase to 351.56% return on investment.  Either way, it’s a lot more return than you’ll get with any bank account.  But if you increase all six elements by 25%, you increase your return on investment to 1,072.88%.  Let’s convert that to what really matters – MONEY!  You start off with a total gross profit of $22,500 and increase that number to $85,830.69.  WOW!

long-chart-6-elements

It’s plain to see that focusing on improvement of any and all of these essential elements will greatly increase your return on investment.  This means that the training and discipline it takes to make these improvements will have a huge return on investment.  Here’s the really big bonus – you can apply what you learn working on improving direct mail results to all of your lead generation investments, like Internet Leads and television leads.  Good Luck and Good Selling!

Denny Long is President of Credit Mail Experts. He has over 30 years of experience in the automotive industry and is known as the top expert in sub-prime marketing. In those years Denny has written hundreds of helpful articles that have been published in World of Special Finance, Auto Dealer Monthly, and the BHPH Report.

10 Ways to Increase Sales

by Denny Long

First, I wish all of you a Happy and Prosperous New Year.  Now, I don’t want to start a controversy about whether or not money can buy happiness, but I’m sure if you were able to increase sales you’d be a little happier.  So, let’s get to it with a plethora of methods to increase sales.  Not in any certain order so that you can mix and match the ones the suit you best or, what the heck, just put all 10 to work for your dealership.  Some of these ideas I have expanded on in past articles, others I will expand on in future articles.

Add More Employees to Your Department – Ouch…Few of us like the thought of adding the “expense and headache” of more employees.  Let me tell you from personal experience, you can’t do it all on your own.  Our sales were up in over 600% in 2006 compared to 2005 in large part due to the fact that we added enough employees to handle the amount of business we wanted to generate.  You most likely spend a considerable amount of money purchasing or generating leads.  Many of these leads will go to waste because you don’t have the staff to handle them.  Consider a BDC person or persons to work your leads, a funding clerk, and additional salespeople.  Walmart didn’t become the largest company in the world without adding employees – they have almost 2 million now and sales are through the roof!

Train and Motivate – Properly trained employees are exponentially more effective that untrained employees.  Your investment in training also tells the employee that they have a future with your company and in return motivates them to do a better job for you.

Maximize the Use of Available Technology – There are many software products available today that will make each and every employee more effective.  You wouldn’t have tried to run your dealership 15 years ago without a fax machine, why run it today without the right tools?

Purchase More Leads – This sounds like a no-brainer, but it’s amazing how many times I hear from a Special Finance Manager that management wants him or her to double sales without an increased advertising budget.  Nice dream, but it’s probably not going to happen.

Purchase Better Leads – There is a difference between types of leads.  You will find that you will deliver as little as 3% of some leads and as much as 30% or more for other types.  That means that you will spend ten times as much effort to sell one vehicle.  Spend your money wisely!

Get the Most from Your Current Leads – This goes back to the first few items mentioned.  You most likely need more people, better trained people, and/or better technology to maximize results from every lead you purchase.  There is a good chance your leads are being “cherry picked” and not fully utilized.  This is one of the first problems I find when helping dealers increase sales.  Inspect what you expect and know the status of every lead.

Expand the Range of Prospects You Can Deliver –If you were to follow up with every prospect you “weren’t able” to deliver, you will find that many of those prospects were able to buy a vehicle at another dealership.  You need to make sure you have a wide variety of Special Finance vehicles to meet the needs of your market.  You should also do a revue to make sure you have the right lenders to cover the spectrum of prospects in our market.  You don’t see that many people walking to work, so they must be buying vehicles somewhere.  Make sure it’s from you!

Work Your References – I’ve said this many times before, Birds of a Feather Flock Together.  There’s a good chance that many of the references you are required to get with every application are prospects.  Put together a marketing program to go after that business.  It may be the least expensive and most effective program you utilize.
Ask for Referrals – If you don’t ask for the sale, it’s unlikely that you’ll get it.  The same goes for referrals.  You just placed someone in a vehicle that didn’t think they could get a vehicle.  They are probably very happy with you and will be glad to tell you about their friend that needs your help, but you have to ask!

Maximize Your Location – I’ll bet there is a considerable amount of traffic that drives past your dealership every day.  Do they all know that you are the best in town at helping those with less than perfect credit?  A few signs out there would help.  Again, this is a very inexpensive way to increase sales.  You do need to be careful about your wording.  You don’t want to scare away your prime prospects into thinking you’re only there to help those with bad credit.  I won’t mention any names, but at least one of the lenders offers signage that gets the point across without alienating your prime customers.

As you know, the automotive business is going through some rough times, but a properly prepared Special Finance Department will always be profitable.  So pick one, a few, or all of them and get on your way to a very prosperous new year.  Good Luck and Good Selling!

Denny Long is President of Credit Mail Experts. He has over 30 years of experience in the automotive industry and is known as the top expert in sub-prime marketing. In those years Denny has written hundreds of helpful articles that have been published in World of Special Finance, Auto Dealer Monthly, and the BHPH Report.

The Time to Prepare for an FTC Investigation is Before it Happens

My email mailbox lit up recently with the rumor that the Federal Trade Commission had dropped Civil Investigative Demands (essentially subpoenas) on a number of dealers. The CIDs, said the rumors, dealt with the dealers’ spot delivery practices.

Dealers who read Spot Deliveryand who are not doing spot deliveries correctly have no one but themselves to blame if the FTC hammers them for bad acts. We have featured several articles on spot delivery “best practices,” outlining steps dealers can take to avoid trouble.

After its Roundtables on auto finance, the FTC asked interested parties to submit additional comments on the Roundtables’ topics. In May of 2012, the attorneys general of Alaska, Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Georgia, Hawaii, Idaho, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Utah, Vermont, Washington, and West Virginia got together and submitted comments for the FTC’s further consideration.

The AGs urged the FTC to regulate spot deliveries to prohibit abusive practices. Their recommendations read very much like “best practices” that dealership lawyers have been urging dealers to institute in connection with these transactions. Here are the specific practices that the AGs urged the FTC to regulate by rule:

  • Require dealers to retain consumers’ trade-in vehicles until financing is approved.
  • Preclude dealers from threatening to repossess or repossessing vehicles in a manner that does not comply with state law and from threatening to file or filing a theft or other police report due to the consumers’ refusal to return the vehicle to the dealership if financing is not approved.
  • Bar dealers from charging consumers for mileage, for wear and tear, or for any other reason, pending approval of financing.
  • Require dealers to offer consumers either a complete unwinding of the deal or credit under other terms, with the consumers having the choice to decide which of the two alternatives to accept, and bar dealers from making any representations to the contrary concerning the consumers’ obligations or rights.
  • Bar dealers from retaining portions of down payments or deposits when a deal falls through.
  • Require dealers to disclose to consumers that if the first finance agreement is rejected, the consumer has the right to walk away from the deal and has no obligation to the dealer.
  • Prior to completing a spot delivery, require dealers to clearly disclose to consumers that financing has not been finalized and the responsibilities and potential consequences for consumers.

With a couple of exceptions, these recommendations echo those that I and other lawyers have been making to dealers for several years. Compare the AGs’ list above with the following list from my “Pitch the Bathwater, Save the Baby” article from two years ago (arguing that spot deliveries, done correctly, are not abusive):

  • Allow for mutual rescission until the contract is assigned.
  • Require a dealer to keep the customer’s trade-in until the customer’s retail installment contract is assigned.
  • Provide a reasonable period (say, 10 business days) for the assignment of the retail installment contract, beyond which the deal could not be unwound.
  • Prohibit a dealer from imposing any fees on the consumer other than charges for excess wear and use or damage to the car.
  • Prohibit a dealer from requiring a customer to re-contract if the retail installment contract could not be assigned.
  • Prohibit any unwinding of a deal unless the customer has agreed in writing to the unwind (this last one, in my view, isn’t necessary, since a dealer generally has no unwind rights absent the customer’s written agreement, but the prohibition might still serve a useful educational purpose for dealers and consumers alike).

I’ll add a couple suggestions to those above.

Your spot delivery practices should be in writing and reviewed by your counsel to assure that they reflect best practices like the ones above and that they comply with state laws and regulations. This written spot delivery manual should be updated periodically to make sure that it reflects any changes in the laws and regulations applicable to spot deliveries. Your personnel responsible for handling spot deliveries should be trained on the procedures, and periodically retrained, to make sure that they know what the dealership’s obligations are.

I haven’t seen one of the rumored CIDs yet, but I’ll bet you Mama’s fried okra recipe that one of the things the FTC demands in those CIDs is a copy of the dealership’s spot delivery procedures. Those dealers who can produce one that reflects the best practices outlined above will do better than dealers whose response to such a request is, “Say what?”

tom-hudsonThomas B. Hudson, Esq. (tbhudson@hudco.com) is the Publisher of Spot Delivery(r), a monthly legal newsletter for auto dealers, and the Editor in Chief of CARLAW(r), a monthly report of legal developments in all states for the auto finance and leasing industry.  He is also a partner in the Maryland office of Hudson Cook, LLP. Spot Delivery and CARLAW are produced by CounselorLibrary.com LLC.  For information, call 410-865-5411 or visit www.counselorlibrary.com.

Copyright (c) 2014 CounselorLibrary.com LLC. All rights reserved.  This article appeared in Spot Delivery(r). Reprinted with express permission from CounselorLibrary.com.

Hey Buddy, Can You Lend Me a Car?

Does your dealership have a “loaner” program for customers who bring their cars in for repair? If so, do you have a written policy regarding your loaner practices and the appropriate forms to be signed by the customer in case the customer is involved in an accident that harms others?
Before you turn over the loaner car keys, do you investigate the customer? Do you ask for a copy of his or her driver’s license? Do you check the motor vehicle administration records to determine whether the license is suspended or valid?

Should you? You can bet your grandmother’s cornbread recipe that if your customer hurts someone else with your car, a lawyer will try to claim that you are responsible – that you “negligently entrusted” the car to the person who actually caused the harm. A recent case discusses the duty of a lessor in a similar setting.

Jude Sone leased a car from Enterprise Leasing Company of Norfolk/Richmond, LLC, in Virginia and drove the car to Maryland where he was involved in an accident that injured his passenger, Bertrand Essem. Essem sued Sone for negligence and sued Enterprise for negligent entrustment. Enterprise moved to dismiss the claim against it, and the Maryland federal trial court granted the motion.

Essem claimed that Enterprise should have known that Sone’s driving privileges had been suspended or revoked in Virginia and that Enterprise was negligent in failing to ensure that Sone was licensed to operate the car it rented to him. The court concluded that the test Essem proposed was not appropriate and instead found that in order to state a claim for negligent entrustment, Essem must allege that Enterprise knew or should have known that Sone was likely to use the car “in a way that put others at risk of physical injury.”

The court found that although suspension or revocation of a driver’s license could indicate that a driver is unfit to drive, a license could also be suspended or revoked for “a benign unpaid traffic ticket.” Therefore, the court found that Sone’s car accident was not “reasonably foreseeable based on the license suspension or revocation.” Moreover, the court found that neither Maryland nor Virginia law required Enterprise to look beyond Sone’s “facially valid” driver’s license to check his driving history.

So, what’s a dealer to do? Is it safe, from a liability standpoint, to rely on this case and simply verify that a customer has a license that appears valid on its face? Should the dealer inquire of the customer whether the license is still valid? If it isn’t, should the dealer inquire further about the reason for the invalidity and determine whether that reason indicates that the customer would use the car in a way that would put others at risk of injury?

Remember that this is a Maryland case, and cases in other jurisdictions might well have unfavorable outcomes for dealers. Some states may have laws or regulations addressing the dealership’s duties regarding loaner cars. Dealers, and even Maryland dealers, should work with the dealership’s attorney to determine what the law on negligent entrustment is in the dealer’s state and to fashion a loaner policy and the documents to be used in loaner transactions to be sure that the dealer is as protected as possible. Involving the dealership’s insurance company in the process is also a good idea.

tom-hudsonThomas B. Hudson, Esq. (tbhudson@hudco.com) is the Publisher of Spot Delivery(r), a monthly legal newsletter for auto dealers, and the Editor in Chief of CARLAW(r), a monthly report of legal developments in all states for the auto finance and leasing industry.  He is also a partner in the Maryland office of Hudson Cook, LLP. Spot Delivery and CARLAW are produced by CounselorLibrary.com LLC.  For information, call 410-865-5411 or visit www.counselorlibrary.com.

Copyright (c) 2014 CounselorLibrary.com LLC. All rights reserved.  This article appeared in Spot Delivery(r). Reprinted with express permission from CounselorLibrary.com.

12 Steps To Get You Started

I have spoken at several buy-here, pay-here dealer conferences over the years. Federal enforcement actions are a popular topic.

Afterward, dealers line up to ask me this paraphrased question: “Can you give me a basic playbook to help me set up a compliance program that will keep the Federal Trade Commission and the Consumer Financial Protection Bureau from flogging me in the public square and throwing me in jail?” Evidently, these dealers have taken the compliance message to heart.
That oft-asked question is usually accompanied by a caveat that the compliance program must be one that won’t break the bank. This article outlines some steps you can take toward establishing a serious compliance program, followed by a guesstimate of the ‘hard costs’ involved, not including management time, implementation time, and the time your employees spend studying, training, and researching.

Here goes.

Step 1: Make the decision to become a squeaky-clean operation.

Without this step, none of the rest of the stuff we recommend will work. The decision needs to come from the top of the organization, and, if your organization has had compliance problems, all hands need to understand that it is a real sea change and not just window dressing. Your people need to be told that anyone who does not treat customers honestly and ethically will be fired. Anyone who doesn’t buy into the new compliance culture should be told to hit the road. Cost: $0.

Step 2: Appoint a privacy officer.

While you’re at it, make that same person your compliance officer and the administrator of your Red Flags program. If your organization is large enough, this person may need help in the form of a small committee. The privacy/compliance officer should report to the highest-ranking person in the organization. Have signs made for your dealership showroom that identify that person. Cost: $5 for the signs.

Step 3: Give your privacy/compliance officer a real budget so that he or she can actually get some stuff done.

No budget for privacy and compliance will assure that you will have a privacy/compliance program that’s not worth a hoot. Several of the tools that the privacy/compliance officer will need, such as copies of the federal Truth in Lending Act and Regulation Z, the federal Consumer Leasing Act and Regulation M, the federal Equal Credit Opportunity Act and Regulation B, the federal Gramm-Leach-Bliley Act, the Federal Trade Commission’s privacy regulation, the FTC’s Used Car Rule, the Red Flags Rule, and the Risk-Based Pricing Rule, can be found online, although your privacy/compliance officer might need some training to access them. As part of that privacy/compliance budget, allocate enough money to send as many people as you can possibly afford through a compliance certification course (your mechanics are trained – your F&I people need training, too). One such program is offered by the Association of Finance and Insurance Professionals (www.afip.com). Have your privacy/compliance officer obtain and read all the books on F&I compliance that he or she can find. Likewise, have the privacy/compliance officer subscribe to online legal compliance services. Cost: Start with at least $5,000, but you easily can spend a lot more.

Step 4: Train, train, train.

Dealers tend to have high turnover of sales and finance personnel, and this compliance stuff can be less than riveting. So, you need to train your revolving sales and finance force and periodically re-train the ones who stay with you. There are third-party trainers, some of whom are quite good, but if your privacy/compliance officer turns out to be a crackerjack, he or she might well be able to handle the training. Cost: $0 in-house, $10,000 for outside training twice a year.

Step 5: Download and print copies of “Understanding Vehicle Financing.”

This consumer education pamphlet is free on the National Automobile Dealers Association website and is available in English and Spanish. It provides an overview of how car financing at dealerships works and bears the seal of approval of the FTC. Everyone in your organization will benefit from reading it. Make copies to display around your dealership, and put a copy into each customer’s packet of papers as you close each deal. Cost: The download is free, plan on $1,000 for printing.

Step 6. Download and print copies of “Keys to Vehicle Leasing.”

This is another consumer education pamphlet. It’s from the FRB and is a good overview of closed-end auto leasing. It also is available in English and Spanish, and you should use it just like you use “Understanding Vehicle Financing.” Cost: The download is free, plan on $1,000 for printing.

Step 7: Require everyone in the sales and financing process to read carefully your buyers order, retail installment sales agreement and lease forms, privacy policy, arbitration agreement, and all other documents that you ask the customer to sign or give to the customer.

This should include credit life and accident policies and certificates, GAP addenda, service contracts, “etch” agreements, and anything else the customer sees. Make up a test to determine how much of what each employee has read he or she actually understands. Cost: $0.

Step 8: Adopt a true, transparent “menu” process for the sale of additional products through the F&I office.

Work with your lawyer to prepare the menu and the script. Dealers who use a menu say that the transparent sales process costs them some sales that they might otherwise make, but that offering every product to every customer every time through a menu results in more sales. Follow up with your employees to make sure that they’re actually using the menus you’ve adopted in the way they are supposed to be used. Cost: $0.

Step 9: Appoint a person to help customers if they have a complaint.

Sometimes referred to (using a $10 word) as an “ombudsman,” such a person helps the customer work through a complaint with the dealership. You don’t want customers resolving complaints with the dealer representatives that they originally dealt with – and who often caused the complaint and get defensive as a result. You want someone who did not take part in the sales and financing process who can look at the customer’s complaint dispassionately. Having a formalized complaint-resolution process might deter some customers from taking their gripes to a lawyer or to the CFPB. Cost: $0.

Step 10: Have your privacy/compliance officer periodically search the web.

He or she should check the site of your state’s attorney general so that you’ll know what the AG’s current hot buttons are. Another site to check is that of your state’s motor vehicle dealer regulatory body. Also, on a regular basis, check the CFPB’s and the FTC’s websites, the NADA website, your state and local ADA’s or IADA’s website, and any other sites you’ve discovered that are useful. Use your Microsoft Outlook program to set up a weekly or monthly reminder to do these searches. (Confession-I stole the Outlook tip from Gil Van Over). Cost: $0.

Step 11: If your dealership isn’t using a mandatory arbitration agreement in its sales, leasing, and financing transactions, consider doing so.

The CFPB has announced that it is studying the use of arbitration agreements in consumer transactions, and the Bureau may eventually ban their use. Until that happens, using an arbitration agreement can be an effective defense against those predatory class action lawyers. Some state association-produced buyers orders contain arbitration language, or you can buy free-standing arbitration agreements off the shelf from vendors like Reynolds and Reynolds (but make sure your state permits the use of additional documents and doesn’t have a so-called “single document rule”). Regardless of which way you go, have a lawyer who is really knowledgeable about consumer arbitration agreements look over the agreement you intend to use. Cost: $2,000, plus any ongoing printing costs.

Step 12: Have a forms and procedures review and a written compliance program.
All of your sales and F&I forms and procedures, underwriting procedures, and servicing and collections procedures should be reviewed by a lawyer who is knowledgeable about compliance law. All of these procedures should be documented and maintained in a compliance manual. You and your lawyer should periodically review your manual because laws and regulations change. Use your Microsoft Outlook program to schedule a review at least every six months. Cost: $10,000 to $20,000.

So, there you are. If you implement those 12 steps, you’ll spend about $30,000 to $40,000. You still won’t have a first-class compliance program, but you’ll be miles ahead of where most dealers are. Once you get these measures in place, we can start talking about how to bring the program to the next level.

Not willing to invest serious money in compliance? Maybe it’s time to think about closing the dealership and opening a bait shop.

tom-hudsonThomas B. Hudson, Esq. (tbhudson@hudco.com) is the Publisher of Spot Delivery(r), a monthly legal newsletter for auto dealers, and the Editor in Chief of CARLAW(r), a monthly report of legal developments in all states for the auto finance and leasing industry.  He is also a partner in the Maryland office of Hudson Cook, LLP. Spot Delivery and CARLAW are produced by CounselorLibrary.com LLC.  For information, call 410-865-5411 or visit www.counselorlibrary.com.

Copyright (c) 2014 CounselorLibrary.com LLC. All rights reserved.  This article appeared in Spot Delivery(r). Reprinted with express permission from CounselorLibrary.com.

Does Anybody Really Know What “As Is” Means?

Dealers frequently sell used cars without any warranties. When they do, they are required to check a box next to this statement on the Buyers Guide:

AS IS – NO WARRANTY

YOU WILL PAY ALL COSTS FOR ANY REPAIRS. The dealer assumes no responsibility for any repairs regardless of any oral statements about the vehicle.

The existing “as is” statement above has been in place since the Used Motor Vehicle Trade Regulation Rule was adopted in 1984. In December 2012, the Federal Trade Commission announced that, as part of its systematic review of all of the agency’s rules and guides, it was seeking public comments on proposed changes to the Buyers Guide. One of the proposed changes involved the “as is” statement. The FTC proposed changing the statement to read:

AS IS – NO WARRANTY

THE DEALER WON’T PAY FOR ANY REPAIRS. The dealer is not responsible for any repairs, regardless of what anybody tells you.

The FTC received nearly 150 comments on its proposed changes. In response, it recently issued a supplemental notice of proposed rulemaking. In the supplemental notice, the FTC recognized that commenters “uniformly” objected to the original proposed changes to the “as is” statement. Among other reasons, the commenters found that the proposed statement “obscure[d] the meaning of ‘As Is,’ ” “potentially changed its meaning,” or “misstate[d] the law and consumers’ rights.” With regard to this last objection, the supplemental notice indicated that one commenter asserted that the proposed language runs contrary to case law, which provides that an “as is” sale does not prevent a buyer from claiming that the dealership engaged in fraud.
As a result of the objections, the FTC proposed to modify the explanation to state:

AS IS – NO WARRANTY

THE DEALER WILL NOT PAY FOR ANY REPAIRS. The dealer does not accept responsibility to make or to pay for any repairs to this vehicle after you buy it regardless of any oral statements about the vehicle. But you may have other legal rights and remedies for dealer misconduct.
The supplemental notice states that the revision is “intended to make the statement easier to read and to improve consumer understanding, but is not intended to change the statement’s meaning,” which is “to indicate that a dealer disclaims responsibility for implied warranties that might otherwise arise by operation of state law.”

The supplemental notice also listed four other formulations of the “as is” statement, suggested by Consumers for Auto Reliability and Safety, the Iowa attorney general, the North Carolina attorney general, and the East Bay Community Law Center. Among those formulations are statements advising the buyer that he or she may have legal rights if the dealer “concealed problems with the vehicle or its history” or “misrepresents the vehicle’s condition or engages in other misconduct.” The FTC invited comments on the modification that it suggested in the supplemental notice and on the alternative formulations proposed by the four commenters noted above.

So, if my math is correct, we’ve seen at least seven different “as is” statements – the one currently in effect, two different ones proposed by the FTC, and four more proposed by commenters. If the purpose of the “as is” statement is to make sure that the consumer understands the ramifications of buying a car “as is,” it would help if there was collective agreement as to what the “as is” language means.

Nevertheless, since the FTC has made clear that it intends to revise the “as is” statement merely to clarify the existing language but not to change its meaning, it is likely that courts will not abandon existing case law that was based on the old language. Therefore, dealers who sell used cars “as is” should understand that fraudulent oral representations made by a dealer’s representative to the buyer about the condition or history of a car in order to induce a sale will still be actionable.
And that’s likely true regardless of what wording the FTC adopts.

Shelley B. Fowler is a Managing Editor of CARLAW, HouseLaw, PrivacyLaw, and Spot Delivery. Shelley can be reached at 410-865-5406 or by e-mail atrfowler@hudco.com.

Copyright (c) 2014 CounselorLibrary.com LLC. All rights reserved.  This article appeared in Spot Delivery(r). Reprinted with express permission fromCounselorLibrary.com.

Lessons from DriveTime

Congress empowered the Consumer Financial Protection Bureau to supervise “buy-here, pay-here” car dealers when it passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Since its inception, the CFPB has not specifically targeted a BHPH dealer – until now, that is. In November, the CFPB announced a consent order against DriveTime Automotive Group, Inc., one of the largest BHPH dealerships in the country, for allegedly harassing consumers with debt collection calls and providing inaccurate credit information to credit reporting agencies. As part of the consent order, DriveTime agreed to pay an $8,000,000 civil money penalty, end the debt collection tactics categorized by the CFPB as unfair, fix its credit reporting practices, and arrange for affected consumers to obtain free credit reports.

According to the CFPB, at least 45% of DriveTime’s auto installment contracts were delinquent at any given time. When DriveTime consumers fell behind on their installment payments, at least one of DriveTime’s 290 collection employees in two domestic call centers and 80 contractors in Barbados would call them. Indeed, these employees and contractors placed tens of thousands of collection calls each weekday. At the end of 2013, DriveTime had approximately 69,000 installment contracts that were past due and that these employees or contractors would have been attempting to collect.

Dodd-Frank establishes that companies’ practices can be unfair if consumers cannot reasonably avoid being harmed. The CFPB determined that several of DriveTime’s debt collection practices were unfair to consumers. For example, DriveTime often called borrowers at work, a practice DriveTime management encouraged. Several consumers requested that DriveTime not call them at work, but DriveTime called anyway. One consumer was unfairly called 30 times at work after her do-not-call request.

DriveTime also required consumers to provide the names and phone numbers of at least four references when they applied for financing, a common practice in subprime credit. When consumers fell behind on their payments, DriveTime called these references. Many borrowers and references requested that DriveTime no longer make these calls, but DriveTime continued to call. Some references complained that DriveTime called them for months after they asked the company to stop. Finally, DriveTime frequently used third-party databases to find new phone numbers for consumers who fell behind in their payments, a practice known as skip tracing. Unfortunately, these databases were often wrong. Upon receiving DriveTime’s calls, many third parties told DriveTime employees or contractors that they had the wrong number and requested that DriveTime stop calling them. Despite such requests, DriveTime continued to call. In some cases, DriveTime called these wrong numbers for more than a year before stopping.

Unfortunately, DriveTime’s alleged unfair acts did not stop at collection practices. It also allegedly erred in how it reported delinquent information to consumer reporting agencies. In a number of cases, DriveTime reported inaccurate timing of repossessions and dates of first delinquency. This made it appear on consumers’ credit reports that DriveTime repossessed consumers’ vehicles more recently than the actual date of repossession. DriveTime also mishandled consumers’ complaints about this inaccurate information. In several instances, consumers disputed the same account information several times without correction. In other cases, DriveTime falsely told the consumers in writing that it corrected the information. The CFPB specifically found that DriveTime failed to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information it furnished to credit reporting agencies.

To settle a potential enforcement action with the CFPB, DriveTime agreed to stop communicating with consumers at their workplaces if consumers have requested that DriveTime not call them there or if DriveTime otherwise knows that the consumers’ employers prohibit communications to their workplaces. Additionally, DriveTime cannot call a particular phone number related to an account if any person requested that DriveTime stop calling that number.

DriveTime also agreed to provide a clear and conspicuous notice to existing customers as to how they can limit the times of day that DriveTime will call them. For all new customers, DriveTime will provide this notice as part of a written welcome kit. DriveTime will also provide this notice on the welcome call and, if applicable, at the time of the first collection call on the account.

In addition to agreeing to report only accurate information, DriveTime agreed that if it furnished inaccurate information to a credit reporting agency, it will provide corrected information to the agency or request that the agency delete the wrong information from the consumer’s file. For consumers about whom DriveTime furnished inaccurate credit information, DriveTime agreed to give them a notice that explains how to obtain a free credit report from each of the nationwide consumer reporting agencies. Finally, DriveTime agreed to implement a process for auditing information it furnishes to the credit reporting agencies on a monthly basis and monitoring the disputes it receives.

So, if you operate a BHPH dealership, what are your lessons from this consent order? First, be very careful in how you collect on accounts. If a consumer tells you to stop calling, then stop calling. If you obtain references and a reference asks you to stop calling, stop immediately. Keep track of these requests in your servicing software and collection call notes. Ensure that your policies and procedures are current. If you don’t have a compliance management system in place, budget for one in 2015, in a manner that corresponds to the size of your operations. And finally, if you do report information to the credit bureaus, ensure that the information is accurate.

Catherine M. Brennan is a partner in the Maryland office of Hudson Cook, LLP. Cathy can be reached at 410.865.5405 or by email at cbrennan@hudco.com.

Copyright (c) 2014 CounselorLibrary.com LLC. All rights reserved.  This article appeared in Spot Delivery(r). Reprinted with express permission fromCounselorLibrary.com.