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O F F I C I A L P U B L I C AT I O N O F T H E T E X A S A U T O M O B I L E Dealers’ Choice D E A L E R S A S S O C I AT I O N WINTER 2006 Volume 46, Issue 4 Ernesto Ancira Jr. Ernesto Ancira Jr. is the 2007 TADA Chairman. His proven management skills and dedication to community service make him the ideal representative for Texas dealers. O F F I C I A L P U B L I C AT I O N O F T H E T E X A S A U T O M O B I L E Dealers’ Choice D E A L E R S A S S O C I AT I O N The Dealers’ Choice is a publication of Newsletters Ink and is the official publication of Texas Automobile Dealers Association. The Dealers’ Choice is published 4 times per year by Newsletters Ink. The statements and opinions expressed herein are those of the individual authors and do not necessarily represent the views of Dealers’ Choice, or its publisher Newsletters Ink. Any legal advice should be regarded as general information. It is strongly recommended that one contact an attorney for counsel regarding specific circumstances. Likewise, the appearance of advertisers does not constitute an endorsement of the products or services featured by Newsletters Ink. 22 18 40 10 NADA News 12 Ernesto Ancira, Jr. 18 The Race to Become a Good Dealership By David E. Keller 36 Putting the Teeth Back in Non-Competition Agreements Dealerships that use or would like to use non-compete agreements should have their agreements reviewed for compliance with the new standard. The Texas Automobile Dealers Association 2007 Chairman. Are you at the finish line? If not, start now to install the policies and procedures, internal controls and trained personnel. Your dealership will not grow at the right speed and you will “crash”. 20 Cancer: Do Your Part to Make it a Fair Fight 22 Reducing Operating Costs in Texas By Bill Kuzmich By John Hammonds 40 Winning (not whining) in a Tough Market Every 10-12 years we have a couple of years where the market realigns itself and causes considerable consternation for many dealers. In times like these, dealerships go one of three ways…they thrive, survive or die. By Kevin M. Duddlesten By offering Cancer Insurance as a voluntary benefit, you get the credit for offering quality benefits through the workplace. Since the Texas electricity market became competitive in 2001, thousands of businesses have taken advantage of the opportunities. As with any growing and maturing market, the participants, rules, challenges, and opportunities change. 24 It’s Time to Stop Making Excuses And Start Cashing in on The Sub-Prime Market By Mike Edwards 42 Is Your Business Plan in Need of a Tune-up? Is your dealership running on all cylinders? If not, it may be time to update your business plan. By Larry Dorfman As 2006 draws toward a close, what are you doing to ensure increased profits in 2007? The business plan is simple: Increase Sales, Increase Gross and Decrease Expenses. 44 7 Areas That Will Help Increase Income There are many outside factors that affect the success of a finance department. Focusing on seven areas will help overcome those factors. By J. Ryan Lindsay, CPA 20 4 Dealers’ Choice WWW.TADA.ORG 26 Dealer Spotlight 32 Truck Industry Update 34 Bill Utter - Distinguished Dealer Award By George Jackson TEXAS AUTOMOBILE DEALERS ASSOCIATION • P.O. BOX 1028 • AUSTIN, TX 78767 • 512.476.2686 TADA OFFICERS 2007 TADA EXECUTIVE COMMITTEE 2007 Ernesto Ancira, Jr. Chairman Seaton Higginbotham Immediate Past Chairman David Alderson Northwest 2008 Mary Rose Cardenas South 2007 Stephen Cavender Southwest 2009 TTD Chairman Duane Kyrish Chairman-Elect Sam Pack J. Michael Chargois Central 2008 Tim Crenwelge West 2007 David Houston East 2008 Bill Wolters President Executive Vice President Chief Counsel Karen Phillips Southeast 2009 Jim Jenke Northeast 2007 Ron Kutz David Schoemaker North 2009 6 Dealers’ Choice WWW.TADA.ORG TADA STAFF 2007 Chief Operating Officer, Legislative Affairs Tom Blanton Chief Legislative Counsel Rob Braziel Director, Marketing Services Penny Dikeman Elizabeth Gardner Paralegal Director, Public Relations Julie Graham Member Services Janet Hale Administrative Assistant Marsha Jay Forms/Supplies Pete Morin VP, Meetings & Administration Donna Norton Louise Peyton Receptionist Executive Vice President/Chief Counsel Karen Phillips VP, Finance & Systems Albert Ploch VP, Marketing Chuck Price Dealer Services Kathy Sims Dealer Relations Counsel Joe Thigpen Bill Wolters President Texas Automobile Dealers Association PO Box 1028 Austin, Texas 78767 512-476-2686 WINTER 2006 ⎢7 TADA BOARD OF DIRECTORS 2007 Bobby Baillargeon North District 10 2008 Darrell Blum Southwest District 19 2009 David L. Brinson Central District 12 2007 Brent Brown Northwest District 28 2009 Mike Calvert Southeast District 6 2008 Rick Cavender Southwest District 26 2009 Kirk A. Clark South District 27 2008 Diane Connell West District 16 2007 South District 20 2007 Bob Crow Mark Daniels Northeast District 9 2009 John R. Eagle North District 34 2008 Elizabeth T. Gillespie Southwest District 24 2008 Milton S. Greeson, Jr. South District 18 2008 Mike Hall South District 17 2009 Donald Herring Northeast District 8 2007 Don Ross Hewlett Central District 11 2008 West District 29 2008 Don James Cliff Johnson North District 22 2008 Craig W. Kinsel East District 4 2007 Mike Mitchell West District 25 2008 Raymond Palacios West District 32 2007 William R. Patterson, III East District 2 2008 David Peacock Southeast District 33 2008 Kent Pettus North District 23 2009 No Photo Available Andrea Gibbs Pickens East District 7 2007 Steve Prather Southeast District 15 2009 Don Al Ringler Central District 13 2007 Joe W. Sandlin Jr. Northeast District 1 2009 Southeast District 5 2009 Bill Smith Northeast District 35 2007 Jim Snell Central District 14 2007 David Stein Joseph Street Northwest District 31 2009 Margie Tipton East District 3 2009 Northwest District 30 2007 Sam Toliver Paul Young Southwest District 21 2007 8 Dealers’ Choice WWW.TADA.ORG WINTER 2006 ⎢9 Vice President Cheney Praises Dealers Highlights Support for Estate Tax Repeal “THE DEALERSHIP INDUSTRY HAS BECOME ONE OF the powerhouses of the American economy — generating some 20 percent of all retail sales in the country,” he said. He also praised dealers for their community service and recognized the 100-year anniversary of the auto franchise system. A transcript of Vice President Dick Cheney’s keynote address at NADA’s Washington Conference is now available on the official White House website. New car dealers and state and metro dealer association executives from across the country attended the Conference and met with their legislators to discuss issues impacting the auto industry. The session included a full program of addresses by key congressional members, political analysts and NADA executives. “From start to finish, it was a tremendous opportunity for NADA members to get an inside view of Washington,” said David Regan, NADA’s vice president of legislative affairs. “We had record attendance and, with the Vice President’s appearance, we had the highest-ranking government official to participate in the Washington Conference,” he added. The National Automobile Dealers Association, founded in 1917 and based in McLean, Va., represents approximately 20,000 new car and truck dealers holding nearly 43,000 separate franchises, domestic and international. President’s remarks were wide-ranging, covering everything from national security to the state of the economy. 10 Dealers’ Choice WWW.TADA.ORG V ice President Dick Cheney highlighted the Bush Administration’s call for permanent repeal of the death tax in his keynote address at the National Automobile Dealers Association’s (NADA) Washington Conference. The Vice The transcript of Vice President Dick Cheney’s speech to the National Automobile Dealers Association’s (NADA) 2006 Washington Conference is available at: www.nada.org/Content/NavigationMenu/Newsroom/ News_Releases/20061/Cheney_Transcript_9-19-2006.htm Ernesto Ancira, Jr. The Texas Automobile Dealers Association 2007 Chairman His official bio makes the question of what he does in his spare time almost pointless. We talked to him about his career, his dealerships, his community service and the Texas Automobile Dealers Association. We asked him how he did it all and he said, “A great staff!” Q: You have a wide range of automobile lines including Jeep, GMC, Chrysler/Plymouth, Nissan, Volkswagen, Pontiac, Buick, Subaru, Kia, Ford Mercury, and Dodge. You also sell Motor homes. How many locations do you have? How many people do you employ? We have 12 locations, basically in the San Antonio area. Our Motor Home locations are in Temple and Fort Worth. We have approximately 800 employees. Where were you born and where did you attend school? EA: Q: EA: I was born in San Antonio and our family moved to Mexico City when I was 2 years old. I attended both American and Mexican schools there. Later, I went to high school in the U.S. Following high school I went to Saint Edwards University in Austin. After I finished my degree, I returned to Mexico City. Q: You worked for Gillette de Mexico and then Kimberly-Clark in Mexico City early in your career. How did that opportunity arise? When I first got home to Mexico, I worked for my father. But it didn’t work out very well to have my father as my boss AND my employer at the same time. I needed to find my own identity. A friend told me about an opening with Gillette. I went to work for them marketing several of their major brands. They are very consumer oriented. It was great training. EA: E rnesto Ancira Jr. is the 2007 TADA Chairman. His proven management skills and dedication to community service make him the ideal representative for Texas dealers. ■ ernesto ancira, jr. — continued on page 14 12 Dealers’ Choice WWW.TADA.ORG ernesto ancira, jr. — continued Q: Can you tell us the most striking differences between doing business in Mexico and in the United States? EA: I think the main difference is the relationships with people. In Mexico, it is not uncommon to have a two or three hour lunch getting to know each other and building trust. It becomes business between friends. In the U.S., it is much more impersonal. Here we are interested in the bottom line and getting the best deal. The pace is much faster in the U.S. In Mexico, the emphasis is to enjoy life while you are living it. The loyalty to people in Mexico does make it difficult to break into long standing business relationships. We are at a crossroads in our industry. We will come out a success if we come together and make a cohesive team. It’s important that we all get involved. dence. What I like most about the industry is that it changes day to day. There are always new entries into the market, new products, changing fuel prices and regulations, changes in the economy. You have to adapt and that keeps me feeling challenged and interested. Do you have a philosophy about your relationship with your employees? me the property was mine and I could pay him when I could. He made the deal with a handshake. Later, a gentleman came to me offering to buy the property. I told him that I didn’t really own it. He told me he had gone to the previous owner and offered him $800,000 more than the original asking price and was told that the property belonged to me and I was the man to see. Again, I was amazed. He had shaken my hand and it was a deal. There were really people like this who stay to their word and were willing to help people out. He will always be one of my heroes. I wouldn’t be here today if it hadn’t been for his help. The experience changed me. I wanted, and still want, to be like that guy. Q: Q: How did you get into the automobile business and what keeps you there? EA: I think everyone needs to feel productive. I have some really great people working with me. My most valued business asset is the personnel. We feel a strong loyalty to each other. We come to work to improve the quality of our lives. We work as a family and a team. When we discuss goals and make plans, that is the vision: to improve the quality of life for everyone here. And that helps us pass that feeling on to our customers. Can you tell us about an experience in your career that has inspired you and helped shape your life? EA: I was working for Kimberly-Clark in Mexico and doing very well. They offered me the opportunity to move to Brazil. At the time Sao Paulo was growing so rapidly they had outgrown their infrastructure and the conditions in the city were unsafe. I did not want to take my family there. When you pass up opportunities, it can limit you with a company. As I traveled to Neenah, Wisconsin, where headquarters were, to tell them my decision, I passed through San Antonio. There was an auto store there that was available. It had been run by the staff since the death of the owner a year before. I decided to pursue it. Although there were about 80 candidates before me, I had several advantages. I had experience in dealing with major U.S. corporations. I went to Chevrolet with everything in place. I had negotiated with all the heirs; I asked the current General Manager to be my partner; I was bilingual, which was preferred for the area. I knew what they wanted and I gave it to them. Automobiles represent the American Dream. They offer freedom and indepen14 Dealers’ Choice WWW.TADA.ORG Q: You currently serve on many boards and committees. What has driven you to reach outside yourself to serve? Q: EA: Have you ever tried a new restaurant and had a wonderful experience? The service was great, the food was great and you can’t wait to tell your friends about it. You want to share. Life has been one hell of a restaurant. I see so many things and think, “I need to try this!” Sometimes we don’t see how we can improve the quality of life and help each other. Needs are hidden or we won’t see them. When you are involved, you can’t pretend the need is not there. I am Chairman of the United Way for our county. I have seen how much needs to be done. Maybe it’s selfish because I have been glad to be there. It makes you feel good. If you saw someone drowning, ■ EA: That is hard because everything that we have experienced has shaped who we are. But probably the thing that has had the biggest impact happened after I got that first franchise. The existing dealership had opened in 1924 and a new location really had to be built. After searching, I found the perfect location, but the property was much more than I could afford at 40 acres. I asked the owner to sell me a piece of it. He wanted to keep the property intact. I had grown up in Mexico where the climate was “dog eat dog.” The handshake deal didn’t exist. I was amazed and, at first, unbelieving when the owner told ernesto ancira, jr. — continued on page 16 ernesto ancira, jr. — continued few of us would hesitate to plunge in and help. So often, we just don’t see it. On an individual level, they keep us informed on compliance and legal issues. Without them we would be on our own. A car is not gonna roll without air in the tires. Q: Of all the things you have done in your life, of what are you most proud? EA: Raising my daughters with my wife. When I look at them I feel like I’m going to pop. They turned out so great! I think in the past, it was possible to isolate our children from harsh reality, but these days you have to help them and teach them how to cope. Q: With everything else you do, why is serving for TADA important to you? EA: I think it is a matter of survival the industry and for me; especially now, when the industry is hurting. If we stick together we can survive. I want to use the strength we have when we are united. Q: You got your first franchise in 1983. What effect has the support of TADA had on your businesses? Q: Supposing that you had any spare time, what are your interests? EA: I really like golf. You can see by my bio that I have chaired several golfing events. I used to play racquetball, run track, snow ski, scuba dive – I was really intensely into scuba diving for 2 or 3 years and then I burned out. I seem to do that. I want to experience life and taste everything. I also get a feeling of freedom and independence from flying. I had to travel so much I bought a small plane. I have trained for all kinds of aircraft from helicopters to sea planes. I actually do training every 6 months. I train as much as an airline pilot, but flying is not my job so when I fly I can think of other things. I minimize the risk by keeping trained and keeping on top of my plane’s maintenance. But the risk is exhilarating. The car EA: Actually, I got the first franchise on May 4, 1972. Ancira Enterprise was formed in 1983. I think the benefits of an auto dealers association are most evident in Texas. They have formed a great relationship with state government who is very friendly with our industry. TADA has watched and promoted legislation that will enhance the car industry and helped discourage things that would negatively impact us. We would not be the industry we are of not for TADA. 16 Dealers’ Choice WWW.TADA.ORG business is a big time risk. Q: If you could give one piece of advice to dealers just starting out what would it be? ERNESTO ANCIRA, JR. PERSONAL INFORMATION Born March 1, 1944 in San Antonio, Texas. Married with four children. Achieved air transport pilot and helicopter ratings; updated twice yearly. EDUCATION • BBA in Marketing from St. Edward’s University - Austin, Texas 1964. • St. Joseph’s High School - Laredo, Texas 1961 Texas Military Institute - San Antonio, Texas • American School - Mexico City, Mexico CAREER SUMMARY 1965-1968 Gillette de Mexico, Group Manager - Mexico City. Accepted sales trainee position and was later promoted to a group managerial position, overseeing marketing projects. 1968-1972 Kimberley-Clark, Marketing Executive - Mexico City. Developed the marketing departments in Mexico and Latin America, implementing marketing and advertising programs to further sales and enhance the corporate structure. 1972 to Present Automobile dealership owner. Purchased existing Chevrolet dealership and became first Hispanic dealer/owner in the U.S. Shared ownership with Ralph Winton to create The AnciraWinton Chevrolet. Currently owns twelve automotive franchises in three San Antonio locations and one in Eagle Pass, along with five motorhome dealerships throughout Texas. Formed Ancira Enterprises, Inc., in 1983 as the holding company for all dealerships acquired. 1983 Acquired Ancira Jeep/Eagle 1986 Acquired Ancira GMC and opened Ancira Motorhomes (Boerne, Texas) 1989 Opened Ancira Motorhomes (Temple, Texas) 1993 Acquired Ancira Chrysler/Plymouth 1994 Acquired Ancira Nissan and opened Ancira Motorhomes (Fort Worth, Texas) 1995 Acquired Ancira Volkswagen/Subaru/Kia 1996 Acquired Ancira Pontiac 1997 Acquired Ancira Motorhomes (McAllen, Texas) 1998 Opened Ancira Buick 2000 Opened Ancira Kia I 10 2001 Acquired Ancira Eagle Pass Ford Mercury (Eagle Pass, Texas) Acquired Ancira RV (Denton, Texas) Acquired Ancira Ford Mercury (Floresville, Texas) 2003 Opened Ancira 281 Chrysler/Jeep 2005 Acquired Ancira Dodge CURRENT AFFILIATIONS • Chairman Elect Texas Automobile Dealers Association • Chairman of 2006 United Way Campaign • Chairman of the Board of Directors of Cibolo Canyons Special Improvement District • Governor’s Task Force for Economic Growth • Texas Automobile Dealers Association Director • University of Texas San Antonio Business Advisory Board • San Antonians Against Lawsuit Abuse • Board of Visitors Trinity University • San Antonio Sports Foundation • Alamo Bowl Board • Chair of “Gift of Life Gala” National Kidney Foundation of South and Central Texas 2004 PAST POSITIONS HELD • Golf San Antonio Chairman • San Antonio World Trade Association • San Antonio Economic Development Foundation Board • Medical School Advisory Council at the University of Texas Health Science Center at UTSA • San Antonio Tennis Association Advisory Board • Texas Automobile Dealers Association (Director) • Southwestern Bell Dominion Senior PGA Tour (Tournament Chairman 1984-1999) • Builders Square Alamo Bowl (Chairman) • San Antonio Automobile Dealers Association (Chairman) • The Dominion Country Club (Board of Governors) • Southwest Foundation for Biomedical Research (Board of Directors) • Texas Department of Commerce (Commissioner) • Governor’s Hispanic Advisory Committee (Committee Member) • The University of Texas San Antonio Development Board (Board Member) • State of Texas Strategic Planning Commission (Commissioner) • Texas Research and Technology Foundation Board of Trustees (Board Member) • U.S. Senate Republican Conference Task Force on Hispanic Affairs (Advisory Committee) • San Antonio Area Chevrolet Dealers Advertising Association (Secretary/Treasurer) • General Motors President’s Advisory Council (Council Member) • Dealers Council of American Motors Corporation (Council Member) • Groos National Bank (Chairman) • Texas Bank Loan Committee (Chairman) • Crime Stoppers of San Antonio (Board Member) • Texas Public Policy Foundation Board (Board Member) • St. Edward’s University (Trustee) • Our Lady of the Lake University (Trustee) • San Antonio Chamber of Commerce (Executive Board Member) • Rehabilitation Institute of San Antonio (Governing Board Member) • San Antonio Chamber of Commerce Free Enterprise Council (Chairman) • Medical Center Development Board (President) • March of Dimes (Campaign Chairman) • San Antonio Cancer Society (Board Member) • Cystic Fibrosis Foundation (Board Member) • Leukemia Society (Board Member) • Boy Scouts of America (Executive Board Member) • United Way (General Business Chairman) • San Antonio Little Theatre (Board Member) • U.S. Olympic Committee - Delegate for Modern Pentathlon SPECIAL RECOGNITION • 2004 Jack Smith Award – General Motors • 2002 Jack Smith Award – General Motors • 2001 Jack Smith Award – General Motors • 2000 Jack Smith Award – General Motors • 1988 Hispanic Chamber of Commerce Business Leader of the Year • 1987 Mexican American Legal Defense Educational Fund (MALDEF) Corporate Responsibility Award • 1987 League of United Latin American Citizens (LULAC) Impresario of the Year Award • 1974 St. Edward’s University Distinguished Alumni Award • 1974 North San Antonio Chamber of Commerce Pride and Progress Award EA: Surround yourself by qualified people and don’t lie to yourself. Know your limitations and back yourself. When you can’t do something get someone who can. Q: Tell us something about yourself we would be surprised to know. EA: I would like to have a very low profile. I don’t like to participate in big parties and such. I‘d rather be with close friends and family. I don’t like people to make a big deal. It embarrasses me. Q: Is there anything else you would like to share with us? EA: We are at a crossroads in our industry. We will come out a success if we come together and make a cohesive team. It’s important that we all get involved. WINTER 2006 ⎢17 Policies. A well-run dealership must have good, consistent and fair policies for all who are employed, whether it is the dealer or the lot person. The policies will normally have to be updated from time-totime, due to legislative and employment issues and good business common sense. Take the time and put these policies in writing. An example would be establishing an employee manual, describing what behaviors are expected from everyone, what the store’s hours are, vacation and drug policies, worker’s compensation and overtime issues, etc. Procedures. You and your personnel need to know what to do when various events occur. For example, what is the process of a car deal from the beginning to the end? Do you have a car deal checklist that lists all possible documents the car deal jacket should include? The only way the accounting department normally knows a vehicle has been sold is the receipt of the car deal jacket or a deposit from a customer. Trying to record one without the other can lead to posting errors and a delay in receiving the contract proceeds or recording the car deal in the correct monthly period. Internal C ontrols . The main purpose of internal controls is insuring all transactions are generated correctly, recorded timely and accurately by authorized individuals in the most efficient manner possible. Without the proper controls in place, your accounting records would be a disaster. Cash needs to be locked up at all times. The owner/dealer needs to receive the bank statement at home to insure they are the fi rst ones to open it. Cancelled checks should be reviewed to make sure the endorser is the same as whom the check was written to. You should review the signatures to make sure you or an authorized person signed the checks, for the correct amount, and made out to the correct entity or person. Petty cash vouchers should be reviewed for authorized purchases or uses. You should review all EFT/ACH transfers, to and from the dealership, to insure the routing numbers are from authorized sources and disbursements are for the correct amount and to authorized vendors. Good Dealership BY The Race to Become a DAVID E. KELLER 18 Dealers’ Choice WWW.TADA.ORG Well, are you at the finish line? If not, start now to install the policies and procedures, internal controls and trained personnel. Poor infrastructure will waste the best capital invested and financing obtained. Personnel. Your personnel are your most important resource and asset that you have. Training should be ongoing and frequent, whether it is daily or weekly sales meetings to scheduled sessions on various topics. Well-trained personnel don’t need to ask as many questions, as they have been trained how to react to various situations. The hiring process is very important. You must hunt for and hire people who will adhere to the policies and procedures of the dealership, be trainable, ambitious and have the correct attitude. Capitalization. The infrastructure of your store is not complete without the owner/dealer investing the proper amount of capital in the business when it is started and on an ongoing basis as the business grows. Therein lies the biggest problem. Most businesses are started with inadequate capital investments. Proper cash flow models and projections need to be prepared, along with budgets that need to be evaluated on a regular basis. Know what amount of capital is needed now and in the future. Do you have enough yourself? Do you need to attract investors to supplement your investment? Financing. If you don’t have enough capital yourself to grow your business, you will have to pursue outside sources. That could be outside investors, such as family members and/or friends, or a financial institution. The key to getting financing is to have your accounting records and financial statements that will make sense to a loan committee. Oh, also it helps if you are making money, have invested adequate capital yourself that is at risk in the business, and know what you are going to do with the financing. A well-defined business plan can only help you be well received at your local bank. Well, are you at the finish line? If not, start now to install the policies and procedures, internal controls and trained personnel. Poor infrastructure will waste the best capital invested and financing obtained. Your dealership will not grow at the right speed and you will “crash”. Or, you will grow yourself out of business because you outgrew your infrastructure. More cash flow emergencies will occur at the most inopportune time. Put your infrastructure in place before racing down the highway of business. WINTER 2006 ⎢19 Cancer: Do Your Part to Make It a Fair Fight BY JOHN HAMMONDS benefits or merely offer employees added benefit opportunities, either way you come out ahead. In the struggle to maintain and recruit a qualified workforce, the more you have to offer an employee, the better you look. Voluntary Benefit options like Cancer Insurance can not only increase your workforce morale; it makes your benefit package more appealing to potential employees. You may think there are plenty of fish in the sea when it comes to the market for qualified staffers. By itself, the June 2006 turnover rate of 3.4 percent sounds low, but considering that there were 4.0 million job openings out there at the end of June 20063, that’s a lot of other businesses looking to hire you’re prospects. Cancer doesn’t discriminate. Anyone can get it. It would be nice to know that everyone had the same chance to help protect his or her finances when faced with such an illness. That’s where Cancer Insurance comes to play. Cancer Insurance provides several advantages: Give Your Employees Power to Fight Back Health insurance alone may not be enough to combat the financial impact of cancer. In A Way to Combat Increased Benefit Costs The increasing costs associated with providing desired benefits can strain resources. With private businesses spending an average of $1.85 per hour worked on life, health and In the struggle to maintain and recruit a qualified workforce, the more you have to offer an employee, the better you look. T ry to imagine something so strong that it can make even the sturdiest individual struggle. In addition to reducing one’s physical condition, it can go on to place strain on one’s family and even the pocketbook. It may sound like some super-villain, but it’s an all too common foe: cancer. 2005, estimates put the overall cost of cancer at $209.9 billion. Nearly $135.9 billion of this was the cost of lost productivity caused by the illness.3 Though health insurance can offset the cost for cancer treatment, the everyday costs of living continue even when one loses the ability to work. It’s a double impact if a spouse is forced to take time off to care for an ill family member. The money crunch can continue when you take into account out-ofpocket expenses like travel, food and child care not covered under traditional health insurance as well as the demand of deductibles and co-payments. Most individual policies pay directly to the insured, letting them decide how to best use the cash in their situation. It even pays regardless of health insurance, giving them added defense in their fight to maintain the life they worked so hard to achieve. disability insurance benefits4, adding to your offerings may seem impossible. But, by offering Cancer Insurance as a voluntary benefit, you get the credit for offering quality benefits through the workplace. All the while there are some differences in our businesses, like car dealers, we are trying to make it in a highly competitive arena and we too depend on the existing Texas franchise laws to allow us to serve our communities, our customers, and our employees. le, you’re offering more without subtracting from the company’s bottom line. 1) American Cancer Society. Cancer Facts and Figures 2006. 2) American Cancer Society. Cancer Facts and Figures 2006. 3) Job Openings and Labor Turnover Summary: June 2006. http:// www.bls.gov/news.release/jolts.nr0.htm. 4) Employer Costs for Employee Compensation Summary: March 2006. http://www.bls.gov/news.release/ecec.nr0.htm. * Waiting periods may apply. To learn more about Cancer Insurance options and its advantages to you and your employees, contact John Hammonds with American Fidelity Assurance Company at 1-800-654-8489 Ext.6965 or e-mail john.hammonds@af-group.com for more information. Additional service options, product descriptions and contact information is available to you 24 hours a day at www.afadvantage.com. IN FA C T, A PPRO X IM AT ELY 10.1 MIL L ION A mericans l iv ing in 2002 had a history of cancer.1 Many may think that it won’t happen to them, even though it is estimated that 1.4 new cancer cases will be diagnosed in 2006.2 20 Dealers’ Choice WWW.TADA.ORG Power in the Struggle for Employees You can contribute dollars to voluntary In 2007, Texas businesses and residents will continue to have opportunities to reduce electricity costs. The competitive market, not the PUC, will establish electricity prices. Competition among electric suppliers is creating dozens of product options and prices that change daily. Competitive pricing and product options vary depending on location and usage characteristics of the dealership. If a dealership opts to maintain supply service with the local utility, or reverts back to the utility, the dealership will be charged a monthly market-based price. Prices will likely fluctuate dramatically and are expected to increase. This uncertainty will make it extremely difficult to budget and manage electricity costs. Electricity customers are able to mitigate these effects by choosing a competitive Retail Electric Provider (“REP”) to provide electricity supply. Whether the dealership is currently served by a competitive supplier or is still with the local utility, now is an excellent time to assess that service and compare contract price and other terms and conditions to current market options. To consider alternate REP options and review competitive pricing, use the following checklist: Analyze electricity account data and applicable tariffs. Develop a list of REPs. Prepare and submit a Request for Pricing to REPs. Negotiate price and terms & conditions for each energy contract with REPs. Review the REP responses (offers). Process the REP agreement selected. Identify resources to gather market intelligence throughout the process. Reducing Operating Costs in Texas What every dealership should know BY BILL KUZMICH ince the Texas electricity market became competitive in 2001, thousands of businesses have taken advantage of the opportunities. As with any growing and maturing market, the participants, rules, challenges, and opportunities change. Read on to learn more… Electricity The Texas electricity market continues to change as deregulation matures. After five years of open competition, beginning January 1, 2007 electric utilities will charge “market based” electricity prices, rather than rates set by the Public Utility Commission of Texas (PUC). The “Price to Beat” (PTB) tariff rates will end on December 31, 2006. The PTB rate is a benchmark rate that encouraged competition in the deregulated 22 Dealers’ Choice WWW.TADA.ORG S Texas market. Regulations required PTB tariff rates that prevented utilities from lowering rates to oust competition, regain control, and spike rates much higher. To identify the savings potential at a dealership, careful consideration and analysis should be given to ROI, best practices, vendor options, and automation processes. Monitor the performance of the new REP. Track market developments; determine favorable market timing and supplier opportunities for the next (renewal) supply agreement. There are consulting firms available to assist businesses in selecting an alternate REP and an appropriate supply contract. Electricity customers who do not want to perform the checklist of items above can utilize a consultant. Some consultants provide their services with no up-front fee and no obligation. Those who choose to take advantage of the Texas market changes can achieve budget certainty and comparatively low competitive pricing options. Dealers can benefit by exploring alternate electricity supply. Dealerships not in deregulated territories (customers served by municipalities or cooperatives) will not be able to reduce costs through electricity procurement at this time. However, there are other ways to reduce operating costs. Utilities One option to reduce operating expenses is a utility audit. A utility audit identifies overpayments, incorrect fees, and efficacy of services including telecom, water/sewer, waste removal/recycling, electricity, and freight. Utility service providers are under no obligation to ensure that customers are purchasing services at the lowest rates or on the correct tariff rates. An audit allows a dealership to secure refunds and/or future savings from the current service providers. An audit consultant handles the process of identifying savings areas, making the adjustments, and recovering any refunds. Another area to reduce operating costs is lighting. Lighting a dealership is a necessary expense. Of the total lighting cost, typically 85 percent is the electricity cost. Using higher efficiency lamps (T-8 versus T-12 fluorescents, for example) can result in lower cooling and maintenance costs and provide higher quality lighting. Lamp conversions can often result in a 50 percent savings in electricity costs (attributable to lighting). A retrofit can result in an additional 10 percent savings in the air conditioning load. Many lighting retrofits can be financed in a way that the savings fund the upgrades. Payback of lighting projects ranges from 12 to 30 months. To identify the savings potential at a dealership, careful consideration and analysis should be given to ROI, best practices, vendor options, and automation processes. Before implementing any change, it is necessary to project paybacks that will result from the change. For more information, contact Bill Kuzmich, Vice President of APPI, an independent energy and utility consulting firm. APPI is an endorsed TADA member benefit provider and has more than a decade of experience and expertise with electricity deregulation. Contact Bill at (832) 225-1275, toll-free at (800) 5206685, wkuzmich@appienergy.com, or www.appienergy.com. WINTER 2006 ⎢23 It’s Time to Stop Making Excuses And Start Cashing in on The Sub-Prime Market BY should be generating an additional $270,000 NET PROFIT Annually. Special Finance is still a relatively new profit center in the automobile industry. Special Finance has been around approximately 16 years. Even so, this growing profit center is still greatly misunderstood and not maximized. If you will remember the view many had in dealerships when F&I departments were fi rst introduced in the early 1970’s. After 16 years of existing, in the mid 1980’s, many dealerships still had not embraced the concept of F&I, much less begun to maximize its profit potential. Unfortunately, as we entered the turn of the century in 2000, there were still dealerships not embracing the full potential of this important profit center. Where would your dealership’s profits be without a full commitment to a profitable and successful F&I department? Special Finance is following the same footprints as F&I had to navigate over the past 30 years. How long is this going to take? One problem with current Special Finance profits in dealerships today lies with management. Where most Dealers, General Managers, and Sales Managers were exposed to and properly trained in F&I during their rise to a position of leadership, many today have risen through the ranks without the benefit of having ever worked in or around a successful Special Finance department. This creates some gaps in experience and knowledge necessary to achieve maximum results. Special Finance begins with a basic simple concept: THE RIGHT CUSTOMER, IN THE RIGHT CAR, WITH THE RIGHT LENDER. First and foremost, YOU must be Committed. You must be willing to give the same commitment and provide the same level of support and resources you do for all your other profit centers. You must have a well organized, clearly defined system in place and provide continuous ongoing training and support to ensure your Special Finance department reaches its goals and objectives. You should have clear established objectives and monitor MIKE EDWARDS s 2006 draws toward a close, what are you doing to ensure increased profits in 2007? The business plan is simple: Increase Sales, Increase Gross and Decrease Expenses. The execution of that plan is what separates the haves, from the have nots! A IN TODAY’S AUTOMOTIVE INDUSTRY, 80% OF franchised auto dealerships are not currently fully engaged in Special Finance. Do not misunderstand, 80% of all the dealerships HAVE attempted Special Finance, but for many reasons, they did not experience the success of those who understand what it takes to ensure a successful and profitable Special Finance business. Many of you think you are in the Special Finance business because you have a portfolio full of Sub-Prime lenders that you utilize for customers turned down through conven24 Dealers’ Choice WWW.TADA.ORG tional or marginal sources. You might even have a person dedicated to Special Finance. However, the true test is in the results. You should be achieving an ADDITIONAL 15% to 25% volume increase over your current new and used retail sales. You should be achieving an average of $2800 to $3000 total gross profit per retail Special Finance deal. In an average 100-retail new and used unit dealership, a properly structured and run Special Finance department should be achieving an additional 25 to 30 units per month with a total gross profit of $75,000. Achieving a standard 30% Net to Gross, this dealership Stop making excuses and start making money. With well over 50% of the public today having some type of derogatory credit, why continue to ignore this growing profitable market segment, or only putting forth a half-hearted effort. the progress of those objectives daily. Success does not happen by accident or chance. Inventory is another of the driving forces behind Special Finance success. You need to have a Special Finance inventory management system in place. Special Finance inventory is handled differently than conventional inventory. Here is where you make your profits! Know what to have, when to have it and where to get it. Personnel are another key element for success. The right people, trained right, paid right, motivated right and monitored for continuous success are essential. Done right, the Sub-Prime market is one of the most profitable and rewarding profit centers within your dealership. Lenders bring stability to the foundation of your Special Finance department. You must have the ability to know what deal goes with what lender. Deal structuring for maximum profits and maximum approval rate must be trained and clearly understood. Your lenders must be consistent and predictable and most importantly fund quickly. Advertising and Marketing is necessary to generate the number of customers and specifically Special Finance customers. Know exactly how to drive these customers to your dealership. Systems and Processes are the cement that holds it all together. Like any well run organization, you must have well defined, trained and enforced procedures from “birth to grave”. With well over 50% of the public today having some type of derogatory credit, why continue to ignore this growing profitable market segment, or only putting forth a half-hearted effort. Stop making excuses and start making money. Done right, the Sub-Prime market is one of the most profitable and rewarding profit centers within your dealership. Mike Edwards is President/CEO of First Innovations, Inc. an Austin based full service training, consulting and product providing automobile dealership income developmental company with over 260 dealership clients in 17 states. For more information on Sub-Prime training or F&I department programs visit their website at www.firstinnovations.com or contact Mike Edwards at 800-395-8664. WINTER 2006 ⎢25 seems the only fair thing to do is NOT to give away the truck…we need to give away TWO trucks!” “In our analysis of the contest we came to discover that there were actually two men named Ed Smith among our 120 finalists,” Cooper said. “When it appeared possible that we may have awarded the $26,000 truck to the wrong contestant due to confusion over a common name, there was only one thing to do: Give both men a truck.” “Doing the right thing is rarely the least expensive solution, but it’s always the best,” said Cooper of the decision to raise the investment in the contest and the Waco community from $26,000 to $52,000, which is the cost of the two trucks. “Bart Cooper exemplifies so many of the outstanding qualities of franchised new car and truck dealers,” said Bill Wolters, president of the Texas Automobile Dealers Association. “He’s a man of honor and integrity, and believes in earning the trust of his fellow Texans and investing in the community.” Allen Samuels Chevrolet in Waco is the flagship of the 12-dealership Allen Samuels Auto Group. Known for community involvement and high ethical standards, they have been recognized by TIME Magazine, the Better Business Bureau, Texas Association of Business, and Ernst & Young (Southwest Entrepreneur of the Year); and as member or business of the year by their local chambers of commerce. In Waco, One Truck Becomes Two A man’s word is his bond in the eyes of many Texans. Waco automobile dealer Bart Cooper adheres to that age-old measure, and on November 4, 2006 proved it to the Waco and surrounding communities with a generous surprise. Allen Samuels Chevrolet, a dealership in Waco, was the site of a locally produced, guaranteed-winner contest. Locals entered their names for a chance to win a 2007 Chevrolet Silverado with a Manufacturer’s Suggested Retail Price of $26,030. On Sunday, October 29 Ed Smith of Waco arrived for the special event at Allen Samuels Chevrolet as one of the 120 finalists. Though he did not need to be present to win, Ed wanted to watch his chances play out. Showing loyalty to the dealership stemming from a very recent purchase of a 2006 Silverado, Ed wore his Allen Samuels Chevrolet cap to the drawing. “It was just so hard to believe it was happening,” said Smith. “I’m still in shock.” Ed and Melinda, their loyalty rewarded, left the dealership in the new 2007 Silverado. The next Saturday, November 4, Ed and Melinda Smith, along with Ed and Susan Smith of Lorena, a small rural suburb of Waco, were called to the dealership. Bart Cooper, President and General Manager of Allen Samuels Chevrolet, then explained that an error had been made in awarding the truck to “Waco” Ed. The rightful winner was actually “Lorena” Ed. Cooper had yet another surprise and announced “It ALLEN SAMUELS CHEVROLET, WACO from media advisories and talking points, press releases, web support, promotional materials, and sample letters and presentations. Over 13 dealerships statewide hosted events, with participation from over 3500 students. The largest event was held in west Texas in conjunction with the South Plains Tech Prep Career Expo. 52 schools participated in the early October event. El Paso dealerships Dick Poe Toyota and Rudolph Chevrolet met with roughly 40 students; their events were supported by public service announcements, posters in schools, and were joined by the Center for Career and Technology in El Paso. Television news stations also provided coverage. Dealer support and participation in this innovative and proactive ■ Automotive Careers Available in Texas October was an exciting month for Texas students seeking careers in dealerships. Statewide, new car and truck dealerships opened their doors to local schools and hosted Automotive Career Month events. Over 3600 students enjoyed unique opportunities of behind-the-scenes tours as well as question and answer sessions with dealers and dealership management. TADA joined NADA’s initiative, recognizing that a Career Open House is a great forum to introduce the exciting career opportunities dealerships can offer to the bright young people soon entering the job market. NADA and TADA assisted with aspects of the event ranging 26 Dealers’ Choice WWW.TADA.ORG dealer spotlight — continued on page 28 dealer spotlight — continued program is appreciated and hopefully will continue. Community outreach initiatives like Automotive Career Month foster better understanding of the franchised retail automotive industry and dealership personnel, all the while assisting Texas franchised dealers in ensuring the future of the industry. DICK POE TOYOTA/RUDOLPH CHEVROLET, EL PASO program. To qualify, a school district must meet several conditions including the equivalent of 10 percent of the awarded funds. “We saw a great need in our community, and I could not find a better way to invest in Rockdale than in its children,” said Graham, General Manager of Tranum Country Ford-Mercury. “This donation is small in comparison to what Rockdale Independent School District does for our children.” Rockdale ISD conducted a pledge drive for $250,000, enabling the district to receive a $2.5 million loan. They raised a total of $353,870, more than meeting their goal and qualifying for the loan. Donors had the option to pay over time, up to 14 years, but Graham and Tranum Country Ford-Mercury opted to give them a check for the full amount of their $50,000 donation. Alcoa also contributed $50,000. The dealership regularly purchases a Grand Champion animal, be it steer, goat, chicken or pig, from the 4-H students at the annual Rockdale Fair and Livestock Show in October. This year, Graham purchased the Grand Champion Turkey for $1400 from Amanda Hubnik of the Cameron 4-H Club. This year’s purchase will be served at a Thanksgiving dinner for dealership employees. “We try to purchase at least one animal every year,” Graham said. “It’s a great opportunity to support the kids in our community. They use the proceeds from the sale of each animal to purchase another animal for the next year, or apply it to college tuition. We strongly support their efforts to take ownership in their education and become responsible adults.” TRANUM COUNTRY FORD-MERCURY, ROCKDALE Rockdale Dealer is Benefactor of Local Students Rockdale Independent School District now has the funding it needs for major renovations to three schools, thanks in part to a $50,000 donation from Bob Graham and Tranum Country Ford-Mercury. Two of the schools, the high school and elementary, were each over 50 years old. The instructional program at each location was seriously jeopardized by the outdated electrical, plumbing, and heating systems. The junior high school, still considered “new,” was facing the same issues in its 25th year of operation. A plea to local businesses was issued in early 2005 to raise funds for 10 percent of a loan amount. Rockdale ISD was presented with a unique opportunity to borrow money and pay back less than it borrows through the federally-funded Qualified Zone Academy Bonds (QZAB) Andrea Pickens Serving Her Community Andrea Pickens is a model citizen of Cedar Creek Lake, Texas. She has long dedicated herself to her community, supporting organizations including Mabank ISD, Trinity Valley Community College and the Youth Rodeo Organization. She has given her time and effort to her fellow citizens, particularly helping those most in need, through civic work with the American Heart Association, the Council of the Blind, and the American Cancer Society in Henderson County. Andrea also serves on the Board of Directors for the Kaufman Hospital District. In addition to her dedicated hours of community service, Andrea also contributes immensely to improving the commerce and local economy of her community. She serves on the Board of Directors of the Mabank Chamber of Commerce and the 1st State Bank of Athens. She still finds the time to own and operate the new Tri-County Ford Dealership in Mabank with her husband Joe. Andrea’s work on behalf of the Cedar Creek Lake community has earned her a well-deserved ‘‘Citizen of the Year’’ Award as well as a ‘‘Lifetime Service’’ Award. Andrea has offered so much of her time and financial support to the causes that help to better our community. She has been an invaluable leader to the district. Through both word and example, she has encouraged and fostered a communal mentality of public service and involvement. 28 Dealers’ Choice WWW.TADA.ORG TADA Begins Construction of New Headquarters For Texas Dealers AFTER YEARS OF PLANNING, TADA IS EXCITED TO UNVEIL PLANS FOR THE ASSOCIATION’S NEW AUSTIN HEADQUARTERS. The new facility will be erected on the site of the current building, which is slated for demolition in the coming weeks. Construction is expected to be complete in approximately 14 months. Plans for the nine story office building include retail space, a parking garage, a rooftop entertainment terrace with gardens, and a 50 person conference room equipped with a kitchen. “Texas dealers deserve, and are finally building, a home they can be proud of,” TADA president Bill Wolters said. “We are thrilled to begin this new phase of Texas dealer history.” The TADA staff has temporarily located to 816 Congress, Suite 1410, Austin, Texas 78701. Please visit www.1108Lavaca.com for more information. 30 Dealers’ Choice WWW.TADA.ORG BY DUANE KYRISH, TTD CHAIRMAN truckindustry have been asked by TADA to write an article for this publication to acquaint many of you who are automobile dealers with what is going on in the heavy truck side of the business. Our businesses, while similar in structure, are very different in many ways. I to be a reasonable expectation. Dealers, in an effort to delay the effects, have large inventories of stock vehicles. Hopefully, economic activity will remain strong and the second half of the year will see a return to normal purchase levels. T H E L A S T T W O Y E A R S H AV E B E E N V E R Y good for heavy truck dealers. A “perfect storm” of sorts has taken place over the last few years in our industry. Heavy truck sales are cyclical and directly linked to overall economic activity. The strong economy and favorable treatment of depreciation have been very good for truck dealers. Additionally, January 1, 2007 a significant change in diesel emission laws takes effect. These changes will raise purchase prices $6000 to $9000 over pre-emission models. Not surprisingly, many fleet buyers chose to buy additional units the last two years to avoid the ’07 engines. This “pre-buy” combined with the already strong market conditions to drive heavy truck demand to record levels. That’s the good news. Obviously this pull forward of demand means a lull in business is sure to follow. Manufacturers of heavy trucks and many major component suppliers have already announced anticipated layoffs for calendar ’07. The manufacturers vary in their predictions of decline but 20% seems On the legal front: Heavy Truck Manufacturers are trying again to get legislation enacted that will allow them to own and operate dealerships for the retail sale of used heavy trucks in Texas. Two manufacturers, Volvo and Freightliner, are selling them now. International Truck and Engine was sued by the Motor Vehicle Commission / TxDOT and has ceased to make direct retail sales of used trucks in Texas. The Governor, Lt. Governor While there are some differences in our businesses, like car dealers, we are trying to make it in a highly competitive arena and we too depend on the existing Texas franchise laws to allow us to serve our communities, our customers, and our employees. RICHARD W. NOKES, P.C., CPA, CVA DEALERSHIP VALUATIONS GIFTING • ESTATE PLANNING • ESTATE TAX RETURNS • LITIGATION SUPPORT (901) 767-8584 BUY - SELL ASSISTANCE • BROKER SERVICES DICK NOKES CONSULTING, LLC DICK NOKES / TN (901)767-8584 BILL WILSON / TX (903)985-0218 32 Dealers’ Choice WWW.TADA.ORG and the Speaker of the House combined to appoint a committee to hear testimony on the issue. This is an issue that ultimately could affect car dealers as well. The concern, of course, is that this would lead to other changes in the future that would allow auto manufacturers to participate in the market either new or used. That testimony concluded early in November. Several heavy truck dealers and the TADA testified against any change in the law. I said earlier that there are differences in our businesses. Principally, there are fewer of us and there will typically be only one dealer for a given make in a market. The customer base we serve will not support more. Customer consolidations (ex. Coca Cola Enterprises bought many of the distributors and centralized their purchasing) have forced consolidation of dealerships. Multiple location (different cities) dealers are now common. This growth has been necessary to achieve the scale necessary to be profitable. Manufacturers have recognized the need for this consolidation and have, in some cases, supported the process by providing financing for the acquisition. Some of us have entered the truck leasing business in an effort to compete for customers we were losing to Ryder, Penske and others. While there are some differences in our businesses, like car dealers, we are trying to make it in a highly competitive arena and we too depend on the existing Texas franchise laws to allow us to serve our communities, our customers, and our employees. Duane Kyrish, and his father, Ed and brother, Wayne operate dealerships in Austin, San Antonio, Houston and Temple. The lines sold are International, Mitsubishi and Isuzu and Crane Carrier. October 1, 2006 will bring changes on how motor vehicle tax is calculated on private-party sales of used vehicles. The new law requires that a “standard presumptive value” (SPV) be used to calculate the tax due on private-party sales. ALTHOUGH SALES BY A LICENSED MOTOR VEHICLE DEALER ARE EXCLUDED from the SPV calculation and rules, private party purchasers can ask you for an appraisal to establish the value of a vehicle for tax purposes under the new law. Here are some common questions and answers to help explain the new law and its effect on licensed dealers. Question: Does the law affect me, a licensed motor vehicle dealer, when I sell a used vehicle? Can you give me details about the change in the law? Is the motor vehicle sales tax rate the same? Answer: The new law does not affect sales by a licensed dealer. Only private-party sales – such as a sale by a neighbor, a relative, or any other individual – trigger the SPV rules. The SPV will be based on information determined and provided by the Texas Department of Transportation (TxDOT). When the buyer in a private-party transaction titles and registers the vehicle, the county tax assessor-collector (TAC) will determine the motor vehicle tax due from one of the following: the vehicle’s sales price, if the purchaser paid 80 percent or more of the vehicle’s SPV; 80 percent of the vehicle’s SPV, if the purchaser paid less than 80 percent of the vehicle’s SPV; or WINTER 2006 ⎢33 Bill Utter Dealership’s 50th Anniversary Distinguished Dealer Award business operation. In 1950, he was made general manager of the Earl McMillan Amarillo dealership. Following the untimely death of Earl McMillan in the mid 1950’s, Bill Utter began to look for opportunities to buy his own dealership. His search led him to a struggling Ford dealership in Denton, Texas and in 1956 Bill Utter Ford opened its doors. Over the course of the last 50 years, Bill Utter Ford has had four locations. The most recent a 14 acre facility located on Interstate 35 which opened in 1998. Throughout his career, Bil l Utter understood his company to be a family business. Each of his three children have continued in the family business. Bill Utter, Jr. took over operations in the Denton dealership after rising through the ranks of every aspect of the business. (Including parts deliveries when he was 14 years old). Bob Utter is the dealer for Bob Utter Ford-LincolnMercury in Sherman, Texas and daughter Barbara Tomes and her husband Bob Tomes operate the Bob Tomes Ford dealersship in McKinney, Texas. B ill Utter, Sr was born on December 13, 1916 in Miami, Oklahoma. He is celebrating his 90th birthday this December. Bill Utter was the youngest of two children and was forced to quit school in 1928 after his father suffered a debilatating back injury while doing construction work. HIS FIRS T JOB WAS S ACKING GROCERIES at a local mom and pop grocery store. He worked six and a half days a week for a dollar a day. Two years later his mother moved the family to Houston, Texas, where he was able to resume school and eventually graduated first in his class. Throughout high school Bill Utter worked full-time at a local drugstore. Following high school graduation he was hired by Humble Oil and began taking night school business classes. He married Virgina Bishop on August 31, 1940. They celebrated their 66th wedding anniversary this past summer. Bill Utter worked for Humble Oil throughout World War II. Late in the war years he met a Houston Ford dealer by the name of Earl McMillan. McMillan con34 Dealers’ Choice WWW.TADA.ORG vinced Mr. Utter that following the war the automobile business was going to take off and that he needed good people to help him expand his operation in Texas. In 1947, Bill Utter went to work for Earl McMillan Ford and began learning all aspects of the Bill Utter, Sr. is an icon of the Denton Business community. He has received numerous honors and recognitions throughout his career including the Distinguished Dealer Award from the Texas Automobile Dealers Association this past May. The award, presented by TADA President Bill Wolters was part of the dealership’s 50th anniversary celebration. Putting the Teeth Back in Non-Competition Agreements BY However, in a very significant recent decision, the Texas Supreme Court changed the landscape in this area. This new decision is good news for employers that use such agreements, and a signal to those who don’t that it may be time to consider the issue anew. The Law in Texas Regarding Non-Compete Agreements In Texas, a non-compete agreement is enforceable only if: (1) it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made, and (2) it contains reasonable limitations on time, geographical area, and scope of activity that do not impose a greater restraint than necessary to protect the goodwill or other business interest of the promisee. The Texas Supreme Court held in 1994 that an employer’s promise to provide an employee specialized training and information during employment—in exchange for the employee’s promise not to disclose the employer’s trade secrets—was not “an otherwise enforceable agreement at the time the agreement is made” as required by Texas law. Because this promise by the employer to provide training and information could only be performed in the future, after the employee’s promise or signing of the agreement, it was not enforceable at the time it was made and, therefore, could not legally support a non-compete agreement. After the 1994 ruling, many Texas courts embraced the view that the “ancillary to or part of” prong of the two-part test was not met unless the supporting ancillary agreement was immediately enforceable. For employers, this meant that the consideration provided to support the non-compete agreement—the special training or the confidential business information—had to be provided to the employee at the time the agreement was made. ■ KEVIN M. DUDDLESTEN iven the intensely competitive environment in which they operate, most auto dealerships are constantly looking for new ways to protect businesses from unfair competition by former employees and outside individuals. While many dealerships ask employees to sign non-compete agreements as a way to achieve that goal, some are under the impression that those agreements are not enforceable and, therefore, not worth the effort to obtain. EVEN THOSE DEALERSHIPS THAT DO OBTAIN non-compete agreements from their employees are not always inclined to seek enforcement of them against former employees. The belief that such agreements are difficult to enforce is not entirely unfounded; numerous decisions by Texas courts in the last several years have raised considerable doubt and confusion. G non-competition agreements — continued on page 38 36 Dealers’ Choice WWW.TADA.ORG agreements — continued The Texas Supreme Re-Examines the Issue Recently, however, the Texas Supreme Court issued its most significant opinion in over ten years on this issue. The Court examined the legislative history of the Act and determined that the phrase “at the time the agreement is made” was intended by the legislature to modify the “ancillary to or part of” language in the statute, rather than the “otherwise enforceable agreement” language. Noting that the purpose of the statute was to expand the protection of legitimate business interests, the Court held that an at-will employee’s non-compete agreement becomes enforceable when the employer performs the promises made in exchange for the covenant. The Court therefore shifted the analysis away from the technical timing and contract formation issues that had dominated recent court cases and, instead, focused on whether the contract is reasonable and necessary for the protection of a legitimate business interest. The Court made clear that the formation process is less important than the content of the contract and circumstances surrounding performance of it. this area, restrictive post-employment Over the years, noncompete agreements have been a bedeviling source of frustration for employers, employees, and the Texas courts. While this new decision reflects a new view in agreements with at-will employees and those that are entered into after employment begins will be easier to enforce. Enforceability will now focus on: (a) whether the employer made contractual promises; (b) whether the employer fulfi lled these contractual promises; and (c) whether the promises by the employer and the employee justify the restrictions in the non-compete agreement. In addition, its recent decision reflects the Texas Supreme Court’s more modern view that an at-will employee’s non-competition agreement no longer requires that the employer’s promise must be enforceable the instant it is made. Employers who promise to provide employees with confidential information or specialized training in exchange for a non-compete agreement can enforce the agreement so long as the employer has actually provided such information or training prior to the employee’s departure. covenants will remain a hotly-contested issue of concern for many Texas employers, including dealerships. The New Test for Enforceability Under the new approach, an otherwise reasonable non-compete agreement becomes enforceable “when the employer performs the promises it made in exchange for the covenant.” Thus, non-compete Why is This New Decision So Important? In light of this ruling, dealerships that utilize covenants not to compete are urged to assess them under these new standards. The good news for dealerships is that this decision makes it easier to enforce non-compete agreements in Texas by eliminating certain hurdles with at-will and other employees. However, dealerships can just as easily fi nd themselves on the other side of the dispute. Dealerships should also be more cautious about hiring from competitors who use non-compete agreements, as one line of defense has effectively been eliminated and those covenants are now more likely to be enforced. Over the years, non-compete agreements have been a bedeviling source of frustration for employers, employees, and the Texas courts. While this new decision reflects a new view in this area, restrictive post-employment covenants will remain a hotly-contested issue of concern for many Texas employers, including dealerships. Dealerships that use or would like to use non-compete agreements should have their agreements reviewed for compliance with the new standard. For more information, contact Kevin M. Duddlesten at Fisher & Phillips LLP: (214) 220-9100 or kduddlesten@laborlawyers.com. 38 Dealers’ Choice WWW.TADA.ORG Winning (not whining) in a Tough Market BY LARRY DORFMAN E veryone knows that the car business is cyclical in nature. Every 10-12 years we have a couple of years where the market realigns itself and causes considerable consternation for many dealers. In times like these, dealerships go one of three ways…they thrive, survive or die. Winners recognize that there are only three things that they can control: Their attitudes Their Sales Strategy, and Their Sales Proficiency Attitudes. There is an old adage that “attitude determines altitude.” Winners have a “no excuses” culture in their store. This keeps them from becoming victims of the market and creates the realization that they are accountable for achieving their results. Stephen Covey, author of Seven Habits of Highly Effective People, once said that, “Every organization is perfectly aligned to achieve its current results.” In other words, WALK INTO MANY STORES AND THE FIRST question you usually hear is, “How’s business?” It’s as if, those dealers are looking for validation that they are not the only ones having issues. What is interesting is that, while many dealers seem to be finding it tough, there are dealers who are outperforming the brand, selling more cars and increasing grosses…all at the expense of their local competitors. In other words, they are using the current malaise as an opportunity to position themselves to dominate their respective markets when the good times return. How are these “winners” making it happen? 40 Dealers’ Choice WWW.TADA.ORG we’re getting what we’re getting, because we’re doing what we’re doing. When you question results, do you accept excuses or do you ask, “If you couldn’t use that excuse, what would you say?” Steve Brown, President of the Fortune Group, identified the “Failure Formula” saying; People fail in direct proportion to their willingness to accept socially acceptable excuses for failure. What’s the attitude in your store? Strategy. A selling strategy is the operating philosophy that drives how you sell as an organization. A strategy should be an exploitation of the things that make you truly unique. What is your selling strategy? Do your people know what it is? In the absence of a clearly defined and well-executed strategy, your people are forced to react to the strategies of your competitors and the demands of your customers. In a mature market, such as the auto industry there are only two sales strategies: Lowest cost provider High value differentiation Your choice of strategy should be formed with an awareness of the strengths and limitations of each. By definition, there can only be one lowest cost provider in any given market…and the consumers must be able to clearly determine who that is. This strategy requires a conscious decision to drastically reduce margins to acquire business. To offset the reduction in margins, sales volumes must increase dramatically and costs must be slashed mercilessly, or the entity goes out of business. Think about what happened to Sears and K-Mart after the arrival of Wal-Mart. High value differentiation strategies are those where the business creates a unique value proposition for the consumer. An example of a high value differentiation strategy can be found in the original Saturn sales process model…the non-confrontational, consultative, one price system. Another can be found in the strategy displayed by many Asian manufacturers who are consistently adding content to their cars, while holding the line on price (giving the customer more for their money). Finally, one should consider which strategy is going to best resonate with the desires of the consumers. When a prospect decides to purchase a vehicle, do they want the cheapest price regardless of content, quality and treatment, or are they looking to get the most for their money and do business with someone they like and trust? Proficiency. In a customer driven marketplace, how well you sell is as important as what you sell. Today’s customers are better educated, more demanding, less forgiving and in a bigger hurry than ever before. They are more likely to have shopped and are forcing your salespeople to take short cuts at critical junctures in the road to a sale. Do your salespeople have the tools, abilities and awareness necessary to professionally regain control of a selling situation? Do they have the competence and confidence to use them? Are you measuring the right things: how many and how well? Keep in mind that many (most) of your salespeople have never been through a market like this. Unless they have a reality based selling process that addresses dealing with the unique characteristics of today’s customer, your sales and profits will decline. Winning in today’s climate requires discipline, focus and execution. Winners look in the mirror, assess their situation and fi x the things that are getting in the way of their results. Those dealers that relentlessly focus on perfecting attitude, strategy and proficiency…the things they can control…will dominate their markets now and come out of the current cycle stronger than ever. Thrive, survive or die…which will you choose? Contributed by Larry Dorfman - Chief Executive Officer of APCO Easycare Vehicle Service Contracts- A Wholly owned subsidiary of Ford Motor Company. Meridian Marketing represents APCO in Missouri and Kansas. For more information, or to schedule a complimentary Sales Strategy and Proficiency Analysis, contact Meridian at 1-866-366-4100 or aleuenberger@meridianmktg.com. WINTER 2006 ⎢41 Is Your Business Plan in Need of a Tune-up? BY Updating your business plan will allow you to take a detailed look at how your business is performing to your expectations. Dealers should look at each of the major parts of a business plan: the executive summary, market analysis and strategy, management and operational plan, and the financial plan. The Executive Summary The Executive Summary section is an introduction to your dealership. This section is usually written or reviewed last and will be completed once you have “tuned-up” the other sections of your business plan. It should discuss the ownership of the business, legal structure, a description of the qualifications that you bring to your business, and any significant advantages that may be unique to you and your business. J. RYAN LINDSAY, CPA Marketing analysis and strategy In this section you should examine your customers, competition, and summarize your marketing plan. Dealers should ask themselves these questions: • Who are my customers? • Why do they choose my dealership? • When do they make a purchase from our business? • How do they obtain financing for their purchase? • What dealerships are our major competitors? • What are their strengths and weaknesses? • What is their size and potential? • How can our dealership meet this challenge and compete successfully against them? • Do we have the ideal location in order to meet our goals? • Do we have the appropriate pricing policy in place? • Are we using the right media to advertise our dealership? • How effective is our current advertising campaign? • Are we addressing industry trends effectively? By answering some of these questions, you should be able to determine if the s your dealership running on all cylinders? Do you have all of the resources in place to handle the growth and eventual succession of your business? Do your key employees understand the mission of your dealership? If you answered no to any of these questions, then it may be time to update your business plan. A GOOD BUSINESS PLAN CAN LET INVESTORS, employees, and customers know how you would like to accomplish your vision. A good business plan may attract additional investors to your dealerships or persuade existing investors to strengthen their relationship with you. A good business plan can 42 Dealers’ Choice WWW.TADA.ORG I set the boundaries of how business should be conducted at your dealership without you looking over your employee’s shoulders. Your customers will appreciate and respect you for taking the time to establish the environment in which they do business with you. marketing strategy that you have in place is sufficient to attract the amount of potential customers in the focus area to your business. Dealers should look at personnel that manage your marketing strategy and determine if they meet your expectations. • Is cash flow a recurring problem? • Is our current income and expenses in line with our estimates and budgets? • What does our forecast look like in the next 3 to 5 years and is our current production on track to meet these goals? • How would the purchase of a new dealership affect us financially? Financial forecasting can be difficult in the automotive industry, but you should make an attempt to show investors and key employees that goals have been set and that you are expecting a certain level of performance. Typically, business plans should be updated once a year. Certain changes to your organization, the industry, or your market may require that you do this more often. Once completed, share your changes and analysis to your key employees and investors. The time that you’ve invested in giving your business plan a tune-up will give you, your investors, and your employees the confidence and motivation to reach your goals. Management and operational plan A review of this section of your business plan will allow you to look “under the hood” at your dealership. Dealers should look at key employees, communication throughout your business, and the vendors that you are using on a routine basis. Are you getting the most out of each employee? Are the repair orders being reported efficiently to management and the accounting department? Are you satisfied with your vendor relationships? Is your accountant keeping you aware of new developments in your industry and suggesting new ideas or simply filing your returns? Dealers should also look at their equipment and facilities. Are we sending the right message to our customers when they enter our showroom? Do we have an appropriate accounting system to handle the volume of customers should we experience expected growth? Is our service department able to handle the needs of our customers? Financial Plan You should check all of your “fluid levels” when reviewing your financial plan: • Do we have the capital and debt structure needed to obtain our vision? For more information on updating or preparing a business plan, contact J. Ryan Lindsay, CPA, at (304) 343-0168. Ryan is an ADP Certified CPA at Simpson & Osborne, CPAs. Simpson & Osborne, CPAs currently serve auto dealers with services that include consulting, business valuations, business acquisitions, succession planning, assurance work, and tax planning. WINTER 2006 ⎢43 Areas That Will Help Increase Income, Minimize Losses and Improve Compliance in The Business Office BY GEORGE JACKSON T here are many outside factors that affect the success of a finance depart- Conduct An Interview With Each Customer Conducting a thorough interview with each customer has become more popular over the last five years as F&I training schools embrace this concept. However, it is also the easiest step to skip as the result of laziness or a busy schedule. Conducting a thorough and professional interview before beginning a menu presentation helps create the need for products, allowing a business manager to better overcome objections and personalize the presentation for each customer. ment. Focusing on seven areas will help overcome those factors. revenue, but it is the best way to generate revenue and ensure compliance and consistency. See Every Customer At The Time Of Sale As interest rates climb and outside fi nance competition increases, seeing an outside fi nance or cash customer before he or she leaves the dealership is the best opportunity for a conversion. It is even more important to see every fi nance customer at the time of sale. In marginal credit situations, it is more difficult and more time consuming to get a loan approved for a customer who has not met the business manager. Review All Documents Thoroughly Most customers remember two things: first and last impressions. Do not leave the customer with a bad impression of the business office and the dealership by doing great job but then rushing through documentation disclosure. Be thorough, but efficient. Make sure customers know what they bought, how much it costs, and how to use it when needed. Identify The Existing Coverage On The Vehicle To increase penetration on service contracts, always begin a presentation by identifying the existing coverage on the vehicle. If the vehicle is new, go over the Manufacturer’s Limited Warranty. If it is used, go over the Buyer’s Guide. This will gain credibility and avoid “Don’t I have a warranty?” objections. Never Refuse A Turnover When a salesperson sells a vehicle, he or she wants to know that the business manager is going to secure the sale, protect the gross, and deliver. Never refuse a turnover. A business manager cannot demand 100% turnover if he or she is unwilling to work with the salespeople. George Jackson is Dealership Development Manager at American Financial & Automotive Services, Inc. As a trainer, Mr. Jackson has conduc ted hundreds of F&I Schools, Menu Seminars, Advanced F&I Schools, and in-dealership F&I training seminars. Perform A Proper Introduction If a store has 10 salespeople, each one probably has a different introduction. Salespeople have enough work just selling the vehicle, so the business manager should do the introduction to control what is said, the location, and timing of the introduction. 44 Dealers’ Choice WWW.TADA.ORG Utilize A Menu Presentation It is not the only way to generate Recognizable Excellence Time Quality Dealer of the Year Bob Boggus ob Boggus was recognized by The Texas Automobile Dealers Association as Time Quality Dealer of the Year, sponsored by TIME Magazine and Goodyear Tire and Rubber Company for exceptional performance in his dealerships, distinguished community service, 2007 Time and active participation in their state and local Magazine Quality Dealer automotive associations. He was also the winner Nominee and 2007 Northwood of the Northwood Institute Education Award for Institute Winner noteworthy contributions to education, public or private, on any level, inside or outside of the industry and substantial dedication over a number of years to the educational process and the field of automotive marketing. Robert (Bob) Frank Boggus was born in Amarillo, Texas. He attended Harlingen High school and got his BBA at the University of Texas. He married his wife, Karen Ann Beverly, in 1978 and they have 3 children, Ashley (26), Austin (24), and Katie (22). Bob Boggus has two dealerships – Boggus Motor Sales, Inc. in McAllen and Boggus Motor Company in Harlingen, which has been family owned and operated since 1933, is a Deacon in the Baptist Temple, a Gideon in the McAllen Chapter and a Rotarian in Rotary South- McAllen. He is presently on the Board of Directors of The McAllen Camber of Commerce, the Salvation Army, Texas Automobile Dealers Association, Texas State Bank and Valley Baptist Medical Center and has served on many other boards in the past. B Honored Members of Our Dealer Family Who Will Never be Forgotten Robert H. “Bob” Garner Curt Johnson Bernard C. Richardson Robert B. Brown Milton Palmer Fred D. Schneider Charles A. Ringler Bill Fisher Tomme “Tink” Whatley Joann Davis Norma “June” Jungmeyer Aransas Pass Austin Brenham Devine Houston Irving Kilgore McKinney Mineral Wells Paducah Missouri WINTER 2006 ⎢45 TADA Advertiser Index Winter 2 0 0 6 Accounting Lane Gorman Trubitt, LLP................. Page 25 Dealership Marketing & Sales Solutions Dealership Training Labor/Employment Attorneys New/Used Car Advertising Sales Training Advertising Agencies Humphries Marketing Group............ Page 9 Autobase ............................................. Page 43 Dealer.com .......................................... Page 23 Automotive Warranty Network, Inc. .. Page 19 Fisher & Phillips LLP .......................... Page 15 AutoTrader.com ................Inside Front Cover Foresight Services Group ................. Page 29 After Market Products AutoShieldPlus..................Inside Back Cover Auto Dealership Furnishings Automobile Training Brokers Dealership Valuations Finance & Insurance Development The Wells Group................................. Page 16 First Innovations, Inc. ........................ Page 3 THE Search Firm ................................ Page 39 Richard W. Nokes, P.C., CPA, CVA ... Page 32 Service Contract First Innovations, Inc. ........................ Page 3 Uniforms & Facility Services Utility Consultant First Innovations, Inc. ........................ Page 3 UniFirst................................................ Page 33 APPI ..................................................... Page 31 American Financial & Automotive Services, Inc. ...................................... page 11 The Ratliff Group, LLC....................... Page 37 AutoShieldPlus..................Inside Back Cover Foresight Services Group ................. Page 29 Credit Card and Electronic Universal Underwriters Payment Acceptance Group...............................Outside Back Cover First National Merchant Solutions ... Page 45 F&I Training/Products Construction Management Warranty Claims Management Automotive Warranty Network, Inc. .. Page 19 Customer Relationship Management Insurance Dealer Advance .................................. Page 9 The Higher Gear Group, Inc. ............. Page 5 Dealer Management Systems Dealership Buy-Sells Arkona ................................................. Page 39 Dick Nokes Consulting, LLC ............. Page 32 American Fidelity Insurance ............. Page 21 Federated Insurance .......................... Page 33 LifeRe Insurance Co. .......................... Page 38 The Midlands Companies ................. Page 41 Universal Underwriters Group...............................Outside Back Cover Texas Auto Dealers Self Insurers Group ................................... Page 28 Dealership Construction Pletz Construction Inc. ...................... Page 13 The Wells Group................................. Page 16 Teal Construction Company ............. Page 27 Interior Space Planning Key Control Systems GE Security ......................................... Page 30 For Advertising Info and Rates, Contact Don F. Brown 813.914.0383 email: don@spectruminkpublishing.com 46 Dealers’ Choice WWW.TADA.ORG Texas Automobile Dealers Association P.O. Box 1028 Austin, TX 78767-1028 PRSRT STD U.S. POSTAGE PAID SALT LAKE CITY, UT PERMIT NO. 6699 THIS MAGAZINE IS DESIGNED AND PUBLISHED BY NEWSLETTERS INK CORP 1.800.639.0465 .