Helping Dealers Sleep at Night

Dealers across the country are barraged with harassment and discrimination suits, credit fraud, false advertising and other potential regulatory hassles, experts say.

Trying to comply with all those regulations can unnerve even the most cool-headed dealers.

The top two challenges facing dealers today are managing overall profits and compliance issues, says Raphael Carty, vice president-marketing at DealerTrack, a software and web-based data provider.

And the latter, with one multimillion-dollar lawsuit or fine, could wipe out the dealer profit picture.

“When I talk with our Dealer Advisory Council, they say compliance is one of the top issues that keeps dealers up at night,” says Carty.

Regulations and requirements vary state by state, but dealers still are responsible for handling the Herculean task of managing compliance.

The maze of ever-changing compliance issues is enough to make heads spin — from environmental regulations, employee safety, credit checks, identity theft to new federal “red flag” legislation. Every customer transaction requires documentation, policies and procedures.

DealerTrack is promoting electronic records storage, e-signatures and online management of customer transactions.

Its DealWatch software program stores deals electronically and gives managers a dashboard view of operations, including employee and customer activities. A major feature is e-signatures to verify customer identities and OFAC (Office of Foreign Assets Control) status.

“You cannot guarantee 100% that a compliance error will never occur, but following a consistent process driven by technology demonstrates a dealer's commitment to compliance,” says Carty.

If the dealership implements best practices throughout the business, it will be in a strong position to avoid an unforeseen incident, he says.

An effective compliance strategy also supports training, legal and auditing activities, he adds.

The rate of adoption of electronic management is accelerating rapidly, DealerTrack officials say. The firm has 22,000 dealerships, including 90% of franchise dealers, in its network.

There may be good reason for all this safeguarding. The Federal Trade Commission estimates more than 10 million people have their identities stolen each year, with 13% of these tied to auto loans.

And the U.S. Treasury requires dealers to check customers against its blocked persons and suspect lists. “Willful violations” can result in up to $10 million in fines or other penalties.

And new legislation on security and identity theft is tightening up each year.

“Truly a No-Brainer”

Electronic records management can take the headache and time out of the compliance management process, dealers say. Some are getting more adept at turning compliance into opportunities.

Jay Conway, general manager at Greenville Nissan, Greenville, N.C., praises DealWatch, an electronic storage program he's used for a year. The dealership sells 900 new cars a year and has 43 employees.

“It saves about 20 minutes for each file search and frees up storage space,” Conway says. “Everything you need for the deal is at your fingertips and it gives you total control.”

Conway still uses a chipboard to track inventory, but now turns electronic records management over to his sales manager.

“It's truly a no-brainer. It becomes routine once you get used to it,” says Conway.

He says dealers need to take extra precautions in these days of increased federal requirements, identity theft and consumer activism. “If you run into a problem, it shows due diligence on your part, and that goes a long way if a federal review or lawyers are ever involved.”

“Double and Triple Checking”

Ryan Wingate, business-finance manager at Land Rover of Austin (a Texas store which sold 316 new cars and 184 used cars in 2007), uses DealerTrack and Route 1 compliance programs for different purposes.

"We make sure we do double and triple information checking. It's the ultimate protection for customers and ourselves," he says.

He says customer fraud is rare, but it happens. Wingate himself is a victim of identity theft. About 10 years ago someone used his identity information to buy a Mitsubishi Eclipse.

Not long ago, a woman, faking her mother's identity, tried to buy a car at Land Rover-Austin.

Wingate ran a credit check and determined she was using her mother as a reference and also had the mother's social security number on her application. The red flag was the alert he needed.

Dealers can access online portals to check credit and other data for accuracy. There are free online directory services with people and business search features, Wingate reminds.

Dealers who sell 40 to-50 new cars a month must be careful, he says. But for large-volume dealers with huge sales and service numbers, “the potential for mistakes grows exponentially.”

Wingate believes dealers should do everything possible to assure customers they are taking precautions on their behalf. Customers still come in with their guard up, he notes.

“Dealers still suffer from old perceptions that the car-buying process is a nasty, dirty thing,” he says. “Anything dealers can do to show customers we are doing our level best to protect their information and enhance their (owner) experience is a step in the right direction.”

How do dealers change old paradigms? “By being as open and transparent as possible and letting customers know we are here to protect (their) information,” Wingate says.

Electronic records management has been trickling into the dealership in the last three years, he says. In the next three years, he predicts the majority of transactions will be fully electronic, with paper only as backup.

The ROI Question

No one disputes that electronic management is efficient and accurate, but figuring out the return on investment can be tricky for dealers.

“You can usually quantify the investment cost of the program with a reasonable degree of certainty, but the profit return, or more likely the loss-prevention return, is frequently very difficult to quantify,” says Scott Smith, president and chief strategic officer for the dealership chain Sonic Automotive Inc. based in Charlotte, N.C.

“That being said, we believe strong compliance is critical to Sonic's core business philosophy of taking the high road,” he says. “That means doing business with the highest degree of ethics and integrity in our daily interactions with customers, employees, vendors and manufacturer partners.

“We want to do the right thing and make money, and we don't believe those concepts are mutually exclusive.”

Sonic, with 169 franchises and 144 stores, uses an electronic menu product called MenuVantage at its finance and insurance offices.

The electronic menu provides greater transparency to customers and heightens compliance by documenting F&I products that the customer has agreed to purchase and at what price, Smith says.

“Our F&I profitability also has improved with implementation of the electronic menu, ensuring that customers are offered 100% of our products 100% of the time,” he says.

Sonic's compliance programs are managed internally, but get support in some areas from selected compliance vendors. Individual Sonic dealerships have a say on compliance programs, but final decisions are made at the corporate level.

Smith cites three reasons for keeping the program at corporate:

“We want to get it right on compliance issues — complying with a myriad of federal and state legal requirements is complex business, and we want advice from experts.

“Second, we need our dealership personnel primarily focused on what they do best — selling and servicing vehicles.

“Third, consistency in compliance across our dealerships is important.”

Risky Business

Despite the business risks, most U.S. dealers still manage compliance issues internally using manual, paper-based processes, which can be costly, according to Compli, a Portland, OR-based firm specializing in web-based technology, content and compliance guidance for dealers.

“Since we introduced compliance management systems in 2005 to the dealership industry, we still consider status quo as our biggest competition,” says Lon Leneve, president-CFO of Compli.

But the compliance issue is a nagging concern for dealers, even if not all are on board with electronic processes.

“Just look at all of the compliance-related focus in the trade press, conference agendas and industry communications,” Leneve says. “It may be a looked at as a necessary evil by many.

“But dealers know they can no longer ignore the significance of compliance. It simply is too risky to their business.”

At minimum, he advises that dealers learn about what's out there.

“Most dealers are amazed at how effectively an age-old problem can be addressed with these new automated capabilities. They will be protecting their businesses, and they should also expect to see significant productivity and cost-savings as well,” he says.