November 2014, Auto Dealer Today - Feature
No one saw it coming. Sixty-five million years ago, a massive asteroid, larger than Mount Everest, slammed into planet Earth off the coast of Mexico’s Yucatan Peninsula at over 67,000 miles per hour. The impact exerted a kinetic force, in one instant, greater than 10 times the world’s total nuclear arsenal at the height of the Cold War.
So great was the impact that, across the planet, great fissures opened, covering northern India with lava to a depth of a half-mile. The impact crater itself was 112 miles across and 21 miles deep.
Superheated rock blasted back into space to a height of 6,000 miles (for scale, the International Space Station orbits at an altitude of 258 miles above Earth). Reentering the Earth’s atmosphere as fireballs, the entire planet literally became one big wildfire. Higher oxygen levels at the time made the flames burn easier, and hotter — much of the Earth endured surface temperatures over 1,200 degrees Fahrenheit.
As the dust from the impact spread across the globe, sunlight was completely blocked for six months. For three years, global temperatures dropped below freezing. It was winter everywhere.
The impact spelled doom for the dinosaurs, along with 50% or more of all life forms on the planet. But the dust finally settled — literally — into the K-Pg layer (Google it) that spans the globe. And out of that dust emerged the new kids on the block: mammals, and, eventually, auto dealers.
A New Dominant Species
No one saw this coming either.
In 2008, a credit bubble, fueled by careless lending practices, loosely regulated market participants and derivative securities, burst. And while the existence, if not the timing, of business cycles is well-known, the severity of this down stroke was enough to earn the moniker of the Great Recession.
Home foreclosures hit levels not seen since the Great Depression. Consumer confidence dropped like a stone. Credit tightened; financing for car purchases dried up. Chrysler and General Motors couldn’t weather the storm and declared bankruptcy. As a result, badges such as Saturn, Hummer, Pontiac, Mercury and Saab went extinct. Twenty percent of American franchised dealerships went out of business. But the dust finally settled, as it always does, and out of that dust emerged something new: Dealer Survivors.
What is a Dealer Survivor? Like the early mammals, they are the ones who were able to endure dramatically changing conditions and adapt to the new environment. And like mammals, they are radically different from the species that came before them.
Dealer Survivors are marked by good business practices. Their dealerships, in fact, are run like businesses, with an eye toward efficiency and the bottom line. And they operate in a new and radically different environment: the Compliance Age.
If you think the Compliance Age sounds like it is the logical result of the Consumer Financial Protection Bureau (CFPB), you’re right. But that’s only part of the story. “Compliance” suggests that there is some standard to which dealers must comply. That is true, but it is broader than mere regulatory requirements. Dealers must also adhere to sound business practices, environmental responsibilities, and community obligations. Those who recognize, understand and meet those myriad standards will survive and prosper. Those who do not will follow the dinosaurs’ path to extinction.
The full scope of dealership compliance includes rules that regulate the storage and disposal of the dangerous chemicals that flow through service departments.
Let’s take a closer look at four areas of compliance that are of particular importance to your operation:
1. Regulatory Compliance
At least three major regulations that flowed from the Gramm-Leach-Bliley Act require dealerships to designate a program coordinator, more commonly called a compliance officer. So if your dealership doesn’t have one, you are automatically in violation of federal law and, by definition, not a Dealer Survivor.
Dealer Survivors also have, at a minimum, the following written policies:
- Employee handbook
- Information safeguards program (Safeguards Rule)
- Identity theft-prevention program (Red Flags Rule)
- Fair credit policy
An F&I policy and sales policy are also good ideas; your fair credit policy can be integrated into both documents.
In addition to appropriate written policies, training on those policies and the regulations pertaining to each dealership job description is a must. How can employees follow laws they do not know exist? Consistent, repeated training makes regulatory compliance possible. Put simply, where there is no training, there can be no compliance.
And to ensure policies and training are in place, and that they are having their desired effect, a program of auditing must also be in place — and not just any auditor will do. To be objective (and, heaven forbid, effective in a court of law), the auditor must be independent. That means the auditor can have no economic stake in the outcome of the transaction or program being examined. So by all means utilize deal jacket reviews conducted by your F&I provider or agent. Just be sure to back it up with a third-party audit at least once a year.
2. Business Compliance
Dealer Survivors aren’t afraid to be held accountable for their performance, and welcome the challenge to be compared to the best. Thus, this breed is likely to be found in a 20 Group, where their results are consistently measured and critiqued.
Dealer Survivors understand that everyone needs a boss — even the boss. Boards of directors, including disinterested, independent directors, are helpful here. Add sound financial controls and reporting to the mix and there arises an environment in which success is possible.
3. Environmental Compliance
We only get one Earth, and the stuff that flows through a dealership’s service drive can very seriously mess it up. So take things like spill prevention, control and countermeasure seriously. Ditto waste management plans, safety data sheets, waste manifests and employee training. And it should surprise no one that many dealers have a problem with LUST. (Referring of course to “leaking underground storage tanks.” What did you think I meant?) Environmental compliance means monitoring those as well.
4. Community Compliance
No dealership is an island, and with that belonging come responsibilities. To be a good employer is to be a good and responsible part of the community in which the dealership operates. Creating dignified jobs and secure employment is part of this, and that includes a strong commitment to workplace safety. Does your dealership exhibit that commitment? To answer that in more than an abstract sense, can you document the existence of the following plans at your dealership?
- Hazard communication
- Emergency response
- Personal protective equipment
- Bloodborne pathogens
- Asbestos handling
All those plans are mandatory. If you don’t have them, you’re not complying with OSHA or your responsibilities to the community from which you draw your employees.
Community compliance is broader than employment law and workplace safety. It embraces fair treatment of everyone who comes on the lot. Sponsoring your local Little League and various charitable initiatives supports the community directly and creates intangible returns for the dealership.
5. The Bottom Line
The bottom line here is, in fact, the bottom line. Dealer Survivors are those who are adapting to the Compliance Age. Their bottom lines will be black, and the species — homo vendit vehiculum — will be stronger for it.
James S. Ganther Esq. is the co-founder and CEO of Mosaic Dealer Services. He is a legal and compliance expert and a prolific writer and speaker. JGanther@AutoDealerMonthly.com