#208 - Dealer Performance Group

You are listening to the Independent Dealer Podcast with hosts Luke Godwin and Jeff Watson.

Hello and welcome to this special edition of the Independent Dealer Podcast brought to you by Buckeye Dealership Consulting. Luke we are fresh off of our Buckeye Dealership Consulting Dealer Performance Group, 2022 down in Phoenix. It was a good time.

It was a really good time. It was great to see so many new dealers that I really hadn't seen it at a convention ever maybe, or wasn't introduced to them at a convention ever. And man, there was some big hitters there.

Yeah, yeah, it was really cool to be able to rub shoulders with all sizes of dealers. Some new guys, some old guys, some big guys, small guys physically and from a portfolio standpoint, and a lot of retail dealers, too. So it was buy here, pay here. It was retail. I mean, it was, it's cool, you know, if you listen, you know, Buckeye is a sponsor and a friend of the podcast and they're really kind of putting their money where their mouth is to be a resource and kind of a tool for buy here, pay here dealers and retail dealers, for sure.

One of the neatest convention experiences that I'd ever had and I've probably been to, I don't know, 20 conventions plus, and just having the general meeting kind of thing and then having the dig in performance group type of thing was, was really neat. And it's going to be the thing of the future. I'm glad Buckeye is putting their, their money where their mouth is. And, and it's, it's, it's going to change the industry, in my opinion, I believe.

Yeah. So we're going to bring you a couple different segments. One of them, we had some breakout, some general presentation sessions while we were there from a couple of the vendors and experts in the industry. Luke we talked with Chris Machica that we caught up with afterwards, back when we got home, he talked, he's going to give us a kind of the rundown on the future of GPS devices and where those are going. And we also had an insurance conversation.

We did.

And there's so many. Every time you get onto the Independent dealer Facebook group, somebody's asking about insurance. Jeff and it just so happens Buckeye got, you know, two super intelligent guys when it comes to dealer coverage, and it's so many different pieces to that coverage that dealers just don't even think about. So we got them to explain it to us and really break it down for us. And really and truly, people out there, it's not about covering your inventory. It's about covering your liability. And they can, they can speak to that and really tell you what you need to get from your insurance company.

Yep.

Stay tuned. Here we go.

Hey, here we are, guys again here at the DPG Dealer Performance Group with Buckeye Dealership Consulting sitting down with a couple of gentlemen that gave us a great, great presentation.

Just barely about insurance.

Yeah.

Again, not the sexiest. Yeah. But very important. And they brought up a bunch of good points. So let's recap for the audience. Luke, what did we go over? What were the kind of. The high points? Actually, let's introduce these gentlemen first. Geez Louise.

Jay Williams.

Jay Williams. So I've been working with auto dealers since 2002. Started my background, I was a field underwriter for Zurich. So that's where I cut my teeth in the car business. I formed the Dealer Risk Solutions back in 2009 and I work with about 90 buy here, pay Here auto dealers across the country.

Wow, that's a.

That's a lot of dealers.

Yeah.

That sounds like a mess.

Yeah.

This is Rich.

Rich Kitceres. My background is I actually worked in a Buy Here, Pay here sales and sales management for about six, seven years and then went to work with directly with Federated Insurance as a field underwriter and agent for them. And then I've been with Altons and Dealer Risk Services for the last two.

Years working with Jay.

So they gave a great presentation. And of course I think if you email the guys at Buckeye, they will send you the full video audio version. But let's get a recap. Luke, you pulled out a couple really good points. We want these guys to kind of drive home these points.

Yeah.

And you know, we. This isn't the sexiest thing to talk about, but it is something that every dealer has to do and it's a. It is. Without this, you cannot be a dealer.

Not for long.

Not for long. And it's a very expensive part of being a dealer. So they went over some great things. The first question I had that you went over was why is the Buy Here, Pay Here dealer more expensive to insure than a regular independent dealer?

Mainly because you're a bank, so you hold the paper and you extend finance. So the underwriting community looks at. At Buy Here, Pay Here auto dealers as a financial institution and also for the collections.

That's not even including because of course, none of you guys out there are doing your own repossessions in house. Right. You're farming it all out. You're hiring it to other people.

Correct.

I Mean they're all subcontracted. Right.

So that's not even including the risk of buy here, pay here. If you were a dealer, who was doing that? But you're just talking about from a straight fact that we just have more paperwork.

Correct. So it's the truth in lending really is the biggest exposure. So that is going to be any kind of mistakes, errors or omissions on your credit applications. And what happens is, and where the underwriting community has really been burned recently is with these class action lawsuits. Because typically there's one mistake, there's more. It could be a repeated mistake.

Yeah, they're gonna go back through everything.

How much more is a buy here, pay here dealer paying compared to just a dealer who's not carrying any paper?

Well, that comes down to supply and demand. Okay. So a franchise auto dealer and an independent auto dealer that does not hold their paper. They have maybe seven, maybe 10 different insurance carriers where they could bid their policies to buy here, pay here. There's only a couple of carriers anymore who will write buy here, pay here auto dealers. And there's like three of them, state.

And the like as well. About those.

Yeah, we have seen them essentially pull out of the Carolinas almost.

It's scary.

So it's a supply and demand issue. Right. So where there's limited supply and the underwriters know that, hey, they're the only game in town, prices go up. So the prices go up. Exposure is a little bit higher too. But you know, with that demand issue and the supply.

So you talk about the class action possibility.

Yes.

Something else you brought up that I didn't even think about was talking about social inflation. When it talks about premium, how that affects premium, can you tell us what social inflation is and how does that carry over into our space and how it affects our premiums?

So what concerns the underwriters is that, hey, they're putting up a million dollar limit on your umbrella. Maybe 2 million, maybe 5 million, whatever that limit is that you purchase for your umbrella and that is exposed with a class action lawsuit and also with any kind of social inflation. So what's happening is juries now. It used to be the baby boomers were on all the juries. Well, they're all retiring and kind of moving on. And they're being replaced by the young generation who are more socially active and I guess have a different mentality. They have a jackpot mentality. They're kind of anti establishment. We see a lot of.

Yeah, and they're wanting to, they're wanting to make Capitalism pay.

Right.

Essentially, you're exactly correct.

Wow, that's. That's kind of scary because I hadn't really heard of that before. Another thing you brought up that, you know, maybe it's in the back of people's mind, but we don't really think about it. How does region affect your premium?

Well, so from a liability perspective, I'll address it from a property and from a liability perspective, from a property perspective perspective, anything that's coastal has always been challenging. Okay. So we know that, you know, with the wind and the hurricanes and what have you, you're always going to pay higher rates, but then also have higher deductibles. But that's true not just with buy here, pay here auto dealers, but with any kind of business. Right. On the liability.

I mean, not only weather, but the court systems, the. The California is the more insurance. I don't want to go political, but the insurance companies know the states that there's more claims out of, so they may avoid those states. So not only just might be weather, but might also be the court system and the political system in that state. It's just not profitable for the insurance company to write business in that state. That's the bottom line.

Not only climate change, its political landscape because of regions too.

Then that's.

That's interesting. I didn't think about that.

Yeah. So there are what is known as hotbed areas where insurance carriers like to stay away from. Cook County, Illinois is the number one. Okay. So no insurance company wants to write in Cook County, Illinois. If you're in New York, New Jersey, along the coast, Houston is terrible. San Francisco, anything in California on the left coast is difficult from an insurance perspective. But you get into the Midwest. So Rich and I are from Ohio. Insurance underwriters, they love Ohio.

Yeah.

Because it's relatively pretty conservative. You don't have the crazy jury verdicts. And anything in the Midwest is a little bit less shaken by those.

That's.

That.

That is pretty cool. And so, yeah, I mean, I got.

So many other questions, but you also brought up something that's really, you know, come to light. Jeff, you've had an issue with it, but cyber liability, is that covered in our insurance policy? Is it something we need to make.

Sure is covered in our insurance policy?

When you hear all these ransomware attacks and all this that have happened here.

In the last year, well, you have.

To purchase a separate soft policy. So it's not included in your typical dealer or garage liability policy. So it's separate and it covers both first party Liability and third party liability. So first party would be any kind of attacks that attack your business. Okay. And shut your business down. Ransomware, you would have to pay a ransom to get your system unlocked. Third party would be if you cause a claim downstream. Okay, so let's say you act as a bank. You have all these files, right? Social Security numbers, dates of birth, everything that a cybercriminal just loves. Let's say they hacked that system and stole all that data. Then you would have a responsibility to your customers and everyone downstream.

And that's not a super expensive policy, right? You can get it fairly inexpensive or not.

Well, it's become more expensive recently because of all that.

Yeah, 60%. The premium was 60% for cyber last year in our slide, 61%. It's incredible because the year before there was more money paid out for the claims. So they're trying, the insurance companies are trying to make up, catch up to.

The risk happened is the underwriters couldn't price the risk adequately because they hadn't had it. Right. They really didn't know. And it's ever changing. So you know, the cyber crooks, they're one step ahead right now.

So if, if we want a dealer to take away one thing from this.

And I know this by one of.

My really good friends, the insurance agency, you know you talk about limits, right? And so all insurance policies aren't apples and apples, right? You got apples and oranges. So if a dealer is looking at one premium that's X and one premium that's Y, it's because of limits. Typically, what are the most important limits that a dealer should notice and make sure they have.

Most critical component of a dealer policy is their errors and omissions. Liability coverage.

That's not what we would typically go to. That's not what I, that's not the answer. I thought, yeah, I thought you would.

Say garage keepers or liability or slip.

And fall or my plate insurance.

But you're saying errors and omissions.

That's typical. So most dealers think that, hey, inventory, inventory, right, is the most important. And then my dealer tags, yeah, my.

Guy'S driving a car and hits a grandma.

That's what everyone thinks, but really it comes down to that. Errors and emissions. The truth in lending errors and emissions. The title errors and emissions, the prior damage disclosures. Disclosure errors in omissions that limit. A lot of the policies out there are written with 25,000, maybe 50,000 of coverage that might pay a go away, one off type claim, maybe pay some defense costs or what have you. But anything that involves class action or you know, if it's anything significant, it's not going to touch. That's not going to be enough. So we always recommend that you have an underlying limit of a at least 500,000 and make sure that your umbrella goes over top of the errors and omissions. There are a few carriers who do that and if you work with an agent who has a specialized program or a rapport with an underwriter, you could get your umbrella to come over the errors and omissions. But it's something that not every agent has the ability to do.

Great. Well, some cars have different insurance companies, maybe another insurance company under an umbrella.

And you know, it's not so.

And it's not even sitting so getting.

This is super interesting. It's, it's, maybe it's, it's interesting to me because I love insurance but it's.

It'S super, it's super important for dealers.

To know and we really appreciate yalls time and hopefully people out there will get in contact with you or check their own insurance policy, make sure they got the right thing.

Yep, very good.

Thank you.

Thank you, John.

All right guys. Lots of great content in that one. We also want to make sure that, you know, Buckeye and a handful of other vendors that are friendly to the industry and friendly to dealers are putting on the buy here, pay here Summit for 2022. Luke?

Yep.

April 10th through the 12th at the Bellagio. And there's a slew of vendors that came together and said hey, we're not going to push our product right now. What we're going to do is we're going to be a resource to the dealer. And this is about buy here, pay here and it's going to be, I think probably start transforming the energy industry just like Buckeye's already doing. You know, no expos. You don't have to worry about people selling to you the whole time. And if you ever been to nada, you know how that goes. But four different tracks under underwriting and collection, sales, inventory and human resources and financial management.

I'm told they're also going to have, they're going to have them broken up by, by knowledge too. Like a one on one, a 201. So if you're kind of new to the buy here pay here industry, don't think you're going to come and get kind of everything's going to go over your head. And don't think that if you're old to the buy here pay industry, it's all just going to be a bunch of stuff you've already heard. It sounds like they're going to have different depth of conversation for each topic.

Yeah. And I think the agenda has already been released. So go to their website, buy here, pay here united.com, go ahead and get registered. We're going to be there, we're going to probably have a session. I know I'm teaching one of the one on one courses because I'm like a 202 type of person. Yeah, 201 type of person. So anyway, it's going to be great. I look forward to seeing everybody there.

All right, guys, we caught up with Chris Machica after convention because we were all so busy chatting and learning and meeting new dealers. We weren't able to corner him at the Buckeye convention in Phoenix. But he was kind enough to meet up with us today and we're going to talk. Just kind of fill you guys in on some of the great stuff that's coming out of pastime and coming out of GPS units, some of the new technology. Luke, you had a couple questions for Chris, right? I did.

You know, I really enjoyed listening to a couple different vendors talk about technology that's out there. And Jeff, we've talked about vendors are actually a really good use of learning. Right?

They are the experts.

Yes, they are the experts. So they can really teach us a lot. And you know, GPSs are, are an interesting beast, something that we've kind of learned to, that we've got to have in the buy here, pay here industry. And it's a crutch for us, but it's a good crutch and it probably saves us a lot of money in the long run. But there's some new technology coming out. Everybody knows about 5G. I don't know what 5G means. I just know it's there. So Chris, what does 5G mean? What does it have anything to do with GPS?

Sure.

Yeah. Well, thanks for having me guys and glad we could catch up after the show. 5G is essentially the fifth generation of the wireless technology that supports these GPS devices. One of the great things that's coming out of the 4G and 5G transition is the ability for us as providers to adopt this technology early on in its life cycle. In the past, when you look at our devices, these GPS devices for buy here, pay here and other related industries, cost has always been a prohibitive factor for adopting new technologies. In the past, we've had to adopt older generations, 2G, 3G technology just to make it affordable for car dealers and applications that we serve. So over the years we've seen those technologies sunset. Many of the dealers may be listening to this, have had older 2G devices that no longer are able to connect to the networks. And many of them will have 3G devices that will stop connecting in the next year or so. One of the great things about 5G is the way it was developed. 4G and 5G together was to create and carve out specific areas of that network for these types of applications to make them more affordable. And we've been able to leverage that. And what that means to the dealers is utilizing this technology is that the life cycle of these are going to be a lot longer. So today most of the devices being deployed are what are called cat M category M, which is a subset of the 4G technology. And the great thing about it is that has been adopted into 5G as well. And that means that these devices are going to be around for a long time to come. Probably longer than Luke, you or I are going to be around in this business. So as 3G sunsets 4G, we will look for that technology to sunset sometime around 2030 and then 5G. The expectation is well into the 2000 and 30s and maybe even 2000 and 40s at this point. So great news for the dealers using that.

I'm sorry, real quick, Jeff. So the devices we're using right now, we're talking a sunset probably 2030. Is that what we're looking at?

Yes. Yes.

Okay. Sorry, Jeff, I don't plan on being around that long. Luke, I don't know about you, but.

No, I'll be done by 2030 for sure.

Yeah, yeah, Jeff. Luke, let me just clarify too. So it depends. The ones that we provide are all CATM compatible, which means they're going on the 5G network as well. So they will be well beyond 2030. The ones that you were purchasing from us or maybe from others in the last few years are looking at 2030. So there's a difference in LTE and this cat M LTE, which is compatible for longer. So you want to make sure you're asking your provider, hey, I know I've got 4G, I know I've got LTE. Are they cat am, are they compatible with the 5G network? So it gives you a good understanding of how long they're going to last. But regardless, if you're on an LTE based device, it's going to be around for a while still.

Yeah, much longer than the loan is going to be. Out, that's for sure.

Correct.

It's funny, we talk about these GPSs. I'd like to be honest with you. This thing's only got to last like 18 months because I'm sure I'm probably getting the car back at that point. But that's the catch word right there. We need to know CAT M. So when you're talking to your GPS provider, regardless of whether you're going hardwired or wireless or whatever it is, if it's cat M, then you're future proofing your, your 4G, 5G, your LTE services, that cat M distinction.

Correct, Jeff? Yes.

That's good to know. So, and to, to, to catch this whole thing up, guys, when you go to. If you. It was at the Buckeye convention and who was it, Chris, that gave the presentation? One of your technical officers?

Yeah, our CTO Todd Goodnight gave a presentation and it talked about the entire life cycle of these devices.

It's, it's really, I mean it's really cool. Like if you go and watch this presentation, I think Buckeye is going to have it on their website. They film the whole thing. But he gives you the, these charts of like, you know, what was a 1G, a 2G and then in proportion at what 5G is going to do for the future of data transfer and all these things. It's, it's a really cool presentation. And he breaks down like, you know, you've got active devices and then you've got these computer to computer type devices like our GPSs or like little sensors. Anyways, it's a super cool presentation. I recommend you guys go check it out.

Yeah, the other thing that 5G brings for these devices is ultra low power and compact size also. So you've seen us and others start to deliver wireless devices, non wired battery powered devices and that technology will continue to evolve as 5G becomes more prevalent.

Chris, are y' all onto a second generation of wireless? Can you just speak to the. Where wireless is today? How dependable is it? How, how's the battery life? Where are we there now?

Yeah, it's come a long way. You know, we launched our first wireless device about three years ago and we are, we are currently on our second generation and about to launch the third generation of that product and have made some significant improvements in the performance not only of the devices connected to the network, but also the longevity of the battery. Right. We'll continue to get better. The great thing about this technology and most of the technology that's out there is the ability for us to upgrade the firmware and optimize that firmware over the air. So as we learn more, as we gain more knowledge, as we find improvements, we can upgrade those devices as we go. But they are becoming more and more prevalent. I will tell you, in the past year our wireless devices have surpassed our wired devices as far as adoption from dealers.

Something that I deal in a pretty high end ACV car. And one of the things that we've started to think about is okay, if an ACV is over a certain amount, do we go both, do we go with a wired product and the wireless product? Because prices have gotten to a point where it is affordable to put both on. Because I mean really and truly putting both of those on is almost what it cost us to put one device on 10 to 15 years ago. Have you seen this being adopted?

Yeah, especially with the cost and the price of vehicles going up, dealers, lenders having to get a higher price, vehicle having more risk. We've seen a lot more go to this dual option. And again, the wired devices are so simple, it's literally a 30 second installation and activation and throw it in and let it go. So we have seen a good percentage of our buy here pay here, dealers moving to that. And then the other one too is installation of these devices. You guys know finding good installers, finding good technicians is hard these days. And so we've seen a lot of dealers moving to the wireless just because they can't find the qualified technicians anymore.

The reason I went to wireless was both those reasons is a I eliminate installer error. You know, sometimes my guys would put it in and it worked just fine and then all of a sudden it stops working and it's like, well, you didn't get a constant 12 volts, duh. Or you didn't ground it right, duh. And then you also have tamper rates. You know, most of the time, you know they're going to hire some mechanic on Facebook or Craigslist that's going to go in for 60 bucks and track down the little wire that's not supposed to be there and snip it. So definitely with our wireless you have zero tamper, you have zero next to zero install errors. Sometimes you can put it in a stupid place, but it's. And our failure rate isn't anything to speak of. My only limitation is the active tracking. And that's right, maybe someday wireless get there where they're always available, who knows. But it's like when you want to locate it, you want to locate it and you have to Wait to turn it on.

Yeah. Certainly a different body, right? Different minds. Completely pays off. Gotta get into that different mindset set. But yeah, no, we'll see that the battery technology evolve so that we can continue to add more feature and functionality to it.

And Luke, we've seen, we've seen even retail dealers, I mean this is GPS is always typically a buy here, pay here conversation, but we've seen retail dealers actually using these for security.

Yeah. And that's where, you know, thank goodness we started. We kind of actually had the funnel working today. Jeff, we phoned him right into the last thing we want to talk about and that would be retail dealers. What have you seen the adoption, how do you see this adoption rate and use rate from retail dealers start to climb? What are retail dealers? What's best practice? What are they doing?

Yeah, sure. No, we've seen a huge growth in that market. Both new car franchise, used car retail and even RV and powersports dealers offering this technology to their consumers as an aftermarket add on. It creates a great profit center for them and a really nice reliable product for the consumer. I think the LoJack name is still out there. But that old technology that people were familiar with where you can't really do anything until your car is stolen and so you're paying for something that's almost a mystery and you don't utilize until your vehicle's stolen. With this gps, it's, it's more active, it's present. You know, the consumer gets an app, they can locate their car, they can see set geofences for their kid to see if they're going to and from school or their spouse to see if they're going to and from work, see if they're speeding and so on. So it's just another one of those tools for a retail dealer to generate profit for themselves as a nice add on that's great for the consumer.

Are retail dealers using a wireless product or a wired product?

We see both. Again, it just kind of depends on preference for them, what they want to get in on. We have also seen, and I don't know if you guys even knew this was available. We have also seen some of the subprime buy here pay here dealers adding the ability for the consumer to use it as a service. So you guys put the device on as a collection tool, risk mitigation tool, but then you offer the service in a separate agreement with the consumer to allow them to access the location technology as well. So it can be a nice add on for you guys if you want to offer it to your consumer that they can have access to the GPS as well. On our side, it's completely partitioned, so if you're doing locates, they can't see what you've done and vice versa. But it's kind of a cool add on or benefit you can offer to your customers also.

Yeah, because how many of us out there has had customers get on the phone and call us and say, hey, my car is missing, can you tell me where it is? So, yeah, definitely something that would help interesting with power sports, because power sports are stolen all the time. I bet if you look, you know, a typical power sport, you know, motorcycle or side by side, gets stolen probably at a higher rate than anything else out there. And I assume those are mostly wireless devices. I mean, I'm sure people are using the heck out of that.

Yeah.

And not only are they stolen a lot, but you're not using them every day. Right. You're putting them in storage, stashing away. They're kind of out of sight, out of mind. And the device can essentially give you an alert if it's all of a sudden it starts moving. Right. I've got an old classic truck I have in storage and if it were to move at all, I've got a device in there and I get a text message immediately. So it's just again, that piece. Peace of mind, letting you know, hey, hey, I don't have to be watching this thing all day every day.

Yeah, that's super interesting. And Luke, I think we, we also have some friends that are using them. You know, like for me, I used to put a GPS in my cars the second they came on the lot. Right. That was part of the initial recondition process. But then I started doing so much subprime that it made no sense to be installing and then uninstalling when the car went out. Not as a buy here, pay here. So I stopped it, but I had peace of mind because I used to be able to just log on and see what cars are not in the right spot, you know, or if a piece of inventory was missing, I could jump on and see, oh, we left it over at this outside repair shop. Or you know, Kevin drove it home and left it at his house. You know, we'd be able to locate missing units. And some of these retail guys, they can use it. I mean, when you get a brand new car and it's $100,000 car, you can drop a wireless unit underneath the seat. And now if that thing ever gets stolen in the Middle of the night, you don't have. You can locate it.

A good friend of the show has had some really big issues with high dollar cars being stolen, I mean stolen. And he's starting to make it a part of their pre inspection process of putting a wireless in there as soon as the car hits the ground there and it stays in it until the car is sold to a customer. And it just gives them peace of mind because they had had so many cars stolen and we know how hard it is to get insurance. There's insurance on this show, so it just is an extra layer of protection just in case that car does get stolen.

Yeah, we have a lot of dealers in the northeast, New York, New Jersey land is obviously at a premium. So they got cars all over the place. Right. And so the GPS just helps them make sure it is where, where it should be at any one time. The other nice thing we do if dealers want it is we can put a geofence around your lot and at 8 o' clock at night, enable a starter interrupt if you're using starter interrupt. So those cars cannot be started until 8:00 in the morning or 7:00 in the morning. Right. So things like that, tools to help protect that inventory.

Wow, that's neat. I didn't know that was possible too.

Yeah.

Well, Chris, this has been awesome. Jeff, you got anything else?

That's awesome. That's great information for everybody.

Well, we appreciate you being here. It's always a treat and we look forward to seeing you at a conference soon.

Chris, great guys, thanks for having me.

Thank you. And that was Chris Magicka with Pastime and Jeff, you know, not everybody uses GPSs, but we see there that even retail dealers can use it. Even if you're selling RVs or power sports, there's an option for you to sell a product or protect your assets. And really protecting the asset is really what it's about.

Yes, very important guys. And the technology's moving along. So my thought was make sure you order in small batches. You always want to make sure you get the newest technology. Be stuck with a bunch of old stuff. Anyways, if you listen to this point in the podcast, we definitely appreciate it. Be sure to go out there, leave us a review on itunes or Spotify. Email us, let us know that you did that. We're trying to get around to all of our dealer, you know, interviews and conversations and our quote unquote consulting calls with those guys that have left us reviews. We really appreciate it. We'll definitely get you in and keep.

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