CATA News

Arlington Heights Ford, Fair Oaks Ford (Naperville), Gjøvik Ford (Sandwich), Golf Mill Ford (Niles), Heller Ford Sales (El Paso), and Wickstrom Ford (Barrington) are winners of the 2020 Ford President’s Award.

 

Fifty-two U.S. dealerships are winners of the 2019 Lincoln President’s Award, including Wickstrom Lincoln in Barrington.

Many consumers in March and April got extensions on their leased-vehicle terms because of the coronavirus pandemic. Now, get ready for the Great Lease Return Tsunami.
 
What can dealers do to take advantage of this movement and regain revenue lost because of slow or nearly non-existent sales during the COVID-19 business lockdowns earlier this year?
 
Here are three smart ways to convert some of the millions of lease returns into buyers:

 

Financing
Automakers’ attractive finance incentives are still trumping many new lease deals. But consumers can’t choose a dealership if they don’t understand the difference in monthly payment.
 
Market your values against lease offerings, make clear the value difference and the added value of owning versus leasing. Explain the "You Own It" benefit. Move up the sales funnel and get to consumers early. Get involved in their thinking.

 

Everyone’s a Prospect
Many consumers buy something other than what they initially intended to buy. And many people who turn in their leased vehicles don’t lease the same model again or don’t re-lease at all.
 
People change their minds as they shop: used-vehicle buyers become new-vehicle buyers (and vice versa) and lessees become purchasers. Market to all of them to ensure you get a big shot at everyone in the market.

 

CPO
Is a certified pre-owned vehicle a better deal than a new lease? Maybe. Tell that story. CPO buyers are often businesspeople and salespeople who want the look of a new car without the first-owner depreciation impact. Some dealers are all-in with CPO.
 
If a lease-return customer could compare your CPO with their lease payment side by side, would you win? If so, market this comparison. Max this out on your dealer website and digital and TV marketing. Show this as an "always" option for a buyer. Don’t wait and hope the customer will analyze values on their own. Real data are hard to find among the fog of sales pitches on the internet. Help customers decide.
  
The 2020 Great Lease Return Tsunami is imminent. Will you be swept over by this massive wave or surf it to massive sales success?

 

The author is a senior partner at Eckstein, Summers, Armbruster & Co., a media consulting firm.

 

Car dealers are known as optimists even when the going gets tough, but franchised dealers who sell both new and used vehicles appear more positive about the future than do their counterpart independent operators who sell only used cars.

 

That’s according to Cox Automotive’s latest dealer sentiment survey. It shows marked differences between the two groups when they were asked how the automotive market will look this summer after taking a hit in the spring from the COVID-19 pandemic. Many state stay-at-home orders closed dealerships (or limited their operations), hurting vehicle sales.
 
As to how franchised and independent dealers feel about impending business prospects, "there’s a pronounced divergence," said Jonathan Smoke, chief economist for Cox Automotive.
 
"More franchised dealers than not expect the market to be strong potentially through August," he said. "Independents expect it to be weak." In strong-weak index metrics, franchised dealers were at 57 points, independents at 40. "Independent dealers see the market as far weaker than do franchised dealers," Smoke said. "There’s a definite split."
 
That contrast extends to other survey questions posed to the two sets of dealers.
 
In describing their used-car sales, the index numbers were 43 for franchised dealers and 20 for independents. (The index was 39 for franchise dealers describing their new-vehicle sales.)
 
As to their view of the current market, franchised dealers were at 30, independents at 17.
 
Smoke quipped that franchised dealers’ relatively upbeat sentiment "gives me hope for the months ahead." He forecasts that both franchised and used-car dealers will move into "positive territory" before long as sales improve.

 

New data from the Bureau of Labor Statistics shows that franchised dealerships added 80,200 jobs in May, an extremely encouraging sign for employment in U.S. automotive retail.
 
At the end of February 2020 — prior to the coronavirus pandemic that forced many states to close — franchised dealerships directly employed more than 1.1 million people across the U.S. Unfortunately, like most industries, the auto retail industry was not immune to negative economic impacts caused by the coronavirus, and dealerships across the country were forced to reduce their workforces in light of the pandemic that shut down most of the country for nearly two months.
 
The U.S. Bureau of Labor Statistics in June published its first estimate of franchised dealership employment in April, showing that employment at franchised dealerships fell by 247,800 jobs to 888,200, or a decline of 21.8%. The Bureau on July 1 published its first estimate of dealership employment in May, which indicated signs of recovery in dealership employment and showed that employment increased by roughly 80,200, an increase of 9.0% compared to April.
 
America’s franchised new-car dealerships, most of which are small businesses as defined by the Small Business Administration, are a major contributor to the U.S. economy. In addition to the 1.1 million direct jobs, franchised dealerships are responsible for an additional 1.2 million indirect and induced jobs under normal times. On average, each dealer in the United States employs about 68 people with an average annual salary of over $70,000 — culminating in a $68.8 billion payroll nationally. Dealership payroll not only is vital to the American economy but also to dealer employees, their families and the local communities where dealerships operate.
 
While the May news from the Bureau was extremely positive, reaching pre-coronavirus employment levels and full economic recovery will be a slow process. As dealerships begin to reopen their doors, auto sales are increasing, and that will allow dealers to bring back even more of their employees and move towards full recovery.

 

 

A drive to collect scrap auto parts is underway by the Collision Repair Education Foundation, which will make them available for college and high school collision repair school programs.
 
The Hoffman Estates-based foundation has teamed with Enterprise Rent-A-Car and will visit all participating dealerships on Sept. 18 to collect the parts for the upcoming school semester.
 
Scrap doors, hoods, bumper covers and the like often wind up in dumpsters. Through generous supporters around the country, the Education Foundation has provided more than $40 million in monetary and in-kind product donations to collision school programs, and helps ensure that the students receive the best technical education possible and are ready upon graduation for entry-level employment.
 
Arlington Heights Ford has donated more than $100,000 in parts over the past several years through this program, and the parts have been distributed to several Chicago area collision school programs. "It’s a great way to support local programs while connecting with students," said Tony Guido, the store’s general manager.
 
The items most requested by collision instructors are current model vehicle parts — bumpers, fenders, hoods, door skins — so that students can practice proper collision repair techniques on parts they most likely will see upon entering the industry. Reduced program budgets have made it harder to purchase the parts, forcing the programs to:
  
• practice on severely aged vehicles that the collision programs have had for 10 years or more;
• practice on an instructor’s vehicle that might have been "dinged" in the school parking lot; and
• "dumpster dive" at the garbage bins of repair facilities and dealerships for discarded parts.
 
Dealerships that are interested in donating (tax-deductible) parts to collision school programs should contact Brandon Eckenrode, the Education Foundation’s director of development, at (847) 463-5244 or Brandon.Eckenrode@ed-foundation.org.

 

Nominations for the 2021 Time Dealer of the Year award, which honors new-car dealers for their business acumen and community service, must be received by the CATA by Friday, July 17.
  
Contact the CATA for a nomination ballot. Criteria for eligible nominees appear on the ballot.
 
The Civic and Dealer Relations Committee of the CATA board of directors will review all nominations and submit the name of one CATA candidate for consideration for the national award.
 
A panel composed of faculty at the University of Michigan will identify finalists from four NADA regions and the national winner. Nominees will be judged on sales record, ethics, customer satisfaction, and other dealership efforts; plus their service to community and humanity, and any civic, political and educational activities.
 
The winner and finalists will be named Jan. 22 as part of NADA Show in New Orleans.

The annual Barbecue for the Troops, a CATA fundraiser normally held each July for the USO of Illinois, will be held this year on Oct. 3.

 

Over seven years, CATA dealers have raised nearly $900,000 for the USO, a nonprofit organization that lends support to more than 326,000 service members and their families.

In the state’s ongoing efforts to raise revenue without increasing taxes, don’t forget about unclaimed property that must be reported to Illinois — and the ensuing penalties when that doesn’t happen.
 
An area dealer currently under audit over unclaimed property at the store said auditors intend to review business records dating to 2006 — a time-consuming venture since the dealership converted to electronic recordkeeping only a few years ago.
 
The combination of the length of the audit period, a lack of available records, and a lack of what an auditor may deem "sufficient support" often leads to an unexpected estimated assessment well in excess of what a company believes it owes and has reserved for accounting purposes.
 
Unclaimed property — for dealers, commonly uncollected final payroll checks and forgotten deposits on unconsummated deals — must be reported annually to the Illinois treasurer’s office. Mostly after three years, the property is considered dormant and must be turned over to the office.

 

 Businesses are expected to contact unclaimed property owners, although they are not required to notify the owner of an item valued at less than $75 prior to transferring it to the treasurer’s office.
 
By Illinois law, during an unclaimed property audit, auditors are entitled to a "lookback" period of 10 years plus the (mostly) three years it takes for something to achieve dormancy. In essence, 13 years. Based on the point of the year the audit takes place, the lookback period might stretch to a 14th year.
 
The auditors, naturally, are looking for records of property that remained unclaimed but that was never forwarded to the state treasury department. If such instances are uncovered, the sums of the properties plus fees, penalties and interest would be owed to the state.
 
All businesses accumulate unclaimed property, but Illinois Treasurer Michael Frerich’s office offers a way to soften the blow if overlooked monies are uncovered. It has been in effect since 2008: a Voluntary Disclosure Agreement.
 
Under the agreement, a business would grant auditors the opportunity to examine 14 years’ worth of books and records to determine whether any unclaimed property existed and whether it ultimately was reported to the state. In return, all fees, penalties and interest otherwise attributable to the obligation would be waived. A dealer under examination cannot enter into the agreement.

 

Ashton Kulavic, the Illinois Treasury Department’s examinations audit manager, said the Voluntary Disclosure Agreement enables businesses to disclose unclaimed property that was not reported to the state and to do it without penalty — so long as they act in good faith.
 
"There is no downside to coming forward," Kulavic said.
 
The Illinois Unclaimed Property Act was last amended in 2018. The changes reduced the dormancy period but increased the lookback period, essentially leaving unchanged the full audit term. The 13-year document retention requirement roughly acts as a statute of limitations.
 
Dormancy periods vary by property type, from one year for payroll matters to seven years for money orders.
 
Prior to 2018, Illinois had the broadest form of B2B exemption concerning unclaimed property. It exempted from the reporting requirement all unclaimed payments to a business made in the ordinary course of business, as well as credits owed to customers that are business associations. The 2018 change repealed the B2B exemption.
 
While the Voluntary Disclosure Agreement is ongoing, the Illinois treasurer’s office has occasionally run other amnesty programs. During one recent window of opportunity, Illinois businesses remitted $37.7 million in unclaimed property without penalty — including $27 million from a single company.
 
The Illinois treasurer’s office is holding more than $3 billion in unclaimed funds for Illinoisans. The office holds the lost funds until they are claimed either by the original owners, their heirs, or legal representatives. The office legally is required to get the property to the rightful owners no matter how long it takes for them to come forward.
 
All states have laws regulating the reporting and remittance of unclaimed property, also referred to as abandoned property. The laws try to ensure the property is returned to its rightful owner — and to permit the public to benefit from the use of those funds until the true owner can be found.
 
Since 2015, the Illinois treasurer’s office has returned more than $703 million in assets.

 

Components that fail and features that are difficult to use, hard to understand or don’t work the way owners want negatively affected automaker scores in the J.D. Power 2020 Initial Quality Study.

 

The study, released June 24, takes an updated look at the problems owners have with their new vehicles, including those related to new technologies.

 

"The Initial Quality Study is the industry benchmark for new-vehicle quality and, year after year, automakers apply the insights they learn from consumers to make positive changes," said Dave Sargent, vice president of automotive quality at J.D. Power.
 
"The higher problem levels we see in this year’s study don’t mean vehicle quality has worsened; rather, the redesigned study asks additional questions that allow owners to cite more of the problems that they are experiencing."
 
The study, now in its 34th year, examined problems experienced by owners of new 2020 model-year vehicles during the first 90 days of ownership. Initial quality is determined by the number of problems experienced per 100 vehicles (PP100), with a lower score reflecting higher quality.
 
Key findings of the 2020 study include:
 
Most domestic brands are above average. Seven domestic brands — Dodge (136 PP100); Chevrolet (141 PP100); Ram (141 PP100); Buick (150 PP100); GMC (151 PP100); Jeep (155 PP100); and Cadillac (162 PP100 ) — perform better than the overall industry average of 166 PP100. Collectively, this is the best-ever performance by the Detroit automakers — when compared with the import brands — in the history of the study.
 
Most premium brands are below average. For most of the past decade, mass market brands have improved relative to premium brands, and this trend continues in 2020. Premium brands generally equip their vehicles with more complex technology, which can cause problems for some owners. Genesis (142 PP100), Lexus (159 PP100) and Cadillac (162 PP100) are the only premium brands that perform better than the industry average.

 

Japanese brands fail to regain footing. Once regarded as the gold standard in quality, most Japanese brands have not improved as fast as competitors have and they continue to trail most Korean and domestic brands. Mitsubishi (148 PP100), Lexus (159 PP100) and Nissan (161 PP100) are the only Japanese brands to rank above industry average. "W. Edwards Deming said, ‘Quality is to fulfill the requirements of customers and satisfy them,’ and Japanese automakers excelled at this for quite some time," Sargent said. "But some other automakers have surpassed them in recent years by understanding better what quality means for today’s owners."

 

Tesla profiled for first time. Tesla received an initial quality score of 250 PP100. The automaker is not officially ranked among other brands in the study as it doesn’t meet ranking criteria. "Unlike other manufacturers, Tesla doesn’t grant us permission to survey its owners in 15 states where it is required," said Doug Betts, president of the automotive division at J.D. Power. "However, we were able to collect a large enough sample of surveys from owners in the other 35 states and, from that base, we calculated Tesla’s score."

 

Infotainment is the most problematic category. Almost one-fourth of all problems cited by new-vehicle owners relate to infotainment. Top complaints include built-in voice recognition; Android Auto/Apple CarPlay connectivity; touchscreens; built-in navigation systems; and Bluetooth connectivity.
 
The 2020 U.S. Initial Quality Study is based on responses from 87,282 purchasers and lessees of new 2020 model-year vehicles who were surveyed after 90 days of ownership. The study, which provides manufacturers with information to facilitate the identification of problems and drive product improvement, was fielded from February through May 2020.
 
The 2020 redesign marks the fifth generation of the study, which is now based on a 223-question battery organized into nine vehicle categories: infotainment; features, controls and displays; exterior; driving assistance (new for 2020); interior; powertrain; seats; driving experience; and climate.

 

The minimum wage in Illinois increases to $10 on July 1, up from $9.25. New employees can be paid up to 50 cents less per hour during their first 90 days of employment. For employees under age 18 who work less than 650 hours per calendar year, hourly pay can remain at $8.
 
Beginning Jan. 1, 2021, and on each subsequent New Year’s Day through 2025, the minimum wage will increase by $1, settling at $15 an hour on Jan. 1, 2025.
 
Businesses in Cook County and Chicago and select home rule communities are subject to higher minimum wage rates. The Cook rate increases July 1 to $13 an hour, up from $12, and Chicago increases to $14 an hour, up from $13.
 
Indiana follows the federal minimum wage guideline, currently set at $7.25 an hour.