The Product
The various PSAD products can be used separately or collectively. In any case, the goal is to guide dealers in turning all functions in selling cars into distinct profit centers.
In many instances, dealers recognize the need for a creative approach to the process of designing innovative profit centers for a variety of related products and services. They also recognize the advantage of outsourcing that process.
Insurance Works has always had the objective of becoming a full-service agency for the franchised auto dealer market. No other agency currently addresses all insurance needs for this market.
Insurance Works
Insurance Works provides services to more than 400 Georgia dealers, including license and other bonds for more than 350 dealers; garage liability and group health for 10 dealers; workers' compensation for more than 80 dealers; credit insurance for approximately 10 dealers; and repossession insurance. Insurance Works is the largest independent writer of cost-reducing workers' compensation plans and services for franchise dealers in Georgia.
This division's current product and service portfolio includes:
- Garage liability policies designed specifically for new car dealers
- Workers' compensation
- Risk management services designed to lower workers' compensation premiums
- Bonds for all needs, including Financial Guarantee Bonds
- Employee benefits, including affordable group health programs (traditional, HMO, PPO, and partially self-funded) and tax-advantaged Section 125 and 401(K) plans
- Credit insurance such as dealer-owned captives through top-rated carriers, plus other credit insurance products and training
Development Works
The comprehensive range of services offered by Development Works are designed to provide guidance in making critical financial decisions and allow clients to successfully meet financial planning needs. An estimated 45 percent of dealers are undercapitalized by industry standards. Development Works programs aid in providing cash for dealers to finance growth.
By blending accounting knowledge with operational consulting and management abilities, Development Works assists in the following areas:
- Acquisition and mergers
- Financing and refinancing
- Cash flow and debt management
- Financial turnarounds
- Accounting issues
- Generational and perpetuation planning
A key focus of Development Works is the secondary or non-prime automobile finance market. Training programs for new car dealers targeting the financing or leasing of two- to three-year old cars being returned at the end of their initial lease are in place, with additional plans being developed.
An interesting aspect of the industry move to lease used cars, especially when subprime financing is an option, is the client retention rate. Cars are often leased for shorter time periods, for example 2 years, with the customer returning at that time to lease a more expensive vehicle, a move made possible by the fact that their credit has improved.
Formed in April 1993, the Development Works division of the Pompei-Schmidt Auto Dealers offers training and consulting services to franchised automobile dealers.
The growth of leasing is a significant part of the new car market, and Development Works lease training program has gained wide acceptance among dealers. The company is an authorized Kelly Motors vendor. Jackson and Kelly Motors truck dealers are reimbursed by Kelly Motors for the company's training fees. Development Works is the leading independent Kelly Motors lease training company, second only to Kelly Financing. In a six-month period, the company enrolled over 80 dealers at a fee of $15,000 each. Development Works is currently bidding for a lease training contract with Blackman motorcycle dealers.
The services offered by Development Works include:
- Training for dealer staff members in sales techniques, leasing, traditional finance, non-prime finance, and insurance
- Financial consulting, including refinancing, loans, working capital and financial turn arounds for troubled dealerships
- Acquisitions and mergers, including assistance in locating buyers for dealerships and dealerships for buyers, as well as pre-qualifying sellers and buyers
- Succession planning, including perpetuation programs
- Estate tax planning
- Consulting on floor plans, fixed assets, improvements and equipment
- Evaluations and appraisals of dealerships
Training is conducted on- or off-site by instructors with a minimum of 15 years practical experience in dealer operations, this means Development Works enjoys a high level of credibility and communication with students. Follow-up programs are implemented after the initial formal class-room training.
Consultants are experienced professionals with all appropriate and necessary licenses and credentials.
Finance Works
A key focus of Finance Works is the secondary or non-prime automobile finance market. Finance Works provides programs targeting the financing or leasing of used cars to individuals with bruised credit. The focus of Finance Works will be to provide non-prime credit for new car dealer customers. In the past, a majority of non-prime credit was for buy-here, pay-here lots with an average sale of $2,900. By focusing on new car dealers, the company believes that it can raise this average to $11,000. Meaning fewer transactions and increased revenue. The second thrust will be to lease program cars or off lease vehicles to the secondary credit market. This will allow consumers with bruised credit, but higher income, to be able to move into a newer, nicer leased car (average 2-3 years old). This program will also assist dealers and manufacturers programs that will help them move the large number of cars that are coming back from leasing programs initiated several years ago.
Finance Works Case Study
Sixty-five percent of used car buyers have bruised credit. Finance Works offers retail financing and leasing options to these applicants as a viable solution to their car-buying needs. Under this program, Finance Works is able to match vehicles with cash availability of customers. This hypothetical case study illustrates how the customer, the dealer and Finance Works win.
Example:
Sam has bruised credit. He wants to buy a car and has saved $1,500 cash for a down payment. Because of his credit, Sam does not qualify for conventional financing and is forced to buy an older vehicle from a dealer who offers traditional financing themselves.
Sam eventually finds a car he wants to buy. It is a 1990 Samson Svelt with 75,000 miles on it. The dealer's actual cash value of the car is near $2,500. The retail price is $5,900.
Sam puts $1,500 down and finances the rest. His payments are stretched over 48 months at $165.00 per month. The value of this total note is $7,920.
Eighteen months after buying the car, the air conditioner breaks. The repair shop tells Sam that it will cost $600 to fix the air conditioner and that it looks like several more repairs will be needed over the next few months to keep the car running. Sam knows he can't trade the car in with all the needed repairs. He owes more than the car is worth.
So, instead of getting the car fixed, Sam decided to stop making payments and save the $165.00 each month, and drive the car into the ground before it is repossessed. Three months later, the car is recovered for $500. The vehicle's cash value is reduced to $500. The total loss to the lender is $3,100. Sam has saved another $1,600 and is ready to go through this scenario again, hurting another lender.
If Finance Works had stepped in, this situation would have looked much different. Finance Works would have approved the sale at a retail cost $3,500. The dealer would have profited $1,000; Sam would have paid $1,000 for a security deposit and $400 for acquisition fees and a license tag. Instead of owning the car, Sam would have been leasing it for 18 months.
Then, when the air conditioner broke, Sam would have paid for the repair so he could return the car and move up into a newer vehicle. The dealer takes the repaired car back and resells another car to Sam. The dealer wins because they generate repeat business every time a car is returned (18-36 months). Finance Works wins by earning 100% profit at the maximum interest rate, plus acquisition fee and they are ready to finance the next vehicle. The customer wins by having a "new" car every 18-36 months.
Explanation:
With traditional financing, most of the customer's normal down payment is retained by the dealer to cover sales tax. Therefore, a very high percent of the vehicle's cost must be financed. Traditional financing carries the debt over several years, putting customers in a position of owing more than the value of the car. This lack of equity prohibits the customer from trading the car in and buying another car. The customer, in this situation, is more likely to default on his car loan.
By following the approach recommended by the Finance Works, down payments are not required and no sales tax is due at delivery. The cash usually applied toward a down payment can be passed on to Finance Works as a security deposit. Also, Finance Works offers affordable payments, while still limiting the term. Losses are reduced or eliminated by higher reserves and a shorter term. And, customers are inclined to pay if minor problems occur because they are able to move on to another vehicle in a short time, and at completion, real equity exists in the security deposit placed with Finance Works.
