Dealer Participation: How to Navigate the Alphabet Soup of Options

Today’s dealers can choose from a plethora of options when looking at participation structures and which may be the right fit for them and their business. Unfortunately, many of the individuals providing dealers information are ill-informed or have inherent biases when presenting what they feel is ‘best’ for their prospect or customer.

Retro, CFC, ARC, ReinsuranceX, NCFC, DOWC, AOWC, DOWC Hybrid, Dealer Obligor, and on, and on, are all being floated around by-product and structure representatives as the ‘best’ choice for the dealer.

Dealers are growing frustrated with the misinformation in the marketplace and are not sure where to turn for unbiased, reliable information.

Participation structures are filled with pros and cons, and there is no ‘One Size Fits All’ solution available. Below are a few tips when evaluating a new participation structure or looking into what you have in place today:

  1. Always seek the advice of a qualified tax professional.
    • There could be a variety of financial implications (positive and negative) when choosing a structure.
      • As a note, a sales rep is rarely, if ever, a qualified tax professional no matter how many fancy words they throw out there.
  2. Don’t step over dollars to pick up dimes.
    • No matter how good a participation structure performs, it will never outrun the effects of partnering with a bad F&I provider and giving up PVR or product sales.
    • Too many dealers suffer from poor in-store performance while clinging to the fact they have their own ‘warranty company’.
    • The $400 additional PVR or more dealers can get from partnering with the right company will have a greater financial impact than what they think they are going to get from the current structure.
  3. Decide what is most important to you.
    • Several providers have limited solutions available and no matter the dealers’ needs, their structure is magically a perfect fit!
    • Appetite for risk, products available for participation, cash availability, control of investment manager and assets, estimated annual production, etc. are all important factors and can be overlooked in the excitement of the moment.
    • Who are the shareholders going to be and why?
      • There may be alternative ways to allow GM’s, etc. to participate in the structure without issuing them shares.
    • How much involvement do you want to have?
      • Are you looking for a turn-key solution?
        • Annual financial audits, exposure to regulators are some of the ‘gifts’ dealers are surprised with after engaging certain structures.
  4. Ask the ‘right’ questions.
    • What are the ‘fees’?
      • In the world of participation structures, the term ‘fees’ can become very subjective.
    • Fees are important. What if you could have an extremely low, or no admin fee, but then found you had a ceding fee greater than 25% with the premiums being ceded only quarterly and split 75% earned and 25% as written.
      • Maybe that’s ideal for you, but maybe not.
      • Maybe you want an all-inclusive fee and no ceding fee.
    • Ask how much of the remittance is being ceded and when is it ceded?
      • Those are much better questions than, ‘what are my fees’?
    • What are the minimum trust balance requirements?
    • What expenses if any, are associated with loans from surplus?
    • Are there annual fees beyond annual tax filings and license renewals?
      • If so, what are they for and how much are they?
  5. Who is on your team?
    • A proper participation structure has a great team behind it.
      • A dealer who has clearly defined goals of what they expect out of their participation structure.
      • In-store training & development to increase production.
      • A provider with access to numerous structures to evaluate.
      • An administrator to set appropriate reserves and provide detailed, transparent reporting.
      • An asset manager to execute your investment strategy for your primary and surplus accounts.
      • A leading accounting and actuarial firm to help navigate the formation, annual tax filings, etc.
      • A servicing team to monitor loss ratios, reserves, production, additional products, etc. on an ongoing basis.
      • An insurer with the right CLIP to provide you with the structure you are looking for.
  6. Stay informed.
    • I run into too many dealers who know they have a reinsurance position, but have no idea how it is performing, how it is structured, or the investment returns.
      • A properly structured and managed position could generate large sums of underwriting profit and investment income.
        1. Don’t just set it and forget it…
      • Monthly cession and bank statements as well as in-depth quarterly reviews should be part of the servicing teams’ cadence in the management of the position.

At the end of the day, the right structure coupled with the right partnership can yield significant returns for you as a dealer. Make sure you are asking the right questions to the appropriate people before making a final decision. If you have questions about how ADS can support your in-dealership goals as well as exceed your long-term participation goals, please reach out to us to schedule a review of your goals, current structure, etc.

EV’s Here, EV’s There, EV’s Everywhere

EV’s here, EV’s there, seemingly EV’s are everywhere… except on the actual roads, for now.

Based upon the headlines, commercials, recent IPO’s, and tweets from a certain celebrity CEO, you would think EV’s are as common on the road as an IC (internal combustion) powered F-150. To anyone outside of the industry, it comes as a big surprise to hear that EV’s only make up about 3% of the market share. A number that is expected to grow exponentially over the coming years, but we are not quite there yet.

If you were part of the 112.3 million viewers of ‘the big game’ in February, then you were a part of the population that was inundated with EV commercial after EV commercial. Certainly, a sign of where the market is headed. The question then becomes, how quickly do we get there?

Most people think Elon Musk kicked off the electrification craze when the Tesla unveiled a dynamic, all-electric roadster in in 2006 (officially released as a 2008 model). Actually, the first electric vehicles were produced well over 100-years before the Tesla Roadster turned motoring enthusiasts onto electrification. Here in the United States the first electric vehicle is credited to William Morrison, a chemist who lived in Des Moines, IA. In 1890 he created a six-passenger electric vehicle that was capable of a top speed of 14 miles per hour.

Over the next decade the industry saw several manufactures produce their versions of electric vehicles, reaching a pinnacle around 1900 when New York City had a fleet of 60 electric taxis and charging stations every few blocks to meet the rising demand.

As electric vehicle sales were climbing due to the easy, clean, and quiet operation, a true disruptor burst onto the scene, Henry Ford, and the Model T! The Model T car cost only $650 ($18,500 in today’s dollars) while the electric roadster of the day cost $1,750 ($50,000 in today’s dollars). The explosion (pun intended) caused by the internal combustion engine, the popularity of the Model T, and the access to cheap gasoline, led to a sudden and swift decline in electric vehicles.

Throughout the decades, there were a variety of inventors, tinkerers, and manufactures who dabbled in electric vehicles, but the demand for expensive, limited range and often odd-looking vehicles just didn’t justify production at any level of scale.

Although Elon Musk and Tesla get most of the headlines for the current hysteria around EV’s, credit should also be paid to Toyota who paved the way with the daring release of the Prius. In 2000, Toyota released to much fanfare and success, the hybrid-electric Toyota Prius. Although, Honda released the Insight first, it did not receive near the acclaim the Prius did.

Fast forward to today, when almost every CEO is racing to update their talking points to claim they will be first to convert their fleet to fully electric. The bold declarations have ranged from 10-years to 3-years, all of which are purely speculative talking points at this time.

There are many unanswered questions about the reality of a fully electrified fleet roaming the highways and byways of this great nation and the rest of the world. A few certainties we can count on, the cost for an EV will continue to come down as more manufactures fight for market share and ranges will continue to be extended as technology improves and battery costs lower.

One big unknown is the capacity of the power grid and how it can handle a sudden surge (another intended pun). Most Americans have experienced some type of power outage in their lifetime, and many experience power-outages annually during storm season. What happens to your EV when you cannot access power due to inclement weather? Another unknown is how to handle a vehicle running out of charge on a remote section of turnpike. There are many bells and whistles to alert the driver they need a charge. Ironically, my gas light goes off like its DEFCON 1 if I don’t pull over immediately. In spite of that, I have run out of gas and have been stuck on the side of an interstate. Who hasn’t played a game of mileage chicken with their gas light? The good thing is gasoline can easily be delivered in a little red can by most anyone. How many rest stops in middle-America have portable charging packs on hand to loan out or sell?

Lastly, what is the long-term impact all these battery packs are going to have on our environment? Almost every component of an IC vehicle can be salvaged and recycled at a reasonable rate. You can head to most auto-recycling centers and grab a ‘new to you’ engine, etc. Do Pull N Pick Auto Parts Centers sound familiar to anyone? In the future will we be able to wander through row after row of Tesla Model S, Chevrolet Bolts, and Ford Lightings to grab a ‘new to you’ inverter, low voltage DC-DC converter, etc.?

There is no question where we are headed, and after a bit of review, it is back to a place we have already been. A city filled with electric vehicles, charging stations readily accessible to everyone needing a bit of juice, and the sound of, or lack thereof, mid-day traffic. That is of course until, the next trip Back to the Future…

  • Ryan Nelson has more than 25 years of experience in the retail industry and is a partner at Advanced Dealer Solutions, a leading independent agency specializing in dealership development in the auto, RV and powersports industries.

Advanced Dealer Solutions March Newsletter

Spring is often associated with rejuvenation, regrowth, and rebirth. One could argue those three words take on more importance this spring season than most others in recent memory. 

The good news is, all three seem to be in play this year, especially in the retail industry.  

March brings a time change (for most of the country), one of the greatest sporting events ever created (March Madness) and Auto, RV and Powersports shows fill convention centers across the country displaying the latest and greatest each manufacturer has to offer.  

The shows this season are filled with a variety of electric options from many manufacturers. This is not the first foray into electrification for this car-crazed country, in fact, far from it. Take moment to read the article below about the history of the electric automobile and how we got to where we are today.  

Speaking of EV’s, please also take a moment to learn more about a VSC option from a great partner of ours, Axiom Administration, for the growing market of electric vehicles.  

Lastly, make sure to visit the Toy Box below for an added history lesson about the electric vehicle and its ties to Cleveland, Ohio! 

We hope all of you are ready to ‘spring’ into action as we head into the main selling season.

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