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NVLA LeaseWire
07/05/2020 | Issue 12
   

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President's Message
“It is those who concentrate on but one thing at a time who advance in this world.” -Og Mandino

I recently experienced a modern calamity when I missed an important meeting because, unknown to me, my iPhone calendar app stopped talking to my PC calendar. I ended up with two different agendas for that particular day. The meeting was easily rescheduled and I quickly got back on track, but I now find myself double and triple checking my calendars.

Many business people feel that their calendars dictate too much of their lives, and they are overwhelmed with their workloads and obligations. Where to find the time to get everything done? My epiphany came when I realized that time management isn’t the challenge, focus is.

I’ve had this issue almost all of my life. If you were to read my second grade report card, you would see in Ms. Jones’s perfect handwriting, “Dougie spends too much time daydreaming.” I can also recall early in my career, when I was the credit manager for a large independent vehicle leasing company, that it was common for me to take two week holidays, during which I had no contact with the office. I would then return to a little pile of pink phone messages (before voicemail, of course) and a list of things that had come up that my colleagues had put on hold until I returned. Things ran at a different tempo. We set our own pace according to what we had going on. Everyone, including our customers, understood that some decisions take time, and with very few exceptions, they could wait until we had the proper focus.

Fast forward (pun intended) to today. Expectations are much higher because we feel that we have all the technology to boost productivity; however, so many people are stressed out, not from a lack of ability to make decisions, but from the lack of ability to clear the mind and effectively deal with each issue in front of them. This is not a recent problem. John Cassian, who is credited with helping monks in the 420s learn how to concentrate, mused that the mind “seems driven by random incursions and wanders around like it were drunk.” So, we can’t blame our smartphone or our inbox for our lack of focus. In fact, you could say that it's in our DNA.

As I embark on this new decade, my resolution is to do my best to stay focused on my focus and, as a result, have confidence in the fact that everything else, including time, will be much easier to manage.

To that end, as we look forward to our upcoming NVLA Conference March 25 – 27 in Austin, TX where we will explore “The Wins of Change,” let’s learn from Socrates, who said:
“The secret of change is to focus all of your energy, not fighting the old, but on building the new."


-Doug
Managing Your Portfolio With the Threat of a Recession
Sam Salzinger, Strategic Initiatives Manager at ALG
Today, residual values are more important than ever. Lease portfolios have steadily risen to record highs since the last economic downturn in 2008, where lease penetration bottomed out at a mere 15 percent. Like upgrading to the latest iPhone, consumers have latched on to the desire to drive the latest vehicles. They want the newest technology and design language. Because of this, and as monthly payments have become a driving factor, a lease’s “pay for what you use” structure continues to be an attractive option for consumers.

With such tremendous growth, there also comes risk. It is now more important than ever to monitor your portfolio in order to plan for the future. There are several driving factors that can make an impact through time. One is the probability of a recession.


ALG’s forecasting team sees the likelihood of a downturn so much so that we have, for the first time, incorporated a chance of a recession in the next 12 months into our standard residual value outlook. ALG now incorporates a 30 percent probability of a recession into the forecasting model.

This means a $40,000 new vehicle will have about $280 of extra negativity in its 36-month residual value due to the threat of recession. Multiply that out over dozens, hundreds, or even thousands of vehicles in your fleet, and the impacts can be significant if you are not prepared for them.

As the severity of a recession deepens or a factor like a spike in gas prices arises, the mix of vehicles in your fleet can be impacted differently. As you would expect, fuel-efficient and hybrid/electric vehicles would be more desirable in an elevated gas price environment, but trucks and SUVs may not suffer as much as you might imagine. The car-like design of today’s crossovers and utilities means that they are more efficient than their truck-based ancestors.

Additionally, in an economic downturn, ALG expects to see negative impacts to values concentrated at the top of the market as some car buyers migrate down-market from higher-priced luxury vehicles into mainstream new, and even used, models.

Here's how to put this all together: first, know that there is a path to a smooth transition between acquisition/in-service and liquidation. Next, capture as much shareable detail about the vehicles in your portfolio as possible to improve the quality of your valuations and your ability to manage and forecast risk. Enhanced VIN data (or detailed option/build data) combined with the ability for the driver to easily update the condition and mileage of the vehicle is an effective way to produce ongoing insights into the value of a vehicle. Then, pair this with a short-term depreciation forecast and you now have clear visibility to structure your end-of-term strategies.

Firms like ALG can not only help you capture the information needed to understand how your assets are valued today and into the future, but also determine the right time to liquidate each vehicle and to whom you should look to sell it.

ALG’s long-standing position in the industry began on a Southern California Oldsmobile lot in 1964, where Jim Aiken would become a pioneer in automotive financing. Fast forward 55 years and Aiken’s legacy lives on. ALG remains the benchmark in residual value forecasting and provides industry insights for OEMs, lenders, and leasing/fleet companies to help better run their businesses.

For more information on ALG products and services, please contact me at ssalzinger@alg.com.
Relevant News
Tax Time: That Decisive Moment--Don't Miss it!
Bill Elizondo is the COO of AFS Dealers and has nearly three decades of experience in various roles working with three of the largest used car dealers and finance companies in the industry.
It's here…and then it's gone. Tax time for car dealers is exciting. The salespeople are a-buzz knowing that the customers walking up might have $6,000 to $8,000 in cash ready to put down on a new or used vehicle.  To the in-house LHPH/BHPH dealer, this can really make the entire year, or conversely, can hurt them through the slow months. The large down payments can give opportunity to buy more vehicles or replenish the cash used to buy additional vehicles. With LHPH, you have early buyouts or returns that will increase your profits, and you still have the residual to sell if the customer finishes paying off the lease. On the other hand, not selling enough vehicles and getting ample upfront cash can cause a lack of cash flow later that can cripple a business.

So, how do you get your fair share? Marketing and collections.

Get the word out as much and as often as possible.
Use companies like Tax Max in your dealership that can file your customers' tax returns and print the refund check on site. Contact local tax return companies, drop off flyers, and offer a gift card or some incentive to have them send you customers.

Tell everyone! The more you inform your customers of your plan, the more you create that excitement that will ensure your success. Depending on the size of your budget, you can send out mailers, have banners made, and send out email blasts to your current customers.  If your budget doesn’t allow for a big marketing plan, you need to get creative. Make up some flyers on your own copy machine. Take the fliers to your local pizza or sandwich delivery shop and ask them to attach the flyers to their pizza boxes or sandwich bags. To incentivize the businesses, buy some food from them! Have it delivered on Fridays when you have the most customers. People are fed and you get some sales. It’s a win-win!

Stand out to increase your marketing opportunities. Create a plan that offers a special incentive that immediately makes your customer do a double take to see if they saw your offer correctly. Double the tax refund for customers. Add on a special deal for the first 25-50-100 customers. You can also incentivize the vehicles that are your toughest sellers. Whatever it is, make it stand out from your competitors. The in-house advantage is that you are making the decision. No need to get approval from a bank or finance company.

Prepare your team. Everyone in your organization must understand and be prepared to promote and sell the promotion. Doing some upfront training, role playing, and discussing the offers that you have for tax season can only increase your chances for success.

Catch up your delinquent accounts. Save a loss by getting customers to use their refunds to get back in their cars or make payments ahead of time. This strategy is a main driver of a successful tax season for your in-house business. The one phrase that every LHPH/BHPH dealer knows: "Cash is KING!" Collections in the in-house industry is the backbone and the true success of the business.

Marketing to your collections accounts can be a similar process to marketing to lessees and buyers. Send a mass text, email, or letter to your customers letting them know that they can file their taxes at your dealership, if you have that option, or let them know that they can pay their accounts current with their refund. Now is the time to get your delinquencies as low as they can go and collect, collect, collect!

Discuss the collections plan with your employees and let everyone know the expectations for all of your active customers. Role playing on how to collect more money and ask for additional payments, as well as continuing to build that relationship are extremely important and should lessen the number of repossessions, at least for a period of time.
Any way you look at it, tax season can be an opportunity to amplify your success in the in-house financing industry. How will you use it to your advantage?

 

National Vehicle Leasing Association
N83 W13410 Leon Road
Menomonee Falls, Wisconsin 53051
United States

nvla.org | 414-533-3300


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