< Previous20Q: What authority does the DOL have with audits?A: The Department of Labor (DOL) has broad authority to investigate or audit an employee benefit plan’s compliance with the Employee Retirement Income Security Act (ERISA). The DOL uses its investigative authority to enforce compliance with the health care reform law, or the Affordable Care Act (ACA) as well.Q: What plans does an audit typically involve?A: Traditionally, DOL audits of employee benefit plans have focused primarily on retirement plans, such as 401(k) plans. However, now that the DOL is enforcing compliance with the ACA, health plan audits are more common.Q: What are the consequences for my dealership if we are audited?A: Being selected for a DOL audit can have serious consequences for an employer. Penalties for non-compliance and other errors found during an audit can be steep. For example, during the 2013 fiscal year, more than 70 percent of audits resulted in monetary fines or other corrective action. The best time for an employer to analyze whether it is ready for a DOL audit is before the DOL comes knocking.Q: What are several factors that increase or indicate your dealership’s likelihood of being audited?A: Audits can be random, however, a couple common triggers for a DOL audit include these preventable causes:• Participant complaints. If any of your plans’participants complain to the DOL aboutpotential ERISA violations, your plan willlikely be subjected to an audit. For example,according to a DOL audit summary, 775 newinvestigations in 2013 resulted from participantcomplaints.• Incomplete or inconsistent information. TheDOL is more likely to investigate a plan that hasincomplete answers on the plan’s Form 5500,or if information you report is inconsistent fromyear to year.On Jan. 2, 2018, the Department of Labor (DOL) issued a final rule that increases the civil penalty amounts that may be imposed on employers under various federal laws. Here are some of the new penalty amounts:• Up to $2,140 per day: Failure to file an annualreport (form 5500) with the DOL (unless a filingexemption applies).ASKALISONDEPARTMENT OF LABOR (DOL) AUDITS ON THE RISE…AGAINWould your dealership pass an audit or would you incur substantial fines for being out of compliance? • Up to $152 per day, but not to exceed $1,527per request: Failure to furnish plan relatedinformation requested by the DOL. (UnderERISA, administrators of employee benefitplans must furnish to the DOL, upon request,any documents relating to employee benefits)• Up to $1,128 per failure: Failure to provideSummary of Benefits and Coverage.Q: How can my Dealership learn if we are in compliance or if we are in risk of fines and not in compliance?A: If your dealership would like a compliance audit, EPIC will perform one for you at no cost. EPIC ranks among the top 15 retail insurance brokers in the United States and is the largest insurer of auto dealers in the state.Ask Alison” is a regular feature to our quarterly newsletter. Alison McCallum has been in the employee benefits industry for over 20 years. She is a Principal with EPIC insurance Brokers and Consultants, the CNCDA-licensed broker. With this partnership EPIC offers unique services available to OCADA dealer members at no cost. If you have questions or would like further information please feel free to contact me at (949)417-9136 or alison.mccallum@epicbrokers.com.CONCERNED WITH THE COST, COMPLIANCE AND SERVICING OF YOUR DEALERSHIPS’ INSURANCE?EPIC CAN HELP WITH YOUR BENEFIT AND BUSINESS INSURANCE NEEDS•CNCDA's only licensed broker for Health and Business insurance•The largest insurer of auto dealers in the state•The only broker with proprietary products specific to dealerships•15TH largest brokerage firm in the nationWe know dealerships have specific needs and issues, we are here to help. Please contact us for a free evaluation of your insurance and HR/compliance packages.EPIC IS949.417.9136 | alison.mccallum@epicbrokers.comAlison McCallum© EDGEWOOD PARTNERS INSURANCE CENTER | CA LICENSE 0B29370ASK ALISON22he Carrot and Stick. For generations, new vehicle manufacturers and distributors (OEMs) have maintained two clear mechanisms to influence dealer behavior: the carrot of incentive and reward programs and the stick of enforcing the dealer agreement through termination or other harsh penalties. Traditional Franchise Law: Protection against the stick. Dealer franchise laws long ago recognized the distinction. For example, California Vehicle Code section 3065.1 permits dealers to protest denials or chargebacks of incentive program claims, while its section 3060 permits protests against termination of a dealer agreement. But the incentive program statutes permit only a relatively narrow review of facts focusing on whether the incentive program terms were satisfied, while the termination protest statutes call for a searching, open-ended review of a host of specified factors plus any other existing circumstances pertaining to whether good cause exists for termination. And the dealer franchise laws impose a host of substantive limits on what OEMs can include as enforceable terms within dealer agreements and how they may modify such agreements. The incentive program statutes do not delve into this level of detail and control. It is not surprising that the dealer franchise law focuses more on dealer agreement terms and termination than it does on incentive program terms. Dealers are required by contract – on penalty of termination – to comply with the terms of their dealer agreements. To protect dealers against OEM dominance in the relationship, there is no choice but for the law to step in and provide protection to dealers against harsh or unfair dealer agreement terms. On the other hand, incentive programs were historically seen as open offers to provide specific rewards that dealers are free to either earn or forego. Evolution of Margin Programs. But since the start of the 21st Century (e.g., Ford’s Blue Oval, circa 2000), OEMs have advanced in their use of incentive programs to persuade dealers to build more, invest more, and do more to accomplish the OEMs own goals and aspirations. Thus were born stair step programs, facility programs, and multi-factor brand-standard programs. During these years, traditional holdback and MSRP/Invoice margins were curtailed or eliminated, allowing those dealer profit expectations to be captured by the OEMs and redeployed as margin programs, such as GM’s SFE program or BMW’s AVP program. And as Internet lead generators, which further pushed down dealer profit on sales, became necessary for dealers to effectively compete with each other, dealers have come to rely on meeting margin program objectives to be profitable. Margin Program Terms Morph into Participation Agreements. As margin programs have grown in complexity and financial impact, OEMs have increased the use and detailed content of participation agreements or enrollments spelling out their terms. OEMs have sought to leverage for their own benefit such agreements and enrollments by, for example, committing the dealer to participate in the program for an extended period, securing dealer agreement to chargebacks or repayments of incentives upon certain events, and providing other self-serving terms. Such detailed contractual terms usually overlap and supplement terms contained in the dealer agreement, especially respecting facilities requirements, new vehicle sales expectations, and rights on sale or transfer of the franchise. Complete Morphing: Participation Agreements Declared Part of, and Enforceable under, the Dealer Agreement. Complete morphing occurs when the participation agreement (e.g., Jaguar Business Builder, Volvo Retail Experience, etc.), as a matter of course, provides that the incentive program in which the dealer has agreed to participate (voluntarily and optionally, in the view of the OEM) is incorporated into the dealer agreement such that a breach of the margin program participation agreement is a material breach of the dealer agreement, subjecting the dealer to termination. Morphing on the Other Side of the Street. Remarkably, parallel developments have occurred regarding margin programs and their treatment under dealer franchise laws, especially as those laws pertain to dealer agreement modification and unreasonable terms and conditions. For example, in Beck Chevrolet Co., Inc. v. Gen. Motors LLC, 27 N.Y.3d 379 (2016), re-argument denied, 27 N.Y.3d 1187 (2016), the same court that held that GM’s sales effectiveness metric, Retail Sales Index or RSI, failed as a sales metric by ignoring local market conditions, declared that a dealer agreement may consist of more than simply the dealer contract document itself; that dealers have a right to protest material changes to their dealer agreements; that the right to protest cannot be waived or avoided by terms drafted by the franchisor; and that therefore incentive program terms, subject to a unilateral manufacturer change, can be subject to protest as a dealer agreement modification. A similar finding was made in Wide World of Cars, LLC d/b/a Wide World Maserati v. Maserati North America, Inc., Case No. FMD 2017¬03 by a New York administrative law judge (ALJ) hearing a petition to the New York Department of Motor Vehicles. The ALJ also found a lack of good faith and good cause in the OEM seeking to eliminate signed margin program agreement, including a possible way to Margin Programs Morph into Dealer Agreements But now on a Two-Way StreetHalbert B. Rasmussen & Christian J. Scali, Scali RasmussenByTan existing holdback program in favor of a new standards/performance-based margin program. At least one protest has been filed before the California New Motor Vehicle Board under the theory that an incentive program change constitutes a dealer agreement modification that substantially affects the dealer’s sales or service obligations or investment-the standard for being able to protest dealer agreement modifications. In addition, several states have enacted fairness and reasonableness requirements that apply not only to traditional dealer agreement terms and provisions, but to any OEM program or performance standard that could adversely impact a dealer, including incentive programs. California was a leader in this area. See California Vehicle Code § 11713.13(g). Good News but Catch-22. Dealers should be encouraged by the developments reported - dealer franchise laws are beginning to understand that OEMs should not be permitted to circumvent dealer agreement modification rules under the guise of margin programs. The law in California, and most states on whether margin program changes can be protested as a dealer agreement modification, is not yet entirely clear. However, where the margin program can be shown to be, and is, entirely necessary to be competitive, and where the OEM’s documentation incorporates the margin program into the dealer agreement, courts and administrators should clearly see the need to hold OEMs to account in this area. For many of the reasons set forth above, a strong argument exists that most margin programs are necessary for a dealership to be competitive. Internet lead generators and so-called “disruptors” make price structure information readily available to consumers and some even grind dealers on price to allow them to participate in their programs. Participation with many lead generators is necessary because the dealer down the street is participating in the same programs, such that refusal to participate leads to less visibility in a time when most car buyers are shopping on-line to determine where they will buy their car. In this already intensely competitive environment, requiring price deflation to effectively compete, dealers must rely on margin programs for survival. Furthermore, the fairness and reasonableness provisions related to performance programs and metrics in Vehicle Code section 11713.13(g) provide some level of protection from unreasonable margin program standards, even though the scope of this relatively new law is yet to be explored in actual cases. Despite this, there is an important Catch-22: if an OEM’s margin program agreement purports to incorporate itself by reference into the dealer agreement, and the dealer signs it, the OEM can argue that the dealer waived any modification protest because the dealer’s signature reflects the dealer’s consent to making the margin program part of the dealer agreement. But if the dealer fails to sign the margin program agreement, the OEM would most likely cut the dealer off from the margin payments, perhaps putting the dealer into an untenable competitive and financial situation. Therefore, if the OEM margin program agreement does morph itself into the dealer agreement, the dealer needs to act very carefully and with the advice of counsel before deciding exactly how to respond to the OEMs request for return of the signed margin program agreement, including a possible way to demonstrate that the OEM has placed the dealer in an untenable situation.Avoiding litigation when it’s possible. Protecting you when it isn’t. Our lawyers have served the dealer industry for over 40 yearsFor more information:(213) 239-5622cscali@scalilaw.comMonday, JUNE 4TH 2018MISSION VIEJO COUNTRY CLUB25MEET YOUR NADALEADERSHIP TEAM Paul D. MetreyVice President, Regulatory Affairs and Chief Regulatory CounselREPRESENTS DEALERS ON THESE ISSUESFinancial ServicesMetrey serves as NADA’s primary advocate before the Federal Trade Commission, Federal Reserve Board, Consumer Financial Protection Bureau and, most recently, the Department of Defense. Metrey was extensively involved in NADA’s advocacy that led to the creation of the dealer exclusion from CFPB jurisdiction in the Dodd-Frank Act of 2010 as well as its representation of dealers during the Federal Trade Commission’s 2011-12 Motor Vehicle Roundtables. Metrey coordinated NADA’s resistance to the CFPB’s unsuccessful attempt from 2012-2016 to eliminate dealer participation as a means of compensating dealers for originating credit contracts with consumers. He also is the author of several NADA publications, including the NADA-NAMAD-AIADA Fair Credit Compliance Policy & Program and NADA’s A Dealer Guide to the Risk-Based Pricing Rule, and the editor of numerous others such as NADA’s A Dealer Guide to Federal Advertising Requirements. PrivacyMetrey oversees NADA’s advocacy efforts on the broad array of privacy issues confronting dealers and has worked extensively to educate dealers on duties that apply under the Gramm Leach Bliley Act; the Fair Credit Reporting Act (including the many duties imposed by the FACT Act of 2003); the prohibition against unfair and deceptive acts or practices (UDAP); the federal telemarketing restrictions applicable to phone, fax, and e-mail communications; and several other authorities. TaxMetrey serves as NADA’s primary advocate before the Department of the Treasury and the Internal Revenue Service. He led NADA’s advocacy efforts that lead to the creation of two uniform capitalization (UNICAP) safe harbors for dealers in Revenue Procedure 2010-44 and most recently coordinated and oversaw the creation of NADA’s A Dealer Guide to the Tax Reform and Jobs Act of 2017. BIOGRAPHYMetrey joined NADA in 2001 as its director of Regulatory Affairs. He previously served as an attorney with the Federal Emergency Management Agency and as an active duty Army JAG officer, with assignments in Germany, The Netherlands and Fort Meade, Md. He also served in a reserve capacity as the chief of the international law branch of the National Guard Bureau’s Legal Support Office. Metrey obtained a Juris Doctorate degree from Catholic University’s Columbus School of Law and a B.A. degree from Virginia Tech. Metrey is active in several professional organizations and serves on the Governing Committee of the Conference on Consumer Finance Law. Contact:Paul Metrey 703.821.7040omething may be swimming in your employees’ inboxes, and it’s not too nice. “Phishing” emails are becoming increasingly common, where cybercriminals pose as a senior executive or reputable organization to coax employees into sharing login information or wiring money to a fraudulent account. While phishing may seem easy to spot, the practice can be quite manipulative and clever, and dealers need to be aware. Consider this scenario: while a dealership’s owner is on vacation, a finance employee receives an urgent email. It appears to be from the owner of the dealership, as it’s from his or her email address contains authentic information regarding the trip and addresses the employee by name. The note may read something like this: “I need your help. I need you to wire $20,000 into this account right now. I trust you can handle this for me. Please keep this between you and me for now, and I’ll explain on Tuesday.”This message looks legitimate, so it’s unsurprising the finance employee acts quickly, aiming to please the boss. Once the transfer occurs, however, that money is lost forever. The dealership just became the victim of an email spoofing fraud. Like any business, dealerships are targeted by these tactics. But, because of the nature of the business, auto dealerships are particularly vulnerable to fraud in the finance department. Some reasons for this are: • Dealerships handle a lot of money – By selling just asmall number of luxury cars, dealerships stand to makea lot of money. Fraudsters aim to intercept one of thelarger transactions or access bank account information.• Many dealerships operate like small businesses –Although dealerships handle a lot of inventory, theyoften have a close, family-like office culture. Becausestaff is small, there is a lot of trust in one another whenhandling important information. Dealerships don’t oftenhave the same control processes as larger companies. • Wire transfers – Because you can’t transfer the ownershipof a vehicle without a title, most vehicle transfers areconducted via a wire transfer or treasurer’s check, twocommon targets for fraudsters. While the most common form of industry fraud is through email, Bank of America Merrill Lynch has seen a rise in forged treasury checks in the past year. Once the dealership accepts the check and the car drives off the lot, it’s hard to get the vehicle back. The last way fraudsters are targeting dealerships is through the national automated-clearing house (ACH) system. The ACH is used to transfer money between individuals or companies, usually in the form of routine payments in an established business relationship. While same-day ACH transactions are good for customer relationships, they can be risky on the dealer’s end. The quick transfer doesn’t allow much time for the dealership to identify fraudulent transactions or verify account information. Two ways criminals target dealerships through ACH fraud include: • Posing as a third-party vendor – The perpetrator willaim to get funds intended for a third-party vendor intohis or her account instead. The fraudster will email thedealership asking to change the information in a vendor’s payment profile – for example, the street address or bankrouting number. That change can mean that a vendor’sprinted check is mailed to the fraudster or payment isdeposited into the false account. • Initiating a debit – A fraudster can gain access to abusiness’s bank account and initiate a debit from thebusiness to a new account. Bank account numbers aresurprisingly easy to acquire, as they are included onevery printed check. The ACH debit may appear as atransfer to a third-party vendor or realistic-soundinggovernment agency. At first, the transaction amount willbe very small - this is a test. If unnoticed, the criminal willkeep siphoning money. Fraudsters are looking to spot weaknesses in a dealership, and these weaknesses could be employees’ lack of understanding of cyber fraud, dealership payment systems or vendor protocols. In order to prevent phishing, it’s important to assess risks and educate your employees about common signs of trouble. While cybersecurity may seem overwhelming, taking small steps can prevent major losses in the future. Bob worked his way through college as a Teller for Bank of America. Upon graduation from San Diego State University he entered the Management Training program which exposed him to all facets of Banking and eventually led to various roles within Dealer Financing. He left Bank of America for nearly eight years to manage various automobile dealerships in the San Diego area. Bob returned to Bank of America in early 2000 as a Client Manager and then taking on additional responsibilities of Southern California team lead, Southwest Market Executive and Southwest/Central Market Executive. Bob has previously been a Board member for Copley YMCA and Boys and Girls Mental Health Center, both located in San DiegoSBob Ludwig, Senior Vice President, Dealer Financial Services, Bank of America Merrill LynchByWhen Something SmellsPhishy: Steering Clear of Fraud 26Areas Of AssistanceREDUCE YOUR EXPOSURE, REDUCE YOUR EXPENSESFree Employment Law Hotline Exclusively for OCADA Dealer Members• Hiring Issues• Employee Leaves• Accommodating Disabilities• Wage, Commission and Piece-Rate Pay Questions• Employment Policies• Occupational Safety and Health• Employee Discipline and Termination• Overtime Exemptions• Immigration Questions• Handling Harassment and Discrimination Complaints• Labor RelationsSimply call OCADA to access an attorney that can assist you or your Managerswith legal advice. Make sure to state the name of your dealership and your membership with OCADA when you call. You will not be billed unless the firm takes action on your behalf, and with your permission.OCADA Dealer Members can call the Employment Law Hotline for free legal consultations from the attorneys at Fisher & Phillips, LLP. Your managers can get expert advice to address employee challenges BEFORE they become litigation. With this service, basic employment law problems or concerns can be resolved in just one phone call! (949) 428-50502728eflect, for a moment, on what you’d say to a member of your sales team who consistently skipped steps in your dealership’s sales process. Whether it’s a 5-step, 7-step, or even the old APB 10-step process (yes, I’m aging myself), there’s not likely to be anyone reading this who would allow any members of their team to skip steps for long, without some sort of consequence.The reason we hold our sales teams accountable for conducting a sales process is because they work. No matter how the nature of our industry changes; no matter how informed our customers become; no matter how many technological gadgets find their way into our profession – nothing beats a solid and well executed sales process.Now reflect, for a moment, on your F&I department. Does your F&I team adhere to a strong, consultative process? Does your F&I team even have a strong, consultative process to fall back on, or are they fending for themselves with no clear direction, hoping to maintain a consistent level of high performance?You should no more allow your F&I mangers to conduct their business without following a process, than you do your sales teams.If you don’t have a process for your F&I department, here’s a basic outline of the steps a consultative process should consist of:1. Meet and Greet. Just like your sales process, start theF&I process with a meet and greet and a smile!2. Set Expectations. Let your customer know what yourrole is, how you’re going to assist them, and how long theycan expect the process to take.3. Customer Interview. This step is the most important.This step is also the one that is most often skipped byF&I managers. If you think about the nature of an F&Isale, you’ll come to the conclusion that it’s a consultativesale. In other words, we must determine what types ofrisk our customers are averse to by asking questions andunderstanding their tolerance for financial liability in theevent of unexpected repairs, cosmetic damage, totalloss, etc. If the aforementioned is true, then the only wayto address the customer’s needs is to conduct a needsanalysis – an interview! It’s simply not possible to maximize the opportunity without learning how to present yourproducts to your customer in a way that relates to theirneeds.4. Handle Objections and Finalize. Handling objectionseffectively is almost entirely dependent on that customerinterview. Why, you ask? Because only when you’veconducted a good interview are you able to use the threemost powerful words in sales – “You told me”. Those three, simple words, allow you to position your F&I productsas the solution to your customer’s needs. Needs youidentified when you conducted your interview.If you think there are a few hundred dollars of profit per vehicle lurking in your F&I departments; if you want to realize a few points more in CSI; if you want to shave a few minutes off of your average F&I turn - you can do all of that by introducing a strong, consultative process, and then holding your F&I teams accountable to the very same standard you do your sales associates.Corey E. Corbin is the Southern California Regional Finance Executive for Zurich Insurance Group, a leading provider of income development, F&I products, and consultative training services for franchise automotive dealerships in the United States.Discount Your Inventory,But Not Your F&I ProcessCorey E. Corbin, Zurich Insurance GroupByRNew Auto Recall Tool Allows Free Batch Searches for Dealers A new website was launched in March that allows dealers to search for open recalls for thousands of autos at once, free of charge. This search tool, available at www.freeautorecallsearch.org, is a result of a partnership among the Alliance of Automobile Manufacturers, the Association of Global Automakers and Carfax. The search portal will allow authorized users to search for open recalls for up to 10,000 vehicles at once and get results usually within a matter of seconds. This capability is an important tool in collective, continuing efforts to increase recall participation rates. According to current Carfax research, more than 57 million vehicles on U.S. roads have unfixed recalls, despite the fact that voluntary recall remedies are completed free of charge to the consumer.OPEN SAFETY RECALLS ON U.S. VEHICLESZURICH INSURANCE.FOR THOSE WHO TRULYLOVE THEIR BUSINESS.BETTER F&I RESULTSSTART HERE.© 2018 Zurich American Insurance Company. All rights reserved.Zurich wants to help you surpass even your highest expectations for F&I results. Starting with a foundation of world-class products, we listened and learned from you and your customers to create an approach that works. From consultative training to income development technology to F&I Online, our team is invested in your success and wants to see your profits soar.CALL 1-800-840-8842, EXT. 7449Next >