Category: In the Media

Understanding what a DOWC is, and how it functions, may be a direct route to maximizing profit for your dealership.

Article on AutoSuccess

You’ve likely seen the term DOWC, but you may not be entirely sure what it means. Here’s an overview you won’t want to miss because understanding what a DOWC is, and how it functions, may be a direct route to maximizing profit for your dealership — a critical consideration as unprecedented challenges continue to hit the industry from all sides. 

 
What is a DOWC? 

A dealer-owned warranty company (DOWC) is a unique structure that brings the tax advantages of the insurance industry to automotive F&I, creating a true wealth-building opportunity. By successfully establishing their own DOWC, dealers gain significant tax benefits and additional advantages that help optimize their F&I program. 

Under a DOWC structure, a dealer forms a separate C-corporation that controls the entire service contract transaction and all funds, including investments. This new entity becomes the provider of the contracts, providing an alternative to using a third party to hold reserves, and is treated as an insurance company for tax purposes. 

While it may seem a complicated endeavor, its benefits can be outlined in simple terms. Consider these key benefits:

  • The tax-deferred nature of a DOWC allows the dealer to take advantage of the same tax laws that insurance companies have been operating under for decades.
  • Essentially, the company has no taxable income for an extended period of time as a result of numerous expenses: administration and acquisition costs in the current tax year; net operating losses are carried forward.
  • With the correct administration, a DOWC formation is actually very easy to manage and, most importantly, prosper from.
Why a DOWC? 

Under a traditional service contract transaction model, a significant portion of the funds is held by a third party that controls them to its own benefit.

The DOWC structure proves there’s a better way:

  • When a DOWC serves as the provider, the dealer immediately has 100% control over their F&I program, including rates, coverages, marketing materials and the company name. In addition to increasing profit potential on F&I sales, the ability to customize their offerings means a dealer can build a portfolio of products that caters to a variety of vehicles and consumer needs.
  • Underwriting profits and investment income are retained solely by the dealer’s DOWC. Compare this to other structures where premiums may be exempt from tax, but investment income returns are taxed at normal corporate rates. 
  • A DOWC is not the same as an NCFC or CFC — it is not a foreign company at all. The structure allows dealers to stay onshore and benefit from domestic formation, as opposed to having to maintain foreign companies and being forced to invest with money managers preferred by an administrator. This can provide significant cash flow and a dealer can also borrow for virtually any purpose. 
Why a DOWC? The Better Question May Be, Why Not? 

It’s easy to understand why making the switch can seem intimidating. Some dealers may not understand what a DOWC is or how it functions. Or they may find it scary to shift gears after years in a more traditional reinsurance structure or limited participation with a guaranteed retro setup. But the time is now to explore the advantages and opportunities for wealth-enhancement that are readily available to all. 

Guidance for F&I Agent Success

New year, new you! We’ve all heard that before – but as ever-changing and ever-increasing challenges continue to hit the automotive industry, it is critical that every agent take a good look in the mirror and ask yourself, “Am I prepared?”

  • Prepared for the evolution of the industry as it shifts irrevocably away from internal combustion engines and brick-and-mortar dealerships?
  • Prepared for the evolution of F&I participation structures and products?
  • Prepared to become a subject matter expert able to bring solutions to dealers to retain and increase their business?

If the answer is not an absolutely solid yes to all these questions, you have some work to do. The key thing to address is your knowledge base. You’re busy, of course. We all are. Here’s an action plan you can start to implement today – and put yourself on the road to increased expertise, incomparable value as a dealer services consultant, and an earning curve that will keep going up year after year.

Ready, set, goal: Make an appointment with yourself to set concrete, measurable goals for 2022.

  • Write them in a notebook, draft a note on your phone, type up a Word document. However you choose to record your thoughts, it is critical to put pen to paper and get some solid ideas down. These will become your north star as the year progresses and challenges come at you from every angle.

Get smart: Feed your brain with new information every single day.

  • Set a daily reminder on your phone to stop, drop, and spend 10-15 minutes catching up on industry news. Read top headlines, stay current on automotive and finance & insurance trends, bookmark articles to explore more fully later, listen to podcasts or audiobooks while you’re driving to appointments. Strive to learn one new thing a day and put that knowledge in your arsenal to share with your clients.

Go pro: Professional development isn’t just for newbies.

  • Need to learn more about the different participation structures available to dealers? Need to improve your understanding of or get more up to date on tax compliance issues? There are plenty of resources available to you. Research trade associations, networking events, and online courses. Reach out directly to admins you trust and ask for guidance. Sharpening your subject matter expertise is a direct path to a win for everyone.

Be the change: This industry never stands still.

  • Dealers need solutions. If you’re not the one bringing them, someone else will step right in and do it for you. Start here: Identify your lowest-performing dealer and draft a few key recommendations to address their pain points. Strive to do this for every one of your clients eventually. The last thing you want is to have them hear about a winning solution from someone other than you.

Build resilience: It’s the most important muscle to develop.

  • If you’ve been in this industry for more than a year, you have already been through some incredible challenges. Did you just survive or did you thrive? Be ready to respond to any situation that arises with a flexible approach, a willingness to listen, the guts to take risks, and an attitude of gratitude every single day.

Shine online: Why waste the opportunity to connect with ease?

  • Amp up your social media presence by updating your LinkedIn profile, following industry thought leaders, expanding your network, and actively engaging with your connections. Not in the habit of posting regularly? Shoot for creating a new post, or at least sharing some content, once a week as a starting point. Demonstrating your smarts is never a waste of time.

Mirror success: There are incredible lessons to be learned from giants in every industry.

  • Too young to remember Jack Welch or Lee Iacocca? How about Steve Jobs? Or current disruptors like Bezos and Musk? Look back at the greats and keep current with today’s headline-makers. Read up on those who inspire you and pinpoint the lessons you can make actionable in your own work and life.

The key to unleashing your inner Super Agent is taking ownership of your success by putting in the work. Relying on surface knowledge, and repeating it back to others without a real understanding of what lies beneath, is a way to skate by that ultimately won’t get you to your real goals.

Once you become a true subject matter expert on service contract revenue opportunities, you can serve as much more than a dime-a-dozen sales agent. Instead, you can become a powerful wealth consultant to your dealer clients and help them successfully navigate the inevitable challenges that lie in wait for us all.

 

Michael LaMotta is CEO of DOWC®, among the fastest-growing service contract providers and administrators in the U.S. A 2021 Dealers’ Choice Diamond Award winner, DOWC offers customizable F&I products and expertise in compliance, as well as a full suite of technology designed to optimize productivity and expedite service contract claims adjustments, processing, and reporting. 

View on agent-entrepreneur.com

Inventory shortages are projected to continue through the end of the year as production schedules take the hit from ongoing computer chip scarcity. Dealers are all fighting the same battle now, forcing owners to continue to reassess their practices, streamline their operations, and retool their capabilities to find their way through. F&I claims management is one of the more important practices to examine, according to experts in claims administration.

“I was a dealer,” explains Michael LaMotta, CEO & Founder of DOWC®, a top U.S. service contract provider and administrator. “I know exactly what this process looks like from the inside out. But what I see now, from the other side, is very few dealers who truly play an active role in managing one of the largest expenses a reinsurance company or warranty company experiences: claims.”

Taking steps to improve that process is one of the most direct routes to profit growth a warranty company owner can take. “The single best way to manage profitability of any business is to control its expenses,” LaMotta says, “and car dealers are generally great at that. But in too many cases, dealers and their staff have no idea what is being approved on a day-to-day basis by their service contract administrators.”

One area where things may go wrong is the misuse of service contract benefits. It is not unusual, for example, for liberties to be taken with covered items by service writers who earn commission per service written. Dealers can take firmer control of the claims process and reduce costs by:

  • Minimizing the amount of fraud that may result from practices involving pay plans, commission structures, and objectives/goals set by service departments.
  • Controlling and limiting the number of unnecessary claims.
  • Training service departments to properly manage claims with the goal of reducing expenses (i.e., purchasing reconditioned wheels, rather than new, thereby a reducing the cost of a tire & wheel claim by 50% or more).

Another way to decrease expenses is by limiting “transient” claims – any repair that takes place outside the original selling dealership that issued the service contract. As LaMotta explains, “Allowing a transient claim is exactly the same as walking into your competitors’ offices and moving money from your pocket right into theirs.”

Dealers who take an active role in limiting transient claims benefit in several ways:

  • Keeping costs down by eliminating abuse.
  • In-house repairs performed at inherently lower rates than elsewhere.
  • Transferring money from left pocket to right instead of to the competitor: If a claim must be paid or a repair performed, the dealer wins by paying themselves to do it.

This all begs the question, what’s the true cost of a claim? The true cost of a repair (assuming the repair is performed in-house) is the flat rate paid to the technician and the actual cost of the part. Most dealers experience flat rate averages between $25 – $40 depending on the experience of the technician performing the repair. Most door rates for labor can fetch upwards of $200 or more in some metro areas. This puts labor profits in the 400 – 600% range. Parts markups are somewhere between 30 – 60% depending on the type of part. When the repair is performed outside of the selling dealer (transient), the true cost of the claim is whatever total amount was approved by the administrator.

A good question for dealers to ask themselves is “What percentage of approved claims are being paid to my competitors?” If the answer isn’t readily available, this is an excellent place to start. Dealers should have access to that data point and examine it monthly to keep a close eye on transient claims.

This is all the more important for dealers who participate through ownership of a warranty or reinsurance company: reducing or eliminating transient claims is critical to increasing profitability. For those who participate, as well as those who don’t, this can be achieved through well-crafted service contracts that include a tie-back to your dealership, carefully training service writers and service departments in best practices, and, most importantly, taking an active role in managing claims in conjunction with an administrator you trust.

As a full-service finance and insurance product provider, DOWC has a direct view into the negative impact transient claims and overall poor claims management have across the industry. It strives to anchor its dealer services with transparent reporting that explicitly quantifies transient claim rates and works diligently to reduce them. DOWC’s offers vehicle service contracts, GAP coverage, and a range of specialized products including protection for tire and wheel, technology systems, theft, total loss, as well as pre-paid maintenance packages, and more. Each of their F&I products is customizable and offers a dealer tie-back for service and repairs. In addition, DOWC assists dealers in establishing warranty companies and reinsurance companies, provides expert compliance guidance, and utilizes advanced selling platforms to drive dealer success.

Auto retailing is retailing, period. Once the pandemic hit, online shopping went through the roof for industries far beyond clothing and groceries. Auto sales made a dramatic shift while dealerships were shuttered during lockdowns across the country and shoppers turned to the internet in droves. According to a recent survey*, 60% of respondents indicated they were open to buying a car online while just 32% were willing to do so before the COVID-19 pandemic. 

Has this shift meant a magical transition to seamless digital sales across the industry? Certainly not. But the trend is moving in the right direction with more retailers shaping their strategies to move from simply using the internet as a tool to bring people into the dealership to truly offering a comprehensive virtual sales experience. In this moment of seismic change in the retail environment, it’s critical to understand that brick-and-mortar days aren’t necessarily over – but to stay relevant and competitive, physical dealerships require expansion to include a digital storefront as well. 

This expansion has to include evolution in online F&I presentation to ensure customers are being offered a full range of services and that the full scope of revenue opportunity is being captured. Unfortunately, it took COVID-19 to bring us to the inevitable, but here we are. Taking an entrepreneurial approach, and following the example of those who are leading the charge, is a great place to start. 

Now is the perfect time to: 

  • Evaluate your online capabilities. Do you have efficient and scalable e-commerce functionality? Do you have the staff or professional resources to build and manage your online offerings? 
  • Educate yourself on best practices. Make a careful study of your competitors or those in the industry that have successfully shifted to digital retailing. Carvana is one resounding example: They reported second-quarter revenues of $1.12 billion and nearly 56,000 units sold, an increase of 13% over 2019, with the number of cars sold up 25% year over year. What are they doing right and how can you translate some of their best practices to your structure? 
  • Partner wisely and train thoroughly. Invest in digital retail tools that are integrated with your CRM and website, and test for user experience improvements. Simplify and make the digital retail process consistent for all customers, providing sufficient training and documentation to your sales and BDC teams. 

While this evolution/revolution may be a dramatic change for your business, you don’t want to be left behind the pack that’s charging ahead in the digital race. You also don’t want to leave revenue on the table. Just as you wouldn’t finalize a sale without offering F&I options to a customer in person, you’ll want to integrate digitized menu selling seamlessly into your online offerings. Keeping in mind that in-house sales are not vanishing either, carrying this optimized customer experience into the back room is critical as well because these interactions will continue to be shaped by the need for a streamlined, efficient presentation to minimize time and contact. 

But in this area, it’s about much more than just automating the conversation around protection products, extensions, and add-ons. This is where harnessing the digital aspect of your platform can make an eye-popping difference.  

Look at some of the top digital retail solution providers in the industry for example. The F&I presentation software they offer have been adapted successfully by some of the largest and most prestigious automotive groups in the country because they go well beyond replicating the exact same presentation that a dealer may have been using for 20 years. These tools utilize big data and predictive analytics to create a tailored presentation based on the overall deal, vehicle, and financial situation for each customer. Pair power like that with a service contract provider and administrator committed to helping you build wealth through best-in-class F&I products and you’ll take your digital strategy way above the next level. 

Once you’ve hit all the marks in developing your online presence, amp up your marketing to make sure people know about it. Hit social media and make good use of customer data you already own to spread the word through email outreach or whatever works best for your brand.  

Online auto retailing is here, it’s vital, and it’s valuable. The best time to get started was yesterday. Don’t waste another minute. 

*https://dealers.cargurus.com/rs/611-AVR-738/images/June_Covid19-SurveyUS.pdf 

 

Michael LaMotta is CEO of Dealer Owned Warranty Company. He founded DOWC® with lessons learned from almost 30 years of automotive experience, many of which spent as a car dealer and almost a decade spent on F&I administration. DOWC is the fastest-growing service contract provider and administrator in the United States. DOWC offers customizable F&I products and expertise in compliance, as well as a full suite of technology designed to optimize productivity and expedite claims adjustments, processing, and reporting.   

 Story on AutoSuccess Online

View on AutoRemarketing

By SubPrime Auto Finance News Staff

RINGWOOD, N.J. – 

For the second time this month, Dealer Owned Warranty Co. (DOWC) enhanced its menu of F&I products.

Coming on the heels of introducing NitroShield, a complete tire and wheel protection product, DOWC on Friday rolled out new 360Shield protection solutions enhanced with new antimicrobial products, providing improved vehicle protection.

The company highlighted the 360Shield antimicrobial protection treatment includes interior cleaning and protection processes for interior surfaces like the dashboard and seats, using an antimicrobial solution formulated to disinfect and prevent against mold, mildew, bacteria, and other microbes like the COVID-19 virus.

Additionally, DOWC emphasized that the 360Shield disinfecting air quality and odor treatment is designed to work in a vehicle’s hard-to-reach areas, like the climate control system, using a specialized thermal fogger. Suitable for use on both porous and non-porous surfaces, the 360Shield air treatment is available in mint-scented or fragrance-free solutions.

Both 360Shield treatments are formulated to kill surface germs, as well as inhibit the future growth of bacteria and microbes, according to DOWC.

“We are very excited about what our two new additions to 360Shield will provide to the auto industry, as restrictions are lifted and dealerships reopen,” DOWC founder Michael LaMotta said in a news release. “Improved safety at dealerships means improved safety for dealers, car shoppers, and ultimately, vehicle owners everywhere.”

DOWC emphasized 360Shield solutions have been enhanced to meet the highest industry standards for sterilization and provide long-lasting, quality protection. Providing antimicrobial protection, the company said both the 360Shield antimicrobial protection treatment and 360Shield disinfecting air quality and odor treatment can preserve the quality and safety of the vehicle’s interior for the warranty period.

The full suite of 360Shield protective products, which also includes PaintShield, WheelShield, GlassShield, InteriorShield, and BodyShield, is available to DOWC partner dealers and their customers.

All 360Shield treatments are backed by warranties that provide for the repair, repainting, or replacement of any covered parts.

For more information, visit www.dowc.com, call (201) 777-1000 or send a message to support@dowc.com.