Tom Kline - Navigating Dealership Dynamics - Risk Management - Insurance & Compliance Insights

Ever thought about the intricate dynamics of running a car dealership? Tom Kline, a seasoned compliance and risk mitigation consultant, with a family history in the car business dating back nearly a century, is here to take you on a ride, sharing his experiences with eccentric customer stories and indispensable advice for novices in the industry. We also discuss the complex relations between manufacturers and dealers, and the ripple effects of shifting trends in the industry.

The crux of our conversation revolves around risk management in dealerships. Did you know that a clean restroom at McDonald's can drastically improve the customer experience at a dealership? Intrigued? We will decode this analogy for you. Also, we delve into the two main risk sources in dealerships – customers and employees. Tom will walk us through practical ways of identifying these potential risks and how to nip them in the bud. 

And if you're thinking insurance policies are just a necessary evil of the business, think again! We shed light on how comprehending your insurance policy can be a game-changer, saving you from avoidable expenses and unnecessary heartaches. We also discuss some astonishing cases of dealership fraud which underline the necessity of compliance in risk management. So, buckle up as we navigate the often overlooked aspects of the automotive industry. You'll come away with fascinating insights and practical tips to ensure the smooth journey of your dealership.

Transcript

John Acosta: 0:00

Today, on Deal with Tech Tuesdays, we have a great guest. He's a compliance and risk mitigation consultant. He owned a dealership for over 30 years. Catch and cure undisclosed issues. Talk to Octopus, my good friend Tom Klein, and we're off. Mr Tom Klein.

Tom Kline: 0:18

Here I am.

John Acosta: 0:19

How's it going, man?

Tom Kline: 0:20

It's going great. It's good to see you. It's good to be here in South Florida.

John Acosta: 0:23

I know we've been coordinating this one for a little while.

Tom Kline: 0:27

It's been many states. We've talked about doing this in Virginia, georgia, so we finally get to do it here in Florida.

John Acosta: 0:34

I'm really excited to have you, man. I think that you're one of the most profound voices of reason in the automotive business, right, the guy that you like, I like to call you the wolf, you know, like the Pulp Fiction, right, yeah, the.

Tom Kline: 0:48

Pulp Fiction. Yeah, mr Wolf. Yeah, I thought about naming my company like the Wolf Company. Actually, I didn't know that a lot of people would get the reference.

John Acosta: 0:57

I saw you show up in NSX today, so for our meeting, no. But you know, in all seriousness, I think that you know we've been hanging around and talking for a long time and I think the perspective that you bring to the CYA you know the CYA cover your assets, cover your ass Right Perspective for the dealerships is really important because you know, I like to. The first question I like to ask is tell me a little bit about your background. I obviously know that story, but I'd like to hear it for our listeners.

Tom Kline: 1:32

Sure, so I'm actually a third generation car guy. Okay, my family started in the car business in 1925. So we're almost at 100 years. So my grandfather was in the car business, my father and my uncle, and then my brother and I, and so it's a family business and so we had our stores. I worked there for 30 odd years and we sold them in 2019. And that's when I started my consulting business.

John Acosta: 2:05

Nice, nice, what, what, what brands?

Tom Kline: 2:09

Gosh we had. I'll give you the whole arc of the brands.

John Acosta: 2:13

Okay.

Tom Kline: 2:13

Because there were so many over the years, including Kawasaki motorcycles. Oh wow, that was before my time in the business. But let's see, chevrolet was the, was the standard. We had Subaru, we had Toyota, we had Volvo, we had Daihatsu, we had Buick, we had, did I say Toyota and Volvo. There was also Pujo and Pujo is in the United States. So we and Lotus. Really we had Lotus back when the spy who loved me came out with the the Lotus and you know, it transforms into the submarine.

John Acosta: 2:53

Nice, and I think that was the spy who loved me. Yeah, yeah.

Tom Kline: 2:56

And so one of one of when I was on the sales floor. Actually they were having trouble selling an old Lotus, so they stuck me in it and said go sell it, just go show it to people. I don't care who you go show it to, just go show it to somebody and generate some interest so we can get rid of it?

John Acosta: 3:16

Did it happen to be sale proof blue? No, there was a white one.

Tom Kline: 3:22

It had a I don't know a lot about Lotus now and but at that point it had a what they called a power key. It was a six speed and if you, when you turn on the power key, it opened up the engine. Oh wow, and I was going down the interstate, I opened it up, I was in fourth gear doing 115 and I hadn't turned, hadn't gotten to fifth gear, hadn't gotten to sixth year and hadn't turned on the power key yet.

Tom Kline: 3:50

But at 110 at 110 when everybody else is going 55, it's fast, wow. So back slowed down pretty quickly.

John Acosta: 4:00

So you've seen really an arc of you know and just having that in your DNA, the arc of what the car business has been over the last, I mean since the invention of the car business right the really the dealer model I'm not that old, but yes, the dealer model right.

John Acosta: 4:16

It's like your grandfather went through. You know. They were begging people to have dealers at the beginning. Right, they were saying, hey, who will want to do this? And then this turned into this thriving industry that we have. So what were like? What are some of the arcs or kind of odd things that you've seen in the industry over the years happen?

Tom Kline: 4:34

I guess most of the odd things are based on customer stories because customers customers create the oddities some tragic and some awful and some hilarious, and some you wouldn't believe it and if I had been smart I would have kept notes. Anybody who's just starting in the car business, keep a journal, because it'll make a great book one day. But I'd say the demands of the customers have gotten more complex and I'll tell you a quick story. When I was on the sales floor, people love to come up and say hey, I'm a friend of Mr Klein and so I get the Mr Klein deal right. And anybody who came up to me who said that I made sure they paid more because I knew they were lying, because I didn't know them right.

Tom Kline: 5:22

That's a friends and family discount. They got the friends and family discount. You might say I gave them the business right.

Tom Kline: 5:30

And so this guy was buying a van for his wife and he pulls me aside and he says, hey, if anything's wrong with this van, I'm coming to find you. I said, no problem, I'm here every day, right, just come on in and come right into the showroom, and I'm right on the showroom floor every day. Said it was a smile, and so, anyway, so I sell them this van. I don't remember what kind it was, like a venture van back then or something like that. So I get a phone call like two weeks later, two people just screaming. I couldn't even understand what they were saying. They were screaming and after a little bit in between the four letter words, essentially they were saying you sold me a lemon.

Tom Kline: 6:23

The car doesn't work, is what they were saying. This is a brand new car, right? I said, well, what happened? They said, well, we're stranded on the side of the road in South Carolina and I'm going to come get you and all this kind of. And I said, well, tell me where you are in South Carolina. And so I found the nearest Chevrolet dealer. I had the car towed that within an hour, got it, called the service manager, called them back and said I spoke to the service manager and we're going to get you into the shop this afternoon and this isn't going to be a problem, and I'm glad you called me and all the, all the right things. I said right, so get the car into the shop. The service manager is calling and he's laughing. He said well, we found out what the problem was. I said yeah. He said well, you know, these new fangled cars need gas in order to go. They had run out of gas. Oh my gosh.

John Acosta: 7:21

So seems like the problem was between the steering wheel and the driver's seat right.

Tom Kline: 7:27

So you know, customers are always demanding, and I think their demands have gotten more complex.

John Acosta: 7:32

Yeah, that makes sense.

Tom Kline: 7:33

Yeah.

John Acosta: 7:34

I mean, have you seen in that arc? It used to seem like back in those days people were just happy to have a car that they could get to work to and they were just very brand loyal. If they were a Lincoln driver or they were old mobile drivers, absolutely, they were just like my family.

Tom Kline: 7:51

We're a Lincoln family or a Lincoln family. They were like hey, we're a.

John Acosta: 7:54

Lincoln family. That's all we drive. That's right. What do you think that over the years the customers gotten more educated. Have they gotten just brand agnostic, just something that's reliable? What does that look like over the years?

Tom Kline: 8:10

I don't think that the manufacturers have done a lot to enable that brand loyalty. If you think about the car buying experience now and I bought my, you know my, my car payment used to come through my W2 right until we sold the dealerships and then I had to go buy a car. But what does the brand, what have the brands done to engender you to come back to their brand, other than maybe send you an email once a year or something, right, I don't, I don't. They all want to talk them and they want to push the dealers to make sure that they're doing everything they can to support the brand, and that's done through sales, through service, of course, after the sale. But what are the manufacturers doing to help there? They're really there, they're, they're not.

Tom Kline: 9:02

I don't see a lot of effort there. Now, you know I've only bought. I bought one car, one RV, and so I haven't. I haven't seen it from a from firsthand perspective, but I certainly don't hear of any programs that the manufacturers are providing that kind of support to the dealers. So I think brand loyalty, while it used to be a family thing, I think that went away as the years went by because nobody was supporting it in that way.

John Acosta: 9:35

I still see. Oddly enough, I still saw that in like the south you know it's like we're a Ford family or we're a Chevy family with trucks sure you know that trucks are a little bit different yeah, trucks were like it, but they still have these pickups yeah, specifically pickups.

Tom Kline: 9:49

Exactly like you would go into a you're either a Chevy or a Ford or a Dodge or occasionally a Toyota.

John Acosta: 9:54

Yeah, exactly they have that, still have that brand loyalty kind of perspective in it. But you know, like I was, I was listening to some dealers talk about it the other day. But you know what? What I what I have seen is that dealers have become very loyal to manufacturers. You know, I hear incredible things about Lexus particularly like.

John Acosta: 10:13

Lexus or Toyota as manufacturers. Being like being a Lexus or Toyota dealer is a huge privilege compared to some other ones that that just kind of squeeze the you know, kind of squeeze the life out of some of these, these dealers that are just trying to, you know, like what? What the CEO Ford was talking about? It's like eliminating the dealer completely. It's like how can you you can't get cars to, you know, have consistent quality over long periods of time how are you gonna manage? How are you gonna, how are you going to manage a customer experience at scale right for 330 million Americans?

Tom Kline: 10:46

right, that doesn't make any sense right.

John Acosta: 10:47

You need dealers to be in that, in that process, to be able to, you know, do those you know creative things for that local market. So it doesn't that's.

Tom Kline: 10:55

I don't think that that's a winning strategy in general, well, I mean, I would have some Toyota dealers who might argue with you. By the way, agree, I could see that yeah but you know, I I think that the manufacturers don't treat dealers like they're their customers. That's not how they're treated like an adversarial relationship. It's very much a conflict there, yeah, so yeah so good.

Tom Kline: 11:23

So when you talk about the trends in the arc, it's got a. It should start with the manufacturer, when, in fact, that you know the customer relationships really start with what the dealers do, irrespective of what the manufacturers are doing. So the the good dealers are a good community members and helping with the softball and the baseball and the sponsoring. You know all the things.

John Acosta: 11:45

Yeah, as it were yeah, yeah, and that's I. That's one one, you know. We've talked about this in our community. A lot is, like you know, saying like it's the worst told story, and and one of the worst told stories in the United States is that the industry, the dealership industry, is an industry of second chances.

John Acosta: 12:02

You know, working hard and and pulling yourself up about making millionaires, right making if you're successful what you do, you can be extraordinarily successful right and giving back to the community. You know like a really being in a massive employer in the community, and not only an employer but also charitable causes. Like you see dealers and local dealers across the the cities that are involved with March of Dimes. They're involved with, you know, habitat for Humanity, all the fire department?

Tom Kline: 12:28

yeah, the fire department. So they place departments.

John Acosta: 12:30

Yeah, it's just and first responder and you know the kind of the reputation is, like all that dealer XYZ and just like if you only knew what dealers were doing out there to be able to support their community, yeah, you'd have a different story yeah, I agree yeah, I agree yeah, I don't know that, that they, the dealers, tell that story enough, no, or more.

Tom Kline: 12:51

Make it, you know, make it part of their, of their story, yeah, and communicating that to you know, to the public yeah.

Tom Kline: 12:59

I mean, I saw something on Facebook this morning from a, from a dealer, and it was a. It was a short video, it was probably 90 seconds. It gave a tip on how to buy a car and that particular state okay and why they should consider trading a car in instead of selling it, because it reduces the amount of taxes and it's super, super idea educational and I said to the dealer on Facebook you should definitely make a commercial out of this.

Tom Kline: 13:29

Yeah, that kind of information is is lacking in in the blogosphere, the metasphere, the whatever, wherever you're living the Facebook fear sphere. Getting that information out to people is is hard to do. It's hard to communicate yeah, a message because there are so many messages and people just get bombarded with information throughout their day. I last statistic I read it was like 3,500 different messages you see every day between between the advertisements you see and the billboards when you're driving home and the radio commercials and all the stuff. It's like 3,500 different messages. So getting something through is also very difficult to do.

John Acosta: 14:14

I mean that's. You know, I saw the same commercial and I was like man, this, above everything, is authentic right, absolutely, you know this is an authentic conversation that you're having with the public. You're putting yourself out there and that dealer principle I know exactly what you're talking about is, above everything, authentic. Yep.

John Acosta: 14:34

I agree with you you, the person that you see on those videos, right, the person that you're sitting down here and you're saying, having the same conversations, we've both had drinks with him. Same dude, that's right. Have straightforward, authentic more than anything, and I think that you know dealers that become, you know dealers and operators that understand authenticity and how to increase the vibe or the culture of the organization and export that or give the public a view into that will create that authentic connection rather than being fearful or rejecting that traditional like you know big cigar, jacuzzi in the general manager's office, you know keys on the roof type of experience, right?

Tom Kline: 15:16

Yeah, yeah. I did that, by the way, with a friend of mine one time, yeah, and he said you know I'm not a big fan of the roof thing. He came in because his I think his grandfather had passed away and he said will you appraise this for me? I need it for the estate. I said, sure, no problem. At the desk there was a whole drawer of people that just left their keys and so I did the key switch thing in front of them, so I put it in my pocket and then I pulled it out and I said do you know what? You're not leaving until you buy a bleepin' car.

Tom Kline: 15:46

And I threw the keys on the roof and he freaked out so much that after about 20 seconds I had to show him that I had the keys, because I thought he was going to either hyperventilate or pass out.

John Acosta: 16:03

So I know, you know, from your experience of being in automotive and generationally being in the automotive business, you've probably seen, you know, like I think dealers become myopic to their operation. Not out of not out of you know, like a lack of on their side, but just contextually right.

Tom Kline: 16:23

Well, they're just there six days a week and when they're not there. They're still answering their phone.

John Acosta: 16:26

Exactly. And then you, you know, you see your 20 group and you go to, maybe you go to NADA and you kind of see outside of it From your experience, I think. I think that it's what would you say, that is, you know kind of things that dealers want to look out for, that want to have kind of a different, that voice of you. Know fresh eyes, right, the external director, that fresh eyes that are cut, those fresh eyes that are coming into the dealership and seeing risk from a new perspective. What are some of those things that I know you and I have exchanged a million stories about? You know the worst case scenarios, right, and I want to touch on that because I think there's so much value in having that conversation.

Tom Kline: 17:03

Yeah Well, first, the first thing that I think when I talk to dealers and we talk about risk at the stores, one of the first things I tell them to do is when was the last time you walked through your organization? Not just go to your office, not have everybody come to your office, but you walk through and see what the place looks like. Does it need a coat of paint? So so often a coat of paint will do wonders for the way the dealership looks and feels it. Just sometimes it just feels dirty because it just needs to be painted Not a lot of money to paint and you see risks. You see risks when, when you do do that walk and you do look through the service department and you see the extension cord run all the way from one side of the building to the other. And you know you talk to the employees and you see what their workstations look like and you see if there's any pay stubs laying around.

Tom Kline: 18:08

Right, I can go in almost any dealership and walk out with a stack of driver's licenses and pay stubs and and all kinds of personally identifiable information which you know is PII, which is against the Graham Leach-Bliley Act, which is $50,120 per violation and nobody knows what a violation is yet because they haven't enforced it to my knowledge. But walking through the dealership and just looking and doing that once a month, maybe they'll get great perspective on on what customers see and what their employees see. Right, because at a dealership your risk in, from my view, always comes on two legs. Right Risk is in a dealership is to you either have customers that are your risk or your employees are your risk, and that's where 70% of the problems come from 10%. 15% come from unintentional advertising violations. Okay, I can go on almost any dealer's website and find big violations, big problems, and then the other, the other 5% or 10% or 15%, is everything else. But mostly dealership problems start on two legs.

John Acosta: 19:24

I think that you hit such an important point about that managing by walking around. It's like the dealer going around and seeing if, like the coat of paint, and there's a urinal that's messed up and there's, you know, there's just the walking around, where's the trip hazard doing the stuff? It tells you so much about the context and the texture and the you know pace and the rhythm of the organization by just seeing what's broken on the outside that those are always symptoms of broken processes on the inside right.

Tom Kline: 19:54

Would you agree with that? Absolutely Sure. I think you could have almost any place An airport. I flew from Baltimore this morning, right, so the restrooms were clean in the Baltimore airport. That's extraordinary, right. Walk into a dealership next time and before you go see the dealer principal, go use the restroom and see if it's clean or not. People don't want to come to a place that isn't clean. For starters, let's start there, right. If they have to wait in the service department for three hours or four hours and there's not a clean restroom, that's not going to be a good experience. I don't care whether the car gets fixed right the first time or not, right, and so some of those things. I think it's like if you go to McDonald's and you pull up and you want a cone. I don't know if you've ever heard this story, but there's a website called McBroken.

John Acosta: 20:47

Oh, it's called.

Tom Kline: 20:48

CBROKEN, mcbrokencom, and McBrokencom is a crowdsourced website where they post which ice cream machines are broken at the McDonald's stores, because they're always broken, right, I mean wherever you go to McDonald's for an ice cream cone. It's broken.

John Acosta: 21:07

My kids are like what it's broken, again it's broken right.

Tom Kline: 21:11

And so that's so frustrating, right, a clean restroom is kind of like the same thing that makes sense. That's kind of a weird analogy there.

John Acosta: 21:18

Yeah, that makes sense. Just, I like systems right, the more organized the system is.

Tom Kline: 21:25

I've heard that about you.

John Acosta: 21:27

Yeah, exactly. The more organized the system is, it tells you really about the processes and organization of the place. And managing by walking around is such a powerful process that the dealer there's a saying in Spanish the eyes of the owner fatten up the cattle. Sure, being around does that, and then you can really start understanding what your risk is.

Tom Kline: 21:50

Sure, I mean even something as simple as and this is going to sound simple, but so few dealers do this everybody's got a back lot right. It's like Fred Sanford's junkyard is what the back lot looks like. In that junkyard Problems are going to happen as a result of Unanswered issues on all those cars. There's a story on every one of those cars.

Tom Kline: 22:20

Yeah and if you don't have somebody looking at, why is this car here? Maybe it's an employee who parks their second car there because they got no big cells. They shouldn't do that. They should get those cars out of there. But each one of those cars should be identified because maybe it's a service problem. That's been sitting there and there's an open RO that's been there for a year and the service manager doesn't want to close it out Because they don't want to take the loss or the they're waiting for parts or the customer abandoned the car there.

Tom Kline: 22:47

Yeah, there's a hundred different scenarios of what you can find if you just walk your back line if you task your Use car, your wholesale manager, to manage that for you and to and to run the license plates through. You know the DMV system and find out who belongs to the car and what the story is. You'll be amazed at some of the stuff that you dig up. Yeah that are really potential problems that are lurking out there that you don't even know about.

John Acosta: 23:16

Man, that's, those are ticking time bombs. Right, that are they are yeah and it sounds silly.

Tom Kline: 23:21

Right, and it sounds it sounds silly, it sounds obvious, but how many people have a process to walk the back lot? Yeah, and, and the car that doesn't have the hood on it, that's been there for a year, right, I mean, get it out of there. If it's not your car you call, you call your local tow company and have them do all the paperwork and give them the. Just give it to them and move on.

John Acosta: 23:42

Yeah, that's some. You know. It's like the there's man dealers are cursed in a way that their product is so sellable, Right that they can sell themselves out of some of these problems and not necessarily have to deal with the Ineffectiveness or the inefficiency of the organization right. Sure and it's like if you you know that the problem is like Something brewing is something that's gonna take you away from making money right.

John Acosta: 24:08

Right, it's like you only have so much. There's only 24 hours in a day, right? If 16 of those hours get taken up by, you know, bs problems? You don't. You know. You know you got to sleep and you got to eat and you got to see your family, right. So, if, if those BS problems are are taking up the majority of your day, create systems that can help you mitigate those problems from happening. And that's what you do, right, right, you say check these things before your furnace explodes right, like you know, like you know to do yearly maintenance on your air conditioning system, like.

John Acosta: 24:37

Those are the things that they're gonna become. You know I'm using that as an example. But another example is do you have, you know, an OSHA program right, or some slip and fall? Are you doing ladder training for your employees? Are you doing all these things that are gonna take away from you your ability to make money and Pour your time and effort and what you do best, which is selling service cars, right?

Tom Kline: 24:59

The problem, I think, is that, dealers, when you have these side problems, it takes the plow out of the field, right. They stop paying attention to service and sales because they're playing, you know, corporate firefighter. Right, they're hosing out problems, right. And so so the governance and risk and compliance program Gives you a systematic way to go throughout the business, throughout the calendar year, and to touch all of these things that can explode or implode depending on what it is, and there are so many. I was just on the phone on the way down here. I had three or four phone calls because it was an hour from the airport, and one of the topics I talked to a colleague, we had a mutual client and the mutual client was complaining about getting was complaining about getting a call from the FBI and Mmm and said I shouldn't have to do this.

Tom Kline: 25:58

Yeah well, no, actually you should. But the problem, the reason he got the call from the FBI I thought they're going into a whole long story is because he wasn't paying attention to the risk side of the business and he wasn't paying attention to, as an example, part of this is. One part of it was the IRS 8300 cash reporting, which all dealers think they do right and and 95% of them still do it wrong. So, so, and it's a it's a big problem because if the Government comes in, fines are up to five point five million and like five years in jail If they can prove that that you know you were willfully having a problem and there are dealerships that get closed as a result of this.

Tom Kline: 26:42

I know of one, anecdotally, I didn't read in the newspaper up in Minnesota that the IRS ended up closing because they had two million dollars in fines and the Dealer couldn't pay it and so they just closed. They closed the store as a result of not having a process to File the IRS. You know, 8300 report when you, when you get cash. So so, systematically, having a way to address all of these things is part of the risk and compliance part of Making sure that that's something that you're checking on right. It goes back to the old a good manager is a good checker, mm-hmm, right, and? And in good business, men have a Process for making sure that they're checking on all these things, yeah.

John Acosta: 27:28

All of the things. Yeah, yeah, that's what you know Alex Flores talks about. You know, inspect what you expect a lot, you know and that's just really holding accountable, making sure that everybody has systems, that you've built right processes in place to be able to make sure that you're that you're that you're Effective and you're not going to be closing your doors because of some stupid mistake, right?

Tom Kline: 27:47

You manage, what you monitor. Yeah yeah, so you have to have. My opinion is you should be monitoring.

John Acosta: 27:54

So, from your perspective, what's the biggest areas of risk right now? What are, what are things that that have you? You know that that keep you up at night for your customers.

Tom Kline: 28:04

Yes. So the Gramleys-Biley Act, of course is, is the most recent regulation to go into effect on June, the 9th of this year. It's a tough regulation because it's complicated, as you know. It's kind of a, you know, a mile wide and a mile deep, actually, and Without going into a two-hour dissertation on the Gramleys-Biley that's, that's a. It's tough, it's a tough one to to comply with. That's one and I'd say the other.

Tom Kline: 28:38

The other thing that I'm working on, mostly with my clients, is Dealers have that one time of year that they dread the insurance renewal yeah, he dreaded insurance renewal, and that was my 70s DJ voice and they don't have an insurance program. There's nobody monitoring that issue and the problem there is they have exposures that they don't even know about, that they haven't even considered. I went into a dealer group up in the Northeast last week, week before, and we were talking about what possible Ways dealers get sued and I said, well, let's take a look at your insurance policy and let's, let's see what would happen in these scenarios, right? I? I always Say you should play the what-if game. What keeps you up at night and what? If this happens, how will we respond? Right? And so we pulled out the insurance policy on, as an example Truth and lending act. The truth and lending act.

Tom Kline: 29:47

Most dealers have Truth and Lending Act violations on their websites, and so this particular dealer, we pulled it out.

Tom Kline: 29:54

They have 300,000 in coverage, which may sound like a lot, but when you consider a class action potential if you have a problem on your lawsuit on your website let's say you sell 200 cars a month, you make the same mistake on every single one.

Tom Kline: 30:10

You multiply 200 cars times whatever the statute of limitations is, which is usually at least two or three years, right. So let's just say it's 200, that's 2400 cars a year. Let's just say it's only two years, that's 4800 cars times what the Truth and Lending Act is a $1000 violation. So, plus, you know, if they can prove that you violated the Consumer Protection Act as a result of that, then it triples the damages and then you have punitive damages on top of that. And on this just one issue, the dealer had $300,000 of coverage and didn't know, because it's not something you typically look at, right. But the problem is the systemic problem is that brokers for the most part not all, but for the most part they come in a week before the deadline and they say well, here's your renewal, and it's only a 12% increase, and they don't ask a lot of questions.

John Acosta: 31:13

Don't ask a lot of questions. You've got to say this now.

Tom Kline: 31:15

Well, the reason they don't have time. The dealer doesn't have time to ask questions, and if all the insurance renews on the same date, there's no way you can ask questions, because it's too complicated and there's too many questions to ask. And so I recommend that you stagger the insurance renewals throughout the year so that you and you demand of your broker I want to see it 60 days ahead of time or I'm going to throw you out of my office. I want to see the quote six days ahead of time so we can negotiate. Insurance companies negotiate, john, I mean they negotiate, but you have to know what you're negotiating on and why you're negotiating, and maybe you want a million dollars on that one line, because that keeps you up at night, instead of 300,000 or 2 million or 5 million or whatever.

Tom Kline: 31:59

You don't give yourself even the opportunity to try to learn and understand. You just pound your fist against the desk as you get frustrated. That one week every single year, and you don't do anything about it. And so you should do something about it. You should consider having an insurance review and understanding what's in your policy. Listen, it's not scintillating stuff, it's not. It's not sexy, it's not sexy.

Tom Kline: 32:26

It's not as much fun as playing with an ad campaign, for sure, but without it you could go out of business if you have a catastrophic problem. So having a robust way of looking at all that is one of the first things that I do in looking at an organization to see how they might go out of business, what might happen if they, what could happen for them to go out of business, what does that look like and what does the insurance policy say? In that particular case, the insurance company write a check for 300,000 and salute the dealer and say the rest is on you, because now we're at our policy limits. And then you really have a problem Good luck. I call those near-death experiences because to get yourself out of them is really difficult.

John Acosta: 33:12

Yeah, I would imagine. I would imagine. So what are other things that dealers can do to? That's such a great point? It's like write yourself an insurance program. It's like a cadence of how to review it, how often to review it, separate your renewal date, so you're not doing it all at the same time, so you have time to process those things.

Tom Kline: 33:34

But it's painful.

John Acosta: 33:35

Yeah, it's painful. It's painful to go through Like nobody wants to separate the root canal right.

Tom Kline: 33:40

And as I was talking about the pros and cons with the dealer and the insurance agent said absolutely, we can do that. His very question for the dealer is do you want to put yourself through that pain? That was the question the insurance agent asked the dealer. And so, because it's painful, I mean I'm not going to say it's not, it's detailed and it's nitty gritty, but in a perfect world.

John Acosta: 34:06

wouldn't not the dealer principle be dealing with that? In a perfect world, you would have the teams that are in charge of those aspects of the business be bringing up, reviewing their case them. That would be perfect world right. Sure, the magic wand moment, which we don't, the magic wand is the CFO understands insurance, which they don't typically.

Tom Kline: 34:28

I mean in the dealerships I've been in. That's the first problem. Second problem is it's the dealer's money, it's the dealer's rear end. So there's nobody who's going to care about your rear end like you care about your rear end, right. And so some dealers don't want to. They don't want to give that responsibility to the CFO. Some do, but you really, as busy as CFOs are, as busy as dealers are, somebody should be tasked with doing it and get into it and make sure they have an understanding of it. But it is very painful.

John Acosta: 35:03

Well, once I think the first one's really painful, but then the second and the third and the fourth and the fifth and. Sure Like okay, so what has changed? What are our policies? These are our levels and you have a calculator somewhere and an Excel spreadsheet and you like.

Tom Kline: 35:17

That's right.

John Acosta: 35:18

So that's the understanding of this. We look at it once a quarter or every bi-annually or whatever that looks like, and let's adjust, bring down. Things have changed, the markets, whatever. The operation has changed a little bit. Does this cover us to be that, and then you go through the pain once, and then you never have to go through the pain again.

Tom Kline: 35:35

Well, you're continually, as you said. As you do it more frequently, it becomes less painful, but it's still painful Going through it is still painful. But I'll give you a good example of how understanding your insurance policies can save your rear end. There was a dealer that I cold called. Actually, I read an article in automotive news and it said she lost $250,000 because of this thing. I'm not going to go into the whole thing, so I called up the dealer and I said hey, you don't know me, but let me just ask you a few questions. I asked a couple questions and I said send me your insurance policy, send me this policy. I want to look at it. And I called her back and I said put in a claim and you'll get your money back. And this was five minutes of my work. She got $250,000 back just because of me calling her and saying that's amazing, and so she didn't understand.

John Acosta: 36:36

You have a raving fan for the rest of her life, I would hope so, but she had.

Tom Kline: 36:41

In fact, she had an insurance agent who told her she didn't have any coverage because he didn't even understand the policy and so she relied on him as the professional. He made a mistake. He didn't understand what it said. So, understanding where your soft underbelly is, you'll know how to protect it. Or, when problems come up, you'll know whether it is a problem you can turn over to your insurance company, right?

John Acosta: 37:09

I mean, even that is like even pushing on your insurance company and show me where this is not covered, can even do that Like show me that this is not covered or this is covered, or like having a little bit of that push with it because the the few of them are going to drop you.

Tom Kline: 37:24

It's not a little push.

John Acosta: 37:25

I would imagine it's a ball peen hammer. Yeah, I would imagine.

Tom Kline: 37:27

I would imagine. I mean we had a power outage at the dealership. This is one you know, many, many. This is probably 20, 25 years ago and there's a specific section that says that if you lose power, what the parameters are lost, all that stuff, right. And we were without power. I don't remember how long it was three, four days, whatever it was.

Tom Kline: 37:52

So they denied the claim when we put it in and they said well, the transformer actually blew up down the down the street, it wasn't on our property. And what I argued to make a really long story short was the power stopped at our property line and when the power went off, it stopped on our property line. I don't care that the transformer blew up down there and the way they had the language I was able to say you can't tell me the power didn't stop on the property line because that's our property and that's where the power stopped. Right, and it was hundreds of thousands of dollars, and so I got the insurance company to pay. It took nine, 10, 11 months roughly to get paid on that claim.

Tom Kline: 38:41

But at being persistent and going back and saying, no, no, you're not reading the policy right, it's your policy, I'm just reading your policy. Here's what the language is, here's why I think you owe it, and round and round. We went for 10, 11 months, finally got paid, and so it's all what the policy says. And then it's how you address what the policy says. That's art, that's science, right, and there's a lot of art in putting in claims and making sure that those claims go through and nursing it through the claims process.

John Acosta: 39:16

Yeah, that makes sense. Yeah, that makes sense. What are some of the kind of success stories or horror stories that you've seen out there in the dealership industry. I know there's some ones that you probably can't talk about, but there's probably some that you can't.

Tom Kline: 39:29

Well, I guess a recent, last couple of years I had a dealer call me and say I just had the DMV here and they're here to arrest me.

John Acosta: 39:39

Oh my gosh.

Tom Kline: 39:41

And I said, OK, let's talk about what happened. So again, another long story short is a dealership bought a vehicle from a customer. The customer didn't even buy a vehicle from the dealership. His dealership was buying this guy's truck. It turns out the guy forged his father's signature on the title because he wanted to get the money for the truck unbeknownst to the dealer. So the father found out about it and thought the dealer was in cahoots with the son. So the father went to the police and said you know, the dealer stole my money, kind of thing.

John Acosta: 40:27

Okay, okay.

Tom Kline: 40:27

Okay, and so the DMV came out and was there to arrest him, and so they hired me to unscrew that whole situation. Okay, and so what ended up happening is I got the insurance. So I had a conversation with the father multiple conversations with the father and there was the stepmother. The stepmother said, well, he's not my son, and so she didn't care what happened to him. Right, the dealer was the victim in the situation. Right, he didn't know. So what ended up happening is I got the insurance company to pay off the father. I had to talk to the Commonwealth attorney and to all those people on the arrest side and make sure that, you know, let's see if we can work this out and that kind of thing and have kumbaya moments. But I was able to negotiate with the father to take a lesser amount of money than the dealership paid for the truck. I was able to negotiate with, you know, the Commonwealth attorney said, yeah, if you make the father happy, it's fine with me.

John Acosta: 41:40

Like, we're not in the we're not in the we don't we're not in the arrest issue.

Tom Kline: 41:43

We're not in the arresting dealers business for whatever the situation is, and I was able to get the insurance company to pay off the father. I was able to get the insurance company to pay my fee as a part of it, and this was during COVID and the truck sat long enough that it appreciated, so the dealer ended up making money on the whole situation, which he was happy about.

Tom Kline: 42:09

But as an unintended consequence, and there's always unintended consequences, and that's one of the things that's part of the what if game. It turned out that doing this whole claim brought to light the fact that the title clerk at the dealership forged the signature of the kid in order to get the title work through, while they were waiting for the title to come through.

Tom Kline: 42:38

So just to like just to make things keep going. And so the DMV investigator found out that she right, because she was waiting for the title to be sent by the kid while the kid was forging the father's name. And so she basically, I guess, said, hey, listen, well, I know you're a nice guy and whatever, so I'll just sign this title, work for you and push it through without anybody's authority. And so the DMV investigator found out about that, and so she had to go before the judge under a I think it was I don't think it was a felony in that case, it was a misdemeanor and we were able to kind of we were kind of able to work that and say, if she doesn't do it again in the next year, that he, you know, that would all go away. But there are always unintended consequences when you get into these situations, and that's why, when you're thinking about looking at your dealership and thinking about what could possibly go wrong, everything can possibly go wrong.

John Acosta: 43:37

And so you know what if is an important question and you're looking at your operation, yeah, I mean, and especially having you know that the ability to call a guy like you you know it's like I know that I rest easier because I know Tom Klein's my friend and I can call you and be like hey, tom, what do you think about this situation? Right, and you'd be like hey, man, you should look at it from this perspective, look at it from that perspective and I feel more because an attorney is gonna be, it's gonna look at it from a completely different perspective Absolutely, rather than looking at it from like this advisor.

Tom Kline: 44:09

I'm a business guy. You're a business guy, exactly, I'm a business guy.

John Acosta: 44:13

Hey, for business, this is what you're gonna, what you're supposed to do, and it's like, okay, that makes sense because I've heard you talk and we've had these conversations of you being in extraordinarily hairy situations and finding a way out through persistence, creative thinking, you know, resourcefulness, experience like having all those things as wind in your sales. That really puts you in a position to be a trusted advisor for the dealership industry and help people navigate really difficult situations.

Tom Kline: 44:41

Right, that's what I do. That's why I said the analogy that I use that you've heard me say many times is running a dealership is like trying to tuck an octopus into bed and the tentacles keep flopping around right, and so I help tuck the tentacles and that's what I do.

John Acosta: 44:56

I was talking to a dealer the other day and he's like man, why we gotta deal with all these regulations and doing all this stuff? Like he was talking to his team, somebody in his team was telling him that and he's like you can go be, you know you can go work at Supercuts or you know work at McDonald's and not have to deal with any other stuff. But if you're gonna make $40,000 a month as a finance manager, you gotta deal with this stuff, man.

Tom Kline: 45:14

You know what I mean. So it kind of comes with this territory right, Absolutely.

John Acosta: 45:17

So it's just kind of understanding the risk topology of the industry that we're in and if you're gonna be, you know, buying time machines and flying and being very you know, very successful and being American success stories. These are just some of the tickets that you gotta buy right, that's it.

Tom Kline: 45:38

You don't have to do it.

John Acosta: 45:39

You don't have to.

Tom Kline: 45:40

But as my, I'm gonna quote my wife here because she's got a. I'm writing a book, as you know, we've talked about it and this is in the introduction. But at the end of the introduction, what my wife's quote and I agree, because this certainly is from looking at a dealership, if you're not gonna look at your insurance, if you're not gonna do compliance I'm gonna incite her quote here which is if you're gonna be dumb, you better be tough.

John Acosta: 46:09

Yes, that is a true, true, true statement and you know it was like we were talking about this over lunch. It's like you know. You know so much about this is because you know, as Kevin Deutsch says from Lexis of South Atlanta, you've written the checks, absolutely.

John Acosta: 46:28

You've written the checks. You've been there and you've had to write the checks to say, hey, I don't wanna be in this situation ever again and I can advise dealers to never be in the situation. And you have, you know, touched the stove for those moments and you know what that feels like.

Tom Kline: 46:41

Sometimes the stove has been on. I've touched it, I've left my hand there. It started burning. I couldn't find a fire extinguisher. It's a mess. I mean it's a mess. It's. You know I've resolved a lot of problems and you know you just do, and class action, lawsuits and criminal issues, and you know all kinds of stuff.

John Acosta: 47:04

So tell me a little bit about you. Have a program where you know this is the time to do your shameless plug, right? It's like you have a program that it's like a subscription model, right, where they can ask you a million questions Like Kevin. Tell me a little bit about that program.

Tom Kline: 47:19

Yeah, so I have kind of two programs. One is called Tuck the Octopus. That's tucktheoctopuscom Good brand name, yes, and the other and that's $800 a month and you know, you get a certain things if you're introduced to some compliance things and some free time with me and Zoom calls and whatever. And then I have what's affectionately called the wear me out program. The wear me out program is unlimited calls, unlimited Zoom for $1,000 a month, and so and I hope in doing that that we establish an understanding of how I think and what kind of things that you should be thinking about at the dealership, at the store People. You know, I got all kinds of calls. Yesterday I got one and said it was a very insightful question, which is should there be two signatures every time we send a wire?

John Acosta: 48:15

Oh yeah.

Tom Kline: 48:17

Absolutely, yeah, 100%, right, absolutely, I mean 100% there's. I mean, and people get scammed on this all the time.

John Acosta: 48:24

I just read the frickin time.

Tom Kline: 48:26

I'm gonna. I'm gonna tell you a story that's published. This is not one of my clients, but this was. I've read the lawsuit, I got a copy of it and read it, and the Po Hanke's up in up in Virginia, in Northern Virginia, they had a company managing a trust of 2.4 2.5 million dollars. The company was a on, a on, which is a fortune 500 company, reinsurance company. Correct, aeon was scammed and sent 2.5 million of the Po Hanke's money to an account in Hong Kong. Oh, and the Po Hanke's were suing to get that money back.

Tom Kline: 49:10

So this is a huge organization, right, aeon? And Now I don't know what's going on with the lawsuit. I can only see what I read Because it's public information. I got a copy and I read it. But you know two point whatever million dollars Aeon got scammed out of, and they, from reading the complaint, it looked like Aeon said sorry, we didn't know or whatever, we're not responsible and so we're not gonna give you your money back. And so that's why. That's why the losses. So when you get something which seems as simple as have two signatures on a wire, you'd think that a company as big as Aeon would have, whatever Systems are in place, not to send 2.5 million dollars to Hong Kong to you know, an auto group who operates in Northern Virginia and Maryland. Right, I mean, they just lost all common sense there.

John Acosta: 50:05

Yeah, we've. We've always said that you know for all wires to do Multi-factor authentication with that. So right, they say hey, you know the tip of a scam and we've seen that a million times and the FBI won't look at anything under a million bucks. I didn't know that, yeah, they won't from what I hear this is you know this is hearsay, so don't take legal advice.

John Acosta: 50:24

But what I hear is that the FBI won't look at anything under a million bucks because there's it's so prevalent. So you can lose a hundred grand in a heartbeat, in a blink of an eye.

Tom Kline: 50:33

But here's an in. Here's another example. What we talked about in the insurance that it was at the dealer up in New England a couple Weeks ago is wire transfer fraud. This particular dealership only had 250,000 of wire transfer fraud and one of the questions, an obvious question that I asked is do you do DX's? Do you ever buy truckloads of cars from another dealer? Right, yeah, 250,000, the average. The average where I read Cox report, whatever a couple months ago that said the average cars now $48,000. Right, do the math right? That's only five cars on a nine car hauler right.

Tom Kline: 51:08

Yeah so you're self-insuring if that ends up being a scam? Yeah, you're self-insuring. $250,000. That can be going like that because your sales manager was moving too quickly because you need inventory and you were just like, oh cool, they'll buy, I can get them in court from them. And, boss, I need the wire for 500,000 and it comes out, you know, and all of a sudden you're out $250,000.

John Acosta: 51:30

Yeah, no, that that's complicated. We've you know. What we have done is that we've set up In SharePoint. You're familiar with Microsoft SharePoint. Yeah, wire process like forms right so it's, they have these. You know they have these forms in SharePoint, where you Upload the document that you need and then it goes through and it sends that email. So the right people, all internal and an intranet. Right and then you have to have two factors authentication on it, and then it loads it and then it puts it in a record Mm-hmm and unless you do it that way, you cannot get wire transfers to be approved through the organization.

John Acosta: 52:02

Yeah, that saves a lot of risk.

Tom Kline: 52:05

Yeah, absolutely, I didn't know that.

John Acosta: 52:06

that's good to know that changes a lot of those. Because now insurance policies are asking do you have a two-factor, you know a dual verification? They don't call it a factor, but dual verification for wild wire transfers in your organization. They're asking specifically for that because it's so prevalent.

Tom Kline: 52:21

Sure, absolutely. Yeah, so it was a good question by my client. You know, a great question, yeah, and yeah, it's a great question.

John Acosta: 52:27

However, whatever way you do, the multi-factor authentication is a good way, because Literally is I'm in China, I'm in a meeting, I need to quickly transfer $300,000 to this account. Right, and you and what I talk about. That is like. The temperament of the dealers is an important factor as well there absolutely like it's short on time If you're on patience.

John Acosta: 52:51

But if you're, you know, like one of those dealers that's like a firecracker Right that will explode and fire people and doing stuff out of fear, they'll comply, which is in direct competition with risk. Sure, that's 100%. It was like others saying like always trust, but verify, creating a culture of you know, of always you know, of creating a culture of you know creating trust right with your team. And so not that somebody in accounts payable is Terrified of the owner and it's just gonna do something and not be like, hey, I know he might be at dinner or he might be at or she's at you know she's at some important event that I could be like.

John Acosta: 53:26

I got this call. Yeah, I need to confirm this and go through that process because of the temperament of the dealer.

Tom Kline: 53:31

Here's a good example of that. I had a dealer who was very politically active, okay, and one of his political buddies had a Waste company and he wanted to Endear himself to his buddies, so he wanted to change the contract from whatever waste management to this local firm. And I said to the dealer I said happy to take a look at that, but let's look at his insurance. And he said why do you need to look at the insurance, not patiently? He said why you look at sure? I said because I want to make sure he has enough insurance, because otherwise You're personally on the hook.

Tom Kline: 54:08

When it comes to pollution, dealers can be personally liable, as well as the company. And he Called me lots of four letter words. And you know, are you stupid? And of course they're gonna have insurance. And what are you thinking? And the pollution Company didn't have pollution insurance. So, jean, which is unbelievable, right? So yeah, cuz I kept asking for the certificate and it's like they wouldn't send it. And the reason they wouldn't send it? Because they Didn't have any pollution insurance. They just just started. We're gonna get in the pollution business and we don't have pollution.

John Acosta: 54:44

So and especially with that, that's that that goes All the way up super fun sites. Yeah, that becomes a that becomes a Mega mess mega mess.

Tom Kline: 54:55

Yeah, so you're exactly right in what you said about they don't want to get yelled at. I don't mind getting yelled at, doesn't bother me. But if you're an employee and not a consultant no, of course you can give, you can from the dealer right from dealer to dealer.

John Acosta: 55:07

You can, you know, pump your chest out and do that. But if somebody's in, you know an employee in accounting and you know not even the general manager. That's right, that's a proving stuff. That's right doing that, they're gonna be fearful of no question Up and saying, hey, I got this weird email, I want to do that and right, like are you stupid, I'm buying a car that you know whatever.

Tom Kline: 55:26

you know, whatever, that thing that is right, and there's always the thing.

Tom Kline: 55:28

Yeah, there's always the thing yeah like I was at a dealership and we were having a meeting with the CFO and the COO and the it's CMO, and it's all of us at a conference table and somebody walked in and said the dealers, bentley is here and CFO is like what Bentley? And? And so he picked up the phone, called the dealers to buy a Bentley. Yeah, yeah, it should be arriving today, right? He didn't say so. I said how much is the Bentley worth? It was a three hundred thousand dollar Bentley. I said does anybody checked the insurance to see what the maximum per car Coverages on any car in the inventory? And it was a hundred and twenty five thousand. So you know, of course I said we need to get a, we need to get a Separate policy written for the Bentley to make sure that the difference between the hundred and twenty five and the $300,000 he was spending on the Bentley in case he had an accident, right? Self-insured, that's right.

John Acosta: 56:33

So self-insurance is the catch-all of all things right self-insurance. You are a self-insured.

Tom Kline: 56:41

He wasn't the self-insurance business. I've been sitting there so in the policy was whatever a thousand dollars a year or something. It was nothing, this right but. But somebody has to be thinking about risk and you know we talked earlier. Somebody has to be thinking about the risk in the store and what can be a risk. And where are the? You know where the holes in the bucket right?

John Acosta: 57:01

Yeah, so yeah, well, tom, I think this has been very insightful. How do people get a hold of you? You know, I know, you're very active on LinkedIn. You're very active on social media, so how do people get a hold of you and if they have to ask questions, if they want? To engage in your services. How do they do that Sure?

Tom Kline: 57:20

I'm easy to get a hold of. So After my name and LinkedIn you'll notice a red phone. That's because I answer my phone. So you can get me through LinkedIn. You can get me through Facebook. You can go on my website, which is better vantage point com. There's forms to fill out there. There's also a video connect button in the bottom left corner. So if you click on that button it'll ring right to my phone and we'll have like a just like a FaceTime chat. You can email me, which is Tom K, as in Tom Klein, tom K at better vantage point, calm. Or my phone number is 757-434-7656.

John Acosta: 58:00

Perfect. Thanks, tom, appreciate it. I'm glad we put this on the books, man. Yeah, I can't wait then till we do the next one.

Tom Kline: 58:05

We'll do it. I meant thanks for having me.