Pub. 2 2012 Issue 2

20 AUTOMOBILE DEALER NEWS ILLINOIS www.illinoisdealers.com It was December 29, 2011 when the decision came down. The Liquidator’s investigation had found that our clients’ assets were indeed in properly segregated accounts which WIC did not con- trol but could only seek distributions from. As such they would not be considered part of the general assets of WIC’s estate. The court agreed and released the funds. Cue the scene at the end of one of those movies where ev- eryone comes out of the courtroom cheering. You may even be thinking: “Gary, you came out unscathed.” Read on. Just before leaving that initial meeting, WIC asked for a good faith security deposit of $100,000. Fair enough, but I insisted the money be placed in a CD earning interest. Maybe a red flag should have gone up when they responded by offering me a CD with a great interest rate fromWestern Thrift & Loan, a bank as- sociated with, you guessed it, WIC! But hindsight is always 20/20. And I certainly don’t recall giving WIC permission to cash the CD and deposit the money in their own account in 2010, which apparently is exactly what they did. Word has it the individual responsible is now retired in Hawaii. But I still feel fortunate. There was another company in the WIC liquidation that operates similarly to FSG. They did every- thing above board and proper, but had premiums sent directly to WIC. Ouch! Retro Participation Agreement or Dealer- Owned Reinsurance Company? For most dealers it’s a no-brainer. Retro Participation Agreements began as a way for an insur- ance company to expand its market share while allowing dealers to share in back-end profits. But today there is simply a better wealth building strategy available, a Dealer-Owned Reinsur- ance Company . In fact, Retro Agreements have outlasted their value for all but the smallest of dealers. One of the most glaring problems of Retro Agreements is the co-mingling of premiums and reserves to pay future claims. A Retro Agreement will not prevent a Liquidator from grabbing funds and giving them out at pennies on the dollar if the Admin- istrator or insurance company is declared insolvent. In the case of WIC, their undoing had nothing to do with the auto industry. That was the most profitable part of their business. The problem was Surety Bonds they were issuing for construc- tion projects in states like Nevada and California. Who has time to audit every aspect of the insurance com- panies they do business with? That was what ratings were sup- posed to be for! Fifteen years ago, I entered into my first Retro Agreement. The $21,000 in back-end profits sure looked like a fine number, but it soon evaporated into the “terms and conditions” of the agreement. Stipulations such as minimum production, loss ra- tios and lapse in production often hold dealers captive or open loopholes that swallow their profits. It was an important lesson, and five years ago I got to apply it by insisting on full dealer-owned reinsurance in our relationship with WIC. I hate to think what would have happened if we had settled for a Retro Agreement. It shows that “honorary degrees,” while expensive, can turn out to be worth every penny.  Gary Vucekovich is President of ForeSight Services Group. ForeSight empowers dealerships and auto groups to capture more profit and build long term wealth by reducing complexity and removing middlemen. To learn more about how ForeSight can help you, contact them at 972-542- 1890, E-mail: garyvucekovich@yahoo.com or visit their website at www. foresightservicesgroup.com .  swimming with sharks — continued Predicting Lender Acceptance is Like Predicting the Weather You Could Be Wrong Secure customer financing with confidence by submitting a single contract to several lenders at one time – the LAW ® 553 Retail Installment Sale Contract. For more information, contact your local Document Consultant or call 800.344.0996.