Quick Clips | Justin Osburn | EP 30

Quick Clips today with Justin of Automotive Reinsurance Concepts (ARC)

Justin is an experienced executive automotive dealer consultant and trainer who has worked for the National Independent Automotive Dealers Association (NIADA). He has rewritten NIADA's Certified Master Dealer Certification curriculum and has traveled across the US to help dealership owners and executives increase their profitability. Justin has 17 years of experience in the car business, primarily in executive-level positions, and has been called the "King of Cars" for his expertise in high-level operational profitability.

Justin has also served in the US Army, been elected to public offices, holds an international patent, and is a published author and dynamic public speaker. In 2016, he co-authored an internationally-patented device to stop active shooters in schools and other facilities, and published his first book.

Click the link below to listen for the full episode 30:
https://www.buzzsprout.com/1895628/11484420


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Transcript

 Hey guys, this is Adam from the podcast and you are listening to Quick Clips. Quick Clips are condensed versions from one of our previous podcast episodes featuring some of the interesting things our guests had to say. If you want to hear the full episode, we'll have it in the show notes below. And with that, let's start the show. 

You have these, um, multiple independent dealers, um, or I'm sorry, stores. , are you guys doing some of these reinsurance, some of these service packages? Um, paint protection packages, everything like that? Um, at these stores back when I, when I had stores? Yep. Or now, uh, back when you had stores. Yes. We were, we were, we were, we were reinsured, you know, that was my first introduction to reinsurance. 

That was because my partner, uh, who was a franchise dealer, you know, 85% if plus of the, the franchise stores in the United States are reinsured. And so, uh, he was very familiar with it. That was my first exposure to it. So yeah, we, we, we opened a reinsurance company. We had some products, uh, that we reinsured and, uh, that was my first introduction to it. 

So I guess let's, let's just kind of dive into this reinsurance a little bit more now. , um, let's kind of take it from the angle of the body shop. Why would a body shop be interested in offering, um, some sort of guarantee or something like that to the work that they're doing to their customers? Two, two reasons primarily that a body shop would be interested in. 

Um, some form of a limited warranty. Number one would be, uh, the marketing aspect. So obviously if you're trying to, uh, gain market share in your local area or even regionally, You want to be able to offer some guarantees, offer some competitive advantages over your competition, or you want to at least stay competitive and by offering, um,  warranty on your work. 

Uh, this provides peace of mind for the, for the CU consumer to use your shop. So I would say the, the marketing or the, um, the core values of your business, the va, the, the advantages of, um, uh, of having a pro, uh, a warranty like that would be, Number one. And then number two would be, uh, the tax advantages that you can enjoy, uh, from having a reinsured type warranty program. 

So those are usually the two motivations, being competitive and using it as it a competitive advantage. And marketing the fact that you stand behind your work. And then secondarily, if you're gonna do that, uh, well, is there a vehicle, is there a model that we can do? Uh, to, to, uh, financially benefit from it. 

Can you help me understand why I can't just go out and say anything that comes through this, anything that gets done through this shop, we're gonna warranty it. We're gonna back it with our Bob and Tom. Um, 100% guarantee, word of mouth, um, insurance versus like maybe doing it a little bit more formally or a little bit more, you know, by the book as, um, as what you're, what you're talking. 

Sure. Well first you can, so you can, you can do, as you say, and I would say most body shops and many independent dealers do. And so what that means is you put a some form of a warranty on your work, and if there is a problem and a customer comes back, You take care of it, you know, or you, or you come to some common ground with your customer and take care of a version of it, you know, we'll, we'll, we don't feel like this is our responsibility, but we'll still pay for half. 

Or, you know, you tell me what we have to do to make you happy today, or, you know what, we're gonna cover the whole thing even though it was three years ago. You know? So, um, and then in that case, you know, that's a. So that's a claim against your work. So when we talk about claims, especially if we move in advance into this conversation a little bit more, that would, that's effectively a claim. 

You did work, customer came back, they're not happy. They want you to, um, uh, to, to fix what's not right. And so the, there's a cost to that and the cost of that's gonna be in potentially material and in labor. And at that point, if you are gonna take care of it, uh, and you're gonna cover that claim, uh, informally and in-house, then you're gonna have to eat that cost and you're gonna have to pay the labor and the material, uh, which you're not gonna get compensated for. 

And by the way, you're gonna miss out. Work that you could be performing right now that is paid work, uh, to make that right. But, but, so you can do it in-house. And I would say most body shops do, uh, they, they may offer a and you can offer a limited warranty. You know, I, I, I deal with a lot of body shops that offer a lifetime limited warranty on their work. 

And then, uh, they're just using operating cash to cover, uh, any claims that. So you can do that. Um, there's, there's no reason or rule that says you can't do that. Uh, the challenge with it is, and the reason why it's not as an, as an advantageous as using a reinsurance vehicle if your cash flow's strong, is, uh, because of the tax advantages. 

And that's something we can get into. But, uh, I would say that would be the biggest reason not to do it, even though you can do it. Okay. So let's say that we have a shop that's local. Um, they offer limited lifetime guarantees on all of their work, but it's a, it's, they're cash flowing, that they're guaranteeing that with their personal bank account. 

So how would someone even start the process of finding a warranty company or reinsurance company or something like that? Like what, what, they just entered it into Google and go from, You know, a lot of, a lot of that is, is like anything else in these businesses, typically your competitor's not gonna really tell you, uh, give you insight. 

They're not gonna tell you who to network into. You know, most of the, most of the dealers that I have come to know and, and do business with came to me through referral or through a 20 group or through, um, state or national associations or speaking engagements. I mean, these. These are operators that are out there looking for more education and looking for more training to get better at their skill, their business. 

And that's typically where the intersect is. You know, they go to a state show or they go to a state convention, they go to a national convention, or they go to a 20 group, or you know, they go to some of these different, um, trade shows to try to learn more and then we intersect, or, you know, Uh, you know, we have one client that tells a buddy of his about all the things they can do in reinsurance and warranty, and then they call, and, you know, certainly I've met quite a few clients who have just googled, um, reinsurance or they've Googled something else and somehow got a hold of me and then we started talking about this, that, and the other. 

But, uh, yeah, I mean, and, and you gotta. You gotta be careful because you, you know, you never know who you're gonna get when you Google. So I, I would just recommend if you're gonna Google reinsurance, Uh, and you're a body shop owner. Um, that's fine. Uh, you know, do, do some, some just put, put into Google automotive reinsurance concepts instead of just like you could do, or, yeah. 

Or you could go to arc dealers.com and that would be faster than Googling. If you did Google it and you found somebody, I'd give you a pro tip. And a pro tip would be, you know, vet, you know, interview who you're talking to, see if you like, if you wanna do business with 'em, if you like the kind of person they are, number two. 

I would, um, do a little due diligence on the underwriter. You know, are they working with an A rated underwriter? Um, and then number three, um, uh, ask for some references and give some of their clients a call. Um, I'm always amazed at, you know, what a reference will tell you, but if you're gonna just Google it, then just do a little background to protect yourself and you should. 

Hey guys. Adam from the podcast. I hope you are enjoying today's episode. Just wanted to ask you a quick favor. If the show has brought you value in some way, would you mind giving us a review and sharing the show? It really helps the show get out there. Also, if you are looking to expand the services that your shop offers and you want to do more than collision work, you should really check out our company Clarity Code. 

Clarity Coat is a peelable paint that allows body shops to offer color changes cheaper than a repaint, while still looking like real paint. You can also offer clear protection that has no edges and is sprayed instead of laid. Unlike vinyl and ppf, clarity coat can be sanded and polished so you can give your customer the exact look that they are wanting. 

If you are looking to expand your shop services, go to clarity code.com and fill out our Become an Installer form. All right, let's get back to the show. Somebody, somebody starts this whole process of getting, doing a reinsurance, um, for themselves. What does, um, what does that process look like? What are you, what are you guys looking at and what does a shop need to produce or, you know, what, what's, what's on their end? 

Well, in, in my business anyway, when we are talking with a new body shop, uh, we, we certainly try, we, we, we go slow on purpose. Uh, these are new concepts. They can be somewhat complex. And if you're listening to this podcast today and you're a body shop owner, and as we are unpacking some of these concepts, so these models. 

And, and, and, and, and they don't necessarily resonate right away. Uh, it's, that's not, that's normal. I mean, most people have to walk through it a couple of times. I mean, even the most savvy operators to really reach an aha moment. Now, the good news is once you kind of get it, you get it, but it takes a couple of walkthroughs to kind of figure out. 

So we, we try to go slow. We're not in any rush. These are new concepts to a lot of of operators. And we're talking about a lot of money. So we, you know, we don't want anybody to feel like they've gotta make a an in a hurry decision. The first step, what we'll do is we'll ask for, um, this year's and last year's tickets, how, you know, what their total ticket count was. 

Uh, we'll look at what their claim, if their tracking any B backs or, you know, um, Um, if, if, if they're tracking any type of claims that they had to pay outta operating cash, that's really what we're looking for. What we're trying to get is a sense of, you know, what type of work are you putting out? What are you currently, uh, are you offering a warranty now out of operating cash or are you not? 

Have you ever done this before? Are you tracking any of this? And some do and some don't. You know, Many body shops are, are, are so strong that, uh, they don't have a lot of people coming back with a, a claim, if you will, or, you know, you didn't do this right, or, you know, you need to fix this. It's wrong. So we're the first step is we're gonna try to get a good warm feel for what the quality of the work is, it's being delivered, um, how much of it's coming back, and what that means as far as dollars and. 

Then we'll package that all together here internally, and we'll come back to the operator and say, or the owner, and we'll say, this is what we're feel, you know, looks like based on the data that you've given us or haven't this, this appears to be what your claims or loss ratio is. You know, you do this much in revenue and you have to do this much rework or you know, this is how much you've spent. 

Claims, if you will. And often it's surprisingly low. And often we found that body shop owners or uh, executive management are really glad to put their nu their, uh, their finger on that number because it's something they don't, they don't look at a lot. So that's step one. And then once we get to kind of a, uh, you know, a, an agreeable place there, then we start talking to 'em about what the reserve options are. 

And so, based on your claims, Uh, based on your history, uh, it, it we would recommend that you reserve, uh, um, on future jobs to, um, this amount of money per job. Now, in the body shop world, it's a little different than in the car business because, um, cheaper jobs aren't as profitable as more expensive jobs. 

So what we, what typically, in the automotive world, everything is pretty much a flat. Uh, as far as, um, the reserve amount is set based on VIN number and actuarial tables, uh, the reserves and the fees, I mean, basically everything is like a set price per car. So if you sell 30 cars a month and you're on a three, three limited warranty, we know it's gonna be about two hun, 150 or 200 or $300 per. 

Period. It's, it's just one number. Um, however, in the body world that's a little different because the profitability is so different. Um, On cheaper jobs for more expensive jobs. What we've done is we've created a new model that, uh, our system tiers the, um, reserve based on the amount of the body job. So if it's a ticket that's less than $850, for example, that might be. 

A very small percent that's reserved. Uh, if it's, you know, the next tier may be eight 50 to 1500, and then 1500 to 25, and then 25 plus. So maybe there's four tiers where the system says, okay, I see this ticket you've written. I see how much it is, uh, we're going to reserve on the side. Um, different percentage amounts of those tickets. 

Because what we don't want to do is we don't want to reserve so much money, um, on the cheaper jobs that you don't make any profit. You know, that wouldn't make any sense. We're trying to draw down the profitability overall, so you have less of a tax burden at the end of the year, but we don't want to affect operating cash flow. 

So that's two different. So, so the next step is to kind of walk the dealer slowly through and it, you know, and the, and I mean slowly, I mean this, this may take an entire quarter to really make sure that the owner operator really understands, um, uh, the historical claim rate and then what we're recommending as reserves in this tiered schedule based on what they do and their profitability. 

Uh, and then from there, They understand and everyone feels good and we've talked to the board and they understand our next step would be to, to execute, to, to deploy. And that's not a very quick process either. It can be quick, but you know, we, we, we try to meet the, the client's needs as far as speed, so, The next step would be to form a reinsurance company. 

And, um, that is a separate company, uh, completely separated from the body shop. Um, usually it has common ownership, not always. So the same people that own the body shop don't have to be the same people and the same percentages that own the reinsurance company. But typically the primary owner of the Body Shop is the primary owner of the reinsurance. 

not always, but uh, you knows, a lot of times there's kids involved cuz we're talking about, you know, long-term wealth creation here. So, um, uh, so step three is that this reinsurance company is formed. It's really painless. You know, we do all the heavy work other than, you know, signing a bunch of forms that we walk, walk clients through. 

And so this company is formed and this is where people start to get. This reinsurance company is formed and many, many people in reinsurance, many reinsurance experts start name dropping things like Turks and Caicos and Tribe Delaware, and um, you know, these African countries that are shell companies for tax savings. 

And that's some of that's true, but you know, what we're looking for is to form a reinsurance company that can handle the reserves in a tax friendly. And so the most tax advantageous places to do this are places like the Turks and Caicos, or the Tribe of Delaware. Um, so that's where we open the re your reinsurance company at. 

So now you have a new business and instead of going on to your local state secretary's website and spending 150 bucks and opening up an llc, we are forming it in this tax friendly environment. Where your reserves can be, um, handled, uh, financially the best suited for you. So a lot of times we'll use Turks and Caicos. 

That's often the case. Uh, we open up a, a company for you on your behalf that you own, uh, in the Turks. And, uh, however, your money, and this is a common misconception, your actual money, like your physical money never, never leaves the states. So you've got this company in the tur. But then you've got your money that's being seated into your, that co that company opens up a checking account essentially. 

Now they call, we call it a trust account or you know, um, custodial account, but it's a checking account. So you got this new company, we'll call it, you know, body shop re over in the Turks, and then it opens up a checking account, you know, it's really a trust account. And then, uh, the reserve money, uh, every month from the calculations on your body work. 

Is then moved over from your operation over to this new company where it's held. And so that's the final piece is putting in that infrastructure. So first we gotta make, we gotta look at your historical data, if you have any. If you don't, we gotta make some assumptions. Step number two, then we gotta come in and make sure you understand how much we're gonna be reserving per job to make sure it doesn't affect your operating cash and how we can create long-term wealth. 

And then third is actually, you know, executing, opening this company and, and, and getting it going. Alright, that does it for today's Quick Clips. If this episode has brought you value, would you mind giving us a review? Also, if you would like to learn more about Clarity Coat and what it can do for your business, please visit us@claritycoat.com. 

See you on the next one.