Author Archives | Joel

Deconstructing the Two Extremes of Digital F&I

Deconstructing the Two Extremes of Digital F&I

Should F&I go completely online? Is today’s F&I process dying a slow death? The people on the extreme ends of this conversation concern me. There is a set of old school F&I professionals who are strongly resisting any move toward allowing the car deal to start online. They are resisting providing product information on dealer’s websites. They are resisting the notion of product videos utilized to introduce products to customers early. They want to maintain control of the transaction.

They might be operating out of fear — fear of the unknown or fear of lost income. In almost every instance, they will hide behind their vast compliance knowledge as the reason the new approaches can’t work.

On the other extreme, there are a set of people and companies that believe a clever set of processes with the right technology will delight the customer and match or even exceed current F&I performance without the reliance on traditional F&I managers and the expense associated with them.

Postponing the Inevitable

It is very naive to believe that change isn’t necessary and that we as an industry don’t have to respond to the pain points of the consumer. We have all witnessed how in a very short period of time the consumers have grown much more sophisticated. They are also way more skeptical and significantly less tolerant than they were 10 years ago.

It wasn’t that long ago that some F&I managers would purposely have customers wait a little longer in the waiting room in order to gain some sort of psychological advantage. For a dealer or F&I manager to believe they can just maintain the status quo and not have their customers defect to a more customer-friendly process is silly and reckless.

Let’s all agree that there is a general demand from consumers to streamline the car-buying process. Most consumers believe that the F&I portion of the transaction in particular is too slow. Hopefully we can agree that having a great deal of transparency is a best practice, and that anything we can do to give consumers access to more information is a positive thing and certainly fits with everyone’s desire for a compliant transaction. There are, of course, a set of customers who are perfectly happy with the current transaction times and processes; however, they are increasingly in the minority. Most want change.

But let’s not go too far too fast. There is a lot at stake here. Besides the compliance concern — which is real and does need to be dealt with — there is the F&I dollar that is so important to dealership profitability. In an environment of compressed margins on vehicles, F&I dollars are what’s making the dealership profit model work. Taking F&I profitability out of the hands of experienced sellers of F&I products will in many instances result in lower productivity.

I recently saw an interview with Steve Weisz, the CEO of the very successful Marriott Vacation Club. In the interview, he mentioned that his timeshare product is a product that needs to be sold. This struck me as being very true and compares well to a vehicle service contract. While there is a huge price difference between a timeshare and a service contract, they are similar in that both require a fair amount of explanation and nobody ever just comes wandering in to buy one.

Anybody who has sat in an F&I office and scratched and clawed their way to a 50% penetration knows very well that the same results cannot be achieved with a cool video or an Amazon “Buy Now” button.

The Agent’s Role

So what’s the answer? We can’t ignore the changing consumer dynamics while clinging to our old F&I ways. We also can’t throw out our current process and the huge revenue it produces in hopes of dazzling enough customers with technology that it translates in to a profit.

The answer is in the middle. The middle is still valuing people and the role they play in a successful dealership selling system. We also have to continue to develop and embrace technologies that speed the transaction time.

We have to offer consumers choices that allow them to start the deal early if they choose. We have to have information out front and available to the customers who want it early. Agents and dealers need to look at every aspect of their process and find places to trim minutes off the time needed to buy a car. We have to accept that change will continue to happen and we must be willing to embrace it. We also have to be willing to test pilot new processes and technologies so that we can adapt to the change ahead. There are several dealerships having great success with hybrid managers and with hybrid sales people who perform much of the F&I function.

A key ingredient to every positive solution will include a well thought-out training plan. Whether you are just trying to trim 10 minutes off of your dealers’ current transaction times or you want to convert to a one-person, one-process buying environment with salespeople taking the customers all the way through the process, training will have to be a key ingredient to your plan.

So no one has to panic. There is always going to be a place for high-quality proactive personnel in agencies and in dealerships. Technology and processes will never entirely replace high producers. If you embrace change and put a comprehensive plan in place with an ongoing training plan, the future is very bright.

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Building Your Agency for the Future

Building Your Agency for the Future

As agents today we have a dramatically different landscape than we did 10 or 12 years ago. The total number of franchised dealers fell 23% between 2000 and 2012. This reflects the closing or consolidation that has been going on for a very long time, but that was accelerated through our economic down turn in 2008 – 2010. At the same time, the public and mega dealers keep getting bigger and stronger. At last count the six publicly held dealer groups owned 1050 franchise stores, and all six are in buying mode. I’m not sure what you are seeing in your markets but I suspect that it is the same thing we are seeing in ours, which is that stronger dealers are all in buy mode. So if the six public dealer groups own 1050, we can only imagine how many dealerships are held by the next 200 mega-dealers and how much that number will grow in the next 24 months.

The Mom and Pop car dealer that was once a mainstay of independent agents has been going by the wayside, and the trend is speeding up. At the same time, the challenges that dealers are facing are becoming more complex. Their needs for outside assistance are greater than at any time in history. Let’s face it, there was a time when this wasn’t a very complicated business. You bought cars at wholesale and sold them at retail for a $2000 – $3000 profit. You would have a service department in case they broke down. You promoted yourself in the local newspaper and you sponsored a little league team. Being a dealer was pretty fun. A dealer’s biggest concern was whom he was going to get matched with at men’s league golf on Tuesday night. That is all a distant memory.

Today’s game is entirely different, and most dealers don’t seem to be having any fun. They have a very capital-intensive business. They have difficulty recruiting and keeping good people. The consumer has become very informed and demanding. The manufacturers have become clever in finding new ways to apply pressure. The margins are compressed on both new and used, and just for good measure the ever-growing buying segment of Gen Y buyers don’t like the buying process. We have leagues of people looking for ways to sue the car dealer, and government agencies devoted to coming up with new restrictions, new audits and challenging important dealer revenue sources. Can you even imagine what will happen when interest rates go up a couple hundred basis points?

While the shrinking dealer number would appear to threaten the independent agency model, these separate macro trends dealers are facing present a number of areas where independent agents can offer additional value. They can offer the types of services a manufacturer isn’t equipped to, and the flexibility that a big box solution isn’t built for. Said another way, dealers need good agents more than ever. They need agents who can provide real world solutions for the very real problems they face.

You see, it isn’t practical for a dealer to be an expert at everything. By definition they can’t focus on everything. The profit margins are thin enough that hiring a third party consultant or implementing a technology solution for every challenge isn’t economically feasible. Even mega-dealers have difficulty affording or finding enough management horsepower to carry out their game plans. What dealers do not need is a parasitical relationship whereby they act as the host to an agent who hands out spiff checks and from time to time helps out on a claim all while collecting fat commissions.

If an agent can transcend being a service agent and become a partner agent, there is a big opportunity. If they stack their existing relationship skills, their F&I training skills or their reinsurance skills and add to them additional difference-making knowledge and services, they will become invaluable partners to the dealers for years to come. But this won’t come without some pain. Some agencies may discover they have people on their team not up to the challenge. Or agency principals may decide that the point they are at in their career, they aren’t up for a major re-tooling of their business model. An individual representative probably won’t be able to service 20 dealerships and provide the level of training, support, expertise and follow-through necessary to become viewed as a true partner in the dealer’s eyes.

The stakes are high. For both agents and dealers, those who adapt and survive the fast-paced, changing landscape the rewards will be great. The agents or dealers that chose to do things as they always have will find themselves on the outside looking in.

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