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Selling Appearance Protection

Selling Appearance Protection

As dealership reserve shrinks, the pressure is increasing on the F&I office to find other avenues to enhance and replenish overall profit margins. Shoring up dealers’ bottom line in F&I is more critical than ever before. Historically, the focus in F&I has been on big-ticket items, but as lease penetration reaches new highs and reserves shrink, ensuring that a balance of products are being offered could be the key to maximizing profit. Offering and being well versed in appearance protection products might be just what the doctor ordered to stay ahead in today’s changing market.

Andy Parvich, national sales director, Siskin, has found that dealers are often unaware of their lack of focus on appearance protection. He believes the job of a general agent is to make the importance of this clear to the dealer on a profit level. “You have to reopen their eyes sometimes. At the end of the day, appearance products are the products the customer will benefit from on a daily basis.”

Lease and Cash Customers

The recent growth in luxury vehicle leasing is having a positive impact on the sale of appearance products. The benefits appearance protection products offer are especially applicable to cash and lease customers. They can enhance customers’ trade in value by keeping the car looking new. They can also prevent the customer from being charged for minor damages at the end of a lease.

When dealing with lease customers, Stan Starnes, executive vice president, Dent Zone Companies Inc., recommends being proactive. “Ask the customer why they would want to live with a dent for the entire term of their lease and then get the covered repair fixed just before they trade the car in?” Instead of selling protection that works this way, Starnes recommends offering protection that the customer can take advantage of as soon as a dent occurs.

“They want a new and fresh looking car every day,” added Jerry Biller, president, Usbergo Inc., “So ask them, ‘Would you like to look at a dent for three years (until the end of the lease term) or get it fixed right away?’ If you can get dealers to focus on enhancing the customer’s ownership experience, F&I will be more profitable.”

Aaron Cooper, director of F&I, Dent Wizard International, agreed, “Why get a program that doesn’t benefit them until the end of the lease? Customers like that approach.”

The Appeal for Dealers and Customers

Biller recommends including appearance products as a part of the core offering in F&I. “You want the customer to consider these products first and not just present appearance protection as an afterthought.” Biller says it’s the relevance to the customer that makes them core products. “A dealer needs to make sure that they are offering ‘actual products’ in the finance office – and not just contracts.”

Jeff Phillips, account manager, XPEL Technologies Corp., sells a protective film that he says works everyday ­­– unlike some products, such as theft recovery, that customers may never see the benefit from. “As people keep cars longer, products that maintain the vehicle’s appearance not only result in greater profits when a car is eventually traded in, but also improve the entire ownership experience.”

Cooper sees appearance protection products not only as revenue generators, but also as tools for increasing customer retentions. “When we sell appearance products and the customer comes back to the dealership, it provides another opportunity for the dealer to provide a positive experience for the customer that will hopefully result in them being a repeat customer.”

Appearance protection products can also be sold after the vehicle sale. Offering appearance products in the service drive and when a customer files a claim can be a successful strategy that give customers something of immediate value.

Despite the added value of selling in the service drive, Cooper says the greatest success comes from a well trained F&I manager who is knowledgeable about both the products and the disclosures. The panel agreed, adding that while service drive selling is an option, the F&I office is the best fit for offering these products.

Appearance Protection and the Sales Department

By training the sales department about product options, they can be the first to expose a customer to appearance products. By pointing out areas in which a new vehicle is not protected and then reassuring the customer that the dealership can provide a solution, the sales department whets the customer’s appetite, so to speak. Then, when customers arrive in F&I they are more interested and receptive to hearing about the products.

Phillips says he has seen the most success when the dealer takes advantage of the downtime after the customer selects a car and the sales department does a soft sell presenting the products. “Often it is as simple as exposing the need for products earlier to the customer. Point out dents and dings on the customer’s trade-in when they first bring the vehicle in and let them know that those dents and dings will lower their trade-in value.”

Pavich agreed that there is an advantage to involving the sales department. “They need to know what the products are and what the coverage is. Sit down with the sales team and make sure they know the ins and outs of the products. Training them as well as F&I can make a big difference.”

Another way the sales team can facilitate the sale of F&I products is by giving the customer a live demo. “Make it fun,” says Pavich, “If the sales team can involve customers in a way that is fun, that’s great.”

“You can only present so many things,” added Starnes, “We talk about needs awareness. You have to develop this and set the stage. Our value proposition is, ‘You will get a dent. What will you do?’ You only have to get three dents and the product is paid for.” Starnes says their products “play well with others” and also do not require a lengthy presentation when it comes down to the array of products offered on the menu.

Menu Selling and Price

The placement of appearance protection on the menu is a factor worth considering. Pavich says that F&I managers are often trained to present service contracts first on a menu. However in his experience, Pavich says this can turn customers off. He recommends presenting appearance products first. “Appearance matters to everyone. Whether they are a Chevy buyer or a Mercedes buyer, people want their vehicle to look nice. It is a matter of opening their eyes and offering products at a reasonable price. When you do this, they will see the value in it.”

“It goes back to what is important to the dealer.” said Cooper, “Sit down with them, evaluate the customer base and decide if appearance protection should be a product that is presented third, sixth or higher on the menu.”

Pavich pointed out that pricing coverage right is a critical component when presenting product offerings. The customer’s monthly payment needs to be taken into consideration when offering appearance products. “It would be tough to bump a payment up $40 for someone with a lease for $199 per month. The payment increase for the product needs to fall in the $6 to $10 range.”

To Bundle or Not to Bundle

Cooper reports he has seen better penetration with bundled product presentations. “A customer can choose if they want to add products to a bundle. We see this as a better play for dealers, and what customers gravitate towards.”

Pavich, on the other hand, reports seeing huge success when products are sold individually. “What benefit is the customer getting with a bundle? Windshield is not going to cover full replacement, it is repair only. The benefit is going to be actual replacement. Some packages of dent protection only provide $250 of dent.”

In a few states, where contracts are now cancelable, bundling products may come with added risk, warned Pavich. He thinks other states may soon start following this practice. “Putting everything on one form could make the whole thing cancelable.”

Understanding and Explaining Coverage

Making sure the customers understand the limits of coverage as well as the F&I managers is very important. Starnes says someone could have a giant scratch keyed across the entire car door and assume it is covered if they weren’t fully informed of what the product covers when they purchased it.

Biller added that the F&I manager must explain what is included and excluded, and note the limitations, deductible, and out of pocket costs. “Paying attention to the benefits when presenting to a customer is important.”

“Lay out the exclusions,” recommends Cooper, “You don’t want something [incorrect] being said when the product is sold and it coming back to you later. If the car comes back with the customer having lots of issues, guess what? The F&I department is not going to sell the product anymore! It sounds like a no brainer but it goes back to getting the correct picture painted with the F&I manager of what is and isn’t covered. It’s critically important in that process.”

In the event that a customer did not understand the coverage and is obviously upset about something not being covered, Pavich suggests that in certain situations, it may be worth it to oblige the customer and eat the cost. “If we need to pay extra to keep that customer coming back and telling their friends, then it’s worth it.”

Making sure that all of a dealer’s F&I managers not only understand the coverage, but are on board and convinced of a product’s value, as well as it’s reliability and effectiveness is crucial. “There is always one F&I manager who sells everything except for one product.” says Phillips, “They have to be convinced that the product is not like ones they have seen in the past that were not quality products. For example, they may have seen a coating in the past that eventually yellowed or became hazy. They need to see and be convinced that the products they are selling are quality products. And we have to show them that they are top quality.”

Technology and Sales

As the push for electronic and digital training and presentations grows, the panel discussed how they are meeting these demands. Cooper emphasized that having cutting edge technology for presentations can make a big difference in capturing customers’ interest.

Biller agreed and expects the demand and appeal to continue to grow. He recommends making technology available to facilitate the process of selling appearance protection products. He believes technology can also offer a means for including the sales department in the process, “If the sales department is part of the process, are they given tools, such as a mobile app, to present products?”.

Taking advantage of the latest advancements technology has to offer is a must as everything becomes more digital, says Starnes. In response, his team, as well as other appearance protection companies, are investing in digital training modules and iPad presentations. “More and more, our clients are leaning towards electronics and are asking for technology.”

Technology can also be used to provide frequent and effective training in the actual application of products. This method is especially valuable in light of the high turnover in the F&I office that dealers face. Most appearance care companies offer various electronic training and videos that can prevent the agent representing the products from having to visit a dealership every time the dealership experiences employee turnover.

If you have not done so already, this panel says it’s worth giving appearance care products a second look. Offering customers a variety of products beyond the service contract can be a great way to shore up the dealer’s bottom line. And that is something all agents want to cash in on!

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Agent Summit V Wrap Up

Agent Summit V Wrap Up

To all who attended – thank you for making Agent Summit V the best yet. Since its inception, the number of attendees has increased with each passing year – and with close to 900 attendees, this year was no exception. Agent Summit was launched in 2010 and was designed to provide Independent Agents, who serve as an extension of F&I product providers, with a forum to come together to network, share and learn. Today, many now regard Agent Summit as the one must-attend industry event of the year. This year’s show highlighted the latest training techniques and addressed the newest trends and most pressing challenges that Agents face as they serve their dealer clients.

Attendees were welcomed to the show’s upscale new location at the Venetian Palazzo. Complete with cobblestone streets, footbridges over canals, blue skies, and gondolas, attendees couldn’t help but feel as if they had just stepped off the plane in Venice, Italy. Jaws dropped as Agents who had taken advantage of the Agent Summit room block entered their stunning suites. Words like “lavish” and “spectacular” were heard describing the Palazzo as Agents arriving on Sunday evening gathered for welcoming cocktails.

Much like the Palazzo’s five star reputation, show sessions featured “five star” industry experts with every detail of the show sessions ultimately spelling “Profit!”

The third annual Reinsurance Symposium once again preceded Agent Summit; this year featuring two expert speakers. Greg Petrowski, senior vice president, GPW and Associates Inc., and a veteran speaker at Agent Summit, returned to the stage, and was followed by Brian Feldman, executive vice president, Spencer Re – a seasoned executive who has been a part of just about every facet of the reinsurance space.

With more than 20 years of industry experience each, Petrowski and Feldman shed light on the often confusing benefits of controlled foreign corporations (CFCs) and non-controlled foreign corporations (NCFCs).

At the conclusion of the half-day Reinsurance Symposium, Randy Crisorio, president and CEO, United Development Systems Inc. (UDS), and returning advisory board chair, got the show underway with the official opening address.

This year’s show focused on four major areas, 1) Selling to dealers; 2) Training; 3) Coaching and development; and 4) Technology. Each topic was explored first in an individual feature presentation, and was then followed by a panel session.

Morning presentations featured strategies for closing more business and practical steps for getting in front of dealers. Jimmy Atkinson, COO, AUL Corp, stated, “You have to look at a dealer’s DNA – ‘Dealership Needs Analysis’ so you can provide them with products and solutions to meet those needs. This requires pre-call planning and a targeted presentation.” His mantra for agents was “Be prepared. Be flexible. Be confident.” AE readers can look forward to Atkinson’s further expansion of this topic in an upcoming issue.

Days one and two closed with a cocktail reception in the Expo Hall. Throughout the show, crowds filled the expansive Expo area as agents took advantage of the buffet of networking opportunities. With more than 75 tabletop exhibitors and just shy of a hundred sponsors, the exhibit hall was full to overflowing. Exquisite breakfasts and lunch were served alongside the Expo Hall, thanks to show sponsors.

Known as the “World Greatest Closer,” keynote George Dans jump-started day two out with a bang. Dans was a whirlwind of energy, as he crossed the stage, leaving a flurry of excitement and emotion in his wake. He shared personal stories of both success and failure. In his fast paced, energetic address, Dans got the audience pumped up with a revitalized enthusiasm for closing every single deal. He encouraged attendees to be at the top of their game, “We become what we think about all day. You need to say to yourself, ‘I’m good. I’m gifted. I’m talented. Fear, doubt and worry are behind me.’” Dans urged attendees to step out of their comfort zone and to change their way of thinking so they could come out not just ahead, but at the front of the pack. After his presentation, Dans signed hundreds of copies of his book, Just Close It… Ask and You Shall Receive, which were available to all attendees.

Day two also featured two sessions on training, which emphasized the foundational importance of establishing good relationships in order to get buy in from all parties. The sessions covered themes, frequency, and the needs of retail personnel in service, sales, desking and F&I management.

“As an agency,” stated Ron Reahard, president, Reahard & Associates Inc., “you have to help your F&I managers address the challenges they face on a daily basis, and give them the skills, the knowledge, and the confidence to be successful… Performance doesn’t improve because you or a dealer demands it, it gets better because you put a plan in place to ensure it happens.”

A panelist urged, “Make sure the dealer and GM see you as a partner, and know that you are there to make them better.”

Joe St. John, director of training, Innovative Aftermarket Systems (IAS), and seasoned academic, delivered the feature presentation on coaching and development titled, “Xs and Os – Brain Science for Better Coaching.” This dynamic presentation was definitely an audience favorite. St. John’s unconventional yet proven approach focused on the “why” that drives a customer’s decision to make a purchase. He used a lively combination of humor, experience, and science to demonstrate how to reframe common scenarios for success and forge a unique roadmap for the road to the sale.

The coaching and development panel session explored topics ranging from dealing with underperforming veteran F&I managers, strategies for facilitating collaboration between the sales department and F&I, and how agents can ensure their efforts are recognized by dealers. ”Communication,” urged panelists, “is key.”

After a lunch that rivaled any Vegas hot spot, names were drawn for two $500 gift cards, courtesy of Old Republic Insured Automotive Services, and two weeklong deep-sea fishing trips, thanks to Performance Automotive Management. The lucky recipients of the gift cards were Glen Tuscan, president, Dealer Commitment Services, and Greg Liverett, vice president of marketing, SGI Services. William Kelly, partner, Automotive Development Group, and Anna McMillan, president, The Milby Group, were thrilled to win the fishing trip prizes.

Jim Maxim Jr., president, MaximTrak, showed agents how to use cutting edge technology to set themselves apart from the competition, increase profits and operate more easily and efficiently. In addition to examining today’s technology landscape in industries across the board, he presented innovative technology solutions for agents and explained how they could be integrated into everyday business.

The technology panel session dissected topics ranging from the impact of compliance on menu usage, to data analytics, and the increasingly popular move towards customer driven presentations in F&I. Panel members were in agreement that in any type of business, you can’t manage what you can’t measure.

The day concluded with a drawing for a Surface Pro 3 sponsored by Endurance Dealer Services. Tom Clark, the owner of Prosperity Dealer Services, was named the prizewinner.

Day three of Agent Summit ushered in the second annual agent principal only session, featuring round table discussions during a sponsored breakfast. The new format was informative and engaging with top agents brainstorming solutions for common issues agents face in their day-to-day business operation. Agents entered the room on high alert as they scanned topics by table to decide which one was most relevant to them. After thoughtful collaboration, each table captain shared their group’s recommendations for making the most of the given challenges. Discussion topics included selling in the service drive, provider relations, dealer expectations, effectively managing a remote sales force, staffing, competition and more. As one table captain took the podium, he pointed out the vast amount of wisdom and experience in the room, stating that his table alone represented more than 81 years of collective industry experience.

Show sponsor, ECP, ended the third day by sending several attendees home with new timepieces. Tension filled the room when names were drawn for the recipients of a Tissot Sailing Touch watch, a Luminox Deep Dive watch, and a Rolex Explorer II. Derek Doberstein, account executive, Back End Builders, took home the Tissot; Brian LoBaugh, partner, Auto Group Services pocketed the Luminox; and Mark Swannie, president, Karbiz took home the grand prize Rolex.

At the end of the show, Crisorio shared his thoughts on Agent Summit V with AE, “The feedback I’ve received is scary. We’ve set the bar so high that future Summit planning will be challenging. Nonetheless, I was told over and over again that Agent Summit V was the best industry event EVER! That says it all and is a credit to the industry professionals that left their knowledge and talent on stage.”

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Plugging the Leaks in F&I

Plugging the Leaks in F&I

Unrealized opportunities for profit occur all too often in the F&I office. At the recent Industry Summit in Las Vegas, John Braganini, principal, Great Lakes Companies, and Steve Veldkamp, director of training, Great Lakes Companies, faced the issue head on and shared their tried and true methods for turning opportunity leaks into profit.

The quality of a dealership’s overall sales efforts is determined by the combined transactional yield in each area of the dealership – F&I, sales, and service. From the moment the customer enters the dealership to the point of delivery, opportunities for profit can be missed anywhere along the way. To illustrate, Braganini began with the following example:

A sales manager’s front-end profit for the month (excluding lease and fleet deals) was $1000 dollars. If everything were to occur perfectly – each involved person following every step to the sale – the maximum front-end gross profit could be as high as $1500. Making considerations for the staff, competition, etc., a realistic sales goal could be $1200. Given this scenario, Braganini asked the audience where the $200 difference between front-end profit of $1000 and the established sales goal of $1200 leaked out for the month. The first step for effective remediation, he explained, is tracking and identifying the leak(s).

“If I came to your store every Monday,” said Braganini, “and told you what each sales person could have done differently to earn those $200, there would inarguably be great value in that. The targeted performance is worth a ton of money. Having the correct remedial solution would be valuable to any dealer.” To accomplish this goal, Braganini and Veldkamp developed a data driven management system to replace other commonly used methods for analyzing sales profits, such as throughput analysis.

Throughput Analysis

Braganini described throughput analysis as the traditional and most commonly used method for analyzing retail sales.¬ Throughput analysis examines the overall profit at the end of the month. If the results are not acceptable, changes are made in hopes of increasing future profits. Braganini explained, “A finished production period is examined and broken down by gross, units and/or per retail unit (PRU). The data is reviewed and a decision made as to the acceptability of the yielded results. A remedial solution is then implemented.” The problem with this method lies in the determination of the remedial solution. Since the only data considered in throughput analysis is the end of the month profit, it is impossible to know where the breakdown occurred. Braganini said the implementing remediation boils down to guessing. “Making a guess about where the leak is and making changes in attempt to remedy the problem is, at best, taking a stab in the dark.”

Though commonly used, Braganini and Veldkamp said throughput analysis is NOT a recommended form of management. “It is not capable of providing the detailed data necessary to identify a problem and come up with a solution. Whenever I guess,” said Braganini, “I am never right more than half the time. Using throughput analysis, you might adjust pay plans, implement training, or replace people in an attempt to improve profits – but if you guess wrong, you could destroy careers, the profitability of the store, or damage moral. You could ruin everything if you don’t have any data.”

To comically illustrate throughput analysis, attendees viewed a black and white clip from an episode of “I Love Lucy.” In the clip, Lucy and Ethel were beginning their first day of work at a candy factory where they were tasked with wrapping individual pieces of candy as they passed on a conveyer belt. At first it was ridiculously easy, but as the process sped up, candy after candy was missed and Lucy and Ethel frantically stuffed unwrapped candies into their mouths, hats and dresses in hopes of hiding their inability to keep up from their boss. Veldkamp described the clip as the perfect example of managing the end result.

Process Analytics

The management system Braganini and Veldkamp recommend is process analytics. Process analytics identifies all of the sub-processes, or “drivers” throughout the entire sales transaction. It is driven by data gathered on each step in a transaction. Parameters for driver performance can be predetermined and managed in order to meet objectives. It also allows for targeted driver remediation.

Top Five Profit Drivers

After years of consulting with dealers, Braganini and Veldkamp have identified the most common drivers of profit in a sales transaction. Using process analytics, each driver is easy to define, simple to track, and easy to measure. The remedial methods are also easy to define, track and execute. To track the process, they developed five simple yes or no questions for the F&I manager to respond to after the completion of each delivery. The questions address five different areas and responses are tracked using technology. They refer to the process as “Five Driver.”

“The first thing that has to be done when we go into a dealership,” explained Veldkamp, “is data collection; get those five questions answered at delivery 100% of the time. Getting the process established can be a struggle for the first few months.”

Braganini and Veldkamp described the five most common drivers of profit and offered remediation strategies for each:

1. Desking
The sales department typically controls desking compliance. It is easy to identify and is inarguable since it is listed on the sales worksheet. After each deal, this information is used to determine if the deal was closed using the standard dealership participation rate with fair terms and conditions. For example: A customer wants to purchase a $50,000 car for $200/month. The sales person gives the green light and turns them over to F&I. The F&I manager then has take over the role of sales and close the deal; either by asking the customer for a down payment of $20,000, taking the loan out to 84 months, or lowering the price of the car.

Remediation Strategy:
A predetermined, acceptable threshold for closing deals in F&I should be determined by the sales manager. Ideally the F&I office should not be used to close more than 10% ¬– 15% of deals. This requires collaboration between the sales team and the F&I department, which can be a challenge. If this continues to occur too frequently, making the dealer principal aware of the situation may be the needed catalyst for reducing this practice.

2. Turnover
Customers should be physically introduced to the financial service manager within 30 minutes of the sale.

Remediation Strategy:
If turnovers are not being done properly, the point of break down in the process must be determined. Is the F&I department too busy? If so, scheduling could be modified. Is it due to online sales ¬– customers who are not present at the dealership at all? It could be how the sales person handles customers who have secured their own financing. Word tracks can be provided for the sales team to use in these instances. A procedure for handling deals that do not take place on the floor needs to be implemented and employees need to be trained to follow the established procedures.

3. Delivery Conditions
The finance manager should receive the customer within ten minutes after their arrival for delivery. This also tracks whether a vehicle delivered was before noon. Generally, morning deliveries are better because customers are at their best, rather than tired after work at the end of the day; which leads to higher product acceptance rates. The dealership needs to be properly staffed and operate in a manner that focuses entirely on the customer once they walk in the door.

Remediation Strategy:
Evaluate the scheduling of deliveries. Deliveries need to be scheduled at reasonable times to allow for a proper delivery. If one delivery is already on the books, make other customers aware they will have to wait if they arrive at the same time and offer an alternative time. Schedule deliveries so they are not rushed and a proper presentation can occur. This typically increased product acceptance rates.

4. Menu
A needs-based menu with products and services specifically geared towards each customer’s needs should be professionally prepared and presented for every transaction. The menu should be included in every deal jacket. Deal jackets are checked for the inclusion of the menu through random audits.

Remediation Strategy:
If menus are not being used on a regular basis, training on the proper way to prepare and present a menu could be the answer. If a dealer doesn’t have a process, one needs to be established and employees trained on the procedure. The menu design and product placement may need to be modified. Braganini and Veldkamp recommend breaking products down into categories: debt, mechanical and non-mechanical categories. The menu presentation can also be reviewed using video recording and managers can be coached on improving presentations. Different menus should be prepared for lease customers, cash customers and finance customers, as each type of customer brings their own set of risks and needs.

5. The 300 Rule
Offer 100% of the products to 100% of the eligible customers, 100% of the time.

Remediation Strategy:
Customers should be offered and presented every optional service they are eligible for or express interest in. This is monitored through video recording. Videos are randomly selected and reviewed – ideally once per week, per producer, but at a minimum, twice per month per producer. If managers are not following the 300% rule consistently, training on products and product selection, and objection handling could be the answer. Make sure products that are offered are a good fit for customers’ needs – both individually and based on the demographics of the dealership’s customer base.

Setting the Stage

To maximize profits, Braganini and Veldkamp recommend scheduling time to sit down with the dealer and set driver performance parameters in each of the five areas described above. The five drivers are used to determine where the money is leaking out of the store so that the remediation can be set up to target where the leak is occurring. The PRU can be calculated when the system was followed and when it wasn’t. Examples taken from actual stores were given showing significant increases in profitability when the Five Driver system was used consistently.

The video review objectives should be specific to each dealership and should consider culture and demographics of that dealer’s customer base. Performance should be tied to compensation; having a pay plan that takes into consideration the five drivers can be a very effective tool. Pay plans should focus on product, not reserve.

The bottom line from Braganini’s and Veldkamp’ presentation is that missed opportunities can be turned into profitable transactions with the use of a data driven management system. Identifying and focusing solely on the areas in the transaction that are not capturing potential profit can effectively be remediated to maximize profits. Ultimately, Veldkamp says, “If you don’t track what is occurring, you don’t know what to attack. Manage the drivers to the objectives and throughput will follow.”

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The Future Direction of the CFPB: Preparing for the Coming Storm

The Future Direction of the CFPB: Preparing for the Coming Storm

Attorney Rick Hackett is the former assistant director of installment and liquidity lending markets for the Consumer Financial Protection Bureau’s (CFPB) division of research. During his stint there he was considered the bureau’s point man for the auto finance industry. At the fall 2014 P&A Leadership Summit and Industry Summit in Las Vegas, Hackett shed light on the inner workings of the CFPB and gave his predictions of the bureau’s direction for the future. In the last issue of AE we reported Hackett’s thoughts on flats, VSC and ancillary products, and the validity of disparate impact versus disparate treatment. In this issue we bring you Hackett’s advice to dealers and agents for staying out of the regulatory crossfire while still making a profit.

Tools for Compliance

As the retail auto marketplace is increasingly subjected to regulatory requirements, compliance and transparency are quickly becoming foundational parts of vehicle transactions. Keeping up with regulatory demands can be a challenge that comes with costly consequences for dealers if not done correctly. Taking advantage of available monitoring software, instituting a fair lending and compliance program and menu driven selling were among Hackett’s many suggestions for dealerships to stay in the clear. He explained how to be successful while facing challenges head on and the reasons why doing so should be prioritized.

Hackett reported that RouteOne and Dealertrack now have useful software for monitoring mark up that can be accessed through their automation. If executed from the top down, Hackett said using the automation to monitor how and when each individual sales person applies exceptions to the standard mark up can reveal dealership trends. Training can then be provided accordingly. Hackett said the process is not a fig leaf; it gathers reliable data that can be used to prove customers are treated fairly (in the fair lending sense) in every single transaction. The data can be used to rebut any claim that is made because it includes controls and monitoring to ensure it is being fully utilized by dealership sales personnel. Hackett said he has also seen the software used as part of escalation steps.

Hackett described escalation steps as part of the bureau’s process of squeezing finance companies. As a result, finance companies have to create a fair lending compliance program. The first thing the CFPB does if disparate treatment is suspected is to provide notification by mail. Then if it finds historically disparate results coming out of a dealership, the bureau recommends training. Hackett explained that in addition to a fair lending compliance program, there is still a need for “something else.” A monitoring software program could be used to meet that need. Hackett expects this will be the go-to solution for some finance companies.

Including controls and monitoring as additional components in a fair lending compliance program was suggested. Monitoring could be in the form of a welcome call to buyers who had been presented a competing offer as a negotiation tool when they visited the dealership. During the call, questions such as how they enjoyed their sales experience and how they felt about the dealer’s willingness to meet or beat their competing finance offer might be asked. If the consumer’s response indicated they had no idea what the caller was referring to, then dealers would immediately be made aware of a problem. Establishing top down training for this type of program creates documentation Hackett thinks could withstand any lender’s review.

Once every dealer is producing what Hackett referred to as “clean” numbers – numbers justified by the business transaction – he proposed the (hopefully) hypothetical question of lender responsibility in the following scenario:

Dealer “A” is located in a marketplace, which is not very competitive, thus they routinely charge a higher markup. Dealer “B” is in a highly competitive marketplace, so they typically charge a lesser mark up. The customer base for dealership “A” includes minorities, while the customer base for dealership “B” does not. The perfectly legitimate, random results of what is produced due to location and competition could appear as disparate impact in the portfolio. Hackett said if dealers were to really address this type of situation in collaboration with their lenders using the NADA’s program (which calls for a standard mark up for all deals) it would put the bureau to the test.

What Dealers and Agents Can Do

Hackett suggested several ways dealers and agents could guard against future accusations from the CFPB of aiding and abetting, and recklessly providing substantial assistance to unfair and deceptive practices. Hackett said having standard practices in place provides an arguable defense.

Menu driven selling is one means for preventing any appearance of consumer deception. Making it clear to the customer what they are going to pay for products may not be controversial, but Hackett suggested it also may not be common practice in all dealerships. He suggested beginning with the 300 rule – present 100% of the customers with 100% of the products for which they qualify, 100% of the time – and doing it using a menu that shows the payment for the vehicle, the customer’s payment for each product. Consumers can select the products they wish to purchase, and the price of each will be crystal clear.

Another of Hackett’s recommendations is to establish a target range of prices at which ancillary products are offered. He further stated that establishing an acceptable markup ceiling for products is a good idea.

Ultimately, Hackett warned agents and dealers to guard against “selling nothing for something.” He cited an example from industry literature, which looked at whether biweekly payment plans costing $12 per month actually provided any value. “On one side, was the argument that there was clearly value because you pay off the loan more quickly. On the other side was the argument that some products actually don’t pay anything off more quickly; instead, the payment company keeps the money until the end of the month. If I were looking for a biweekly payment plan, I would want to find the former and not the latter, because I wouldn’t want to sell nothing for something.”

He advised considering the suitability of products and taking the time to know customers and their needs. “Educate customers about the value of a product so they aren’t that confused consumer that the CFPB is so concerned about. Consider it as part of why you want to do right by your customer. I don’t think anybody who deals with a 50% down transaction would sell GAP insurance, but I would still train my F&I department not to do that. I tell installment lenders to help people think intelligently about credit insurance. If you have a lot of life insurance, you may not need credit insurance, but for certain people, this is actually a very useful and economically prudent product. When I think about VSCs, for me personally, I can self insure, but a certain number of vehicles, at certain points in time, have expensive repairs out of warranty. If you’d like to spread the cost of those repairs, then a VSC is a smart use of insurance.”

Supervision is Coming

Hackett made a 95% prediction that supervision is coming and is coming soon. He described supervision as a process where the bureau sends teams of examiners to sit with a finance company for weeks or even months to look at everything they do in relation to compliance and federal law. This includes the systemic parts of compliance management, the transaction testing of each individual interaction, and any contracting with consumers, which may implicate a federal consumer financial law. Hackett said everyone wants to know whom this will affect. It will cover both direct and indirect vehicle purchase finance. The key variables are the products that are covered. Hackett pointed out some of the interesting issues resulting from indirect financing: Do you need prior credit approval in the transaction to be part of the counting of transactions? What about spot deliveries? How recently do you need to have added the transaction to your portfolio for it to be a covered vehicle purchase transaction?

Since the vehicle secures an auto loan, Hackett does not foresee auto title lending being affected. Credit unions can also relax. With the exception of two credit unions that have more than ten million dollars in assets, Hackett said credit unions are “protected in their own safe little bubble.”

With leases currently making up more than 20% of delivery vehicles; Hackett says they pose the most interesting question. Hackett pointed out some “funky language” in the Dodd Frank Act, which states a lease is covered “only if it is the functional equivalent of a purchase.” Hackett explained that in his understanding of a closed-end lease, the customer had the right to use the vehicle for a certain number of months and miles, and then they walk away at the end of the lease term. “It’s not the functional equivalent of a purchase. When I worked on drafting the first version of this rule in 2011, that problem is the reason why it didn’t come out in 2011.”

Once you define the transactions, Hackett posed the question of how the size threshold is triggered. “We could be looking at originations or portfolio size on an annual basis. We could be looking at dollars of origination, or people – that’s really counting transactions.” His guesstimate was “a 99% prediction that it’s going to rain on auto lenders” but then softened his prediction with the caveat “it’s a lawyer-won’t–stand-behind-it guesstimate.” He also predicted auto finance companies will soon be included in the top 100-150 originators, probably totaling between 25 and 50 companies. This translates to somewhere around 10,000 transactions a year.

Life at the Bureau

When Hackett started with the CFPB there were 70 people working there. When he left, there were 1200. “That, in and of itself,” said Hackett, “should tell you what it was like to be there – complete chaos.” He likened the experience to trying to learn to fly an airplane while bolting on the wings. “We were figuring out what priorities ought to be for this huge new concept of a federal consumer regulator and then how to go about executing them.” He described the infrastructure as “atrocious” and continuing to get worse.

The bureau offices now span Washington DC, extending north of Massachusetts Avenue (NOMA). Hackett compared the physical expansion of the CFPB to the diaspora – the spreading of the Jews from Israel to locations spanning the globe. “The people in supervision are sitting in an office over Farragut Square; enforcement is near the White House on Pennsylvania Avenue, and everybody else who is supposed to be keeping those people on the right track are halfway across town. On a bad day it’s a 40 minute commute on the Red Line.”

Hackett described his time at the CFPB as constantly “reacting to and preparing for incoming fire from the hill.” To illustrate, he said an Internet search of “CFPB and testimony” would yield more than 300 hits and 15 pages – all testimony about auto finance, whistle blowers, and discrimination against employees at the bureau. “In the Dodd Frank Act, the bureau requires a report on every other page, half of which require congress. So there is a whole lot of time spent by people in cubicles over by NOMA preparing required reports about what really can’t be talked about in public.”

Since Hackett’s time at the CFPB, he stated that five of the six assistant directors in his division have changed. Hackett described four of the new directors as having the ideal background for the job. “They are people who have worked in the industry for a very long time and understand that you have to make some money or you aren’t going to be able to deliver vehicles to American consumers. And that’s not wrong.”

Ideally, treating customers fairly and doing business in an honest, ethical manner should be the goal for all businesses and is the case for most. Despite his concerns and uncertainty of the regulatory environment, Hackett closed on a positive note. “If you think about what the bureau’s story is, it is an additional motivation to do something that we want to do anyway. You have my weather report; now please don’t shoot the weatherman!”

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Competitive Targets

Steve Pearl, Bruce Osborne, Randall Rabbitt and Jay Sharpnack dissect the competition and give advice on how to win when it comes to reinsurance

During one of the sessions at Agent Summit 2014, an expert panel explored what moderator Steve Pearl, president & managing principal, The Oak Group described as the “opaque” topic of reinsurance. Pearl, who has a background as a CPA, auto retailer, and options trader opened the session by promising the panel would go after the competition and shed light on the complicated topic of reinsurance. “I have a pretty good financial background,” stated Pearl, “but every time I think I really understand reinsurance, I read a new prospectus or new offering circular and realize someone else has got a sharper pencil than me.”

The panel narrowed the discussion into three areas:

1. How do you find out what information a competitor is bringing to a dealership – what questions do you ask and where do you look?

2. What are the idiosyncrasies to look for? How do you compare your products to a competitor’s? What can you do to win the business from the current provider?

3. The income development piece – what do you need to do as an agent to develop the income within a dealership – on an income per retail basis.

Panelists agreed that the first step in the process is to ask questions to determine the type of program a dealer is currently in; is it a participation program or a reinsurance program? And did they form a CFC or a NCFC? With some dealers being savvier than others, agents must exercise care when seeking this information so as not embarrass an uninformed dealer. “Often, the dealer doesn’t know. There is an alphabet soup out there – CFC, NCFC, DOWC, PORC – and a lot of times, the dealer just doesn’t understand – it’s not what they do everyday. It doesn’t mean they are ignorant, they just aren’t informed.” said Randall Rabbitt, national sales director/executive vice president, United States Warranty Corp.“

So how do you obtain the information? According to Rabbitt, you get the dealer’s agreements, remittances, session statements, and offerings circular and then do a side-by-side comparison. Rabbitt explained that the process may take days to complete and is certainly not any fun, however, it may result in some surprises that you can use to your advantage. “There may be things the agent and the CFO did not know; bring these issues to light, then show the dealer the solution. No one wants to talk badly about the competition but this is the time to show the dealer the things that are wrong. Everybody wants to be politically correct but I think it’s more important to be correct.”

Often, Sharpnack explained, a company does a great job selling the concept, but doesn’t do so well explaining where the dollars go and how they get there. If you ask the dealer who named their company – the answer will usually reveal whether they are a NCFC or a CFC. If they named their own company, chances are they are a CFC, if the name was given to them, they are more likely a NCFC or they could be in a retro without even knowing it. The best answer from a dealer, however, is “I don’t know” because then you can sit down and figure it out together.

Rabbit shared a story about a competitor in Florida whose standard practice is to take all initial agreements, once signed, back to the office in order to execute them – but they consistently neglect to send a copies back to the dealer who signed. Eventually, when that dealer requests a copy of the agreement, the company is alerted to the fact that the dealer is probably talking to someone else. The result? Rabbit said at this point, the Florida company “sends in the suits!”

Bruce Osborne, national sales manager, Allstate Dealer Services, pointed out that an agent should look at the reinsurance treaty and determine how the money flows and whether or not it can be tracked. “The typical rep for the big box companies is basically doing F&I training and development and that’s it. The difference an agent can make is in coaching the dealer and looking at everything else that is involved. There is a lot you can do to add value to the F&I training development piece that the typical big box rep isn’t qualified to do, and frankly, is discouraged from doing. Tracking the money on a per contract basis and doing things on the back side can really make a difference.”

The Best Defense is a Good Offense

When the big box companies sit down with a map and make a list of dealers for their reps to call on, the best way to prevent them from ever getting traction in a store is to be there before they are and have the same discussions they are going to have. Jay Sharpnack, national sales manager, CNA National Warranty Corporation said, “They come into the store and they do a blueprint or an analysis – they are going to talk to the dealer about every department in the store and find out what your agent is not doing right. Then they will come back in with a PowerPoint and people in suits explaining how they will fix everything – and they sound pretty darn good. They are pretty convincing. The problem is, we need to be looking at all the things they are saying they can do better than we can – the numbers, the losses, the income development, the service departments and the headaches they have, the income trends, the turn over from the sales office to F&I – and we need to be out ahead of it, having those same discussions well in advance. The problem with these guys coming after your store is that they are really good – they’ve got word tracks and so much paper that it looks like they have chopped down a whole forest. And they have hired people who are really good at what they do. They are gunning for you. They sit around and talk about the fact that agents aren’t good – agents are old school. The key is getting as much information as you can in advance, so you can control your store and protect your turf.”

Beating the Competition

In addition to requesting information from the dealer, everyone agreed on the importance of an agent leaning on his or her supplier. “Your supplier will tell you what to get,” advised Pearl, “Then once you have the session reports, annual reports, tax returns, etc., you call them and say ‘Geez- now what do I do with all this information?’ because you are not an accountant or CPA. But if you don’t lean on your suppliers and the experts who work with them to help you through this, then you are going to have a lot of trouble combating a reinsurance account. The bad guys have these people on their payroll as back up. You have back up too, but you may have to ask for it.”

Rabbitt added, “You have the right to call your provider and hold them liable. If you see something wrong, you can call BS on us. We are in the age now where everything is exposed. We all know all the programs that are out there and their weaknesses and strengths.”

So what do you do if a manufacturer promises more vehicles in return for selling their products, or they say they will only let you fund their contracts? In these scenarios, the panel said it boils down to having a strong dealer, which is going to be born from having done the side-by-side comparison with him or her. You need to advise your dealer to get promises in writing – which is not likely to happen – and show them just how much money it is going to cost them to get that extra allocation.

Rabbit urged agents to stand strong, “Stand up and say ‘this is my business and I am not going to put up with it.’ There are people out there who will help you – FADAs and NADAs – and there are people to help the dealer combat this. There are reasons why we are going after these guys. This has to stop. They don’t own that dealership. The only way this is going to happen is – if collectively – strong dealers fight this! And we are strong. All of us are part of the Service Contract Industry Council. The more you convince a dealer that the manufacturer is not their friend, the better off they are going to be. And dealers know that.”

The True Cost of Doing Business

Many companies are not price-competitive in anything. It is important for agents to work with dealers to look at the overall package. In some cases, an agent might have to spell things out for the dealer so they can see where the money really goes. But in order to have all the information this involves, an agent must have earned the dealer’s trust.

Sharpnack said, “The reality is you guys are as capable from a F&I training and development standpoint [as the big box providers]… Why wouldn’t the dealer want to do business with you, when you are more competitive from an administrative perspective and ceding fee standpoint, and you have the same kind of training and development that the big box companies do!”

When it comes to ceding fees, Rabbit used the analogy of a bank telling a customer they were going to put the customer’s own money in an account for them – and that the bank would charge them for doing this. No one would put up with this, yet reinsurance programs with the same basic scenario are rampant.

Another company collects $60 for what they refer to as “promotional budget.” Sharpnack described the process. “They use this money, collected from all of their clients, to buy up other dealers. If by the end of the year, they haven’t spent it all, their sales people run around throwing money at certain dealers before year-end. The irony for the dealer is that their money is being used to buy other dealers. Talk to a dealer who isn’t being offered that!”

In some cases, Rabbitt said even reps are happily ignorant. “There are hidden fees that they don’t even know about. One had a $5500 administrative fee and yet claimed to have no hidden fees.”

Pearl closed the session with a review, reiterating the importance of finding out information about the competitor by obtaining session reports, annual reports, tax returns, etc. from the dealer. Regarding the idiosyncrasies of competitors’ programs, Pearl advised agents to be on the lookout for loss adjustment fees where they have a low admin fee, or low ceding fees when they are charging on every single claim they adjudicate.

Regarding the income development piece, Pearl said, “First, go in and show the dealer blueprints for how you are going to earn them money. But don’t be afraid to go in and ask that dealer, “How often does your current provider come in and review your loss ratios with you?” Its important when you are servicing this account on a reinsurance side that you are controlling the losses.

At the end of the day, the consensus from the panel was the strong recommendation for agents to take advantage of the resources that are available and call their providers to stay apprised of any challenges that are trending across the country. This is the sort of thing providers are aware of and can share with their agents. If an agent is taking advantage of the relationship they have with a provider, then the provider can – and should be – a great resource to them. Rabbit concluded, “The enemy of my enemy is my friend. Whatever we can do collectively to make ourselves stronger, will make those guys weaker. We aren’t smarter or better looking, but the advantage we do have is we are national and we see a bigger picture. We see things occurring across the country and can share them with you. Call us anytime. We are always available to help.”

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Industry Trends for 2015

Industry Trends for 2015

With the recession now in the rearview mirror, the automotive industry appears to be continuing its upward climb. Car sales are at a steady high and vehicle production was still on the rise at the end of 2014. Those who were forced to tighten their belts to survive some of the economy’s worst days are now reaping the benefits and flourishing in today’s market.

AE Magazine spoke with 20 of the industry’s top executives about trends they will be watching in 2015 ­– both in the automotive industry and specifically in F&I. They shared their thoughts and predictions about the economy, products and technology, F&I operations, and the growing impact of Millennials on the auto industry. Read on to learn what they had to say.

The Economy

There are a few shared views among our executives; at the top of that list is the 2015 economy. Some have concerns about the possibility of rising interest rates in the third and fourth quarter, but to one degree or another; most are optimistic about the 2015 outlook. The 2015 economy is generally expected to be robust, following on from the strong momentum of the fourth quarter of 2014.

Kelly Price, president, National Automotive Experts, says, “The major indexes that we pay attention to are oil prices, housing (new construction), interest rates, Dow and NASDQ; all of these lead to more relaxed consumer spending. Year-over-year growth is anticipated as all signs point to a strong and sustainable 2015. Assuming all of this stays positive, the auto industry should follow suit and have a strong year.”

Garret Lacour, CEO, RoadVantage, also expects the economy to continue improving ­– driven by job creation, increased wages and lower fuel costs. “These factors will drive more consumers to showrooms. Several brands set new sales records in 2014, and that momentum will continue into 2015.”

Jerry Biller, president, EcoProProducts, believes all indications point towards a solid 2015 in both the financial and the automotive sector. Mentioning the decrease in unemployment, Biller expects 2015 to be a record year for new and used automotive sales, with more sales transactions this year than ever before.

Oil defines this year’s economy according to Steve Rosenvall, CEO, Alpha Warranty Services Inc. “The economy is driven in large part by natural resources. It’s important to keep an eye on these issues as they arise. Oil and the auto industry are attached at the hip. The economy is seeing some good gains and will continue to through 2015. Lending institutions are continuing to lend money and they are getting creative to help many afford the vehicle of their choice. Many large banks and local banks are posting some of the best gains they have seen in years. “

Bill Gorra, president and CEO, Simoniz USA, Inc., is also among the optimists. He believes the table is set for a prosperous 2015, due to factors such as gas prices, little or no inflation, low interest rates, historical market highs, and record car sales in 2014. He says the stars are aligned for the automotive industry to have a great year. “There should be ample inventory with a wide spectrum of alternatives for the consumer. I believe there is still some ‘pent up demand’ and a lot of older cars on the road that need to be replaced.”

With the increasing availability of credit, Scott Karchunas, president, Protective Asset Protection, expects modest growth in automotive and GDP growth at or about 3%. “If interest rates were to rise modestly in 2015, any negative impact should be minor and potentially offset by the benefits of higher rates to savers.” Additionally, he sites a strengthening economy and labor market combined with lower fuel prices, a low interest rate environment and increasing credit availability as signs that the automotive industry will have another year of modest growth ahead.

Barring any major geopolitical upheaval or a premature monetary response from the Fed, John Luckett, senior vice president of sales and marketing, The Warranty Group, also expects to see 3% growth. “This supports NADA’s forecast of 16.94 million new cars and new trucks to be purchased or leased in 2015. This forecast is based on an economy that has continued low interest rates, rising employment and wages as well as lower gasoline prices.”

Rising Interest Rates

Those with concerns about what the 2015 economy holds cited rising interest rates, international turmoil, and a slowing stock market.

Should the Fed raise interest rates mid-year as it has suggested, Robert Steenbergh, CEO, US Equity Advantage, LLC, believes we could see a general slowdown in the economy; less of a bull market, and an overall wait-and-see approach in the near term from both businesses and consumers. “Automotive will follow suit. With interest rates exceedingly low, consumers will want to buy now before the anticipated mid-year rate increase. How much of a drawback that has on auto sales will depend on how high interest rates go and the total impact it has on the consumer’s overall budget, since rates affect everything from housing and credit to student loans.”

Also on the more cautions side, Tony Wanderon, CEO, National Auto Care, sees the US economy in 2015 having some challenges. “From a growth perspective, I see good results for domestic companies who have very little or no distribution overseas. With the recent strength of the dollar, exports will be a challenge and profits will drop as well. For companies importing into the US, such as Toyota, I see some big profits and aggressive incentives to increase market share. From the energy side, what goes around comes around. I could see gas getting below $1.50 a gallon. That will drive pick-up and SUV sales, then a rapid rise in oil and gas pricing would put pressure on disposable income and drive residuals down dramatically. If you combine that with the return of aggressive lending and the return of normal interest rates, we could see some real pressure on the industry and overall economy in the third to fourth quarter of the year.”

Chris Kerby, president of sales and marketing, Innovative Aftermarket Systems (IAS), thinks 2015 will start as a stellar year, but also has some concerns. “With low fuel prices, turmoil in the Middle East and so many countries like Russia and China going into recession, I think you are going to see some pressures that will affect the economy in many ways. One thing is certain – interest rates are going to go up and in turn, the stock market will slow.

“From an F&I/dealership perspective,” Kerby continued, “I think you will see changes. When times are good, dealers can get loose and experiment in certain areas. F&I is running historically high and not for everyone, but for many, it is not because of their skills. It is because the average carry is the longest it has ever been – finance terms are the longest they have ever been and rates are low. That all changes when the market slows down and interest rates go up. It will be a different ballgame when rates get above 5%. When interest rates go up, what we know as the highest F&I profitability in the history of the car business, as far as income per retail, will be significantly affected.”

But according to Jim Smith, CEO, SouthwestRe, the industry is nearly back to “the good times” of 2000 when there were 17.0 million in sales. Smith pointed out that many businesses were forced to streamline their operations in order to survive the leaner times of years past. The businesses that survived those lean years are now reaping the benefits of their improved efficiency and the elimination of excess spending. And Smith says they are stronger now because of it.


There are many trends our executives will be watching this year. From trade-ins to technology, and consolidation to the CFPB, there is no doubt there will be a lot worth keeping tabs on in 2015.

Tony Wanderon, CEO, National Auto Care, says, “We could see pressure on margins from start-ups looking to become disruptors in the auto-lending arena. I could definitely see a major lender or credit union put a big push on going direct to the consumer. I think dealers and agents will finally say enough is enough and stop doing business with companies who directly compete against them, such as the recent trends of F&I providers selling cars, refinancing or directly selling vehicle service contracts to consumers.”

Among the trends Steve Amos, president and CEO, Gulf State Financial Services (GSFS), will be watching “is the possibility of selling F&I products on dealer websites. There are dealers experimenting with this and having some success. The key to this possible new process will be to identify who will be selling F&I products and make sure they are compliant and know the benefits of the products.”

The Return of the SUV

Bolstered by the 2015 Ford F-150 and GM’s reentry into the small truck market, Bob Pruitt, president, Cal-Tex Protective Coatings, Inc., expects to see truck sales grow at a faster pace than automobile sales. He predicts domestic growth will outpace foreign competitors, but only slightly. “The industry leaders, both foreign and domestic, finished 2014 strong and will continue that momentum into 2015.”

John Vecchioni, national sales director, United Car Care, is looking forward to wonderful opportunities in the year ahead. “With the large drop in oil prices, I think we will see more SUVS and trucks because people won’t be as concerned about vehicle operation costs as fuel prices decline. Smaller vehicles will see a downturn in sales.”

Vecchioni predicts the increase of trucks and SUVs in the marketplace will result in a demand for customized products for these vehicles. “These type of vehicles are used differently to smaller, commuter cars; there is much more wear and tear, they have four wheel drive, and new electronics.” He expects to see vehicle service contracts (VSCs) tailor-made to meet the rougher demands of these vehicles.

John Luckett, senior vice president of sales and marketing, The Warranty Group, expects increased competition in the pickup truck segment as well as the new powertrain combinations being brought to the forefront by manufactures. He thinks that this trend, along with a few others, will lend itself to new product development, and training and underwriting reviews of the products and processes, which are currently being offered in the finance office.

But despite the current price of oil and a corresponding up-tick in truck/SUV sales, Jay Lighter, president, Nitrofill, says, “The quest for fuel efficiency will continue with a growing emphasis on electrics. As for F&I, I think we will continue to see growth in paperless processes and menu driven sales.”

Leasing and Trade-Ins

The explosion of leased vehicles has been on everyone’s radar. With attractive lease terms and prices, the market appeal for leases is expected to increase even further in 2015. Many of the executives we spoke with will be watching this segment of the market.

Bill Gorra, president and CEO, Simoniz USA, Inc., predicts the upward trend in leasing will continue in 2015. “Some experts predict as much as 30% of new car sales will be through leasing. This presents both a challenge and an opportunity. For instance some traditional F&I products may be short circuited by leasing, but products that address things like end of lease charge backs will be well received.”

Leasing is a trend Kelly Price, president, National Automotive Experts, is closely monitoring. “We anticipate it will continue to be strong across the country. The captives have strong lease programs right now – and we do not anticipate this changing in 2015. Leasing is very attractive to the younger (Millennial) buyer because of the quick turn and hassle free ownership, along with the lower payment point.”

“We all know that there is still a good deal of pent up demand when you consider the average age of a vehicle in the US,” noted Dave Duncan, president, Safe-Guard Products, “but there are other variables that will aid in growth for 2015. Leasing is back to pre-financial crisis levels and in 2015 we will see the early part of the wave of lease returns that will take place for the next few years. Leasing will continue to be strong in 2015, so any protection product that speaks to the needs of those customers will see greater acceptance. Lease wear and tear, tire and wheel protection, some bundled programs, and pre-paid maintenance will be the biggest winners.

With regard to trade-ins, as these older cars and leased vehicles return to the market, they may present some challenges in the financing department. Tim Brugh, president, American Auto Guardian, Inc. (AAGI), says, “As used car values continue to decrease, it will increase the difficultly of an F&I department’s ability to obtain a consumer loan. Customers trading their vehicles in will have less equity in those trade-ins, which means the F&I department will need to work much harder to get those loans approved.”

Dealer Consolidation:

As the activity of private equity companies in the auto and F&I industries increases, so does the trend of the big becoming even bigger.

Garret Lacour, CEO, RoadVantage, predicts the trend toward consolidation will continue and will be an interesting one to watch in 2015, as will the increased focus on F&I as a profit center for the dealership. “This, coupled with the CFPB’s ongoing presence, will make both training and compliance more important than ever.”

Jimmy Atkinson, COO, AUL Corporation, believes there will be some interaction worth watching between franchise dealers and independents regarding used vehicle inventories, sales and values. “I think it will be interesting to see how aggressive the larger franchise groups, which are currently in acquisition mode, become in 2015.”

Processes in F&I:

“We need processes that create efficiencies and avoid redundancies by allowing the front end to pick up more of the administrative duties.” Notes Chris Kerby, president of sales and marketing, IAS, “Using technology will be critical in the process to eliminate waiting. We are proactive with eliminating the manual input of data whenever possible. State regulations and lenders stand in the way for a lot of us, but overall, the industry is getting a lot more efficient at eliminating paper through eSignature and eContracting.”

Jimmy Atkinson, COO, AUL Corporation, noted that F&I processes continue to be more streamlined in order to shorten the transaction time in F&I. “Technology can help with this as well as a strong training program to make more succinct and prepared presentations. F&I managers who ‘wing it’ take longer and achieve poor results when compared to someone who develops the skills needed with today’s customers.” Atkinson says technology should complement the process and enhance the presentation – but it can’t replace the holes in a lousy F&I presentation.

Garret Lacour, CEO, RoadVantage, predicts the ongoing presence of the CFPB and FTC will continue to put the spotlight on dealership processes in 2015. “Dealerships need to have a Compliance Management System (CMS) in place, and a big part of that will be processes: formalized documentation of policy management, training, complaint resolution and compliance audits. In January 2015, RoadVantage launched a CMS specifically to help dealerships address and be prepared for what’s coming.”


Another trend on the mind of many executives is the expanding reliance on technology as it relates to all aspects of the automotive industry – from the design and manufacture of the vehicle to the retail sale and F&I presentation.

“Technology is evolving quickly and traditional manufacturers are turning to technology companies to design and develop center-stack interfaces for the vehicles,” says Scott Karchunas, president, Protective Asset Protection, “Manufacturers are shifting from designers and developers of these technologies to thoughtful integrators of these technologies. This trend may speed up the evolution to more autonomous, safe, and productive driving. Also, technology is continuing to change the way cars are retailed – beginning with the lead generation process and continuing with a search for a more consumer-friendly and efficient sales process.”

“Technology can be difficult and ‘scary’ because of the unknown,” says Tim Brugh, president, AAGI, “I don’t care who you are, if technology is not your chosen field of expertise you’re going to be hesitant to replace the process you have in place today. I do think that the hesitation is diminishing, with more and more integration for rating, printing and remitting of the contracts between the websites, menu companies and direct ingratiation to the DMS. It has become less of a scary thing to make that change. It’s really about educating the dealership about the time savings and the simplicity of an electronic transaction. Taking that fear out of the process!”

Garret Lacour, CEO, RoadVantage, pointed out the traditional conservative approach of dealerships, when it comes to adopting the advancements offered by new technology, such as online sales, eContracting and online claims adjudication. He says the growing trend to embrace the online customer experience, due in part to the influx of Millennials, will require dealerships to respond. And, as vehicles become more infused with technology, he predicts the F&I offering will evolve to match it.

Kelly Price, president, National Automotive Experts, sees more technology, such as menus, eBusiness, and product presentations in 2015 as a result of better training, more availability and lessoning reluctance over time. “With increasing pressure from the CFPB and other regulators, F&I offices will be forced to adopt more technology to protect the consumer as well as the dealership. Additionally, more buyers demand more efficient, transparent and friendly F&I transactions.”

Dave Duncan, president, Safe-Guard Products, reports seeing increases in vehicle service contract penetration across the industry as technology offerings in vehicles continue to grow. “The key driver seems to be the message to the consumer that technology on their vehicle can be very expensive to replace or repair. It doesn’t require a drivetrain claim anymore to be in the thousands of dollars. F&I managers are doing a much better job illustrating this fact to the customer.”

No doubt, the role played by the Internet and advances in technology will continue to evolve and impact the whole buying and selling landscape. Jim Smith, CEO, SouthwestRe, says this will be especially significant in the F&I department, as the average customer becomes more knowledgeable. “This makes it that much more important for F&I to ‘stay up with the times.’ The days of customers reviewing brochures are being replaced by customers researching products online. As the world shrinks, consumers will expect things much faster therefore it is up to the providers to be able to satisfy these demands and the Internet and technology is the most efficient way.”

Mark Mishler, CEO, Interstate National Corporation, thinks technology will continue to revolutionize the way that dealers interact with finance companies, the consumer and their product providers. “Dealers need to continue to look at ways to streamline their operations with the goal of having a fully automated front-to-back system in their dealership. This would include everything from desking to DMS integration to the menus and eContracting for both the financing of the car and products, to eContracting for service contracts and ancillary products.”

Robert Steenbergh, CEO, US Equity Advantage, LLC, anticipates a burst of activity in technology, but says it is difficult to predict how successful it will be. “I expect continued exploration of tablet-based technologies, customer self-service approaches (with and without F&I personnel assistance), and an attempt to move F&I online. The success of these approaches will depend on the level of PVR profits they produce.”

Matt Croak, president, Wise F&I, also expects the growing trend of online contracting and remittance to continue expansion throughout 2015. He sees technology as a means to improve the customer experience, by “utilizing online resources to provide better customer support.”

“There are dealers experimenting with selling F&I products on dealer websites and having some success,” Steve Amos, president and CEO, GSFS, notes, “The key to this possible new process will be identifying who will be selling F&I products and ensuring they are compliant, and that they know the benefits of the products.”

Technology is streamlining many businesses’ operations through the offering of apps for smart phones and tablets. Jerry Biller, president, EcoProProducts, started the new year with the launch of an app tying their warranties to a service drive VIN scan using an iPhone camera. It is available to both consumers and dealers. Biller says the app makes the claims process easier and faster for both the customer and the dealer by prepopulating warranty data.

Tony Wanderon, CEO, National Auto Care, says the direction and the impact of technology in F&I is a hard call. “Most technology in the F&I office is controlled by a few dominant providers. I could see someone making a hard push at the direct-to-consumer market with a dynamic and aggressive online solution. If you can now pay with a cell phone, why not have all of your preapproved auto loans done that way as well?”

Compliance and the CFPB:

A significant driving factor for the increased use of technology is the CFPB’s continued encroachment into the F&I office. Technology today offers a variety of elegant solutions for protecting customers’ personal data and for keeping dealers’ operations secure and efficient. Many in the automotive industry, especially those in F&I, will be on the look out for the regulators next move.

Bob Pruitt, president, Cal-Tex Protective Coatings, Inc., says, “Compliance methodologies and practices will continue to be a hot topic for all providers and dealers. The compliance experts seem to believe that there very well may be a trend towards standardized, non-discriminatory pricing on all F&I-type products. This year will likely see most industry providers, including lenders and product and service contract providers, continuing to develop compliance processes and pricing strategies to ensure compliance while increasing dealer profits.”

2015 will continue to be all about compliance and the reach of the CFPB according to Robert Steenbergh, CEO, US Equity Advantage, LLC. He would like to see an initiative from within the industry to work with the CFPB so that everyone clearly understands the rules going forward. “This includes collaborative input on the development and scope of these new rules as we understand our business better than anyone else. Otherwise, this increasingly antagonistic ‘us versus them’ mentality will not end. The CFPB does not have to be an adversary when it comes to treating consumers fairly. Conversely, the CFPB should operate more transparently when it comes to dealing fairly with our industry.”

Jimmy Atkinson, COO, AUL Corporation, says he too, will be closely watching as the CFPB progresses in their march on F&I. “It reinforces the need for transparency in our F&I processes and the need for developing a compliance program that reinforces an atmosphere of integrity in our stores.”

With the CFPB’s continued focus seemingly set on dealer reserve, Dave Duncan, president, Safe-Guard Products, says the current model has come under their scrutiny. “The end result could very well produce a reduction in fees to the dealer. Some people are concerned that the CFPB’s next focus will be on F&I products. That would not be a complete surprise. But, if you are a dealer who demands consistent processes that are fully transparent to the consumer at fair prices, you should see an increase in product sales. Keep in mind that there are many perils of ownership of an automobile and F&I protection products help consumers save money, offer them many conveniences and may even contribute to increased safety and security. Many people want to have this coverage and being able to pay for these protection products within the framework of a loan or lease makes them more affordable to the majority of consumers.”

Kelly Price, president, National Automotive Experts, says it is critical for dealers to pay attention to how they handle every single transaction. “Whether it is a transaction dealing with a lender, which menu system they work with, or how an F&I manager presents the products, they must pay attention every step of the way to ensure that they aren’t the next story in Automotive News. Now is the time to look at and refine those processes that will protect the dealership, the F&I department and the profits that come with it.”

Hot Products

It is no surprise that VSCs and GAP are generally expected to hold their spot as the mainstays in F&I. There are, however, a growing number of products that our panel of executives will be watching this year. Unique products, bundled products, and products geared especially for lease and cash customers are on the rise and expected to experience substantial growth, as are products that create loyalty, such as prepaid maintenance.

“Historically,” says Jerry Biller, president, EcoProProducts, “dealers have been comfortable selling the same products they have been selling, but in the last few years new products have been extremely well embraced, indicating a trend in increased desire to have innovative products for the consumer.”

Chris Kerby, president of sales and marketing, IAS, anticipates that any products that add to owner loyalty will be big sellers in 2015. “Maintenance programs, lease wear and tear – anything that hedges depreciation and helps the vehicle maintain its value will be a hot product.”

Jay Lighter, president, Nitrofill, said they are looking for an expansion of products that provide dealers with residual opportunities in addition to a profit earned at the time of the vehicle sale. “In other words, more sophisticated products that marry F&I solutions to service drive and other departmental needs.”

Tim Brugh, president, AAGI, predicts things will be “back to the basics” in the F&I office. “I think 2015 will be all about simplifying the delivery process in F&I. Keeping the number of products to a minimum of VSC, GAP, a form of tire and wheel combo, and one other product that the dealer is most interested in selling. It’s not about how many products we can throw at the consumers but about the transparency of those products. The F&I team can say, ‘Here are the products we believe in at our dealership and here are the prices for these products.’ Consumers have technology at their fingertips, and they know what things cost before and during the sale process. Transparency is an absolute necessity.”

Kelly Price, president, National Automotive Experts, says that while traditional F&I products such as VSCs and GAP protection will remain strong, she expects products that fit the increasing lease trends will be great sellers this year. “Short term service contracts that appeal to lease customers and ancillary products that fit cash and lease transactions will be the product focus for 2015. Products such as our new Shortfall Deposit Discount and Depreciation program are excellent for lease and cash buyers. In addition, appearance protection packages (paint and fabric, windshield, dent and ding) as well as maintenance programs are excellent for both the dealer and the customer. Maintenance ties the customer to the selling dealer for routine maintenance. This is critical to capturing the next vehicle transaction down the road.”

“With the increased accessibility relative to lending,” Matt Croak, president, Wise F&I, predicts, “GAP will continue to play a primary role in most automotive sales that are financed. Appearance care service contracts will provide increased value to the product mix delivered in the F&I office.”

Jim Smith, CEO, SouthwestRe, expects customer loyalty programs to continue to gain support in dealerships, and products that fit in those programs will also gain traction. These are products such as limited and lifetime warranties, prepaid maintenance and appearance and theft protection products – all of which can be incorporated into customer loyalty programs.

Smith recommends F&I departments consider products to complement theft protection such as key replacement. “Especially with the changes in vehicle technology, key replacement is a lot different and more costly than when you had to just stop and get your key duplicated at the local hardware store.”

Scott Karchunas, president, Protective Asset Protection, believes thoughtful, customer-centric products with dealership retention properties will continue to make sense for dealers and consumers. “The service contract will lead the way. However, dealers and consumers are going to look for updated coverages, which integrate the addition of new in-vehicle technology, powertrain, and safety systems. Product bundles will likely continue to grow as dealers look to increase opportunities for customer retention and revenue both at the time of the sale and over the longer term. Also, GAP will continue to be a staple product for the F&I office.”

“Consumers want peace of mind on many levels,” says Steve Rosenvall, CEO, Alpha Warranty Services Inc., “and now they can afford it. With high tech vehicles becoming a standard, a VSC with better high-tech coverage and array of different terms is a must. It’s important to continue catering to these high-tech buying habits and arm the F&I office with the services and products customers’ desire. New technology offered in vehicles will drive the consumer to want protection from these potentially expensive failures. I see a greater desire to cover high-tech vehicle add-ons such as wi-fi devices, Bluetooth technology, infotainment systems, gaming units, etc.  GAP and ancillary bundles are also on the rise and I expect that trend to continue.”

Millennial Shoppers

Millennial shoppers and employees are definitely making their mark in automotive. As the largest generation in the US, Millennials represent around one third of the entire US population. They are the first generation to have access to the Internet in their earliest years of life and are the most culturally diverse and educated generation in history. With their tech-savvy research skills, the generation that didn’t know life before the Internet is causing the automotive industry to rethink and revamp the buying and selling process. Described as impatient, well educated, and technical, Millennials are a leading factor in the push for increased technology and the use of social media when it comes to car sales.

Jimmy Atkinson, COO, AUL Corporation, describes them as having less patience with sales pitches and being more prepared when they enter the dealership. His recommendation for both salespeople and the F&I office is “be armed with solid product knowledge and the ability to listen rather than talk.” He also mentioned the impact of Millennials in the workforce.” Millennial employees are maligned for being lazy but what we find at AUL is that they work hard and can be very engaged. We focus on creating a culture that is friendly, fun and creative that allows all of us to be a part of an extended family. When that happens, you can keep turnover low and employees happy including Millennials.”

“Millennial shoppers are different from older generations,” explained John Luckett, senior vice president of sales and marketing, The Warranty Group. They have more of an affinity for technology, will consider lesser-known brands and are very dependent on research and referrals. They tend to put more credibility on people with firsthand experience than someone with professional credentials. Millennials are all about instant gratification. They put a premium on speed, ease, efficiency and convenience in all their transactions. The other challenge facing Millennials are loan applications that don’t have enough credit history to generate a credit score using traditional methods.”

John Vecchioni, national sales director, United Car Care, says, “If we aren’t continually and constantly training – about sales and the personalities we deal with, we will be left behind. Millennials will come in with all the information. Our job will be telling them why the products in F&I will match up with their purchase. They already have their minds made up, so we have to meet them where they get their research on the Internet. We have to do something different to take down their expectation that they know what we are doing and why we do it. We need to do something different to create more value – a more logical conversation in addition to sharing the features and benefits. It has to make sense to them.”

Millennials are on the verge of becoming the majority consumer, according to Steve Rosenvall, CEO, Alpha Warranty Services Inc. “They have so much technology and data in the palm of their hand, it may prove difficult to convince them that the dealer has everything they want and need for their buying experience. The dealer, product provider and service provider will need to be on the cutting edge of offering more.  A new buying experience, and technology that supports this new experience, will need to be created and refined in order to cater to the next generation of consumers who speak the language of technology.”

Bob Pruitt, president, Cal-Tex Protective Coatings, Inc., says Millennials are more attuned to detailed research before, during, and after a vehicle purchase. “That level of research requires marketing and sales efforts geared towards Internet-friendly products and reputation management along with competitive and consistent pricing and services. The use of interactive ‘Apps’ that inform customers and encourage dealer retention will also become more frequent and effective.”

Mark Mishler, CEO, Interstate National Corporation, however, doesn’t think there is a major difference in the buying habits of Millennials from other consumers. “Today, most everyone still goes into the dealership to purchase the vehicle. This being the case, F&I products will still be sold in the F&I department with very little differentiation on who or what group is purchasing these products. However, if and when the time comes when a car sale transaction will take place utilizing social media and the Internet and the consumer is no longer going to the dealership, then we will have to think of ways to offer F&I products to these consumers.”

“We anticipate the influx of Millennial shoppers positively affecting dealerships that have established a plan for catering to the younger, more technical, more educated and less patient buyer,” says Kelly Price, president, National Automotive Experts, “There has been much publicity, education and buzz in the industry regarding the importance of selling to the Millennial buyer. It will take some time for this to transcend the industry. The automotive industry has proven it takes a while to make whole scale changes. Again, progressive, forward thinking dealerships have a plan to cater to the Millennial buyer – and they will be successful because of that. As it relates to F&I, the processes and presentation must change to successfully sell to the Millennial buyer. Technology is critical to breaking down the barriers. Millennials demand more and the industry must be willing to provide it in order to attain success.”

Jay Lighter, president, Nitrofill, pointed out that with the vast majority of Millennial shoppers seeking new vehicles priced under $20K, value is key, as is their appetite for technology. “Addressing the issues Millennials care about is also important; products that save them time and money, and perhaps positively impact the environment as well, will be in demand.”

Whether Millennials or not, Bill Gorra, president and CEO, Simoniz USA, Inc., pointed out that the customer experience is first and foremost on everyone’s minds. “Building customer loyalty takes long term thinking; the experience the new car buyer takes from the F&I office needs to be pleasant and built on trust.”

And the customer experience really is the bottom line according to all of our executives. Whether you look at the economy, how things are done in F&I, technology or processes, it all boils down to one thing – are the variables in play creating a positive experience for the consumer? Staying relevant through technology and training on products, processes and personalities will pave a profitable path into 2015 and the years to come.

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