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An Interview with Craig Robinson

An Interview with Craig Robinson

In November, Craig Robinson accepted an offer to join American Auto Guardian Inc. (AAGI) as the company’s new president, propelling friend and associate Tim Brugh to the position of CEO and setting the stage for a partnership Robinson believes will pay dividends for the organization and its network of agents. Agent Entrepreneur met with Robinson to trace the steps that led him to AAGI and what it’s like to be in competition with your own father.

AE: Craig, the end of the year is upon us, and you’re in a new job. Are you still catching up or are you ready for 2018?

Robinson: Holistically, as an organization, we are absolutely ready to finish 2017 strong and we are really excited about our prospects for the coming year. Me specifically? I’m still trying to get the lay of the land. But I have been around this business long enough and grown to know Tim Brugh well enough that we’re in sync strategically.

AE: In the announcement, you were quoted as saying AAGI is the best company many people have never heard of, and you pledged to change that.

Robinson: That’s a big part of the reason I joined this organization. The feedback I have heard from people working in the industry and uncovered in the course of my due diligence was all fantastic. That said, when I landed, I must have had several hundred people reach out to me — some from outside the industry, some from inside — and roughly 10% of them congratulated me on working for a competitor of ours located about 10 miles southwest of us.

It was interesting to see that even those well-versed in our industry can be confused at times. But the company is investing in an overarching rebranding effort as “AAGI,” which should help further differentiate us. Rebranding aside, we have tremendous aspirations for our growth in the industry, organically as well as inorganically.

AE: I know a rebranding can help convey the impression that a company has evolved or is moving into a new phase.

Robinson: That’s what we’re hoping for. If it was just to differentiate our name from another company, it wouldn’t be worth the effort. We are a lean organization. We have a staff of 82 producing a high volume of business that many other companies need significantly more employees to reach. And we are launching new products and doing new things, all in an effort to get our name back to the forefront of potential clients’ minds.

AE: I understand you recently did some work for a dealer group after a long stretch with The Warranty Group.

Robinson: I was hired by an entity that is part of one of the largest non-publicly traded dealer groups in the U.S. I was hired to help them round out their vertical integration strategy and acquire various companies that fit within their mid- to long-term plans. Unfortunately, the transaction for which I was specifically hired was not consummated.

AE: Judging by the reports we’re seeing from Kerrigan Advisors, that may be the one dealership merger or acquisition that didn’t happen.

Robinson: I think you’d be surprised by how many transactions don’t go through. You don’t really hear about them. I spent a fair amount of time consulting in the M&A space over the summer. I would estimate that upwards of 30% of the transactions aren’t finalized. However, you’re right, there’s an extraordinary amount of activity. There continues to be a lot of dry powder on the sideline as private equity companies and other strategic buyers are looking at how to deploy their assets. I don’t see that slowing down anytime soon.

AE: Dry powder?

Robinson: Money, sorry! “Dry powder” refers to the nearly $1 trillion sitting on the sideline while they look for the right investments.

AE: The last report we saw indicated dealer angst is helping fuel M&A activity. The premise is that dealers are not sure whether they fit into the auto retail industry of the future, so they’re selling now rather than take the chance that they or their descendants could be stuck with an unprofitable business. Is there any truth to that, in your experience?

Robinson: I think there is some truth to that. When you look at the long-term planning for an individual — and not just dealers but owners of agencies or administrators or really any company in the automotive sector — you see that the world is changing. The subscription economy is here to stay. You’re going to see the Ubers and Lyfts of the world become a larger component of the fleet industry. Their No. 1 expense is drivers, so naturally they’re going to look at the autonomous space.

Our country’s infrastructure and various other obstacles in the path will not allow driverless vehicles to happen overnight. If you’re looking at a three- to five-year timeframe, I don’t think you should be that concerned. But 10 years out, yes, the world is going to change. We need to prepare for it or be passed by.

AE: Tell us about your experience at The Warranty Group.

Robinson: Great company. I wouldn’t be where I am if I hadn’t spent my time there. We took our bumps and bruises along the way, but I had a great experience. I started as the powersports guy, handling motorcycles, ATVs, RVs, boats, things of that nature. I got promoted and took over a relatively small program we had at the time called CarMax. That was a phenomenal ride. Many people don’t know CarMax was started by Circuit City.

AE: You’re kidding.

Robinson: They had this idea to create a car-buying experience based on how you treat your customers. Many of the executives were a little apprehensive, but one guy, Austin Ligon, believed in it and took it over, and the rest is history. Circuit City eventually went away, and CarMax is still this massive enterprise.

At the same time, I had a handful of third-party administration clients, and I lobbied for the TPAs to have a standalone division. I became the assistant vice president of the automotive TPAs. We did a great job growing the business and adding clients, and I parlayed that into running all the TPAs, including furniture, medical devices and electronics and appliances, among other industries.

In 2011, I was promoted to run all of Latin America. I had five local CEOs throughout the region and 600 people reporting to me. And I spent an extraordinary amount of time in Latin America, upwards of 1,000 days over a five-and-a-half-year period. I traveled to Mexico, Colombia, Peru, Argentina, Brazil and Chile.

AE: That must have been an incredible adventure.

Robinson: It was, and it was also challenging at times. Every country was different. I learned a lot, and those years helped continue to mold me into the executive I am today. But there was a lot of time away from my family, which was tough. It was a great experience, but I got burned out, and the organization was looking for someone who lived in Latin America to run the region. We had a mutual separation in August 2016.

After I took a couple weeks off, I went to work with that dealer group. I did that for nine or 10 months and then enjoyed about four months off this summer. I played golf virtually every day. Then I would come home, do some networking for a couple hours, then gather my wife and two kids and hang out at the pool every afternoon.

My rationale was that my son was three months old when I got promoted into Latin America. I was barely able to see him. He won’t remember that I was gone, but I will. Now that he’s nearly 7, I hope he will remember the summer he spent with Dad. We will likely never have an opportunity like that again, or at least until I retire. It was a great summer and I would never trade it for anything.

AE: How did you connect with AAGI?

Robinson: I was doing some consulting for Tim. I had a significant number of opportunities presented to me, and I was evaluating them when Tim asked me to join the team. My first response was, “Thanks, but I’m not interested at this time,” but we continued to talk about what the role would look like. Once we put a tighter frame around it and I knew more about what he was thinking, I was incredibly excited to join. So far, it’s been everything I could have hoped for and more.

AE: Does working for a smaller company change the way you operate as an executive? Is there a difference in your personality or your tone?

Robinson: Yes and no. There are strategic and tactical components of my role that don’t change. You still have to look to the future, plan for the future, put the right pieces in place, and tactically execute against your strategy. At a smaller company, you might have to go about that a different way. I mentioned I had 600 people reporting to me in Latin America. We pared that down to 475, but compare that to a total of 82 employees. Mathematically, that’s fewer resources. When you’re setting goals and objectives, you have to take into account what’s available to you.

The other thing is that, sometimes, in a bigger company, you might feel like you’re just a number. There’s a less personal approach. One of the things we’re most proud of is that, although we have sprinkled in some newer employees like myself, we have many people who have been here since the beginning — with tenures of 15 to 20 years! They would tell you they have stayed because of the family-type atmosphere we have here.

We truly care about our employees and our clients. We take a partnership approach to everything we do. We’re not interested in being the lowest-cost provider or buying from the lowest-cost provider. This company has a heartbeat, and as one of the leaders, it’s my responsibility to make sure those core values never change.

AE: Do those values extend to your agents?

Robinson: Absolutely. One hundred percent of our distribution — other than our OEM business — is through agents. I think all of our agents will tell you they can call anybody in this building and they’re going to get the information they need. In sports, it’s the “next (wo)man up” philosophy. You’re not going to find someone here who says, “That’s not my job. Go find this person.”

Everyone here is empowered to help our clients. We don’t want to do business with every agent. We want to do business with agents who want to partner with us. Any agent who has partnered with us can tell you the approach we take to servicing their business is a very familial, jovial, inclusive approach. One of our taglines is “We succeed only when you do.” We live it and breathe it every day. Everything we do is to help make our agents successful. If they’re successful, we’ll be successful.

AE: Where are you from originally?

Robinson: I kind of grew up all over but I consider myself to be from Northern Virginia. That’s where I went to high school and where my parents lived through my time in college. I went to the University of Miami. Miami being what it is, I got an itch for international business, so I got my degree in international finance and marketing.

AE: How did you get into the car business?

Robinson: I’ve grown up in this business. I’m 40, but I consider myself as having been in the business for 38 years. That’s how long my father, who is currently the head of Resource Automotive, has been in it.

AE: Charlie Robinson?

Robinson: That’s my dad! After I graduated, I moved back to Virginia. I got a job waiting tables and wound up as the head waiter at a McCormick and Schmick’s. I was making a ton of money, which made it harder and harder to move on to something else. I thought about restaurant management, but I really wasn’t sure what my next move would be.

That’s when the CEO of what was then Aon Warranty Group called me up. We had an interview and they offered me a job. I told them I would take it under one condition: I wanted to be judged on my own merits, so I would only work on something other than what Charlie was doing. At the time, he was still in Virginia, working as a regional manager for what many know as the old Pat Ryan & Associates.

So I moved to Chicago, not knowing a soul in the city, and just as my career trajectory took off, Charlie left to become the F&I director for Asbury Automotive. You may find this funny, but, when he left, I was still “Charlie’s son,” but when he came back to The Warranty Group, he was “Craig’s dad.” And when I was running the TPA division, we were effectively in competition. And our offices just happened to be right next to each other.

So we were competitors then and once again we’re competitors. We wish each other the best of luck in our professional lives, and at the end of the workday, we go back to being a family. And we’ve both been in this industry long enough not to wish anyone ill will. As long as you’re working above board, I call it “coopetition.” Let the best man or woman win. I don’t like losing, but it’s always nice to see people who have put in the time and effort have some success. And after all the changes that have happened, I for one look forward to what’s to come.

Posted in Meet the Executive0 Comments

Agents Wield the Power of Compliance

Agents Wield the Power of Compliance

On Monday, Sept. 11, 2017, agents, dealers, F&I professionals and other attendees of Industry Summit packed into a ballroom at the Gaylord Texan Hotel Resort & Convention Center for Compliance Summit, a one-day educational slate followed by the Automotive Compliance Specialist certification review and exam proffered by Automotive Compliance Education (ACE) the next morning.

After months of planning, the first half of the Compliance Summit agenda had to be rebuilt onsite. In the week leading up to the event, Hurricane Irma swept through the Caribbean, heading northwest and forcing attendees from Florida to cancel their trips to Dallas. The list of those affected included Compliance Summit’s first two speakers: keynoter and famed sales trainer Jim Ziegler and Terry O’Loughlin, the attorney and former regulator who now serves as director of compliance for Reynolds and Reynolds.

Enter John Vecchioni, director of sales training and business development for American Financial & Automotive Services. Also known as the “F&I Professor,” Vecchioni wasn’t scheduled to speak until the next day. But he was primed for action, having helped propel American Financial to its second consecutive first-place Diamond award for Compliance Training in the 2017 Dealers’ Choice Awards. (The company also was voted by dealers as the nation’s leading F&I and sales training provider in this year’s contest.)

With very little notice and no time to prepare, Vecchioni stepped up to deliver a rousing keynote address with a clear message for anyone involved in F&I training — agents included: Our industry is heavily regulated and facing stricter enforcement, and those who follow the rules will prosper — not just by staying out of trouble but by acknowledging that customers expect and deserve a transparent sales and finance process.

Be a Professional

“Some of those who have heard me speak before know that I’m a huge proponent of professionalism in our industry,” Vecchioni said. “We have a minority of people out there that just don’t seem to get it. This is a professional business.”

Meeting the standards of a professional requires those who are invested in F&I — including dealers and agents as well as finance directors and managers — to know exactly what their responsibilities are, he added.

“It’s not a question of what I think I can get away with,” Vecchioni said, adding he is constantly amazed by the number of industry members who are still looking for ways to get around longstanding rules. “We talk about Regulation Z like it’s something new. I mean, the Detroit Tigers won the World Series in 1968, and that’s when Reg Z came out. … We’ve been through four generations of people in the finance office and we’re still working on a 1968 regulation.”

The cure, he said, is effective training paired with a commitment to excellence. F&I pros who are new to the industry or just graduated from sales should know that doing things the wrong way leads to constant anxiety over getting busted — “a very difficult road,” as Vecchioni described it — and a lack of trust paired with a negative perception of the dealership on the customer’s part.

Agents, Trainers and Coaches

Vecchioni encouraged agents and F&I trainers in the audience to think of themselves more as coaches. Trainers teach by telling, he said. Coaches teach by doing.

“Coach your people up. Somebody somewhere saw some talent in them and thought they could be somebody. It’s our job to coach them to succeed in that position. … This is how we won the Diamond award. We coach by doing. We don’t coach by telling.”

Whether an agent visits a given F&I department on a daily, weekly or monthly basis, Vecchioni would advise them to focus on the task at hand. Conversations about anything other than performance in pursuit of personal and professional goals should be kept to a minimum. He said F&I coaches should strive to remain students themselves, mastering the art of learning and being open to new ideas and tools.

“You don’t necessarily have to agree with all the innovation that comes down the pike. I might be one of those old school guys who can do F&I on a legal pad — but only because I don’t know how to turn the computer on,” Vecchioni said. Customer satisfaction should come first, he added, and if new hardware or software can make the process more efficient, the benefits will be twofold: Customers will spend less time waiting to get into or out of the finance office, and they will get the sense the dealership is not stuck in the past.

After all, we live at the “pinnacle of information,” Vecchioni said, and car buyers who do research online are bombarded with negative messages about the dealership experience, particularly the F&I portion. This is true even of so-called consumer advocates who should realize the wise investment protection products represent.

“They don’t say, ‘When you go there, you’re going to meet some of the friendlier sales people in the industry. … And then they’re going to put you in this little white room, and in there, you’re definitely going to want to know these people, because on Sundays, they have a front-row seat,’” Vecchioni joked. “You know what they get? ‘Negotiate the trade separate from the sale. Come with your own financing. Never purchase that day. Don’t buy any of that stuff in the finance office, because, Lord forbid, they’re just making money on you.’”

Overcoming Objections

Vecchioni stressed that agents and F&I professionals must always remember that F&I products do, in fact, have merit and value. When customers don’t purchase, he said, it’s because they don’t understand how a given product works or the value it holds for them.

The cure is an approach Vecchioni calls “logical conversational selling.” Have a conversation with customers, not a sales pitch, and start that conversation not by telling but by learning.

“Let’s find out exactly what they’re trying to accomplish,” he said. “Once I know what you want to accomplish, it becomes much easier for me to attach my products to what could benefit you.” Needs-discovery word-tracks are essential, he added, but only if they further the discussion. “Once we learn our word-tracks, we’ve got to start internalizing and personalizing them so they become a part of the conversation we’re having with customers.”

Much has been made of the need to constantly shorten the financing process. Vecchioni said he sees the logic in not wasting customers’ time, but he reminded the audience that, considering the amount of money at stake and the finality of the paperwork customers sign, F&I-by-stopwatch benefits no one.

“I’d like to find the individual who said it’s got to be 20 or 25 minutes. Where’d you come up with that? We’re signing legal contracts here. We’re committing to thousands of dollars. But you’ve got 20 minutes to do it. Seriously?”

Vecchioni said that, in his experience, the only way to expedite the process while simultaneously acknowledging and overcoming objections is to “communicate with good information.” Few customers will buy on features and benefits alone, he said, and even fewer will respond positively to “Everybody buys this.” Each customer must believe it will benefit them and protect their investment, and to truly believe it, they have to say it themselves.

“If I say it, it’s disputable. If they say it, it’s the gospel. If I repeat it back to them, they’re going to quantify it with more information. … If I build enough value, they’ll rationalize the affordability.”

Compliance in the Digital Age

Vecchioni closed the session by reflecting on the progress of compliance training and his pride in American Financial’s new partnership with ACE, which relies on a challenging certification process that doesn’t end with the first exam. Automotive Compliance Specialists must recertify on an annual basis, ensuring they will be up to speed with changing legislation.

It’s a critical component of F&I success, Vecchioni said, and an empowering step for any producer.

“I don’t think anyone should sit in an F&I office unless they can pass compliance certification, quite frankly,” he said. “My experience has shown me that somebody is going to tell them how to do it. I want to be the coach that directs them where to go and how to do it. I want to make sure our finance people have the ability to rule it right or wrong if they have to.”

Compliance training can help keep dealerships out of the regulatory crosshairs, he added, but it also enhances the skill of every F&I professional, no matter how long they have been in the industry.

“The more compliant you are, the easier it is to close deals, believe it or not. I want to do business with someone who knows what they’re doing. I want them to be able to take the time to explain everything to me.”

Vecchioni said he has never shared the concerns some trainers and industry experts have about millennials, a group many believed would have no appetite for the time, pressure and intangibility of the F&I experience. Young car buyers are still human beings, he explained, and many of them are in the dealership to make the first major investment of their lives, often without the help of their parents.

“So how about we take a little more time to explain to them how it works?” Vecchioni asked. “One thing I’ve found out about millennials: They ain’t dumb. If it makes sense, they’ll move. If it makes no sense, they’re not moving.”

Whatever drove the customer the select their vehicle — and whatever their age — uncovering the trigger behind that selection is key. Whether it’s the value, the horsepower or the paint color, the ability to uncover and understand each customer’s motivation gives the F&I manager an edge. But that edge is hard-earned, Vecchioni stressed, and it won’t materialize out of thin air.

“Build a foundation, build the fundamentals, have a good process. Make sure we’re asking the right questions when we’re asking questions,” he said. “Walking out, I know what my objective is: I gotta find out why they would have any need for my product, and then I need to show them their ability to afford it.”

In conclusion, Vecchioni encouraged his audience to spread a message of positivity among trainees: Don’t let millennial customers scare you. Don’t let cash deals or outside financing discourage you or upset your rhythm. Success depends on the F&I professional’s ability to close the next customer, not the last one.

“The attitude I show up with that day is the attitude of a winner. I’m not going to let cash, credit union or lease deals mow me down,” Vecchioni said. “The next customer I face is the most important customer I’ll have that day. And that customer deserves the opportunity to have my best presentation.”

Posted in Industry0 Comments

Industry Trends for 2018

Industry Trends for 2018

After a transformative year for the automotive industry, the economy, politics, sports and entertainment, it’s difficult to imagine what 2018 might have in store. To get a sense of what the new year could bring for your agency, your dealer clients and their customers, Agent Entrepreneur sought opinions and prognostications from 23 of the F&I industry’s leading executives and experts.

Their collective outlook, though largely positive, may surprise you, and should leave no doubt that further, sweeping changes lie ahead.

The Economy

U.S. economic indicators are encouraging. New-vehicle sales have plateaued — but not plummeted —following the record-high 17.5 million units sold in 2016 and the record-high seasonally adjusted annual rate (SAAR) of 18.4 million set in November 2015. The stage is set for continued prosperity in 2018.

“It’s good news pretty much all around for the economy as a whole,” said Jeremy Lindsey, COO of Alpha Warranty Services. “Experts are predicting U.S. GDP growth to come in around 2.5% in 2018, which is up from a projected 2.2% increase in 2017 and only 1.6% in 2016. That’s very good news for the U.S. economy, which has seen an uptick in consumer spending and private investments in businesses in 2017. Consumer spending represents around 70% of GDP, so it’s a crucial indicator of economic health.”

Lindsey predicted the Federal Reserve will be “more active” in 2018, pursuing further incremental increases in interest rates as the economy continues to expand and low unemployment drives wages up. He also expects franchised and independent dealers to compete more intensely for used units as new-vehicle sales decline, citing a National Automobile Dealers Association (NADA) forecast that new-car dealers alone will sell 15.3 million pre-owned cars and trucks in 2018, up from 15.1 million last year.

Brent Griggs, president and CEO of Portfolio, predicted continued slow economic growth “with no major disruptions” in 2018. “Interest rates will remain at their historically low levels but will continue to inch upward with inflation. I expect new auto sales to decline 2% to 3% for the second straight year but used-car sales to increase by a like amount due to falling prices and increasing supply.”

“The tailwinds of improved light-vehicle sales — potential tax breaks, continued low interest rates, cheap gasoline and stable availability of credit will likely be offset by the headwinds — pent-up demand spent, decrease in demand for passenger-car models, waning of OEMs’ appetites for incentive spending, ridesharing, and the sales bump caused by 2017 hurricanes exhausted,” said Bob Pruitt, president of Cal-Tex Protective Coatings, who predicts new-vehicle sales to finish at or near 16.7 million units. “The positive spin is that dealers should be motivated to increase PRU through F&I products to compensate for lower vehicle counts.”

Randy Crisorio, president and CEO of United Development Systems Inc. (UDS), suggested a similar estimate for new-car sales in an economy that has “a lot of momentum” going into the new year.

“As I take note of my thoughts, the stock market is raging, new construction seems to be everywhere, and the tax plan appears to be close to confirmation,” Crisorio said. “The White House continues to remove regulatory roadblocks that stand in the way of business, no matter the size, and American ingenuity is finding a variety of ways to maintain the energy in new-vehicle sales. Taking it all in, the economic outlook for 2018 is very positive. I believe that new-year vehicle sales will be much in the image of 2017, continuing the good run.”

Larry Dorfman took a less rosy view, blaming “confusion and divisiveness in Washington” for a lack of progress on such significant issues as health-care reform and, until Dec. 22, tax reform.

“I’m really not sure any more will get done in 2018 than this administration got done in 2017. … By the time this article comes out, we will know if the tax bill has passed and, if it does, with the provisions in it as I write this we will have damaged income earners who make under $70,000 annually, caused millions of people to be without health care, significantly increased the cost of health care for those who can get it, and increased our budget deficit by $1 trillion or so,” said Dorfman, who serves as chairman of APCO Holdings, home of the EasyCare and GWC Warranty brands. “If that is the case, I believe we will see a significant drop in the economy over the next few years. Otherwise, I see a flat to down market with a SAAR of around 16.6 million or so and increased used-vehicle sales.”

Rick Knight, the founder and president of Performance Admin Corp., is counting on the steadily declining U.S. unemployment rate — in combination with an ever-growing population — to create new customers throughout the year.

“Over the last 10 years, the number of licensed drivers in the U.S. has grown from 190 million to over 218 million. This will create more opportunity for new and pre-owned vehicle sales, since most Americans rely on their vehicle as the means of transportation to their job,” Knight said.

“I see a strong economy for 2018, especially if tax reform is passed,” said Jeff Wanning, senior vice president at Central States of Omaha (CSO). “If the Fed ticks up interest rates, it could have a negative impact on the cost of borrowing money. However, I don’t foresee an increase significant enough to dramatically affect car loans. Most analysts are predicting the SAAR to be in the 16.5-million range, which is only a slight decrease from 2017 projections.”

Daniel Lievrouw, senior vice president and CIO of American Guardian Warranty Services (AGWS), predicted a growing economy and a “close to flat” auto sector. “Some of this, I believe, is due to the longer finance terms keeping buyers from getting into an equity position as quickly as they used to, combined with continuing lease penetration. We will see how tax reform ends, but without backdating these changes into 2017, it will take some time for most households to really see the benefit that should be coming.”

“The economy is going well, by most measures. We rightfully will continue to worry about something geopolitical that can turn this momentum in the wrong direction,” said Dave Duncan, president of Safe-Guard Products, noting that 17 million new-car sales is “definitely not a bad place to catch your breath. … I still maintain that we go higher from here, but maybe not in 2018. We predicted a flat SAAR when we built out our budget models for 2018. Meanwhile, used cars is the place to make your hay next year. Lots of inventory, plenty of credit and ways to manage the clumsy logistical side of used cars like never before.”

“There are puts and takes across the economic landscape — interest rates rising, credit tightening, low unemployment, tax cuts, etc. — but, overall, we are expecting sales to be flat in 2018 compared to 2017,” said Patrick Brown, CEO of Innovative Aftermarket Systems (IAS). “But the economy is on solid footing, and in general, that is a good sign for the entire industry.”

The Industry

Pivoting from the U.S. economy as a whole to the finance and insurance industry in particular, Jimmy Atkinson points to a number of “high-level” issues that will affect F&I product sales in 2018 and beyond.

“Tesla and its push to bypass franchise laws and sell direct is one. The impact a tax change may have and the overall shift in the regulatory environment is another,” said Atkinson, who serves as president and CEO of AUL Corp. “While the relaxing of federal oversight is welcomed, as an industry, my belief is we need to keep pushing for transparency in how we present, price and fulfill our products.”

“Consumers are demanding that we don’t just ‘sell them products’ but rather provide full solutions that solve their problems and address their needs,” said Brian Krasavage, vice president of Allstate Dealer Services. “With that as the backdrop, we are focused on providing more innovative F&I product solutions that are easier for dealers to deliver and sell and for consumers to purchase, own and utilize.

“The good news is that, if we as an industry can deliver against these expectations, I believe there will be an opportunity for increased penetration and sales. I expect we’ll see quite a bit of new capabilities and experimentation in this area in 2018,” Krasavage added, noting that consumers’ appetite for more information about F&I “earlier in the buying process” will continue to grow in 2018. “They expect the purchase experience to be more seamless and simple and want to know exactly what they are buying and what their coverage is if they have to make a claim.”

Cindy Allen, the new CEO of StoneEagle, expects F&I production to slowly trend downward along with sales. And there’s more bad news for agents and dealers, particularly those who rely solely on products for new-car buyers. She expects leasing and direct-to-consumer sales to continue to increase in 2018. However, she noted, “It appears that direct-to-consumer providers still have a long way to go in understanding how to sell F&I in the online purchase process. Many technology companies are trying to solve the online rating and purchasing challenge.”

Allen also shared her concerns about GAP, noting that a host of factors, including a devastating Atlantic hurricane season that resulted in “massive claims,” has driven losses to shocking heights. “These claims will certainly cause an actuarial ‘reset’ of GAP premiums. Our concern is that rate increases could turn GAP into a product that is less viable and has less profit in the F&I office and reinsurance programs.”

GAP pricing will be a “big issue” in 2018, Dorfman said. “The losses being incurred across the industry now are just the beginning. As pre-owned vehicle values drop, those losses will get bigger and rates will be going up consistently. At the same time, GAP is still a huge value for customers, and I believe it will be an important purchase in F&I. Its value is certainly well-established at this point.”

“The continuing stress that is on GAP reserves and the inevitable increases in pricing will move GAP down the menu,” said Cal-Tex’s Pruitt. “Non-cancelable ancillary products will move up the menu. … Another factor that will continue to impact the industry is the rising costs of replacement parts. Technological advances in vehicles have increased the costs to replace the vehicle’s parts, such as head-up displays on windshields.”

On the flip side, said Jennifer Holcomb, autonomous vehicle technology is a “huge trend” that could ultimately reduce losses thanks to the elimination of human error.

“I’ve noticed autonomous cars in cities like Tempe recently, and it’s interesting to see where that sector is heading and how it will affect aftermarket product sales,” said Holcomb, vice president of operations for Classic Products/Norman & Co. However, she noted, “Autonomous vehicles have even more expensive electronic equipment, so how will that affect vehicle service contracts and GAP claims?”

“We will continue to watch the ever-growing impact from ridesharing and the strong push from manufacturers for both autonomous vehicles and electric vehicles,” said IAS’s Brown. “As an industry, it’s important to develop product offerings and underwriting strategies for these emerging trends.”

“The two most immediate trends to monitor in 2018 are the continued push to move F&I online and the home delivery sales model being pioneered by Carvana, an online-only used-car dealer that lets customers shop, finance and trade cars through its website,” said Robert Steenbergh, CEO of US Equity Advantage. “Personally, I would never purchase a car that way, but I’m very interested to see if there is a significant demographic that will.”

UDS’s Crisorio said industry members must be “nimble” to adequately address new challenges in the coming year. “They should expect a moving landscape in lender acceptance and in cost of credit. Nothing dramatic expected here, but there will be changes nonetheless. Product evolution via expansion and adaptation will move at a moderate pace. F&I product evolution by providers trying to set their products apart from the masses and adaptation to an emerging retail landscape will be present but not as high-powered and visible as I expect technology to be. Technology will be the F&I headliner for 2018.”

“Econtracting will continue its steady climb in overall usage as more and more dealers move forward to emenus and consumer ease of contracting,” said Mackie Hughes, president of the glass coat division for Simoniz. His thoughts were echoed by Performance Admin’s Knight, who appeared encouraged by dealers’ ability and willingness to adopt new ideas.

“Each year, dealers continue to embrace new technologies and automation in the F&I office. The processing of the deal, econtracting and API integration among the various product providers and banks will continue to evolve,” Knight said. “The forward-thinking providers will incorporate ‘Big Data’ and the utilization of machine learning to help F&I offices with predictive selling platforms to better counsel customers’ product selections.”

Portfolio’s Griggs expects vehicle manufacturers to continue to “ratchet up” their attempts to compete with F&I product providers. He also expects a small increase in online vehicle sales, “which will have a negligible impact on independent F&I providers in 2018 but which will require new business models for us to remain relevant in the long term. I also believe autonomous vehicles and all electric vehicles will have zero impact on the F&I business in 2018 despite some people’s belief that these trends are ‘upon us.’”

“Digital retail is in the bottom of the first inning and runners are on base, which means there is no need to panic but also don’t let the game get away from you too quickly,” said Safe-Guard’s Duncan. “One dealer told me, ‘I won’t be first, but I will be second.’ That’s sage advice.” Duncan said he would advise dealers to share more information about F&I products online to establish themselves as a resource for customers while improving their search-engine returns. He recommends “filling that space with very simple, benefit-oriented content for consumers who are searching inventory on your site, and Googling protection products — e.g. ‘What is GAP protection?’ — in your area. If a customer comes into the finance office and is aware of and interested in the products before you get into the menu, that’s a win.”

John Pappanastos, president and CEO of EFG Companies, said manufacturers learned a “big lesson” in 2017 that will affect their fleets going forward.

“Today’s consumers want SUVs and CUVs,” Pappanastos said, and he expects dealers to increase their focus on F&I operations to secure upfront profits and retain more service customers. “The trend of rising vehicle prices will only continue, and dealers are expecting manufacturer incentives to dive even deeper, and are preparing to operate in another year with strained front-end margins. … In their efforts to maximize back-end profitability, more dealers will look into retooling their product menus and F&I pay plans based on products that encourage consumers to return for service.”

In addition to remaining focused on lending standards and lease metrics, Craig Robinson said he will keep a wary eye on providers who are focused on short-term gains at the expense of long-term viability.

“Specifically, within F&I, we will closely monitor various insurers’ approach to pricing. There are several carriers that currently offer woefully inadequate and almost irresponsible reserves,” said Robinson, the recently hired president of AAGI. “While this may allow certain product providers the ability to capture market share, it will undoubtedly result in either shock loss rate increases or full exit from the business at some point in the future. At AAGI, we are fiscally conservative and have no interest in joining the race to the bottom.”

F&I Products 

Asked which F&I products will be big sellers in 2018, NAE/NWAN CEO Kelly Price answered, “Any product that helps a dealer build loyalty with a consumer. The push for online transactions has the potential to dramatically impact the traditional buying process. Any product that helps a dealership connect with the consumer on a personal level is critical to retaining repeat customers.”

CSO’s Wanning concurred, emphasizing the need to sell F&I products that drive repeat business. He expressed excitement about diminished asset protection (or “DAP”), also known as diminished value protection (DVP). He says DAP was designed to boost customer loyalty, increase dealers’ used-car inventories, and protect car buyers whose assets are badly damaged but not totaled.

“DAP is a great compliment to GAP. Whereas GAP provides a benefit if a car is totaled, DAP provides protection if a car is in an accident. The consumer can trade in their car back to the originating dealer — or any of the dealer’s other commonly owned dealerships — and receive a credit on the purchase or lease of another vehicle,” said Wanning, bringing the conversation back to the high loss ratios suffered by GAP providers and the concurrent hike in pricing.

“For the last couple of years, GAP has experienced an escalation in frequency and severity, which has resulted in increased pricing for many of the GAP products on the market. Even though GAP will continue to be a prominent offering on the menu, it is likely that there will be a larger emphasis on other automotive protection products and new offerings in the near future,” said Matt Croak, president of Wise F&I.

Though relatively new to the market, Croak added, DAP/DVP has been “widely accepted” by those dealers who have added the product to their menus. “Products that bring the customer back to the dealership — resulting in additional touchpoints — will assist dealers in fostering relationships and long-term loyalty with their customers.”

National Auto Care CEO Tony Wanderon believes consumers’ interest in protection products is at “an all-time high” and the industry is in a strong position heading into 2018. “I really think that the refinance sector will have a big jump once upside-down consumers shop for a new car and they cannot afford the payment. Refinancing provides the opportunity for them to lower their payment and possibly increase their credit score.”

“As leasing becomes more popular across the country, more lease-specific products, such as lease wear-and-tear, will become more popular,” added Max Zanan, president of Total Dealer Compliance and author of the recently released “Perfect Dealership: Surviving the Digital Disruption.”

AGWS’s Lievrouw said the “core products” of vehicle service contracts and GAP — despite its recent troubles — will remain at the top of most dealers’ menus in 2018. “With the extended finance terms we are seeing, there is a definite need for both of these products. The longer the finance term, the easier it should be to make a sale on both of these products, as the need is there for the consumer.”

“F&I products will continue to be a driving force in overall dealer profits,” said Simoniz’s Hughes. “Ancillary products that are nonchargebackable will lead the way as well as more emphasis on service contracts and programs that drive the consumer back to the dealer service drive.”

“Going into a second year of flat unit sales, dealers will be looking to agents for more solutions on how to maximize their back-end profit while also generating repeat business,” said EFG’s Pappanastos, citing NADA data showing that 83% of car buyers who remain in their selling dealer’s service lanes will buy another vehicle from that dealer. “Keeping this in mind, I believe vehicle service contracts and other service retention-type products, like maintenance and CPO programs, will be the top sellers.”

For US Equity’s Steenbergh, however, the retention component will come second to a “positive customer experience.”

“My reasoning? All of the disruptive models function to commoditize the auto sale. With no perceived benefit for the seller of the vehicle, it becomes a race to the bottom, looking for nothing but the lowest price,” Steenbergh said. “The personal relationship with the dealer is gone. Couple that with the fact that it’s far more cost-efficient to sell to a repeat customer than acquire a new one, and retention becomes the easiest way to combat decreasing sales margins.”

To distinguish themselves from the “faceless sellers” with whom they compete, Steenbergh advises dealers to focus on “high-touch” service and an emphasis on customer relationship management. “Any F&I product that addresses those two issues should be a big seller.”

Processes and Technology

Rob Glander, president and CEO of GWC Warranty, described the growing adoption of electronic contracting and remittance — among franchised as well as independent dealers — as “staggering,” noting that “All dealers are becoming very tech-savvy. From a VSC perspective, it’s often about integrations with popular DMS providers.”

As for the consumer-facing side of F&I technology, Duncan said, “Some people feel the menu is stale. Some even say the customer has ‘figured it out.’ I think that is a good thing. Customers don’t want tricks. They want transparency, and the menu, when used properly, provides an honest and open conversation between the customer and the F&I manager. Isn’t that the goal?”

Lievrouw expects a continued “slow” adoption of tablet-based presentations in 2018, which he believes will allow for a smoother transition from sales to F&I. “I believe this same technology can then be used to help power the online presentation to a consumer who is building their deal while sitting on their couch in their home,” he said.

StoneEagle’s Allen said she sensed a growing appreciation for the hybrid sales/F&I manager approach as well as predictive analytics, which could give agents and dealers new insights into F&I production.

“It is an exciting evolution, although the basic concept has been around and used for several years. But we see some issues with this approach. Current standards for most dealer groups is to show all products every time to reduce legal risk,” Allen said. “Mark Virag and other industry experts have recently pointed out that, as you continue to use predictive processes, over time, it begins to skew the overall accuracy of the predictions themselves. So you end up having to show all the products again to make sure you get a continuous non-bias input of data. There are several ways to mitigate the potential issues and we think there will be continuous enhancement to this concept.

Zanan expressed curiosity over whether more dealer principals will adopt digital retailing of F&I products. “Currently it is very difficult for the consumer to obtain any information about F&I products that a particular dealership offers because F&I is one of the last remaining profit centers,” he said. “Dealers are afraid of gross profit reduction if they provide or sell these products online.”

“Millennials continue to impact the buying process and push toward a fully online transaction,” said NAE/NWAN’s Price. “One source close to us cited that, in a recent consumer survey, 75% of those surveyed indicated they would like to complete the entire purchasing process online. Buying services continue to pop up and are making it easier to find and purchase a car before walking into a dealership.”

“Technology is constantly advancing, adoption continues to increase, and it will continue to do so in 2018 and beyond,” said Wise F&I’s Croak, who described the F&I industry as “somewhat behind the times relative to technology in the past,” noting that other industries were quicker to adopt electronic business origination, for example. “However, for the past few years, we have been making up ground quickly and have experienced large increases in econtracting and online resources. F&I Express and other technology companies have done wonders for moving dealers to electronic origination by making connectivity easy.”

Classic/Norman’s Holcomb said she expects the shift toward econtracting to continue in 2018.

“Those that have held out are now realizing that with states constantly changing their required language dealers are having to update forms on a regular basis,” she said. “Dealers also realize that it helps with compliance and eliminates pricing mistakes.”

“On the technology and process front, it’s going to be an exciting year and one where the consumer will continue to vote very strongly with their purchase behavior,” said Allstate’s Krasavage, noting that increased consumer expectations for “simplicity, transparency and speed” will drive the adoption of advanced F&I technology. “In order to best meet these expectations, there will no doubt be some continued redefinition of exactly what the ‘F&I office’ actually is within the car-buying experience. … I think we’ll see more dealers providing F&I product information, monthly payments that include F&I products, and even ‘click to purchase’ capabilities for F&I products directly on the dealer website.”

Rules and Regulations 

No discussion of F&I’s future would be complete without some concern over compliance issues. Describing the regulatory environment as “hard to forecast,” GWC’s Glander said he wouldn’t have predicted many of the political and regulatory changes the nation has undergone since the end of 2016.

“I will say, however, that over many years in the auto industry, I have been consistently impressed with the commitment by dealers to doing the right things for their customers,” Glander said. “I’m confident that the more people understand the critical role dealers play in helping people meet their transportation needs, the less they will feel a need for overregulation.”

Much of our experts’ discussion revolved around an unexpected and rather rocky changing of the guard at the federal Consumer Financial Protection Bureau. In November, former CFPB director Richard Cordray resigned and appointed one of his subordinates, Leandra English, to deputy director to ensure she would succeed him. But President Donald Trump had other ideas. He appointed his own interim director, Mick Mulvaney, a man who once described the agency as a “sad, sick joke.” A federal judge ultimately sided with Trump, agreeing that the Federal Vacancies Reform Act allows the president to appoint whomever he wishes to the post.

“I think everyone is interested to see what’s going to happen with the CFPB. While I don’t expect there to be any significant changes in 2018, it would be great to see a softened stance as it pertains to our industry,” said AAGI’s Robinson. “In addition, in Illinois, we expect revisions to the administrative code to allow all dealers the ability to offer their vehicles for sale with limited warranties included. This issue has impacted the industry as a whole, and I’ve taken it as a personal mission to lobby our state politicians to make the appropriate changes to the law.”

Given the outcome of the squabble over the director’s chair, Allen said, “the automotive industry would like to see the agency establish a holistic approach involving a full view of consumer credit scores, vehicle characteristics and the structure, timing and location of each deal individually. Our industry may see some relief from the regulatory burdens of rate caps and product markup limits that have been building due to a more limited methodology that has been used by the CFPB.”

Mick Mulvaney’s appointment marked a “sharp reversal” of previous CFPB policy, Lindsey said. “With Republicans still controlling both the House and the Senate, further changes to the CFPB could be in the future, including giving Congress authority over its budget. It’s still too early to tell, though, what will become of the CFPB in 2018. It likely wouldn’t be dismantled, but its power could be drastically restricted.”

“I see a significant change in consumer regulation of our products as the Trump administration reigns in the CFPB and their irrational approach to ‘protecting’ consumers,” said Griggs. “However, all F&I providers need to continually demonstrate the value-added nature of our products and services and price them affordably. I expect an increase in state regulation of our products even as federal regulation eases.”

Pappanastos said the automotive industry enjoyed “significant compliance wins” in 2017 and expressed hope for a redesigned CFPB.

“Now, for every new regulation the CFPB puts out, it must eliminate two. In addition, the CFPB’s arbitration rule was struck down by President Trump in the third quarter of 2017. Because of this, we don’t expect to see many new regulations come out from the bureau,” Pappanastos said. “However, the CFPB remains very fluid and should be watched. With these wins for the industry, dealers can be tempted to relax their compliance initiatives.”

The Federal Trade Commission, which, unlike the CFPB, has direct jurisdiction over auto dealers, “is still moving forward,” Pappanastos cautioned.

“In addition, consumer advocacy groups are still paying close attention to the industry. Remember, there are multiple ways our industry is regulated,” he said. “A great example of this is the cases I referenced earlier that are moving through lower courts now. One side effect of dealers owning their own data is how that data will be regulated under the Safeguards Rule. Dealer compliance policies for securing digital versions of nonpublic consumer data will come under greater scrutiny.”

“The only prediction about the regulatory environment that can be made with any confidence is that there will be change,” Krasavage said, noting that he does not anticipate any “sweeping” changes in 2018. However, “We have seen a larger number of bills associated with F&I product regulations being introduced and passed over the last several years,” he added, noting that most have brought minor changes to existing statues and many have been supported by industry trade groups. “The departure of Richard Cordray and recent actions such as the CFPB arbitration rule being overturned could be harbingers of future changes in the complexion and focus of this agency.”

“Regulatory issues and compliance will continue to be a hot button, as will ridesharing and how that needs to be addressed from a service contract, GAP or other program coverages,” Hughes said. “I’m also interested in the CFPB and what the new appointee will do to their current role in all things dealer-related.”

Brown agreed, noting, “Regulatory pressures will come, it’s just a matter of when. Despite the changes at the CFPB, pressures on our industry will continue, whether it’s at a federal or state level, as evidenced by the October 2017 report from the National Consumer Law Center.”

“Rather than mention the agency that everyone else will, I’ll just say that the trends in this area are positive as we close out 2017 and I think will continue to be in 2018,” Atkinson said. He believes the F&I industry can continue to be profitable even as it advocates and demonstrates the need for a more transparent process. “With our current approach, we sell only about 35% to 40% of customers a service contract at the point of sale, for example. Let’s embrace the presentation in a straightforward way and see that number rise dramatically.”

As an example, Atkinson said he has seen VSC penetrations exceeding 60% in stores that offer a lifetime warranty and extoll its benefits throughout the marketing and sales processes.

“Customers buying vehicles with 90,000 miles and more say their greatest concern is whether the car will be reliable or not. They want VSC protection,” he said. “My point is, let’s be more transparent, offer the coverage to every customer every time, and you’ll see your F&I sales rise dramatically.”

The Subscription Economy

A lengthy commitment to a vehicle, the financing that delivers it, and the protection products that protect it underpin F&I production. If the subscription economy becomes the new normal, will agents and dealers suffer?

“I’m not sure, but most customers don’t buy their vehicles and own them a month at a time, so I believe protecting their vehicle for their estimated time of ownership is still the best value,” Dorfman said. “Considering most of the benefits are cancelable, they can always pay for only what they’ve needed by canceling if they trade the vehicle in.”

Wanderon agreed, noting that, “From my standpoint, F&I has always been a hybrid subscription. Think about it: Over 90% of products that are sold to consumers are funded by a lender and paid for over the term of the loan. Many, if not all, are cancelable at any time. That said, the only difference to me seems to be one is paid at a higher credit card rate and one is included in your monthly payment.”

“That’s the million-dollar question. No one can deny the subscription economy is here to stay and will see continued adoption, particularly by the younger consumers,” Robinson said. “I do not believe this will have a material impact on the F&I industry’s production in 2018; however, all providers need to be planning mid- to long-term or run the risk of finding themselves passed by competitors. Furthermore, I expect the subscription economy to be most impactful in cities with significantly slower and dramatically less adoption in the suburbs and rural areas.”

Griggs sees “no appreciable impact” of the subscription economy on consumer purchasing habits in 2018. “In five years, however, the trends toward consumers purchasing discrete services rather than owning high maintenance products will inevitably begin to reduce demand for automobiles and, consequently, the demand for F&I products.”

Steenbergh countered by pointing to the advent of monthly service contracts and the financing of F&I products beyond the finance term as evidence that the subscription economy is already affecting the industry.

“The vast majority of Americans are already conditioned payment buyers who live paycheck to paycheck,” he said. “Fewer than 40% check their credit score. Consumer debt has returned to near-record highs. These people aren’t focused on the long term as long as they can make the monthly payment and get what they want.”

Crisorio described the subscription economy as “experimental,” noting that the auto industry has already begun toying with the model at the factory level and beyond.

“There are many named programs out there, such as the technology platform Clutch or Canvas or Passport, and each promotes subscribing being easier than owning and more flexible than leasing,” Crisorio said. “Consumer acceptance remains a question as to scale, as these programs are not for everyone. They can be pricey at $300 to $3,000 monthly, but simple in that they provide insurance, maintenance and roadside service plus pickup and delivery of the vehicle selected within a price band. So if scale is a question, then so is success as an important business model. It could grow in importance, morph into another model, or just be a piece of the market.”

As for the year ahead, Crisorio added, “My Magic 8-Ball says it’s a piece of the retail market with a lot of onlookers. Stay tuned.”

“In 2018? Not much,” Lindsey said. “In years to come, possibly a substantial impact. If subscription services prove to be a viable long-term strategy for auto manufacturers, it has the possibility of impacting new-car sales and F&I product sales. Right now, it feels like there are more questions than answers.”

Noting that the cost for Ford’s vehicle-subscription service, Canvas, includes maintenance and a Ford- or Lincoln-branded service contract, Lindsey wondered whether OEMs would be compelled to require their dealers to limit their F&I offerings to factory-owned products for subscription units.

“If so, it could drastically limit the profitability of F&I product sales,” he said. “Separately, there are a handful of Silicon Valley startups with subscription-based models that could cause a disruption in the auto industry. What effect they would have on the way consumers purchase F&I products is still unknown, but, if it’s successful, it could create a consolidation of F&I product providers.”

Pruitt was unequivocal about the effect of the subscription economy on F&I production.

“OEM subscription models will likely negatively impact F&I sales and thus dealers’ bottom lines,” he said. “For decades, the dealers and the F&I industry have significantly relied on the live, one-on-one presentations made by the F&I professionals to maximize PVR profits. The skill level of these professionals simply cannot be duplicated in the subscription environment.”

“As I thought about this question, I thought about how active I am in the subscription economy,” Atkinson said. “Let’s see: Netflix, Amazon Prime, Spotify, Pandora, and the list grows rather quickly. In one sense, we have a subscription in that our products are typically tied into a loan and a monthly payment. Where I see great opportunity is in the 60% or so sales we miss and how to capitalize on them. I think that, over the next few years, you will see offerings that utilize a subscription model effectively realizing it is more than just a monthly payment. It needs to engage the customer and have a strong CRM component as well.”

Noting that the business model for buying cars continues to transform, Croak said, “Online research has turned into online purchasing, and this is no small change for the industry. Overall, I think the dealers are trying to see how best to support the customer through these shifts in buying. We all have to be willing to charter new territory when it comes to serving consumers and the role technology plays in the buying process.”

For his part, Zanan believes it may actually be easier to package F&I products in the subscription model. “There will be different plans, similar to how AT&T and Verizon price their cellphone plans,” he said.

“While there is a lot of activity in this space, where it will all settle out is far from clear,” Krasavage said. “I think that, over the next five years, we’ll see growth in subscription-type services over a number of verticals — including automotive — some of which may not be so obvious.” In the short term, he added, “we are going to see a lot of experimentation and trial. From a product provider perspective, we will be flexible and adapt as we see market opportunities and needs arise. The strength of our brand, product portfolio and expertise will be solid assets for us wherever this leads. In the future, we may see areas where we can better deliver our existing F&I products to consumers following a subscription-type model in order to reduce purchase barriers and increase convenience for consumers.”

The key to success? Flexibility and anticipation. “Why are consumers interested in a subscription service? To save money? Reduce upfront costs? Flexibility?” Krasavage asked. “Understanding their needs and motivations will be key to determining the right areas to focus on.”

Bold Predictions

Finally, we asked our experts if they cared to predict any major changes for 2018. Most pointed to external forces, including Wanning, who expressed further concerns about factory-branded F&I products.

“One of the trends I think could evolve is the OEMs’ development of providing a broader protection package for their vehicles,” he said. “Volkswagen recently came out with a six-year, 72,000-mile bumper-to-bumper transferrable warranty. If the VW program is a success, it could be copied by other OEMs and thereby reduce the ability of dealers to offer these products, which are crucial for F&I income.”

Weather was a major factor in 2017, Price said, and the effects will continue to be felt in the new year.

“We saw a spike in vehicle sales in the last quarter of 2017 due largely from the hurricanes that hit Texas and Florida. I believe we will continue to see this lift through the first quarter of 2018, but this is only temporary,” she said. “The market has plateaued, and manufacturers are looking outside of the United States for growth. It will be interesting to see how the global push from major automakers will impact the U.S. market.”

Bringing the conversation back around to GAP losses, Holcomb said there is “a lot of talk” about fitting the cornerstone product into the F&I landscape in 2018. “I think there will still continue to be price increases as administrators grapple with the best way to keep the program profitable for everyone, and yet I think there will be a shift at some point away from the simple three-tier approach to something more dynamic that fits the marketplace,” she said.

“Short of some catastrophic event tanking business and consumer confidence — like a missile exchange with North Korea — I don’t see any major changes,” Steenbergh said. “For better or worse, our economy is heavily driven by emotion.”

Zanan concurred, noting that “Change happens slowly and incrementally, so nothing drastic should happen in 2018. Consumers will continue to engage in more digital retail, and that will put pressure on car dealers to adopt to these changing consumer shopping trends.”

“While it is important to pay attention to longer-term trends impacting the automotive industry and prepare for them, there is no reason for F&I providers to panic about the near future,” Griggs said. “Successful F&I providers that focus on creating wealth for their dealer clients through income development and great service will continue to fare well.”

Several of our experts said dealers will look to shore up internal processes to drive profits. Knight, for example, expects dealers to continue to look for new ways to grow sales and service revenue with less reliance on “traditional and expensive” advertising methods. Pappanastos said pre-owned inventories are “rightsized” going into 2018, so he expects dealers to put a premium on sourcing trade-in and off-lease units at the expense of the auctions.

Of course, there is no F&I without sales, and Glander expressed some concern over the shrinking subprime auto finance market.

“Last year, we saw a number of the largest banks and lenders pull back from the auto lending space, particularly with riskier loans. I think it’s worth really understanding the drivers of those moves, which in some cases appear to be an effort to repair image issues at the banks and heal self-inflicted wounds,” Glander said. “We believe that the auto consumer lending business remains an opportunity for finance companies to earn tremendous returns while serving consumers and a dealer industry that is critical to the economy. If the past is any indication, we will see a number of smaller lenders step in to fill the hole left by the big players.”

“I see continued dealer consolidation,” Duncan said. “This is not a bold prediction, but I believe one of the biggest stories of the year will be about the merger of two of the publicly traded dealer groups. I have no sense of who these participants may be, but we have yet to see a merger of this proportion. Lithia and DCH would be the closest example of two auto dealer juggernauts combining as one company. Name another industry where there has never been a merger of two Top Five market-share leaders.”

“Consolidation in all areas, I think, will be in play,” Wanderon said. “Agencies, administrators, underwriters and dealers will get bigger and bigger. Seems to me if you are not getting bigger in 2018, you are going to be in trouble.”

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An Interview with Brad Davis

An Interview with Brad Davis

In 2010, Brad Davis brought 12 years of experience in the mortgage and auto retail industries to Norman and Company, Inc./Classic Products, the company, started by President and Partner Norman Ferenz in 1984 and joined by his father, Vice President and Partner Gerald “Jerry” Davis, in 1991. Agent Entrepreneur caught up with Brad Davis to talk agency development, GAP losses, powersports prospects and competitive fishing.

AE: Where are you from, Brad?

Davis: I was born in Cleveland and I have lived in the Clearwater/Tampa Bay area since I was 3 years old. My dad was tired of the cold weather in Ohio, and he was aware of opportunities here. Like most people who grow up in a nice area, I didn’t realize how good we have it here until I moved away. As I furthered my career, I would drive home once a month to fish and visit family.

AE: What moved you around?

Davis: As I was finishing college, I took a job in the mortgage industry. I enjoyed it, and I later became a sales manager for H&R Block Mortgage and then opened my own mortgage company. My dad and my sister have been in the car business their entire lives. I was purposefully trying to stay away from it. I wanted to venture out and make my own way. But it was inevitable that they would pull me in.

AE: What was the catalyst?

Davis: There were two: The mortgage business took a hit and my dad saw his retirement coming down the road. He wanted me to learn the business, first by working at a car dealership. I took a sales job at the former Countryside Ford & Mazda in Clearwater, and they promoted me to finance manager. All told, I was there for a little over a year.

AE: Did your experience in the mortgage industry pay off?

Davis: I can tell you the industries are similar in a lot of ways. First and foremost, both are customer service businesses.

AE: And both are heavily regulated.

Davis: Yes, and heavily regulated. But treating customers well, doing the right thing every time; that transferred over to the car industry. So I hit the ground running on the retail side. I really enjoyed the interaction with customers on a day-to-day basis. As in the mortgage business, if you treat people right, the business will come.

AE: Was there a moment when you thought you would stay there?

Davis: I was moving up the ranks, but the intention was always to come over to the family business. Leaving was difficult. I enjoyed working with the GM and in the finance department, but I knew everything I had done over the past 12 years was leading to Classic.

AE: How were your first few weeks in the office?

Davis: I spent the first few weeks training in each department, just trying to get the flow of each individual part of our business on the claims side. Then, coincidentally, our longest-standing employee went on maternity leave. Just like that, I was thrown into the fire of handling agents on a day-to-day basis.

AE: How did you like it?

Davis: Working with agents has been the most rewarding part of my work in this business. I really enjoy developing those relationships, and a number have become close, personal friends along the way.

AE: What’s it like working in the family business after working in another industry and owning your own company?

Davis: I will say I’m very happy I waited until my adult life before I went to work with my dad. But I developed my work ethic by watching him. Through all the years he and Norman were building this company, he always set high standards. In this business, there is always something new to learn. I have enjoyed working with them and learning what it takes to be successful.

AE: Any surprises?

Davis: I would have to say I was surprised at how diversified this business is in terms of day-to-day activities. It’s not one-dimensional. We are selling and expanding product lines in partnership with our agents, but we’re also managing the business from a loss ratio standpoint.

AE: GAP losses were a recurring theme at Industry Summit.

Davis: It’s no secret those loss ratios are up in the new-car and used-car arenas. I think everyone’s been doing a pretty good job of finding the right price point for this business, and I think everyone is dug in to handle these increases, either throughout their book or on a per-store or per-dealer group basis. Our business is very diversified across multiple GAP programs. That has afforded us the opportunity to not endure major increases up to this point.

AE: Are there any less-heralded products you see performing for agents?

Davis: Over the last three or four years, I have seen huge increases in powersports and RV. Obviously, as the economy gets stronger, consumers can buy more RVs and motorcycles. The great thing about this business is there are always different products agents can pivot to and diversify their books of business.

AE: Does powersports require a different approach?

Davis: You have to know that aspect of the business and those F&I products are continuing to evolve. It’s a niche business, and knowing the differences between the subsegments is essential. Just like the automotive side, the most important thing is learning how the products and programs work in powersports. As agents spend more time at those stores, they’ll get a better idea of what it will take to earn the dealer’s business.

AE: You mentioned powersports F&I is still evolving. Would you say it’s catching up to automotive?

Davis: Absolutely. There are more F&I products available for powersports than ever before. It’s becoming a nice platform.

AE: How do you spend your time off?

Davis: I’m an avid fisherman. My beautiful wife, Katie, and I were married about two years ago. It’s always a delicate balance between work life, fishing life and married life — maybe not in that order. But I can tell you the hours can sometimes be better on the administration side than in the retail or mortgage business.

AE: Do you fish for fun or sport?

Davis: Tournaments are big business around here. I only fish a couple, for charities, but we have a really good time doing it. We sponsor the Skip Cline tournament, which benefits the pediatric programs at Morton Plant Mease Hospital.

AE: Any wins?

Davis: We haven’t won yet, but there’s always hope. Captains are allowed for this particular tournament, so the competition is pretty tough. For the most part, we fish on the West Coast of Florida, mostly for grouper, snapper, redfish, tarpon or snook.

AE: What’s the biggest fish you ever caught?

Davis: About a 150-pound tarpon.

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An Interview with Brad Blizzard

An Interview with Brad Blizzard

F&I is evolving rapidly, but 35-year industry veteran Bradford “Brad” Blizzard believes the core concepts of effective processes and superior customer service will serve it well in the Digital Age. Agent Entrepreneur caught up with RoadVantage’s national vice president of sales to take a look back at his career as an F&I professional, agent and executive, predict the future of the industry, and learn what life is like in a subtropical paradise.

AE: Brad, where am I reaching you today?

Blizzard: I’m here in St. Augustine, Fla., where I’m based.

AE: I have visited St. Augustine. Isn’t it America’s first city, or something along those lines?

Blizzard: It is the oldest city in the United States. We just celebrated our 450th anniversary. Of course, I’ve only been here for a segment of those.

AE: Are you from Florida?

Blizzard: I am. I was born in Miami. Where I grew up in Miami, there wasn’t much there, apart from a few ranches.

AE: It must be something to see your hometown change so much in your lifetime.

Blizzard: It’s crazy. And we do see it fairly often. We still have quite a few friends in Miami, and one of our three kids lives in Hollywood, Fla. My wife and I moved to St. Augustine seven years ago. North Florida is a little less fast-paced.

AE: How did you get into the auto industry?

Blizzard: Almost on a whim. I had always gravitated toward insurance-related businesses. I was working for a large insurance company in the early ’80s when my nephew started telling me about his job as a finance manager at JM Pontiac. He told me about the work, how he got involved in it, and the money aspect of it. One thing led to another. I went down and interviewed and, two or three weeks later, that was the start of my career.

AE: Did you go directly to F&I?

Blizzard: I sold cars for a very short period of time. JM Pontiac had 16 F&I managers. It was quite the operation. We sold 450 to 500 cars a month from a single-point Pontiac store, including used cars. And I learned so much there. Working at JM Pontiac was almost like going to Automotive University. And if you weren’t aware, JM was the founding place of what is now Jim Moran & Associates.

AE: That store?

Blizzard: That store, that setup, the way we handled people in the F&I department. They started spreading the word, reaching out through 20 Groups. Other dealers would send people to JM Pontiac. They would spend the day in the training room upstairs, then sit with an F&I manager for the balance of the night.

AE: What did you know about F&I when you started?

Blizzard: I don’t think I even knew what “F&I” stood for. But I learned, quickly. It was an extraordinarily quick fit for me. Whether it was meant to be or dumb luck, that was the beginning, and it’s moved on from there. I’m very blessed with the career I’ve had.

AE: We talked about how Miami has changed in your lifetime. How about the degree to which F&I has changed during your career?

Blizzard: It’s really extraordinary. When I started, we had credit insurance, disability, service contracts and a little bit of GAP. Finance terms were 48 months at the most. The scope and size of it was nothing like it is today. And the way we handle customers has changed as the product availability has exploded. I really enjoy talking with my kids about it, although sometimes I’m still not sure they understand what I do.

AE: How long were you with the JM group?

Blizzard: I was at that store for a couple years. I was actually slated to go straight from that store to working at JM&A. It didn’t quite work out. I had a vacation coming up they wanted me to forego. We put it on hold and, in the meantime, a friend called from Atlanta to tell me about a consulting firm called Gill & Associates. It was like JM&A — training, consulting and sitting in the dealership and taking care of business when someone is gone. I interviewed and wound up moving from South Florida to Atlanta to get into the consulting side.

AE: I have met a number of F&I specialists. They all seem to enjoy the combination of training, consulting and taking turns.

Blizzard: It’s exciting. You get to do some travel, and it’s not the same thing each and every day. It’s a wonderful piece of the business to be in, and it’s very rewarding. I stayed with Gill & Associates for three years. Then they merged with Voyager Life out of Jacksonville, and we formed Voyager Automotive Group. That took it to a different level. They moved me to Denver to be Western regional vice president. I had seven regional managers, and we had business from California to the Mississippi. But that company was eventually sold to American Can, a cannery. They were part of Primerica Financial. They essentially bought the assets.

AE: How did that work out?

Blizzard: It unraveled in about six or seven months. We had 35 or 40 people at that time. We were guaranteed one year’s salary, but we had to stay out of the business. So I took some consulting jobs and then eventually got back into retail. I did a stint with a large Ford dealership, and that was a great refresher course. I relearned F&I at the grassroots level. After that, I ended up relocating back to South Florida from Denver, and I started my own agency. I called it “Bradford Consulting Group.” My wife thought it had a ring to it.

AE: How much did you know about running an agency?

Blizzard: Not much, to be honest. But I had been around agents, and I thought I could apply my business acumen to it. And, quite frankly, it worked out very well. It’s a unique scenario to start from zero — no accounts, no employees — and build it to where I got it. I’m proud of that and I really enjoyed it.

My product provider at the time was Safe-Guard, and I got to know Doug Duncan very well. He offered me a position with Safe-Guard as national vice president of strategic accounts — clients like AutoNation, Sonic and Mercedes-Benz of North America. We had seven regional managers. I lived in planes and hotels, lots of travel. I oversaw that for several years.

After Safe-Guard, I initially went back to consulting, then basically ran into the opportunity with RoadVantage. A friend of mine came up with an idea for a product he thought would work. He needed to find a provider to underwrite and back it. I had known Garret Lacour for some time, and he had just started RoadVantage. We took the product to Garret and he helped us take it to market. Garret and I started talking about his vision for the company and where he wanted it to go. He offered me a position when the company was in its infancy, and I took it. It was an opportunity to be involved in something great from the ground up. That was almost six years ago.

AE: RoadVantage has really raised its profile. You have those big ad campaigns. And I like the meter panels you put up at Agent Summit, with photos and testimonials from agents and customers.

Blizzard: That is directly attributable to our marketing department. It’s unparalleled in terms of what Melissa Anderson and her team do to get us into the marketplace. There are only a few major national product providers. Garret knew RoadVantage had to be different if we wanted to make some kind of an impact, so we took that and ran with it.

AE: Having worked as an entrepreneur and as part of a company, would you say you have approached those roles in different ways?

Blizzard: Yes. On the entrepreneurial side, you wear so many hats. You’re doing accounting, marketing, sales, HR — all the things that go into running a company. But essentially it still boils down to my background in the auto industry. From selling cars to F&I to sales management, those components are connected to everything I’ve done in my career. You hear folks say it gets into your blood and stays. I couldn’t get out of this business if I tried.

AE: Will digitization change that? Would you have fallen in love with the industry if your experience was closer to what the next generation of dealership personnel can expect?

Blizzard: I believe I would have, and I believe more people will. It’s a fantastic industry, and everyone gravitates toward something they like to do. And it can still be a high-paying, lucrative career path. But I think we have done a less-than-stellar job of introducing it to the next generation. We need to show them what our industry is about and how it fits with what they’re looking to do. That will be paramount to keeping it going.

And since the next generation has grown up with digitization, they will in turn help the industry evolve with customers’ shopping habits. From a digital aspect, the auto industry is like an ocean liner: It turns, but it turns slowly. But at the end of the day, it’s still about the basics. It doesn’t matter what industry you’re in — it’s about the customer experience, and doing things in a way that meets consumers where they are. That part of F&I hasn’t changed, it’s just the tools that we use to reach the customer that are evolving.

As we continue to move into the Digital Age, we’re utilizing as many things as we possibly can to help dealers engage customers as shopping behaviors evolve. RoadVantage is producing informational videos for consumers. They enable our agent partners to help dealers get F&I product information to customers, who can then see these videos on the dealer’s website or on monitors on the showroom floor. So the first time the customer hears about these F&I products isn’t when they sit in front of the F&I manager. That sets the F&I manager up for an easier, more productive meeting with the customer, moving the focus from education to determining what the customer can afford to buy to protect their purchase.

AE: What are you working on right now?

Blizzard: From a company standpoint, we have a couple big things we’ll be talking about in the not-too-distant future. We think they will create new opportunities for our agent partners. That’s how we view them, as partners. We are ultimately a product provider and administrator. What happens beyond that is up to agents, and we won’t lose sight of that. We can’t thrive without our agent partners. They have a customer experience with us, their dealers have a customer experience with them as well as with us, and then the car buyer has a customer experience with the dealership and also, again, with us, when they call in a claim. Each of those pieces has to be perfect, and that is our focus — providing the best experience for everyone involved.

AE: If an agent was struggling with a dealer client and asked your advice, would you suggest they look downstream, at the end user’s experience?

Blizzard: I would, and I’m going to steal that from you. (Laughs) But it is, absolutely, it’s the big picture. An agent might say, “My dealers are all happy.” But it goes way beyond that. As a former agent and knowing agents, I believe a key element is having the best product provider for you. One size does not fit all. And it’s important to look at those relationships: What kind of service am I getting from my provider? Do they assist in field installations and all those other pieces to the puzzle? How do they handle my dealers’ claims, and what is the consumer’s experience when they call in? So yes, I would certainly offer that advice, to look at it from that perspective.

AE: What do you do in your free time?

Blizzard: Interestingly, my wife is the managing partner in a company that owns six vessels in the Bahamas, British Virgin Islands and Indonesia. They host one-week, live-aboard dive cruises, on 65- to 105-foot boats. It’s part scuba diving, part eco-adventure. My wife and I also enjoy going to the beach and sailing, and I play golf. I like to say our biggest hobby is our children, but we don’t get enough time with them for that to be true. But all three of them still live in Florida, so it’s easy to see them when we can.

AE: If you want to keep your kids around, raise them in Florida, where there’s no state income tax and houses are affordable.

Blizzard: Yes, that has made things much easier!

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An Interview with Rick Meinke

An Interview with Rick Meinke

This year’s Agent Summit will include “Capitalizing on Lease Opportunities,” a panel discussion devoted to F&I products for lease customers. One of the panelists is Rick Meinke, a nearly 40-year veteran of the auto retail and finance industry who currently serves as national sales manager at ECP Inc. On the eve of the event, Agent Entrepreneur caught up with Meinke to retrace the steps that led him to ECP, talk about the state of F&I, and learn how trainer humor can sometimes be lost in translation.

AE: Rick, what does your work entail?

Meinke: I wear a number of hats. My primary responsibility is increasing the business we have and adding new business through new agents.

AE: Do you have agents in every state?

Meinke: We are in every state, as well as Canada, Puerto Rico and just opening in the Dominican Republic.

AE: Have you traveled to Puerto Rico?

Meinke: I go at least once a year. I work with our agents and I’ll go in and talk to dealers and salespeople. I’ll do a sales meeting, and, in most cases, I have a translator. I like to interject a little humor, and I hope it works in Spanish. Sometimes they don’t laugh, and I wonder, “What is he really saying?”

AE: Are the basics of F&I training universal?

Meinke: I’m sure you’ve talked to a lot of F&I trainers, so you know everyone has their own concepts and approach. But I believe basics really are basics. Our national director of training, Carter Abel, has been a trainer for Penske, Pat Ryan and EasyCare. Basics are basics, but we may have a different approach to menu selling, for example.

AE: Where do you stand on the issue of presenting F&I products online?

Meinke: I worked for a Toyota store when Scion was launched, and Scion was all online. You had to have not just information but pricing online, as well as on menus posted in the Scion showroom. It worked out fairly well for us, once we understood the concept and made adjustments.

I don’t see an issue with that. I think it’s a good idea. When you’re that transparent with the consumers, I think it’s a positive. The hot button for most is usually rate. As there is no value to the consumer in rate, you still have many other products that can be sold and will add to the profitability of the store and give the consumer value. It can, however, affect the profitability if you don’t have a strong aftermarket program and a strong F&I department.

AE: Do you worry online F&I gives the consumer an opportunity to just say “No”?

Meinke: I think it gives the consumer a choice. If they don’t like what they see, they’ll go to their bank or credit union or possibly another dealer. But it forces dealers to put up conservative numbers, earn their business, and have a chance to marry them to your dealership and your service department. That’s a long-term goal for any dealer today.

AE: How did you get into the car business?

Meinke: I got into it in 1979. I sold cars at Gerald Olds Jeep Renault AMC in Naperville, Ill. I grew up in Joliet, right next door. It’s a funny story. My father-in-law worked in that store. He came to me and said, basically, “If you’re going to support my daughter, you’re going to be able to do it in the car business.”

AE: Was it something you wanted to do?

Meinke: You know, it always seemed like it might be a fun thing to do. It got in my head when I purchased my first new car in 1977. And when I did it, I enjoyed it.

AE: How much training did you get?

Meinke: Not much! I spent two full days watching Betamax videotapes of Joe Girard. From there, most of my training was just working with my father-in-law. He was the top guy until I got there.

AE: You passed your own father-in-law on the leaderboard?

Meinke: After 30 days, I started driving the Toronado, which was for the salesman of the month.

AE: How long were you in sales?

Meinke: Only for about 18 months. I wanted to get into F&I. We had a young man in that position and I didn’t really care for how he was treating the salespeople and customers. I felt I could do a better job. The dealer didn’t want to take me off the floor, so I went to work for Pat Ryan. This was in 1981. And of course, back then, all you had to sell was credit insurance and service contracts.

AE: How did the opportunity with Pat Ryan come about?

Meinke: My brother- in-law worked for them. He put the idea in my head. He put me in touch with the right person. I called him up, we had the interview, and they hired me. As I understood it, back then they made an exception, because they preferred to hire college grads and put them through their program. They didn’t think they’d be able to keep the retail guys.

AE: What was the job?

Meinke: I was a specialist. We called it, back then, a “Rent-a-Ryan.” I would go work F&I at an underperforming dealership or fill in for someone who went on vacation. It could be a week or two or up to six months.

AE: Did you travel all over the country?

Meinke: I wasn’t in that position very long. The furthest I went was Wisconsin.

AE: How was the pay?

Meinke: The pay was not good. But I didn’t have any kids at that point and figured going backward was OK as long as the opportunity was good and I enjoyed it. Selling cars wasn’t enough of a challenge at that point in my life. But then, I didn’t like being cooped up in an office either. I liked to see deals being made and talk with customers on the showroom floor.

I did that for six months and then got promoted to district manager. At that point, I felt like I was basically an agent. My job was to go in, raise expectations, and show them how to exceed those expectations, and to increase my district be putting on new dealers. I did that for a little over a year, then I was promoted to area manager for Northern Illinois.

AE: Did you get to know Pat Ryan?

Meinke: I won’t say I knew him very well, but I certainly had the opportunity to be in the same meetings on occasion. Once a year, we had a corporate meeting. He would always make those meetings and make time to have a drink with us.

AE: Was there a sense at that time that you were doing something special?

Meinke: Yes. The big thing is, Pat was a genius. He understood the retail automobile business and the training aspect of it. He started the first real training class in the industry for finance.

AE: How long were you with the company?

Meinke: I left in 1986. With a partner, I started a training company specifically for protective coatings. We didn’t sell any products, and we didn’t care what the dealer carried. We just applied training concepts to what we saw as a new profit center. Nobody was doing really well with protective coatings at that point. We Ryan-ized that industry.

I ended up selling the business to my partner in 1990 and went back into retail. I went in as a sales manager and moved up to general sales manager and general manager. I worked in several stores, mostly Toyota, Honda and Hyundai. I spent a lot of years with Toyota, and it was a lot of fun. We had good product and it was an exciting time.

So I did retail throughout the ’90s and into the 2000s, then left around 2009 to come to work with ECP.

AE: What prompted that move?

Meinke: The hours. When you’re working five days a week, and your head is in the game six days a week, you don’t see a lot of your kids growing up. In her senior year of high school, my daughter was the captain of her cheerleading team. She had an awards banquet. I had to be there, so I took the night off, but someone got sick, so I had to go in. A few weeks later, I quit, and shortly after that, I joined ECP.

I’ve known ECP since the ’80s. They ran an ad, I saw it, I called the president, and I went in the same day. I went in as a regional manager, did that for about a year, and then I was promoted to national sales manager. Looking back, I wished I could have done it 10 years earlier.

AE: It sounds like you’ve had success at every stop.

Meinke: I don’t know that I have. I think “success” is a very broad word. No matter how successful you are, you can always be more successful. I’m learning every day and getting better. I’m still striving to hit the pinnacle. But I’m happy, and I love what I do. That’s more important than anything.

AE: What are you working on now? What gets you up in the morning?

Meinke: What gets me up in the morning? Incomplete business from the night before. (Laughs) No, really, the challenge growing the business and seeing the results materialize is what really gets me excited. I’m proud to have a good team around me at ECP that does a really good job. They are the folks who make everything happen. We are like a family and everyone loves what they do. The passion is what makes it all worth doing.

AE: Do you plan to retire with ECP?

Meinke: I will, yes. I have no intention of going anywhere. It’s a great company. When I stop enjoying what I do, then I’ll retire. When it becomes work, then I might take up golf.

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