Tag Archive | "George Angus"

Telling the Emperor He Has No Clothes

“The Emperor’s New Clothes” is a fairy tale by Hans Christian Andersen about an emperor who pays a lot of money to a scam artist for some new, “magic” clothes which he is told can only be seen by wise people. The clothes do not really exist, but the emperor does not admit he cannot see them, because he does not want to seem stupid. Everyone else pretends to see the clothes too, until a child shouts, “The emperor has no clothes!”

The title is often used to describe a situation in which people are afraid to criticize something because the person in power believes it. As an agent, you know that automobile dealers often live in a bubble. They have only the people under them to listen to, and they can be mired in believing things that are not true and certainly not productive.

And sometimes the agent or product provider is the only person who can give them the proper perspective.

Rich Dealer, Poor Dealer

I have been in hundreds of dealerships all over the U.S. and Canada over the last 25 years, and I have extensive experience working directly with dealer principals. One thing I have viewed, firsthand, is that successful dealers view the industry differently than those who seem to struggle.

One difference I have observed is the overall attitude and mindset that separates the two. While we constantly hear about things like “positive mental attitude” and “the power of positive thinking,” the reality is that changes in the industry require more than just saying the words. A while back, I experienced the perfect example.

I often speak to dealer 20 Groups. After one of those meetings, a dealer principal who had attended asked me to visit his dealership because I mentioned I was coming to his city for another function. This happened to be a Ford dealership in a medium-sized city in the Midwest. One of the top F&I performers in his 20 Group used our process and suggested he call us. His dealership ranked near the bottom of his group’s F&I performance ranking. I made the commitment to visit when I was in town.

Before I went, I gathered some performance information about dealers in his area that we had trained and also had him send me his F&I performance numbers.

When I arrived at the dealership, I was greeted by a rather uninterested salesman who asked, “Can I help you?” Since I was not injured or in medical peril, I said I’d just like to see the dealer. Let’s call that the first clue this store was in trouble.

The dealer took me to his office and began explaining their F&I process, how it was not working, and wanted to know what they could do to improve. As I started asking specific questions about their process and methods, the dealer quickly started enlightening me as to the real problem: his customers. You see, his customers were “different” (second clue).

His customers were smarter than average and didn’t fall for F&I products. They all look up the invoice price of their vehicles on the internet, read all the articles about F&I rip-offs, and some are even insulted when they are asked to give credit information. Most of his customers had bought from him in the past and he didn’t want to offend them by trying to sell them stuff they didn’t need (clues continue).

His F&I managers had been with him for years. His sales staff had all been there a long time as well, and they didn’t really like turning their customers over to anyone else. He also had a new crop of customers moving into the area that didn’t speak English. His F&I income, per retail unit delivered, was at around $700. But given all of the above, didn’t I think his F&I guy was doing a pretty good job? I mean, with all of that, what could he do?

As I sat there listening, I leafed through the information our research team had given me and noticed that we had trained a Chevrolet dealer in the same city for one of our authorized agencies. They were at about $1,500 per retail unit delivered, had top customer satisfaction scores, and they were achieving outstanding penetration percentages across a range of different products. And that’s with two F&I managers who had a combined experience in the business of four years. When I asked the dealer how far away that store was, he stood up, took me out the front door, and pointed to the Chevy sign about a block and a half away, and across the street.

Here’s the Thing …

Now this is where I get into trouble. I can’t help myself. You see, we don’t sell any F&I products so I don’t have to worry about bruising the dealer’s ego or losing his business. I tell them the truth.

I told the dealer what the Chevy store was doing, (with their permission, of course), compared the demographic profile of Chevrolet and Ford buyers (very similar), and asked him if there was some kind of Bermuda Triangle-type vortex that customers passed through going that block and a half away and crossing the street that made them so different.

He immediately became defensive. He told me I didn’t understand and, in no uncertain terms, that, “We don’t do that to our customers!” When I told him that maybe his buying into that mindset was part of the problem, he honored me with a 15-minute lecture on what’s wrong with the car business and gave me his philosophy on F&I and the business in general.

After that meeting, I assumed that I would never hear from him again. It’s funny how things work, though. Two months later he called and said, “We’re ready to fix F&I. When can you come?”

They had hired a sales trainer I had mentioned to him on my visit to help their sales force. He couldn’t believe how much their closing ratios and grosses had improved. He was promoting two new F&I managers he wanted me to train and he promised they didn’t know anything so they would probably do whatever I trained them to do.

It’s now been a few years since I trained those F&I newcomers and they are consistently within $100 per retail unit of that Chevy dealer down the street. 100% of customers are turned over to F&I at the time of sale. Even though they have pretty much the same floor traffic as in previous years, they are closing a much higher percentage of that traffic and sales are up almost 60%. They are maximizing the F&I income on every unit they sell.

And results breed confidence.

One of the F&I managers I trained called me recently to ask what they had to do to make our “F&I Masters” list. (They’re getting a little cocky. Good.) And the dealer principal now looks forward to bragging at his next 20 Group meeting.

I guess it’s true. Sometimes success is just in the attitude of the dealer principal. But sometimes you have to be willing to tell the Emperor he has no clothes.

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A Month’s Work in Three Days

Over the many years I have spent working with agents and F&I product providers, I have gotten a pretty good insight as to the best time to call on your dealer accounts. I’ll share the benefit of my anecdotal observations here.

Narrowing the Field

First, it’s not good to call on dealers in a week that begins or ends the month. On the last few days of the month they are busy trying to get as many deals done as possible to “make” their month. The first few days of the month are bad because they are closing out the previous month and figuring out what the month’s first paycheck will look like.

That leaves the middle three weeks, but even then, you have to be strategic

First, it’s not good to call on them on Monday. They are finalizing the deals from the weekend and don’t have time to see you. Friday is also bad, because they are looking forward to the weekend and are, as you know, distracted. You like to start your weekend early anyway, so it works out.

That leaves Tuesday through Thursday, three weeks out of the month. That’s a nine-day window, folks, and we’re not done yet.

Because the managers you need to see work weekends, they will very likely take Tuesday or Wednesday off. It makes no sense to visit the dealer unless you can see all the managers, right? Thursday is a better day.

So that leaves just Thursdays, three weeks out of the month. That’s three short days a month.

However, dealers tell us that they expect their reps to spend Thursdays doing some training, spend some time with their people and maybe take them to lunch. That takes most of the day. When you add driving time, you really can only service one account per day if you do it properly.

So that leaves three days for three accounts. That’s all you can really expect to cover in a month.

However, the dealer would like to see you more than once a month. After all, he makes you a lot of money, right?

So it looks like you need to limit yourself to one dealer account. That way you can provide the level of training and service the dealer has every right to expect.

Of course, you’ll have to figure out how to pay for the gasoline to get there.

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Paper or Plastic: Which Works Best in F&I?

We have been working with several software providers over the last couple of years to develop training and better processes for several of the new electronic F&I presentation tools. We have also been testing and measuring results from different types of printed menus.

I am quite often asked which type of presentation media is the most effective. After extensive analysis of media performance over the last two years, it has become abundantly clear that what an F&I menu, iPad, tablet or on-screen program can do has been overstated and, in many ways, misunderstood in the marketplace.

What do customers prefer? Well, let’s turn to the results of the 2015 J.D. Power U.S. Sales Satisfaction Index Study. Now in its 29th year, the study is based on responses from 27,831 consumers who bought or leased a new vehicle in April or May 2015. It measures satisfaction with the sales experience among new-vehicle buyers.

The study calculates the buyer-satisfaction scores using four factors, in this order of importance: working out the deal, salesperson, delivery process and facility. Let’s take a look at how those factors feed into the use of electronic presentations.

Paper or Tablet?

According to the survey, when customers make it into the F&I office, they want to know what their F&I product options are, and they want to see it on some sort of product menu, whether paper or digital. The F&I manager should then explain the value of the product.

Overall, the close rates on all four of the products J.D. Power included — prepaid maintenance, extended warranty, tire/road hazard protection and interior/exterior sealant protection — were highest when the customer viewed the options on a paper brochure or menu.

For service contracts, the close rate was 32% with a paper brochure or menu. It was 29% with a computer screen and one point lower, at 28%, with verbal offers. For prepaid maintenance, interior and exterior sealant protection and tire and road hazard protection, the close rates were the same whether the dealership offered the products verbally or showed them on a computer screen.

F&I product sales also depend on the process, the study found. If the customer has a long wait between the time they agree to buy a vehicle and the time they meet the F&I manager, the customer may feel agitated before even stepping into the office.

The study found that the likelihood of customers purchasing another vehicle from a dealership depends partly on the pressure they felt from the store to buy F&I products on their previous sale. Only 10% of customers who felt too much pressure said they “definitely will” purchase from the same dealer again. For consumers who felt no pressure, however, 44% said they definitely will purchase from the same dealer in the future.

And the type of presentation matters. Too much pressure to buy F&I products resulted in lower penetration rates. For example, 18% of consumers who felt too much pressure to buy purchased tire and road hazard protection vs. 19% of consumers who felt some pressure and 21% of those who felt no pressure to buy.

Overall satisfaction among buyers who said the dealer applied too much pressure during the F&I process was 638 on a 1,000-point scale vs. 852 for those who experienced no pressure, according to the study.

It’s the Process

Based on what we’ve learned from real-world testing with a representative group of media forms in a wide range of real F&I offices, we have found that the menu or electronic device being used is , in many ways, less important than the person using it and the process they use to present it. Any media can be made to work to some extent, but none of them will do much by themselves.

What customers respond to best is a more modern “information provider” approach. Offering products in the most expedient and simple way is what the J.D. Power study suggests and it certainly has produced the best results in our testing.

We have found the keys to any successful process is to demonstrate three critical elements:

  1. It has to be easy or F&I managers won’t do it. And if it’s easy for the F&I manager, it’s easy for the customer as well.
  2. It has to be simple enough for the customer to easily absorb and understand immediately.
  3. It has to be fast, because customers don’t want to sit through long, drawn-out sales pitches and time-consuming processes. They want to know their options, choose what they want, and get on their way. A common complaint from customers is that the F&I process takes too long.

Whatever process or procedure that produces those key factors will be the most successful for your dealer clients.

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What Do You Mean, No Credit Insurance?

I recently bought a car and I decided to finance the car through the dealer because of the great rates that were available. The dealer was financing me through a Credit Union I’ve been a member of for years. After some negotiation with the F&I manager, (you know, deciding how much I’d let him make), I added GAP and a service contract to my loan. Then I told him to be sure to add Credit Life. It’s a no brainer for anyone over 50 years old. Credit Life is a good buy for older buyers because the premium isn’t inflated by age. It’s certainly the cheapest term insurance I can buy.

But I was shocked when the F&I manager said “I’m not allowed to sell credit insurance”. Now, since the dealer was financing me through my own Credit Union, I can just as well walk into my local branch and get the same rate the dealer gave me. I was just letting the dealer get a flat fee, make a little money on the deal, and save a trip to the Credit Union.

But since the dealer doesn’t sell Credit Life, if I wanted it, (and I did), I would have to refinance the loan directly with the same Credit Union. Of course, if I were a normal customer who went to the Credit Union, the dealer would lose the finance income, GAP, and almost surely the service contract.

Now, I understand that service contract sales are the main focus of most agents, and every dealer has the right to offer what they choose. And licensing can be an added chore. But not having a product available that many customers clearly will buy misses an additional profit opportunity.

Since the “big box” F&I product providers have stopped underwriting Credit Insurance, they focus mainly on service contracts. That’s where they make their money so that is where they focus their processes and training.

Are customers still buying Credit Insurance?

The short answer is yes, and some by fairly impressive numbers. Certainly, our monitoring of many of the country’s top performers shows some impressive penetrations of Credit Insurance sales.

But it can depend on who you ask and where you are. In some states, California, New York, and maybe a couple of other states, state regulations have made the product so expensive, cumbersome, or unprofitable for the dealers they don’t offer it. But in Texas, the Midwest, Northeast, and much of the West, it is still quite popular.

Isn’t Credit Insurance too expensive these days?

Not when you analyze the risk it covers. GAP, for instance covers the difference between the insurance company’s settlement and the payoff. And service contracts pay only for repairs. Credit insurance, however, has the potential to pay off the entire loan. And when you analyze the amount paid out in claims, Credit Insurance gets used.

The premiums charged for credit insurance are set by the states insurance departments. Their calculations are usually determined by loss ratios, in other words, how much premium is paid out in actual claims to consumers. They look at how much the insurance company pays out, allow reasonable fees and commissions, and set the price accordingly. One advantage of that process is that there’s no chance of discrimination or “disparate impact” when the state sets the premiums.

You might be surprised at how many claims get paid to people who find they really need the coverage. Here are a couple of actual comments from a claims survey conducted by a major Credit Insurance Company recently:

“My husband was diagnosed with Stage 4 lung cancer in Jan. and passed in Sept. this year. This insurance was very helpful”.

“After my disability I was able to keep my car and motorcycle. Thank you for this help. It took a lot of stress out”.

They get hundreds of those kinds of comments from customers.

Won’t that big payment bump affect the sales of other products?

Believe it or not, offering Credit Insurance with our Package Option™ process actually increases service contract sales. Our process capitalizes on the customer’s security driven responses and reluctance to eliminate more than one or two products when presented in the Package Option™ format. Many of them will drop the A&H, maybe the Life but keep everything else. Good deal. But a side benefit of this strategy is that you end up posting some pretty healthy Credit Insurance penetrations.

Another factor we have measured is that dealers who don’t offer Credit Insurance may not be replacing those products with other security driven products. A commonality among underperforming F&I departments is a reliance on finance reserve, service contracts, and maybe a little GAP as the total source of department income.

The charts below show the product vs. income numbers from a select group of dealers in one particular Dealer 20 Group study. These numbers do not include the very top or bottom performers, just the above average and below average performers in the middle.

Will today’s customer actually buy Credit Insurance?

The overwhelming evidence says they will, if you know how to present it. And the most immediate and catastrophic threats to most customer’s economic welfare are either the vehicle being totaled leaving an outstanding balance (GAP), a death of one or more of the buyers (Credit Life), or a long term disability and loss of income (Accident and Health Coverage). And they know that.

I could go on and on about why today’s customer will buy Credit Insurance, but the simple answer is that if dealers don’t present a product to a customer, they probably won’t buy it.  And that works pretty well for dealers who don’t offer enough security motivated products.

This was demonstrated in one of our surveys of new car buyers:

“Over 50% of buyers who did not purchase Credit Insurance, surveyed at 45 days after purchase, said it had not been offered. Nearly half of those said they would have purchased either life or A&H when informed of the approximate monthly cost”.

How do our dealers integrate Life and Disability into their presentation?

First, it has a lot to do with the strategy of our Package Option™ process. Now, I don’t want to oversimplify how our process works, but those of you who have attended our training know that we present all of the products in our packages and then allow the customer to control the process of modifying and building their packages. This is particularly effective when presenting “fear of loss” type products.

Our process reduces the payment by peeling off the Credit Insurance products first. The first to go is A&H followed by the Life. This approach would make it seem like we don’t want to sell Credit Insurance. However, what we are really doing is using Credit Insurance as a sacrificial lamb to give the best chance of hanging on to the other products. But our dealers also sell a lot of Credit Insurance as an added benefit.

Should you encourage dealers to present Credit Insurance?

In states where it makes sense, Credit Insurance can be a valuable addition to your dealers’ product line and a blessing to those customers who need it. Certainly, the Package Option™ method can help you do that. In many top F&I departments, Credit Insurance is still an integral part of an overall strategy that is producing those top results.

Make sure your dealers aren’t missing that opportunity. Making me refinance at the Credit Union, just to get Credit Life, doesn’t make a lot of sense.

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Hitting the Hot Buttons

The conventional wisdom of F&I has always been that consumers see the value of the product based on an extensive feature-benefit presentation. It’s easy to assume the reason people buy F&I products is because someone did a good job of selling value.

Create value, they buy the product. Simple, right?

However, our responses in interviews with “real” customers coming out of the F&I office over the last 20 years showed a different view. Very few of the people who bought F&I products expressed VALUE as a motivating factor. It had little to do with their decision to buy F&I products.

And the people who didn’t buy F&I products also told us why they decided against them. Here again, it had nothing to do with a perceived lack of value.

Now this threw me in the early years of our process development, and it is certainly a difficult concept for many of us to understand. The reason this concept is difficult to accept is that we in the business naturally tend to be sales oriented. And sales oriented people believe in a feature-benefit approach. Point out the feature, describe the benefit, create value, and sell the product, right?

The other, more important reason we don’t figure this out on our own is because the customers do not want to discuss their real motivation for buying F&I products. As a matter of fact, they don’t want you to know they are thinking about certain things.

There are three important areas of concern buyers express.

They are:

  • Rate: They know all about rate, don’t they?
  • Payment: They are simply looking for a payment they can manage into their budget.
  • But the one factor that is paramount in their minds is the one thing they don’t want to reveal to you or have you bring up. And that is: Security

You see, customers today are more security minded than ever. And most of them should be.

According to Harris Polling, nearly half of the US population actually admits they are living paycheck to paycheck. But they don’t admit that when they are buying a car.

As a matter of fact, most customers will try to convince you of just the opposite.

I often have F&I managers tell me that their customers all have a lot of money. Well, maybe some do, but many of them just want you to think they do.

One of the exercises I include in our two day sessions is a very simple analysis of our average customer’s budget. We just do an estimate of an average customer’s income and expenses to get a general idea of what they are thinking about when buying a car.

I hand out the form below and have small groups do a budget estimate based on their average customer’s income and fixed expenses.

For an example, I filled out a sample using a $50,000 annual income, which comes out to about $3,300 per month take home pay, (if the customer doesn’t contribute to an IRA or medical plan). I added just a few normal expenses and figured a car payment of $450 plus insurance and gasoline for a total of $800 for total auto expense.


As you can see, $50,000 doesn’t go as far as it used to. The point here is that the customer already knows what their income and expenses are. They pay those bills every month. As a result, they are inclined to say no to just about anything you try to “sell” them that increases their payment.

And you can imagine that there is a level of insecurity that they are experiencing in buying a car.

Here’s what they know, for sure:

  • If they die, their survivors aren’t going to be able to pay off that loan.
  • If they get sick or injured and can’t work, they’re going under, financially.
  • If the car is totaled somehow, they won’t have the cash to pay off the balance of the loan that the insurance company didn’t pay.
  • If they have a repair three years down the road, they won’t have the money to pay for it. They won’t even have the money for a rental car. (By the way, they view a service contract exactly the same as any other kind of insurance or “fear of loss” type product).

However, they don’t want the F&I manager to know any of that. As a matter of fact, when an F&I professional brings up security concerns many buyers will try, with great bravado, to convince them that, “If that happens, I’ll just write a check.”


So, why would they bump their payment to buy F&I products?

Simple, they buy them to feel more secure about their decision to buy a car. We have to understand that the customer is weighing increasing their payment, in a very tight budget, against their concern for security.

And F&I professionals have to be very careful not to inject themselves into their decision making process. You see, they don’t want anyone to know about, or bring up, those concerns. Overt sales techniques and anything that looks remotely like a sales tool will shut down that process and put them on the defensive.

In our process development, we learned to give the customer some options that can alleviate their concerns about those security issues, without an overt sales pitch, because we have found that if presented properly they will choose more products than with the traditional “value sell” approach.

Over the years of field testing and research, we were initially somewhat puzzled that a plain, disclosure type, menu outperformed all of the other types of menus we developed, by significant margins. However, what we have learned is that, if the menu doesn’t look like a sales tool, and presents the options as serious decisions about the customer’s security, it actually enhances the triggering of those security responses.

So, if we avoid a sales pitch, and don’t give the impression that there’s something in it for us, we allow some very powerful security concerns to kick in and motivate them to protect themselves.

That’s why in our training I say things like, “The less you care about what they buy, the more they will choose.” Or “Stop selling to start producing.”

You see, what we have learned is that, if presented properly, the customers will CHOOSE more products than we can ever SELL them.

Working with the top performers in the country, we have learned that when our process helps the customer feel better and more secure about their purchase, they “choose” a lot more products.

Oh, and they like the F&I process a lot more. I get reports all the time from F&I managers who are amazed when a customer will choose an option that includes everything and then thank the F&I manager on the way out the door.

When the F&I professional makes a nice back end and the customer says “Thank You. This is the best experience we’ve ever had buying a car,” they are well on their way to becoming a top F&I performer.

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‘Father of F&I Menu’ to Take on Dodd-Frank Act

Las Vegas — George Angus, referred to as the “Father of the F&I Menu,” will return to the F&I Conference and Expo to address the threat of limited finance reserve. He will offer new approaches designed to help F&I offices maintain performance levels in today’s highly regulated environment.

Angus, who spent 17 years in dealership management positions before becoming a trainer in 1993, will take a look at two compliance threats impacting the F&I office during his session, scheduled for Wednesday, Sept. 18, at 9:10 a.m.

“Our industry is being watched, and there’s a real threat that the rules of the road for the F&I office will be altered once again,” said Gregory Arroyo, editorial director, F&I and Showroom magazine. “Angus is going to take those threats head on and will show attendees how they can make compliance work for them. This is a can’t-miss session.”

This year, the industry has witnessed a vigorous assault on the indirect financing model by the Consumer Financial Protection Bureau, a new regulator created by the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. In March, the bureau issued a warning to finance sources regarding their dealer participation programs, telling them that they can be held liable under the legal doctrine known as “disparate impact.” It states that lenders can be sanctioned for actions that have a discriminatory effect — even if the discrimination was unintended.

Industry insiders took the CFPB’s actions as a sign that the bureau is out to eliminate lender policies that allow dealers to mark up interest rates on retail installment sales contracts. Angus, who also serves as a key contributor to F&I and Showroom, will offer an approach designed to help dealers maintain dollars per-deal averages if the CFPB eliminates or sets new limits on finance reserve.

Angus will also address another threat posed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which, aside from creating the bureau, gave new enforcement powers to the Federal Trade Commission and state regulators.

At the state level, the law gave Attorneys General the power to enforce the act’s prohibition against unfair and deceptive acts and practices, as well as other federal consumer protection laws such as the Truth in Lending Act and the Fair Credit Reporting Act. Angus will share an approach to disclosure being employed by some of the top F&I departments in the country, and will show attendees how to make disclosure work to their advantage when dealing with today’s more sales-resistant consumer.

The F&I Conference is one of three shows being hosted at Industry Summit 2013, which is being held at the Paris Las Vegas hotel Sept. 16-18. For more information, visit www.industrysummit.com.

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