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Industry Trends for 2016


The New Year offers a perfect opportunity to consider anew the driving forces that will set the course for the automotive industry in 2016. Agent Entrepreneur reached out to agents, agency heads and executives from the F&I product provider segment to find out what 2016 will bring for the economy as a whole and the industry in particular, as well as what new trends agents should look for.

The Economy

On Dec. 16, the Federal Reserve announced an increase in short-term interest rates for the first time since 2006. Fed Chairwoman Janet Yellen described the move as a vote of confidence for the ongoing economic recovery and said rates would only continue to rise, gradually, if the economy continues to move in the right direction.

Although the Fed’s announcement came after most of our sources had submitted their responses, interest rates led the discussion of the economy and how it will serve the automotive industry in the year ahead.

  • Interest Rates

William Gorra, president and CEO of Simoniz, listed interest rates among a number or economic indicators, including gas and energy prices, that he expects to remain low in 2016. These factors should help keep new-car sales increasing at the same pace, he said, which means F&I will continue to grow at a steady rate as well. “World events notwithstanding, I expect the economy in 2016 to be very similar to 2015,” he said.

Mark Mishler, CEO of Interstate National Corp., was one of several executives who predicted the interest-rate hike. He expects the trend to continue in 2016. “This could have an impact on consumer credit availability, but it appears that rate increases will be small, so there should be minor disruption to credit availability,” Mishler said. “However, I do believe that this will have a minor impact on retail sales in 2016.”

Glen Tuscan, president of Dealer Commitment Services, noted that, while higher interest rates would increase the cost of doing business, it is unlikely that it would put much of a damper on the recent wave of mergers and acquisitions in the dealer space.

“Auto retailers have been the beneficiaries of the attractive business environment that low rates have been providing these past years,” Tuscan said. “Should the increased cost of doing business look to be less attractive, I believe some large family groups of dealers will seek the 10 times-plus earnings that the acquisition market is offering and exercise the exit strategy they have been looking for.”

  • New-Vehicle Sales

By December, experts were predicting that U.S. dealers would sell 17.3 million new vehicles by the end of 2015, an increase of about 800,000 units over the prior year.

“Last year, the consensus predictions were above 16 million [vehicles sold], but nowhere near the 17.3 million it appears we will hit in 2015,” noted Jim Smith, CEO, SouthwestRe Inc. “Given the low gas prices and continuing favorable loan financing, there is no reason to believe that the number will fall in 2016, therefore we should reach or exceed the 17.3 million number.”

Randy Crisorio, president and CEO of United Development Systems Inc. (UDS), expects 2016 to be a “very good year,” but said dealers should expect competition among manufacturers to heat up in response to increasing sales. “That could have an impact on F&I, considering the tools deployed often concern interest rates, warranties and leasing,” he warned.

Robert Steenbergh, CEO of US Equity Advantage, predicted growth of around 2% to 3% over the 2015 tally. He also predicted that oil prices will remain low, which will keep home heating costs down and, hopefully, allow car buyers to spend more in the spring. He expects the “torrid pace” of sales to keep up and that “the march toward 18 million per year will continue.”

As Steven Rosenvall, Alpha Warranty Services Inc.’s CEO, pointed out, sales haven’t reached that pace since 2007, immediately before the global economic crisis. He also predicted that a widening trade deficit will spur sales even further. “Every time that happens, the dollar gets stronger. Every time the dollar gets stronger, so does household buying power.”

“All the forecasters are predicting an excellent car selling year for 2016, and I tend to agree,” said Steve Amos, president of GSFSGroup. “If we are able to avoid a major event that affects the world economy, we should be good.” Amos also noted that, while falling oil prices benefit car sales and the economy as a whole, cheap gas also brings negative consequences, particularly in his home state. “Here in Texas and in other states across the country, the price of oil affects employment and spending.”

Although Garret Lacour, CEO of RoadVantage, predicts economic growth will slow in 2016, he believes factory incentives will continue to drive volume. “There will also be more pressure on new-vehicle sales due to the record number of used vehicles that will be entering the market from lease programs,” he added.

Leasing is of interest to Tuscan as well. He believes the rate of leasing at dealerships will increase from 27 percent in 2015 to 30 percent in 2016. He also noted that dealers should be prepared for a glut of late-model used units as four straight years of growing sales comes full circle.

“I am confident that the industry will see increased pressure on pre-owned vehicle values,” Tuscan said. “The past four years of strong new-vehicle sales will result in increased supply of these vehicles, requiring dealers to prepare for the onslaught.”

  • Unemployment

Agents will keep a close eye on unemployment rates in 2016. More full-time workers means more flexibility in spending and more opportunities to invest in the newer vehicles they want and the F&I products they need to protect them. Dave Duncan, president of Safe-Guard Products International, noted that the employment landscape is improving with every report that comes out, an indication that the economy as a whole is on the right track.

Brett Hutchinson, PermaPlate’s CFO, also sees the continuing decrease of unemployment rates as a good sign for the overall health of the economy for 2016. He noted that a strong workforce, along with low oil prices and interest rates, will push the seasonally adjusted annual sales rate (SAAR) to an all-time high. “We believe that 2016 will also be a great year for the automotive industry,” he said.

  • Presidential Election

“Traditionally, during national election years, the economy has shown a history of growth and promise,” said John Vecchioni, national sales director for United Car Care. “If history holds true, this should be a very good year again for the automotive industry.”

AAGI’s president, Tim Brugh, fears the elections could have the opposite effect. While elections do tend to boost the economy, he pointed out, it is also true that the economy can suffer during the last year of a two-term president’s tenure. 2016 could very much be a rollercoaster ride, he said, noting that he does believe that, when the dust settles, sales will be slightly higher than in 2015.

NAE/NWAN’s president, Kelly Price, agreed with Brugh. And because she believes the presidential election could hurt rather than help the economy in 2016, she believes a flat finish is the best one can hope for.

“Consumers seem to be anxious, and this year’s election will be very intense,” Price said. “I am just looking at it from a forecasting perspective as a flat year, equal to 2015, which would be a win for all of us. A decline would certainly be disappointing and would catch many dealers and administrative partners off-guard.”

Crisorio agreed, saying that “world unrest” and a “crazed political landscape” at home could cause credit availability to tighten, slowing sales of vehicle and F&I products.

“The good news for the automotive industry is that a major driver of the economic growth will be the continued rise in consumer spending,” said Bob Pruitt, president of Cal-Tex Protective Coatings Inc. “The industry should sustain sales levels of 17 million-plus in cars and light trucks for 2016. Bolstering this level of optimism are several factors, including continued lower interest rates, access to credit, gradual increase in employment numbers and steadily lowering of oil prices. All of these factors continue to positively impact consumer confidence.”

The Industry

Within the industry, our experts pointed to an increasingly hostile regulatory climate and the proliferation of new technology as the key drivers of change in 2016.

  • The CFPB

The Consumer Financial Protection Bureau (CFPB) has dominated industry news headlines for the past several years and is not expected to lower its profile in 2016.

“The CFPB will continue to focus on rate and try to minimize the variance from one customer to the next. On the surface, that sounds fair. Of course, it is not that easy,” said Duncan, noting that flat rates will actually end up costing some consumers more: Those with excellent credit will have to pay the same higher rates as those who have had credit challenges. Educating the public and the regulatory agencies on how the system works (and why) will be paramount in 2016.

“I don’t think we’ll see any new rules or regulations within F&I this coming year, but it’s possible we’ll see something related to finance reserve caps, and eventually product markups,” said Lacour. “More immediately, because of the CFPB’s continued presence in the automotive industry, transparency is more crucial than ever, and dealerships that are taking strides to be transparent will ultimately fare better in the long run.” He noted that having a comprehensive compliance program in place is a crucial part of that transparency. Dealers who take steps to protect not only themselves but their customers will fare far better, no matter what direction the regulatory winds blow.

Jimmy Atkinson, COO of AUL Corp., agreed, noting that he has been keeping a close watch on Congress, particularly regarding a recent CFPB restructuring bill that passed the House of Representatives but faces an uphill battle in the Senate and the White House. “It will be interesting to see if the CFPB reform that cleared the House of Representatives recently makes it through the Senate. My thought is that the anticipation of continued penalties from the CFPB will drive the lenders to continue moving toward a flat rather than markup in APR.”

  • Self-Regulation

Atkinson agreed with Lacour that the current environment calls for absolute product compliance and transparency. Gorra added that agents have an opportunity to ward off the “watchful eye” of federal regulators who may wish to establish new rules for the sale of F&I products. “I think it is important that we all ‘self-regulate’ and challenge ourselves and our providers so we can deliver the most credible services to the consumer.”

To truly promote transparency and production in the finance office, agents and dealers must properly vet potential partners and only do business with those that have track records of proven success, said Bob Corbin, president and CEO of IAS.

“Do they know how to optimize profits without finance reserve? Are they experts at creating multiple streams of income from products and services that provide customers genuine value?” Corbin asked. “The dealers who put their customers’ best interests first are going to be the ones who will come out of an unpredictable 2016 the best.”

Crisorio believes dealers have begun to realize that adapting to a compliant culture is a recipe for increased F&I production. For most dealers, he said, “The ‘Wild West’ era has been over for a long time.”

  • F&I Technology

An increasingly digitized automotive marketplace has brought an influx of new technology to the F&I office, a trend our experts expect will continue into 2016 and beyond.

“The way F&I is being handled in the majority of dealerships is simply outdated and in desperate need of an update,” said Corbin.

“Eventually the automotive world catches up with the real world, and that should really start to escalate in 2016. For F&I, that means doing things online,” said Steenbergh, noting that consumers’ growing reliance on peer reviews and analytical buying suggestions cannot be ignored. “Making the F&I buying process more like what consumers are accustomed to will lead to less friction and more sales.”

Pruitt noted that the increasing access to data, pricing and reviews of products and services sold in the F&I office will give consumers unprecedented bargaining power. Along with the increasing regulatory situation, F&I providers, agents and dealers will need to be able to very clearly articulate the value of these products, and be able to back up their claims — and they will have to do so quickly.

“Consumers increasingly desire a seamless car-buying experience that is faster and more efficient,” Pruitt said. “Innovations in the F&I office and at the supplier level that speed up and streamline the buying transaction will be well-rewarded.”

To that end, Gorra predicted that electronic contracting will play an increasing role, evolving into a complete, intelligence-building platform that will allow consumers to access and sign contracts on tablets and smartphones.

Lacour agreed, noting that “econtracting will continue to gain traction as consumers across all demographics become more comfortable with paperless transactions in their everyday lives.”

“We will continue to see more dealerships switching to econtracting, though we believe the big push is still a few years out,” said Hutchinson.

“I think technology will continue to revolutionize the way that dealers interact with finance companies, the consumer and their product providers. Dealers need to continue to look at ways to streamline their operations with the goal to have a fully automated front to back system in their dealership,” said Mishler. He noted that these systems will need to include everything from the DMS to F&I menus to contracting for the vehicle and every F&I product. It will all continue to move toward a single, unified, seamless system, instead of multiple islands of information that have difficulty sharing data.

New technology can be a rather frightening prospect, noted Brugh, because it represents the unknown, and the idea of abandoning proven processes is an unsettling one. However, he noted, the hesitation is diminishing as more dealerships integrate with more administrators. This makes dealers more likely to look for ways in which technology can augment existing processes, rather than replacing them completely. “In 2016 it will be about educating the dealership’s management team about the overall time saving, and the simplicity of electronic transactions,” he said.

But given all of the changes, Vecchioni noted, F&I professionals shouldn’t lose sight of the real goals. “Technology will continue to drive the retail automotive business. Processes will and should remain the same, they should just be followed much more religiously. The words or questions might change but the discovery and building of value never should.”

“Technology will continue to evolve into 2016, but it does not mean that it requires re-invention of the proven methods that are currently in the marketplace,” agreed Tuscan. “What I do believe it means is a more transparent interactive enhancement even to the best processes in F&I departments today.”

  • The Evolving F&I Process

Duncan believes that another change coming to the F&I office is the introduction of products much earlier in the sales cycle. As of now, F&I is typically broached at the end of the transaction, leaving car buyers with few opportunities to properly digest the information. As consumers continue to make more purchasing decisions online, “They will one day be demanding a finalized pricing exercise before they even come into the store,” Duncan said. “Some are already.”

Eric Fifield, vice president of agency services for EFG Companies, agreed, noting that younger buyers’ purchasing power will continue to increase in 2016. “Dealers are coming to the conclusion that their sales processes need to change, starting with their communication with online consumers,” he said, noting that F&I will need to find a way to provide more details and information to the online consumer. He predicted that will have the added benefit of speeding up the process once they do arrive at the dealership.

“Through online contracting and system integration, we see the F&I industry taking more steps toward a complete, online vehicle purchase experience,” said Matt Croak, president of Wise F&I. He agreed that the F&I portion will need to be moved to much earlier in the process, and will need to be available online. In particular, he agreed with Duncan that consumers will ultimately wish to complete the entire purchase online, and F&I will need to find new ways to present and sell products.

Croak said that, while such a change will require a huge shift, the end result will benefit everyone in the cycle. Consumers will get a faster, more streamlined and more transparent buying process, and dealers and their supporting partners will see greater sales and fewer chargebacks from buyers who later change their minds.

“Clearly F&I processes are evolving and changing, and we embrace the change,” Amos said. “We believe this evolvement of selling and financing is good for our business and the future of the F&I department.” He added that GSFSGroup has “changed and revamped” its approach to F&I training in response to those trends, a sentiment echoed by Crisorio.

“Training will remain critical for those looking to maximize profitability in both sales and F&I while setting the stage for stability in the coming years,” Crisorio said. “We all remain in the people business.”

Smith pointed out that social media has permanently altered individual buying habits, and its appeal is not limited to Millennials. “Social media is a focus that all companies with a consumer presence, or even companies once removed from consumers, should understand and emphasize.”

The way the dealership and F&I follow up with leads is also going to be affected more and more by technology. Atkinson noted that outdated technology can be overlooked if the office is following up using text messaging and email, and providing information to consumers on their smartphones when and where they want it. “With customers utilizing smartphones to gather information, responsiveness with transparent, accurate information is paramount,” he stressed.

Finally, Price predicted the evolution of the hybrid sales and F&I manager will continue into 2016, although, she noted, that is not a change that will happen overnight, or even within the next 12 months. However, she does believe that, with the pace at which technology is evolving, within the next five years, providers, agents and dealers should be prepared for that shift.

“Although I don’t have a formal opinion on which process is better or worse, it will be interesting to see how it affects F&I penetrations in general,” Price said.

Trends to Look for

So with all of the above taken into account, which trends will our experts be keeping their eyes on in 2016? Their answers ran the gamut from leasing to new products to the dealership experience.

  • Leasing

Gorra noted that increasing numbers of off-lease vehicles will offer “a whole new challenge and a whole new opportunity for F&I professionals.” Vecchioni agreed, saying that he suspects leasing incentives will continue to play a much greater role in 2016 as OEMs continue to court customers who find that a lease structure is far more attractive than financing.

“Leasing has grown quite a bit in the automotive industry over the last three years, so I will be watching for the effect of lease returns on the used-car market,” said Brugh. The increase of leasing — and of used lease vehicles flooding the market — will continue to put pressure on used car prices, which will make it harder for F&I to secure consumer loans that include product sales.

Adding to the pressure, consumers trading in leases will bring little to no equity to their next transaction, which means F&I professionals will have to work harder on every level. This will also snowball into products like GAP, which, Brugh noted, will be directly affected in terms of both losses and by the lower prices and longer loan terms needed to get consumers approved.

  • Consolidation

Steenbergh predicted that the recent trend toward consolidation will continue in the New Year, and not just among dealerships. DMS and other software providers could be affected as well. “There is a lot of private equity money looking at deals on both sides, and I expect that a couple of big ones will occur next year,” Steenbergh said.

Smith said the purchase of the Van Tuyl Group by Berkshire Hathaway, which was finalized in early 2015, could prove to be a major turning point. “They have the ability to transcend all revenue-producing facets of car sales, especially in the F&I area,” he said. “This includes all F&I revenue streams, from the dealer’s F&I income to the insurance company income and everything in between, including the agent, the trainers, the administrators and peripheral service providers.

“It will be interesting to see how this plays out not only from their organizational structure, but for other organizations that might consider expansion into other revenue-producing areas.”

  • The Customer Experience

The time customers spend at the dealership and the level of service they receive is another area our experts believe will require close consideration in 2016.

“The changing face of retail will require a shift in dealer priorities,” Corbin said, adding that dealers will need to invest in technologies that make the entire car-buying process faster. He noted that consumers will demand a more seamless, streamlined experience that extends from the initial agreement to buy to the F&I product presentation.

To rise to that challenge, Corbin said, F&I will need to evolve. The change will come both in the form of new technologies designed to speed up the process and make it more transparent to the end consumer, but it will also involve investing in more training to help F&I managers adapt their skills to the needs of the modern consumer.

“Proper disclosure, answering all consumer questions as well as a respectful attitude has been and will always be the road to follow,” said Amos. He and his colleagues believe strongly in the value of their products, he said, adding, “They just need to be sold.”

  • Customer Retention

Fifield agreed, noting that customer retention and brand enhancement will be critical for dealers who want to maintain market share in 2016. Dealers will increasingly look to third-party agencies to help them increase their opportunities and improve their processes, including helping them implement more comprehensive retention marketing campaigns and develop and better advertise their points of differentiation in their markets.

Dan Brancaccio, national sales manager for NitroFill, predicted that more dealers will invest in well-designed, well-executed service retention programs.

“With vehicles requiring less scheduled maintenance and warranty work at an all-time low, service drive traffic will continue to become a focus and key growth opportunity,” Brancaccio said, listing prepaid maintenance and “tires for life” as examples of programs that could become more popular in 2016.

  • Transparency

It is impossible to look at the big-picture trends without touching on the CFPB and the increasing need for transparency across every department in the dealership. Price said she will be closely watching to see what steps the CFPB takes in the new year, but she also cautioned that the industry needs to pay attention to regulations in general, and not just on the CFPB.

“This is an area that I would hesitate to comment on, as the CFPB and attorneys general seem to be enamored with the F&I space in general,” Price said. “It is hard to predict the changes, but be sure of this: There will be some!”

“Things don’t change because the calendar flips to 2016. This is a long process,” added Duncan, who predicts that econtracting and transparent menu presentations will continue to gain ground in 2016 and beyond. “Customers today are well-informed, short on time and patience, and seek significant value not only in the vehicle they choose, but also in the store they select,” he said.

That much is evident in the fact that, today, the average consumer only visits one dealership before making a purchase decision, compared to as many as five 20 years ago. Consumers are walking onto the lots already knowing everything they need to about the dealership itself, the vehicle they want to purchase and the experience they want to have.

“It’s no longer about just meeting their expectations,” Duncan said. “That was 10 years ago. Today, it is all about getting a ‘Wow!’”

Lacour agreed, noting that consumers have made it very clear that they want to fully understand the value of the F&I products they are purchasing. They don’t just want a slick presentation, they want to understand exactly what the product is, how it works and how it would apply to them specifically. He said that F&I menu presentations, for that reason, will only continue to gain in popularity, and he also believes more dealers will begin to feature F&I products and their benefits on their websites, so consumers have a chance to understand their value propositions before walking through the door.

These presentations won’t replace F&I managers, Lacour stressed, but they will help to take down the wall that goes up when consumers feel like they’re being taken by surprise with items they weren’t expecting, making F&I product sales a smoother and faster process.

“Dealers, on the whole, are embracing a move toward transparency across the dealership,” said Atkinson. “That is beginning to happen in F&I, as you see dealer websites adapting to present F&I products in an inviting way by utilizing video as well as providing basic information.”

  • F&I Products

We asked our experts to predict which F&I products will be the biggest sellers in 2016. First on the list for many were protection products, which “will always be the biggest opportunity to help customers,” according to Vecchioni.

“Since the length of time a consumer keeps his or her new vehicle continues to rise, F&I products that protect the consumer’s investment will increase in popularity,” Pruitt said.

Corbin noted that, because of those factors, maintenance protection plans and wear-and-tear coverage — for finance and lease deals, respectively — will be hot sellers in 2016. He also noted that F&I products focused on the increasing technology in vehicles will continue to do very well as consumers look to protect themselves from the wide range of glitches that could happen in those systems.

As leasing continues to expand, Duncan said, F&I product sales will follow. “The focus will be on tire-and-wheel, excess wear and tear, planned maintenance, paintless dent repair, precision care and others.”

“Many F&I managers have looked at [protection products] as a one-or-the-other type of sale. I see them as a combo sale, so the customer is protected both during the leasing term and at lease turn-in,” Brugh said. “Remember that the customer doesn’t usually get a bill for excess wear and tear until they have already leased their next car.”

Amos predicted that higher loan-to-value ratios and a slight drop in used-car sales will boost GAP sales. He also believes prepaid maintenance will continue to penetrate at higher rates as dealers realize how effective they are at retaining service business.

But vehicle service contracts will still be the leader in the F&I office for the foreseeable future, Duncan said, despite the fact that the combination of 36-month leases and four-year factory warranties make VSCs a hard sell. “Used vehicles will offer a great opportunity to make up for any loss of VSC sales on new vehicles. We will see a tremendous influx of off-lease inventory that will fall into a sweet spot for VSC sales.”

Tuscan predicted that pre-owned vehicle service contracts will be the biggest sellers in 2016. Atkinson pointed out that “Service contracts continue to have the highest profitability in the product space and are recognized as high value for the consumer,” adding that the VSC market will have to adapt as more car buyers invest in hybrid and fully electric vehicles.

Another factor driving VSC sales, said Price, is the number of recalls and other troubles manufacturers faced in 2015, and which are still fresh in the minds of consumers going into 2016. “With the many TSBs, recalls and mechanical issues the manufacturers are dealing with, VSC penetrations are higher than they have been in the past, and we see that continuing.”

“I am a firm believer that extended service contracts will continue to be the main product sold in the F&I department,” said Mishler. “Peace of mind for the consumer will always be the main focus and having the contracts financed in the loan makes it affordable.”

Prepaid maintenance is another product that will do well in both the finance and lease deals. Fifield reiterated that customer retention is key here: The goal for F&I will be to sell products that keep consumers returning multiple times throughout their ownership cycle. “Prepaid maintenance plans that offer consumers a large discount on maintenance up front will be in high demand, as well as updated debt-protection programs that are more aligned with consumer needs.”

“Dealers continue to try to differentiate themselves from other dealers, and loyalty programs and products are a definite ingredient for differentiation,” Smith added. To that end, he expects more requests for private-labeled products that will help to reinforce the dealership’s brand, rather than that of the product provider.

Finally, Lacour said, bundled products could gain in popularity as more dealers realize the competitive advantage that comes with selling value. “These products will be successful because they offer a distinct, robust value proposition,” noted Lacour.

Steenbergh agreed, noting, “I think the trend toward bundled products and services will continue as providers look to strengthen their value propositions.”

Considering all the driving forces at work in the automotive industry, it’s clear agents will have numerous opportunities to do just that in the year ahead. Sales are on the incline, but neither regulatory threats nor the pressure to digitize the buying process and demonstrate the value of dealer-arranged financing and F&I products are likely to abate anytime soon. The ability to shepherd dealers through a series of sweeping changes to the way they do business will undoubtedly separate the good agents from the great ones in 2016 and beyond.

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Tech Race Propels Carmakers


NEW YORK — Apple’s reported entry into the autonomous vehicle race will accelerate automakers’ efforts in self-driving technology and could dramatically reshape the industry, experts said this week, reported The Detroit News.

Some analysts think the news that the computer giant is mobilizing hundreds to build an autonomous electric minivan by 2020 could upend the industry. Others are less concerned, but think the perceived threat will hasten automakers’ efforts into self-driving technology and electric cars.

Apple Inc. wasn’t at the New York International Auto Show this week; it hasn’t acknowledged it is working on a car. Also absent were Google, which has logged more than 700,000 miles in autonomous cars, and Tesla Motors, with its stylish EVs and aggressive growth plans. But all three were much talked-about among automakers, analysts and the press.

Morgan Stanley auto analyst Adam Jonas says automakers have reason to be worried. He is confident Apple will be able to produce an autonomous car by 2020. He thinks such a car could first be used as taxis in urban areas, and ultimately spur widespread adoption. He believes some cities will even ban driving by humans by 2030.

“It accelerates everybody,” Jonas said in an interview this week in New York. “If Google or Apple get a small fleet of driverless taxis on San Francisco roads, that could change forever transportation.”

Features like lane-departure warnings, adaptive cruise-control that speeds up or slows down cars to maintain their pace in traffic — all steps on the way to autonomous driving — are available from most carmakers already.

Jonas thinks reported Apple’s car project could help spur worldwide consolidation in the auto industry in the next quarter-century from 35 significant automakers to five or six. “It accelerates the move from software being worth 10 percent of the value of the car to 60 percent,” he said. “The new rare resource is brains: What kind of people in your organization rather that what kind of steel are we bending.”

General Motors Co. product chief Mark Reuss said this week in an interview in New York, “We always treat anybody who is going to be in the auto industry making cars and trucks as a competitive threat.”

GM already has partnered with Apple to integrate Siri Eyes Free and is one of many automakers working with the company on its CarPlay system that allows apps to be projected onto in-vehicle touchscreens.

He said GM is open to working further with Apple. “They are great at user interfaces,” Reuss said. “If they are going to go into the car business, I’m sure they’d like to have some of our expertise on some of the long-term capital things we do really well … They don’t stamp panels. It’s a not a far reach to say those partnerships would be very healthy.”

Asked if GM would build a car with Apple, Reuss said GM “has no proposals.” But he added: “Those are the best of both worlds. Yeah, we’re open to all that.”

He said Apple has enough money that it could pose a major disruptive force in the auto industry.

Apple has a market capitalization of more than $175 billion in cash. The California-based company reportedly has met with major suppliers and hired prominent auto designers. It recently was sued by a major battery firm that accused Apple of poaching employees.

Much is not known about Apple’s plans, since it has said nothing about the project. Apple has spent years researching other products before delaying or opting not to proceed. Apple spokesman Tom Neumayr said Thursday that the company’s response is to “decline comment on rumor and speculation.”

‘More momentum’

Ford CEO Mark Fields says the Dearborn automaker welcomes new entrants. “It’s going to keep us all on our toes from an innovation standpoint,” Fields said Sunday in the run-up to the New York show. “We are absolutely looking at this as an opportunity and not just as a threat.”

Renault-Nissan CEO Carlos Ghosn — who says his company will produce autonomous cars by 2020 — says he doesn’t see Apple as a disruptive threat to the auto industry. He thinks anyone bringing electric cars “is more an ally than a competitor” and will help send the message the EV is mainstream and “here to stay … It brings more credibility and brings more momentum.”

Mercedes-Benz USA president and CEO Stephen Cannon said, “Any company that sits on $170 billion in cash with a brand as powerful as Apple — if they make noise, we’d be silly not to listen.” Cannon said Mercedes is prepared, and noting its new vehicles are getting growing autonomous capability in traffic jams and at other points. “We don’t feel threatened by that at all.”

Electronics ramp up

Automobiles — which already have more than 100 million lines of computer code — are becoming increasingly technology-packed with more connectivity between cars and roadways, electronic safety features and infotainment systems. More features are being added as companies anticipate competition with each other and with developments like a potential Apple car.

The push for electronics “will change the industry,” Hyundai’s U.S. chief Dave Zuchowski said in an interview this week. But he noted it isn’t easy to build a car.

“Automobile manufacturing is a very complex and very difficult business,” he said. “And a lot of these folks, be it Google or Apple: Be careful what you ask for sometimes.” But he didn’t discount Apple’s potential: “They are very small, very well capitalized.”

BMW North America President Ludwig Willisch says Apple certainly can build a car. But he said it’s still not clear “if they can build a car that is meaningful to the general public.”

Autonomous driving is coming he said, but he said BMW is about the fun of driving. “It’s not just being brought from A to B. It’s for people who want to actively enjoy driving,” Willisch said, acknowledging there are times when autonomous driving — like in traffic jams — makes sense.

He pointed to sectors like cars-for-hire as the first place. “If I were somebody in the cab business, I’d be pretty frightened,” Willisch said.

Toyota Motor North America CEO Jim Lentz said in a Detroit News interview last month that Apple “is a big challenge for all of us,” but said it is by no means certain. “Money doesn’t necessarily buy you credibility in the car space,” Lentz said.

But Morgan Stanley’s Jonas sees few obstacles: “It’s just time — the technology is there.”

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Industry Trends for 2015


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

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

The Economy

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

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

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

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

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

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

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

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

Rising Interest Rates

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

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

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

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

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

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

TRENDS TO WATCH:

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

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

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

The Return of the SUV

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

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

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

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

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

Leasing and Trade-Ins

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

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

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

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

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

Dealer Consolidation:

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

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

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

Processes in F&I:

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

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

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

Technology:

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

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

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

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

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

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

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

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

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

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

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

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

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

Compliance and the CFPB:

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

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

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

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

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

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

Hot Products

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

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

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

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

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

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

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

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

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

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

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

Millennial Shoppers

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

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

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

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

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

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

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

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

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

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

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

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