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The Trends for 2014


There is no such thing as a crystal ball that allows people to see into the future, but that does not mean we are completely in the dark about what could, and probably will happen, especially in the business world. We talked to 17 of the industry’s top executives to get an idea of where they see the automotive industry as a whole, and F&I in particular, heading in 2014. They gave us their top issues, the technologies and products they are watching, and what their predictions are for the next 12 months. It might not be a crystal ball, but it is certainly the next best thing.

The Economy
Our executives had similar thoughts about where the economy would go – in a positive direction. For the most part, our group was optimistic – although some of them cautiously so – about the fact that the economy will grow in 2014. No one expects significant growth, but they do agree that profits and the number of units sold will continue the year-over-year increases they have enjoyed the last several years.

“I think the auto industry is part of the reason the economy is doing better,” said Bob Corbin, president and CEO, IAS. “I don’t think the economy is driving automotive as much as automotive is helping the economy. Our industry affects one in five Americans in some way, shape or form, and we think everything is very positive. Cars were are up about 8.5% for 2013 year-over-year, and we see that trend continuing, to somewhere north of 16 million new car units sold in 2014.”

“The economy still has some bumps in it,” said Charlie Robinson, president and COO, Resource Automotive Group. “We all read the papers and get mixed signals. But the automotive industry is robust, and the general feeling is optimistic for 2014; and the general feeling is that it will continue in that direction. I believe we will continue at the same pace as the preceding few years. If you listen to the pundits, we will see a 4% increase in SAAR for 2014, versus 6-7% increase for 2013. So everyone is expecting another two or three solid years in the auto industry before we look for a downturn.”

“From my perspective, I am cautiously optimistic,” said David Pryor, CMO, Safe-Guard Products International LLC. “We had that government shutdown in 2013 which caused a blip in the automotive industry, and we did see some softness in the last few months. However, all of the indications we’ve had are that we’re getting back to a slow rate of growth. The automotive industry is forecast to come in at about 15.5 million or so once the final 2013 numbers come in. How much further can we go in 2014? We think there’s room to grow – we think we could get close to 16 million next year. There are still many factors in our favor, such as the fact that the average age of vehicles on the road is still the highest seen in a long time. There is pent up demand there. “

“I guess I’m fairly optimistic about the economy,” said Jimmy Atkinson, COO, AUL Corp. “All the signs are that new and used car sales will be strong next year, and there is nothing really on the horizon that could damage that too much, although you never know for sure. But on the whole, I’m pretty optimistic. The biggest thing that drives car sales is lending and credit, and in the last couple of years, subprime credit has been very strong; we’re seeing that more prime lenders are dipping a little deeper as well. So there is a lot of competition and a lot of money out there to loan for cars, which bodes well for next year.”

“I would expect that the first half of 2014 will look a little like 2013,” noted Joel Kansanback, president, Automotive Development Group. “In our market, car sales have been strong, credit has been loose and dealers have been profitable, but I would expect the results for lenders will deteriorate at some point, in probably the second quarter, and we’ll begin to see tighter credit in dealerships in the third quarter. Dealerships will have difficulty getting their customers loans, and there will be a big impact on special finance departments. In concert with that, the theme for 2014 will be that the sales will continue to be strong, and F&I will continue to be strong. The wild card, however, is if the major lenders follow direction of CFPB and put restrictions on finance reserve; if that happens, we could have a major shift fast, and that could happen as early as the first quarter.”

“There are certainly plenty of differing opinions about the U.S. economy going into 2014, but when you look at most of the major economic indicators, continued, modest growth for the U.S. economy as a whole seems likely,” said Scott Karchunas, president, Protective Life Asset Protection Division. “The consensus appears to be between 2-3% real GDP growth for the US. In terms of the automotive industry, 2014 looks like it will continue its upward trend, although at a slower pace. We are expecting new car sales to be above 16 million, which is essentially on par with sales dating back to 2006. However, it’s important for all of us to keep in mind we’re looking at the lowest year-over-year new car sales growth since 2009. Much of the rebound in the automotive industry that we have seen over the past few years can be attributed to two main factors: pent-up demand and credit availability. Dealers have done a great job of meeting this demand; yet we still have younger buyers, lower income segments and small businesses that are not reentering the market as consistently as other demographic segments. It will be important for the automotive industry to find ways to better engage these segments with products and technology that meet their needs.”

“It’s a great time to be in our industry,” said Steve Amos, president and CEO, GSFS Group. “We’re going through changes that are occurring once in 15 years, so it is pretty neat out there I think. Obviously the economy directly influences consumer behavior and confidence, that’s critical to buying cars. And, certainly, buying cars is motivated by desire, but also by need, and as we’ve seen the last four years, consumers who are keeping their cars longer, have pushed the need back. The economy has everything to do with that. As they gain more confidence, they’ll start replacing those cars. OEMs haven’t necessarily built better automobiles, they are just hitting home runs with what they’re doing right now and consumer confidence is there – so it is a very good time for our industry. I think, barring some unforeseen disaster, the economy will continue to improve. I feel good about what’s going to happen.”

“I really don’t see the economy changing a whole lot either way, up or down; I think it’s stabilized as much as it can right now,” said Tim Brugh, president, American Auto Guardian Inc. “Car sales are going to grow, however. Dealerships, especially in the F&I and sales departments, should be in a good position in 2014. I am anticipating another growth year for us, and the automotive industry as a whole.”

“I think it looks like everything has stabilized to a large degree,” noted Tony Wanderon, CEO, NAC and Family First Dealer Services. “Lending has opened up, and customers can come into the dealership and buy cars and we have seen the increase in volume to prove it. I believe we will get into normalized purchase times; there were a lot of customers in 2013 who needed vehicles and that helped us out, but I believe 2014 will be more of a normalized year than the past several. I don’t’ see a lot of things that will jump up and catch us – no major elections, no financial crisis at this point, and everyone has strong balance sheets. I think the economy looks pretty good.”

“I have to say that I would think the economy will stay pretty level,” said Brent Allen, president, StoneEagle. “There is some interesting legislation coming out that could impact it, but for the automotive industry, it is not so heavy. My personal perspective is that it should stay pretty steady, and be a pretty good year. We’ll see continued good sales of cars, and good product sales – investment capital companies are banking on that. They are buying up pieces of this business as fast as they can, and I do see that continuing as well.”

But while the overall economy looks to improve in 2014, a few of our executives did note that political or regulatory issues that started last year – such as the ongoing issues with the Consumer Financial Protection Bureau (CFPB) – could impact the automotive industry, although no one is positive about what those impacts will be, or how they will, ultimately, play out.

“I think the economy will continue to grow, but slowly,” noted Michael Tuno, president, World Class Dealer Services Inc. “It won’t be much different from 2013 – we will still have the same challenges. The only major difference in 2014 from 2013 is a certain political event in November that will certainly have some bearing on the macro environment we all live in. Everyone will still be looking to keep his or her turf safe, and I say that because the automotive industry is cyclical insofar as affordability issues impact it. I still see us having to wrestle with issues such as the debt ceiling, healthcare, etc., so there will be a robust election environment in the fall. So I believe we will have slow growth, and I believe the automotive industry will closely mirror the national U.S. economy. The only footnote is that 2013 has been a pretty robust volume year, but that has been done at great pains for the future of retailers, such as longer loan terms – it speaks to what people can afford, and what can they afford for other major items such as healthcare, etc. The mass market that buys cars, in that 16 million number, will still face those same challenges, and we’ll eventually have to deal with the issue, but I don’t think it will be in 2014.”

“The economy could be unpredictable because of the impact government legislation will have on individuals and companies with the Affordable Care Act,” said John Vecchioni, director of business development, United Car Care Inc. “The industry has benefitted from the down market only because of the limited sales production of the past. People have had to come out and replace vehicles as a result of the 2008 economic calamity. Leasing should become more predominate in 2014 as a result of economics.”

“I see some stress in the economy,” said Glen Tuscan, president, Dealer Commitment Services Inc. “And I see those pressures coming from a variety of different areas. The political environment is stressful on consumers right now, and although the stock exchange is hitting record levels, I believe it’s falsely inflated due to the Federal Reserve. As a result, I think the economic outlook will really show it’s face in the last quarter of 2014. I don’t think there will be a lot of movement – I look at it as an ice cube in Washington – there is some dripping, but no thawing. The elections are affecting a lot of stalemates and because of that there is slow growth. The consumer is under pressure, and we’ll see more of it once those elections are done. I do see a change in interest rates and a change in the economic environment, but for the first half, and even into the third quarter, I don’t see it thawing as much.”

“I think it is going to be an interesting year,” said Kelly Price, president, National Automotive Experts. “I would be surprised if we continue to see the growth that we have seen in auto sales, however. With the CFPB possibly affecting reserves and pricing of products, as well as marketing, it will be interesting to see how this will impact dealers.”

Products and Technology in 2014
Perhaps unsurprisingly, there is more than one product and technology our executives are watching.

eContracting and eSignatures
By far, this was the product category most of our executives touched on, even just in passing. While the rise of the technology for eContracting and eSignatures has been happening for the past several years, many of them believe 2014 is going to see a surge in their adoption. Providers are pushing for the technology, lenders are starting to take a closer look at it, and dealers are beginning to make plans as to how it could fit into their operations.

It will not happen overnight, but this is a product category that all agents should be taking a hard look at. It is also the time to educate dealers on all the benefits; some will be harder to convince than others, and it will take time, but those who start integrating technologies into their dealerships will be in a much better position for growth in the years to come.

“The consolidation of ancillary products (combo products) has grown in acceptance and should continue to grow in popularity in 2014,” said Matt Croak, president, Wise F&I. “Expanded financing options will continue to make loan and lease centered products valuable to the consumer. eContracting of F&I products as a percentage of overall contracts written will also continue its upward surge, as experienced over the past two years. Utilization of third party F&I product platforms, as well as provider integrated solutions will aid in this effort.”

“eContracting is one topic a lot of people will talk about,” said Allen. “And there are all kinds of perspectives on that. A lot of people say it’s stagnant, and some are successful and some are not, but OEMs are pushing it very hard. They are getting the loans in that format, so they are successfully moving that needle forward; I know of one that is pushing 80% eSignatures on the finance side. What we’re seeing is, because of that, the finance side is starting to reach out to get a seamless deal jacket. We have, however, seen a lot more success on eContracting than on eSignatures. There is quite a bit of success on the data, but the signature is the hook. It is the one piece that, for the most part, is not electronic today. Once you can capture that properly, the whole deal can be electronic. It is the lynchpin, and I think that will grow a lot in 2014. There are still things to overcome – how many signatures do you need for example. Can you do it once and apply to all documents? Probably not today; step one would be great if we could figure out how to get all the forms together so they can be delivered from there, so it is a single experience.”

“I see the product offerings as more evolution than revolution,” said Atkinson. “The way products are presented will change more than the products themselves. Customers will be able to interact with products through tablets or enhanced software at the dealership. I certainly think things on that front are getting faster, but there are still some challenges there. For example, I recently bought a car, and it was going to be a paperless transaction – and it was in that I signed a touchpad. But then there was the biggest printer I’d ever seen, and they printed out reams of paper, so I am laughing at the idea of paperless. We really do still have a ways to go on disclosures and legalities to where it’s truly paperless. But I do see the trend to move in that direction accelerating.”

“With the numerous recalls and quality issues of many manufacturers, I believe that we will continue to see growth in the VSC arena,” said Price. “It is getting harder and harder for people to say ‘It’s a Honda/Toyota/etc. and it won’t break’ – especially with all of the electronics comprised in a car these days. But I do see eBusiness solutions as definitely taking hold. We are seeing more and more of our business processed electronically. eSignatures are going to be more of an issue with each state, and whether they are an acceptable form of signature; we will be ready when they are.”

“All of our customers are eContracting at one level or another,” said David Trinder, CEO, F&I Administration Solutions LLC. “Some are receiving well above 90% of their contracts electronically, while others are still at the 30% level. It has all been a matter of effort. The more providers push agents to push dealers to eContract, the more successful they have been. It is also interesting that the providers pushing eContracting the most have also seen the greatest sales volume growth. What I am certain of is that in 2014 most providers will feel more push from the other side – the dealers and agents will be insisting on eContracting, so the percentage of eContracting should show a healthy increase in 2014. eSignature is another matter. The requests for it have increased significantly in the past few months, but the demand is not there yet. I expect use of eSignature will grow in 2014, but it will not be mainstream for a year or two at least.”

Appearance Protection
Appearance protection products have been around for years now, and in 2013, we started to see a real increase in consumer interest for these types of products. Our executives see that trend continuing. In fact, after the product mainstays (VSC and GAP), the appearance protection category is the one our executives predict will be the next biggest seller in the F&I office.

“The big three products are always vehicle service contracts (VSC), then GAP, then tire and wheel. I see appearance protection products being resurgent in 2014 however,” said Corbin. “They are a great value for a consumer – consumers don’t go to Best Buy to take pictures of their new fridge, but they do take pictures of their new car. They love their cars, depend on them, and want to have a good-looking car, and that is what providers who provide protection are giving them. I see a resurgence in that product in dealerships in terms of penetration.”

Mobile Technologies
Another big trend our experts see continuing is the push toward mobile technology in a wide variety of ways. From the technology found in the cars themselves to the way F&I is presented and sold, mobile is still in the “early days”. While there are dealerships that have embraced it and had a great deal of success, those stories are in the minority. There are far more that either have not seen the success they had hoped for, or who have not looked at the technology at all. Our executives believe that, as with appearance protection products, this will not be a new trend, but it will be one that will continue well into 2014 and beyond. And agents need to make sure they are educating themselves and their dealers so that it does not catch them by surprise.

“It is too early in the game with tablets and mobile devices, but I strongly believe that they will be the trend over the next three years,” said Kaizer Siraj, CIO, Safe-Guard Products International LLC. “You can think in terms of point-of-sale – how do you make products more visible? Mobile would allow consumers to evaluate the products, and there is very neat opportunity across the board for that. The second area mobile will impact is the service drive. Take a step back and think about it: the customer comes in with a problem, and we want to make the experience compelling and smooth. Mobile devices and tablets integrate with other back office systems to make that happen. Mobile will play a key role in the future, but the enablers will be about integrating with multiple lenders and multiple partners. So the mobile tablet is in the early stages, but I see that as the direction the industry will ultimately head in.”

End-to-End Solutions, Pricing Options and Lease Products
These three trends are also continuing from 2013, but fewer of our executives see them as being major ones to watch – although they are important.

End-to-end solutions refers to the software technologies that track a customer from when they drive onto the lot until they take delivery. These systems tie together every process in the dealership for a seamless customer experience. They have been around for a while now, but as with mobile technologies, they are still maturing; however, our executives do believe they have started to hit a point where there are solid, reliable solutions that will start to take hold. This is probably not going to be a major trend to watch in 2014, but smart agents will be keeping abreast of the providers and the technologies they are working on for the years ahead.

“I think we’ll see the emergence of more desking tools in 2014,” said Robinson. “They are out there now, but I believe they will continue to gain popularity. They will put F&I and the front sales team more in concert; the dealership wants to watch how deals are negotiated, to make sure they’re done correctly. Some of them will print out reports that will show managers the deals, so desking tools that track the way sales are negotiated will become more popular as time goes on. This is all part of an end-to-end solution. Everyone has been promising products for 10-15 years that allow the CRM to feed into a desking tool, to feed into the back office, etc. I think the industry has been struggling for those seamless systems to evolve and work as they should, and I think we’re finally starting to see them take center stage.”

The emergence of pricing options such as bi-weekly payments was a major trend when the economy and industry were down. Now that things are picking back up, consumers are more easily able to afford traditional payment methods, but while the economy has improved and continues to do so, there are still many consumers with cash or credit problems who still need to purchase vehicles. Our executives believe that the trend for dealerships to have those options available will continue to grow. This is a category agents should be looking to add to every dealership portfolio. It gives the dealers more options to get into cars, and lets them be heroes, which in turn increases customer retention.

“I think you’re going to see increased interest in biweekly products,” said Tuno. “It means the buyer is able to take those longer loan terms and afford a purchase, but be able to pay it off and get back into the trade cycle in a shorter period of time. There is a growing awareness of that product; the seven-year loans rampant in our industry are detrimental to the dealer in getting the customer able to trade their vehicle and get them into another car in a reasonable period of time. Biweekly products both ensure the dealers’ and consumers’ interests are best served.”

Leasing is another product category that many of our executives touched on. Leasing tends to occur in cycles, and we are well into an “up” cycle at the moment and providers have risen to the challenge with more products designed specifically for lease customers. This is where appearance protection will also see a surge, since it is, by far, the biggest product category for lease customers. Wear and tear is the second biggest, giving consumers piece of mind for when they turn in their lease, and if dealerships are not pushing F&I products to every lease customer, then they should be trained on how to sell to that segment.

“Lease products are going to keep increasing penetration,” noted Brugh. “Things like ding and dent, or excess wear and tear. We have seen some nice maintenance programs with a little service contract tied to them. I really think the lease products have seen a lot of growth over the last two years through both OEMs and dealerships. They give the customer a lot of good coverage, so I believe those products will surge forward in the leasing market.”

Customer Retention and Data
Customer retention was a big topic in 2013, as many started to realize that the age-old idea that it is easier to keep a customer than earn a new one applies to the automotive industry as much as any other. That, our executives firmly believe, will continue well into 2014 and beyond. This is where F&I plays a huge roll – products such as pre-paid maintenance are tools to help get consumers back in the dealership, and keep that dealership at the top of their mind, so when it is time to purchase a new car, they are far more likely to return.

Related to that, selling products in the service drive started to see more dealers showing interest toward the end of 2013, and that will continue into 2014. There is still a great deal of resistance by service managers to selling products, but this is where a good agent comes in. Agents can help the sales and service departments, as well as F&I, because they uniquely understand the importance of the products and how they impact everyone.

“We’ve had conversations with many partners, and one of the trends they are all seeing is the idea of customer retention,” said Pryor. “It is becoming an increasing focus in terms of products in the marketplace. Dealers are looking at providers with higher frequency and opportunity to use F&I products to build relationships with their customers. Thinking about that, it kind of sets it up for things like prepaid maintenance, tire and wheel and service contracts. Things that keep that customer coming back – the ultimate goal is selling them another vehicle when they’re ready to trade it in.”

“I think there’s an evolution of products right now,” noted Tuscan. “But any dealer not doing their own maintenance plan is missing an opportunity. They are designed for dealers to bring customers back, and then to take that customer and turn them into a client. If dealers are not using something like this, they will always be buying customer business instead of earning it, and planned maintenance is truly one of the best products for building that relationship. And that will help the dealer through the coming year, because now he’s got customers committed to his business instead of defecting elsewhere. That, to me, is the number one staple product. That is, essentially, building two departments: the dealer is capturing business in F&I, and then turning them into a customer in the service department. That will reap benefits years down the road.”

“I think dealers have to accept that the second the customer leaves their dealership after purchasing a new car, the dealer is immediately competing for their maintenance business with at least 40 or 50 other businesses,” said Kansanback. “So anything they can do to try to control the customer coming back for the maintenance at the time of sale will be critical. When I’m here and buying a car, you can sell me a package, set appointments, do all kinds of things, but the second I leave with the car, you’re just mailing me coupons, and that won’t drive my behavior because consumers today still perceive the dealer to be expensive and slow.”

“Dealers are reaching out to get customers back in the dealership with maintenance agreements,” said Wanderon. “Service agreements are still the number one product in our marketplace but it can be any product that keeps the customer both dealer and brand committed. And the dealer/provider is giving the customer something to minimize their risk of some catastrophe that might affect them such as theft, loss or loss of value, so it’s a win for everyone. I see those products maintaining their continued increase.”

Broader Offerings
Finally, many of our executives touched on the fact that while the top selling products will remain the same, that doesn’t mean there are not other ways to approach them. Combo products – or bundling several products together – are a hot topic, and our executives believe this trend will continue to gain steam in 2014. The practice of bundling multiple products together has gotten scrutiny from many of the top providers, and agents should expect to see more of those bundles coming out in the coming months. Not only does it allow the dealer to get more products on the menu without making it overwhelming, but it also streamlines the process for the consumer, and often comes with a slight discount, making it even more attractive.

“The menu is pretty full right now,” noted Amos. “all of the insurers out there are looking for the next new product we can put in play and gain a lot of revenue, but right now we have to consider menu – it can’t get too big. I think a lot of the jostling for positions is really falling into place; VSC and GAP are big, and the big riser for us in 2013 was prepaid maintenance. I see tire and wheel as a solid product, continuing to increase year after year, and I believe we will see more bundled products next year a well – bundles will be combined with windshield, paintless dent or tire and wheel, all sold in one package at a reduced price. I think in 2014 we will see that become more prevalent, as it has really become mainstream now. Ancillary products have also become more acceptable, with providers more comfortable with their risk, but as far as what’s new, nothing will go on the menu unless it’s a product that will replace something already there.”

“The type of F&I products the average car buyer responds to look, on the surface, much the same as what has been offered in the past,” said Karchunas. “Service contracts and GAP will remain cornerstones of the F&I product offering, but consumers are better informed than ever before and expect greater value from a simplified product. The typical car buyer wants a protection plan that is both easy to understand and reliable. The cars that both domestic and foreign manufacturers are producing now and into the future are being driven for much longer time periods. These same vehicles are also utilizing more technology than ever before. The consumer is often open to purchasing F&I products that provide the reassurance that they are protected against potential problems with the technology as well as the mechanical components. This is why it’s more important than ever to rise up to the challenge of providing a protection plan that is easy to understand, yet provides coverage for increasingly complex vehicles.”

Predicting the Future
What do our executives see for F&I and the automotive industry in the coming months? They let us know their predictions about what will be important, what will change and what will stay the course.

Continued consolidation – both of providers and dealers – was a major issue many of them touched on. They see the trend continuing, and it will get harder for smaller providers and dealers to compete. That trend also applies to agents – the trend is toward agencies with multiple agents. Not to say the independent agent cannot continue to compete, but it will only get more difficult as time goes on, and will require, our executives said, those agents to focus on more than just products. Training, being involved in the staffing of the entire dealership and finding new ways to increase revenue, such as service drive sales, will all be crucial skills agents will need in the years to come.

The increasing influence of the Internet is another major trend our executives are watching closely. The younger generations that grew up in a connected world are beginning to reach an age where they are purchasing cars. The experience they are looking for is vastly different from that of their parents – and dealers need to be adapting. Again, this is where agents can and should be stepping in – educate your dealers on what the new generations are looking for, from mobile apps to a more complete online buying experience, and then help them find and implement the right solutions to reach those buyers. This is another trend that won’t happen overnight, but savvy dealers and agents are trying different solutions to work out the bugs while the percentage of the buying population looking for this type of experience is still fairly low. It will only get more critical as the years go by.

Our executives also called out the increasing emergence of hybrid and electric vehicles. They have been on the market for a number of years now, but as the technology has improved and the cost has come down, more consumers are seriously looking at these vehicles as an option. And F&I will need to adapt. There are many products out there that apply equally to these types of vehicles as traditional cars, but there is an opportunity, both for providers and agents, to create or find products or packages geared specifically for these vehicles.

“The trend I see for the automotive industry as a whole is really continued consolidation,” said Wanderon. “Increased technology will allow providers to offer more of a solution, so you can price your products based on each customer’s driving habits and risk, rather than on vehicle models. It is difficult to price products based solely on a particular vehicle, so you end up with more of a blended rate – I think it is going to get more granular in 2014 and beyond. So someone who drives better and who maintains their car at a higher level will be provided something at a lower cost than someone who drives harder and doesn’t maintain as diligently. For F&I, really the only trend that’s out there right now is focused on the regulatory side and where that’s heading. There doesn’t seem to be anything on the horizon that’s game changing other than that, although there has been a lot of consolidation in our business. A lot of the major players have either been acquired or purchased others, and dealerships are doing the same thing, so I see that leading to a continuing process of centralizing the F&I office.”

“I don’t know if it’s a trend or not, but while we’ve had technology forever, it’s been rough getting everyone acclimated to using it,” said Brugh. “The younger generations are used to not touching a piece of paper, they either have everything on computer, or on their phone or iPad. But my generation still likes to touch the paper. We’re still trying to get people to accept that change, but once you get dealers and providers past that, we will see them doing everything online. It will get there, it’s just a slow process. One of the problems is that a lot of dealerships still don’t even have the infrastructure to house the technology in the first place. They don’t have fast enough lines, or computers with memory or hard drives to get them where they need to go. It is all part of an education process – it is already changing, and we will see more changes coming, but at the end of the day, it all depends on how much a dealership wants to embrace the change.”

“I don’t think F&I has changed much in the last 25 years to be honest,” said Amos. “The trends we look for are more from the compliance and disclosure perspective of the transaction the dealers are doing when selling our products. That is something we constantly are watching, and we are very proactive in our relationships with our dealers. But at the end of the day, F&I is very basic when it comes to offering products: price them correctly and the consumer wants to buy them. Transparency and disclosure are the dealer’s friend. Once they do that, then it is just a matter of watching the processes. For the greater automotive industry, I think hybrid technology will take off big time. We insure a lot of Toyota business, and I think they are going to be making hybrids out of everything. It is solid technology and very effective – other brands like GM and Ford also have hybrids, and we even see hybrid trucks coming out. That is one thing we’re going to see surge in 2014. ”

“At Protective, we are keeping an eye on similar trends that we have been monitoring for the past few years, such as the steady growth of alternative power systems (like hybrids), technology and connectivity,” said Karchunas. “Consumers are bombarded with new forms of technology and their desire for more efficient vehicles is growing at a steady rate. We are working hard to stay ahead of these trends to develop F&I products that meet these evolving needs both today and well into the future. For F&I specifically, for the past year and a half, we have been keeping an eye on the developments with the CFPB. Even though most auto dealers are not directly subject to CFPB regulation, this has obviously become a hot topic for the auto industry. Over the course of the next year it will be interesting to see how the industry adjusts processes to meet the potential impact of CFPB guidance. At the end of the day, the need to support F&I operations with reliable products, training and administration remains intact, regardless of whether the CFPB takes further action affecting auto sales and financing. Dealers and their F&I staff need products that provide value to their customers and they need to know these products are backed by a financially stable organization that is interested in helping protect their reputation. “

“I think menus will continue to be critical part of the transaction in F&I, and that F&I managers will be much more engaged in the sales process, not just focused on what is happening in F&I,” noted Tuno. “It is siloed right now, but I think there will be more integration between the consumer buying the vehicle and everything that happens up until they get it delivered. All that technology is there today, it just isn’t too far along in its maturity, but I think there will be a push for an end-to-end solution. The technology will drive a more lean and efficient process, and retailers that have it down are the ones that can eke out the margins. The most efficient might see 5% return as a percentage of gross revenues, but most are going to operate at 2-3%; the 5% are the ones who have the process down from the front door to delivery of the vehicle. Technology will create a much more conducive solution, especially for the younger generation, which is used to communicating less with people in face-to-face environments. There is the whole idea of Internet, and millennials, gen x and ys – they all use it. Even baby boomers like me use the Internet a number of ways when purchasing a vehicle. This generation wants to show up at the dealership much further along in the transaction than in the past, and they don’t want to spend more time than necessary in the dealership itself. We already have the groundwork for that kind of business model, and I think we will see more of it in 2014.”

“It is imperative that lenders, providers and dealers alike focus on compliance not just on the state level, but also on the federal level,” said Croak. “This is evident by the growth in membership of such F&I-related trade associations as GAPA, SCIC and MVAPA. I also think that changes in the vehicles themselves may require a thoughtful look at the benefit coverage options in the F&I products so that they align more closely with the underlying vehicle.”

“We are watching how consumers will feel about and utilize the online buying choices being offered by manufacturer’s like GM,” said Price. “I also believe this coming year will be an interesting one with how banks handle the compensation of financing reserve. It’s a ‘hold your breath, close your eyes and hope for the best’ situation. The only suggestion we are making to dealers is they better learn to rely on product sales! For those dealers earning more than 30% of their income from reserve, they will be taking the biggest hit. Product sales should encompass at least 70% of the profits in F&I.”

“For the automotive industry, I think the IPO offering from Chrysler will reveal how strong their production in North America and abroad is, and that is something we are watching,” said Vecchioni. “The retirement intention of the Ford CEO Allen Mullaly and the future of Ford abroad are also major issues that could impact the industry. I think that leasing with amicable numbers that make sense can and will drive new sales, as well as replenish the pre-owned inventory, and the Affordable Care Act will dictate manufacturing levels throughout the United States. If the employment numbers, with good wages, goes up, the industry will also see more sales. I think the mid-term elections will determine quite a lot in the minds and comfort of most Americans, and that will impact our industry either up or down.”

“I think expectations will continue to go up,” said Kansanback. “The margins are still compressed on the sale of vehicles, and dealers are not going to tolerate underperforming F&I departments. It is not always going to be us, but dealers need to partner with someone who has the resources to help them – it is not practical for them to be an expert in every department. Another macro trend is that dealers are having trouble hiring people with good experience; training is always important, but when you’re having to go with the less experienced, incomplete resume candidate, training is that much more important. I think that if interest rates stay low, unemployment should go down, and if we had trouble in the depths of recession hiring good people, as that number goes down, it will just get harder.”

“I believe the key thing for the industry is where vehicle sales ended up in 2013 and what they are projected to be for 2014,” said Atkinson. “The credit environment for lending and the CFPB and what they’re bringing to the table is going to be crucial. We are seeing the government getting more active in the regulatory sense, and a lot of companies like AUL are members of organizations that are becoming very active federally, and more active in state legislatures as well. We have got to get more informed across the country; groups like NADA are getting much more aggressive working to educate people on what’s going on, and educate the CFPB on what goes on in a dealership, to show them the domino effect from their decisions. But there has to be more advocacy and industry awareness – we can’t sit back, we have to be proactive, and that means getting dealers, agents and providers involved in the conversation.”

“I see a change in consumer interaction in a couple areas,” noted Tuscan. “I think internet sales are going to change – that is slowly changing now. The customer wants to be more involved before he or she enters the dealership; they want to have almost everything done before they even walk in the door. There is a race for gen y and millennial customers right now, and they are totally different from you and I. This 21/22/23 year old buyer doesn’t want to enter the brick and mortar atmosphere, they want to do a lot more buying before they walk in. I believe that is a major trend happening right now. The challenge for F&I is that we need to be part of that conversation. We need to find a way to communicate our products and opportunities to those consumers. It is all about time to them – they are so used to the smart phone atmosphere and instant responses, that it feels too slow to move the traditional way. I’m not saying every transaction will happen that way, it will take some time to get to that point, but I see that trend happening now. I don’t, however, ever see us removing F&I out of the process completely, it will just be a more interactive process.”

“I think the big question on a lot of minds is the impact of CFPB, and I think we’re all watching to see where that goes,” said Pryor. “I know there is a lot of debate on Capital Hill, and among the OEMs and retailers as to what this will mean; I think as we get more clarity, you’ll see some shifts in how the F&I office is going to market, in both the product mix and in greater transparency for consumers, as well as more education as to value of the products. That is the overriding goal – to make sure consumers are receiving a fair value for what they’re paying. As long as we as an industry can justify that, it will put us in a better position moving forward.”

“I don’t think we’ll see much of a change overall in 2014,” noted Robinson. “VSC will still be number one, GAP will be number two and some combo that includes tire and wheel will be number three in the F&I department. Those will be the big three, and I don’t see that changing. The thing we really watch is the manufacturer’s underlying warranties, and how they change their coverages. The trend has been for the factory to go with longer underlying warranties, so we are watching that closely. Other than that, I think it will be emergence of electric cars and their impact on our market that will have an effect, but even then, there is nothing earthshattering, other than CFPB and the impact they’ll have on lenders. We will be watching that very closely.”

“I think everyone is watching CFPB in 2014,” noted Corbin. “Are they going to try to extend reach past lenders and lending practices and into automotive dealer F&I department operations? We are all watching that, the trade associations are monitoring that, and as an industry we need to take some leadership roles with the CFPB. We need to educate them as to what the benefits of a fair market process in the F&I department are to consumers. That’s one that could be potentially negative that we’re watching. We also continue to have dealers who want to partner with us to experience the use of menus on mobile devices; to untether themselves from the F&I desk. They want to be out in the showroom and more interactive with consumers, putting them more at ease about finance, protection and payment options. We will continue to use tablet technology in our SmartDealerProducts division and to partner with dealers on new techniques, all of which will result in higher consumer satisfaction scores and higher results.”

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The Dodd-Frank Act: The Creation of the CFPB and How it Impacts F&I


One of the sessions that garnered a lot of attendance and attention at the Industry Summit show at the Paris Hotel and Casino in Las Vegas last month was the Dodd-Frank panel, moderated by Bob Harkins, vice president/director of training, AFG Training Academy; president, RAH Consulting. It tackled subjects such as the Consumer Financial Protection Bureau (CFPB) and other regulatory bodies that impact the F&I office across the board.

As outlined by the panel, the Dodd-Frank act was signed into law in July 2010, and that set into motion the creation of the CFPB, which is the federal agency “causing the most uproar in recent memory”. It was officially created in July 2011, and currently has approximately 1,400 employees – about 700 of whom are attorneys. The problem, and the cause of much anxiety throughout the F&I industry, is that the CFPB has issued only vague, general statements, but hasn’t provided any concrete rules or guidelines that dealers, agents and providers can follow. This leaves a legal “grey area” with everyone uncertain as to what is expected of them.

“It’s been a very interesting trip for us,” said Damon Wiener, senior vice president and general counsel, Safe-Guard Products International LLC. He went on to compare it to a marriage – “They claim they have authority over me, they won’t tell me what the rules are, but they punish me when I break them,” he said, to laughs throughout the room.

Nicole Munro, partner, Hudson Cook LLP, agreed, noting that the CFPB is impacting her legal practice every day. While Wiener compared it to a marriage, she used the analogy of a two-year-old on a sugar high, noting that the agency might be young, but it’s been very, very active. “You should be very prepared for their intervention,” she noted.

Part of the reason the CFPB is so active, and something to be concerned about, is that it is extending and augmenting it’s authority by incentivizing the state Attorney Generals, noted Terry O’Loughlin, director of compliance, Reynolds and Reynolds. He explained that the Attorney General doesn’t have the same limits that are in place to constrain the CFPB, so the agency is encouraging them to adopt and prosecute its policies, extending its reach.

The key to staying out of trouble, noted Dave Robertson, executive director, Association of Finance & Insurance Professionals (AFIP), is to take a proactive approach – dealers, agents and providers should all be looking at the F&I process and asking themselves what can they be doing on a day-to-day basis to stay in compliance.

One of the key points the CFPB is targeting is the issue of dealer compensation and the ability for dealers to price credit. “The CFPB has agreed that dealers should be compensated, but the debate is how they get compensated,” said Andrew Koblenz, executive vice president, Legal and Regulatory Affairs, and general counsel, National Automobile Dealers Association (NADA). His agency has been one of the industry players looking to educate the CFPB, among others, on how dealer compensation works, and why it is important. At first, he said, they were looking at the possibility of eliminating it altogether, but once it was explained how it adds value to the consumer, and provides access to credit that many consumers would not otherwise have had, they were persuaded not to slash compensation completely. Now, however, it is trying to find the middle ground where dealers are compensated fairly, and consumers are protected from unfair practices.

The agency is also targeting “unfair or deceptive” advertising, which is where the vagueness comes in. They have not clarified what “unfair or deceptive” means, but they have issued orders noting that dealers should avoid them. When there are no clear-cut actions to avoid, what should the industry be doing? First, Munro, noted, providers and dealers need to look at each product and classify exactly what it is in each state – is it a vehicle service contract (VSC), warranty or insurance product? Then, she noted, examine whether that state’s law allows the financing of that type of product, and if so, how it needs to be disclosed. “The problem is in characterizing it,” she said. “Since if you get that wrong, everything else could be wrong too, and you might have violated state laws.” The challenge gets even harder when bundled or combo products start to come into play – she gave the example of adding an insurance product to a bundle of non-insurance products – and noted that it varies as to whether that changes the classification of the other bundled products as well. “You may only know you have an insurance product when you get a violation,” she said.

“Agencies prefer to be unclear,” said O’Loughlin. “Because it forces their targets to overreact, to overcompensate. It’s a great result, because it makes the industry more fearful of what else they might do.”

“There’s a lot of uncertainty out there,” said Wiener. “Everything right now is mostly speculation.” He did go on to note that while the orders have started to at least frame what the CFPB is looking to do, we are still in the early days of figuring out exactly what that is. He did say that the agency does not seem to be attacking the value of the products themselves – they are focused instead on how they are marketed to consumers. However, that does not change the need to make sure the product itself is compliant with all state laws where it is being sold, and that the sales practices themselves are buttoned-up. “We need to be careful, and pay attention to nitpicky details,” he said.

It also goes back to that jurisdictional issue that O’Loughlin pointed out – at the end of the day, what authority does the CFPB actually have, and what actions do they have available to enforce them? Munro does not believe that, legally, the agency has the jurisdiction to regulate product or service providers directly – but she believes it will be a fight to prove that and keep the agency out of this area. “I believe anything offered equally in cash or finance should be outside their jurisdiction,” she said.

“They will try to overreach, and we will have to push back,” agreed Koblenz.

Words Matter
While the CFPB orders might be vague, the panel agreed that they matter, and they will have an impact going forward on the ancillary products offered in the F&I office. O’Loughlin believes the impact will be more far ranging than just products, however. “They will issue very harsh demands, and will conduct audits where they collect tremendous amounts of data. The CFPB is going to share sensitive information [with state Attorney Generals] to identify patterns and practices – and that is a menacing prospect.” The problem is that the CFPB can gain access to sensitive information that the Attorney General could not have otherwise obtained without a subpoena. That worries him; right now, not all of the Attorney Generals are signing on to work with the CFPB, but he believes it is only a matter of time – there is too much money to be made for the state, he noted. The CFPB allows them to enact much higher penalties than the Attorney General could alone, and he does not see them refusing to go that route for long.

Munro noted that while the agency does not have direct access to dealers today, she agrees that the access to data is the most concerning. “They cannot go into a dealership [and collect information],” she noted. “But they can find information about the dealership through the sales of finance products, and pass that along to the Attorney General.”

However, cautioned Koblenz, there are limits. He noted that, like Munro, he sees jurisdiction issues coming into play, as to what the CFPB can and cannot do, and where their authority extends, and that could limit the effectiveness of their strategy in the future.

Disparate Impact – Where Does That Come Into Play?
One of the ways the CFPB is targeting dealers and providers is to claim disparate impact – which is when they go back and look at deals already made, and use an algorithm to determine if they believe discrimination happened. The problem is that it is illegal to collect information such as race when filling out loan or credit documents. So agencies like the CFPB use information such as the U.S. Census, or surnames, to try and assign race or gender. But, agreed the panel, that process is flawed. It can be misleading at best, and plain wrong at worst, leading the agency to make policies to prevent unintentional discrimination that, the panel noted, might not even exist in the first place.

“They have to look at other factors,” said Koblenz. “Things like credit risk – it costs more to place a subprime loan, regardless of race. And there are other variables such as inventory, the amount financed or the term of the loan.” A better metric for determining if everyone was treated fairly, he said, is to look at the dollars – if the goal is to have every deal generate approximately the same dollar amount, then the rates will be all over the place, based on all those credit and financing factors – race doesn’t play into it. Everyone is treated equally, based on their financial standing.

The frustration over disparate impact, Wiener noted, is that the CFPB is preaching transparency in all transactions to ensure every customer is treated equally and fairly – but at the same time, they are refusing to release the metrics they used to determine that there was discrimination in the first place. It is a double standard that leaves dealers, agents and providers to develop compliant policies, only to have to constantly keep adjusting them as the CFPB releases new bits of information.

“They’ve given us little information on how to code these loans,” said Munro. She pointed out that there is currently a case before the Supreme Court that might make it a moot point – the case is seeking, among other points, to have the court rule on whether disparate impact is a valid legal theory. She believes the case will eventually do away with disparate impact completely, which will change the entire conversation around the CFPB completely, yet again.

At the end of the day, the CFPB is impacting F&I today, and will continue to have an impact in the future. But exactly what that impact will be long term, not even the panel could say for sure. There are still too many variables in play, and not enough information to go on – the best policy for anyone in the industry is to stay vigilant and create clear, understandable policies that apply to every loan and every product that is sold through the dealership – so even if a violation is cited, there is a clear paper trail showing the intent to be compliant and stay within the law.

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Sylvia Taylor Joins Safe-Guard Products as Top Human Resources Executive


Atlanta – Safe-Guard Products International LLC hired Sylvia Taylor as senior vice president of human resources.

“Sylvia will lead the next phase of Safe-Guard’s organizational growth. The addition of a number of marquis clients to our portfolio will require significant growth in our capabilities to ensure we are well positioned for the future. I am excited to have a leader with Sylvia’s capability and experience on the Safe-Guard team,” said Randy Barkowitz, CEO.

Most recently, Taylor led human resources at The Weather Channel, where she was responsible for more than 1,000 employees in the United States and the United Kingdom. Previously, as the top human resources executive at AutoTrader.com Inc., she was instrumental in designing, recruiting and managing the 2,400-employee organization and driving AutoTrader’s success. Taylor has been recognized by Savoy magazine as one of the “Top 100 Most Influential Women in Corporate America.”

“Talent, leadership and culture are critical elements that drive high performance in an organization. Safe-Guard is committed to maintaining a high-performance organization and investing in the critical elements necessary to do so,” Taylor said. “I am excited to join the strong leadership team at Safe-Guard. I look forward to leading key organizational initiatives that will help propel Safe-Guard through its next stages of growth while driving value for its customers in the dynamic F&I marketplace.”

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Safe-Guard Canada Ltd. Established to Serve Canadian F&I Dealers and Customers


Atlanta – Safe-Guard Canada Ltd., a wholly owned company of Safe-Guard Products International LLC, is now managing all claims on Safe-Guard programs sold in Canada. The Mississauga, Ontario office was opened to provide specialized service for Canadian consumers. All French customer service calls are also handled by the office.

“Safe-Guard has been protecting Canadian customers for more than a decade,” said Gary Volino, senior vice president, operations. “As we look to expand our product offerings, service and compliance are two of the key areas that we are focusing on in the Canadian market. Having a dedicated Canadian office helps us provide additional resources to our agents and OEM partners in Canada.”

In anticipation of further growth in Canada, Safe-Guard Canada Ltd. also has established a Web site in English and French, www.safe-guardproducts.ca. Customers and partners can access claims and customer service contact numbers for the Canadian office. In addition, information about products available to Canadian consumers is available online.

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Tips For 2013 From Top Industry Trainers


When it comes to ways agents can find more success, there are a lot of tips and tools out there to choose from. We asked a few of the top industry trainers to give us their take on what they see as the most important things agents should focus on going into this new year.

It may come as no surprise, but most of them listed training — the training agents offer to their F&I dealer clients — as one of their top pieces of advice. They noted that when it comes to being successful, the agents who create and maintain strong training programs are the ones who rise to the top. But it’s not just chatting about a new product and calling that “training.” There needs to be, the experts noted, a solid program that uses a wide range of techniques.

Luis Garcia, vice president of sales & business development, Safe-Guard Products International LLC, noted that one thing he finds a lot of value in is walkaround training. “The art of the ‘walkaround’ has been lost,” he said. “The walkaround is a perfect place to start planting the seeds for F&I products. For example, salespeople can point out features such as the tires, noting that those can be covered with tire and wheel protection. It creates an environment where customers are already starting to think about F&I, whether they know it or not, before they even sit down with the finance manager.”

Steve Veldkamp, district sales manager, Great Lakes Companies, believes agents need to have a structured system in place. “Today’s agent needs to have a monthly schedule of classroom training workshops. I have found classroom training is more effective than in-store training, mainly because there are no interruptions. The workshops can be product-specific, such as vehicle service contracts or credit insurance; topic-specific such as objection handling or presentations; or general knowledge such as a three-day F&I school.”

For Gerry Gould, director of training, United Development Systems Inc. (UDS), one of the real problems is F&I business managers who never practice their skills, outside of being in front of a customer. And then they wonder why they aren’t closing the sale. He advocates that agents train these managers using role-play techniques.

“Without role play and the critique that accompanies it, the only time the business manager gets to develop his talent and improve his skill is in front of a customer, and when they miss a shot, screw up a throw or strike out, the customer is not going to tell them what they did wrong, or right for that matter,” Gould said.

Beyond offering training directly, Tony Dupaquier, director of F&I, American Financial & Automotive Services Inc., suggests that agents encourage all their business managers to attend an F&I school at least every two years. Some things he notes an agent needs to be aware of before suggesting a specific school? “Ensure the legal compliance of the F&I school,” he advised, “and ask for documentation of legal compliance, not just a ‘yea, its legal.’”

Dupaquier also advises agents to make sure the school will focus on what they, and the dealer, want to accomplish. “Most F&I school focus on pure gross profit and not product penetration,” Dupaquier noted. “But product penetration spreads the profit around and assures keeping the profit. Focusing only on gross and making the money in rate is very dangerous in today’s market.”

Garcia cautioned though, that agents can’t just do a few training courses and call it a day. “Persistence wears down resistance. Training isn’t a one-time thing. It has to be a regular occurrence, and by being persistent, you will start to see a rise in your profits and realize the value training brings to the table. You just have to stick with it.”

Beyond Training
But training programs are the only things agents can be doing to help their dealers — and themselves — be more successful this year. One tip Ron Reahard, president, Reahard & Associates Inc., offered, was to be aware of pricing.

“Studies have shown most people tend to start rounding up at 45, so keep your prices under that number. If you charge $995 for a product, the customer mentally rounds that off to $1,000, so in the customer’s mind it’s a $1,000 anyway. They round up. If you charge the customer $1,041, they mentally round the price down to $1,000. They round in your favor, and you make more money,” he noted.

All in all, the key for agents is to not be complacent. Continuing to learn and grow, and then taking that knowledge to ensure your dealers stay ahead of the competition, is a key trait to cultivate. It will help you go from being a good agent, to a great, successful one.

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Goldman Sachs Affiliate Acquires Safe-Guard


ATLANTA – An affiliate of Goldman Sachs, in partnership with management, acquired Safe-Guard Products International LLC from H.I.G. Capital. The transaction will position Safe-Guard to continue to capitalize on the substantial growth opportunities across its platform of F&I program solutions.

“Safe-Guard is excited to partner with Goldman Sachs to continue to grow its business and build upon its market-leading position. With our partners, we are well positioned to drive sales growth, provide service delivery enhancements and introduce new products that deliver exceptional value for our dealers and their customers,” said Randy Barkowitz, CEO.

Doug Duncan, founder and former chairman said, “Safe-Guard’s vision and core values of providing innovative products and excellent customer service are the foundation to its success. Alongside its latest partner, Goldman Sachs, the company will continue to chart a great future.”

“Safe-Guard has an industry-leading management team and world-class relationships,” said Sumit Rajpal, Goldman Sachs. “We look forward to working with the company as it continues to provide superior products and services to all of its customers.”

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