F&I and Showroom April 2011 by Kelly Bracken

M A D M A RV: SC R A P T HE ‘ H Y BRI D’ | ED I TO R : FICO 8 E X A M INED | L EG A L : T HE F TC ’ S ROA D SHOW

A BOBIT PUBLICATION FI-MAGAZINE.COM

MARK AS Experian’s Latest Report Shows Below-Prime Lending on the Rise as Delinquencies Fall

THE

GREAT The XPLORE Edition FJ Cruiser Is Turning Heads at Toyota of Escondido. Learn Why Ron Flint and Tom Belt Think the Outdoor Enthusiast Market Will Move the Profit Needle at the Southern California Store.

CHANGE THE In the Age of the Internet Shopper, Dealers May Need to Finally Embrace the Direct Lending Model APRIL 2011 $10.00

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Contents

Endorsed as the official publication of the Association of Finance & Insurance Professionals

April 2011 Volume 14, Issue 4

Features Dealer Profile

14 Blazing New Trails Toyota of Escondido is forging ahead in its attempt to tap into the $28 billion auto accessories market. Agent Summit 2011

18 Agents of Change Thanks to expert trainers, guest speakers and hard-hitting panels, the first annual Agent Summit was a huge success.

Finance and Insurance

22 Turning Objections Into Sales Get six objection-handling techniques for selling service contracts and GAP, plus advice on when to go for the close. Auto Finance

28 Fourth-Quarter Push The auto finance market continued to drive forward in the fourth quarter of 2010, but can it continue?

Technology

32 Money for Nothing, Leads for Free Today’s Internet shopper is forcing lenders to consider the direct-to-consumer channel in greater numbers. Finance and Insurance

34 7 Costs Internet Shoppers Haven’t Calculated

Today’s Internet shopper might be better educated, but you can bet there are a couple of cost-of-ownership items they haven’t considered.

Departments 6 Letters 8 Editorial Page 10 Developments 38 Sales Driver 40 Mad Marv 42 Legal 44 Bottomliners 45 Ad Index 48 Industry Trends

32 F&I and Showroom (ISSN 2154-1728) (USPS 018-706) (CDN IPM# 40013413) is published monthly, by Bobit Business Media, 3520 Challenger Street, Torrance, California 905031-1640. Periodicals Postage Paid at Torrance, California 90503-9998 and additional mailing offices. POSTMASTER: Send address changes to F&I and Showroom, P.O. Box 1068 Skokie, IL 60076-8068. Please allow six to eight weeks for address changes to take effect. Subscription Prices: United States $20 per year; Canada $35 per year; Foreign: $35 per year. Single copy price: $10; Fact Book: $30. Please allow six to eight weeks to receive your first issue. Bobit Business Media reserves the right to refuse nonqualified subscriptions. Please address editorial and advertising correspondence to the executive offices at 3520 Challenger Street, Torrance, California 90503-1640. The contents of this publication may not be reproduced either in whole or in part without the consent of Bobit Business Media. All statements made, although based on information believed to be reliable and accurate, cannot be guaranteed and no fault or liability can be accepted for error or omission.

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Letters Striking a Chord I just finished your March column and I wanted to tell you that this line brought a smile to my face: “Top performers who really care about what they do want to know they are crushing it …” Keep up the good work.

TO CORY MOSLEY:

Harold Sands Jr. Dealer Principal Sands Chrysler Jeep Dodge Ram Quakertown, Pa.

When Customers Object I work for a small Canadian credit insurance agency. I was wondering if you could help me out with a problem we’re having with a couple of luxury dealers we just signed up to sell credit insurance. The F&I managers are running into customers — educated professional types — who say they have enough insurance or don’t need it. Can you share a few “tricks” to help out our dealers?

TO “MAD” MARV ELEAZER:

Matt Scopick S.I.G. Insurance Ontario, Canada

While credit insurance isn’t as popular as it once was, it is still a viable product. I also don’t believe selling insurance to luxury buyers is any different than selling it to domestic prospects. It may be that some of the F&I managers aren’t stressing the importance of the product enough or are simply giving up prematurely. Now, there are a variety of closes you can consider, but the best one is to remind customers that their present insurance coverage is automatically lessened by their new purchase. The key here is to cause the customer to think before waiving the opportunity. It should be pointed out that the premium is competitive with insurance they could obtain from a local agent, especially due to the age of many highline customers. It also doesn’t require an exam, and the policy pays off the loan exclusive of

the estate having to be probated. That means the loan would get satisfied sooner. — Marv Eleazer

A Little Client Help I have just accepted a position where I will be assisting and supporting numerous dealerships in my area with their subprime lending needs. Could you offer me any advice on how to provide exceptional support to my accounts? TO RICK MCCORMICK:

Bobb Swope via e-mail

I have an acronym that might help: CR-M. “C” stands for communication, which needs to be timely and consistent. You also need to be proactive so your clients will view you as a resource and not just a rep. The “R” stands for relationship, which you need to have with your client’s management team on down. Lastly, the “M” stands for money. Never forget that your main goal is to increase your clients’ bottom lines. Dealers are definitely looking to capitalize on the subprime market. My advice is to do what others will not do and separate yourself from the rest. — Rick McCormick

Vice President Group Publisher, Auto Group Sherb Brown Publisher, Dealer Group National Sales Manager David Gesualdo 727-947-4027 david.gesualdo@bobit.com Executive Editor Gregory Arroyo 310-533-2592 gregory.arroyo@bobit.com Managing Editor / Art Director Tariq Kamal 310-533-2470 tariq.kamal@bobit.com Senior Editor Justina Ly 310-533-2496 justina.ly@bobit.com Great Lakes Sales Manager Robert Brown Jr. 248-601-2005 rbrown8799@aol.com Sales & Marketing Coordinator Tracey Tremblay E-Media and Print Production Manager Brian Peach 310-533-2548 brian.peach@bobit.com Web Manager Sam Kim 310-533-2492 sam.kim@bobit.com Audience Marketing Manager Tony Napoleone

Balanced Approach TO THE EDITOR: I just read your editorial in the February issue (“Fed Proposal Reveals Evidence GAP”), and I wanted to tell you that I appreciate the points you raised. Unlike the articles we’re seeing here in Canada, your column was well balanced. The rules for selling credit insurance are far less restrictive here in Canada, but that’s starting to change. What amazes me is the media’s inability to present both sides. Unfortunately, it’s these poorly researched articles that cause governments to overreact. Again, thank you for what you do.

William Slattery National Trainer Industrial Alliance Insurance and Financial Services Alberta, Canada

Chairman Edward J. Bobit President & CEO Ty F. Bobit Chief Financial Officer Richard E. Johnson Business and Editorial Office Bobit Business Media 3520 Challenger St. Torrance, CA 90503 Phone: 310-533-2400 Fax: 310-533-2503 Change Service Requested Return Address: Bobit Business Media PO Box 2703 Torrance, CA 90509 Subscription Inquiries 888-239-2455 BobitPubs@Halldata.com Printed in U.S.A.

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Letter from the Editor

Industry’s Common Denominator Located The editor weighs in on the industry’s migration toward a new credit scoring system that’s more understanding and a little bit harsher. By Gregory Arroyo

he auto finance industry has found its common denominator. To put this momentous event into more colloquial terms, the industry has found its “New Normal.” This month and next, the top 30 auto finance companies are expected to migrate to FICO 8 Auto Score. Why is that a big deal? Well, imagine trying to herd cats, because that’s the only way I can think to describe FICO’s efforts to get an entire industry to adopt a new scoring system. And if you think I’m exaggerating, I have one word for you: “e-contracting.” Yes, FICO does update its score every few years, but this is the first time the company is taking the lead to drive industry adoption. But keep in mind that this newest update isn’t a simple tweak of the old score. No, this update represents what we’ve been asking for since the credit crisis took hold: a score that considers a consumer’s entire credit history. Rachel Bell, global director of scores for FICO, was at the forefront of this push. See, FICO 8 was first introduced in 2009. It currently counts 3,500 banks and other finance institutions across multiple lending lines as users. However, the auto version — which simply means the formula measures the likelihood that a customer will repay his or her car loan — took a little more time, because, as you can imagine, the auto finance industry was dealing with quite a bit back in 2009. It’s not that the credit crisis was caused by auto loans gone bad. In fact, our industry proved that auto loans are actually a safe bet. But that’s because finance sources got re-

ally good at collections. So, let’s just say the industry was a little too distracted to consider the new score two years ago, which meant FICO had to extend the life of its prior score a couple of times. But about 10 months after most experts say the credit crisis ended, FICO put forth a full-court press. The strategy was unleashed at the FICO World 2010, held exactly one year ago this month in Miami. “We invited the top accounts to sit down and talk to our CEO, Mark Greene — not about the score, but the industry,” said Bell. “What came out of our conversation was a deeper understanding of the market. What they wanted was more predictable lending analytics.” The scene was replayed six more times at industry conferences last year, including the Consumer Bankers Association’s annual get-together. What became clear, said Bell, was that lenders would need until this month to migrate. Bell listed a couple of big-name adopters, but asked that I not mention them in this editorial. Names I am allowed to mention include Volkswagen Credit, Santander Consumer USA and First Investors. Now, this migration doesn’t mean lenders are ditching those custom scores they’ve been refining the last couple years. However, it does mean that lenders and dealers now have a common starting point. Now, if you’re using credit platforms from ADP, AppOne, CUDL, CoreLogic, DealerTrack, Finance Express, Open Dealer Exchange, Reynolds or RouteOne, then you might have experienced the new score. The

credit bureaus also are using the new formula. Equifax’s Beacon 9 score, for instance, is really the FICO 8 score. And if you have used the new system, you probably noticed the reason codes and scoring range remain unchanged. This was done to make it easier for lenders to convert. What has changed is what the score is telling you. See, the score is more predictive of risk because it doesn’t just look at serious delinquencies; it looks at whether consumers have other accounts with positive credit histories. As Bell explained, the new formula considers performance in relation to all tradelines. So, if two customers have otherwise identical credit profiles, but one has two tradelines that are delinquent while the other is delinquent on all 10 — the new formula will recognize these differences and score them accordingly. Similarly, if you have a customer with only three credit accounts and he or she is delinquent on one, FICO 8 will be a little harsher on that person than it would be on someone who is delinquent on one of 10 accounts. But let me give you the big picture: First, as I’ve written before, our business is under the microscope with the passage of the Dodd-Frank Act. Getting the entire industry on the same page when it comes to creditworthiness will go a long way with regulators. Remember, they love transparency. Second, we’re on the verge of what experts say will be a tremendous growth period for auto sales. So, a full-scale migration to FICO 8 guarantees that lenders and dealers will be operating in sync.

8 F&I and Showroom April 2011

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Developments Bill to Fix California GAP Problem Moving Quickly LEGISLATION AIMED AT AMENDING

a California law that prohibits the sale of deductible coverage through GAP was moving quickly through the state Legislature last month, raising hopes m that the issue could be t resolved by June. r The bill, AB 125, was w passed on March 10 by b a 69-0 vote in the state Assembly. The two organizations behind the bill, San Diegobased OwnerGUARD and the California New Car Dealers Association (CNCDA), are hoping the bill will follow a similar path through the state Senate. The issue stems from a bill passed last September that packaged a new licensing requirement for sellers of accident and health insurance. The GAP deductible came into question after the CNCDA asked the state insurance agency to clarify whether GAP would fall under the new law, which took effect on Jan. 1. In its review, the agency said deductibles could not be covered by GAP. The CNCDA and OwnerGUARD moved quickly to get the state agency to reconsider its stance, which it did. It also agreed to help develop fixer legislation. OwnerGUARD also hired John Norwood, a California lobbyist, to help push the bill through the Legislature. He was able to get the Assembly Insurance Committee to place an urgency clause in the bill, which will allow it to take effect as soon as it gets Gov. Jerry Brown’s signature. “Everything happened so fast,” said Michelle Dicks, OwnerGUARD’s general counsel. “Hopefully, it’ll get to the [Senate Banking Committee] by the middle of March. If that happens, we could see a vote on the Senate floor a week later, which means we could be done by April.” 10 F&I and Showroom April 2011

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Polk: Leasing on the Comeback Trail

utomotive leasing represented nearly 19 percent of all vehicle transactions last year, a 5.8 percentage point increase from the 13.1 percent rate tracked in 2009, according to Polk. “The OEMs began to increase their leasing activities in 2010 and consumers have increased confidence in the market and are beginning to lease vehicles again,” said Stephan Gallon, PolkInsight advisor. Although leasing increased across the country in 2010, the growth was not uniformly distributed. Leasing penetration in the Great Lakes region — where the penetration rate was highest prior to 2007 — was only slightly above the industry average of 21.2 percent in 2010. However, the same region recorded the highest year-over-year gain with a 9.2 percent increase. The second largest year-over-year increase in lease penetrations was seen in the Mideast states, where the rate reached a six-year high at 31 percent. New England and the Western regions also realized their highest levels of lease penetrations in six

years. The Southwest region, however, continued to trail behind the rest of the country. By vehicle segment, minivans experienced the biggest year-over-year increase in lease penetrations, while the entry-level segment gained 10 points from a year ago. Mercedes-Benz and BMW remained the top two luxury brands in terms of leasing, with each brand boasting penetration rates of 50 percent. Cadillac continued to pick up ground in the leasing category, increasing from less than 5 percent in 2009 to more than 30 percent in December 2010. On the decline, however, is Volvo, which saw its lease penetration level fall from 30 to 40 percent in 2009 to 10 percent last December. Last year also marked the return of leasing for Chrysler, General Motors and Ford, although penetration rates remain below pre-recession levels. Asian brands, which remained more active with leasing than the traditional domestics in 2009, also experienced an increase in penetration rates last year. Honda led the way with a rate of 30 percent.

Lease Penetration by Region, 2005 –2010 Great Lakes

SOURCE: POLK

2005

2006

2007

2008

2009

2010

28.4%

31.5%

30.8%

26.2%

12.0%

21.2%

Mideast

19.5%

27.4%

29.3%

22.1%

31.0%

New England

15.8%

20.5%

21.8%

21.3%

16.2%

23.7%

Plains

12.2%

13.8%

13.1%

11.7%

6.8%

10.9%

Rocky Mountain

13.9%

15.6%

14.8%

13.4%

8.0%

12.2%

Southeast

11.3%

12.5%

13.4%

13.0%

9.7%

13.0%

Southwest

7.1%

8.0%

8.1%

7.5%

6.4%

8.1%

West

14.7%

16.4%

17.5%

19.2%

16.1%

22.0%

National average

15.7%

18.5%

19.1%

18.6%

13.1%

18.9%

CALIFORNIA STATE CAPITOL PHOTO BY COOL CEASAR

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Developments Ally Financial Begins Repayment of Federal Investment ALLY FINANCIAL INC.

said in March that it will repay the U.S. Department of the Treasury $2.7 billion from the sale of all the Trust Preferred Securities the agency holds in Ally. This represents the full value of the Treasury’s investment in these securities. Ally has paid approximately $2.2 billion in dividends on the Treasury investment to date.

Universal to Finance IAS Products IAS, AN F&I PRODUCT

provider, has partnered with Universal Lenders LLC to offer its network of agents and dealers “The ZERO Plan.” The plan offers zero percent financing for most F&I products and is designed to help dealers increase their aftermarket product sales.

Scrappage Rates Reach New Highs IN THE FOURTH QUARTER

of 2010, vehicle scrappage rates reached their highest level since the 2009 Cash for Clunkers program. This could be a positive for the auto industry, which is once again dealing with the effects of rising gas prices. According to Experian Automotive, the scrappage rate for all of 2010 was 5.3 percent for cars and 3.5 percent for light trucks. In the end-of-year quarter alone, the scrappage rate for cars and light trucks experienced a year-over-year increase of 28.3 percent and 58.2 percent, respectively. “The [fourth quarter] saw the biggest jump in vehicle scrappage rates since Cash for Clunkers,” said Marty Miller, senior product manager for Experian Automotive.

“With the high number of vehicles coming out of operation and the overall number of [vehicles in operation] going down, it is more important than ever for automotive aftermarket organization to … manage the supply chain and drive profitability.” There are more than 239 million registered vehicles on the road today. The average age of these vehicles stood at 9.9 years, 3.3 percent higher than the prior year. Additionally, more than 5.7 million vehicles were removed from operation, while nearly 17.5 million used vehicles changed owners in the last six months. Overall, car volumes decreased by nearly 790,000 vehicles, while light truck volumes increased by 800,000 vehicles.

Wolters Connects Independents to Lenders via RouteOne WOLTERS KLUWER

Financial Services’ AppOne platform will help independent dealerships connect with more lending sources through an expanded relationship with RouteOne LLC. Independents can now use AppOne to electronically connect with the company’s subscribing lenders via the RouteOne platform.

Prestige Adds Eight States PRESTIGE FINANCIAL’S

subprime lending programs are now available in Alabama, Hawaii, Kansas, Kentucky, Montana, New Jersey, Wisconsin and Wyoming. The Salt Lake City-based company is now available in 21 states, including Texas, Illinois, Georgia and Virginia.

Moves and Hires The Dealer Services Group of Automatic Data Processing Inc. announced that its Dealix business unit has hired Peter Wilson as executive director of UsedCars.com, a third-party retail site. Wilson has more than 15 years of experience in online automotive marketing. Prior to joining Dealix, Wilson served as director of business development and strategy at SmartAuction, a business unit of Ally Financial.

Compli, a provider of human resources and compliance management software, has appointed Jeremy Davey as vice president of engineering. He will be responsible for managing Compli’s engineering team and coordinating the company’s technology strategy. His 15-year engineering career includes stints with Vesta, Intel and Oregon Health and Science University.

Peritus Portfolio Services LLC, a purchaser of auto secured paper, has appointed Rod Heasley as executive vice president of sales and marketing. He will report to Gary Perdue, Peritus’ president and CEO. Heasley has more than 26 years of experience in the automotive industry, and most recently served as national sales director for Charter Warranty’s Autosave program.

12 F&I and Showroom April 2011

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4/1/11 1:45:29 PM 3/23/11 4:40:57 PM

Dealer Profile Toyota of Escondido is forging ahead in its attempt to tap into the $28 billion auto accessories market. Its guide will be a new program designed to get car buyers to explore the great outdoors. ne can’t walk into the showroom at Toyota of Escondido (Calif.) without noticing the olive-green FJ Cruiser — outfitted with a rooftop tent and intake snorkel — parked in the middle of the floor. Curious customers seated in the dealership’s lobby get up from their seats to walk around the vehicle. They check out the knobby, off-road tires, stare up at the tent and peek through the FJ’s windows for a glimpse of the leather interior and the refrigerator/freezer in the cargo area. Clearly, this is not your everyday SUV. The outdoor-ready FJ Cruiser has been on the Southern California dealership’s show floor for nearly four weeks, and this scene has played out repeatedly in front of Tom Belt, the general sales manager. His office, which he refers to as the “fishbowl” because of its 180-degree view of the showroom, has given him a front-row seat to all the action. “I was amazed at what a magnet it was. People would come and start looking at it,” he says. “We didn’t have any pricing on it. It wasn’t for sale, but it did draw a crowd.” The fully equipped FJ Cruiser is undoubtedly eye candy, but it’s practical enough for any outdoor enthusiast. The accessories are part of a ready-to-assemble equipment package called the XPLORE Adventure Series. It was created by Venchurs, an Adrian, Mich.-based packaging, kitting and supply-chain management company. Australia’s ARB 4x4 Accessories supplied the two-man, rooftop tent and metal access ladder, as well as the

Blazing New

Trai snorkel air intake and front and rear bumpers. XPLORE-inspired aluminum wheels, BFGoodrich all-terrain tires and a MagnaFlow stainless steel exhaust round out the exterior. On the inside, the vehicle touts an XPLOREbranded leather-and-suede interior provided by Montebello, Calif.-based Katzkin, a dash badge and floormats with embroidered XPLORE logos. In March, Toyota of Escondido became the first dealership in the United States to carry the XPLORE Adventure Series, which offers equipment packages for several makes and models. He agrees it might not be for every market, but says that’s not the case for his market, which sits 30 miles north of San Diego. “This place isn’t like San Diego. There’s a lot of outdoor activity go-

Toyota of Escondido’s Scott Whitehead (left), general manager, and Tom Belt, general sales manager, believe accessory sales will play a role in bringing the store’s sales figures back up to pre-recession levels.

PHOTO COURTESY TOYOTA OF ESCONDIDO

By Justina Ly

14 F&I and Showroom April 2011

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ing on here, and lot of our customers like to bike ride, camp and fish,” Belt says. “Although I wouldn’t be surprised to see one of these tents in downtown San Diego.”

PHOTO COURTESY TOYOTA OF ESCONDIDO

Accessories Equals Profit Potential

Profit margins remain tight in the post-recession economy, and the specialty automotive parts segment is no exception. The aftermarket industry recorded $28 billion in retail sales in 2009, but there has been a steady decline in volume since 2007. That year, sales peaked at $38.11 billion, according to the Specialty Equipment Market Association’s 2010 Annual Market Study. And since 1999, franchised dealerships have watched their share of the accessories market

The XPLORE edition FJ Cruiser on the Toyota of Escondido show floor sports a rooftop tent, off-road tires, XPLORE badging inside and out and a refrigerator/freezer in the cargo hold, among other features. The dealership’s accessories department (right) also stocks aftermarket equipment for a number of other Toyota models, including the Tundra pickup.

fall from 10.9 percent in 1999 to 5.3 percent in 2009. A new study provides some hope that dealers can reverse this trend. Conducted by the SEMA and AutoPacific, the study, “Influence of Accessories on New Vehicle Sales,” shows that accessories influence more than 1 million new-vehicle purchases each year. They also help reinforce customer satisfaction. According to the study, one-third of “non-modifiers” (consumers who have not modified a vehicle in the past) surveyed said they’d be interested in buying accessories if they’re available at the time of purchase. Additionally, 65 percent of respondents said they were influenced by a customized vehicle they saw displayed in a showroom. “Accessorization can

PHOTOS BY JUSTINA LY

influence new-car shoppers to choose vehicle platforms that are accessoryfriendly and even influence shoppers who do not actually accessorize their vehicles,” the report stated. This finding illustrates the benefits of having an in-vehicle display like the one at Toyota of Escondido. “When it’s sitting there, people’s eyes light up when they see the tree house,” says Ron Flint, XPLORE’s program director. “You can convert that into a sale.” And as Belt says, it’s all about incremental business. “[Customers] may not buy that particular package on the FJ, but they might buy the vehicle or another one of our SUVs,”

he says. “I’m not looking to sell hundreds of these a month. It would be nice if we could, but it’s really about doing anything we can to move that profit needle.” Preparing for the Aftermarket Industry

Belt also sees the XPLORE program as an opportunity to showcase the capabilities of his parts and service departments. As he says, when it comes to selling accessories and customizing vehicles, Toyota of Escondido has the resources, tools and experience to make it happen. “There’s nothing an outside vendor can do that we can’t do in house,” Belt says. The dealership sits on a 12.5-acre lot with a separate 35,000-square-foot new-car facility and a 25,000-squareApril 2011 F&I and Showroom 15

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Dealer Profile foot new-truck and pre-owned facility — each touting its own two-story parts warehouse. The dealership also maintains separate service centers for cars and trucks. The car service area is equipped with 50 service stalls, while the truck center boasts 20 heavy-duty stalls that can accommodate a full-size Toyota Tundra. The dealership started customizing trucks and SUVs with outside vendors in 2005, then moved the work in house in 2009 once management realized it was more lucrative. “A lot of people were coming into the parts department and buying accessories after the fact,” Belt says. “We started putting [customized] vehicles up front and letting people see what they look like. It caused a lot of excitement and created sales.” Pre-recession, Toyota of Escondido sold 450 to 500 new vehicles and 220 to 250 used vehicles per month. Those monthly averages have fallen to 175 new vehicles and 120 used, but Belt says sales volume continues to improve month over month. “We’re starting to see signs of recovery. We still have some challenges ahead, but we’re showing forward progress,” he says. “[Working] one car deal at a time and exciting stuff like [the XPLORE program] will get us ahead of the competition.” One reason for Belt’s confidence in the dealership’s ability to sell the XPLORE packages is its strong relationship with Toyota Financial Services. Currently, 90 percent of the store’s business goes to the captive lender. Belt says funding for any deal with an accessories package will be evaluated on a case-by-case basis, especially since he can’t anticipate how TFS will view the value of certain accessories, such as the rooftop tent. He expects that consumers interested in the XPLORE packages will likely need credit scores of 720 or higher to qualify for the best rate with TFS. Going Green for the Environment

The XPLORE packages are designed for new vehicles, although the company can accommodate dealers who

Have You Seen Our Catalog? XPLORE OFFERS THREE LEVELS

of accessory packages ranging in price from $2,000 to $9,000. Stage 1 equipment must be installed by a restyler in Katzkin’s network, but the extras included with Stages 2 and 3 can be installed in most dealerships’ service departments.

Stage 1: XPLORE’s entry-level package includes leather and suede interior, a dash badge, an exterior metal badge and optional floor mats. Stage 2: This package adds all-terrain tires, aluminum wheels, shocks and a stainless steel, cat-back exhaust. This kit is currently available for select models of Toyota, Jeep, Chevrolet, Dodge, GMC, Nissan and Ford vehicles. Stage 3: Available for the Toyota FJ Cruiser, 4Runner, Tacoma, Tundra and Sequoia, plus the Jeep Wrangler and Wrangler Unlimited, the highend package adds a variety of accessories from ARB. Price depends on the number and type of accessories selected.

want to outfit used vehicles with the add-ons. Pricing depends on the make and model, and that packages aren’t explicitly endorsed by manufacturers. However, the packages won’t disrupt a vehicle’s warranty, according to Jeff Wyatt, president and CEO of Venchurs. “I think the upside for an OEM is we’re giving the dealers the tools to sell more cars,” he says. To encourage drivers to make use of the accessories, XPLORE includes a one-year National Parks and Federal Recreation Lands Pass, providing

buyers with free access to all federal recreation sites. Venchurs also will contribute a donation to the National Park Foundation — the charitable partner of the National Park Service — with every kit purchase. Adding major brand gear and accessories will also trigger an automatic 2 to 5 percent donation to the National Park Foundation. The partnership with the National Park Foundation, which took nearly a year to solidify, is part of XPLORE’s campaign to promote outdoor recreation and environmental awareness. “There’s an authentic message underpinning this whole thing. It’s not just a whole bunch of parts and an identity,” Flint says. “It’s about environmentalism. It’s about the outdoors. It’s about family. These vehicles can deliver you to adventure.” Marketing to the Outdoor Enthusiast

The message of outdoor recreation and adventure is one that Toyota of Escondido is very familiar with. The dealership’s “Action Sports” division is an active supporter of the supercross, motocross and freestyle motocross (FMX) sports. The store currently sponsors San Manuel/Yamaha rider James Stewart, Monster/Pro Circuit rider Dean Wilson, and FMX rider Jeremy “Twitch” Stenberg. “We can take [the XPLORE vehicle] and our truck displays to events and get a lot of attention from it,” Belt explains. “Anything we can do to draw attention. This is something that makes us different from the other Toyota dealers in San Diego.” Belt says the dealership’s past sponsorship efforts have yielded an average of 20 to 25 car and truck deals per month, so he expects the XPLORE vehicle to create similar interest and results among consumers. “This is the type of program where you don’t know where it’s going to go,” he says. “But when you’ve got salespeople embracing this before we have it available ... it’s contagious when they’re showing it to the customer. This is fun stuff.”

16 F&I and Showroom April 2011

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It’s your time to shine.

5-Time Milestone Winners

Clark-Knapp Honda of McAllen

Goodson Honda West

Honda of Thousand Oaks

Power Honda Valencia

McAllen, TX

Houston, TX

Thousand Oaks, CA

Valencia, CA

Bankston Honda

Coast Honda

Holman Honda of Ft. Lauderdale

Mahwah Honda

Robertson Honda

Lewisville, TX

Sea Girt, NJ

Fort Lauderdale, FL

Mahwah, NJ

North Hollywood, CA

Bay Ridge Honda

DCH Honda of Temecula Temecula, CA Findlay Honda Henderson

Honda of Hayward

Matt Burne Honda

Russell Honda

Hayward, CA

Scranton, PA

Sherwood, AR

Honda of Nanuet

Penske Honda

Valley Honda

Brooklyn, NY

Bob Montgomery Dixie Honda Louisville, KY

Henderson, NV

Nanuet, NY

Indianapolis, IN

Aurora, IL

Carrs Honda Center

Gary Smith Honda

Honda of Staten Island

Penske Honda Ontario

Yonkers Honda

Chicago, IL

Fort Walton Beach, FL

Staten Island, NY

Ontario, CA

Yonkers, NY

Allen Honda

DCH Academy Honda

Gene Stevens Honda

Honda of Jasper

Largo Honda

Findlay, OH

Jasper, AL

Florida City, FL

Matteson, IL &

DCH Kay Honda

Gilroy Honda

Honda of Mentor

Majestic Honda

Price Honda

Greencastle, PA

Eatontown, NJ

Gilroy, CA

Mentor, OH

Lincoln, RI

Dover, DE (

Apostolakis Honda

DCH Paramus Honda

Goodson Honda North

Honda of Midland

Majestic Honda

Proctor Honda

Superior Honda

Tallahassee, FL

Cincinnati, OH

Rainbow Honda

Sussex Honda

College Station, TX

Old Bridge, NJ &

Antrim Way Honda

Cortland, OH

Paramus, NJ *

Autoway Honda

Dean Honda

Clearwater, FL

Houston, TX ^

Midland, TX

West Warwick, RI

Goudy Honda

Honda of San Angelo

Marin Honda

West Mifﬂin, PA

Alhambra, CA

San Angelo, TX

Corte Madera, CA

AutoWest Honda Fremont

Dene Lambkin Honda

Grace Honda

Quincy, IL

San Bruno, CA

Honda of Slidell

Maroone Honda of Hollywood

Fremont, CA

Desert Honda

Greg May Honda Waco, TX *

Honda of Tiffany Springs

Diamond Honda

Grissom Honda

Tiffany Springs, MO

Gadsden, AL

Honda of Turnersville

AutoWest Honda Roseville

Las Vegas, NV &

Roseville, CA

City of Industry, CA ^

Bommarito Honda Hazelwood, MO

Dobbs Honda on Covington Pike

Boyd Honda

Memphis, TN (

Oxford, NC

Dobbs Honda on Mendenhall

Boyland Honda Greenﬁeld, WI

Memphis, TN ^

Braman Honda

Don Wessel Honda

Miami, FL

Springﬁeld, MO

Bronx Honda

Earnhardt Honda

Bronx, NY

Avondale, AZ

Bryan Honda

Economy Honda Superstore

Fayetteville, NC

Capitol Honda

Chattanooga, TN (

San Jose, CA

Faulkner Honda

Carl Hogan Honda

Harrisburg, PA &

Columbus, MS

Fayette Honda

Cawood Honda Port Huron, MI

Clinton Honda

Uniontown, PA

Ferndale Honda Ferndale, MI

Slidell, LA

Hollywood, FL

Maroone Honda of Miami

Miami, FL &

Hamilton Honda

Turnersville, NJ (

McConnell Honda

Hamilton, NJ

Honda West

Hanson Honda

Las Vegas, NV

Merced Honda

Farmington, NM

Howdy Honda

Hillside Honda

Austin, TX

Jamaica, NY *

Holmes Honda

Hudson Honda

West New York, NJ (

Montgomery, AL Merced, CA

Metro Honda

Jersey City, NJ *

Mike Harvey Honda Burlingame, CA

Valley Stream, NY

Streater-Smith Honda Conroe, TX

Richeyville, PA

Newton, NJ ^

Ralph Honda

Tarrytown Honda

Rochester, NY

Tarrytown, NY

Rancho Santa Margarita Honda

Team Honda

Rancho Santa Margarita, CA

Tempe Honda

Rivertown Honda

Thurston Honda

Grandville, MI

Rock County Honda Janesville, WI

Rossi Honda

Vineland, NJ &

Route 22 Honda Hillside, NJ *

Lithia Springs, GA Tempe, AZ Ukiah, CA

Tom Wood Honda Anderson, IN

Treadwell Honda Mobile, AL

V.I.P. Honda

Hyannis Honda

Honda Bloomﬁeld

Hyannis, MA

Bloomﬁeld Hill, MI

Island Honda

Honda Cars at Street Track ‘n Trail

Kahului, HI

Modesto, CA ^

Jack Matia Honda

Moon Township Honda

San Leandro, CA

Conneaut Lake, PA

Elyria, OH

Moon Township, PA

Sanford Honda

Moss Honda

Sanford, NC &

Victory Honda of Sandusky

Buford, GA

Jack O'Diamonds Honda

Lafayette, LA

Santa Barbara Honda

Sandusky, OH

Honda Mission Valley

Tyler, TX

Goleta, CA

Walnut Creek Honda

San Diego, CA

Ohio Valley Honda

Jay Honda

Steubenville, OH &

Walnut Creek, CA

Honda North

Bedford, OH

Clovis, CA

Orr Honda

Santan Honda Superstore

Jim McNatt Honda North

Texarkana, TX

Chandler, AZ

Macon, GA &

Paragon Honda

Scott Robinson Honda Torrance, CA *

West Side Honda

Woodside, NY *

Patty Peck Honda

Shenango Honda

White Plains Honda

Ridgeland, MS

Hermitage, PA

White Plains, NY

Sierra Honda

Wolfchase Honda

Honda Mall of Georgia

Mike Pruitt Honda Akron, OH

Mistlin Honda

Honda of Danbury

Las Vegas, NV

Danbury, CT

Denton, TX ^

Fox Honda

Honda of Escondido

Keeler Honda

Orland Park, IL

Auburn, NY

Escondido, CA

Latham, NY

Courtesy Honda

Galpin Honda

Honda of Grand Blanc

Kolbe Honda

Pauly Honda

Sanford, FL

Mission Hills, CA

Grand Blanc, MI

Reseda, CA

Libertyville, IL

Community Honda of Orland Park

South Shore Honda

Shreveport, LA *

Findlay Honda

Annandale, NJ

Planet Honda

Russell & Smith Honda Houston, TX

San Leandro Honda

Monrovia, CA &

North Plainﬁeld, NJ

Vardaman Honda Hattiesburg, MS

Victory Honda Monroe, MI &

Walsh Honda

Knoxville, TN

Bartlett, TN *

^, &, *, (: Circled numbers indicate dealers who have surpassed the 5-Time Milestone mark. Numbers represent the total number of times a dealer has won the Council of Excellence award. ©2011 Honda Financial Services is a DBA of American Honda Finance Corporation and both are service marks of Honda Motor Co., Ltd. Honda, the H-mark symbol and Honda vehicles are trademarks of Honda Motor Co., Ltd.

FI0411profile.indd FI0411hfs.indd 1 17

4/4/11 11:35:56 3:32:03 PM 3/29/11 AM

Agent Summit

ore than 200 attendees convened at the Las Vegas Hilton March 8-9 for the inaugural Agent Summit. Co-sponsored by F&I and Showroom and Agent Entrepreneur, the two-day event featured keynote speeches, educational workshops, panel discussions and lunchtime speakers. For more information, visit www.agentsummit.com. Trainer Joe Verde, president of the Joe Verde Group, kicked off the event by sharing his thoughts on how agents and agencies can help dealers transition from recovery mode to growth mode in the new economy.

Agents of Change Thanks to expert trainers, guest speakers and hard-hitting panels, the first annual Agent Summit was a huge success. By Tariq Kamal

Adam Kimber (right), publisher of Agent Entrepreneur, welcomed agents, exhibitors and other attendees to the show. A panel on the state of e-contracting (left) included Great Lakes Companies’ Steve Veldkamp, David Trinder of F&I Admin, F&I Express’ Brian Reed, Matt Nowicki of IAS and Safe-Guard Products International’s David Duncan. Luis Garcia of Safe-Guard Products International roused the opening-day crowd with a session that focused on how agents can help their dealer clients drive profits in the F&I office.

18 F&I and Showroom April 2011

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4/1/11 3:06:48 PM

MINISTRA TO

SERVICE

D O .®

OF SERVICE

TS. IT’S

A T

YEARS W

For 20 years, we’ve led the service contract industry. And, we’ve only just begun. Give us a call or visit us online and we’ll share our story of industry leadership, and more importantly, our passion for relentless customer service. Service Contracts. It’s What We Do.®

800.826.3207 www.aulcorp.com

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Agent Summit 2011

Reahard & Associates’ Rick McCormick (above left) shared strategies for training F&I managers while UDS’ Randy Crisorio (below) addressed the value agents represent to dealers. Between educational sessions and workshops (left), agents had the opportunity to meet with exhibitors (above) in the show’s expo space.

A panel (below) that included AFIP’s David Robertson, David Matthews of United Car Care, Jeff Jagoe of IAS, Heart Dealer Financial Services’ Johnny Garlich and GSFSGroup’s Stephen Amos addressed the strategies some captives are employing to get dealers to sell their products vs. those offered by aftermarket companies. Family First Dealer Services’ Tony Wanderon (below left) discussed how best to approach the decision to sell an established agency. James Smith (below right) of SouthwestRe brought attendees up to speed on the reinsurance segment.

Speakers and presenters not pictured include Team One Group’s George Angus, who delivered a keynote address titled, “What Dealers Look for in F&I Providers and General Agents.” Angus also led a panel comprised of agency heads Christopher Blakely, David Griffiths, Gregg Lindo, Bob Loftus and Glen Tuscan. UDS’ director of training, Gerry Gould, laid out a comprehensive plan for selling F&I products in the service drive. John Vecchioni and David Matthews of United Car Care led a workshop on agency marketing, and compliance expert Robert Harkins rounded out the agenda with his list of musthaves for dealer compliance training.

20 F&I and Showroom April 2011

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PHOTOS BY F&I AND SHOWROOM STAFF

4/1/11 3:06:51 PM

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Dealers like you are a true luxury. Congratulations to the 2010 Council of Excellence Award winners. Acura Financial Services is proud to honor the following 2010 Council of Excellence Acura dealers. Their commitment to delivering premier f inancial ser vice s to their new, potential and returning clients has earned them 2010 Council of Excellence status. We thank each and every winner for their continued loyalty, hard work and inspiration, and wish them continued success in 2011. ®

5-TIME MILESTONE WINNER Miami Acura Miami, FL

Acura Bay Shore

Gold Coast Acura

Bay Shore, NY

Ventura, CA

Acura by Executive

Inskip Acura

North Haven, CT

West Warwick, RI

Acura of Escondido

Island Acura

Escondido, CA

Wantagh, NY

Acura of Honolulu

Joe Rizza Acura

Honolulu, HI

Orland Park, IL ^

Acura of Pembroke Pines

Los Gatos Acura

Pembroke Pines, FL &

Acura of Ramsey Ramsey, NJ

Acura of Tempe Tempe, AZ ^

Acura of Thousand Oaks Thousand Oaks, CA

Acura of Valley Stream Valley Stream, NY

Acura of Westchester Larchmont, NY

Acura Turnersville Turnersville, NJ &

Acura North Scottsdale

Los Gatos, CA

McConnell Acura Montgomery, AL

Montgomeryville Acura Montgomeryville, PA *

Oakland Acura Oakland, CA

Paragon Acura

Woodside, NY (

Power Acura South Bay Torrance, CA

Price Acura Dover, DE

Phoenix, AZ

Proctor Acura

AutoWest Acura of Stevens Creek

Rallye Acura

Tallahassee, FL

Santa Clara, CA

Roslyn, NY

Barber Acura

Ray Laks Acura

Bakersfield, CA

Williamsville, NY

Champion Acura Gulf Freeway

Sierra Acura of Alhambra

League City, TX

Alhambra, CA

Classic Acura

Smithtown Acura

Beaumont, TX

Saint James, NY

Curry Acura

Thomas Acura

Scarsdale, NY

Covina, CA

Feder’s Acura

Tim Smith Acura

Middletown, NY

Fort Walton Beach, FL

Fresno Acura

Valencia Acura

Fresno, CA (

Valencia, CA &

^, &, *, (: Circled numbers indicate dealers who have surpassed the 5-Time Milestone mark. Numbers represent the total number of times a dealer has won the Council of Excellence award. ©2011 Acura Financial Services is a DBA of American Honda Finance Corporation and both are service marks of Honda Motor Co., Ltd. Acura, the stylized “A” logo and Acura vehicles are trademarks of Honda Motor Co., Ltd.

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4/1/11 3:06:53 PM 3/23/11 4:44:19 PM

Finance and Insurance

Turning

Objections

Sales Into

F&I trainer runs through six objection-handling techniques for selling service contracts and GAP, and offers advice for closing the customers who listen. By Ronald J. Reahard

&I managers make their living on the word “No,” especially since most of their customers enter their offices armed with a variety of ways to say it. What successful F&I managers understand is that most objections are simply an indication that the customer has yet to believe he or she needs the product — or that its value exceeds the cost. Where they make their money is in their response to those objections. To turn an objection into a sale, you must first welcome the objection, sympathize and demonstrate an understanding of it through your response, tone of voice and body language. Let’s run through some objection-handling techniques for service contracts and GAP coverage:

keeping the vehicle or is financing it for longer than the factory warranty. F&I manager: I know what you mean. (Toyota) builds a fantastic vehicle. And with that warranty, you are protected for a significant amount of time. Unfortunately, the warranty covers you for three years or 36,000 miles, whichever comes first. And since you drive 20,000 miles per year, you’ll be out of warranty in how long? Customer: A little less than two years. F&I manager: That’s why the service agreement is absolutely critical. Because you’re not financing the car for two years, you’re financing it for five, right? Customer: That’s true.

Objection No. 1: “With a three-year/36,000-mile factory warranty, I don’t need it.”

Warning: Always ask a trial closing question that will elicit a positive response before going for the close. Assuming a “Yes” before the customer indicates he or she is ready to buy will get you an adamant “I don’t want it!” To a customer, that feels like sales pressure.

The Response: Your “in” is to focus on the customer’s driving habits, especially if the customer drives more than 12,000 miles a year, plans on

The Close: So, do you just want to go with the preferred option, or would the standard option work better?

3 Common Objections for Service Contracts

22 F&I and Showroom April 2011

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Objection No. 2:

“I’ll probably trade it in before the warranty expires anyway.” The Response: Make sure to dem-

onstrate an understanding of the customer’s concern before overcoming this objection. F&I manager: I understand. If you’re only going to keep it three or four years, you don’t want to buy a service contract for the next owner. Let him buy it, right? Customer: Right. F&I manager: Actually, that’s the best thing about this protection. If you do trade, you can cancel the unused portion and get a refund. If you sell it, you can transfer it to the next owner, which turns an “As-is” used car into a pre-owned vehicle with three or four years of coverage remaining, dramatically increasing its value and your return on investment. If you decide to give it to your daughter when she goes off to college, she’ll be covered while she’s away at school. And whether you sell it, trade it or give it to your daughter, you want it to be worth as much as possible, right? Customer: Right. [Proceed to the close.] PHOTO ©ISTOCKPHOTO.COM / PEEPO

4/1/11 11:44:47 AM

Experience - Strength - Security One Powerful A+ (Superior) Rated Partner Celebrating 37 years in the automobile warranty business as both the administrator and insurer. All programs are fully insured by Old Republic Insurance Company, rated A+ (Superior) by A.M. Best Company.

Programs offered: •Vehicle Service Contracts •Dealer Reinsurance •GAP Waiver and Insurance •Private Label Programs •Innovative Agent Participation Programs Contact Sales and Marketing 800-331-3780, ext. 7386 or email info@orias.com

April 2011 F&I and Showroom 23

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4/1/11 11:44:48 AM 3/23/11 4:23:18 PM

$1000 50%

Are these your stats?

Why not?

How’s your blocking and tackling? Are you ready for the big game? Because it’s already started. It’s called 2011. And making it to the game and winning are two different stories. All it takes is the right players and the right coach. Since 1964 the team at Resource Automotive has been pushing dealers to the top of their game. We virtually invented F&I, and since then we’ve created additional profit centers for over 6000 dealers and manufacturers. In fact, we call half of the top 100 dealers our clients. With the industry’s widest menu of product options, we serve up what you need, when you need it, including service contracts, GAP, CPO, CRM, inventory management, training and a wide variety of business models. This benefits you by taking the bias out of how we build your game plan, and gives you the power of choice in determining how you want to reach your profit objectives.

FI0411reahard.indd 24

4/1/11 11:44:49 AM

0 PVR % VSC ?

As we’ve done for over 46 years, Resource Automotive makes an immediate impact in every department in your dealership — fixed or variable, we do it all. As part of The Warranty Group, an 1800 employee and $5 billion asset global enterprise, we provide world-class claims administration, plus, we have Virginia Surety Company,Inc., rated A- (Excellent) by AM Best, as a wholly-owned subsidiary. In addition, we’re the leader in participation programs and facilitated payouts of $100 million — just last year. It’s critical to understand that you can’t realize your potential until improvement opportunities are identified. That’s where we come in. We help you assemble the people, processes and products to not just compete, but win. Then we coach your team to victory, every time. Now is the time to reach the next level of performance. Contact Charlie Robinson today to arrange an in-depth, no-charge business analysis. charlie.robinson@TheWG.com 312.560.9182 The game is on. What do your stats look like?

thewarrantygroup.com

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Finance and Insurance Objection 3: “That’s why I’m buying a Ford, because they don’t break down.” The Response: Tread carefully here. Saying the car will break down could cost the dealership the sale. However, agreeing with the customer means there’s no need for a service agreement. Here’s how you proceed: F&I manager: I understand. That’s why you’re buying a Ford, because you don’t want any problems. If you thought you were, you’d be buying something else, right? Customer: Absolutely. F&I manager: I have to agree with you. The new Taurus is definitely one of the finest vehicles on the road today. Hopefully, you’ll never have any repairs. Unfortunately, if you have even a minor problem, it can be extraordinarily expensive. Customer: Why is that? F&I manager: Just like every other carmaker, our technicians have become component replacement experts. If the air conditioner only has one speed, you don’t replace the fan switch; you replace the climate control module. That’s why a service contract is absolutely critical. It’s not that you have a lot of repairs; it’s that they’re a lot more expensive to fix when you do. And you don’t want to buy a climate control module if you don’t have to, right?

the age of 50, which means you’re past due. Unfortunately, someone else’s negligence could put your streak in jeopardy. You could also have your vehicle stolen on your next trip to the mall. After all, auto theft is the No. 1 property crime in the country. Inside the Strategy: Notice how we shifted the customer’s focus to the possibility of his or her vehicle being stolen. While every customer is familiar with his or her own driving record, most are not familiar with crime statistics. Objection No. 2:

“I’ve never had a car stolen.”

The Response: We have to help this

Objection No. 1:

customer realize that vehicle theft is always a possibility. F&I manager: I’m glad to hear that, especially since auto theft is the No. 1 property crime in the United States. That’s why virtually every new vehicle we sell comes standard with a factory-installed security system. Most victims of a vehicle theft, by the way, are first-timers. And unfortunately, your car is much more desirable to thieves because it’s still fairly new, which puts you at a greater risk since your loan balance will be at its highest point. If your car is stolen or totaled, GAP can protect you from having to pay any deficiency out of pocket, plus you’ll be reimbursed for your deductible. Wouldn’t it be great if you didn’t have to pay your deductible?

The Response: Make sure to recog-

Objection No. 3:

3 Common GAP Objections “I’ve never had an accident.”

nize the feat before overcoming this objection. Here’s what you do: F&I manager: Thirty years without an accident. That’s amazing, especially considering the way people drive around here. I think the worst drivers in the country live right here in Tennessee, don’t you?” Customer: No kidding. F&I manager: Obviously, you’re a very good defensive driver. You’ve also been extremely fortunate, since studies show most people will be involved in two auto accidents before

“I’ll take my chances.”

absolutely critical to have it on today’s vehicles for two reasons. First, today’s vehicles are made with component parts. Have you ever watched those news shows where the National Insurance Institute backs a minivan into a pole at five miles per hour and causes $5,600 in damages? Customer: Yeah. F&I manager: How could that be, right? The answer is component parts. See, bumpers are plastic, so a damaged bumper gets thrown away, not repaired. And if a piece of broken glass cuts the seat cover, well, guess what you have to do? Customer: Replace the seat? F&I manager: Exactly. See, even a minor accident can be very expensive, increasing the chance of your vehicle being totaled. Plus, every new vehicle today is made with crumple zones. It used to be that if you hit a tree with your Crown Victoria, you’d put a big “V” on the front of your vehicle and your face would be splattered all over the dash. If you hit a tree today, your car gives it a big hug and a pillow pops out of your steering wheel. You’re okay and the tree isn’t too bad either, but your new Taurus is totaled. And you don’t even need to be moving for your vehicle to be totaled. You could be sitting at a stoplight when your new Taurus is rear-ended by a 17-year-old kid who is texting while driving his dad’s SUV. That’s a big problem these days, right? Customer: Boy, it sure is. [A positive response means it’s time to circle GAP on the menu and go for the close.]

The Response: This is not even an

objection, but a statement indicating the customer doesn’t feel he or she needs the protection. F&I manager: I can understand why you want to take your chances. If you’ve never had an accident or had a vehicle stolen, why would you need GAP? Customer: Right. F&I manager: I think I’d feel the same way. Why buy something you don’t need. However, we do find it’s

Armed with the techniques described above, your acceptance rates will improve and you’ll be sending home more customers with a more secure purchase. Ron Reahard is president of Reahard & Associates Inc., an F&I training company providing F&I classes, workshops, in-dealership and online training. E-mail him at ron.reahard @bobit.com.

26 F&I and Showroom April 2011

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Auto Finance

The auto finance market continued to drive forward in the fourth quarter of 2010, but can it continue? Experian Automotive’s director of automotive credit runs through the numbers. By Melinda Zabritski

Fourth-Quarter Push

riven by further declines in 30- and 60-day delinquencies, the auto finance market continued to stabilize in the end-of-year quarter of 2010. And with consumers continuing to improve their repayment patterns, lenders made it clear they’re ready to loosen up their lending standards. Illustrating the more aggressive posture on the part of lenders was the increase in the share of loans made to credit-challenged customers. The market, however, remains more conservative than what was seen in 2007 and 2008; nevertheless, it’s clear lenders are feeling a lot better these days. The following analysis will provide a snapshot of consumer activity during fourth quarter of 2010, as well as a comparison with the prior year. Risk Distribution Reveals Conservative Posturing

A key indicator of the overall health of the automotive finance market is the distribution of risk among all open loans. And as a reminder, Experian Automotive uses five risk segments to classify consumer loans: superprime (740+), prime (680–739), nonprime (620–679), subprime (550–619) and deep subprime (<550). Over the last several years, the low-risk prime and superprime segments have garnered the majority of automo-

tive loans, and that remained the case in the fourth quarter. During that period, the two segments accounted for 62.9 percent of all open automotive loans, up from 60.8 percent in the fourth quarter of 2009. The highest risk segment, deep subprime, experienced a significant year-over-year drop in share, falling to 12.6 percent in the fourth quarter from 15.3 percent in the yearago period. Subprime, however, showed a slight increase, inching up to 8.9 percent from 8.8 percent in the year-ago quarter. Nonprime also showed an increase, growing from 15.2 percent in the fourth quarter of 2009 to 15.7 percent. Delinquencies See Sharp Decline

For the third consecutive quarter, 30- and 60-day delinquency rates experienced year-over-year declines. Sixtyday delinquencies dropped 15.26 percent, contracting from 0.94 percent in the year-ago period to 0.79 percent in the fourth quarter of 2010. Banks realized the largest decline in 60-day delinquencies. That group saw its rate drop 0.19 percentage points 60-Day Delinquency Rate

0.89% 0.70%

0.5%

Nonprime (620-679) 15.7%

0 Bank Subprime (550-619) 8.9%

Deep subprime (<550) 12.6%

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Superprime (740+) 24.8%

Prime (680-739) 38.1%

2.10%

1.5% 1.0%

Risk Distribution of Open Loans 4Q

2.19%

2.0%

0.75% 0.57%

Captive 4Q2009

0.52% 0.44%

Credit union Finance/other 4Q2010

from the year-ago period to 0.70 percent in the fourth quarter of 2010. Following close behind was the captive segment, which saw its 60-day delinquency rate drop 0.18 percentage points from a year ago to 0.57 percent. Credit unions and finance companies experienced singlePHOTO ©ISTOCKPHOTO.COM / FEVERPITCHED

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Auto Finance digit percentage point drops, with credit unions falling 0.08 percentage points to 0.44 percent and finance companies edging down 0.09 percentage points to 2.10 percent. Thirty-day delinquencies dropped by 9.71 percent from the year-ago period to 2.98 percent in the fourth quarter of 2010. Experiencing the biggest decline was the captive 30-Day Delinquency Rate 6.45%

6.0%

6.14%

Average New-Vehicle Credit Scores Rise

Further evidence that lenders are loosening their loan criteria can be found in the average credit score for new-vehicle buyers. In the fourth quarter of 2010, the average credit Average Credit Scores by Vehicle Type

4.5% 3.52%

3.0%

those tiers still have a lot of catching up to do. In the fourth quarters of 2007 and 2008, the share of loans for creditchallenged customers stood at 44.63 percent and 41.03 percent, respectively.

2.97%

800

3.07%

2.56% 1.82%1.72%

1.5%

760

775

767 680

679

720 680

Captive

Bank

Credit union Finance/other

4Q2009

640

4Q2010 600

finance segment, which saw its rate drop 0.45 percentage points to 3.07 percent. Experiencing the smallest decrease was the credit union segment, which saw its 30-day rate inch down 0.10 percentage points to 1.72 percent. New-Vehicle Loans More Accessible to the Credit-Challenged

While overall open auto loans were relatively stable, loan originations for new vehicles revealed that lenders are getting more aggressive. The share of loans made to creditchallenged, new-vehicle customers grew by 18.2 percent in the fourth quarter compared to the year-ago period. A breakdown of the below-prime segments showed that loans made to nonprime customers jumped from 9.75 percent in the year-ago period to 11.14 percent in the fourth quarter of 2010. New-vehicle loans made to subprime customers also experienced a year-over-year increase, with Financing for New Vehicles 100% 80%

1.4% 5.6% 9.8%

1.7% 7.0% 11.1%

13.4%

13.7%

69.9%

66.4%

4Q2009

4Q2010

60% 40% 20% 0

the credit tierâ&#x20AC;&#x2122;s share jumping from 5.6 percent to 6.96 percent. Even the deep subprime segment realized a yearover-year increase, inching up from 1.44 percent to 1.74 percent in the end-of-year quarter. For both new and used, the share of loans made to nonprime, subprime and deep subprime customers increased from 36.42 percent in the fourth quarter of 2009 to 38.42 percent in the fourth quarter of 2010. However,

4Q2009 New financing

4Q2010 Used financing

score for a new-vehicle buyer dropped eight points from the year-ago period to 767. However, lenders were still far more conservative than they were in the fourth quarter of 2007, when the average credit score for new-vehicle customers stood at 749. For used-vehicle loans, the average credit score remained nearly unchanged from the year-ago period, dropping just one point to 679 in the fourth quarter. Lenders remained relatively conservative with respect to used-vehicle loans in comparison to the fourth quarter of 2007, when the average credit score for a used-vehicle loan stood at 661. Lenders Taking Some Risks, But Remain Cautious

With consumers doing a better job of making payments on time and lenders experiencing less volatility in their loan portfolios, the auto finance market should continue to im-

With consumers doing a better job of making payments on time and lenders experiencing less volatility in their loan portfolios, the auto finance market should continue to improve. prove. The industry is already seeing lenders loosen their guidelines for nonprime and subprime customers, which represent a significant portion of the automotive market. Still, the market remains much more conservative than what was seen in 2007 and 2008, but it is clear lenders are becoming less risk averse. The hope now is that the auto finance industry will continue to gain momentum and help drive the auto industry toward recovery. Melinda Zabritski serves as director of automotive credit for Experian Automotive. E-mail her at melinda.zabritski @bobit.com.

30 F&I and Showroom April 2011

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Technology Today’s Internet shopper is forcing lenders to consider the direct-to-consumer channel in greater numbers. Auto finance insider offers several reasons why this may not be a bad thing for dealers. By Rich Apicella

hen I talk to dealers and lenders about consumer-direct auto financing, it reminds me of that old Dire Straits song, but without the “chicks.” Many dealers and indirect lenders oppose it, but for different reasons. What both sides have in common is that their opposition misses the most important constituent of all. Dealers are concerned about yet another assault on their profitability, while indirect lenders often fear the dreaded “channel conflict” will harm relations with their dealers. What’s missing from the equation is the most powerful force of all — the consumer. So, rather than arguing about direct vs. indirect, we should get to work on the only winning long-term strat-

Google search traffic provides further signs of this migration. Combining the keyword “auto” “car” or “vehicle” with “loans,” “credit,” “finance,” “financing,” “refinance,” “leasing,” “payment,” “rates” or “calculator” yields more than 5.5 million results. Adding the term “bad credit” raises that number to more than 6 million results. So what do consumers want when it comes to auto finance? Given the fact that every car buyer’s situation is unique, there’s no easy answer. However, after reviewing how consumers research this topic, five attributes stand out: control, transparency, speed, convenience and rates. The ramifications in the F&I office are profound. For a successful consumer-driven model to work, dealers and lenders must understand this and organize their people,

Money for Nothing, egy that exists: the one built around the consumer. The impact of changing consumer behavior is already evident in our finance business. As they do when shopping for a vehicle, consumers are turning to the Internet to make their auto financing decisions. Supporting this migration is a recent study conducted by Kelley Blue Book, which found that 57 percent of survey respondents intended to research vehicle financing options online. Even more telling is the fact that 50 percent of survey respondents said they planned to obtain pre-approval through a bank or credit union, while only 34 percent said they planned to wait and arrange financing through their dealer. Given that about twothirds of vehicles purchased today at franchised dealers are indirectly financed, the disparity is clear. 32 F&I and Showroom April 2011

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processes and IT capabilities differently than they do today. Lenders Responding, Opportunities Arising

A number of lenders have responded by building and operating a consumer-direct channel. In fact, a Google search for “car loans” returned at least four national indirect lenders on the first page. The fact is, many indirect lenders I’ve talked to have either built a channel or are considering building one in the near future. But it’s not just consumers who are pushing them to do so. In the name of increased income and profits, Wall Street and lending executives have become proponents as well. Competitive forces also are at work, as indicated by the share growth of credit unions and the proliferation of Internet-only auto

finance sites. So, for a variety of reasons, lenders are being compelled to offer direct products. But there is opportunity to be had for dealers. Remember that successful operators are able to leverage their scale, expertise and resources to identify consumers who fit their profile and are in the market for an auto loan. That means all assets are being employed, from company Websites, call centers and branch networks to extensive internal databases, business partners and third-party data sources. Sorting through the massive amounts of data they collect are sophisticated computer models that no dealer could ever hope to create. “Event triggers” also are particularly useful when developing leads. That includes the submission of an online credit application by a consumer, payoff requests or a total vehiPHOTO ©ISTOCKPHOTO.COM / LEGG NET

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Direct lending will continue to grow as more car buyers arrange financing online, but dealers can adapt their lead-generation strategies to stay ahead of the trend.

Leads for Free cle loss or lease termination, as well as a referral from a partner Website or a response to a targeted solicitation. As you might expect, the techniques and technology used to generate leads are expensive and intricate to produce. The fact remains that the expertise and resources they employ are beyond what most dealers can do on their own. This forms the basis for a winning partnership between the dealer and the direct lender. Yes, dealers will have to get used to the fact that bank checks aren’t going away. In fact, they’ll most likely become more commonplace in the future. Of course, some dealers will continue to earn reserve by flipping the customer into an indirect loan, which can be a win-win situation for the dealer and the lender if the flipping results in a lower interest rate for the consumer. Long-term, however,

this behavior will erode the lenderdealer partnership. A forward-thinking dealer may instead acknowledge the incremental business the blank check provides, as well as the additional value that can be delivered to the consumer. In fact, dealers who have embraced the direct-to-consumer push point to the following benefits of this business model: ■ Increased showroom traffic from lender referrals and preferred dealer programs ■ Improved closing rates from preapproved customers, increasing dealership productivity ■ Improved CSI by getting the customer in the car and out the door faster ■ Greater dealership brand awareness from lender-driven marketing programs

■ Reduced advertising costs ■ Higher transaction prices by sell-

ing up to the blank check amount ■ Ability to add on products and fees beyond the face value of the blank check ■ Reduced regulatory compliance burden on the dealership In a consumer-driven auto finance model, direct lending has an important role to play. Rather than harming or replacing the indirect model, the direct channel is a necessary market reaction to evolving consumer expectations and demands. When executed properly, the direct channel can be a valuable element of a successful and profitable dealer-lender partnership. Rich Apicella is managing director of F&I Consult, a subsidiary of Intersection Technologies Inc. E-mail him at rich.apicella@bobit.com. April 2011 F&I and Showroom 33

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4/1/11 9:53:20 AM

Finance and Insurance

Costs

Internet Shoppers Haven’t Calculated

Today’s Internet shopper might be better educated, but you can bet there are a couple of cost-of-ownership items they didn’t count on. Veteran F&I manager and trainer runs through F&I’s new message to customers. By George Berkholder

ew innovations have had a bigger impact on the finance office than menu selling. The advent of the menu offered F&I managers the opportunity to move beyond step selling to a less obtrusive method of introducing customers to the products that help protect their vehicle purchase. Along the way, the menu has come to serve as an indispensable compliance tool as well. But the reality is, the menu simply represents a tool to deliver our message. In other words, it can’t do the selling for you. Today’s consumer has been bombarded with articles and advice designed to prepare them for the car-buying experience. They know 34 F&I and Showroom April 2011

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what’s coming when they finish the paperwork up front. Many of them even know what the menu is for, and they’re often determined to say “No” to whatever it has to offer. So, is it time for a new way to deliver our message? Not unless you can come up with a delivery mechanism that also works to satisfy compliance requirements and is recognizable to state and federal regulators. See, what really needs to change is our message, not the way in which we deliver it. Don’t Fear the Internet Shopper

Yes, the Internet shopper knows a little bit more than yesterday’s car buyer. Most consumer surveys point

to a shopper that spends hours upon hours researching their next vehicle purchase and the price they’ll pay to own it. What they’re looking for is the best deal they can get, which means today’s F&I managers will have to deliver new information to get this well-researched shopper to listen. So, how does an F&I manager deliver substance? Well, let’s review what we know about today’s buyers. First, we know that the finance buyer is after a deal they believe they can afford monthly. The cash buyer bases his or her purchase on a price they know they can afford with the money they have available. What these two types of customers don’t factor in is the true cost of ownership, which is PHOTO ©ISTOCKPHOTO.COM / SCHLOL

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Finance and Insurance what our new message needs to center on. Let’s take a look at seven cost variables on which you can center your message:

Insurance: Like the car payment, insurance represents a fixed cost to most consumers. However, it can be a variable to consumers if they didn’t

check pricing first, so make sure to find out if they did.

Gas: Many consumers have an idea of what it will cost to drive their new vehicle, but nobody knows when and by how much gas prices will increase. And as we’ve seen recently, a jump in gas prices can happen anytime.

Maintenance: The cost of regularly scheduled oil changes, tire rotations and alignments can add up quickly over time. Car buyers know they have to have these services performed to keep their vehicles in good working condition, but they rarely budget for it at the time of purchase.

Vehicle Repairs: Most manufacturers will warranty a vehicle for three years or 36,000 miles, whichever comes first. These warranties typically cover defects in materials and workmanship. Most consumers are content in allowing this temporary and limited blanket coverage protect them against unforeseen circumstances, and very rarely calculate their exposure once the warranty runs out.

Tires: Most consumers aren’t aware that the tires their new vehicle rolled off the assembly line with aren’t covered by the factory warranty. The tire manufacturer warranties the tires, and those warranties only cover defects for up to a year. Also keep in mind that state and local governments are cutting back on road repairs because of budget shortfalls, which leaves tires even more exposed. And if a pothole damages the rim, your customer is looking at paying 10 times as much as he or she would to replace a tire. Again, this is something consumers rarely budget for.

Paint Protection: Most consumers are unaware that most manufacturers don’t offer a paint warranty. And most consumers don’t calculate the cost of repairing paint damage until the paint starts to flake or when it comes time to trade in the vehicle.

36 F&I and Showroom April 2011

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4/1/11 11:53:03 AM

Stop pitching and start educating ... Customers might know what’s coming when they see the menu, but it’s likely they know less than they realize about the cost of owning a vehicle.

are great demonstration tools, as are articles on GAP. And don’t forget the owner’s manual, which you can use to point out the limitations in the factory warranty. So, stop pitching and start educating your customer on the costs associated with owning a vehicle. They might know what’s coming when

they see the menu, but it’s highly likely they know less than they realize about the true cost of owning a vehicle. George Berkholder serves as the president of Income Development Strategies. He can be reached at george.berkholder@bobit.com.

And remember, appearance is key to a vehicle’s trade-in value.

GAP, Windshield and Key Replacement: No car buyer budgets for a

stolen or totaled vehicle, and GAP coverage is their best shot at getting into another new vehicle if the worst should happen. The high cost of replacement keys will surprise any customer who hasn’t purchased a new car in the last several years. And as we in the business know, replacing a windshield isn’t cheap either. The New Message

Car buyers know what’s coming when they make what salespeople refer to as the “walk of death” to the F&I office. That’s why many trainers recommend having F&I managers conduct customer interviews at the salesman’s desk, as the showroom interview represents an opportunity for the F&I manager to convey the message that F&I is there to help customers control the cost of owning a vehicle. But remember, the questions asked during the interview must be designed to build trust. In other words, leave out the hidden sales pitches for now. Instead, view this time with the customer as an opportunity to deliver new information. Two great sources for relaying your cost-of-ownership message are Edmunds.com and AAA. Presenting information from a third-party source builds credibility with customers, and those two sites in particular include the cost of a vehicle service contract when calculating the cost of ownership. Articles on how states are reducing road repairs and construction also April 2011 F&I and Showroom 37

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4/1/11 11:53:04 AM

Sales Driver

Self-Sabotaging Behaviors to Avoid Are you torpedoing your own efforts? The magazine’s sales columnist breaks down five self-sabotaging behaviors in Part I of his two-part series. By Cory Mosley

orking in the car business is a unique experience. Outsiders just don’t understand the daily pressures we face, right? The reality is, for all the things that make our business special, selling a car is no different than selling copy machines or a bottle of Snapple. You’re just meeting with customers and helping them buy something they want, right? OK, not even I believe that. Not all of it, anyway. See, the underlying goal might be the same, but there are several other duties that add to the complexity of selling cars. We must manage the customer while making sure they’re satisfied enough with the experience that they’ll return for their next vehicle. There also are closing techniques to perfect and paperwork to complete. How good you are at completing those tasks often will separate you from the rest. With that in mind, let’s take a look at some other key areas that divide the best from the rest. I call them the “7 Self-Sabotaging Behaviors to Avoid.” If you’ve successfully avoided them, you’re probably one of the superstars at your dealership. Here are the first five:

Failing to Adequately Prepare: I too came from the showroom, and I know there is time in the typical sales floor schedule to adequately prep yourself to serve your customers. Just remember that preparedness comes in many shapes and sizes, from product knowledge and knowing the ideal buyer for each model to memorizing the latest incentives, rebates and vehicle accolades.

Unfortunately, most salespeople feel like they can learn as they go. These are people who hate taking tests, being called on to answer questions or participating in role-playing exercises. The excuse I often hear from these individuals is, “I don’t do well with role playing. I need a live customer to show my stuff.” Listen, your skill needs to be instant and ready for an audience of one or one thousand. As the old saying goes, “Practice makes perfect.”

Being Phony: I know many of you

have heard that salespeople are a lot like actors, but, frankly, I can’t imagine how someone could like, respect and trust you without some level of authenticity. To make the deal happen, you have to be who you are, not just what you think the customer wants you to be.

Misidentifying the Stage in the Prospect’s Decision-Making Process:

I see this all the time. A commitment from the customer has yet to be established and the salesperson is already discounting the car by $2,000 and throwing in free oil changes. Remember, most customer decisions boil down to two things: deciding whether to change (buying a new car), and then deciding with whom to make that change (which dealership to buy from). The question you need to answer is: Do you offer something the customer wants? If you don’t, then you still have a lot of work to do. Price will never prevail in a scenario when the first stage has not been properly handled.

Forcing the Close: Naturally, closing the sale is the name of the game. But pushing too hard can ruin your chances of success. Sometimes, just moving on to the next step in the process can get the customer to make a decision. So, instead of hitting them between the eyes with an “Are you buying today?” why not just start doing some paperwork? You’d be amazed at how many times customers will start to close themselves.

Neglecting the Long-Term Client:

The true sales professional is always looking to expand his or her client base, especially in the “What have you done for me lately” environment in which we work. Unfortunately, that approach tends to narrow our focus on what is in front of us, so we forget about the long-term benefits of sending letters for birthdays and vehicle anniversaries, or reaching out to a sold customer who just had his or her vehicle serviced at the dealership. I received a text the other day from a salesperson who told me about a $4,000 gross he secured on a Saturday deal. How’d he do it? He started chatting with a customer in the service drive, and made a strong case for the customer trading in his 2008 model for a 2011. This is an everyday story, but is it an everyday story for you? Tune in next month for the second part of my take on the “7 Self-Sabotaging Behaviors to Avoid.” Cory Mosley is principal of Mosley Training LLC, a nationally recognized training provider focused on new-school techniques, products and services. E-mail him at cory.mosley@bobit.com.

38 F&I and Showroom April 2011

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FIC11-83summit.indd

September 26-28, 2011 Las Vegas Hilton

www.IndustrySummit.com

Iâ&#x20AC;&#x2122;m a Dealer Principal. My Sales and Finance Managers Are Bitter Enemies. I See No Value in Ongoing Training. My Service Guys Are Mechanics, Not Salesmen. If We Have a Database, I Havenâ&#x20AC;&#x2122;t Seen It.

I Think I Can Do Better. I Want to Reach the

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Mad Marv

Leave the Hybrids to the Manufacturers Has the industry gone mad? The magazine’s in-the-trenches columnist fires a shot across the bow of the push toward a combined sales/F&I manager. By Marv Eleazer

t’s a novel idea some big dealer groups are pushing these days: sales managers doubling as F&I practitioners. Please, somebody get me my scotch. I need a drink. In my opinion, turning over F&I responsibilities to this hybrid manager borders on the insane, but you don’t have to listen to me. See, my friend George Angus handily struck down the ludicrous notion that this idea could be profitable in an article (www.fi-magazine. com/casestudymarch08) published in the March 2008 issue of this very magazine. Angus’ training firm provided tangible proof that overhauling the F&I process by combining it with sales is tantamount to Russian roulette, both in terms of profit and compliance. Unfortunately, not even those findings have stopped dealers from thinking they can defy logic. Somewhere along the way, some dealers started paying far too much attention to the ramblings of consumer advocates. They write countless articles about how uncomfortable customers feel in the “dungeon” that is the F&I office. What these articles and dealers fail to understand is that buying an automobile is simply a stressful endeavor. I don’t know of a single person who wakes up on a Tuesday and says, “I think I’ll go spend endless hours in a car dealership so I can get hassled by a salesman in order to get a good deal on a new ride.” If such a person exists, please enlighten me. So, is this hybrid position all about making customers happy? Please. See, the theory behind this new push

of this not-so-new concept isn’t about driving up CSI scores or product sales. Rather, this hybrid manager talk is nothing more than a coy attempt at reducing payroll and saving the dealer money. At least that’s what AutoNation’s Kevin Westfall imparted at last year’s F&I Conference when he talked about how some of his dealerships were experimenting with a hybrid manager. If it’s about reducing payroll, why not just install electronic kiosks in the middle of the showroom? That way, NO one would ever be offended because of a personality conflict. And who could be mad at a machine for offering a service contract or GAP? Well, dealers know this would be disastrous. As Angus pointed out in his article, product sales would drop precipitously and customers would drive off the lot with very little security for their investment. Let’s all be honest and face the facts: The strongest, most persuasive individuals in a car dealership are the F&I staffers. Why? Because they sell products customers can’t test drive. See, the products offered in the F&I office are designed to mitigate the costs associated with the risk of owning a vehicle, and few sales staffers are equipped with the objection-handling skills required to fully persuade the uncertain customer. You also have to remember that sales staffers spend the bulk of their time explaining how great the vehicle they’re trying to sell is and how well it will meet the needs of the customer. In the hybrid sales/F&I position, we’re asking the salesperson or manager to turn off all that

hype and try to recommend products the customer often thinks he or she doesn’t need. I’ll concede that the F&I office isn’t a social hour for car buyers, but neither is a trip to the loan officer at the local bank. In both cases, the customer’s financial history is laid out and harsh realities are exposed. And remember, most finance sources offer their own service contracts, GAP and credit insurance products. So, what exactly are we aiming to fix here? Look, it doesn’t matter where and how you ask a customer to fork over $30,000; they’re going to feel some level of discomfort. The fact is, all a customer wants is the feeling that he or she got the best value for his or her hard-earned dollar. To create an environment completely free of all discomfort means you have to compromise gross, and who wants to do that. Gross is why we come to work every single day, right? And hey, the last time I checked, a perfect CSI report from the manufacturer didn’t come with a check made out to my mortgage company. So why are we trying to reinvent the wheel? My message to dealers pondering this course is, “Check your cash reserves.” Unless your pockets reach all the way to the ground, my suggestion is to stick with what works and ignore the hybrid manager doctrine these big dealer groups are pushing these days. And just remember, these big companies can afford to experiment. The question is, can you? Marv Eleazer is the finance manager at Langdale Ford in Valdosta, Ga. E-mail him at marv.eleazer@bobit.com.

40 F&I and Showroom April 2011

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4/1/11 10:01:35 AM

FIC11-83summit.indd

September 26-28, 2011 Las Vegas Hilton

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I’m an F&I Manager. I Believe Four Squares Is More Than Enough. I Can’t Help the Sales Team If They Won’t Let Me. I Don’t Know Any Bankruptcy Attorneys. I Sell the Service Contract About Half the Time.

I Think I Can Do Better. I Want to Reach the

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4/1/11 3/25/1110:01:37 3:10:31AM PM

Legal

The FTC Hits the Road The magazine’s legal wiz questions how easily the Federal Trade Commission can shift gears from enforcement body to policy maker. By Michael A. Benoit

o it begins. On April 12, my colleague, Tom Hudson, and I will be making our way to Detroit’s Wayne State University Law School for the first in a series of roundtables organized by the Federal Trade Commission (FTC). Part of a fact-finding mission, the roundtables will help guide the agency as it prepares to assume expedited rulemaking authority with respect to auto dealers. Dealers were largely excluded from the oversight of the Consumer Financial Protection Bureau, the agency the Dodd-Frank Act created. However, the federal statute also granted the FTC new rulemaking powers as it pertains to dealers. The roundtables, which will explore consumer protection issues related to the sale, financing and leasing of automobiles, will help the agency determine where it should focus its limited resources. Future sites have yet to be determined, but they will most likely take place in different areas of the country. My partner and I have been invited to join other industry representatives, consumer advocates, regulators and other interested parties in what one FTC staffer described as “a lively discussion” of the issues. Officials with the FTC, by the way, will serve as moderators for these discussions. I just hope the agency will take a more reasoned approach to these meetings than its press release would indicate. The language used in the FTC’s announcement exposes what may be described as disdain toward the auto industry. Of course, the irony is that the government pretty much owns General Motors, but never mind that.

The FTC’s announcement contains 15 potential topic areas and attendant questions the commission is hoping to answer. Most are targeted at dealers, with a few aimed squarely at the dealer-to-finance-source relationship. And by looking at some of the questions the FTC asks, it’s clear consumer advocates are in control of the conversation. Here are some examples: ■ The F&I Office: What practices involving motor vehicle dealers raise consumer protection issues? How prevalent are these practices in the industry as a whole or in any subset of the industry? ■ Spot Deliveries: Do motor vehicle dealers engage in “yo-yo financing?” What types of consumers are impacted by these practices and how? What are the incentives or benefits for dealers engaging in these practices? Is yo-yo financing sometimes combined with a practice whereby the dealer has sold the consumer’s trade-in before the consumer learns of the higher interest and/or payments from the dealer? ■ Dealer Compensation: Do motor vehicle dealers charge interest rate markups or upfront charges to consumers for credit or leases, and are consumers aware of these charges? Do consumers understand that dealer financing may include dealer markups in addition to the cost of the credit or lease, and to what extent does this practice affect consumers’ decisions to purchase and finance a motor vehicle? Is this an issue unique to the sale and financing of motor vehicles or are there other industries where sellers charge markups of which buyers are unaware and that

may be contrary to their interests? ■ Payment Packing: Do motor vehicle dealers engage in credit or lease packing, such as by including amounts for credit insurance, GAP, or other add-ons into payment amounts or other terms quoted to consumers? I was taken aback by these questions, but I’m not naïve. I know the FTC is primarily a litigation shop and these questions are consistent with a consumer protection enforcement posture. However, this is a different game. The FTC is soon to be vested with the responsibility to set policy and write regulations for the auto industry. That, in my view, requires a far more objective and reasoned approach than these questions demonstrate. I’m willing to give the FTC a break. It’s been more than 30 years since it last had this kind of authority, and few, if any, on the staff remember the FTC in the ’70s. But while it may not be fair to expect them to shift gears from enforcement to policy overnight, the bottom line is that the skills they so ably employ in their enforcement activities aren’t generally the skills that make good policy. For that, you need a more dispassionate fact-finding effort. Fortunately, the folks over there are smart and competent, so I’m sure they’ll find their way. Michael Benoit is a partner in the Washington, D.C., office of Hudson Cook LLP. He is a frequent speaker and writer on a variety of consumer credit topics. Email him at michael.benoit@bobit.com. Nothing in this article is legal advice and should not be taken as such. Please address all legal questions to your counsel.

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September 26-28, 2011 Las Vegas Hilton

www.IndustrySummit.com

The F&I Conference, Vehicle Service Contract Administrators Conference and the nation’s only Agent Symposium will unite on September 26-28 at the Las Vegas Hilton to become one comprehensive event: Industry Summit 2011. We all know that success in automotive retail requires close contact between dealers and the finance sources, agents, trainers and product providers that serve as their partners. Combining three powerful conferences to form Industry Summit 2011 represents a crucial step toward reaching that goal. It’s a new era. Join us September 26–28 at the Las Vegas Hilton for the first-ever Industry Summit 2011! To learn more, call 800-576-8788 or visit www.IndustrySummit.com.

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MPi Launches Online CustomerRetention Tool

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getting set to launch a new online service-selling and customer-retention platform for dealers. The new tool will be located at Know YourVehicle.com and will provide customers with images, pricing and explanations of maintenance and repair services. In addition, dealers can create profiles to allow customers to view their vehicles’ service histories and download all reports in PDF format. For more information, visit www.mpifix.com.

has launched Onsite Track, a real-time monitoring console that allows dealers to track their Website visitors. Dealers can see if visitors are new or returning, how they reached the Website, which pages they’re viewing and how long they stayed. Onsite Track also sends e-mail alerts if a page error is detected or if the Website stops responding. Onsite Track’s services are available for $175 per month. For more information, visit www.dealerimpact.com.

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Android app available for download from the Android Market. Users can view and manage deals and leads using a condensed version of the company’s Deal Manager, Deal Summary and Lead Manager platforms, as well as request and view credit scores instantly, according to the company. The app is also compatible with iPhone, iPad, and iPod touch devices. For more information, visit www.routeone.com/mobile.

Automotive Compliance Offers Adverse Action, Risk-Based Pricing Tools AUTOMOTIVE COMPLIANCE CONSUL-

tants Inc. is offering an automated, Web-based process to help dealers create and dispatch Adverse Action letters and Risk-Based Pricing Notices to consumers who apply for credit. The service also will help dealers comply with the Red Flags Rule and run OFAC checks, according to the company. For more information, visit www.compliantnow.com.

Product Feature Social Media Strategists Offer Online Training NEXT GENERATION DEALER

Services is offering an online social media seminar for dealers. Over the course of 18 hours of live training sessions and a year of training updates, dealers will learn the company’s process for developing a social media strategy and managing online reputations. The course also will offer

instruction on how to connect with customers on Facebook and make them active contributors. Once users complete the training sessions, NGDS will offer weekly and monthly training sessions via videos, podcasts, downloads, blog posts and more. For more information, visit www.nextgendealer.com.

44 F&I and Showroom April 2011

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Ad Index Company Acura Financial Services Association of Finance & Insurance Professionals (AFIP)

Phone

Web

•

acurafinancialservices.com

Page 21

817-428-2434

afip.com

45 C4

American Financial & Automotive Services

800-967-3633

afasinc.com

AUL Corp.

800-826-3207

aulcorp.com

800-345-0191, ext. 720

cnanational.com

CARLAW Auto Dealer Suite

877-464-8326

counselorlibrary.com

Chem Etch Manufacturing Inc.

877-564-2565

chemetchmfg.com

Dealerlink

800-890-8850

DealerLink.us

Friendly Finance Corp.

800-872-2877

friendlyfinancecorp.com

GSFS

713-580-3023

gsfsgroup.com

•

hondafinancialservices.com

CNA National

Honda Financial Services Industry Summit

•

industrysummit.com

39, 41, 43

800-346-6469, ext. 8989

smartdealerproducts.com

5, 47

JM&A Group

800-553-7146

jmagroup.com

2-3

NAC (National Auto Care Corp.)

800-548-1875

nacsolution.com

National Automotive Experts

800-810-8859

nationalautomotiveexperts.com

800-331-3780, ext. 7386

orias.com

•

permaplate.com

Protective

800-794-5491

protectiveassetprotection.com

Reahard & Associates Inc.

866-REAHARD

go-reahard.com

Resource Automotive

800-527-3448

resourceautomotive.com

24-25

United Car Care

800-571-6412

unitedcarcare.com

44, 46

United Development Systems Inc. (UDS)

800-282-1154

UDSDealerServices.com

Universal Warranty Corp. (UWC)

248-263-4498

universalwarranty.com

Innovative Aftermarket Systems (IAS)

Old Republic Insured Automotive Services Inc. Permaplate

Warrantech

800-833-8801

WTcookie.com

Wise F&I

800-849-1080

WiseFandI.com

Zurich

877-368-7513

zurichna.com/FIS

April 2011 F&I and Showroom 45

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Industry Trends

Price Wills the Unwilling Customer New research shows that car buyers are still looking for the right price, but a sense of fairness is more important than the dollar amount.

new study indicates that not even a professional staff can sway today’s price-conscious car buyer. What customers want is transparency, and they’ll drive great lengths to get it. Conducted last October by New York-based Synovate, “Online Automotive Buyer Behavior Report 2011” quizzed 1,000 consumers over a fiveday span on what they thought of the car-buying process, as well as what they’re looking for when shopping online. Respondents listed price (78 percent) and trust (70 percent) as the most important factors when selecting a dealership. The professionalism of the staff came in at a lowly 9 percent. “What we’ve learned is consumers really want to feel they can trust the

dealer to be fair,” said Scott Painter, founder and CEO of TrueCar, which manages a vehicle information site. “The only way to achieve that is through transparency and upfront pricing.” The disconnect between dealers and customers was apparent when car buyers were asked how much profit they thought dealers make on the sale of a $40,000 vehicle. Fiftyfive percent of respondents answered $4,000 or greater, a gross profit of 10 percent or more. Even when gross profit on a vehicle sale peaked in 1999 — when it stood at 6.4 percent, according to the National Automobile Dealers Association — dealers could not surpass the $1,000 to $3,000 profit threshold 53 percent of respondents said was a fair amount.

When buying a vehicle, how valuable would it be to know what others have paid for the identically equipped vehicle in your area over the last 30 days? Agree Disagree

90% 10%

Do you believe a dealership should be required to provide its best no-haggle, upfront selling price as a starting point for the process and as a way to help you decide which dealer to buy from?

Agree Disagree

How much do you think a dealer makes as profit on the sale of a $40,000 deal?

91% 9%

Do you agree or disagree with the following statement? “If I trade in or sell a vehicle to a dealer, I know the dealer will either not give me a fair trade-in price or make it up on some other part of the transaction.”

Price might be what they want, but the results make it apparent that consumers simply don’t like the stress associated with buying a vehicle. In fact, 80 percent of respondents said they’d use a car buying service from a trusted organization to save time and money. What could change their tune is no-haggle pricing, which 90 percent of respondents said they think dealers should be required to offer, or knowledge of what other shoppers paid for the same vehicle in the last 30 days. “We believe this study illuminates the way in which the market is headed and how cars must be sold in the future,” Painter said. “We hope others in the automotive industry will see this data and understand what consumers desire and adjust business practices accordingly.”

Strongly agree

45% 37%

Agree Neutral

13%

Somewhat disagree

Strongly disagree

0–$500

$500–$1,000

82% of those surveyed agree

$1,000–$2,000

16%

$2,000–$3,000

17%

$4,000–$5,000

27%

$5,000 or more

28%

55% believe dealers make at least a 10% profit

48 F&I and Showroom April 2011

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