F&I and Showroom May 2011 by Kelly Bracken

MAD MARV: PAY-PLAN MODS | SALES DRIVER: THE KNOW-IT-ALL CURE | EDITOR: ADVOCATES ATTACK

A BOBIT PUBLICATION FI-MAGAZINE.COM

ALERT

Wally Higginbotham Is Proof That Blogging Can Be a Dealership’s Best Marketing Tool

DEFENSIVE Operating in the State That Gave Us the Car Buyer’s Bill of Rights, Charlene Burch-Heinzig Doesn’t Take Chances When It Comes to Her California Dealer Group’s Compliance Efforts.

TIPPING Technology Expert Makes Case for Replacing 40 Years of Rate Books and Warranty Forms MAY 2011 $10.00

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Contents

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

May 2011 Volume 14, Issue 5

Features Marketing

12 The Blogger Wally Higginbotham’s blog has attracted more than a half million views. Learn how he uses it to move cars and sell more service work. Dealer Profile

18 Checks and Balances As finance director and compliance officer, Charlene Burch-Heinzig has helped keep Anderson Dealership Group on the road to success.

Technology

20 Solving the eBusiness Puzzle Technology insider offers five reasons why dealers and their F&I offices need to join the eBusiness revolution. Executive Q&A

28 Going Big Time Warrantech’s top executive opens up about the 28-year-old company’s recent acquisition, its redesigned product line and more.

Leasing

30 Rethinking Leasing What if there was an F&I product that could guarantee the trade-in value of your customer’s vehicle? An industry insider says there is. Compliance

32 5 Steps to Compliance

Compliance expert lays out an inexpensive plan for building a dealership compliance program.

Departments 4 Letters 6 Editorial 8 Developments 34 Sales Driver 35 Mad Marv 36 Legal 40 Bottomliners 41 Ad Index 44 Industry Trends

30 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.

2 F&I and Showroom May 2011

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Letters Failed Experiment Your April column on combining sales manager and F&I roles (“Leave the Hybrids to the Manufacturers”) was right on. I’ve seen two dealerships experiment with the hybrid concept, and the results were horrible. I used to work for a Cadillac dealer who had deep personal pockets and decided to treat his store like a high school economics project rather than follow the ways of his father — who, by the way, was responsible for those deep pockets. The result of that experiment was that I left the dealer-

TO “MAD” MARV ELEAZER:

If you want to make more, hire competent finance managers. Otherwise, don’t fix what isn’t broken. History proves that the hybrid concept costs good money and good finance producers. ship. I was saddled with three times the work, five times the brain damage and half the paycheck. In my current dealer group, we have a Mercedes dealership that gave the hybrid concept a try, only to see F&I profit per vehicle retailed fall from $1,800 to $775. The dealer has since resumed using a finance manager and is now making an extra $1,000 per vehicle. If you want to make more, hire competent finance managers. Otherwise, don’t fix what isn’t broken. History proves that the hybrid concept costs good money and good finance producers. So, to those dealers out there, drop the ego and envy and be glad F&I managers are there to keep your dealership out of legal trouble while making you more profit in a tough economy. Scott Brown F&I Director

Greener Grass TO “MAD” MARV ELEAZER: I just wanted to say that I enjoyed your March column (“Know When to ‘Fold ’em”).

I’ve been in the business for 14 years. I started as a service writer, then manager, then sales, advertising and now finance. I just wanted to say that those who decide to “fold ’em” better move to a different profession, because, as they say in the dealership world, it’s the same dance, just a different ballroom. Michael S. Moore Finance Director Krumland Auto Group Roswell, N.M.

I really could relate to most everything you wrote in your March column. I’ve been a finance manager for more than 12 years. I love what I do and I enjoy working with everyone here at the dealership — except for the owner. He is a great businessman but a terrible boss. The owner is 100 percent hands-on with every aspect of the store, which is great. However, you can never please the man and he is verbally abusive, especially with the sales team. The only department that gets positive recognition is service. The problem is, he is constantly in my office complaining about everyone. It’s clear he wants me to validate his complaints. It’s really taken a toll on me. I get a pit in my stomach every morning, but I drag myself in every day because I know that a lot of people count on me and I can’t let them down.

TO “MAD” MARV ELEAZER:

Name Withheld Thank you both for the kind words. And to the second reader, I will tell you that there is greener grass, because I worked for a dealer almost exactly like yours for nine long years. Like your boss, there was no pleasing him, and he never doled out compliments. My only advice is to take inventory of your situation, answer the six questions I posed in my column, then decide what’s best for you. There are much better places to work than where you are, though it would likely require you to relocate your family. — Marv Eleazer

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

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

Consumer Advocates Are At It Again The editor weighs in on another dealer hit piece and wonders if the consumer advocates truly understand the motivations of dealerships. By Gregory Arroyo

aving worked as a market research specialist in a previous life, I know a thing or two about putting together market reports. So I feel safe in saying that the people at the Center for Responsible Lending (CRL) weren’t very responsible with a report they issued on dealer markups. When I prepared reports for our overseas headquarters, it was important that my boss tell me what conclusion my data was supposed to support. Hey, I needed to know how he wanted me to “cook” the numbers. Well, it’s obvious to me what conclusion the CRL wanted its study to support, which wouldn’t be bad thing if it wasn’t being used to guide public policy. See, the Federal Trade Commission will soon assume new rulemaking powers, and the CRL rolled out its study at the agency’s public roundtable in Detroit last month. From what I hear, industry representatives in attendance shot it down pretty quickly, but still. Titled “Under the Hood: Auto Loan Interest Rates Hike Inflate Consumer Costs and Loan Losses,” the report’s main finding was that consumers who financed a car through a dealership in 2009 allegedly paid more than $25.8 billion in extra interest over the life of their loans, an increase of 24 percent from 2007. Quoting CNW Research, the study points out that the average markup was $714 per consumer, and the average rate markup was 2.47 percentage points. I guess it’s difficult for me to believe that an extra $19.83 a month (I’m basing that on a 36-month term) increased the odds of a subprime

borrower defaulting by 12 percent or made it 33 percent more likely that his or her vehicle would be repossessed. The CRL report also alleges that dealers use certain borrower and loan characteristics as a way to target customers for increased rate markups. The most vulnerable, the report says, are customers with weaker credit, loans with longer maturities, loans for used cars and loans where smaller amounts are financed. I just wonder if the CRL considered the risk associated with originating such loans, and the impact defaults and delinquencies have on both dealers and lenders. Then there’s the graph the nonpartisan research and policy organization sources from the American Bankers Association. It shows that the indirect channel far outpaced direct-to-consumer financing in terms of repossessions per 1,000 loans between July 2009 and June 2010. It completes its points with the following: “Dealers have asserted that the rise in auto repossessions … is mainly caused by larger economic factors outside the dealership’s control. But given that direct and indirect lenders operate in the same macroeconomic environment, this argument does not entirely explain why repossession rates for dealer financing have been nearly double the rates of direct auto lending in recent history.” Come on, right? I mean, did the CRL even consider how deep most direct lenders were willing to go during that period? The CRL then says consumers are at a disadvantage because deal-

ers aren’t legally bound to disclose their markups. Now, Tom Hudson, our legal columnist, pointed out to me that the Federal Reserve Board has twice shot down assertions that dealer markups should be a required disclosure under Regulation Z. The report fails to mention that fact. Big surprise. More importantly, the report makes clear that the CRL doesn’t grasp what rate F&I managers are marking up. It’s not the buy rate; it’s the wholesale rate. And let’s not forget that the retail installment sales contract discloses that the APR is negotiable and that the dealership “may assign the contract and retain its right to receive a part of the finance charge.” The CRL’s researchers also don’t seem to understand the work that goes into handling subprime customers. If they did, they would understand why dealers charge for the services their F&I offices provide. There are stips to collect, as well as acquisition fees and state usury caps with which to contend. And one more thing, I don’t think there’s an F&I manager out there who wouldn’t prefer to earn his or her commission on F&I product sales rather than finance reserve. If you find one, CRL, let me know. Listen, I agree that we need to figure out how to make the car-buying process more transparent to consumers. But to do that, consumer advocates need to stop portraying consumers as victims while vilifying dealers. It’s an easy way out, it’s been going on too long in too many venues, and all it’s resulted in are disclosures that consumers can’t understand.

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Developments

ALG: Japan Disaster Could Affect NewVehicle Prices

Greg Goebel addresses the crowd at the 2010 Special Finance Conference in Dallas. This year’s event will take place alongside the F&I Conference and Expo in Las Vegas.

THE MARCH 11 JAPAN EARTHQUAKE

and tsunami disaster could result in a nearly 10 percent jump in newvehicle pricing for some popular models, according to a report by ALG, a subsidiary of DealerTrack Holdings Inc. The ALG analysis reveals that a short, 20-day interruption may have little or no impact, but longer interruptions of up to 100 days could cause an 8 to 9 percent increase in vehicle pricing on some models and a 0.2 to 0.7 percent increase in 36-month residual values. “Based on current available data and OEM plans, we believe there will be minimal long-term impact, and a short-term spike in new-car pricing on some models manufactured or sourced from Japan,” said Eric Lyman, an executive with ALG. ”However, further complications and supply shortages could have a slight positive impact on residual values.” ALG predicts that a 20-day production delay will cause new transaction prices to rise, on average, by 1.5 percent. One exception is the Honda Accord, for which a large share of production occurs in the United States. If Japanese manufacturing interruptions caused by plant shutdowns, supply chain shortages and energy supply issues equate to roughly 100 days of production disruption, ALG forecasts a 0.7 percent increase in 36-month residuals for the entire compact car segment. This is mainly driven by a reduction in supply of vehicles produced in Japan, such as the Honda Fit and the Toyota Yaris. 8 F&I and Showroom May 2011

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Special Finance Conference to Join F&I Conference for Industry Summit 2011

he publishers of F&I and Showroom and Special Finance Insider announced that SFI’s Special Finance Conference, normally held in August in Dallas, will join the eighth annual F&I Conference and Expo at Industry Summit 2011 this September in Las Vegas. Greg Goebel, publisher of SFI and Auto Dealer Monthly, is widely regarded as the nation’s leading special finance trainer. The Special Finance Conference’s educational slate is designed to offer an unrivaled subprime auto finance education. Goebel, along with experts from top finance companies and suppliers, will

offer instruction ranging from basic operations to advanced deal structuring, benchmarking and more. “We are honored to welcome Greg to Industry Summit 2011. Having SFC and FIC under one roof will make this the premier event in our industry,” said David Gesualdo, show chair of Industry Summit and publisher of F&I and Showroom. Industry Summit 2011, which also will include the annual Vehicle Service Contract Administrators Conference, will be held Sept. 26– 28, 2011, at the Las Vegas Hilton. For more information, visit www.Industry Summit.com.

Huntington Expands Michigan Dealer Financing Business

untington Bancshares Inc. announced that it is expanding its Michigan auto dealer financing business and will add key personnel in the state. “With Michigan’s continuing economic recovery, we expect the state to remain a robust market for us,” said Richard Porrello, director of Huntington’s auto finance business. “New- and used-car sales have risen significantly in Michigan, and auto dealers need the consistent and supportive financing options that Huntington delivers.”

To support its expansion plans, Huntington will hire professionals in Michigan to manage the expected increase in sales and underwriting functions. Leading the way is industry veteran Brad Norman, who recently joined Huntington as the Michigan regional manager for the auto finance business. He spent 30 years with Chrysler Financial Services and recently served as the director of financial services for Block Imaging International in Lansing, Mich. PHOTO COURTESY AUTO DEALER MONTHLY

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Developments Prestige Completes $222 Million Securitization PRESTIGE FINANCIAL

Services Inc. completed on March 28 its eighth rated term securitization, issuing $221.6 million in notes backed by $225.6 million in subprime automobile installment receivables. Underwritten by J.P. Morgan Securities, the notes were sold in a private offering. Founded in 1994 as an affiliate of the Larry H. Miller Group, Prestige manages a portfolio of more than $400 million.

Ally Financial Strikes $15 Billion Refinancing Deal ON MARCH 30, ALLY

Financial Inc. announced the completion of the refinancing of $15 billion in credit facilities at both the parent company and its banking subsidiary, Ally Bank, with a syndicate of 21 lenders. The

California New-Car Sales Continue to Recover THE CALIFORNIA NEW

Car Dealers Association said that new-vehicle registrations in the state increased 28.6 percent in the first quarter compared to the year-ago period. Total new-car registrations, including fleet secured facilities can be used to fund retail, lease and dealer floorplan automotive assets in the United States and Canada. The $15 billion funding capacity is comprised of two $7.5 billion facilities, one of which is available to Ally Financial

sales, were up 19.7 percent. Steve Snyder, chairman of the association, said California dealers are on track to sell more than 1.3 million new cars and trucks, which would be the best sales year since 2008. and one of its Canadian subsidiaries, and the other to Ally Bank.

GM Financial to Acquire FinanciaLinx GENERAL MOTORS

Financial Co. Inc.

announced on March 31 that it has entered into an agreement to acquire FinanciaLinx Corp., a Toronto-based independent leasing company. The acquisition will provide GM Financial with a platform to expand its retail financing and lease offerings into Canada. Company officials added that FinancialLinx will maintain its relationships with non-GM dealers.

ADS Products to Lose CarMor Name ALLSTATE DEALER SERVICES

said it will transition its F&I product lines — including its GAP, service contract and other ancillary products expected out later this year — from the CarMor name to the Allstate brand. Officials said the change was based on feedback from the company’s distribution partners, which said the company’s products would benefit from the Allstate brand name.

Moves and Hires Dealer.com, a provider of automotive Internet marketing solutions, has appointed Kevin Root , an e-commerce and retail performance expert, as chief product officer. He will be responsible for bolstering the company’s product development strategy and retail performance. Root previously served as a senior executive of product strategy for DriverSide, a partner of Dealer. com. He also spent nearly 10 years with The Cobalt Group, where he worked on improving e-commerce 10 F&I and Showroom May 2011

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performance, as well as products and strategy. CNA National has named Brian Pendergast as the company’s chief information officer, a newly created position. He has more than 20 years of experience in the manufacturing, legal, media information and software solutions industries, and has been actively involved in the technology transformation of more than 15 companies.

CNA National also appointed Erika S. Ahern as the company’s general counsel, a newly created position. She is responsible for implementing the company’s compliance program in the United States and Canada. Ahern previously served as general counsel for Allstate Dealer Services, where she was responsible for legal risk management of F&I products, oversight of the compliance team and thirdparty contract negotiations.

SHOWROOM PHOTO BY GREGORY ARROYO

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Marketing

The

Blogger By day, Wally Higginbotham is a general manager. By night, he’s a blogger whose posts have attracted more than a half million views and several new customers. Can a blog do the same for your dealership? By Justina Ly

ally Higginbotham is a celebrity, but you wouldn’t know him unless you share his love for Porsches. No, he’s not a racer, and he’s not one of Porsche’s top engineers. He’s just a dealership employee who lives and breathes the Porsche brand — so much so that he created “Porschebahn,” a blog that has attracted more than 640,000 views since Higginbotham started writing it three years ago.

Higginbotham first fell in love with the luxury brand while living in Germany as a high school student. Today, the 28-year industry veteran serves as the general manager of Porsche of Hilton Head in Hardeeville, S.C. He talks to the magazine this month about how he started the blog, keeps it updated and uses it to promote his dealership. F&I: When did you start

writing Porschebahn?

Higginbotham: April 2008. I really

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Marketing didn’t do anything with it for the first six months. Obviously, I got a little more serious with it afterward. F&I: Why did you create it? Higginbotham: When I started here

[at the dealership], I was a selling manager. It’s like you’re an assistant manager but you still have to sell. I thought [the blog] would promote me. F&I: What kind of

Porsche do you drive?

Higginbotham: Believe it or not, the

only car we have is the one my wife drives, which is a Boxster. I drive a demo, and this week I’m in a Carrera Cab. Sometimes I’ll take a Cayenne. It depends on what’s available. F&I: When did you know

g you were on to something?

Higginbotham: I guess when hen I got

above 10,000 hits in September 2008. That’s when I started to figure out that this thing could go somewhere.. My best month was 30,000 0 hits in March 2010.

Higginbotham’s blog, “Porschebahn,” has attracted more than 640,000 views and established him as an authority on the Porsche brand. The blog also has helped his dealership sell cars and service work.

F&I: How has the blog

p? benefited your dealership?

Higginbotham: People will

come to you if they perceive ive you as the authority on the sububject. It’s helped to sell some cars and my salespeople will send customers to the blog all the time. Now, I don’t have any figures, but it has sold service. [Because of] the posts I’ve done on engines, people have come in and had us work on or do rebuilds on their engines. You’re just doing a very soft sell, but you’re trying to project an image. You’re looking for a long-term relationship. You’re looking for those repeat visitors and people that will subscribe to your blog.

I think, since the bblog is connected to the dealership, there could be a conflict of interest. Plus, I don’t want to come across like I’m trying to sell something. I also don’t want to do anything to upset Porsche.

[dealerships] don’t get into it. It doesn’t matter what manufacturer you work for, there’s plenty of stuff to write about. Most of the manufacturers are into racing and they’re constantly putting out press releases, which is just free blog fodder.

F&I: Have you noticed any

F&I: But you’re also active in the

Higginbotham: One oddity I have

Higginbotham: I do a lot of stuff

noticed is that on the days the stock market goes down, so does my blog traffic. I would love to hear an explanation for that.

with the Porsche clubs. And if I’m lucky, I’ll make it out to three to four races a year. I’m an amateur photographer, a Porsche nut and a car nut, so I would go to these events even if I wasn’t in the car business. At the events I’ll shoot pictures and meet people. I try to post something on all of those events. Ninety-

interesting trends?

F&I: Would you accept

advertising on your blog?

Higginbotham:

I’ve actually turned down a couple offers because I just don’t want to go there.

F&I: What’s your advice

to dealers who want to start their own blogs?

Higginbotham: It’s crazy that more

Porsche community, correct?

14 F&I and Showroom May 2011

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Marketing five percent of the pictures that I post are mine. The other ones I get from manufacturer press releases. F&I: How do you know what

interests your audience?

Higginbotham: I can go into the

Wordpress stats and look at what visitors used as far as search engines and what’s brought them to the blog. There’s another section where I can see what pictures they’ve opened up. The terms “Panamera” and “color” are two of the hottest things right now. I’ve posted just about every color the Panamera comes in. F&I: How do you work

dealership news into your blog?

Higginbotham:

I post information like the latest offerings from Porsche or any kind of news on upcoming models. I also post special promotions from Porsche Financial Services, such as 1.9 percent financing or modifications to its certified pre-owned warranty program, which people in the Porsche world or potential buyers would be interested in.

F&I: Do you have to be your

You don’t want to put anything out there that hasn’t been approved by your manufacturer. I actually got some bad info a few years back and got called out for it. F&I: What kind of software

do you use to edit photos?

Higginbotham: I use the Microsoft F&I: Are there any

subjects you avoid?

Higginbotham: You don’t want to

put anything out there that hasn’t been approved by your manufacturer. I actually got some bad info a few years back and got called out for it. I scrutinize anything that comes my way now. In general, I try to keep it all about the cars and the people.

Picture Manager. You can crop a photo, lighten and darken it, and make changes to it. It’s not rocket science, believe me. I also use a Nikon D300 and [post the images via] Kodak EasyShare. F&I: Have you or the dealership

done anything to promote your blog?

Higginbotham: We partnered with F&I: How often do you post? Higginbotham: I’d blog every day if

I could, but it can be tough. It takes me anywhere from 30 minutes to an hour to write a post. If I’m just copying a Porsche or a race track press release, it’s a 15-minute gig. F&I: What’s the ideal length

for a blog post?

Higginbotham: You don’t want to be

too lengthy; you don’t want to write a biography. From what I’ve seen, people like pictures. They like a little bit of dialogue, but they love pictures.

Potratz, an automotive advertising agency, a couple of months ago. I am hoping they have some ideas on how I can take it to the next level. So far, they’ve put more relevant Web tags on my posts to improve search engine optimization. They also told me to open up a Facebook account, which I did three months ago. I guess I was a little reluctant to create a profile. And when I did, a blogger friend of mine sent me a message through Facebook that read, “Hell has frozen over. Wally’s on Facebook.”

dealership’s GM to write a blog?

Higginbotham: It depends on the

store, because you really need to be an enthusiast. I had a guy in my showroom here that had zero enthusiasm for the brand. That’s not who you want on your sales floor and that’s certainly not someone you want running your blog. You need to find somebody who is passionate about the brand. And it takes time, so you’ve got to be dedicated and you’ve got to stick with it. F&I: That’s good advice.

So what’s next for your blog?

Higginbotham: Well, I’m thinking

about introducing a new category called “Uber Garages.” There are a lot of folks I’ve met who have multiple Porsches. Some of them have very simple garages to store them, but there are folks who have spent lots of money on their garages. I just want to share some of those with readers. In fact, there’s a guy up in Tennessee that I met. He sent me pictures of the garage he just completed. He calls it the “Garage Mahal.” It’s spectacular. It’s got this beautiful textured brick. He’s got planters and artwork that he’s collected for years — you know, stuff your wife won’t let you hang in the living room. Well, now he’s got a place to showcase all his automotive art and memorabilia. To check out Wally’s blog, visit http:// porschebahn.wordpress.com.

16 F&I and Showroom May 2011

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5/2/11 11:15:03 AM 3/31/11 11:11:10 AM

Dealer Profile

Checks and

Balances A

As the finance director and compliance officer for three stores, Charlene Burch-Heinzig has helped keep her group on the road to success. By Tariq Kamal

day at the office for Charlene Burch-Heinzig could include a few hours at Anderson Honda in Palo Alto, Calif., then a drive across Silicon Valley to Courtesy Chevrolet in San Jose, followed by a 200-mile flight north to Chico, Calif., to pay a visit to Courtesy Motors Auto Center. All three stores are part of the Anderson Dealership Group, and each lists Burch-Heinzig as its finance director and compliance officer. It’s a tough sled, but Burch-Heinzig knows the territory. It’s been 11 years since the San Jose native was hired at Anderson Honda, where she started a special finance department before being promoted to finance director three months later. Owner John Anderson eventually put her in charge of F&I operations for all three stores, and business was good. Then, about three years ago, the Great Recession set in. “During the recession, customers were coming in with lower credit scores,” Burch-Heinzig says. “We saw a lot of our customers who had lost homes, going through the foreclosure process, or could no longer make their house payments. We saw business customers who were just dropping off trucks because the businesses they had owned for decades were now bankrupt.” It wasn’t the first economic downturn for Burch-Heinzig, who has been selling cars since 1978. “It was harder than it was in the ’80s, because people 18 F&I and Showroom May 2011

FI0511profile.indd 18

weren’t just concerned with higher interest rates,” she says. “They were concerned with losing their homes, jobs, investment income, businesses, etc. … We also saw a lot of customers whose debt-to-income levels were not within bank guidelines. The instant approval programs all went away. So even if the customer’s credit score was over 700, they still had to be within the debt-toincome and payment-to-income guidelines for the banks, both of which had tightened up tremendously.” The company got leaner, and Anderson’s managers took on additional responsibilities. Having trained several compliance officers from the F&I desk, Burch-Heinzig prepared to take the job on herself.

Can I Help You, Officer?

The downturn reached Burch-Heinzig’s market right on the heels of the passage of AB 68, better known as the California Car Buyer’s Bill of Rights. Passed in July 2006, it established new restrictions on new- and used-car sales, including guidelines aimed at preventing payment packing — a hot topic at the time. The legislation also extended the cooling-off period on used-car purchases to three days and sought to define the word “certified” in CPO sales, among other initiatives. “Staying ahead of compliance is especially important in California,” Burch-Heinzig says. “No assumptive close, no extra DMV charge, and then the Bill of Rights. But we didn’t wait for the enforcement date. We were compliant the first day out.”

The Anderson team took several additional measures to protect their customers’ personal information, such as locking offices and file cabinets, as well as restricting access to their Websites. Then they revamped their compliance training program. At the beginning of each year, Burch-Heinzig hands each F&I manager a binder that includes the “Compliance Flow Sheets” she developed to help staffers handle any scenario they might face with a finance customer. “They cover everything from address discrepancies to Social Security number alerts to credit freezes,” she says. “The sheet identifies the problem, then takes you from one step to the next.” All told, Burch-Heinzig says her programs account for 95 percent of the training her staff receives. She also has invested in Chandler, Ariz.based Team One Research and Training for the Chico store, and provider reps help with product-specific training at all three stores. Burch-Heinzig’s own education includes certification via online courses provided by Tustin, Calif.-based Auto Advisory Services, plus hundreds of books’ worth of outside reading. She also attended classes provided by the California Motor Car Dealers Association, Team One, American Honda Financial Services and more. Masters of Finance

Despite the extra time on the road and in the air, Burch-Heinzig says working as the finance director for three different stores provides her with a PHOTO BY NADINE PRIESTLEY

5/2/11 11:16:48 AM

Burch-Heinzig is flanked by sales manager and longtime Anderson veteran Jon Godinez, fleet manager Rich Flores and the newest member of the Anderson finance team, Will Pettaway, who was recently promoted from the sales floor.

unique perspective on the business. “You get to work with different teams, different products, different buyers,” she says. “Trust me, there’s a big difference between a Subaru buyer and a Honda buyer.” Anderson’s Honda buyers have been well served by Honda Financial Services (HFS) — the captive accounts for 65 to 70 percent of the group’s total contracts. Burch-Heinzig says HFS continued to buy deep during the downturn, though they did write fewer leases. Leasing is notorious among F&I managers as offering little opportunity for product sales, but BurchHeinzig says the repeat business and brand loyalty it inspires outweigh the negatives. “You can make money on leasing,” she says. “Our sales manager offers the lease option to everybody. The question we’re asking ourselves now is, ‘What products do lease customers want?’” Burch-Heinzig limits her menu offerings to four products, with an emphasis on factory-backed service contracts. The strategy has paid off: Anderson Honda’s acceptance rates for service contracts, GAP coverage and tire-and-wheel improved by 9.4 percent across the board from 2010 to the first quarter of this year. As for lease rates, Burch-Heinzig’s team has achieved an 11 percent rate at Anderson Honda, 9 percent at Courtesy Chevrolet, and 20 percent at Courtesy Motors — and she foresees increases at each store in 2011. Credit unions have a strong presence

in Silicon Valley, where several have sprung up to serve the big tech firms headquartered there. Burch-Heinzig and her team have established strong relationships with several, including Provident Credit Union, National 1st, The Golden 1 and KeyPoint. All told, CUs account for 10 to 15 percent of the group’s contracts. Training and Retraining

Each year begins with a “Kick Off the New Year” meeting, complete with the latest edition of BurchHeinzig’s “Commitment to Excellence” binder. She lists her four primary commitments as: ■ Raise the dealership’s profit per vehicle retailed, ■ Achieve 100 percent compliance, 100 percent of the time, ■ Expedite the cash flow and ■ Provide exceptional customer service. Believing there’s no substitute for loyalty and experience, Burch-Heinzig is fiercely devoted to hiring from within. That’s why all but one of her five full-time and three part-time F&I managers were promoted from the sales department. “No bad habits,” she says. “No, ‘I did that at my last dealership.’ We have no prima donnas here.” That extends to the director herself. Burch-Heinzig says she’s not one to micromanage or withhold information. She wants her staff to feel empowered to pick up the phone and call lenders, review receivables and check for funding delays. And when the sales desk is overwhelmed, she wants them to step up. “It could be help with a problem customer or credit app, or just to help get the paperwork together,” Burch-Heinzig says. “My advice is really simple: Give more than you ask for.” May 2011 F&I and Showroom 19

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Technology

Solving the

eBusiness The eBusiness model has yet to take F&I offices by storm, primarily because dealers donâ&#x20AC;&#x2122;t see the profit potential. Technology insider offers five reasons they need to join the revolution. By Matt Nowicki

Puzzle A

few months ago, I was invited to join a panel discussion at the inaugural Agent Summit in Las Vegas. We were there to update attendees on how close we are as an industry to replacing 40 years of rate books, threepart warranty forms and handwritten remittance registers with a technologically advanced method. The standing room-only crowd made it clear that there is plenty of interest in the subject, mixed with un-

certainty about how best to achieve that goal. The eBusiness movement has made serious inroads in a variety of industries, but it has been slow to catch on in the auto business, particularly in the F&I office. So what will drive adoption? To be clear, eBusiness as it relates to the F&I office refers to four distinct processes: electronic rating, electronic contract generation, electronic customer registration and electronic remittance or invoicing. Administrators understand the benefits of this

20 F&I and Showroom May 2011

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5/2/11 11:20:59 AM

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G S F S Our name doesn’t really stand for that. But, it’s what you can expect. Gulf States Financial Services (GSFS) is focused on delivering a simple and exceptional customer experience to our general agents, dealers and the end consumer. For 29 years, our quick response time has helped GSFS become more than an expert reinsurance

administrator. We’re a trusted partner. GSFS offers a suite of products – service contracts with Dealer Obligor, Dealer-Owned Warranty Company, CFC, NCFC, Retro programs, Pre-Paid Maintenance, Credit Insurance, GAP, and Tire & Wheel.

To find out how easy it is to switch to us, contact Tony Orozco at 713-580-3023 or torozco@gsfsgroup.com. Agent and dealer inquiries welcome.

GSFSGroup® is a registered trademark of Gulf States Financial Services,Inc.

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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?

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Technology

way of doing business, but it’s difficult for dealers not to think in terms of profit when it comes to these solutions. That’s why past efforts to drive eBusiness into the dealer world have failed to gain traction. No dealer should expect nationwide, universal acceptance of eBusiness processes to be a profitable enterprise. Margins on F&I products are not what they used to be, and administrators have developed pretty inexpensive ways to handle paper contracts. That means neither dealers nor general agents should expect reductions in product costs. The eBusiness Value Proposition

Every major F&I product administrator knows the industry must move toward the eBusiness model, and most agents have more than a casual curiosity of what it can deliver. For their part, dealers understand that eBusiness represents the future of the business. Here are five reasons why that future is now:

Compliance: Remember, administrators must develop forms for

every product they offer. They must also develop forms that satisfy requirements for each state and, in some cases, customize their forms to meet the needs of their customers. And when a single form is updated, the administrators and their agents must physically deliver the new form to every one of their customers. Considering the amount of new product categories being introduced in today’s market, this delivery process is simply not logistically feasible. With e-contracting, an updated form can be delivered almost immediately.

Chargebacks: Even the most

careful F&I manager can make a rating mistake. Five years ago, this statement would have only applied to service contracts. Today, there are multiple products that require proper classification, including tire-andwheel, key replacement, windshield protection and GAP.

Customer Satisfaction: There is

a perception in the marketplace that an eBusiness process takes longer than the traditional way of doing business. Nothing could be further from the truth, especially if you take into account the amount of additional time spent handling a chargeback. And think about this: When was the last time you signed a receipt with a carbon copy? Heck, most DMVs have eliminated those three-part forms.

Data Quality: Even after 40 years of doing business the same way, dealers still deliver unusable contracts to administrators. We still see forms with more than one class checked off, unreadable customer addresses and invalid VINs. And when a bad contract arrives, it becomes an exception, which must be dealt with by at least one person at the administration office, the general agency and the dealership. This is something you won’t experience in an eBusiness environment.

Real-Time Reporting: Companies that offer e-registration or e-contracting with an automatic customer registration component allow administrators, agents, and dealers to see a precise picture of the products sold in real time. And unlike information gleaned from the dealership management system, eBusiness allows dealers and agents to see everything about the contract, which 24 F&I and Showroom May 2011

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Technology is critical when a customer calls to report a claim. With eBusiness capabilities, the claims department can immediately see everything about the customer, even before the claim has been remitted. eBusiness Solution Breakdown

It’s difficult to know whether a single eBusiness interface will ever be developed and utilized by dealers nationwide. The good news is there isn’t a single interface in the market today that represents the best solution for dealers. With that said, let’s review three solutions that are available to dealers today:

Menu Software: A menu might

be the fastest and least disruptive way to incorporate eBusiness into a dealership. It also makes the most sense. Most of the information needed for acquiring rates and generating a contract is also needed for generating a menu. Most of the leading menus in the market today, such as SmartMenu Complete, Fusion, MenuVantage and Ristken, offer these capabilities.

Standalone Portals: For dealers who are not using an electronic menu or who opt for a menu that doesn’t offer e-contracting or e-rating capabilities, there are standalone eBusiness portals. When deciding on which portal to select, dealers must consider whether the solution they choose can work with multiple providers. Innovative Aftermarket Systems’ EREC solution and Intersection Technologies’ F&I Express are two such portals.

DMS-Integrated Solution: For

dealers who want to incorporate e-rating and e-contracting without leaving the DMS, there are DMSbased solutions such as StoneEagle’s SEcureRate. It can e-rate service contracts, but does not e-contract. Reynolds and Reynolds and ADP both offer laser-printed contracts, but neither of their solutions fits the true definition of e-contracting since they 26 F&I and Showroom May 2011

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eBusiness

Glossary of Terms THERE IS HARDLY A CONSENSUS on what constitutes a true eBusiness solution. To get everyone on the same page, here are the definitions for the four distinct processes that make up the industry’s version of a true eBusiness F&I environment:

Electronic Rating: e-Rating is the process by which an employee submits data, such as VIN, mileage and a dealer ID number, to one or more product administrators and receives a list of plans that can be sold for that vehicle. The list of plans returned includes terms in months and miles, deductible types and amounts, dealer and retail costs, and a list of applicable surcharges and options. Electronic Contract Generation: Generation of an electronic contract requires that a dealership employee submit one or more customer-selected F&I plans, along with customer, vehicle and lender information. Once the administrator receives this data, it is digitally “stamped” onto the latest revision of the requested form. The completed contract is then electronically transmitted to the dealership in real time. Some providers also include a digital signature pad, but usage depends upon the dealer’s process and whether the product administrator requires signed copies of its contracts. Thanks to the ESIGN Act, which became federal law in June 2000, a contract generated and delivered electronically “may not be denied legal effect, validity, or enforceability solely because it is in electronic form.”

Electronic Customer Registration: The registration of customer details within the administrator’s system can be done in the F&I office. Many times the customer registration and contract generation processes are combined by an administrator into one seamless process that is then handled within F&I. In general, customer registration requires the same data as the contract-generation process. The end result of the registration process is that a pending customer record is created within the administrator’s back-end system well before the dealer remits or is invoiced for that warranty. Electronic Remittance or Invoicing: These two processes operate along very similar lines. For remittance, the business office logs on to a portal at the end of the remittance cycle, be it daily, weekly or monthly. They see a list of pending customers and warranties and are able to generate a remit register based on that list by choosing one or more customers for which to remit. The invoicing process is controlled by the administrator rather than the dealer. In either case, some administrators allow dealers to specify which contracts are to be included in the batch. Others may also allow the dealer to void or delete contracts in case of a duplication or unwind. They may also require dealers to remit paper copies of the contracts; generally, that requirement is based on whether or not a signature is required.

PHOTO ©ISTOCKPHOTO.COM / NARVIKK

5/2/11 11:21:06 AM

don’t e-rate. And because they don’t offer that functionality, their solutions cannot prevent chargebacks in a consistent manner. That said, both companies are working together on a true e-contracting solution for both auto finance and F&I product providers. Open Dealer Exchange represents the e-contracting platform for auto finance, while the Provider Exchange Network, which ODE purchased last year, will allow for e-rating and econtracting between providers and dealers through the DMS.

and the menu represented a way for the industry to do that. So what will be the tipping point for the eBusiness revolution? The agents of change are definitely there, and business conditions are right for their message to drive change. The question is, is their message sticky enough to incite action on the part of dealers?

Matt Nowicki serves as director of information technology for IAS. In 2001, he led the development of the company’s SmartMenu software. In 2005, he and his team began work on eBusiness solutions for the company’s ancillary products and the products of its competitors. He can be reached at matt.nowicki@bobit.com.

Reaching The Tipping Point

In his 2000 book, “The Tipping Point,” Malcolm Gladwell examined the point at which a situation reaches critical mass. His goal was to map out the causes of social epidemics to help marketers and politicians use his theories to their benefit. In the book, Gladwell talks about the agents of change: the Law of the Few, the Stickiness Factor and the

The agents of change are definitely there, and conditions are right to drive change. The question is, is their message sticky enough to incite action on the part of dealers? Power of Context. The Law of the Few refers to people who can incite change, while the Stickiness Factor refers to the content of the message, which must be so memorable that it incites change. The Power of Context refers to an environment that drives change. Well, the decade-long, industrywide push toward menu adoption represented a major tipping point for the industry. The agents of change were the software companies, general agents and trainers who pushed for it. Driving that change was compliance, which, if you remember, was a major concern back then. Regulators wanted to end payment packing and other dealer misdeeds, May 2011 F&I and Showroom 27

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Executive Q&A Warrantech’s top executive opens up about the 28-year-old company’s recent acquisition, its redesigned product line and more. By Gregory Arroyo

he first 16 months of Dominic Sansone’s career at Warrantech were marked by uncertainty. The last eight months, however, have been filled with anything but for the president of the Bedford, Texas-based company’s automotive division. Last September, a majority interest of Warrantech, which was founded in 1983, was acquired by New Yorkbased AmTrust Financial Services, a multinational property and casualty insurer that acts as its own administrator, claims its own insurance company and is publicly traded on the NASDAQ. Sansone, whose 35 years in the industry includes a 17-year stint as a dealer, talked about what the acquisition means to his business unit and its competitors.

Going

eas of our business. He’s also big on technology, and AmTrust is committed to supporting his plans. F&I: What new technology are

you bringing to market?

Sansone: Right now we have a Web-

based training and reporting tool. We’re also looking at an iPad tool that will allow sales managers to track where their salespeople are in the process. It’ll also track performance. All of this is part of the services and tools our dealer cus- Sansone tomers will have access to when they sign up with us. And what we’ll do is go in and perform a complete analysis of their dealership and develop a plan for income development. F&I: Did having your own

F&I: Can you talk about the

difference between your new owner and the private equity firm that purchased you in 2007?

insurance company help Warrantech become Volvo’s factory-authorized, OEM service contract administrator?

Sansone: Well, H.I.G. Capital spe-

Sansone: We just finished our first

cializes in buying companies, so their interest in us was different than AmTrust’s. AmTrust has been in this business and views Warrantech as a way to expand its footprint, so it’s a perfect marriage. It’s also one of the few companies where the insurer and administrator are vertically integrated, and that security is priceless.

month of business with Volvo and we’re very excited about that relationship. We’re talking to other OEMs, so this is a space we’re looking to grow in. The fact that we have our own insurance company has really given us credibility in those conversations. F&I: Can you talk about

65,000 miles get exclusionary coverage, which expires when a vehicle is either five years from inception or reaches 100,000 miles. We also have enhanced powertrain coverage, which covers main components for up to 125,000 miles from the time of purchase and for as long as the customer continues to pay. F&I: I’ve heard these

programs can be problematic.

Sansone: Well, I originally

designed this program for the direct marketing channel, but it ended up being popular with affinity groups like Publishers Clearing House. Dealers can use it to reconnect with past customers who didn’t purchase a service contract and whose warranty is set to expire. It can also be offered as a separate plan when there isn’t any room in the loan for a standard service contract. As for being problematic, are you referring to cancellations? F&I: That’s right. Sansone: The only time there could

be a cancellation on this product is when we charge our initial activation fee, which includes the first month’s payment. Now, coverage actually starts 30 days from when the customer pays, so if I purchased a plan today, April 11, my coverage would start on May 11. But as long as you keep paying, you have coverage.

F&I: Sounds like you’ll be going

after the Warranty Groups and CNAs of the world.

your month-to-month servicecontract offering? I’ve received some questions about that product recently.

Sansone: That’s the strategy. And in

Sansone: There are products out there

your other offerings?

a lot of areas, I think we’ve surpassed them. We have products no one has, and we’re doing some things that will really put us ahead. We created a new division that focuses solely on providing training and income development to our dealers and agents. It’s headed up by Michael Burgholzer. So far, he’s revised and enhanced several ar-

that claim to be month-to-month programs, but they’re really just 5-year, 100,000-mile programs, divided up. What we offer is a true month-tomonth product that automatically renews on a monthly basis until not renewed or the customer stops making payments. We have two levels of coverage: Vehicles with less than

Sansone: Over the last two years,

F&I: Can you talk about

we brought in our top agents to tell us what we needed and what we were missing. One of the products we updated based on their feedback was our CustomEdge plan, which is unique because the customer chooses his or her own coverage terms and then we price it to the year of the car,

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Big Time the time the customer is buying it and the mileage. We also made changes to our MileEdge product, which is geared toward the used-car market. We also have specialty programs like our SecureEdge, which is a wrap product for certified vehicles. And for price-sensitive customers, we offer OwnerEdge, a limited coverage, 5-year, 100,000-mile plan. We also added a product for the service drive. One other thing, we’re now underwriting our own GAP product. We used to outsource it, but AmTrust is committed to underwriting all of our ancillary products. F&I: What about reinsurance? Sansone: Ninety-five percent of our

dealers and agents have reinsurance

captives, so most of our business is reinsurance. Bernie White, our vice president of reinsurance, heads up a team focused solely on that part of our business. And since the acquisition, we’ve modified our program so our funding time is now within 30 days. We also have better investment options for captive owners. F&I: You also mentioned you

or 12-month labor warranty on top of that. So, we’ve created two plans that allow dealers to extend that 90day coverage to 12 months, or that 12-month warranty to two years for both the part and labor. And those products can be printed right on the repair order. Right now the product only works with a dealership management system from ADP or Reynolds, but we’re looking to expand that.

Sansone: It’s called Extended La-

F&I: So, what’s your

added a service drive product.

bor Protection. We view it as a customer-retention tool that works on non-warranty repair work. So, let’s say you have a customer who needs a new alternator. Well, the part typically comes with a 12-month warranty and dealers will provide a 90-day

outlook for this year?

Sansone: Our outlook for our com-

pany is very positive. So, if you haven’t heard of us — which is impossible, given that we’ve been around so long — you’re definitely going to hear from us a lot now.

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Leasing

Rethinking

Leasing What if there was an F&I product on your menu that could guarantee the trade-in value of your customer’s vehicle? Leasing expert breaks down the fundamentals of this often-overlooked option.

hy are F&I p r ofe s sio n a l s so invested in selling “usedcar futures?” Don’t think you’ve ever sold one? Think again. A retail installment sales contract (RISC) is essentially a used-car future because new-vehicle financing is a product that loads the customer with the risks inherent to the used-car market; specifically, the value of his or her vehicle at trade-in time. If you asked your new-car customers whether they would prefer to take the risk of selling their vehicle against the vagaries of the market or drive off with a guaranteed tradein value, how do you think they’d answer? A better question is: How many of you can predict used-car values three or four years out and can guarantee the trade-in value of your customer’s vehicle? If you’ve been in F&I more than five minutes, you know one central mantra is to present 100 percent of your products to 100 percent of your customers. But how many F&I professionals present leasing to every customer? Unless you work in a luxury dealership, I would venture to guess that the answer is, “Not very many.” I could list many rea30 F&I and Showroom May 2011

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By Randall McCathren sons why that is, but they boil down to two: First, a lack of understanding of the benefits to the customer and, second, inexperience in addressing their objections and misunderstandings accurately and confidently. 3 Ways to Present Leasing

There are several options available for presenting leasing accurately. As with any F&I product, the key to a successful presentation is to start by understanding the customer’s concerns and needs, along with his or her expected driving pattern and trade cycle. The main benefit of leasing is the protection it provides against unexpected depreciation. With that protection comes two key advantages: If the model doesn’t depreciate faster than expected, the customer enjoys a residual value that is higher than he or she could have expected to negotiate as an end-of-term trade-in value. Better yet, the customer won’t have to negotiate the trade-in value in the first place. Thus, it’s critical that you understand how valuable those benefits are to a customer. Most customers — and, I venture to say, most F&I professionals — don’t understand that the average lease saves the customer thousands of dollars of paid-in depreciation.

It also is important to make sure the customer knows leasing offers a fixed price purchase option. This structure allows the customer to capture any equity at lease end if the vehicle is worth more than the residual value. Let’s take a look at three methods you can employ to make those benefits clear:

Problems and Solutions: The most

straightforward way to present leasing is to share your expertise on the pitfalls of trade-ins and how to avoid them. Here’s a workable word-track: “Many of our customers have returned hoping to trade in their vehicles after a few years, but found they had significant negative equity and couldn’t afford to trade. We have a finance option that offers a guaranteed trade-in value. Would you be interested in learning how that works?” Another effective word-track is: “Many of our customers have found that the trade-in value of their vehicle is less than they expected. Often, that makes it too expensive to get the new model they want at the time they want it and at a payment they can afford. We have a finance option that offers a guaranteed trade-in value. Would you like to hear more?” PHOTO ©ISTOCKPHOTO.COM / 1001NIGHTS

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It’s important to make sure the customer knows leasing offers a fixed price purchase option. This structure allows the customer to capture any equity at lease end if the vehicle is worth more than the residual value.

Finance vs. Lease Comparison: An-

other clear way to present leasing is to offer a quick comparison of financing vs. leasing, which you can do using data from third-party sources. The Federal Reserve’s “Keys to Leasing” brochure (www.federalreserve.gov/ pubs/leasing/) lists nine comparison items, including up-front costs, monthly payments and future value. The Association of Consumer Vehicle Lessors’ Website (www.acvl. com) is even more comprehensive. The ACVL lists 17 items, 14 of which are “Different Items” that offer comparisons between financing and leasing. One of the most persuasive is “D1: Monthly Payments,” which de-

scribes how leasing allows customers to drive a more expensive vehicle for a similar monthly payment.

Finance vs. Lease Quiz: A third al-

ternative and my personal favorite is to invite the customer to take a quick, multiple-choice quiz to determine which finance option fits his or her needs and preferences better. Again, the ACVL Website offers an excellent resource. Its questions touch on subjects ranging from maintenance costs to annual mileage, but they all point to the same conclusion: Leasing is an excellent option if you don’t plan to drive your new car into the ground.

Randall McCathren is an attorney and consultant with BLC Associates. His more than 28 years of experience in consumer vehicle leasing includes representing industry members in the formulation of Regulation M and consulting with the Federal Reserve Board on leasing regulatory issues. Contact him at randall.mc cathren@bobit.com. Next month, Tom Wilson, F&I director for Riverside Auto Group — the magazine’s 2010 F&I Dealer of the Year — will take readers through his dealership’s process for improving back-end gross on lease deals.

Lease Penetration Rates for New-Vehicle Sales, 2005-2010 40% 35%

Great Lakes

Mideast

31.5% 29.3%

30% 25%

21.2%

New England

Plains

Rocky Mountain

Southeast

Southwest

U.S. average

West

31.0%

21.8%

23.7%

22% 19.2%

20% 13.8%

15%

10.9%

18.9% 15.7%

15.6% 12.2%

13.4% 13.0% 8.1% 8.1%

10% 5%

2005

2010 2005

2010 SOURCE: POLK

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Compliance Building a compliance program doesn’t necessarily require a big investment, but it does take a commitment. Expert lays out a plan for improving your dealership’s level of compliance.

By Jim Radogna

n many dealerships, the thought of putting together a compliance program is similar to contemplating a diet-and-exercise regimen: You know it’s something you need to do or, eventually, your unhealthy lifestyle will catch up with you. And like getting in shape, keeping up with regulatory changes can seem like a daunting task — not to mention costly. Many compliance programs on the market are quite expensive and simply out of reach for the average dealership’s budget. As a result, some organizations give up on implementing a compliance program and just hope they can fly under the radar. The truth is, setting up and maintaining a strong compliance program in your dealership doesn’t have to be difficult or expensive. In fact, here are five steps you can take to dramatically raise the level of compliance in your store without breaking the bank.

Follow the Leader: The change in

culture needs to start at the top, but someone in the organization needs to champion the cause. All too often, dealerships will adopt an “everyone’sin-charge-thus-no-one’s-in-charge” attitude toward compliance, which tends to fragment a store’s efforts. You must designate a company compliance officer. Ideally, this will be a senior-level employee who reports directly to company ownership. This person will be responsible for monitoring all aspects of compliance. He or she will also be afforded the resources to learn as much as possible about state and federal regulations. Don’t forget that two federal requirements that govern your dealership’s sales and F&I processes — the Safeguards and Red Flags rules — require that you designate a compliance officer, so you’ll be killing three birds with one stone here. And it’s not as though appointing an in-house compliance officer requires an additional salary. That being said, it would be wise to consider some compensation for the employee’s additional duties. This is an important position and must be taken seriously. In larger organizations, a compliance committee consisting of department heads may be a better way to go.

ple just trying to earn a living. However, if they have never been properly trained in compliance matters, they are likely to rely on doing business the way it has always been done. Bottom line, assuming that your dealership is doing everything right without verification is risky at best. So, when was the last time you performed a comprehensive risk evaluation? If it’s been a while (or never), you need to get on it. It can be completed by someone on staff who is well-versed in federal and state regulations or by hiring outside compliance professionals. The key is to get a baseline reading and uncover areas where your store is most vulnerable. Forms, advertising materials and deal jackets should be thoroughly evaluated. Policies related to the Red Flags Rule, information safeguards and privacy should be reviewed. Vehicles should be checked for proper display of buyers guides, Monroney labels, etc., and signs and notices should be verified. Chances are you may be unpleasantly surprised by the results.

Get Everyone on the Same Page:

Dealers who send two or three of their top people to a compliance seminar once or twice a year, or send out monthly compliance newsletters

5 Steps to

Get Committed: Ignoring compli-

ance just doesn’t make good business sense. The automotive industry is changing dramatically and it is coming under more scrutiny with the passage of the Dodd-Frank Act. Dealerships that continue to operate without a focus on compliance will invariably struggle. So what are you waiting for? Make a commitment to establishing a culture of compliance and ethics in your dealership.

Assess Your Compliance Level:

Dealers should not assume their employees are well-versed in compliance simply because they’ve been in the business for a long time. The “old school” way just doesn’t cut it in today’s regulatory environment. Plus, your veterans may not be aware that the lessons they learned over the years are no longer legal or ethical. The vast majority of dealership employees are well-meaning, honest peo-

to managers should be commended. The problem is neither practice is enough on its own. In many organizations, management personnel have at least some knowledge of proper legal compliance and ethics. On the other hand, many salespeople don’t have a clue about the laws and regulations that govern our industry. And why should they? Compliance training, if conducted at all, generally occurs only at

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programs require a five-figure check to cover the entire staff, there are also outstanding programs available that cost less per employee than a box of business cards. And the training can be completed in a matter of hours.

Monitor Your Progress: Once your compliance program is in place and the staff is trained, it is imperative that the compliance officer or committee ensures accountability. Many dealers spend thousands of dollars for compliance audits, only to find the same violations being made after the auditors move on. Employees need to recognize that your compliance program is here to stay and that they will actually be held accountable for their actions. Let everyone know that the organization is serious about compliance and ethical behavior. Written procedures also are a must, as is ensuring that processes are followed consistently. For instance, everyone should use the same menu and desk deals the same way. In addition, all employees should sign a “code of ethics” agreement upon completion of their training, and mini-audits of deal jackets should be completed on a regular basis. So, there you have it, the five steps to getting serious about compliance

Compliance the management level. And without proper knowledge, it’s very easy to step over the legal line when trying to make a deal. It’s wonderful to have a welltrained management staff, but there’s a good chance an uninformed salesperson may make a compliance misstep without management’s knowledge. Salespeople can spend hours talking with customers. It’s unlikely that management is going to be privy PHOTO ©ISTOCKPHOTO.COM / RASIMON

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to all of those conversations. Unfortunately, attorneys and regulators don’t differentiate between job descriptions when pursuing a claim against a dealership. Some dealers assume the cost involved in training all staff members is just too high, which isn’t true. Training can be accomplished in-house by your compliance officer. If that’s not practical, there are affordable alternatives. While some F&I training

and protecting your dealership. Sure, it will take commitment — and a few bucks — but this plan is certainly achievable for virtually any dealership. It’s just a matter of getting started. Jim Radogna is president of Dealer Compliance Consultants Inc., a San Diego-based provider of training and compliance solutions. He can be reached at jim.radogna@bobit.com. May 2011 F&I and Showroom 33

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Sales Driver

2 More Self-Sabotaging Behaviors to Avoid The magazine’s sales columnist puts the finishing touches on his ‘7 Self-Sabotaging Behaviors to Avoid’ series by reviewing two of the most devastating — but fixable — behaviors. By Cory Mosley

ast month, I covered the first five of what I call the “7 Self-Sabotaging Behaviors to Avoid.” And, as the saying goes, I’ve saved the best for last. In fact, these final two self-sabotaging behaviors can be the most devastating to your sales performance. Luckily, they’re also the easiest to fix.

Personal Accountability: Yes, I’ve written about these two dirty little words in past columns, but that’s because they’re very important to what we do. And whenever I train sales managers on the differences between really leading and merely managing, I always ask the question: “When is the last time any salesperson came up to you and said, ‘Boss, I messed this deal up?’” The room invariably erupts in laughter because it almost never happens — but it really should. Whether or not you like to play the blame game when it comes to deals gone bad, it’s important, as a manager, that you identify what went wrong. A salesperson may not want to admit that his or her actions, approach, techniques, word-tracks or

even body language played a role in sabotaging a deal. The point I’m trying to make here is that you shouldn’t think about deals gone bad as lost opportunities. Instead, look at them — and this may sound touchy-feely — as an opportunity to teach and learn. See, you want to separate yourself from other sales professionals and grow. The way to do that is to examine what went right and what went wrong in the deal. The problem is most of us don’t. We would rather just drop it and look ahead to the next deal.

Know-It-All

Syndrome: There’s nothing that drives me crazier than a salesperson or manager who thinks he or she knows it all. Let me be clear: Being in the business for 20 or 30 years means absolutely nothing in today’s marketplace, especially if you’re not adapting, changing, expanding and implementing new skills. Don’t let your past success fool you! One of my go-to quotes when speaking to dealers is one I picked up from Bill Gates. The first big step he made toward building his billiondollar empire was to license

the DOS operating system — which he didn’t even own — to IBM, under a deal that would allow him to license it to other companies as well. See, the smart people at IBM believed the real money was in computer hardware, not software. Well, you know how that worked out. Gates summed up the lesson learned thusly: “Success is a menace. It convinces smart people they can’t lose.” If you are good at what you do, congratulations! However, don’t think in terms of effective vs. ineffective; instead, focus on ways to become more effective. Put yourself in a continuous learning mode. Hey, I’ve got 11 books in queue on my desk right now, waiting to be read. How about you? Know-it-all syndrome is mainly caused by sales professionals and managers who don’t think beyond the fundamentals. I’m not here to challenge the road to the sale or the fundamental principles that have made millions of sales pros, including myself, successful in the car business. But in this day and age, walking around with the belief that the demands, needs, wants and interests of customers haven’t changed is simply crazy. Listen, the competition for customers in today’s marketplace is fierce. Don’t just run with the pack, lead it! I think you deserve it. Cory Mosley is principal of Mosley Automotive Training, a company focused on new-school techniques, products and services. He is also the creator of the “Control Your Sales Destiny” seminar. E-mail him at cory.mosley@bobit.com.

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Mad Marv

Put Those Pencils Down The magazine’s F&I columnist offers a stern warning to dealers who decide to cut costs by penalizing employees for maximizing their pay plans. By Marv Eleazer

fellow F&I pro recently wrote to describe a pencil whipping he received from his GM. My first response was, “Ouch!” I know that many of you reading this column have suffered the sting of a reduced pay plan, and I know it usually happens after a serious uptick in business. Signing bigger checks for the F&I manager can lead a dealer to think their commissioned employees are overpaid as an aggregate of departmental income. Now, I must confess that I’ve never experienced this in my 22 years behind the desk, so I count myself as fortunate — or lucky. I have discussed the issue with my dealer, and his response is simple: “If I have to cut your pay, then it’s time to release you. So I’m not going to waste time with that tactic. I want you to make plenty of money because the more you make, the more I make.” Many dealers take the opposite stance. I don’t want to let them completely off the hook, but peer pressure is often a factor. Remember, dealers discuss intimate details of their financial statements with consultants or in 20 focus group meetings. Every cost is dissected and analyzed, including compensation. Even the National Automobile Dealers Association offers suggested guidelines on how employees should be compensated. Many dealers abide by the association’s advice; others don’t. The problem is dealers get antsy and start doing things they shouldn’t when an employee begins maximizing his or her pay plan and exceeds the association’s recommended amount.

In the post-recession economy, dealers are looking for ways to realign their operating expenses. That’s because volume isn’t what it used to be, but the store’s mortgage payment and equipment costs remain what they’ve always been. These fixed expenses take a large bite out of the bottom line, so it makes sense to some dealers to adjust pay plans to make up for the shortfall. The obvious problem with this mentality is the effect it has on the

I’m probably upsetting a few executive managers by writing on this topic, but you wouldn’t be enjoying your current lifestyle if not for the professionals excelling in your stores. people earning their livelihoods. In fact, I listed it among my signs that it may be time to change jobs in last month’s column. Your tolerance level will dictate whether you decide to stick around. While I admire those of you who can, I, for one, could not. Now, I realize I’m probably upsetting a few executive managers by writing on this topic, but the truth is, you wouldn’t be enjoying your current lifestyle if not for the professionals excelling in your stores. So, my advice is to pause before you get out your pencil and ask yourself, “Am I prepared to lose a top-notch performer over a few hundred dollars?” As a dealer, if you want more income from your F&I department, incentivize your manager to produce more by upping the ante. This can be

done in a variety of ways. Increase the profit-per-vehicle-retailed bonus or upwardly modify the overall payout by adding another tier level. You can also offer extra bonuses on product aggregates. The worst thing you can do is, as the old saying goes, “muzzle the ox that treads out the grain.” In doing so, you stifle the creative energies of the employee. Sure, the consultants who suggest you meddle with pay plans will tell you that the employee will struggle to produce more to return to the previous income they lost. And while that may be true in some instances, what happens when the economy changes for the better? For one, there will be plenty of greener pastures for your employees to consider, which means you may find yourself scrambling to replace a valued employee who just dropped his resignation letter on your desk. In any event, pay-plan modifications have an impact on all parties involved. For the F&I manager, a reduction forces a decision: Make the adjustment, polish your résumé and start looking, or approach your dealer and try to find a way to make up the lost revenue. Whatever you, the affected employee, decides, tread lightly in your decision. As we discussed last month, your decision affects those who look to you for financial support, in the office and at home. Always remember that the cream rises to the top and, as a professional, so will you. Marv Eleazer is the finance manager at Langdale Ford in Valdosta, Ga. E-mail him at marv.eleazer@bobit.com.

May 2011 F&I and Showroom 35

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5/2/11 11:11:55 AM

Legal

Impressions From Detroit Thanks in part to recycled anecdotes from consumer advocates, the industry fared better than expected at the FTC’s first roundtable discussion. By Tom Hudson

he Federal Trade Commission’s first “Roundtable” was held on April 12 at Wayne State University Law School in Detroit. The FTC billed it as a “listening tour.” The event was well attended, as these things go. I’d guess there were 100 people in the audience, which included dealers, finance company representatives, class action lawyers, consumer advocates, academics, state and federal regulators and lawyers like me. In order to “listen,” the FTC divided the day into discussions by six panels, each addressing a different subject. You can check the online version of my column at www.fimagazine.com for a complete listing of panels and panelists. Overall, I’d say that the FTC representatives who served as moderators seemed to be neutral on the issues the panels addressed. That was a welcome development since the questions the FTC had published in the Federal Register in advance of the event had seemed, at least in some instances, to be hostile toward the industry. The state regulators also were neutral, for the most part. Easily the most effective presenter of the day was the National Automobile Dealers Association’s Andy Koblenz, who made a very cogent argument in support of the current system of dealer participation. The FTC’s Joel Winston set the tone for the day by stating that the FTC wasn’t interested in anecdotes, but was instead looking for data — real-life facts, he said. That statement set a high bar for consumer advocates, who didn’t show particularly well.

They kept trotting out their years- and decades-old anecdotes about dealers and finance companies abusing widows and orphans, and drowning kittens, while industry participants kept pointing out that anecdotes weren’t favored. And when consumer advocates were asked about how frequently such abuses occur in the marketplace, they always seemed to come up empty-handed. One National Consumer Law Center representative tried to point to a recently issued “survey” by the NCLC (the release of the survey was conveniently timed just before the meeting) that purported to show that dealer abuses were rampant in all states. But since the “survey” was nothing but a compilation of answers to a short questionnaire by 48 lawyers who handle auto cases for consumers, no one seemed to pay it much mind. It certainly wasn’t something that would be seen as either impartial research or scholarship, if you catch my drift. The consumer advocates staked out the most radical consumer-protection positions, arguing for an end to — or serious limits on — common dealer practices such as dealer participation and spot delivery. In support of their positions, the consumer advocates kept coming back to their stories about dealer misdeeds, only to be countered in nearly every instance by the industry representatives. They pointed out that the dealer actions detailed in the consumer advocates’ anecdotes were already illegal under either state or federal law, and that there was no need for further regulation. At one point, I turned to the person next to me in the audience and

whispered that if discussions about practices already banned by federal and state laws had been prohibited, the entire roundtable would have taken about 15 minutes. The conflicting agendas of consumer advocates and industry representatives produced sparks on the topics of dealer participation, spot deliveries, the sale of ancillary products and credit discrimination. Other panels were much more sedate, with the surprise of the day being the panel that discussed GPS and starter-interrupt devices. Panel participants seemed to be in general agreement that the use of the devices was OK, but that perhaps there were some privacy issues regarding the safekeeping of location data. The industry did do better than consumer advocates. In fairness, industry participants were not very long on data themselves, but the tone of the day seemed to be that the burden of proof was on those asserting bad acts, and not on the industry to show that it behaved well. If you missed watching the Roundtable (it was streaming live), the video and a transcript will be available shortly on the FTC’s Website. OK, Law & Order it’s not, but if you are in the car sale, finance or lease business, you need to see it. Thomas B. Hudson Esq. is a partner in the law firm of Hudson Cook LLP and the author of several books, available at www.CounselorLibrary.com. © 2011 CounselorLibrary.com, all rights reserved. Based on an article from Spot Delivery. Single print publication rights only, to F&I and Showroom magazine. HC# 4852-5911-1433 (4/11).

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Heads Together! FI0511legal.indd 39

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Bottomliners Carfax Joins Android Market

Reynolds Turns Chat Feature Into Selling Tool

CARFAX HAS

REYNOLDS AND REYNOLDS HAS

launched an Android version of its free “CARFAX for Dealers” mobile application. The mobile tool allows users to pull up a Carfax report on a vehicle by entering the VIN or scanning the vehicle’s barcode. The app will then add the vehicle to the dealer’s inventory manager at CARFAX online.com. Each report is saved for up to 30 days, and dealers can mark vehicles as favorites. The app can be downloaded for free from the Android Market.

launched Click-Chat-Buy, a live chat system that works with dealership Websites developed by Reynolds Web Solutions. The tool enables dealership personnel to chat online in real time with consumers browsing the dealership’s Website. It is offered as a no-charge upgrade for Reynolds WebMakerX customers, according to company officials. For more information, visit www.clickchatbuy.com.

Firm Offers Spanish-Language Compliance Training AUTOMOTIVE COMPLIANCE

Consultants has released e-learning compliance modules for Spanish speakers. Topics covered include issues related to the Occupational Safety and Health Administration, Fair Credit Reporting, the Equal Employment Opportunity Commission and more. Also offered in English, the modules are available through the company’s Web dashboard. For more information, visit www.compliantnow.com.

Resource Launches QCertified PreOwned Mobile App RESOURCE AUTOMOTIVE INC. HAS

launched the QCertified mobile app, which links users to an exclusive database of vehicles that have passed the QCertified usedvehicle certification program. The app is available through Apple’s App Store, and can be downloaded by simply scanning the QR code. Company officials said Androidand Blackberry-compatible versions are expected out soon.

Product Feature Black Book Unveils ‘Super Lead’ Generator BLACK BOOK ONLINE HAS

launched a new leadgeneration solution designed to make consumers better car shoppers, while also delivering whatt the company calls a “super lead” to dealers. Activator Complete allows consumers to find the vehicle they want, helps them to determine the value of their trade-in and pro-

vides them with their v estimated credit score. e The T lead program’s credit engine, called the c Credit Activator, can C generate a credit score estimate without the customer having to divulge sensitive information, such as a Social Security number. For more information, visit www.BlackBookCreditScore.com.

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Ad Index Company

Phone

Web

Association of Finance & Insurance Professionals (AFIP)

817-428-2434

afip.com

American Financial & Automotive Services

800-967-3633

afasinc.com

AUL Corp.

800-826-3207

aulcorp.com

CARLAW Auto Dealer Suite

877-464-8326

counselorlibrary.com

â&#x20AC;˘

chase.com

Chase Chem Etch Manufacturing Inc.

Page

877-564-2565

chemetchmfg.com

CNA National

800-345-0191, ext. 720

cnanational.com

CUDL

877-744-2835, ext. 2334

CUDL.com

Dealerlink

800-890-8850

DealerLink.us

Friendly Finance Corp.

800-872-2877

friendlyfinancecorp.com

GSFS

713-580-3023

gsfsgroup.com

â&#x20AC;˘

industrysummit.com

38-39 3, 43

Industry Summit 2011 Innovative Aftermarket Systems (IAS)

800-346-6469, ext. 8989

smartdealerproducts.com

NAC (National Auto Care Corp.)

800-548-1875

nacsolution.com

National Automotive Experts

800-810-8859

nationalautomotiveexperts.com

Protective

800-794-5491

protectiveassetprotection.com

Reahard & Associates Inc.

866-REAHARD

go-reahard.com

Resource Automotive

800-527-3448

resourceautomotive.com

22-23

Ristken Software Services

800-368-9680

ristken.com

Safe-Guard Products International

800-742-7896

safe-guardproducts.com

United Car Care

800-571-6412

unitedcarcare.com

19, 42

United Development Systems Inc. (UDS)

800-282-1154

UDSDealerServices.com

Universal Warranty Corp. (UWC)

248-263-4498

universalwarranty.com

Wise F&I

800-849-1080

WiseFandI.com

May 2011 F&I and Showroom 41

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Products

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Industry Trends

Mobile Apps Altering Lending Landscape Mobile banking has caught on with consumers in a big way, and auto finance sources are lining up to cash in on the phenomenon.

obile banking apps are among the most popular types of apps, and they’re driving up satisfaction among users. That’s the conclusion reached by researchers at FIS, a Jacksonville, Fla.based provider of banking and payment technology. Thirty-seven percent of smartphone users surveyed by FIS said they have downloaded a mobile banking app. Satisfaction among those users is up 9 percent from 2010, with 88 percent of users indicating that they were satisfied with their bank’s mobile banking service. The study, which surveyed a random sampling of 4,000 mobile phone owners, found that smartphone users represent 76 percent of all mobile banking users, while owners of standard phones and Web-enabled devices account for the remaining 24 percent. As for auto finance, FIS estimated that 3 percent of mobile phone users have made an auto loan payment via a mobile app, but that could be on the rise. A number of auto finance sources have introduced a mobile app or mobile Website within the last two years. Leading the way is Mercedes-Benz Financial Services, which launched a mobile payment application in October 2009. The captive lender has received 30,000 lease and loan payments, or approximately $19 million in payments as of March 2011. In addition, MBFS’s mobile app has been downloaded 26,500 times and, as of April, its mobile Website has received 334,300 visitors, according to the company. MINI Financial Services, Toyota

Financial Services and Lexus Financial Services also have introduced their own mobile applications or mobile Websites for consumers. MINI offers MINI Financial Services Mobile, a mobile program that allows iPhone, Android and Blackberry owners to make payments, receive a payment quote, view account activity and more. Since its release in January, almost half of the captive’s

garnered more than 850,000 page views and collected more than $9 million in payments as of March 31. A company spokesman said TFS plans to launch a mobile application in the coming months. Researchers noted that mobile banking stumbled out of the gate when the first solution was launched in 2000. The market wasn’t ready and the technology wasn’t fully devel-

Which Smartphone Owners Use Mobile Banking? PLATFORM

MOBILE BANKING USER

NON-USER

Android Apple iPhone BlackBerry Windows Mobile Palm / Garnet Symbian Other

40% 29% 20% 4% 2% 1% 2%

29% 19% 28% 8% 5% 2% 5%

FIS found that Android and iPhone users are significantly more likely to be mobile banking users. This chart does not include mobile banking users who are connecting to their financial institutions through other devices.

mobile customers have made a payment through the program. “For the first three months, we’ve seen that 12.3 percent of our Internet users have experienced the MINI Financial Services Mobile platform,” said BMW Group’s Tom Stepanchak. “The mobile site is also creating the ‘stickiness’ we desire in that, on average, customers view 3.8 pages from their phones.” Stepanchak added that BMW Group Financial Services is planning to enter the mobile marketplace by the end of the year. The finance arms of Toyota and Lexus also jumped into the mobile race with the launch of mobile sites in January. Since then, the sites have

oped. But it didn’t take long for banks to give mobile technology another try. In 2007, Bank of America became the first national bank to launch a mobile banking program. Today, there are approximately more than 1,400 mobile banking apps available to consumers, according to Online Banking Report, a resource for banks and technology companies. The FIS study found that the Top 10 U.S. banks accounted for 52 percent of all mobile banking users. “We are seeing mobile deployments by banks accelerating in 2011,” said Douglas Brown, a FIS Mobile Financial Services executive. “The momentum is driven by unprecedented consumer demand.”

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