F&I and Showroom October 2011 by Kelly Bracken

MAD MARV: SACRIFICING R ATE | SALES DRIVER: DRIVING MOMENTUM | ZIEGLER: RHY THM NATION

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Contents

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

October 2011 Volume 14, Issue 10

Features 2011 F&I Pacesetters

14 Setting the Pace Meet the seven finalists for F&I Dealer of the Year, the winner of which will be profiled in the magazine’s November issue. F&Idol Contest

20 Lights, Camera, Action! These five individuals were named category winners for having the best on-camera F&I presentations in five categories.

Technology

28 Mobile Goes Mainstream The pace of mobile technology adoption is quickening, and companies are lining up to help dealers transition to a mobile marketplace. Auto Finance

32 Below-Prime Goes Prime Time In the second quarter, finance sources continued their drive down into the high-risk credit tiers.

Finance and Insurance

36 Reorganizing the Desk The desk can be critical to a dealership’s success, but overstepping its boundaries can leave a store vulnerable. Finance and Insurance

40 Maximizing PPM Return

With the right product mix, prepaid maintenance plans can add serious revenue to your store’s bottom line.

Departments 4 6 8 12 42 44 46 48 51 52

Letters Editorial Developments Industry Trends Sales Driver On the Point Legal Bottomliners Ad Index Mad Marv

40 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 90503-1640. 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 June 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 Making Headway TO THE EDITOR: I moved over to F&I about a year and a half ago after selling cars for seven years. The last time I received F&I training was back in 1999. Times have definitely changed and I want to make sure I’m presenting my products the right way.

Grace A. Zambon Wells River (Va.) Chevrolet

ence will be held Sept. 10–12 at the Paris Las Vegas Hotel. In the meantime, check out the “Events” page on our Website for a list of upcoming training events. You’ll find a variety of training events offered by many of the experts writing in the magazine. — Gregory Arroyo

Spot On Your “Be the Buyer” column last month was right on target. I would add that, since back-end products can be canceled, lienholders can go after the provider for the unearned portion of the products if the customer defaults on the loan. Finance companies tend to focus too much on that single repo rather than the other nine customers that do pay. Keep up the good work, Marv.

TO MAD MARV:

I must say that I truly enjoy the articles in F&I and Showroom magazine each month! It’s particularly valuable to read articles by Mad Marv. He gives the reader real hands-on advice. TO THE EDITOR:

Cathy Aron Founder/CEO Profit Drivers Ltd.

Good column last month (“What’s My ‘Buy Rate’?”). The consumer fails to consider that the “great rate” they are getting from their bank is often at or above those available through the dealership’s finance sources, and that their friendly banker is margining those funds at or above the typical dealership markup. They’re in it for a profit, too, not just because they’re nice guys.

TO THE EDITOR:

Randal Hattey Finance Manager Reynolds Ford Oklahoma City, Okla. TO THE EDITOR: Thanks for stepping up

to defend the industry in your column last month. Considering how well you answered Newsweek’s questions, I think they’ll either run the article with little or no mention of you and your answers, or scrap it altogether since they couldn’t find the dirt they were looking for. Klay Kelso The Plateau Group Dandridge, Tenn.

Thanks, everyone. I appreciate the comments. As for your question, Grace, you really do need to get out to the magazine’s annual conference in Las Vegas. Next year the confer-

Jim Serrani President JBS Dealer Services LLC Fort Mill, S.C.

Great column last month, Marv! It’s been awhile since I’ve read something so profound. The only wrinkle I’d offer is that instead of calling a buyer’s supervisor when they refuse to budge, ask the buyer to take the deal to his or her supervisor. That will give the buyer another opportunity to review the deal. Plus, he or she won’t feel like you’re trying to go over his or her head. The truth is, it may take a second look to get a deal right. I recently had a deal where a first-time buyer was putting money down and financing a 2011 Toyota 4Runner at 62 percent loan to value. I had to turn the deal down because I was unable to get the payment in line and the customer couldn’t put any more money down. After talking to the F&I director, I realized I had the option to request a tier bump and term extension from my supervisor, which would drop the payment significantly. Needless to say, we got the deal done.

TO MAD MARV:

Danny Reyes Bank Representative Subprime auto finance company

Vice President Group Publisher, AutoGroup 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 Assistant Editor Jennifer Washington 310-533-2496 jennifer.washington@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

Lines Drawn The idea behind the menu seems simple enough. Use it and you can sell more products. Well, evidently, how you use it has come into question. The editor weighs in. By Gregory Arroyo

battle is brewing over F&I menus, and lines are being drawn in the sand. No longer is the debate over whether it should be used; it’s about how it should be used. But be warned: You’d better surround yourself by like-minded people before offering your opinion. Menu providers won’t even get into this debate. Instead, they’ll talk about how their menu will blend

year’s F&I Pacesetters seem to be employing it. In this scenario, products are disclosed early and often. The hope is that the customer will mentally commit to purchasing before the menu is even shown. And when it does appear, products are displayed in one customized package. Now, I want to make it clear that I’m not referring to payment packing, where the customer is unaware of what

test, I noticed that not one contestant brought out the menu. Now, I understand that we asked participants to record themselves selling and overcoming objections for one product, but the menu was nowhere to be seen. What I did see were those mats F&I managers use to disclose the factory warranty coverage. F&I managers would start by disclosing what’s covered and for how long be-

Menu providers won’t even get into this debate. Even trainers are careful when offering their opinion. I guess I’m amazed at how the tool that was supposed to make us better at what we do has become such a flashpoint for our industry. with whatever method you subscribe to. Even trainers are careful when offering their opinion. I guess I’m amazed at how the tool that was supposed to make us better at what we do has become such a flashpoint for our industry. The current debate centers around what form the menu should take. If you’re from the George Angus school, you view the menu as more of a disclosure form: The less you make it look like a sales tool, the more successful you’ll be. Then there are those who believe the menu should take the “good-better-best” approach. They think that three- or four-column menus are the best way to get through more products in a shorter amount of time. That makes sense to me, but so does Angus’ theory. Then there is what seems to be a new wrinkle on an old method of selling. Some refer to it as a hybrid approach to selling, and two of this

they’re buying or for how much. I’m merely referring to how the menu is formatted. I also want to make it clear that there is no trickery involved. The method merely calls for the producer to list each product in one column before he or she says to the customer, “Do you remember when I told you about how GAP protects you?” or “Remember when I explained the benefits of our tire-and-wheel protection?” That’s when the F&I manager moves to a step-sell approach — that old method of selling that seems to be making a comeback. I know we were led to believe that the menu would eliminate the stepsell approach, but evidently it hasn’t. Some insiders, including an executive for a major F&I provider, now prefer the aformentioned hybrid approach over all others. But doesn’t that relegate the menu to nothing more than a disclosure tool? When I judged our F&Idol con-

fore jumping into their service-contract pitch. I know, we got what we asked for. But for all of those stats we published about how the menu can drive up sales, it was still surprising to me that it never appeared in any of those videos. I guess I’m wondering if we should even refer to the menu as a selling tool. I mean, several of this year’s F&I Pacesetters seemed more focused on the menu as a compliance and accountability tool. Heck, even the Pacesetter who described his F&I selling process as “menuless” uses the menu to ensure proper disclosure and compliance. So, where do you stand? Personally, I think the best menu is the one that works for your operation. Now, I’m no trainer. I’m just a guy who watched about 35 videos for our F&Idol contest and can tell you who I would buy from. I’ll tell you who that is next month, when we profile the 2011 F&Idol winner.

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Developments Social Media Challenging Labor Laws THE NATIONAL LABOR RELATIONS

Board (NLRB)’s split decision on 14 cases involving the dismissal of employees over posts made on social media sites showed just how much technology is challenging current labor laws. The NLRB, which enforces the National Labor Relations Act (NLRA), was split evenly on whether current labor laws protected the employees named in the cases, one of which involved a highline auto dealership. The results of those investigations were detailed in an Aug. 18 report. In four cases involving employees’ use of Facebook, the division found that employees were engaged in protected activity because they were discussing terms and conditions of employment with fellow employees. In five other cases, the division found that the activity was not protected. In the case involving the highline dealership, the dealer dismissed a salesman after he posted photographs and critical commentary about a sales event held at the store on his Facebook page. The salesman and his coworkers had expressed concerns during a preevent meeting about the refreshments management wanted to serve customers. They felt the inexpensive food and beverages would reflect badly on the store and would impact sales. The NLRB’s Division of Advice determined that the employee’s actions were meant to express the sentiment of the group and that the Facebook activity was a direct result of the earlier meeting. “He was vocalizing the sentiments of his coworkers and continuing the course of concerted activity that began when the salespeople raised their concerns at the staff meeting,” the report read. 8 F&I and Showroom October 2011

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Calif. Governor Signs Car-Buying Reform Bill

n Sept. 26, California Gov. Jerry Brown signed legislation that will allow California to raise doc fees by at least $25. The bill also will install new carbuying reforms. Introduced by Assemblyman Bob Blumenfield (D-Sherman Oaks), AB 1215 will require that dealers register vehicles electronically, as well as post a red sticker on used cars that are flagged by the National Motor Vehicle Title Information System (NMVTIS) as “junk,” “salvage” or “flood.” The new rules take effect in July 2012. “By signing this law, the governor can protect consumers and save the state nearly the same sum as the budget cuts causing 70 state parks to

close next year,” said Blumenfield, who estimated that the state will save $9 million in costs related to the Department of Motor Vehicles. The doc fees dealers charge for processing retail and lease agreements will rise from $55 and $45, respectively, to $80. The bill also reduces the time consumers may legally drive without permanent license plates from six months to 90 days. “On the bill of sale, dealers also are going to be allowed to charge the cost that they pay their first line vendor for the electronic processing service,” said Tom Plunkett, vice president of sales at Automated Vehicle Registration Service (AVRS). “They’re going to make money complying with this new bill.”

Dealer Count Up for First Time in a Decade

he industry’s dealer count increased by 0.4 percent this year, the first time in 10 years, according to Urban Science’s 2011 Automotive Franchise Activity Report (FAR). The report also revealed an increase in throughput and sales, indicating that dealers are in stronger financial positions than they were at the close of 2010.

As of July 1, there were 17,725 dealerships, an increase of 66 from the end of 2010. That’s in spite of the number of franchises — the brands that a dealer carries — decreasing by 729 to 29,360. The drop can be attributed to the wind-down of the Mercury brand. It also represents a stabilization of the industry, according to Urban Science analysts. PHOTO COURTESY CA.GOV

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Developments Webb to Kick Off Agent Summit 2012 LEADING TRAINER PAUL

Webb will deliver the opening keynote address at the second annual Agent Summit, show organizers announced in September. The event, scheduled for March 1214, 2012, at Caesars Palace, is designed specifically by and for automotive general agents.

Chase Announces Finance Agreements With Subaru, Fiat CHASE AUTO FINANCE

will continue to operate as Subaru Motor Finance for another five years, renewing its captive finance deal with Subaru of America for lease, retail and floorplan financing. Chase also an-

nounced that it would extend the consumer nancing program finan it rolled out ffor Chrysler dealers to d FFIAT, providing its dealers in with prime and wit nearprime customers with low interest rates and other incentives.

F&I Admin Releases Dealer Portal for SCS Auto

MaximTrak Completes Reynolds Integration

Delinquencies Fall for Seventh Straight Quarter

F&I ADMINISTRATION

MAXIMTRAK TECHNOLOGIES

HELPED BY IMPROVING

Solutions LLC has added a new dealer portal, DAP 8.3, to its SCS Auto platform. Branded as an F&I product provider’s site, DAP is designed to allow dealers, credit unions and other producers to get F&I product quotes, complete electronic remittance, view reports and more, according to F&I Admin.

has completed the Reynolds Certified Interface program and can now integrate its software tools with Reynolds and Reynolds’ ERA dealer management system. The certification allows MaximTrak’s solutions to pull data from an ERA DMS using standard data interfaces provided by the RCI Program.

sales, the national 60day delinquency rate for auto loans fell for the seventh consecutive quarter, dropping to 0.44 percent at the end of the second quarter, TransUnion reported. The credit bureau did note a moderate slowdown in the delinquency rate’s improvement since the third quarter of last year.

Incentives Battle Coming, Says Kbb.com KELLEY BLUE BOOK

is anticipating an incentives battle between Japanese and domestic brands later this year. As Japanese production facilities return to full capacity, Kbb.com expects to see strong incentive support from these manufacturers as they try to recapture market share lost after the March 11 earthquake.

U.S. Economic Growth Will Continue to Lag TD ECONOMICS BELIEVES

the U.S. economy will continue to grow, but the affiliate of TD Bank says the economy may not be able to sustain additional shocks. Temporary shocks, such as rising gas prices, have dissipated, but the impact on consumer confidence is likely to be felt over the next several quarters.

Moves and Hires General Motors LLC announced that former vice chairman Robert “Bob” Lutz will provide counsel to the company’s senior leadership team. He will be available to executives on a part-time consultancy basis, according to GM. Lutz brings more than 40 years of experience in the industry, including two stints at GM. He also has served as a senior executive at Ford, Chrysler and BMW, and was CEO of Exide Batteries.

10 F&I and Showroom October 2011

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William W. Helman IV has joined Ford Motor Co.’s board of directors, effective immediately. Helman is a partner with Greylock Partners, where his practice is focused on enterprise software, consumer Internet, healthcare and biotechnology. Helman will serve on the Ford Board of Directors’ Finance Committee, Sustainability Committee and the Nominating and Governance Committee.

Service Repair Solutions Inc. (SRS) has promoted Rich Holland to the position of president of its subsidiary, MPi. As chief strategy officer at SRS, Holland focused on SRS’s forward-looking strategic plan and the company’s product management team. As president of MPi, Holland will be responsible for day-to-day operations and the development and execution of MPi’s future strategic business plans.

SHOWROOM PHOTO COURTESY CHACON AUTOS

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Industry Trends

Closing the Payment Assurance Gap An NABD survey finds that resistance to payment assurance technology has largely faded, but disclosure and discretion remain areas of concern.

hen the first code-based payment assurance (a.k.a. “starter interrupt”) devices were introduced in the early 1990s, auto dealers suddenly enjoyed the same power as the phone and cable companies: If their customers didn’t pay, the service could be shut off. That idea was too radical for some. Consumers and state legislators raised a stink, claiming the devices could shut vehicles down in traffic or violate “right-to-cure” provisions in state collection guidelines. Those claims were put to rest, but not without a stern directive from industry advocates to dealers and finance companies: Disclose the use of the devices, and be consistent in pulling the trigger. Earlier this year, the National Alliance of Buy Here, Pay Here Dealers (NABD) initiated a survey of more

than 100 new- and used-car dealers who collectively utilize approximately 150,000 units. The results showed that the use of code-based and GPSenabled tracking devices, as well as units that employ both technologies, is on the rise. NABD founder Kenneth Shilson used the results to craft a recently published white paper on the state of the segment. “The survey provided new insights in respect to the use of payment assurance and GPS tracking devices, and was overwhelmingly positive toward their use and their overall operational impact,” Shilson says. “Although the ways in which these devices are used still varies between users, the consensus was that payment devices are a very beneficial tool in effectively managing a portfolio in today’s challenging environment.”

Which type(s) of payment assurance device do you use? Disabler product with payment reminder

46%

Combined disabler and GPS (no reminder)

Use discretion 38% Uniformly 62%

Yes 90%

36%

What benefits have you experienced as a result? Customers call us

How have the devices affected your repossession efforts? Provides a psychological deterrent

36%

Enforces theory of “They can run, but they can’t hide.” Facilitates repo retrieval, therefore mitigating losses

13% 36%

12 F&I and Showroom October 2011

7% 9% 32%

All of the above

22%

All of the above

FI1011trends.indd 12

Do you use enforce your policy uniformly or use your own discretion?

No 10%

32%

Combined disabler and GPS (with reminder)

We are able to pay closer attention to repayment patterns Customer is forced to have regular interaction with us Allows us more flexibility in credit granting decisions

Do you disclose the presence of each device to every customer?

44%

GPS tracking device

The fact that dealers’ approach to the use of the devices “still varies” is a concern. Nearly 10 percent of respondents reported that they do not disclose the presence of the device to every customer. As Shilson points out in the white paper, there’s no good reason not to: Disclosure protects the dealer and has a “psychological impact” on the customer. Thirty-eight percent of respondents said they prefer to use their discretion when deciding whether to disable the starter or initiate GPS tracking, a practice which could hurt a financer if they were to face a discrimination suit. Delinquency, Shilson says, should be the determining factor. To download the NABD white paper, visit the “Important Industry Information” section at www.bhph info.com.

51%

Some of the above

55% 12%

PHOTO ©ISTOCKPHOTO.COM / CRISTIMATEIV

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2011 F&I Pacesetters

Setting

Meet the seven finalists for F&I Dealer of the Year, the winner of which will be profiled in the magazine’s November issue. By Gregory Arroyo

or these seven operations, noncompliance is not an option. What sets them apart from the rest is the ability of their F&I departments to succeed under the strictest of guidelines, as they have successfully found the fine balance between being customer-centric and aggressive. One of them will appear on the cover of next month’s issue as the 2011 F&I Dealer of the Year. The following profiles offer a peak into these operations and the people who lead them.

Dick Hannah Dealerships Background Check: Founded in

1949, Vancouver, Wash.-based Dick Hannah Dealerships is a 13-rooftop, 19-brand operation. The dealer group is currently operated by Richard Hannah, president, and vice presidents Jason and Jennifer Hannah. The Numbers: The dealer group’s profit per vehicle retailed sits just north of $1,000 after increasing by $350 since March 2007. In the same span, the dealer group’s charge-back rate fell from 20 percent to 9 percent. Secret Weapon: The group’s F&I director, Ralph Larson, a former general agent. Since joining Dick Hannah in March 2007, he has put the group through sales training and helped reorganize its F&I department.

Larson also standardized the processes by which his department operates. He implemented a new selling approach that sells and discloses all of the F&I products throughout the buying process. The menu is used to confirm that the customer is committed to the product. Building value, he says, is key. “We try to get the customers familiar with the features and benefits of the F&I products and their associated costs upfront, even before the formal F&I process even begins,” he says. “No one likes to be sold anything, but people like to buy stuff.” Compliance Check: Located in a state famous for its active attorneys general, Dick Hannah has a zero-tolerance policy when it comes to noncompliance. The group records all F&I interactions via Innovative Aftermarket System’s SmartEye video and audio recording system. Larson also instituted fixed profit models for F&I products. The group also invested in Compli’s compliance and HR software to automate its employee training program. The dealership also employs MenuVantage’s selling system to verify disclosures and ensure that its pricing model is followed by all producers. The dealer group also is an Association of Finance and Insurance Professionals (AFIP) Industry Partner. Industry Involvement: Dealer principal served as past president of the Washington State Automobile Dealers Association, and currently sits on the board of the Oregon Automobile Dealers Association. Giving Back: Among its many community outreach activities, Dick Han-

Chris Cochran Haddad Dealerships

nah plants a tree for every vehicle sold in support of the Arbor Day Foundation. The dealer group also partners with organizations such as the Boys and Girls Clubs of Southwest Washington, Southwest Washington Medical Center and the United Way.

Fremont Motors Background Check: This Lander,

Wyo.-based dealer group was founded in 1938 by Clyde Guschewsky. Today, the 13-store operation represents the largest dealer group in the state under the leadership of Charles Guschewsky. The Numbers: F&I gross so far this year is 151 percent ahead of 2010. Total retail is up 132 percent.

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the

Pace

Secret Weapon: Understanding the

importance of relationships. Twice a year, the dealer group invites all of its lender reps and buyers to meet with management and its F&I team. The event serves as both a relationship builder and a chance for reps to provide feedback. “The relationship we have with buyers played a huge role in our ability to navigate the downturn,” says Robert Laird, director of finance for Fremont Motors. F&I producers are taught a nopressure approach to F&I sales. Three years ago, the group installed MenuVantage’s F&I selling system. Laird likes the system because it allows him to monitor his team. “When we present product, we want to make sure we’re making it clear to customers how our products will benefit them. And we present

them as options, show them how they work and then leave it the customer to decide,” he says. Laird adds that sales managers are paid the same amount on F&I income as F&I managers, which he says has created a real team atmosphere between the two departments. It also has led to better F&I performance. Compliance Check: For Fremont, there’s just no option when it comes to compliance. “All our stores are in small markets, which means we need to be able to sell to a couple of generations of customers,” Laird says. “We don’t survive if we don’t have repeat customers.” The dealership also is active in the Wyoming Automobile Dealer Association, from which it sources most of its compliance policies and procedures. It also sources information from the AFIP. Laird also conducts quarterly audits of customer files. Industry Involvement and Trophy Room: The operation’s president

and CEO, Charles Guschewsky, sits on the board of directors for the Wyoming Automobile Dealers Association. The group’s Ford store earned Blue Oval certification, and its Toyota store is a four-time winner of the Toyota President’s Award. Its Chrysler/Dodge dealership also was awarded Chrysler’s Five Star distinction. Giving Back: The dealership provides $400,000 in annual support to local causes throughout Wyoming and Nebraska.

Haddad Dealerships Background Check: Haddad Dealerships, which operates a Subaru,

Toyota and Hyundai store, has served the Pittsfield, Bennington and North Adams areas of Massachusetts for more than 80 years. The Numbers: Managed by Chris Cochran, finance director, Haddad’s seven-person F&I team is already 10 to 12 percent ahead of last year in terms of profit per retail unit. Acceptance rates are up 20 percent. Secret Weapon: A pay plan that rewards for overall acceptance rates, not for product-specific penetrations. The group currently employs the menu systems offered by DealerTrack and Team One Research and Training. Cochran says his team’s approach to F&I product sales is what has made the biggest difference. “Without getting into specifics, instead of us selling, our method lends itself to customers having to choose which option works for them,” he says. Compliance Check: Compliance has really come into focus for Haddad in recent years, as the group really put a high price on customer satisfaction. That’s why Cochran has made CSI a big part of his team’s pay plans. Cochran also conducts spot checks on deals to ensure compliance, a process implemented by F&I Resources, a New England-based general agency. As for training, Cochran leads weekly meetings and is in charge of new-hire training. Additional F&I training is provided by F&I Resources. “For me and my guys, [being an F&I Pacesetter] validates all of the work we put in,” Cochran says. “This recognition also speaks to our leadership here at Haddad.” Trophy Room: Has won the Toyota

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2011 F&I Pacesetters President’s Award every year since 2008. Giving Back: Haddad supports the local Big Brothers Big Sisters of America affiliate. The dealer group also sponsors multiple youth sports teams, and supports the annual Boys & Girls Club Golf Tournament.

International Auto, Orland Park Background Check: Operated under the AutoNation banner until 2009. Today, the Tinley Park, Ill.based dealership operates under the 16-store International Autos Group, which operates stores throughout Illinois and Wisconsin. The Numbers: Service-contract acceptance rates are up 25 percent, while profit per vehicle retailed is up 10 percent. Secret Weapon: Consistency. F&I Director Paul Bednarz attributes International’s success to the product-based pay plan he installed for his four-person F&I team. Commission levels increase as producers hit

Jenkins & Wynne Background Check: Founded in

December 1953 by Vernon Jenkins and his partner, Briz Wynne, the Clarksville, Tenn.-based, singlerooftop Ford, Lincoln and Honda store is a two-time Time magazine Dealer of the Year winner. The store is currently operated by the founder’s son, Don Jenkins. The Numbers: The F&I department is running 10 to 15 percent ahead of last year. Sixty percent of the group’s sales are to repeat customers. Secret Weapon: According to Angelia Butts, who manages a fiveperson F&I team, the organization’s secret to success lies with the group’s active dealer. He sets the tone for everything that goes on, she says. “No one in this dealership is of any less importance,” she says. “There’s definitely a culture here.” The F&I process, which employs Team One Research and Training’s F&I menu-selling system, starts with a thorough review of a customer’s credit standing. The focus is on getting them the best finance deal possible before products are ever introduced. Butts adds that payments are never quoted on the show floor. Each F&I staffer is given specific goals and growth plans. The store’s management team also is active in monthly performance reviews. Compliance Check: Setting the tone for the dealership’s compliance efforts is its motto: “Our obsession is your satisfaction.” That’s why regular meetings are held among the operation’s management team to review and

Angelia Butts Jenkins & Wynne

update compliance policies. Bulletins published by the state and national dealer associations are required reading for F&I team members. The dealership also sources its compliance material and training from the The Plateau Group, its F&I product rep and income-development company. Completed deals also are routinely audited for compliance, and monthly reviews of the dealership’s sales and F&I processes are conducted. CSI for the Ford segment is 90; for Honda, 97. Trophy Room: Won the Ford and Honda presidents’ awards the last seven and six years, respectively. Named Time magazine’s Dealer of the Year in 1984 and 2010, and Clarksville residents have voted the dealership as the “Best Place to Buy a Vehicle” for 10 years running. Giving Back: Among its many community support activities, Jenkins and Wynne is an active supporter of the Fort Campbell military base, runs a Soldier of Month program, and supports the United Way and local school athletics programs.

Lithia Motors Inc. Background Check: The group was

founded by Walt Deboer in 1946 as a Chrysler Plymouth Dodge franchise in Ashland, Ore. In 1996, the 85-rooftop operation became one of the nation’s largest publicly traded dealer groups. ▲

certain acceptance rate targets. The structure, he says, keeps his team aggressive without having to resort to high-pressure selling. Compliance Check: The store completely revamped its compliance policies and procedures after it was acquired by International Autos Group. Much of its compliance rulebook was sourced from its product provider, JM&A Group. Deals are reviewed monthly for compliance and the F&I managers are graded by customers through the dealership’s CSI survey. The company also has set prices for all of its

F&I products. “We want consistency,” says Bednarz. “We’d rather have three products at $200 dollars profit instead of one product at $1,000.” Most F&I managers at the store are holdovers from the dealership’s AutoNation days, so most have been trained and tested by the AFIP. Trophy Room: Won several manufacturer-based CSI Recognition Awards. Giving Back: Every dealership under the group’s banner is inovlved in community support programs.

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2011 F&I Pacesetters The Numbers: Revenue in the second quarter was up 30 percent year over year, the highest second quarter earnings for the company since 2006. Revenue generated from F&I increased 32.3 percent, with average gross profit per retail unit up 8.9 percent to $1,000. Secret Weapon: The sheer scale of this operation is its main advantage. Its size and resources have allowed Lithia to have a department, led by Steve Justice, devoted to monitoring, training and keeping performance levels up among the group’s 145 F&I producers. Justice and his four-person support team review all of the group’s deals, which are scanned and emailed to him by each store. They track the

(L-R): Steve Veldkamp, Jodi Nicholson, Raymond Borg and Gary Allgeier on one of The Suburban Collection’s lots.

corporate level, Lithia is involved in YMCA and Kids Unlimited. It also hosts an annual golf tournament to support Oregon colleges.

The Suburban Collection

performance of producers and customize training to address specific needs. The team also manages newhire training and runs the group’s annual weeklong training event. As for F&I product sales, the group employs what Justice describes as a hybrid between step and menu selling. The process starts with a features and benefits review of the dealer group’s four core F&I products. The goal is to build value in the product before the F&I manager presents a customized package option of the group’s core products. Compliance Check: When Justice and his team aren’t training, they’re performing regular deal audits to ensure compliance. The group also hosts a weeklong training course that all F&I producers are required to attend. Industry Involvement: Member of the National Automobile Dealers Association. Giving Back: Every dealership under the Lithia banner is involved in community support programs. At the

Background Check: The dealer group was founded more than 60 years ago as a single-point Oldsmobile dealership in Birmingham, Mich. Today, it operates 21 locations throughout Michigan and South Florida. The Numbers: Managed by Gary Allgeier, director of finance, and Jodi Nicholson, financial services support manager, the group’s 45 F&I producers set an all-time record in August for financial services income. The department is averaging well north of one product per deal, but they’re striving to achieve a consistent two products per deal. Secret Weapon: The group’s ability to go from a 30,000-foot view of its operation down to street level with one click. The operation invested in a technology platform that pulls data from all five of the group’s dealer management systems. It allows Allgeier to monitor production at each location and respond to any trends with training or other tools. That was the case when Allgeier created his group’s lender matrix last year. With lenders still guarded, the matrix helped producers quickly

match customers with the right finance source. Today, the matrix is the reason the department is successful at getting 90 percent of finance customers approved. Allgeier also attributes his team’s success to Intravision’s F&I video recording system, which the group began installing in every F&I office in April 2009. Compliance was one of the factors considered, but the main motivation for adding the system was to help drive production the right way, as it serves as an invaluable training tool. Compliance Check: When the platform was introduced, Allgeier asked programmers to equip the system with triggers that notify him by text when a process is skipped. “We basically took the compliance regulations in our 101-page manual and automated the follow up,” he says. He also requires a menu on every deal, as it serves as the trigger point for many of the group’s automated compliance activities. “We tried to automate all non-revenue generating activities,” Allgeier says. Trophy Room: Named the 2010 F&I Dealer of the Year and a 2009 F&I Pacesetter. Giving Back: The group is involved in more than 80 charities, including the American Cancer Society, American Red Cross and the Boys and Girls Club of Southeast Michigan.

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F&Idol Contest

&I and Showroom magazine and its sponsor, Innovative Aftermarket Systems (IAS), set out to find the best F&I presentations in the following categories: Vehicle Service Contracts, GAP, Tire and Wheel, Key Replacement and Theft Deterrent. One of the five individuals selected will be named the 2011 winner of the magazine’s inaugural F&Idol contest.

In July, readers of the magazine were asked to submit a video of a mock customer interaction. The videos had to be less thann five minutes long, and each contestant had to successfully handle at least two customer objec-tions. The prize for each off the h category winners: $1,000, plus airfare and hotel accommodations at the Las Vegas Hilton.

Judging the entries were Bob Corbin, president and CEO of IAS; Gregory g y Arroyo, the magazine’s executive ex editor; ‘Mad’ Marv Eleazer, monthly columnist and F&I director at Langdale Ford; Ron Reahard Re , magazine contributor ib and d president of Reahard and Associates Inc.; Steve Veldkamp, training director at Great Lakes Companies; Alan Miller, senior vice

Lights, Camera,

Action! These five individuals were named category winners for having the best on-camera F&I presentations in five categories. Find out what strategies they employ in the F&I office. By Jennifer Washington

20 F&I and Showroom October 2011

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F&Idol Contest president of CNA National Warranty Corp.; Robert Harkins, president of RAH Consulting; and Randall Crisorio, president and CEO of United Development Systems. Entries were judged for their transition statements and overall flow, customer rapport, product disclosures and knowledge, effective use of personal stories, and objection handling. In all, judges reviewed more than 30 entries and selected the five individuals profiled below. The videos were posted on the Industry Summit Website to allow readers to vote for their favorite finalist and help decide who would walk away with the F&Idol trophy — and an additional $2,500. Here’s a look at the finalists:

GAP Name: G.P. Anderson, finance man-

ager

G.P. Anderson Thielen Motors

it, you get the balance of the money back, which we can use on your next vehicle purchase. It’s prorated. Also, you said you wanted your payment to be under $300. Well, with the product, your payment is going to come in at $295.

Store: Thielen Motors, Park Rapids,

Minn. Years in the Business: More than

20 Years At Current Dealership: 12 Claim to Fame: His finance penetra-

tion rate stands at 78 percent, and he’s working toward averaging at least three products per deal. Keys to Success: The constant need for improvement. “F&I managers need to strive to get 1 percent better every single day,” he says. Customer Objection: I’m concerned about GAP raising my payments. G.P.: In your situation, it will run you $499 for five years. Divide that

Key Replacement Name: Jim Hesselgrave, finance di-

rector Store: Crown Honda, Pinellas Park,

Fla. Years in the Business: 32 Years At Current Dealership: 14 Claim to Fame: He was his store’s

Cars aren’t actually broken into, as least from the professional jobs we’ve seen. Instead, they’re flat-bedded. Once it gets into a garage, it’s disassembled into 50 parts or so. Finance Manager of the Year in 2010, and he averages two products per deal. Additionally, one out of every two customers buys a product from him. Keys to Success: Doing the same thing every time and the training he received from Gerry Gould of United Development Systems. Customer Objection: I’ve never

Vehicle Service Contract Name: Chris Bonilla, finance manager Store: Auburn (Wash.) Chevrolet Years in the Business: 6 Years At Current Dealership: 6 Claim to Fame: In August, his ser-

vice contract penetration rate was at 68 percent and his average profit per retail unit was at $1,846. That means only 10 percent of his customers don’t buy products from him — the rest do. ▲

by five and that comes out to $99 a year. Divide that by 365 and it costs you 28 cents a day to have that coverage. One of the great things about this coverage is that it covers you for five years. Let’s say that, in three years, you decide to trade out of [the vehicle]; you’ll still have two years of coverage remaining. If you cancel

lost my keys and I don’t plan to lose them in the future. I don’t think it’s a good product for me. Jim: Let me tell you about another customer’s experience. A man takes his family to a theme park and, at some point during a rollercoaster ride, his keys fall out of his pocket. But he’s got one of these (holds up a customer card). He makes a phone call, gets picked up and is driven to the nearest dealership about six miles away at no charge. The dealership makes him a new key at no charge and they drive him back to the entrance so he can rejoin his family. All of that took less than an hour. Does this make more sense to you now?

22 F&I and Showroom October 2011

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F&Idol Contest Keys to Success: The mentorship of

his owner, Phil Bivins, as well as the influence of his trainer, Joe Papa. He also credits training received from Resource Automotive. Customer Objection: I don’t want my payment to go up, and I think this is a quality car. Chris: Let’s say your car was 99.9 percent problem-free. So, if you multiply 15,000 parts by 99.9 percent, that means 14,985 parts will be problem-free. But that still leaves 15 problem parts. Let’s say your car is better than 99.9 percent and cut that number in half to seven problem parts. Our average repair order is $500. If I multiply $500 by seven, you get $3,500. Well, our service contract is $1,999, so you can see how our service contract is going to save you money in the future. So, will 72 or 78 months work better for you?

Theft Deterrent Name: Raymond Borg, finance

manager Store: Suburban Collection, Troy,

Mich. Years in the Business: 18 Years At Current Dealership: 8 Claim to Fame: The operation’s

magic number for product per vehicle retailed is $1,000, so he likes to be around there. He also tries to achieve a two-product average per retail unit. Keys to Success: The insights offered by his F&I Director, Gary Allgeier. The dealer group’s video recording system also allowed him to get his customer interactions really dialed in. Customer Objection: The car uses a smart key. You can’t “jimmy” the lock or hotwire the car, so I think I’ll pass. Raymond: Cars aren’t actually broken into, as least from the professional jobs we’ve seen. Instead, they’re flat-bedded. Once it gets into a garage, it’s disassembled into 50 parts or so. Our process etches traceable numbers into the vehicle. If your car is stolen and the parts did show up, police and body shops can use their

Raymond Borg

The Suburban Collection

black lights to see the phone number and VIN permanently etched [onto the parts]. We also warn thieves with a sticker that goes in the window. And the package comes with an additional $5,000 to help replace the car. Customer: AAA has always covered me. Raymond: They won’t cover the taxes, and the car loses about 20 percent in depreciation when you drive off the lot. Customer: I could see how that would make sense. Raymond: It’s approximately $7 or $8 a month to possibly deter a thief from thinking about stealing your car. And it helps you get your money back if it’s stolen. Want to go ahead and include it with your purchase?

Tire and Wheel Name: Paul Vander Kamp, business manager Store: DeNooyer Chevrolet, Kalamazoo, Mich. Years in the Business: 7 Years At Current Dealership: 7 His Approach: Using both visual aids and real-life occurrences. “You’re in a high-importance posi-

tion, so the more professional you are with customers, the better impression they have of you and the dealership,” he says. His Key to Success: The training and support provided by Ally Financial. Customer Objection: I like the coverage, but I can get it through ABC Tires for less. Paul: ABC Tires has a great program. But if you’ve purchased there, they only give you a prorated replace-

The truck model you’re buying has 20-inch rims, so you’re looking at about $200 per tire. Also, it’s going to be about $600 to $700 per wheel. ment warranty. Ours is not prorated. If you’re 70 percent worn out and you need a new tire, they’re going to pay that kind of money for it. ABC Tires also does not cover the rim. Customer: I also considered selfinsuring because the tires and rims can’t be that much. Paul: The truck model you’re buying has 20-inch rims, so you’re looking at about $200 per tire. Also, it’s going to be about $600 to $700 per wheel. Customer: Those are a lot more expensive than I thought. Paul: You have to ask yourself, is it easier to budget $2 to $3 a week, or is it easier to budget for a $900 unexpected repair?”

24 F&I and Showroom October 2011

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Technology

Mobile Mainstream Goes

The pace of mobile technology adoption is quickening, and companies are lining up to help dealers transition to a mobile marketplace. Here’s a breakdown of seven solutions that are available now or will be in the near future. By Jennifer Washington

he mobile race is on. Technology companies and even F&I product providers continue to roll out solutions aimed at mobilizing processes away from the sales desk and outside of the F&I office. Industry insiders and dealer personnel are mixed on whether that future will ever be realized, but all agree that there is a place in the dealer world for today’s mobile devices. Last year, Mercedes-Benz Financial Services became the first captive lender to introduce a dealer-facing Apple iPad solution. Now, ADP Dealer Services, BMW Financial Services, DealerTrack, Innovative Aftermarket Systems, Reynolds and Reynolds, and Warrantech are looking to do the same. Most current solutions are focused on helping dealers manage customers and their operations, but these offerings also leave open the possibility of these tools making their way into the sales and

F&I process. Fueling this trend are stats like the ones published by Cambridge, Mass.-based Forrester Research, which showed that consumers have purchased nearly 29 million Apple iPads since the tablet was introduced. The acceptance of these devices is allowing solution providers to move away from costly, device-dependent strategies toward more Web-based solutions, allowing dealers to decide on the hardware they’ll use to access these tools. Here’s a look at what’s available now or will be in the near future: ADP Dealer Services: Performance Tracking

ADP Dealer Services’ Drive for Mobile is a mobile Website companion for its ADP Drive DMS. It is designed to allow a dealership’s executive

management team to access key performance metrics for every department from their iPhone or Androidbased smartphone. Currently used by more than 1,000 registered clients, ADP Drive for Mobile provides mobile access to stats for every department, as well as drill-down capabilities. Users can monitor cash flow, accounts receivable and payable. Managers also can view service department repair orders, as well as a wide array of service-related performance data. ADP Dealer Services also offers a customer-interaction tool for the service department. Called Customer Touch, it is designed to send out service reminders and notifications to customers via mobile text, direct mail, automated or live voice, or email. BMW Financial Services: Mobile Dealer Portal

BMW’s InfoBahn Mobile is an iPadcompatible version of its dealer por-

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Technology tal. It allows users to handle credit applications and inquiries and conduct lease-return inspections. On the lease-return end, dealership staff can use InfoBahn Mobile to pull up an inspection worksheet and calculate damages while conducting the in-

spection. On the F&I side, the captive finance company is currently working with about eight to 10 dealers to test what Shawn Bugbee, a senior marketing executive for BMW Financial Services, terms as “full mobile F&I.” The company also added Silanis Technology’s e-signature solution to its solution last September, signaling its long-term plan to allow for e-contracting over the iPad. DealerTrack eCarList: Customer Management

When DealerTrack acquired eCarList in July, the company also acquired the inventory management and merchandising solution provider’s TrueTarget mobile app. It can run on an Apple iPad or iPhone, as well as Android-based devices. For salespeople, the free version allows access to data from AutoTrader, Cars.com and eBay Motors from anywhere. They can even see the h pricing of their competitors. The app also acts as an appraisal tool, allowing salespeople to scan VINs or a vehicle’s window sticker. The merchandising features allow dealerships to photograph vehicles and manage their online vehicle listings from their mobile device. It also allows them to see market pricing so they can price their vehicles to the market. The upgraded version of the app also provides access to data from BlackBook, AuctionNet, Manheim and Adesa.

Reynolds and Reynolds: Customer Management

IAS: Customer Management and Training

Innovative Aftermarket Systems SmartPad mobile tool can be used to present F&I products to customers before they make the transition to F&I. Its primary purpose, however, is to help users manage the customer experience at their stores. Part of the aftermarket program provider’s SmartDealerProducts software suite, SmartPad is compatible with the Apple iPad, most Google-based Android tablets and the Blackberry Playbook. Whether answers are keyed in by the interviewer or the customer, results can be transmitted to the dealership’s management team via text message or e-mail. Dealers also can equip SmartPad with multimedia presentations and even video clips.

Reynolds and Reynolds‘ dealerPAD solution is available at no additional charge to current users of the company’s Contact Management system. Designed to represent the mobile version of the company’s customer relationship management system, it allows salespeople to create customer records while interacting with them on the lot. Sales consultants can even check their appointment schedule and record recent activities. Users must have an existing account with CarLocate.com, the vehicle search portal Reynolds launched in 2009. That’s because the site is used to populate the iPad with the same vehicle photos and information customers are seeing on dealers’ Websites.

Mercedes-Benz Financial Services: Mobile Dealer Portal

This month marks the one-year anniversary of Mercedes-Benz Financial Services’ (MBFS) full-scale deployment of the mobile version of its MB Advantage software. The mobile offering is built around MBFS’s dealer point-of-sale system and allows front-end staff to start loan applications and check for financing options while working with a customer. The mobile version of MB Advantage also can be used to ground lease-return vehicles. Michael Kanzleiter, senior marketing manager for the company, wouldn’t tip his hat as to what’s next for MBFS’s mobile strategy, but he says his technology staff will continue to look for more uses.

Warrantech: Customer Management and Training

Warrantech will enter the mobile race early next year with a Web portal that dealers can access from their desktop computer, mobile tablet device or smartphone. The product provider’s offering will serve as both a customer interaction tool and training aid. The company has yet to give its dealer-facing solution a name, but officials say dealers will be able to load it with closing videos, customer presentations and even evidence manuals. So, while the portal will act primarily as a customersatisfaction monitor, dealers will have flexibility in how they use the mobile solution.

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Auto Finance

Below Prime Goes Prime Time In the second quarter, finance sources continued their drive down into the high-risk credit tiers and consumers continued to pay on time. But the magazine’s resident finance insider wonders how long those trends can continue in this month’s review of quarterly auto finance trends. By Melinda Zabritski

few bumps in the road may have slowed the economic recovery, but that wasn’t the case for auto finance, especially in the second quarter. Dealers were able to find more sources for their credit-challenged customers, with Experian Automotive’s quarterly auto finance data showing a significant increase in loans made to below-prime car buyers.

That segment represented 22.29 percent of all new-vehicle loans originated during the second quarter, an 18.21 percent increase from the year-ago period. This was welcome news to both dealers and manufacturers, especially with half of all potential consumers falling into the highrisk credit tiers. For their part, consumers continued to improve their loan repayment patterns, and their good behavior is driving the

2Q 2011 by the Numbers ■ New-vehicle loans made to subprime customers increased by 22.4 percent during 2Q 2011 compared to the year-ago period.

■ Average customer credit scores for both newand used-vehicle loans dropped by 10 and eight points, respectively.

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■ Average loan amounts for new vehicles were up only $17, but average loan amounts for used vehicles jumped by $476.

■ Monthly payments were relatively flat, dropping $5 for new vehicle loans and rising by $4 for used vehicle loans. PHOTO ©ISTOCKPHOTO.COM / CREATIVEYE99

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Auto Finance push into the high-risk credit tiers on the part of finance sources. That pattern also is driving down delinquencies, repossessions and dollar volumes of at-risk loans. The uptick in average loan amounts for new ($17) and used ($476) vehicles also served as an indicator of the auto finance industryâ&#x20AC;&#x2122;s improving health and appetite.

ago quarter to 8.17 percent. The biggest jump in share was made by the deep subprime category, which rose 44.1 percent year over year to 2.13 percent. Loans made to the below-prime risk tiers also jumped in the used segment, increasing by 7.7 percent year over New-Vehicle Financing by Risk Segmentation

Delinquencies Continue to Fall

1.48% 6.16% 10.57%

100%

As previously mentioned, consumers continued to make their payments on time and gave finance sources every reason to delve deeper into the lower credit tiers. The 30day delinquency rate, for instance, declined by 10.39 per-

80%

2.13% 8.17% 11.99%

13.55%

14.06%

60% 40%

68.24%

63.65%

2Q 2010

2Q 2011

20%

30-Day Delinquency Rate

5.89%

5.5%

5.14%

4.5% 3.5% 2.5%

2.55%

3.08% 2.66% 2.25% 1.59%

2.0%

1.49%

1.5%

Year-Over-Year Change in Risk Distribution

1.0%

50%

0 Bank

Captive 2Q 2010

Credit union Finance/other

44.1%

40% 32.6%

2Q 2011

30% 20%

13.4%

60-Day Delinquency Rate 10% 2.0%

1.79% 1.54%

1.5%

3.7%

Super prime

0 -10%

Deep subprime

Subprime Nonprime

Prime -6.7%

1.0% 0.64%

0.5%

0.54%

0.58%

0.42%

0.37%0.33%

0 Bank

Captive 2Q 2010

year. Overall, 52.7 percent of used-vehicle loans were made to nonprime, subprime or deep subprime car buyers, up from 48.93 percent in the year-ago quarter.

Credit union Finance/other 2Q 2011

cent in the second quarter, falling from 2.89 percent to 2.59 percent of all open automotive loans. Additionally, the 60-day delinquency rate fell by 14.46 percent, with finance companies experiencing the largest rate decline. The decreases in the 30- and 60-day delinquency rate led to a nearly 20 percent decline in overall dollar volume of at-risk loans, which fell from $21 billion a year ago to $16.9 billion in the second quarter. Below Prime in the Fast Lane

The most positive sign for dealers was the 22.4 percent year-over-year jump in new-vehicle loans made to creditchallenged customers. That increase shouldnâ&#x20AC;&#x2122;t be a surprise, given the improvements in delinquencies and dollar volumes of at-risk loans. Breaking down the high-risk segment, the share of auto loans made to nonprime customers rose from 10.57 percent a year ago to 11.99 percent. The share of loans for subprime customers rose from 6.16 percent in the year-

Average Amount Financed Spikes for Used

The average amount financed for new vehicles remained relatively unchanged from the same quarter last year. Used-vehicle loans, on the other hand, experienced a significant jump from the second quarter of 2010.

The spike in loan amounts for used vehicles, however, was not a reflection of lenders loosening their credit criteria. The increase could instead be attributed to the rise in used-vehicle pricing during the quarter. The average loan amount for a new vehicle increased $17 to $25,240, while the average for used rose by $476 to $17,062. The spike in loan amounts for used vehicles, however, was not a reflection of lenders loosening their credit criteria. The increase could instead be attributed to the rise in used-vehicle pricing during the quarter. Average monthly payments for new vehicles were

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Average Amount Financed $25K

$25,223 $25,240

$20K

$16,586 $17,062

$15K $10K $5K 0 New

Used 2Q 2010

2Q 2011

flat as well, with the average payment decreasing $5 to $450. The average payment for used, however, jumped by $347. Loan terms showed little movement, with new-vehicle terms rising just one month to 63 months. Used terms increased from 58 months in the year-ago period to 59 months.

of at-risk loans to fall. But this renewed stability could also lead to higher risk taking on the part of finance sources. The auto finance market also is operating in what remains a relatively flat retail market. The danger here is that a battle for deals could fuel a return to the prerecession race for market share. That wouldn’t be a bad thing for dealers in areas with a large pool of nonprime customers, but it would not be good for the long-term health of the industry. The other threat is the teetering economy. If the country were to fall into another recession, there’s no telling what strategies lenders will employ for the remainder of the third quarter and beyond. There is a possibility that they might continue to reach deeper into nonprime, but they could just as easily pull back in the face of high unemployment and the roller-coaster ride the stock market has been on in recent months. If we can avoid a double-dip recession, finance sources will be well positioned going forward. If not, the spike in riskier loans could turn into a slippery slope for the industry.

3 Potential Threats to Industry’s Good Health

Finance sources are feeling a lot better these days, but will it last? Consumers are getting better at paying off their loans, which is causing delinquencies and dollar volumes

Melinda Zabritski serves as director of automotive credit for Experian Automotive. E-mail her at melinda.zabritski @bobit.com.

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Finance and Insurance The desk can be critical to a dealership’s success, but overstepping its boundaries can leave a store vulnerable. The magazine’s F&I pro draws a line in the sand. By Ronald J. Reahard

here is an ugly trend taking hold at many dealerships today. The sales desk is being tasked with many of the duties and functions that have traditionally been the responsibility of the F&I department. The list includes taking credit applications, pulling credit bureaus, submitting deals to lenders, and quoting payments and interest rates. In such cases, F&I is a separate department in name only. And unless the customer has terrible credit, the desk basically handles the entire process while the finance office is relegated to simply preparing the paperwork and presenting the customer with additional products to purchase.

Paper Pusher vs. F&I Manager

Is this what’s happening at your dealership? If you’re not sure, consider the following questions: 1. Who takes the credit application and obtains the credit bureau report? 2. Who reviews the app with the customer prior to submission? 3. Who decides which lender to submit the deal to, and who actually submits the deal to the lender? 4. Who determines the interest rate, down payment and maximum advance? 5. Who decides whether the customer matches the vehicle, and who decides whether or not to deliver the unit? If you answered “the desk” to a majority of those questions, then you no longer have an F&I department. What you have is a secretarial service for the sales department. All you’re doing is typing up the finance terms the sales department negotiated. F&I managers are there to help customers attain the car they want at terms they can afford. Removing the

“finance” function from the F&I department reduces it to mere product pushers. Worse yet, if the F&I manager is not reviewing the credit application and credit bureau with the customer prior to submitting a deal to a lender, the customer will not perceive him or her as having any role in the credit process — and they’d be right. The biggest problem, however, is that there is no way for the F&I manager to attain the necessary information he or she needs to make a needs-based product presentation. And if an F&I manager doesn’t get the customer’s story regarding information contained in the credit app or the bureau, the F&I sales process becomes nothing more than a series of generic product pitches. Checks and Balances

The F&I department also plays a vital role in protecting the dealership, because all it takes to put a dealership out of business is a desperate salesperson inflating a customer’s income or a rogue sales manager powerbooking cars. That’s why every store

Reorganizing

D k the

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Finance and Insurance needs someone outside of the sales department to confirm that the customer’s information is correct and to verify that every deal is structured properly for a particular lender prior to submission. Every dealership and every department in the dealership needs a checks-and-balances system. If a

particular form is missing, filled out incorrectly or not signed, someone from accounting will gleefully prance into the F&I office, wave the form in the manager’s face and chortle, “You forgot to get this signed!” And just as the accounting office is a branch of our checks-and-balances system, the F&I department must act in the same

capacity for the sales department. If you let the fox guard the henhouse, you’ll run out of chickens pretty fast. If you eliminate the critical checks and balances for the sales department, you may not have a dealership. The F&I department also is responsible for building and maintaining the dealership’s lender relations, which means they have to be the ones to confirm the information sent to the lender is correct. The department also must manage the dealership’s portfolio mix and look-to-book ratio for all of the dealership’s lenders. That is impossible to do when you’re not the one submitting the deals to the dealership’s finance sources. To protect the dealership and ensure the customer sees value in the F&I process, the sales desk must operate within certain parameters. The most successful — and profitable — dealerships establish written guidelines for both the sales and F&I departments. Those guidelines should reflect the fact that the sales department is responsible for selling new and used vehicles. It should also indicate that the sales department is not responsible for selling or giving away dealership financing or F&I products in an effort to sell those vehicles. Additionally, the sales desk should not be allowed to submit deals to lenders without an F&I manager first reviewing the deal and interviewing the customer. If a customer indicates they want the dealership to arrange their financing, the desk can certainly have a salesperson assist them in completing a credit app. The sales desk also can and should obtain a credit bureau report to help determine the interest rate for which the customer is likely to qualify. Additionally, payments and interest rates should be quoted by the desk utilizing the dealership’s guidelines before and after a credit bureau report has been obtained. Once the customer makes a commitment to buy, it becomes absolutely essential that an F&I manager interview the customer prior to submitting the deal to a lender. Again, informa-

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If an F&I manager doesn’t get the customer’s story regarding information contained in the credit app or the bureau, the F&I sales process becomes nothing more than a series of generic product pitches. tion needs to be confirmed and the F&I manager must have the opportunity to learn the details and circumstances related to any adverse information contained in the customer’s credit report. Not only is it essential for justifying an approval from your buyer, the information provides the foundation for a needs-based product presentation in the F&I office. Selling the Deal

Remember, the first thing every lender considers is the deal structure itself. Based upon the lender’s stated guidelines, maximum advance, debtto-income ratio, etc., ask yourself whether the deal meets the lender’s requirements. Nothing irritates a paper buyer more than receiving a deal that clearly wasn’t structured with his bank’s guidelines in mind. We’ve all had deals approved pending proof of income, only to find that we can’t actually provide the proof. You know what that looks like to a lender? It looks like we didn’t do our job. That’s why it’s critical that every dealership have written guidelines for the sales department when it comes to taking the credit application, obtaining a credit bureau report, and quoting interest rates and monthly payments prior to introducing the customer to the F&I department. Lastly, your dealership’s guidelines must require that the F&I department evaluate the deal structure, as well PHOTO COURTESY LANGDALE FORD

FI1011desk.indd 39

as review the credit application and credit bureau with the customer prior to submitting the deal to a lender. So, again, if your F&I department is not responsible for confirming the information on the credit application, reviewing the customer’s credit history with him or her, helping to structure the deal and then submit-

ting it to a lender, maybe it’s time to reorganize your desk! Ron Reahard is president of Reahard & Associates Inc., an F&I training company providing classes, workshops, and in-dealership and online training. Email him at ron.reahard@ bobit.com.

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Service

Maximizing

Return PPM Customer retention isn’t the only thing prepaid maintenance plans drive. With the right product mix, they also can add serious revenue to your store’s bottom line. By Mike Gorun

hen a dealership offers a prepaid maintenance program (PPM) to its customers, what does the store hope to get in return? Customer affinity is one thing, but there are other benefits to this bottom line-driving F&I product. Not only does a PPM plan deliver affinity, it provides dealers with profitable affinity. And experience shows that customers who use a dealer’s repair facilities are 17 times more likely to purchase their next vehicle from 40 F&I and Showroom October 2011

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that dealer. As great as that is, the true long-term benefit is that PPMplan customers frequently purchase additional customer-pay retail parts and labor services that boost repair order profitability. To capture that opportunity, dealerships need to commit themselves to delivering a safety and reliability inspection to every vehicle owner. Doing so helps verify the needs that brought the vehicle into the shop and allows technicians to identify other legitimate maintenance and repair needs beyond those covered by the customer’s PPM plan. Boosting a PPM repair order by upselling an additional $150 to $350 of retail customer-pay business will add serious money to the bottom line. When a PPM plan is built into usedvehicle prices, a dealer can bump after-sale service from about 15 percent to upwards of 50 percent.

A dealer who plugs a basic threeproduct PPM plan into every one of the 600 used units he or she sells each year can expect to generate more than $1.3 million in total incremental service revenue. This return is based on a $682 retail upsell per customer per service visit over the two-year plan term, even after factoring in a 55 percent utilization rate and plan costs.

PPMs Convert to More RO Dollars

Studies of current customers purchasing a PPM program reveal a remarkable statistic: While current industry stats indicate that roughly one in five customers return to the dealership for service, this company’s plan holders are visiting their servicing dealers at a rate of 72 percent. Additionally, plan holders that return to the dealership to redeem their plan benefits purchase incremental PHOTO BY GREGORY ARROYO

10/3/11 2:48:22 PM

tunate, as the nature of these low-value plans — and dealers’ inability to sell the plans — result in lost service business for the dealer. Newer, redesigned PPM programs help to eliminate this problem by offering a wider range of products and services. These programs — usually administered and managed to offer what is considered valuable to the dealership’s customers and market — seem to really work for both the consumer and dealer. Next-Gen PPM Plans

retail service about 90 percent of the time. In addition to the increased visit frequency, those plan holders are spending an average of $128 per visit, which includes upsell products and services. A dealer who writes 1,500 repair orders per month can easily sell 150 to 200 maintenance policies by simply asking customers visiting the service department. In the F&I office, it takes a 500- to 600-unit store to generate the same 200 maintenance policies. Given these upsell profit opportunities, why is it that some dealers’ prior experience with PPM programs is so disappointing? Many have said that customers simply won’t buy these plans. But upon closer inspection, it becomes clear why customers wouldn’t be interested: the plans were loaded with services of low value to the customer yet priced quite profitably for the dealership. This is unfor-

Today’s PPM plans also are softwaredriven, handling once time-consuming chores like plan registration, service claims and premium submission. Because dealers control these programs, any reserve or forfeiture, or money remaining in reserve for plan services not redeemed by purchases, is immediate. Every plan must also account for forfeiture, i.e., when a customer terminates the plan early or does not use the plan for whatever reason. For most traditional plans, the third-party administrator holds a dealer-funded reserve. It is from this reserve that the administrator could take up to 60 percent of the value of the cancelled services as part of its fee structure. The new generation of self-administered, self-managed plans offers attractive advantages to today’s market and value-conscious buyer. Custom plan content really appeals to them, and it makes these plans more attractive. These plans also enhance the owner’s investment by having the vehicle maintained by the dealership that sold his or her plan. This, in turn, enhances opportunity for alert advisors to upsell additional services for healthier repair orders. Michael Gorun is managing partner of MediaTrac, a technology-based owner retention and loyalty company. He has worked in operational service management positions for Ford, Nissan and General Motors. He can be reached at michael.gorun @bobit.com. October 2011 F&I and Showroom 41

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Sales Driver

Momentum: Getting It and Keeping It The magazine’s sales columnist delves deeper into his call for change in Part 2 of a two-part series on creating sales momentum at your dealership. By Cory Mosley

he excitement that comes when things click on an individual and business level is indescribable. There are plenty of customers on the lot, tons of Internet leads flowing and customers and banks saying, “Let’s do the deal!” We in the car business like to refer to that as “good times.” In my previous article, I laid out four potential game-changers that, if implemented, can ensure increased success for your retail operations. By definition, momentum cannot be achieved without motion. To put things in motion, a foundation must be laid first. So, let’s fire up the cement mixer and start pouring. ■ Identify one idea, process or strategy that must be changed: One

reason many of us never get around to changing things is that the challenges appear too great and we don’t know where to begin. If you start with one item at a time, you can significantly increase your chances of making a complete change. When I take on a turnaround project at a dealership, I use this same strategy. The little changes add up, and the snowball effect begins to create momentum. ■ Ask a respected colleague how they do things: The ego can

be a dangerous thing. Unwillingness to seek advice keeps some really talented people from getting to the next level. If you are the top guy at your dealership, make it your responsibility to mentor a new sales professional. If you’re looking for answers, seek out people who are operating at the level to which you aspire. Come up with some intelligent questions, track

them down and ask away. This is how you’ll become a better salesperson, manager, GM or even dealer. If you are in senior management, join a 20 Group. If you are a sales professional, seek out a professional network for auto sales people. If you can’t find one, let me know. ■ Put a new issue on the table:

Sometimes the breakthrough comes from the things you don’t see or think about normally, like an untouchable process, employee, vendor or ritual. Take a look at some of my previous articles for inspiration in this area. ■ Re-establish your goals: Goals usually range from sales, gross and income. They can be determined by you, your manager, dealer or, best of all — insert sarcastic smirk here — the manufacturer. As we enter the fourth quarter and the final push for 2011, don’t be afraid to adjust your goals. ... And I don’t mean lower. Instead, recommit yourself and, while you’re at it, think even bigger! ■ Review your ‘Why’: What’s the mission? Why are you doing what you’re doing the way you’re doing it? We can forget about the spiritual awakening for now and just keep this idea focused on your career. ■ Rally the troops: If you are in management, get everyone involved by spreading the word about fresh ideas, new goals and a renewed approach. Leverage energy and these new ideas to accelerate momentum. If you are flying solo, tell someone about your new changes and the new outcomes you are going to attain. Tell the guy or gal in the desk next to you, Tweet about it or tell all your Face-

book friends — and be accountable. ■ Start taking positive action:

“Action” is a word that’s often referenced but rarely realized, usually because it involves work. Business guru Jim Rohn once said, “What is easy to do is also easy not to do.” In a sense, this makes doing nothing a form of action; it’s just the wrong kind. Amongst the many nuggets of wisdom that were imparted to me by my barber as a teenager, the phrase “Don’t talk about it, be about it,” was one of the greatest. The truth is, we need momentum. It calls for energy, drives belief in things to come and can make people fearless. It can drive you to make that extra call, take that extra “up” and refuse to give up the gross when a customer counters your numbers. Momentum keeps the competitive spirit alive in the store. You need it, I need it and the dealership must have it to dominate. The path to the next level requires creative thinking, the courage to change and the courage to try something you’ve never done before. The spirit of the car business is alive and is ready to reward those willing to step up to the plate and get it done. I challenge myself every day and now I will challenge you: E-mail me and let me know what actions you are going to take today. I’ll follow up with you in 30 days to see how it’s going. Cory Mosley is principal of Mosley Automotive Training, a company focused on new-school techniques, products and services. E-mail him at cory.mosley @bobit.com.

42 F&I and Showroom October 2011

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On the Point

The Heartbeat of the Deal Even the most talented sales teams need supervision. “Da Man” has a plan for keeping your process running like clockwork. By Jim Ziegler

very deal has a heartbeat. From the moment we first interact with a customer until his or her taillights cross the curb, the deal has a pulse. That means there is a certain energy level we must maintain throughout the sale. Unfortunately, many dealerships have sales staff that look like the walking dead. All too often, we get so caught up in being managers that we forget we also must supervise the selling effort. The best sales managers have a quality I like to call “Hyperawareness.” It’s the ability of management to be acutely aware of every deal as it progresses through the dealership, as it happens and at every stage of the sales process. From the moment a consumer shakes hands with a salesperson, I’m all over it. If most blown deals are the result of a salesperson’s inappropriate behavior, you have to stop and ask, “Where was his supervisor?” Chances are he or she was sitting at the sales desk, oblivious to what was happening on the lot. In a volume-selling environment, or during peak traffic times, managers need to be in motion. Like sharks that can never stop swimming, managers must be in constant motion. Unless we’re working three deals right now, there shouldn’t be three managers sitting at the sales desk. Generally speaking, a customer’s shelf life is less than two hours. At that point, the deal begins to disintegrate. That’s why everything the sales department does must be achieved within that window. So many dealerships today have far too many four-hour marathon deals because

managers are allowing salespeople to manage themselves. From the moment customers step out of their car, the clock starts ticking. It’s crucial that management knows exactly what time they arrived. Unfortunately, most CRM systems don’t pick up the deal and record the fact that we even have a customer until their information is in the system. That’s way too late, in my opinion.

Generally speaking, a customer’s shelf life is less than two hours. At that point, the deal begins to disintegrate. I need a system that identifies when the handshake happened. For the most part, deals are blown outside of the building. That’s why the F&I manager should be writing up the deal while the customer prepares to take the test drive. Very few managers manage “outside the building” by monitoring the activities of their sales team on the lot. That’s where the managers-in-motion concept pays off. Managers should touch the customers early and often. I’ve always said, “Never meet the customer for the first time when you are in combat.” The first checkpoint should occur when the salesperson has been with the customer for 45 minutes. If the salesperson hasn’t checked in with his or her manager, we need to go looking for the deal and we need to find out what stage of the sale they’re in at that time. In most stores, salespeople fall into one of two categories:

Track Stars: A track star will shake hands with a customer and, before you can turn around, will try to write up a deal 15 minutes later. No common ground, no relationship. You methodically build a sale much the same way you build a house with a foundation. Start with a framework and move onto a step-by-step process, beginning with a friendly conversation and a needs assessment. Track stars will have achieved none of that.

Tour Guides: A tour guide is a social

animal who, if left unsupervised, will march customers around until they leave — never quite getting around to selling the car. It is management’s responsibility to be aware of the deal and to be willing to step in and move it along or slow it down when appropriate. Great managers don’t wait for the “TO”; they take it! Most sales departments become totally brain-dead when they’ve finally gotten the customer to sign the purchase order. Excuse me, but the deal should be in the F&I office within minutes after the signature has been obtained. At this point, the shot clock is running and the F&I office is at the basket. I’ll never understand why so many sales departments miss the pass and allow the deal to deteriorate while the salesperson runs around gathering information they should already have. That’s the way I see it, but I could be wrong. Let me know what you think.

Jim Ziegler is the president of Ziegler SuperSystems Inc. E-mail him at jim. ziegler@bobit.com.

44 F&I and Showroom October 2011

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Legal

A Tale of Two Agencies Do you know who your regulator is? The answer may not be as clear-cut as you think. The magazine’s legal wiz weighs in. By Michael A. Benoit

any of my clients have been asking me what to expect from the new regulatory environment we find ourselves in. With the passage of the Dodd-Frank Act, it’s truly a brave new world. More surprising is how many clients are asking me who their federal regulator is. Believe it or not, that’s not a stupid question, especially for dealers who have always been regulated by the Federal Trade Commission (FTC). By this time, all of you should have gotten the memo regarding the new Consumer Financial Protection Bureau (CFPB). The agency’s job is to write and enforce new and existing federal consumer financial protection laws, including the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act and just about any other federal law that touches your F&I business. It pretty much has authority over all providers of consumer financial products or services. At this point, you might be asking yourself, “Didn’t auto dealers get a pass on CFPB jurisdiction? Isn’t the FTC still our regulator?” The answer to those questions depends on what kind of dealer you are. Are you a duly licensed dealer who sells and/or leases motor vehicles, services motor vehicles and routinely sells retail installment sale contracts to unaffiliated third-party finance companies? If so, then you’re an FTC-regulated dealer. The CFPB can’t write a rule that applies to FTC dealers, nor can it enforce your compliance with rules. For you, it’s the FTC all the way. But it’s not business as usual. The FTC can

now write and enforce rules applicable to FTC dealers that define and prohibit unfair and deceptive acts and practices. If any of the three criteria are absent, you fall under the CFPB’s jurisdiction. And if you are such a dealer, you are subject to the agency’s rulemaking powers, including its definitions on what it deems unfair, deceptive and abusive acts and practices. “Abusive” has become the new standard, but we haven’t yet figured out an objective way to determine whether an abusive act is unfair or deceptive, or whether an unfair or deceptive act is, per se, abusive. Nor have we figured out why CFPB dealers may have rules prohibiting abusive acts but FTC dealers will not. Anyone confused yet? But wait, it gets better. The CFPB can make amendments to existing regulations that currently apply to all dealers, but those amendments won’t, on their own, apply to FTC dealers. Nor can the CFPB enforce rules against FTC dealers. This leaves the door open for a situation where universal consumer financial protection laws apply to some entities and not to others, even if they are offering the same financial product or service. That problem occurred to Congress, so they made a patch. What Congress did was get the Federal Reserve Board involved in the rulemaking process. So, if an amendment is made to Regulation Z, it will be jointly published by the FRB and the CFPB. The amendment will look the same, but it will be codified in two different places so it can apply to different entities. In the case

of dealers, this patch will allow that amendment to apply to both CFPB and FTC dealers. Obviously, this knuckle-headed and bifurcated regulatory system isn’t going to work, at least not well. It wouldn’t be the first time Congress did something knuckle-headed, but unlike Congress, we all live in the real world. So the question becomes, how do we reconcile this dual system? I don’t know what the CFPB and the FTC will do, but they must see the inefficiency of this awkward regulatory scheme. If I had to read the tea leaves, I would guess that they would find a way to vest primary authority over all dealers in one agency or the other. In this case, it would make sense to vest that authority in the FTC. Congress was pretty explicit about the CFPB keeping its hands off of FTC dealers and it was clear-sighted enough to give the FTC concurrent jurisdiction over CFPB dealers. So will the FTC be your federal regulator? I don’t know, but that’s what would make sense to me. The irony is that if they go this route, the FTC was the primary federal regulator for auto dealers before all this financial reform drama, and we’ll have to come full circle back to where we started. How rich is that? 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. He can be reached 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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Bottomliners AUL Offers The ZERO Plan USED-CAR SERVICE CONTRACT

provider AUL Corp. has signed up for The ZERO Plan, Universal Lenders’ F&I product financing program. The partnership will allow AUL dealers to offer products with an interest-free financing program. The ZERO Plan can be used for most F&I products and promises to pay dealers within seven days, according to the provider. For more information, visit www.the-zero-plan.com.

Charter Warranty Adds Product Funding Option

Car-Buying Site Offers Free Leads Generator CARS OUT THE DOOR, A NO-HAGGLE

car-buying Website, is offering a free lead generation tool designed to deliver an unlimited number of leads. “Cars Out the Door 1.0” requires no interaction between the dealer and car buyer until after the buying decision is made. There are no contracts or upfront fees, and the tool requires no access to the dealer’s database, according to the company. The site does charge a modest fee to users when a vehicle is delivered. To sign up, go to www. carsoutthedoor.com/dealers.php.

CHARTER WARRANTY HAS LAUNCHED

a new service-contract financing program, Save A Deal. It can be used to pay for repairs and vehicle add-ons, is not limited to Charter Warranty’s products and can be approved in about 72 hours, according to the company. Customers must have a checking account in good standing and no tax liens or open bankruptcies. A one-year enrollment kit includes downloadable software and an online tutorial, as well as the required credit card machine and check scanner at no additional cost. For more information, visit www.saveadeal.com.

VisionMenu Offers Reynolds-Certified Interfaces VISIONMENU INC.’S VISIONMENU

and VisionReport systems now offer Reynolds and Reynolds certified data interfaces. The interfaces allow VisionMenu users to push and pull dealer information from their Reynolds DMS. The integration also allows VisionReport to immediately update once a deal is closed in the DMS, according to the provider. For more information, visit www.visionmenupro.com.

Product Feature Xyzmo Offers Free e-Signature App XYZMO HAS ANNOUNCED

the launch of a mobile version of its e-signature platform. The app, which can be downloaded for free from the Apple App Store, allows users to e-mail a PDF document to a customer, who can then download the xyzmo app onto their

iPad. The app will allow car buyers to open and sign documents and return them to their dealers, who can then use u Adobe Reader to verify the signature and v content integrity of the c PDF, according to xyzmo. P For more information, visit www.xyzmo.com.

48 F&I and Showroom October 2011

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IAS F&I PERSPECTIVE www.iasdirect.com

WEâ&#x20AC;&#x2122;VE GOT IT ALL RIGHT HERE

OCTOBER 2011

IASâ&#x20AC;&#x2122; SMARTPAD TABLET-BASED TECHNOLOGY IMPROVING SALES IN DEALERSHIPS NATIONWIDE SmartPad shortens the F&I process and creates sales opportunities by utilizing an electronic tablet to gather and present a customizable array of information while the customer is preparing to be transitioned from sales to F&I. â&#x20AC;&#x153;SmartPad is a fantastic tool that provides me information about my customers which ultimately saves everyone time, increases F&I penetration and produces an overall PRUH VDWLVÂżHG FXVWRPHU Â´ said Lindsay Ferrell of Byers Automotive. â&#x20AC;&#x153;As a dealer, itâ&#x20AC;&#x2122;s a huge bonus to be able to go into my F&I presentation dealing with happy customers and ones that I already know something about so I can tailor my presentation and, in the end, LQFUHDVH ) , SHQHWUDWLRQ Â´ SmartPad can dynamically conduct the F&I interview and electronically deliver results to managers while the customer waits to enter F&I. Alerts can notify the general manager, or other designee, via text or

email, that a negative situation has occurred and should be addressed immediately before the sale is lost or irreversibly damaged. â&#x20AC;&#x153;SmartPad has given our agency a renewed energy to call on dealerships and offer key management the opportunity to ask survey questions of their customers before being WXUQHG RYHU WR ) , Â´ VDLG Frank Phillips of Dealer Consulting Services, Inc. in Santa Maria, California. â&#x20AC;&#x153;In these challenging WLPHV SURÂżWV DQG FXVWRPHU satisfaction are all time high priorities for dealerships. SmartPad affords the dealers the insight into the customersâ&#x20AC;&#x2122; driving habits and alerts them to ownership risks which in turn increase F&I sales penetration. The beauty of this software is that the dealership gains this knowledge prior to F&I involvement in real time.

If youâ&#x20AC;&#x2122;re not using tablet-based technology at your dealership, youâ&#x20AC;&#x2122;re leaving money on the table.

It gives the F&I manager time to formulate an approach to maximize sales product penetrations and if the customer isnâ&#x20AC;&#x2122;t FRPSOHWHO\ VDWLVÂżHG ZLWK WKHLU H[SHULHQFH the dealership is alerted in time to correct it and turn a negative situation into a positive one before they drive off to show HYHU\RQH WKHLU QHZ YHKLFOH Â´

SmartPad software runs on the worldâ&#x20AC;&#x2122;s most popular tablets, including the Apple iPad, most Google Android tablets and the Blackberry Playbook.

Contact IAS Sales at 800-346-6469 x8989 or www.iasdirect.com for more information.

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Products

Established 1984

I’m Dave Mathews, President & CEO of UCC. Over 27 years, I have built a company of value. My experienced team will help your agency with: 3URVSHFWLQJ 3HUIRUPLQJ 'HDOHUVKLS $VVHVVPHQWV 'HDOHUVKLS (GXFDWLRQ DQG 7UDLQLQJ &XVWRPL]LQJ D SURJUDP Vehicle Service Contracts Prepaid Maintenance Theft Deterrent www.UnitedCarCare.com/dealeragent.html

STATEMENT OF OWNERSHIP, MANAGEMENT AND CIRCULATION (Required by 39 U.S.C. 3685)

Get Connected! F&I and Showroom readers are among the nation’s best-informed automotive sales and finance professionals.

PUBLICATION TITLE F&I and Showroom

PUBLICATION NO. 2154-1728

FILING DATE 10/01/2011

ISSUE FREQUENCY Monthly

NO. OF ISSUES PUBLISHED ANNUALLY 12

ANNUAL SUBSCRIPTION PRICE $20 per year

COMPLETE MAILING ADDRESS OF KNOWN OFFICE OF PUBLICATION Bobit Business Media, 3520 Challenger Street, Torrance, CA 90503-1640, Los Angeles County COMPLETE MAILING ADDRESS OF PUBLISHER’S HEADQUARTER’S Bobit Business Media, 3520 Challenger Street, Torrance, CA 90503-1640, Los Angeles County FULL NAMES AND COMPLETE MAILING ADDRESSES OF PUBLISHER, EDITOR, AND MANAGING EDITOR PUBLISHER: David Gesualdo, Bobit Business Media, 3520 Challenger Street, Torrance, CA 90503-1640, Los Angeles County EDITOR: Gregory Arroyo, Bobit Business Media, 3520 Challenger Street, Torrance, CA 90503-1640, Los Angeles County MANAGING EDITOR: Tariq Kamal, Bobit Business Media, 3520 Challenger Street, Torrance, CA 90503-1640, Los Angeles County OWNER Ty F. Bobit, CEO

COMPLETE MAILING ADDRESS Bobit Business Media, 3520 Challenger Street, Torrance, CA 90503-1640, Los Angeles County

KNOWN BONDHOLDERS, MORTGAGEES, AND OTHER SECURITY HOLDERS OWNING OR HOLDING 1 PERCENT OR MORE OF TOTAL AMOUNT OF BONDS, MORTGAGES, OR OTHER SECURITIES None ISSUE DATE FOR CIRCULATION DATA BELOW August 2011 AVERAGE NO. COPIES EACH ISSUE DURING LAST 12 MONTHS

EXTENT AND NATURE OF CIRCULATION

FI08-88.11

To advertise in the next issue of F&I and Showroom, contact David Gesualdo at 727.947.4027 or david.gesualdo@bobit.com.

ACTUAL NO. COPIES OF RECENT SINGLE ISSUE

15a TOTAL NO. COPIES (NET PRESS RUN)

21,739

21,623

15b PAID/REQUESTED CIRCULATION 15b.1 OUTSIDE COUNTY PAID/REQUESTED MAIL SUBSCRIPTIONS 15b.2 IN-COUNTY PAID/REQUESTED MAIL SUBSCRIPTION 15b.3 SALES THROUGH DEALERS/CARRIERS 15b.4 REQUESTED COPIES USPS OTHER MAIL CLASSES 15c TOTAL PAID/REQUESTED CIRCULATION

12,594 3 12,597

12,028 1 12,029

15d NONREQUESTED CIRCULATION 15d.1 OUTSIDE COUNTY NONREQUESTED COPIES 15d.2 IN-COUNTY NONREQUESTED COPIES 15d.3 NONREQUESTED DISTRIBUTED BY OTHER CLASS OF MAIL 15d.4 NONREQUESTED OUTSIDE USPS 15e TOTAL NONREQUESTED DISTRIBUTION

8,222 201 8,423

8,679 196 8,875

15f TOTAL DISTRIBUTION 15g COPIES NOT DISTRIBUTED 15h TOTAL 15i PERCENT PAID/REQUESTED CIRCULATION

21,020 720 21,739 59.9%

20,904 719 21,623 57.5%

This Statement of Ownership will be printed in the October 2011 issue of this publication. I CERTIFY THAT ALL INFORMATION FURNISHED ON THIS FORM IS TRUE AND COMPLETE. I UNDERSTAND THAT ANYONE WHO FURNISHES FALSE OR MISLEADING INFORMATION ON THIS FORM OR WHO OMITS MATERIAL OR INFORMATION REQUESTED ON THE FORM MAY BE SUBJECT TO CRIMINAL SANCTIONS (INCLUDING FINES AND IMPRISONMENT) AND/OR CIVIL SANCTIONS (INCLUDING MULTIPLE DAMAGES AND CIVIL PENALITES).

Publisher

Filed on 10/1/2011

50 F&I and Showroom October 2011

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Ad Index Allstate Dealer Services Ally Auto

904-992-6185

allstatedealerservices.com

877-357-8477 (option 6)

ally.com/auto

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

Charter Warranty

877-404-6823

saveadeal.com

Chem Etch Manufacturing Inc.

877-564-2565

chemetchmfg.com

CNA National

800-345-0191, ext. 720

cnanational.com

C2-1

CUDL

877-744-2835, ext. 2334

CUDL.com

Dealerlink

800-890-8850

DealerLink.us

Friendly Finance Corp.

800-872-2877

friendlyfinancecorp.com

GSFS Group Innovative Aftermarket Systems (IAS) NAC (National Auto Care Corp.) National Automotive Experts

713-580-3023

torozco@gsfsgroup.com

800-346-6469 x8989

smartdealerproducts.com

3, 49

800-548-1875

nacsolution.com

800-810-8859

nationalautomotiveexperts.com

800-331-3780, ext. 7386

orias.com

Protective

800-794-5491

protectiveassetprotection.com

Old Republic Insured Automotive Services Inc. Reahard & Associates Inc.

866-REAHARD

go-reahard.com

Resource Automotive

312-560-9182

thewarrantygroup.com/automotive

26-27

RoadVantage

855-762-8268

roadvantage.com

TD Auto Finance

800-200-1513

tdafdealer.com

United Car Care

800-571-6412

unitedcarcare.com

41, 50

United Development Systems Inc. (UDS)

800-282-1154

UDSDealerServices.com

Warrantech

800-723-1154

warrantech.com/auto

23 43

Wise F&I

800-849-1080

WiseFandI.com

Ziegler SuperSystems

800-726-0510

ZieglerSuperSystems.com

Zurich

877-368-7513

FandIResourceCenter.com

we are.

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October 2011 F&I and Showroom 51

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Mad Marv

The Great Rate Debate Would you lower your rate to sell a product? The magazine’s from-the-trenches columnist weighs in on this $64,000 question. By Marv Eleazer

ver the years, I’ve discovered that most of my colleagues share my passion for sacrificing reserve in favor of products. I might be walking on thin ice here, but, as far as I’m concerned, finance reserve is the least important profit category in the finance office. Yes, we earn a portion of our total profit from reserve, but it provides absolutely no benefit to the customer. Listen, I realize we should earn something for arranging financing for the customer. We provide a convenience to them and, in most cases, we save them money by matching or beating any offer they can get on their own. Again, I’m not against earning reserve; I’d just rather sell product. Now, we need to tread carefully when reducing rate in favor of a product sale. Remember, you cannot legally offer a rate reduction as a condition of buying an F&I product. Doing so violates the Clayton Antitrust Act, an amendment created to strengthen the Sherman Antitrust Act. The latter prohibits tying arrangements or the acquisition of one product based upon the purchase of another. That’s why you can’t pull back a rate reduction offer if the customer elects not to purchase a product. You just have to accept that you lost your potential reserve and move on. In my experience, most customers will appreciate your effort in trying to save them money and are far more agreeable once you’ve announced the reduction. If losing reserve scares you, consider the downsides of poor rate administration: ■ Early payoffs (EPOs): These oc-

cur when customers discover their local bank has a substantially lower rate. This also is your first indicator that your rate markups are too high, so watch these carefully. ■ Product charge-backs: Each bank likely has its own version of products, which means yours will get cancelled. ■ Poor customer service: Credibility is lost and the CSI report suffers, which affects everyone. ■ Loss of repeat business: The customer will likely do their financing elsewhere — if they return at all. It’s my belief that far too many F&I managers rely too heavily on finance reserve as a profit center. I recently reviewed a dealership’s month-end report that showed a 90 percent finance penetration rate. Its finance reserve was 67 percent of the store’s profit portfolio. The remaining 33 percent was product. Yeah, I had to do a double take, too. Those numbers should be reversed, with product at or above 70 percent. “Shouldn’t the bottom line be the only thing that counts?” you ask. Well, wouldn’t the dealership be less exposed to EPOs if the F&I department had turned 70 percent product? At the very least, the log would have revealed more flats and greater product penetration, which translates into greater benefits for the customer and the dealer. And let’s not forget what our products do for fixed ops. Now, do me a favor. Pull those dealer agreements out from the back of your file cabinet and look them over. You’ll find clauses that say the finance company will withhold a sizeable percent of the rate spread.

Depending on credit quality, loan term, vehicle type and other factors, that could be in the range of 25 to 40 percent. So, for every dollar of reserve you think you earned, 25 to 40 percent is withheld by the lender. Lenders will say they withhold those funds to offset future losses. I suspect they want you to mark it up to increase profit. No harm there, right? So, why don’t F&I managers consider this when structuring deals? One reason is that DMS providers have built the dealer’s commission — with the lender’s hold already subtracted — into their software. The result is the number we see when we recap the deal. Out of sight, out of mind. I’ve said this before, and I’ll say it again: Finance reserve only benefits the lender and the dealer. Product is good for everybody, including your customers. And hey, consumer advocates have been after reserve for years. There’s no telling when and if they’ll get their way. So, why not prepare now by concentrating on selling product? Listen, if your EPOs and chargebacks are satisfactory, then you probably have a good handle on rate administration. All I’m suggesting by addressing this topic is that you review your processes and practices, take another look at your presentation, communicate with your menu provider and agent, and examine the components of your month-end numbers to see how you got there. You might be surprised. Marv Eleazer is the finance director at Langdale Ford in Valdosta, Ga. E-mail him at marv.eleazer@bobit.com.

52 F&I and Showroom October 2011

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Have you found the key to increased PVR and improved CSI in your dealership? 1 A2

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AUTHENTIC The American Bald Eagle became the national emblem on June 20, 1782.

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