CBT News Magazine August 2015 by CBTNews

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The Official News Source of The Retail Automotive Industry

August 2015

Volume 2, Issue 5

SPEND MARKETING $$$ WHILE BUYERS

ARE STILL RESEARCHING PHIL SURA

... see PAGE 12

ADVANTAGES FOR DEALERS THAT CHECK JOBS AND INCOME

MARKETING LEED GOLD STATUS

ANGELICA JEFFREYS ... see PAGE 16

RULES FOR SMART HIRES OF SERVICE

ADVISORS DON REED

... see PAGE 18

FRAMEWORK

FOR PICKING A TRAINING VENDOR TOM KUKLA

Michigan’s LaFontaine Automotive Group is succeeding in making its environmental designation another reason for customers to visit and buy. ...see PAGE 6

SELLING CARS AND

F&I PRODUCTS

PRSRT STD US POSTAGE PAID Permit No. 1459 Pewaukee, WI

... see PAGE 28

Company President Maureen LaFontaine and her son, CEO Ryan LaFontaine

MINDING YOUR BDCs CBT NEWS 5 Concourse Parkway Suite 100 Atlanta, GA 30328

Phone centers often encounter the same issues, and dealers must stay alert for them. ... see PAGE 8

Salespeople with the right aptitude can be trained to succeed in both departments. ...see PAGE 26

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Letter from the editor

CAR BIZ TODAY MAGAZINE Email

newsroom@cbtnews.com Phone

678.221.2955 President and Publisher Jim Fitzpatrick Vice President / COO Bridget Fitzpatrick Managing Editor Jon McKenna

Dear readers, No one ever said going green would be cheap. Dealerships that want to reach for the brass ring by attaining LEED certification for environmental-friendliness and energy efficiency might have to budget seven figures more in construction or reconstruction costs. However, as our profile this month of LaFontaine Automotive Group in suburban Detroit shows, the payoff can’t just be viewed in ROI terms. LaFontaine has positioned the green features of its store in Highland, Mich., as an attraction for car buyers to view, in an era when creative dealers are constantly looking for the next entertainment to keep consumers engaged while on the lot. Do you think your dealership group is effectively managing its BDC? Mike Haeg of Century Interactive worries your management may be missing real problems. His article draws attention to potential issues from high operator turnover, poor staff training, lack of emphasis on outbound calls, and failure to verify that real conversations were initiated with prospects. Your store’s marketing may well be calibrated toward reaching people who have made up their mind about a vehicle brand, and are deciding about which dealership to visit. If so, you’ll want to read about new research that Phil Sura of discusses in his guest article. It shows that nearly three of four car buyers have zero brand loyalty when they start their average 95 days of research, so it seems smarter to use your marketing spend to connect with them during that time window. Happy reading.

Associate Editor Russell Brown Creative Director Simone Tieber Designer Betsy Alvarez Production Manager Jason Lowsy Creative Director - Digital Keith Tuggle Director of Marketing & Events Alex Branam Marketing Associate Roxanne Luhr

JON MCKENNA Managing Editor

Subscription Manager Tom Domagalski

Advertising Director of Sales Jane Howard jhoward@cbtnews.com d 678.221.2964 c 404.452.9551

In this Issue 6 LEED certiﬁcation for Michigan store was costly but draws customers

20 CFPB’s move to oversee non-bank lenders will aﬀect dealerships

By Mary Welch

By Clint Williams

8 Anticipate the common headaches that aﬄict dealership BDCs By Mike Haeg, Century Interactive

12 Market to prospective buyers when they’re still researching cars By Phil Sura, UnityWorks Media

15 Industry News 16 New F&I software lets dealerships verify customer’s job and income By Angelica Jeﬀreys, Equifax

18 Improving how you recruit, screen service advisors boosts proﬁts By Don Reed, DealerPro Training 4

CBTNews.com

Small, automatic changes in parts pricing have big impact on proﬁts By Ken Rock, Auto/Mate Dealership Systems

25 Association News 26 Your car salespeople could also eﬀectively represent F&I products By Tony Dupaquier, Service Group

28 Same framework can guide dealer’s hiring of any kind of training ﬁrm By Tom Kukla, Tom Kukla Credere Leadership

30 Service pros discuss how they go after independent competition head-on By Jon McKenna

CAR BIZ TODAY AUGUST 2015

to buy

Salespeople’s tactics show misunderstanding of customer’s fear

By David Lewis, David Lewis & Associates

34 How to keep your dealership’s promotion pipeline ﬁlled with candidates By Kirk Manzo, The Manzo Group

36 Vehicle wraps, graphics are surprisingly eﬀective advertising tactics By Chuck de Martigny, Jungle Cat Marketing Inc.

38 Ask The Pros

ONLINE FEATURES Visit www.CBTNews.com

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DEALERSHIP PROFILE

Ryan LaFontaine in the dealership’s geothermal heatingcooling room.

BUILDING A LEED GOLD DEALERSHIP Was Neither Cheap Nor Easy For LaFontaine Automotive Group

However, the Michigan family business has been repaid, and then some, in utilities savings and favorable publicity. BY MARY WELCH

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CAR BIZ TODAY AUGUST 2015

yan LaFontaine estimates an LEED gold certification added $1.5 million to $2 million to the price tag his family owned dealership group paid to build a store in Highland, Mich., a northern suburb of Detroit. However, he says the ROI has been remarkable, both in savings on utilities and in positioning the Cadillac-Buick-GMC dealership as an environmental destination for customers, one that “seven years later, we’re still talking about.” Headquartered in Highland, LaFontaine Automotive Group runs 22 dealerships in 16 Michigan cities. In 2007, its Cadillac-Buick-GMC store had outgrown its 24,000-square-foot building, so the group bought 34 acres to build a new, 63,000-square-foot store. “At the time, there was a lot of push about electric vehicles and green buildings – not just from the general public but from the manufacturers – so we thought, ‘Why not?’” recalled Ryan LaFontaine, the group’s CEO. While he described the six family members involved in the business as “environmentally aware,” none would have advocated for a green building, much less a gold-certified LEED facility, purely on philosophical grounds. A positive ROI and a “wow” factor for employees and customers would have to drive the decision. “We wanted to show our customers that we were putting our money where our mouth was about electric cars [the Highland dealership sells the Cadillac ELR], and as we investigated and did our due diligence, we just realized that we were making a long-term investment and expected the return to be long term.”

PRICE OF GOING GREEN NOT CHEAP Between costlier materials and the cost of applying for LEED gold status, the total construction price tag rose to around $16 million vs. $14 million to $14.5 million for a less environmentally friendly facility. Ryan LaFontaine expected to break even on the building in seven years. Instead, between utilities savings and increased sales he attributes to customer goodwill over the company’s environmental statement, it took five years “and I couldn’t buy the amount of publicity.” LEED (leadership in energy and environmental design) certifications are awarded by the U.S. Green Building Council (USGBC) in silver, gold and platinum levels. The USGBC’s website lists a $900 initial registration fee for silver or gold applications and a project gross floor area application cost of 45 cents per square foot, among other charges. So, that would have made LaFontaine Group’s LEED application fee at least $29,250. One of LaFontaine group’s first steps with the project (which Ryan LaFontaine recommends that other dealers replicate) was to hire an architect and contractors who work frequently on “green” projects and know the suppliers and how to meet strict LEED requirements. NO SHORTAGE OF CHALLENGES With this project, the foundation – which already had been poured before the decision to seek LEED gold status – had to be re-engineered to accommodate a $600,000, 64-well geothermal system that captures energy 350 feet beneath the ground and provides heat and cooling. In addition, some vendors already under contract had to change and purchase only materials that were eco-friendly, recyclable or made from recyclables themselves. Ryan LaFontaine had to quickly educate himself about allowable building materials, heating options, bathrooms, lighting and the correct way to position doors so that hot or cold air wouldn’t escape. And, the pure scope of the project was a real challenge. “We had to achieve a look that was comfortable while promoting green products,” he explained. In

SOME OF THE GREEN INITIATIVES AT LAFONTAINE DEALERSHIP 58% of the wood used was Forest Stewardship Council-certiﬁed. Low-emitting adhesives, sealants, paints and carpets were bought in order to reduce volatile organic compounds (VOCs). Low-VOC paints were applied to walls. A white-painted roof reﬂects heat away. 85 skylights increase the natural light available and cut the need for costly light bulbs.

Robert Simmons, the dealership’s general sales manager, in the showroom.

Computer controls and photocells shut oﬀ electric lights when there is suﬃcient natural light and/or when no motion is detected for 15 minutes. Fluorescent bulbs that use half the energy of conventional lights were purchased.

other words, in addition to green features, the new dealership had to offer convenience-oriented customers “wow” factors including a flower shop, hair salon, café, eight 42-inch flat-screen TVs, and workstations with power outlets and Wi-Fi. Throw in Ryan LaFontaine’s cancer diagnosis in 2008 (he shaved his hair in the new showroom’s hair salon) followed by the GM bankruptcy filing months later, and you have the recipe for major life stress. “I got the biggest education ever in cash flow management,” he said. “I learned a ton.”

Low-ﬂow toilets cut water usage in half, to 1.2 gallons per ﬂush from 2.5 gallons with earlier models. And, waterless urinals were installed. Plants, trees and colored asphalt minimized radiated heat in the parking lot. Drought-tolerant plants and stone mulch were used, to reduce the need for sprinkler water. A windmill pumps water from a retention pond for use in irrigation. Also, a rooftop storm water retention system treats water before routing it to the retention pond.

MANY CHANCES TO USE RECYCLED Looking at the Cadillac-Buick-GMC building and grounds in more detail, its metal framing has 20 percent recycled content, the metal decking 60 percent, the exterior masonry 40 percent and its steel 75 percent. Even the 328 tons of construction waste material wound up saved and recycled. The dealership’s doors are made from corn stock, and its furniture is LEED-certified. More examples: The store uses composite materials from 3M Co. as weights for wheel balancing rather than traditional lead weights. LaFontaine opted for Envirobase High Performance paint from PPG Industries for repairs rather than solvent-based paint. About 90 percent of water used in the car wash is filtered and recycled. Plus, the company wanted to openly repair vehicles in a more environmentally friendly way. When the dealership went with a vegetable oil lubricant for its 33 in-ground hydraulic lifts, rather than caustic fluids, the 16 body shop techs were skeptical to say the least. To convince them there would be no noticeable difference in effectiveness, Ryan LaFontaine brought in a manufacturer’s rep to explain. STAFF, PUBLIC ARE INTERESTED He also led all of the employees (the staff rose to 300 from 90 in the old facility) on a two-hour tour so they not only would understand the rationale for the environmental features but also be able to explain and promote them to customers. As the first LEED gold-certified dealership in the GM network, with a green education center for customers, the new store attracted a lot of attention in local and national consumer media, as well as construction, environmental and auto trade media. Interested businesses, contractors and architects have toured the dealership, as have college classes and Scout troops. LaFontaine Group continues to blog about its green dealerships on its website and Facebook pages and post YouTube videos about its enviro-friendly construction. In recent years, the company also has opened a Chevrolet dealership in Ann Arbor/Dexter and a Volkswagen store in Dearborn, both of which are LEED silver-certified (owing to the more stringent and costly regulations vs. a few years ago). The

Ryan LaFontaine and Operations Director Robert Milner pass hydraulic lifts that utilize vegetable oils. company soon will start construction on a new Ford dealership and is exploring LEED options “as we speak,” Ryan LaFontaine said.

UTILITIES COSTS GO DOWN While floor space has tripled in the newer building, he estimated that total heating and electric bills have remained about the same, which would mean utilities on a per-square-foot basis in turn cost only about a third of what they did. Water bills are running a little higher, he said. The company did receive a onetime state tax credit of $1.85 per square foot, which comes out to about $117,000. In terms of lessons learned, Ryan LaFontaine said a dealership should make sure it has enough computer capacity to run light controls. When the dealership was rebuilt, LED light fixtures were too

costly, he added, but that is not the case today. Wind turbines and solar panels likewise would get more consideration now. Sales at the Cadillac-Buick-GMC dealership are running about 550 to 600 cars per month; in the old building, sales were about one-third that figure, so again it tracks the gain in square footage. Interestingly, however, Ryan LaFontaine said service business has increased at least ten-fold. He is convinced that the sales increase has the building features to thank, as well as added capacity. “We’re showing consumers that we stand behind what we believe in. We also created an environment where people are proud of coming to work here, which really does affect the customer experience. We’ve also distinguished ourselves from our competition.”

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SALES

Anticipate Common Problems

For An In-House Or External Dealership BDC Find a quality business development manager who will train and closely watch the BDC staﬀ. BY MIKE HAEG

n analyzing more than 300 dealerships’ phone processes, my company has learned that a dealership could up to $500,000 a year of business based of poor phone skills alone. A BDC will take a lot of that pressure off your sales team, but a dealership shouldn’t rely on it to fix its problems automatically. Instead, a lot of work should be put into creating a well-running BDC. BDCs often are plagued with problems such as a lack of training processes and low overall staff motivation, because their people are not on the same page. These problems, paired with low wages, make for a high turnover rate in BDC staffing. At that point, a BDC can end up costing a dealer more than it brings in. As a manager, it’s important to get ahead of the potential problems and make sure the BDC staff is properly trained, for these reasons: • Employee retention • Your dealership’s bottom line • Customer satisfaction Let’s take a look at some common issues that your internal or external BDC may face, and how to overcome them.

HIGH TURNOVER RATES With the potential for constant churn in staffing, a business development manager should give BDC employees a true understanding of the value of their jobs. Providing motivation for growth and keeping everyone on the same page will promote better performance. Additionally, the business development manager (BDM) should develop and manage earning incentives and morale-boosters for hitting big goals. Examples of incentives are small bonuses, leadership opportunities, possibilities for promotion, and staff recognition at weekly team meetings. THE BDM’S ROLE A BDM is a super important piece of the dealership’s sales team, so make sure the person appointed to the job doesn’t have split priorities. Your BDM story contnues on page 10

Structured training and a continuous feedback loop will keep BDC staff motivated. 8

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“Oftentimes, a dealership’s training process doesn’t focus much on handling the phone. When you think about it, a phone conversation provides the customer’s first impression of your dealership.”

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could very well be a standout employee who already works in your dealership. This person should keep every BDC employee on track and make sure everything runs smoothly, day in and day out. A BDM must:  Be detail-oriented and organized  Have an effective coaching style  Have proven success on the phone  Easily adapt to constant change  Be excited and eager every day Daily tasks include encouraging career development, showing BDC employees their true worth at the dealership, and avoiding constant churn in staffing with hourly-wage employees. This is what separates a BDC from a call center.

POOR TRAINING PROCESSES Oftentimes, a dealership’s training process doesn’t focus much on handling the phone. When you think about it, a phone conversation provides the customer’s first impression of your dealership. Typically, sales teams are trained to focus on making the sale once the customer is already hooked, so when it comes to enticing the customer to make an appointment, things may fall flat. That’s why it’s important to instill an inbound and outbound phone-training program that includes a feedback loop to keep BDC staff motivated to continue improving. This loop should feature management giving advice that inspires change in employees while offering incentives for good work, thus motivating employees to work harder. This is where your BDM’s role and commitment are vital. There are crucial parts to every phone conversation. Yes, a phone script can help your staff steer the conversation, but every conversation is qualitatively different. Here are some key points to remember:  39 percent of callers aren’t even connecting to someone who can help them. So, the first rule of business should be to pick up the phone and connect with the caller! Sales calls to the BDC should not go to the receptionist to transfer first, but instead straight to the agents.  Ask the caller for his or her name, and a phone number in case the call gets disconnected.  Ask for the appointment, every time. Currently, four out of five customers who call into the BDC are never asked into the dealership.  Follow up with all of your leads, even off the phone. The average response time to an Internet lead is 9.6 minutes. Beat the odds! ADDRESSING OUTBOUND CALLS Outbound calling has the dreaded “cold call” stigma, which turns off many sales agents from pursuing outbound opportunities. It takes on average about eight calls to reach a customer, which is a lot of effort to put into an activity that an agent isn’t confidently handling. Many BDCs regulate these follow-ups with a minimum number of calls to be made each day. The problem with creating standards for outbound calls such as “make 100 calls this week” is that the metric being tracked doesn’t actually produce the desired results. Staff become focused on making calls rather than talking to customers, which can lead to pitfalls like praying for voicemail. On some occasions, we’ve discovered that many of those 100 calls were repeatedly to a family member! The useful metric to track here would be if an agent connected to an actual customer. Use your call-tracking to keep on top of your BDC team’s calls, and determine if live conversations are actually happening. If your people aren’t speaking with a real prospect for business, that call shouldn’t count toward their total. 10

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“BDCs often are plagued with problems such as a lack of training processes and low overall staff motivation, because their people are not on the same page.”

POOR ORGANIZATION/LACK OF KNOWLEDGE Many general managers fall into the trap of believing their staff is doing well on the phone without actually knowing. While having that level of trust with your staff is great, it’s still important to make sure everything is running smoothly and correctly, in order to catch any unknown mistakes and fix any process issues. Trust your team but verify the results. A great reporting portal provided by your calltracker will show you how your team is really performing. This portal should definitely include individual agent data, a clear overview of company metrics and consistent communication with users. The best part of a CRM is the possibility to integrate information from your call-tracking provider.

In a concise, easy-to-read report, you should be able to: • Manage and comment on tasks like prospect profiles and keep track of phone tasks • Track individual staff phone performance and see how well they’re connecting • Read trends in team performance to adjust training • Take advantage of missed business opportunities Managing a BDC does not have to induce anxiety and should prove to be a worthy investment for every dealership. Make sure your team is aware of their goals and knows the true value of their work.

A good reporting portal will tell you how well this guy really performs on the phone.

MIKE HAEG Director of Business Development at Century Interactive Mike’s company produces the Car Wars automotive call-tracking program. He loves fusing technology with people to help dealerships “own the phone.”

MARKETING

At this stage, chances are good these buyers are not loyal to the car brands they’re researching.

Market Says To Buyers Researching Their Next Car:

Don’t Wait Until They Have Picked A Make And Model 72% of shoppers start out open to any brand; dealers have 3 months to reach them with savvy digital campaigns. BY PHIL SURA

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CAR BIZ TODAY AUGUST 2015

hen I was a dealership general manager, I was taught to believe that the manufacturer was responsible for advertising the model brand, while my focus should be to capture a percentage of the prospects who became interested in my brand. Where a customer was in the sales funnel drew the lines between Tier 1, Tier 2 and Tier 3 advertising responsibilities. Tier 1 was for “conquesting,” i.e. strategic positioning of ads near editorial content and represented the big-dollar ad spend by manufacturers on national campaigns. Tier 3 represented ad spends by individual dealerships, and Tier 2 was a blended focus and collective effort by local dealers representing a specific brand. It was and is a very linear and logical process, and is the approach that many dealers still take today.

However, recent research should persuade dealers to reevaluate this strategy, as the traditional advertising approach may be obsolete. I attended the “Digital Summit & Mountain View” conference at Google’s headquarters earlier this year. Several Google and Cox Automotive senior execs presented. Here are some key data points that I walked away with (applicable to new car buyers only; Google is now researching buyers of pre-owned vehicles):  At the start of the buyer’s process to research a new car, 72 percent of purchasers are open to brand consideration! In other words, a strong majority of new car prospects are not locked into a specific brand at the outset. story continues on page 14 TO SEE MORE FROM PHIL SURA GO TO CBTNEWS.COM

 The average new car sales cycle has been consolidated to 95 days’ worth of the buyer conducting research, watching videos, calling dealers and researching third-party websites to select and purchase a specific car, SUV or truck.  During this period, the typical buyer will invest 12.5 hours online and just over four hours oﬄine. The line between the two doesn’t always make intuitive sense. For example, time spent conducting research on a smart phone while visiting a dealership is counted as oﬄine, just because the customer is physically present at the dealership. • The typical new car buyer will be influenced by 24 research touch points (meaning, when some element of a marketing campaign reaches a customer) during this 95-day cycle, and most of them are digital.  After their research is done, 70 percent of new car purchasers end up buying the specific model they had selected.

A 95-DAY WINDOW TO LAND CUSTOMERS If 72 percent of shoppers are open to alternative brands when they start researching but 70 percent have locked in on a model by 95 days later, then dealerships logically should invest at least part of their ad budgets on influencing the prospects during those three months. If all of your money and energy is spent chasing the 28 percent who start the process brand-loyal or already focused on a specific model, then you’re missing the real opportunities. Your better fishing is for those 72 percent of new car buyers who are open to brand consideration. Of course, the key issue for a dealer is how to shift to this marketing strategy, in which the messaging is just as critical as where you place the ads. A drill-down on the new messaging content is beyond the scope of this article, but it will be an important accomplishment if you start thinking about the timing of your ad spend. And, I want you to make sure your ad agency is discussing these concepts with you, rather than applying 20-year-old concepts. Already, some of the industry’s biggest players are taking steps to test different sales models. For example, AutoNation CEO Mike Jackson recently announced (reported by CBT News on June 29, 2015) that his company has a goal of getting customers in and out of its stores in 30 minutes. Jackson believes customers would rather shop from their homes than sit across a desk at a dealership). Even the finance step would be handled, at least partially, online to help give today’s buyer the ease and transparency he or she craves.

“IF 72 PERCENT OF SHOPPERS ARE OPEN TO ALTERNATIVE BRANDS WHEN THEY START RESEARCHING BUT 70 PERCENT HAVE LOCKED IN ON A MODEL BY 95 DAYS LATER, THEN DEALERSHIPS LOGICALLY SHOULD INVEST AT LEAST PART OF THEIR AD BUDGETS ON INFLUENCING THE PROSPECTS DURING THOSE THREE MONTHS.” types of pre-roll options, two of which are TrueView and DoubleClick (both owned by Google). With both, dealers can target auto shoppers with 15- or 30-second ads. TrueView is largely dependent on YouTube and Google’s display network, while DoubleClick expands to inventory beyond Google. It is important to note that YouTube recently changed its focus to emphasize views rather than clicks to the website. In the past, YouTube let the viewer click on the entire media player (which is where the video is viewed) and be redirected to the advertiser’s website. The new clickable area with the YouTube pre-roll is a small link labeled “View Advertiser’s Site.” This isn’t the strongest messaging to drive clicks away from the YouTube site. In TrueView’s defense, the advertiser only pays if the entire 30-second ad is viewed, and the viewer can click off after five seconds. If a prospect views 28 seconds of your dealership’s 30-second ad, then you don’t pay, and the average cost per completed view is 10 to 15 cents. DoubleClick has some non-skipable inventory, meaning the viewer is forced to watch all 30 seconds of the ad, and the advertiser pays on a CPM basis (typically $16 to $24).

TRACK RETURN VISITS TO WEBSITE Regardless of whether delivery is through TrueView or DoubleClick, dealers have a platform to communicate to “automotive intenders,” i.e. prospects in a geo-targeted area who have expressed an interest in looking at specific models and brands. DoubleClick allows a Ford dealer to focus on F-150 shoppers as well as those shopping for a Silverado or Ram 1500.

Make certain you are using tags to track the number of prospects returning to your dealership’s website at a future date, after they see the ad. These are known as “post-clicks” (immediately return to the website) or “post-view conversions” (view the ad only but come to the website at a future time). A pre-roll ad may interrupt and automotive intender who is, for example, visiting CNN.com but also shopping for an F-150. The ad might trigger some interest without the prospect taking action to visit the dealer’s website at that specific moment.

UTILIZE POST-VIEW METRICS The post-view metric lets you identify actions taken at a future date (over the next 30 to 60 days). I would suggest that you not tag every page on your website but rather focus only on pages tied to inventory. A post-view conversion isn’t a prospect who sees your ad and later visits your service department’s page to schedule an appointment. The stronger the message in the first 5 seconds, the better the conversion rate. A dealer needs to communicate a compelling message that is focused on the customer. Pre-roll simply offers an additional way to gain attention from the larger audience of automotive shoppers who are open to brand consideration. It isn’t the only option. A strong percentage of Tier 2 dollars also should be allocated to digital conquesting opportunities, rather than simply to TV and other traditional media. I hope I have you thinking about what is your dealership’s message and how you will reach your target audience. If your message is largely the same someone gets from the dealer down the street, you’re probably being ignored.

NEW DIGITAL VIDEO OPTIONS Once the message is created, communicating to the right audience is critical. One non-traditional method involves video pre-roll. There are different

“A DEALER NEEDS TO COMMUNICATE A COMPELLING MESSAGE THAT IS FOCUSED ON THE CUSTOMER. 14

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CAR BIZ TODAY AUGUST 2015

Before and after with YouTube’s approaches of clicking on the whole media player vs. on a smaller area.

PHIL SURA VP of Sales at UnityWorks Media Phil has worked in that role for 11 years at UnityWorks, which creates video for ads, SEO messages and websites for the automotive industry. He also speaks at dealer conferences and writes for automotive trade magazines around the country. Before coming to UnityWorks, he spent four years as a dealership GM and 13 years with a dealership consulting group.

TO SEE MORE FROM PHIL SURA GO TO CBTNEWS.COM

News INDUSTRY

Auto Shows Work In Stimulating Demand, Focusing Buyers: Study

utomakers are getting bang for their buck by investing in auto shows open to the general public, a new study from the Auto Shows of North America trade group asserted. The study performed by Foresight Research found that 57 percent of auto show attendees were in the market for a new car or truck within a year after attending, more than one-third either added or subtracted brands based on what they saw at the show, and 26 percent left the event with their minds made up about a make and model.

Car Buyers Take On More Debt, Longer Loans

ealers need to know that their customers are willing to take on more car debt for a longer period, and perhaps be a little leery with that trend. Experian Automotive released new research showing that longer-term new car loans spread out over as long as seven years (vs. about three years for the average warranty) now cover a record 29.5 percent of all new vehicles financed in the U.S. Meanwhile, the average new car loan is now $28,711, according to Experian, up about $1,000 over 2014. The average out-the-door cost of a new vehicle has topped $33,300, according to Kelley Blue Book.

Carmax Dominates Ranking Of Top Independent Used Car Stores

ot surprisingly, seven Carmax stores ranked among the top 10 in Auto Remarketing magazine’s latest list of the 100 busiest independent used auto dealers in the nation. The 10-biggest sellers were:

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Carmax Auto Superstore in undisclosed Illinois city, 29,105 vehicles Carmax Auto Superstore in Houston, 28,570 Carmax in Pompano Beach, Fla., 14,173 Texas Direct Auto in Staﬀord, Texas, 12,560 Oﬀ Lease Only Miami in Miami, 9,971 Car Outlet in Chicago, 9,819 Carmax Auto Superstore in Austin, Texas, 9,007 Carmax-Raleigh in Raleigh, N.C., 8,927 Carmax Auto Superstore in San Antonio, 8,613 Carmax-Orlando in Orlando, Fla., 8,609)

Big Lender Agrees To Give Flat Dealer Fees A Try

he first domino fell among financial services companies from the federal government’s pressure to stop discounting the APR in order to land a car buyer’s auto loan business. On July 1, BB&T Dealer Finance launched a flat-fee program dealership program, compensating dealers representing its auto loans with a flat fee and prohibiting them from discounting APRs. The new program does not cover Regional Acceptance Corp., a BBT Dealer Finance unit that specializes in the subprime market. The Consumer Financial Protection Bureau has been pushing the dealership industry to stop undercutting on APR and setting discretionary dealer reserves, arguing that the practice intentionally or unintentionally results in minorities paying higher rates than other borrowers with similar credit. However, the dealership industry is displeased with the policy and is backing a proposed federal law to make the CFPB rescind its guidance and pursue other alternatives than flat fees. Separately, the American Banker trade newspaper reported that the captive finance companies for Honda, Nissan and Toyota were negotiating possible consent decrees with the CFPB and Justice Department. Based on confidential documents obtained by the newspaper, the automakers would reduce dealer participation to resolve instances of unintentional discrimination.

Car Loan Payments Faster, AutoNation Parts Company But Are Borrower Interests Protected? With TrueCar

he pricing transparency controversy got an extra jolt when AutoNation Inc., the nation’s leading retailer of new cars, parted ways with TrueCar Inc., whose leads produced about 3 percent of AutoNation’s sales, after a contract dispute. AutoNation CEO Mike Jackson said TrueCar was demanding too much information about all cars his company sells, and their buyers. TrueCar CEO Scott Painter insisted the amount of purchase data sought was “limited,” and his company could not accept setting different participation rules for AutoNation. Some dealership companies such as Fort Lauderdale, Fla.-based AutoNation have been trying to cut ties with third-party referral sites like Santa Monica, Calif.-based TrueCar, with varying degrees of success. AutoNation, for example, still uses some outside providers. Jackson said his company would continue to develop its own online platform.

peed is in lately with car installment loans. The CFPB outlined what it called guiding principles for protecting consumers as companies develop faster payment systems. More specifically, these principles address nine areas of concern (such as borrower control over payments, data privacy and fraud) for the CFPB as payment systems add faster options. Any new payment system should be affordable, but also secure and transparent, to consumers, the advisory board says. Also, at the National Association of Minority Automotive Dealers’ annual convention in Miami, Chicago-based Ally Financial announced it is adding customers’ APR to their online account profiles, providing them with FICO scores, and adding a secure e-mail feature to let customers send and receive account information.

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F&I

Evaluate Technology That Sharpens Or Simpliﬁes

F&I-Related Activities The latest software is scaled to dealership size and segments target customers, veriﬁes income and employment, and handles reports to credit bureaus. BY ANGELICA JEFFREYS

echnology is affecting every aspect of the vehicle-buying process at a dizzying pace, and consumers are not the only ones benefiting. Your dealership has access to an expanding array of software and services that can help grow your business and streamline processes, especially in the F&I department. Even if you don’t enjoy the vast network of resources typically employed by a large dealership group, you can afford certain tools that provide in-depth information about a potential customer’s financial standing. You may be familiar with some of these tools, but with technology solutions launching nearly every day, it’s quite possible that you’re missing out on a treasure trove of data and analytics that can help you compete more effectively. Just to cite a few benefits, your dealership could micro-target its marketing messages to specific customer segments, verify income and employment to help shepherd a customer through loan approval procedures, and – if yours is a buy here, pay here (BHPH) dealership – report payments to a credit bureau. Below, I describe a few tools and services that can help you in these activities.

PRE-SALE: REACHING RIGHT CUSTOMERS Depending on your dealership’s size, it may cater to customers with very specific financial standings, such as people whose credit ratings lie at either the prime or subprime ends of the spectrum. The Fair Credit Reporting Act (FCRA) regulates how companies, and especially marketers, can access or use consumer credit information. This can make it difficult to strategically identify customers and prospects with the most accurate advertisements regarding offers for a specific range of credit or loan rate. As a result, data providers have developed alternative versions of the traditional credit score, such as Equifax’s aggregated FICO Scores for auto dealerships. Aggregated FICO scores use credit information that is anonymized (i.e., does not include an individual’s name or other identifying information) and compiled by micro-neighborhood (meaning data is accurate for areas within a ZIP code. With that level of segmented data, the scores are designed specifically for use in non-traditional marketing applications, such as highly customized direct-mail advertisements. With alternatives such as aggregated FICO scores, your dealership can build prospect and acquisition lists to market more efficiently. Segmenting your 16

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“VERIFYING A CUSTOMER’S INCOME EARLY IN THE SALES PROCESS CAN PROVE INVALUABLE IN ASSESSING THE NEEDS OF PROSPECTIVE BUYERS. FOR BHPH DEALERS, A COMPLETE UNDERSTANDING OF THE CUSTOMER’S FINANCIAL CAPABILITIES CAN BETTER HELP YOU PLACE HIM OR HER IN A VEHICLE PRICED FOR THEIR FINANCING ABILITIES.”

Pulling an alternative credit score for these buyers could prove advantageous.

As carbuyers provide income and employment information, dealerships can react quickly with targeted credit products.

lists to advertise the right message to the right consumers should help you bring more prospects through the door.

DURING SALE: VERIFY INCOME, JOB Verifying income and employment has typically been regarded as activities conducted by lenders. However, vendors are offering verification solutions specifically tailored to dealership use. Verifying a customer’s income early in the sales process can prove invaluable in assessing the needs of prospective buyers. For BHPH dealers, a complete understanding of the customer’s financial capabilities can better help you place him or her in a vehicle priced for their financing abilities. Running an instant verification of income and employment as you pull a potential customer’s credit report also removes or minimizes logistical obstacles, such as having to send customers home for a pay stub (and praying they even return at all); as well as legal obstacles, such as a customer potentially giving you a fraudulent pay stub. Some verification services are built around databases that are updated every pay period, so you can rest assured that the income figure listed on a credit report is up to date. When your dealership staff searches for lenders to finance your customers’ purchases, they can use instant verifications of income and employment to position loan applicants for consideration by lenders that offer the best rates (but, in return, impose stricter requirements for proof of income and employment). These lenders will, of course, conduct their own verifications. However, taking the initiative to run your own verification lets your dealership offer customers the best financial options available early in the sales process, which can produce considerable time savings. Ultimately, verification services can help your dealership provide the quickest, most convenient TO SEE MORE FROM ANGELICA JEFFREYS GO TO CBTNEWS.COM

buying experience possible – improving customer satisfaction.

POST-SALE: REPORTING CUSTOMER PAYMENTS If yours is a BHPH dealership, once a customer has signed on the dotted line for his or her vehicle, in some cases you have the option to report customer payments to credit bureaus. Reporting customers’ payment histories not only improves the data available to dealers for qualifying future potential buyers, but also encourages customers to make timely payments, since their credit rating may be directly affected by how they perform on their loan. In addition, dealer reporting includes the auto loan trade lines on consumers’ credit files, to accurately reflect their handling of debt. This may grant customers even more opportunities for competitive terms based on their credit histories. Most large BHPH dealers furnish their credit data to credit reporting agencies, but if you operate a smaller dealership, you may have limited time and resources to report customer payments to credit bureaus. Now, there are more options available for smaller BHPH dealerships to report credit data. For example, Equifax has partnered with the National Independent Automotive Dealer Association (NIADA) and the National Association of Buy Here Pay Here Dealerships (NABD) to allow its dealer members to report their loan portfolios to Equifax, regardless of how many accounts those dealerships have in their portfolio. Programs such as this can help your dealership – no matter how large or small – become a data-furnisher to credit bureaus.

“THE DEALERSHIP INDUSTRY MAY SOON SEE PLUG-INS FOR DEALER WEBSITES THAT LET CONSUMERS SUBMIT THEIR BASIC FINANCIAL INFORMATION AND RECEIVE A RANGE OF FIRM CREDIT OFFERS.” LOOKING AHEAD The tools and services I’ve mentioned are only the tip of the iceberg, and you can expect even more options to hit the marketplace in coming months. For example, the dealership industry may soon see plug-ins for dealer websites that let consumers submit their basic financial information and receive a range of firm credit offers. Imagine how much easier it would be to structure deals when your staff have an idea of customers’ financial standings before they even walk through your front door. In the end, technological advances will continue to help everyone in the industry work together to provide the best car-buying experience possible.

ANGELICA JEFFREYS Vice President and Automotive Dealer Leader at Equifax Angelica has more than 25 years of experience helping dealers to drive growth and improve business performance. Previously in her career, she was vice president of strategic partnerships at DealerRater and held several sales leadership roles at Autotrader.

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FIXED OPS

Smart Service Advisor Hires Are Absolutely Critical To A

DEALERSHIP’S PROFITABILITY Follow other dealers’ proven steps to recruiting and interviewing promising advisors, and don’t insist they’ve done this job before. BY DON REED

his time of year is perfect to reflect on your fixed operations team’s year-to-date performance. As a dealer, GM or fixed ops director, you might want to start with the operating profit line on the financial statement and measure your team’s performance against the following industry benchmarks: • Service department operating profit: 20 percent of gross profit • Parts department operating profit: 30 percent of gross profit If you are exceeding those benchmarks, then congratulate your team for a job well done! If, however, your department is falling below those benchmarks, then you obviously have some work to do. Let’s begin by exploring these fundamental questions: Are your expenses too high, or are your gross profits too low? After working with hundreds of dealers, I have learned that in most cases, the fixed ops team is doing a good job of controlling expenses but is missing out on huge opportunities to increase gross profit. Wouldn’t you agree that a dealership almost never can save its way into higher profitability? If so, then what is the single-biggest factor in why so many dealers miss out on so much profitability in fixed ops? I think the answer is people, hiring and managing people. Or, more specifically:

Appropriate dress, confidence, a smile and eye contact separate the good candidates.

“If you are successful in growing your customer traffic count but keep the same number of advisors, then your sales per RO will decline starting immediately, resulting in a decreasing gross profit even with more customers.” 18

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Having the right employees in the right positions

Having the right number of people to exceed your customers’ expectations

Properly training those people to become top performers

Implementing compensation plans that reward individual performance

Holding people performance

accountable

for

their

GOAL IS TO CREATE TOP PERFORMERS Think about the individual performances of your technicians, service advisors, service managers, parts managers and warranty administrators. Ask yourself, “If I knew then what I know now, would I have hired this person?” Remember, there are only two reasons why any employee is not a top performer: They don’t know how to become one or they don’t want to. The first scenario can be addressed with individualized training of each employee on how to perform at a higher level. The latter can be cured with an aggressive recruiting campaign designed to attract those people who want to do what you

hire them to do. If you answered the above question honestly, my guess is that many of you will be in the recruiting mode for new hires. So, I want to give you some ideas for recruiting the right people.

HOW TO RECRUIT ADVISORS A key position for improving gross profits is service advisor. This person speaks with more customers on the phone than any other employee in your dealership, other than the receptionist. Your service advisors also speak with more customers face to face than does anyone else in your dealership. Given those realities, whom do you think has the most impact, good and bad, on a dealership’s customer retention? Whom do you think has the potential to produce $500,000-plus of gross profit per year? The answer on both counts is the service advisor. This is a very important position and requires a definitive plan for recruiting qualified candidates who can achieve top performer status. Here are some simple rules to follow in recruiting service advisors: 1.

Do not hire an experienced advisor who has not exceeded 1.5 HPRO. You don’t need to hire someone else’s underachiever.

2. Consider recruit aftermarket advisors and managers. They all have some degree of applicable training and understand accountability for performance. 3. Aggressively recruit women. After all, at least half of your customers are women. 4. Advertise “No experience necessary.” Why? You won’t have to break applicants’ bad habits. 5. Do not advertise the job as “service advisor.” Instead, pick a title that will appeal to a larger number of applicants, e.g. customer service representative, customer service associate, service secretary, administrative assistant – customer service.

Your ultimate goal is to interview as many applicants as possible. I actually got the idea of advertising for a “service secretary” from one of our dealers who ran that title in a job ad and had more than 50 applicants show up – mostly women. We interviewed and profiled the applicants, then hired a young lady, gave her five days of training, compensated her on a performance-based pay plan and watched her finish her first month at 1.8 HPRO and second month at 2.1 HPRO. She brought no technical skills but also no bad habits to overcome. Her customers love doing business with her, she loves her new job, and as you can imagine the dealer is thrilled. Sounds like a pay raise!

TIPS FOR ADVISOR INTERVIEWS Once you are interviewing service advisor candidates, for what personality traits should you look? We have worked with about 1,000 dealerships in-house and in workshops, and the following qualities and questions (even if they don’t seem dealership-specific) are common to the successful hires:  Was the person dressed appropriately for the interview?  Did he or she give you a firm and friendly handshake?  Was he or she smiling throughout the interview?  Did the applicant make and keep eye contact with you throughout the interview?  Ask what he or she liked most and least in the last job.  Ask, “Why should I hire you over any of the other applicants?”

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Women candidates should be aggressively recruited to fill service advisor jobs.

“What is the single-biggest factor in why so many dealers miss out on so much profitability in fixed ops? I think the answer is people, hiring and managing people.”  Utilize a personality profile to determine if the applicant is decisive, outgoing, self-motivated and able to handle stress.  Review the job description and ask if the applicant is comfortable with those responsibilities. As you do so, watch for negative body language.

KEEP A STEADY CUSTOMER/ADVISOR RATIO Now, let’s say you have willing candidates you are ready to hire. How many customer service representatives, aka service advisors, does a dealership need? We use a guidepost of 12 ROs per day per representative – customer pay and warranty, not including internal. If your advisors are working with more than 12 customers per day, and your dealership needs to increase gross profit, then you need to start planning for hiring another representative – NOW! If you are successful in growing your customer traffic count but keep the same number of advisors, then your sales per RO will decline starting immediately, resulting in a decreasing gross profit even with more customers. Each advisor should be able

to devote at least 15 minutes to each customer at the time of write-up and another 15 minutes at the time of delivery. So, hire that additional advisor as soon as your traffic begins to increase. This scenario is commonplace when OEM recalls are announced, and a dealership’s phones light up with an ever-increasing volume of requests for service appointments. If your advisors are currently working with about 12 customers a day, and suddenly the recall traffic starts building, then we find in most cases the retail customer becomes seen as a lesser priority than the warranty customers. But, a successful dealer must be able to accommodate all service customers in a timely manner. Recall customers do, however, present a great opportunity to recapture “lost souls” who have not been in your dealership in more than a year. Your service advisors are the key to making that happen. So, prepare your recruiting plan, avoid hiring someone else’s underachiever, recruit non-automotive people who bring no bad habits, and invest in their training. Your net profit could soar to record levels.

DON REED CEO of DealerPro Training After 26 years in the automobile business as a dealer, GM, sales manager, service manager, service advisor and salesperson, Don began a new career as a consultant and trainer. As CEO of DealerPro Training and founder of The Don Reed PRO Training Network, he has worked with hundreds of dealerships and major dealer groups across the U.S., Canada and the U.K. to increase profits in their fixed operations. He was rated a Top 10 Speaker at the NADA convention for four consecutive years. Visit the firm’s website at DealerProTraining.com.

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F&I

The New CFPB Oversight Of Non-Bank Lenders:

Its Impacts On Dealers And Buyers At the very least, it means more complexity and cost in the F&I process that dealerships or customers will have to shoulder. BY CLINT WILLIAMS

“The primary impact that CFPB’s vehicle finance largerparticipant rule will have on non-bank auto lenders is increased compliance costs of hundreds of thousands of dollars.” — Karen Klugh, AFSA Extra compliance costs will trickle down to buyers.

ew federal regulations intended to protect car buyers may cost them money. Certainly, they will likely create new headaches for both dealerships and their customers. The Consumer Financial Protection Bureau (CFPB) has decided to start supervising more than three dozen non-bank auto finance companies, extending its regulatory reach beyond dealerships’ commercial bank partners. More specifically, CFPB scrutiny will now fall on non-bank lenders that make or refinance 10,000 or more loans or leases each year. Nearly 7 million customers do business with such lenders, and the non-bank financial units of major automakers such as Ford, Chrysler, Honda and Nissan are among the 20 largest automotive lenders overall, according to Experian. Under the new rule, the CFPB will oversee these so-called “larger participants” to ensure they are complying with federal consumer finance laws including the Equal Credit Opportunity Act, the Truth in Lending Act, the Consumer Leasing Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition against unfair, deceptive or abusive practices. “Auto loans and leases are among the most significant and complex financial transactions in a

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typical consumer’s life,” CFPB Director Richard Cordray said in a prepared statement when the rule was published in June. “Today’s rule will help ensure that larger auto finance companies treat consumers fairly.” CFPB examiners will be assessing potential risks to consumers and whether auto finance companies are complying with federal consumer financial laws. Among other things, examiners will be evaluating whether non-bank auto finance companies are: • Fairly marketing and disclosing auto financing terms. The CFPB will examine auto finance companies that market directly to consumers to ensure they are not using deceptive tactics to market loans or leases. • Providing accurate information to credit bureaus. The bureau will assess whether information that auto finance companies provide to credit bureaus is accurate. • Treating consumers fairly when collecting debts. The CFPB will examine whether auto finance companies are using illegal debt collection tactics. Regulators also will review the repossession process, including the practices of third-party service providers that are employed to repossess autos.

•

Lending fairly. The bureau will assess whether auto finance company practices comply with the Equal Credit Opportunity Act and other regulations. CFPB supervision may involve requests for information or records, targeted reviews, and on-site and off-site examinations, according to a report issued by the PricewaterhouseCoopers accounting firm. CFPB examinations scrutinize not only compliance with regulatory requirements, but also a lender’s internal structures and processes and its capacity to stay compliant. The largest lenders can expect to be reviewed every other year, PwC said. “Lenders may incur significant costs in order to effectively prepare for and respond to examination requests. The cost of an examination is not limited to the cost incurred during the exam itself, due to the high level of documentation gathering and exam preparation required,” according to the PwC report. Such compliance with additional regulations logically means additional costs to dealerships whose F&I departments partner with non-bank lenders. “The primary impact that CFPB’s vehicle finance larger-participant rule will have on non-bank auto lenders is increased compliance costs of hundreds of thousands of dollars,” predicted Karen Klugh, spokeswoman for the Washington-based American Financial Services Association. “These costs will stem from hiring and training additional personnel,

Smaller dealers may struggle with additional oversight.

making systems changes, revising procedures and enhancing compliance management systems.” Added Klugh: “These additional costs of doing business for lenders likely would trickle down into the cost of financing, which likely would be passed on to consumers.” The regulations won’t just add costs; they also will take away flexibility to close a deal, said Ron Reahard, president of Reahard & Associates, an F&I training firm based near Chattanooga, Tenn. “I think it’s going to impact the consumer more than the dealer,” he said. Why? He believes the regulations will accelerate a shift to different forms of compensation for dealers. The dealer reserve – the dealer increase on a consumer auto loan – may be replaced with a flat fee based on the size of the loan, Reahard said. A July settlement between the CFPB and American Honda Finance Corp. may hint at the future of dealer compensation from non-bank financial groups. American Honda Finance agreed to cap the dealer reserve. Dealerships using Honda Finance will be allowed to increase rates by no more than 1.25 percentage points on loans with terms of up to 60 months, and no more than 1 percentage point on loans longer than 60 months. The agreement also allows American Honda Finance to pay a dealer a non-discretionary fee in addition to the dealer reserve. That could take the form of a flat fee (such as $100 per loan); or an additional, fixed portion of the interest rate that would be reserved for the dealer, beyond the discretionary 1.25 percent or 1 percent. Dealers will sometimes take a loss on the vehicle

“CFPB scrutiny will now fall on non-bank lenders that make or refinance 10,000 or more loans or leases each year. Nearly 7 million customers do business with such lenders.” sale, knowing they could make an overall profit through the auto financing. With recent developments, that option is now gone, Reahard believes. However, large, publicly traded auto dealers should have few issues complying with the new rule, said Kevin Bradberry, president and CEO of TK Worldwide, an automotive training and recruiting company. Large companies have the staffing and infrastructure to adjust to changes in federal regulations. Such dealers can make changes to their online menu selling system that guides the F&I staff on each lot “through the exact same steps every single time,” he said. “Compliance will be an bigger issue for smaller dealers.” Non-bank auto finance companies “will need to make significant changes to their processes and systems” to comply with the new regulations, according to a white paper issued by Cognizant, a Teaneck, N.J.-based provider of information

technology, consulting and business process outsourcing services. Among the steps that the Cognizant report recommends lenders and dealers take are:  Develop policy, controls and reporting for dealer interest rate mark-up.  Develop and implement new compensation models that can be proven to be non-discriminatory.  Train associates at the dealership on fair lending practices and provide regular training on fair lending principles, documents and processes.  Develop e-learning modules to train associates, and track whether they are keeping up on their learning.  Train dealers on effectively explaining GAP coverage, terms, costs and processes to consumers.

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SMALL ADJUSTMENTS To Parts Pricing Systems Can Make A Huge

Difference In The Department’s Profitability After a year of automatic matrixpricing and rounding up to .99, could your gross margin have soared by 50%? BY KEN ROCK

oes your parts department consistently sell parts at the manufacturer’s suggested retail price (MSRP)? If the answer is yes, then your department is giving up at least thousands of dollars of potential profit every year. When I deliver training sessions to parts managers, I teach the following three pricing strategies that can instantly start improving their bottom lines. Even though the incremental profit per part is small and probably not even noticed by your customers, over time the increments add up to real money. If you follow these recommendations, your parts department’s gross profit margin could increase by more than 50 percent in one year. I’ve seen it happen repeatedly with my dealership clients.

ACTIVATE MATRIX-PRICING Just about every DMS has a matrix-pricing feature available, although not every parts department uses it. (For example, in Auto/Mate’s DMS, you would go into the parts module to access the system information file and choose “Calculation Code Setup.”) Matrix-pricing describes a system that takes a part’s initial cost and automatically increases it by a set percentage to arrive at the selling price. The lower the dealership’s cost to acquire that part, the higher the multiplier. For example, for parts that cost the dealership a penny to 10 cents, I recommend a mark-up of 975 percent. I know that story contnues on page 24

Every parts employee should resolve to get a handle on per-unit profits.

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Price Rounding

From .01 .11 .21 .31 .41 .51 .61 .71 .81 .91 1.01 2.01 4.01 8.01 10.01

Y To Next

Up To -

99 (e.g. 99)

(e.g. X9)

Selling Y (Y/N)

Selling Price Percentage % .10 .20 .30 .40 .50 .60 .70 .80 .90 1.00 2.00 4.00 8.00 10.00 15.00

975.000 950.000 925.000 900.000 875.000 850.000 825.000 800.000 795.000 775.000 650.000 400.000 150.000 125.000 100.000

% of % of % of % of % of % of % of % of % of % of % of % of % of % of % of

C C C C C C C C C C C C C C L

List N (Y/N)

Discount Calc %

Cost/List/Trade Cost/List/Trade Cost/List/Trade Cost/List/Trade Cost/List/Trade Cost/List/Trade Cost/List/Trade Cost/List/Trade Cost/List/Trade Cost/List/Trade Cost/List/Trade Cost/List/Trade Cost/List/Trade Cost/List/Trade Cost/List/Trade

.000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000

Sample price matrix from Auto/Mate DMS calculation code screen shot. sounds like a lot, but if a part cost you 10 cents, your dealership would sell it at a maximum $1.18 rather than the MSRP of 18 cents. A $1.18 price tag is hardly outrageous standing on its own, and on an RO it is downright negligible. However, for those reasons, matrix-pricing should only be used with parts sold to the service department for ROs; it should never be used for over-the-counter parts sales. Why? The Internet has made parts-pricing so transparent that any ambitious customer can quickly use a smartphone to look up the MSRP. With ROs, customers rarely question pricing of individual parts and if they do, the mark-up is such a small percentage of the overall RO that they are unlikely to push the issue. As the cost of parts rises, the mark-up percentages should drop (see exhibit below). Typically, I recommend using matrix-pricing only on parts with an MSRP or full list price of $20 or less each. After the $20 mark is reached, you should revert to selling it for MSRP. And, matrix-pricing isn’t the right approach for all parts; it shouldn’t be used, for example, with oil filters, whose pricing is pretty well standardized in the retail marketplace. Since matrix-pricing is a gradual approach to increase profits from smaller parts only, it may take a year to achieve a real impact on your department’s bottom line. However, I’ve worked with many parts managers who have, over time, seen gains in their department’s profitability of 50 percent from matrix-pricing alone.

ROUND UP TO 99 CENTS With this handy and simple approach to partspricing, your system automatically rounds up the price of every part to end with “.99.” So, if you had planned on setting the part’s price at $34.85, the system will round it up to $34.99. A part you had planned at selling for $295.10 will instead be offered at $295.99. Of course, the rounding-up doesn’t have to be to 99 cents; it could be to .29, .95 or any level you think your customer would respond to favorably. With the Auto/Mate DMS, all that’s required to implement the 99-cent round-up feature is to 24

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change a setting in the “Calc Code.” (At the top of the previous matrix pricing exhibit, you can also see the .99-rounding setting.) Not every DMS has such a feature available, so check with your provider to see if you have overlooked a setting or if there is a way to implement the function. I recommend using this pricing model for customer-pay parts because any mark-up will still be close to MSRP, but never for wholesale customers because a small increase can make a noticeable difference with their bulk orders. As with matrix pricing, a 99-cent round-up policy can quietly and gradually increase profits, with parts department gross profit margins increasing as much as 25 percent over the course of a year.

NEVER LOSE MONEY ON WHOLESALE Margin pricing is a system designed to protect

dealers from losing money on parts sales to wholesale customers. Certain parts from certain manufacturers simply don’t have a lot of profit built in for the dealer. Then, if you choose to give a 20 percent or 30 percent discount to get a local repair shop’s business, it’s quite possible (and this happens more often than you think) that you have sold the part for less than what you paid. For example, let’s say your parts department paid $4,000 for a transmission. The manufacturer’s MSRP may be as low as $4,250, or a total mark-up of $250. If you opt to sell that transmission at a 20 percent discount off MSRP, then you have just sold it for $3,400 and lost $600 on the transaction! Margin pricing automatically calculates a desired profit margin on the sale of every part, and also automatically re-sets any discount you may be offering if it would put you in the red for that part. This feature is most useful in sales to wholesale customers, but it can also prove handy if an overthe-counter customer is asking for a discount. All of your customers should understand that your dealership can’t viably sell a part for less than cost. Once again, a margin pricing feature resides in the calculation code area of most DMSes, so ask your provider for help with implementing and/or setting it up.

TAKE CONTROL OF PER-UNIT PROFITS Auto service is a tough business. It seems like the mindset in many dealerships has become that it’s necessary to sell everything at a discount in order to get business. That’s simply not true. If a customer really wants a car repaired by a certified, qualified technician, you ought to be able to make him or her understand there usually is a higher cost associated with that skilled work. In the parts department, there are times when parts managers have no choice but to discount or sell parts at cost. But, your dealership should never lose money on parts sales! Even a small profit is better than nothing at all. The best part about the pricing strategies I’ve discussed is that they don’t put a big dent in a customer’s wallet, because the amounts are small and usually bundled into ROs. I’ve worked with many of our customers to implement these parts-pricing strategies. In some cases, parts departments that were deep in the red have turned around and become profitable in less than a year. These strategies can work for your dealership, too, by changing a few simple settings in your DMS.

“THE BEST PART ABOUT THE PRICING STRATEGIES I’VE DISCUSSED IS THAT THEY DON’T PUT A BIG DENT IN A CUSTOMER’S WALLET, BECAUSE THE AMOUNTS ARE SMALL AND USUALLY BUNDLED INTO ROS.” KEN ROCK Corporate Training Manager and Customer Support Specialist at Auto/Mate Dealership Systems Ken has trained dealership customers for more than years, after having worked as a fixed-ops director for a dealership group in New York and Massachusetts. He has more than 25 years of dealership experience and hands-on training of dealership staﬀ.

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FOREIGN MANUFACTURERS BASK IN JUNE VEHICLE SALES IN U.S. The seasonally adjusted, annualized sales figures for foreign-nameplate vehicles in the U.S. in June were the highest for that month since 2005, the American International Automobile Dealers Association reported. Alexandria, Va.-based AIADA reported that nearly 1.5 million light vehicles were sold in June, for a seasonally adjusted, annual rate of roughly 17.2 million units. So far in 2014, sales of all foreign-nameplate brands, unadjusted for business days, are up 4.4 percent over 2014. Nissan, Subaru, Kia and Toyota all posted Lusk: Rest of 2015 looks good for healthy gains in June sales, according dealers. to AIADA. Leasing activity of foreign manufacturer cars hit an all-time high in June, reaching 33 percent of all sales. “Dealers closed the first half of 2015 on a high note and are optimistic that the remainder of the year will be equally productive,” AIADA President Cody Lusk said in a prepared statement.

LEGAL OWNERSHIP IN CAR MUST BE DISCLOSED BEFORE AUCTION

Sellers must disclose legal ownership of a vehicle prior to its sale by a third party such as an auction operator, under an extended policy from the National Auto Auction Association. How disclosures are made to buyers should be similar to how an auction company makes other pre-sale disclosures, according to the new NAAA arbitration policy, “Sellers Responsibility, Section 3(4).” Given the operating and technical requirements needed to properly support the Frederick, Md.-based NAAA’s new arbitration policy, “if a vehicle is offered for sale by a Third Party, the legal owner must be disclosed by Seller prior to sale.”

Car sales activity continues at a brisk pace this summer. LEAK OF TALKS WITH OEM CAPTIVE FINANCE COS. ENRAGES ASSOCIATIONS

How the media found out that the American captive finance arms of Honda, Toyota and Nissan were negotiating potential consent decrees with the federal government seemed to bother the American Financial Services Association more than the actual events. Washington-based AFSA posted a statement on its website saying it questioned the validity of a story in the American Banker, a trade newspaper, until any consent orders are signed. Until then, any discussions are ongoing, the association pointed out. “More importantly, AFSA questions how the American Banker obtained confidential documents regarding sensitive business information,” the statement said. “Companies are assured – in writing – that any negotiations that are conducted with the CFPB are confidential. Yet a leak occurred somewhere … “AFSA is disturbed by the egregious release of private information, quite possibly by a federal agency, and will press for an examination of this leak.” AFSA wasn’t the only industry association riled up. On July 13, NADA sent a Freedom of Information Act request to the CFPB seeking an internal board memo, which NADA believes would show the CFPB is illegally trying to regulate auto dealers. Some senators also complained about expanding CFPB jurisdiction during a July 15 Banking Committee hearing.

MOTORCYCLE COUNCIL TAPS STAFFER AS ITS NEW PR CHIEF

Longtime staffer Ty van Hooydonk was named VP of communications at the Motorcycle Industry Council in Irvine, Calif. Van Hooydonk was a veteran in corporate and agency public relations before coming to the council. He will continue in his new job to work on the trade group’s mainstream media and market-expansion programs.

RV DEALER CONVENTION TO OFFER MORE F&I EDUCATION

The Fairfax, Va.-based National RV Dealers Association announced it will have a full track of F&I-topic workshops at its next International Convention/Expo, with five presenters already committed. Thus, there will be a heavier F&I feel at the 2015 event, to be held Nov. 2-6 in Las Vegas.

RESEARCH SHOWS SHOPPERS LIKE MERCEDES, INFINITI TREATMENT

Mercedes-Benz dealerships topped the charts for the seventh straight year in a prospective car buyer satisfaction survey. Luxury brands Mercedes, Infiniti and Lexus were the top three in the “2015 Pied Piper Prospect Satisfaction Index” from Monterey, Calif.-based Pied Piper Management Co. Mini, BWM and Lexus posted the highest year-to-year improvements in their scores, the research company said; Volvo, Smart and Jaguar had the biggest year-over-year declines. Pied Piper couples mystery shopping results at 6,370 dealerships nationwide with industry sales numbers to arrive at its car buyer prospect barometer.

FUZY WILL HEAD USED CAR DEALER ASSOCIATION INTO 2016

Frank Fuzy, the owner of Century Motors of South Florida, took over as the 2015-16 president of the National Independent Automobile Dealers Association at NAIDA’s 69th annual Convention and Expo in Las Vegas. Fuzy succeeded 2014-15 President Arlan Kuehn of South Sioux City, Neb. He said expanding membership in the Arlington, Texas-based association representing used car dealers will be his top priority, and NAIDA has funds in its budget for the necessary marketing. With his wife, Fuzy has operated a Pompano Beach, Fla., dealership co-founded with his father-in-law for more than 30 years. Outside of his business, he has served as NAIDA treasurer and as president with the Florida Independent Automobile Dealers Association. Separately, NAIDA named Ricky Beggs, the longtime SVP and editorial director at Black Book, and Ken Shilson, founder and president of the National Alliance of Buy Here-Pay Here Dealers, to its Ring of Honor. Darla Booher, president of Deal Depot in Greer, S.C., was named 2015 national quality dealer of the year.

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SALES

Consider Hybrid Salespeople/ F&I Representatives FOR YOUR DEALERSHIP Done right, this process can pull in more millennial buyers, improve customer experience and increase product sales. BY TONY DUPAQUIER

A successful hybrid rep must feel comfortable and be productive both on the showroom floor and in the F&I office.

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am seeing more dealers put heavier emphasis on improving customer experiences for their car buyers. One of the more controversial approaches (but one that I support) to improve customer experience is to institute a one-touch, hybrid sales/F&I process. That is, the salesperson both sells the dealership’s vehicles and offers his or her customers necessary F&I products. Controversy over a hybrid position stems in some instances from not understanding how the process works, in others from resistance to eliminating an F&I manager and department. I think if more dealers better understand the hybrid sales process and how it can support their goals, will take this new direction. I have developed and implemented a hybrid sales/F&I approach in dealership groups and single stores for several years now, originally at a oneprice store but also at dealerships with traditional sales desks. I will be the first to tell you, it is not for everybody and certainly not for every type of dealership. A good determining factor is your primary customer base. If your dealership caters to a techsavvy, Internet-educated, Gen Y customer base, then the one-touch approach has proved highly effective with these customers. That is due to the volume of research that these customers perform prior to entering the dealership. We know from studies that customers spend upwards of 12 hours researching a car purchase prior to dealership contact. We also have learned that the number of dealerships visited continues to decrease, down to 1.2 stores before a purchase is made, according to some studies. In sum, many customers arrive with familiarity with every aspect of the purchase decision: The vehicle they want, available inventory, trade-in info, interest rates and even estimated payments. One of the few ways a dealership can still stand out is by offering a different kind of customer experience. The hybrid position can help accomplish this.

FIRST, IDENTIFY YOUR NO. 1 GOAL The first thing I ask any dealer or dealer group inquiring about a hybrid salesperson/F&I representative is, what are they hoping to gain? If the primary goal is to increase market share, give the customer a better purchase experience, or increase product sales and profit in the business office, then the hybrid position can be phenomenally helpful. However, if a dealership already runs great numbers in the business office but wants them to be still better, then this position may not be the best way to go. Contrary to popular belief, a one-touch process does not eliminate the business manager’s responsibilities, although it does change their primary focus. That position would evolve into more of a director’s role for securing financing, building relationships with finance companies, cleaning up paperwork and maintaining contracts in transit. In addition to these responsibilities, monitoring the team and its training falls under the F&I chief. TRAIN FEW PEOPLE, OR ENTIRE TEAMS I often am asked, “Should I transition my entire sales team to be hybrids, or just a select group of people?” The answer is not that simple, because I have seen success both ways. Unlike with typical sales or F&I training, a hybrid process truly needs to be customized for the individual stores and their employees. Regardless of the franchise, the type of presentations tools available or the F&I products being sold, an experienced or new person can come to an TO SEE MORE FROM TONY DUPAQUIER GO TO CBTNEWS.COM

“ONE OF THE FEW WAYS A DEALERSHIP CAN STILL STAND OUT IS BY OFFERING A DIFFERENT KIND OF CUSTOMER EXPERIENCE. THE HYBRID POSITION CAN HELP ACCOMPLISH THIS.” F&I school like mine and taught the duties of a successful business manager. The dealership would not have chosen that person to attend F&I school if there wasn’t something special about him or her. The screening has been done. However, with transitioning to a hybrid process, that screening has not been done. I have developed evaluations to help determine who would and would not be successful in a hybrid position. While the evaluations are spot-on for the most part, in some instances they screened out people who would have performed well in a sales/F&I job. I have found that evaluating the team that will make the determinations before installing the process to be a highly effective step.

TRANSITION IS NOT SIMPLE Training the sales team to be successful in a hybrid process means training them as full-fledged business managers. This is not as simple as handing a salesperson product brochures and encouraging him to “Go get ‘em, tiger!” Hybrid reps must have a full understanding of the business office, from compliance to disclosure and everything in between. This is why an F&I training course is essential. A hybrid rep must be able not only to effectively sell and close the original car transaction but also to present the F&I products and disclose the contracts. Constant motoring of compliance is a must. Who will manage a hybrid rep: The sales manager or F&I director/manager? Both of them? Who evaluates the hybrid rep and how he or she should allocate his time? The answers to those questions depend on the individual dealer. I have not seen a single favorite or best approach in use at a dealership. PROS AND CONS The pros of a one-touch process include increased customer satisfaction, a greatly enhanced customer experience, in most cases expedited transaction times, and increased F&I product sales. The sales team members who become hybrids also benefit, with increased paychecks in most cases. The chief con with using a sales/F&I hybrid is the difficulty in amount of investment in the team needed. It does take time for the program to become highly successful. Traditional and basic sales team training can get a salesperson quickly up the curve to become more effective at selling vehicles. It’s the

same with a business manager who attends an F&I school; a dealership typically sees immediate positive results when he or she returns to the store. However, it will likely take a few months after installing a one-touch process for everyone in the dealership to become comfortable with the process and the new rhythms. A traditional business manager may see 80 to 100 customers in a month, which means they are pushed to find their rhythm in an accelerated time period. A hybrid rep may sell only 12 to 20 vehicles in a month; in all fairness, the dealership needs to allow him or her time to develop. Additionally, some follow-up observation, assessment and training are needed for this type of process. This is not “train him and leave him.” I have seen dealerships become 100 percent self-sufficient within a few months after implementing a hybrid process, but I also have seen dealerships need more than a year to get to that point. Regardless of the time or investment required to produce better overall results, I have yet to see a dealership or dealer group move away from hybrid, once installed properly. I personally am a strong advocate of this type of process, because of the successes enjoyed in every dealership where I’ve helped install it. Going to a hybrid rep has several pros and a few cons. It boils down to what is the dealership’s goal and the commitment it will make to achieve it.

“THIS IS NOT AS SIMPLE AS HANDING A SALESPERSON PRODUCT BROCHURES AND ENCOURAGING HIM TO ‘GO GET ‘EM, TIGER!’”

TONY DUPAQUIER Director of the Academy of Service Group Tony’s company sells financial and insurance products to dealerships and agents. He began his retail automotive career in 1990 as a salesperson and went on to hold positions including business manager, ﬂeet sales manager, sales manager and general manager. He also conducts various F&I and advanced F&I workshops and has presented to more than 20 industry groups and state, national and international dealer associations. Visit the website at www.sgifs.com.

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LEADERSHIP

The Same Framework Can Guide Your Dealership

In Evaluating A Vendor For Any Kind Of Training Needs assessment/evaluation/ selection is the roadmap to smart hires and weeding out vendors that don’t ﬁt. BY TOM KUKLA

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our dealership has enjoyed solid growth over the last four quarters. It has expanded, and now you have key people in new positions and new people in key positions. You want to keep the growth train chugging along, so your dealer wants to ramp up training in both the sales and service departments. Help is needed to design and deliver the training. Obviously, there are lots of ready and willing training vendors out there. But, before you stroke a check: How can you be confident you’re making

a smart hire? The dealership industry is a major buyer of training services, and believe it or not, there is a framework or process your dealership can follow in picking a vendor for any type of training. It is a three-step process with needs assessment, evaluation and selection. Each of the three steps has an easy-to-follow checklist, with questions to help you perform due diligence when picking a training partner. Let’s start with needs assessment. After all, before you can train, you must decide what you need to train.

 Have you faced this problem in the past? If • • • •

so: How did you address the training issue before? What training firm did you use then, if any What were the outcomes? How satisfied were you?

 What do you believe is the best training

methodology, or combination of methodologies, to provide the desired outcomes, by the deadline and within budget? For example, does your team tend to respond better to live coaching than videos? • Half-day, full-day or multi-day live training • One-on-one coaching • Group coaching • Webinar • Video training • Other

EVALUATION CHECKLIST Look at multiple training vendors. But, how many should you examine? Try more than one but fewer than five, and evaluate vendors based on:

 Training topics and offerings – what are

they? • Are the vendor’s topics a good fit with your needs, and timely? • Are the vendors sufficiently diverse with their offerings, or do they only train on one topic? • Has the vendor updated its training menu over the last two to three years? • Your dealership’s way of doing business has changed during that time; is the vendor innovative enough to help you? - It is different training a 40-year-old than a 20-year-old - Ask the vendor how its training programs have changed

Hopefully, this trainer would have been one of two to five that your company checked out.

 NEEDS ASSESSMENT CHECKLIST First, identify the problem you are trying to fix. Is it truly a training issue? For example, say turnover rates in all departments are above the industry average and hurting the bottom line. Maybe a new onboarding procedure is needed rather than training managers on hiring practices. Be specific as to how this problem affects the employees and the business

 What skill training is involved? Does the

problem affect current skill sets? • Are new skills needed, e.g. dexterity with social media? • Are new techniques needed with current skills sets, such as selling to a millennial vs. selling to a baby boomer? • Is there a gap in leadership/management training? - Which dealership departments are involved? - Who from each department should participate in training? - What are your expectations for the training’s outcome? What will “success” look like? - What is your training budget? - What is the deadline for completing training? TO SEE MORE FROM TOM KUKLA GO TO CBTNEWS.COM

Training methods – What can each vendor offer? • Can the vendor pick from among diverse training methodologies? • Is there one methodology that is a best fit for your needs and budget?

 Personality, style and presentation • • • •

• •

Is this vendor a good fit for your dealership? Will participants look forward to spending time with this trainer? Is the trainer enthusiastic about the topic and opportunity? Is the trainer curious, asking questions about your dealership or employees? - Or, does the trainer seem to assume he/ she knows everything? Is the trainer a good listener? Is the trainer observant? - Like a good sports coach, the trainer should want to observe first-hand what’s going on in your dealership rather than just suggest a curriculum



- Does the vendor suggest an initial on-site visit? Size of the vendor • Size is NOT important. Dynamism, adaptability, resilience and innovation are.

 Follow-up and your future needs • • •

How does the vendor say it will follow up to assess if training “sticks”? Is this vendor so dynamic that you can envision working with the firm five years from now? Will the vendor provide reinforcement tools and materials for after the training?

FINAL SELECTION CHECKLIST You’re down to a finalist, but you’re still unsure. What other assessment steps can you take?

 Test drive – Is the vendor willing to perform a

complementary, modified program? Perhaps a limited audience or shortened version? • After giving a test drive, would this firm suggest a different type of training than was originally proposed?

 References – Do they check out? •

Check multiple reference sources BEFORE making the final selection or committing to a contract • Check with your peers, the vendor’s current clients and/or former clients. As a general rule, checking two to three references is fine • Be as specific as possible when checking references - Ask for dealerships that needed a similar training solution • Questions to ask references - When was the last training you received from this vendor? - Who delivered that training? - Was the content relevant and timely? - Was the pricing fair? - Would you hire the firm again? Why or why not? - Are there any other comments you would care to make that might help in our decision?

 References check out, and you’re ready to

move forward • The final piece is to ask to see the training curriculum in advance - Pre-work - Slides - Handouts - Agenda - Timing of deliverables

MOVING FORWARD I believe that consistently following this simple framework of needs assessment, evaluation and selection will help tremendously in making a smart selection of a training vendor for any type of training your dealership needs. Good luck!

TOM KUKLA Principal and Founder of Tom Kukla Credere Leadership Tom is a highly experienced leadership coach, speaker and trainer. Prior to founding Credere Leadership, he spent 38 years in retail and medical sales, sales management, and management and leadership development. He developed a world-class management-training program from the ground up in the highly competitive pharmaceutical industry that served hundreds of sales and marketing colleagues. As a John Maxwell-certified coach, teacher and speaker, he oﬀers organizations management and leadership workshops, seminars, training and coaching. You can reach Tom at tom@credereleadership.com and visit his website at LeadershipIsInﬂuence.com.

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Take on independents aggressively to keep these bays filled.

DON’T JUST SIT BACK AND ACCEPT

LOSS OF SERVICE BUSINESS

TO INDEPENDENTS

Approaches others have tried on targeting older vehicles, converting facilities, changing inventory may work for you. BY JON MCKENNA

ervice managers and advisors spend an awful lot of time complaining about the volume of business lost to independent service outlets. Consultants and trainers spend an awful lot of time warning about the trend’s implications. But, few seem to take much time actually doing something about the problem and confronting independents head-on. This edition, we spoke with dealers and fixedops veterans who had tried to directly take business back from independent repair shops through marketing and pricing strategies and adding new facilities.

TARGETING OWNERS OF OLDER CARS Hurley Chrysler-Jeep-Dodge-Ram in DeLand, Fla., has undertaken several campaigns in recent years to pull in the kind of service customers and jobs that tend to gravitate to independent repair shops, dealer Brendan Hurley said. The dealership has had no problem keeping 30

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buyers of newer vehicles still under warranty coming back for service. However, a couple of years ago it started targeting what Hurley calls the “fall off the face of the Earth syndrome” vehicles – meaning, those that are at least 4 to 5 years old and often bought used. “We have to make a special effort to keep those [owners] returning” and not driving to an independent shop based on price, he said. “But there’s only a certain amount of marketing time and effort you can devote and still be successful.” His managers used a feature called Traffic COP on their AutoSoft CRM to identify older vehicles that particularly weren’t being returned for service work (for example, used Town and Country minivans), or parts that seemed to break frequently after 4 or 5 years on a certain vehicle (say, a real seal on a Jeep 4.0-liter high-output engine that tended to leak). They put together a special service package for the vehicles and promoted a reduced price to repair or replace the targeted components.

Hurley used direct mail to reach those owners, and has again turned to direct mail twice recently to seek service business from prospects who didn’t buy a car. A 10,000-piece campaign promoting a free oil change got 613 takers, he said. The second campaign is just starting and offers a free recall check on Chryslers as well as a free diagnostic exam. He estimated various outreach has added 25 percent or more to his dealership’s service work, and many of those repairs on aging vehicles otherwise would have wound up in an independent shop.

PROMOTING A QUICK LANE Jim Ramsey is now president and CEO of the 14-store Lamb’s Tire and Automotive chain based in Georgetown, Texas. However, he previously spent 20 years managing fixed ops for dealerships. “When you’re in that world, you do a lot of hand-wringing about why people are going to the independent shops,” he acknowledged. One of the conclusions he drew – which has been reinforced

at the tire store chain – is that it makes dealership customers feel uncomfortable when their vehicle disappears into one of many remote service bays, hidden from their line of sight. “Whereas, at one of our stores, the guy who wrote you up is standing 10 feet away from you at the service counter, and you can see your car go from the parking lot to the bay.” So, at a Ford dealership, Ramsey led the construction (actually, a conversion) of a quick lane, at a cost of $150,000 to $200,000, as a direct response to competition from independents. The dealership built a loop connecting two of its existing service lanes, added a couple of drive-on lifts and began funneling all oil and fluids changes and scheduled maintenance into that quick lane. “Also, when we sold a vehicle, the salespeople introduced the customer to the quick lane advisor specifically and said, ‘This is where you’ll come for oil changes and scheduled maintenance,’” he recalled. “The perception for that new customer was, ‘This is where I can get in and out quickly.’” At that time, the Ford dealership also began examining long-term customer retention metrics and specifically broke out revenue generated by the quick lane service advisor from that of his co-workers.

BENDING ON PRIVATE-LABEL PARTS As parts manager of Nuss Truck Group Inc. in Roseville, Minn., Ole Olson finds himself competing tooth-and-nail with independent repair shops on some occasions, and cooperating with them on others.

As most dealership service and parts managers preach, Olson used to always urge customers to buy OEM truck parts. “Independents might not all be quoting OEM parts to those customers.” Still, trucks with a few years on them “were being taken over to Joe’s Repair at half the price.” Olson and Nuss decided they couldn’t stick to their position and stay in business. While shying away from stocking or dealing in “white box” after-market parts, he opted to begin offering Road Choice parts. While a private label, Road Choice is a division of Mack Trucks Inc., so Olson could viably tell customers they carry the OEM name for Mack and other Volvo Group Global trucks. That approach with customers “has worked, but it’s still a tough sell. For years, parts shops have preached that only OEM-quality parts are sufficient, and now we’re suddenly out there changing the tune to say, ‘Yes, OEM is good, but we also have this other line out there that will work.’” Meanwhile, Olson has also conceded that independents inevitably will steal some service work from Nuss, so he has tried to maintain a cordial relationship with a handful of independent shops. He has invited their managers, as well as customers’ repair techs, to attend technical training sessions held by vendors on-site at Nuss facilities, and shared technical bulletins from manufacturers with them. He isn’t trying to be an altruist. “Do I want to be a training depot for an independent shop that won’t buy tools from me? Absolutely not. But, if I get a repair shop that is a regular parts customer and maybe will refer larger service jobs

that are out of their realm, then I will further that relationship. “It can be a mutually beneficial relationship. We can’t look at them automatically as trying to steal our customer, although that is bound to happen at some point.” That said, some of Nuss’ service personnel are “less than supportive” about the outreach, he admitted.

Hurley: Take special efforts to pursue owners of cars hitting the age when repairs are needed.

SALES

Take Away A Customer’s Fear Of Buying With A More Positive Sales Approach Dealerships only undercut themselves with high-pressure, high-fear tactics that are out of touch with informed buyers. BY DAVID LEWIS based on controlling the customer as key to moving inventory. If they continue in this practice and refuse to invest in training of sales staff on more effective, more positive methods of selling, they will gradually but definitively lose customers to dealerships that understand what buyers want today.

Make your first interaction with the customer about information-gathering, not closing the sale today.

aving spent nearly 30 years as a consultant and trainer in the retail automotive industry, one thing has become very clear to me about the public perception of car salespeople: Most customers believe their goal is to sell a car today, no matter what it takes. That is the dominant perception of car salespeople and the driving force behind the fear and anxiety that aﬄict most customers, the primary reason they feel intimidated and defensive when

they come to a dealership. However, many salespeople refuse to admit it is their own tactics that make customers become defensive. Maybe these salespeople think it is too late to learn approach to selling, or perhaps their management’s attitude is “That’s the way we’ve always done it here.” Even though they realize that today’s buyers have access to vastly more information about cars, these dealerships and salespeople still cling to old methods that are

“High-pressure tactics such as trial closes, and intimidation through ‘today-only pricing’ and similar restrictions, only make the customer feel pressured and reinforce the public’s negative perception about our industry.” 32

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TRIAL CLOSES NO LONGER WORK My prediction is based on the understanding that unless our customers are happy, none of us will be in business very long. High-pressure tactics such as trial closes, and intimidation through “today-only pricing” and similar restrictions, only make the customer feel pressured and reinforce the public’s negative perception about our industry. We should be focusing on releasing our customers’ anxiety and pressure, and trying our best to help them accomplish their purchasing goals – in short, minimizing their fear of buying. A salesperson who uses verbiage calculated to catch the customer off guard in a pleasant way can lower that customer’s defenses, gain trust and eventually earn his or her business. When we can put ourselves in the customer’s shoes and truthfully ask ourselves how we would like to be treated, we can see the flaws in pressure-selling and trying to control our customers. In truth, fear of losing the customer drives these negative sales methods. At too many dealerships, the sales process focuses on trying to sell a car today, at all costs, and emphasizes price above all else. Salespeople should be trying to earn a customer’s business for life, but they’re trading that potential for vast lifetime business for a quick sale and another number on the board. APPROACHES THAT HELP CUSTOMER RELAX A salesperson’s use of positive statements can help ease customers into a comfort zone and release their defensiveness, so that they’re more receptive to and cooperative with the sales process. Meaning, rather than using a trial close like, “What would it take to get you to buy this car today?” try opening with this question: “So, you don’t have to buy a car today, do you?” At this point, the stress has been taken out of the sales process for both the customer and the salesperson. Suppose this customer had come to your dealership and, during the meet-and-greet, quickly let you know he or she was just starting to shop. Traditionally, the salesperson would quickly apply some pressure tactic to get the customer motivated, and if that didn’t work, would hand over a business card and start looking around for someone else

Hard-core price negotiation won’t have been part of this transaction, if the salesman did his job right.

who might be ready to buy today. Instead, look for opportunities to respond in a way that the customer would never expect, but that will make it clear you are not the traditional car salesperson. Here’s an example of what I mean: Customer: “I’m just looking.” Salesperson: “So, does that mean you don’t have to buy a car today?” Customer: “No, not today.” Salesperson: “Great, that takes all of the pressure off me. So, why don’t we consider this as a time of information-gathering? I will show you around the lot to look at some of the vehicles that might interest you, and if we find something you like, I can go get the keys so that you can sit in the vehicle. If you would like to, you can even take it for a drive. “After that, I can give you some brochures and prices for you to take home to consider and compare. Are you looking for a new or used car?” The likelihood that this customer has ever heard an approach like this from a car salesperson is very remote. The salesperson will have both relaxed and inspired the customer with a no pressure, non-confrontational approach that puts him or her in control and takes away any need to feel defensive. In my 30-plus years of training salespeople in this method, if there is a better way to sell cars, I have not seen it. When we remove the fear of buying today, they will relax and cooperate with our sales process.

GOAL STILL TO SELL NOW, IF POSSIBLE Does that mean salespeople don’t try to sell the customer a car today? Absolutely not! However, when they focus on making it easy for the customer to TO SEE MORE FROM DAVID LEWIS GO TO CBTNEWS.COM

want to do business with their dealership, there is a much higher likelihood that a car really will be bought that day. Experience has shown us that when salespeople focus on helping the customer find the right car and develop an emotional attachment to it, the tendency to grind away at the salesperson in order to get the very lowest price rarely emerges. Industry research reinforces this concept, showing us that the factors driving the customer’s purchasing decision are in the following priority order: 1. Vehicle 2. Salesperson 3. Dealership 4. Price Yes, price is important. However, in most cases, it is fourth on the priority list. When we focus on finding the right vehicle for the customer and providing a unique and inspiring sales process, customers rarely are in a mood to grapple for the lowest price. In fact, this approach commonly lets the window sticker be the starting price, and negotiation only takes place after the only take place after the customer has effectively been sold on the vehicle, salesperson and dealership. Obviously, selling the customer a car today is what the salesperson really wants to do. But, in order to accomplish that goal, it is necessary to first

lower the customer’s defensive posture, so that he or she feels comfortable dealing with you and begins to enjoy the car buying process. This is the way it should be, and it can be once the customer loses fear of being pressured and controlled by the salesperson.

PUT YOURSELF IN THE CUSTOMER’S PLACE The more we focus on earning the customer’s business for life, the clearer it will become to that customer that the dealership genuinely puts his or her interests as first priority. Ask yourself: Would you rather buy a car from someone who treated you with respect and dignity, or from someone who intimidated you and made you feel like he was taking advantage? When car salespeople can see themselves through their customers’ eyes and become honest with themselves about how their tactics make customers feel, they clearly increase the odds of earning business.

“Rather than using a trial close like, ‘What would it take to get you to buy this car today?’ try opening with this question: ‘So, you don’t have to buy a car today, do you?’’

DAVID LEWIS President of David Lewis & Associates David’s firm is a national training and consulting business that specializes in the retail automotive industry. He also is the author of four industry-related books, “The Secrets of Inspirational Selling,” “The Leadership Factor,” “Understanding Your Customer” and “The Common Mistakes Automotive Salespeople Make.” Visit his website at www.DavidLewis.com.

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LEADERSHIP

Potential Future Managers Won’t Just Tumble Into Your Dealership’s Pipeline Implement a process to tap new leaders, whether based on gut feel or quantiﬁable criteria. BY KIRK MANZO

hy can some new leaders effectively transition into the role of reliable performer for your dealership, while others fail spectacularly? To increase the likelihood that the next person you promote to a managerial role actually succeeds, your organization must first have a defined program to identify “hi-pos,” meaning high-potential leaders. These are individual performers whom your dealership has identified as having the skills and abilities to possibly develop into a leader in the future. Picking people for your promotions pipeline is critical, and your dealership can opt to approach that challenge loosely or with a very detailed process, as the tales from the following two real dealerships show.

MANY CHOSEN, LOOSE CRITERIA One dealership group in Pittsburgh invests in outside leadership training for its hi-po’s on a regularly scheduled basis. Currently, 83 people (about 10 percent of the total employee population) are

participating in this initiative. They come from all areas of the dealership’s operation, from accounting to body shop. While the training and development of the people tapped is rigorous, the dealership group’s criteria for identifying candidates is only thinly defined. Immediate supervisors recommend candidates based on general observations of attitude and desire. While both of these attributes are important in the selection of hi-pos, applying a more quantifiable approach would seem beneficial. Established managers also participate in the same leadership development curriculum, in order to maintain a uniform message within the group’s culture.

MAKING CRITERIA LESS ARBITRARY For several years, a second dealership business, a Honda distributor in Puerto Rico, has harvested individuals from its sales ranks to fill positions seen as vital to fueling growth for additional points of sale. One of the most frequent needs has been for

F&I managers (business managers). The criteria applied in the past had been somewhat arbitrary, as with the dealer group in Pittsburgh. This produced mixed results. After careful thought and consideration, a more measurable approach was implemented to identify candidates for promotion to F&I positions. Here are some of those criteria:

Minimum of two years of experience with the organization This company has a very defined culture and philosophy, with documented standards for appearance and attire, etc. As a result, its management felt it was important that all candidates being considered for advancement would set a positive example. Showing associates how to conduct themselves, both internally with team members and externally with customers and lenders, established the visibility required for successful leadership. Additionally, since many of the dealer

Identifying staff with high potential to become solid managers will lead to successful promotions at your dealership.

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“To increase the likelihood that the next person you promote to a managerial role actually succeeds, your organization must first have a defined program to identify “hi-po’s,” meaning high-potential leaders.” group’s salespeople are recruited from outside the automotive industry, this minimum two-year timeframe was needed to raise their overall knowledge of the vehicles and the company’s sales process.

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Unit sales performance Often in the automotive industry, top-performing salespeople are plucked from the ranks and placed into new leadership positions, with limited success. The skills required to be a top individual performer stand in stark contrast to those needed to perform as group leader. For this reason, top performance was not required for consideration in this Puerto Ricobased dealer group. Instead, candidates were required to consistently (beyond six months) perform above their group’s unit sales average for the location where they worked. Poor performance in unit sales would disqualify candidates from consideration. After all, if you can’t effectively sell something tangible (like a car), then your successfully selling something intangible is unlikely.

and insurance partners, in order to qualify for participation in the hi-pos program. Since implementing these measurable criteria three years ago, the failure rate for new managers in this group has dropped by 50 percent!

TAP FUTURE LEADERS, OR DON’T GROW The time to identify your hi-pos is NOT when you fire a manager for poor performance. How successful would the manager of a major league baseball team be if he pulled the starting pitcher from the game and had no one warming up in the bullpen?

The conclusion to draw from the two dealership examples is, establishing a program to both identify and develop high-potential leaders is the key to a dealership’s successful retention and attraction of top performers. While your business may or may not have multiple rooftops that it needs to staff, the principal holds true for single-point operators as well as large publicly held groups. The alternative would be for a dealer to do all the work himself or herself, which is not effective either for lifestyle or the dealership’s legacy. While succession planning is often associated only with a dealership’s owner selling to a family member or by being acquired by one of the public auto groups, it is really about establishing a game plan for the replacement of all key positions. CEOs, when polled, typically indicate that the greatest limitation for future expansion of their business units is not access to financial capital. Rather, it is rather access to qualified human capital. Creating a high-potentials development program is the key to ensuring your dealership’s growth.

Making smart hires plays an important role in keeping your dealership’s promotions pipeline well-stocked.

Per-vehicle revenue (PVR) on the back end Salespeople who actively supported the transition into the F&I process maintained consistently higher back-end PVR. Identifying key performance indicators (KPIs) increased the likelihood of success for these individual performers. The reality is that these high-performing salespeople had superior product knowledge for each of the programs offered, including the vehicle service contract. Also, many of the salespeople chosen had shown evidence of “believe” in the distributor’s F&I protection plans by purchasing one for their own vehicle. Contracts in transit (CIT) It is one thing to sell a car; it is another to get paid. One of the critical areas of measurement was in the area of CIT. The average salesperson in this organization will sell 10 cars per month. Meanwhile, the average volume for an F&I manager in this group is 35 to 45 cases per month (stateside, that number is often closer to 75 cases per month). If salespeople as individual performers are incapable of managing a small customer count on paperwork related to funding their own deals, then how on earth will they be able to manage four times the volume? For this reason, candidates must have consistently maintained their numbers of CIT below their group’s average, in order to be considered for advancement. Penetrations for key vendor partners Many dealerships earn additional incentives for reaching high performance levels with vendor partners. Those additional monies can add generously to a dealership’s bottom line. For this reason, candidates were required to maintain a consistent above-average performance with each of the group’s banking TO SEE MORE FROM KIRK MANZO GO TO CBTNEWS.COM

“While succession planning is often associated only with a dealership’s owner selling to a family member or by being acquired by one of the public auto groups, it is really about establishing a game plan for the replacement of all key positions.”

KIRK MANZO President of The Manzo Group As a best-selling author, internationally recognized speaker and professional trainer, Kirk has conducted hundreds of in-dealership programs throughout the U.S. and Latin America and was a featured speaker at the 2015 NADA Annual Convention in San Francisco. As a certified member of the John Maxwell Team, he facilitates mastermind groups, in-dealership workshops and coaching services based on Maxwell’s strategies for leadership and communications. Visit his website at LeadershipIsInﬂuence.com.

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SECTION LABEL

The stunning parts pickup truck features chrome, satin black and printed aluminum finishes. It was created for the grand opening of the Asbury Group’s showcase superstore, Courtesy Kia in Brandon Fla.

Vehicle Wraps And Graphics

Give Dealers A Low-Cost, HighImpact Advertising Medium Think of your loaner cars and service trucks as mobile brand-marketing messengers. BY CHUCK DE MARTIGNY

ave you considered your dealership’s vehicles as valuable media assets? Whether you have a single courtesy van or a fleet of loaner cars, parts trucks, roadside assistance vehicles and demonstrators, those vehicles provide an ideal way to deliver brand messaging in your dealership’s territory. High-resolution vehicle wraps (large, vinyl graphics or decals) can transform any vehicle to constantly present low-cost, but high-impact, advertising that offers substantial brand awareness and sales and business growth. According to numerous studies by 3M, the American Trucking Association, RYP and Becker Group, vehicle graphics offer the single-most cost effective advertising of any major ad medium. The total cost to wrap an average courtesy van is less than one month’s typical billboard rental fee, yet often these ads will last for five years or longer. More importantly, a wrap can generate 30,000 to 70,000 impressions per day. The surveys confirm that: • 97 percent of respondents will recall an ad on a vehicle. 36

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98 percent believe vehicle ads create a positive image of the advertiser. 96 percent believe vehicle graphics have more impact than billboards.

Most importantly: • More than 30 percent will make a purchase decision based on a vehicle ad. Your wrapped vehicle reaches both pedestrian and other vehicle traffic, including your potential new customers sitting in traffic or driving down the street and onlookers from surrounding homes and buildings. Even when parked, your vehicle continues to generate valuable visual impressions for you.

Is it any wonder that according to the Cox Communications/Eagle Research: • 48% of those polled viewed car wraps as the most unique advertising medium available. • Car wraps and TV ads were viewed as the two most memorable media. • 47 percent of 18-34 year olds (millennials) surveyed found car wraps especially memorable. • Car wraps rank highly among advertising media for positive associations. • Of the target population, 61 percent spend more than one hour per day on the road, and 33% spend over two hours.

CHUCK DE MARTIGNY CEO and Founder of Jungle Cat Marketing Inc. Chuck helps OEMs and dealerships boost profits with innovative point-of-sales marketing initiatives. His extensive consumer marketing and retail merchandising background includes major launches for companies such as Cabbage Patch Kids, Coleco, Donkey Kong and the Grolier CD-ROM Encyclopedia. His focus on tire merchandising lets dealers and manufacturers achieve extraordinary sales growth and increased customer retention through replacement tire sales. To learn more, visit www.junglecatmarketing.com

GRAPHIC TYPES FULL-WRAP SALES TEAM VEHICLE This vehicle is fully wrapped using 3M Performance wrapping film with a vehicle surface warranty of up to 10 years. Matching windows are produced on 50-50 view-through window film with optically clear overlaminate. PROFESSIONAL DESIGN BRINGS VEHICLE TO LIFE This vehicle reflects the look and feel of this Kia store’s car wash and auto glass facility adjoining the main dealership. Used primarily for auto glass sales and estimating, when not on sales calls it is parked on the grass in front of the car wash to attract customers from a busy highway.

PARTIAL RACE-INSPIRED WRAP, FOR DAYTONA (OF COURSE) This is similar to a full wrap except that only strategic areas of the vehicle are actually covered. 3M Performance wrapping film with clear gloss overlaminate gives the vehicle a lustrous, brilliant finish. Matching eyebrows and side window numbers were produced on 50-50 view-through window film with optically clear overlaminate. Partial wraps generate the same excitement as do full wraps, but are easier on the budget. THEMED EVENTS DRAW ATTENTION TO VEHICLE AND DEALER Two different versions of this C class race-inspired beauty were produced as loaner cars and promotional vehicles for this high-profile Mercedes-Benz dealership in Daytona Beach Fla., creating quite a buzz around town. When the event ended, the clean-removable graphics were removed, and the cars were sold as good as new.

SIMPLE CUT LETTERING AND STRIPING Black, baby blue and navy cut vinyl was all that was needed to bring this design to life. Creative use of the design elements makes the vehicle stand out and look its official best. Cut lettering and striping is by far the least expensive way to brand your vehicles, and with a really good design it will still generate the returns for which you’re looking. Although this graphic should last for five years or more, it’s a great choice for shortterm branding because of the low cost. BRAND COMPLIANT MEETS OEM REQUIREMENT This design mirrors a more expensive full wrap kit available from the factory, replicating all the key elements but eliminating a subtle background print. This roadside vehicle meets the franchise requirement in every way at less than half the cost.

PARTIAL-COMBINATION COURTESY VANS This pair of AutoNation transit connect courtesy vans features print cut and print view-through logos and service attribute graphics, in combination with cut vinyl striping and lettering. This is a cost effective solution that has the look and appeal of a wrap, at significantly lower cost. It is a good choice to brand your dealership’s parts trucks, too, with your selection of products and services. OEM AND DEALERSHIP CO-BRANDING DESIGN It is important to always remain compliant to your store brand and to the OEM brand of the products and services you offer. The attributes incorporated in this design are also used in service drive signage and on the corporate website.

TO SEE MORE FROM CHUCK DE MARTIGNY GO TO CBTNEWS.COM

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ASK THE ?

PROS

t CBT News, we are fortunate to partner with the best trainers in the industry. Whether it’s information on sales,

F&I, marketing, management or ﬁxed ops, our contributors are the go-to professionals for reliable, relevant advice for dealership personnel. You have access to the foremost authorities in the retail automotive industry. Need a new closing technique? Wondering what’s the best way to increase sales in the service lane? Send us your questions at AskThePros@cbtnews.com. We’ll forward your inquiries to our ensemble of experts.

IF A PIECE OF TRIM CAME OFF ON A NEW VEHICLE THAT ISN’T COVERED UNDER THE MANUFACTURER WARRANTY, DO YOU THINK IT’S A BETTER BUSINESS DECISION FOR US TO GO AHEAD AND FIX IT OR TELL THE BUYER SORRY, THIS NEEDS TO BE BETWEEN YOU AND THE INSURER? – Jerry P., Dover, Dela.

Don Reed, CEO of DealerPro Training: In today’s highly competitive marketplace, we find the aftermarket continues to claim more and more market share, while new car dealers are losing market share. With that being said, I encourage dealers to do everything they can to separate themselves from the aftermarket by offering more value to their service customers. Replacing or repairing the trim item on your customer’s vehicle is a perfect example of adding value to your customer’s service experience. I’m assuming, of course, that the total cost of this repair is not a significant sum. A goodwill gesture like this should go a long way toward building owner retention with this customer, who hopefully will share his positive experience at your dealership with their friends and relatives. Additionally, you want your advisors to include “No Charge” items on every customer pay and warranty repair order, to continue to build value in servicing their vehicles at your service department. Here are some examples for you to consider: • 27-point courtesy inspection – No Charge • Adjust tire pressure to 35 PSI – No Charge • Wash vehicle – No Charge • Vacuum interior – No Charge • Fill windshield washer tank – No Charge It’s important to make sure your advisors list all “No Charge” items on the RO on each and every visit, and try to list at least three items. The final invoice will then show one or two primary items plus three or four “No Charge” items, which continues to build value. In your example, make sure you provide a detailed written description of the repairs completed and the total cost of those repairs that you have 38

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Should you expect extended warranties to appeal to more customers?

absorbed for your customer. Lastly, make sure you review with your customer when his next service is due, and what services are recommended or required at that time; and go ahead and set a date for that appointment.

I’M HEARING RUMBLINGS THAT OUR NAMEPLATE MANUFACTURER MAY HAVE PROBLEMS WITH OUR DEALER SUCCESSOR PLAN. WHAT IS THE TRACK RECORD GENERALLY WITH THE ALJs HEARING CASES WHERE THE MANUFACTURER IS CONTESTING THE DESIGNATED SUCCESSOR? – Lee M, San Jose, Calif.

Russell McRory, partner at Arent Fox: The questioner listed a California location, so I have cited California law; however, most state dealer acts have similar, if not stronger, dealer act provisions governing succession planning. Dealer succession plans are covered by several overlapping provisions in California. Section 11713.3( j) of the Vehicle Code states that it is unlawful and a violation for a manufacturer “to deny the widow, widower, or heirs designated by a deceased owner of a dealership the opportunity to participate in the ownership of the dealership or successor dealership under a valid franchise for a reasonable time after the death of the owner.” While there is little case law on this provision, this provision is generally read as giving the surviving spouse or heirs a reasonable time to find competent management, obtain sufficient experience on their own, or sell. Section 11713.3 also has two general provisions prohibiting unreasonable refusals to consent to transfers and interference with receipt of fair value for the sale of a franchise. If a dealer gave the manufacturer 60 days notice of the proposed transfer, then the manufacturer has the burden of proving it withheld consent reasonably, and the courts must consider “all of the existing circumstances” in making their decision. It is likely that a balancing test will apply between the hardships the dealer would face vs. the hardships the manufacturer would face should the transfer proceed. Notably, the California courts have stripped the New Motor Vehicle Board of jurisdiction to hear affirmative claims by dealers challenging the reasonableness of a manufacturer’s refusal to consent to transfers. Thus, a dealer would be required to litigate this issue in court. Generally, the best course of action is to submit a complete package to the manufacturer outlining the details of your succession plan, including how the dealership will be managed and operated if your heirs do not have enough experience managing a dealership, and how sufficient working capital will be maintained. The goal is to force the manufacturer to specify its objections to your plan, so that you can either address them or be in a position to show the

manufacturer is placing unreasonable conditions on your succession plan. I must add that this is just a general guide, and an issue ultimately turns on specific facts of the dealership’s situation.

GM ANNOUNCED IN MARCH THAT IT WAS CUTTING WARRANTY COVERAGE PERIODS ON CHEVY AND GMC UNITS PRETTY SUBSTANTIALLY. DO YOU THINK THIS WILL MAKE EXTENDED WARRANTIES MORE APPEALING, OR THAT CUSTOMERS WILL ASSUME THE VEHICLES ARE BEING BUILT TO LAST AND AVOID PRE-PAID MAINTENANCE? – Ernie C., Flint, Mich.

Lee Harkins, President and CEO of M5 Management Services: Ernie, I believe that our customers have enjoyed the improved vehicle quality for quite awhile now. There is research out that shows that the average vehicle owner is keeping their vehicles for 11-plus years, which has nearly eliminated the three-year buying cycle that we used to experience. The reasons for this are generally two-fold. First, the economy. We all remember what we went through in 2008. With all the economic uncertainty, owners began to hold onto their vehicles longer, a practice that is still continuing today. The second is the incredible improvement in the quality of the vehicles being produced. Repair events are fewer, there are fewer items on the vehicles that need to be maintained, and the maintenance intervals have been extended. Regardless of the quality of the vehicle and the length of the warranty, the average vehicle owner will still need to maintain and repair his or her vehicle at some point in time. Common sense says that the longer a vehicle is in use, the more maintenance and repair it will require, especially if the average ownership period is over 11 years. There is additional research that shows that once the base warranty coverage expires, the majority of vehicle owners utilize independent repair facilities but adhere to the manufacturers’ maintenance schedule to prolong the life of the vehicle. The reduction in the warranty parameters may make extended warranties more appealing to the customer, providing them with some added assurance and peace of mind during the ownership period. Prepaid maintenance products may also provide a cost savings to the owner, but only if the maintenance service is convenient. What we have to remember is that the longer warranty period and pre-paid maintenance provide to the dealership a retention tool to help in bringing the customer back to the dealership. With the upcoming reduction in those programs, what can we replace them with to continue to retain customers and satisfy their needs? Presenting them with extended service contracts and pre-paid maintenance packages may be a great place to start.

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