John Stephens, Executive Vice President, EFG Companies

John Stephens, Executive Vice President, EFG Companies

John Stephens on Compliance and Customer Retention

Q. What is the “State of Compliance” and how will it impact retail automotive dealers?

A. At the beginning of 2017, everything about the CFPB is up in the air. Two of the new rules the CFPB has in the works are on ice for the foreseeable future. President Trump could fire Director Richard Cordray, who could then sue the United States to keep his job. The Senate could pass H.R. 5983, the Financial CHOICE Act, which would put the CFPB under congressional oversight with a five-member board. Regardless of what happens with the CFPB, dealers will need to stay the course.

Remember, the FTC is the federal entity that actually has jurisdiction over dealers, and the FTC’s operations are in no way threatened by the events surrounding the CFPB. In addition, there are several consumer advocacy groups who actively monitor the industry. For this reason, dealers will need to continue to work the practices and policies they have put in place to ensure compliance.

Q. Do you believe sales volume will decrease?

A. Unit sales are always the name of the game, but with analysts predicting a similar sales year to 2016, if not a little less volume, dealerships will be in preparation mode for the eventuality of a market turn. Dealers will begin looking to maximize their return on investments. Those who invest in quality training will likely see an increase in revenue per unit, helping to fill the losses from a lack in volume. Those dealers that see increased sales and product penetration rates will likely continue to put emphasis on training. Those that see little improvement or overlook the importance of training are likely to re-evaluate their training provider and search for other avenues to generate greater ROI.

As dealers look to gain greater profitability from their F&I operations, dealers will put pricing pressure on administrators, vendors, and lending institutions, while also holding them to extremely high customer service standards to increase customer retention and profitability.

Q. What other changes do you foresee within the dealership?

A. In addition to focusing on maximizing every sale, dealers will shore up their service drive and fixed operations to increase customer retention. This will include evaluating their F&I products and CPO programs to ensure customers are incentivized to return, as well as training sales, F&I, and service departments to work together while the customer is in the store.  Think in terms of those luxury dealerships, where customers expect an experience when they step into the showroom. More dealerships will look to move to that luxury operations model, where customers are given a tour of the dealership, meet “their” service manager, put into the service center’s CRM and told to expect ongoing communication and reminders for servicing their vehicle. You will also see more warranty-like products introduced for sale through the service drive that can fit on a credit card, such as tire-only policies, to further increase customer retention and dealership income.

To stay competitive in a flat market, dealers will continue to focus on CSI, especially on the time it takes to complete a sale in the dealership. They will set strict time expectations with their F&I managers, and back that up with training and technology to better enable their team to accomplish their goals. This includes expanding their online capabilities with, for example, online credit applications and F&I product information.

Q. How can dealerships cater to Millennial buyers?

A. Generation Y purchasing power continues to increase; and, Generation Z is entering the market. As these generations flex their purchasing power, those dealers who have begun to pivot operations to include a robust online dealership platform will be better positioned to capture more vehicle sales than their competitors. Consumers are no longer just demanding shorter transaction times within the dealership. They are now voting with their dollars for a completely online transaction. I expect 2017 to be the first year where greater numbers of dealerships really begin investing in online profit solutions.

Q. How will increasing lease volumes impact sales?

A. New-vehicle pricing continues to climb, and with an influx of off-lease vehicles hitting the market, pre-owned vehicle prices are expected to shrink more than they did in 2016. With the Federal Reserve looking to increase interest rates several times in 2017, we can expect more prime consumers looking to lease or purchase preowned vehicles. Dealerships looking to capitalize on this trend will focus on their CPO programs and lease offerings with traffic-driving benefits that encourage customer retention in the service drive. This will allow for slightly higher prices while still being competitive in the market. Dealers will leverage these benefits as a customer retention tool to keep customers coming back to the dealership for maintenance and vehicle breakdowns.

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