Categories
Reputation Management

Resist the Urge to Splurge: Tips for Maintaining High Performance Profitability

Contributing Author: John StephensIt would be safe to say that everyone in the retail automotive space lost some weight following 2008, figuratively speaking.  But, it would be surprising to find a dealer who didn’t tighten-up his or her business operations during the Great Recession, both in terms of people and in terms of demanding greater ROI in money spent.  We saw the number of personnel in dealerships become laser-focused on only those who were necessary, and then only those who could perform to hit certain standards.  We saw dealers begin to take advantage of technology as a less expensive means to drive traffic and branding, as well as a more sophisticated means of measuring and tracking business operations.  In essence, dealers came out of the Great Recession as lean and analytical business athletes with the ability to run a marathon.

Fast forward to today.  Life is good – this year’s car sales are leaving last year’s records in the dust! Consumers are actively looking for protection products, the economy is looking better with unemployment numbers gradually dropping, and each deal doesn’t take nearly as much work as it did from 2009 – 2012.  Let’s live a little!

The key is to live a little – don’t hit the all you can eat buffet.

While the Great Recession was incredibly painful for all aspects of the industry, from materials sourcing all the way through to the customer driving away in their new vehicle, it did correct significant operational issues that had long needed to be addressed in the retail automotive space.  And, it did so in a condensed period of time.  The new operating model requires a whole different level of analytics: diligence in compliance; proactive management and capture of online car shoppers without forcing them into the showroom right away; and, individualized training programs for personnel along with key staff retention strategies – in short, much closer and empirical daily management.  Call it “daily cardio” for the business.

Now that things are rolling, dealers are tempted to skip their proverbial workout.  You stop hearing as much about how every deal counts.  You see less training in exchange for more people on the floor, less career path planning and higher turnover, as well as less urgency around online customer reviews.  And the pounds start showing up around the waist and on the hips of the business.

Resist the urge to splurge and stay focused on your goals by focusing on customer service. You cultivated a strong reputation of providing quality customer service during the recession. Keep that up and watch your reputation soar both online and off.

Beyond servicing customers at the dealership, it is also important to service them online. It’s time to come to terms with the fact that online reviews and online shopping is here to stay. Car buyers today actively research both car reviews and dealership reviews, and they trust these more than any advertising tactic.

So, how can dealerships manage reviews?

How about asking for them? Sales professionals are trained to ask for the sale. It’s time to motivate them to ask for the review. Remind your team that consumers often choose who they want to work with before they even enter your store by looking at reviews. Therefore, more reviews correlates with increased opportunity for sales for both the team members and the dealership.

So, can we pay for reviews?

No. Yelp, Google +, Cars.com, DealerRater, etc. all have strict policies against paying for reviews and they have sophisticated algorithms to track and penalize companies using this practice.

Can I have them write a review before they leave?

No. Online review sites treat that in the same way as paying for reviews.

What about negative reviews?

Negative reviews aren’t necessarily a bad thing. Instead of seeing them as detrimental to your image, treat negative reviews as an opportunity to demonstrate customer service. This does not mean “give in to their demands,” but rather work to take the conversation offline and discuss the situation either on the phone or in-person. It’s much easier to understand and diffuse a customer complaint offline. Then, when it’s resolved, ask the customer to either update their review or post a new one. If they don’t, then you go out and post the resolution and how pleased you were to address their issue.

If your dealership at least demonstrates an attempt to resolve a negative review, online shoppers will see that as positive information that you take their experiences seriously and will treat them with respect.

Stay focused and healthy, and set your dealership up for future success. Focus on providing excellent customer service both in the dealership and online.  With more than three decades of delivering dealership profitability solutions, EFG Companies gives its clients the edge in the market. With training from our AFIP certified professionals and unmatched partner engagement, we know how to ensure your future success. Contact us today to find out how.

Categories
Compliance

Flat fees for F&I products? It’s possible

Jim-HenryIt’s a question of “when, not if,” federal regulators will force auto lenders to switch to flat fees from dealer reserve, says John Pappanastos, CEO of EFG Companies, a major F&I administrator based in Dallas.

Flat fees for F&I products could follow, he says. If that happens, dealerships likely will reap lower revenues per vehicle and try to make up for it by selling F&I products to a greater share of customers, he says.

So far only one sizable U.S. bank has switched to a flat fee as its method of compensating dealerships for arranging car loans, BMO Harris Bank in Chicago, which began paying a flat in April.

Pappanastos spoke about regulation and F&I products recently with Automotive News Special Correspondent Jim Henry.

The Consumer Financial Protection Bureau says dealer discretion in setting interest rates can lead to discrimination in the form of higher prices for legally protected groups like minorities or women. Do you think the CFPB also has F&I product pricing on its agenda?

Ever since BMO Harris said it was switching to flat fees, everybody’s standing back and saying, “Now is there going to be a domino effect with other lenders following suit over time?” The next question becomes: What’s the next focus of scrutiny that could leave the door open for discrimination?

It’s a matter of when, not if. “When?” is probably the biggest question out there. How long for flat fees to come from a lender standpoint.

And that next focus of scrutiny will be F&I products?

When you’re financing a deal, certainly VSCs [vehicle service contracts] come to mind as a point for potential scrutiny and potential flat fee pricing.

The public dealership groups say they’re already getting about two-thirds of their F&I revenue per vehicle retailed from add-on products as opposed to dealer reserve. Is that typical?

We do monthly compliance audits with every dealership we work with. We recommend no more than 35 percent in finance reserve. The higher you get in finance reserve, the more likely a contract is to be refinanced. That customer goes home and they end up refinancing with their credit union, and then you have more chargebacks, to the detriment of the dealer.

From a dealer standpoint, it becomes a question of margin vs. volume. From a dealer profitability standpoint, it’s either “I’m going to get a giant amount per transaction” or it’s the penetration rate.

So if a giant amount per transaction is out, then it’s all about penetration rate, right?

Obviously, there’s always a trade-off between margin and volume. What’s going to happen if you go to flats is pricing is going to find the lowest common denominator.

There may be a lower margin on the front end, but VSCs drive customers back to the dealer, so you really want that. What we see happening is we see that if the market goes to a flat-rate model, we think that there will be pressure to drive product penetration on F&I product.

The next step will be dealers will say, “I need lower prices from our providers.” That’s the inevitable impact on F&I product providers from the CFPB.

Categories
Compliance

NADA Fair Credit Compliance – 8 Months Later

Contributing Author: John StephensIt’s been eight months since NADA released their Fair Credit Compliance Guidelines to help the retail auto industry navigate today’s increased focus on regulatory compliance. As the Consumer Financial Protection Bureau (CFPB) continues to aggressively seek out discriminatory practices, more dealers and lenders are implementing flat fee programs to weed out discrimination, including disparate impact (practices that seem neutral but result in negative impact to customers in a protected class).

While NADA has provided this guidance to dealers and lenders as they scramble to navigate a more stringent compliance operating environment, it also means that the opportunity to make finance reserve is slimming or coming to an end. However, there is an upside in maintaining dealership profitability, as flat fees leave room to make money on F&I products.

What are you doing to maximize this profit opportunity, given the changes affecting the retail automotive industry today?

  • Have you evaluated your F&I product portfolio to ensure you have the best product mix?
  • Have you sufficiently trained your F&I managers to increase product penetration?
  • Are your F&I managers AFIP certified, and do you have plans in place to get your people to senior or master?

To verify that you provide the right product mix, take a look at your CRM and pull the demographics and purchasing trends of your customer base. You can easily predict or better understand why some products sell more than others based on your customers’ behavior:

  • Do you push more new or used inventory?
  • Are your customers more interested in buying sedans, SUVs, trucks, or hybrids, etc.?
  • What is the primary use of your customer’s vehicles? Do they put a lot of miles on them?

Beyond CRM data, it’s also important to re-evaluate the market surrounding your dealership on the other side of the great recession. Demographics have changed significantly since 2008, and statistics like the type of employers in your area, housing prices and income levels can help paint a more comprehensive picture of your current and potential customers. While establishing which types of products your customers want or need is important, it’s equally important to evaluate your product administrator to determine their impact on your business.

  • Are their products insured by A.M. Best underwriters?
  • How many claims are paid each year?
  • What are their reserves?

Strong product providers, like EFG Companies structure F&I products that increase your profit and keep enough in reserve to handle whatever the market throws your way. Earmarks of providers like these include having the backing of an A.M. Best “A” rated company as well as having a culture of honoring claims.

In addition to establishing the right product mix, it’s also important to ensure your F&I managers have the right training and support to enhance bottom line productivity. Turn your team into Top Performers by ensuring they know how to:

  • Ask the right questions to determine customer needs;
  • Listen reflectively to customer concerns and readily position the product’s features and benefits to address those needs; and,
  • Increase the value proposition to the customer and enhance the customer relationship.

You could have the best products around, but without proper training, those products will not move. While classroom settings are perfect to refresh seasoned F&I managers and set up new managers for success, it’s vital that you hone those skills back at the dealership. Pair off your seasoned managers with new recruits to provide mentorship and practice. This will help both F&I managers keep their edge.

As dealerships focus more on selling F&I products, it is important to keep in mind the compliance practices that go with the sale of those products. The heightened focus on regulation does not stop at dealer markup. Everything is under scrutiny. The best way to ensure that your finance practices are compliant is to AFIP certify your finance team.

Founded in 1989, AFIP is the nonprofit, non-aligned sanctioning body in the United States for

  • in-store sales;
  • financial services personnel;
  • select lender; and,
  • aftermarket vendor personnel.

AFIP certification curriculum focuses solely on the federal and state laws that govern in-dealership financial services.

With the recent increase in regulation oversight, non-compliance can lead to massive financial exposure. By taking the initiative to AFIP certify your F&I managers and taking the steps to ensure your teams have the appropriate processed and controls in place, your dealership will more easily navigate the myriad of federal, state and local laws that impact your operation. In addition, by investing in more intensive AFIP courses for your senior team, they can more easily direct, provide advice and correction for your finance managers when it comes to compliance.

With the right products, comprehensive training, AFIP certification and a reliable product administrator, it is possible to significantly increase F&I penetration and compensate for the potential for lost revenue with a flat fee system while remaining compliant. With more than three decades of developing and delivering consumer protection solutions and go-to-market strategies, EFG Companies gives clients the edge in the market place. Put our agile product innovation, unmatched partner engagement, and industry-leading claims administration in your court today.