Contributing Author: John Stephens Executive Vice President EFG Companies

Contributing Author:
John Stephens
Executive Vice President
EFG Companies

It’s that time of year again when everyone evaluates their yearly accomplishments, both personally and professionally, and begins making their 2018 resolutions. So, what were the automotive industry’s accomplishments?

Despite a string of severe natural disasters, unit sales volume is roughly on par with last year’s volume. Both 2017 and 2016 represent some of the strongest sales numbers in over a decade. That’s a win in my book.

The Consumer Financial Protection Bureau (CFPB) is beginning to be reined in by Congress. After years of lobbying for more oversight over the CFPB, dealer and auto lending initiatives are finally making headway on the Hill. Talk about another reason to celebrate!

Going into 2018, pre-owned inventories are finally right-sized for consumer demand. There’s no longer too much or too little inventory. We’re now at “just right”. Because of this, pre-owned vehicles are holding their value, and dealers have a better opportunity to increase profitability through CPO programs.

Each of these accomplishments was no small feat, and represented the culmination of years of work. However, there were also significant lessons from 2017.

After years of year-over-year unit sales volume increases, dealers struggled in 2017 with shifting their operations for a plateau in unit sales. While everyone knew that the time had come to focus on cultivating customer retention in the service drive, the practical applications seemed, at times, elusive, especially with a completely different type of consumer in the market – Millennials.

The 2017 natural disasters put significant strain on dealer reinsurance portfolios, as GAP claims steadily rose over the year. This reminded everyone that the most important word in reinsurance is insurance. With reinsurance companies, there will always be claims and dealers need to be prepared to take losses, including catastrophic losses, based on the makeup of their portfolio.

If it had not been for President Trump, the CFPB would have passed the Arbitration Rule this past November. This goes to show how much work still remains when it comes to lobbying Congress for retail auto industry initiatives. Now that we have attention on the Hill and in the White House, it’s time to keep that attention.

Considering these accomplishments and lessons, what should be on your to-do list?

When it comes to unit sales, 2018 isn’t expected to look much different than 2017. For this reason, maximizing profit per vehicle sold in F&I will be top of mind for all dealerships. Take a look at your product penetration numbers, F&I menu, and inventory. Do your products match your inventory with both new and pre-owned units? Do you have the right mix of products and inventory to meet consumer demands? Do you have a traffic-driving F&I product to help differentiate your dealership beyond inventory? By answering these questions, you can determine if you need to re-tool your product menu for 2018.

In addition, don’t discount the effect of strong F&I products in encouraging repeat business, referrals, and customer retention in the service drive. F&I products, like a maintenance plan or a vehicle service contract, can easily be used to increase service drive traffic. Also, consider implementing lower-cost products that can be placed on a credit card in the service drive itself. This will require addressing service manager pay plans, while also providing service manager training on how to better recognize opportunities for maintenance and selling consumer protection products. However, the return on investment for that training has the potential to be exponential. Remember, according to NADA, 83 percent of people who return to the selling dealership for maintenance are more likely to purchase their next vehicle from the dealership.

In terms of the Millennial buyer, transparency is the name of the game. More dealers are seeing the benefits of providing F&I information online, with consumers walking into the dealership in the mindset to buy those products. Beyond website updates, focus on your ongoing communication strategies with consumers, whether that’s via a mobile app, email, or social media. Millennial consumers want interaction online before engaging with a dealership over the phone or in person. If you ask for these consumers to go into the dealership to discuss your best price, the likelihood of losing the sale goes up exponentially, as they completely disengage and shop elsewhere.

To recoup lost reinsurance profits from 2017, adjust your overall strategy for 2018 and beyond. It’s time to take a long-term approach and accept that it will take longer than a year to recover those lost profits. If you try to recover the entire amount in 2018, the necessary price increase for product sales may price you out of the market. Instead, plan to recover the amount lost over a span of three to five years, so as to stay competitive with product pricing. In addition, take the time now to re-evaluate how your reinsurance portfolio is buffered against future catastrophic events, like Hurricane Harvey. The best way to do this is to understand your market and the likelihood of a catastrophic event, then price F&I products accordingly. For example, dealers operating in areas where hurricanes occur frequently should have higher F&I prices than those who operate in areas where there is little chance for a natural disaster.

Lastly, don’t take your eye off the compliance ball. Stay on top of all your compliance initiatives from the past decade. Just because the CFPB is under scrutiny doesn’t mean that all that the bureau achieved will go away overnight. At the same time, stay active in your local, state and national dealership associations as they lobby Congress on your behalf. Make your voice known and keep retail automotive industry initiatives top-of-mind with your representatives on the Hill.

Start the year on the right foot. Evaluate your dealership to determine which customer retention and per-unit profitability strategies will work for you, and then work your plan. Just as with any endeavor that’s worth doing, if you stay engaged and work your plan, your dealership goals can be realized in the coming years.

With more than 40 years helping dealers achieve their profitability and wealth building goals, EFG Companies knows what it takes to maintain productive operations regardless of economic climate. Contact us today to find out how.

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