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Prepared for an FTC Investigation?

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Karen Klees, Certified Consumer Credit Compliance Professional, EFG Companies

 

Contributing Author: Karen Klees, Certified Consumer Credit Compliance Professional, EFG Companies

Earlier this month, the Federal Trade Commission (FTC) announced a planned study on the auto buying and financing experience. Since 2011, the FTC has brought more than 25 cases challenging illegal practices in the area of dealership business. These cases, combined with the Consumer Financial Protection Bureau’s (CFPB) investigation into auto financing, have most likely caused the FTC to take a close look at the retail automobile industry.

While the CFPB does not have jurisdiction over auto retail, it has created waves in the industry through auto finance regulations. Now that an agency with authority over the industry is taking a deeper look at dealership practices, it’s more important than ever to recognize and act upon the fact that it’s time for more transparency in the auto buying process.

The good news is the FTC is still in the exploratory phase of the study, asking for public comments and feedback from interested parties on how the study should be conducted. Meaning, they have a ways to go before they conduct the study, compile the results, and formulate an action plan based on those results. Dealers have time to take a closer look and tighten their processes before a large-scale investigation ensues.

But, what is the FTC really looking for? Just as the CFPB is asking lenders to be transparent in their auto financing practices, the FTC is looking to see just how complicated and opaque the financing process can be on the dealership level. The study will explore in detail the actual experiences of consumers who recently purchased or financed a vehicle from a dealer, with a focus on:

  • The customer’s experience in shopping for and choosing a vehicle
  • The price negotiation process
  • The trade-in negotiation process
  • The financing process
  • Additional products and services offered
  • Post-purchase contact from the dealership
  • Overall perception of purchase experience

While these criteria may seem like just another Customer Satisfaction Index (CSI) survey, the difference between this study and the manufacturer customer review questionnaires is that it is conducted by an external, third-party with a different agenda. That is not to say that CSI scores are not a good benchmark for customer satisfaction. On the contrary, taking a hard look at your CSI score and how to improve it is a good first step in tightening your processes.

Now is also the time to take stock of your dealership’s transparency. Ask yourself:

How competitive is my financing and aftermarket pricing? In the age of the Internet, it’s easy for consumers to research vehicle prices to negotiate the lowest price possible. But, when it comes to obtaining financing, vehicle service contracts, and other aftermarket products, most consumers have no idea what they qualify for, and what competitive pricing looks like. However, this is rapidly changing. While dealerships have capitalized on this knowledge gap for years, consumers and entities like the CFPB are now stepping in and saying, “No more.” Today’s consumers are savvier in all purchasing decisions from small ticket items to large investments, like their home and car. They are demanding transparency in every industry.

One of the easiest and most efficient ways of creating transparency is by providing an online credit application, and by making your financing and aftermarket information accessible online, like with product brochures. Providing this information up front allows consumers to self-educate, just like they are already doing with their vehicle research.

All of this begs the question, how competitive are your products, financing and pricing? Work with your product provider to truly understand the consumer benefits of the products you offer. Compare the benefits to the suggested retail price, with the question, “Are my customers receiving good value for what they paid?” It’s important to look beyond dealership profit from aftermarket products to consumer value and find a good balance.

Is customer satisfaction the top priority for my sales and F&I teams? A good measure of customer satisfaction is a comparison of your dealership performance metrics and your CSI score, customer reviews, and chargebacks. What you want to see is a picture where those metrics and CSI scores are aligned. This means, for example, that F&I product penetration is up because your F&I managers are taking the time to learn about your customers’ needs to tailor their presentations and increase customer satisfaction. Remind your teams that the customer experience is paramount to a successful dealership. A good rule of thumb on the health of your customer service is ask yourself at any given time, “Would I be comfortable sending loved ones through the sales and finance process at my dealership?”

Are my compliance procedures being followed to the letter? Consider putting into motion recurring, random audits to ensure your team is complying with all local, state and federal laws. Are they complying with OFAC, red flags, risk-based pricing, etc.? You won’t know unless you audit your team. It is also a good idea to put your finance managers through the Association of Finance and Insurance Professionals’ (AFIP) certification to ensure your team knows and understands all state, federal and local regulations and empower them to take responsibility for your dealership’s compliance. Take into account your procedures and consequences. If they aren’t written down, they don’t exist, so make sure to have written documentation available for your sales and F&I teams.

With the way consumer buying habits are moving, the dealers who jump on this now will be better positioned to cultivate long-term relationships with their customers for future sales and dealership growth. At EFG Companies, we know how to position dealers to maintain profitability, compliance, and customer satisfaction with unmatched client engagement, custom consumer protection products, and extensive training services, including AFIP certification, sales, and F&I training. Contact us today to create a profitable future for your dealership.

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