Categories
F&I

Are You Prepared for a Buyers’ Market?

Contributing Author: Brien JoyceA few years ago, you may have been one of the few lenders in your area aggressively offering subprime loans. While the automotive market was struggling, you had the advantage of being one of the only subprime options available to those consumers who were in the market to buy. With limited supply, you had better opportunity to increase your profit margins with minimal effort.

Now, the tables have turned. The subprime market expanded exponentially in 2013. According to Automotive News, executives at General Motors stated that in December, subprime accounted for 7.5 percent of their sales volume.

As more big banks and captives enter the ever-expanding subprime market, you no longer have the same market advantage with Dealers. In essence, we’ve left the seller’s market and entered a buyer’s market. With so many available options, consumers have a better opportunity to shop for the best rate and terms. Naturally, smaller subprime lenders will have a harder time competing on rate alone with larger institutions.

Whether direct or indirect, it’s time to move past rate-only marketing strategies and compete on the value of your loan or your institution. Dealerships and consumers alike are more likely to work with lenders that make their lives easier. For dealerships, this means a quick turn-around on loan approvals, availability during dealership hours (not just bank hours), and providing a loan that consumers will find valuable.

It is actually possible to succeed at captivating both consumer and dealer audiences at the same time. Loans offering complimentary, short term or limited F&I products that reflect a dealer’s consumer base position them to effectively increase profit and customer retention. Consumers will be more confident with doing business with the dealership and in their financial future. In addition these loans may benefit you by helping to mitigate potential loss.

For example, if a customer experiences a mechanical breakdown within the first six months after purchasing a vehicle, they could potentially struggle with the financial burden of paying for both extensive repairs and their monthly auto loan payment. With a six-month complimentary vehicle limited vehicle service contract, that burden could be significantly reduced, allowing them to repair their vehicle without putting a significant strain on their finances and affecting their ability to make their payment on their car loan.

The complimentary product also makes it an easier conversation for the dealership up to give their customers the option to upgrade to potentially the entire length of the loan. This protects you, the customer, and significantly increases dealership profitability.

To determine your value to your dealership partners, conduct an internal audit of your loan closing procedures with these questions in mind:

  • How quickly do we respond when the dealership submits an application?
  • Are we always available when an F&I manager needs us?
  • Are we courteous and professional when working with a dealership?
  • Do we provide solutions to help our dealership partners succeed?
  • Do our loans give the dealership additional credibility with their customer base?

In this highly competitive market, your value proposition is your differentiator. By focusing on enhancing the value of your loans through good customer service and targeted F&I products, you can significantly increase efficiencies for both for you and your dealership partners.

With over 36 years in innovating and implementing proven go-to-market strategies in the dealership space, EFG Companies understands the importance of your value proposition. Which is why EFG structures its products and services to not only provide value to you, but also dealerships and the end-consumer. Our unmatched client-engagement model goes well beyond simple product innovation to mitigating liability through superior claims processes, and continuous training and follow-up.

Find out how EFG can help you break through the competition. Contact us today.

Categories
Business Growth

How Many Industry Reps Want a Piece of the Dealer’s Time in a Given Month?

Steve Roennau Vice President Compliance EFG Companies
Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

The answer is, a lot!  From lender reps, to the OEM’s field team, to consultants, to the “latest thing” rep, today’s auto dealer is highly sought after.   The dealership’s decision maker is in demand.  So much so that if the Dealer granted time to every rep that requested it, he would spend no time tending to his retail automotive operations!

So, the better question is this:

How Do You Ensure that You are the Rep that the Dealer WANTS to see?

The bottom line is you need to add value to his operation when you do get in front of him.  When you leave, it should have been time well invested.  Here are three points of consideration for meeting with a Dealer.

  1.  Do Your Homework– It is imperative that you know the Dealer’s business, his business, and demonstrate to him that you understand it.  Everything you communicate should be filtered through this lens.  Don’t just show up with your numbers, loan volume, look-to-book metrics, and portfolio performance.   Present your numbers within the context of his organization.  Position your numbers to the dealer’s business.  Present your loan volume as a share of his total business.  What revenue hit his operating statement generated by doing business with you?  Explain why and how the metrics benefited his business.   Understand the dealer’s F&I operations including penetration levels for financing as well as all ancillary products sold and include these points in your discussion with the Dealer.
  2. Quantify Your Points – Don’t just present from the standpoint that doing business with you will help improve efficiencies and sell more cars. Always quantify these statements.  For example, if you put three deals together for the dealership last month, don’t just leave it at three additional deals.  It should be 5 additional deals, at that dealers average front end gross, over a 12-month period, applying his VSC/GAP/Other Product penetration levels and his associated gross profit for each.  Sum these numbers for a month and annualize it for him.  Remind the dealer that you appreciate his business and are pleased to know that you are working together with his team to drive profitability in his dealership.
  3. Respect the Dealer’s Time – Building and maintaining rapport is always an integral part of our business.  That just can’t be the main reason for your meeting with the Dealer.  Have a plan, communicate it, stick to it, and follow up.  Specifically, set an appointment with the Dealer whenever possible; let him know what you’d like to cover and how long you anticipate it will take.  Then, deliver!  Be on time.  Cover the communicated items within the contracted period of time.  Validate the importance of the visit by following up on the discussion and following through on any commitments made.

It’s time to ask yourself:

  • When you walk into a dealership, do you present a canned pitch or are you delivering value geared to that dealer’s business?
  • Do you find yourself making general statements about your business or quantifying your points with data, financial impact and results that are specific to that dealer’s operation?
  • Are you finding yourself just dropping in on your dealers to see how business is going, or are you setting and executing meaningful appointments?

At EFG Companies, we understand retail automotive. When we partner with our lenders, we help you fortify your relationships with your dealers and increase your loan volume. Our tailored F&I products are designed to increase both your bottom line and dealership profit.  Our expert training equips you, the lender representative, with the skills to meet performance goals by working effectively with your dealer partners.

Find out how EFG’s 36-plus years of experience in auto retail and financing can help grow your business.  Contact us today.

Categories
F&I Government Regulations

Are you frustrated with CFPB’s compliance guidelines?

Contributing Author: Steve KleesIf you attended NADA, or have simply been following industry news, you know that compliance is this year’s hot topic. In the first quarter of 2013, the Consumer Financial Protection Bureau (CFPB) threw a monkey wrench into standard auto financing practices, causing everyone to rethink the way they do business. They announced their intention to aggressively seek out lenders whose practices could be deemed discriminatory under Regulation B from the Equal Credit Opportunity Act (ECOA).

This regulation prohibits both intentional discrimination and practices that seem neutral but result in negative impact to customers in a protected class. According to the ECOA, customers could fall into a protected class based on their race, color, religion, national origin, sex, marital status, and age, among others.

While the CFPB stated that they would commence audits leading to legal action against lenders, their guidance bulletin left a lot to be desired. In essence, they instructed lenders to either:

  • eliminate dealer pricing discretion; or,
  • constrain dealer pricing discretion by monitoring dealership practices and using “controls” to force dealerships to adjust their practices.

Throughout the rest of 2013, lenders and dealers alike continued to ask for clarification on what those “controls” should be and for CFPB’s auditing process. Almost a year has passed with limited clarification. Now, NADA has come out with guidelines on how dealerships can remain compliant. They also provide two options:

Option One

Establish a means of dealer compensation where the establishment of finance income does not vary on a customer-by-customer basis. To accomplish this, dealerships would charge each customer a fixed rate. This rate could be a flat fee, a fixed percentage of the amount, or a fixed number of basis points over the wholesale buy rate.

While this option makes it very easy to remain compliant, it hampers the dealerships ability to offer competitive pricing, which also limits the customer’s ability to shop for the best value.

Option Two

Start with Option One, by establishing a pre-set amount of compensation, such as with a fixed number of basis points over the wholesale buy rate. Then, allow for downward adjustments of that amount should a pre-determined condition occur, such as:

  • the customer is not able to make the monthly payment based on the preset amount;
  • the customer has a better offer somewhere else;
  • the dealer has a promotional offer extended to all customers;
  • the transaction is eligible for a lower interest rate from the manufacturer or other finance source;
  • the customer is eligible for a dealer incentive program; or,
  • documented inventory reduction considerations.

Option two gives dealerships more leeway to negotiate, but necessitates extensive dealership practices to ensure discrimination as defined by the CFPB is not allowed. What may be keeping you awake at night is that all transactions that deviate from the published policy must be recorded and documented – and we all know how meticulous F&I departments are with details. The rest of NADAs guidelines include steps to ensure this option will keep dealerships compliant with Regulation B from the ECOA.

What this means for you

While these guidelines were meant for dealerships, they offer an excellent starting point for lending compliance practices, as well. As your dealerships determine which option is best for their business, it is equally important that you complete your due diligence. So ask yourself:

  • Do I have written compliance procedures?
  • Do I have standardized forms for indirect consumer loans?
  • Do my employees who interact with dealerships undergo formal compliance training at least once a year?
  • Do I monitor and document all training, forms and compliance efforts?
  • Do I have a compliance officer or department who is not in any way involved in the loan approval process?

Each one of these elements is vital in explaining pricing disparities that might lead to potential violations. Keep these suggested guidelines in mind when you consult your legal counsel regarding your compliance initiatives. In addition, consider including compliance in your discussions with your dealership partners. Formalize a process and accountability system for your employees should they discover a discrepancy with a dealership. Implement a formal auditing process for both your institution and your dealership partners.

You probably already have many of these measures in place, but haven’t sufficiently connected them with CFPB’s guidelines. Consulting with your legal counsel is the best place to start taking the frustration out of CFPB compliance.

With over 36 years in innovating and implementing proven go-to-market strategies in the dealership space, EFG Companies understands the balance between ensuring complete compliance, and retaining and building profit margins. That balance lies in the value proposition. Which is why EFG structures its products and services to not only provide value to you, but also dealerships and the end-consumer. Our unmatched client-engagement model goes well beyond simple product innovation to mitigating liability through superior claims processes, and continuous training and auditing practices.