Posted on March 24, 2016
Executives and thought leaders from the F&I product and administration industry share their predictions for the year ahead.
There was a time when a healthy economy and correspondingly strong sales would be all a dealer (or product provider) needed to feel secure about the future of their business. But the automotive industry is changing around them, and the driving forces behind those changes can be distilled into two categories: compliance and technology.
The main regulator on our experts’ minds is the Consumer Financial Protection Bureau. The CFPB failed in its bid to exert direct regulatory control over dealers, but its directors have gone after the banks and finance companies those dealers rely on to keep the metal moving over the curb. Many of our experts expressed concern that the agency could target F&I products next.
“The pressure on lenders from the CFPB will result in more stringent guidelines on what products are sold for, how they are sold and their respective profit margins,” said Brian Reed, president and CEO of F&I Express, who singled out credit-related products such as GAP and credit life and disability as potential targets. Reed also predicted that more dealers will begin “self-policing” markups on all products to establish some sort of consistency, a move many of our experts would applaud.
“We encourage our dealers to be transparent and fair with consumers to avoid giving the CFPB any reason to be concerned about the F&I sales process,” Griggs said, adding that “unacceptable pressure” from manufacturers pushing dealers to sell OEM products also demands scrutiny.
Mike Burgiss, vice president and general manager of MakeMyDeal, a Cox Automotive company, believes prices should be consistent and easy to find. “As an industry, when we embrace the idea that we must price the product, not the customer, we stand to not only stay ahead of the trend toward more transparent pricing rules, but the research shows we can grow sales and profits as well,” he said.
Maxim reported that he has seen a push for “product margin controls and standardization” from multiple fronts, including dealer groups and product providers. “We have seen major groups standardize product markups and develop processes and business rules to systematically prevent products from being sold that exceed those standards,” he said. “We have also seen independent product providers implement suggested retail pricing rules that recommend retail rates to dealers.”
Joel Kansanback, president of Automotive Development Group (ADG), doesn’t expect any new regulations to materialize in 2016, but that shouldn’t stop the industry from being proactive to head them off.
“If a product costs $250 and is sold by a rogue dealer for $4,000, then we should all be making an effort to stop that behavior,” Kansanback said. “It is indefensible and, unfortunately, would probably happen to a consumer who is part of a protected class.” He added that he would encourage agents to work with dealers to establish a minimum and maximum markup and help them monitor it. “Our protection products do a lot of great things for a lot of consumers and, as a byproduct, there are a lot of people making a handsome living selling them. I would hate to see a few bad apples ruin it for everyone. We can either regulate ourselves or get regulated by a government agency.”
Tuno said he felt encouraged by recent scrutiny of disparate impact, the much-maligned theory the CFPB has relied on to prove lenders have engaged in discriminatory behavior, intentionally or otherwise. But he agreed that self-regulation on the part of dealers, agents and providers could be beneficial for several reasons.
“Having a workforce that’s more in tune with compliance makes for a better overall customer experience by building trust with the customer and promoting transparency in the process,” Tuno said, adding that guaranteeing the security of each customer’s personally identifiable information also should be a priority for dealers. “Consumers will want all their privacy protected at all levels of the dealership experience,” he warned.
Finally, Lunt noted that ancillary products and services are regulated by the states, so there will always be changes afoot. “I don’t foresee anything monumental at the state level, however, although 2016 will be a more active legislative season as more state legislatures are scheduled to convene,” he said, “the most significant influence will result from changed practices stemming from CFPB enforcement actions.”
The consensus among our experts is that the increased digitization of marketing, sales and F&I processes is being driven by consumer demand. The Millennial generation continues to gain power and influence as its members come of age and enter the new-vehicle marketplace in force. Maxim used the word “techspectations” to describe the shift.
“In 2016, drivers want to communicate fluidly and stay socially connected,” he said. “That tech-driven lifestyle will need to be effortlessly integrated into their vehicle functionality.”
“It is quite clear that the Millennial generation arrives armed with a breadth and depth of information that is unparalleled,” said Elliott. “They expect the dealership representatives to add to this knowledge by serving as an expert prepared to provide additional information.”
If they’re successful, he added, they will leave Millennial car buyers with the feeling that an “informed decision” has been made. Maxim backed Elliott’s contention, noting that people tend to remember more about how they felt about an experience than what was said during it.
“Intelligent processes that identify consumer needs based on crucial deal variables and their ownership profile will change the way we sell and interact with customers,” Maxim said.
“The Internet will continue to extract new efficiencies from the retail channel, and I expect to see continued pressure on both new- and used-vehicle gross margins,” Braganini said, adding that the “ongoing deterioration” of profit margins will force dealers to find revenue elsewhere. “Dealers will be going to F&I and service to remain relevant.”
Reed believes a “new age” for F&I is on the horizon and the days of the 10-foot by 10-foot office may be numbered. “More dealers will shift to a salesperson owning the customer through the sales process, including F&I, even though the total number of dealers who change to this new process will still be rather small,” he said.
“We can no longer operate in fear of changing our sales and F&I processes. In 2016, early adapters will begin to win by having better more transparent Web strategies,” Kansanback noted. He believes consumers’ need for speed throughout the car-buying process will force everyone from manufacturers and dealers to agents and product providers to find new ways to share transaction information — minus a stubborn few. “Another set of dealers and their partners will cling to the way they have always done business and hope that change really isn’t happening.”
Thorpe sees no reason to fight it. “I’m expecting to see continued rapid innovation supporting a more efficient and effective sales process. Providers are finally catching on to the fact that the average customer doesn’t like the approach they’ve been subjected to for so long,” he said, adding that F&I managers must be willing to facilitate, rather than control, the transaction. “Speedy, direct, easy-to-understand, customer-centric capabilities will guide and inform the process and be the great equalizers for our F&I users.”
Trinder agreed but stressed that administrators must have the ability to support the way dealers want to show their products on their websites or in the F&I office. While a few dealers will embrace these new trends, he added, many are not taking them seriously.
“Administrators and their agents — this year more than any other — need to help dealers see the need to adapt to the new demands from buyers and the expectation they have from technology,” Trinder said. “Those who are at the front end of this move will not only solidify their relationships with their dealers but will undoubtedly see the positive effect on the bottom line.”
Putting customers in control will allow them to move further down the sales channel on their own, Tuno added, arming themselves with information that was, in the past, only available from sales and F&I professionals. He also identified the “antiquated” dealer management system (DMS) as a “barrier” to the success of this shift.
“Technology that can optimize data will make the entire retail experience faster, better and cheaper for the dealer and the customer,” Tuno said.
Burgiss believes 2016 will prove to be a watershed year in this regard. He predicted that pricing and monthly payment amounts for F&I products will begin to appear on many more dealer websites. All the better, he said, to satisfy the 83% of car buyers who, in response to a MakeMyDeal survey, said they would prefer to learn about F&I products on their own time. The same research showed that the same respondents would be more likely to buy F&I products if that were the case.
“The growth of digital retailing will continue to accelerate,” Burgiss stressed. “Throughout 2015, we saw a shift in dealers’ view of digital retailing from ‘That’s where the market is going someday’ to ‘I’m ready to start selling cars online. I just need to know the right way to get started.’”
Read more here.
Partial republished from Providers & Administrators, By Tariq Kamal
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