Finance Reserve – Should It Stay or Should It Go Now?

This is a guest post by Eric Andersen, the President of the College of Automotive Management. With the government's ongoing attack on dealership practices, dealers and their staff need to step up their game to remain competitive and protect themselves against legal pitfalls. Dealerships that employ highly-skilled professionals will certainly prosper despite any changes brought on by government regulations. In my opinion, the College of Automotive Management offers the absolute best-in-the-industry training and development for automotive professionals.

Finance Reserve – Should It Stay or Should It Go Now?

by Eric Andersen

Well stay of course! But unfortunately that’s likely not going to happen.

If there is one thing our country’s current administration has proven, it’s that they will regulate what they decide they want to regulate – and won’t stop until they do. If their new agency, the U.S. Consumer Financial Protection Bureau, is bent on putting the screws to auto dealers and their entrepreneurial spirit, they probably won’t stop building a case for a decision they have probably already made. Hence we will continue to see “breaking news” from this agency like the recent article dated March 28^th, 2013 entitled Auto Loans Prompt 1,585 Complaints to New U.S.Consumer Watchdog.

                                  

So what is to be done?

Well after the ranting and raving is over (and I’m done now), the only logical thing to do is create a list of solutions and get in front of the problem. Offense is a great defense. Instead of spending any more time worrying or debating, we can use the circumstances to focus on creating new opportunities to increase total profits per sale.

Step 1: Determine what is most important to your company (the dealership). 

Due to a landslide of factors including factory incentives, the world wide web, and consumer opinion transparency, CSI should become every dealer’s number one priority and objective – above all else. When you stop and consider it, reserve profits are the only profit source in a dealership that produces ZERO CSI benefits. Paying for a vehicle comes with benefits. Paying for F&I products, parts or service comes with benefits. But paying for finance reserve does absolutely nothing to promote higher CSI. In fact, if abused, it can do the opposite (which is the agency’s case, blown out of proportion).  If CSI is more important to the company than reserve profits, then the thought process to find other positive solutions to increase profits per sale despite the loss of reserve can be continued.

Step 2: Change your pay plans now.

If you have pay plans for F&I Managers, Sales Managers or Salespeople right now that give them more incentive to increase the reserve rate vs. sell more valuable products and services to the customer, change them now. Who is more valuable to you? The insurance agent providing you with your car insurance, or the insurance agent that provides you with your car insurance, homeowners policy, health plan, and life insurance? The more business customers do with your company, the more valuable your company is to them, and the more meaningful that relationship is, and the harder it is to break. Redirect pay plans to focus more on aftermarket and F&I product sales income than reserve income. Then if reserve does go away, you won’t have an exodus of people because they previously relied on reserve income too heavily.

Step 3: Develop aftermarket and F&I product sales skills – from top to bottom, and track it.

Salespeople and Desk Managers have a dramatic influence on F&I product penetration. Provide training on how introducing the benefits of F&I products early and often in the sales process benefits everyone. Then reward salespeople and desk managers for achieving higher aftermarket and F&I product penetrations and thereby offset any loss of reserve income with valuable, CSI building F&I product income. In the future, when customers have big problems, they can be solved when claims are paid and thereby solidify customer loyalty while creating more repeat business opportunities (to replace vehicles when totaled, lost, or damaged). Also provide F&I Managers with “continuous” F&I product training, AND F&I sales process training to maximize their abilities to achieve higher product penetrations as soon as possible. Track the aftermarket and F&I product penetration of everyone involved and publish the results frequently. That helps keep everyone’s eye on the ball!  

Step 4:  Develop loan underwriting expertise at the desk and F&I level

Programs like CUDL have become popular, despite paying lower reserve commissions than captives or banks, because they create additional profit opportunities for the dealer.  Having these programs and knowing how to use them makes the dealer more money. That’s due to their unique loan underwriting policies. Perhaps a deal can ONLY be made due to a lower rate, or better terms provided to a member of a credit  union that can’t otherwise be obtained at a traditional lender, even though the traditional lender offers a chance for more reserve profits. If desk managers or F&I managers don’t know about, or understand how to maximize those lending options the dealership is not competitive and will lose a lot more income than reserve profits. Make it a priority to ensure every desk manager and F&I manager becomes an expert at A&B Lending programs including local credit union options, leasing, special finance, and other loan underwriting  and deal structuring disciplines in order to ensure maximum total gross profits are obtained and no sales opportunities are missed.

Once a dealership implements solutions to achieve all four steps, the increase in total profits for the dealership now, and later, can dwarf whatever reserve income may be lost later if the current administration continues to get its way. And you can continue to triumph, due to your optimism and entrepreneurial, never-say-die spirit!

Welcome to the College of Automotive Management, the world’s premier automotive management and loan underwriting school. The heroes of our story are the thousands of graduates who have attended the College since 1992.  As they implemented their new knowledge and skills they created their own stories of success in the automotive and lending industries. Today, they are the owners, managers, leaders and influencers of the industry and helping to champion the positive changes towards higher profits through customer satisfaction and legal compliance. http://www.collegeofautomotive.com/

10 Things to Consider Before You Blow Off the Idea of Transparency

Dealers are constantly looking for ways to get an edge in the digital age, yet many continue to follow the same sales and advertising practices that they’ve been using for decades. The problem is that the game has changed and consumers have access to much more information and choices than ever before. In the past the dealer controlled all of the information, but today it’s just the opposite. Any information you offer is now carefully scrutinized and validated by a vast amount of online data. As a result, the likelihood of old-school sales practices backfiring has increased substantially.

So what type of “old-school” practices am I talking about? How about pricing vehicles without disclosing that there are rebates that most people don’t qualify for; trade-in values where the selling price is increased; trade under-allowances; withholding information on phone pops and internet leads (“just get ‘em in”); write-ups and F&I presentations (four-squares & payment packing); bait & switch advertising; and non-disclosure of vehicle histories and add-on fees?

I have spoken to many people who think this new-fangled transparency talk is just nonsense. After all, we’ve been doing business the same way for decades and it’s been wildly successful. If it ain’t broke we’d be stupid trying to fix it.

I get it. I’ll be the first to admit that I spent most of my career as a poster child for the “but we’ve always done it this way” mindset. My thinking has changed though. I’ve had the privilege of meeting some amazingly-smart automotive thought-leaders who have taught me that there’s more to success then the “whatever it takes to make a deal” mentality. While the business-as-usual way of thinking sure is comfortable, I’ve come to realize that it’s probably not the key to long-term success. So before you discount the idea of transparency in your dealership, you may want to consider these 10 potential benefits.

Increase Lead Conversion - The ultimate goal is still to “get ‘em in” and close the deal, but for an increasing number of shoppers, transparency is the only thing that will get them in. Not being upfront about details used to have its benefits. Up until recently, the salesperson could control the selling process because he or she controlled the information. Today, it’s just the opposite - consumers have all the information they need at their fingertips. If you resist answering customer’s questions, chances are you’ll never hear from them again.

Increase Closing Ratios - Higher levels of satisfaction with the selling process result in higher closing rates and higher sales. A recent survey by Maritz Research of over 163,000 Americans found that 64.0% are completely satisfied when one person with pricing authority negotiates a car deal vs. 20.7% when two or more with no pricing authority are involved.

Improve Your Reputation (your REAL reputation, not necessarily the one you “manage” online) - A dealership’s reputation is difficult, if not impossible, to maintain when staff members depend on “old school” practices. Customers often make decisions during a vehicle sale transaction that they come to regret after the “ether has worn off”. You can be sure they’re telling somebody about the transaction.  Or perhaps they’re telling thousands of people online?

Avoid Legal Problems - State & federal regulators frequently target “non-transparent” dealer practices as unfair and deceptive. These practices include bait and switch advertising, failure to sell at advertised prices, payment packing, vehicle history disclosures, yo-yo financing, improper fee disclosure, and misleading pricing.

But it ain’t illegal if you don’t get caught, right?

The new reality is that “getting “caught” is no longer likely to be just a fine and slap on the wrist. Regulators now have a new trick up their sleeve - using the media to humiliate those dealers caught in order to intimidate others. There’s plenty of political capital in going after car dealers for ambitious regulators. These regulators want press, and the tougher and more far-reaching the press the better. As a result, the severity of the offenses is often exaggerated (think about what the FTC did to those 5 unfortunate dealers last year). You need to ask yourself what the cost of that kind of negative publicity would be.

Increase Customer Satisfaction - Lack of transparency and old school tactics invariably diminish the customer experience. Nobody likes surprises. Sure, you made the deal but are your customers truly satisfied with your processes or do you just wear them down?

At the end of the day higher customer satisfaction translates into more repeat and referral business.

Increase Customer Loyalty - Customers only have loyalty if you earn it from them.

Transparent processes help build customer loyalty and retention. You’ll find that customers will be willing to spend more when they feel they’re buying from a business they can trust.

Your Customers Have Unprecedented Access to Information in Real Time - A recent JD Power report highlights a growing trend called 'Showrooming' where prospects sitting in your showroom are actually price competing your deal with another dealership using their mobile devices. Consumers not only have more access to information but also have access to more dealers. In the past, consumers were limited to dealers in their local area. The increase in the amount of information available to consumers has brought consumers a quick and easy way to analyze not only different prices via internet quotes but also to identify who they want to do business with. Customers simply have too many choices and will quickly discard dealers they feel are hiding something. Holding back information will only make them trust you less.

Reduce Chargebacks – What happens after the ether wears off and the customer goes home and reads the contract? I’ve found that the percentage of chargebacks and cancellations is directly related to transparency in sales and finance processes. For instance, staff members who participate in payment packing typically have a much higher chargeback rate. Once customers figure out that the “protection package” wasn’t really only a “few extra bucks a month”, they want to know why. You can only hope they don’t ask an attorney that question.

You’ll Stand Out From Your Competition – Let’s face it, there just aren’t a great number of dealers who are transparent yet. Progressive dealers can easily differentiate themselves by marketing their transparent processes and demonstrating their honesty. Consumers will respond - after all, how many consumers prefer old-school tactics?

Transparency is what consumers have been begging for so why not treat them the way they want to be treated? – Here’s a hint: it’s happens to be the right thing to do. In my opinion, subjecting customers to old-school processes doesn’t give them the respect they deserve. Just because you can doesn’t mean you should.

The good news is that transparency can be the pot of gold at the end of the rainbow. A transparent business model can greatly enhance your sales, reputation, customer retention, and bottom line. But first you must find the vision and courage it takes to break down deep-rooted stereotypes and embrace transparency.

I’ve said it before and I’ll say it again: Transparency is not a dirty word but complacency is. Do you have the vision and courage it takes to embrace transparency and go from being good to being great?

Using Questionable Reputation Management Tactics Is Risky Business

There’s no doubt that it takes a lot of hard work and dedication to maintain your online reputation, and it may be tempting to look for ways to ease the burden. One way is to hire a company that specializes in reputation management. There are plenty of companies out there that offer seemingly quick and easy ways to improve your online ratings. Unfortunately, some of these review companies may be using “Black Hat” techniques and putting dealers that use their services at risk. A classic example is the dealership that suffered devastating reputation damage a few years ago because of the review-posting practices of a company they hired. A customer discovered that suspicious “reviewers” were writing 5-star reviews about all kinds of businesses and dealerships across the nation on the same day.

Another area of concern is the activity of a company’s own employees. The Federal Trade Commission charged a California marketing company with deceptive advertising after it found that the company’s employees were posing as ordinary consumers posting positive reviews online. Even worse, The Florida Attorney General sued an auto dealership for violations of Florida’s Deceptive and Unfair Trade Practices Act, for its employees allegedly posting fake reviews.

FTC guidelines require companies to ensure that their posts are completely accurate and not misleading, and planting or allowing fake reviews is a clear violation. Dealers may also face liability if employees review their employer’s services or products without disclosing the employment relationship. The FTC requires the disclosure of all “material connections” between a reviewer and the company that is being reviewed. These connections can be any relationship between a reviewer and the company that could affect the credibility a consumer gives to that reviewer’s statements, such as an employment or business relationship. So if employees, friends, family, or vendors post reviews to prop up a dealership’s online reputation, they must clearly disclose any relationship they have with the company. In addition, all reviews must be an honest opinion based on a real experience. Reviewers must never endorse a product or service that they have not used personally or create any other form of false endorsement.

Failure to follow these regulations can result in substantial penalties. In recent actions, the New York Attorney General fined a company $300,000 for ordering its employees to write fake reviews and the FTC ordered another company to pay $250,000 for fake reviews posted by the company's affiliate marketers. In the Florida dealership case, the lawsuit seeks restitution for harmed consumers, civil penalties of up to $15,000 per violation, attorneys’ fees and costs, and injunctive relief.

The FTC has stated that companies are fully responsible and liable for all inappropriate actions of their employees, their vendors, and any advocates they recruit. While reviewers may also be held personally liable for statements made in the course of their endorsements, the FTC has indicated that its enforcement activities will generally focus on companies receiving the reviews.

Paid-for reviews are another area that regulators are cracking down on. The practice of offering a free oil change or gas card to a customer in exchange for a good survey has long been frowned upon by manufacturers. Because there are no factory gatekeepers when it comes to online ratings, it may seem tempting to offer customers an incentive to post a positive review. The good news is that you can if you want to; the not-so-good news is that the FTC requires that any reviewer provided with any form of compensation for posting a review must fully disclose the source and nature of any compensation received. So, if you pay for reviews and the reviewers fail to disclose their compensation, you may face liability. This is an area where it’s easy to get caught and besides the legal danger, your reputation will likely take a big hit.

While paying someone to write a review is not illegal as long as it is disclosed to the reader, doing so would likely hamper the review's credibility. In addition, the dealer would be responsible for holding the reviewer accountable for properly disclosing the compensation. In other words, paid-for reviews are probably not worth the trouble.

Besides the potential legal ramifications, fake, paid-for, and “on behalf of” reviews violate the Terms of Service for most review sites. Google, Yelp, and others are cracking down on reviews written by someone hired or paid by a business, and violations could result in having reviews removed or worse, being banned and causing a dip in your search rankings. There’s also the very real possibility that after getting caught gaming the system, no one will trust your reviews ever again.

This past summer Google deleted hundreds of reviews from a number of dealerships for what they described as “suspicious behavior” and “spammy” content. Unfortunately, it seems that they went over the top and deleted many legitimate reviews, but the fact remains that they are looking very closely at the review-posting process. Google wants to ensure that reviews are posted from real people and not agents acting on a consumer’s behalf. There are a number of companies that offer business owners a service that will call their customers, collect a review, and post it on Google. This violates Google’s policies and those reviews will eventually be removed for spam.

Yelp has long been notorious for filtering reviews on their site, but recently they have gone even further. Apparently, they set up a sting operation to help uncover companies that purchase fake positive reviews, then calling out the offenders and showing the world its evidence. Consumer Alerts have shown up on Yelp reviews that say “We caught someone red-handed trying to buy reviews for this business. We weren’t fooled, but wanted you to know because buying reviews not only hurts consumers, but also honest businesses who play by the rules”.

If someone is assisting you with your online reputation management, make sure you fully understand exactly how they are gathering the reviews, posting them and distributing them. This goes for your staff as well.

It’s never been more important to be 100% authentic in your review-gathering and Online Reputation Management – the penalties can be very large and are not worth the risk. Questionable reputation management tactics can destroy a dealership’s credibility, lead to legal headaches, and do far more harm than good.