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F&I in the Era of Digital Darwinism

Darwin Automotive’s Phillip Battista has some strong opinions about digital retailing and online F&I, and he worries some providers — and their dealers — may soon find themselves in legal peril.

April 2018, F&I and Showroom - Cover Story

by Gregory Arroyo - Also by this author

Phillip Battista is the CEO of Darwin Automotive, an online F&I selling tool. 
Phillip Battista is the CEO of Darwin Automotive, an online F&I selling tool. 

Phillip Battista believes the digital retailing space is headed for a major shakeout in the next 12 months — one that will have serious implications for the providers of ecommerce platforms as well as the dealers who use them. In the end, he says, it will be survival of the fittest.

Battista is the CEO of Darwin Automotive, a firm he launched just over 19 months ago behind an F&I selling system that took its first step into the digital retailing sphere this past November. The executive might be best known for MenuVantage, an F&I menu first offered in 2005 and at one point was handling more than 100,000 deals per month for more than 14,000 users in the United States and Canada. The company was acquired by ADP Dealer Services, now CDK Global, in June 2009.

"But let me address something I think is very important: One thing that’s a risk to dealerships today — and they’re not even grasping this concept — is they’re doing business with people who are not car people and who, quite frankly, probably aren’t going to be around in the next 12 months."

The executive began his career in the auto business washing cars for a used-car lot at age 13. He eventually worked his way up from salesperson, sales manager, general manager, and service director to successful dealer principal for several dealerships throughout the United States. For the last 20 years, Battista has owned nothing but automotive-centric technology firms, including Superior Integrated Solutions, a data company whose work has inspired many of Battista’s software applications, including his newest creation, Darwin Online.

F&I and Showroom went one-on-one with Battista to get his take on online F&I as well as his reasons for taking his Darwin F&I selling system online. The executive also opened up about why he believes dealers need to be careful as they dip their toes in the digital retailing waters.

F&I: It seems like every solution you’ve developed has focused on the F&I office. Is that an accurate assessment?

Battista: That’s a great question, and it’s interesting you picked up on that. So, five-plus years ago, we introduced a major piece of software that was targeted toward service. We call it ServiceBookPro, another data-centric type of application which was a standalone company we sold to CDK Dealer Services. They now market that application as Service Edge, and it’s in a little over 3,000 dealerships for them nationwide, including customers up in Canada.

But I’ve had a lot of F&I experience. I was a principal back when LeaseLINK was in business, prior to being sold to Dealertrack. And when we started, there were two main areas of the business: One was a data company and the second was an F&I forms programming company. So my people were really good with two things: data and F&I. And we continue to do that. I had people who came from COIN, CDK, and Reynolds who all had F&I experience.

F&I: MenuVantage was the first menu system I heard about when I joined the magazine more than a decade ago. Tell us about the development of that menu.

Battista: Sure, but let’s step back for a second. I worked for a very large General Motors store in North Jersey. We were fundamental in bringing leasing to the showroom floor, because leasing used to be a separate type of thing you would purchase as a consumer.

Released this past November, Darwin Online doubles as an online desking system and a fully functional F&I department. The system interfaces with more than 100 F&I product providers and can interact with all dealership websites without requiring DMS integration. The platform also matches payments with 16 different DMS providers.
Released this past November, Darwin Online doubles as an online desking system and a fully functional F&I department. The system interfaces with more than 100 F&I product providers and can interact with all dealership websites without requiring DMS integration. The platform also matches payments with 16 different DMS providers.

So we got into the business of actually leasing customers on the showroom floor. That raised some compliance issues related to disclosures, which is really one of the things that forced MenuVantage into existence.

We developed MenuVantage to really accomplish the goal of being able to sell effectively in the F&I office and still be compliant. So the thing that drove the earlier electronic menus was not the ability to sell more products, streamline the F&I process or any of that stuff. It was more along the lines of we don’t want to get in trouble.

Now, one of my customers during those MenuVantage days was a major captive finance company, which took a white label version of MenuVantage and made it its menu nationwide. Well, several years after we sold the company, the CEO for that captive said customers are going to want to get in touch on a mobile level. “We need to have mobilization capabilities,” he said.

The firm that acquired MenuVantage, however, wasn’t interested in making the investment to update the software. Then our friends at Sonic Automotive reached out to me and said, “Hey, we’re trying to get our customers into this one-touch philosophy, but we can’t afford to give up F&I dollars. Can you help us?” That’s when we decided to birth Darwin, and Sonic was Customer No. 1.

JM&A also liked what we were doing. Our software married to their approach from a technology perspective. And from there we started to get great traction in the marketplace. So today, JM&A, The Warranty Group, Resource Automotive, Zurich, and American Financial support it in the marketplace. CDK also has a white label of our product it markets to its customers as MenuVantage Platinum. And they’re actively replacing MenuVantage in their stores.

F&I: Talk to me about this algorithm that drives the Darwin system, because I think it’s a source of skepticism among longtime F&I veterans.

Battista: There’s always going to be people who are afraid of technology — that it’s going to replace people. In our world, this is what I promote: people, process, and then technology. It starts with having trained professionals. Then you have a process that reinforces what that person is doing and what the store wants done. That’s like doing an interview 100% of the time. It makes you better, but you have to have a process to do that. Then the technology, after you have the first two pieces in place, helps the guy and helps the process — whether it’s by saving time, automating the process, or providing better tools.

I have read the blogs and the articles in your magazine with the author telling everybody, “Don’t buy technology. It’s gonna be the death of us.” I love to talk to those guys because I ask them questions like, “Well, are you still carrying around a cellphone the size of a suitcase? Are you an Amazon Prime customer? Could you imagine a world without Google in it?” So don’t be afraid of technology. Embrace it into your own process to see how it helps you.

Now, the Darwin system does a bunch of things, and it’s totally customizable so you can use it, use the recommendations, or you can do your own thing. You’re never forced into a particular box, which is another misconception people have about our technology. When we introduced the four-column menu 12 years ago with MenuVantage, that was forcing people in a box because there was no flexibility. But we did it because it was the best way to be compliant at the time.

F&I: So how does that algorithm work?

Battista: If you’re sitting in the F&I office and a customer walks in, it’s probably really relevant for you to know if that customer has ever bought F&I products from you before.

And if they did, what were they and how much did they pay, right? So that’s a data point we put into the system when it’s recommending products. Part Two is when I show that information to F&I managers. They can say, “Hey, you know what? We may be able to cancel some of these products and get you some money back so you can use it toward a down payment on your new vehicle.” So that helps with the payment objection, right?

The Darwin Online process begins with a needs-discovery interview. Buyers can then appraise their trade, select incentives, and structure their deal. The platform then prescribes F&I protections based on their answers to the interview questions, deal information and other details stored in the DMS. The process ends with a deal recap page, where buyers can reserve their vehicle.
The Darwin Online process begins with a needs-discovery interview. Buyers can then appraise their trade, select incentives, and structure their deal. The platform then prescribes F&I protections based on their answers to the interview questions, deal information and other details stored in the DMS. The process ends with a deal recap page, where buyers can reserve their vehicle.

As you dive deeper, you can take that data point and add it to something else that’s very relevant, like how long the customer is going to keep a car and how many miles he’s going to drive per year. Then you can compare that to the warranty on the car and say: “Hey, guess what? You’re gonna own the car 60 months. You’re gonna drive 15,000 miles a year. You’re buying a car with a three-year, 36,000-mile warranty. So in 30 months, you’re not gonna have any coverage on the second largest investment in your life.”

All the algorithms are doing is collecting data an F&I manager could collect if he had time — asking questions, reviewing the trade, checking the mileage, and knowing if the customer’s ZIP code has a high rate of auto theft and if the vehicle they’re buying is the No. 2 most stolen vehicle in that area. They can then recommend theft protection, and it’s relevant.

F&I: Let’s talk about the product recommendations the Darwin system makes based on the data those algorithms collect.

Battista: It tells you what a customer needs and the likelihood the customer will purchase the recommended products. The algorithm takes all that data and just arms the F&I professional with the ability to sell from a value and need perspective. So instead of having to sit there and take a worksheet, flip it upside down, draw a GAP graph, shade in the risk area, and say, “You know, Greg, this is how your car depreciates and this is how much you owe on your car,” we show the customer, “This is how much you’re putting down in your car. This is how much Edmunds says your car is gonna be worth over the next six, 12, 18, and 24 months. This is what you’re gonna owe plus your insurance deductible. This is what your risk is.”

F&I: How do most Darwin users conduct the interview portion?

Battista: It’s different from store to store. Some stores will actually text the interview to customers on their cellphone. Some will email it to the customer. Sometimes the salesperson gathers the interview questions upfront and then brings the customer over to F&I. Sometimes it’s done in the box in the traditional way. If the store only wants to do paper, they can do that too.

F&I: I just think Darwin gets grouped with these techies from Silicon Valley — startups who aren’t all that familiar with what goes on in the F&I office.

Battista: What amazes me is there are dealers talking to these people from Silicon Valley — guys who’ve never delivered a car. They say they’re car guys. But when you look at their backgrounds, they’re CEOs of startups talking to guys who actually deliver cars and who live off their [profit-and-loss statements].

In fact, there’s one major dealer group that uses a provider from Silicon Valley. And when you click on one of their cars online, the first thing they ask is would you like a $2,750 service contract. Nobody in the country sells cars that way. You sell the value of the car, the excitement, then you walk the customer through the progressions of, “Hey, there are some things you need to consider with the purchase of this vehicle.” You don’t say, “Hey, would you like that new Ford Explorer? And by the way, would you like a $2,750 service contract?”

What’s interesting about that number is it’s not even a real number. So whether you’re on that dealership site and you select the Explorer or you select the Mustang, you get the same number.

F&I: Let’s talk about your venture into the online space with Darwin Online.

Battista: One of our larger customers, Flow Automotive Family out of North Carolina, uncovered a real risk in their marketplace: One of their finance sources told them that they had introduced an application where customers can walk on his lot, scan a VIN, and can do an entire financing transaction from their smartphone. That’s cool from a tech perspective. But if I put my dealer hat on, what scares me — and what scared these guys — is if customers start walking in with a check for cars. Sounds great in theory, but there’s no back end.

Today, 39.6% of the new- and used-car departments’ total profitability comes from F&I dollars. So we can’t get into the business of becoming new-car wholesalers just to make our customers happy. That’s why we took our instore patented process — and we’re the only guys in the industry who have a patented process — and took it to the web. So 24 hours a day, 365 days a year, you can have a full online F&I department working exactly the way the dealership would want it to work.

And in our system, customers will never see an F&I product where the dealer is not controlling the level of profitability. And we support that with all of our personalized dynamic sales tools powered by data from the National Insurance Crime Bureau, AAA, and Edmunds. We also match the payment to the DMS, which is something these other guys aren’t even getting their arms around. What they forget is when you tell people, “Hey, this is estimated. This is close,” that kills your CSI from a dealer perspective. 

In fact, there’s a very large DMS provider that has a digital retailing product that gives stacked incentives. The customer walks in thinking he or she has a $1,000 rebate or incentive. The dealership then discovers the customer is leasing, and the rebate the customer wanted doesn’t apply to a lease transaction. So the customer’s first interaction with the store is, “Oh my god, they tried to rip me off.”

F&I: So the platform is designed to match the dealers’ payments on his website to the exact payments on his DMS, including taxes and fees?

Battista: That’s correct, and we can do that with 16 different DMS providers. But there’s another issue. See, to be a digital retailer, you also need to be able to have that Truth in Lending Act disclosure, as well as Regulations Z and M compliance.

F&I: Are you saying not all digital retailing platforms are doing that?

Darwin Automotive’s Jeff Stafford is seen here demonstrating the company’s F&I selling system during NADA 2017. It was then that the firm’s chief marketing officer revealed to ‘F&I and Showroom’ magazine the company’s plans to enter the digital retailing space behind its F&I selling tool, which was rolled out less than two years ago.
Darwin Automotive’s Jeff Stafford is seen here demonstrating the company’s F&I selling system during NADA 2017. It was then that the firm’s chief marketing officer revealed to ‘F&I and Showroom’ magazine the company’s plans to enter the digital retailing space behind its F&I selling tool, which was rolled out less than two years ago.

Battista: That’s right. And what happens when the state attorneys general and the federal government catch up with the industry and says, “Whoa, wait a minute, you’re trying to sell cars online and you’re not giving people the true numbers”? That’s going to be a consumer fraud issue. Granted, some of those people are ahead of us, but we were cautious and took our time.

F&I: So Darwin Online is more than a digital F&I office. It’s actually now competing in the digital retailing space.

Battista: Yes, but there are some major differences. There are guys out there telling dealers if they want to get into digital retailing, they have to create a digital storefront and they have to change the way they’re doing their digital marketing. We say, “However you’re doing digital marketing today, we plug into that.” So the dealer can be doing business with Dealer.com, tomorrow it could be DealerOn, and the next day Dealer Inspire. We don’t care.

Once the customer selects a car on their website, we have the ability to electronically take that data right into our proprietary Darwin system. We take that deal structure, do a trade appraisal, interview the customer, select personalized F&I products, let them add them to their cart, and give them an accurate payment. So the system floats like a mini online desking system for the customer. And then it lets them reserve the car — all in about 90 seconds.

F&I: What about financing?

Battista: We let the dealer control at a micro-tiering credit score level what the rates are. We give them a monthly subscription for both national and local incentives, rates and residuals, and captive finance rates.

Now think about this: Our competitor, Cox Automotive, helped us out with a study. Sixty-three percent of online customers they studied over a three-year period said they would be more likely to buy F&I products if they were educated about them before they came into the store. We make sure that if you come onto Darwin Online and go through the process and select the car, you absolutely get a personalized prescription for the F&I products you need. More importantly, you understand why you need them. So when you walk into the dealership and you eventually meet the finance professional, it’s not the first time you’re hearing that you need a service contract.

F&I: There are other systems that get into product sales? So how is this different?

Battista: We’re the only ones that provide personalized and specific F&I protections to the consumer in the form of a prescription.
Here’s the other thing: Selling a lot of cars online at triple net with no back-end is detrimental to the dealership. So all these companies that talk about making sure you have the best market price on your cars are getting dealers to market cars at triple net. So what happens to your overall profitability if you’re doing that and have no back-end? What happens to your store?

As for the manufacturers, they just want to move iron. Whether that customer has a zero back-end or $2,000 back-end is irrelevant. The only person it matters to is the dealer.

F&I: Does Darwin Online work differently than the in-store version in terms of the F&I presentation? I ask because a lot of the startup guys recommend limiting the number of F&I products you offer online.

Battista: So customers will get the top three or four products that are very specific to them, their driving habits, their car, and their needs. But let me address something I think is very important: One thing that’s a risk to dealerships today — and they’re not even grasping this concept — is they’re doing business with people who are not car people and who, quite frankly, probably aren’t going to be around in the next 12 months.

F&I: Are you saying there’s a major shakeout coming in the digital retailing space?

Battista: Yes, and we’re going to see who the real providers are. The reason is selling digital retailing is their only revenue source, which is why some of these companies are charging $1,500 to $2,000 a month per rooftop. We, on the other hand, provide more functionality at a third of their cost.

Obviously, everybody knows Cox is gonna be around. CDK and Reynolds are also going to be there. We’re also here for the long haul. We have 2,500 existing in-store Darwin customers we’re installing Darwin Online with. And we’re getting a large number of customers outside that base who want online connectivity as well.

I think it’s relevant that, when dealerships are deciding who to do business with, they look into the company and what’s the wherewithal behind the company. How many employees do you have? How long have you been doing this, right? What happens if you make a mistake? Is there insurance behind the company?

F&I: So let’s talk about results.

Battista: We are proud of some of our stats, but let’s talk about how people measure success. There’s an online provider out there today that touts that they brought 500 new deals a month to a large dealership group. When you look at the data behind that, however, it’s not true. The ZIP codes for those customers were already within the dealer’s area of responsibility. So it’s the same customers who just wanted to transact business differently with the dealership.

Now, when you look statistically, consumers online are visiting between six and nine websites before making a buying decision. That means they’re not sticking to your website. So the first measure of success is, can I get my customer to come onto my website and stay sticky to me, and then come into my dealership? That’s the first metric we look at for success.

Then we track how far a customer gets. Now, going back to my profitability message, where 63% of these customers are gonna buy F&I if they’re educated. My sweet spot is not getting customers to go all the way through to the end, which about 25% of our customers we’re seeing nationally will go through the entire process of click, save, and reserve. We want to know how many people get on the site and go through the payment and protection portion. We’re tracking over 73% of our customers right now are coming onto our site and doing that.

So our methodology is working because we’re not giving them price until they go through payment and protection. So we transfer a consumer into the dealership that is highly educated and will become highly profitable. That’s our success matrix.

F&I: So when a Darwin Online deal comes through, the F&I manager still has to finish it.
Battista: That’s correct. We’ll be showing some software at the NADA Show that will allow you to take the deal further. So we have a relationship with RouteOne today. And we’re going to be building out the ability for a customer to complete more of that transaction online.

The Darwin Online process begins with a needs-discovery interview. Buyers can then appraise their trade, select incentives, and structure their deal. The platform then prescribes F&I protections based on their answers to the interview questions, deal information and other details stored in the DMS. The process ends with a deal recap page, where buyers can reserve their vehicle.
The Darwin Online process begins with a needs-discovery interview. Buyers can then appraise their trade, select incentives, and structure their deal. The platform then prescribes F&I protections based on their answers to the interview questions, deal information and other details stored in the DMS. The process ends with a deal recap page, where buyers can reserve their vehicle.

So the reality is — and this is where you separate car people from non-car people — if you look at the number of consumers who can apply for credit and get an instantaneous response within minutes, it’s less than 15%, right? For the other 85%, you’re going to be dealing with what we call the rehash world. We have tools the F&I manager can use to interact with customers remotely without them coming to the dealership to finish the deal.

So our next phase will be the ability to send that deal into the RouteOne portal, get a response back, and then have the F&I manager manage the 85% of deals that are not instantaneous approvals. That’s the real world.

F&I: Do you believe consumers really want to complete a vehicle transaction completely online?

Battista: This is gonna sound crazy from a tech guy, but we believe a high percentage of people still want to come drive the car, see the car, smell the car, see the color of the car, and there’s a lot of anecdotal data out there today that supports that — like an overwhelming amount of data. They just don’t want the hassle of F&I, but they still want it to be an emotional sale. That’s the other thing the non-car guys don’t get, because they’ve never sold a car to a customer.

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