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From the Boardroom

The CFPB was top of mind, but company representatives serving on Industry Summit’s annual executive panel delved into other hot-button issues impacting dealers and their F&I offices.

November 2014, F&I and Showroom - Feature

by Gregory Arroyo - Also by this author

The discussion opened with reaction to a keynote address delivered by a former official with the Consumer Financial Protection Bureau (CFPB). It ended with executives from four F&I product companies and one technology firm offering their take on why F&I departments are realizing some of the highest per-copy averages in the last seven years.

That was the scene inside the Paris Las Vegas’ Concorde A, where GSFSGroup’s Alan Bond, National Auto Care (NAC)’s Tony Wanderon, OptionSoft’s Ken Tomaro, Protective Asset Protection’s Tim Blochowiak and The Warranty Group’s Joe Amendola took part in Industry Summit’s annual Executive Panel discussion.

Two hours before they took the stage, Hudson Cook partner and former CFPB official Rick Hackett warned the industry of the bureau’s interest in F&I product sales despite dealers not being subject to its enforcement, supervision or rulemaking.

“I do know that when I talk to my former friends, they are still very interested in this stuff,” Hackett said. “I do know the people I talk to on the policy level … they’re scratching their heads trying to figure out how to get into this stuff, because they know they have this story in their heads.”

Regulatory Scare
The bureau’s story revolves around pricing; Hackett noting that the regulator can’t connect how dealers price F&I protections with the value they provide consumers. And it believes that lack of transparency puts consumers at a disadvantage and raises the risk of deceptive acts and practices, he added.

The former regulator offered several scenarios as to how the bureau might proceed. One of them involved the data the bureau collected from the tens of millions of transactions it reviewed during its investigation of dealer participation. If the bureau comes up with its own determination on how F&I protections should be priced, it could say that anything above that price is a finance charge. The bureau could then say a finance source provided “reckless substantial assistance” for financing a product with an artificially inflated price.

“So there’s the question,” he said. “Will the bureau try to make finance companies a cop for dealers’ pricing of ancillary products?”

The former regulator offered several suggestions on how the industry can protect itself. Menu selling, consistent product pricing and adherence to the 300% rule (offer 100% of your products to 100% of your customers 100% of the time) were three of his recommendations. He also urged F&I managers to make sure customers understand what they’re buying and that the product does provide value.

“Consider the suitability of the product,” he warned. “Consider it as part of why you want to do right by your customer.”

Executives acknowledged that product pricing isn’t perfect, but they noted that underwriters are the ones who take the hit when products are mispriced. They also argued that consumers play a role in how products are priced, as dealers risk a chargeback or losing out on a sale if their markups are too high.

Products are also more regulated than ever before, executives added, and finance sources provide pricing discipline through caps on loan amounts and product markups. That’s why Wanderon remained unconvinced that a move to a fixed price would satisfy the concerns of regulators.

“If you look at the fines that have been levied against a lot of the organizations and companies, it’s been about what the product really provides and does it benefit the consumers,” he said. “So we need to be very careful how we explain the benefit to the customer. It’s not going to be the same for everyone, and I don’t know how we can go to fixed pricing for our products.

“We know our product take care of customers, because we pay a lot of claims in this business,” he added. “But I don’t think we do a good enough job of telling [regulators] how we really do take care of the customer.”

Industry Summit’s executive panel discussion, moderated by F&I and Showroom’s Gregory Arroyo, featured executives from four F&I product providers and one technology firm. They include Protective’s Tim Blochowiak (left), GSFSGroup’s Alan Bond (center), The Warranty Group’s Joe Amendola, NAC’s Tony Wanderon and OptionSoft’s Ken Tomaro (not shown).
Industry Summit’s executive panel discussion, moderated by F&I and Showroom’s Gregory Arroyo, featured executives from four F&I product providers and one technology firm. They include Protective’s Tim Blochowiak (left), GSFSGroup’s Alan Bond (center), The Warranty Group’s Joe Amendola, NAC’s Tony Wanderon and OptionSoft’s Ken Tomaro (not shown).

The Warranty Group’s Amendola added: “At the end of the day, sometimes we don’t give consumers enough credit for making their own decision in terms of affordability or the product they would like. … When I look at the claims that we as a company pay out in terms of service contracts, GAP, maintenance and so on, I think those products bring tremendous value to customers. And it’s up to the customer to decide if they want to go ahead and purchase that product.”

F&I and the Internet
The panel also took on today’s Internet shopper, offering their reactions to studies like the one DMEautomotive issued this past June. The Daytona Beach, Fla.-based firm surveyed 2,000 car buyers and found that one in six of them skipped the test drive, while nearly half visited one or no dealership prior to making the purchase. Asked if that meant consumers are ready to complete vehicle transactions online, OptionSoft’s Tomaro responded with findings from a study his firm conducted.

“… When asked if they wanted to complete the entire purchase online, a very small number of those folks wanted to do that. It was 17% of a segment that represented 23% of the overall,” he said. “It was very eye-opening for us, because everybody is saying the whole purchase is going to be done online.

“But when you drill down and ask the people what they want, they really want to be able to get their information online, research so they’re prepared when they go to the dealership,” he added. “But almost every one of them wanted to test drive the vehicle before they purchased.”

The other issue is trust, with GSFSGroup’s Bond noting that attacks on computer servers at major corporations like JPMorgan Chase, Home Depot and Target provide constant reminders to consumers about the dangers of putting their personal information online. Amendola offered one other reason consumers aren’t ready to complete transactions online.

“Maybe I’m looking at it simplistically, but let me think this through. If I make $50,000 a year and I’m going to buy a vehicle for $32,000, that’s a significant part of my annual income,” he noted. “For that reason, I don’t think the customer is ready to complete the transaction entirely online.”

Wanderon had a different take. While he agreed customers may not be ready, he said dealers need to secure their place in this ecommerce environment before they are. “Dealers still need to break down barriers with consumers to make them feel as comfortable with them as the retail installment seller as they do with the lender,” he said. “If we do that, ultimately we can do transactions online, we can generate revenue with those transactions and we can be the point through our websites or our retail locations.”

F&I managers are already seeing their performance numbers taking hits from consumers entering showrooms preapproved for vehicle financing. The main culprit is the credit union segment, which increased its share of the total auto finance market by 9.1% in the third quarter — the largest increase among all finance segments. And according to Tomaro, that’s not all they’re after.

“Credit unions are waking up to the idea that not only can they fund these loans for buyers before they get to the dealership, they also have the opportunity to sell service contracts, GAP policies and some of the other ancillary products,” he said, noting that his firm has been approached by credit unions regarding F&I menu systems and other sales tools. “They’re in the space, and they want their slice of the pie.”

GSFSGroup’s Bond said the trend pushed his company to launch an initiative to help F&I offices stay in the Internet game. “Dealers have to provide that full shopping experience for the consumer online, because that’s where they’re making their decision to buy the vehicle,” he said. “So we’re trying to make sure dealers understand that and are willing to reach out to those customers, whether it’s emailing a menu to them, whether it’s utilizing webcam technology to interact with the customer.”

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