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Feeling the Boom

The oil boom in North Dakota has fueled record sales for Kupper Chevrolet. And thanks to a few minor tweaks, the store’s F&I department has adapted nicely to its cash-flush clientele.

June 2014, F&I and Showroom - Cover Story

by Paul Chavez

The oil boom in North Dakota that recently surpassed the one billion-barrel mark has been a boon for Kupper Chevrolet, which is located seven miles from the state capitol of Bismarck. It’s also revived the product category that put the “I” in F&I for the store’s F&I team, which, like other departments, has had to adapt to a cash-flushed clientele.

The dealership, situated near the banks of the great Missouri River in Mandan, has seen a sea change in its customers since production of high-quality crude oil picked up in 2006 at the sprawling 25,000-square-mile Bakken Oilfield shale formation.

Farmers who had been struggling for years now make huge paydays by leasing mineral rights for hydraulic fracturing below their land, and the boom has created many high-paying jobs for rig workers. Annual salaries range between $70,000 and $120,000, but there are some workers who are earning between $300,000 and $500,000 a year. Last year, North Dakota ranked No. 29 on Phoenix Marketing International’s annual list of millionaire households per capital, rising from No. 43 six years ago.

Kupper Chevrolet Business Manager Mike Kapla, 37, said his dealership has seen business skyrocket as a result of the boom, but the very thing that’s moving the metal also posed a challenge to his team: cash customers.

Making Adjustments
Kapla says cash deals account for 42% of sales. And these aren’t deals with outside liens, he adds, they’re true cash deals. That forced Kapla and the two other F&I managers rounding out the store’s F&I team to rethink their product lineup.

About a year ago, the F&I team added a $599 total loss protection package provided by Woodridge, Ill.-based ECP Inc. It differs from GAP in that it works on cash deals and pays customers a flat amount if they suffer a total loss of their vehicle —  a common occurrence on North Dakota’s roadways, which have been battered by oil-related commercial traffic.

In the case of Kupper Chevrolet, the total loss protection package, which, combined with GAP, penetrates at a 23% clip, pays $2,500 or $5,000, depending on the plan. “A lot of those vehicles in the oil fields do get totaled out, so it’s almost a no-brainer to get total loss protection,” Kapla says.

Also on the menu is paint and fabric protection, which, combined, penetrate at a rate of 5% to 7%, respectively. The store’s tire-and-wheel offering penetrates at an 11% clip, while acceptance rates for service contracts sit at about 38%. Also available is Crystal Fusion, a windshield protection and glare-reduction product. Last year, Kapla and his team sold 132 Crystal Fusion contracts. So far this year, the store has sold 37 contracts.

Standing with Dealer Bob Kupper is Business Manager Mike Kapla, a North Dakota native who joined the dealer group six years ago.
Standing with Dealer Bob Kupper is Business Manager Mike Kapla, a North Dakota native who joined the dealer group six years ago.

“We have people trading in trucks with three different rock cracks and shattered windshields,” Kapla says. “Even if they’re paying cash, it makes sense to get Crystal Fusion with five years of unlimited claims on windshield damage ...

“A lot of these products are not very difficult to sell because of the experience these guys have in the field,” he adds.

The ‘I’ in F&I
The dangerous work involved on the oil fields has also made credit insurance a key product on the menu. Kapla says credit life is currently penetrating at a rate of about 16%. But it’s the store’s accident-and-health coverage that’s experienced the biggest increase. A couple of years ago, the product was penetrating at a rate of 3% to 4%. Today, accident-and-health is penetrating at a rate of 10% to 13%.  

“It used to be life insurance, unless it was a farmer who was financing,” Kapla notes. “But a lot of these guys in the oil field are buying accident, life and health insurance.”

Tom Herman Sr., president of Bismarck-based Dealer Development Systems, an independent agency operating in North Dakota, South Dakota, Minnesota and Montana, says that while the oil boom has revived the area, it has challenged many dealerships in the region to keep up with the business.

“Sales have gone up dramatically. Stores that used to sell 80 to 100 vehicles a month are now double that, and stores that were selling 200 a month are now selling 300 and 400,” says Herman, whose company provides products and training to Kupper Chevrolet.

Herman credits Dealer Bob Kupper for adequately staffing his F&I department with “good quality ­people” to cut down on customer wait times. “He demands that they be very professional and he demands that we bring quality products and to train the right way,” Herman notes.

From Employee to Boss
The dealer group’s owner knows a little something about the oil industry, too, having served as an oil rig hand during the short-lived 1980’s oil boom in Williston, N.D. In 1987, Kupper moved to Mandan and started selling cars at Ivan Gandrud Chevrolet, which is now Kupper Chevrolet.

The oil boom in North Dakota recently surpassed the one billion-barrel mark. Once struggling farmers are now making huge paydays leasing mineral rights for hydraulic fracturing below their land.
The oil boom in North Dakota recently surpassed the one billion-barrel mark. Once struggling farmers are now making huge paydays leasing mineral rights for hydraulic fracturing below their land.
The store changed hands a year after Kupper arrived and became Ressler Chevrolet. Under the new ownership, Kupper was promoted to F&I manager, then moved to used-car manager before becoming the store’s general manager in 1995. Four years later, the store’s former dealer, Dave Ressler, offered to sell Kupper the dealership over a 10-year period. In 2002, he also sold Kupper his Subaru franchise, located a few blocks away.

Kupper officially took over the dealerships in November 2010 and renamed them in April 2011. That summer, Kupper purchased a Honda, Nissan and Hyundai operation in nearby Bismarck; stores that continue to operate under the Bismarck Motor Co. name. In 2013, the dealer added a Volkswagen location.

Kupper now plans to build a new autoplex that will house his Honda, Nissan and Volkswagen franchises in separate buildings, while the Hyundai store will remain in the same location.

Aim to Please
Customer satisfaction is a key focus at all of Kupper’s stores, and the online reviews reflect that. On DealerRater, stores operating under the Bismarck Motor Co. name and the Subaru dealership claim five-star ratings based on 70 and 30 reviews, respectively, while the Chevrolet store claims a 4.8-star rating out of 104 reviews. And despite not being accredited, each operation claims an “A+” rating with the Better Business Bureau.

As for sales, Kupper Chevrolet has held the title of highest retail volume Chevrolet store in North Dakota for four years running. The store has also been ranked nationally for certified pre-owned GM sales for a number of years. It’s quite a feat considering the store operates in a town with a population of less than 19,000 people and in a market with a competing Chevrolet store just seven miles away.

This past February, Kupper Chevrolet posted its best February in terms of sales volume in store history, propelling Kapla’s F&I department to a record $287,000 in F&I profit. The store’s per-copy average was $938. The department’s monthly chargeback rate, Kapla reveals, sits around 4% to 5%.

Kapla cites several reasons for the store’s sales and F&I success, with speed and the operation’s overall sales approach topping the list. In fact, the Chevrolet store expanded the viewing range of its sales tower during a recent remodel so managers could better see when customers enter and leave the store.

This past February, Kupper Chevrolet posted its best sales volume for that month in store history, propelling the operation’s F&I department to a record $287,000 in F&I profit. F&I producers there are averaging 1.2 products per deal.
This past February, Kupper Chevrolet posted its best sales volume for that month in store history, propelling the operation’s F&I department to a record $287,000 in F&I profit. F&I producers there are averaging 1.2 products per deal.

“We do make it a point, whether it’s a customer on the lot or a customer walking in the showroom, that [customers] are met within five minutes. Usually, customers in the showroom are greeted within 30 seconds,” Kapla notes. “So it’s pretty quick.”

Salespeople are instructed to introduce themselves and inform patrons of the store’s best-price policy, which has been in place for about 20 years now. “We’re a non-negotiating store and the prices are always on the window,” Kapla explains. “There’s no negotiating, which makes the process a lot easier. There’s no number fluffing and that helps us out a lot in the finance department.”

Demonstration drives are a requirement at the store, with deals sent to the F&I department with or without a credit application. The goal for sales is to simply get a commitment from the customer. “After they have committed to the car, we have five minutes to get to the customer,” Kapla explains, noting that F&I managers are trained to conduct a quick discovery interview with the customer to set up the menu presentation.

“Even on busy days, it still seems to cut time by doing that 100% of the time,” Kapla says of the interview.

Dealer Development helped refine the store’s F&I process, which has been working well for the past 18 months. “Our back-end has gone up quite a bit,” Kapla says. “When I first started at the dealership six years ago, my individual monthly goal was $30,000 a month. And if you were doing $600 a copy, that was great.”

Today, finance managers are expected to produce $45,000 a month, a goal the F&I team blows past every month. “We’re all averaging anywhere from $800 to $1,200 a run right now,” he says. “The increase in the F&I revenue has just been insane.”

Earlier this year, Kupper Chevrolet’s F&I department began employing a “staggered” column menu where coverage terms step down from the first column to the last. So the first column will show a service contract with a seven-year or 70,000-mile term and no deductible, while the second column will add a $100 deductible on coverage of five years or 50,000 miles.

Salespeople at Kupper Chevrolet are paid a flat rate on a per-unit basis. They can also earn bonuses for sales totals and CSI.
Salespeople at Kupper Chevrolet are paid a flat rate on a per-unit basis. They can also earn bonuses for sales totals and CSI.
“We’ve now gone from 0.85 products per deal to 1.2 products,” Kapla says of the new menu approach. “It’s just that little tiny change. It’s still step-laddering down, but it’s not as drastic as eight products on your first line and one on your last option.”

Kapla says there’s another reason F&I performance is on the upswing: Salespeople aren’t paid on commission. Instead, they are paid a flat rate on a per-unit basis. They can also earn bonuses for sales totals and CSI. “It doesn’t matter if it’s a $70,000 2015 Suburban or a $2,000 Bonneville, they’re getting paid the same,” Kapla says.

“We do business upfront and it’s honest. Everything is in full disclosure at the dealership,” Kapla adds. “And we’ve never had a sale in the six years I’ve been here — that’s unless it’s factory-driven. Some dealerships have their Crazy Day sales and everything else. We don’t do that, and we still have this much business. The reason is we’re open and upfront about everything.”

Native Son
Kapla was born and raised in North Dakota and has seen firsthand the impact the boom has had on his home state. The husband and father of an infant girl and a 20-month-old son said the “best part” is seeing the farmers who “are not financially suffering anymore.”

“The city is getting bigger,” said the 20-year veteran of the automotive industry. “You can feel that there’s a heartbeat there, electricity in our town. It’s the same statewide.”

The boom has had its negatives as well, such as traffic congestion and higher crime rates. “You have to take the good with the bad. You hear a lot of North Dakota residents complain, but it’s not going to go away. There’s no way you can tell the government to shut off the oil or the traffic or the amount of people,” Kapla says. “You have to learn how to adapt and live with it. So far, so good. For our business, it’s been amazing.”

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