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Technology Takes Center Stage

April 2010, F&I and Showroom - Feature

by Gregory Arroyo - Also by this author

Dealers Kevin Westfall, Forrest McConnell, Stephen Wade and Ed Tonkin reflected on a host of issues during a panel discussion at the 2010 Vehicle Finance Conference, from auto lending and F&I performance to the Internet and finance reform.

It was an industry emerging from the rubble of 2009. Still battered and bruised, lenders and dealers were clearly focused on the road ahead for the auto retail industry, with technology taking center stage over the six-day, three-show period in February.

Set in Orlando, Fla., the week began on Feb. 10 with the American Financial Services Association (AFSA)’s 2010 Vehicle Finance Conference and ended Feb. 16 with the conclusion of the National Automotive Dealers Association (NADA)’s annual convention.

Dealer Stephen Wade, speaking before a room full of finance sources at the Vehicle Finance Conference, reminded the audience of a still-tight lending market when he described a phone call he made to five of his F&I managers at his St. George, Utah-based automotive group.

“It was eye-opening,” said Wade, the 2010 NADA vice chairman. “People that should be purchased, can’t.”

Touting the company’s recent success in the asset-backed securities market, Ford Motor Credit President John Noone said the increasing appetite for auto securitizations among investors is a clear sign that auto finance is rebounding. “The markets are coming back,” he said.

Steve Lambert, president of Nissan Motor Acceptance Corp., said the market bottomed out around February or March 2009. He said lenders and dealers have been in transition ever since. “It’s been quite positive in the last nine months,” he noted.

Tom Wolfe, the executive heading up the combined dealer financial services groups of Wells Fargo and Wachovia, noted that the company’s 2009 book of business is the best performing in almost 30 years, another sign that lenders have a better feel for the market.

Then there was GMAC Financial Services, which caused a stir when it announced days before the NADA conference that it would make itself available to all Chrysler and General Motors dealers through DealerTrack’s credit platform this summer. Tim Russi, the company’s executive vice president, said GMAC is now ready to compete for the top spot once again, and wants to help dealers in the used-car arena.

“We feel like we’re back in stride in the business,” he said. “It’s a little different stride, but we’re back.”

Binding F&I and Service

There were signs of other emerging trends, some of which were not so positive for dealers. The two developments that had dealers talking were: lenders charging fees for submitting credit applications and the prospect of auto finance sources eliminating dealer participation.

“This is dangerous,” 2010 NADA Chairman Ed Tonkin told a roomful of lending executives at the AFSA conference. “I know all of us are looking for ways to be efficient, but I’d like to warn everyone here that financing has been a profit center for dealerships, so be careful what you do in this arena.”

AutoNation’s Kevin Westfall, a senior sales and F&I executive for the dealer group, offered his own recommendation. “We provide a convenience to consumers and the banks,” he said. “I think we deserve to charge at least 1 percent reserve.”

The potential loss of dealer participation is one of the reasons why dealers will be turning to F&I products to fill the profit gap. And with retail sales expected to see modest gains this year, dealers are expected to focus on F&I products that drive their service business. “We moved away from rate sellers to product sellers — service contracts and prepaid maintenance,” said Michael Maroone, president of AutoNation. “Our products are designed to get people back [into the dealership].”

Dealer Wade said these trends are driven by the critical role the service department played in 2009. It’s one reason companies like ADP Dealer Services, DealerTrack and Reynolds and Reynolds showcased more sales-oriented service tools, such as service menus and pricing systems.

“The dynamics of the service department have changed from repair and warranty to a maintenance shop,” Wade said.

JM&A Group President Forrest Heathcott also noticed the trend taking hold. He said sales of prepaid maintenance, service contracts and GAP dropped the least last year. He also hinted that the company may take advantage of a dealer base that’s ready to grow again and expand the company’s footprint in Western states this year.

“We can do it through organic growth or through our current dealer network, as many are looking to buy more stores,” he said, adding that the company wouldn’t be opposed to expanding through acquisition.

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