The incoming chairman for the national dealer group reflected on the last 20 or so months for the industry and the still bumpy road ahead. The F&I provider urged the industry to address changing consumer shopping habits, while the dealer group executive talked about how his organization is trying to do just that.

The three keynote speakers at this year’s F&I Conference and Expo — Stephen Wade, incoming chairman of the National Automotive Dealers Association (NADA), Forrest Heathcott, president of JM&A Group, and Kevin Westfall, senior vice president of operations for AutoNation — took different angles, but ended their addresses on the same note.

“You think it’s time for a change, or at least time to sell in a more progressive fashion?” Heathcott asked. “So, how do we adapt to this new economy and the generational changes ahead of us? Well, it’s quite obvious to me that the next step is ours.”

Joining the Online Frenzy

The change Heathcott was referring to is driven by sites such as eBay, Amazon, Zappos and iTunes. What each company has in common, he said, is they all have learned how to take the money.

“If you’ve ever made an Apple purchase, you know for a fact, these folks know how to take the money, both online and in the stores,” he said, noting how all in-store sales associates can take credit card payments on the spot. “Our customer service and online user experience is really moving forward and will continue to [do so] at breakneck speeds, but we’re still way behind in taking money.”

Heathcott listed out three principles he believes will move the industry forward: First, the industry needs to break down the barrier between itself and the 82 million members making up Generation Y. He also thinks dealers need to make buying — not just shopping — a fun, social, online experience. Lastly, he said, the industry needs to expand its marketing efforts beyond traditional advertising mediums to reach the 77 percent of new-car buyers who have turned to the Internet to do their shopping.

“If we’re planning on fishing where the fish are, we’re going to have to expand the number of fishing poles,” Heathcott said.

A major hurdle is the fact that the industry has regulated itself into a “big dinosaur” in the minds of consumers. “We put ourselves in a legislative quagmire that inhibits us from delivering our products the way the customer desires to buy them,” Heathcott said.

[PAGEBREAK]

Clearing the Path

During his address, Wade ran through the NADA’s 18-month-long campaign to keep the industry afloat, starting with efforts to stabilize the credit markets during the credit crisis and ending with the exemption it secured for dealers from the newly formed Bureau of Consumer Financial Protection. “I’m certainly not going to recount the entire scenario for you … but to say we faced an uphill battle in the Senate doesn’t begin to describe it,” Wade said of NADA’s efforts to gain Senate support for the dealer exemption. “So, when we began this battle over the financial reform bill, we had just spent over a year educating Congress, the Obama administration, the media, the public, and, quite frankly, anyone who would listen on the vital role that dealers play in this country’s economy and our communities.”

Wade said it will be another six to 18 months before the industry realizes the full impact of the new consumer watchdog agency. Until then, he said, the association will continue educating regulators about an industry that, even in the worst year in its history, generated more than $21 billion in sales tax revenues at the state and local levels.

The 2011 NADA chairman also talked about the impact of the Great Recession, which he said cost the industry 15 percent of its dealer base. Those who remained, he noted, were well-capitalized, controlled expenses and operated multiple franchises, which is the case with 42 percent of the association’s membership. However, no franchise was immune to the challenges over the last couple of years, according to Wade.

“For almost 20 years, used-car sales and service and parts have been the profit generators, but in 2008, for the first time, the sales of both new and used vehicles were in decline,” he said, noting the importance of the uptick in used sales last year. “Until vehicle volumes are at about 12 million units again, used-vehicle sales will be an important part of the financial picture for dealerships.”

The good news, he said, is that sales are on track to grow by double digits this year. Wade also was encouraged by actions taken by the Detroit Three to lower their break-even points to allow for profitability at volumes below 11 million units. He listed Ford and Hyundai as two downturn success stories and said the re-introduction of Fiat and the debut of Chinese and Indian vehicles in the North American market will spur competition. Still, it’s the car buyer who holds the keys.

“Perhaps the biggest challenge we see is how customer buying behaviors have changed,” Wade said. “Consumers seem to be much more rational in their decision making.”

[PAGEBREAK]

Issuing a Challenge

After providing a brief review of the last few years, Westfall listed five remaining concerns for AutoNation, including a slow recovering credit market, record-low consumer confidence, high unemployment, a still-flailing housing market and the prospect of rising fuel prices. He also listed items that have the dealer group excited about the future.

“You look at all these charts and you’re sitting there saying, ‘Hell, maybe I ought to slit my wrists,’ but actually, we are positive about it,” he said. “One, we believe we turned the corner and have gone from a push to a pull inventory [strategy]. The domestic health has improved significantly. The credit markets continue to improve. The other is the scrappage rate. There are 13 million cars crushed every single year, so the sale rate has to change.”

So, what did the company do to survive the last 18 months? Westfall said it reduced its operating expenses by $400 million, reduced new- and used-vehicle inventory by 50 percent and reduced debt by $1.5 billion in two years. But survival wasn’t all about cutting. In fact, Westfall said the company invested record amounts in training and technology.

“Our goal wasn’t just to be an average or good dealer, we want to lead the industry, and we spend millions and millions of dollars trying to improve our process,” he said.

One of AutoNation’s targets is to develop an interactive selling system that allows consumers to use their computers or Web-enabled mobile devices to complete vehicle transactions online. The company is testing the waters via its AutoNation Direct e-commerce site, which, according to Westfall, moved more than 600 units in August.

Westfall also touted its interactive F&I selling system being employed at 50 percent of its dealerships. Created by CoinData, the system, called docuPAD, places a touchscreen display into a F&I manager’s desk to allow the business manager to engage the customer throughout the F&I presentation. Westfall said the system, which can run payment recalculations and incorporates product information and state and federal law disclosures, has so far reduced the customer’s average time in the F&I office by 30 minutes.

“We have it in all of our Florida and Texas stores and customers absolutely love it,” he said. “[Customers] go from sitting back to getting involved.” 

Like Wade, Westfall also reflected on the 19 and growing regulations governing the F&I office. Compliance, he said, isn’t something the group takes lightly. “There are a lot of regulations that can come down the path, and we’re concerned about that,” he said. “So what have we done? First, we’re all about full disclosure to the customer. The more the customer knows, the better the relationship will be and the more money you can make.”

Westfall listed several compliance safeguards AutoNation employs, including a sales menu that includes the customer’s personal information, a summary of the transaction and trade-in, and financing options. From there, customers are directed to the finance office, where they are asked to sign a pledge that informs them about what the F&I office has to offer. It also discloses how much the dealership makes off of finance rates and informs customers that the sale is not contingent on them buying products or choosing dealer financing.

The dealer group also employs standardized pricing for its F&I products, conducts monthly and quarterly F&I audits, and offers a whistleblower hotline employees can use to report malfeasance. Product providers also are put through an extensive vetting process before a product ever makes the F&I menu.

The reasoning behind these safeguards is a belief that finance reserve could one day go away. In fact, Westfall said much of the $1,100 the dealership’s F&I department averages per deal comes directly from product sales. “What’s important is if we’re going to extract $1,100 out of a customer, we want to do it properly,” he said. “We want to do it not through finance reserve. … We want it to come from products, and that’s what we’re proud of.”

Westfall concluded his address by saying the F&I world is changing. He believes sales will come back, albeit slowly. He also called on attendees to get ahead of compliance, saying the industry can rid itself of future regulations if dealers prove they are on the side of consumers. He also asked dealers to be progressive, and to seek out efficiencies and top talent when possible. He ended his remarks with a challenge to dealers in the audience.

“We as an industry need to change, because the world around us is changing,” he said. “It will happen very slowly, but hopefully you can watch AutoNation leapfrog the industry and become a leader in providing a full technology solution.”

About the author
Gregory Arroyo

Gregory Arroyo

Editorial Director

Gregory Arroyo is the former editorial director of Bobit Business Media's Dealer Group.

View Bio
0 Comments