There was more optimism than caution resonating through the Las Vegas Convention Center last month, when the industry converged for its annual get-together. It was clear dealers and finance sources were ready to ditch the tired storyline of adversity and survival to focus on establishing a better connection to today’s Internet shopper and the coming-of-age generations.
Marketing and merchandising online were top of mind, but the F&I office’s place in the Internet age was a discussion point on the show floor of the National Automobile Dealers Association (NADA)’s annual conference, as well as inside Caesars Palace at the annual lender convention. And opinions varied from booth to booth, dealer to dealer and from lender to lender.
“There is a much greater awareness and acceptance of digital media,” said Pat McPherson, director of strategic accounts for RouteOne, which displayed mobile versions of its deal and lead management tools. “They were always reluctant to adopt and I think they’ve come to a point where they realize they can’t wait anymore, and we’re having some good discussions with our dealers on what the future will look like.”
On the Show Floor
Running on the big screen inside the DealerTrack booth was a demo of the company’s new DealerTrack Mobile, which allows users to manage deals submitted through the company’s credit application network on their iPhone or iPad. “This is just the beginning,” said Raj Sundaram, senior vice president of the company’s Solutions and Services Group. “Our position on these mobile tools is the dealer is going to decide [how it fits into their process].”
Inside the Reynolds and Reynolds booth, employees could be seen running through demonstrations of the company’s updated docuPad, which boasts a bigger screen and now sits on top of an F&I manager’s desk. Company officials believe the F&I selling system is what will connect the F&I process to techie generations.
“Our ultimate goal is to deliver products and services that help transform what happens inside the dealership and also helps change the way customers experience the dealership,” said company spokesperson Thomas Schwartz.
Walking the show floor with his iPad in hand was iTapMenu’s Shawn McCool. He believes his mobile F&I tool will breathe new life into the menu category. “We’re here to promote a better way for F&I,” he said.
During his press conference to launch his company’s new reputation management system, SOCIALDEALER’s Phil Penton talked about how dealerships are using social media to establish a better connection between customers and the F&I office. “F&I departments need to start using social media to educate their customers on how the process works,” he said. “Right now, YouTube videos, where dealers are explaining how F&I works, are huge in social media.”[PAGEBREAK]
Industry Is Back
Allowing the industry’s gaze into the future were several key indicators that point to another rebound year for the industry. For one, the industry arrived in Las Vegas with news that the annual sales rate in January edged above the 14 million-unit mark. Polk’s recent claim that the average age of vehicles on the road today has reached an all-time high at 10.8 years also fueled the positive outlook for this year.
“We’ve gone back to track all automotive downturns since World War II, and there’s more pent-up demand than at any other time,” said Thomas Gilman, president and CEO of TD Auto Finance. “When it gets released, it’ll be good for dealers.”
Scott Anderson, senior economist for Well Fargo Securities, listed the rise in confidence among small business and consumers, the stock market rising to its highest point in several years and jobless claims falling below the 400,000 mark as reasons for his positive outlook.
“Kind of an interesting time to be talking about the economy, with the U.S. picking up a step while the rest of the world is losing a step,” Anderson said. “We are seeing strong auto sales, but there is some reason to remain cautious.”
Auto finance also has made strides, with the charge-off rate sitting at about half of what it was a year ago. Willingness to lend among banks also is on the rise, while demand for loans rose by $20 billion over the holidays — the biggest gain in 10 years.
Paul Taylor, chief economist for the NADA, predicted that industry sales should reach 13.945 million units this year, citing the same indicators Andersen listed during his presentation at the Vehicle Finance Conference. Taylor also was bullish on gas prices, noting the mild winter is creating a supply of unused heating oil that can be converted to bolster the gasoline supply.
“There are two of us, and we’re nearly giddy,” Taylor said during his annual press conference at the convention, referring to the equally positive outlook issued by the NADA Used Car Guide’s Jonathan Banks.
“To get back to 15 million units is not that big of a challenge,” Taylor noted. “To get to 17 million, we need to see subprime pick back up. It has improved, but are we going back to credit conditions of 2007? No, we’re not.”
Banks said it will be another strong year for used pricing, especially with the supply of used and lease-return vehicles down 6 and 17 percent, respectively. In December, prices increased 1.8 percent, and Banks said prices should peak between June and April. “Those will be good months for customers to trade in their used cars.
“The big question is, ‘What do we face this year?’” he added, referring to last year’s tsunami in Japan and flooding in Thailand. “The auto industry is back. Not only back, but strong.”
During his first address as NADA chairman, Bill Underriner listed issues he and the association will be focused on this year. Among them was Generation Y. “It’s no secret the next generation communicates differently,” he said.
The challenge of connecting to these younger generations wasn’t lost on finance sources at the Vehicle Finance Conference. TD’s Gilman shared results of a customer survey his company conducted that highlighted the challenge before the industry. Sixty percent of customers polled said they don’t want anything to do with the dealer, while 80 percent said they don’t want anything to do with the F&I office.
Gilman and other executives from Bank of America and Chase Auto Finance said that’s why their companies are exploring other channels to reach customers. What they’re wrestling with is doing so without disturbing their relationships with dealers.
“We’re trying to partner with [Jaguar] to help get those customers back to dealers, but we have 100 million customers,” said Chase Auto Finance’s Marc Sheinbaum. “And when the customer goes to dealers, it’s like the Lending Tree model where we’re competing for our customers.”
John Hyatt, president of Bank of America’s Dealer Financial Services division, added: “Ninety-five percent of the business comes from guys in the F&I office. It’s tough: You don’t want to take away from dealers, but you have a lot of important clients.”
The Vehicle Finance Conference also featured a competition between two graduate school teams from the University of Arizona and Wake Forest University. Their mission was to present strategies to help finance sources connect with younger buyers.
Both teams pitched programs that incentivized Gen Yers for making payments on time. They also talked about transparency and educating the demographic about managing and applying for credit. Prominent in both teams’ presentations were the iPad and social media sites like Facebook and Twitter, as well as the call for dealerships to shorten the transaction process.[PAGEBREAK]
Streamlining the sales and finance experience is a worthy goal, but, as Earl Hesterberg pointed out, it isn’t something dealers can control. Speaking at the J.D. Power International Automotive Roundtable, Group 1 Automotive’s chief executive said rushing through the F&I process won’t be easy in states like Texas, where each vehicle purchase requires at least 53 signatures to buy a car. That’s why Michael Benoit thinks the industry may need to keep things simple.
The magazine’s legal columnist recalled an experience he had at a dealership several years ago. After working the deal over the phone, the salesperson instructed Benoit to go to the dealership’s fleet lot to take delivery. When he arrived, he was escorted by the salesperson he worked with into an office where the F&I manager was waiting to complete the paperwork and make a full F&I presentation.
“They just made me feel like a VIP, and maybe that’s all that’s needed,” he said. “Have a separate entrance for those customers; maybe roll out the red carpet.”
Ron Reahard, a top trainer and regular contributor to F&I and Showroom magazine, recalled his experience working with a marine financing company several years ago. Because the dealers it worked with didn’t have dedicated F&I offices, the company’s 22 loan consultants would call customers, set a time to talk about their options, and e-mail a password-protected link that would take buyers to their F&I presentations.
“They struggled until they got the menu, and it was still a paper transaction,” Reahard said. “But they did do the credit app and sell product over the phone. They’d e-mail the customer a link they couldn’t open until they got the code to access it. Once they did, they’d click on the link, enter the password and the consultant would run through the menu.
“That’s what dealers need to have,” he added.
Speaking off the record, several F&I product providers said they are looking at combining services like WebEx with other technologies to allow F&I managers to do exactly what Reahard described. Those solutions, they said, won’t be available until the magazine’s Industry Summit in September.
It’s clear the virtual F&I office will continue to be a discussion point for years to come. In the meantime, the industry will continue to chase the 17 million-unit mark, with even F&I companies like JM&A looking to do their part. The company’s president, Forest Heathcott, touted JM&A’s new Auto Sales Squared solution as one example: The tool mines a dealer’s database to identify customers who are in a positive equity position with their vehicle and might be ready to trade it in for a new one. Heathcott also hinted at a major investment that will allow the company to transition to electronic forms and transmission, a step many providers are taking to prepare for the F&I office’s digital future.
“I think the industry is calling for it,” he said. “There’s just so many different laws in different states that require so many different iterations that it’s just a big hill to climb. But I think we’re reaching critical mass and we’re getting closer to climbing it.”