In 2003, Driver’s Village, a family-owned and -operated dealer group in Cicero, N.Y., switched from a traditional finance process to a combined sales-and-F&I approach. The group’s owners made the change in hopes of streamlining operations, meeting customer expectations and improving CSI scores. They also unwittingly chose a side in a debate that has long divided showrooms and F&I offices.
The management team at Driver’s Village, which operates 14 franchises and employs 450 people, made their choice years before the Great Recession, the Internet and Gen Y made speed, transparency and customer service the new pillars of the car-buying experience. Lou Bregou, a 30-year industry veteran and the group’s director of operations, says the move was made in response to changing consumer preferences, adding that it wasn’t intended to be a statement against the tried-and-true F&I process.
“We wanted to do more for the customer,” says Bregou, who also serves as acting finance director for Driver’s Village. “We looked at the speed and the quality of the transaction.”
The combined sales and finance process, also referred to as a “hybrid,” “single-touch” or “single-point” process, has taken on different forms throughout the years. Typically, the approach consists of a three-step procedure: A single salesperson is responsible for selling the vehicle and F&I products. A finance director handles the funding, and an administrative staffer handles the contract and other necessary paperwork. And to ensure privacy and full compliance, paperwork and the F&I product presentation are completed in a private office called the “settlement office.”
“After a test drive, if a customer wants to look at figures, he or she goes to the settlement office,” Bregou says. “If we make a car deal, the delivery coordinator comes to them with the paperwork.”
The knock on combining the sales and F&I process is that the approach doesn’t lend itself to F&I product sales. Bregou has been with Driver’s Village since 1983, when it was a single-rooftop store. He says he was well aware of that criticism, but he admits he was eager to try it then and remains committed to it today.
“We were never $1,000 per car people,” he notes. “We’re not F&I pros. It never fit our culture well. We’re a smaller area.”
Bregou says Driver’s Village was simply looking for an edge in its market when management decided to overhaul its sales and F&I process. And that’s exactly what has happened in the 10 years since it started down the hybrid path. But Bregou admits the road to providing customers with a better sales experience did have its obstacles.
It all started when the group purchased a 90-acre mall complex in Cicero in 2003. During the next three years, the complex was renovated and dealerships were relocated and consolidated into a 500,000-square-foot retail space, a property that also houses a restaurant, a 600-person conference center, an accessory store, three rental car agencies, a driving school and several other retail tenants.
Bregou says he and the executive team began discussing the hybrid approach during the relocation period, but finding support for such a process wasn’t easy, particularly among F&I product providers. “I was fighting with my suppliers because they thought it wouldn’t work and said it didn’t make sense,” he says. “They have control of the F&I guys. They are only interested in one piece of the transaction.”
A company eventually agreed to help but failed to install the new process. Dan Fiorini served as one of the dealer group’s F&I suppliers. He’s a veteran trainer and sales consultant for Centurion Automotive Products, and he recalls watching the other company’s failed attempt from the sidelines. “It was from another state and didn’t have a handle on the market,” he points out. [PAGEBREAK]
Fiorini knew exactly what mistakes to avoid when Bregou asked him to take over and train the sales team. He also had relationships with the group’s salespeople and knew the market; his company is based in nearby Syracuse, N.Y. What he didn’t have was experience implementing a hybrid sales/finance process.
“Ninety-five percent of the dealers I work with have traditional F&I managers, but we support whatever system they use,” he says.
The plan Bregou and Fiorini drew up was simple: Each franchise would transition to the hybrid process as they moved into the new complex. The sales part of the process would remain unchanged, but the plan did call for the finance portion to be split into three parts. As Bregou notes, the configuration ensures each deal is complete and compliant, while allowing the process to flow seamlessly.
“An F&I person has to have three skill sets: know banks, be a good salesman and do paperwork. My problem was we could never find people who were good at all three things, so we broke the job into three different jobs,” he explains. “Now we have one person doing finance, a second person selling products and a third person getting paperwork signed. Not only is this setup more logical given that we’re a heavy lease store, it’s a compliance dream.”
Few compliance experts share Bregou’s opinion, especially given the multitude of regulatory requirements that affect F&I. But compliance expert Bob Harkins agrees that having multiple people involved in a deal creates a natural series of checks and balances. “You have a hybrid salesperson who’s not responsible for the finance. That’s a smart way to go,” he says. “The office person is responsible for finance and legal. That takes the pressure off of the hybrid.”
Prepared for the Worst
Driver’s Village spent two years transitioning 15 of its 21 franchises to the hybrid process. Bregou manages all 15 hybrid stores, which are owned by Roger Burdick. Burdick’s brother Jon, nephews Dan and Kevin and niece Kelly own the other franchises, which follow the traditional F&I model.
To help the Driver’s Village sales team transition to the hybrid process, Fiorini put them through a one-week training program. He opened with a group meeting to introduce the hybrid process, as well as to review and explain the F&I products. He then met with each salesperson to show them how to conduct a menu presentation, as well as answer questions about the finance process. Fiorini continues to coach Driver’s Village’s salespeople by phone, e-mail and in-person visits.
The dust began to settle on the dealer group’s process makeover in 2007 and 2008, about the time the Great Recession took hold in the dealership’s market. Car sales took a nosedive and 11 dealerships in the Syracuse area were lost, Bregou recalls. “The big, high-producing F&I stores that specialized in credit-challenged customers got hit the hardest when credit tightened,” he says. “And many of their F&I managers lost their jobs, while our guys gained some confidence.
In the last five years, the group’s hybrid approach has driven a $100 increase in average profit per retail unit (PRU), which today stands just south of $600. Combined front and back gross has risen by $100 on 700 new and used units retailed per month. As for acceptance rates, vehicle service contracts are penetrating at a nearly 20 percent rate, while paint, rust and fabric protection are penetrating at a 22 percent clip. Maintenance programs have an 11 percent acceptance rate.
Those performance numbers aren’t breaking records and Bregou and Fiorini both realize that the process they created may not work at all dealerships. “For us, it was an improvement,” Bregou says. “I can’t compare to the hot F&I guys out there. We’re not the most powerful F&I dealership.”
Fiorini adds: “[Driver’s Village has been] finding that it works, but that’s not to say that it works for everybody. I deal with a lot of very good finance managers. There’s no need for it in those stores.”[PAGEBREAK]
One Price, One Touch
First Texas Honda of Austin is another dealership that has adopted the hybrid approach. Managers there began toying with the idea three years ago after the store switched to a one-price sales model. The dealership already stands out from the rest with its 150,000-square-foot facility, but, like Driver’s Village, its owners were looking for an edge that would appeal to customers.
Andrea Baker is a 21-year industry veteran who serves as general sales manager for First Texas. She believes the hybrid process was the next step in the evolution of her 30-year-old dealership, which was the first Honda store erected in Texas. Fueling that belief is the Internet and Generation Y.
“They are fully armed, so why sit and play the back-and-forth game?” she explains. “We are focused on Gen Y and how they want to do business, and they don’t like to negotiate.”
Baker was introduced to the one-price model and the hybrid process by The Rikess Group, a Los Angeles-based retail automotive consulting and training organization that helped First Texas implement the no-haggle sales approach. The firm then recommended the hybrid sales-and-finance process, but, like Driver’s Village, finding someone to help design and train salespeople on the process wasn’t easy.
The hybrid process First Texas landed on was also very similar to the one Driver’s Village installed in that it involved a three-part procedure: A salesperson is responsible for selling the vehicle and F&I products, a finance director is responsible for funding and a document processor handles the printing and signing of the contract and other related documents.
Baker’s search for someone who could train her staff on the process led her to the Automotive Training Academy. That’s where she met Tony Dupaquier, director of F&I training. “Not all F&I trainers have the vision to see what we’re doing and where we want to go,” she says. “Tony was forward thinking and understood where we wanted to go. And it takes that training presence to keep this amount of people trained and on track.”
As a veteran trainer with American Financial & Automotive Services (AFAS) Inc., a dealership development and training organization based in The Woodlands, Texas, Dupaquier admits he leans more toward the traditional F&I process. But he says he appreciated what First Texas was attempting to do. [PAGEBREAK]
“Everybody said [the dealership was] crazy — the factory and finance companies — but they wanted to do something different to separate themselves in the marketplace,” he recalls. “They wanted the customer to have a better experience. It had nothing to do with profitability. It had everything to do with doing something right.”
Not all salespeople at First Texas are trained on the hybrid process. Currently, the dealership employs 36 product specialists that operate as traditional salespeople. There are also 15 hybrid salespeople, also known as elite product specialists (EPS). All EPSs receive 20 hours of in-store training. They also attend five-day F&I school at the ATA’s F&I University. Dupaquier also spends one week per month at the dealership training and supporting staff. He’ll use that time to review transactions recorded by the dealership’s video system, as well as offer coaching on the basics of overcoming objections, presenting products and making proper disclosures.
Baker says it took one year for the dealership to stabilize under the one-price model and the hybrid process. She says the main reason EPSs are effective at selling both the car and F&I products is because they are able to fully understand their customers’ driving habits and plans. “They know the total ownership experience,” she says.
The dealership averages more than 400 new and used vehicles per month, and Baker hopes to increase that average this year. As for F&I, her team’s PRU average sits just above $900. “Our F&I numbers have never been better,” Baker says, adding that the dealership was a Top 100 Honda store in the nation last year and No. 1 in the Austin area in terms of sales volume. “We are $200 higher [in PRU] than when we were a traditional F&I dealership.”
Vehicle service contracts are penetrating at a rate of 49 percent. GAP penetrates at a 40 percent clip, while acceptance rates for credit life and disability clock in at 20 percent. The store’s road hazard and paint-and-fabric protection, which is sold by the dealership’s accessories department, claim penetration rates of 20 and 40 percent, respectively. Baker says only a portion of the gross income achieved from these sales is directed to the finance department.
Baker and Bregou are well aware that their combined sales and F&I processes will ruffle some feathers, particularly among longtime F&I vets. But they say they didn’t set out to make a statement about the effectiveness of the traditional F&I office. They simply wanted to match their processes to the way today’s customer wants to buy.
“The car business in general is still catering to a dying generation,” Baker says. “We are doing business in a way that caters toward the future.”
Bregou reminds detractors that the hybrid process Driver’s Village installed didn’t necessarily eliminate the F&I department; it simply eliminated the walk to the F&I office while strengthening the dealership’s compliance procedures. He believes this approach has his dealership prepared for the next generation of car buyers and they want to do business.
“We’re the only industry that hasn’t changed in 20 years. Other retailers have changed their transactions for the better,” Bregou says. “We sit here on the fringes of that change. It’s our turn. The pressure is on.”
Justina Ly is a freelance writer based in Castro Valley, Calif. Contact her at [email protected]