After joining the workforce at age 16, selling office equipment and, eventually, real estate by the early 1980s, Larry Dorfman’s career was at a crossroads. He wanted to believe in what he was selling. That’s when Dorfman learned of the budding service-contract industry, and the idea of acting on a customer’s behalf to ensure vehicle repairs were made and claims were paid appealed to him. More importantly, it was a concept he knew he could sell.
Dorfman founded Automobile Protection Corp. (APCO) and its EasyCare brand in September 1984. Thirty years in, the business has served more than seven million vehicle owners and paid out more than $3 billion in claims. But Dorfman admits it has been an interesting ride, with the 2008 financial crisis posing the biggest challenge for his company. But out of the pain came a new approach to the business, one that he says is now providing answers to the vexing questions posed by today’s Internet shopper.
F&I: When you founded APCO/EasyCare, you were a newcomer to the automotive industry, correct?
Dorfman: Yes, I didn’t know anything about it. A young man I had trained to sell office equipment told me about service contracts. That was in the summer of 1984. What got me excited about it is I was that person who hated taking his car in for service. I just didn’t believe them — whether it was a dealer or an independent repair facility — when they told me something was broken.
And when I realized there were going to be people who understood the car and would serve as the middleperson, talking about what needs to be done and approving the claim, it made all the sense in the world to me. And we took a difference approach to the business. See, we believe our customer is the person holding the keys to the car. And if we take care of them flawlessly, then the agent and the dealer are going to be extremely happy with us.
F&I: How quickly were you able to sign your first dealer?
Dorfman: We actually didn’t start out working with dealers. We started with the gray-market luxury cars that were being imported in the mid-’80s and sold outside of an OEM’s dealer network. They were retrofitted for emissions and sold new or with a few thousand miles on them, but they had no warranty. So we started a partnership with the importers and retrofitters and offered five-year, unlimited-mile service contracts. They were probably the easiest thing to sell.
We were literally putting fliers on cars in parking lots, talking to people at the dry cleaners, meeting people who still had factory warranties on their vehicle or owned a gray-market car. Then somebody told me about service contracts being sold at car dealerships. That made a lot of sense to me and sounded a lot easier. It took us six months to sign our first car dealer. We were still an agency at the time, and we had a private-labeled service contract called APCO. And we just sort of grew from there.
F&I: And you went public in 1988, correct?
Dorfman: That’s right. We continued to grow, selling almost 10,000 service contracts a month with subagents around the country. At the time, AIG was backing our products, but its managing general agent quit paying our claims, so we paid them out of our pocket. We went from 10,000 service contracts a month to 1,200 a month, and our stock dropped to 56 cents a share. Our competitors took great advantage of sharing our quarterly losses with any dealer they could.
We eventually won our fight against the insurance company, but we never got paid back all the money we spent paying claims. That experience forced us to build our own administration contractor and our own insurance relationships.
We then changed our name to EasyCare in 1991 and signed an ongoing agreement with American Honda Finance in 1994. We then sold the business to Ford in 1999 and tripled the size of the business over the next eight years. Then we bought it back in 2007, just in time for the crash. That was a brilliant business decision there, but it has all worked out great.
I love this industry. The dealers are, in almost all cases, high-quality people who do so much for their communities. And helping them develop their game plan for success is one of the great pleasures of doing business.
F&I: Weren’t you one of the first to offer a non-OEM CPO program?
Dorfman: That’s correct. Toyota launched the first-ever factory certified program around 1995. The second was EasyCare Certified, which was built for Town and Country Ford — the anchor dealership for Sonic Automotive. They were selling hundreds of new cars a month and they had all these used cars they needed to get rid of.
I was introduced to Scott Smith, who was the general manager of the store at the time, by his brother Marcus. As you know, Scott now serves as president of the organization. His insight into the business was amazing. We worked together to build the EasyCare Certified program and re-inspected and performed a pre-delivery inspection on every used vehicle.
We also decided we had to be able to give the customer a promise that the car was in great shape, so we put a warranty on it and put all kinds of marketing and advertising behind it. The program quickly spread to 400 dealers nationally. Then the factories got into CPO in a big way.
F&I: Do you worry dealers will be overwhelmed by all the off-lease vehicles expected to hit the market in the next two years?
Dorfman: Sure, if they aren’t prepared. Dale Pollak taught us to treat used cars as assets, something you have to turn and view as an investment. I believe dealers who follow his principles are way better prepared than anybody else. But I also believe they better learn how to differentiate themselves, their cars and their dealerships as well.
You know, I had a really interesting conversation with Dale right after he wrote his book, “Velocity.” I said, “You know, Dale, it took you until the last two or three chapters to start talking about adding value.” He gave me two reasons: First, he said dealers needed to stop falling in love with their cars before they could even think about adding value. Second, he said if you add value without training and a process designed to retain profit, all you’ve done is added another expense.
F&I: Tell me about your relationship with Motor Trend.
Dorfman: They came to us and asked us to build their certification program. The brand is so strong that it immediately made sense to us. The thought was simple: If you’re a Chevy store and you have a Toyota, Ford or Honda on your lot, how are you going to compete with their factory certified programs? That’s what the program allows dealers to do, and it allows them to do that with one of the most recognized automotive brands in the world.
We took our Advantage process, which includes a unique way to meet and greet customers, and reconstructed it to include the Motor Trend Certified value proposition. We teach salespeople to hand a “greeting card” to each customer that lists the advantages of buying a Motor Trend Certified vehicle from their dealership.
So rather than jumping into the 20-question game — asking the customer questions without having invested any time or effort in them — the salesperson will quickly explain to buyers all the benefits they receive when they consider a Motor Trend Certified vehicle. The results have been amazing.
F&I: I know you’re big proponent of iPads and the one-price strategy, but are they right for every dealership?
Dorfman: If the consumer is comfortable coming in and having a shopping experience, negotiating back and forth, and they leave feeling great about how they were treated, I don’t think it has to be a one-price store, that it has to be all iPad, or that it has to be a 30-minute decision.
I do think the industry has to continue to become more transparent and put as much relevant information in the customer’s hands as quickly as possible. They’re now going to only 1.4 or less dealerships before they buy, so we’d better learn how to catch them on the first one.
F&I: Last year, Sonic began piloting a one-touch sales and F&I process under its One Sonic-One Experience initiative. Are you involved in that?
Dorfman: We are, and it’s been really interesting for me to watch our team and theirs adjust to the differences in how you train and the experience they want to deliver.[PAGEBREAK]
F&I: Well, I don’t think a lot of F&I pros are rooting for Sonic to be successful with that initiative.
Dorfman: I can’t get into detail about what we’re doing with Sonic. I’ll leave that to Jeff Dyke and Scott. What I will say is they have the technology and the know-how to get it done. And the people who are meeting with customers are really well trained. It’s not going to happen overnight, but it’s going to happen. In fact, it’s happening right now in the pilot stores.
Let me add that I’m a strong supporter of F&I. It is our core business. The question of whether the process should take place in an office or be handled by one person needs to be answered by the individual dealership. Either way, having your people trained properly to present the right benefits to the customer is critical.
I do believe F&I should not take place in a closed room if the customer has never met the manager. The best-performing finance managers go to the customer, meet them and get a transfer of relationship from the salesperson. With that said, I don’t think every dealer on the planet needs to switch the way they do business overnight. But they better continue developing a better experience that matches the one they’re showing online.
F&I: F&I pros are already struggling with Internet shoppers coming in preapproved for financing.
Dorfman: If you’re using lead sources that steal your F&I opportunities, that’s a problem. But if you train your people properly and hold them accountable, there should be no problem with salespeople turning over every customer to F&I. In fact, I tell dealers that if a salesperson or a manager isn’t properly introducing customers to F&I, fire them and get a new one who will. You only have to do that a couple of times before they get the message.
I do have dealers who will deliver cars to their customers’ homes. There are two ways to handle that type of situation, and I recommend dealers do both. First, the marketing materials and an F&I presentation should be delivered with the car, even if the finance manager has to go with them. If an F&I manager can’t go, then the salesperson has to be fully trained on compliance and how to be an advocate of the service contract and other F&I benefits.
The second piece — and this speaks to the problem of F&I not getting a shot at a deal — is to be able to offer the benefits to the customer, either in person, on the service drive, via a direct mail piece, or communicate with the customer via video emails.
F&I: I take it you’re referring to your CoVideo solution. I’m glad you brought that up, because I was intrigued when EasyCare acquired that company in 2010.
Dorfman: It has been an amazing tool. An F&I manager can almost literally have a personal conversation with a customer at the customer’s convenience. It has really increased production for a lot of F&I managers, especially when it comes to renewals and selling F&I benefits on the service drive. One of the best at using this tool is Mike Casisa with Southern Chrysler-Jeep in Chesapeake, Va. He probably sells an additional 18 to 20 service contracts a month using CoVideo.
F&I: Why do so many dealers struggle to sell service contracts in the service lanes?
Dorfman: Even when you train the person who is going to sell on the drive, one out of 100 do it well. That’s why we built a Customer Care Center. What we do is work with dealers on their customer databases, and we will contact customers who are coming up for a renewal on their service contract or didn’t buy one. We can handle the transaction over the phone and pay the dealer a commission, or, if customers prefer, we can set up an appointment for them at the dealership.
This year, we’re going to offer that service to dealers who use other service-contract companies but would like us to communicate with their customers on their behalf.
F&I: What’s your take on the Consumer Financial Protection Bureau?
Dorfman: If it’s not the CFPB, it’ll be somebody else scrutinizing F&I practices. So why not make sure our house is in order now? Dealers who fully disclose what is being offered and make reasonable markups on the products shouldn’t be impacted by the CFPB, in my opinion.
I don’t think most dealers are overcharging consumers for F&I benefits. In fact, dealers aren’t marking up F&I products nearly as much as most life insurance products, which, by the way, the agent can make 50% on or more. The challenge is that our products are attached to the financing of the vehicle, so we have to be even more careful about fully disclosing and making sure that customers understand what they are purchasing.
I do admit that I’m a one-price F&I freak. I believe a customer shouldn’t pay a dollar more for a service contract on a 2014 F-150 than another person buying the same vehicle and coverage. But should an EasyCare service contract cost the same as a contract that offers less coverage and doesn’t pay retail for parts and labor like ours does? No.
In fact, we have a computer system that lets dealers set the markup, and the only way the price can go up or down is to extend or shorten the term or mileage, or raise or lower the deductible. That way the customer gets a standardized price for a similar product, eliminating any chance of a regulator making discrimination claims.
One last thing, I can’t stand when I hear F&I managers say, “I knocked their socks off” or “I killed them in F&I.” I’ve come across it tons of times, but I am hearing that way less these days.