What began as a discussion on the merits of the push to digitize F&I quickly morphed into a back-and-forth exchange on what’s really driving the calls for change. When it was over, the more than 60 F&I professionals, trainers, agents, and F&I industry execs in the room seemed willing to entertain a move online — at least partially.
This was the scene inside Tampa, Fla.’s Sheraton Riverwalk Hotel for Think Tank, the ninth and final session of F&I and Showroom’s F&I Think Tank.
“Any of the products that we offer in F&I, if customers don’t buy them, they disappear,” said panelist Eric Judson, a 14-year F&I pro from Buffalo, N.Y. “So there’s a market for every product we offer. The thing is, how we present those products, [consumers] are looking at us — the bad guys, the F&I managers — as the people who are hiding the ball on them.”
Joining Judson on the panel were F&I and Showroom contributor “Mad” Marv Eleazer and Avid Insurance Services’ Luis Garcia. Audience members were also active, with moderator Bob Harkins of American Guardian Warranty Services guiding the room through the lively discussion.
“There’s a lot of studies out there right now that have consumers saying, ‘If I can learn about these products beforehand, I’d be more willing to buy them,’” said F&I and Showroom’s Gregory Arroyo to steer the conversation to the online F&I push. “Obviously, they’re talking about introducing these products online, while customers are shopping for a vehicle. What does the room think?
Eleazer, the longtime finance director at Langdale Ford in Valdosta, Ga., was the first to speak up in support. “I think it is a wise idea, and I think it will help drive product sales in the future,” he said. “At the very least, it will help familiarize the customer with what’s available.”
Tuno joined his side, noting that the future of F&I production and profitability hinges on the industry’s ability to develop a more defined, more widely adopted road to the F&I sale. “When we ask retailers what their road to the F&I sale is, I’m not sure we get a consistent answer. I’m not sure we get a coherent answer,” he said. “And I would tell you that F&I, to Marv’s point, really has to dovetail itself into the sales process.”
Garcia wasn’t so sure a move to a one-size-fits-all process was the answer, much less possible. “So if I heard you correctly, what you’re saying is we need some kind of process in F&I, right?” he clarified. “Well, I’ve spent the last seven years and 1.2 million miles on an airplane traveling to these stores. And as soon as you show anybody a process, what’s the first thing that people say? ‘Oh my God, I can’t do that at my store. That won’t work here.’
“The problem is nobody likes change,” he added. “People in stores like to do what they’ve always done.”
Gould had a different take. He said it’s the sales process, not F&I, that’s standing in the way of the industry’s evolution. “The process is broken in the front end, period,” Gould said. “How many times do you walk into a dealership and you’ve got two desk managers, and you ask the sales consultants, ‘Do they pencil the deal the same way?’ The answer is ‘No.’
“When we go in to fix stores, it’s not the F&I process that’s broken,” he added. “It’s what happens before that’s broken.”
Rich Moore, director of training for Protective Asset Protection, spoke up from the audience. He brought the conversation back to online F&I by noting that self-styled personal finance experts such as Clark Howard and Suze Orman are telling consumers, “Don’t buy this crap.” His question to the panel was simple.
“What if we took the high road and actually created good videos that explain what a service contract is?” he said. “And by the way, do a budget close, but in terms of, ‘Here’s why it’s good for you.’”
Garcia doubted such videos would drive consumers to buy, much less stop them from seeking out opinions from third parties. His contention was that consumers aren’t necessarily looking for product information when they shop online. “I feel like the real reason they’re looking for those products is to see how much they cost,” he said. “They’re going, ‘I know what GAP is. How much do you sell it for?’ … Well, we want to tell you that when you come down.”
Also in the audience was Walt Dobrowski, a San Francisco-based trainer. He pointed out that the next generation of car buyers could force the industry’s hand. He used his own son, who had recently purchased a new laptop, as an example.
“He waited until he had enough money to buy the service contract because of what he saw on the website. And they do have intelligent content on there,” Dobrowski said. “We have no choice, because that’s what they’re expecting.”
“I can’t buy into that, Walt,” Eleazer responded. “I think the internet is a great opportunity for someone to research, but to buy?”
Dobrowski was unmoved. “Within five years, they’re going to be asking us questions about that stuff.” Nobody wants to give the customer a new opportunity to say “No,” he added, but the internet and social media will force transparency into the process, no matter the dealer’s preference.
“I agree with you,” Eleazer responded. “I don’t think we should be trying to hide what we’re going to be doing in F&I. … Our job is to make it as customer-friendly and customer-centric as we possibly can, if we put that online.”
The Credibility Gap
The room came alive when one audience member suggested that the real problem is pricing. “With the Consumer Financial Protection Bureau and everybody coming down on [how we price products], I think the easiest thing to do is standardize the price,” he said.
Judson, a licensed attorney, pointed out that, historically, it’s not the pricing that causes consumers to question a dealership’s credibility; it’s the lack of disclosure. When they question the price of the car, he explained, they are told it’s a “unique” unit.
“You have no ‘unique’ products in F&I,” he said. “If you’re going to sell a service contract on that particular vehicle, it’s the same service contract. And you’ve got to decide what is full price.”
Gould concurred, noting that putting information about products online — and letting visitors know they can ask for more information at the store — fulfills the dealer’s obligation to let car buyers do more research without taking the F&I manager out of the game.
“A customer asks, ‘What does the service contract involve, Marv?’ And he gets on the phone and he sells it. It’s that simple,” Gould said. “I think you guys are on the right track, but I don’t think pricing and all that stuff is supposed to be right there.”
EFG Companies’ Steve Roennau, who served as a panelist during the event’s compliance panel, lightened the mood by comparing companies pushing the concept of digital F&I to the pioneers who settled the Great Plains. In that analogy, he said, dealers might be better off as “fast followers.”
“You know what a pioneer is, right? The guys on the prairie with the arrows in their backs,” he said. “I’d rather let somebody else try it first, then follow it. It’s not broken right now. It might get there in a couple of years, but I don’t think we’re ready as a whole to be putting everything online.”
Moore, however, said the issue isn’t about being first; it’s about appeasing the new generation of car buyers. “Here’s the thing to keep in mind: According to the [U.S. Census Bureau], millennials just became the largest [living] generation group in our nation,” he said. “And they are tech dependent. They’re going to want to see it [on their mobile phones]. And if you don’t have it, they’re going to look for somebody who does.”
Trust and Transparency
Garcia agreed that millennials are behind today’s digital push. However, he said they aren’t much different than the customers who used to enter dealerships with a newspaper ad in one hand and a TI-85 graphing calculator in the other, ready to pounce if the finance manager’s monthly payment didn’t match theirs. The only difference, Garcia said, is today’s customers are using their smartphones to do the math.
“They’re testing us. And if that millennial calculates $307 on his phone, and I did all that I’m supposed to do, and I hit him with the menu, and he sees that it’s $307, he’s going, ‘OK, well, damn, he’s being honest.’”
The problem is that, historically, “in finance, we try to hide things we don’t want people to know.” Garcia said he was initially trained to withhold interest rate, base payment, and term. If the customer asked for the rate, for example, he was taught to say they would have to wait for the contract to print. “I think that those are the types of things that, if you say that to today’s generation, they’re going, ‘Man, this guy is a liar. Something’s not right here.’”
Tuno agreed, and urged the F&I producers in the room to “be a professional,” never attempt to hide the three key figures, and always be transparent. And given the attention auto finance is getting from regulators, he said there’s more at stake than simply doing right by customers.
“The $307 example you gave, that’s great,” Tuno said. “Because, ultimately, even if they’re not that educated and they’re not that smart, I think you made a good business decision that’s beyond just a transaction.
“Greed is good, but not in a regulated environment,” he added.
Judson said what really needs to change is how dealership financing is viewed. “It’s a product,” he said, reminding the room that dealers compete daily with credit unions, banks, and finance companies. “You can sit there and send the customer out there with two points in rate, and then they’ve got their credit union and you got a fictional profit. Because the minute the customer gets that first payment, all of a sudden they go to their credit union and they pay it off.
“You have to recognize and manage your lender portfolio to remain competitive,” he added. “And I tell my salespeople, ‘You will never beat me on rate, period.’ We have the cheapest money, because we have access to wholesale finance rates.”
That’s when Judy Vann Karstadt, a New York-based F&I and compliance trainer, spoke up. She said that, as much as she had enjoyed the day’s events, she didn’t believe much about vehicle sales or finance had changed over the course of her 35-year career. “I believe people want to drive it. They want to smell it. They want a deal that they need to be sold on,” she said. “What we really need to do is be transparent. What we really need to do is to disclose. And we need to get rid of the fraud that is out there ...”
Vann Karstadt added that she’s a big proponent of MSRP pricing for F&I products. “There is a cost basis that’s provided by the insurance carrier and we can justify that all day long,” she said. “So we don’t have to negotiate F&I products to sell them. But how are we going to change this process to gain our customers’ trust?”
Garcia responded with a question: “Why do people cheat? Why do people cheat in sports, in life, in anything? Why do they do it?”
“They’re afraid to fail or they don’t know any better,” she replied.
Garcia offered another reason people cheat. “It’s easier,” he said. “It’s hard to do the right thing. Look at athletes in our society. They get caught on steroids or whatever the case may be. … It was easier than going to the gym and continuing to do what they had to do.
“So what happens in F&I is the same thing,” he added. “People cheat because it’s easier. And they get away with it, and they get away with it, and then they get away with it. And then they just think it’s normal.”
As for changing consumer perceptions, Gould said the industry simply needs to be willing to transact on the customer’s terms. That means not allowing leads to collect dust until the customer agrees to visit the dealership. It also means better communication between the showroom and F&I. “One thing we want to remember is that 80% [of the time] — probably more, in some parts of the country — the deals start and a lot of times end on the internet,” Gould said. “All we need to do in F&I is embrace that, because whether it’s virtual or on premise, they all end the same way.
“The biggest challenge we have in F&I is we don’t know about that deal until the customer is here, saying, ‘I’m here to pick up my Honda Accord.’”