Keeping an eye on F&I
Videotaping F&I transactions helps training, scares away ID thieves and reduces lawsuits, some experts say. So why don't more dealers do it?
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When Mirt Ramey went to Target in 1999 and spent $3,400 on video cameras and recorders for Red McCombs Automotive in San Antonio, she didn't realize what powerful tools they would become.
Thirteen years later, McCombs' seven dealerships have graduated to more sophisticated digital recorders, but executives still swear by the basic practice. Recording the F&I process has helped the group's compliance measures, reduced fraud and improved customer satisfaction.
"It has just really saved us from a lot of litigation," says Ramey, finance and insurance operations manager at Red McCombs Automotive. "It has given us an opportunity to review the video with the customer and really get down to what the customer is complaining about."
Though compliance is the reason McCombs records, Ramey says, the practice has had the benefit of improving results. Knowing a supervisor may be watching has made F&I managers sticklers for following procedure, such as presenting all products to all customers, she says.
Despite the McCombs experience, video recording is far from the industry norm. Though hard numbers aren't available, some providers of the video systems estimate 10 percent of dealerships or fewer are recording F&I transactions today.
And whether a dealership should record customer transactions in the F&I office remains a matter of debate. On one hand, the practice means everything a finance manager says to a customer will be recorded. And on the other hand, everything a finance manager says to a customer will be recorded. It's an old joke, but it points to a serious concern that many dealers have with video recording: What if a "smoking gun" is preserved on tape?
"Videotaping is a great tool for both training and compliance," says Michael Stellmach, vice president of sales operations for JM&A, which provides F&I products to dealerships. "But dealers need to consider the pros and cons before deciding whether videotaping is right for their store."
The specter of the smoking gun is the reason dealer lawyer Tom Hudson has gone back and forth on the wisdom of recording. "This is all well and good if you're doing it correctly," says Hudson, a partner in Hudson Cook law firm in Hanover, Md. "But if you're doing it incorrectly, all you're doing is creating evidence for a plaintiff."
Such evidence could be used against a dealership in a customer lawsuit. It could even be the launching point for a class-action case. But Hudson isn't aware of any cases in which F&I video was used against a dealership.
And after hearing from the in-house counsel of a dealership group that videotapes, Hudson is now in the pro-recording camp. He was won over by the real-world accounts of how the practice helped training, drove off rogue employees, scared away customers engaged in fraud and reduced litigation.
Compliance consultant Gil Van Over came to the same conclusion after initially opposing recording. He knows of cases in which suspected perpetrators of identity theft made excuses to leave after finding out the dealership would record the transaction.
But dealerships have to handle the recording the right way, both Hudson and Van Over say. That's especially important, Van Over says, given the possibility of enhanced scrutiny of dealerships by the new Consumer Financial Protection Bureau.
According to Hudson, handling it right means:
-- Record all sessions unless the dealership can document a customer's refusal.
-- Train all F&I employees how to record properly.
-- Have the dealership's lawyer script the presentations and review recordings.
-- Comply with all record-keeping requirements.
Those record-keeping requirements can vary by state, Hudson says. The federal Equal Credit Opportunity Act has a 25-month requirement, he says. Dealerships also should find out whether they need written releases from their employees or customers.
Itchy armpits
In addition to improving compliance efforts, dealers and consultants call recording systems a training bonanza.
It's the best way to convince an F&I manager to get rid of an annoying habit, some say, sharing experiences of managers who wagged their fingers at customers or scratched itchy armpits during a presentation.
Ron Reahard, president of Reahard & Associates Inc., counsels F&I managers to watch for phrases such as "to be honest with you" or bargaining gambits such as: "If I could [throw in X], would you ... ?"
"As soon as you say that, you're a car salesman," says Reahard, whose company sells a video recording system used by close to 200 dealerships. "You're not even a good car salesman. You're a car salesman from 40 years ago in a plaid leisure suit."
Williams Auto Group, a five-store group based in Sayre, Pa., has been recording F&I transactions for five months. Customers seem more at ease, and dealership managers have been able to improve sales performance by sharing best practices seen on the recordings, says Kevin Horn, general manager of the group.
For example, the group's Honda store does a great job selling extended-service contracts, getting a 56 percent penetration rate. So Horn shared the videos from the Honda store with the F&I manager at the company's Nissan store. The Nissan manager has since brought his service contract penetration from 22 percent up to the low 40s, Horn says.
Overall, F&I income is up by more than $300 per vehicle since the recording began, he says.
"I'm pleasantly surprised about the consumer being so receptive," Horn says. "I was extremely nervous about it, and it's had just the opposite effect on them."
Brad Eckhoff, business manager at Mills Ford-Lincoln-Jeep in Willmar, Minn., says the videos have helped him hone his presentation skills since he joined the dealership three years ago. The dealership already was video recording F&I sessions.
"It has doubled my personal income since coming and going through the process and getting the steps and feedback and refining it," Eckhoff says.
Pro:
• Spot-checks keep F&I personnel compliant with prescribed processes.
• Videos can counter accusations of improper conduct and reduce litigation costs.
• Use of video in training helps F&I personnel improve their presentation.
• Many stores that record see F&I income per vehicle increase.
• Recording can drive away customers perpetrating fraud or identity theft.
Con:
• Videos can document a dealership's improper behavior and be used against the store in court.
• Such documentation could expose a dealership to a class-action lawsuit or added regulatory scrutiny.
• Some F&I personnel will resist being recorded.
• There is often uncertainty over how long to keep the videos.
Overcoming resistance
Not all F&I managers are on board with recording. Matt Nowicki, vice president of retail software for IAS, an aftermarket product vendor that sells the SmartEye recording system, says he once watched an indignant F&I manager pack up her boxes and quit as the cameras were being installed.
But others view it as a protection that could nip a legal spat in the bud. At Ken Garff Automotive Group, the recordings do just that dozens of times a year, CEO John Garff says.
With group sales of 70,000 vehicles annually at its 45 stores, it's inevitable that some customers will complain, says Garff, whose stores have been recording transactions for several years. But the videos can refute customers' claims that they weren't offered a particular product such as a service contract.
During the past five years, the group's F&I income is up $200 to $300 per vehicle retailed, in part because of video recording, Garff says. Such gains have helped erase the pushback the group initially got from its F&I staff when recording started. As many as a third were adamantly opposed in the beginning, he says.
"Nobody likes to be put under a microscope," Garff says. "But the reality is our employees understood it was to their benefit, to help them increase their compensation and to give them protection in case of challenges. You help people understand why we do this, and the resistance goes away."
To see improvements, dealers and trainers alike say the videos must be reviewed on a regular basis.
With disciplined review, dealerships typically see an increase in F&I income per vehicle retailed of about $200, IAS' Nowicki says. About 500 stores use SmartEye.
Video recording also helps stores improve customer satisfaction and decrease transaction time, says Steve Veldkamp, a trainer with Great Lakes Cos.
"If you do describe the product properly, do it all transparently and let them know how much it's going to cost and describe the product payment, you're not going to have problems down the road," Veldkamp says.
For Tim Cliver, COO of Red McCombs Automotive, eliminating such problems and keeping the dealership group out of the courthouse is Job 1.
Says Cliver: "There's a lot that can go on behind closed doors, and I just sleep a lot better knowing we're watching them."
• Have a written videotaping policy and follow it.
• Have the dealership's lawyer script presentations and spot-check some videos for legal compliance.
• Review the videos on a regular basis.
• Record all transactions unless a customer refuses. Then make sure to document that refusal.
• Document equipment failures that result in a transaction going unrecorded.
• Have a written policy for how long to keep the videos. Consult with your lawyer to make sure that the period of time complies with record-keeping laws.
You can reach Amy Wilson at awilson@crain.com.
