Doing business in the age of technology, transparency
Charlie Robinson started his F&I career selling credit life insurance out of a cleaned-out broom closet, not long after he started working at a dealership in Milton, Mass., in 1973.
At the time, he says, credit life -- which covers the remaining balance on a loan if the customer dies -- was the only F&I product the dealership offered.
Dealerships back then weren't too particular about how credit life was sold, as long as it got sold, Robinson says. Typically, the pitch was: "Mr. Customer, in the event of something happening to you, your payment will still be covered. The good news is it's already included in your payment -- no extra charge."
That approach wouldn't fly today, Robinson says. For one thing, he says, credit life is optional. Two, it absolutely adds to the monthly payment.
These days, Robinson, 62, is COO of Resource Automotive, which provides service contracts, certified used-vehicle programs, vehicle protection products and training. The company also offers dealers reinsurance programs, which enable them to contribute to reserves against future claims on F&I products, then share in the money left over after claims and fees are paid. They also share in any investment income.
Special Correspondent Jim Henry spoke with Robinson in Las Vegas recently at the F&I Industry Summit, where he said some of the biggest changes to auto retailing over the years have been the high-tech revolution, the increase in consumer awareness and the added regulation aimed at greater transparency in auto deals.
Q: When you started, how many F&I products were there?
A: In the mid-'60s there were just two things to sell: the [interest] rate and credit insurance.
When did extended service contracts catch on?
Around 1980 or '81 -- I think it was first seen in the late '70s .
There wasn't much need for a menu when there weren't so many products.
You started to see menus in the late '80s, early '90s, when you started to see wheel-and-tire, prepaid maintenance and road hazard [plans]. At first, menus were not meant to be a disclosure tool. They were just a way to get all your products in front of the consumer. As compliance and consumer-ism became more important, it made sense to use the menu to present all your options.
Today the menu is where you document your disclosures. How was that received at first?
Everybody was afraid: "Oh, goodness, performance is going to go way down," or, "Oh, goodness, we can't sell features and benefits." But the best performers, even with consolidation, can do $1,200, $1,300 per car.
Documentation cuts both ways. When customers get big service bills, they may complain they didn't know they could have bought a service contract.
A fully executed menu in every jacket is so important. If I ask you, "How did you do this afternoon," you're probably -- maybe -- going to remember. But if I ask you, are you going to remember very clearly what you did back in February? No. You're not going to remember. The menu gives you a paper trail that everything was fully disclosed and executed.
What do you think about the "300 percent rule"? Do 100 percent of the customers need to see 100 percent of the products 100 percent of the time?
That was a good rule when we had two or three products. Now there might be seven, eight, nine, 10 products. It's OK if the salesperson gets a chance to preload the menu. If somebody has a two-year lease, for that customer GAP or a service contract are not going to be big sellers. So you go to maintenance, protection products. So no, not everyone needs to see everything.
[GAP stands for guaranteed asset protection. If a car is stolen or totaled, GAP covers the difference between what the customer owes and what the car was worth when it was stolen or totaled. It comes with most leases.]
What about reinsurance?
Today most dealers are in participation plans. I remember going in to sign up dealers for reinsurance, and the dealers really didn't know what it was. As time went by, dealers realized they could make millions in underwriting profits. Some of them bought their next dealership with it. Over time, they proved they could do well.
We told dealers: "Get your accountant. Get legal advice. Get a second opinion." Over time, it turned out to be better for dealers than anybody ever expected or advertised.
A lot of dealers say they use reinsurance as a retirement fund.
Dealers rely on reinsurance. A lot of them put if off to the side and forget about it. They put it aside for a rainy day. Dealerships don't have some of the things big corporations have in terms of retirement.
Also, the days of a single individual saving up and buying a store are pretty much gone, unless you hit the lottery.
Transparency is a real hot button. Few people understand that interest rates vary depending on credit risk or how the dealership makes money on the financing. Customers concentrate on the new-car price instead.
It's very different when it comes to F&I. Nobody's going to know that it depends on the customer's qualifications. There's no perceived value to the customer in rate.
The Consumer Financial Protection Bureau worries about rates. Do you think it wants everyone to pay the same?
Most organizations have rate caps and product caps. [The CFPB is] looking for a person who was charged more.
Do customers really want to haggle?
Anything I buy over a certain amount, I'm going to see if I can knock off the price. Why not, if I can get a discount just by asking? Some people are just not going to think they got a good deal unless they got a discount.
Can you ever convince customers they got the best possible deal even if true?
You know what? The guy who drives you crazy, the guy who beats you to death, that's your unhappiest customer.
You can reach Jim Henry at email@example.com.