Affordability and a move toward making consumer transactions easier with new technology were among themes industry leaders discussed at the 2023 National Automobile Dealers Association and American Financial Services Association conferences. Automotive News in February asked six experts to share their biggest F&I-focused takeaways from these events. Here are edited excerpts:
Affordability, digital products among top NADA takeaways
Industry experts say key F&I issues at NADA include affordability and digital products.
Affordability was front and center at AFSA and NADA, said Kyle Birch, president of GM Financial North America. The automaker's captive finance operation is based in Fort Worth, Texas.
"My big takeaways were the continued moderation of credit performance and used vehicle prices," Birch said. "While both are still performing better than pre-COVID, you can see a path to more normalization as we move through 2023 and into 2024. The health of the consumer and payment affordability received a lot of attention [at AFSA and NADA] due to the rising rate environment and the average transaction prices of new vehicles being higher than they have ever been. While there is pent-up demand for new vehicles, an uncertain economy and higher interest rates have kept some customers on the sidelines. Dealers are still concerned with inventory challenges, both new and used, and when customers will start to return to showrooms. As a captive, we are working closely with GM and our dealer network to ensure our customers are having smoother, more automated end-to-end buying experiences, especially as we prepare for an EV future and additional product offerings beyond the vehicle."
Customers appreciate digital transactions, said Jheury Moran Vivas, director of sales for Jones Junction Auto Group, in Bel Air, Md.
"One thing I took from NADA was how important — and we already know how important it is — using all the tools for customer retention purposes," Moran Vivas said. "There were a lot of great digital retailing tools that I explored and demoed at NADA to keep your customer. Streamlining the process, going completely digital with any platform available for customer retention. And to expedite the process, or even for compliance purposes, you have to do it now. Whatever digital process you can implement at your store that is paperless, digital, that customers are comfortable with — you have to do it for customer retention, for customer satisfaction. Customers want to deal with new software. They want to feel comfortable because they go to an Apple store because of how cool it is just to go in there and log in, touch screen, everything. That's something this industry is moving toward, and it's something that we all have to implement in our stores. Everybody's trying to go to digital, streamline, trying to use software integrated with current platforms, such as [customer] chat, digital retailing tools. It looks like the industry is going that way. There are more options out there, and the dealers who are not currently doing that should consider trying to streamline the process, to use things such as [Reynolds and Reynolds'] docuPAD digital retailing tools and [customer] chat. You've got to give the customer what they want and what they feel comfortable with — anything digital, anything that's touch screen, anything that's easy that they can do from their phone. That's what I think this business is moving forward, and I was happy to see a lot more companies coming out and offering that."
The customer experience is a key focus for dealers, said Sam D'Arc, COO for Zeigler Auto Group, of Kalamazoo, Mich. Zeigler in 2021 sold 20,698 new retail vehicles and is No. 44 on Automotive News' list of the top 150 dealership groups.
"This NADA convention confirmed the customer experience is a separator in our automotive industry and that technology helps us deliver on that human experience in new and exciting ways," D'Arc said. "Economic headwinds exist, putting pressure on price, interest rate and payments. Customers are best served with multiple options backed by full transparency and multiple options to an affordable payment. This year's NADA convention showcased payment options from partner lenders including both finance and lease. We hope to see many more affordable lease options in the coming year."
F&I products might see a pinch said Brian Brueggeman, partner for the Oak Brook, Ill., accounting firm Crowe LLP.
"From talking to clients at NADA, I think most of our clients are expecting F&I to drop in 2023 versus 2022, but probably not below pre-pandemic levels," Brueggeman said. "Around the 7 to 12 percent decrease is what they're projecting. Obviously with all-cash deals probably more likely in 2023, with some of the increase in finance rates and interest rates some people will go to an all-cash deal, which obviously will also place pressure on F&I profits. That is one of the areas they're potentially seeing some of the reason for the decrease as well. In the past, people had more discretionary income so obviously could buy some more products. As that goes down and people who cannot have an all-cash deal are likely to finance more. With increased interest rates, those same monthly payments that, when the interest rates were lower, they probably had some more money to buy F&I products. As interest rates go up, some of that money they had is going to be used for interest on the [vehicle] finance piece, so their insurance products [purchases] will go down as well."
Dealers remain positive for 2023, said Scott Gunnell, senior vice president and COO of JM&A Group, of Deerfield Beach, Fla. JM&A provides F&I products, training and consulting.
"Although many are forecasting challenges for the automotive industry in the year ahead, after attending NADA and talking with dealers, my impression is they have a positive outlook and are bullish about their potential for growth. Dealers are steadfast in their commitment to making the necessary investments in people and technology to remain competitive. Affordability is going to be top of mind. While inventory is beginning to normalize, there are several macroeconomic factors at play which will impact consumers' ability to purchase a vehicle, including plummeting average savings rates and the looming threat of a potential recession. In response, dealers will need to focus on the basics, like customer service, retention and ongoing training to build sufficient value to offset these factors and drive customer loyalty. The definition of modern retail continues to evolve. The industry has made strides toward a completely digital transaction but we still have room to get better. We know the consumer wants a seamless transaction, and that may simply mean a better digital-to-in-store experience. Many customers still prefer human interaction, and we believe this will continue to be a big part of most buyers' journeys and is important to maintain customer satisfaction and performance."
Eliminating paper from the finance and insurance office will improve customers' satisfaction with the process, said Rita Case, CEO of Rick Case Automotive in Sunrise, Fla. The 14-store group ranks No. 24 on Automotive News' list of the 150 top dealership groups based in the U.S., with retail sales of 28,678 new vehicles in 2021.
"We need to be completely paperless" in F&I, Case told Automotive News at NADA. "That will help F&I be more secure, be faster and make customers happier. The biggest problem is the customer feels it takes too long in finance."
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