Toyota's new SmartPath F&I tool may be a ‘game changer' for dealers

ST. CHARLES, Ill. — Since Toyota Motor North America in 2019 rolled out the Toyota SmartPath and Lexus Monogram digital retailing system it developed in-house for its dealers before the COVID-19 pandemic, there had been something missing.

That situation is about to change.

On Aug. 22, in the showroom of a family-owned Toyota dealership in the western suburbs of Chicago, Automotive News was allowed to test drive the new finance and insurance component of SmartPath and Monogram — the first time someone besides a Toyota Motor North America employee or dealer had done so. And while there remain a few bugs to iron out before the software is rolled out nationwide, the technology has the potential to transform the way Toyota and Lexus dealers interact with their customers before, during and after they buy a vehicle.

How? By lifting the veil on F&I products, removing confrontation from the purchasing process while making it far more efficient, and letting the consumer drive the whole thing from either their home or a tablet in the dealership.

"The more we can do while they're at home, in the comfort of their own home and on their own time, is a game changer for us," said Michael Alf, dealer principal at St. Charles Toyota. With the buying process largely completed online, "when they're coming in, we're really just reviewing the items with the customer, showing them the car. It becomes a very enjoyable experience for that customer."

Here's how it works — or at least how it worked when Automotive News simulated buying a new orange 2024 Tacoma TRD Sport out of St. Charles Toyota's inventory.

After selecting the vehicle from a smartphone at the listed price, we hit a "buy now" button. We filled out a form with our information and signed up for a secured Toyota Owners account, linked to Toyota Motor North America and Toyota Financial Services. As soon as we did, Michael Alf's younger brother, Steven, the store's general manager, received a notification the Tacoma was being purchased.

We got an initial reply, welcoming us to the dealership with instructions on what to do next, and we indicated we were ready to proceed to financing. Toyota Financial Services immediately sent us a credit application to fill out, and as soon as it was completed and submitted, Steven Alf received a notice on his screen that it was in.

From there, we were presented with a series of choices — all on a single screen — and we could see the purchase price and how much each selection would change the monthly payment. Buy or lease? Term length? Extended service contracts? Maintenance contracts? Accessories?

When the choices were made and the contract signed and submitted, the system created an electronic "deal jacket" on Steven Alf's screen with a checklist that we needed to complete, and we received a checklist of our own: Take a photo of our driver's license and upload it. Do the same with proof of insurance. Fill out the titling information and submit. All of our sensitive personal information went straight to Toyota Financial Services and Toyota Motor North America instead of being stored at the dealership, limiting its exposure to potential data breaches. And we were ready to take delivery of the Tacoma.

The process took less than 30 minutes and required little direct involvement from dealership staff. Michael and Steven Alf said staff efficiency has been the dealership's biggest advantage after adopting the earlier sales and service components of SmartPath, and that they believed the trend will continue with the F&I component.

"That's one of the great things about SmartPath ... you can do so much more with fewer people because of the technologies there," Michael Alf said. For example, the dealership averages about 120 new-vehicle sales a month, and has a staff of just seven sales consultants — all of whom are salaried and work four-day workweeks. The same schedule applies elsewhere in the dealership, including with service technicians and advisers.

"That's a big thing, where our team has really adapted well," Steven Alf added. "Our average consultant is probably a 20-sales-per-month person. So the efficiency that SmartPath brings allows us to get more sales per person, and it streamlines everything."

Matt Heydon, general manager of retail transformation for Toyota Financial Services, said the automaker's SmartPath team has been working on the F&I module for several years because of the complexity of the products, and that it will continue to mature as it rolls out.

"Those protection products have huge variables to them. There are really endless options, and being able to have those dynamically change [the monthly payment] will lead to people having an 'aha' moment" that they don't get in the traditional F&I process," Heydon said. "It should be where the customer is buying the products, and not the products being sold, and I think we should have more sales effectiveness and sales efficiency, with less effort, as a result."

Because all of the data is stored electronically and each customer's information is available, it also enables dealerships such as St. Charles to effectively equity-mine their service lines, Heydon said, because the dealership can see each customer coming in for a scheduled appointment and where they stand on their loan compared with the cost of the needed repair. Toyota's software for equity mining is known as Signal, and it's part of the service component of SmartPath.

"It's sales, it's Signal, it's service, and now we bring F&I in and start bringing them all together," Heydon said. "It's one-click retention: the real sign-and-drive versus a three-hour sign-and-drive. And it's connected to us, to Toyota and TFS. Third-party solutions are not."

For the Alf brothers and their dealership's 60 employees, all three components to SmartPath have been transformative — both in efficiency and added profitability. However, given the last few years of record profitability among auto retailers in the wake of pandemic-era supply shortages, Michael Alf said he's looking forward to more normalized inventory levels before he's ready to measure the retail system's impact on profitability.

"Where we really are able to differentiate ourselves now from everyone else is the ability to handle that many transactions with fewer people. So if you want to look at it from a dealership profitability standpoint, that's really the number in the metrics to go on," Michael Alf said. "At times, we used to have 15 to 20 salespeople, and now we're doing more [sales] with less."

Over half of Toyota and Lexus' 1,500 U.S. dealerships use at least one component of SmartPath or Monogram, Toyota Motor North America said. A spokesperson for the automaker said dealers employing the sales component "realize nearly $300 more per new vehicle retailed" compared with its dealers not on the system. He also said dealers using the service component "increase their dollars per customer pay repair order by about $30" after installing the digital retailing system.

"It's not like a magic formula where someone walks in the showroom and everything's great," Steven Alf said. "But they're at home, they're looking at it, and it looks the same. Then they come in, and all their information is right there, and it looks the same. Even if they didn't communicate with us [at the dealership] at all and did it all on their own, it looks the same."

Said Steven Alf: "It just takes away all that pressure, all the confrontation. They're not worried about us hiding stuff because they know where everything is."