f&i and showroom nada 2011 special edition

LESS

DOING

WITH

RETHINKING FAILURE TO OBJECTION

When New-Vehicle Sales Began to Suffer, the JM Lexus Team Shifted Gears. Learn How Greg Zeigler, Lance Digges and Bob Glasser

Helped the World’s Largest Lexus Dealership Survive and Thrive Through the Downturn.

Say Goodbye to Five Common Misconceptions That Run Counter to the Department of Labor’s

New Guidelines

Connecting Technology With Compliance Is the Key to Protecting Your

Customers and Your Store in the Digital Age

7 New Strategies You Can Use to Increase Your

Acceptance Rates on Service Contracts and

GAP Coverage

NADA 2011 $10.00

SALES DRIVER: PL AN OF AC TION | NADA 2011 SPEC IAL EDIT ION | EDITOR: OUR FINEST HOUR

A BOBIT PUBLICATION FI-MAGAZINE.COM

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2 F&I and Showroom NADA 2011

NADA 2011 Special Edition

NADA 2011

6 Internet in the Spotlight at NADA 2011The annual industry show moves to San Francisco, where the Internet will take center stage inside the Moscone Center.

Dealer Profi le

8 Lexus Giant Adapts to the TimesA new approach to F&I, CPO sales and online marketing helped the world’s largest Lexus dealership survive the Great Recession.

Technology

14 Social Media’s True CallingLearn how social media can rally your customers around your brand.

Finance and Insurance

16 10 Fixes to F&I’s Biggest ChallengesGet the answers you need to put your department back on track.


22 Turning Objections Into SalesLearn seven techniques to get customers into a buying mood.

Dealer Management

26 Pay Plan RebootGet your pay plans up to speed before the DOL comes calling.

Compliance

28 Connecting Technology and ComplianceA dealer’s guide for airtight compliance processes in the digital age.

4 Editorial Page

36 Ad Index

39 Sales Driver

40 Mad Marv

Departments

Features

F&I and Showroom (ISSN 2154-1728) (USPS 018-706) (CDN IPM# 40013413) is published monthly, by Bobit Business Media, 3520 Challenger Street, Torrance, California 905031-1640. Periodicals Postage Paid at Torrance, California 90503-9998 and additional mailing offi ces. POSTMASTER: Send address changes to F&I and Showroom, P.O. Box 1068 Skokie, IL 60076-8068. Please allow six to eight weeks for address changes to take effect. Subscription Prices: United States $20 per year; Canada $35 per year; Foreign: $35 per year. Single copy price: $10; Fact Book: $30. Please allow six to eight weeks to receive your fi rst issue. Bobit Business Media reserves the right to refuse nonqualifi ed subscriptions. Please address editorial and advertising correspondence to the executive offi ces at 3520 Challenger Street, Torrance, California 90503-1640. The contents of this publication may not be reproduced either in whole or in part without the consent of Bobit Business Media. All statements made, although based on information believed to be reliable and accurate, cannot be guaranteed and no fault or liability can be accepted for error or omission.

6

8

16

22

Contents Endorsed as the offi cial publication

of the Association of Finance & Insurance Professionals

FINADA11toc.indd 2FINADA11toc.indd 2 1/7/11 11:08:10 AM1/7/11 11:08:10 AM

© 2011 Innovative Aftermarket Systems L.P. All Rights Reserved.

One Complete

Source for F&I Products,

Technology, Training,

Reinsurance, Administration

& Claims.

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Au


B eing a business-to-business

journalist has provided me

with a unique perspective on

the business, especially when I get

to rub elbows with my consumer-

leaning colleagues at shows like the

National Automobile Dealers Asso-

ciation (NADA)’s annual convention.

Yes, I have to report all my fi ndings

back to you, but I also get to see what

the newsstand reporters are saying

about our business.

Such was the case when I traveled

to New Orleans for the 2009 confer-

ence. It was my third time at the show,

but things were different that year.

The credit crisis was in full swing,

and the possibility of General Motors

and Chrysler going belly-up was be-

ing fl oated around. And, as you know,

that year turned out to be the worst

year for auto sales in three decades.

The industry was trying to put on

a good face at the show that year, but

my colleagues from the other side

of the fence sounded like they were

ready to pound the last nail in the

auto retail coffi n with each question

they posed to unsuspecting dealers.

“Will you survive?” they asked.

I’ll never forget Fred Frederick’s

response to one of those questions be-

fore a throng of reporters. “Listen, we,

including you guys, need to get off the

devastation,” said the Maryland-based

Chrysler dealer. “I’m telling you, we

got the people to get the job done and

I think we’re going to get it done.”

He was right. Yes, the “new normal”

has yet to be determined, but the end

of our industry never materialized.

Yes, we lost some people along the

way, but we’re still here. And it took a

collective effort for that to happen.

That’s why I’d like to take a mo-

ment to applaud the NADA, because

it has done one heck of a job guiding

us through one of the toughest peri-

ods in our history.

Speaking at the F&I Conference and

Expo last September, Stephen Wade,

the incoming chairman, recapped the

industry’s 18-month campaign to keep

the industry afl oat. It started with ef-

forts to stabilize the credit markets

during the crisis and ended with the

exemption it secured for dealers from

the newly formed Bureau of Consum-

er Financial Protection.

And to think, when the NADA

began mounting its campaign to get

dealers excluded from the bureau’s

oversight in late 2009, it had already

spent more than a year educating

Congress, the Obama administra-

tion, my friends in the consumer me-

dia and the public about the vital role

dealers play in this country’s econo-

my and communities.

There was the multi-front battle the

association led in 2009 to expand the

Federal Reserve Board’s Term Asset-

Backed Securities Loan Facility to

get lenders back in the game, and to

get the White House and the Small

Business Administration to help re-

store dealer fi nancing. Then there was

that day back in May 2009 when the

NADA led more than 100 new-car

dealers to Washington, D.C., to meet

with members of Congress to slow

down General Motors’ and Chrysler’s

plans to cut their dealer networks.

I’ll also never forget that early-morn-

ing call I received on Saturday, March

14, 2009. It was one of my dealer con-

tacts on the East Coast. (Yes, I do get

calls from readers on Saturday and

even Sunday mornings, which doesn’t

make for a happy wife.)

My contact was frantic. He told me

that a New Mexico Kia dealer named

Bob Cockerham was going to testify

fi ve days later before a Senate com-

mittee. He was going to try to get

lawmakers to help jump-start the

credit markets, and he was hoping to

collect 1,000 dealer letters to support

his testimony. My contact wanted me

to help get the word out.

That was one instance where I

didn’t hesitate to make myself part

of the story, which goes against the

journalistic code. But how could I

not help? No industry means there’s

no need for what I do. I guess you can

say my decision to help was based on

the realization that I, too, was part of

“Main Street.”

But here’s what I’m getting at: You

know the “This was their fi nest hour”

speech Winston Churchill gave be-

fore the House of Commons in 1940?

Well, I think emerging from the cri-

sis was our own fi nest hour. Are there

other more defi ning moments in our

history? I’m sure there are, but, given

what I witnessed the last three years,

I feel safe in my assessment.

Will we ever realize our new nor-

mal? With the collective response we

just put forth, does it really matter?

Stop Chasing the ‘New Normal’

Letter from the Editor

The editor believes it’s time to call off the search for the ‘new normal’ and refl ects on what he believes was the industry’s defi ning moment. By Gregory Arroyo

You know the “This was their fi nest hour” speech Winston Churchill gave

before the House of Com-mons in 1940? Well, I think

emerging from the crisis was our own fi nest hour.

FINADA11editor.indd 4FINADA11editor.indd 4 1/7/11 11:00:17 AM1/7/11 11:00:17 AM

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FINADA11editor.indd 5FINADA11editor.indd 5 1/7/11 11:00:20 AM1/7/11 11:00:20 AM

The annual industry show moves to San Francisco, where the Internet will

take center stage inside the Moscone Center.

By Jennifer Washington

Online sales and mar-

keting will get a lot

of attention over the

next three days, as

the National Automo-

bile Dealers Association (NADA)’s

94th annual convention and expo

looks down the road with its “Bright

Future Ahead” theme in tow.

The Internet will be the focus of

nine workshops under the newly cre-

ated “Online Presence” track that

kicks off on Friday, Feb. 4, at 1:30

p.m. Speakers from such compa-

nies as Google, DrivingSales.com,

J.D. Power and Associates, Auto-

Trader.com and ActivEngage will

lead the sessions.

“The economy has made more car

shoppers information seekers, and

auto dealers competing in today’s

marketplace need to ensure they

are building value and becoming

online-relevant,” says Howard Poli-

rer, director of industry relations for

AutoTrader.com. Polirer will present

“Infl uencing Car Shoppers Beyond

the Click,” on Feb. 4, 6 and 7.

How far along the industry is

on its road to recovery is

also sure to steal some of

the spotlight. And with

Chrysler Financial ex-

pected to get back in

the game this year

after its recent pur-

chase by TD Bank Financial Group

and AmeriCredit making its fi rst ap-

pearance at the show under the GM

Financial banner, auto fi nance also

will dominate the discussion.

“In our collective race back to pros-

perity, the NADA convention provides

a tremendous opportunity for dealers,

automakers and suppliers to rebuild

the industry,” said 2010 NADA Chair-

man Ed Tonkin, whose Feb. 5 keynote

will offi cially open the show.

Other notable speakers at this year’s

event include Jim Lentz, Toyota Mo-

tor Sales’ president and COO, former

U.S. Secretary of State Condoleezza

Rice, and incoming NADA Chair-

man Stephen Wade. Jonathan Banks,

executive analyst for the NADA Used

Car Guide, will also join the associa-

tion’s chief economist, Paul Taylor, in

delivering his 2011 sales forecast.

The event will feature more than

400 exhibiting companies, as well as

more than 100 educational sessions.

The following are some of the topics

being covered at this year’s event:

Best of 20 Group IdeasNADA/ATD 20 Group consultant

Lycia Jedlicki will present a seminar

on what other dealers have done to

successfully change their businesses.

Friday, Feb. 4, 3:15 – 4:30 p.m.; Saturday, Feb. 5, 11 a.m. – 12:15 p.m.;Monday, Feb. 7, 8:30 – 9:45 a.m.

Preventing and Detecting FraudWorkshop leaders Dan Cheyney and

Nancy Young of Moss Adams LLP

will share techniques for fraud detec-

tion and prevention and map out

a plan to follow if you discover

fraud at your dealership.

Friday, Feb. 4, 1:30 – 2:45 p.m.; Sunday, Feb. 6, 11 a.m. –

12:15 p.m.;Sunday, Feb. 6, 2:15 – 3:30 p.m.


NADA 2011

Internet in the Spotlight a

Oregon dealer and NADA Chairman Ed

Tonkin addresses the crowd at last

year’s event.

FINADA11nada.indd 6FINADA11nada.indd 6 1/7/11 11:03:22 AM1/7/11 11:03:22 AM

Federal Regulatory Developments Affecting DealershipsNADA attorneys Doug Greenhaus

and Paul Metrey will detail the lat-

est federal government rules and re-

quirements and share cost-effective

tips for avoiding legal trouble.

Saturday, Feb. 5, 11 a.m. – 12:15 p.m.;Monday, Feb. 7, 10:30 – 11:45 a.m.

Social Media 101 and 201Led by Jared Hamilton, founder of

DrivingSales.com, these two work-

shops will cover a wide variety of

topics, including starting a successful

social media strategy, location-based

mobile networking, and generating

and tracking ROI.

Social Media 101Friday, Feb. 4, 1:30 – 2:45 p.m.;Sunday, Feb. 6, 11 a.m. – 12:15 p.m.;Monday, Feb. 7, 8:30 – 9:45 a.m.Social Media 201Friday, Feb. 4, 3:15 – 4:30 p.m.; Sunday, Feb. 6, 2:15 – 3:30 p.m.;Monday, Feb. 7, 2:15 – 3:30 p.m.

Additional “Online Presence” WorkshopsThe following is a list of the seven

other “Online Presence” workshops

being offered as part of the educa-

tional slate at NADA 2011:

■ Blogs and SEO — Brian Pasch

(Pasch Consulting)

■ Fixed Operations Retention in the Digital World — Kevin Root

(DriverSide.com) and Mike DeCecco

(Dealer.com)

■ Increase Traffi c and Engage-ment Through Video — Sean Brad-

ley (Dealer Synergy Inc.)

■ Infl uencing Car Shoppers Be-yond the Click — Howard Polirer

(AutoTrader.com)

■ Perfecting the Online Lead Mix — David Kain (KainAutomotive.

com) and Anna Zornosa (Dealix)

■ Web Analytics: Improve Your

Conversion Rate — Todd Smith

(ActivEngage Inc.)

Increase Special Finance Volume and Profi tThis session will provide attendees

with the tools to increase gross profi t

while turning a special fi nance pros-

pect into a satisfi ed customer at the

same time. The workshop will be led

by Mike Tamas of American Finan-

cial and Automotive Services and

The Automotive Training Academy.

Friday, Feb. 4, 3:15 - 4:30 p.m.; Sunday, Feb. 6, 2:15 - 3:30 p.m.;Monday, Feb. 7, 2:15 - 3:30 p.m.

Success Without Boundaries: Maximizing Aftermarket Sales

Specialty Equipment Market Associ-

ation (SEMA) Council Director Zane

Clark will outline the importance of

a successful accessory program and

creating goal alignment amongst the

various departments.

Friday, Feb. 4, 3:15 – 4:30 p.m.; Sunday, Feb. 6, 11 a.m. – 12:15 p.m.;Monday, Feb. 7, 8:30 – 9:15 a.m.

For more information on the 2011

NADA Convention & Expo, includ-

ing a schedule of events, registration,

travel and accommodations, a list of

exhibitors and more, visit www.nada.

org and click on the “Training &

Events” tab.

NADA 2011 F&I and Showroom 7

t at NADA 2011

Alan Mulally, president and CEO of Ford Motor Co., greets

visitors at the OEM’s display at NADA 2010 in Orlando, Fla.

FINADA11nada.indd 7FINADA11nada.indd 7 1/7/11 11:03:29 AM1/7/11 11:03:29 AM

http://www.nada

FINAD11nae.indd 1 1/4/11 11:31:45 AM

What does the

Lexus volume

leader do when

the volume just

isn’t there any-

more? That was the question facing

JM Lexus in 2008. The Margate,

Fla., dealership had just come off

its highest volume new-vehicle year

ever, having sold 7,722 new Lexus

vehicles in 2007. But toward the end

of that year, when the downturn took

hold, business started to slow down.

“I could feel an undertow — that

business was starting to change,”

recalls Jim Dunn, vice president

and general manager. “And then

we went from selling almost 8,000

new Lexuses in 2007 to a little over

5,000 in 2008.”

The drop in new-car sales was a

wake-up call for JM Lexus. So, in

2008, the dealership shifted gears

and made adjustments. Rightsizing

the business and boosting service to

current and long-standing customers

were major components of its strate-

gy, but Dunn says there also was a lot

of potential among the departments

that had yet to be tapped.

“Prior to 2008, the focus was al-

ways on our new-car department,”

Dunn says. “So we had a lot of op-

portunity to pay attention to other ar-

eas of our dealership, and they really

picked it up.”

Everyone was challenged to “do

more with less,” and Dunn cites the

pre-owned, fi nance, service and

parts as the game changers. He says

those departments “really answered

the call” and helped the dealership

end the year on a high note despite

new-vehicle sales dropping further in

2009 to 3,996 units sold.

Ramping Up Pre-OwnedIn early 2007, when new-vehicle sales

were still strong, JM Lexus bought a

piece of property kitty-corner from its

new-car facility. The lot had housed a

shuttered car dealership. Dunn says

the dealership was originally look-

ing for more space to store vehicles,

but the new property also allowed it

The magazine takes a look inside the

world’s largest Lexus dealership to learn

how a new approach to F&I, CPO sales and

online marketing helped it survive the

Great Recession. By Joan Shim


Dealer Profile

Lexus GiantAdapts to the Times

Department heads Greg Zeigler, Lance Digges and Bob Glasser, above, each played a role in boosting JM Lexus’ revenue from CPO units when new-vehicle sales began to slip.

PHOTOS BY DAVID GESUALDO

FINADA11profile.indd 8FINADA11profile.indd 8 1/7/11 11:05:31 AM1/7/11 11:05:31 AM

FINAD11nae.indd 1 1/4/11 11:31:45 AMFINADA11profile.indd 9FINADA11profile.indd 9 1/7/11 11:05:40 AM1/7/11 11:05:40 AM

to expand its body shop and service

facility, as well as retail operations.

“We were committed to Lexus

Certifi ed Pre-Owned, and we felt that

was an opportunity,” Dunn says. “We

were already the largest volume Lex-

us dealership in the world. We knew

we had a shot at doing the same thing

in our pre-owned department, but we

needed more space.”

The JM Lexus Certifi ed Pre-

Owned Superstore opened its doors

in June 2007, complete with a dedi-

cated reconditioning center for pre-

owned vehicles. The timing of its

launch proved to be fortuitous, with

the drop in new-car demand and

sales just around the corner. In true

recession fashion, JM Lexus’ pre-

owned sales increased 21 percent in

2009 over the previous year, while

new-vehicle sales declined even fur-

ther industrywide.

“It’s turned out to be a really great

strategy for us, and the numbers are

certainly proving that,” Dunn says.

“We’re now the No. 2 Lexus Certifi ed

Pre-Owned dealership in the world,

and we’ve moved up nicely in the last

couple of years.” Another reason for

the rapid rise in pre-owned sales is

online marketing. “Most of our busi-

ness right now, probably about 80

percent, is somehow tied to the In-

ternet,” says Greg Zeigler, JM’s pre-

owned sales director.

The vast majority of car shoppers

will do their homework online, and

Zeigler says they come into the deal-

ership with a specifi c stock number

in mind. For those customers, JM

Lexus’ Internet department ensures

that each car is well-represented on

the dealership Website and partner

sites. Its secret? Photos — and lots of

them. “Many sites that we use have

21 photos of every pre-owned car,”

says Internet Manager Bob Glasser.

Zeigler also puts great care into set-

ting the online price for each vehicle.

He uses vAuto’s pricing tool, which

provides a live snapshot of consumer

buying and competitor pricing trends.

“We want to make sure that we are

defi nitely the frontrunner in our area

as far as having the largest amount of

inventory and having it priced to mar-

ket online,” Zeigler explains. “That’s

where the majority of our business is

coming from.”

F&I Boosts Bottom LineAnother bright spot for JM Lexus is

its F&I department, which saw its

profi t per vehicle retailed rise during

the recession. The department’s PVR

for new vehicles has increased from

$716 in 2008 to $804 in 2010. For

pre-owned units, it has jumped from

$989 in 2008 to $1,053 in 2010. Prod-

uct and fi nance penetrations have also

gone up over the last few years.

The fi nancial support the depart-

ment received from Lexus Financial,

which the dealership works with ex-

clusively, is a big reason for its success.

“Fortunately, we haven’t felt the effect

of any adjustment to buying proce-

dures or policies,” says F&I Business

Director Lance Digges. “Our lender

has been nothing but supportive

through everything that’s gone on.”

Digges says his department doesn’t

use a secondary source because Lex-

us Financial buys all of his subprime

business. Even so, the F&I depart-


Dealer Profile

F&I Business Director Lance Digges works exclusively with his captive lender to get JM Lexus’ customers

fi nanced — even those in the below-prime credit tiers.

Internet Manager Bob Glasser recently sold a pre-owned Lexus to a sheep herder in Kazakhstan. “These things are becoming more and more common,” he says.


© 2010 Associates Underwriting Limited L.L.C.

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ment knew it had to pitch in more

when new-car sales slowed.

“We knew our volume was down

and we needed to do whatever we

could to make up for the loss of sales

volume and impact the dealership’s

profi tability,” Digges recalls. To that

end, the dealership invested heavily

in training through Deerfi eld, Fla.-

based JM&A Group to ensure that

the store’s 13 business managers were

at the top of their game.

“All our fi nance managers go

through JM&A training, and it’s

worth every nickel that we spend in

training and coaching them to pro-

vide world-class service to their cus-

tomers,” Dunn says.

The department’s success is espe-

cially noteworthy, considering it has

only been in existence since 2005.

Prior to that, salespeople would han-

dle the deal from “tip to tail,” accord-

ing to Dunn. After separating the F&I

function, the dealership’s customer

satisfaction levels rose.

Dunn takes pride in JM Lexus’ F&I

process, describing it as “untradition-

al.” The dealership doesn’t have sepa-

rate fi nance desks or offi ces; instead,

the business managers go directly to

the customer while he or she is sitting

at the salesperson’s desk. “We don’t

have to shepherd them anywhere and

there’s nothing behind closed doors,

so it’s more comfortable for the cus-

tomer,” Dunn says.

According to Digges, the strongest

F&I products on the new-vehicle side

are prepaid maintenance and excess

wear and tear. The latter performs

especially well thanks to the deal-

ership’s high lease penetration. For

pre-owned vehicles, the leading F&I

products are GAP, service contracts

and prepaid maintenance. Round-

ing out the department’s offerings

are life, A&H, road hazard and tire,

DataDot theft-deterrents, and a key

replacement product.

Internet Sales SoaringEven while foot traffi c in the JM

Lexus showroom has been light,

customers have been consistently

shopping for cars online. The best

source of leads has been the dealer-

ship’s own Website, jm-lexus.com,

but it also generates leads through the

usual third-party sites such as Cars.

com and AutoTrader.com. The In-

ternet department’s staff of 12 new-

car salespeople and nine pre-owned

salespeople handles these leads as

well as the phone traffi c generated

online. “We try to convert them into

appointments or even sales,” Glasser

says. “Lately, getting the sale from

that initial call is becoming more

common, and we’re able to accom-

modate it.”

Total vehicle sales over the Inter-

net have risen from 1,648 in 2009

to roughly 2,200 in 2010. The pre-

owned volume for the Internet is

growing particularly fast, accord-

ing to Glasser. For example, in May

2008, the department sold 44 pre-

owned vehicles over the Internet.

That number rose to 63 in May 2008

and to 103 in May 2010. Glasser says

new vehicles are at a disadvantage

online because they are not marketed

as well as pre-owned vehicles. But he

is working to bridge the gap by in-

cluding more photos and information

with new-vehicle listings.

The Internet also has expanded JM

Lexus’ customer base internationally,

even to the most remote places.

“We recently had a chat through

our Website with someone in Ka-

zakhstan,” Glasser recalls. “It was a

shepherd on the side of a hill minding

his sheep. He had his laptop with him

and decided to see what was going

on at JM Lexus.” The shepherd saw a

pre-owned vehicle he was interested

in and made an inquiry. A few days

later the funds were wired in and the

vehicle was shipped.

“These things are becoming more

and more common,” Glasser says.

More of JM Lexus’ marketing

budget is being dedicated to the In-

ternet, including social media. One

full-time associate exclusively over-

sees the dealership’s social media

efforts, including its Facebook and

Twitter presence. JM Lexus also

has a strong reputation on Dealer-

Rater.com, where the store has gar-

nered 103 overwhelmingly favorable

reviews and earned a rating of 4.9

out of 5.0.

“The potential of social media is

huge, and we’re investing our mar-

keting money in it because we have

to be sensitive to our next generation

of customers,” Dunn says.

On the UpswingThings are fi nally looking up for new-

car sales; the dealership was up about

500 new units by the end of 2010.

“Through the last half of 2010, we

saw customers coming back,” Dunn

says, “And it looks like we’re starting

to see a healthy, robust turnaround

here.” The dealership ended 2010 on

a high note, with sales of roughly 700

new cars and 250 pre-owned cars in

December alone.

“We’re really bullish on 2011,”

Dunn says. “It’s a matter of time. It’s

not going to correct itself overnight,

but we are seeing steady improve-

ment in our new-car business.”


Dealer Profile

The dealership’s service department will likely be asked to handle

more volume as the fi nance offi ce continues to make gains in sales of

pre-paid maintenance plans.


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Social Media’s

True CallingS

ocial media hit the main-

stream in 2010. Some

dealers embraced it, oth-

ers were frustrated by it.

For the dealers who found

success with this new word-of-mouth

marketing medium, the winning for-

mula was simple: less pitch, more

engagement.

Trying to use social media as an

extension of your traditional market-

ing efforts will only get you so far.

You can’t build an online community

with advertising dollars and costly

promotions, but that doesn’t mean

that type of “community marketing”

doesn’t have its place in your market-

ing strategies. Those types of promo-

tions do get things moving. The prob-

lem is that participation stops in its

tracks once the promotion ends.

By anchoring your social initia-

tives into something larger than your

brand — a higher calling, if you will

— you can create a common bond-

ing point between your dealership

and your market. That’s the best way

to increase your ROI — and I don’t

mean return on investment. Com-

munity outreach creates what I call

“return on infl uence.”

Case Study: Metro HondaAll this talk about passion and out-

reach might sound like pie in the

sky, but it works. Just ask the team at

Indian Trail, N.C.’s Metro Honda of

Union County. The dealership sprang

into action last year after Walmart

launched its nationwide “Fighting

Hunger Together” campaign. The

big-box retailer promised to donate

$1.5 million to six communities that

Facebook users would vote on from

a list of 100. The leading community

would be awarded

$1 million and the

other fi ve would get

$100,000 each.

During the cam-

paign, which ended

in December, Metro

Honda created vid-

eos, sent out e-mails

and engaged its Fa-

cebook fans to at-

tract as many “likes” — each count-

ing as one vote — to its community’s

page as it could. The strategy worked.

The dealership’s number of daily ac-

tive users (i.e., people consuming the

dealership’s content) increased from

an average of 200 per day to more

than 1,000, and its daily post views

on Facebook increased from about

5,000 per day to upwards of 25,000.

Even after the Fighting Hunger To-

gether campaign concluded on Dec.

31, the number of daily active users

on the dealership’s community page

was still double the amount the page

attracted before the campaign began.

That’s what return on infl uence is all

about. It’s easy to fall into the trap of

judging the success of your Facebook

strategy by the number of “likes” you

garner. The statistics you should con-

centrate on are the number of daily

and monthly active users.

As you look for a cause to sup-

port, make sure you fi nd one that

aligns with what your dealership is

all about. You don’t want your com-

munity members to think you’re ex-

ploiting a cause to sell more cars. Be

sincere in your efforts to

raise awareness. That

might sound counterin-

tuitive, especially since

marketing is all about pushing your

brand’s agenda, but the goal of social

media marketing is to spur organic

growth and create goodwill.

Remember, there is more to your

dealership than the lot it sits on and

the inventory it moves every month.

There also are people who make up

the business, and it’s these people

that will be your connection point

with your customer base. You can

foster this connection by redevelop-

ing the core message of your dealer-

ship to something that goes beyond

selling cars, service and F&I prod-

ucts. What you want is a message

people can rally around and become

passionate about.

David Johnson is director of e-com-merce for Next Generation Dealer Services, a fi rm specializing in special fi nance training. He can be reached at [email protected].

Social media is a great marketing tool, but it shouldn’t be treated as such. Expert explains why linking social media to your community

outreach efforts might be the way to go. By David Johnson


Technology

sinc

m

tu

d

Visitors to Metro Honda of Union County (N.C.)’s Website can watch videos detailing the store’s work with local schools, as well as contests, giveaways and more.

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10

Didn’t do as well as you

hoped in 2010? Well,

you’re not alone. There

are plenty of valid rea-

sons things didn’t go

as planned last year, but each has a

solution. To fi nd it, you have to con-

sider how you think and act. To help

get you thinking and acting the right

way, let’s count down the top chal-

lenges you faced last year and see if

we can fi nd a fi x.

10The lenders are capping all my deals and won’t let me sell any products.

The Cause: Given the credit crisis we

just came out of, it shouldn’t surprise

you that lenders are trying to limit

their exposure as much as possible.

The easiest way to do that is to limit

your F&I products.

The Answer: What you need to do is

keep a detailed log of the deals you

were capped on. Be sure to note how

much income was lost and present

your fi ndings to your dealer or gen-

eral manager at the end of the month.

The truth is, lenders do have some

fl exibility here. Sometimes a call or a

meeting with your boss is all it takes

to get them to loosen up. At the end of

the day, lenders need your business,

and they will only cap your products

as long as they feel they can.

9Half my customers are paying cash.

The Cause: Yes, interest rates are

incredibly low, but you have to re-

member what the recession did to the

consumer psyche.

The Answer: The key here is to work

the percentages and offer those low

rates to every buyer, every time.

Sure, cash conversion percentages

are low, but you will fi nd that some

will convert if they are offered a low

enough rate.

8We’re selling too many cheap cars.

The Cause: Put simply, consumers

today are buying out of need, not

want. That means the cars you would

have wholesaled two years ago are

now your best sellers. Obviously, that

doesn’t bode well for your F&I pene-

tration and income-per-unit numbers.

The Answer: Make sure management

knows how many of your total units

were under, let’s say, $12,000. While

you can’t alter your actual profi t per

retail unit number, you want to make

sure management is aware of the

impact those vehicles have on your

numbers.

7The sales department isn’t turning people over to me at the time of the sale.

The Cause: Doggone those salespeo-

ple, right? Well, you don’t run the sales

department, the sales managers do.

The Answer: Remember, it’s all

about money. As suggested in the

capping solution, you need to keep a

log. Every time someone isn’t turned

over to you, make a note of it in your

log. Then, at the end of the month,

multiply those people you didn’t see

by your average income per fi nanced

‘Control what you can control’ is the usual answer to most problems. F&I expert shows you how to take control of the 10 biggest challenges F&I managers faced in 2010. By George Angus



Fixes to F&I’s Biggest Challenges

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deal. Then show your dealer or gener-

al manager the potential income lost

because customers weren’t turned

over to you at the time of the sale.

Believe me, the numbers will speak

for themselves and the problem will

get solved.

6You don’t understand. Our customers are different.

The Cause: Every time I hear this, I

know of a dealership down the road

that is producing more — sometimes

double — the F&I income per retail

unit delivered.

The Answer: This is one problem

where you are often the cause. The

best way to solve this is through

training, because there are customers

out there who want your products —

you just have to know how to present

and deliver them.

5My pay plan stinks.

The Cause: If you can get your dealer

to give you more money, great. How-

ever, after what’s transpired the last

few years, good luck!

The Answer: I once had a student

who stood up in front of my class and

stated what I think is the true solu-

tion to this problem: “Give me a pay

plan and I’ll give myself a raise.” If

you work on commission, the easiest

way to make more money is to sell

more stuff.

4These products are too expensive. People won’t buy them.

The Cause: F&I products are expen-

sive, but they need to be to pay for the

benefi ts they provide. The manner in

which you present them is the key.

The Answer: Moving product is not

so much about “selling” as it is about

evoking the proper “psycho-neuro”

response, which is an unconscious

reaction to a given stimulus in a par-

ticular environment that can be mea-

sured and modifi ed.

Take this dealership I once visited.

Hanging from the wall of the F&I of-

fi ce was a sign with the heading: “The

Benefi ts of Credit Life Insurance and

Accident and Health.” What followed

was a list of all the features and ben-

efi ts of those products. For added ef-

fect, the F&I manager made sure all

his awards and accolades were there

for all to see. So what’s the prob-

lem? Well, every customer fears get-

ting ripped off by the fi nance offi ce,

right? So anybody walking into this

offi ce is going to think, “Not only am

I going to get ripped off, but I’ve got

the world champion doing it.” People

will pay. Just don’t give them a rea-

son not to.

3My dealer won’t pay for training right now.

The Cause: If you paid $3,000 to

send someone to an F&I school and

didn’t see any improvement in F&I

income, would you do it again? In

this economy, I don’t think so.

The Answer: Talk to the agent who

sells you your F&I products. You can

bet he or she will be willing to help

you get some training. After all, if

you sell more of the agent’s products,

he or she makes more money.

2I hate training.

The Cause: Well, the fact is, the train-

ing you tried might not have been

what works for you. Just remember,

you can only get what you put in.

The Answer: It’s important that you

do some research and fi nd the train-

ing that fi ts your style of learning.

Just remember that you can’t ratio-

nally expect to improve your results

if you keep doing the same thing. My

dad had an old farm saying I’ve never

forgotten: “Learn something new to-

day, or you’ll be just as uneducated

tomorrow as you were yesterday.”

1We still aren’t selling enough cars.

The Cause: This certainly was a

common complaint in 2010. It’s also

the most frustrating, because we can’t

do much about it. We don’t control

the number of units sold; the sales

department does.

The Answer: The key here is to con-

trol what you can control. Let’s say a

dealership that normally moves 150

units per month now sells only 100

because of the economy. Well, what

if you fi gured out how to increase

your F&I income per retail unit by

50 percent? Is that not, for the sake

of your paycheck, the same as selling

150 units?

The answer to a better 2011 is sim-

ple: hone your skills, keep a positive

attitude and do your best every day.

More importantly, take advantage of

every training opportunity you can

so you have the tools needed to be

successful. Remember, this is still the

greatest business in the world and

you’ve got the best job in the dealer-

ship. And hey, 2011 looks like it

might just be the best year in a long

time for this business.

George Angus heads Team One Re-search and Training, a company that specializes in scientifi c, research-based program development and training programs. E-mail him at [email protected].



It’s important that you do some research and

fi nd the training that fi ts your style of learning. Just remember that you can’t

rationally expect to improve your results if you keep doing the same thing.



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Objections

SalesF

&I managers make their

living on the word “No,” es-

pecially since most of their

customers enter their offi ces

armed with a variety of

ways to say it. What successful F&I

managers understand is that most ob-

jections are simply an indication that

the customer has yet to believe he or

she needs the product — or that its

value exceeds the cost. Where they

make their money is in their response

to those objections.

To turn an objection into a sale, you

must fi rst welcome the objection, sym-

pathize and demonstrate an under-

standing of it through your response,

tone of voice and body language.

Your ability to overcome an objection

will depend primarily on your abil-

ity to provide the customer with valid

reasons why they need your products.

Let’s run through some objection-

handling techniques for service con-

tracts and GAP coverage:

4 Common Objections for Service Contracts

Objection No. 1: “With a three-year/36,000-mile factory warranty, I don’t need it.”

The Response: Your “in” here is to

focus on the customer’s driving hab-

its, especially if the customer drives

more than 12,000 miles a year, plans

on keeping the vehicle or is fi nanc-

ing it for longer than the factory war-

ranty. Here’s how to proceed:

F&I manager: I know what you mean.

(Toyota) builds a fantastic vehicle.

And with that warranty, you are pro-

tected for a signifi cant amount of time.

Unfortunately, the warranty covers

you for three years or 36,000 miles,

whichever comes fi rst. And since you

drive 20,000 miles per year, you’ll be

out of warranty in how long?

Customer: A little less than two

years.

F&I manager: That’s why, in your

case, the service agreement is abso-

lutely critical. Because you’re not fi -

nancing the car for two years, you’re

fi nancing it for fi ve, right?

Customer: That’s true.

Warning: Always ask a trial closing question that will elicit a positive response before going for the close. Assuming a “Yes” before the customer indicates he or she is ready to buy will get you an adamant “I don’t want it!” To a customer, that feels like sales pressure.

The Close: So, do you just want to go

with the preferred option, or would

the standard option work better?

Objection No. 2: “I just don’t think I need it. I’ll probably trade it in before the warranty expires anyway.”

The Response: Make sure to dem-

onstrate empathy and an understand-

F&I trainer runs through seven objection-handling techniques for selling service contracts and GAP, and offers advice for closing the customers who listen. By Ronald J. Reahard



Into

Turning

PHOTO ©ISTOCKPHOTO.COM / PEEPO

FINADA11reahard.indd 22FINADA11reahard.indd 22 1/7/11 11:25:02 AM1/7/11 11:25:02 AM

ing for the customer’s concern before

overcoming this objection. Here’s

how to proceed:

F&I manager: I understand. If you’re

only going to keep it three or four

years, you don’t want to buy a service

agreement for the next owner. Let

him buy it, right?

Customer: Right.

F&I manager: Actually, that’s the best

thing about this protection. If you do

trade, you can cancel the unused por-

tion and get a refund. If you sell it,

you can transfer it to the next owner,

which turns an “As-is” used car into

a pre-owned vehicle with three or

four years of coverage remaining,

dramatically increasing its value and

your return on investment. If you de-

cide to give it to your daughter when

she goes off to college, she’ll be cov-

ered while she’s away at school. And

whether you sell it, trade it or give it

to your daughter, you want it to be

worth as much as possible, right?

Customer: Right.

[Proceed to the close.]

Objection 3: “That’s why I’m buying a Ford, because they don’t break down. If it did, I wouldn’t want the car.”

The Response: Tread carefully here.

Saying the car will break down could

cost the dealership the sale, or, at a

minimum, kill your chances of sell-

ing a service contract. However,

agreeing with the customer means

there’s no need for a service agree-

ment. Here’s how you proceed:

F&I manager: I understand. That’s

why you’re buying a Ford, because

you don’t want any problems. If you

thought you were, you’d be buying

something else, right?

Customer: Absolutely.

F&I manager: I have to agree with

you. The new Taurus is defi nitely one

of the fi nest vehicles on the road to-

day. Hopefully, you’ll never have any

repairs. Unfortunately, if you have

even a minor problem, it can be ex-

traordinarily expensive.

Customer: Why is that?

F&I manager: Just like every other

carmaker, our technicians have be-

come component replacement ex-

perts. If the air conditioner only has

one speed, you don’t replace the fan

switch; you replace the climate con-

trol module. That’s why a service

contract is absolutely critical. It’s not

that you have a lot of repairs; it’s that

when you do, it’s a lot more expen-

sive to fi x. And you don’t want to buy

a climate control module if you don’t

have to, right?

Customer: Right.

Objection No. 4: “This is the fi fth Subaru I’ve bought from this dealership, and I’ve never had any problems.”

The Response: This is just another

variation of “I don’t need it.” Here’s

how you proceed:

F&I manager: Wow! Five Subarus and

you’ve never had a problem. That’s

fantastic! I can certainly understand

why you think you don’t need the ad-

ditional coverage. I’d feel the same if

I were in your shoes. That’s why you

keep buying Subarus, right?

Customer: Right.

F&I manager: Now, the Legacy is

all new this year from the ground up.

And since you do plan on keeping it

for a while, you’re going to be putting

on a lot of miles, which means you’ll

own it long after the warranty expires.

And you don’t want to pay for any re-

pairs if you don’t have to, right?

Customer: Right.

3 Common GAP Objections

Objection No. 1: “I’ve never had an accident.”The Response: Since that might be

true, make sure to recognize the feat

and stroke the customer’s ego before

overcoming this objection. Here’s

what you do:

F&I manager: Wow! Thirty years

without an accident. That’s amaz-

ing, especially considering the way

people drive around here. I think the

worst drivers in the country live right

here in Tennessee, don’t you?”

Customer: No kidding.

F&I manager: Obviously, you’re a

very good defensive driver. You’ve

also been extremely fortunate, since

studies show most people will be in-

volved in two auto accidents before

the age of 50, which means you’re

past due. Unfortunately, even though

you are a safe driver, someone else’s

negligence could put your streak in

jeopardy. You could be rear-ended

at a stoplight by a 17-year-old kid

who’s texting while driving. You

could also have your vehicle stolen

on your next trip to the mall. After

all, auto theft is the No. 1 property

crime in the country.

[Note: If the customer is not aware of

that stat, you can tell them that a car

is stolen every 39 seconds. If he is,

it’s time to go for the close.]

Inside the Strategy: Notice how we shifted the customer’s focus to the possibility of his or her vehicle being stolen. While every customer is familiar with their own driving record, most are not familiar with crime statistics. You, on the other hand, have to be.

Objection No. 2: “I’ve never had a car stolen.”The Response: We have to help this

customer realize that vehicle theft is

always a possibility.

F&I manager: I’m glad to hear that,

especially since auto theft is the No.

1 property crime in the United States.

That’s why virtually every new ve-

hicle we sell comes standard with a

factory-installed security system.



PHOTO ©ISTOCKPHOTO.COM /


Most victims of a vehicle theft, by

the way, are fi rst-timers. And unfortu-

nately, your car is much more desirable

to thieves because it’s still fairly new,

which puts you at a greater risk since

your loan balance will be at its highest

point. If your car is stolen or totaled,

GAP can protect you from having to

pay any defi ciency out of pocket, plus

you’ll be reimbursed for your deduct-

ible. Wouldn’t it be great if you didn’t

have to pay your deductible?

[If the customer says “Yes,” then pro-

ceed to the close.]

Objection No. 3: “I’ll take my chances.”The Response: This is not even an

objection, but a statement indicating

the customer doesn’t feel he or she

needs the protection. It could be that

the customer has never been in an ac-

cident or had a vehicle stolen. Here’s

how you proceed:

F&I manager: I can understand why

you want to take your chances. If

you’ve never had an accident or had

a vehicle stolen, why would you need

GAP?

Customer: Right.

F&I manager: I think I’d feel the

same way if I were in your shoes.

Why buy something you don’t need.

However, we do fi nd it’s absolutely

critical to have it on today’s vehicles

for two very important reasons.

Customer: Why is that?

F&I manager: First, today’s vehicles

are made with component parts.

Have you ever watched those news

shows where the National Insurance

Institute backs a minivan into a pole

at fi ve miles per hour and causes

$5,600 in damages?

Customer: Yeah.

F&I manager: How could that be,

right? The answer is component

parts. See, bumpers are plastic, so a

damaged bumper gets thrown away,

not repaired. And if a piece of bro-

ken glass cuts the seat cover, well, on

most vehicles, you can’t buy a new

cover. You know what you then have

to replace?

Customer: The seat?

F&I manager: Exactly. See, even a

minor accident can be extraordinarily

expensive, increasing the chance of

your vehicle being totaled. Second,

every new vehicle today is made with

crumple zones. It used to be that if

you hit a tree with your Crown Vic-

toria, you’d put a big “V” on the front

of your vehicle and your face would

be splattered all over the dash. If you

hit a tree today, your car gives it a big

hug and a pillow pops out of your

steering wheel. You’re okay and the

tree isn’t too bad either, but your new

Taurus is totaled.

And you don’t even need to be

moving for your vehicle to be totaled.

You could be sitting at a stoplight

when your new Taurus is rear-ended

by a 17-year-old kid who is texting

while driving his dad’s SUV. That’s a

big problem these days, right?

Customer: Boy, it sure is.

[Since we got a positive response, it’s

time to circle GAP on the menu and

go for the close.]

Armed with the techniques de-

scribed above, you’ll be on your way

to improving your acceptance rates

for both products — and sending

each customer home with a more

secure purchase.

Ron Reahard is president of Reahard & Associates Inc., a F&I training com-pany providing F&I classes, work-shops, in-dealership and online training. E-mail him at [email protected].

What suits you?

Have UCC TAILORa custom program

to fit YOUR needs.

Call 1-800-571-6412

[email protected]

www.unitedcarcare.com

Designed to fit your profit goals.

Established 1984


Remind your customers that GAP coverage isn’t just for accidents, and that auto theft remains the nation’s No. 1 property crime.


mailto:@bobit.com


http://www.unitedcarcare.com

Pay Plan Reboot

The Labor Department is gearing up. The question is, will your pay plans be ready? Here’s a primer to help

you get them up to speed. By Lon Leneve


Dealer Management

Given the attention auto

retailing has received

over the years, it might

be diffi cult to fathom

that there’s one area

that has escaped rigorous attention

from federal regulators: pay plans.

Recent actions by the Department of

Labor and heightened awareness for

wage and hour laws among employ-

ees could change that.

The subject of pay plans was cov-

ered in a recent Webinar co-hosted

by my company, Compli, and John

Donovan, a partner at noted labor law

fi rm Fisher & Phillips LLP. The goal

of the presentation was to highlight

common misconceptions and best

practices to help dealers in an area

that’s often challenging, especially

when dealing with poorly written,

out-of-date and, sometimes, undocu-

mented pay plans.

But there’s good reason to plug this

noncompliance hole. The Department

of Labor recently hired 250 new inves-

tigators to more aggressively investi-

gate employee complaints. Employees

also are more aware of employment

laws these days, and wronged staffers

no longer have to discuss employment

matters with their bosses; they can go

straight to their lawyer.

Also remember that if a dealership

employee sues for wage and hour vi-

olations because his or her pay plan

didn’t comply with the law, the dealer

can be on the hook for three years’

worth of wages. Even if your new

guy or gal has been with you only six

months, you can bet his or her attor-

ney will track down his or her pre-

decessors until they can build three

years’ worth of claims. Remember, a

prevailing lawyer automatically gets

all of his or her fees paid.

Let’s review some common mis-

conceptions about pay plans:

Misconception No. 1: “We’ve used this pay plan for fi ve, 10, maybe 15 years, and we’ve never had a problem, so I’m sure it’s okay.”

Reality: Most payroll managers will

tell you they learned their job from

their predecessor, which means their

bad practices get carried on from

year to year.

Misconception No. 2: “Well, he signed the pay plan and he signed his timecard, so he agreed to this amount.”

Reality: If an employer pays an em-

ployee at variance with what he has

previously agreed to, it is a potential

contract claim.

Misconception No. 3: “Oh, everyone in my 20 Group does this.”

Reality: The “everyone else does it”

excuse doesn’t provide you with any

protection, because regulations vary

from state to state.

Misconception No. 4: “This is an ‘at will’ state.” Reality: Yes, a manager can change

his pay plan tomorrow, but he can’t

go back and change the pay plan and

make it retroactive to the fi rst of the

month. A change to a pay plan can

only apply to future earnings.

Misconception No. 5: “He’s paid a salary, so he’s exempt from overtime.”

Reality: That’s the furthest from the

truth. Before we get into some best

practices, there are two things you

need to remember about pay plans:

First, pay plans are wage and hour

documents that have to comply with

both state and federal wage and hour

laws. Second, pay plans are con-

tracts. When you write up a pay plan

and hand it to your employee, you are

PHOTO ©ISTOCKPHOTO.COM / SONDRAP

FINADA11payplan.indd 26FINADA11payplan.indd 26 1/7/11 11:04:23 AM1/7/11 11:04:23 AM

effectively telling him or her, “If you

do these things, I will pay you this

much money.” Not only is that docu-

ment legally binding, it’s enforceable

in court. Even if it’s not in writing,

it’s at least a verbal contract which is

enforceable in court.

One thing people don’t realize is

a contract is construed against the

party that drafted it. That being said,

let’s review some best practices:

■ EVERY employee should have

a written pay plan that’s signed and

dated by the employee.

■ The pay plan should be drafted

so that even a layperson who is unfa-

miliar with the car business can un-

derstand what it means.

■ The pay plan should spell out in

detail how the employee will be paid

— salary, draw or commission — and

how the money will be calculated.

■ The pay plan should include all

aspects of the compensation: hourly,

salary, commissions, bonuses and

spiffs. If it’s not clearly delineated in

the pay plan contract, there could be

a problem.

■ If there are special contests that

aren’t in the pay plan, they should be

documented with the same amount of

seriousness and accuracy as a regular

pay plan.

■ If a guarantee is included, make

sure the plan states that it is a guar-

antee of compensation, not employ-

ment.

■ Decide if the employee is exempt

from overtime or not, and be sure he

or she is aware as well.

■ Pay plans shouldn’t contain non-

pay-related matters such as vacation

or insurance. Those items should be

covered in your employee handbook.

■ Pay plans are prospective in na-

ture. The contract is formed the mo-

ment the salesperson sells a car and

the business is obligated to pay in ac-

cordance with that sale.

■ Revise and resign a pay plan

whenever there is a change. Don’t

issue amendments on top of amend-

ments.

I know it’s mind boggling to sift

through all these misconceptions

and best practices, so let me leave

you with some excellent advice to get

your pay plans up to speed: First, call

your local or state dealer associations

and fi nd out what requirements apply

to your state. Then pull up all of your

pay plans and review them to make

sure they’re up to date.

If they’re not up to date, fi x them. It

doesn’t have to be today, but make it

your goal to have all pay plans up-

dated and signed by employees by

early 2011. You won’t just be clean-

ing up your fi les from 2010; you’ll be

starting the new year off cool, calm

and compliant.

Lon Leneve is president & CEO of Compli, a provider of human re-sources and compliance manage-ment software for auto dealerships. E-mail him at [email protected]. Nothing in this article is intended to be legal advice and should not be taken as such. All legal questions should be addressed to competent counsel.

All the issues discussed in this article are addressed in the “Pay Plans: Best Practices, Rules & Misconceptions” Webinar. To watch for free, visit: http://bit.ly/buu7T3.


When you write up a pay plan and hand it to your employee, you are effec-tively telling him or her, “If you do these things, I will pay you this much money.” Not only is that

document legally binding, it’s enforceable in court.

FINADA11payplan.indd 27FINADA11payplan.indd 27 1/7/11 11:04:26 AM1/7/11 11:04:26 AM


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Compliance

The Federal Trade Commission (FTC)’s Risk-

Based Pricing Rule is the latest example of

how compliance creates industries, as a slew

of solution providers lined up to help deal-

ers navigate the industry’s newest regulation.

The technology they developed will undoubtedly add ef-

fi ciency and accuracy to their dealer clients’ compliance

efforts, but it can’t be effective without the right processes

and procedures in place.

Before you begin your search for new software, let’s re-

view some areas of the sales and F&I processes where tech-

nology can support your dealership’s compliance efforts.

Sales: Discriminatory Lending and UDAP Claims

The Goal: Although dealers escaped litigation from the

class action discrimination lawsuit fi led against fi ve cap-

tive lenders early last decade, they need to be careful that

the processes they use to quote payment avoids any hint

of discriminatory practices. The suit, which ended in a

multimillion-dollar settlement, is still fresh in the minds

of plaintiffs’ attorneys and regulators, so expect the new

Consumer Financial Protection Bureau to continue to

monitor auto lending practices.

A Dealer’s Guide to Connecting

Technology and Compliance

Before you select your next compliance software tool, read this primer on connecting technology to your dealership’s compliance processes. By Joe Bartolone

The multimillion-dollar settlement against fi ve captive

lenders for discriminatory practices early last decade will

be fresh in regulators’ minds for years to come. Dealers who demonstrate a willingness and ability to play within the rules

will benefi t as auto lending continues its comeback.

ar veryill

ds ho d

es g k.

PHOTO ©ISTOCKPHOTO.COM / PIERRE DESROSIERS

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Second, dealers need to be cognizant of potential claims

of Unfair and Deceptive Acts and Practices and enact pro-

cedures that foster full disclosure. Remember, attorneys

are on watch for these types of issues because UDAP

awards typically provide for treble damages if the court

fi nds evidence of willful misconduct.

The Process: If your dealership runs credit before present-

ing the fi rst pencil, a good best practice for avoiding charges

of discrimination is to develop a rate matrix based on credit

scores. The matrix can be broken down in increments of 25

or 50 points. One method would be to take a captive fi nance

rate matrix and add two points to the tier-two buy rates. So,

in practice, every customer who has a 625 score should be

quoted a payment using the same fi rst pencil rate.

If your store doesn’t run credit before the fi rst pencil

quote, then establish a “store” rate that is used for all cus-

tomers. This rate could be based on an average rate of sold

deals over the last 90 days. The key here is consistency.

Full disclosure is critical to avoid UDAP claims when

the deal reaches the negotiation stage. That means giving

each customer all the necessary deal terms, including the

selling price, trade allowance, payoff, down payment, re-

bate, the amount fi nanced, payment, term and rate. Trans-

parency will not only help answer any future questions

about what the customer agreed to, it also will eliminate

the potential for payment packing or using hidden or unre-

alistic terms or rates to calculate payments.

Technology Breakdown: A computer desking system can

be your greatest weapon against discrimination or UDAP

claims. Look for a solution that integrates with your deal-

ership management system, as this will allow desk manag-

ers to quickly and accurately work a deal while computing

multiple combinations of fi nance and lease terms. Built-in

rate matrices are another nice feature, allowing managers

to compute fi rst-pencil payments based on credit scores.

When a solution is selected, be sure to lock down the de-

faults on the rate matrices, and to retain the fi rst-pencil

and fi nal agreed-to term worksheets.

Sales Finance: Bank Fraud

The Goal: Falsifying credit app information, stips, down

payments and collateral are potential areas of exposure for

dealers. However, your employees are not the only ones you

need to watch. There are customers who’ve been around

the block a few times and know how to work the system.

The Process: There are two key processes to consider:

First, have customers complete their own application. Sec-

ond, when an application must be completed on the cus-

tomer’s behalf, have him or her sign the application and

initial key credit determinates, such as time at address and

job. This is not a legal requirement, but it will provide a

nice defense if the customer provides false information.

Dealers also must institute safeguards to ensure that hold

checks, deferred down payments and credit cards aren’t

accepted without the lender’s knowledge. Not only is this

found to be in violation of dealer-lender agreements, but

accepting these types of payments and disclosing them as

a cash down on the retail installment sales contract could

be a violation of the Truth in Lending Act’s Regulation Z.

Dealers must also take steps to ensure the value of the

collateral is properly stated. That’s why it’s a good practice

to create a book-out sheet for trades and purchased used

cars added to inventory. These sheets should be signed by

the manager who created and submitted them to the lender.

Additionally, all stipulations should be authenticated.

Benefi t letters from the Social Security Administration

can be authenticated by understanding the codes embed-

ded in the letter. Stips such as pay stubs, utility bills and

tax statements also should be scrutinized.

Technology Breakdown: A solution to electronically sub-

mit credit applications will defi nitely speed up the process,

but the real benefi t of these tools is they can print out the

data in a format that discloses the credit app, deal terms

and the collateral description. This can serve as an excep-

tional auditing tool to ensure the information provided and

submitted match up.

Compliance

Dealerships are vilifi ed by the courts when staff members are accused of fraud, but customers who know how to work the system also represent a potential area of exposure.



September 26-28, 2011 Las Vegas Hilton www.industrysummit.com

I’m a Green Pea.

I Think I Can Do Better. I Want to Reach the

I Don’t Know What “F&I” Stands For. I Have Never Seen a Red Flag.

If They Want to Pay Cash, That’s Fine With Me.I Do Enough E-mailing at Home.

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Automated inventory systems also provide protection

against powerbooking, a practice where the seller arti-

fi cially infl ates a vehicle’s value by listing a higher trim

level or nonexistent options. The right system will time-

stamp any modifi cations made to each vehicle’s record

and record the name of the person who made the change.

Rebates/Dealer Incentives: Eligibility Checks

The Goal: Most new-car sales are tied to some form of

factory rebate and/or dealer incentive, so it’s crit-

ical that you take measures to ensure that

your dealership, the customer and the

vehicle are eligible for the incentive

claim submitted to the factory.

The Process: Ensuring that no

mistakes are made requires a

joint effort between sales, F&I

and the administrative offi ce.

First, sales should print a copy

of the inquiry to the incentive

program, confi rming the amount

of the rebate, promotional rate or

dealer incentive available.

Sales should then be required to col-

lect any of the required documentation for

consumer-specifi c programs. The fi nance offi ce should

then ensure that the incentive is properly applied to the

deal and that the customer properly executes documenta-

tion confi rming the amount of the rebate and assignment

to the dealer.

Following the delivery, all rebate documentation

should be collected and attached to an acknowledgement

form indicating that all three departments agree that the

rebate is valid. Also, be sure to fi le the paperwork in the

deal jacket.

As for dealer incentives, remember that they are ve-

hicle-specifi c and may have a volume bonus attached.

Eligibility is usually tied directly to the vehicle’s deliv-

ery date and the incentive payable is generated when

the dealer writes up a retail delivery report. That’s why

it’s critical that your dealership’s RDR reconciliation

process ensures that vehicles reported monthly to the

factory match the sold vehicles detailed in the DMS and

then eventually match the credits applied by the factory.

Remember, charge-backs resulting from factory audits

can be the most expensive penalty a dealer will face.

Technology Breakdown: Gaining knowledge of the fac-

tory applications and working with your DMS providers

can provide you with exception reporting tools to manage

this important component of your operation.

IRS and FinCen Reporting: Form 8300

The Goal: Reporting to the Internal Revenue Service

and the Financial Crime Enforcement Network (FinCen)

transactions for which more than $10,000 is received

from a single buyer can’t be overlooked. Those who inten-

tionally disregard the rule’s requirements could be fi ned

$25,000, or the amount of cash they received but failed to

report, whichever is greater. The required reporting docu-

ment is called the Form 8300. Check out the IRS Publi-

cation 1544 for more instructions on complying

with this rule.

The Process: Your cash receipting

system should provide a detailed

description of the form of cash ten-

dered, as disclosing that money

received was cash, check or credit

card does not provide enough de-

tail to support a good Form 8300

process. That’s why each cashier

should be provided with a set of

standard abbreviations to properly

identify the form of cash received —

was it currency or a personal check,

cashier’s check, money order, bank draft,

credit card or something else?

Technology Breakdown: Most DMS offerings include

an automated cash receipts application, which generally

provide for multiple classifi cations of the type of money

received. This will assist the accounting offi ce in making

sure the Form 8300 is fi led within 15 days after receiving

a payment, as mandated by this requirement.

Compliance

Automated inventory systems

also provide protection against powerbooking,

a practice where the seller artifi cially infl ates a vehicle’s value ... The right system will timestamp any modifi cations made to each vehicle’s record

and record the name of the person who made

the change.

the

the

.

v-

n

hy

on

the

and

ory.

dits

fac-

ders

nage

The IRS requires the completion of Form 8300 for any transaction in which more than $10,000 is received from a single buyer. Dealers who fail to comply can be fi ned upwards of $25,000 per violation.




I’m an F&I Manager.


I Believe Four Squares Is More Than Enough.I Can’t Help the Sales Team If They Won’t Let Me.

I Don’t Know Any Bankruptcy Attorneys.I Sell the Service Contract About Half the Time.




Identity Check: Red Flags Rule

The Goal: The enforcement moratorium the FTC placed

on the Red Flags Rule was fi nally lifted as of Dec. 31,

2010. That means dealers must have a written “Identity

Theft Prevention Program” in place to identity, prevent

and mitigate ID theft. Currently, the law sets $3,500 as

the maximum civil penalty per violation, but that doesn’t

include civil liability.

The Process: This rule requires dealers to designate a

compliance offi cer and perform a risk assessment to iden-

tify the threats of identity theft relevant to their operation.

Dealers must also develop written policies and procedures

for detecting, preventing and mitigating identity theft, and

employees must be trained to follow them. Audits on the

effectiveness of the dealership’s program must be per-

formed periodically, and an annual report detailing the

success and shortcomings of the program — as well as

any required improvements — must be submitted to the

dealership’s board of directors or senior management.

Technology Breakdown: Many companies offering con-

solidated credit reports, F&I menus and specialty ID theft

services have incorporated automated “Red Flag” tools.

These solutions use a variety of indicators to suggest the

likelihood of identity theft. Some tools display pass or fail

indicators, while others will use proceed-with-sale or a

do-not-proceed indicators. Other solutions use a numerical

value (e.g., buyer index score, customer identity score).

It’s important to remember that these indicators are gen-

erated as a result of searches conducted by data aggrega-

tors that track fraud-related activities from other industries

and other public records. In other words, these solutions

may miss discrepancies in the customer’s credit report.

They also can’t measure Red Flag behavioral patterns de-

tected during the sales process.

Out-of-wallet questions are another great weapon

against ID thieves. These questions are typically based on

information available in public records. They’re a good

way to catch customers who may be posing as someone

else. You probably can think of a few such questions your-

self, but most solution providers can electronically gener-

ate a set for you.

Joe Bartolone is an associate with gvo3 & Associates, a nationally recognized sales and F&I compliance consulting fi rm. He can be reached at [email protected].

Compliance

Identity theft remains a key concern for government agencies and consumer privacy advocates, and should be for dealers as well. With the moratorium on Red Flags enforcement lifted as of Dec. 31, 2010, there is no excuse left for not implementing a written policy for protecting your customers against identity thieves.

Ida gaafotFaiipyi

34 F&I and Showroom NADA 2011 PHOTO ©ISTOCKPHOTO.COM / DAVE WHITNEY




I’m a Dealer Principal.


My Sales and Finance Managers Are Bitter Enemies.I See No Value in Ongoing Training.

My Service Guys Are Mechanics, Not Salesmen.If We Have a Database, I Haven’t Seen It.




Company Phone Web Page

Association of Finance & Insurance Professionals (AFIP) 817-428-2434 afi p.com 36

American Financial & Automotive Services 800-967-3633 afasinc.com C4

AUL Corp. 800-826-3207 aulcorp.com 11

CARLAW® Auto Dealer Suite 877-464-8326 counselorlibrary.com 38

CNA National 800-345-0191, ext. 720 cnanational.com C2

Industry Summit • industrysummit.com 31, 33, 35

Innovative Aftermarket Systems (IAS) 800-346-6469, ext. 8989 smartdealerproducts.com 3, 37

NAC (National Auto Care Corp.) 800-548-1875 nacsolution.com 5

National Automotive Experts 800-810-8859 nationalautomotiveexperts.com 9

Protective 800-794-5491 protectiveassetprotection.com 15

Reahard & Associates Inc. 866-REAHARD go-reahard.com 1

Resource Automotive 800-527-3448 resourceautomotive.com 20-21

Reynolds & Reynolds • reyrey.com 23

Ristken Software Services 800-368-9680 ristken.com C3

Safe-Guard Products International 800-742-7896 safe-guardproducts.com 19

United Car Care 800-571-6412 unitedcarcare.com 25, 38

Vision Menu Inc. 800-413-9902 visionmenupro.com 29, 38

Wells Fargo Dealer Services 888-937-9997 wellsfargodealerservices.com 17

Zurich 888-266-7527 zurichna.com/NADA 13

Ad Index

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Sales success isn’t always about what you know; it’s about how you think. Expert lays out a plan of action for sales, management and dealers. By Cory Mosley

So, what kind of year is it going

to be? What kind of sales pro-

fessional, manager or dealer

are you going to typify? What ma-

jor goals would you like to achieve?

Have you written them down? Have

you even had that conversation with

yourself yet?

As you might have noticed by now,

optimism is back in our industry. But

if you have plans to cash in on the big

year the pundits are predicting, you

will have to stretch yourself. As the

saying goes, “To do something you’ve

never done, you have to be someone

you’ve never been.”

I subscribe to the philosophy that

it’s 80 percent psychology and 20

percent mechanics — a potentially

controversial view, you might say. But

think about it: How effective would

someone be if a trainer loaded him or

her up with the best word-tracks and

rebuttals in the business, but that per-

son didn’t believe or, worse yet, care

about what he or she was doing?

What am I getting at? To answer,

let me review how the right mindset

for three critical positions will always

trump mechanics:

SalespersonTo be successful this year, you must

be focused on enhancing the custom-

er experience and your own personal

brand. You will also need to rethink

your belief system when it comes to

closing sales and asking for gross.

Success also will require fi ne-tuning

your interpretation of what a custom-

er really wants.

As you know, I’m a big advocate

of continuing education. However, I

believe you can have a breakout year

without learning a single new word-

track or sales technique. What will

make a difference is a shift in your

belief system, which means breaking

through myths such as, “Custom-

ers buy within 72 hours of visiting a

dealership” and “You’ve got one shot

to sell them.” It also means breaking

through the idea that a prospect isn’t

interested and shouldn’t be followed

up with if he or she hasn’t returned

your call after one or two attempts.

The problem is, those beliefs are

still being employed daily, and they’re

costing salespeople a lot of money.

What you need to do is break down

what you need to sell by year, month,

week and day, and map out long-term

goals to achieve results.

Sales ManagerThe decisions that sales managers

make on a daily basis can make or

break a dealership. In my opinion,

too many sales managers use fear or

archaic control methods to engage

salespeople, which can be ineffec-

tive. “Leadership by example” needs

to be the name of your game.

One of the biggest challenges for

the sales staff is working with a man-

ager who thinks his or her title means

he or she has nothing left to learn.

This is another psychological issue

— and myth — that kills the incomes

of managers and the teams they lead.

As a manager, ask yourself: When is

the last time I brought something new

to my team to help them and myself?

Dealer PrincipalMost dealers today aren’t new to the

game. Many of the names we know

are generational and, in most cases,

have been successful for a long time.

However, with time comes compla-

cency, an aversion to change and a

resistance to taking risks. As the title

of leadership coach Marshall Gold-

smith’s 2007 book reads, “What Got

You Here Won’t Get You There.”

Now, that doesn’t mean you have

to abandon your principles and fun-

damentals. What it does mean is that

you must accept that you don’t have

all the answers to make your dealer-

ship better and that it’s okay to seek

out and trust people who do.

The 2011 NADA Conference and

Expo is upon us and there will be

plenty of companies with the cure to

what ails you and your business. Be

willing to listen and learn, but don’t

forget to do your due diligence. And

don’t be afraid to make tough deci-

sions. You never know if they may

lead to the breakthrough you need.

I will leave you with this fi nal

thought: The next time you look at a

plate of bacon and eggs, realize that

while the chicken was involved, the

pig was committed. Which one will

defi ne you this year?

Cory Mosley is principal of Mosley Train-

ing LLC, a nationally recognized train-

ing provider focused on new-school

techniques, products and services.

E-mail him at [email protected].

Inside the Sale

Sales Driver


Optimism is back in our industry. But if you have plans to cash in on the

big year the pundits are predicting, you will have

to stretch yourself.

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35


F&I’s from-the-trenches columnist provides some tips on how to make the most of the 2011 NADA Convention & Expo. By Marv Eleazer

Ah, it’s that time of year again:

The opportunity to network

with your peers and meet

new ones at the annual NADA Con-

ference & Expo. It’s also a time to

be motivated and inspired by the

fact that the worst times in the au-

tomotive business are fi nally behind

us. But what lies ahead, right? What

kind of SAAR (seasonally adjusted

annual rate) can we anticipate? Will

lenders loosen the purse strings?

These and many more questions will

most certainly be addressed at this

year’s show.

Those who attend will join a pen-

sive and cautiously optimistic crowd.

After all the dealership closures

we’ve seen the last couple of years,

the industry has been completely re-

defi ned from the manufacturer level

to the detail department. Dealers

who survived are paying closer at-

tention to every dollar, which means

this year’s conference will certainly

be well observed by all.

So, what are your plans for this

year’s show? If you need a little

advice, here are a few of my sug-

gestions for getting the most out of

NADA 2011:

Bring Store Managers: As a deal-

er or general manager, I’m certain

you’ve already pored over the sched-

ule of events, looking for anything to

enhance your business model. How-

ever, I’d like to offer one sugges-

tion: Bring some of your department

managers. Not only will the show

serve as a nice networking experi-

ence for your managers, it will also

allow them to discover new ways to

conduct business.

Now, given what dealership bud-

gets are these days, I realize this may

not sound like a good idea. However,

the investment in extra plane tickets

could easily pay off. Your managers

are more familiar with day-to-day

operations. That means they could

be a nice reference for you as you’re

checking out the latest tools lining

the aisles.

Think Compliance: If you’re late to

the party regarding the Red Flags

Rule or the new Risk-Based Pric-

ing Rule, the conference will serve

as a great place to get up to speed.

All your favorite compliance soft-

ware providers will be there, so

stop by their booths and have them

explain how their solutions can be

implemented in your store. Word on

the street is the Federal Trade Com-

mission will be sending out mystery

shoppers to test your compliance

models, so be prepared.

Educate Yourself: F&I managers

who are fortunate enough to attend

this year’s conference should take

some time to jot down areas of defi -

ciency and make plans to attend the

various workshop sessions the con-

ference is offering.

You also don’t want to miss the

opportunity to get a read on the auto

fi nance landscape. There is strong

evidence lenders are looking for

more business, and they’re armed

with smarter algorithms to hedge

against the huge losses they experi-

enced over the last three years. It’s

critical that your fi nance personnel

understand how these updated for-

mulas work.

Just remember that lenders need to

loan money, but they also deserve a

clear picture of the customers they’re

fi nancing. In many instances, we are

their eyes and ears, so it’s incumbent

upon us to make certain the data we

submit is correct. We also need to

better understand their individual

business models, which is why a

visit to their booths could go a long

way in helping to bridge the commu-

nication gap.

Don’t Come Back Empty-Handed: You should make it your goal to bring

back at least one good idea that can

be immediately implemented in your

department. See, one of the problems

with attending a conference as big as

the NADA Conference and Expo is

that there are so many companies to

see. And some of these companies

spend obscene amounts of money to

grab your attention. So, make sure

you’re spending your time with the

right vendors, those that will work

for you based on substance and not

glamour.

Have Fun: There will be a lot of en-

tertainment, adult drinks, freebies

and a host of new-vehicle models on

display. Work can be fun and San

Francisco is a terrifi c place to un-

wind when the day’s events are over,

so have a great time while picking

up some new ideas.

With all that said, let’s get ready

for a terrifi c year, because it’s gonna

be a good one!

Marv Eleazer is the fi nance manager at

Langdale Ford in Valdosta, Ga. He can

be reached at [email protected].

It’s Show Time

Mad Marv

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Booth #1800S

800.967.3633www.AFASinc.com

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