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An Interview with Brian Krasavage

An Interview with Brian Krasavage

In July, Brian Krasavage became vice president of Allstate Dealer Services. It’s the latest development in a career that spans four decades and has included history-making stops at Kodak, Motorola and ADP/CDK Global. P&A sat down with Krasavage on the eve of his relocation to Jacksonville to discuss the sweeping technological advances he has witnessed and why he is in “good hands” with Allstate.

P&A: Brian, where are you from?

Krasavage: I currently live in Chicago and I am making my way to Jacksonville. But I’m originally from Upstate New York. I worked for Kodak for nearly 20 years, starting in Rochester, and then I relocated with them to Atlanta in ’98.

P&A: Those were the days of wine and roses for Kodak.

Krasavage: Exactly. There has been a lot of change in that industry over the years. I studied computer science at Potsdam State, and I actually started working for Kodak in the mid-’80s, while I was still in school.

P&A: Computer science was a smart choice.

Krasavage: I hate to admit, it but I was part of the last freshman class to learn punch cards.

P&A: What are punch cards, exactly?

Krasavage: Lines of code on a series of cards. It was a way to load programs. And if an upperclassman kicked them out of your hands on the way to the machine, and they got out of order, it was a hassle.

P&A: How did you connect with Kodak?

Krasavage: It was a work study program. I took every other semester off to go to school.

P&A: Did they help with tuition?

Krasavage: I got paid, so in that sense, yes! After graduation, I joined the company full-time and spend the first nine years of my tenure doing software development — a lot of statistical control for processes, such as coating. Before digital cameras, there were chemical coatings for various types of paper and film.

P&A: Is it true Kodak invented the digital camera and failed to capitalize on it?

Krasavage: That’s a bit of an urban legend. Kodak did have one of the first digital cameras. Back then, due to the cost of the technology, it couldn’t be considered a consumer product. So I don’t think you can fairly classify Kodak as having missed the boat. I think it was more a matter of photography turning into a different industry. And Kodak’s competency was not as an electronics provider.

P&A: Why did they move you to Atlanta?

Krasavage: They moved their entire Americas headquarters to Atlanta. I had spent about 10 years or so in IT and I wanted to get into the business end of things. At the time, Kodak had a requirement that you had to go through market research to work on products. To work in market research, you had to have an MBA. So I earned my MBA from the University of Rochester, then spent about a year in market research. I did global product management for digital photo-finishing products. I was there for the launch of the Kodak Picture Maker. I spent a large part of my career there working on product development, marketing and sales for it.

P&A: The kiosk? I remember that. It was a big hit.

Krasavage: For all the difficulties Kodak’s been through, that product is still printing money for them today. Innovation doesn’t have any discretion. When we launched Picture Maker, it was a pain in the butt for customers to find negatives and make prints. We gave them an easy way to bring in any picture and reprint it or blow it up. And I enjoyed the marketing aspect of the business. We had a big partnership with Disney. We would drive the kids down to Walt Disney World from Atlanta. They loved it, but it got old, fast. Funny story: I did a stint in sales and business development. We had an annual awards program. In my first year, I won the top sales award and a trip with all the sales leaders. Guess where the trip was.

P&A: Disney?

Krasavage: Disney. The year prior, it was Hawaii.

P&A: Did you plan to retire with Kodak?

Krasavage: Well, there certainly are a lot of long-tenured employees at Kodak. My dad and my father-in-law both retired with Kodak. My sister still works there. But I had moved all around the company — different capacities, different regions — and I just decided I wasn’t going to end my career there. Then it was just a matter of finding a new opportunity. At the time, we were looking at how we could advance the product to allow for printing from digital cameras and camera phones. The opportunity came up to bring my experience in imaging to Motorola.

P&A: When was that?

Krasavage: That was in 2005. Motorola only had one camera phone model that had high resolution, which at the time was just one megapixel. Motorola, like many telecom providers, was taking orders from carriers — AT&T, Sprint, Verizon. Motorola wanted to be an organization that understood the consumer value proposition. What’s the experience that will drive value for the customer? They were forming different categories for business. I was brought in to kickstart their multimedia and sharing business.

P&A: Were you successful?

Krasavage: Yes, but not without challenges. We were a small software group within a large hardware company. Motorola was going through eight consecutive quarters of growth with the Razr. But we knew the software would drive the value. Apple made that clear with the iPhone. I think Motorola could have been more successful.

P&A: Did you see the iPhone coming?

Krasavage: I don’t think anyone saw that coming. We knew software would drive wireless forward, but for the iPhone to enter our industry and absolutely dominate it, that changed everything.

P&A: Did the success of the iPhone spur a culture change at Motorola?

Krasavage: Yes, a big culture change. The hardware would always be important, but it became clear that having a strong software strategy would drive the industry. At one point, we were using five or six software platforms. By the time I left, we had standardized everything on Android. And that ultimately led to Google purchasing Motorola in 2012. That acquisition was intended to create the same model Apple had: owning the hardware as well as the software. So that was a really unique business experience.

P&A: That’s a short amount of time for a major transformation.

Krasavage: Very short. Between 2005 and 2012, Motorola split into two, refocused on software, and completed the Google acquisition. There is no other industry like wireless. The playing field can level at any moment. But it was a great opportunity to work for a great company with a big, global footprint.

P&A: Did you become a Google employee?

Krasavage: I did, briefly. But I decided to make a change, and that’s what took me to ADP, which later became CDK Global. I joined ADP in 2012 to work on their dealer services business. That was my first introduction to automotive. I loved it. They say once you get into automotive, you’re never going to leave, and I believe it. I joined ADP/CDK in 2012 and had responsibility for F&I. My focus was on software services, the menu product, compliance and contracting. By the time I left, I had responsibility for all the products in the front office. My team did some of the early work in digital retailing, including workflow, F&I, credit, compliance, econtracting and electronic vehicle registration.

P&A: Once again, you joined a company during a major industrial shift.

Krasavage: Yes. And when I started, I was surprised at how fragmented and complex the dealership front-end processes were. The front end is under pressure from a profitability standpoint. But that’s your moment of truth. You’re trying to capture the customer for life. Do you want the best process or the best customer experience? Dealers have begun to understand the experience is what counts, but delivering it is a challenge the whole industry is facing.

P&A: So you were at Kodak when the photography industry changed. You were at Motorola when the wireless industry changed. And you joined ADP/CDK in the midst of the digitization of F&I. Please take this question in the spirit in which it’s intended, but do you ever feel like the Forrest Gump of innovation?

Krasavage: I have thought about that myself. And I don’t know if innovation attracts me or I’m attracted to it. Looking back on all the transformations I have witnessed, I’ve decided I’m attracted to innovation. My entire career has been spent in areas where a market transformation is going on, all driven by underlying technology that’s enabling new consumer experiences and expectations.

P&A: How did the opportunity with Allstate come about?

Krasavage: I got a call from Allstate about this opportunity and, to be honest, I only answered the call because it was Allstate. You don’t have to live in Chicago to appreciate the work they do, but they are headquartered here, in Northbrook. And I was intrigued, but I did not want to leave the automotive industry. So when I learned it was Allstate Dealer Services, I was really intrigued. And I was impressed with the passion of everyone I spoke to here. They are focused on the changes in our industry — transportation, technology, mobilization — and that caught me by surprise. Our products add value and protect customers from risk. That’s powerful. And the company is run by a strong set of leadership principals. It starts with our CEO, Tom Wilson, and it carries all the way down. When they say “You’re in good hands,” they mean it. And all the employees of Allstate Dealer Services have a tremendous passion for the business and love F&I as much as I do.

P&A: Are you ready to move south again?

Krasavage: You know, if you need a snow blower, let me know. My wife has never been a fan of winter weather. We have both seen enough of it. And the timing worked out great. We have four kids, and the youngest will be a college freshman in September. And we happen to have family in the area. My daughter still lives in Atlanta. We have lived in several cities, and there are pros and cons to each. But being near family is the biggest benefit.

P&A: How many people have told you Jacksonville is technically the largest city in the United States?

Krasavage: Everybody. And by the way, all that square mileage makes house hunting a little difficult. It’s all “Jacksonville.”

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How to Adjudicate Claims for High-Risk Clients

How to Adjudicate Claims for High-Risk Clients

In the P&A segment, working with high-risk clients can lead to financial rewards, but runaway claims bear scrutiny. At last August’s P&A Leadership Summit, I had the honor of leading a panel of experts in a discussion about anticipating, identifying and properly managing such scenarios.

I was joined by Trish Myers, a senior financial analyst with EFG Companies; Matt Russell, risk manager for AUL Corp.; Jeff Robinson, Alpha Warranty’s vice president of risk and operations; and John Sopocy, vice president of claims and risk management for Vehicle Administrative Services.

Identify the Risk

The term “high-risk” can have a number of different meanings, Sopocy said, so the first step is to identify the type of risk at play. If a dealership has a core customer base that is outside of the usual ratio the company uses to determine risk, for example, that could be skewing the results.

Myers suggested the next step could be to look at how long the service contracts have been active when the claims are initiated, as well as the severity — are they within expectations for that dealership’s vehicle mix and market? If they are consistently steep, “That can be an indication of dealers not prepping the cars for sale,” Myers said, noting dealers can fall into the habit of using claims to pay for reconditioning. She also advises providers to look at earnings and loss ratios — some early warning signs might not be valid, she stressed, so it’s important to gather all the data and take the time to understand what they mean.

This can be a complex process, Russell said, but he agreed it is necessary. “We try to split the data between the statistical side and the behavioral side. It’s important to look at those earnings and loss ratios and other statistical models, but it’s just as critical to look at the behavioral data as well.” He said a review of service-drive records can help determine whether high-risk red flags are just a series of coincidences or a clear pattern.

But just identifying a potential risk isn’t enough. “The first move, after identifying a high-risk dealership, is to have a conversation with them,” said Robinson.

In many cases, the panel agreed, the dealer and their top management team is not aware of how the products are performing. Some are getting incomplete reports from their F&I or service directors; others simply aren’t interested. This can lead to awkward conversations with dealers and dealership personnel, but determining whether a client is “high-risk” is difficult without getting the big picture.

One way to approach the subject is to ask the client to “show the numbers, don’t explain the numbers,” said Russell. He noted that he’ll compartmentalize the data, setting aside, for example, vehicles with extremely high mileage. Then he’ll segment by make and model and even by engine type, if he’s able. “In essence, we’re just trying to show the ‘Why,’” he said, which in turn helps the conversation go more smoothly. The claims administrator then avoids the appearance of leveling accusations. They are simply bringing a business problem to the table and asking, “What can we do to fix this?”

Myers agreed and said this approach is typically well-received. “I’ve never had pushback from the service manager or general manager of the dealership.” She noted that, most of the time, the provider is viewed as a partner, and the dealer wants to get to the bottom of losses and increased claims just as much as the provider does.

Control the Costs

So how can providers keep the cost of high-risk dealerships from spinning out of control? To start, said Sopocy, it’s about stating upfront what is covered — and what isn’t — so everyone is on the same page. He noted that the two biggest cost generators tend to be pre-existing conditions and “upselling,” when the customer brings their vehicle in to address one problem and the service advisor convinces the customer to fix something else.

“On a claim-by-claim basis, it can be really hard to detect that,” Sopocy noted. An individual claim for an oil gasket replacement might appear to be valid on the surface. But if the customer just came in for a standard oil change, and they were then convinced to replace additional parts, it’s a problem.

To combat that, Sopocy advises providers and administrators to have the conversation about expectations as soon as possible. Making sure that the service advisors know that it’s OK if a part is a bit more worn on an older vehicle — that doesn’t mean it has failed or will fail. Replacing it just because they can is a waste of everyone’s time and money. One of the ways they train for this, he noted, is to ask service advisors a simple question: “If this was your car, would you take $500 out of your pocket to replace the part?” In most cases, they say they would not, and that establishes the correct mindset.

The next step is to teach service advisors how to document correctly. Rather than just submitting a claim for an oil gasket, they should note in the paperwork that the customer came in for an oil change and it was noticed that the gasket showed signs of wear.

Russell agreed that getting everyone on the same page is a good first step to controlling costs. With buy-in across the board, a process that will work for everyone can be developed. “It’s about getting everyone on the same page so they know what to expect,” he said.

Robinson agreed, noting, “The dealer needs to understand that it’s a partnership, and that our goals are aligned. … When it’s a healthy book of business, the customer is happy, the service center is happy, the dealership is happy, the administrator is happy — everybody is happy.”

Redemption: Turn High-Risk Clients Into Low-Risk Clients

The panel agreed that, just because you have identified a dealership as high-risk, that doesn’t mean they have to stay that way.

Redemption is possible, Russell said, and it comes in many forms. For new clients, it may just be a matter of patience: It is not uncommon to see a high rate of claims for the first wave of service contracts that flattens out over time. He also noted that, for administrators, it is always worth checking the notes of the claims adjusters. They are on the front lines, and have a much better idea of what is actually going on. Reporting is key, because you have to understand where the problem is if there is any hope of fixing it.

In some cases, Russell pointed out, one make or model can cause the bulk of the issues. At the end of the day, the dealership has to be willing to trust and buy into the administrator’s recommendations. “It’s about trusting us, working with us,” he said.

To get there, said Sopocy, it really is critical to approach them with the numbers — show them their losses today and demonstrate what the projections will be with a different process in place. “If you lay it out, here’s where we are, and, if nothing is done, it stays the same. Here’s where we’re going to be a year or two from now, and it’s normally not a very pretty picture. And then you model it by ‘If we reduce claims, this is what can happen; if we add additional sales, this is what could happen.’ You can show them a couple different ways to get it to a better space.”

If they are a good client, Sopocy added, and they are committed to making it work, the administrator can lay out different strategies — including at least one that doesn’t necessarily include a rate increase — to improve performance across the board and reduce the client’s risk factor.

Russell agreed, adding that it’s important to understand that, in some cases, risk and redemption can’t be had by simply increasing rates. An increase for a given dealership — or even for a given geographic area — can’t be helped because the risk factors just can’t be mitigated any other way. But he stressed that the other solutions should be tried first. If the first time a dealer hears about a problem is when their rate is going up, that doesn’t make for a very profitable partnership on any level.

The agent is another important factor, Russell added. Having a solid relationship with them, and making sure they have all the tools and information they need is important. They can be the provider or administrator’s “boots on the ground,” ready and available to talk to the dealer when a problem first surfaces. “Getting the agent involved is key,” he said. “They’re the ones who hold the relationship.”

Robinson noted that the agent is the first person some dealers call when they have an issue with a claim or anything else. The agent can therefore be helpful in determining whether there is an issue that needs to be solved, with or without the administrator’s help, or whether it’s an isolated incident, a coincidence, or a spike that will level off in time.

Just because a dealership is high-risk, doesn’t mean the provider shouldn’t take a chance — and high-risk today doesn’t necessarily mean high-risk tomorrow. Many dealers will welcome the chance to work with administrators to improve programs and profits, and can end up being some of the most loyal and reliable customers the provider has on the books. It’s all about managing the risk appropriately, setting expectations, and offering the right training to the right people.

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An Interview with Bob Wilson

An Interview with Bob Wilson

Robert Wilson Esq. is the founder of Wilson Law Firm in Media, Pa., general counsel for ARMD Resource Group, and a frequent contributor to P&A. The magazine caught up with Wilson to learn more about his career, his path to the automotive industry, the future of the CFPB, and the pitfalls of free legal advice.

P&A: Where are you from, Bob?

Wilson: I’m from Philadelphia. I grew up in the Germantown section, which had some significance during the Revolutionary War. Some big losses on our side, actually, but who’s counting?

P&A: What were your career aspirations?

Wilson: I didn’t really have a defined idea in my younger years. I went to undergrad at Dickinson College in Carlisle, Pa., where I entertained the idea of working in radio and television. I had a weekly show at the campus radio station. I’m dating myself a bit, but our main broadcast booth had two turntables, and the back room was stacked floor to ceiling with record albums. It was a one-man show, 9 to 12 on Thursday nights.

P&A: What did you play?

Wilson: We weren’t subject to playlists, so I would play whatever music I wanted. Sometimes rock ’n’ roll, sometimes funk, sometimes late jazz. The only proviso was that you had to make public announcements and you couldn’t say any of George Carlin’s seven dirty words.

P&A: How did you go from disc jockey to law school student?

Wilson: I had received an offer to do an internship at a television station, and it was a good opportunity, but I was committed to my housing situation and I had to turn it down. That’s when I thought I’d better change direction. I had taken a fascinating law course in high school. It was an overview of historical decisions with a focus on constitutional law, including a lot of First Amendment-type issues.

P&A: What exactly does it mean to practice constitutional law?

Wilson: Laws come from many sources. A new law could come from a federal or state regulation, for example, and it could come from the Constitution. Constitutional lawyers and scholars are focused on that slice of the legal pie.

P&A: Which law school did you attend?

Wilson: I attended law school at Temple University, back home in Philadelphia.

P&A: Any memorable experiences?

Wilson: Not so much. Law school is a difficult process. The first year, you’re in shock. I remember trying to wrap my head around the idea that my entire grade depended on the final. Blow one question on a three-question final and you’re toast. And you’re introduced to the Socratic method, in which the teacher engages you in front of the class. It’s a bit of a change from the traditional approach to teaching. You can’t allow yourself to be intimidated.

In your second year, they pile on the work, and in the third year, you start looking for a job. There are a series of challenges along the way. They teach you a certain type of analytical thinking. It bleeds over into other areas of life. Whatever the situation, you find yourself asking, “What’s the issue, what law applies, and what’s the solution?”

P&A: I asked Aaron Lunt whether he is bothered by people asking for legal advice in social situations. He said he is more bothered by the fact that he often doesn’t have an answer.

Wilson: No man can be the master of everything. A lot of attorneys are familiar with a recent case in which a lawyer, at a party, was asked for advice. The person relied on it, took a loss, and sued. The lawyer said, “Look, we had no fee agreement, no understanding.” And the judge said, “When you give legal advice, you have to believe people will follow it.” So the lesson there is, when you’re in a social situation, limit your conversational topics to football.

P&A: How did you choose which type of law to practice?

Wilson: My first job out of law school was clerking for a homicide judge. I then practiced a fair amount of homicide and matrimonial law, and I became convinced the two go hand-in-hand. Working in the criminal realm, I learned you either become a district attorney or a defense attorney, and it seemed like the only defendants who could afford their own attorney were involved in drugs or organized crime. That was not an area I wanted to be in, so I jumped the fence to the civil side, and I haven’t looked back.

P&A: What was your first job on the civil side?

Wilson: I worked at a plaintiffs’ personal injury and medical malpractice firm. We handled some memorable cases. We brought a number of motorcycle helmet defect lawsuits and some cases that involved diethylstilbestrol, also known as DES, a synthetic form of estrogen that was linked to a specific type of cancer.

P&A: How did you break into the auto industry?

Wilson: I started working in consumer finance about 25 years ago, and the two segments are very closely related. They are subject to many of the same regulations and watched by the same regulatory bodies. Since then, we have watched the explosion of the Consumer Financial Protection Bureau onto the scene. It certainly makes for some interesting times. Everybody is focused on what’s coming next. The PHH case is going to be reargued soon, and that could give us another read on the constitutionality of the CFPB itself.

P&A: That case came out of the mortgage industry, correct?

Wilson: PHH is a mortgage company the CFPB went after and upon whom they eventually imposed a $100 million penalty. PHH stood up to the CFPB and appealed, and the appeals court judge found the CFPB’s single-director structure was unconstitutional. The next step is an en banc hearing, which is scheduled for April. Meanwhile, there has been a lot of talk swirling around our new president, who promised sweeping regulatory changes.

P&A: Has Trump specifically mentioned the CFPB?

Wilson: I don’t profess to follow everything politically, but he did say he was going to dismantle the Dodd-Frank Act, and the CFPB is essentially the child of Dodd-Frank. A lot of people are hoping — secretly or not — that the CFPB will be dismantled.

I personally don’t think that is going to happen. There is certainly a possibility it could be scaled back, but it’s not going away. And don’t forget, the regulatory landscape is not solely composed of the CFPB. A number of agencies have oversight, and all those other entities, including state attorneys general and consumer groups, will still be there.

P&A: What is your day-to-day workload like?

Wilson: It varies, of course. I do a lot of work in the financial sector. I also have a regular commercial litigation practice, and I handle general civil matters and compliance issues in the consumer finance space. And I have been working with ARMD Resource Group, which is coming to market with a compliance management system for the automotive space.

P&A: How did you end up writing for the magazine?

Wilson: I met the publisher, David Gesualdo, through a mutual friend. We had some discussions and one thing led to another. I hope the articles have been helpful. A good teacher can make a complicated subject easy enough to understand. A teacher with less skill will hit you over the head with big words and concepts and fail to convey the lesson. I want to teach in a more efficient fashion, and I think that’s something that ARMD looks to do as well.

P&A: Why is it important that agents and product providers stay current on compliance matters?

Wilson: Because for dealers, the No. 1 goal is to sell cars. They need good advice and a compliance management system that automates the process and makes repeatable, consistent performance possible. There was an ad campaign for Staples that featured a big, red “Easy” button. I think that’s what ARMD represents. It’s an “Easy” button for compliance procedures.

P&A: I agree that dealers are focused on sales, but wouldn’t you agree that all the recent enforcement actions have compelled them to take compliance more seriously?

Wilson: I think that’s absolutely correct. There’s an old saying for which the first part is “Money talks.” We’ll skip the second part. But, yes, when there is a massive monetary penalty for disparate impact or unfair, deceptive or abusive practices — whether it’s coming from the CFPB or an enterprising class action attorney — that gets the dealer’s attention.

But as a practical matter, when the dealer makes fair treatment of every customer a priority, that makes perfect sense. It’s a way of generating the type of loyal customer everyone is looking for.

P&A: Every F&I trainer I know says transparency sells.

Wilson: They’re right. It’s all about relationships. Any good relationship has trust. If you’re not treating people fairly, you’re never going to earn their trust. When you have policies and training in place, again, you can go out and do what you’re best at, which is selling cars.

P&A: And F&I products.

Wilson: Right!

P&A: What do you do in your spare time?

Wilson: Well, I spend most of my spare time with the family. We like to travel. I’m an avid bicyclist and, once in a while, I try to find the fairway. It’s a work in progress. I came to the game late in life. But there is something pretty rewarding about being outside, spending quality time with clients, and discussing these topics over 18 holes.

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Providers Join the Online F&I Debate

Providers Join the Online F&I Debate

Among the highlights of the most recent P&A Leadership Summit was “Presenting F&I Products Online,” a panel discussion convened to discuss whether and how F&I products should be introduced and sold to car buyers on dealership or provider websites.

Kumar Kathinokkula, COO of F&I Administration Solutions, served as moderator. He was joined by Justin Gasman, finance director at McCaddon Cadillac Buick GMC in Boulder, Colo.; Daniel Lievrouw, vice president of operations and IT for American Guardian Warranty Services (AGWS); Matt Nowicki, IAS’s vice president of retail software; Brett Pomerantz, director of product for digital retailing at Cox Automotive; and Mark Thorpe, president of The Impact Group.

Statistics and Risks

Kathinokkula opened the discussion by quoting statistics from one of the many recent surveys that appear to show car buyers would respond positively to the opportunity to complete the entire sales and financing transaction online.

“Seventy-two percent of customers would consider going through the entire process online,” Kathinokkula said. “And yet 56% of them say they would miss the test-driving part, and nearly 88% would want to buy a car without test-driving it first. So they’re a conflicted bunch.”

Knowing those numbers, and acknowledging that companies such as Carvana, Vroom and Beepi are working toward a fully online transaction, Kathinokkula asked, are online F&I sales inevitable?

In response, Gasman drew a hard line between complementary technology, such as introductory web pages and videos, and replacement technology, which would likely significantly reduce his role at the dealership.

“We’re moving away from the belly-to-belly sales environment, and everybody thinks that having an iPad is going to suddenly change how we sell products,” Gasman said. “And while I’m not against technology, I don’t think that taking the process and moving it online is going to be good for our industry.”

Offering F&I products online or allowing customers to self-select at the dealership could drive up penetration rates for some stores, Gasman added, but he predicted dealers who already employ trained, productive F&I teams would see their gross profits plummet. He pointed out that F&I managers aren’t in the car business; they are in the people business. He believes trying to remove the human element is a recipe for reduced sales and reduced profits.

Pomerantz agreed, saying that “pushing an iPad across the desk and asking the customer to pick the products they want” should not replace the consultative approach taken in F&I offices today. But he does believe car buyers will be more likely to buy F&I products if they are introduced to them while they are researching vehicles online before they visit a dealership.

“There’s a segment of consumers that go into the business office right now and just say, flat out, ‘No,’ and they’re not even listening to the consultative approach that an F&I manager might give,” Pomerantz said.

Kathinokkula noted that a wide-ranging survey conducted by Pomerantz’s company found 71% of recent car buyers would be more likely to buy an F&I product if they had learned about it before entering the F&I office. Knowing that, he asked Lievrouw, should providers take the lead in posting more consumer-facing product information?

The answer is “Yes,” Lievrouw said, but he drew the line at pricing, saying the addition of that information would hurt smaller dealer groups, which represent most of his company’s clientele. “They can’t compete with the big dealers if you’re disclosing every single piece of the transaction.”

“You know, we’re trying to put customers into a box,” Nowicki said. “‘You’re either going to come to the store and buy or you’re going to buy online.’ And I think the smartest dealers are going to have to be able to approach both those scenarios.”

Nowicki brought up the example of Apple Care, a protection product iPhone and iPad buyers can self-select in the closing stages of an online or instore purchase. With a show of hands, Nowicki asked the crowd whether they owned an iPhone, whether they bought Apple Care, and whether they bought the coverage because an Apple representative aggressively sold them on it. At the end, few hands were raised.

“Exactly. So there are different ways warranties can be sold,” Nowicki said.

Referring to Kathinokkula’s initial premise, Thorpe said he does not believe online F&I is inevitable.

“I think what is inevitable is that retail customers, for generations, have told us the same thing, and that is that they hate the car-buying experience,” Thorpe said. “They hate the F&I experience. They even hate taking their cars in to be serviced. They don’t like anything about the automotive industry.” He wondered aloud whether the push toward digital F&I was solving a problem that has yet to be defined with a solution that might not improve the customer experience.

“Is there really a risk, though, if the consumers want to buy, and if there’s a fundamental value to the product?” Kathinokkula asked.

“If we game this out, if we’ve got a customer who goes online, who sees presentations on service contracts or GAP or tire-and-wheel, who may or may not have some disclosure with respect to pricing, and then they come into the F&I department, and the toothpaste is out of the tube,” Thorpe said, adding that, if the customer feels they have already made an informed decision, the F&I manager has nowhere to go. “If you never get an opportunity to even discuss it with the customer because they’ve already made their mind up, that’s what’s at risk.”

The panel agreed that, ideally, dealers and providers should offer enough information about F&I products to entice those who see value in the products without undercutting the efforts of F&I managers who are trained to demonstrate that value to customers.

“There’s nothing wrong with information, and in this day and age, the idea we’re going to hide this stuff is crazy,” Gasman said. “It’s how we delicately manage what we give them. ‘Tell me more, I want the price.’ Well, how are you going to do that when you’ve got 75 different service contract options, with terms and years and deductibles, disappearing deductibles and levels of coverage?”

“While there seem to be risks, and Justin pointed those out quite eloquently, is there a risk to not doing it?” Kathinokkula asked.

“I do think we have to continue to evolve toward a model where we have a customer environment in which the customer is comfortable and they’re being informed and educated and they’re given the opportunity to accept or decline,” Thorpe said. “I just don’t see the possibility that they’re going to self-close.”

Pomerantz disagreed. He brought up the Amazon model, noting that consumers frequently use that service to purchase products and accessories they hadn’t previously considered.

“Most people don’t always buy the product they’re looking for. They compare prices. They break down the features and benefits. And a lot of Amazon sales come through other things you might also like while you’re buying,” Pomerantz said. “And I think that’s a pretty good model for us to think about in the car-buying experience.”

Consumers are going to the dealership to buy a car, not a warranty, Pomerantz added, but if you have the right information, presented the right way — be it via a live person or with technology — many will opt to add coverage.

Pomerantz further argued that, as several panelists pointed out earlier in the session, the pool of talented F&I managers is steadily shrinking. Those who are left are being asked to handle more customers than ever before. Technology allows providers and dealers to close the gap, so that educated consumers will walk in the door already open to the products, making the F&I manager’s job much easier, and allowing them to more painlessly — and quickly — move through the process, while maintaining the same or better rates of penetration.

“But they won’t say ‘Yes’ if we don’t ask them to,” Gasman said. “We have to have a better selling plan than their buying plan.”

Lievrouw pointed out that digitizing processes is often discussed in terms of a generational shift, but he doesn’t believe that’s an accurate reflection of their appeal. “It’s situational,” he said, pointing out that, in 1999, he bought a Jeep online through Autobytel. At the time, with young kids, he did so to save time, and it remains his best car-buying experience.

“Was it the best F&I experience?” Pomerantz asked.

“It’s one of the best buying experiences I’ve had,” Lievrouw replied.

“Did you buy a service contract?”

“Absolutely not.”

The Human Factor

To whatever degree, if any, the F&I process moves online, the panel agreed, it should not be wedged into the spot currently occupied by the F&I office, where relationship selling remains the most effective method.

“When you’re in the showroom process, that relationship is one of the most important things you have for going through the steps of the sale,” Pomerantz said. “It’s not like technology has killed that. Social media is at an all-time high because people crave the relationships they have with other people that have like-minded interests.”

“It comes back to moving our industry to online, and to me, that’s not really the question,” stressed Nowicki. “It’s how you respond to the customers that want to buy that way. Because it’s two totally different things.” No one, he said, wants to completely get rid of F&I managers, but everyone should be interested in making useful information available to every customer, no matter where they choose to engage.

Lievrouw cited statistics he pulled from a dealer group he works with. They found their average customer spends 10 hours shopping online before they buy a car, and 46% of them would be willing to finance online.

“But of all their customers, only about 15% of them would actually be willing to do a purchase online.” That’s not a huge share of the market, Lievrouw said, but neither is it a group whose business you just want to toss away. “I think you do have to acknowledge there is that 15%, and next year, it’s going to be 18%, and the year after that, it will be 22%. It’s going to happen.”

Kathinokkula closed the session by noting that online sales has already happened with every other type of product, so dealers and providers would be wise to consider its appeal to car buyers.

“You can’t ignore it,” Kathinokkula said. “Either we’re going to look at the signs and address it, or we’re not. But it’s going to happen. And we can’t let fear stop us from doing that.”

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Industry Trends for 2017

Industry Trends for 2017

Last year will be remembered for political and social unrest at home and abroad, including a highly contentious presidential election cycle that ended with a highly divisive outcome. After two years of 17 million-unit sales, steady job growth, and an unabashedly pro-business president in the White House, F&I product providers should be optimistic.

But it is unclear how the Trump administration will affect the economy and the automotive market, and forecasters are warning that the pent-up demand from the Great Recession has been spent. To learn how executives and thought leaders in the P&A segment are feeling about the year ahead, we reached out with a series of questions designed to uncover their hopes and fears for 2017 as well as the stories they’ll be tracking for the next 12 months.

The Economy

Dylan Doran, owner of Western Fidelity Services, is cautiously optimistic. “Needless to say, speculation over the 2017 economy is a big question for all of us,” he said, noting that the automotive market in general “doesn’t always respond well to change.”

Doran said interest rates, in particular, will be a driving factor one way or the other. The past five years have seen incredibly low rates across the board, paired with fairly loose lending, which encouraged consumers to buy. Doran doesn’t see any major growth in the coming year, but he said a flat year wouldn’t necessarily be out of the question.

“We live in exciting times,” said Jim Maxim Jr., president of MaximTrak Technologies. Maxim sees movement in parts of the economy that have been stalled in the previous few years, which is encouraging, but he also worries that the growth might come with a shift to more overseas manufacturing. That would have an impact on the unemployment index and, in turn, put the squeeze on consumer spending. “Suffice it to say, we may see a transitional year where businesses must find their footing.”

Greg Petrowski, senior vice president of GPW and Associates Inc., agreed. Before the election, he noted, many economists were forecasting a slight slowdown in overall economic growth for 2017. Petrowski believes that, if the proposed tax cuts that Donald Trump is pushing for are enacted within the year, that could be a major boost. However, he noted, the automotive market might not benefit either way.

“We are more likely to see continued contraction in new-car sales as compared to 2016 as the growth cycle comes to an end,” Petrowski said, listing other factors — such as outstretched loan terms, rising interest rates and a weakening used car market — that will likely have a greater impact on the industry than any tax cuts.

For Glen Tuscan, president of Dealer Commitment Services Inc. and owner and CEO of Triple Protection Auto Care Inc. (Tripac), rising interest rates in the coming months are practically a given. He believes that will affect not just vehicle sales but F&I production as well.

“Slight increases will stimulate short-term sales growth,” Tuscan said. “But they may have negative long-term effects on the consumer.”

John Braganini, principal of Great Lakes Companies, agreed with Tuscan, saying that he foresees a “slight reduction” in GDP growth and new-car sales. He does note that the incoming president could have a major impact either way, however, so it is a matter of waiting to see which policies are enacted and how they ultimately play out.

David Trinder, CEO of F&I Administration Solutions, sees the coming years in a similar light.

“Trump’s election has put the stock market on a tear, and if he fulfills his promises of removing regulation and increasing US manufacturing jobs, some of that excitement may well be justified,” Trinder said. “It remains to be seen whether he can really deliver on these promises though, and while the coming year may well keep the momentum, future years could pay a high price. We are living in interesting times.”

“The automotive industry heads into 2017 with great momentum following a strong November. I expect to see continued tailwinds from low gas prices, strong employment, and less stringent lending guides,” said Kristen Gruber, president of Dealers Assurance Co. She does note that interest rates can have an impact on the market — as can the tapering off of the aforementioned pent-up demand — but she believes the industry has a very healthy outlook going into the next 12 months.

Jim Huntzinger, chief investment officer for BOK Financial, is another executive with high hopes for the coming year. He is looking for “unspectacular” gains in the U.S. gross domestic product (GDP) this year. He believes the incoming administration will help boost that growth with its implementation of the promised tax cuts and trade, regulatory and spending programs.

“The election of Donald Trump has improved both business and consumer confidence,” Huntzinger said. “This could lead to higher economic growth in 2017.” Even a renegotiation of the North American Free Trade Agreement would, Huntzinger believes, be a good thing, since he believes it could be to the benefit of the United States as well as Canada and Mexico.

“Hopefully, growth can be steady and faster-paced with the new administration — if Trump sticks to the policies he campaigned on, cutting taxes and softening regulation,” said Justin Jones, vice president of Coffeen Management Co.

Jones noted that he believes growth will happen at the same pace of the last few years: slow and steady. He does note, however, that the oil and gas markets, along with agriculture, could be the exception to that rule. States and regions that rely on those industries for jobs and buying power could quickly be filled with depressed markets, even in an upswing.

The Industry

Turning their attention to the automotive industry, our experts found a healthy mix of ongoing trends and new and upcoming developments.

“I see slowing sales, lease incentives, and longer loan terms,” Braganini said. “In F&I, I see an increased focus on compliance and more effective sales processes.”

Rick Roesel, director of F&I operations for Brown and Brown of Kentucky Inc., doesn’t necessarily see a change in the current leasing rates, but he does anticipate that “even the most stubborn finance managers will come to realize you can’t give leases a free pass when it comes to income development.” He sees more F&I product providers starting to offer programs specifically geared toward lessees, which in turn will put pressure on F&I managers to sharpen their skills in that area.

However, Brent Griggs, president and CEO of Portfolio, believes leasing could start to see a decline from the historically high levels it has been at for the past 12 to 18 months. For the F&I space in particular, he said, this will be a good thing.

“This will have a positive impact on the sale of many F&I products, enhancing F&I income for the dealership,” Griggs said, predicting there will be a shift away from simply selling on price. He believes dealers and F&I managers will begin to focus on creating quality experiences that encourage customers to want to do business with them. “I feel strongly that agents can play a critical role in helping our dealer partners maximize efficiency in their stores by emphasizing training.”

“Consumers continue to push for greater speed and transparency,” agreed Joel Kansanback, president of Automotive Development Group. He sees both dealers and manufacturers embracing the one-person, one-process approach, having salespeople trained to do both their own jobs and F&I, so consumers have a seamless experience from the time they walk in the door until they drive off the lot with their brand-new car or truck.

“It will be interesting to see if this accelerates and becomes an actual trend or if, in the face of slower sales, dealers will slow down their desire to take on such a risky proposition,” Kansanback added.

“More and more dealers are moving the F&I process further upstream from the F&I office,” said Brian Reed, president and CEO of F&I Express. This is largely in response to demand from car buyers, he added, noting they are educating themselves about every component of the sales and F&I process before they set foot in the dealership, and they expect to be rewarded with a speedy transaction.

Doran agreed, adding that, if car buyers are going online, dealers need to continue to meet them there before and after the sale, promoting a more seamless online-to-instore experience. In this scenario, he added, the best deal might not always win. “I see dealers working very hard to give the customer a quality experience so the transaction is not just about the lowest price.”

Petrowski said GAP coverage is an F&I product worth watching carefully over the next 12 months. “Recent loss trends for GAP indicate continued deterioration of underwriting results,” he said, predicting an increase in premium rates in 2017.

Gruber said she will be tracking the factors driving those GAP losses, including used-car values and loan-to-value ratios. “I think we’ll continue to see declines in used-car values as the supply of off-lease vehicles increases, putting additional pressure on GAP loss ratios that are already on the rise due to increased repair costs and higher rates of total losses.”

Gruber added that she is already seeing more negative equity being rolled into new-car loans, which impacts LTVs even further. That trend has been gaining steam, and Gruber doesn’t believe it will reverse anytime soon — and certainly not as soon as this year.

Michael Tuno, president of World Class Dealer Services Inc., noted that, for F&I, new and emerging technologies always bear scrutiny. He believes an increasingly connected world will continue to put pressure on dealers and F&I providers to provide faster, better, cheaper and more convenient processes.

“Menu selling will continue to evolve to remain a ‘customized’ menu process designed specifically for each customer’s own driving needs,” Tuno said.

Jones said one of the major trends that all F&I providers, as well as dealers and agents, need to pay close attention to is the increased emphasis on profits in the F&I department. As the pressure on front-end gross continues to increase, he predicted, manufacturers will continue to produce more vehicles than general demand can support.

“We will see dealers try to generate more income to support their day-to-day operations from the F&I department,” Jones said.

F&I Products

So what products, in particular, should dealers, agents, and providers being paying close attention to in 2017, especially given the increasing importance they will likely play in the overall financial health of the dealership?

Considering the prominence of leasing, Doran said products designed for those customers will continue to be a major influence on the F&I industry. He predicted that solid gains in appearance protection and bundled products will continue into the next year.

“Our dealers are having success with listing them in their menus as a bundle with the ability to offer them a la carte,” Doran said, adding he is seeing greater success among F&I producers who use custom-tailored lease presentations than those who try to make the finance menu do double duty. In particular, he sees continuing growth for windshield protection, paintless dent removal and tire-and-wheel protection products in 2017.

Tuno agreed that leasing is going to continue to drive sales in the F&I office, noting that, while the numbers of new leases might fluctuate, leasing is still a major part in solving the affordability factor for consumers.

“We believe VSCs — especially for certified pre-owned units — and GAP will continue to be strong sellers,” said Griggs, who also sees maintenance contracts continuing to do well in the coming months.

Trinder added that he has discussed with providers some interesting products that are slotted to reach dealers in 2017. “Administrators are looking for ways to fill gaps that the traditional products are not filling particularly well. At the same time, the commitment to the traditional products continues.”

Maxim pointed out that, in combination with the trend toward extended ownership cycles, the value of VSC plans will only continue to increase. Consumers who plan to keep their vehicles longer should be more inclined to purchase products designed to protect their investment and keep it working in top condition for as long as they own it.

Prepaid maintenance, in particular, will likely see an increased push in the F&I office, Roesel said. “Factories are beating dealers over the head over customer retention, and a competitively priced maintenance program that makes sense for the customer is a great way to do it.”

“In addition to the traditional VSC and GAP offering, I believe that combo products will continue to gain traction,” noted Kansanback. He said the practice of offering bundles has reached a point where they are broadly accepted by both F&I managers and consumers alike. He believes they demonstrate value and consumers appreciate the ability to customize them to suit their individual needs.

Gruber agreed, adding, “I think we will continue to see increasing penetrations of service contracts and GAP, driven by higher repair costs and the inability of many customers to budget for repair or replacement.” Those rising costs are driven, in part, by the increasing amount of technology in new vehicles, which drives up the price of repairs when there is a problem. To counter that, Gruber believes more of those high-tech electronic parts will be covered in the VSCs on both new and used cars, making them more attractive to consumers.

F&I Technology

Speaking of technology, our experts predict more of the same kind of gradual acceptance that the industry has experienced over the past several years, rather than anything earth-shattering.

“Tablet sales presentations and the initial efforts to move F&I online will be present,” said Braganini. He pointed out that one area that could see noticeable changes is in how product providers and dealers deal with an increasing demand for more information about the products before a consumer gets into the finance office.

“I think we’re going to see more salespeople using tablets throughout the sales process, beginning with the presentation of vehicle information and F&I product benefits all the way through loan closing. And the next step after that will be for customers to buy a car without leaving their home,” Gruber said.

Gruber sees tools evolving to make this kind of process not just possible, but also comfortable and natural to consumers. Such a sales process will require a heavy emphasis on transparency from dealers when it comes to F&I pricing, she added, but that technology-savvy consumers who are used to purchasing everything else online will continue to press for the changes — whether or not dealers and providers are inclined to deliver them.

Jones agreed that, while there might not be any new technologies that shake up the entire industry, the rate of adoption will likely pick up steam in 2017. He points out that millennials’ share of the market is still growing, and those customers grew up in the Digital Age, when all information, about all products, was at the tip of their fingers in an instant.

That generation is also becoming a larger part of the workforce — including in dealerships, where they are driving the push for adoption of technologies that make the sales process faster and more consumer-friendly. As more of them join the sales and F&I teams, Jones said, the resistance to using the internet to sell F&I products will likely start to break down.

“This trend should continue throughout 2017 and beyond as more and more Generation X and millennials enter the car-buying market,” Petrowski said. He sees advances in F&I sales tools as playing a major role in the evolution of the industry, including increasingly intuitive and user-friendly menus, digital presentation tools and econtracting platforms.

“The front end will seamlessly link with the back end, and the winners will be those who can distil the complex to simple, yet sophisticated customer experiences,” Maxim said, predicting the push toward a fluid, seamless process will be followed by a push for more customer intelligence and predictive technology. He believes these types of technologies, in particular, will be useful for dealers who want to create competitive advantages by providing a buying experience that is custom-tailored to every individual consumer, no matter where and when they want to purchase.

For F&I, in particular, Maxim added, this kind of information-driven process — in the form of everything from tablets to virtual and augmented reality — could have a massive impact. “The buying process will become a fluid workflow, while the back end will incorporate new data variables to let the customer have a clearer picture of the impact of coverage choices.”

Doran also believes that data is going to be a focal point in the automotive industry in 2017 and beyond.

“Artificial intelligence that uses metrics from big data that helps customize and streamline your presentation to the individual buyer sitting in front of you,” Doran said.

It might be hard to imagine, Doran added, but it’s all part of the ongoing evolution of F&I: Trainers and top producers all agree that every product should be offered to every customer. Highly personalized and customized bundles driven by AI data might actually prove to be more effective once the technology has evolved enough to deliver them.

Reed concurred, noting that the greatest changes the F&I office will see in 2017 are more likely to happen outside the box. He believes putting more information about products online will generate more interest and, ultimately, lead to more sales to better-informed car buyers who fully grasp the value of their F&I managers’ offerings.

Rules and Regulations

During his campaign, Donald Trump promised that no regulation would be held sacred if he were elected. We asked our experts whether they believe regulators have anything to fear from the Trump administration.

“There is a host of areas in which I would expect regulations to be dropped or lessened or a hold put on pending rules,” Huntzinger said. “The changes will most likely cover all government agencies. The challenge is knowing which rules can be changed quickly and which will have to go through the legislative process.”

“With the new Trump administration, the general outlook is to reduce the amount of regulation going forward to a more business-friendly approach to government oversight. It is still unclear as to how that might develop,” said attorney and CPA David Kaseff, COO of MarksNelson LLC.

Attorney Aaron Lunt, who serves as assistant general counsel and head of regulatory affairs for The Warranty Group/Virginia Surety Company, agreed, noting that he believes the incoming administration, paired with a Republican-led Congress, will foster a pro-business environment with fewer regulations.

“One key area where I expect change is in the CFPB, as President Trump and Congressional Republicans have a strong appetite to revisit the Dodd-Frank act and curb regulatory overreach,” Lunt said. “If Dodd-Frank is revisited in whole or part, this creates an industry opportunity to influence change.”

Roesel agreed that, working together, the White House and Congress will take some of the bite out of the Consumer Financial Protection Bureau. He listed be the agency’s ability to subjectively sue lenders at their discretion as a possible target.

“The election of Donald Trump shall have a positive impact on our industry as it relates to compliance and regulatory issues,” Tuscan said, adding that, while he hopes that Trump remains true to his campaign promises to reduce regulations and make “the self-governed CFPB obsolete and a shell of its former self,” he is not concerned such actions would put car buyers at risk. He believes state attorneys general and insurance commissioners, along with upstanding lending institutions, will step up to protect consumers from unscrupulous practices.

“If Trump follows through on his campaign promises, I expect to see attempts to repeal Dodd-Frank and change the structure of the CFPB, effectively eroding its power,” Gruber said. She said it would be difficult to completely eliminate the CFPB altogether, but that it could conceivably be modified by Congress to replace the independent funding by the Federal Reserve. That would convert the CFPB into a Congressional commission with additional layers of oversight, including a system of checks and balances.

Another way Gruber noted the agency could be altered is by changing the single-director leadership structure to a bipartisan, five-person committee. Either of those changes in structure could result in a significant reduction in its ability to regulate the automotive industry.

“While it may not be practical for Trump to immediately disassemble the CFPB, he does have the power and authority to quickly reduce enforcement actions,” Kansanback said. “I do expect that Donald Trump as president will be pro-business and will ultimately have a positive effect on the auto industry.”

However, cautions Maxim, “If there is one thing we can predict about Trump, it is that he is unpredictable.” He believes dealers and providers should continue to push to digitize their processes and create more nimble, transparent adjustments on a state-by-state basis, regardless of what the president does — or doesn’t do — to change the regulatory landscape.

The Big Picture

For the most part, our experts are optimistic about 2017. They see strong sales and positive developments on the horizon, in the automotive industry and beyond.

“In summary, times have been good!” said Doran. But no one has a crystal ball, he added, and there are a lot of factors at play that could have a major impact one way or the other on both an industrywide basis, as well as a dealership-by-dealership basis. “Now it’s time to reinvest in your staff to ensure they are prepared to meet these or any of the enviable challenges of auto retailing.”

Agency consolidation is a trend worth monitoring, Kansanback noted, because it could portend a major shift in the way dealers — particularly the largest dealer groups — select F&I products.

“No agencies are landing deals with the publics, and most agencies aren’t equipped to deal with the needs of a 20-store group,” Kansanback said. “I think we all have to get real with where our agencies fit in the landscape of the future.”

As Tuno pointed out, the domestic automotive industry doesn’t exist in a vacuum, and the people who make their living in it are affected by forces outside of our control and beyond our borders.

“The world economic outlook will continue to impact the North American automotive marketplace in terms of the ability of manufacturers to sell overseas and their dependence on the North American market to remain profitable due to the reduced health of the global economy,” Tuno said.

Tuno also noted that the traditional model of selling one vehicle for use by one or two drivers might need to start to give way to approaches that allow multiple drivers to share a vehicle, particularly in the densest urban areas. Car-sharing, Tuno said, could provide a possible way to capture revenue from a market that has yet to express an overwhelming desire to own (or finance) their own vehicle.

One thing is for sure: The industry is changing. It is evolving as new technologies, new regulations (or the reduction of current regulations), and new ways of interacting and selling all continue to put pressure on dealers, agents and providers alike.

In conclusion, Kansanback said, whatever advancements are made in the F&I office should be positive, because they will be driven by the car buyers the industry was built to serve.

“Processes and technology developments should mostly revolve around helping the dealers support serving an increasingly sophisticated consumer who wants more information and wants their information earlier in the process.”

 

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The Present and Future of Electronic Signatures

The Present and Future of Electronic Signatures

On Wednesday, Aug. 31, at 9:00 a.m., attendees of the 2016 P&A Leadership Summit gathered in a ballroom at Paris Las Vegas for “eSignatures Today and in the Future,” a panel discussion dedicated to electronic signatures, including how the technology works and why more dealers, product providers and government agencies aren’t using it.

Brian Reed, president of F&I Express, served as moderator. He was joined by Dan Doman, chief legal and privacy officer for RouteOne, Tim Gill, CEO of Advent Resources, Andy Mayers, vice president of F&I solutions at Dealertrack, and Jim Maxim, president and CEO of MaximTrak Technologies.

Noting that the term “esignature” seems to mean different things to different people, Reed kicked off the discussion by defining the three basic types of signatures found in the dealership:

  • Wet signature: The customer signed a paper form with an ink pen.
  • Electronic signature: The customer signed their name on a digital pad or mobile device, typed their name into a form or document, or clicked “Agree” or “Disagree” to a set of terms and conditions; the term also can refer to a digital image of a handwritten signature, for example, on a dealer-facing software dashboard.
  • Digital signature: Considered the most secure type, digital signatures are cryptographically based, and they typically include some measure of validation as to the source of the signature.

Reed noted that consumers frequently encounter esignature technology at their mortgage brokers, grocery store checkouts and hotel registration desks, but it is only applied to a small percentage of the documents they are likely to sign at a dealership.

“The auto industry is always slow to adopt new technology, but it has embraced electronic contracting,” Doman said, noting that RouteOne processed more than two million econtracts for Ford and Toyota dealers in 2015. “Your question is why isn’t it more prevalent in ancillary docs and service lanes? You’re right, but in the auto sale and leasing environment, it is being adopted fairly rapidly, and all the other ancillary documents are being incorporated.”

Hurdles to Adoption

Gill said the challenge is to get all the “stakeholders” on the same page, noting that, while bank documents typically can be signed electronically, many dealers and some government agencies still require a wet signature.

“There is more than one issue around that,” Gill said. “Who has the data at the end? Is there an opportunity to store it in the DMS? I think the drag has been caused by government and registration agencies that are not that innovative and haven’t stepped up to the plate. … We have to lobby them and say our processes are changing.”

Asked whether any technological hurdles remain, Mayers said that, if so, they are far less problematic than the hurdles presented by the sheer number of document types and the different sources (and requirements) for each. Maxim agreed, saying he would like to see the National Automobile Dealers Association (NADA) and state dealer associations lobby government agencies to embrace the technology.

“What we have seen is slow adoption,” Maxim said. “Among the systems that support the providers, we’ve seen slow adoption because it hasn’t been prioritized.”

Looking at the issue from an “enablement standpoint,” Reed noted that, while the captive finance companies connected with manufacturers such as Ford, Nissan and Toyota have made great strides toward a fully electronic deal jacket, most finance sources have not.

“That’s the key to success,” Mayers said. “They need all the documents to be available. We always talk in this industry about the chicken and the egg. … The captives are driving it because they have that percentage of business the dealer does that makes it part of their normal process.”

“The other finance sources get a data file and the paper follows in the mail,” Doman said.
They don’t achieve the same consistencies as the captive does. Larger independent finance companies do have that level of volume and can achieve those efficiencies.”

As the economies of scale have begun to catch up with more finance sources, Doman added, they are producing digital versions of their forms to add to a complete package that can be transmitted to them electronically.

“Right, but there’s still a big missing window here when we talk about the size of deal jackets,” Gill said, noting that a deal could include 40 documents, 37 of which are related to the dealer’s own process, including worksheets. “That stuff isn’t being dealt with at all. … At the end of the day, the dealer has to archive it.”

“A lot of lenders are 100% electronic,” Mayers said. “There are systems that translate paper contracts. So what drives the industry is efficiency and return on investment. How much do our dealers spend on storing folders when they could be storing data?”

Motivating Factors

Maxim said he believes regulatory compliance could prove to be a major catalyst for wider adoption of electronic signatures. Banks, finance companies, dealer groups and F&I product providers are all looking for ways to mitigate risk, he said, and esignatures lend themselves to more compliant business processes.

Reed agreed, then asked Gill whether there is any document that could not be signed electronically if the source adopted the technology.

“I don’t think so, aside from government registry documents,” Gill said.

Turning back to Maxim’s point about compliant business processes, Doman said the potential electronic signatures bring to dealers looking for a more consistent process is “remarkable.”

“It creates a permanent record. It propels you forward on the compliance front,” Doman said. “All those documents can be signed and stored electronically. It’s the process the electronic signature enables.”

Asked whether he prefers to capture esignatures on signature pads or tablets, Maxim said pads are generally considered to be more secure, so that would be the likely choice for an installment loan contract.

“But I do believe the technology for tablets is pretty darn good now,” Maxim added. “It’s really about validation of whom you’re doing business with. When you’re going online, and people aren’t in the showroom, it’s a validation of the person’s identity.”

Maxim said the issue was raised in a recent meeting he attended with representatives from Mercedes-Benz of Canada. The factory executives reported a wave of fraudulent vehicle purchases in that country and a growing interest in new identity-verification tools.

“In the showroom, you can validate who you’re talking to,” Maxim said. “There is good technology you can use to combine tablet signatures with the form dynamically. It’s fairly efficient.”

After the panel disbanded, P&A caught up with Reed to get his thoughts on the session. He said he hoped attendees’ main takeaway would be that dealership customers are subject to multiple “signing ceremonies” and that esignatures hold the potential to reduce the complexity of the process.

“Going into that transaction, you have all these different parts that require different signatures,” Reed said. “There can’t be all these different signing ceremonies. There’s a perception out there when we talk about esignatures. Dealers still ask, ‘Is that legal?’”

Reed said the panel reinforced his belief that there is no compliance issue associated with esignatures and no significant technological hurdle to overcome. There are solutions available to dealers, product providers and, yes, government agencies that wish to adopt the technology.

“Once you have the components together, who will drive that process to have one easy signing ceremony for all those documents?” Reed asked. “Is it an independent party or a Dealertrack or a RouteOne? My personal opinion is that, over time, a number of parties will be able to do it and dealers will have options.”

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