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Fighting Back Against the GM Mandate

Fighting Back Against the GM Mandate

During this year’s P&A Leadership Summit, held Sept. 12–13 at the Gaylord Texan Resort & Convention Center in Grapevine, Texas, attorneys Matt Bartle and David Marcus, partners in the Kansas City law firm of Bartle & Marcus LLC, hosted “The GM Mandate: Legal and Practical Responses,” a special session added to the PALS schedule at the 11th hour in response to an August memo from General Motors.

The speakers’ goal was to educate executives working in the P&A space on the range of legal and practical responses that are available after the OEM’s move to push their own, factory-branded VSC to the top of the product list — whether or not that product happens to be the best fit for a given customer.

Bartle kicked off the session by noting that, in this case, GM is acting like just another marketplace bully.

“The bullies have goals,” he said. “And it is simple: They want to make it hard for dealers to offer a better product, with a better margin, at a lower cost to the consumer. They may dress it up, but make no mistake: All the bullies have the same goal. They want their product sold.”

While the pair focused specifically on the GM mandate for this session, Bartle noted that many of the same strategies and tactics can be used to fight other types of marketplace bullies.

Breaking Down the Mandate

To be sure everyone was on the same page, Bartle and Marcus started with a deep dive into what the mandate is and how it impacts the industry by listing the basic facts:

  • The memo was issued on Aug. 10, 2017.
  • The guidance came in the form of a letter and two service bulletins.
  • The focus was on aftermarket parts and vehicle service contracts.

Marcus broke down the bulletins and the letter, calling out the pertinent language and pulling up the “voluminous” initial disclosure form, which included language the attorney said was clearly designed to frighten customers. He also called out the harsh penalties that dealers would face for noncompliance, including a per-incident surcharge, suspension from various current and future sales programs, and even the termination of the dealer’s sales and service agreement (DSSA).

The response from dealers and other industry members was immediate and resoundingly negative. But the furor died down a bit when GM announced it would delay implementation of the new requirement by 90 days. Some dealers may have been placated by the move, but Marcus was not. At the heart of the matter, he said, is the fact that the OEM has “glommed onto” a few contractual and statutory provisions in the DSSA that “purportedly” provide cover for the GM mandate.

“This is what governs what GM can really make these dealers do,” Marcus said, pointing to Article 5.1, the pertinent portion of the dealer agreement. The article does, in fact, require dealers to disclose non-GM-branded aftermarket parts and products. However, Marcus said, it is not as broad as the August mandate would imply: The contract all GM dealers sign does not require them to use separate disclosure forms. It does not require consumers to acknowledge the disclosure. It does not require the dealer to tell consumers that VSCs from other providers may or may not be honored at some dealerships.

Finally, and perhaps most importantly, the contract fails to identify noncompliance with Article 5.1 as a material breach or reason for termination of the dealership contract. Add to that the host of state laws that govern what factories can and can’t require their franchisees to do, including whether or not manufacturers can require a disclosure or demand the customer’s acknowledgement of said disclosure — and there is some debate as to whether the mandate actually is in compliance with all of them.

“The penalties that GM is telling dealers they might face? There is nowhere in the DSSA where it lays out that the failure to comply with this particular article is a material reason for terminating the franchise,” Marcus said.

Resisting the Mandate

Bartle then took up the subject of legal remedies, up to and including individual or class-action lawsuits, but offered no guarantees.

“We can’t give good, crisp, clear answers such as, ‘Yes, if you go out and do this, you’re going to win.’ We can only talk to you about probabilities. But sometimes it’s back to the bully analogy: If the little guy doesn’t stand up and do something — even though the little guy knows that, if he throws the punch, he’s gonna take a whoopin’ — but unless the little guy does something, the big guy says, ‘Now it’s this mandate. Next time I’m going to come with something a little more, and a little more,’ and suddenly, there’s no freedom at all.”

Sometimes litigation is more about sending a message, Bartle said. Creating some bad press could help customers realize the manufacturer is not trying to protect them but instead trying to force them to purchase branded products. Also on Bartle’s list were “indirect remedies” for F&I product providers. This approach would rely heavily on educating dealers about their rights, including contractual obligations around disclosures, as well as statutory laws that specifically prohibit manufacturers from bullying dealers into selling the manufacturer’s VSC.

Marcus noted that the GM mandate could be considered a form of coercion. After all, they are imposing requirements that go beyond the DSSA terms and then threaten franchise termination if dealers don’t comply.

There is also the matter of the federal Automobile Dealer’s Day in Court Act, which allows a dealer to sue a manufacturer for failing to act in good faith in the execution of the terms or provisions of the franchise, or in terminating the franchise. To pursue such a complaint, several requirements must be met:

  • The plaintiff must be a dealer, as defined by the act itself.
  • The defendant must be a manufacturer, or one who “acts for” and is “under the control of” a manufacturer.
  • The manufacturer must either have failed to comply with a written franchise agreement or terminated a written franchise agreement.
  • The manufacturer’s action must not have been performed in good faith.
  • The manufacturer’s prohibited conduct must have caused injury to the complainant.

“Obviously, if GM terminates a franchise over this, that’s going to be causing injury to the dealer,” Marcus explained. He went on to note that, arguably, by requiring a disclosure that goes beyond the terms of the DSSA under threat of termination, “GM is not acting in good faith.” However, he pointed out that the good faith standard is very difficult to prove. It requires more than unfair or inequitable conduct. To win that particular argument, the dealer would have to show that the manufacturer employed coercion, intimidation or threats.

According to Marcus, there are direct remedies available to F&I product providers as well. The first relates to “tortious interference with business expectancy.” In the context of this mandate, the tortious interference standard would apply to the provider’s relationships with its dealers. “You have a relationship with these dealers, they sell your products, and GM is trying to stick its nose into that relationship,” he said.

The primary hurdle in this type of claim is proving the factory’s lack of justification, Marcus said. Generally, to win this type of claim, a provider will need to prove either that (a) the defendant — in this case GM — acted for the purpose of harming the plaintiff, rather than to protect its own business interests, or (b) the defendant interfered using wrongful means, such as fraud.

In general, noted Marcus, in the absence of criminal or fraudulent conduct, a company cannot be held liable for acts it takes to protect its legitimate business interests.

“It is very difficult to prove. It can be done — and in our practice, we do it frequently — but this is a tough standard,” he said. “In this context, you would have to show GM acted just to harm you, not to protect a legitimate business interest. Or if they acted to protect a legitimate interest, that they committed a crime or acted fraudulently. In the context of this case, that’s going to be difficult to show, based on the mandate we’ve seen.”

Antitrust is another potential avenue providers might explore. In this situation, the Sherman Act, which prohibits contracts, combinations and conspiracies in restraint of trade, as well as prohibits monopolies and attempts and conspiracies to monopolize, is a potential strike point.

“If GM is trying to get a monopoly on the VSC business, this would be something that would be triggered,” Marcus said.

The Clayton Act is another relevant piece of legislation. The act declares certain specific actions or practices to be illegal, including exclusive “dealing” or “tying” arrangements. A tying arrangement, in particular, is what Marcus believes to be the most pertinent potential antitrust claim providers could bring. It is an arrangement by which a seller agrees to sell, lease or license a product, service or any other item referred to as the “tying item” on the condition that the buyer also purchases or leases a different product or item from the seller, or upon the buyer’s agreement not to deal with the defendant’s competitors.

“What this basically means, in this context, is GM telling a dealer, ‘Look, if you want to keep being a dealer and selling the GM car, you’ve got to sell our VSCs with it.’ You can’t do that. That’s illegal,” said Marcus. GM, he noted, surely knows this, and they are trying to avoid that with the way the contract is worded, but that is a potential antitrust claim a provider could pursue.

That said, he noted, a case like this can be won. The key is showing that a manufacturer such as GM is using financial incentives and strong persuasion to convince dealers to sell only factory-branded VSCs. It’s all about having the right facts, and according to Marcus, right now, there just aren’t enough. All that’s available is the mandate. The practical application of the mandate remains strictly theoretical.

At this stage, Bartle said, dealers have better legal tools with which to fight than providers do. Knowing the tools available to them will help providers better communicate and coordinate. Breach of contract, in particular, is going to be the most potentially successful point of attack. “They are being asked to do something that goes beyond their deal with GM. This is a GM power grab.”

Providers may have a tortious interference or antitrust claim, but it is going to take more than just the mandate itself to prove it. Emails, in particular, Bartle said, can be the biggest killer: If there is found to be internal communication that supports those claims, it should come out in a lawsuit. But he warned that P&A executives and their attorneys must proceed with caution.

“Litigation is slow and expensive, and hourly lawyers are highly prone to be very optimistic about their chance of success, and eager to get you into straits you may or may not need to be in,” Bartle said, before concluding with a piece of advice useful to any product providers or dealers who are willing and able to take this fight to the courts. “If you take action, there is strength in numbers.”

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Building a Better Inspection System

Building a Better Inspection System

Van Cooper is the vice president of MCI Inspections – but he is the president of MCI Training. In fact, it was Cooper who created the training program MCI uses today, and he remains the driving force behind it.

Cooper’s training program was born out of his own observations about the inspection industry. He spent 18 years as a technician and helped found and run several iterations of inspection companies, honing both his skills and knowledge about what made a good inspector. After some time, Cooper found that the physical demands of being an inspector were becoming too much. So instead of moving into another industry, he turned his attention to how he could improve things. As a technician, Cooper said he had always enjoyed the challenge of determining the cause of a mechanical problem and figuring out how to fix it. The same problem-solving approach led him to ask why there has never been an official standard for training inspectors. He saw it is as an issue in the industry and in 2010, he began to work on developing a solution that would become the MCI Training program in use today.

“As a claims manager, when I would use an adjuster, they would do the inspection, and then they would ask what I wanted to do with the claim,” said Cooper. “I would look at the inspection report and have questions; it wouldn’t’t have all the information I needed. So the training program is my attempt to get inspectors to understand what the administrators need in reports, and why it’s so important to get it right the first time.”

His goal was not to educate inspectors, per se; Cooper noted that there are many very good inspectors out there who know how to do their jobs. The problem, he found, was that they included the items they thought were important, and then everyone got frustrated when the administrators would come back with questions, or had requests that did not make sense to the inspectors in the field. So his goal is to educate them about the “whys” of the reports – why do administrators ask for certain items, why do they ask for them in specific ways and why does it matter that the inspector gets it right on the first try.

As he was writing the program, Cooper said he was constantly reviewing his own writing and improving upon it.“I did 12 complete re-writes of the program from the time I started until it was done. I spent about two years examining even the smallest details that make up the process and over this time, I broke it down to the point of being ridiculously simple. There is a lot of information explaining exactly what administrators need in a report and why each item is needed. Different types of service contracts are explained to give the inspector a better understanding of how they are written.. Basically, the whole premise of the program is to help inspectors understand the process from the first phone call to when they mark the report complete, with every step in between covered.”

Cooper noted that for most inspectors, the process is to check to see if something is working or not, and whether they recommend that part be repaired or replaced. However, what they don’t realize, he said, is how much other information could go along with it, which the administrator needs to make their decision. And, Cooper said, he found inspectors didn’t realize that it did not matter if they actually checked all the boxes or not, if they weren’t including everything relevant in the final report. To keep the process running smoothly, inspectors needed a better understanding not only of the types of things administrators need, but why they need them. He believes that without that understanding, inspectors will revert back to their former way of doing things as soon as the training is done. That is why he spent so much energy focusing on those “whys” rather than the “hows”.

“We teach them to look at all of the items excluded from service contracts, whether damage exists in that area or not,” said Cooper. “They should acknowledge checking each item in the report, and whether or not they believe it is related to the failure at hand. Those things, along with the technical aspects of what failed complete the report. So the training program is more of a procedural thing, not teaching anyone to be a technician and diagnose cars.”

The end result, he believes, is not only better inspectors in the field today, but a more professional and defined industry that will attract the best and most talented technicians into the inspection side of the business. “We take their technical knowledge and this training program, and tell them that if they combine the two, they’ll be a great inspector,” he noted.

Creating a Structure

Cooper created his training program with chapters and sections – there is a quiz at the end of each section, and then a test at the end of each chapter. When the program first launched, he allowed users to see their quiz scores as they went, so they would have a good idea of where they were strong, and where they needed to go back and study a bit more. However, he found that some users were instead going back to the missed questions and guessing until they scored 100% and could move on. He has since tweaked the system, so users now do not see any of their scores as they go along.

Each section contains both written and video segments, and explores each topic in depth. Users must take the quiz in every section to advance to the next one, forcing them to review what they have learned. Cooper reviews every single user who goes through the training program personally; if he has the time, he provides feedback while they are working their way through the program to help them better understand areas they might have struggled with. If he has not worked with them during the process, then at the end, he reviews the entire program, and lets them know which sections they passed, and which ones they didn’t. A certificate of completion isn’t awarded until they have earned a passing score in every section and chapter.

“I look at the results of every person who goes through the program. It is all me, and no one else,” said Cooper, who works a full time job in addition. .”I’m very hands-on with everything I do, and I am extremely passionate about this program. It has been my baby since the start, and I keep a very tight leash on it for that reason.” Cooper describes the training program as a powerful tool worth a lot of money yet he doesn’t charge for it. The training is available at no cost for inspectors who enroll. “I think having the inspectors get this information is important to the industry itself, way beyond financial gain for me personally. I know I don’t fit the mold for a 2014 American, but I am truly not in this to make a profit. My passion is about making it better out there for everybody and recruiting really good inspectors to take the place of the ones who are leaving the industry. It is a reality that many good inspectors are aging out of the business.”

To date, since it went live in 2012, Cooper’s training program has had about 367 people enroll, with about 200 completing the course and gaining their certificate. At a given time, there might be a hundred enrolled in the course. While he said it was slow starting, word about the program is getting out there now. The program has been built entirely by word-of-mouth, with no marketing or hype. Most users will complete the program in a week; it is about eight continuous hours of information and quizzes. There have been a few who tried to “cheat the system” so to speak, by going straight through the program in a single day, without taking the time to study the material as it is presented and Cooper said this can only be attributed to their character – or lack there of. Fortunately, he reports, there are not many who do that.

The Big Picture

Cooper reiterated that his goal is to help raise the bar for the entire inspection industry. In some areas, the inspection market is hurting right now. Cooper said that most major metro areas only have 5-6 inspectors with some areas having less.. So attracting top talent, and giving them the tools to succeed, is critical for the future of the inspection industry.

Cooper maintains many close relationships with inspectors out in the field. He described how he genuinely cares about them and believes the majority of them are really good guys. He described his relationship with them as one where they know he is genuine and sincere and he is viewed as “one of them” so they relate to him. “They are going out to do the job to the best of their ability. But they are also trying to rush through each day to a certain extent. They have a lot of variables to deal with daily, like traffic delays, shop delays, shops not being cooperative, too many inspections in too little time, etc. All of these things tug at the inspector. They know they have 5, 6, 7, 8, however many inspections for the day that they need to complete, so later in the afternoon, they rush a little more. It isn’t ideal, but the reality is the reality. You can see a difference in the reports from early morning to later in the day.” Cooper says he understands this and doesn’t fault them for it. “It is just the reality of the industry and the things they have to deal with on a daily basis.”

The pay for inspectors has not increased in a long time, according to Cooper, but he said the true issue is not how much the inspector is getting paid, but how much time they are being asked to spend on each an inspection, which seems to be unnecessarily increasing. When this is the case, an inspector is getting far fewer inspections done in a given amount of time and this weighs heavily on their bottom line.

Cooper doesn’t just think this is an inspection problem, either. Administrators sometimes have unrealistic expectations of what is going to happen during the inspection process. “If the inspector has to spend two hours in a shop because the administrator wants a pre-delivery for the inspection fee, that hurts all of us. That inspector loses two other jobs that could have been done in the time it took to provide one report. Another example is that there is no reason to take 50 to 60 photos during an inspection if we are only inspecting a single item. – taking all those photos is not relevant to the claim. There are some administrators who request this in order to get an overall picture of the vehicle, but when you require things like this on every inspection and ask the inspector to look at things that aren’t relevant, it is too time consuming. Most of us won’t take time out of an inspector’s day to do things that are not relevant to a claim, but it is these type of requests that hurt the inspection industry as a whole – especially the inspectors.”

He wants administrators to understand the process too, and realize that what they are requesting is not always easy. If an administrator or adjustor does not have the technical knowledge to understand how involved the process can be, he noted, then sometimes they ask for things without realizing how time consuming it might be to fulfill that request. While his does not happen frequently, on the occasions it does, it can be very frustrating. Cooper explained that sometimes inspectors have to wait 30 minutes or more for the technicians to free up a lift, only to find that the items they were asked to check that required the use of the lift aren’t even relevant to the claim at hand. This frustrates inspectors; they’re losing jobs from other companies and their reputation can be affected because these situations make it impossible to finish everything on time. They will call at the end of the day and say they couldn’t fit the last one in.”

Cooper said not having enough time is the most common excuse he hears from inspectors. “To address that problem, we need to get the most value out of every inspection. We need to get them in and have them focus on the right things, so they can provide a quality report about what they’re there to inspect. We don’t need to have inspectors focusing on a lot of extra photos and providing all sorts of information that isn’t relevant to the claim. Sometimes, he said inspectors, even those working for another agency will call to talk through what they describe as strange requests – like being asked to take photos of a shop parking lot or parts that have nothing to do with a problem. On these occasions, it seems the administrator does not trust the inspector.”

He also wants to see administrators cultivating more patience when it comes to inspectors not being experts on every part of every vehicle. Inspectors, he noted, are like doctors going in to diagnose a patient; but unlike doctors, who only have two “models”, male and female, Cooper noted that inspectors have 100 or more models, each with hundreds of parts “A lot of administrators expect inspectors to be experts on every component out there. And they would love to, but to be a wizard on everything is tough.” Cooper went on to say he would like to see a little more understanding from administrators when this type of situation arises. A good inspector’s reputation could be quickly damaged by a single encounter involving something that the inspector was not well versed in handling if the situation results in complaints from administrators.

Cooper also wants to see administrators being much more clear and concise in their inspection requests. This will help both the agency and the individual inspector ensure the right work is done and included in the report the first time around. For example, he said, some administrators will list a wide range of items that are standard checks, and the inspector is left trying to decipher what the root problem really is.

“Administrators don’t need to list items such as check for commercial use, modifications, etc. in the request – those are givens and will be checked,” said Cooper. “If it is a transmission problem, for example, get to the transmission concern, and just state that it failed and ask for the cause. Then we can provide exactly what they want. Too often, there are a lot of crystal balls in play – inspectors need one to know what they’re looking for. Administrators could help themselves a lot by being more specific in their requests.”

Finally, Cooper believes that better communication across the board is necessary to make the inspections process run smoother for all parties involved. Too often, he noted, agencies get requests that state a part is out of the vehicle, only to arrive and find that not only is the part not out of the vehicle, but that the shop was not even aware they were coming. And then, Cooper noted, the inspector is seen as the bad guy. If administrators would let the shop know up front that they have ordered an inspection, why they have ordered it, and what the inspector will be looking for, then everyone would be much happier. Too often, he said, it comes down to the adjuster and the shop disagreeing, and the inspector is called in and put in the middle, which leaves him in the hot seat, trying to diffuse a situation.

“I would love to see more communication between the administrator and the shop; the administrator and the agency; and the administrator and inspector,” said Cooper. “The majority of the issues we have today would go away with more open conversation. If the administrator is going to inspect a vehicle, tell the shop. If they are going to send an inspector, state exactly what they need from them. Be very specific. Don’t write out a whole list of things to check without notifying the shop, because then the inspector becomes the problem; if an inspector arrives at the shop and tries to deliver what the administrator asked for, the shop wants to know why he needs all of that information. Then they call the administrator and say the inspector is a problem and they don’t want him back – all for trying to give the administrator what they asked for. Call the shop and say ‘we’re sending an inspector and we require this information’; then the inspector isn’t perceived as the problem. It should all be quick, easy and painless.”

Posted in Inspection9 Comments

eSignatures in the F&I Office

eSignatures in the F&I Office

Technology is constantly changing the way dealerships do business and one component that is no exception is electronic contracting (eContracting) with full electronic signatures (eSignatures). EContracting alone – generating the contract electronically – has been in the F&I office for some time, and has seen significant adoption. But that final piece – obtaining the electronic signature – has seen a much slower adoption. That, our experts believe, will soon change.

The technology needed to collect a fully electronic signature has been around for quite some time and laws recognizing electronic signatures as legally binding were enacted in 2000. While eSignature has seen rapid adoption in other industries, it has lagged behind in the automotive world, and specifically in the F&I office.

David Trinder, CEO, F&I Administration Solutions said that before talking about the adoption of eSignatures with F&I products, providers need to consider the balance between an acceptable level of security around the eSignature and the resulting cost. “We have many customers who are doing everything other than the signature electronically. The challenge with eSignature, however, is twofold. First, we need to get the process out there so people can use eSignature across the board (a few systems provide it but it is far from mainstream). The second challenge is the cost. You can do an eSignature with little security around the process or with maintaining the integrity of the signature after the fact. However, if you want some level of security, it will need to be supported by technology providers who specialize in this and that will add to the cost.”

Brian Reed, president and CEO, Intersection Technologies Inc./F&I Express, described eSignature as the end game for where the market is going. “There is a lot of momentum for it right now in conjunction with eContracting. ESignature is an enabler because it is easier to process for the dealer. There are a lot of benefits for eContracting, and a lot of dealers are doing it, but eSignature has been largely ignored. Without eSignature, F&I managers have to print out all of the documents to have the customer sign; they prepare them electronically, print them, then have anywhere from 3-5 signature pages to present to the customer. That is a stack of paper for the F&I manager to go through to pull out the signature pages and then have the customer sign each one.”

“If you take it outside of the automotive finance world, eSignature has experienced explosive adoption around the world,” said Steve Bisbee, president and CEO, eOriginal Inc. “Every kind of business and app can sign electronically today. Adoption was originally driven by companies who wanted to get the cost of doing business down, but the real driver today is the consumers’ lack of tolerance for paper. They are accustomed to doing things electronically, and doing them anywhere, on any device.”

“We have been in business since 2005, and laws have been in place to support eSignatures since 2000. We are just now scratching the surface of potential in dealerships,” said Dan Doman, vice president and general counsel, RouteOne LLC. “It takes a long time to effect change in dealerships, but I am happy to report we’re making headway.”

“ESignature has been around for a while,” said Strati Papageorge, vice president of sales and F&I product operations, DealerTrack Technologies. “When I started in 2003, we were just rolling out eContracting with eSignatures on signature pads for retail installment contracts. It wasn’t until recently that we started offering that option from an aftermarket product perspective. Years ago, it was a real chore to get those pads to work. Now, they are really ‘plug and play’ with virtually no issues. Technology has come a long way and we are doing more on iPads now, as well. Automotive is just a little behind other verticals when it comes to eSignatures; Technology moves slow in the dealership world – specifically F&I. They are not leaders on new technology, but we are seeing greater adoption now.”

“Retail installment contracts, by far, are where the bulk of eSignatures are being used in automotive today. But from what I’ve been hearing in the past year, we are about to experience a pretty significant growth during the next 12 months,” said Michael Laurie, vice president of product strategy, Silanis Technology. “Even though we started in 2001, the use of eSignature has seen slow adoption in auto finance over the years. It has taken a long time, but we are starting to get over some of the issues that have been barriers to adoption.”

Overcoming the Objections

One of those barriers has been consumer acceptance of an eSignature. Consumers have gotten used to viewing contracts on a screen, but many still believe they need to have a pen-on-paper signature for it to be valid. As younger generations are moving into car buying, acceptance is rapidly gaining ground. Today’s consumers aren’t just aware of eSignature technology, they probably use it in their daily lives for everything from buying groceries to purchasing hardware. This is good news for dealerships that want to bring those same efficiencies into their operations without any push-back from customers.

Another one of the barriers in using eSignatures was the acceptance from lending sources. While it is somewhat of a simplification of a complex process, lenders take the retail installment contracts and sell them to investors. If they use contracts with eSignatures, not only do they need to ensure they are as secure as the paper versions of those contracts, but in many cases they need to completely revamp their workflow. In the long run, it is a far more efficient process, but the lenders had to be willing to make the up-front investment. F&I is impacted because most managers were unwilling to have separate processes for retail installments and F&I product contracts. While the two have different requirements, at the end of the day F&I product providers will need to follow in step with lenders in order to stay relevant and competitive.

“From a lender standpoint, we definitely have captives pushing to use eContracting,” said Papageorge. “Certain captives have as high as 60-80% penetration on eContracting, which includes eSignature, and they are leading the charge. Since they have the most sway over dealers, if they mandate their preference of eContracting, they can drive adoption in dealerships. On the aftermarket side, we haven’t seen a lot of providers pushing for eSignatures – some have started to accept it, but we don’t see a preference for it. And from the F&I manager standpoint, they are asking ‘if I can eContract the retail installment, why can’t I do that on F&I also?’ We need one process and one consistent package. The lack of one has really encumbered eContracting and eSignature for years. It would benefit all parties to get on the bandwagon.”

“There is a federal law that says if you can do it on paper, you can do it electronically, along with inserting some consumer protections, such as the consumer being allowed to review the contract and having the ability to get a copy,” said Bisbee. “That becomes important in the automotive finance world, and enables eContracting. But in auto finance, we have retail installment contracts, which are security instruments. They are a contract between the consumer and dealer, and then the dealer transfers that retail installment contract or sells it outright on the secondary market. The challenge was determining how to ensure that there is only one copy to prevent it from being sold multiple times. They revised the law – called Article 9 – also adopted in 2000, and now a contract can be signed electronically, and the retail installment contract is transferrable into the secondary market.”

Doman explained that the finance sources get capital by taking retail installment contracts, bundling them up and offering them to investors through the securitization process. These portfolios have a fairly wide acceptance of eContracting. However, he pointed out there is still work to be done there. They have to review the eContracting systems generating the contracts, and they may need to engage outside counsel to do those reviews. “It is not a great deal of effort, but it is still effort to include eContracts in their offerings.” This is something Doman says finance sources consider when they agree to participate in eContracting from dealers and consumers.

Amanda George, director of product development, RouteOne LLC says eSignatures themselves aren’t even the largest part of the cost “It is all in the data. It is a shift in the process, and eSignature is one piece of what we consider a part of eContracting. There are many aspects of what makes a contract, and eSignature is at the end. How we define eContracting, with help of partners, is that it also includes data validation to make sure the data is not only accurate, but accepted by the lender so there are less contracts that fall apart after the fact. When we talk about costs and investments, they are usually more in that area than the actual eSignature piece.”

“Some of the challenges were that these are really complex transactions,” said Laurie. “In terms of what you do with the customer, it is not that complicated, but how automotive gets funded from different sources has seen a big impact from eSignatures and eContracting. It has come a long way. Today, it is being used extensively in banking, lending, specialized types of lending like automotive finance, real estate and consumer credit applications, and of course for any type of investment process out there. It has just been a question of industries understanding what legal and compliance issues apply, figuring out that they could use it and determining the processes that would work well and give a good overall experience. As a result, we see them used in a lot of different places today, and we will see that expand a lot in the next year.”

Much of it comes down to the same question – if it were necessary, would it hold up in court? And the answer across the board is yes. All of the experts noted that electronic signatures are no different in a legal sense from those on paper. A contract, they all said, is a contract, no matter what form it takes or how the signature was obtained. While that is far more important on the retail installment contract than on the F&I product contract, by adhering to the same standards, providers can make it more of a seamless process for F&I mangers as they do their paperwork. This will cause the F&I managers to be far more receptive and more likely to use the new systems to sell products.

“Auto finance contracts with electronic signatures can be sold on a secondary market because there is considerable security around not only the signature signing process but also the electronic documents themselves” said Trinder. “Most of these contracts are kept in an electronic ‘vault’ for just this purpose. There is a considerable cost to this, and it is doubtful that the F&I product providers will be willing to pay. The key therefore is to deliver a solution that balances cost against obtaining and maintaining the integrity of the signature. The fact is, it is easy to deliver a solution in which a person can swipe their finger across a signature capturing device and attach it to a contract. How, however, do we prove that the person signing is who you think they are, and how do you make sure someone did not remove the signature later and add a different one? Perhaps more to the point, should the F&I product industry care? Of course, I think they should, and especially since the balance between cost and document integrity is certainly available.”

Trinder explained that even though some providers may not require a dealer to send them the signed contracts, they do expect that if the physical contract was needed, the dealer would be able to produce it. Extending this philosophy to electronic documents should be done with the appropriate considerations. For example, surely vaulting of F&I product contracts should not be necessary. How often has a customer claimed that they did not pay for a service contract? In fact, providers should ask if they have ever actually disputed a signature on a contract. However, does that mean that security around these signatures is of no concern?

Collecting the Signatures

Signature pads have been around for quite some time, and are used in a wide range of industries. Today, they remain one of the top ways F&I managers collect eSignatures in their dealerships for the various types of contracts they handle. But even that is starting to change.

Tablet technology has slowly been seeing adoption in dealerships for a wide range of uses, from selling the vehicle itself to presenting F&I products. And now the experts agree the technology is starting to see more use as a signature pad, giving dealers and consumers a greater range of choice.

“How do you get these things signed?” asked Bisbee. “You can sign by typing in your name, and your signature appears on the document. That’s referred to as a text-based signature, and is the most common. But with the advent of tablets, we see consumers using a stylus or their finger and signing their name on the tablet. People are finding that process easier, and then the signature is embedded in the document. Then there is the ‘click to sign,’ option, which is literally just clicking a box. Sometimes that produces a signature on a line and sometimes it doesn’t. Federal law permits signatures to be any form – you can even use a voice or a sound. You could have customers sign documents with their voice, saying ‘I Agree’ and it can be a legally binding signature, although there are some places that don’t accept voice. You can even take an image of your signature and apply it to a document, or do things in person with a signing pad. Most often in automotive industry, the F&I guy has the deal on his screen, and he needs to have the consumer sign the contracts. He has a signing pad, and sometimes there may be disclosures displayed on the pad. But more likely, the customer is given a paper copy of the contract, and then the signature is attached to the electronic copy. The trend is going to tablets, where F&I managers don’t need a signing pad with a separate monitor, they can do everything on the tablet. That technology is just beginning, but that’s the way it’s moving. So there are a lot of different options, depending on the situation.”

“The tablet is an alternative method that I really like a lot,” said Reed. “It is a good process, where the dealer finalizes the contract on the computer, then has an app they can go into on any tablet, load customer’s information, then hand it to that customer. The customer can review the contracts, scroll through the terms, and after reviewing each section, the customer clicks “I’ve reviewed”, at which point the time and date is recorded. Then, once they have accepted all of the terms, a signature box pops up. They sign the tablet using their finger, and they’re all done.”

There are two different pieces of technology used in finalizing contracts explained Laurie – one for authenticating users, and another for capturing the signature.

“In automotive, we’re seeing all the major approaches. One is ‘click to sign,’ with the customer clicking an icon on the screen, which captures the intent of the signer. The other approach we’re seeing quite a bit is using a tablet to capture a hand written signature as part of the process. Either one is a good way to capture a signature. And if you capture hand written signatures on a tablet, that generally covers the authentication part as well; you are capturing the data.”

Papageorge noted that the use of tablets as signing devices is rapidly becoming more prevalent and he predicts signature pads will decline. Single function devices are not nearly as desirable for dealerships. They are still a financial investment yet a dealership can’t do a whole lot with them. He says they are in the process of launching menu solutions that offer the ability to be signed on an iPad. And while nothing is available for an iPhone today, Papageorge said he could easily imagine that happening in the future as well. All of these options are just starting to pick up more steam, but signature pads are still the predominant means of capturing a signature in the industry. “I think adoption will be slow and steady. Mobile is where signature capture will happen now; which devices – tablet or phone – I don’t know, and every provider will have a different view, so it is hard to say about standardization. But there will definitely be a bigger push to mobile.”

Next Steps for Providers

While adoption by the dealers is certainly one of the major hurdles still faced in getting the penetration rates of eSignatures up in the F&I office, there needs to be wider acceptance and support from providers to help drive that as well.

Laurie noted that, in the end, it boils down to providers having the options built into their contracts, and excellent integration with DMS systems to help drive the concept of a single signature being applied across multiple contracts. “From what I’m hearing, eSignature penetration levels will easily double in the next 12 months, and the numbers might be higher,” he said. “But I think the possibility that it could double is a strong one based on what I’m hearing. We are seeing providers starting to have the ability to handle the whole deal jacket – the only place there is still a barrier is the state forms. The rest of it boils down to good integration with DMS systems out there, and we have seen providers working toward that end. Integration into the DMS is making that a much easier process to implement for the dealer, and the experience for the F&I manager is also easier. They don’t control the DMS though, and that has been a good chunk of the issue. They have to rely on other technology to capture that data, so it is not as transparent and easy as it should be. It boils down to this: dealerships have to want to adopt it, and push it out to their customers. We’ve been seeing that, which is why we’re bullish. Providers with the bigger dealer groups have the ability to exercise influence to make this happen, and they are pushing for it. Things they have been working on include bringing funding sources to the table and good integration with all the systems and forms libraries needed to create deal jackets in the first place. Bringing all those things together is the biggest thing providers can be doing.”

Reed stated, “As technology providers, we need to support this evolution in the F&I office. Bring those dealers into 2014, instead of leaving them stuck in 1990.” He mentioned three things he believes need to happen for eSignatures to become mainstream in the F&I office:

  • The marketplace needs to embrace it – from the technology providers to the dealers. Providers need to make sure they have eSignature as an option for all their clients.
  • Dealers need to embrace the change to technology. If dealers aren’t preparing contracts electronically today, they need to start doing this and the key is having a quick and easy process.
  • The customers today expect processes that use current technology, not impact printers and pre-printed forms. More and more customers are going to demand eContracting and eSignatures as the way they do business.

George believes that providers working more closely with lenders and dealers to ensure all forms are available electronically – and are formatted to allow for eSignatures – is going to be a key part of the evolution. Doman agreed with her, stating that, “We are just embarking on the journey to complete eContracting. We have some major players who use it. They’re at the halfway point and they are the ones pushing it right now. But industry-wide, we’re just scratching the surface. Everybody benefits from eSignatures – there is a better cost structure, more efficiency and better disclosure. Everyone benefits.”

“I would say providers need to be enabling eSignature as part of the process to help drive penetration rates,” said Papageorge. “Things are still lagging a bit in this regard. We are seeing some providers moving more toward digital contracting, offering eSignature and really working with dealers to convince them of the benefits. In that way, they are not dissimilar from captives: if providers have certain dealers who sell a significant volume of their products, it makes sense to start with them and leverage that relationship. Outside of that, it is really a training point – educating the F&I manager of the benefits from an eContracting process with eSignatures as a component. It has got to be a consistent process though – if providers can do that, then they break down F&I managers’ main reasons for not adopting the technology.

In summary, Trinder pointed out that the bottom line is not about convincing dealers to go the route of eContracting and eSignatures – it is about establishing a process that everyone is comfortable with. “There has to be a balance between affordability and security as well as a smooth process for the dealer. The key is going to be for providers to look at the potential ramifications of various levels of security and decide what they are comfortable with. What is irrefutable, however, is that electronic signatures will become as natural a process in the F&I office as electronic contracting is today and F&I Admin looks forward to delivering electronic signature solutions that will drive that process.

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Experian Automotive: Consumers Purchasing an Electric Vehicle are Younger and More Affluent Than Those Buying a Hybrid

Schaumburg, Ill. – In honor of Earth Day, Experian Automotive released findings from an analysis comparing electric and hybrid vehicles. Findings from the analysis showed that in 2013, more than 45 percent of hybrid car buyers were 56 years old or older, while roughly 26 percent of electric car buyers were of the same age. The greater percentage (55 percent) of electric buyers were between the ages of 36 years old and 55 years old. Additionally, nearly 21 percent of consumers purchasing an electric car had an average household income of $175,000 or more. Conversely, only 12 percent of consumers purchasing a hybrid had an average household income of the same level.

“At first glance, one would imagine that consumers purchasing either a hybrid or electric vehicle would be nearly identical; both are environmentally conscious, are of similar ages and have higher income levels,” said Melinda Zabritski, senior director for Experian Automotive. “While for the most part those statements ring true, our research shows that there are slight differences between the two. One possible reason for the disparity could be the growing popularity of the higher-end luxury electric models available.”

As part of the analysis, Experian Automotive also looked at the volume of each of these vehicle segments on the road. Findings from the analysis showed that while hybrids made up nearly 98 percent of all alternative-powered vehicles in operation at the end of 2013, electric vehicles grew at a much faster rate, increasing by approximately 245 percent from a year ago. The number of hybrids on the road grew by roughly 19 percent.

Furthermore, the top five hybrid models on the road in 2013 were the Toyota Prius, Toyota Camry, Honda Civic, Toyota Highlander and Ford Fusion. The top five electric vehicle models on the road were the Nissan Leaf, Tesla Model S, Ford Focus, FIAT 500e and Mitsubishi i-MiEV.

Additionally, Experian Automotive also reviewed some of the financial attributes of hybrid vehicle loans and electric vehicle loans. The analysis found that, overall, consumers purchasing a new electric vehicle had a higher credit score (749) than those purchasing a new hybrid (741). The study also showed that the average monthly payment for a new electric vehicle was $549, which was $82 more than a new hybrid ($467).

Other findings include:

  • In 2013, nearly 44 percent of all consumers purchasing an electric vehicle had the presence of a child in the household; nearly 52 percent of hybrid buyers did not
  • The average credit score to lease an electric vehicle was 747 in 2013
  • The average credit score to lease a hybrid vehicle was 729 in 2013
  • The average length of a lease for an electric vehicle was 29 months, while the average length for a hybrid was 35 months
  • In 2013, the average monthly lease payment for an electric was $263, while the average monthly lease payment for a hybrid was $386

Posted in Auto Industry News0 Comments

Braskamp Joins Industry Summit 2014

Las Vegas — Organizers of the annual Industry Summit announced that Steve Braskamp of Capital One Auto Finance will deliver the opening keynote address at this year’s event, which will be held Sept. 8–10, 2014, at Paris Las Vegas.

Braskamp is director of national sales and originations for Capital One, which is among the industry’s leading noncaptive finance companies. He will welcome the Industry Summit crowd on the evening of Monday, Sept. 8, and will be followed by that evening’s welcome reception.

The announcement follows last week’s news that Rick Hackett, former assistant director for the Consumer Financial Protection Bureau (CFPB), agreed to speak on Tuesday morning. Hackett was the CFPB’s point man to the automotive industry and supported the agency’s efforts to regulate dealer-arranged sales and financing.

“We are intrigued, to say the least, by what both men have to say,” said David Gesualdo, show chair and publisher, F&I and Showroom and Auto Dealer Monthly. “But Steve’s presence, bolstered by his expertise, guarantees that our attendees will leave the show with a good idea of where that segment is headed.”

Braskamp’s 15-year career at Capital One includes leadership positions in several consumer lending segments. In his current role, he oversees a team of more than 900 associates that generates more than $17 billion in prime, nearprime and subprime auto contracts on an annual basis. Prior to joining the company, Braskamp worked in investment banking and management consulting.

Industry Summit includes educational tracks for F&I, Special Finance, Used Vehicle Retailing, Dealership Sales & Technology and P&A Leadership. More details, including registration information and a full agenda, will be available on the event’s Web site in the coming months. For information about sponsorship and exhibition opportunities, contact David Gesualdo via e-mail or call (727) 947-4027.

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US Equity Advantage Adds Regional Account Manager

Orlando, Fla. — US Equity Advantage, a provider of biweekly and early loan payoff services to the automotive industry, hired F&I veteran Karena Raino-Nevratakis as regional account manager for the Western United States. Her primary responsibility will be to provide training and sales support to dealerships in Washington, Oregon, California, Nevada, Arizona, Utah, Idaho, Montana, Wyoming, Hawaii and Alaska. She will report directly to USEA CMO William Lathrop.

“We are very excited to add such an accomplished F&I expert as Karena to our team,” Lathrop said. “Her hands-on, in-dealership experience along with the results she has personally produced using our service makes her a perfect fit to provide training and sales support in the Western U.S. market.”

Raino-Nevratakis began working in the automotive industry 20 years ago at a dealership in western Washington. Her career advanced to working in the F&I department in 1996 and she was later promoted to finance director in 1998, a position she successfully held for fifteen years.

According to Raino-Nevratakis, a focus on leadership, F&I training and product knowledge, and the utilization of the ADP Menu and USEA’s biweekly service are contributing factors to her successful career.

“I believe in AutoPayPlus and the benefits it provides to both the dealership and customers buying vehicles,” Raino-Nevratakis said. “USEA provides excellent customer service and support for dealerships and consumers.”

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