The Advisory Council is the body that steers the Association and advises the Board of Directors. The Council met for the first time during the Industry Summit at the invitation of the Board of Directors – David Gesualdo, Adam Kimber, and me. The members of the Advisory Council and the companies they represent are:

Clearly, this is a serious group, and demonstrates the breadth of support for the organization. Pete Biscardi was unanimously elected Chairman of the Advisory Council. Pete states, “The enthusiasm of the working group and the members of the council clearly indicates a commitment to the industry from the highest levels. The efforts of all those involved demonstrates a bi-partisan willingness to create high standards of excellence for our industry.”

Pete agreed to head this working group to address those issues. The first order of business in Las Vegas was to define the scope of membership and dues structure. Without those variables settled, the Association could not move forward.

In the months since the kick-off meeting, Pete’s committee (Brent Allen, Steve Amos, Chris Kerby, and Kelly Price) came to a consensus as to membership levels and dues:

Membership Levels

1. Provider and Administrator (“P&A”) Members
   • Actual F&I product providers (VSC, GAP, etc.)
     • Bright line test: if your company provides a product sold in F&I, you qualify for this level of membership
   • Underwriters of F&I products
2. Industry Members
• Companies that provide services that directly support the business of P&A Members
• Examples would include:
  • Integration providers
  • Menu providers
  • DMS companies
  • Bi-Monthly payment plans
  • Roadside assistance
3. Allied Members
• Companies that touch the F&I function indirectly
• Examples would include:
  • Inspection companies
  • Consultants
  • Lenders

Dues

• P&A Members: $2,000/year
• Industry Members: $1,500/year
• Allied Members: $1,000/year

All companies and individuals that join before the end of the Agent Summit in March will be designated “Founding Members.”

Registration forms are available. Click Here.

Next on the agenda was clarifying goals for the first year of FIPPA’s existence. The initiatives deemed of highest immediate priority were:

Industry Certification Program

Despite everyone’s best efforts, this initiative continues to be called the “Good Housekeeping Seal of Approval.” A more appropriate title will come in time, but the concept is clear: we want to create clear and objective set of criteria that distinguish reputable providers from the fly-by-nights. Suggested requirements for certification include underwriting by companies rated “A-” or better, a certain Better Business Bureau rating, and absence of negative regulatory action. Whatever criteria are decided, certification must be free, or very close to it – we don’t want to create the impression the certification is for sale, or only available to those who are willing to pay for it.

Independent Inspector Training and Certification

Having an objective training curriculum and certification of ability for inspectors is a high priority for the providers that use inspectors in the claims process. Creating the curriculum and a web-based delivery system will easily take a year to complete, but is seen as a natural and important function of FIPAA.

Industry Education and Certification Program

Not everyone is born knowing the difference between Stated and Exclusionary Coverage. And yet there is an immense body of knowledge within the members of the Advisory Council and the companies they represent. Web-based instruction and testing related to industry knowledge was considered a benefit to the industry as a whole, and would provide standardized training of new hires. This training could extend to independent agents in the field, with an additional emphasis on legal compliance – all providers and administrators have a vested interest in having the agents selling their products doing so in a legally compliant manner.

FIPAA Website

It goes without saying that the organization needs a robust website that can facilitate communication and provide “the reputable voice of the industry” to those consumers who seek information about the value of F&I products. Sponsored by P&A Magazine, www.fipaa.org will launch in conjunction with the next board meeting being held at the Agent Summit in Las Vegas, March 12-14.

Two years ago, a number of thought leaders in the F&I industry had the notion of creating an association. FIPAA represents the birth of that notion.

Currently, many claims administrators are only purchasing engines and transmissions from parts distributors and buying all other parts directly from dealerships. While this practice may have been the old standard within the industry 10 years ago, it’s time to start getting the most bang for your buck by taking advantage of new options. These options are created by incorporating parts purchasing from third party companies, like Meridian Auto Parts, into your claims routine. Not only can parts purchased from parts distributors cost substantially less than those purchased directly from the dealership, but you can positively impact your cost-per-claim bottom line.

As veterans in the automotive industry, we have a lot of experience working with claims administrators to help fill their needs for quality automotive parts. Recently, we spoke with a group of administrators, and asked them to provide us with an estimation of how much they were spending on parts purchased strictly from dealerships. While we can’t share any of the hard numbers with you, we can tell you that claims filled solely with parts purchased from dealerships generally cost up to 30 percent more than purchasing from parts procured from our company. We understand that there is a large amount of work that goes into opening and closing each VSC claim. We also understand that your time is valuable. As administrators, it’s often easy to lose sight of the big picture— to increase profit without sacrificing the quality of customer service. With 30 percent or more of savings available, sourcing and purchasing from a parts distributor is well worth a quick phone call.

Today, auto manufacturers are integrating advanced automotive parts into the production of their vehicles. It is predicted that the cost of these parts will increase in the future. Fortunately, there are alternatives to purchasing parts directly from dealerships. While dealerships typically offer only new OEM parts, part distributors can offer a tier of part options. Many can provide you with: new OEM, OEM remanufactured, new aftermarket and aftermarket remanufactured parts. Each individual claim may require a certain level of quality part; this is why it is important to remember that purchasing parts solely from dealerships is not your only option.

From electronically controlled air suspension components, to integrated navigation or information units, one can see that there can be a high cost associated with incorporating technology into automotive part production. Below is a comparison of some of the parts that administrators are consistently purchasing for four popular vehicles.

From the example provided, it is obvious that claims can quickly become very expensive. To keep costs manageable, administrators should source more parts from parts distributors. The old idea of sourcing only engines and transmissions from parts distributors is outdated.

Whether it’s the dealerships raising their prices on parts or auto manufactures incorporating technologically advanced parts into their vehicle production, there is a need for more variety when sourcing parts. The way of the future is sourcing quality parts at a lower cost. It’s time to stop “partying like its 1999” and adhering to the old standards of parts sourcing. It’s time to start making the best decisions for your company in 2012. You can increase your profit and positively affect your bottom line by sourcing parts from parts distributors. So when you’re making those New Year resolutions this year, don’t forget to resolve to make changes both professionally and personally. Start setting the new standard within your organization by sourcing your automotive parts from third party parts distributors.

In my experience, it’s rare that someone with decision making authority made it to that level by being an idiot. So for argument’s sake, we can assume that deep down we all know what the right thing to do is, but for some reason, we don’t always do the right things.

Why is it then that we don’t always listen to that little voice inside our heads? The voice that clearly knows right from wrong. The voice that knows how to analyze things from multiple points of view. The voice, that for some reason we’ve all either lowered the volume on or even muted because we get caught up in greed or selfishness, or we just don’t think we have the time to listen to because we are so busy and need to get things done. That voice has a name and that name is COMMON SENSE. As an industry, I think it’s about time we started listening to it and using it.

In law school, they taught us about the “Reasonable Man.” The Reasonable Man represents an objective standard against which any individual’s conduct can be measured. It is used to determine if a breach of the standard of care has occurred. The Reasonable Man standard holds that each person owes a duty to behave as a reasonable person would under the same or similar circumstances.

While each case will have specific circumstances that require varying types of conduct and degrees of care, the Reasonable Man standard does not change. The Reasonable Man standard performs a crucial role in determining whether a defendant has acted negligently in tort law, and I argue that with slight variation, the standard of care required of the Reasonable Man is largely based on the Reasonable Man using common sense.
Roughly speaking, common sense is what people would agree upon and what they “sense” as their shared (common) natural understandings. I’m not arguing that that you should base your decision making solely on public opinion, but it certainly is important.

The reason people say “perception is reality” is because the way people perceive us or our situation is what we need to react to. A simple test that we can use to gauge public opinion is “The New York Times Test,” which asks us how we would feel if our business decision and reasoning was printed in boldface type on the front page of The New York Times for all to see. If your analysis is honest and objective, and your business decision passes the test, then although it ultimately might not be the right or best decision to make, you should at least feel comfortable with the decision.

Objectivity is a key concept that is essential for applying true common sense to any situation. It could be argued that common sense speaks too late and comes from someone that has no skin in the game. From a practical perspective, this is true. None of us has a crystal ball or a time machine. And, of course hindsight is 20/20.

However, most of the time, the realization comes too late because we failed to ask for advice, or we failed to think things all the way through on our own before we acted.

One could argue that public opinion is formed by outsiders, those with no skin in the game, and therefore lack of personal risk allows them to think more objectively. So, if you do have risk, but you can step back and be objective, then your analysis will be more clear and lead to better decision making.

Inherent in the concept of common sense is the notion of commonality, which tells us that we should not assume that our version or image of common sense is communal. Instead, we need to view things from different perspectives. This seems to fly in the face of the Golden Rule (“do as you would be done by”). But, in reality, the Golden Rule fails to take into consideration that no two people are exactly alike.

Just because one person is fine being treated a certain way, doesn’t mean he or she should assume that everyone else feels the same way. Different people can view the same set of facts/situation/disputes differently. This is called perspective, and it’s one of the most, if not the most, important concepts to grasp.

Dale Carnegie in How to Win Friends and Influence People quotes Henry Ford: “If there is any one secret of success, it lies in the ability to get the other person’s point of view and see things from that person’s angle as well as from your own.”

If you can view things from somebody else’s perspective, you will be much more productive and get further than by being stubborn and closed-minded. Understanding another person’s perspective folds right into the communal nature behind common sense.

Why is perspective so important? Because believe it or not, excluding liars and people doing things out of spite, your opponent believes in her or his position as much as you believe in yours. That’s right: the opposition honestly believes that it is right, and you are wrong.

This doesn’t mean that you have to agree with someone else’s perspective, but you have to at least recognize it and then find a way to play to it or to counteract it. To know and understand your opponent’s point of view, you have to gather facts. When analyzing those facts, relativism reminds us that we must remember that every situation is relative to the specific facts of that situation.

The concept of relativism believes that there are no absolute truths because the truth is always relative to some particular frame of reference, such as situation facts, language or culture. Albert Einstein probably defined it best when he said, “Put your hand on a hot stove for a minute, and it seems like an hour. Sit with a pretty girl for an hour, and it seems like a minute. That’s relativity.”

I urge you to sprinkle some common sense on your decision making. Try to view things from other perspectives. Soak up all of the ideas that are being pushed on you on a daily basis, because even if you don’t agree with what others are saying, it will at least help you see things from a different perspective. Once you can view things from other perspectives, you will be able to apply a more useful version of common sense to your decision making. This will ultimately lead to better decision making and a better public perception of you and your company.

Review of 2010

The 2010 conference covered many workshops and panel sessions examining topics relevant to the dismal economy, technological changes in the industry, compliance issues, and even opened the door to addressing F&I product categories outside of vehicle service contracts.

The Hot Buttons for the year included the following:

The Danger Inside the Data – discussing how the prior two years had impacted the data that companies depend upon to set their business strategies. Further discussion reflected upon whether, and if so how much, does historical data really predict the future.

The New World of F&I – which provided an overview of the F&I industry and the role of technology and internet has on opportunities available. The impact of demographic shifts and new legislation was also discussed.

Dealership Reinsurance – the challenges and opportunities regarding reinsurance were discussed as well as ideas for providers on how reinsurance could be made an integral part of their product offerings.

Panel discussions covered Web Services including e-Quoting, rating and contract generation and the impact the economy had on business, and Workshops focused on “The Importance of a ‘Bag’ of Products,” and compliance issues.

Focus for 2011

So, where has the focus changed to over the course of a year? Has it changed, and if so how much?

VSCAC this year still covers the same important categories as in prior years, but as the world and economy is ever-changing, so do the technology, laws, business strategies, and product offerings that this industry operates within.

Technology

Technology is a huge topic as it is an integral part of almost every segment of a business’ operations – providers and administrators not withstanding. A large portion of the conference focuses on technological changes, not only in the market place, but also within the industry. So, how these changes have affected our product offerings, how we do business, and the changes that we have made to remain competitive, accurate, reliable and efficient are a huge result of technological changes and processes.

Technology-based workshops and panel sessions include:

• Two panel sessions covering the 4-part series based on “connecting providers, administrators, and dealers” that P&A Magazine has been covering over the past few months. The first panel session, moderated by Adam Kimber with Agent Entrepreneur and P&A Magazines, will be held the first day of the conference, Tuesday, from 10:00 – 11:15. The second panel session, moderated by David Trinder with F&I Administration Solutions, will be held the second day of the conference, Wednesday, from 11:30 – 12:30.
• An afternoon keynote address from 2:00 – 3:00 on Tuesday given by Jim Pratt with Wright Express, covering issues regarding making VSC claims payments faster, cheaper, and more efficient with electronic payments.
• A Wednesday morning panel session from 10:05 – 11:15 moderated by David Trinder titled “Agents Sound Off on What They Need.”

Compliance

Trying to keep abreast of most current laws, what is and is not permitted and conducting business within the “not-so-black-and-white” areas of compliance issues can be very tricky. Event planners and coordinators have made sure that attendees of this conference have not left without having ample opportunity to catch up with what is going on in the industry and what to keep in mind while going about your everyday business schedule.

Panel sessions and presentations that delve into this area of interest include:

• Monday evening’s Welcome and evening keynote address given by Damon Wiener with Safe-Guard Products International about doing business the right way (without breaking the bank). This legal-fee free session precedes the conference’s Welcome reception held at 6:15 – 7:45 that evening.
• A Wednesday morning panel session from 9:00 – 10:00 presented by Michael Benoit with Hudson Cook LLP titled “Compliance Watch: The Industry’s Newest Threats.”
• An afternoon panel session from 3:05 – 4:00 on Wednesday moderated by Lewis Kuhl with Pathman Lewis LLP will cover Emerging Claims Issues with VSCs.

The Economy, Business Strategies and Product Discussions

For the past few years it’s been hard for many to escape the effects the economy has had on businesses. Although many of the Technology and Compliance panel sessions and workshops will include ideas and information relating to general business processes, several workshops and a Keynote Address have been included on the agenda that are more focused on these topics. Included in the agenda are the following:

• An opening keynote address held on Tuesday from 9:00 – 10:00 presented by Mike Frosch with The Warranty Group discussing Strategies for a Rebounding Market.
• A workshop on Tuesday afternoon from 11:30 – 12:30 presented by Gary Fagg with CreditRe on Limit the Inherent Risk of Too-Good-to-be-True Products.
• A second workshop on Tuesday afternoon from 3:05 – 4:05 on Keeping Tire and Wheel Viable – trends that are impacting current and future programs.
• A workshop on Tuesday from 4:30 – 5:30 presented by John Kerper with Kerper-Bowron will examine Month-to-Month Renewal Service Contracts and provide key insights on how to manage this reemerging product segment.
• On Wednesday from 2:00 – 3:00 a workshop co-presented by Lee Bowron with Kerper-Bowron, and Guy Koenig with AmTrust will cover Carrier/Administrator Relations Best Practices and elaborates on what practices need to be implemented to ensure the goals held by both parties are achieved.

The full VSCAC agenda can be viewed at http://www.vscac.com/Program/Conference-Program/”

If you are a provider or administrator, this conference is THE place to be from September 26 through September 28. Not only does VSCAC offer great insight and best practices for professionals in the industry, there are also several Networking Breaks scheduled throughout each day and a reception following the day’s events that will be open to all attendees and participants from all three conferences included in the Industry Summit. What better way to break-up or end your day by catching up on the latest conference events, networking, socializing, and putting names to faces that we conduct day-to-day business with from all areas of the country.

It is no secret that the automotive landscape has become more competitive and more regulated than ever, and the old adage “only the strong survive” has never rung truer.

We see it daily in every aspect of the sales cycle: cut costs, increase operational efficiencies, make the customer happy. Be profitable. Fortunately, today’s electronic processing, or e-contracting, of automotive F&I product sales is steadily evolving and now offers significantly better integrated options compared to five years ago. There are many solutions that support a full electronic process to rate, prepare and register contracts from within the dealership. Technology, or even change itself, is not the real barrier; it is the acceptance of workable solutions across a diverse supply chain.

All entities, including F&I product providers and administrators, lenders, dealers and ultimately, the customer, stake a claim in a successful transaction. Key to that success, however, is embracing tools and technology that streamline the overall flow.

Recently, there has been a slow but fundamental shift away from the traditional manual contracting process to a digital or electronic approach. Many F&I product providers have developed their own contracting portals, and while some are very well designed, they have only incrementally improved the dealership workflow. However, dealers are less willing to completely adopt e-contracting because they are not convinced the benefits outweigh the impact of a major shift in their process.

But how does a provider or administrator justify the new investment, especially when legacy processes must be maintained through the transition? Many providers have evaluated the cost to implement e-contracting, but few have analyzed the real cost of continuing with their current, manual process. There is no industry formula, but the information is available for those willing to look.

Those who have migrated to and embraced e-contracting, especially F&I administrators, quickly realize that the cost, inefficiency and errors of traditional contracts no longer need to be a “given” part of the process. And through this technology, the relationship with dealers and the consumer is more efficient. Providers can reach more customers and sell more products, and secure, electronic transactions make it easier for all involved.

Every industry recognizes the Internet has enabled a major shift in business processes. Traditional expenses that do not help grow the organization or retain customers should be scrutinized. Ask yourself, “If I was starting fresh today, how would I approach it differently?”

While the shift to e-contracting gains momentum for those who understand its benefits, transitioning typically requires an investment that must make sense financially. How can you measure the true “expense” of traditional contracting, and how can we objectively evaluate the business case?

In understanding manual contracting vs. e-contracting, we first need to define the cost elements associated with traditional, paper-based, manual F&I contracts.

• First are direct costs. These are measurable expenses associated with a paper-based process, typically tracked on a P&L. Direct costs include the cost to purchase or print paper contracts. This is affected by inventory levels, emergency contract changes or scheduled changes. Direct costs also include shipping paper contracts to agents and dealers, which depending on the number of changes, might include multiple shipments.
• Next to consider are leveraged costs. These are measurable but are typically leveraged. Administrative work to manage forms such as formatting, storage, and library maintenance are examples, as is the data entry work to record contracts. Leveraged costs also can include filing and storage of paper documents using valuable floor space and cabinets, and the time to manually file and retrieve paper documents if needed. Write offs of dealer rating errors are another leveraged cost to consider.
• The potentially largest piece of the traditional contracting cost is opportunity cost. These costs are rarely measured and difficult to quantify in many circumstances. Examples include missed sales opportunities because the proper tools are not available or accessible at the point of sale; cost of reporting delays like the registration of the sale and its remittance; the risk associated with a distributed forms process where obsolete, non-compliant forms might still be in use; the CSI cost of claims on unregistered contracts or registered contracts that were voided or canceled; and finally, dealer satisfaction, reflecting how easy and reliable dealers perceive it to do business with their agents and administrators.

When an administrator evaluates an e-contracting strategy, he or she needs to factor all of these costs into the decision. Specifically, administrators need to evaluate what percentage of their administrative labor cost is spent on the entire cycle of a paper forms process, as well as look at their charge-backs and write-offs for each quarter and apply a percentage to those “avoidable” issues. They also should analyze their dealer cancellations to find the root cause, as a certain percentage is likely connected to preventable errors in the process.

A number of companies have been working in this space for years to advance the use of modern tools. Spencer Lyman, Vice President of Systems Development at CNA National Warranty Corporation, a leading national provider of vehicle service contracts and associated products, cites the accuracy and consistency e-contracting provides as a primary motivator in embracing the technology. As a result of ongoing investments in infrastructure to support the technology, CNA National is seeing a positive impact and experiencing additional benefits.

“One of the things we found striking is the effect on early cancellations of service contracts. Dealerships that are able to fully implement e-contracting find the percentage of early cancellations drops to almost zero,” said Lyman. “It makes a significant difference because the business is done correctly the first time rather than needing endorsements down the road.”

As stated earlier, though, the overall auto contracting process is dependent upon a carefully timed series of events and contributors. The successful completion of each step relies on the previous link in the chain. In order to reap the cost and operational benefits, it’s not only administrators who must adopt digital contracting, but dealers, lenders and other F&I sources as well.

Since the advent of e-commerce in the Internet era, many companies have launched technology solutions but few have reported widespread adoption by their dealers. Unfortunately, early attempts at e-contracting did not have the desired acceptance in the dealer and agent community.

With more than 16 years of experience in the industry, Steve Veldkamp, Training Director at Great Lakes Companies, has seen business processes change over time as dealers gradually become more open-minded about implementing e-contracting solutions. However, there is still work to be done. In his experience, the early-attempt push back by dealers in particular stemmed from a lack of understanding about the benefits. In working with dealers, however, Veldkamp touts the benefits of the solutions and encourages adoption because of how it can improve business.

“In my experience, dealers have been slow to adopt because it does require learning a new process and approach to business,” he explained. “There are more facets involved in e-rating, e-submission and e-contracting than in traditional processing and each deal is treated individually. Ultimately, the accuracy, speed and time savings can make the dealer more profitable, but they have to make that initial investment in embracing the technology.”

Veldkamp continued, “The potential for errors is so much greater in the traditional processing world and the time to fix manual errors is significant. Time is valuable and I’d estimate that for my dealers that still use manual processing, I spend hours each month cleaning up bad deals.”

The ultimate cost is the loss of dealer confidence. Lag behind, you could lose business. Adopt the wrong technology, you could lose business. Keep it “easy” and that partnership gets stronger.

For many administrators on the cusp of understanding the complex considerations of traditional versus e-contracting, it can be a seemingly difficult path. However, once the true costs of traditional contracting are understood, e-contracting emerges as a key strategic business direction and can deliver tangible benefits. Lyman said, “It’s very seldom to have anyone go back to paper contracts and rate books once they get a taste of e-rating and e-contracting. Once the understanding is there, the buy-in is very high.”

About Provider Exchange Network
The Provider Exchange Network (PEN), a division of Open Dealer Exchange, is a managed digital pipeline between the provider and the dealership. During the F&I process, PEN allows any dealer system or menu to request rates and forms directly from the provider. This supports a potentially paperless contracting process for the provider including instant and accurate electronic ratings, electronic contract origination, forms preparation, digital signatures, electronic deal jackets, digital remittance and forms archival. This solution allows the provider to stay focused on their core business by increasing dealer exposure, contracting efficiency and reducing administration and risk.

A VSC provider is really no different than a dealer who faces “low price” competitors from all points of the compass. Enlightened auto dealerships, faced with stiff same-brand competition from as little as a few miles away, are adopting custom branding strategies that literally begin at “Hello, welcome to Hometown Motors.”

This same concept applies to a provider. We spend an inordinate amount of our resources articulating to our sales force the value propositions of our VSC, but what about the value propositions of doing business with our company? What do we offer that distinguishes us compared to our competition? Is our sales force adequately trained to sell us as well as our products?

A provider must be able to quickly explain to an agent, a dealer, and ultimately the consumer why doing business with them justifies a decision to rep their products, sell their products, and buy their products now. Get this part right and price becomes less of an issue.

Since the majority of providers operate with an indirect sales force that by its very nature is “independent”, the general agent is the provider’s first target of opportunity. We want to attract the best, most talented, and hardest working agents possible.

Put price aside for a moment and ask yourself, “Why would an agent rep our products?” With how much facility is your business development staff able to articulate the answer to the above question to a prospective agent?

No one ever buys anything until the value exceeds the price.

We all too often equate the above philosophical statement with the buyer of our VSC contract and not with the people selling them. Don’t make this mistake. Take the time to brainstorm with your top creative people the truly compelling reasons why an agent should do business with your company. Realize that your “why do business with us” story is a process and not an event – it will change over time, and should be reviewed often.

A good place to start the unique branding process is to ask yourself, “What do we do that no one knows about?” For example, the average response time to get a live claims analyst on the phone for your company is only twenty-one seconds. This would be valuable info for the agent and the dealer to know so the service advisors are not standing idle waiting to process a claim. Is our sales force equipped with the facts and the reason why this is important? Chances are, your agents are talking to dealers that are frustrated with the level of service they are getting from their current providers.

Other questions to ask yourself:

• Are our agents aware of how many tens of millions of dollars in claims we pay out each year? The public perception of insurance companies is that they try not to pay claims. Touting a big number paid out in claims easily debunks that perception, and gives the impression that your company exists to pay claims.
• Have we adequately explained the difference between the factory warranty covering defects in material and workmanship and our VSC which covers wear and tear? Have we explained what this means to the dealer that sells the policy and the consumer who purchases it? The distinction is often not understood or even mentioned at the dealership level, at the point of sale, and should not be overlooked.
• Are our agents aware of how many millions of dollars are distributed to dealers who participate in our wealth creation programs? Is data readily available to provide prospects with empirical evidence supporting the efficacy of the program?
• How often are the details of participation programs reviewed with dealer clients in person? Are our agents adequately trained to discuss the nuances of a reinsurance quarterly or annual report with a dealer or investors?
• Are our agents experts on the different types of participation programs available to a dealer, able to explain the features and benefits of each, and recommend a program that has the best chance of meeting the dealer’s long-term goals?
• Are there technologies you incorporate which streamline the rating, contracting, remittance, and payment of claims? Have we adequately explained why this is important? How easy is it to do business with your company, and why?
• What level of training and support have we committed to for our agents? Does our support extend to providing personal growth courses, motivational programs, or business retreats? How accessible are senior staff for accompanying an agent for dealer meetings? Do we take the time, at least annually, to visit our key accounts, meet with the dealer and his managers, and analyze the health of the relationship?
• Are there programs in place to accommodate the inevitable claims disputes, and do we partner with the agent in their resolution?

The list above is in no way conclusive. The health of any indirect sales force will be proportional to how much thought and effort is put into fostering a culture of not just product knowledge, but knowledge about the unique attributes your company has to offer.

Let us assume for a moment that your company has invested the brainpower and resources to adopt an internal ongoing think tank to address the “why do business with us” story. Our agents have the value propositions on why to do business with us down pat. What do you suppose will happen the next time the inevitable discussion of price comes up?

The agent will be prepared with one more reason than he needs why it is worth paying a little more than the competition for all that we have to offer. We will have created a desire to partner with a company that has the best attributes, not just the lowest price. We will have equipped our sales force with the tools necessary to succeed in both conquest business and account maintenance.

The “deal” just keeps getting better and better for the consumer.

Take that same model today and equip it with the package that has everything: touch screen and/or voice activated navigation and entertainment/communication control system, rear seat entertainment system, speed sensitive rain sensing windshield wipers, heated and/or cooled seats, adaptive cruise control, lane departure warning system, back up camera system, automatic parallel parking system, dynamic vehicle stability control, intelligent brake assist, smart key fob with start/unlock/alarm functionality, GPS telematics, 2,000 watt 16 speaker AM-FM-CD-Bluetooth-USB-iPod-Sirius/XM audio systems…the list goes on and on.

Add lithium battery packs, electric motors, regenerative braking systems, DC/DC converters, voltage control units, charging systems with cables and connectors found on hybrid vehicles, and we are describing a new species, not just the same animal as ten years ago.

We spoke to dealers, F&I managers, general agents, and service contract providers and asked a simple question: over the last five years, have premiums for the top level vehicle service contracts that you sell gone down in price, stayed relatively the same, or gone up? The consensus was that the premiums have stayed relatively the same. Admittedly this was not a scientific survey, but the respondents were universally consistent. Hmmm…this requires further analysis.

If the consumer is happy to “pay to play” and purchases the vehicle described above, while willingly paying extra to do so, why are vehicle service contract premiums that cover “everything” cost about the same as they did before all this extra content, complexity, and technology materialized on our vehicles?

Is the vehicle service contract industry supply chain keeping pace with vehicle technology as it relates to risk, claims handling, and pricing? Let’s take a closer look.

Risk

We were intrigued by a recent conversation with a second-generation Ford dealer. His fixed operations business has dramatically changed in the last few years, mostly due to the fact that there is so little warranty work available. His store’s entire focus is now on customer pay labor, scheduled maintenance, and his wholesale parts business.

“What happened to all the warranty work, the cars don’t break down anymore?” we asked. His reply was that he would be out of business if he relied upon factory warranty work. In spite of all the high-tech content present in even the least expensive model, the likelihood of a breakdown while still under the factory warranty was extremely low.

The dealer went on to say that with a completely new model in the first year of its release, you could expect some problems now and then, but overall, the expectation is that waiting for vehicles still under the manufacturer’s warranty to come in “on the hook” is a game for fools. New model problems are sorted out very quickly in subsequent years or do not materialize at all. One could conclude then, that as technology advances, so does reliability.

According to the Ford dealer, reliability does extend beyond the factory warranty, but not to the extent that the customer pay for labor after 36 months is absent. There is plenty of business, he says, when components fail and must be paid for by the customer or a service contract provider.

There is another shoe that might drop, however. Did you notice in the description of tech features above how many times the word “system” was used? “System” sounds complicated. And expensive. In the old days, cruise control consisted of an actuator, solenoid valves, a vacuum hose and tank, switchgear, and a few cables to maintain a set speed. Troubleshooting why the cruise control doesn’t cruise was pretty simple and a repair was expected to be inexpensive.

Now try to troubleshoot an “adaptive cruise control” system that doesn’t cruise and what do we have? Radar sensors, computer modules, cam bus wiring, sophisticated switchgear, and a tech that performs diagnostics first, and then starts swapping out parts until the trouble codes go away. Then we check to see if the cruise control cruises.

If the manufacturer’s warranty has expired and the vehicle belongs to an extended service contact holder, does the underwriter have more exposure on today’s computerized whiz-bang systems or yesterday’s cranks and pulleys? This brings us to the next step in the supply chain, the claims handling process.

Claims Handling

Staying with the above example, your dealer client identifies a VSC holder’s adaptive cruise control system required a one hour diagnosis to determine that the vehicle needs a new radar sensor ($2,000) and cruise control module ($240). The sensor is not in stock (who is going to stock a $2,000 part?) and must be ordered. It will take three days to arrive so a rental car must be provided as stipulated in the contract. Do we send an inspector to the dealership for this repair to validate the tech’s diagnosis?

There are no broken bits to take pictures of, the cruise control just doesn’t work as advertised. Are inspectors even familiar with the workings of adaptive cruise control systems that utilize a radar sensor to maintain a safe following distance? Is there any kind of ongoing training or certification for inspectors to stay current on the rising tide of steadily advancing technology?

In this example, we are already well past the premium reserved on the policy on just this one repair. When we asked administrators if they have prepared themselves to handle situations like this (specifically on an advanced, modern cruise control system), most reluctantly admitted they were not. Particularly as it pertains to pricing…

Pricing

As stated earlier, VSC premiums have generally not risen relative to the escalating high-tech content found in today’s vehicles based on our informal survey question. Further, some administrators admitted that they have not adjusted their premiums to account for what most undoubtedly are higher repair costs.

Although some providers have a “high tech” surcharge that covers components like nav systems and the like, high-tech surcharges are not ubiquitous. Why? If certain consumers are willing to pay a premium for a feature-laden vehicle, it stands to reason that they would pay a premium for a service contract that covered all of their high-tech options.

Consumers are already conditioned to pay surcharges for lower deductibles, turbo and supercharging, diesel engines, and four wheel/all wheel drive. Perhaps we should consider a higher premium for an all-inclusive VSC to reduce our risk, or offer a surcharge option to upgrade to the all-inclusive like some providers are already doing.

Consumers also like choices, so this could be handled at the point of sale. The worst thing that could happen would be for the consumer to not have been offered an option to upgrade, and then be told in the service drive, after spending $2,000 for a service contract, “Sorry, it’s not covered.”

There is a delicate balance between price, adoption rates, coverage, and profit that each of us, as providers and administrators, must calculate and adjust. Let’s hope we have made the adjustment when we have to replace one of those $2,000 radar sensors…

Many people think networks are only for high-level business professionals who use them to arrange special golf outings, front row tickets to sporting or cultural events, or to make special introductions. I hope you’re not one of those people.

The fact is that most people have networks; they just don’t keep very good track of them or they don’t use them as well as they could. A network is simply a group of people helping each other get to where each wants to go as quickly, as easily, and as efficiently as possible.

There are networks involving soccer moms, car pool groups, church organizations, social clubs, and community service groups. The most successful people in life and in business keep track of the people they meet through their various activities and build their own custom networks.

For those of us in the automotive F&I industry, whether we are a provider, an agent, a dealer or anyone in between, a network is a powerful way to get to qualified prospects and business liaisons in the least amount of time and with the least amount of difficulty. Beware not to think of networking in terms of receiving something from others: leads, prospects, customers, guidance, hints, techniques, or moral support. Start your network by first considering others.

Always remember this: Success is determined by the level of service you provide others, not by what others do to further your goals. Take some time to carefully examine what you have to offer someone in your network. What capabilities, skills, information, talents, connections, and words of wisdom can you provide that can help build someone else’s career? Almost everything is useful to someone.

For example, the fact that you’re on a first-name basis with the owner of the local service station, flower shop, or antique mall may be a valuable asset at some point to someone in your network. Just as links in a chain, you want to have a good, solid relationship with everyone in your network. A network is no good unless you work it. Treat your network as you would an expensive, finely-crafted instrument and it will provide you with enjoyment beyond your wildest dreams.

Here are six ideas for maintaining a strong network:

1. Stay in touch. This one is pretty obvious, but it’s also where many average networkers fall down. When an interesting bit of information comes your way, don’t just evaluate it for yourself. Pass it along to others who may also benefit from it. Other ways to keep in touch include birthdays, business, or personal anniversaries. Dropping a card in the mail, sending one via e-mail, or making a quick call is easy compared with how much harder you’d have to work if you didn’t have this person’s knowledge and resources to draw from. Keep an eye out for others in the news. Send them the clipping or at least recognize that you saw them. Making others feel good strengthens your relationships. Go out of your way to share a meal with the key players in your network. These contacts don’t need to be lengthy or take on the appearance of an obligation; in fact, spontaneity often makes the contact more enjoyable. The point is to make the contact.
2. Ask for help. If you’ve been good about staying in contact, don’t hesitate to seek support when you need it. People want to help others. Asking for assistance not only helps you but reinforces the fact that when the other party needs something, you’ll be there for them. When you ask for help, keep two things in mind:
   1. Say what you really mean. Phrase your request in words that allow the other party to understand your real needs. “We’ve just added a new line of whatchamacallits. Who do you know that may need a new one?” That’s a lot more effective than “Got any leads for me?”
   2. Be polite. “I need you to help me” may be a little strong and even border on being rude. Instead, say, “I’m in need of a little help and was wondering if you can spare a few moments” is warmer and less demanding.
3. Volunteer to help. Become known for the excellence of your service. Believe me, people talk and your career is most definitely influenced by word-of-mouth advertising. Go out of your way to find ways to support your network. Don’t wait for someone to ask for your help. Make a point of contacting members of your network when you don’t need anything. Just check in to see if you can be of service to them. Even if there’s no particular need at that time, they’ll certainly appreciate the thought and you will have further cemented a valuable relationship.
4. Follow up. If someone in your network provides you with a referred lead, handle it immediately. Then, get back to the referrer to let them know the outcome and thank them a second time.
5. Maintain your focus. A network is a dynamic entity. Once or twice a year, evaluate the effectiveness of the people in your group to see if you need to add more support in a particular area. If you’re all give and get nothing back, you need to correct the situation or find new links for your network. The opposite holds true, too. Honestly evaluate your own effectiveness to the other group members as well.
6. Make networking an integral part of your lifestyle. Don’t think of networking as an activity to be scheduled. A champion realizes that virtually every waking moment can offer an opportunity to use, build, or assist the network. Never hesitate to start a friendly conversation with someone. You never know where it may lead — to a prospect, a sale, or even a new valuable member of your network.

By making your network more successful, you make yourself more successful. As the individuals within the network grow, succeed and prospect, your range of contacts increases. Your connections with successful people connect you with an ever-growing circle of more successful people. The depth of your support group increases as does your access to more and more powerful resources.

Either way, as outlined below, some of these changes will inevitably affect the way vehicle service contract providers currently conduct business, as they respond to these changes to existing laws and new regulatory requirements.

Newly Enacted Federal Legislation

Any service contract provider involved in the financial services, insurance or related industries should understand how, if at all, The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”) may affect its business.

Enacted in law on July 21, 2010, Dodd Frank is primarily a banking and investment business oriented piece of legislation; however, it also affects certain aspects of the insurance industry and could impact the vehicle service contracts business particularly to the extent this business is not considered to be the business of insurance.

Consumer Financial Protection Act of 2010
Title X of Dodd Frank, also known as the Consumer Financial Protection Act of 2010 (“CFPA”), establishes a new federal agency called the Bureau of Consumer Financial Protection (the “Bureau”). Many of the consumer protection powers of the Federal Reserve, Federal Deposit Insurance Corporation, Office of Comptroller of the Currency and Office of Thrift Supervision will be transferred to the Bureau, which has broad rule-making authority and regulatory oversight for a wide range of consumer oriented financial products and services.

The Bureau will supervise persons who offer or provide a consumer financial product or service. A consumer “financial product or service” means certain financial products or services that are offered for use by consumers primarily for personal, family, or household purposes.

In addition to the laundry list of what could be deemed as “traditional” financial products and services included within the purview of the CFPA, the Bureau is also permitted to expand its regulatory oversight to “other products or services as may be defined by the Bureau by regulation, if the Bureau finds that the product or service (a) has the purpose of evading any Federal consumer financial law, or (b) is permissible for a bank or BHC to offer to or provide under Federal law or a regulation that has, or is likely to have, a material impact on consumers.

Currently, the business of insurance is not included within the definition of a financial product or service, which reflects the maintenance of the states’ purview of the regulation of insurance under the McCarran-Ferguson Act.

For purposes of the CFPA, the “business of insurance” means writing insurance or reinsuring of insurance risk. Thus, to the extent that a particular aspect of the vehicle service contracts business is the business of insurance, the CFPA does not apply; however, for any part of the vehicle service contracts business that is not considered to be the business of insurance, the CFPA could be applicable.

Most states in which vehicle service contracts are regulated subject these contracts to regulation in their insurance codes but do not treat vehicle service contracts as insurance; although there are some key differences in how states do this. Some states’ vehicle service contracts laws provide that vehicle service contracts are not insurance in any respect, and while they are regulated within state insurance codes, they are wholesale exempted from all other provisions of the insurance code.

In contrast, other states exempt vehicle service contracts only from certain, but not all, provisions of the insurance code, leaving open the question of whether they are the business of insurance even though they are not fully regulated as an insurance product.

Thus, for purposes of the CFPA to the extent that vehicle service contracts are exempted in their entirety from a state’s insurance code, they could become subject to the jurisdiction of the Bureau of Consumer Financial Protection if it were to determine that these contracts have a material impact on consumers.

Federal Insurance Office Act of 2010
Title V of Dodd Frank, also known as the “Federal Insurance Office Act of 2010” (“FIOA”), created a new Federal Insurance Office (the “FIO”) within the Treasury Department, the first, true federal agency related to the insurance industry. The FIO’s authority extends to all lines of insurance, other than crop, health and long-term care insurance, and it can collect data from insurers and their affiliates.

Similar to the question of whether the CFPA has jurisdiction over vehicle service contract market participants, the FIO’s regulatory reach turns on whether vehicle service contracts are considered “the business of insurance.” While the FIO clearly has authority over insurance companies that issue contractual liability insurance policies that insure the obligations of obligors under vehicle service contracts, the FIO could wade into seeking data from obligors and administrators as well.

Furthermore, the FIO is required to conduct a study and issue a report to Congress within eighteen months on ways in which insurance regulation can be modernized and improved, which could include recommendations for changes in how the vehicle service contracts industry is regulated.

NonAdmitted and Reinsurance Reform Act of 2010
Title IX of Dodd Frank, also called the “Nonadmitted and Reinsurance Reform Act of 2010” (the “NARRA”), prohibits a state from denying credit for reinsurance for the ceding insurer’s ceded risk, if the domiciliary state of the ceding insurer recognizes such credit and is either (a) an NAIC-accredited state; or (b) has financial solvency requirements substantially similar to NAIC accreditation requirements.

According to the legislative summary, the NARRA also “preempts the extraterritorial application of a non-domiciliary state’s laws, regulations, or other actions (except those related to taxes and assessments on insurance companies or insurance income) to the extent that they:

1. restrict or eliminate the rights of the ceding insurer or the assuming insurer to resolve disputes pursuant to contractual arbitration that is not inconsistent with federal law;
2. require that a certain state’s law shall govern the reinsurance contract, its requirements, or any disputes arising from it; or
3. attempt to enforce a reinsurance contract on terms different than those set forth in it, if those terms are not inconsistent with this subtitle.”

Thus, essentially, the NARRA eliminates any barriers that previously existed for insurance carriers issuing contractual liability insurance polices that indemnify or reimburse vehicle service contract providers (“Service Contract Liability Policies”) from getting credit for reinsuring the risk on such policies in numerous states, by subjecting such carriers only to the laws of their home state.

The NARRA also establishes new rules with respect to the assessment of premium tax payments for nonadmitted insurance. Specifically, under the NARRA “no State other than the home State of an insured may require any premium tax payment for nonadmitted insurance.”

However, the new law also allows States to enter into a “compact or otherwise establish procedures to allocate among the States the premium taxes paid to an insured’s home State;” and also requires that in order for States to impose eligibility requirements on nonadmitted insurers, that the State adopt “nationwide uniform requirements, forms, and procedures, such as an interstate compact.”

Further changes include, but are not limited to, (i) a limitation that only the statutory and regulatory requirements of the insured’s home State are applicable to nonadmitted insurance issued in such state and (ii) that only an insured’s home State “may require a surplus lines broker to be licensed in order to sell, solicit, or negotiate nonadmitted insurance with respect to such insured.”

Despite the foregoing, the nonadmitted insurance aspect of the NARRA may not be of particular importance to the vehicle service contract industry as a whole, since those insurance carriers which provide Service Contract Liability Policies usually do so as a licensed/admitted insurer, rather than on a surplus lines insurance basis.

However, like the FOIA, the NARRA represents for the first time a significant intrusion by the federal government into what has been historically limited to state regulation of the insurance industry and the insurance industry’s increasingly diminished tolerance for non-uniformity of state insurance laws.

Newly Enacted State Legislation

California
On September 29, 2010, California Governor Arnold Schwarzenegger signed into law California Assembly Bill 2111 (“A.B. 2111”), which amended various California statutes regulating service contracts.

One of the major changes that A.B. 2111 does to existing law is that it removes the exclusion for service contract sellers or insurers from the definition of “service contract administrator” making the California Service Contractors law applicable (including the registration requirements of Sections 9855.1 9855.3) to any insurer that “who performs or arranges the collection, maintenance, or disbursement of moneys to compensate any party for claims or repairs pursuant to a service contract, and who also performs or arranges any of the following activities on behalf of service contract sellers:

1. providing service contract sellers with service contract forms;
2. participating in the adjustment of claims arising from service contracts; or
3. arranging on behalf of service contract sellers the insurance required by Section 9855.2.”

The portion of A.B. 2111 specifically applicable to vehicle service contracts, eliminates the requirement that a vehicle service contract obligor provide in the written contract, itself, the methodology for calculating the pro-rata refund amount due when the purchaser prematurely cancels the vehicle service contract.

Instead, the new law allows the service contract obligor to determine the objective measure to be used to calculate the pro-rata refund at the time the contract is cancelled. A.B. 2111 also adds an exemption from the requirements governing a vehicle service contract for a warranty provided by a vehicle “glass sealant manufacturer.”

Florida
Florida Governor Charlie Crist signed into law Florida Senate Bill 2176 (“S.B. 2176”) on June 1, 2010, which substantially revises laws governing motor vehicle service agreement companies. Specifically, S.B. 2176 exempts commercial motor vehicle service contracts from regulation by amending the definition of “motor vehicle service agreement” to exclude “service agreements that are solely to persons other than consumers and that cover motor vehicles used for commercial purposes.”

S.B. 2176 also provides for misdemeanor penalties for service agreement companies that fail to be licensed as required under existing law; and increases the list of prohibited practices under current law (for example, making a false, deceptive or misleading advertisement “with respect to the service agreement company’s affiliation with a motor vehicle manufacturer” or “its possession of information regarding a motor vehicle owner’s current motor vehicle manufacturer’s original equipment warranty”).

S.B. 2176 eliminates the requirement that all service agreement forms and related documents must first be submitted and approved by the Florida Office of Insurance Regulation. Instead, a service agreement company can now use forms that do not have to be pre-approved, as long as such forms contain certain statutorily-required information and/or disclosures.

The new law also makes it clear that the Florida Office of Insurance Regulation no longer regulates rates charged by service agreement companies and requires that each service agreement sold in the state on or after July 1, 2011 “be accompanied by a written disclosure to the consumer that the rate charged for the service agreement is not subject to regulation by the office” which disclosure may be part of the service agreement, itself, or in a separate written statement.

Louisiana
Louisiana House Bill 519 (“H.B. 519”) went into effect on August 15, 2010 and added new Sections 969.24.1 and 696.24.2 to the Louisiana Motor Vehicle Sales Finance Act, aimed at eliminating anti-competitive behavior among motor vehicle sales finance companies. H.B. 519 could impact the way some vehicle service contract providers do business.

Specifically, Section 969.24.1 makes it unlawful for any person subject to the requirements of the act to take any actions “that the intended or actual effect of which is to coerce or attempt to coerce any seller to sell or offer to sell any extended service contract, extended maintenance plan . . .

offered, sold, backed, or sponsored by a particular entity, including but not limited to any manufacturer or distributor of motor vehicles or affiliates thereof . . .

by setting limits for the amount financed in regard to the financing of premium or other charges for any insurance coverage, product, or service financed on the retail installment contract, when the discrimination in the amount financed limits is based, in whole or in part, upon whether or not the product, insurance, or service is provided by [such] person or affiliates thereof . . . .”

Section 969.24.2 makes it unlawful for any person “to require a seller to sell any insurance coverage, product, or service, which is provided, administered, or sold by a person or any affiliates thereof, subject to the provisions of [the Motor Vehicle Sales Finance Act], in order to secure preferential financing or preferential limits on the amounts financed rates for the dealership or its customers.”

Washington
Effective on June 10, 2010, Washington House Bill 3032 added to the definition of “service contract” “a contract or agreement sold for separately stated consideration for a specific duration to perform the repair or replacement of tires and/or wheels damaged as a result of coming into contact with road hazards;” but excluded service contracts provided by tire, wheel or motor vehicle manufacturers.

Recent Court Decisions of Interest

In Sawyers v. Herrin-Gear Chevrolet Company, 26 So. 3d 1026 (Miss. 2010), plaintiff Andria Sawyers sued Herrin-Gear Chevrolet Company, Inc., alleging fraud, breach of contract and bad faith, emanating from the plaintiff’s purchase of a “Gap Asset Protection Deficiency Waiver Addendum” in connection with her purchase of a 2002 Ford Explorer.

In response to the lawsuit, defendant Herrin-Gear Chevrolet Company, Inc. filed a motion to compel arbitration based on an arbitration provision contained in the agreement. In granting the defendant’s motion, the court disregarded the plaintiff’s claim that the arbitration provision was invalid because the GAP waiver was an insurance policy subject to regulation and the defendant was not registered with the Mississippi Department of Insurance; and held that GAP waiver products were not insurance.

In Midwest Agency Servs., Inc. v. JP Morgan Chase Bank, 2010 U.S. Dist. LEXIS 22457 (E.D. Ky. March 11, 2010), the plaintiff sued JP Morgan Chase and its affiliated entities, Chase Auto Finance Corporation (“CAF”) and Chase Insurance Agency, Inc. (“CIA”), alleging anti-competitive practices stemming from CAF’s policy requiring automobile dealers that use CAF financing only to use “approved” GAP insurance products, which list did not include plaintiff but did include CIA, among other GAP insurance providers.

In dismissing the plaintiff’s complaint for “failure to state a claim,” the Federal District Court for the Eastern District of Kentucky held that the alleged unlawful “tying arrangement” could not be found to be a violation of the Sherman Antitrust Act since the plaintiff failed to demonstrate an antitrust injury, namely that the injury that occurred as a result of CAF’s actions were the type of injury that antitrust laws were intended to prevent.”

Specifically, the court stated that “Midwest’s allegation of an injury to its ability to sell GAP insurance products is not an antitrust injury;” and that “the law is settled that injury only to a competitor and not to the market does not create an antitrust injury.”

In Saccucci Auto Group, Inc. v. American Honda Motor Company, 2010 U.S. App. LEXIS 16127 (1st Cir. Aug. 4, 2010), the plaintiff-automobile dealer sued American Honda Motor Company and American Honda Finance Corporation (“Honda”) as a result of Honda’s prohibition on allowing its dealers to market and sell Honda Vehicle Service Contracts over the Internet, which policy instituted at the urging of a Honda’s Dealer Advisory Board, a body composed of independent Honda dealers who are elected to represent dealer interests.

In dismissing the plaintiff’s claims that Honda violated Rhode Island’s Dealer Act, which regulates the business relationship between automobile manufacturers and their dealers, the Court found that Honda neither engaged in “coercive conduct” or engaged in “arbitrary action” to the dealer’s detriment in violation of the Dealer Act, when it instituted a policy to suspend or permanently “deactivate” a dealer’s contractual right to sell Honda Vehicle Service Contracts for violating Honda’s no Internet sales policy.

There are lots of techniques for prospecting, meeting new people, building referrals, qualifying, presenting or demonstrating products and services, and overcoming objections (also known as addressing concerns). But, if you can’t close the sale, you’re like a football team that can’t sustain a drive long enough to score. It does you no good to play your whole game in your own territory and never get across the other team’s goal line.

You have to fall in love with closing if you’re going to succeed at it long term. If you don’t love the closing process enough to master it now, start falling in love with it because this is where the money is.

True professionals are closing all the time. They close for names and contact information. They close for appointments. They close for opportunities to present their products or services. They are constantly trying test closes, and they can kick into their final closing sequence any time they recognize verbal or visual buying signs in their potential clients. Signs can include handling the product or asking for information they will need to know when they own it.

Many average salespeople get so wrapped up in their selling sequence that if potential clients decide to invest before they’re through, they won’t let them have the product. They feel compelled to finish their entire presentation. They just keep going in their set pattern of telling, telling, telling instead of selling.

Some clients do get sold quickly. If you keep talking instead of moving to the paperwork, you could very easily unsell them just as fast. More talk triggers more thought and has the potential to bring up more objections. Pay close attention. When you recognize that the prospect is ready, stop talking and start filling out those forms, getting that purchase order number or asking how they would like to handle the investment.

Next, I’m going to give you the eight most important words in the art of closing. These are the most powerful words I’ve ever heard spoken on the complex, demanding and well-paid art of closing. If you’re just skimming this article, PAY ATTENTION NOW.

Whenever you ask a closing question, shut up!

The important words are “shut up.” That is why the Father of Modern Selling, the late J. Douglas Edwards used to shout this at his audiences.

I was sitting in the front row at his seminar the first time I heard these words. I was already jumpy from the excitement of the program and had my head down taking notes as fast as I could, when Doug shouted “SHUT UP!”

I jumped right out of my chair and dove for cover. That memory is carved into my mind, along with those words. They explain the single most important element that turned my previously disastrous sales career into the record-breaking success it soon became.

Ask your closing question then keep quiet! The first person to speak owns the product. If you speak, the product will still sit in your car or warehouse. If the client speaks, the majority of the time, they’ll own it! They’ll either agree to make the purchase or ask a question. Either way the sale is still moving forward.

Being quiet sounds simple, doesn’t it? Believe me, it isn’t. I had a real challenge in this area and I didn’t have a clue as to what I was doing wrong until I heard Doug Edwards say those words. I was a talker early in my career. I thought if I just kept talking that eventually the clients would agree to something I said.

The first time I tried to ask a closing question and then keep quiet, I was prepared for the prospect’s reaction. I expected her to keep silent—thinking about her decision. What I hadn’t prepared for was the intensity of my own reaction.

The silence felt like wet sand being piled on my chest. My insides were churning, I had to bite the inside of my lip and I was acutely aware of every nerve ending in my body. It was a gargantuan struggle not to fidget. I was wiggling my toes inside my shoes so I didn’t start jiggling my leg. Finally, the prospect did decide that she would invest, my body flooded with adrenalin and I never again dreaded that awful silence after asking a closing question.

Why is it so important to keep quiet? Let’s say the prospect hesitates for a few moments, wondering when he should take delivery. You become uncomfortable and assume that he is questioning the investment, so you blurt out that you’ll give him another 5 percent off the total investment or something free, when that wasn’t even the issue.

Now, you’ve just broken the trust you worked so hard to build to the point of closing. You’ll have to work twice as hard to earn the business because now he’s wondering if you truly have his best interests at heart.

There’s no way you can possibly know what potential clients are thinking when they’re quiet so don’t try to guess. Just sit and wait them out.

The average salesperson can’t wait more than 10 seconds after asking a closing question before saying something else. If “Mrs. Jones” hasn’t answered by then, they’ll say something like, “Well, we can talk about that later,” and go on talking, unaware that they have just destroyed the closing momentum.

And it’s probably not just the one close that is destroyed. “Mrs. Jones” can certainly keep quiet for a few moments—almost all undecided buyers can. She may now start to wonder what else you’ll tell her or offer her if she keeps stalling her decision.

If you’re true champion material, you can sit there quietly all afternoon if you have to. It takes concentration, but the actual silence after asking for the sale rarely lasts longer than 30-40 seconds. Try it now. Check your watch and just sit quietly for 30 seconds so you will understand what it feels like. If you’re compulsive like some of my students, you’ll find yourself counting “one one-thousand, two one-thousand” and so on. I don’t care how you get there, just learn what it feels like. Then you won’t be so quick to move on to another subject after you’ve asked your closing questions.

Having the skill, courage and concentration to sit still and be silent for at least half a minute is the single most vital skill there is in selling. Practice this until you get a feel for how long 30 seconds is, and then it won’t be so nerve-wracking when big money is riding on how calm and quiet you remain in a real closing situation.