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How to Adjudicate Claims for High-Risk Clients

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

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

Identify the Risk

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

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

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

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

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

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

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

Control the Costs

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Embracing Digital F&I

2016 will be another year of accelerated growth in the ongoing shift toward online retailing. Thousands of auto dealers are already taking advantage of this evolution in the car-buying experience, and thousands more are sure to follow this year.

Consumers can buy nearly everything online, from TVs to paper towels, an experience we call “shopping cart ecommerce.” And those expectations of convenience are translating to auto retail and finance experience as well. However, cars don’t fit in shopping carts and the shopping cart ecommerce model doesn’t work for automotive retail.

Selling cars is a relationship business. It always has been and it always will be. The personal connection will always be an integral part of the equation. For F&I specifically, the Internet is a communication power tool that enables consumers to research products and put them in their consideration set before going to the dealership to verify and buy.

Frustration With the Buying Experience

For most people, the car purchase is the first or second largest investment they’ll ever make. Despite the size of this purchase, the top five frustrations of car buyers are all related to the buying experience. Research from MakeMyDeal and Autotrader provides us five important insights:

  • Less than 1% of consumers prefer today’s car-shopping process.
  • 54% of consumers will pay more for a better experience.
  • 84% of consumers say they would rather learn about F&I products at home.
  • 63% of consumers are more likely to purchase F&I products if they learn about them before visiting the dealership.
  • 72% of consumers find online F&I paperwork appealing, particularly in order to save time and avoid pressure when filling out paperwork.

When looking at these insights together, it’s clear dealers have a huge opportunity to improve the customer experience by digitizing the F&I process. Dealers are already using online menus and econtracting, and some have added esignature to their growing list of digital tools. These improvements not only provide an experience consumers are expecting but also reduce errors in data entry and simplify recordkeeping.

But focusing exclusively on digitizing paperwork leaves out what is perhaps the biggest opportunity to increase profit: It’s time to take the F&I product sales process online, starting with product presentation and pricing.

Prominently displaying product information, benefits and pricing within the inventory pages of dealers’ websites provides vehicle-specific information that will improve the consumer’s shopping experience. More importantly, it also enables the dealer to educate and inform consumers early in the buying decision, which increases profitability.

Without an online approach, the F&I product sales process is compressed into a high-pressure process amidst confusing paperwork during the hour or more the customer spends in the F&I office. Decompressing the F&I process by bringing product information to the consumer early and often allows them to self-educate and build interest in products before the F&I conversation, which in turn shifts this activity to an upsell instead of just a discovery process.

Busting the Trust Gap

From the time a customer enters the dealership until they complete the purchase, the main question on their mind is, “What’s your best deal?” Their sales professional knows, but they hold back until they get well beyond the meet-and-greet, qualify, walkaround and test drive.

From the time they shake hands with the customer, the sales team’s behavior is primarily driven by the need to get as much information about the consumer as possible —name, contact information, credit situation, cash on hand, monthly budget, trade-in — all the information the CRM and the DMS software need to book the sale.

With both parties doing their best to pry information loose from the other one, the stage is set for destroying trust between the customer and the dealership. This is a relationship dynamic you read about in major publications under headlines like “People Would Rather Go to the Dentist Than Buy a Car.” I call this phenomenon the “trust gap.”

Why is trust so important? Research from Autotrader shows over half of consumers won’t buy from a dealer that delivers the wrong customer experience, even if they do have the lowest price. After all, the car-buying process is a relationship process, and what’s a relationship without trust?

About one in five customers do make it through the sales process to the finance office, where this process continues. Buyer and seller continue to pull in opposite directions, with the customer primarily interested in leaving as quickly as possible and the finance manager working hard to spend as much time selling as many F&I products as possible. This process only reinforces the lack of trust in the process.

Busting this trust gap is surprisingly simple and profitable but requires a change in perspective about the sales process. Rather than hold back information as a means to try to control the customer, sharing product information and estimated pricing upfront and online gives consumers the feeling of control in their buying process and builds trust.

Giving customers pricing information and the ability to personalize their monthly payments doesn’t give them control of profitability, only a feeling of control over their buying decisions. When dealers stay in control of the deal structure (and profitability) and consumers have a feeling of control, both parties win.

The commonplace tools today are payment calculators and pricing promises. Payment calculators give consumers bad information about car payments and pricing promises focus on third parties as the source of truth instead of dealers. These tools widen the trust gap between consumers and dealers.

As for F&I products, a quick Google search for “extended warranties” reveals plenty of reports on whether the products are really worth the investment and warnings from consumer advocate groups about potential “rip-offs.” At best, consumers might find a website with direct-to-consumer sales of aftermarket products that short-circuit the dealer’s profit opportunity.

Rather than leave the airwaves open for negativity, dealers can flood their customers’ screens with relevant and positive messages about the coverage, benefits and pricing for available protection products. Replacing negativity with straightforward information builds the dealer as a trusted relationship and source of information. But that battle begins online, not in the finance office.

Converting the Dealership Visit From a Negotiation to a Confirmation

When dealers offer information upfront, the in-store visit totally transforms. Dealers cause this transformation by providing online vehicle payments and F&I product information and pricing.

When the consumer engages in an online deal-making experience, this shifts the uncomfortable price negotiation and budget conversation to a place where the consumer feels totally at home: the sofa in their living room. Getting customers past the unpleasant part of the purchase puts them at ease before they arrive at the store and reduces time spent at the dealership.

Connecting with customers and leading them to a “Yes” online involves receiving their first pencil, then answering their questions and responding to their proposal. Simply gathering customers’ contact information and working to set appointments is not enough to build a relationship and earn their trust. Actually engaging in the deal-making process with the customer while they are still at home earns their trust and shifts their state of mind for the in-store visit.

The in-store experience thus becomes a confirmation rather than a negotiation. Instead of coming to the store with their guard up, customers visit with their estimated deal structure in mind. They’ll be looking to validate those numbers, and if everything checks out, then the transition to the finance office is a seamless one. Customers will enter the finance office more relaxed, more comfortable and more receptive to a conversation about the F&I products that might be best for them.

As with any significant industry shift, digitizing the sales and F&I process will take a commitment to change and some trial and error. But it will ultimately result in more satisfied customers and higher profits. I firmly believe that online deal-making can close the trust gap and improve the overall car shopping experience for consumers. We can build an interactive conversation that starts online and ends in the dealership with the consumer driving away thinking, “That was the best car-shopping experience I’ve ever had!”

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CalTex Names Senior Director of Business Development

Kerri Walker Lewis has joined CalTex in the role of Senior Director of Business Development. CalTex is focused on growth as today’s market conditions present an ideal setting for expansion. A proven industry veteran, Lewis brings extensive experience in business development, relationship management and successful sales & marketing strategies for new products and programs.

Prior to joining CalTex, she most recently held the position of Senior Vice-President of Dent Zone Companies, Inc. where she developed and managed relationships with large publics, third party administrators and OEMs.  Lewis graduated from Stephen F. Austin State University earning her degree in Business and Political Science. She is a member of Executive Connection in Dallas, Texas and serves in a number of community projects and on various boards in North Texas where she resides with her husband.

“I have the highest regard for the CalTex executive management team and the core values on which the company thrives today. This is an exciting time and I am thrilled to be working with CalTex to capitalize on opportunities in the market.”

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Detroit Automakers Face Speed Bumps as Sales Growth Slows

Detroit’s automakers, on track for their best sales year since 2006, may want to brace themselves for rockier times ahead, reported Reuters.

Auto executives say the industry is as healthy as it’s been since being restructured in 2009. But judging by the recent stock performance of General Motors Co, Ford Motor Co and Fiat Chrysler Automotive, investors have a less robust view.

Over the past year, GM and Ford share prices have lagged the overall market, in spite of moves by those two companies to give more cash back to shareholders. Fiat Chrysler prices plunged last week as Chief Executive Sergio Marchionne made increasingly overt efforts to drum up interest in a merger with one of his rivals.

“The party may be starting to wind down,” said Charles Chesbrough, senior principal economist for IHS Automotive. “We’re still looking at a good couple years of strong demand, but the days of big sales increases are behind us.”

Optimists include Kurt McNeil, head of GM’s U.S. sales operations, who said Friday that the industry is on track to have its best sales year since 2006. U.S. sales of cars and light trucks are estimated to reach 17 million in 2015, compared with about 10 million in 2009.

U.S. consumer confidence is up, house prices are recovering and gasoline costs less than $4 a gallon in most parts of the country, supporting sales of the big trucks and SUVs that drive profits for the Detroit Three, just as they did before the financial crisis crash in 2008-2009.

But there are warning signals. Sales growth is slowing in the home market, demand for small cars and family sedans is falling, revenues have declined, profits outside North America and China are virtually nonexistent and share prices have flattened.

All three Detroit automakers missed analysts’ expectations for first-quarter earnings. After reporting healthy April U.S. car sales on Friday, stocks fell again at all three.

U.S. sales growth this year has slowed to 6 percent from double digits in 2010-2012. As demand slows, and more companies add production capacity in North America, competition from Asian and European rivals using cheap currencies will intensify. GM’s share of the North American market in the first quarter slipped to 16.4 percent in the first quarter from 16.5 percent a year earlier.

“Over the next couple years, we expect to see the industry cycle down — not next year, but 2017,” said John Hoffecker, managing director and global vice chairman of operations at AlixPartners. Detroit automakers have had “a good strong, long run,” but “there will be a correction from where we are today.”

Before the next downturn, the U.S. carmakers “need to find long-term solutions to sustainable profitability and cost competitiveness,” said Xavier Mosquet, global automotive practice leader for the Boston Consulting Group. “That may be their biggest challenge.”

Part of that solution may be to reduce their dependence on the U.S. market.

The companies need to reduce excess production capacity overseas, especially in Europe and South America, said Matthew Stover, auto analyst with Susquehanna Financial Group. And as U.S. demand slows, they need to generate a higher return on their overseas investments.

Ford and GM are losing money in Europe even after restructuring efforts that included plant shutdowns. GM has said it expects to return to profitability in Europe in 2016. In Latin America, GM and Ford are losing money as the Brazilian economy slows and economic turmoil wracks Venezuela, where Ford earlier this year took an $800 million pre-tax writedown. GM has signaled it could stop Venezuelan production in July. In China, GM’s profit margins fell to 9.9 percent in the first quarter from 11.2 percent a year earlier.

“GM and Ford earn terrific rates of return in North America, but they’re getting killed in Europe and South America,” Stover said.

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Fiat Chrysler Wants to Play Major Role in Industry Consolidation: CEO

Chief Executive Sergio Marchionne wants Fiat Chrysler Automobiles to play a key role in a consolidation of the global auto industry which he sees as inevitable to manage prohibitive capital costs, reported Reuters.

Speaking on Thursday to shareholders in Amsterdam, away from Fiat’s historic roots in Turin and Chrysler’s in Detroit, Marchionne said: “We don’t want to stay behind in a process that is changing the industry, that is not a possibility.”

Marchionne declined to comment about the chances of a tie-up between the world’s seventh-largest carmaker and U.S. rival General Motors, but said the company was talking to many parties, without giving details.

“We have talks ongoing with various operators on various topics,” he said.

Fiat completed its buyout of U.S. arm Chrysler last year and moved the primary listing of the merged group to New York. The company is now incorporated in the Netherlands and has its headquarters in London.

Marchionne said work to spin-off and list luxury unit Ferrari was ongoing and he expected the floatation to happen this year, although he suggested the process may spill over into 2016.

He said the company had no plans to list any other brands.

Last year, the carmaker decided to spin off Ferrari, sell a 10 percent stake via a public offering and distribute the rest of FCA’s stake in the luxury sports car brand to its shareholders.

Marchionne reiterated that FCA might introduce a loyalty share scheme as part of the spin-off, which could give long-term investors multiple voting rights, although there was no final decision. This could allow Fiat’s founding Agnelli family to keep their grip on Ferrari even with fewer shares.

“We are evaluating it, it’s a solution that has worked well for CNH Industrial and FCA,” he said.

Marchionne confirmed the company’s targets for this year, even though its individual geographic areas are yielding different results than initially expected.

In two weeks, the carmaker will inaugurate a new plant in Brazil. Marchionne has previously said he expected the Pernambuco plant to help FCA return to double-digit profit margins in that market.

Marchionne said margins in the North American region were recovering, dismissing concerns from industry analysts suggesting that FCA’s use of incentives was too aggressive.

“Our pricing policy is in line with that of our competitors,” he said, adding that some models were sold at lower prices because they had less advanced technology than those of competitors.

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2015 Industry Trends

You don’t need rose-colored glasses for an optimistic outlook on the 2015 economic forecast; the US economy, particularly the automotive industry, is flourishing. After playing a leading role in the economy’s climb out of the great recession, the automotive industry’s outlook for the new year is promising. The price of petroleum fell from more than $100 a barrel in the summer of 2014 to less than $50 a barrel by the end of the year. Unemployment is down and many expect it to drop further still. According to Urban Science’s 2014 year end Automotive Franchise Activity Report (FAR), throughput, the average number of sales per dealership, reached a record high of 921 units based on vehicle sales of 16.5 million. And, according to the report, this marks the third consecutive year that the U.S. dealership network set a new throughput record.

2015 is expected to see the expansion of paperless dealership processes, as well as many advances in technology ­­– some of which are being driven by the increasing number of Millennials entering the marketplace. Private equity is alive and well and dealer acquisition is on the minds of many in the industry. Compliance has taken its place as a permanent fixture throughout the industry and is causing many companies and dealers to reexamine their business models. All of these issues are on the minds of the providers and administrators who shape and drive the industry.

P&A Magazine had the privilege to speak with some of these top executives about their expectations of the trends, products, processes and technology that will drive and define the 2015 marketplace. You might be surprised to hear what they have to say.


Many of our executives have high hopes for earnings in 2015. With the price of gas and oil down and sales expected to be up, they say 2015 is a canvas that will be painted green with profits by the end of the year.

“Car sales are projected to be above 16 million and I see no reason to dispute that,” says Jim Smith, CEO, SouthwestRe, “The last ‘big’ year was in 2000 at 17 million . . . so we are nearly back to ‘the good times.’ I believe that all segments in our business have benefitted from the necessity of streamlining their operations during the bad times – at least the ones that are still here.”

With today’s lower fuel prices, Glen Tuscan, president, Dealer Commitment Services, expects the economy to steamroll ahead. “The drop in gas prices is like a tax break to the average consumer. There is extremely positive economic growth on the horizon. There is no question, fuel price relief is stimulating the economy.” And Tuscan doesn’t see a slowdown in sight. He predicts a year of solid growth for automotive in 2015.

“None of us have a crystal ball so while I feel, and see in our customers, a positive outlook for 2015, I always try not to be overly optimistic,” says David Trinder, CEO, F&I Administration Solutions, LLC. “This coming year is especially difficult to predict given the potential increase in interest rates, the price of oil, the CFPB and world politics, each of which could quickly change the landscape.”

Jim Maxim, Jr., president, MaximTrak, says the automotive industry is in the best shape that it has been in a very long time. “Lower oil prices, low-unemployment, easy access to financing and great new vehicle line-ups, especially from some of the domestic manufacturers that have recovered from the 2008 crash, all point toward a very strong 2015. With more car sales and more profitable dealers, the F&I business obviously will get a good bump in performance. The smart dealers will remember what they learned through the downturn and stay focused on optimal performance of F&I, but there will be those dealers that will need continual reminding of the profit center opportunities that the F&I department still represents.”

Mark Thorpe, president and CEO, The Impact Group, Inc., recalls the 2008 government rescue of GM and Chrysler. “There’s no doubt it saved the domestic auto industry and prevented a full blown economic depression in the US. Today’s sales and employment numbers reflect that, with 16.5 million units sold in 2014 and an unemployment rate of 5.8%. The surprise Saudi move not to decrease oil production has had the short term benefit of dramatically lowering oil prices to under $50 per barrel and it appears that for at least the next 12 months, that price may hold. Partially, as a result, the US dollar is at a nine year high. I’m concerned about this strategy’s long-term effect on the US, as it opens the door for the Saudis and OPEC to again dominate the extraction markets because of their extremely low cost structure. But domestically, the US stock market has been at some historic levels of late, the housing market is in full recovery, and consumer confidence is highest in seven years. By all accounts, this economy is growing and growing rapidly. I think 2015 has every chance of being a great year for the US – barring any major disturbance by Wall Street, Japan or by Greece’s threat of withdrawal from the EU. Taking all these factors into account, I’d be surprised if we didn’t see incremental growth in auto sales in 2015.”

Rising Interest Rates

While the continued steady growth of the economy is a positive, there is concern among some of our experts that the automobile industry will soon face something it has not seen in a number of years – increasing interest rates.

Brian Reed, president and CEO, Intersection Technologies, says, “The Federal Reserve has indicated that it will start the process of raising rates in the second quarter of 2015. I don’t think that anyone foresees a dramatic jump in rates but any increase will result in higher interest rates to consumers who are buying cars and to dealers who are floor planning cars. Both of these factors could have a modest impact on dealers’ profits.”

Thomas Elliott, executive vice president, StoneEagle, expects continued improvement in the economy this year, but he also has some concern and foresees interest rates rising, “We expect interest rates to rise slightly in the second half of 2015, based on Fed signals. However, we do not expect any tightening of credit, and think lenders will continue demonstrating a strong interest in extending credit for auto loans.”

John Kerper, owner, Kerper and Bowron, LLC, brought up another concern. He says consumer credit could potentially impact the industry. “The one negative in recent data is the erosion in credit quality.”


From the Federal Reserve to regulators, technology and F&I, our experts will be monitoring a number of trends that could have significant impact in the automotive industry, particularly in F&I this year. They will be watching to see how these trends play out and their effect on the industry.


Already at a record high, the interest in leasing is projected to experience continued growth in 2015. And as the initial phase of leased and fleet vehicles return to the market, some anticipate used car prices could see a downturn.

Joel Kansanback, president, Automotive Development Group, LLC, is among those who will be watching for what he describes as the “dramatic increase of off lease vehicles” and their effect on used car prices. He also expects leasing to remain a popular option for consumers and it will be the catalyst for a growing number of products in the F&I office with specific appeal to those lease customers. “Within F&I I believe there is enough interest, attention and focus by the lenders on moving to flat fees from rate spread that we should see more lenders make more significant moves,” says Kansanback, “Once the next wave of lenders makes the move I would expect it to flip and in short order most lenders in our space will be paying some sort of flat fee system for loans.”

Dealer Acquisition/Private Equity

“With Berkshire Hathaway purchasing the Van Tuyl group late last year, it throws an interesting twist into the automotive consolidation movement,” says Jim Maxim, Jr., president, MaximTrak, “It will be interesting to watch and learn from Berkshire’s acquisition strategy and how they intend to go head-to-head with large automotive groups and the public retailers. It will also be interesting to watch the cross-selling opportunity and native product pull through that Berkshire has the capability to bring through it’s dealerships, such as retail financing and insurance offerings to consumers. All I know is that when the Oracle of Omaha is in a business . . . you’d better watch!”

Glen Tuscan, president, Dealer Commitment Services, says the frenzy of acquisition is one of the top trends he will be watching. He anticipates an increase in the acquisition trend of large companies buying up small family dealerships. “The big will keep getting bigger. It’s consolidating the market for independent agents and creating a red sea of opportunity for the agent base. Given what we have seen in 2014, I think it will be even more aggressive in 2015. I call it the ‘triple B effect’ – buy before Berkshire Hathaway! The acquisition of smaller dealerships is alive and well. The guys that are in the position to sell their dealerships are going to reap the benefits and rewards of their past.”

Regulators and Compliance

As the scope of regulators widens, the focus on compliance is expected to become more acute throughout the industry. Michael Tuno, president, World Class Dealer Services, says, “In F&I and sales, compliance will drive business practices to improve because of pressure from regulators and most importantly, the customers who don’t want to spend hours in the dealership. They are not interested in a nontransparent environment, and they are not just interested in cars, they are interested in the quality of the transaction and the technology that can help them navigate the whole transaction. This is going to impact F&I, which is still very traditional. The technology will push them to go digital and change processes even more than in 2014. There is a silver lining in compliance – It forces dealers to be more responsive to the customer in terms of keeping their information safeguarded, which speaks of technology – streamlining their processes which results in less time spent in the dealership.“

Mark Thorpe, president and CEO, The Impact Group, Inc., will be very interested to see the debate driven by the CFPB on the subject of disparate pricing, either for the cost of consumer financing or F&I products. “As the downward regulatory pressure increases, providers must respond with tools that will make it easy for the dealer to defend their staff’s actions. That’s something we’re actively working on.”

Trucks and SUVs

Some predict an expected decrease in small car sales as falling gas prices propel SUV and truck sales.

“I think trucks will have a great year,” says Lee Bowron, owner, Kerper and Bowron, LLC, “The savings on fuel and the introduction of new models may drive large truck demand significantly higher. Wholesale used car pricing has held firm for a number of years with used car prices only 4% below their all-time level. We think this year may be the year where used car prices begin to fall as increased late model supply from the last couple of years comes to the market. This could depress new car sales a bit and increase used car sales for dealerships as consumers will see the benefit of buying used.”



The biggest dealer objections about electronically prepared contracts, according to Brian Reed, president and CEO, Intersection Technologies, are about the amount of time the process requires; they say it’s too slow, but Reed insists that this is not true. “The speed of the technology today can result in a process that not only delivers to the F&I manager a completed contract, on the right form, with the right rates, and with that product registered with the provider – but does it as fast or faster than the use of old fashioned pre-printed five-ply forms.”

Glen Tuscan, president, Dealer Commitment Services, expects to see more interactive presentations to consumers in 2015. “There is no question that it is here, it is alive and well. I think 2014 was an incubation year for a different way of delivering through the menu, but 2015 is definitely going to see more interactive presentations of products to consumers. Not only at the dealership, but also before they get there. Dealers are asking me and other agents for different ways of delivering F&I products to the consumer because consumers are demanding change to the F&I process. Consumers are demanding a different experience with more involvement in the process in F&I and dealers are reacting to it.”

Many of our experts brought up the need to streamline the sales process starting at the front door of the dealership through to the back end of the transaction in the business office. Michael Tuno, president, World Class Dealer Services, anticipates that a 60-minute transaction will drive the industry. “Realigning dealer processes to run concurrently rather than in a linear fashion will have to happen. You can set the stage by exposing customers to products they will see in F&I earlier in the process through the use of technology, kiosks, etc.”

Lee Bowron, Kerper and Bowron, LLC expects for electronic contracting and anything that eliminates the use of paper to remain in the forefront of the industry’s focus this year. In the future, he anticipates seeing more products that are not tied to the financing of the vehicle. “These types of offerings would be beneficial to consumers who pay cash or lease.”

“I have been shopping for a new vehicle these past two months, and it has been an eye opener,” says David Trinder, CEO F&I Administration Solutions, LLC. “We can give all the technology we want to a dealership but if the dealer is not willing to change with the times, the technology will not deliver any benefit. The process in the dealership around the vehicle sale and within the F&I office needs to become far more interactive and the customer needs to be given far more recognition that they are informed about the transaction before electronic signature and other processes will enhance the sales process. Agents still have a significant role to play to get dealers into the 21st century.”

While he expects to see the demand for shorter transaction times and a better customer experience in F&I to become more prevalent, Mark Thorpe, president and CEO, The Impact Group, Inc., says he is not convinced that using tablets for menu presentations will fulfill the consumer demand for a more interactive, technology-laden process. “I think the answer is in leveraging all the available technology to change the dynamic between the customer and the business manager so that the customer no longer sees the manager as a sales threat, but as more of a guide or navigator in a customer-driven process. I do think that mobile technology can play a role in solving some of the industry’s systemic challenges between F&I and the sales department, but in the end, the ability to simplify the process for the customer is critical.”

Hot Products

Our experts agree that the VSC will continue to be a staple product. Steve Burke, CEO, Portfolio General Management Group, Inc., says, “It has gained wide consumer acceptance as a smart hedge against future repair costs. GAP should be in second place because it covers the consumer’s asset to debt risk much as the VSC covers breakdowns. Both bring valuable predictability to the consumer’s financial life.”

Some predict full service providers will take the lead in 2015. John Braganini, principal, Great Lakes Companies, expects to see dealers migrate away from product based F&I solutions and instead, turn to full development providers to meet their needs.

Steve Burke, CEO, Portfolio General Management Group, Inc., predicts loyalty products, such as maintenance plans will be number three in popularity. “These products have the added value of strengthening the dealership’s brand and traffic. Rounding out the top four would probably be bundled protection products. The value of covering the little annoyances like dents, dings, windshields, interior surfaces and the like is well known by most customers who have owned a car or truck before.”

Glen Tuscan, president, Dealer Commitment Services, is also a firm believer that prepaid maintenance products will experience steady growth and be in demand in 2015. “Maintenance is a terrific product that captures the customer for the dealership. It’s always one of best products we can offer. It doesn’t directly deliver per vehicle revenue, but it provides for solid growth for the dealer. It should be as important as VSCs.”

Some, however, predict the biggest growth in F&I products will come from bundled and appearance care products. “We believe that combo products and appearance products will continue to expand, especially as F&I producers are looking for ways to reduce their reliance upon finance reserves,” notes Thomas Elliott, executive vice president, StoneEagle.

“Leasing continues to do well, so there continues to be more focus on products that work well for leasing,” says Joel Kansanback, president, Automotive Development Group, LLC. “Specifically, I would say combo products and hybrid service contracts that cover additional items besides traditional mechanical failures will be popular. The new entry that I believe will do well is the shortfall product that acts like GAP for cash deals and also is very compelling for lease deals. When customers experience a total loss they have an opportunity to recapture much of their financial loss using shortfall. It’s priced right and it solves a real problem. Once agents and dealers get comfortable with it, I expect it to do well.”

“VSCs and GAP remain the mainstay products, but we have seen significant growth in appearance protection, prepaid maintenance and bundled products. With the high penetration of leasing, as well as the growing awareness that prepaid maintenance is a great product to keep the customer coming back to the dealership, we see no reason why these trends will not continue,” remarks David Trinder, CEO, F&I Administration Solutions, LLC.

In addition to traditional products, such as service contracts and GAP, John Kerper, owner, Kerper and Bowron, LLC, will be looking at the new products being developed to be big sellers. “Many of these products are loyalty products which give a financial benefit to the customer when they return for a repeat purchase. Theses products can also provide assurances to a customer that their vehicle will not depreciate beyond a specific level. Sometimes, these products are added to all the vehicles sold in a dealership automatically. These types of programs often have the best spread of risk and provide the most benefit to the dealership as they directly increase sales.”

Michael Tuno, president, World Class Dealer Services expects to see more competitive pricing among products associated with leasing, such as excessive wear and tear products. “I think VSC and GAP will stay strong. Loan terms are longer than ever and are now the norm; customers still need protection beyond the manufacturer’s warranty.” He also expects to see more hybrid or composite products. “They are cheaper to buy and represent more value to the customer and it’s the TPAs way of menu selling. They are easier to sell because you only have to present one document instead of four.”



John Braganini, principal, Great Lakes Companies, says electronic rating and electronic contracting with DMS integration will become the standard for premiere providers this year. Some wholeheartedly agree, while others expect a slower transition into fully paperless processes.

David Trinder, CEO F&I Administration Solutions, LLC says that the most of his +40 customers are getting close to 100% of contracts electronically. “Our admin system’s connectivity coupled with developments in the many menu systems, DMS systems and most importantly, the improving technical capability of dealerships have all meant that it is not unreasonable for a TPA to expect 100% of their deals to come in electronically. The next phase is the electronic signature and while we are seeing a heightened interest in it, we feel that it is unlikely that 2015 will be the breakout year.”

Thomas Elliott says StoneEagle will be closely monitoring electronic contracting and electronic signature. “We have seen a significant push from both agents and providers to increase electronic contracting, and we expect this trend to continue to be driven forward by millennial consumers.”

“The Internet and technology will continue to evolve and change the buying and selling landscape,” notes Jim Smith, CEO, SouthwestRe, “This will especially impact the F&I department as the average customer becomes more knowledgeable. This makes it that much more important for F&I to ‘stay up with the times.’ The days of customers reviewing brochures are being replaced by customers researching products online. As the world shrinks, consumers will expect things much faster, therefore it is up to the providers to be able to satisfy these demands. The Internet and technology offer the most efficient means to do so.”

Jim Maxim, Jr., president, MaximTrak, describes 2015 as a “pivotal year” for digitization and the elimination of paper in the sales processes. “The paperless process finally has serious momentum and everyone is focusing their attention on driving it. One of our captive clients has been able to convert 60% of its F&I business into electronic rating and contracting via the menu platform so the growth and benefits are starting to be realized.“

“We’ve seen what happens to a business when their confidential, private information gets hacked,” says Michael Tuno, president, World Class Dealer Services, “they end up in a class action for not safeguarding that information. This certainly speaks to establishing best practices in a business. Technology starts to become an important means to keep paper off the dealership floor. But it also opens up Pandora’s box – especially with mobile technology that is not safeguarded. Eventually, someone is going to figure out how easy it is to go into a dealership and steal all the information they can.”

Brian Reed, president and CEO, Intersection Technologies, predicts, the F&I office is on its way to becoming electronic processing based. “The current use of old technology, such as the impact printers designed in 1963, will become obsolete – just not in 2015, but soon. The market is changing to electronic processing of all F&I products with dealer groups, progressive agents, and F&I product providers pushing electronic processing. Everyone knows it will happen but are not sure when it will happen. The following factors will continue to advance the change curve forward to a greater number of dealers processing their business electronically.”

“I think interactive presentations to customers will be more common, both in the dealership and online. It’s expected of the younger segment of customers, and that has the potential to speed up the entire F&I closing process,” says Steve Burke, CEO, Portfolio General Management Group, Inc.


Millennial shoppers and employees are definitely making their mark in automotive. As the largest generation in the US, Millennials represent around one third of the entire US population. They are the first generation that had access to the Internet in their earliest years of life and are the most culturally diverse and educated generation in history. With their tech-savvy research skills, the generation that didn’t know life before the Internet is causing the automotive industry to rethink and revamp the buying and selling process. Described as impatient, well educated, and technical, Millennials are a leading factor in the push for increased technology and the use of social media when it comes to car sales.

“A couple of things here. First they hate the traditional sales approach so if you can’t freshen up your approach to F&I presentations you aren’t going to do well,” says Joel Kansanback, president, Automotive Development Group, LLC, “Maybe most importantly is the dealers’ need to have an F&I process devoted to customers originating in the business development center (BDC) and provide enough advance information that customers don’t feel like you are springing an offering on them at the last minute. Millennial shoppers want lots of information and they want it early so we need to revisit dealer websites and perfect the pre-menu process.”

David Trinder, CEO, F&I Administration Solutions, LLC, feels that dealerships are still way behind when it comes to adapting to the expectations of informed customers. “I have visited numerous dealerships of late, and I found that I always knew more about the car than the sales person. Even (on occasion) with something as simple as the different engine sizes that are available with a certain model. If the sales people are so ill-informed about the vehicle themselves, imagine how frustrated a Millennial will feel when they visit a dealership and find they know more about F&I products than the F&I manager. I believe that changing the approach and attitude in sales and F&I is as important right now as implementing new technology. One will not succeed without the other.”

Michael Tuno, president, World Class Dealer Services, is raising a Millennial. “Like most Millennials, my 15 year old daughter loves technology and doesn’t care as much about cars.” He says the need for social connectedness that used to require a car, now can be satisfied, at least in part, through social media and smart phones.

“Technology and connectivity are big with Millennials – they tend to look for functionality over brand loyalty. There is a danger in that they may lack the ‘pride of ownership’ of previous generations. For example, in urban areas, they may increasingly utilize transportation services such as Uber as viable replacements for car ownership,” says John Kerper, owner, Kerper and Bowron, LLC.

“I read a recent study on how the Millennials are changing the buying habits of the Baby Boomers and that all age groups are becoming more technologically aware,” says Jim Smith, CEO, SouthwestRe, “Therefore, it is not just the Millennials’ buying habits, but society’s buying habits that are evolving.”

“Millennials are loyal to a process, not to a vehicle,” says Glen Tuscan, president, Dealer Commitment Services, “They are technology crazy, not car crazy. They are going to demand a different way of buying a vehicle. I think a better customer experience and new buying process will capture them.”

Aside from their adeptness with technology their impatience with lengthy transactions, Mark Thorpe, president and CEO, The Impact Group, Inc., doesn’t see a huge difference in the demands of the Millennial over other demographics. “In the end, every customer demographic needs good information to make good decisions. How that information is made available remains the challenge for every user and every provider. In that regard, our mission is to continue to develop interactive tools that make the business manager’s job easier – where the client can with confidence determine their own degree of risk exposure when evaluating a particular F&I product without the business manager having to do all the heavy lifting.”


Steve Burke, CEO, Portfolio General Management Group, Inc., says the ultimate key to success is getting more from each customer relationship. “This means developing the store’s brand beyond the franchise marks. Though sales, parts and service, and online marketing all play a role in strengthening the brand, I believe much of the strategy [in 2015] will be centered in F&I and the products that keep customers coming back. Strong dealers know that quality and value in every interaction is the foundation of maintaining long-term customer relationships.”

Joel Kansanback, president, Automotive Development Group, LLC, says being a car dealer is more complex than ever. “The more equipped we are as agents to help dealers navigate this complex landscape the more we will succeed. Dealers are looking for people to turn to for help. It’s just not practical for them to be experts at everything.”

The bottom line seems to be all about creating that positive customer experience. The technology, compliance issues, process and everything else involved all pave the road to the sale. The better that road is paved, the better the ride for the customer; and we all know the bottom line starts with providing what customers need and want in a way that appeals to them. Satisfied customers are what successful businesses are built on.

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