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Motor Finance met with dealer finance pioneers
to discuss the outsourcing of F&I expertisein a climate where
the increasing time cost of compliance is putting pressure on
dealers’ ability
to pass on finance selling skills to forecourt staff.
In
this sixth round table discussion hosted by Motor Finance
and Frontline Solutions, panellists were invited to the offices of
Correlation Risk Partners in the City of London, to debate best
practice and common mistakes in outsourcing, the role of business
managers and the work conducted by external industry bodies.
The following pages provide highlights
from the conversation that followed, in which business leaders and
industry experts spoke candidly about the topics at hand.
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By GlobalData
If outsourcing F&I skills
is the solution, what is the problem? Where is the need for
outsourcing in the sector?
Greg Rigby: We have
an unconventional view of the way F&I operates. The average
dealer sees the business manager introduced once the deal has been
transacted – we don’t see it that way at all.
Affordability is a key element in
whether a sale is going to be transacted at all. We teach the
salespeople to talk finance to the customers; about what they can
afford to spend. That way, the right car can be selected for the
customer and the odds of doing business increase significantly.
There is still a role for the business
manager. Once the customer has agreed a purchase, a business
manager who knows what he is doing, working in conjunction with
salespeople, can be very valuable and can sell add-ons. Our
experience is that, when we go into a dealership with this
approach, the finance income can increase by a factor of eight. It
is contingent on the fact that the sales people do talk to
customers in terms of monthly payments.
Graham Hill: I
totally agree. Put finance first. People need to know where they
stand. That’s how Yes Car Credit was built. They didn’t sell cars,
they sold the finance.
It wasn’t about getting the finance
approved back then; everybody got approved. What customers wanted
to do was negotiate the part exchange, calculate what they could
afford and drive a new car. Keep it straightforward.
I provided dealerships with finance
facilities as a broker. Where the dealership didn’t have an F&I
person on site, we filled the gap.
Nothing was worse than a situation
where a salesman had been selling a vehicle for an hour, then found
that he wasn’t dealing with a prime candidate, he was dealing with
a subprime candidate who couldn’t afford the car being sold, a huge
disappointment. So it’s a question of turning the situation on its
head now. We need to find a way to put finance first.
Sabina Hegarty: A
customer doesn’t buy a car if he can’t afford the payments. One of
our biggest customers, with 150 dealers, has a 10-minute rule:
funding must be talked about in the first 10 minutes of a customer
walking through the door.
Other than them nobody does this
except, to be fair, the car supermarkets. They qualify early, their
salesmen know how to quote; they’ve got a calculator on the screen.
They don’t do PCP – that’s where the business manager gets involved
– but they are on the right track.
It is
the best process because they get that monthly payment out of the
customer early and then they know what they are dealing with.
Andy Shuter: The big
assumption made about dealerships’ sales policies is one that the
customer has already got his existing vehicle on finance.
A question that should be asked
upfront is: what standard payments have you got on your existing
vehicle? It is at that stage that you know this customer will buy
one of our products.
Greg Rigby: Remember
that when F&I was brought in to this country by Pat Ryan,
everything was outsourced. They employed them all, put people into
dealerships on a subcontract basis, they were the business
managers, and they handled all F&I deals.
Sabina Hegarty: Only in the last five
years have dealers actually started taking F&I as an income
stream in its own right, not just an add-on to the sale. It is
capable of generating an awful lot of money, and can mean the
difference between success and failure for some dealers.
My company are still doing trials to
get dealers to come on board – it is a main income stream and they
are just waking up to that.
So
we’ve identified a need for new ways of thinking in the selling of
dealer finance – where does outsourcing fit into this?
Greg Rigby: Just to
turn this on its head: how many dealers do you know that could
teach their people internally?
In many conventional dealerships in
this country I would go so far as to say the majority of car
salespeople are poorly trained. They are not trained to be helpful
and friendly.
Martyn Wailen: What
Greg has alluded to is that knowledge and practice are two very
different areas. SAF is knowledge-driven. It surrounds several
areas of finance and enables an individual to understand motor
finance.
That would possibly be one of the
areas where the automotive finance houses have agreed what people
need to know – but dealers are still taking responsibility for the
practical side of it individually.
Andy Shuter: You
could go into a dealership and teach people how to sell PPP,
probably everybody around this table could. Would a manager or a
general manager do that? Absolutely not.
When it comes to the actual F&I
process, people within the network passionately want to pass this
knowledge on but they don’t ever get the time to do it.
They are bogged down with compliancy
work, not to mention the fact they have got ambulance chasers
coming at them every day of the week.
Andy
Whiteley: Are dealers using SAF approval as a selling
point to give customers confidence or is it just about building
rapport?
Andy Shuter: Added to
that, is SAF missing a trick? We talk about kite-marking and staff
going through SAF, but do you not think that the customer is
looking for some additional kind of comfort? Could SAF not be
looking at engaging with the public?
Martyn Wailen: Stage
one was getting industry standards and knowledge under one umbrella
of competence.
Stage two – and there will be a stage
three and four – has been the public education. The FLA has an
objective to increase awareness of finance and insurance. That is a
long-term strategy, hence the SAF kite mark there.
It has a web presence that will tell
people where they can find SAF-approved dealers and that is
expanded to accredited dealerships. That was an initiative of the
FLA working with the industry, and there is more ground to cover
yet.
What are the most common
objections encountered by providers of outsourcing?
Graham Hill: It’s the
fear factor, certainly with some of the smaller dealers. Dealers
I’ve dealt with as a broker, they’re too worried about the legal
implications to deal with it. They’d rather get someone like me to
talk
the customer through some of the finance process and then have
someone else deal with the warranties.
Andy Whitely: It is a
fear of failure. I have experienced it on a number of occasions
with dealerships I have worked with. Twelve salespeople and their
key objective was selling the actual cars.
There was no real qualification to
that monthly budget that the customer had put on one side until we
examined if they had any extra capacity to take on PPP or GAP.
Sabina Hegarty:
Sometimes, salespeople think they are going to lose the car sale by
asking about car finance.
Martyn Wailen: Why,
within an independent or brand dealership, would someone believe
that they should sell car finance and insurance? Fear of regulation
and lack of knowledge.
This is why SAF has been such a great
initiative to increase knowledge. Now it appears we would need to
work on the skills of the salesperson and we have probably seen a
lot of dealers go to appointed networks because it lets the dealer
principal sleep at night.
Andy Shuter: Do you
think manufacturers help? To qualify for some of the schemes that
prestige brands run, you have got to have an exceptionally high
credit score.
If you don’t qualify for that scheme,
the next best lender is significantly dearer. The FSA have got an
issue with this as part of treating customers fairly, which is all
about offering deals that are achievable.
Giving the customer empowerment to buy
goods is I think where finance is going. That journey now starts,
whether we like it or not, on the internet. That is where people
start browsing, shopping and knowledge-basing.
Graham Hill: With
regards to outsourcing, when you’re a dealer with your own in-house
finance, you’re restricted by product range.
For instance, funders can often offer
contract hire to a business but they can’t offer it to a private
individual in that business through their captive. They can offer
discounts and bonuses in lease rates, but not in PCP because they
have to declare the price being paid for the car.
Dealers don’t always fully understand
the products themselves to be able to sell them. It’s not
surprising that customers get confused and dealers have a problem
selling them.
Kevin Johnson: You
have got to get involved with outsourcing. Ultimately, you do the
deal with the owner or the dealer principal, and too often they
introduce you to the guys and then stand back. We don’t engage with
dealers like that anymore.
Whatever we put in to a dealership –
card processing through to wastage, through to GAP insurance,
through to consulting with retailers – we advise them on how to
increase their finance penetration so they can get the best rebate
stocking loans. We don’t just engage with salespeople and sales
managers.
For example, the SAF test is a good
start for driving finance forward. If you get select captive
finance for a dealership you get bombarded by them and you might
believe that there is nothing outside of their offers. SAF opens up
your world.
Here comes the trick: SAF goes into
this dealer group, 14 days later all the sales managers have been
registered, and that is where you put your foot down because what
they want to do now is to drive it through all the sales
people.
That product will never get the
desired effect in that dealer group if the sales managers aren’t
right. Sales managers, according to their job description, are an
integral part of the sales process. Why are they being excluded?
What is the answer? You have got to get the buy-in from the
top.
Sabina Hegarty: A lot
of sales managers are not paid from the bottom line anymore:
F&I is not part of their package. If there is a discount to be
given, they will take it off the rate, keeping their pay intact.
Unless we start paying salespeople based on the bottom
line, it is not going to change.
Andy Shuter: We are working with a
dealer using credit pre-screening. He is putting a rule in that
forces the rate down, the higher the credit score.
If he picks somebody with a high
credit score and notifies them with the 14-day withdrawal notice,
the customer goes to the bank for the better rate. The dealer is
hit with nearly 35% withdrawals. His business managers’ finance
profit is going straight out of the door.
Greg Rigby: In the
meantime, the bank has a department who have been set up to contact
anybody who has got a direct debit for a car.
So the customer is going to be
contacted, no matter what, to say, “We have just got this direct
debit through from the car dealer, did you investigate the kind of
money that you could get from the bank?” and they are taking the
market. Anything the dealer earned in the first place is likely to
be at risk.
Sabina Hegarty: Three
years ago – when all of the banks were courting lots of the dealers
offering really cheap loans that everybody took – we were warning
dealers that those banks would re-solicit customers and take it out
of the dealer finance pot. The dealers didn’t listen.
Now those finance companies are
sending draft agreements to customers to notify them they are
eligible to change car and they are re-soliciting the customer
before the customer has even gone to the dealership. That business
was all farmed out from dealer finance has now come back to
bite.
Graham Hill: Isn’t
that down to poor selling, though? If a customer goes from a
dealership to a bank he writes off 70% of his legal rights by
getting a bank loan, as opposed to HP through the dealer. The
finance simply hasn’t been sold properly. They are completely
different products and should be sold as such.
Customers are often just looking at
the APR, not what can go wrong during the contract and the effects
of, say, an illness or redundancy. They need to see the complete
picture, both financially and legally, not just focus on one
element when making the finance decision.
How big does a dealership need
to be before it needs a business manager?
Kevin Johnson: In
Australia and South Africa there is no discussion about whether you
are big enough to have a business manager: they are an integral
part of the dealership, so you are always big enough.
Andy Whiteley: What
is the minimum number of car salesman you should have in a
dealership? There is a minimum number for any dealership and that
minimum number requires a business manager.
There isn’t a dealership within the UK
that doesn’t need a business manager. If they have got four
salesmen, which is the absolute minimum you could run with, you
need a business manager.
Sabina Hegarty: That
is absolutely right. That equates to a minimum 400 units a year.
Anything less, you can’t really open the doors.
What is best practice for
outsourcing? What are the common pitfalls?
Andy Shuter: The
industry is tarnished by people who come in with a blaze of glory
and don’t deliver.
As a business owner focused on cost as
well as turnover, I need to be absolutely certain that my next
outsourcing, whatever it may be – marketing, website, people who
want to find me customers – is going to be on a profit-sharing
joint venture basis. If an outsourced provider is ‘that good’, then
they won’t want retainers.
Sabina Hegarty: I
don’t sell outsourcing on cost benefit. I sell on features,
benefits, compliance and best practice. If you don’t have a
business manager but your competitor down the road does, the client
is going to walk down the road. It is all about service now.
Still, sometimes people need
convincing, and I am happy to do that. After two weeks of splitting
profit 50/50 with one client, he was pleading to take the fixed
fee.
We work in partnership with dealers.
When we go in at the beginning, we are not a supplier or a hired
hand.
If you build really solid foundations
in any relationship, then you can build a skyscraper on that, but
if your foundation is weak you can’t even build a bungalow.
As such, the only objections we ever
come across are cost. Clients understand the concept straight away
– when we do a job we come out, keep all your logs up to date, do
your phones, do your forecasting, move cars, shovel snow, whatever
needs to be done. We don’t end up having a lot of resistance once
clients get over the cost.
Martyn Wailen: If you
fail to establish your rules of engagement, you are in trouble.
Andy Whiteley: It is
all about transparency, trust and getting the right numbers. We
have gone into businesses and known we have improved it only for
them to claim that nothing’s changed.
The problem is fundamental. If, by
your efforts, you massively increase the bottom line, you are
showing that the management of that company was previously inept.
So they don’t necessarily want that – it is a threat to the egos of
the people running
the business.
Graham Hill: When
outsourcing to brokers, the real problem with dealerships, as
mentioned before, is trust. Will the broker steal the client? Will
he look after the dealer’s and his client’s interest before his
own? These are genuine concerns that will only be resolved in time.
The fact is that whilst the broker could make a one-hit-and-walk
profit, most are genuine and in it for the long haul looking after
their introducers as well as their funders. Time and experience
builds trust.
There’s a split between the two
products. Insurance products, which we all know, are heavily
FSA-regulated, and finance products, where the regulation is
relatively weak, providing crooked brokers with an opportunity.
Consequently, when outsourcing to a
broker for just finance, especially to a broker who’s been in the
industry for a long time, trust is assumed.
Unfortunately, some new brokers into
the industry can and will undercut the offer to a customer made by
the dealership that introduced the two parties. It’s not
appropriate or honest. The relationship only works if there is
trust and understanding between dealer and broker.
Some brokers have been found to trade
under two different names. They trade as a broker, taking leads
from dealers, but also trade as an outsourcer, under a different
name, offering the customer a better deal and stealing him away. In
order to deal with this, and other types of broker problems, we at
the NACFB regulate all of our brokers. They have to conform to a
code of practice and this type of operation would not be
tolerated.
Membership of the association should
resolve the trust issues in the minds of the dealers when
considering outsourcing to a broker. Brokers outside our
association would need to be investigated more carefully before
dealers started to pass leads over. There needs to be more
regulation within the finance side of the industry. Without
Government regulation we’ve done it independently through the
NACFB. This is why Andy and I are working hard to try to get more
brokers and dealers joining the association.
Sabina Hegarty: Some
people in the broker industry spoil it for others. They have got a
bad reputation that they need to polish up.
Andy Shuter: The
NACFB must put some kind of kite mark on brokers. Then the lenders
that will not deal with brokers have got no choice but to listen to
you. The perfect sales force is a broker panel, and the training
companies are, in effect, an outsourced solution. If you have an
equitable service, it is a no-brainer.
Andy Whiteley: The
brokers have the same problems as the dealers: Nobody can tell them
how to bring in more business.
Kevin Johnson: What
we found interesting, now that we have introduced insurance to our
product offering, is how little the financial directors have
actually been involved in sourcing point of sale insurance.
There may be sensitivity in the
dealership, you could be creating a bad vibe with the group F&I
director but from our perspective, it is purchased direct, there is
no need for us to have loyalty coming from him because our payer is
the finance director or the owner.
Andy Whiteley: I like
the ‘try-before-you-buy’ strategy mentioned by Sabina – it is a
great idea.
Sabina Hegarty: We
have done it in 69 dealers now, and 67 of them went on to take on a
business manager because we proved within two weeks the
improvements it made.
Market-wide, about 60% of dealers now
employ business managers. Seven years ago, most sites that had a
business manager only had one. We showed them how much money they
were losing when the business manager was absent and about 40%
hired somebody to help.
On one site we work with, they have
got seven business managers. They need seven, and need seven all
year round, not seven half of the time. The managers we put in to
dealerships slip in. We integrate. The customer mustn’t spot they
are an outsider. That is fundamental. The sooner the business
manager’s introduced, the more money you are going to make and you
will sell the car.
You will make more money from each
deal because you will have time to drop the right hooks, do the
proper pitch and presentation.
Unless a business asked us to, we
wouldn’t reinvent the wheel because they have got a process. They
don’t want somebody coming in, turning them upside down and then
leaving. If they ask our opinion, we’ll give it to them. Because
they trust us, they go along with it. When you have proven the
point, they accept it.
We coach salespeople to be business
managers. We have classroom facilities but it’s often better for
our business manager to show, not tell, somebody. Give them working
knowledge so that, if the business manager’s busy, the salesman can
come in.
A lot of the time we find dealerships
are not FSA-accrediting salespeople, so they can’t even talk about
GAP. They can’t talk about insurance or drop any hooks. Unless you
train them, you won’t get full value.
Andy Whiteley: We
have experienced it with manufacturers who follow customer feedback
and pressurise dealers to keep their KPIs as part and parcel of the
sales purpose. They are sort of set in their ways as to what they
expect a salesperson to do. If you outsource, you may have a
company come in and completely upset the apple cart.
Martyn Wailen: There
are three areas really which are the fear factors to outsourcing:
One which we have absolutely nailed in this discussion is return on
investment.
The two other areas, especially at the
top end of the market and with branded manufacturers, are brand
protection and appetite for risk. In this marketable world, the
manufacturer spends billions on promotion. To outsource they have
to choose a partner that will represent their vision and their
values.
Slightly down the scale is the fear of
losing your knowledge and competency because once you outsource,
you can become lazy: regulation, legislation, if you have some nice
person do that for you, you are losing that knowledge. That is a
worry to dealers.
Sabina Hegarty: Best
practice, I have found, is to behave in an honest way, with
integrity with your customers, be fair in your partnership. To look
at this in terms of pitfalls: don’t underestimate the customer’s
reluctance to invest in something that is intangible.
