The Road Ahead for F&I and Compliance
April Q&A: How do you get more customers through the F&I process faster, while remaining fully compliant?
April is the month when spring kicks into gear, and traditionally coincides with the time of year when Americans start thinking about hitting the road for getaways and vacations—or just upgrading from the old beater to something shiny with that great new car smell.
It’s also the month of Tax Day, an event that many dread, but which can be good news for dealerships, because many consumers flush with tax refunds begin to think, “I should put this into savings, but hmm . . . it would be fun to get that new car I’ve been wanting for years.”
The convergence of these April events most likely means that your dealership is going to be selling more new vehicles soon. And that also means you’re going to need to push more customers through your F&I department. Are you ready?
Today’s buyers, more than ever, want their deals to happen quickly, with less time waiting around. Once they’ve settled on a particular unit and a price, they don’t want to spend several more hours at your store before they can drive off in the new vehicle of their dreams.
So your F&I process needs to be faster and more efficient, yet remain a key profit center for your dealership through extended warranties, aftermarket items, and other value-added products. All the while, you need to mind the details of regulatory and financial compliance to make sure potentially costly mistakes aren’t being made during your transactions.
To shed some light on the topics of F&I and compliance, this month’s cover story Q&A features three subject-matter experts (see bios below) from leading automotive vendors, who share their best practices and some projections about the future.
In addition, this month we’re introducing a new visual format for the Q&A designed to make our experts’ advice and commentary faster and easier to read. After all, with all the cars and trucks you’re going to be selling soon, you aren’t going to have a lot of extra time to spare.
Q: What are the greatest challenges facing today’s dealership F&I departments??
The future is now.
We’ve all heard about technology trends; how more and more consumers are beginning their vehicle shopping journey online, autonomous vehicles, etc.—these things are all happening to some degree right now. Dealers will need to adapt and implement new technology and processes.
The key is implementing in a way that makes the dealership more efficient and meets customer expectations, but also highlights the personal service of the F&I department that can’t be replaced.
Every dealership has a unique set of needs, and some dealers have implemented advanced solutions that are driven by consumer behavior, but there is not a one- size-fits-all solution.
It will be up to the dealers to implement the solution that best suits their business needs.
The greatest challenge facing dealership F&I departments is the evolving customer expectation. In today’s retail environment, consumers have come to expect the ability to research and purchase almost everything on their own time, and at the click of a button.
The time it takes to buy a car in the traditional dealer model has led to higher frustration levels given the way people buy everything else these days.
In fact, according to a recent Cox Automotive study, customer satisfaction is lowest as it relates to the speed of the purchase process and the F&I experience.
For the millennial generation, this frustration is even higher [because] they have no history of buying any other way. In an ever-evolving retail space, the F&I efforts of a dealership need to become more transparent and efficient.
While dealerships have understandable concerns about maintaining their back-end gross, we have found that online F&I presentation, greater transparency, and the introduction of F&I products earlier in the sales process all contribute to attach rates that can actually exceed traditional models.
Q: Given that consumers want to spend much less time in the dealership when purchasing a vehicle, what is the best way to shorten the F&I component of the buying process?
Maximize anything that can be done ahead of time, allow customers to apply for credit online, and utilize remote document delivery to allow customers to review documents at their convenience, before entering the F&I office.
Then, when they are in your office, engage them in the process, and to reduce the lag time, hand them a tablet, let them fill out credit apps, or review products—just to name a few.
Guiding them through this process, but allowing them some control, helps to create transparency.
The best way to shorten the F&I component of the buying process is to make the products available online and in-store for the car buyer to review and select prior to entering the finance office.
Not only will this save time at the dealership, but studies have shown that the higher the awareness before purchase of an F&I product’s value, the more likely the person is to purchase it.
Q: With the trend toward incorporating more elements of the buying experience online, what do you expect the typical dealership F&I department of five years from now to look like?
New technologies will continue to rise up, and they do bring interesting aspects to the F&I process.
They will grow the number and variations in the point of sale. They will surely add color and bring value to dealers.
A dealership five years from today will probably look much like a dealership today, except more efficient because of all the tools at their disposal, such as all the advances in digital retailing and e-contracting.
Remember, these technologies that do pop up aren’t always a one-size-fits-all solution. Just like today, each dealership [will have] unique strategies and solutions that fit its business needs and customer base.
Technology will put every aspect of the deal not only in the car buyers’ hands, but also the employees at the dealership.
What we hear time and time again from dealership staff is the internal frustration with running back and forth from the desk to get one, two, three pencils on the same deal.
Technology can bring all of that data to the forefront, empowering any employee at the dealership to walk someone through the process from start to finish.
When all of the information is at your fingertips and even customers can desk their own deal online, breaking down silos and removing layers of approvals makes room for a much more efficient sales process.
It also means that you now have even more people to [interact with] your customers, which can drive significant increases in customer satisfaction.
Q: Are there areas of legal compliance that tend to slip through the cracks at new-vehicle dealerships, and if so, what are they and why do they occur?
Dealers keep records on every deal, but many don’t have are clear policies and procedures for F&I staff or sales staff memorialized in that same way, which leaves them open to unintentional law violations.
The policies and procedures are often preserved through institutional knowledge, and never maintained in writing, then reviewed and tested in compliance training.
With hundreds of regulations, pieces of paper, and different employees coming in and out—even with incredibly competent and fantastic staff—it’s possible for those things to fall through the cracks.
Having an automated workforce compliance system prompts you to follow up on those things that may be missing, and can serve as a double-check—because often there’s one person running this entire program for a dealership.
Every dealership is going to have a unique set of systems and services it chooses to best fit its needs. These systems need to connect, and data needs to be managed from a centralized repository, [which] will help ensure consistency in your process.
All your deal documents can automatically archive electronically to protect NPPI [non-public personal information], not to mention [provide] ease of retrieval if ever needed.
When you automate these obligations and have the ability to report on them, you not only ease up your workload, but also reduce the likelihood that items will fall through the cracks.
Q: Does it benefit dealerships to better publicize or inform customers about their commitment to fair lending and other compliance issues? Is it a difference-maker in gaining trust and building customer loyalty?
Many of our dealer clients are generational family businesses. They feel a responsibility to the community they serve, and are very community-oriented for a variety of reasons.
Obviously, members of the community are their customers or potential customers. They’re seen by what they contribute and how they operate within the community.
At the same time, they want to be known as a great place to work. Reputation is everything to them.
For many dealers, business ethics and compliance has been a cost center—not a revenue center. If you’re using business ethics as a competitive differentiator, it can absolutely help your bottom line and not just be something you have to pay for every year.
Having ethical employees helps interactions with consumers. It also bolsters the integrity of the business and can help reduce or eliminate any fines or penalties that you might have in the event something goes wrong.
Transparency is key. With a plethora of information readily available at the consumer’s fingertips, they need to know that they can trust you, or they are only one click away from someone they can.
Engage your customers in the process—it can be guided by you, but they feel in control of their data. They can fill out a credit application online or on a tablet in your showroom to begin the process.
Your insurance products can be recommended by having your customer complete questions on a tablet about his or her driving habits, and the system will recommend unbiased products based on the criteria entered—again, engaging them in the process.
You should also have a standard mark-up rate for your dealership that is offered to all your consumers. If for any reason you deviate from that rate, have a process in place that requires your staff to complete a Dealer Rate Exception Form, from NADA, [which] will document deviations, along with reasons for variations to leave an audit trail if ever needed.
All of these processes give customers greater insight into the decisions they are making, and help ensure you are following compliance obligations.
Q: What do you expect to be the major compliance issues—or changes to existing regulations—coming in the next few years that will most affect dealerships?
You know, the only constant is change. The biggest uncertainty in the news these days is the future of the CFPB [Consumer Financial Protection Bureau].
While there’s perhaps more leeway for auto lenders, the CFPB’s future does not mean finance companies are completely unregulated—far from it, in fact.
Dealers should continue to monitor their fair lending programs, as they could be liable individually for intentional discrimination, and state regulatory agencies are starting to step up their own enforcement.
Further, finance companies and banks are likely to continue looking for violations in order to keep themselves in compliance.
Fair lending compliance is part of a robust compliance management solution, and compliance management is simply good for business.
With the changing political environment, it’s tough to look into a crystal ball and make any predictions about what is on the horizon.
It is imperative, though, that dealers pay close attention to these regulations. It may be the dealer’s responsibility to maintain and implement [them], and there are resources out there to help keep dealers informed about changes.
Stay connected with a trade organization, such as NADA, or trusted partners who offer compliance resources, such as guides and webinars that keep you abreast of changes.