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THE New to Automotive Finance? Expert Breaks Down 10 Rules No F&I Manager Can Ignore

WELCOME TO Learn How Bethany Johnson, Jon Hazelwood and the Rest of the RBM North Team Powered Through Early Challenges to Become One of Their City’s Top High-Line Dealerships

WHAT A Take an Exclusive Look Inside the Playbook of All-Star Special Finance Manager Greg Alore FEBRUARY 2011 $10.00

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Endorsed as the official publication of the Association of Finance & Insurance Professionals

February 2011 Volume 14, Issue 2

Features Dealer Profile

12 Climb to the Top RBM North overcame an undeveloped market and stiff competition to become one of the top-rated high-line dealerships in the greater Atlanta area. Finance and Insurance


18 F&I’s 10 Commandments Starting out in F&I is never easy, but the magazine’s resident expert lays out a game plan to get F&I “newbies” off on the right foot. Q&A

24 Product Placement Should the base payment be displayed on the menu? Officials with IAS offer their take on that hot-button issue and more.


Special Finance

26 Go Long! At Longmont Ford, Greg Alore relies on a roster of lenders, lead providers and satisfied customers to help his special finance team rack up hall-of-fame numbers. Dealer Management

30 Pay Plan Reboot


The Department of Labor is gearing up. The question is, will your pay plans be ready? Here’s a primer to help you get them up to speed.

Departments 4 Letters 6 Editorial Page 8 Developments 34 Sales Driver 36 Mad Marv 38 Legal 39 Bottomliners 40 Ad Index 44 Industry Trends

26 F&I and Showroom (ISSN 2154-1728) (USPS 018-706) (CDN IPM# 40013413) is published monthly, by Bobit Business Media, 3520 Challenger Street, Torrance, California 905031-1640. Periodicals Postage Paid at Torrance, California 90503-9998 and additional mailing offices. POSTMASTER: Send address changes to F&I and Showroom, P.O. Box 1068 Skokie, IL 60076-8068. Please allow six to eight weeks for address changes to take effect. Subscription Prices: United States $20 per year; Canada $35 per year; Foreign: $35 per year. Single copy price: $10; Fact Book: $30. Please allow six to eight weeks to receive your first issue. Bobit Business Media reserves the right to refuse nonqualified subscriptions. Please address editorial and advertising correspondence to the executive offices at 3520 Challenger Street, Torrance, California 90503-1640. The contents of this publication may not be reproduced either in whole or in part without the consent of Bobit Business Media. All statements made, although based on information believed to be reliable and accurate, cannot be guaranteed and no fault or liability can be accepted for error or omission.

2 F&I and Showroom February 2011

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Letters The End of Sales vs. Finance Your December column (“Who Needs ’Em?”) couldn’t be more spot on. I have been a finance manager for 28 years and have gone from being really difficult with salespeople to having a very good relationship with them. We’ve realized that we have to work together in order to deliver a vehicle, because, as you said, if the sales force and F&I manager can’t work together, it will surely spell doom for the sales process.


Harvey Coopersmith Business Manager Mercedes-Benz of Atlantic City (N.J.)

Thanks for the note, Harvey! I too have sown bad seeds that I’m still reaping. But I press onward, realizing it’s not about me. I can’t tell you how much I appreciate when a salesperson gets excited over a deal I put together that he or she would never have been able to do. Sales staffers are real people who need managerial involvement — not managerial bullying. — Marv Eleazer

Compliance Survives When Deals Die TO MICHAEL BENOIT: At my dealership, we scan completed and delivered deal jackets and will soon be scanning “dead” files. I have a couple of questions about this process: ■ If we scan a deal jacket containing a customer’s personal information, how long do I need to keep the paper file before I can shred it? ■ Do I still have to keep the paper file even if I have an electronic file that follows state and federal recordkeeping guidelines? I have visited the Federal Trade Commission’s Website and other resource sites, but I can’t get a clear answer.

Vern Stern Compliance Manager Dave Smith Motors Kellogg, Idaho

Vern, the only issue is whether a state law requires the retention of “originals.” This is true in the case of installment sale contracts in some states (i.e., the finance company that bought the contract might be required to return the “original” marked “paid” to the buyer). That wouldn’t generally apply in a deal jacket, except in a buy-here, pay-here or related finance company situation. Your question requires answers as to what’s permitted in Idaho. Most states’ “rules of evidence” will permit you to use a scanned copy as the “best evidence” available when the originals have been destroyed. Your corporate counsel should know if this is the case in Idaho. Counsel also should review the Idaho Credit Code for retention requirements relating to credit sale documents. Idaho’s dealer code also may indicate a restriction on scanning and destroying originals. Federal law doesn’t restrict the practice of scanning and destroying originals; however, you’ll want to verify with your counsel that the federal rules of evidence allow you to present scans as evidence in litigation. — Michael Benoit

Vice President Group Publisher, Auto Group Sherb Brown Publisher, Dealer Group National Sales Manager David Gesualdo 727-947-4027 Executive Editor Gregory Arroyo 310-533-2592 Managing Editor / Art Director Tariq Kamal 310-533-2470 Senior Editor Justina Ly 310-533-2496 Great Lakes Sales Manager Robert Brown Jr. 248-601-2005 Sales & Marketing Coordinator Tracey Tremblay E-Media and Print Production Manager Brian Peach 310-533-2548 Web Manager Sam Kim 310-533-2492 Audience Marketing Manager Tony Napoleone

New Rule, No Problem TO THE EDITOR: Greg, you were right on with your January editorial on the Risk-Based Pricing Rule. It has been a non-issue so far. I give customers the exception, explain what it is, ask them if they have any questions and proceed with the delivery. Recently, I had a customer trade in a car she bought last August. Her score had dropped and I couldn’t get her the same rate. We reviewed her sheet and old deal, and saw that she had added $6,000 in credit card debt. “Oh, I understand,” she said. It was only a quarter point, but it defused an argument over $7 per month and gave me credibility.

Tom Brenholts Nationwide Car Sales Wilkes-Barre, Pa.

Chairman Edward J. Bobit President & CEO Ty F. Bobit Chief Financial Officer Richard E. Johnson Business and Editorial Office Bobit Business Media 3520 Challenger St. Torrance, CA 90503 Phone: 310-533-2400 Fax: 310-533-2503 Change Service Requested Return Address: Bobit Business Media PO Box 2703 Torrance, CA 90509 Subscription Inquiries 888-239-2455 Printed in U.S.A.

4 F&I and Showroom February 2011

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Letter from the Editor

Fed Proposal Reveals Evidence GAP The Fed sure isn’t hiding its disdain for credit insurance with its proposed changes to Reg. Z. Then again, it might just be an information gap at work. By Gregory Arroyo


magine making a major business decision based on how 18 people responded to a survey. Pretty irresponsible, right? Well, the Federal Reserve Board doesn’t think so. In fact, that’s exactly what it’s doing with its newly proposed disclosure requirements under the Truth in Lending Act’s Regulation Z, which, if you hadn’t heard, will impact your ability to sell credit insurance, GAP and debt cancellation agreements. The study in question was conducted by Calverton, Md.-based ICF Macro. The results, released last July, helped Fed officials craft new disclosures for selling loan protection products. The problem, as Michael Benoit, the magazine’s Legal columnist, puts it, is that they’re basically “designed to convince your customers not to buy them.” He’s right. In fact, one of the proposed disclosures reads in big bold letters: “You may not receive any benefits even if you buy this product.” My favorite is the one that reads: “Other types of insurance can give you similar benefits and are often less expensive.” Again, 18 people helped the Fed come to its conclusions. What’s even more amazing is the study was focused mainly on credit insurance for home mortgages. In other words, respondents weren’t shown GAP or debt cancellation agreements. In fact, only one of the 18 respondents indicated that he was familiar with credit life insurance “in the context of car loans.” My question is: When will regulators understand that it wasn’t the auto business that sent the economy and the credit markets into a tailspin?

Look, I’m all about dumbing down disclosures a bit so you don’t need a law degree to understand them, but come on. And why not allow the Federal Trade Commission and the new Consumer Financial Protection Bureau handle this? Well, truth is, the Fed has been in the process of reviewing Regulation Z since 2004. It’s goal is to ensure that disclosures the rule requires are structured and worded in such a way that consumers can easily understand them and use them in their financial decision making. Still, how can you come to a conclusion based on a survey that doesn’t mention all of the products you aim to regulate? To be fair, there were some eyeopening findings. In fact, I think most of us would be willing to help fix the problems the study identified. For instance, only five out of 10 interviewees questioned in Phoenix last March understood that credit insurance was not required on their line of credit. Additionally, only half understood that there was a cap on their benefits. That’s fixable, right? Now, I think I figured out why the Fed and its new disclosures took on the tone they took. See, when eight out of 10 respondents said they were surprised to learn that they may not realize the benefits of credit insurance even after purchasing it and making payments for a number of years, many of them indicated that knowing that made them less likely to purchase the products. So, when ICF Macro took its findings to Memphis for its second round of interviews on April 16, it showed interviewees its new “You may not receive any benefits even if you buy”

disclosure. Well, guess how respondents reacted? Yup, they weren’t interested in the product. But is that full disclosure? And was that the intent of the study? Again, I think I’m OK with reviewing regs to make sure they’re working as intended, but can we make sure all parties are considered and that regulator A is talking to regulator B? Take what’s happening in California, where what seemed like a harmless Omnibus Bill (AB 2782) is now threatening a key GAP benefit — deductible coverage. See, the bill was intended to get the state in line with the Producer Licensing Model Act. However, when the state’s dealer association asked the California Department of Insurance to clarify what was considered credit insurance, the agency, in its response, said GAP waivers could not cover a customer’s deductible. San Diego-based OwnerGUARD is on the case. The F&I product provider is working with the agency and the state’s dealer association on fixer legislation, but there are several hurdles standing in the way. The best case scenario is to get something through the legislature by June. In the meantime, GAP providers are racing to get their forms up to speed with the new law. Luckily, the insurance agency has delayed enforcement of the new requirement, which went into effect on Jan. 1, through March 31. Remember when I wrote in December that we’re heading into a new period of rulemaking? Well, welcome to the party. But instead of complaining, it’s time to get active, especially those of you in California.

6 F&I and Showroom February 2011 Au

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Trim Size: 10.875 x 14.5 (Bleed Size: 11.125 x 14.75)

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Developments APRs Hit All-Time Low in December CAR BUYERS ENJOYED THE LOWEST-

ever average annual percentage rate (APR) on their auto loans in December 2010, according to The average loan carried an APR of 4.16 percent that month, down 0.33 points from November and 0.55 points from December 2009. An estimated 15.4 percent of all loans carried zero interest, the third highest monthly pace in 2010. Only 4 percent of all loans carried an APR higher than 10 percent in December 2010, the lowest proportion seen by since it started gathering data in this category in 2004. A major contributor to the low 2011 Buick Regal December interest rates was the luxury market, which is generally driven by an affluent, fiscally stable set of consumers, said. The average APR for financed sales of the top seven luxury brands was 2.9 percent, the lowest monthly rate of 2010. The top three makes with deals financed at zero percent were Buick, Toyota and Cadillac.

Prices Fall, Incentives Increase for December TRUECAR.COM HAS ESTIMATED

that the average transaction price for light vehicles in the United States was $29,358 in December 2010, down $276 (0.9 percent) from December 2009 and down $95 (0.3 percent) from November 2010. The estimated average transaction price for all vehicle types was $29,070 in 2010, up 4.7 percent from 2009’s average transaction price of $27,757.

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Sacramento, Calif.

California Law Threatens GAP Deductible Coverage


AP providers in California are racing to notify dealers that one of the key selling features of GAP might be barred since a new law took effect on Jan. 1. In late September, Gov. Arnold Schwarzenegger signed AB 2782 into law. The Omnibus bill included a new licensing requirement for sellers of accident and health insurance. How GAP got thrown in is a case of unintended consequences. According to executives at San Diego-based OwnerGUARD, the state dealership association asked the California Department of Insurance to clarify whether a GAP waiver would fall under the new requirement. In its response, the state agency said GAP waivers could not cover a customer’s deductible. Fortunately for the industry, the state’s department of insurance has delayed enforcement of the new law because many broker agents were unaware of the new requirement. “GAP sales can continue, but the law is what the law is,” said Michelle Dicks, general counsel for OwnerGUARD. “The Department of Insurance has agreed to delay enforcement through March 31, which means the department, in looking at GAP waiver forms, is not going to fine someone

or haul them into court for having a form that indicates that the deductible will be covered. However, you can’t cover the deductible.” If left unchanged, California dealers will be prohibited from selling deductible coverage through GAP without an agent license. In the meantime, providers are adding language to their agreements that informs consumers that deductible coverage is void. OwnerGUARD is working with the state’s dealer association and the insurance agency on new legislation to solve the deductible problem. “We’re really close to having language that will fix this legislation,” Dicks said. OwnerGUARD is also working with John Norwood, a noted California lobbyist who specializes in the state’s insurance and financial sector. The company hopes he can clear the way for the state legislature to vote and pass its drafted legislation by June, but company officials admit there are several hurdles standing in the way. “Our goal is to, hopefully, see something in June, but nothing is ever certain,” said Dicks. “If it doesn’t work the way we’re anticipating, we might be looking at a September vote. But if our legislation is not labeled as an emergency measure, we could be looking at Jan. 1, 2012.” CALIFORNIA STATE CAPITOL PHOTO BY COOL CEASAR

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Developments Ristken Obtains Reynolds Certification

Consumer Bankruptcy Filings Increase 9 Percent in 2010



Services has completed the Reynolds Certified Interface (RCI) program. As a certified vendor, Ristken’s retail automotive software now has the ability to exchange data within Reynolds’ dealer management system. Certification also ensures the security, integrity and privacy of dealership data. Through the approved interface, Ristken will also be able to better service, support and control dealers’ information with the Ristken application.

cies were up 9 percent nationwide in 2010 from the previous year, according to the American Bankruptcy Institute. Overall consumer filings reached more than 1.5 million in 2010, up from the 1.4 million filings in 2009. Consumer filings reached 118,146

Impact Group Connects IAS Products to Fusion Menu THE IMPACT GROUP’S

Fusion menu now offers e-rating and e-contracting capabilities for Innovative Aftermarket System (IAS)’s F&I product line. Users can now rate all available IAS

product plans through the Fusion menu, as well as automatically update the dealer management software, print the selected contracts, and remit deal information to IAS for processing.

GWC Warranty, Tidewater Announce Partnership DUE TO A NEW

partnership, Tidewater Motor Credit is now offering GWC Warranty Corp.’s vehicle service contracts. The subprime

last December, a 4 percent increase from the 113,274 filings recorded in December 2009.

through a network of dealerships.

DataScan Field Services Adds Clubb Finance Corp. DATASCAN FIELD SERVICES

lender made GWC’s product available through its dealer network in January.

Fortegra Acquires Auto Knight Motor Club FORTEGRA FINANCIAL

Corp. has acquired the Palm Springs, Calif.-based Auto Knight Motor Club Inc. The acquisition expands Fortegra’s geographic reach to Canada, where Auto Knight offers vehicle service plans and tire-and-wheel programs

was selected by Clubb Finance Corp. to provide floorplan verification services for its dealer networks in Canada. Clubb provides shortterm floorplan financing to independent and franchised automobile dealers, brokers and wholesalers.

Reynolds to Continue as Website Provider for Asbury THE REYNOLDS AND

Reynolds Co. has extended its relationship with Asbury Automotive Group Inc. Reynolds Web Solutions will continue to provide its Web technology platform and dedicated Web support team to Asbury’s 84 dealerships in the United States.

Moves and Hires, a provider of online marketing solutions for the automotive industry, has expanded its leadership team by naming five new executives.

Kristin Halpin, who joined in 2009, will serve as vice president of human resources.

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Dan Jackson, who spent the last five years managing the company’s OEM and dealer relationships, will now serve as vice president of account management. Tom O’Leary, who first joined the company in 2009, takes over as vice president of sales.

Bryan Landerman, who has been with the company for three years, assumes the title of vice president of engineering. Additionally, Chris Stephenson, who joined the company in 2007, will serve as vice president of business solutions.


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Dealer Profile


Top to the

Left to right: General Manager Randy Powell, Internet Manager Bethany Johnson and F&I Director Jon Hazelwood are part of RBM North’s management team.

RBM North overcame an undeveloped market and stiff competition to become one of the top-rated high-line dealerships in the greater Atlanta area. By Justina Ly


n between cow pastures, unoccupied storefronts and an empty parking lot in Alpharetta, Ga., sits RBM of Atlanta-North, a navy blue, glass-and-steel Mercedes-Benz and Sprinter dealership. The store covers eight acres in this less-than-ideal location, but that hasn’t stopped it from becoming one of the highest rated and most reviewed luxury-brand dealerships in metro Atlanta. Type in the phrase “Atlanta and Mercedes-Benz” on and a listing for RBM of Atlanta-North will appear along with 235 five-star ratings and reviews for the dealership. There are other Mercedes-Benz dealerships in the area with online reviews, but none are as prolific as RBM North. The dealership’s accomplishments on the Internet are impressive considering the hurdles it faced when it

opened its doors in late 2007, about the time the recession was taking hold. In addition to the economic downturn, RBM North faced an undeveloped market and stiff competition from more than a dozen highline stores. “It became the most challenging thing — from a business perspective — that I’ve ever faced,” recalls Randy Powell, RBM North’s general manager. Timing is Everything

RBM North’s location wasn’t initially a cause for concern, which is why Mercedes-Benz targeted the location in the first place. “This area, because of the growth, affluence and school systems, represented an ideal spot for a new dealership,” Powell says. The dealership, which is 22 miles north of Atlanta, primarily serves

customers in Forsyth, Cherokee, Cobb and North Fulton counties, areas that began to flourish after the 1996 Summer Olympics in Atlanta. In fact, in 2010, Forbes magazine named Forsyth County, which has a median household income of $86,938, as the 20th richest county in the United States. Additionally, the U.S. Census Bureau named Forsyth and neighboring Cherokee County as the nation’s sixth- and 29th-largest growing counties, respectively. The area is also home to the corporate headquarters of several major corporations, including The CocaCola Company, The Home Depot and Delta Air Lines. According to Powell, many top executives, business professionals and their families have moved outside city limits, creating a potential market for luxury dealerships in the suburbs.

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Dealer Profile In 2006, Mercedes-Benz approached RBM North’s dealer principal, John Ellis, and offered him the opportunity to open a brand-new store in Alpharetta. Ellis, who also owns RBM’s sister store, RBM of Atlanta in Sandy Springs, agreed. He then selected Powell to oversee the dealership’s construction and hiring. Powell staffed the dealership’s sales, service and F&I departments with more than 50 employees. In March 2008, a mere six months after the dealership opened, Powell began to realize that the economy was taking a turn for the worse. Residential and commercial construction came to a screeching halt and unemployment started to rise, but Powell kept his foot on the gas pedal. “I was determined to get through this without laying any employees off,” said the 30-year industry veteran. “So many of the dealerships around here, and I’m not being judgmental in any way, had little choice but to do that. But I was determined to find a way to continue growing the operation to support the people we had made these commitments to.”

Building an Online Reputation

When RBM North first opened, it utilized mostly traditional marketing media, including newspaper and billboard advertisements, direct mail and local sports sponsorships. With the onset of the recession and the decline in new-vehicle sales, Pow-

“So many of the dealerships around here, and I’m not being judgmental in any way, had little choice but to do that. But I was determined to find a way to continue growing the operation.” — Randy Powell ell looked to the Internet to drive in more customers. Today, more than 90 percent of the dealership’s monthly advertising budget is directed toward digital campaigns, according to Powell. “We spend about $1.70 for every dollar that a typical Mercedes dealer spends to advertise,” he says. The dealership puts that money toward search

engine optimization, search engine marketing, online reputation management and online inventory listings on Websites, such as and Internet Manager Bethany Johnson, who has spent 10 of her 12-year industry career in Internet sales, oversees RBM North’s “I-sales” department, which she describes as a “mash-up of an Internet department and a traditional business development center.” Johnson and two other Internet sales specialists employ a time-tested leads process. As the process goes, the I-salespeople will contact the customer by phone three times and by e-mail four times over a period of 10 to 12 days after a lead is received. Once the customer expresses interest in a vehicle, he or she is encouraged to visit the dealership. If it’s an outof-state customer who is prepared to buy, the Internet sales specialist will nail down the price and other figures over the phone. Johnson estimates that 33 to 40 percent of total monthly sales are now touched by the I-sales department. In fact, 85 percent of total

RBM North opened in late 2007, about the time the recession was taking hold. The Mercedes-Benz and Sprinter dealership is housed on an eight-acre lot.

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Dealer Profile monthly sales begin online, whether through posted reviews or inventory listings, she adds. RBM North also maintains Facebook and Twitter pages, but Johnson prefers to use these social media sites to connect with customers. “Being high-line, I feel there should be a softer, more personalized approach rather than listing inventory and trying to sell a car via Facebook,” she says. “I just want it to humanize us.” Even without the recession, Johnson admits that establishing a solid online reputation for a new dealership like RBM North was a major undertaking. That’s why the dealership turned to Riverside-Calif.-based eXteresAuto three years ago for help. Specializing in online reputation management services, the company helped RBM North rack up more than 235 five-star customer ratings and reviews from sites such as and “[Customers] see that there’re a lot of good things about us,” Johnson says. “We jump off the page with 200-plus five-star ratings. It immediately makes you want to call us.” Boosting CPO Sales

Internet marketing also proved useful when the dealership looked to boost its certified pre-owned (CPO) sales to offset the recession-induced decline in new-car sales. Powell even used the medium to increase business in the service drive. “We realized that, with this decrease in business, people were going to start reevaluating their car needs,” Powell recalls. Sensing this shift, he aggressively marketed the dealership’s used-vehicle inventory through third-party sites such as and AutoTrader. com. Powell even offered free shipping to customers. “We were shipping cars to Montana and Seattle … but mostly we sold in our area to help grow our service business,” he says. In addition, RBM North marketed its inventory to leaseholders who were near the end of their terms and wanted vehicles that were “a little less expensive and a little less ostentatious.”

RBM North sells Mercedes-Benz brand accessories, such as hats, T-shirts and teddy bears, at its boutique. Customers also can get complimentary drinks and snacks at the dealership’s café and lounge area (inset).

By 2009, RBM North was one of the Top 10 dealerships in the area in terms of pre-owned vehicle volume. “We had adjusted to that ahead of the rest of the market,” says Powell. “So we sold a lot of certified pre-owned cars in the first year — more than we sold new, which is pretty unusual for a new-car dealer.”

Dent repair touts a 30 percent sellthrough, followed by GAP and CPO extended warranties at 20 percent each. Hazelwood says the dealership also sells MBFS-branded interior/ exterior protection and a service contract through Norcross, Ga.-based EasyCare, which benefits trade-in customers who want extra coverage.

Recession’s Impact on F&I

Looking Ahead

The dealership’s average monthly volume currently stands at 60 new vehicles, 60 pre-owned units and 15 Sprinter vans, according to Powell. Those figures have translated into a solid performance for the F&I department. “Everything around us has gone really bad, and we’ve done really well,” says Jon Hazelwood, the dealership’s F&I director. The store’s profit per retail unit averages around $1,000-$1,200 on new vehicles and $500-$799 on CPO vehicles. Hazelwood says most of his customers have credit scores in the 700-800 range, with about 60 percent of his customers opting for dealership financing. The rest of the deals are cash. The dealership’s primary lender is Mercedes-Benz Financial Services (MBFS), but Hazelwood also counts on Bank of America, Wells Fargo and Chase to finance his customers’ vehicles. Most of RBM North’s F&I products carry the MBFS brand. Tireand-wheel protection leads the way with a 40 percent acceptance rate.

Despite RBM North’s early struggles, the store is now poised to make greater strides this year. Powell says he has no plan to change his Internet marketing strategies, but he wants to see a 10 to 12 percent increase in new-vehicle sales. “I think the percentage of new versus pre-owned will move back toward new, because there is still pent-up demand in the marketplace,” he says. The economy’s slow recovery is a cause for concern, but Powell is hopeful that his dealership’s strong Web presence and the continued support of his staff and dealer principal will help RBM North achieve its goals this year. “Without that [economic] growth, it’s going to continue to be a challenge for us, so we have to work harder,” he says. “I look forward to the day where we are surrounded by other businesses and this area becomes more of a destination. In one way, we’re a destination point now. That’s because if you’re coming to us, you’re looking for us.”

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Finance and Insurance

Starting out in F&I is never easy, but the magazine’s resident expert lays out a game plan to get F&I ‘newbies’ off on the right foot.

F&I’s Commandments By Rick McCormick


here’s nothing like those first few days of being an F&I manager. You feel like you can sell anything to anybody. Unfortunately, that feeling wears off once you realize that most customers aren’t initially interested in your products and it will take some effort to overcome those walls of resistance. Now that you know working as an F&I manager is harder than it looks, let’s review the “10 Commandments of F&I” that, if followed, will provide a helpful roadmap to success in this challenging position.


Diagnose Before You Prescribe

Imagine the lawsuits and loss of patients a doctor would face if he or she prescribed remedies before knowing the cause of his or her patients’ problems. The same goes for an F&I manager, whose primary purpose is to discover each customer’s unique circumstances. That’s where openended, needs-discovery questions come in, allowing you to uncover why your customers need your products. Remember, you can’t prescribe without diagnosing the need your products will fulfill.


Listen Twice as Much as You Speak

A good listener can draw others in like a magnet, while someone who 18 F&I and Showroom February 2011

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dominates a conversation will always drive people away. Remember, people don’t buy when they understand; they buy when they feel understood. So, when a customer says, “I bought a service contract before and never used it,” use the “Repeat-Respond-Reap” method: Repeat: “So, what I hear you saying is you feel like you just wasted your money the last time. Am I right?” You build a high level of trust and credibility with customers when they feel like they’ve been heard and understood. Respond: “You don’t have to buy anything. These are just options. However, if this vehicle breaks, we can’t fix it.” Reap: “We don’t fix anything anymore. We just replace the failed component. If your gas gauge fails, we have to replace the entire instrument cluster. That makes a minor repair a major expense, which is why a service contract is critical, especially on a new vehicle.”


Be a Problem Solver

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Finance and Insurance to illustrate how your products can fulfill your customer’s need.


Practice Purposefully

If you ever played Little League, you’ll remember the phrase, “Practice like you play.” Well, skills that are not practiced will never find their way into your customer interactions. That’s why it’s important to attend every training class you can, whether in person or online. And once the lesson is done, be sure to practice what you learned so you can reach a comfort level that will allow you to put your newfound techniques to use with real customers. Practice doesn’t always make perfect, but professionals who practice purposefully produce more profits.


Go the Extra Mile for Your Dealer and Your Customer

Anyone can do what is expected of them. However, it takes commitment to go the extra mile. Enterprise became the nation’s No. 1 car rental company by telling its employees, “You can rise through the ranks and make remarkable money, but only after you demonstrate an ability to knock the socks off every customer that comes through the door.” So, knock the socks off your internal (i.e., your dealership colleagues) and external customers and your value will increase. Remember, great companies and great F&I managers provide great customer service.


Stay Focused On What You Can Control

Don’t waste time trying to fix things you can’t control. Yes, there always will be issues of concern, but don’t let them distract you from your main purpose — which is to help customers make good decisions. Focus on coming up with more effective ways to sell your products. Yes, customers are more reluctant to buy F&I products, but that’s easily overcome with a selling process that draws interaction from the customer. Remember, an active customer is one who is more willing to buy.

Customers are more reluctant to buy F&I products, but that’s easily overcome with a selling process that draws interaction from the customer. Remember, an active customer is one who is more willing to buy.


Choose Your Associates Wisely

Who you spend time with during the workday will have a huge impact on your outlook. Every company has its fair share of whiners and complainers, so be sure to avoid that crowd. They have a tendency to destroy their coworkers’ motivation. Instead, seek out those with a more positive outlook, those who are always looking to improve their skills. Better yet, why not try to become that person at your dealership?


Lose Productively

How you react to setbacks and losses will do more to shape your career than almost anything else. Every sales position — especially those that sell intangibles — will experience a slump. It’s how you react to a slump, not the cause, that will determine its length and depth. So, rather than get down on yourself, use the slump as an opportunity to review your process. Role-play your presentation, record it and review the video. Remember, setbacks should make you better, not bitter.


Never Stop Learning

A recent survey revealed that 42 percent of former college students never pick up a book after they graduate. I guess it’s because they learned it all

in college. Well, that can’t be the case in the F&I office. Being motivated to learn all you can about your products and why people buy isn’t a problem when you’re new. It’s when you’ve been around the block a few times that learning tends to lose its luster. So, make it your goal to read a book about sales each quarter. Devour F&I and Showroom magazine every month and engage in the magazine’s F&I Forum to exchange ideas with other F&I managers. Next, visit your dealership’s service department and learn about at least two parts on a vehicle. Make sure you know what they do, what happens when they fail and what the cost is to replace them. Remember, the more you learn the more convincing you’ll be when explaining why your customer needs your products.


Seek Input From Others

S. Truett Cathy, the 89-year-old founder of Chick-fil-A, recently gave a presentation to high-level executives. After he was done, someone from the audience came up to thank him for his presentation. After thanking him, Cathy said, “Please tell me one thing I could have done better.” You see, Mr. Cathy has been asking that question since the day he launched his restaurant chain, and it has been one of the keys to his success. It takes a humble individual to open up himself to the input of others. But to be good at what you do, you need to strive to be that person. Regularly reviewing these 10 commandments will definitely help an F&I “newbie” get off to a great start. But even a seasoned veteran can benefit from doing the same. Heck, it might be exactly what you need to get your career back on track. Rick McCormick is the national account development manager for Reahard & Associates Inc., which provides customized F&I training for dealerships throughout the United States and Canada. E-mail him at

20 F&I and Showroom February 2011

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Q&A Should the base payment be displayed on the menu? Officials with IAS offer their take on that hot-button question and more. By Gregory Arroyo


eet the two guys leading the charge for Integrated Aftermarket Systems (IAS)’s software and F&I product units: Bob Corbin, president, and Matt Nowicki, director of information technology. We caught up with the execs to talk about software integration, using the menu as a compliance tool, and the new No. 3 F&I product.

Product Placement

F&I: How has IAS faired in the

e-contracting, e-rating and e-remittance arms race? Nowicki:

It’s really ramped up over the last six to eight months. Not only are we connecting to more providers, but the way in which we’re doing it is also changing. F&I: Being that you’re also an

F&I product provider, how do you work both sides? Corbin: As you know, we

provide our software free of charge to dealers who sell our products. Now, if one of our customers chooses to use a non-IAS menu and that menu offers e-rating and e-contracting capabilities, then we want to make sure our products are accessible through that menu. F&I: Has the industry considered a standardized link between product providers and menu makers? Corbin: For a standard to be realized, dealers need to embrace e-rating and e-contracting a lot more than they do today. If 50 percent of the dealers were e-contracting today, then we’d

already have a standardized hub. F&I: I would think not having

a binder full of ratings would be reason enough.

Corbin: That’s how I see it. The real-

ity is, most F&I managers don’t need to pull out the binder for every customer because they sell a service contract above dealer cost, which means they’ve already built in enough margin. So, it’s about building interest in the tools, not the tools themselves. That’s really the battle.

also think the menu legitimizes the sale of F&I products in the minds of consumers. So, from the get-go, the menu promised to make the operation more compliant because it brought consistency to the process. As it has evolved, whether it was displaying base payment or requiring initials or signatures next to the base payment, the idea that the menu was a compliance tool began to grow. F&I: Should the menu display

the base payment?

Nowicki: By default, our menu does. F&I: How has your view

of the menu changed?

Corbin: Originally, it represented a

way to print something out that had color and life to it, and that was specific to that consumer’s deal. We also spent a lot of time doing tax calculations and a lot of credit life, accident and health calculations. Today, it’s about integration. Currently, we’re certified with the top three providers of dealership management systems — Reynolds, ADP and DealerTrack. F&I: Integration is a big

investment. Have you realized the benefits?

We used to lock that feature so dealers were kind of forced to show the base payment. That’s not the case anymore. We do suggest that they show it, but we also suggest that they talk to their legal counsel. And as far as I know, there are no rules that spell out anything that have to do with the menu. F&I: You offer a video recording

feature. Isn’t there a danger that those recordings can be used against the dealer?

Corbin: If you’re doing F&I the right

have the ability to use them as advertising partners, which is a strong marketing tool. But I’ll tell you, the No. 1 reason for me is I never want to be one of those companies that gets a call from the dealer saying, “I’ve got deals to deliver right now and your software isn’t working.”

way, the benefits outweigh the disadvantages. I would even say that our SmartEye feature has actually supported, rather than indicted, the dealer. It eliminates those “he-said, she-said” situations. Now, I’ve only heard of five instances in nine years where the video was used in a lawsuit against a dealer. Every single time the video actually supported the dealer’s position.

F&I: When did the menu

F&I: What disclosure rules does

Corbin: Definitely. Most of all, we

become a compliance tool?

Corbin: First of all, today’s menus of-

fer OFAC and identity verifications, so that’s one aspect of compliance. I

a dealer need to consider before employing a recording system?

Nowicki: It varies by state. What

we recommend our customers do is

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IAS offers its software free of charge to dealers who sell its F&I products. Here’s a look at SmartMenu Complete’s e-rating and deal entry screens.

check html. You can see what the rule is for all 50 states and the District of Columbia. The vast majority are “one-party” states, which means that as long as one party realizes they’re being recorded, that’s all you need. F&I: Do you see other

product categories growing in popularity?

Corbin: Obviously, it’s about control-

ling the financing, then selling the service contract No. 1, then GAP No. 2. I would say that tire-and-wheel protection is No. 3. It has really become a staple product in F&I. After that, it really comes down to what the dealer wants to push. Is it windshield protection or dent-and-ding? Combo packages have really become big for us. We offer what we call Multi-Shield protection, which offers tire-and-wheel, windshield and dent-and-ding protection. It also offers 24/7 emergency roadside assistance. Another emerging product is key replacement. F&I: Considering how

expensive keys are these days, I can see why.

Corbin: We have seen dealers offer

the product as a one-year complimentary offering, then try to upsell it to a three- or five-year term in F&I. F&I: So, has the industry

found its stride?

Corbin: I think we have. Our com-

pany has put together an aggressive projection budget for 2011. We think it’s going to be a 11.5 or 11.7 millionunit sales year, maybe even 12 million. Last year was a good comeback year for us, so we expect that momentum to continue. February 2011 F&I and Showroom 25

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After first serving as Longmont Ford’s new-car sales manager, Greg Alore took the reins of the store’s special finance department. The result? Fewer duplicate leads, more sales and more referrals.


ast fall, after several years of success running the special finance department for Longmont Ford in Longmont, Colo., Greg Alore set a new goal for himself: He wanted to be a Diamond Dealer. He knew that Capital One Auto Finance’s preferred dealer program offered flexible rates for subprime buyers and that his parent company’s Denver store, Freeway Ford, was already signed up. Alore wanted in. When the general sales manager at the Denver store called to tell him he was on his way to a Capital One event at Invesco Field, home of the National Football League’s Broncos, Alore sprang into action. Knowing that the executives were flying in from the Dallas area, the longtime Cowboys fan pulled his Marion Barber jersey off the hanger and headed for Mile High to make his pitch. “Three weeks later, I was a Diamond Dealer,” Alore says with a laugh. “Our first month out of the shoot was November. We booked 14 special finance deals with Capital One, and that wasn’t even a whole month.”

With Capital One now on board, along with GM Financial (formerly AmeriCredit Corp.) and several other finance sources, Alore expects his department to move at least 10 new and 35 used units each month in 2011. It’s an ambitious goal, but he’s confident he and his staff are well on their way. A New Game Plan

Alore’s devotion to the Cowboys is a byproduct of the 25 years he spent working as a dealer and consultant in the Dallas/Fort Worth market. In 1980, the Detroit native steered his Pontiac Firebird south to take an entry-level sales job at a Ford dealership in Abilene. Many years and several dealerships later, he took a consulting gig at F&I Holding Service Life. “My specialty was training salespeople for the proper turn to F&I,” Alore says. “They sent me to Colorado once a month, and one of those stores was Freeway Ford.” Impressed by his work, Freeway Owner Mike Peebles offered Alore a chance to jump back in the trenches as the new-car manager at the Long-

26 F&I and Showroom February 2011

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Long! At Longmont Ford, Greg Alore relies on a roster of lenders, lead providers and satisfied customers to help his special finance team rack up hall-of-fame numbers. By Tariq Kamal been beaten up by bill collectors. If there’s any resistance, we say, ‘That’s fine. Don’t let anybody else pull your credit either. Just come on in.’” ‘Xs’ and ‘Os’

Walking into Longmont’s special finance department, you’ll find a flow chart Alore created for tax season. It directs each customer’s app to a lender or lenders based on his or her criteria for credit score, income, stability and stips. He also has listed a few finance

sources that can work with customers with open bankruptcies, a new addition to Alore’s lender spread. “We ran a campaign targeting bankruptcies in the last quarter of 2010,” he says. “That deal mustered 20 or 25 sales. We were a novice at BKs, but we figured it out.” The key for Alore was partnering with lenders such as Prestige Financial and Tidewater Motor Credit, both of which offer programs catering to “pre-341” customers — those who


mont store. The picture brightened further when Alore was asked to run Longmont’s special finance operation in 2007. “It was a broken department,” Alore says. “I’ve always said that special finance is the lowest hanging fruit, but we were only booking 14 or 15 deals a month. There were a few things we needed to do differently.” Alore was surprised to learn that his four-person staff was fielding leads from no fewer than eight providers, resulting in a morale-killing barrage of duplicates. He narrowed the providers to DealerLink Inc. and one other, then implemented a new process for making calls and setting appointments. Longmont’s appointment setters are now responsible for making up to 40 calls a day. Alore’s strategy for bringing in subprime buyers — what he calls the “accountability battle” — creates buy-in by allowing customers to visit the dealership on their own terms. “These folks don’t want to expose their credit history over the phone,” he says. “Remember, the same person you’re talking to has already

February 2011 F&I and Showroom 27

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The Longmont Ford special finance team (L-R): Erich Halverson, Sean Queen, Alore, Gary Lapuma, Travis Holtzman and Chas Cuzzoni.

have filed for Chapter 7 or 13 but have yet to officially declare their assets. It is, as Alore puts it, “a low point” for those customers. “But after their debt is cleared, and they’re in a great car, they’re elated,” he says. Alore wears his passion for helping subprime customers on his sleeve. He says he never hesitates to spend a few extra minutes with a customer to offer counseling or review stips — even if they’re not likely to buy that day. He credits that personal touch with driving referrals. “We tell our customers, ‘Text your friends, let them know,’” Alore says. “We just had a referral who walked in and said, ‘I heard you’re awesome.’ He drove away in a 2010 Impala.” Like he does for every referral that results in a sale, Alore rewarded the texter with $200 — and not in the form of coupons for oil changes. “We just give them a check,” he says. A Team Effort

Alore’s time on the consulting side taught him that rebuilding his department would require buy-in from management. His team handles every lead that is paid for by the special finance budget, as well as every customer with a TransUnion score of 620 or below. “It’s an automatic turn to SF,” Alore

says. “There’s no resentment. We worked through that as a team. And that extends to inventory, our business model, our plan, our execution.” Longmont’s business model calls for 180 used units in stock on a threemonth turn. His focus is on quality, late-model vehicles — another factor that separates Alore from his competitors. One recent customer drove

over the last few months, and I’m hearing [the auctions] want to get rid of everything after 30 days,” Alore says. “I don’t know if there’s an ideal special finance vehicle, but our California guy just brought in a bunch of Ford Escapes. Even when it comes to Corvettes, Mercedes and Hummers, he thinks of special finance.” Looking Downfield

“It blows me away that there are still dealers out there who won’t do it right. Yes, there is risk. There always will be. But if you’re thinking big for 2011, it’s here in special finance.” — Greg Alore a spot-delivered, high-mileage minivan onto the Longmont lot with three kids in tow. “She pulled up in a 2000 Windstar with 150,000 miles on it that some other dealer ranched her on,” Alore says. “I put her in an ’07 Sienna at 12.9 percent. We’ll make maybe two points, and she’s in a nice, nice car.” The vehicles are sourced mostly from auctions, and Alore has buyers on the lookout for special finance units from as far away as California and Michigan. “There has been a better supply

Alore believes that, as the economy continues to recover, the lessons he and his staff learned during the downturn will result in further gains. He points out that many dealers, including a few of his competitors, turned their back on the subprime market prematurely. “I went into a 20 Group meeting in Colorado Springs with my dealer, and Greg Goebel spoke to the group,” he says. “Part of what he was talking about was risk. It’s true. Dealers are afraid of getting in too deep.” The Longmont team persisted, and their reward was a Top 10 ranking in used-car sales for all of Colorado. Alore says he won’t relinquish that distinction willingly. “It blows me away that there are still dealers out there who won’t do it right,” he says. “Yes, there is risk. There always will be. But if you’re thinking big for 2011, it’s here in special finance.”

28 F&I and Showroom February 2011

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Dealer Management

The Department of Labor is gearing up. The question is, will your pay plans be ready? Here’s a primer to help you get them up to speed. By Lon Leneve

PayReboot Plan G

iven the attention auto retailing has received over the years, it might be difficult to fathom that one area has escaped the watchful eye of federal regulators: pay plans. Recent actions by the Department of Labor and heightened awareness for wage and hour laws among employees could change that. The subject of pay plans was covered in a recent Webinar co-hosted by my company, Compli, and John Donovan, a partner at noted labor law firm Fisher & Phillips LLP. The goal of the presentation was to highlight common misconceptions and best practices to help dealers in an area that’s often challenging, especially when dealing with poorly written, out-of-date and, sometimes, undocumented pay plans.

30 F&I and Showroom February 2011

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But there’s good reason to plug this noncompliance hole. The Department of Labor recently hired 250 new investigators to more aggressively investigate employee complaints. Employees also are more aware of employment laws these days, and wronged staffers no longer have to discuss employment matters with their bosses; they can go straight to their lawyer. Also remember that if a dealership employee sues for wage and hour violations because his or her pay plan didn’t comply with the law, the dealer can be on the hook for three years’ worth of wages. Even if your new guy or gal has been with you only six months, you can bet his or her attorney will track down his or her predecessors until they can build three years’ worth of claims. Remember, a prevailing lawyer automatically gets all of his or her fees paid.

Let’s review some common misconceptions about pay plans: Misconception No. 1:

“We’ve used this pay plan for five, 10, maybe 15 years, and we’ve never had a problem, so I’m sure it’s okay.” Reality: Most payroll managers will

tell you they learned their job from their predecessor, which means their bad practices get carried on from year to year. Misconception No. 2:

“Well, he signed the pay plan and he signed his timecard, so he agreed to this amount.”

Reality: If an employer pays an em-

ployee at variance with what he has previously agreed to, it is a potential contract claim. PHOTO ©ISTOCKPHOTO.COM / JGROUP

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Dealer Management Misconception No. 3:

“Oh, everyone in my 20 Group does this.”

Reality: The “everyone else does it”

excuse doesn’t provide you with any protection, because regulations vary from state to state. Misconception No. 4:

“This is an ‘at will’ state.”

Reality: Yes, a manager can change

his pay plan tomorrow, but he can’t go back, change the pay plan and make it retroactive to the first of the month. A change to a pay plan can only apply to future earnings. Misconception No. 5:

“He’s paid a salary, so he’s exempt from overtime.”

Reality: That’s the furthest from the

truth. Before we get into some best practices, there are two things you need to remember about pay plans: First, pay plans are wage and hour documents that have to comply with both state and federal wage and hour laws. Second, pay plans are contracts. When you write up a pay plan and hand it to your employee, you are effectively telling him or her, “If you do these things, I will pay you this much money.” Not only is that document legally binding, it’s enforceable in court. Even if it’s not in writing, it’s at least a verbal contract which is enforceable in court. One thing people don’t realize is a contract is construed against the party that drafted it. That being said, let’s review some best practices: ■ EVERY employee should have a written pay plan that’s signed and dated by the employee. ■ The pay plan should be drafted so that even a layperson who is unfamiliar with the car business can understand what it means. ■ The pay plan should spell out in detail how the employee will be paid — salary, draw or commission — and how the money will be calculated. ■ The pay plan should include all aspects of the compensation: hourly, salary, commissions, bonuses and spiffs. If it’s not clearly delineated in

When you write up a pay plan and hand it to your employee, you are effectively telling him or her, “If you do these things, I will pay you this much money.” Not only is that document legally binding, it’s enforceable in court. the pay plan contract, there could be a problem. ■ If there are special contests that aren’t in the pay plan, they should be documented with the same amount of seriousness and accuracy as a regular pay plan. ■ If a guarantee is included, make sure the plan states that it is a guarantee of compensation, not employment. ■ Decide if the employee is exempt from overtime or not, and be sure he or she is aware as well. ■ Pay plans shouldn’t contain nonpay-related matters such as vacation or insurance. Those items should be covered in your employee handbook. ■ Pay plans are prospective in nature. The contract is formed the moment the salesperson sells a car and the business is obligated to pay in accordance with that sale. ■ Revise and resign a pay plan

whenever there is a change. Don’t issue amendments on top of amendments. I know it’s mind boggling to sift through all these misconceptions and best practices, so let me leave you with some excellent advice to get your pay plans up to speed. First, call your local or state dealer associations and find out what requirements apply to your state. Then pull up all of your pay plans and review them to make sure they’re up to date. If they’re not up to date, fix them. It doesn’t have to be today, but make it your goal to have all pay plans updated and signed by employees by early 2011. You won’t just be cleaning up your files from 2010; you’ll be starting the new year off cool, calm and compliant. Lon Leneve is president & CEO of Compli, a provider of human resources and compliance management software for auto dealerships. E-mail him at Nothing in this article is intended to be legal advice and should not be taken as such. All legal questions should be addressed to competent counsel. All the issues discussed in this article are addressed in the “Pay Plans: Best Practices, Rules & Misconceptions” Webinar. To watch for free, visit:

32 F&I and Showroom February 2011

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Sales Driver

The Four ‘Cs’ of Phone Prospecting Working a prospect over the phone requires a different skill set than welcoming an ‘up’ in to the showroom. Sales expert shows you how it’s done. By Cory Mosley


henever the topic of phone skills and sales professionals comes up, the conversation seems to end with the same conclusion: Showroom sales professionals simply aren’t good at working the phones. In their defense, I will say that it’s not their fault. The real problem is simply a deficiency of knowledge. If you know better and choose not to do better, shame on you. Just because you understand the “road to the sale” doesn’t automatically mean you can handle a phone “up.” First off, most salespeople are trained to sell face to face. The difference between doing that and selling over the phone is the level of control a customer feels when he or she is not talking to you face to face. I’m sure you’ve heard the term “peel them off of the ceiling.” If you haven’t, it basically describes a technique where the salesperson kicks off a sale by presenting really high numbers. This gives the salesperson a psychological advantage that will keep the customer in the showroom. And to make sure the customer’s kids don’t distract, there are sales managers available to provide entertainment or a game room to keep the kids busy. The problem with using this technique with a phone “up” is you don’t have those factors available to keep the customer on the phone. What ends up happening is the salesperson gives his or her best rendition of that old sales line, “Come on down and don’t forget to ask for me.” To help with your phone skills, let’s take a look at four core fundamentals — each of which just hap-

pens to start with the letter “C” — that will make you more successful with phone prospects.



This is obviously a no-brainer. However, you would be surprised at how many unsure salespeople pick up the phones every day and fumble through calls about inventory, rebates and incentives, then hammer their message home with a “Would you like to come on down?” Lack of confidence leaves the door open for a customer to assert control, which, of course, is a big no-no. The easiest way to head that off is to actually fill in the missing information that caused you to lose confidence in the first place. If you are stumbling through information about lease options, then it would only make good sense to spend a few minutes a day going over the latest lease programs.



We already face an uphill battle based on the simple fact that we are in the car business. It’s not who we are but what we do that people hold against us. An innocent mistake can spell doom when working with a prospect on the phone or in the showroom. Just like confidence, the easiest way to be credible is to invest the time to actually know what you are talking about.


itself boils down to the ability to handle the situation presented to you in a professional manner and to the satisfaction of the customer.



The bottom line is, what you say needs to make sense to the prospect. The conversation should weave itself together and flow. Easier said than done, right? The worst thing you can do — and I know it’s hard not to — is to get caught up in the script. This becomes problematic when the customer says or asks something that’s not on the script, but you continue down that path anyway. When that happens, the customer will typically come back with, “What you’re saying doesn’t make sense.” That statement usually means game over. The name of the game when it comes to phone sales is leading. Lead the customer down the path that satisfies his or her initial reason for calling, and position them for that important next step: a visit to the showroom. Remember, you’re not a customer hotline. Treat each call as an opportunity to generate sales. Breaking away from the questionand-answer mentality may indeed be the biggest challenge you will face, but shifting away from playing phone tennis with your customer to actually closing something will lead to more appointments.


By now, you probably realize that all of these factors connect. Being confident feeds the appearance of being credible, and credibility will make you more competent. Competence

Cory Mosley is principal of Mosley Training LLC, a nationally recognized training provider focused on new-school techniques, products and services. E-mail him at

34 F&I and Showroom February 2011

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September 26-28, 2011 Las Vegas Hilton

I’m an Experienced Salesperson. I Don’t Believe in Digital “Ups.” I Let the Finance Guy Worry About the Financing. I Say Leaderboards Are for Golfers. I Have Never Sold Two Cars to the Same Buyer.

I Think I Can Do Better. I Want to Reach the

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Mad Marv

Controlling Charge-Backs Charge-backs are difficult to control, but our in-the-trenches columnist says there are ways to prevent them from getting out of hand. By Marv Eleazer


here’s no greater feeling than watching a customer sign off on a platinum menu option that includes every product you have to offer. You’re so excited after the customer signs the contract and goes motoring down the road that you check your back-end profit and poke your chest out a bit, right? Well, what happens 18 months later when that customer loses his or her job or files for divorce? Ah, the charge-back. It’s a nasty word, right? It’s a sobering reality, because it “ain’t” what you gross that matters; it’s what you keep. There isn’t much you can do in

the two don’t match, compare the buy rate you entered into your DMS against the lender’s approval. If they match up, then call your provider and have them review your system’s internal reserve calculations to correct any mistakes. You also need to be certain that the VSI (vendor’s single insurance) fee some finance sources charge is printed on the contract. If it isn’t, the lender will short you at funding time, so get it fixed. Check Your Sources

Finance sources aren’t perfect either. When a lender sends you a chargeback, make sure their product re-

may not include the “assignment fee,” so review your lender policy guidelines to make sure everything is in order before sending it to your accounting office. Checking Product Providers

It’s critical that you review the various vendor statements to make sure you’ve entered the correct pricing for a sold product. Like banks, vendors will make mistakes, so get on the phone with them when you catch an error. Will you ever eliminate chargebacks? Well, not unless you’re writing deals with no profit. An achievable goal is to keep charge-backs within

Can you eliminate charge-backs? Not unless you’re writing deals with no profit. An achievable goal is to keep charge-backs within 5 to 7 percent of your departmental gross profit. situations like the one I described. The loan goes into default, the vehicle winds up on the auction block after being repossessed, and a huge charge-back makes its way onto your dealer’s financial statement. Now, guess whose check will be affected at the end of the month? Again, not much you can do here. However, there are some scenarios you can at least prevent. The following is a short checklist of areas you need to monitor to cut down on those pesky charge-backs. System Check

Believe it or not, today’s dealership management systems don’t always get it right. That’s why it’s important you obtain from your controlling office a copy of all bank reserve statements at month’s end and compare them to the anticipated reserve. If

fund calculations matches the refund you’re expecting from your product vendor. This is especially true for lenders that include a clause in their dealer agreement that allows them to calculate their refund for cancelled products when a vehicle is repossessed and add it to your monthly statement. From there, it’s up to you to get a refund from your provider. Again, although charge-backs due to repossession may be beyond your control, you need to examine the lender’s refund request carefully. Be certain their calculations are accurate and that their expected refund matches what you’re expecting back from your product provider. Special finance-related lender fees are another hot spot. Some sources have multiple fees, so be certain you’ve entered the correct amounts. Quite often, the fee on the callback

5 to 7 percent of your departmental gross profit. I know of a dealer group in Michigan that managed a 2.4 percent charge-back rate for all of 2010. The director there has a simple philosophy of treating the customer well, truly selling the products and using common sense when administering rate to prevent early payoffs. Remember, managing chargebacks is the responsibility of the finance department, not the accounting office. So, be proactive and don’t rely on them to do your job, because running an F&I department is really no different than running a business. And as I previously mentioned, it “ain’t” what you gross; it’s what you keep that matters. Marv Eleazer is the finance manager at Langdale Ford in Valdosta, Ga. E-mail him at

36 F&I and Showroom February 2011

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September 26-28, 2011 Las Vegas Hilton

The F&I Conference, Vehicle Service Contract Administrators Conference and the nation’s only Agent Symposium will unite on September 26-28 at the Las Vegas Hilton to become one comprehensive event: Industry Summit 2011. We all know that success in automotive retail requires close contact between dealers and the finance sources, agents, trainers and product providers that serve as their partners. Combining three powerful conferences to form Industry Summit 2011 represents a crucial step toward reaching that goal. It’s a new era. Join us September 26–28 at the Las Vegas Hilton for the first-ever Industry Summit 2011! To learn more, call 800-576-8788 or visit

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Brave New World The fed and consumer advocates are at it again. The magazine’s legal expert tackles the latest attacks on finance reserve and spot deliveries. By Michael A. Benoit


ou’d think dealers would have enough to worry about between accounting, insurance, personnel issues and simply being able to drive enough business into the showroom and service department to actually operate at a profit. Well, this year, you can add several new legal and compliance concerns to that list — and some may fundamentally change the way you operate. If you weren’t aware, the Federal Trade Commission (FTC) was granted authority by the financial reform bill to write and implement rules identifying unfair and deceptive practices in the automobile business. So far, their fi rst targets seemed to be dealer compensation and spot deliveries — two factors intrinsic to your profits. Consumer advocates have been after dealer participation for as long as I can remember. They don’t like the idea of a dealer having the ability to negotiate a rate with the customer that is higher than the buy rate (i.e., the minimum rate at which the finance company will buy the paper). Of course, they never take into account that the customer pays the rate that he or she negotiated, and that he or she is legally obligated to pay that rate even if you never sell the paper to the finance company. Instead, consumer advocates view your discretion to negotiate the rate as your license to discriminate against women and minorities. You may recall some cases in the late ’90s and early 2000s that focused on this issue. They all settled

before trial. Interestingly, the settlement permitted dealers to continue to negotiate a higher rate. Was there really a problem? That depended on which expert witness you talked to. Consumer advocates also detest spot deliveries, so much so that they made up a new name for it: “yo-yo” financing. You know, keep the customer on a string by letting him or her out of the store with a 12 percent rate when you know you’re going to yank him or her back in to re-contract at 18 percent. Never mind that spot deliveries in most states are as legal as conditional delivery agreements, which inform customers of their obligation in the event a finance company will not buy the contract at the rate for which you originally contracted. No, they view it as just another way to screw your customer, because, of course, that’s good business. What the consumer advocates don’t get is that many finance companies don’t operate on a 24/7 basis, which means you can’t submit an application at 10 p.m. on a Saturday night and expect to get a response before Monday. Sure, a lot of finance companies employ automated decisioning systems, but the deeper you go into the credit pool, the less likely that is. Now tell me, is it good for business to tell a customer he or she can’t take their vehicle until Monday? Not really, right? In fact, it’s more likely you won’t see that customer again. Expect efforts to make dealer participation and spot deliveries go away to increase. Hey, we could end up with some sort of flat fee

compensation program that may not be terrible, but will likely eat into your revenue. As for spot deliveries, there are probably constitutional issues standing in the way of those efforts, but they’ll go there nonetheless. However, a ray of sunshine found its way into the op-ed section of The Wall Street Journal in January. Apparently, President Obama has signed an executive order requiring federal agencies to review all of their rules and “weed out those that hurt job growth and creation.” The president said his executive order would “strike the right balance” between economic growth and regulations protecting the environment and public health and safety. Sounds good, right? Guess again. The executive order doesn’t apply to independent agencies like the FTC and the new Consumer Financial Protection Bureau — the two agencies that regulate you. So pay attention, be on guard and be active. The FTC is holding town halls and roundtables around the country over the next several months. Find one near you and participate. Your regulators aren’t going away, and they need to hear how much this brave new world will really cost. Michael Benoit is a partner in the Washington, D.C., office of Hudson Cook LLP. He is a frequent speaker and writer on a variety of consumer credit topics. He can be reached at michael.benoit@ Nothing in this article is intended to be legal advice and should not be taken as such. Please direct all legal questions to your counsel.

38 F&I and Showroom February 2011

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Bottomliners MediaTrac Releases Customer Loyalty e-Book Marketing technology provider MediaTrac LLC has released a new e-book about customer loyalty programs. “Driving Optimum Customer tom Retention and Profi Pro tability with an Effective Loyalty Program” fe provides suggestions for p creating a program that cr emphasizes the connece tion between employee t loyalty and customer loyalty, and offers ideas loya for setting up more effective management mechanisms for loyalty programs. The e-book can be downloaded for free under the “News” tab at

700Credit Releases RiskBased Pricing Solution 700Credit LLC is now offering an automated solution to help dealers comply with the new Risk-Based Pricing Rule, which went into effect Jan. 1. The credit reporting and compliance tool provider’s solution automatically generates a credit score disclosure notice with each credit report request. It also tracks when reports are printed and will automatically generate the required notice when a score is not returned by a credit bureau. For more information, visit

Compli Offers Accounting and Tax e-Counsel Service Users of Compli’s Account and Tax e-Counsel service will now have access to accounting experts from Crowe Horwath LLP. Dealers can submit questions electronically to the accounting firm’s team of experts and receive feedback within 24 hours. Questions can be related to accounting matters, inventory control, tax preparation and succession planning issues. For more information, visit

What suits you?

Finance Express Offers New Compliance Tools Finance Express has released a new compliance tool to help dealers comply with the Risk-Based Pricing Rule and the new privacy policy requirement. Both rules went into effect on Jan. 1. Dealers will now have access to credit score disclosure notices, which can be handed to customers who apply for credit — a requirement under the RBP Rule. Finance Express also partnered with ComplyNet, a riskmanagement company that works with dealers, to launch www. The new site provides information on the Federal Trade Commission’s new model privacy notice and ongoing updates and support to users.

Product Feature vAuto Releases Mobile Android App vAuto Inc.’s used-car inventory management system is now available for Android mobile devices. The mobile app is available at no additional monthly subscription charge for vAuto clients and is compatible with Android 2.1 1 or higher operating systems. The app features the new barcode VIN capture method that automatical-

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ly l decodes and uploads to vAuto. In addition, the app v offers third-party guideo books, auction values, live b market pricing and vAuto’s m “heat sheet” and buy list, “ which identifies which cars w are h hott in a dealer’s market and how to find them. The app is available for download from the Android Market.

Have UCC TAILOR a custom program to fit YOUR needs. Call 1-800-571-6412

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What happens when you smell Suntan Lotion? Where did you “go” inside your head? That’s right … the beach or lake! When a smell triggers a past experience (and it happens really fast) … an immediate memory comes to mind. Perhaps it’s baby powder or a relative’s perfume … or a cooking smell. When the past experience is activated from the smell, you’ve experienced the process of “Triggers and Anchors.” The smell is the Trigger and the past experience (or “state”) is the Anchor. Most of us have had the experience, in communicating with clients, friends or associates, reaching a certain level of rapport and understanding that was a very positive resource for both of you. THIS USUALLY HAPPENS EARLY IN THE SALES PROCESS. Later on, however, the flow of conversation, discussion or negotiation changes and becomes strained. (It usually happens when we get to the numbers). The interaction becomes more tense, strained or difficult, and you wish you had a way of re-accessing the positive experiences you shared before. Using Triggers and Anchors is a process that allows you to do this. Whenever any portion of a particular experience is reintroduced, other portions of that experience will be reproduced to some degree. Any portion of a particular experience, then, may be used as a trigger to access another portion of that experience – or anchor. What does this have to do with selling? It has been proven that when Sales Managers comes out and introduce themselves to the customers – early in the sales process – and make non-threatening and pleasant introductions (anchors) using smiles and handshakes (triggers) …they unconsciously set a pleasant “state” that is used later in the sales process when they are asked for help on the “T.O.” That smile and handshake “trigger” the good feeling “anchor” they experienced earlier.

SALES MANAGERS THAT PRACTICE THIS TECHNIQUE HAVE REPORTED INCREASED PROFITS IN THEIR DEALERSHIPS. IT’S A FACT. YOU CAN’T ARGUE WITH FACTS. What’s the point? F&I Managers who come out from their desk…wander around the showroom…making pleasant introductions (anchors) using smiles and handshakes (triggers) early in the sales process…

benefit the same as Sales Managers. We call it “Early & Often.” Purchase a bottle of suntan lotion and keep it on your desk. Whenever you look at it … it will remind you to GET OUT FROM BEHIND YOUR DESK AND MEET CUSTOMERS EARLY IN THE SALES PROCESS! In creating an anchor, timing application of the trigger stimulus precisely to associate it with the state you want is critical. The following diagram illustrates the ideal timing which corresponds to the final increase, and peaking, of the intensity of the state you are capturing with the anchor. Customers are “usually” in a better mood (state) towards the early stages of the sales process. So remember … GET OUT FROM BEHIND YOUR DESK AND MEET CUSTOMERS EARLY IN THE SALES PROCESS!


SURE … some of you have known this for years. But are you doing it? You don’t know it unless your action shows it! Some F&I Managers use a “Customer Situation Profile” sheet.” A “FORM” that makes the process a little more formal. • CSP sheet should always be conversational not interrogatory • Write complete answers down • Don’t try to sell products during CSP So remember … purchase a bottle of suntan lotion. Place it on your desk. Every time you look at it … it reminds you to “Get out there and meet customers early in the sales process.” Practice the “Early & Often” technique of setting Triggers and Anchors. It works great with Sales Managers and it works great with F&I Managers. Good selling. Paul H. Webb Paul H. Webb, is the CEO / Founder of Paul Webb Training / WebbVT / I.T.S., Inc., ( ) an automotive performance improvement company. Mr. Webb also shares his ideas for improving production with OEMs, 20 Groups, state – metro – and national conventions, NADA management seminars, dealer groups , individual dealerships, F&I companies, support vendors, service providers and financial institutions. To arrange for Mr. Webb to speak at your F&I meeting or training event, call: 888-469-7117 * Email Margaret:

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Industry Trends

Social Video Marketing: Shorter Is Better Videos are a great way to market your dealership. But to be truly successful, they need to be shared. A new study lends some insights on how to make that happen.


ocial video, a cross between online video advertising and social networking, could be the next big thing for marketing inventory online. A New York-based social video company has offered a few insights on what works and what doesn’t. One of its conclusions is that people are not only viewing brands’ videos, they’re sharing them with their friends and driving further views and engagement. Jun Group, which has handled clients like Gatorade and Nike, completed a study that sampled more than six million user-initiated video views of about a dozen social video campaigns the company executed for Fortune 500 companies. The analysis was conducted during the second half of 2010. “Social video is one of the most effective ways advertisers can reach their consumers on social networks,” says Mitchell Reichgut, Jun Group’s founder and CEO. “It’s an exciting new medium that brings guaranteed engagements and tremendous amounts of sharing.” The following are some of the findings the study identified on how viewers interact with social videos: ■ Shorter is better: Social video ads of 15 seconds or less are shared nearly 37 percent more than those between 30 seconds and one minute, and 18 percent more than videos of more than a minute. ■ Facebook dominates: With more than 500 million people on this social network, Facebook dominates this new marketing medium. People share videos on Facebook more than three times as often as they do via Twitter and e-mail combined.

■ CPGs leading the way: Consumer packaged goods companies, which offer items that must be replaced frequently, are driving 19 percent more social video views than consumer electronics, retail and media, and entertainment brands com-

by 18- to 34-year-olds. Additionally, the average age of social video consumers stood at 27 years old. ■ Girl power: Women account for nearly 57 percent of social video views. They also share social videos 30 percent more often than men.

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bined. Food and beverage brands are also embracing social media, but drove less than one-third of the views CPG companies are experiencing. Cars and trucks, which are not considered CPGs, failed to move the study’s viewing needle, but the opportunity to market dealership offerings through this medium appears to be ripe for the picking. The study also revealed the following demographic and geographic insights related to social video campaigns: ■ Generation Y: More than 55 percent of social videos are viewed

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F&I and Showroom February 2011  
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