Respect the past, but prepare for the future to provide a better experience.

While flash catches the eye, it’s the desk that captures the deal. We all understand the crucial role desking plays in the sales process. It’s where terms take shape, rates find their footing and down payments come due. With the salesperson in constant motion, bridging the spaces between wants and realities, it’s this central process that truly drives a successful sale.

A great desking manager isn’t just a title or a role, but an art form, meticulously crafted over years of experience. Each decision adds depth to the process, while strategy gives it its unique contours. As important as it is to have a great desking manager there lies an underlying challenge in the very fabric of the job. The pressure to close a deal can sometimes tempt even the most seasoned managers towards the temptation of closing the deal on terms that don’t have a chance.

There are a number of reasons why this happens. Sometimes, it’s based on the belief that if they get the customer on paper with a signed bill of sale, even when the terms are a long shot at best, that will take the customer off the market, shutting down the shopping. This offers the dealership the opportunity to revisit terms at a later date if the application isn’t approved. 

On the other hand, sometimes it’s not about strategy but just an honest mistake. Most sales managers are not familiar with all the intricacies of lending rules, especially the ones about advances. So, without meaning to, they might set up a deal that’s just too deep in the red. 

Here’s where things can get a bit tricky. This approach effectively hands the baton of closing the sale over to the business manager, which is not their area of expertise. 

Their offices are typically busy and not equipped for the challenge of revisiting deals that need adjustments or even potentially switching out vehicles.  Sending these deals into the box puts the business managers in a tough position where they are suddenly being relied on to complete tasks they are often ill-equipped to do. Not only does this put the sale at risk, but it’s also not a great experience for our customers.

Remember, for most folks, auto financing is like a different language. Many customers approach dealerships with a touch of apprehension, unsure about terms and worried about making a bad deal.

So, when they’re told that the deal they shook hands on isn’t the real deal, it can feel like a breach of trust. And that feeling can stick making it harder for them to return to or recommend that dealership in the future.

The path forward requires two pivotal shifts. Firstly, an unwavering commitment to ongoing training and education, ensuring that sales managers are well-versed in dynamic lending rules. We are already seeing this trend appear in auto groups across the country who are investing in F&I training for sales management.

Secondly, it’s time to turn the page on old practices. Today’s customers are armed with more information than ever before. With an array of tools at their fingertips, they can access unprecedented levels of information, underscoring their demand for transparency.

To stay ahead in this fiercely competitive market, winning customer loyalty is key. And that loyalty? It’s forged through exceptional customer experiences.

So what’s the best game plan for a path forward? Continuous learning and adapting.

Let’s get our desking managers trained up on lending practices. Let’s ditch the tricks and treat our customers to honest deals they can drive home happy about. In a world where one bad review can travel faster than a Ferrari, trust is our most valuable commodity. Here’s to selling with integrity, closing deals that stick and driving our business into a future we can all be proud of!

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A credit-first approach takes the guesswork out of which vehicles your customers can really afford.

In our current world of evolving dynamics one word is starting to define the path forward for the automotive industry: that word is “affordability.”

For a while now, it’s been trendy to talk about a “credit first” approach to car buying.

Traditionally, unless a customer indicates they have credit concerns, most customers walk blindly through the sales journey selecting cars they think they can afford and that they assume they will be approved for.

A credit-first approach sees the customer securing their lending offer before they start selecting a vehicle, and there are a lot of good reasons for this approach. After all, we don’t buy a house until we know what we can afford. Why do we buy cars that way?

When a customer agrees to this path, they are put through a pre-approval process. This involves being submitted to a lender and incurring a hard hit on their credit bureau which can impact their score, and we know that’s a pain point for our increasingly credit conscious customers.

Many will even come through the door declaring “I know my score” without really even understanding the relationship between score and rate.  With the limited information available to the general public on understanding credit most only know that high scores are good and inquiries are bad.

What most buyers don’t consider coming through your door is that the rate they qualify for is only one part of determining their affordability. While an impressive credit score might suggest financial reliability, it doesn’t paint a full picture.   

Just as important as score, is the amount of money the lender is willing to offer. This is done by determining how much of a buyer’s monthly income is already earmarked for existing financial obligations, such as mortgages, student loans and credit card payments.

To solve the issue of credit inquiry aversion among customers, especially our prime customers, the shift towards credit-first processes is leading to the rise of credit tools.

In Canada there are two types of credit inquiries. We are all familiar with hard credit inquiries. These are the ones that we see listed on credit bureaus and are legally required to extend credit. However, the second type of credit inquiry is referred to as a “soft credit pull.” This type of credit inquiry is used to determine credit worthiness and does not impact the customer’s credit score.

What most buyers don’t consider coming through your door is that the rate they qualify for is only one part of determining their affordability. While an impressive credit score might suggest financial reliability, it doesn’t paint a full picture.

Credit tools that leverage this type of credit inquiry have been on the market for some time already, but they have been lacking in giving dealers everything they need to calculate a buyer’s true affordability.

The next evolution of this type of technology is emerging as a pre-qualification tool.  More than just offering dealerships a snapshot of the customer’s credit profile, these products also perform debt service calculations to determine actual payments. Additionally, some are seamlessly integrated with trade-in tools, providing details on the customer’s equity position on their trade-in.

The importance of getting vehicle selection right for your customer, the first time, can’t be overstated.

For customers, knowing their affordability from the outset removes much of the guesswork and stress traditionally associated with car buying. Instead of being drawn to vehicles that may be out of their budget or spending hours negotiating, they can direct their attention to cars that are within their financial reach from the very beginning.

This not only saves them time but also spares them potential disappointment by ensuring that the first car that they set their heart on is one they can genuinely afford, the entire buying process becomes smoother, faster and far more satisfying.

In the ever-shifting landscape of automotive retail, staying a step ahead necessitates understanding not just the vehicles we sell, but also the financial realities of the buyers we serve.

The journey of a car purchase is one deeply rooted in emotions and aspirations. By ensuring that this journey starts with clear financial waypoints, dealers not only optimize their process but also foster trust and transparency.

As the gears of the industry continue to shift, prioritizing affordability through such innovative approaches isn’t just savvy business — it’s the cornerstone of a transformative customer experience.

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Study finds 76 per cent of dealers already had or will be integrating AI into their dealerships within three years.

For years, the finance office in dealerships across the country has remained, for the most part, a bastion of tradition, untouched by significant shifts in process.

Then the pandemic hit, fast-tracking the emergence of online digital retail, a transition that, while much needed, presented its own set of hurdles for business managers.

Suddenly, there were remote TO’s to handle and the intricacies of digital contracting to navigate. Yet, despite these incremental changes, the core of the business office largely persisted in its time-tested ways.

The introduction of Artificial Intelligence (AI) and machine learning in this space feels like flinging open a window in a room that’s been sealed tight for ages — providing a breath of fresh air that hints at profound transformations just around the corner.

The market is already witnessing the emergence of tools that harness the power of machine learning to analyze credit files and predict lending approvals. What’s most impressive is that these systems are designed to learn.

If they predict an approval and it’s wrong, they self-correct, refining their algorithms for future predictions. This means the more they operate, the smarter they get, lifting the curtain behind each lender’s buying practices. 

The adoption of AI in the F&I process isn’t just about efficiency. AI’s knack for data analysis also means reducing fraudulent transactions, a better overall customer experience and a streamlined way to ensure regulatory compliance.

A recent survey conducted by CDK Global in March of 2023 titled “What Automotive Dealers Think About Artificial Intelligence”¹ not only serves to shine some light on the areas of AI that dealers are interested in but also the level of adoption we are already seeing. 

Based on the survey, dealers are not only interested in AI’s predictive lending abilities but also its ability to predict a customers  propensity to buy accessories and F&I bundles by analyzing their CRM profile and past buying behaviour, providing a personalized experience.

The survey also highlighted that a notable 76 per cent of surveyed dealers are aware of AI as an emerging technology and 76 per cent also indicated that they either already had or will be integrating AI-based applications into their dealerships within the next three years.

The adoption of AI in the F&I process isn’t just about efficiency. AI’s knack for data analysis also means reducing fraudulent transactions, a better overall customer experience and a streamlined way to ensure regulatory compliance.

But as with any significant change, challenges are bound to arise. The upfront investment in technology and potential training is a consideration. There’s also the need to manage team apprehensions about technology and the concern that it could potentially overshadow human roles. 

With increased digitization comes the added responsibility of ensuring data security protocols, especially in a time where data breaches are unfortunately not uncommon.

So how does this impact the role of the finance manager? Will that role become obsolete? The short answer is, no.

While AI can process and analyze data with remarkable speed and accuracy, the nuances of decision making, relationship management, and ethics require human insight.

AI might be the tool that aids in simplification, but humans remain at the helm, guiding the ship based on the unique challenges and opportunities each situation presents.

As for when this integration of AI becomes mainstream, it’s likely to be a gradual journey. Over the next half-decade, early adopters will likely start reaping the benefits of AI tools. Another five years down the line, we might find it challenging to find a dealership where AI isn’t an integral part of the F&I process. 

With dealerships poised for the notable shift with the growing integration of AI, it’s important to remember that this tech isn’t just about streamlining. 

Although it’s reshaping how we approach F&I by adding precision and personalization, the value of personal relationships and human interactions remains paramount. The evolving landscape suggests a balanced future, where AI’s capabilities complement, rather than replace, human expertise.

The path forward is shaping up to be a collaboration between advanced technology and our innate human skills. 

REFERENCE:

¹ CDK Global. (2023). What Automotive Dealers Think About Artificial Intelligence.  https://cms.cdkglobal.com/sites/default/files/2023-07/AI_Automotive_Retail_Ebook_July2023.pdf

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More consumers are struggling with debt and higher interest rates. There are still ways to help them find the credit they need.

In the automotive industry we know that shift happens.

Our economy is skidding into uncertain times and many Canadian consumers are feeling the brunt of that on their credit scores, creating a demographic that is becoming impossible for auto dealerships to ignore.

The MNP Consumer Debt Index presents a startling picture revealing that 47 per cent of Canadians are on the brink of insolvency with barely a $200 buffer¹, before they are not bringing in enough income to cover their monthly expenses.

We know that with interest rates and the cost of living going up, without wages increasing at the same rate we are going to get into the situation where people are not only using up that $200 buffer but for many, it’s much more.  Based on these numbers it’s easy to predict the impact this will have on the rate of insolvency for Canadian consumers.

In fact, the report Insolvency Statistics in Canada from January 2023 reports that the total number of insolvencies (bankruptcies and proposals) in Canada increased by 13.5 per cent in January 2023 compared to the previous month.  Even more dramatic is that the total number of insolvencies in January 2023 was 33.7 per cent higher than the same month one year earlier².

This is also putting pressure on lenders as not only is the continuing climb of the Bank of Canada rate being reflected on their rate sheets but as customers are increasingly unable to make their payments, bad loans are driving their profits down. This creates a challenge for lenders who need to tighten up their buying practices in a way that keeps their delinquency rate in check while maintaining enough market share.    

To solve this we see the emergence of special programs.

There was a time when non-prime payments were capped regardless of what you debt serviced for. Now we are seeing lenders in the non-prime space remove those caps to allow higher payments if the customer qualifies based on income.

Where we used to see a cap on aged units those caps are softening as well.  We’re even starting to see extended term contracts of 96 months being introduced.

No one has a crystal ball, but it seems predictable that with the cost of borrowing going up for the lenders along with delinquency rates that we might see some lenders leaving the market.  Does that mean that dealers also should hesitate to invest in this growing segment of the market? Not at all! In fact there’s no better time to embrace the non-prime customer.

With the emergence of free-online tools customers have never been more informed on their creditworthiness than they are now. Eastern Canada Sales Manager for Rifco, Greg Morissette comments “to the non-prime consumer, rate really isn’t a factor that stops them from buying.  It’s the payment that really is the biggest factor involved.”

Additionally, online pre-qualification tools coming to market are not only setting rate expectations for the consumer but also starting to normalize a credit first journey.

As the market continues to shift, dealerships simply can’t afford to overlook the potential revenue and customer loyalty that non-prime customers represent. Although changing or introducing processes is never easy, Morissette says that if you’ve got the right pillars in place now is a great time to venture into non-prime.

Each non-prime pillar is equally important for a successful department. He explains, you have to have the right inventory in stock to fit both a non-prime advance and payment. You have to have someone who is skilled at non-prime lending.

Selling to a prime customer and selling finance to a non-prime customer require different skills. You have to have the right lenders in place and you have to understand their programs.

This list might sound over simplified but the good news is that there are resources available to set you up for success.

Lender reps want the business and will help with training on their programs. Just as there are trainers ready to help your F&I team with product presentations, there are also resources available to guide you on credit bureau assessments and the intricacies of non-prime processes.

The non-prime narrative is evolving and it’s time we do too.

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One point of contact for sales and F&I taking hold

It is said that the only constant in the automotive industry is change, and the way customers are buying cars is no exception. Before the pandemic we talked about this change as if it was part of a distant future.

Inventory was aplenty, and customers were, for the most part, doing their shopping in-store. Then the pandemic taught customers a new way of buying everything, including cars.

Customers relying on salespeople to guide them through the process, and F&I managers to hold their approvals in their hands are becoming a thing of the past.

Customers are demanding more transparency, convenience and control over the car buying journey. In response, dealerships need to adapt and adopt new approaches, and part of that change includes introducing F&I products earlier in the process.

Traditionally the road to the sale includes customers choosing a vehicle and negotiating a price before being presented with F&I products by a business manager.

A study by J.D. Power found that dealerships that present F&I products earlier in the process saw a 24 per cent increase in gross profit per deal compared to those that stick to a more traditional model.

With the business office representing one of the largest profit centres in a dealership, the hesitancy to change what doesn’t seem broken is understandable.

Studies have shown, however, that not only does introducing F&I products earlier not negatively affect the dealership’s profitability but that stores adopting this model often see higher gross profit per deal.

In fact, a study by J.D. Power found that dealerships that present F&I products earlier in the process saw a 24 per cent increase in gross profit per deal compared to those that stick to a more traditional model.

Additionally, the two-stage sales process, involving both a sales person and a separate F&I manager is also becoming outdated.

In its place, we are seeing an emergence of the single point of contact sales process, where customers work with a single representative who guides them through the entire process from start to finish.

One of the biggest reasons for this shift towards a single point of contact is the changing needs of customers who are more informed than ever before and want to feel in control of their purchase. With the rise of online sales and the push from automotive manufacturers to adopt more customer-friendly processes, it’s clear that change is necessary

One of the biggest complaints customers have with the traditional sales model is the surprises that they face when they are turned over to the box. According to a study by Cox Automotive, 56 per cent of car buyers reported feeling pressured by the F&I process and 47 per cent said that the process took too long.   

Furthermore 37 per cent of car buyers said that they felt that they have been presented with unexpected add-ons and 28 per cent reported feeling unhappy that the payment options presented were higher than they were initially told.

With a single point sales process customers can consider their options as part of the negotiating process instead of having to wait to see a business manager to find out how the warranty they want will impact their payment.

Of course, implementing a single point sales process isn’t without its challenges.  Dealerships will need to invest in F&I training for their sales representatives who will have to be able to manage the various stages of the sale, right from qualifying the customer to building value in F&I products.

The good news is that there is no shortage of F&I providers to offer this training and support. In addition, dealerships can invest in new technologies coming to market that help to automate this process, many of which have built-in product-specific media designed to effectively communicate the options and build value for your customers.

In today’s market dealerships are all trying to stay ahead of the curve.  As technology continues to transform the way cars are bought and sold no one can afford to be left behind.

As Lee Iacocca once said “The most successful businessman is the man who holds onto the old just as long as it is good, and grabs the new just as soon as it is better.”

Sources:

J.D. Power. (2020). “J.D. Power 2020 Canada Sales Satisfaction index (SSI) Study.” https://canada.jdpower.com/business/press-releases/2020-canada-sales-satisfaction-index-ssi-study 

Cox Automotive. (2018). The car buyer journey study: F&I in the digital age. https://www.coxautoinc.com/wp-content/uploads/2018/02/2018-Cox-Automotive-Car-Buyer-Journey-report-2-16-18.pd

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Surviving the auto finance bubble burst!

The last couple years have been a wild ride for automotive dealers. We’ve dealt with an inventory shortage that shook the industry to its core, and as a result, cars were appreciating in value at lightning speed. While we are not entirely out of the woods yet with the inventory shortage, we are starting to see a correction in wholesale prices. 

In fact The Manheim Used Vehicle Value Index shows values are down 12.8% from one year ago. 

As these values have been dropping, many of us have been watching another storm that has been brewing, and it’s time we start talking about it. 

We all knew that the increased cost of buying a car over the past couple of years would lead to a negative equity bubble eventually, and that’s exactly what’s happening now. 

It’s time to prepare ourselves, because this is going to create challenges for us to secure financing for our customers and continue providing them with the best possible service. 

When we think about the impact of negative equity on finance applications, what we’re really talking about is lender advance rules and loan-to-value (LTV) calculations that determine how much the lender is willing to finance on any particular vehicle. 

Customers with high negative equity may not qualify for the financing they need to purchase their desired vehicle. Very often, when an application is declined, there is an assumption that the customer’s credit is involved, however it’s important to note that even a customer with an A credit application will be declined if the application is outside lender advance rules.

This is why it’s more critical than ever to make sure that your business managers have all the necessary tools to manage negative equity deals since these deals are complicated and can easily cost you a sale.

For a business manager to even have a shot at getting these deals done they have to have access to a number of things. 

They have to have access to lender vehicle valuations (MSRP on new and Canadian Black Book on pre-owned) and they have to have access to lender advance rules, which vary from lender to lender, and periodically change. 

Without access to these tools, finance applications with negative equity are guesswork at best, sometimes involving unnecessary discounts, vehicle changes and multiple submissions to the lenders creating inefficiencies for everyone.

As always, a good place to start in taking the bite out of negative equity is to set expectations with the customer. 

By being proactive and transparent with our customers on their equity position we build trust and increase the chance of finding a solution together to help them achieve their goals. Sometimes it can be as simple as a little extra down payment that can tip the scales in favour of an approval.

Other times we need a little more help. Sometimes, even when your business manager has access to valuations and is totally up to date on lender programs, some deals are just tricky, and tricky deals take time to find an approvable structure. 

The work is manual, tedious and slow, often resulting in a deal that is either less profitable than it could be, or lost altogether. The negative equity challenge has been a thorn in the side of dealers for many years, but with the current bubble that’s bursting in front of our eyes it’s time for efficient solutions. 

In response, what the market is seeing is the introduction of dealer software that does these advance calculations in less time that it takes your customer to refill their coffee. 

TPDesking managers who are concerned about negative equity can get real time responses on any vehicle the customer is considering so that not only are there no surprises in the box but that through collaboration with the customer they are selecting vehicles that are structured for success. 

Negative equity is just one of the challenges we face today. Although we don’t know what other surprises lay ahead, we can start planning for the challenges that face us today. This article is the start of a four-part series on the biggest challenges facing our business office. Watch for part two in the April issue of Canadian auto dealer. 

Source: Manheim Used Car Value Index: https://publish.manheim.com/en/services/consulting/used-vehicle-value-index.html

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