Once again, politicians line up car dealers in the cross-hairs...sitting ducks...easy targets for any political hack looking to make a name for himself and generate headlines.
Recent events in the state of Washington are tumbling across the country and, as always, the F&I departments are bobbing and weaving to stay within unreasonable guidelines. The latest rulings aimed at eliminating "packing payments" are going to change the way that payments are presented to the customer.
First of all...it has always been technically illegal for a salesperson or even a manager to quote an exact payment to the customer unless they are prepared to immediately disclose a full "Regulation Z" disclosure on-the-spot, much the same way you are required to disclose all of the related financial factors in advertising. The same law applies. I predict that salespeople whispering payment and interest rates in your customers' ears out on the lot are going to cost some dealers hundreds of thousands in fines and legal fees.
In recent months, the Washington State Attorney General, Christine Gregoire, has said that a dealer (in her state, at least) must quote an exact payment and an exact interest rate to every customer when a payment is offered. Of course, we know that this is going to cause more customer misunderstandings and consumer complaints because most of our lenders use tier-level interest rates. Her office has fined several dealers and credit insurance/extended warranty vendors costing them more than one million dollars in fines and legal fees.
Indeed, different customers do receive different interest rates; it depends on their past credit history, the amount of their "Down Payment" and their personal credit score (Beacon Score, Empirica Score, Isaac Score or FICA Score). These scores are generated by Equifax CBI, TRW and Trans-Union credit reporting. All of these factors converge in most lenders' scoring systems and determine the terms of the consumer's loan.
There is no way that a salesperson or manager can second guess the lender and quote the consumer an exact rate and payment.
According to the Washington State Attorney General's office guideline, we are supposed to tell the consumer that...
"The financial terms of your loan may differ depending on the actual terms of the financial institution's acceptance, and are negotiable.
That word-track is completely unworkable, unrealistic and reeks of ignorance as to how consumers will react to it. I have read and reread Federal regulations Z and nowhere is disclosure described this way. If this type of disclosure was mandated or adopted in other states with a higher consumer profile, the dealers' CSI would suffer greatly. This type of disclosure is going to make consumers mistrustful and they are going to think that dealerships are being evasive and deceitful. Tempers will flare; there will be blow-ups in the showrooms. This might lead to a great opportunity for Pete Kitzmiller and the NADA legal department to ride to the rescue and show the dealers what they are really made of.
Ms. Gregoire probably thinks she is a very good person doing a wonderful thing...her consumer-advocate assistant, Doug Walsh, is probably equally proud of himself. In my opinion, they have unjustly done a great deal of harm to an industry that is trying daily to reinvent itself in the eyes of the consumers. We have worked hard at devising more and more consumer-friendly sales methods.
My opinion is, and I doubt that I am wrong, that Ms. Gregoire and her type have a basic problem with the dealers' right to make a profit. This doesn't sound as much like a legal issue as it does a personal vendetta. There is a name for a philosophy that attacks the business-person's right to make a fair profit...it is called Socialism (or Communism).
Their version of disclosure shows me that they haven't a clue as to how consumers think or react. Just the wording of their proposed disclosure shows me just how out of touch they really are with the "little people" that they are so self-righteously defending. Personally, I wish they'd stick to baby-kissing or something else they are more qualified to render an opinion on. Ever since the Abrahms era in New York, it has been fashionable to go after car dealers and travel agencies. Even though I strongly disagree with these people, they are in power.
Regardless of the fact that I consider them to be ambitious political headline-grabbers, we still have to adhere to their guidelines. I suspect that other states will follow. There is no shortage of political hacks out there trying to make a name for themselves by picking off car dealers.
The trend in the industry is going toward "Menu-Selling" in the F&I department. For the last three years, I have been teaching a menu concept that I call the "Three-Contract Close". This is a hybrid combination of the "Assumptive Sale" format that most of us have been using for years and "The Straight Menu Upsell" techniques that most manufacturers' schools have gone to (that frankly just doesn't work).
Currently, I am teaching F&I Managers to pre-prepare three contracts before the customers come into the F&I Office. These contracts are pre-typed, all of the forms completed, filled in and ready to be signed. One contract is completely stripped out at an interest rate two points above our wholesale buy rate...and the other two contracts have varying degrees and combinations of F&I products. (Packages)
By presenting all three contracts and selling the benefits simultaneously, we can still realize a much higher product sales penetration and profit with full disclosure that should satisfy even the most dogged politician.
The biggest problem we face in F&I today is in the fact that our managers are not up to the professional standard of disclosure that is required. Our sales managers need to be fully cross-trained in F&I and disclosure. And, above all, if your salespeople are quoting payment and interest rates to customers, you are going to be in big trouble.
There are legitimate reasons why a consumer would want credit insurance and service contracts...and why they would be willing to pay the price. The answer is in training and revising your selling methods with full disclosure and consumer-friendly word-tracks.