22 April

PROFIT IS NOT A DIRTY WORD

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Profit Promise Vol 5

PROFIT IS NOT A DIRTY WORD!

HOW TO STEER CLEAR OF TROUBLE

Late last month FTC announced the results of a “crackdown” on auto retailers and their finance practices called “Operation Ruse Control” in an effort to protect consumers when purchasing or leasing a car. There were 187 enforcement actions brought against the dealers, their employees, service providers and auto lenders which involved civil and criminal charges.

In some of our previous communications we have emphasized the importance of people and process development in auto retailing going forward. For the past few years, it has become more and more predominant that manufacturers now have new and creative strategies to control margins in retail environments. They have reduced the eminent margins on the actual invoices; and replaced them with “if come” rewards that are significantly tied to sales efficiencies, CSI, service retention and so on. While these are necessary prerequisites for an auto retailer to survive in this time and age, it forced dealers to look in their F&I departments to find money and have enough gross profit to sustain a healthy business.

Unfortunately in some of these cases, lack of proper checks and balances and a comprehensive process, allowed some creative managers and F&I departments to cross the line and defraud consumers. Typically F&I departments revenue sources are finance reserve, service contracts, gap insurance and other miscellaneous add on products that they offer. However there is a value associated with each of the products car dealers sell and not any different than the vehicle itself. Ask yourselves this simple question and then examine your dealership’s F&I practices and you will come up with your own answers. Would a customer who is prepared to negotiate a purchase price that in some cases is lower than the vehicle invoice, be naive enough to agree to pay $2,995 for a “paint sealer product”? Don’t fall victim to the form and convince yourself that proper disclosures are in place when you audit your deal jackets. The litmus test would be that there is no judge on the planet who would be convinced that in spite of all the signatures obtained, that a customer had agreed to pay that kind of money for a paint sealer.

If you want to steer clear of the type of trouble that all of these 187 businesses got themselves into, it is imperative to make sure that you have a clear policy and published “cap amounts” on all of the products that you sell in the finance department. Additionally, review your disclosure documents and come up with ways that protect your customers first and not just cover your basis. At the end if it walks like a duck and quacks like a duck, then “IT IS A DUCK”.Have a great finish for April and I’ll be in touch next month.Best Regards, Arlan Tarhan
Phone: (310) 717 1876
Fax : (310) 883 0019
E-mail: Arlan@tarhangroup.com

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