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Microsoft Complete & AmTrust:
Rather than keeping it in-house as they added more hardware to their product line, the manufacturer partnered with an insurance company to launch a suite of protection plans globally. And as the insurance company learned to work at the same Internet speed as the manufacturer, it also learned to love completely new product categories for which there’s no loss cost data to help them.
Nestled between the upscale Gucci and Versace retail outlets in Midtown Manhattan’s Fifth Avenue high-end shopping district sits the flagship Microsoft Store. Brightly lit glass walls welcome shoppers from the sidewalk into the high-tech space, like they do a few blocks up the street at the Apple Store. Helpers dressed in red and green T-shirts look like the elves at Macy’s in Herald Square. Giant video walls on the sides and back make it look like a sports bar in Times Square.
Half an hour south, perched high above the narrow streets of New York’s financial district, the spectacular views from the windows of AmTrust Financial Services Inc. extend far beyond the city limits. Across the street, in a far-below-ground vault, the Federal Reserve Bank of New York operates the largest gold repository in the world. A few blocks beyond it, the New York Stock Exchange runs the Big Board, where hundreds of billions of dollars change hands every day.
Software Into Hardware, Then Retail
Microsoft Corp. is perhaps the world’s most famous software company, and AmTrust is a leading underwriter and administrator of extended warranties and service contracts. Warrantech, its administration subsidiary, is a longtime sponsor of this newsletter.
In the last decade, Microsoft has broadened its product line to include more gaming and computing hardware, and has now launched a chain of storefronts to help sell and support those devices. When it needed to offer extended warranties to its customers, it partnered with AmTrust to launch the “Microsoft Complete” suite of product protection plans.
Bruce Saulnier, the chief business development officer of AmTrust North America’s Special Risk Division, said linking up with Microsoft was the product of both companies being in the right place at the right time. Microsoft was looking for an insurance company that wasn’t so old-fashioned that it couldn’t innovate, and AmTrust was looking for manufacturing and retail clients that wanted a partner to help them manage their service contract programs.
“We’re very selective about people that we do business with,” Saulnier said. “Knowing that Microsoft was migrating its product strategy and was opening up additional Microsoft Stores was very compelling to us, not to mention working with an organization as sophisticated as Microsoft. We knew that if we were lucky enough to secure a relationship, it would be a good one. We think our synergies are very much aligned — the way we think, the way we go about business.”
Nathan Banks, a senior product manager at Microsoft, whose team manages all devices offerings across the enterprise, noted that the company just recently signed a long-term agreement with AmTrust. “There’s probably one reason why: we feel AmTrust has the best ability to scale to our needs,” he said. “No one has the capability to meet our cultural needs like AmTrust. I’ve heard most everybody’s sales pitches. I listened to all of them, because I want to hear what everyone is saying in the industry about how they are different.” But nobody else seemed like the “right fit” for Microsoft.
Banks, however, didn’t see the addition of more and more hardware devices to the product line as causing a massive change in that corporate culture. “Microsoft is about creating software and hardware that makes our customers the most productive on the planet and helps them achieve more,” he said. “So when we think about our extended warranties and services customers want, we’re thinking about, ‘How do we make it frictionless?’ ”How do we unlock productivity and entertainment and achievement for everyone using our devices?'”
Computer hardware covered by product warranties has been a part of the Microsoft product line for multiple decades. Years ago, the company’s major hardware product was the Microsoft Mouse, which was first introduced in 1983, shortly before Windows debuted. In 1991, the company introduced the Microsoft BallPoint Mouse, and in 1994, it began selling the Microsoft Natural Keyboard. Then came the IntelliMouse. Computer peripherals like these were eventually grouped together within the Hardware Division.
Deeper Into Hardware Sales
Microsoft’s expansion into gaming hardware began in 1996 with the introduction of the Sidewinder Game Controllers and Force Feedback joystick. Then it introduced a series of wireless-enabled plush toys such as Interactive Barney, which followed commands programmed onto a CD-ROM and broadcast as sounds above the range of human hearing (the kids were thrilled).
The Xbox video game system first appeared in late 2001, and Microsoft added it and other entertainment hardware into the new Consumer Software, Services, and Devices segment. Then later, the Xbox franchise was moved into the Home and Entertainment segment, along with the company’s mice and keyboards.
Microsoft pushed the second-generation Xbox 360 into production in late 2005 in order to make the holiday season bright. A runaway hit from its inception, the Xbox 360 sold 10 million units by the middle of 2008. By the time its successor, the Xbox One, was launched in late 2013, the Xbox 360 had sold 80 million units worldwide. However, overheating Xbox 360 units also created more than a billion-dollar hardware warranty liability for the company, which for a time turned Microsoft into one of the world’s largest warranty providers (see Warranty Week, May 1, 2014 for more). According to Microsoft’s annual reports from 2007 to 2012, the company paid out a total of $1.694 billion in warranty claims, and we believe almost all of it came from the Xbox 360.
Meanwhile, Microsoft also formed a Mobile and Embedded Devices segment to develop operating system software for mobile phones. Nokia adopted the Windows Phone operating system in 2011, and in early 2014 Microsoft acquiredNokia’s mobile and devices division. The unit, now known as Microsoft Mobile, continues to sell mobile phones under the Nokia brand name, as well as its own Lumia brand.
The Microsoft Surface tablet, featuring a detachable screen and keyboard, debuted in mid-2012. The Surface Pro 4, featuring a bigger screen, more memory, a thinner profile and less weight, launched in October 2015. There’s also a giant Surface Hub family of Windows 10 smartboards aimed at school classrooms, and the Surface Book, which is more like a laptop than a tablet. Other entertainment peripherals added to the product line in recent years include the Kinect motion sensing input device, the now-discontinued Zune handheld digital music player, the Microsoft Bandwrist-based activity tracker, and the HoloLens holographic computing platform.
In fiscal 2014, Microsoft began including separate listings in its financial statements for phone hardware, and for computing and gaming hardware. The Phone Hardware segment consisted mostly of Lumia and Nokia brand phones. The Computing and Gaming Hardware segment included both the Xbox and Surface product lines, as well as all the PC peripherals and accessories. However, there was also some non-hardware revenue included, such as Xbox Live subscriptions and third-party video game royalties.
In the fiscal year that began in July 2015, Microsoft reorganized yet again. Now, all the company’s hardware is included in the More Personal Computing segment. Phones, Surface, and Microsoft PC accessories are counted as Devices, and Xbox hardware and services are counted as Gaming. But the segment also includes Windows licensing revenue and MSN advertising revenue.
We’ve tracked the hardware portion of the business as best we could through the years, and here is what we came up with: in the fiscal year ended June 30, 2015, we estimate that hardware accounted for nearly 19% of the company’s $93.58 billion in revenue. That was by far a record, surpassing both the hardware revenue totals and hardware’s share of the pie in every other year going back to at least 1999.
By our count, there were $10.2 billion in Xbox and Surface sales, and $7.5 billion in mobile phone sales. So we’re talking about $17.7 billion in warranted hardware sales, up almost 60% from fiscal 2014 levels. In addition, estimating conservatively, we believe the company had somewhere between $175 and $200 million in product warranty expenses for all that hardware.
Microsoft declined to comment upon our estimates. However, despite the company’s reluctance to elaborate about its warranty expense costs, we nevertheless believe that Microsoft is still a major warranty provider, and has become a major hardware vendor as well. It’s probably moving as much hardware and is paying as many claims as, say, Seagate Technology or Western Digital Corp., we reckon.
A Different Kind of Partnership
Microsoft could have kept its product warranty and extended warranty operations in-house, but Banks said the company realized that this wasn’t one of its core competencies. “We wanted to focused on building world class hardware and then partner with experts to make the most competitive service offerings in the industry. This way, our customers get the highest level of value and peace of mind for their Microsoft devices.”
For instance, Banks said he has heard that many companies see protection plans as an opportunity to make a little extra margin, perhaps after getting beaten down on the product price. In contrast, he said he sees extended warranty as a way to cement long-term relationships and boost customer loyalty. “We always focus on the customer and our desire for a long term relationship with them first. We know that if we do that well, we will impact our revenue in a positive direction at the same time.”
Banks said he knew the company needed a partner to help it navigate the complex legal and financial side of the business. “We needed someone to have the baseline around compliance and risk, so that we could lean on someone and ask, ‘Are we doing this the right way?’ We needed an AmTrust to come in and say, ‘This is the right way to think about this.'”
“That’s what makes them so exciting to work with,” Saulnier said. It’s very different from the way most other relationships proceed. “It’s very open,” he said. “It’s very transparent. They’re a very demanding client, but that’s good, because it makes us think. One thing that we don’t want to ever do is get into the same rut as many providers. We always want to offer frictionless, productive solutions to our clients.”
Stuart Hollander, the president of AmTrust North America’s Special Risk Division, said one thing that makes it a very different kind of relationship is the way that Microsoft is willing to share some of its future product strategies with the insurance company. That insight, in turn, makes it easier for AmTrust to innovate in ways that benefit its client.
“Because we are both working as partners, understanding what their goals are, it’s different than the traditional retailer relationship,” Hollander said. “Microsoft is a very dynamic company, and they’re not approaching this the same way. And by working with us, by sharing that knowledge and information with us, we challenge ourselves, and push our IT teams and underwriters to meet their needs. It is very different. But that’s why it’s very exciting for us.”
Meanwhile, the market is changing in a way that makes the regulatory and compliance expertise even more important. Years ago, extended warranties and service contracts were all about break/fix. Then certain products could be covered for accidental damage and even water damage. Now, certain kinds of personal electronics are eligible for additional coverages against loss and theft, through policies sold by cashiers at the point of sale.
“I always tell people we have a very large compliance and a big regulatory department,” Saulnier said. “They’re not the most exciting people at cocktail parties, but they will definitely keep you out of trouble. They are actually a very talented group of professionals who are extremely knowledgeable. Their expertise helps us bring products to market quicker for our clients, both domestically and internationally. This is what they live and breathe every day of the week. I think there’s a tremendous value for Microsoft to have that level of expertise at the table, to help guide them during that massive shift in this market.”
International Considerations
Aleem Lakhani, the executive vice president of AMT Warranty, a holding company for AmTrust’s third party administrators, including Warrantech, noted that it’s not just the changing regulatory environment in the 50 U.S. states that needs to be tracked. Microsoft is selling extended warranties in 60 other countries, with plans to expand even further. “It’s not just North America that we’re looking at,” he said. “How do you develop a consistent brand and customer experience in such diverse cultural, sales, and regulatory environments?”
Furthermore, let’s face it: Microsoft attracts an enhanced level of scrutiny in some countries. It needs a partner that can help it be extra diligent in its efforts not to run afoul of any nation’s insurance or tax laws, and help it manage its risk satisfactorily. “That’s a skill set we bring on a global level, with a network of our companies across the world, building this core competency, managing it on a day to day basis, responding to evolving regulations, engaging with regulators and counsel to keep ahead of the curve as much as we can,” Lakhani said.
At the same time, Lakhani said it’s been quite a learning experience to be working with a client that moves so fast, in an industry that changes so fast. “It’s been a transformation in our culture as well,” he said. “And we’ve brought that into a lot of other accounts.”
Roots in Computer Service Contracts
Hollander noted that AmTrust actually traces its roots in the extended warranty business back to Wang Laboratories, which in 1998 spun off its Technology Insurance Company Inc., which wrote service contracts for business computer networks. Later, AmTrust helped Hewlett-Packard Co. launch accidental damage protection for its laptop product line, he added. “So we know this business well,” he said.
In the retail store on Fifth Avenue, tucked between the Surface and Xbox demo units and the shelves stocked with Microsoft Band and Fitbit activity trackers, are flyers highlighting the Microsoft Complete service contracts on offer. “Two years of protection, support, and training,” they exclaim. “With Complete, you have it all — extended service plan and accidental damage protection for your device, plus in-store one-on-one personal training and technical support for two full years.”
Phone-based and online technical support services are also available. Consumers who don’t buy the service contracts right away can do so within 45 days of product purchase. For Surface and Surface Pro units, there are a maximum of two damage-related replacement claims allowed per contract. The cost of a service contract for Surface is $99 and for Surface Pro is $149. Both also have a $49 deductible.
Microsoft Complete for Microsoft Band is priced at $39 for two years of protection (one year in addition to the product warranty’s duration). Accidental damage protection is included, even from drops and spills. But only one claim is allowed within the two-year period, and it is subject to a $30 deductible.
Microsoft Complete for Xbox One is priced at $70. It provides three years of break/fix coverage for both an Xbox console and a Kinect motion sensor. It also allows for the replacement of up to two controllers during the life of the contract. And since those controllers retail for upwards of $60 apiece, the service contract is essentially pre-paying for the wear and tear that every gamer knows is inevitable after years of playing Minecraft.
For businesses, universities and government accounts with up to 250 devices, Microsoft is launching Complete for Business protection plans. And for accounts with fleets of more than 250 devices, it is launching the Microsoft Complete for Enterprise protection program. Both include accidental damage coverage for Surface units, including protection against spills, drops, battery failures, and power surges.
For the giant new whiteboards, Microsoft Complete for Surface Hub provides an unlimited number of repairs with no deductible, and up to one replacement of each unit. Repairs are first attempted over the phone, and then if necessary, an authorized technician is sent on-site to evaluate and attempt to repair the product. If that doesn’t work, the technician will remove the unit, take it away for repair, and will then return to re-install it. Accidental damage coverage is not included.
In-House or Outsource?
Banks said Microsoft probably could have hired enough expertise to keep the service contract programs in-house, like many other manufacturers typically do. “Would it have been advantageous for us? Probably not,” he said. “These guys have brought in a huge team. They kind of get it. They can talk the lingo. No one else is going to be able to do that.”
But the bigger advantage that Banks cited for working with an insurance carrier is speed to market. In such fast-moving product categories as Microsoft is in, there’s not much time to develop service offerings. “If you can’t get a product to market in a few months, you’ve missed the window,” he said. “I would say to all the other OEMs out there, how fast do you need to get to market? Because the month or three months that you lose are crucial to you getting not only warranty attach, but also device attach and ecosystem attach. Unseating customers from other ecosystems or platforms to come underneath yours: that’s so critical. You don’t have months to waste.”
Banks said he recently asked AmTrust to price service contracts for two Surface devices that Microsoft has since launched globally. He said he told Lakhani he needed the price data and rates within 48 hours. “I got it in 46,” he said. “That’s how fast we think up, innovate and move a plan out.”
As another example, Microsoft recently worked with AmTrust to hash out a new addition to the terms and conditions of the Microsoft Complete for Enterprise service contract program. Banks said he has noticed that Microsoft customers, particularly those managing large fleets of devices, have become somewhat reluctant to give their broken units back during replacements under warranty. So Microsoft worked with AmTrust to allow one percent of each enterprise customer’s non-bootable units to be replaced without having to send them back.
“You have to allow for that,” Banks said. “We get the fact that you may have sensitive information on the device. Don’t ship it back. We’ll send you a new one.”
Normally, replacement units are provided on an expedited advanced exchange basis, in that the business customer first gets the replacement and then has up to 10 days to send back the broken unit, using prepaid shipping. Under this 1% non-bootable device allowance, the customer can destroy the unit and safeguard the data it contains.
For colleges and universities, Banks said Microsoft has been looking for a way to provide service contracts that free the IT staffs from having to constantly fix devices for staff and students. “Why not just call a number and get a new device?”
Underwriting New Types of Products
For some of these new hardware devices, there’s just not a lot of actuarial experience to fall back on. With the HoloLens, Kinect for the Xbox, the Surface Hub, and perhaps even the Microsoft Band, people aren’t even sure what product category to put them in, let alone what the loss costs will be. It takes a certain amount of fearlessness, and an ability to quickly innovate, to even begin to think about launching protection plans for them.
Saulnier said innovation is the key to staying in the business. Selling an extended warranty on a washer or dryer is not all that innovative, but developing solutions that improve the a customer’s quality of life by enhancing their experience with service providers and the products they use is innovative. He said AmTrust is uniquely positioned with our current partners and clients in both the technology and automotive industries to continue to drive industry transformation.
“The world is changing rapidly,” Saulnier said. “We are thinking about the connected world — the Internet of Things. We spend a lot of time and we actually have a team dedicated to driving innovative solutions that will continuously benefit our clients. It’s not just providing break/fix coverage.”
He said having Microsoft as a client has helped AmTrust reshape the way it does business. “The challenges they bring to the table help us think creatively outside the box,” he said. “And that translates to other clients as well.”
“We love AmTrust,” Banks said. “We choose no one else. We’re going to have a long relationship with them. They’re an insurer that doesn’t think like an insurer. And I haven’t met that in the industry yet. Microsoft doesn’t think like insurers. We have to fix everyone’s orientation to what does the customer think? Customers don’t talk about CLIPs. They don’t talk about loss ratios. They just have an issue, so let’s help them fix the issue and be productive again.”
December 17, 2015
http://www.warrantyweek.com/archive/ww20151217.html
Dealer Ordered to Pay $50K for VSC Fraud
CONCORD, N.H. — A dealership manager was ordered to pay at least $50,000 for taking money from customers and failing to transfer that money to an extended service contract provider, according to theAssociated Press.
In addition to keeping money meant for the extended service provider, Edward Walter of NHCars.net illegally offered an “in-house warranty” for an extra fee. He pleaded guilty to theft charges in January.
To read the full story, click here.
http://www.fi-magazine.com/channel/compliance/news/story/2014/06/dealer-ordered-to-pay-50k-for-vsc-fraud.aspx?ref=rel-trending
Experian: Average Loan Terms Stretch to Record High
SCHAUMBURG, Ill. — Loan terms are continuing to stretch, with the average automotive loan term reaching 66 months for the first time, according to data from Experian Automotive.
According to the firm’s latest State of the Automotive Finance Market report, loan terms in the first quarter reached their highest level since the company began publicly reporting the data in 2006. The analysis also showed that loans with terms extending out 73–84 months accounted for 24.9% of all new-vehicle loans originated during the quarter, a 27.6% increase from the year-ago period.
The average amount financed for a new-vehicle loan also reached an all-time high, climbing $964 from a year ago to $27,612 in first quarter. Additionally, the average monthly payment for a new-vehicle loan reached its highest point on record, rising from $459 in the year-ago period to $474 in the first quarter.
“As the cost of purchasing a new vehicle continues to rise, consumers clearly are stretching the loan term to help lower monthly payments, keeping them at a manageable level,” said Melinda Zabritski, Experian Automotive’s senior director of automotive credit. “The benefit of a longer term loan is the lower monthly payment; however, the flip side of that is consumers can find themselves paying more in interest or being upside-down on their loan if they seek to trade their vehicle in early.”
Consumers also continued to lease new vehicles at record levels. Of all new vehicles financed in the first quarter, 30.2% were leased vs. 27.5% in the first quarter 2013. And of all new vehicles sold (whether financed or purchased in cash), a staggering one in four, or 25.6%, were leased in first quarter vs. 22.9% in the year-ago period.
Overall, loans and leases for new vehicles were easier to obtain in first quarter 2014. For new-vehicle loans, the average credit score was 714, down from 722 in first quarter 2013. For leases, the average credit score was 721 in first quarter 2014, compared to 731 in the same period 2013.
“Over the last several quarters, leasing has come back as a very desirable option for consumers,” Zabritski noted. “Whether they are interested in getting the latest and greatest models or simply do not want to commit to a long-term purchase, consumers are leasing new vehicles in greater numbers than ever before. However, what they need to remember is that without good credit, it may be more difficult to get a lease, and that leases have mileage caps so they need to make sure their lifestyle fits the leasing requirements.”
Experian Automotive also reported that market share for nonprime, subprime and deep subprime new-vehicle loans rose slightly from 33.68% one year ago to 34.34% in the first quarter. For used vehicles, nonprime, subprime and deep subprime loans accounted for 64.2% of all loans, down 2.6% from 65.91% in first quarter 2013.
Here are additional trends highlighted in Experian Automotive’s report:
- The average credit score for a used-vehicle loan in first quarter was 641, up from 637 in first quarter 2013.
- Average monthly payments for used vehicles rose from $348 in first quarter 2013 to $352 in first quarter 2014.
- New-vehicle interest rates rose from 4.47 in first quarter 2013 to 4.54% in first quarter 2014.
- Used-vehicle interest rates rose from 8.75% in first quarter 2013 to 9.01% in first quarter 2014
FTC Charges Ark. Dealer With Not Displaying Buyers Guides
JONESBORO, Ark. — The Federal Trade Commission has charged an Arkansas auto dealer, Abernathy Motor Co., and its two principals, with failing to display a “Buyers Guide” on used vehicles offered for sale, as required by the FTC’s Used Car Rule. Each violation could result in a civil penalty of up to $16,000.
“Used-car dealers are required to post a Buyers Guide providing warranty and other important information on the cars they offer for sale. That’s the law,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “Consumers have a right to receive this information up-front to help them make an informed buying decision.”
The FTC’s Used Car Rule, which took effect in 1985, specifically requires used car dealers to disclose whether the car comes with a dealer’s warranty or is being sold “as is.” If the car is sold with a dealer’s warranty, the Rule requires the Buyers Guide to list its basic terms and conditions, including the duration of coverage, the percentage of total repair costs to be paid by the dealer and the exact systems covered by the warranty.
In January 2013, the FTC announced that its Southwest Region Office had warned 11 used car dealerships in Jonesboro, Arkansas, that their sales practices violated the Used Car Rule. All but Abernathy Motor Company subsequently came into compliance.
Abernathy Motor Company has four used car sales locations in Arkansas: two in Blytheville, one in West Memphis and one in Jonesboro. The FTC’s complaint also names the company’s owners, Wesley Abernathy and David Abernathy, and an affiliated dealership, Ab’s Best Buys AMC Inc., as defendants.
According to the complaint, the FTC visited the Abernathy dealership in Jonesboro in November 2012, and found that none of the vehicles offered for sale displayed a Buyers Guide. The agency informed the dealership of that fact, and sent the dealership a copy of the Guide and the FTC publication, A Dealer’s Guide to the Used Car Rule. In May 2013, the FTC re-visited the Abernathy dealership, and visited Ab’s Best Buys AMC Inc., and found both dealerships were offering used vehicles for sale that did not display a Buyers Guide.
The Commission vote authorizing the staff to file the complaint was 4-0. The complaint was filed in the U.S. District Court for the Eastern District of Arkansas, Jonesboro Division.
March 18th, 2014 from F&I Showroom:
Here is a link to the FTC publication menioned:
http://www.business.ftc.gov/documents/bus13-dealers-guide-used-car-rule
Motorize Launches Interactive F&I Menu
BALTIMORE, Md. — Motorize has unveiled its latest product in its suite of web- and mobile-based automotive services, the Motorize F&I Menu. Officials said the menu was designed to increase profit and reduce overhead costs while also allowing F&I managers to present product in a consumer-friendly manner.
The Motorize F&I menu provides sales and finance personnel with a wealth of utilities to inform customers of their available products and programs to protect their vehicle purchases, which, in turn, generates more revenue for the dealerships and their partners, officials said.
“One of the things that makes the Motorize F&I Menu truly unique is that we were able to combine the knowledge of F&I managers and product agents with modern user-experience techniques and cutting-edge programming,” said Scott Ferber, chairman and co-founder at Motorize. “In the end, this combination of knowledge and technology enabled us to create a product that has been tested and proven to increase [profit per retail unit] and [product per retail unit] while giving car buyers more peace of mind.”
Through Motorize’s partnership with F&I Express, the new menu offers fast, comprehensive, and accurate product rating for all types of F&I products, combined with fast and easy-to-use econtracting. Econtracting expedites coverage for purchased products and reduces both the number of errors and the overhead costs of manual remittance.
“The integration of F&I Express and Motorize is a win-win for dealers across the board,” said Brian Reed, CEO of Intersection Technologies Inc. “The partnership strengthens the aftermarket industry by streamlining the F&I department through econtracting, saving time and money by using one sign-on to access all F&I products, eliminating redundant data entry and producing error-free contracts every time.”
Gary Crossley Ford, which piloted the new menu, has seen tangible success and increased F&I product sales as a result of the Motorize F&I Menu.“Since we began using the Motorize Menu platform eight months ago, we have increased our PRU by $400 and our PPRU by 26 percent,” said Ben Pacheco, the dealership’s general sales manager. “Its ease of use and interactive nature have really hit home with our customers.”
March 11, 2014
From F&I Showroom
http://www.fi-magazine.com/news/story/2014/03/motorize-launches-interactive-f-i-menu.aspx
PROSPERITY DEALER SERVICES HAS PARTNERED WITH MOTORIZE TO PROVIDE MENU SOLUTIONS TO OUR DEALER PARTNERS. IF YOU ARE INTERESTED, PLEASE CONTACT PROSPERITY DEALER SERVICES AT: INFO@PROSPERITYDEALERSERVICES.COM
Eliminating Price Objections
Asking customers how many miles they drive per year may tell you how much coverage they need, but it won’t help you close the sale. The F&I Coach weighs in.
There are many reasons customers do not purchase protection products in the finance office. Maybe their objection was too strong to overcome. Maybe the finance source wouldn’t add the back-end product, or maybe the customer’s budget is already overextended. Or maybe the customer selected a low-cost vehicle that, in their mind, doesn’t warrant the purchase of our protections. Those are all great reasons, but, in most cases, the reason consumers opt against purchasing our protections is because they don’t see the value.
See, cost is only a factor when the customer can’t see how the protection benefits his or her vehicle purchase. In fact, value comes into play whenever we’re forced to part with our money. Think about how you make financial decisions. Do you ever purchase something that has no value to you? I doubt it.
The fact is we all perceive value the same way, yet differently at the same time. For instance, not everyone likes the same vehicle and not everyone chooses the same dealership from which to buy, just like people choose different places to live and purchase gas, food and clothing. That’s why asking somebody to purchase based on features and benefits alone doesn’t work; it simply doesn’t provide enough value information to help the customer make a purchase decision.
Price Justification
What customers need is something they can relate to, and that something needs to have impact and it needs to make sense to them. When buying a vehicle, for instance, brand and the actual deal are major considerations. When deciding on an F&I product, customers need to know how they will benefit from that protection. But remember, just because it makes sense to one individual doesn’t mean it will to someone else. So you have to make the product’s impact personal to each individual customer in order to justify the purchase. And if that impact is strong enough, cost won’t be the deciding factor.
That doesn’t mean cost isn’t considered. Before we buy anything, we must first figure out how we’re going to pay for it. Maybe we’ll have to give something up in order to afford the purchase. That doesn’t mean you should recommend that a customer give up smoking, lattes or gym memberships so they can afford a vehicle service contract. That’s the quickest way to offend a customer and possibly lose the sale.
The point is, it’s not about you, it’s about the customer. And as you know, most customers believe we’re only in it for our commission. That’s why the sale begins and ends with the customer’s needs. But conducting a needs analysis shouldn’t be confused with a customer interrogation. In fact, the quickest way to turn a customer off to your pitch is by engaging them with a battery of questions.
Needs Discovery
Discovering your customers’ needs and what is important to them shouldn’t be difficult. Look, if a customer is willing to commit to a vehicle purchase, then there has to be something about that vehicle that has value to him or her. If it was the vehicle’s appearance, performance, safety features or just plain economics, all you have to do is attach those reasons to your products.
So how do you kick off your product presentation? Do you show them the menu, bring out a brochure, or do you just roll right into your pitch and assume the customer is interested? From my experience, the best way to launch into your product presentation is by saying the following: “That’s a great vehicle and we sell many of them. What are some of the features you like?”
What you’re doing with that statement and question is getting customers to talk by having them identify what they like about the vehicle. You then want to follow up by having customers tell you why they think those features are beneficial to them. Then ask them how they came to that conclusion.
If you allow your customers to engage in an enthusiastic conversation, they will provide the details necessary for you to attach your product’s features and benefits to their words and circumstances. Not only that, your transition from fact-finding conversation to product pitch will be much smoother.
Remember, every F&I product you offer, whether it is guaranteed asset protection, vehicle service contracts or appearance packages, is designed to address a customer’s need. But you can’t discover that need if you put them on the defensive. See, your goal when engaging customers is to uncover information that will allow you to say this: “The reason I want to make you aware of this is because earlier we talked about …” Again, the key is to tie the customer’s words to your products. Once you do that, close with an impact statement that makes the purchase personal to the customer so he or she understands why you’re offering it in the first place.
So the next time you go out to meet your customer, don’t ask them how many miles they drive a year or how they intend to use their vehicle. You don’t start conversations with questions like that. Instead, ask them what they like about the vehicle they just purchased and you’ll find that you’ll get the information you need to pose follow-up questions. And if you can attach your customer’s specific circumstances to your pitch, you will increase your chances of closing the sale. Why? Because you made it about them.
John Vecchioni serves as the national sales director for United Car Care Inc., a company he joined 2005 as director of F&I development and national trainer. Email him at john.vecchioni@bobit.com.
February 2014, F&I and Showroom – Feature
NADA Issues Letter in Support of CFPB Reform Bill
MCCLEAN, Va. — The National Automobile Dealers Association (NADA) sent a letter on Wednesday, Feb. 26, to House Members in support of H.R. 3193, a bill introduced in February that would bring greater accountability to the Consumer Financial Protection Bureau (CFPB).
“If the CFPB, like other agencies, were subject to customary congressional oversight, it is doubtful it would have attempted to fundamentally change and regulate the $783 billion auto loan market via guidance without prior public comment or hearing; answering direct and specific questions by Congress for nearly a year, and first assessing the impact of its guidance on consumers,” read the letter.
The CFPB has received nine letters since May 28, 2013, from both Republican and Democratic lawmakers critical of its enforcement activities. The bureau has responded to all but three. On June 19, the U.S. Chamber of Commerce sent a letter to the bureau that claimed the bureau’s data collection efforts do not comply with the Dodd-Frank Act, among other charges.
The 16-page letter outlined a list of concerns, including its push to regulate dealer practices it has no jurisdiction over. “The bureau claims that the industry’s long-established method of compensating dealers for their role in bringing together lenders and auto purchasers … can be used to prove disparate-impact discrimination by banks and financial institutions,” the letter stated, in part. “By taking this position, the bureau has created enormous uncertainty in the auto finance market, threatening to raise the cost of credit and drive the industry to untested business models that could be harmful to consumers.”
The chamber also took issue with the CFPB’s guidance on abusive acts and practices. Under the Dodd-Frank Act, the bureau was empowered to prevent organization from committing or engaging in an unfair, deceptive, or abusive act or practice, but the chamber said the bureau has only issued statutory language in defining what “abusive” means.
“It does not provide regulated businesses with the clarity available from the [Federal Trade Commission] policy statements and prior decisions interpreting ‘unfair’ and ‘deceptive,’” the letter stated, in part. “We respectfully request that the CFPB issue formal guidance in this area, including examples of the types of practices that would be considered abusive but are not otherwise unfair or deceptive.”
The chamber also took issue with the CFPB’s statement regarding the liability of finance sources for the acts of service providers. “The bureau has created unnecessary ambiguity regarding the scope of a financial service company’s liability for the actions of a service provider,” the letter stated. “That leaves companies without any certainty regarding the legal test and, importantly, enables the bureau merely to imply this broad liability standard and therefore avoid responsibility for the adverse consequences that would flow from such a standard, such as the significant reduction in the availability of consumer credit if companies had to shoulder the expense of analyzing each consumer’s suitability for every consumer financial product or service before offering the product or service to the consumer.”
The House Bill the NADA has thrown its support behind was introduced on Feb. 11. It would authorize the chairperson of the Financial Stability Oversight Council to issue a stay of any regulation written by the CFPB until approved by the council by a two-thirds vote, among other provisions.
The bill, which was introduced by Rep. Sean Duffy (R-Wis.), would also require the council to set aside a final regulation prescribed by the CFPB if the council decides it is inconsistent with the safe and sound operations of financial institutions. The council currently has that ability if a regulation puts the safety and soundness of the U.S. banking system or the stability of the U.S. financial system at risk.
“Oversight by Congress of the executive branch is an integral part of the checks and balances of our democratic system,” the NADA’s letter stated. “On behalf of America’s franchised auto dealers, we urge Congress to pass H.R. 3193 to provide that needed oversight and accountability.”
From F&I Showroom
February 27, 2014
http://www.fi-magazine.com/news/story/2014/02/nada-issues-letter-in-support-of-cfpb-reform-bill.aspx?ref=enews-thursday-new-20140227&utm_campaign=enews-thursday-new-20140227&utm_source=Email&utm_medium=Enewsletter
How To Gain Customer Trust
How To Gain Customer Trust
By: Dale Penn
On a busy day in a typical dealership, a customer walks into the finance office after finalizing her deal to purchase or lease the vehicle of her dreams…and you’re up. Most finance managers when asked to describe their job duties from this point on would probably answer: “To generate lots of back-end revenue for the store.”
Wrong answer.
I’ve always been a believer that the number one job of a finance professional is to protect the house. Generating additional revenue while helping customers decide on all their financing and asset-protection options is a worthy goal, but it’s not THE goal. I’m also aware that generating revenue is essential for job security, but stay with me.Wrong answer.
Without a precise, professional, and well documented paper trail in finance, the customer is launched into the wild blue yonder with marginal protection at best and incorrect paperwork at the worst. Even minor mistakes in the paperwork can jeopardize the deal, the dealership, the lender and the customer. With that said, let’s examine a few ways that creating trust and building rapport can help protect all parties and actually enhance your ability to generate additional revenue based on the customer’s real needs.
The Key to Building Trust
Purchasing decisions involving vehicle or motor sport sales are always based on trust because of the size and complexity of the purchase. By the time a deal makes its way to completion of the paperwork, the customer has trusted us with her credit history, her financial details and a considerable amount of her personal data. Essentially, the customer has trusted us with much of her NPPI (non-public personal information) and we have a responsibility to protect it for her. We’ll talk about our Red Flags and privacy responsibilities in another article, but trust has been established at this point in the sale, and building on that trust can be the key to positive customer engagement, as well as additional revenue for the store going forward.
John Jantsch who is an author, blogger and creator of the popular Duct Tape Marketing brand, has summarized the sales process brilliantly. The logic of his process should resonate with you immediately. According to Jantsch, the buyer’s relationship with sellers progresses in this order: KNOW, LIKE, TRUST, TRY, BUY, REPEAT, REFER.
If they feel they know you, and they like you, they will trust you, try your offering, buy your offering, repeat the purchase, and then refer you to their friends. Now that’s a winning formula!
Wouldn’t you like to repeat this sales cycle with every customer you encounter?
Putting the Duct Tape Process to Work
Know – A name-tag, a warm handshake, a real smile and eye contact are proven ways to get to “know” someone quickly. A photo of your family or a personal item that stirs conversation can also help customers to feel like they “know” you.
Like – My favorite word in any language is the sound of my own name. Use your customer’s name often, but not too often. Be cautious about becoming too casual or informal, as it can be a sign of disrespect. By focusing attention on the customer and refusing to be distracted by interruptions, you send a signal to your customer that tells her she’s important. That builds likeability.
Trust – A clean, orderly office adorned with certifications, degrees or awards you’ve won, gives customers confidence that you are a professional who takes every transaction seriously. Physicians use this method in their offices and examination rooms to give patients piece of mind while building trust in their well-earned credentials.
Try – Questions always indicate interest. We all dread those encounters where the customer has no questions or interest in anything we might have to offer. When questions or objections do arise, there is a good indication that the customer is seriously considering trying your products or services.
Buy – Once the buying decision has been made, you now have a responsibility to deliver the goods with precision, clarity and passion. If you don’t believe in or thoroughly understand the products or services you are selling, brush up with your colleagues, your manager or a sales trainer. Passion is contagious.
Repeat – If the customer has a positive buying experience and trusts you and the process, chances are they will not only purchase other products or services offered in your package, but will be open to your ideas and suggestions the next time they visit your office.
Refer – As you might imagine, referrals are 60 to 65 percent more likely to purchase your products or services because of the positive experiences of others. This includes aftermarket products that actually pay dividends during the product’s lifecycle. If she used it and it performed as promised, she’ll tell her friends and family.
Gaining customer trust is the “secret golden key” to higher close ratios, greater margins, and more repeat/referral business. Using it empowers you to consistently earn and keep more income.
Posted on September 26, 2012
http://pa-magazine.com/industry/how-to-gain-customer-trust-and-earn-more-money/
5 Deal-Saving Strategies
F&I pro says there’s no way to avoid those deal-killing situations, but he does offer five strategies for ensuring that your sold and delivered customers stay that way.
February 2014, F&I Showroom – Feature
Motorcyclists have a saying: It’s not if you lay it (your bike) down, it’s when. We have a similar saying in automotive finance: It’s not if you will lose a deal, it’s when.
Whether miscommunication on the sales floor, numbers fatigue, a confused customer, the push from all sides to speed up the process or the alarming amount of misinformation presented to customers, there is ample opportunity for the finance manager to be caught in a downward spiral. Whatever the cause, the result is no sale.
The true F&I professional plans ahead for these potential deal killers and has strategies in place to avoid damaging confrontations and misunderstandings. Here are five ways to make sure your delivered customers stay that way.
1. Get Involved Early
While this may seem like a no-brainer, many sales managers have worked deals from start to finish for a long time. This habit can lead to the sales manager bypassing the F&I manager and doing things that should only happen in the finance office. Payment quotes, for example, should be discussed with everyone involved in the deal before they are presented to the customer.
Besides the obvious benefit of the finance manager handling the finance portion of the deal, early involvement allows for greater fact-finding in advance. Many sales consultants and sales managers consider outside liens to be the same as cash. To the experienced finance professional, outside liens represent an opportunity to beat a rate and earn more business. A small flat on a contract written at retention may not do much for the department’s bottom line, but oatmeal is better than no meal!
And, as most veterans know, customers financing through the dealership are far more likely to purchase F&I products at the point of sale. Eligibility for some protections is contingent on the dealership securing the financing as well. And the customer may have included the products in their loan quotes from their credit union or bank. These customers will frequently purchase the same products from the dealership they planned to purchase from their outside lender.
Finally, attempting the “finance switch” before the customer enters the F&I office gives the producer more time to do his or her job. Once customers enter the business office, they feel as if they have completed the process and are less receptive to the switch. Their mental clock leaves the business manager enough time to get through all the paperwork, but not enough time to secure a loan — even if the terms are superior.
2. Don’t Hide From the Numbers
In the good old days, the auto industry developed quite a reputation for deceptive tactics. The “five-finger close,” for example, had the finance manager use his or her fingers to cover up some of the financial details on the contract. This led to customers paying higher rates to cover products they didn’t agree to.
Today, federal regulators and lenders have put the finance process under a microscope. Customers are also armed with more information, which means the old-school tactics no longer work. Truth is, they are no longer needed to run a profitable department.
See, people like to feel they are dealing with honest sales and finance professionals. They want the employees at their chosen dealership to be credible and the quickest way to build credibility as a business manager is to thoroughly go over all the figures with the customer before you sign a single piece of paper.
Some product administrators (Zurich, for example) include this disclosure process in their menu training. Some directors advocate showing the customer their deal structure as it appears in the DMS. However it is done, the customer should be made aware of the sale price, all the fees and taxes, the rate and the payment before any product is sold. There is no reason to soft-pedal it. Just present the figures as a settled fact, make sure there are no questions and move on.
Remember, the customer’s rate is based on his or her credit, while the customer’s payment is based on the vehicle he or she selected. It is not the business manager’s responsibility to “fix” these things. A simple and professional delivery makes that clear.
3. Don’t Take Responsibility for Someone Else’s Numbers
Just as the customer’s credit is not the F&I manager’s responsibility, neither are offers on their trade-in vehicle. If a customer says the figures you have are not the figures they agreed to, the first step is to pull the “pencil” from the deal jacket and make sure the figures do indeed match the DMS. If the figures don’t match, find out why. If they do and the customer still insists the figures are not the numbers they agreed to, bring in the person with whom they made their agreement.
Frequently, the customer is just trying to “take a shot” with the business manager and a quick rehash with the salesperson or sales manager will clear up the fake confusion. Sometimes there is genuine confusion. In those cases, the business manager cannot help the situation by assuming ownership of the figures. Departments are separated for a reason. Just as the finance department doesn’t want the used-car manager giving away rate, the used-car manager doesn’t want F&I stepping in on trades.
Blithely adjusting the numbers in the finance office can also have the effect of destroying credibility — not just the business manager’s or the sales staff’s credibility, but the credibility of the entire dealership. If business managers have the authority to do whatever they please, why have other managers?
4. Recognize When It’s Time to Move On
The best producers in finance make fantastic product presentations. They can also overcome all manner of objections on the road to a sale. They know it is OK to push a little for a close. When faced with objection sometimes — if you are very careful — it is OK to push a customer right up to their personal “redline” before backing off. In fact, that is the only way to get some deals done and products sold.
Sometimes, though, the customer doesn’t have an objection to overcome, or cannot be closed regardless of the skill of the business manager. Recognizing these circumstances quickly can help business managers maintain a smooth, friendly relationship with each customer. Pushing too hard now may not lose the current sale, but it could push away future business.
5. Do Not Respond in Kind
Some people just aren’t very nice. They are rude, loud, vulgar, pushy and sometimes hostile. And sometimes these types of people buy cars, bringing their unattractive traits with them. It is tempting to be just as rude, hostile, loud and vulgar as the customer is, but don’t do it. Maintain a professional demeanor at all times. Don’t even tell dirty jokes with the “fun” customers, because sometimes they are just an obnoxious customer in disguise.
Don’t yell and don’t lecture the customer, no matter how bad they get. Treat everyone with respect, and go through the entire finance presentation even when it’s an unpleasant task. Calmly reassure the customer that the paperwork in the business office is legally required documentation and that they are entitled to the same full disclosure as everyone else. Make it clear that the entire purchase is contained in the paperwork and the customer is due copies of most of it.
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Occasionally, the customer won’t sign some of the paperwork. If it’s for DMV work or is financial in nature, there is no deal without those signatures. On the other hand, some of the paperwork is simply disclosures. If the customer won’t sign a credit score disclosure form as required by the Risk-Based Pricing Rule, no problem. Note on the signature blank that the customer refused to sign it and move on. The same goes for many other forms, just be sure to check with your dealership’s attorney before doing this.
If all else fails, allow the customer to finish his or her paperwork with another manager. Having someone else sign up the deal is infinitely better than losing the deal. Don’t let a big ego cost the dealership a sale.
The tips presented here are not revolutionary. There is no need to reinvent the wheel when the one in use rolls just fine. But when followed, these tips will help the F&I department keep deals on the board. Just like the motorcycle riders, though, the crash will come. At that point, the professional should recognize and take ownership of what he or she did wrong and get back on the road.
Mick Warshaw is a veteran F&I pro from Culpeper, Va., where he serves in the finance department at Battlefield Toyota Chevrolet. Email him at mick.warshaw@bobit.com. No part of this article is intended as legal advice and should not be taken as such.
From F&I Showroom on the web at:
http://www.fi-magazine.com/article/story/2014/02/5-deal-saving-strategies.aspx?prestitial=1
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