While you may not consider yourselves underdogs, I assure you, you all have similar qualities and characteristics of great underdogs and have great underdog stories. Both you and your agencies experience victories and possess a relentless competitive nature. The very fabric of your existence comes from your ability to rise up to improbable circumstances. You believe in, and motivate ordinary people around you to reach goals unimagined. You continue to forge through challenges and believe that great moments are born from great opportunity. From the beginning of your agency, to this very moment, you compete against some of the largest companies in our country, many with a self-serving mission of dealer acquisition and product sales. Thankfully, this lack of substance and these self-serving maneuvers are exposed and mostly unappreciated by dealers.
Additionally, you compete against high brand recognition, unlimited financial resources and human capital, and competitors, who in many instances only have control of one facet of a dealers business – may it be a captive finance arm, floor plan provider, vehicle distributor, or necessities like a garage keeper or open lot policies. And the ultimate weapon of all - that off balance sheet loan provider.
You are challenged to compete with these giants of industry every day with very limited human and marketing capitol, little to no brand recognition and no control what so ever of your target audience’s business, the dealer. If someone were to bet on who would win this game - our competitors or us as independent agents - who would be the underdog and what would the odds be?
As independent agencies face these overwhelming odds. With only their weapons of knowledge, their commitments to their skill, their faith in their ability and their belief in their products and their providers, they have started to chart the course for removing one of our competitors from the dealership. They are starting down the path that will lead their dealer to unrealized profits in his organization
One of the greatest underdog stories of all time is the story of David and Goliath. Young David went to battle with only his extraordinary skill and 5 stones for ammunition. An experienced slinger like David could kill his target from 200 yards – 2 football fields! He had only courage and faith in his great ability to take on the giant Goliath. Like David, you take on the giants of our industry every day with only your faith and your belief in your extraordinary skills – your training abilities, income development, and your reinsurance knowledge. Just like David, you go to battle with your stones of ammunition - our product providers.
Like the story of David and Goliath, our story looks like competition between large and small. Ultimately this story teaches us that giants are not what they think they are. The same qualities that give them strength are often the source of their great weakness. This story and every other great under dog story require us to ask a question. What if we, as underdogs, didn’t exist? If the odds are so overwhelming against us, why do we even show up?
In 1980, why did the US Hockey team even show up to take on the all-star level Russian hockey team, only to defeat them, and a few days later go on to win the gold medal? And this past year, why did Auburn even show up to take on Alabama, only to result in the greatest last play in college sports history as the under dogs defeated Alabama Crimson Tide.
We all know about rejection. After being rejected by publishers 14 times, what motivated writer J.K. Rowling to forge through her challenges and rejection to ultimately become the most successful and revered writer of our time with her Harry Potter series?
Let’s imagine automotive dealers without us. What if the independent agent model didn’t exist? Think about the treatment of our dealers by the manufacturers in the past. Not too long ago, a Ford dealer would sell a F-150 pick up truck and at the time, they had the opportunity to sell accessories – step bumpers, sliding rear windows, aluminum wheels, bedliners, and so on. Today, these type of up-front profit opportunities have been converted from our dealers, to a revenue and profit opportunity for the factory. And this manufacturer over reach didn’t stop with accessories.
When our industry stumbled due to troubled underwriters in the past, they went in for the kill. They aggressively raised service contract rates in another self-serving attempt to add revenue to their bottom line. The manufacturers are still in an embryonic stage of reinsurance. Only recently have they become more aggressive with this opportunity for our dealers. This is for obvious reasons – a loss of market share. Otherwise, they were the ones realizing underwriting profits and investment income - not the dealer.
Today our dealers are faced with constant factory intervention and demands adding increased pressure and deteriorating profit to their bottom lines. More than ever, in this post-bankruptcy era of the automotive industry, your dealers are relying on the deliverables of your agency. It is you and your providers that provide the financial strength, the wealth building opportunities, income development and product opportunity. All of this results in profitability to your dealerships’ financial statement and their reinsurance positions. Our message is clear - the automotive industry without independent agents and our committed providers would be all about the factory. But the industry with independent general agents is all about the dealer.
Not only are you and your agency a great underdog story in the largest industry in America today, but you are also a great survival story. You have survived an industry not without its challenges. In the early 90’s, manufacturers advertised to dealers that doing business with an independent service contract provider was a high risk arena to play in.
I have been an independent general agent for going on 20 years now and I still catch myself apologizing for the great marketers of independent providers of the past – names like General, American, ESP. Characters like The Delta Group, Omni and even names like: Shafiq, Yamagada, Joe, Barry, Jay, Sandra, Susan. The first thing I learned in the car business is, the more you apologize, the more it costs you.
The greatest survival story of all was in Las Vegas, Nevada in April 2008. This was my first glimpse of the economic meltdown ahead. I was fortunate to do business with one of the largest dealerships in town.. They did 600 plus new and used units a month, and had 4500 - 5000 repair orders going through service. Usually when walking into this dealership, it was like walking onto the floor of the New York Stock Exchange – intensity and activity would have been an understatement. But on this particular visit, it was absolutely dead. All the energy was completely taken out of this organization. It had begun. Depression set in with my F&I producers. Two of the five were not even showing up for work at all. This was ground zero for the economic disaster that was shortly to unveil itself to the rest of the country. Months prior, everybody in this town was a real estate expert. On the dealer level, mechanics, service providers, office personnel, F&I producers, sales people - everybody was flipping real estate. Then it all started to unravel.
I remember this particular visit because I went from being an agent when I walked in the door that morning, to being a psychiatrist by the end of the day. It was the beginning of the timeline that we are all familiar with. Initially there was a statement made by 1 of the big 3 executives, that the troubled auto industry was only due to the troubled economic turmoil and the housing bubble, while they remained oblivious to the storm forming ahead.
What we learned was that the bigger issues were about to be unveiled. Mismanagement was at the forefront of the automotive crisis and was no different than what happened with Bernie Madoff - it took a financial crisis to expose it. Everyone was hearing names like Paulson, Geitner, Gardelli, Mulally, Gettlefinger, and words like bailout, merger, bankruptcy, and collapse. Everyone was talking about things like pension funds, union ownership, private jets, and turn-around plans. Headlines read “The Worst Third Quarter Sales Results.” NYSE closed below 9000 and was on its way to 8000 on the DOW. Quotes like, “Research showed that the consumer would not feel comfortable buying a vehicle from a bankrupt manufacturer” became commonplace. And then we were challenged to survive the elimination of 2000 dealers, creating a red sea of opportunity.
Unlike the manufacturers, when our industry had challenging times, we as general agents supported dealerships and were cheering them on. We have all gone through the pain of troubled providers and know that when any company in the industry experiences tough times, it affects us all. These companies advertised in the early 90’s that they would be there for the long haul. How ironic! But when asked by a dealer why he should do business with my agency and not the factory or a direct provider, my answer was, “ I really will be there for the long haul.” You see, the success of our agencies is only measured by our dealers’ success. It is not dictated by a nameplate or comingled necessities. Employees of our competitors will come and go but we WILL be there for the long haul. I am blessed to say that I still do business with dealers who have been with me since I founded my agency. And I am sure a lot of you can say the same thing.
There is one particular dealer that I am extremely fortunate to do business with. He is not only a genius, but is an extraordinary man of honor and integrity. Should you ever be fortunate enough to sit in front of this dealer, you will see a quote that he keeps on his desk. It is a very simple quote that says, “Do the right thing.”
I believe agents have survived these challenging times because they have not abandoned their principles. You have stayed true to your beliefs and you are the protectors of “the right thing.” You are here today because you and your agency have survived the largest economic crisis in this industry ever. After taking on this challenge, we as agents have worked smarter and leaner. We have embraced creativity and technology, all of which have resulted in a thriving business. Despite the challenges of the past with our symbiotic relationship with the dealers and the actual vehicle itself, we both have experienced some prosperous times these past few years. But I believe your agency is thriving because you have all the ingredients of being a pro.
There are four ingredients of being a pro. The first is focus. Anytime you ever view a professional at work, he is totally focused on his goals and objectives and the people around him. The second ingredient is consistency. A professional is not only consistent at performance, but is consistent in his benchmarks. He is consistent with his interaction with others. The third is education; the day you feel as if you know everything in your profession or field, your luster as a professional fades away.
The last ingredient is commitment and it is truly a necessary ingredient in being a pro. You not only need to be committed to all 3 of the other ingredients, you need to be committed to what you do for a living, and be proud of it.
So how do these 4 ingredients relate to being an agent? It’s pretty easy. You are focused on your dealers’ and your clients’ profitability and you never lose focus on the needs of his or her business.
When the industry acknowledges dealers’ choice awards, for trainers, service contract providers, and insurance providers, or the Bobit organization recognizes F&I dealers of the year, it is consistently the independent agents and our independent providers who rise to the top. If you are here today, then it is a testament to the fact that you continue to educate yourself and your dealers about the best solutions for their business and you are committed to being the best at all aspects of your profession. I commend you all. You possess all 4 of the key ingredients and you practice them daily without even trying. There is one other thing that all professionals have in common. They make whatever they do look easy. It’s like they aren’t even trying.
I believe that when your business is thriving, it is because when you were going through tough times, you went on offense. It would have been easy for you to go on defense, but you didn’t. All of this resulted in a thriving agency.
It would be narcissistic, egotistical and just plain rude if I didn’t take time to recognize these product providers and their employees. Without them, our businesses would not have survived and our businesses would not be thriving. They entered rough waters right along with us. They unfortunately experienced the loss of revenue, and no relief of their expenses. The companies who have survived the great downturn should be rewarded by us, as general agents, with a solid commitment and a spirit to grow their business as well as their own. They are our weapons of strength in taking on our largest competitors in the automotive industry. Without them, we would not be thriving; and we would not survive.
With our businesses now thriving, we must always learn from the past and identify the challenges on the horizon so we can prepare for them, instead of reacting to them. There are some headwinds coming on that are potential challenges for agents and our dealers.
Without taking a “the sky is falling” approach, I believe that one of the challenges we will face in the not-so-distant future is the unavoidable increase of interest rates. History has a way of repeating itself and I am a product of the car business in the eighties. It was hard selling cars at 18% and 19% and financing them. Although we may not see the rise in rates to these levels in the near future, we almost know with certainty, that even moderate rate adjustments will have an effect on the industry’s growth. With the low interest rates of the past decade, our products have been more affordable to the consumer than ever before. With loan rates at zero percent, 1.9%, or even 3 or 4% over terms of 60 - 72 months, this provided our F&I providers attractive payment real estate and gave the consumers product affordability.
Increased rates will have a big impact on our dealers’ cost of doing business. Anytime dealers experience this increased cost, history tells us they do one of two things: they either cut expenses or find other areas of revenue. You as independent agents should be watching these rates diligently and maintain open dialogue with your dealers. Prepare now to help them find revenue opportunities to soften the impact when this occurs.
Another factor that is occurring already is the ascent of leasing and the resurgence of subprime. While we approach the peak of pent up demand in the marketplace, again, we can reflect on our past to predict our future. Once inventory levels increase over 90 days and then close in on 120 days supply, increased incentives and subvented rates always seem to be the predictable solution for manufacturers to maintain market share.
According to JD Power, lease penetration levels are at the highest penetration level on the record. They represent 26.5% of retail sales for February 2014. The previous record was set back in May 2000, at 26%. Based off of new vehicle sales - which are predicted to be over 16 million units this year - leases will represent over 4 million of the vehicle transactions for the year. Our challenge will be to deliver to our dealers products that are specific to the lease transaction.
How about subprime? It seems like a daily occurrence to read about a new lender entering into this special section of the financing arena. Peter Turek, automotive vice president, Transunion said, “We expect the share of nonprime, high risk loan originators to continue upwards due to growth of creditors in this segment.” The resurgence of subprime financing will present challenges for the general agent community, either through the captive finance arm, promoting private label products, or the practice of limiting back end opportunities for our F&I departments, due to risk measures instituted by these lenders. This will continue to be a challenge.
According to Equifax, approximately 30% of all auto financing that originated in November fell into the subprime category. This area also creates challenges for our business and if not addressed, will continue to chip away at the growth of our agencies.
Finally, there is the restriction of trade - from lending institution to manufacturer coercion. While lenders have come under increased scrutiny due to alleged discriminatory lending practices in the indirect auto loan segment, I believe that the application of the over-advanced policy for private label products, and captive finance are issues that need to be openly discussed and addressed. Tactics used by captive lending institutions, by allowing additional over-advance of their private label products, results in the consumer paying millions more annually on installment loans, absent of the additional value of their competitors – us.
Obviously, recent probes into the lending institution practices did not dig deep enough to discover the restriction of trade practice by manufacturers and others. The time is now, for us and our product providers, to work together in eliminating this unfair industry trade practice. As independent agencies, we enjoy competing with large institutions daily – as long as we are competing on a level playing field. With the focus of profitability of your agencies, these challenges have a direct effect on the per-unit generated by your business to thrive in the future. I am well aware of the regulatory and compliance issues, and I believe that our agencies have continually put the protection of our dealers at the forefront of our business. Unfortunately, the lack of transparency and the wafer thin explanation of the intended goals by the governmental agencies and the far reaching legal descriptions, such as disparate impact, has not provided the lenders and our dealers a true opportunity to put corrective measures in place. As general agents we need to stay diligent and keep providing our dealers with solid solutions in compliance. We must stay focused on what we know and can control in this area for our dealers.
I believe your attitude is what sets you apart and makes you and your agency part of the greatest underdog story as well as great survivors of the automotive industry. With most of you also being professional trainers, we know there are things we cannot teach. We cannot teach passion – you either have it or you don’t. We cannot teach drive – you are either driven to be successful or you aren’t. We cannot teach character – you are either of good character or bad. And, we cannot teach attitude – you either have a great attitude or you don’t. But I do believe we can change attitudes and I am a believer in the power of words. Consider the words “have” and “get.” When you work for big companies, like the factories or the direct provider, you have to get up at 4 am to make that dealer appointment across the state at 9 am. But when you are an independent agent, you get to get up at 4 am to make that dealer appointment across the state.
In closing, I leave you with one final underdog story. If you lived in Denver for the recent Super Bowl, you would have wondered why the underdog Seahawks even showed up. They showed up all right, and it resulted in one of the most lopsided victories in Super Bowl history. The 5’11 quarter back, Russell Wilson had doubters at every stage of his career, but he always kept the faith. He asked his teammates, early on in the season, to believe the Super Bowl was within their reach and he repeated a profound statement his father had said years earlier in his career, “Why not me? Why not us?”
So next time you pull up to that dealer prospect who is selling the competitor, you need to ask yourself “Why not me? Why not us?”