Thought leaders from the agent and product provider segments debate the past, present, and near future of the F&I products industry and the many components that drive it. - Image by honglouwawa via Getty Images

Thought leaders from the agent and product provider segments debate the past, present, and near future of the F&I products industry and the many components that drive it.

Image by honglouwawa via Getty Images

It is no secret that the automotive industry is continually navigating through a world of new and evolving trends that encompass digital retailing to electric cars to mergers and acquisitions, and everything in between. However, one thing all our experts agreed on is that the industry needs to embrace the technological advances that play a part in all of these trends today, to stay connected with the consumers of tomorrow.

"If there is a consensus among our experts, it’s that staying up to date with the latest technologies and reinforcing F&I product offering and sales should be at the top of the list for anyone in the automotive industry looking to stay a step ahead of the competition."

Agent Entrepreneur spoke with 19 of the industry’s leading executives, agents, and product providers and asked them to assist with the task at hand. They shared their thoughts and advice as tools to be utilized as we make our way through the next decade of automotive retail.

TODAY’S TRENDS

We asked our participants what trends they would be keeping an eye on in the new year — for the auto industry as a whole and specifically within F&I. Although their responses covered a range of topics, there was one common factor that we heard about on more than one occasion.

“The trend toward a seamless online-to-instore consumer experience will continue and the ongoing transition to a more connected, digital experience will also continue to drive change across the entire dealership, including F&I,” said APCO Holdings’ chairman and CEO, Finbarr O’Neill.

O’Neill believes that finding ways to speed up the purchase process and increase transparency with new approaches will be critical for dealers in 2020 and beyond. “In any case, dealers will be forced to build better processes to meet consumer expectations, and we think that the one touch strategy (or a variant thereof) will make the most sense in most instances.” He recommends that dealers partner with an F&I provider who embraces forward-thinking sales strategies and provides sustainable training on these strategies. “Agents can bring a great deal of added value to their dealers by helping them along this path and thus helping them to improve profitability,” he added.

William H. Kelly, executive vice president of Automotive Development Group (div. Brown & Brown Dealer Services) will also be following the trends of digital retailing in 2020 and specifically how they can help dealers offer F&I products to their customers sooner in the process.

Strategic DX’s president, Steven Apicella, has seen smartphones transform the way most of us interact with the world today. “OEMs have raced to integrate smartphones into the vehicle, with wireless charging pads, Apple and Android integration and connected app services. However, leveraging these powerful devices to intuitively connect with today’s customer is severely past due for most F&I providers and their dealers,” he said.

Aware that the digital experience of owning F&I products is fast becoming a primary differentiator, surpassing features, benefits and price, Apicella said customers expect transparency and simple accessibility via a digitally supported platform, which isn’t limited to just the purchase of their vehicle.

“2020 will see new F&I leaders emerge that are driving new and previously abandoned revenue opportunities by winning on the battlefield of a digitally connected dealer/customer experience,” he added.

CNA National is continuing to watch the trends in online searching and sales, plus the consumer’s desire to access more sales-related data and information, according to Alan Miller, the company’s senior vice president of sales. “As a service contract provider, we are also tracking claims data that is showing an increase in average claim cost on new vehicles due to the electronic options such as sensors, cameras, and crash-avoidance devices.”

John Lutman, vice president of sales and head of the agent channel at IAS, believes that as a whole, we’ll continue to see more online sales and streamlined processes within the dealership to sell and finance vehicles online. “Dealerships will continue to evolve their F&I process. … Although traditional F&I departments will still be the majority, we will see an increase in nontraditional processes like sales personnel handling the entire sales process, including F&I,” he added.

Customer shopping and buying trends will continue to be a focus for NAE/NWAN in 2020, said David Neuenschwander, the company’s president. “The game has changed and customers have spoken. It’s up to the dealer body to respond and provide a buying experience that is demanded.”

Neuenschwander believes that, ultimately, this paradigm shift and a dealer’s ability to adopt will impact F&I. “F&I products provide value to customers and customers want the protection and coverage provided by the products. However,” he added, “if the sales experience does not meet expectations, selling products becomes more difficult.”

Reynolds and Reynolds’ director of compliance, Terrence J. O’Loughlin, has said that one of the great strengths of the automobile industry is its constancy: It is not prone to quick and fickle transubstantiation. “However,” he added, “technology does, indeed, fuel change and the automotive industry is not immune to technological innovation.”

According to O’Loughlin, the remedy lies in increasing applications of electronic commerce.

But it’s not just online shopping that is on our experts’ radars.

“We are carefully monitoring the growth and success of subscription services which are multiplying at a fast pace, especially for high end vehicles,” said Brent Griggs, president and CEO of Portfolio, where they are also tracking the speed of the move to online auto purchases that exclude auto dealers and the process changes in dealerships to speed up the selling process. Griggs noted his company is also taking steps to make their F&I products and services available to consumers that participate in the online buying process.

As a founding member of PRO Consulting, Craig Almon expects that we will continue to see the pendulum swing toward a stronger used vehicle market due to a huge supply of off lease inventory hitting the auctions. “New retail will continue to hold steady as long  as gas prices stay low and money is cheap,” he added. “And leasing continues to play a large role in moving new inventory.”

Continuing integration of technology into vehicles and the sales process; competition from OEMs both on telematics and connectivity and other F&I products; and loyalty-focused products that help dealers capture return service business in a flat or down retail sales market are all trends that National Auto Care’s CEO, Tony Wanderon, said the company will be keeping an eye on.

Lindsey Bird, Evolution Vehicle Protection by DentWizard’s division vice president, will be following the continued increase in dealer owned warranty companies as well as the consolidation and mergers of both service and F&I providers.

Also following the consolidation trends, COO Stan Starnes said Nobilis Group will be keenly interested in how venture capitalists seek investment opportunities in the automotive sector in 2020. “There has been a lot of consolidation over the past couple of years. If this trend continues through 2020, we believe it represents a healthy outlook toward the economics and growth in our sector.

“Conversely, less investment foreshadows a potential softening,” he added.

“As a whole, dealers continue to struggle with profits on new cars,” said ECP’s director, Brian Feldman. He recognizes this as a significant opportunity for the F&I industry to continue to offer products that consumers want and generate profits for dealers. He cited loan terms, balances, and delinquencies as key indicators of overall economic health dealers are tracking.

Also creating F&I profit opportunities are the concerns of consumers toward protecting the value of their vehicle and having the vehicle for longer periods of time due to the increased costs of the vehicle themselves. Mark Nagelvoort, PCMI’s president and CEO, realizes this and views it as “an excellent opportunity for the F&I industry given that our products enable a consumer to achieve these goals.”

AUL Corp.’s Jimmy Atkinson is most interested in the electric vehicle market and the disconnect between investment by manufacturers and customer demand. “When will the gap converge?” the company’s president and CEO asked. “… In addition to Tesla and Rivian, Ford, GM, Volvo, VW, Audi, and more are spending a lot of money in that sector. F&I products tend to be ‘evolution, not revolution,’ yet continue to bring solid value for consumers to protect themselves from everyday breakdown and other expenses.”

He said the growing popularity (and scrutiny) of alternative credit scoring models will be worth keeping an eye on. “If the financial institutions who buy deals from auto dealers can leverage an alternative credit scoring model, it very well could help some consumers either finance a vehicle or move up and buy a more ex- recompensive vehicle,” Atkinson added.

“We will be watching closely for a resolution as it relates to the negative impact to GAP sales from the Military Lending Act,” said Wise F&I President Matt Croak, referring to a U.S. Department of Defense interpretation that continues to restrict the sale of this key product to servicemembers.

Michael Tuno, president of ARMD Resource Group and World Class Dealer Services, will also be watching how multiple trends unfold — but brings the focus back to digital. “F&I will feel more pressure from the trend to provide consumers with the tools and information centered around the F&I process. Retailers and the entire food chain would be well served to avoid just throwing technology at the F&I process without improving the understanding of the needs of the consumer combing through data before making their buying decision,” he said.

Tuno’s advice for success is to improve the “road to the sale” for F&I so as to avoid making protection products a commodity and eliminating the margins for the entire F&I food chain.

TECHNOLOGY IN THE SPOTLIGHT

You may have picked up on the common theme by now … technology! As we move into the next decade, it is inevitable that the realm of automotive F&I will come face-to-face with a higher demand for the latest technologies. When asked if technology will play an import role in the year to come, the answer was clear.

“Absolutely,” said Lutman of IAS. “F&I technology is forever changing, as it should. This is the new norm for our industry.”

Automotive Development Group’s Kelly concurred, noting that the industry will see many technology updates in the F&I world in 2020. “We see advances every year, but 2020 will get us closer to a complete digital experience than we have currently. The customers want it and quite frankly so do the dealers. No one likes all the paper and no one likes having part digital and part paper, this will be a big year for innovation on the tech side of things.”

“The promise of a paperless process is still out there and may happen before fully autonomous vehicles!” said Atkinson of AUL, who said new ways of reaching consumers through video and mobile access can add transparency and product value earlier in the sales process, having a positive impact on product penetration.

On a similar note, ACE’s Van Over believes the greatest change will be the number of dealers who further embrace digital contracting, moving from pulp to ions.

“There has been shift over the past several years for all products to move to online platforms, especially with the copious amounts of form changes required due to every state changing their parameters on a whim’s notice,” said Classic’s Holcomb, who expects the trend to completely remove paper contracts from the administrator side will continue as the VSC sector has already accomplished that. “I think that the industry’s ability to create more interactive environments for customers, agents, dealers, lenders, and insurers to participate in the claims and cancelations process is ongoing.”

Wise F&I’s Croak predicts that there will be continued interest on the development of digital retailing solutions in terms of integrated models where dynamic content is also served up alongside rates and contracts. “The focus here,” he said, “is taking the F&I products that a dealer sells in the F&I office and making those same products also available online via a dealer’s retail website.”

ECP is seeing an increase in paperless transactions and transactions performed online and dealers are looking for ways to adapt new technologies to make the process easier for all involved. “I look forward to anything that makes it easier for the dealer and/or the customer to transact business with providers,” said Feldman. “There has been a lot of recent technology improvements and I expect the pace and offerings to increase.”

“When both dealers and consumers are embracing technological advances, we are bound to see an impact all through auto retail, including F&I,” said APCO’s O’Neill. “Everyone understands that consumers conduct online research ahead of vehicle purchases and it is not much of a stretch to say that this behavior will create more pressure toward completing the entire vehicle purchase transaction online.”

O’Neill is aware that this transition will take many years. However, as he put it, “No dealer wants to be the proverbial frog who does not notice the water getting warmer until it is too late.” So, while the transition to fully online transitions will take some time, he recommends dealers adjust how they engage with consumers in the store and embrace the changing customer expectations in the meantime.

Almon of PRO Consulting agrees. He believes that as the urgency to complete the entire finance transaction remotely grows, the practical ability to present and build value in finance products at a distance is paramount.

“Technology will continue to evolve, especially in the area of customer-focused offerings,” said CNA’s Miller. “Apps to make it easier to view contract coverage information, customer service technology, such as live chat features for consumers and dealership personnel, will become more available.” In addition, he added, technology to make the purchase experience easier and more consumer- friendly should enhance the buying experience.

“The impact of technology in the F&I sector will be most pronounced within the menu provider space as this area of the F&I technology space becomes central to supporting the push to aid both the consumer and the retailer improve the current flow of the customer inside of the dealership when buying a vehicle,” said Tuno of ARMD. “The current ‘silo’ effect that is too common inside of the retailer will be an area ripe for technology to support a positive change for the buying experience of the consumer so as to shorten the time to take delivery and provide a better buying experience for the consumer.”

NAC’s Wanderon predicts that technology will continue to be at the forefront of the push to streamline F&I processes and the car buying process and telematics-based solutions will give dealers a new avenue to communicate with relevant information and a customer experience that will drive more customers back to the selling dealer.

The automotive business is starting to catch up with the rest of the world in digital fluency. Starnes of Nobilis sees the increased utilization of econtracting and digital menu presentations as the future of F&I efficiency. “Further, new car retailers are adopting more sophisticated solutions for inventory management, wholesale loss control and their retail business development centers. … I think this will continue to expand and gain momentum in 2020 and beyond,” he added.

With these advancements the industry is seeing major changes with consumers demanding more transparency and dealers wanting support. “Based on the multitude of different ways consumers will be buying vehicles, F&I will have additional demands in relation to providing support to those tech platforms.,” said PCMI’s Nagelvoort. He noted that, 10 years ago, all they had to worry about was menus and today they have to support dealership accounting, service drive, menus, desking, DMS, and other CRM tools being used to communicate with the consumer.

Griggs of Portfolio sees that vehicles continue to be loaded with technological advancements that will make them safer (and more expensive) but also create the potential for more costly repairs. “I do not believe the movement toward fully autonomous vehicles will get much traction over the next five years given the complexity of the hurdles facing manufacturers,” he said. He predicts that electric vehicles will gain very little market share over the next five years but will be a force 15 to 20 years from now.

AutoNation recently reported record PVR numbers, leveraging in part their own branded F&I products. To that, Strategic DX’s Apicella pointed out that AutoNation doesn’t have access to better F&I providers or products than anyone else. “Their process of connecting their brand to their products is also not unprecedented, but it clearly works,” he said. “The major development for all dealers in 2020 is extending private branded F&I products to dealer branded customer experience. Digital transformation makes it possible for the dealer, dealer group and OEM to stay digitally connected to their customers after the point of sale, related to the private branded F&I products purchased.”

“Menus, tablets, mobile apps and devices are in place and will be modified to enhance the customer experience,” said Neuenschwander of NAE/NWAN. “The changes that we have already experienced will be enhanced and modified to meet today’s demand.”

BIG SELLERS IN F&I

F&I products are top of mind for everyone involved and many of our experts agree that 2020 will be another big year for a multitude of products, including VSCs, value-added and ancillary items, cybersecurity, and many more.

APCO’s O’Neill sees the big driver for F&I products being the consumers’ fear of unexpected vehicle repair expenses. He said this concern will allow dealers to offer more vehicle service contracts and related products. “When, according to some reports, over 60% of American consumers don’t have enough savings to cover an unexpected $500 car repair bill, one can easily understand how valuable a VSC can be for the average consumer.”

Apicella of Strategic DX spoke to a similar theme, that the F&I product’s value is in the eye of the beholder. He believes that F&I product features, benefits and price seem to have run its course. “New digital innovations will continue to transform these otherwise commoditized F&I products into hyper-relevant customer engagement solutions and customers are willing to pay more for a better experience, but that better experience isn’t a promise alone,” he said. He reiterated that customer service and customer experience are two different things. “F&I products that deliver both will be the big sellers in 2020.”

“I think 2020 will be the year of growing value-add products,” said PRO Consulting’s Almon. He listed key, dent, appearance protection — and other bundled products that consumers can use as a part of their normal driving habits — as the big hitters.

ARMD’s Tuno thinks the dealer branded CPO product space will remain a strong product offering for 2020 as consumers continue to value the price point these vehicles provide as an alternative to the escalating cost of new vehicles. “In addition, these types of products will help the dealers retain customers for service work that isn’t factory warranty work. Products that bring a retention element to the retailer for the consumer will remain key to the product success for all F&I products.”

Kelly with Automotive Development Group sees 2020 as another year of strong vehicle service contract sales, with the percentages continuing to go up on an annual basis and he thinks we will see them go up again in 2020. “In addition to service contract sales, I think chemical sales along with tire-and-wheel sales have the most opportunities. With the overall number of vehicles being sold staying consistent with 2019, or slightly better, the ancillary products will have to increase.”

Circling back to VSCs, AUL’s Atkinson said they still reign supreme as the best value proposition for the customer. “We are seeing dealers expand the use of CPO and limited warranties to differentiate their dealership and include maintenance and other offerings as a dealership sales package,” he said. Adding that they then wrap this coverage in the F&I office.

Miller of CNA anticipates that vehicle service contracts sales will continue to remain strong as evidenced by increasing levels of customer acceptance and added complexity in vehicle systems. “Ancillary products will continue to add value, especially with leased vehicles,” he said.

VSC and ancillary products to enable buyers to retain protection and value over a longer term are what Dent Wizard’s Bird listed as top sellers. “Expansion of online retail sales channels and finance products will continue to grow with these providers along with growth in the CPO channel,” he added.

“The core products continue to be very important for dealers and customers,” said Feldman of ECP. He included appearance protection programs, service contracts, GAP, and ancillary bundles in the list of products that continue to play an important role in protecting consumers while also generating revenue for dealers.

IAS’s Lutman thinks VSC and other traditional F&I products will remain the largest sellers because they provide value to the consumers who purchase them. “But,” he added, “we’ll begin to see some new products like GPS, depreciation protection products, and new tech products expanding or coming into the F&I arena.”

Neuenschwander of NAE/NWAN predicts that core F&I products will continue to be in demand and big sellers, with those core products being service contracts, GAP, tire-and-wheel and paintand- fabric. “Coverage for these products will need to change to keep up with vehicle and industry changes but the value provided and the average cost remain desirably affordable for today’s buyer,” he said.

“There will be niche products that gain traction in pockets and in geographic areas and more emphasis will be placed on ‘connected vehicle’ benefits for retention that are slowly gaining momentum.”

“VSC will continue to rule the roost as the dominant F&I product,” said Nobilis’ Starnes. “However, we are seeing steady and meaningful increases in the ancillary product space,” listing dent, interior and exterior chemical protection, and tire-and-wheel as examples.

Wanderon with NAC cited programs tailored to pre-owned vehicles and independent dealerships as a big seller. “As even superprime consumers opt for used vehicles over new due to rising prices, offering suitable protection products for those vehicles is critical for F&I,” he said. “In addition, I see telematics being a huge opportunity for F&I today, tomorrow and into the future.”

“We see continued strong demand and growth in all the F&I products, given that consumers are expressing interest in keeping their vehicles longer as well as protecting these long-term investments,” said PCMI’s Nagelvoort.

Wise F&I’s Croak said the company foresees diminished value protection contract production numbers increasing in 2020 and beyond. With a growing acceptance by both regulators and lenders, we are certain that diminished value protection will be at the top of the F&I menu in the future,” he added.

Voluntary protection products will continue to be pivotal for F&I product sales success, according to O’Loughlin of Reynolds and Reynolds. “Technological features in new vehicles will require a greater need for service contract coverage. For example, key fob coverage sales should increase along with more sophisticated service contract coverage.”

Portfolio’s Griggs thinks products that protect the consumer from expensive end of lease charges will continue to be very popular as auto leasing continues to become more commonplace. “Auto maintenance products will also continue their high growth trend because of the consumer value and value to dealers because of improved customer satisfaction and retention,” he added.

If there is a consensus among our experts, it’s that staying up to date with the latest technologies and reinforcing F&I product offering and sales should be at the top of the list for anyone in the automotive industry looking to stay a step ahead of the competition.

Read: Empower F&I and Turn Up Profits!

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