The FTC has been increasingly focused on dealership sales practices, likely emphasized by the record profits many dealers are realizing in the current economic environment. The agency’s most recent efforts have centered around protecting consumers against undisclosed fees and charges, embodied in a proposed rule promulgated under the Dodd-Frank act.
The rule is meant to drive truth and transparency in the car-buying process and end hidden add-on charges when consumers are shopping for a vehicle.
While on their face these requirements seem like basic standards of doing good business, requirements around implementation and proof of compliance may lead to significant changes in the sales process.
Disclosures and Consent
The proposed rule directly addresses add-on products (meaning any product or service sold to the consumer, which was not installed by the manufacturer, including F&I products) in several ways.
Before selling an add-on product, the dealer must disclose the offering price of the vehicle without the product and have the customer decline the purchase in writing, including the time, date, and customer’s signature.
If the sale is being financed, the dealer must go through the same process again, disclosing the cash price of the vehicle and the separate finance charges excluding the add-on product.
To sell an add-on product, the dealer must obtain the customer’s express informed consent in a written and oral disclosure.
Finally, the dealer cannot sell an add-on product that would have no benefit to the consumer, such as a GAP contract where the consumer’s loan does not qualify for coverage.
The rule is very specific about how disclosures must be made, how written consent is obtained, and how long the dealer must retain records of compliance (24 months). A dealer that cannot prove the required disclosures were made and consents were obtained faces stiff repercussions.
The Cost of Compliance
These requirements would compel dealers to maintain several new categories of documents beyond what is typically required today. In practice, a dealer attempting to strictly comply with the rule will likely need to implement a robust software solution into the sales process to track and preserve proof of compliance that would be required.
Sourcing and implementing a solution for compliance may require a large investment for dealers, particularly having legal counsel vet the technology, subscribing to the service, issuing handheld devices to dealership staff, and paying for data storage for years.
Dealers should begin doing their diligence on these issues now in order to be ahead of the game in the likely event that the rule is enacted later in the year.
Andrew Seger is the chief legal officer for Portfolio, a leading provider of reinsurance and F&I programs and products.
September starts off with a long weekend to recognize many of the individuals who built this great country… The Laborers! The holiday is rooted in the late nineteenth century, when labor activists pushed for a federal holiday to recognize the many contributions workers have made to America’s strength, prosperity, and well-being. Without the efforts of the millions of American laborers, we certainly wouldn’t be the country we are today. Although the jobs being performed may look different today, it is still the labor force that keeps this country moving forward.
To learn more about the history of Labor Day click here.
ADS has some great events planned and some exciting news…
The Greater Cleveland Auto Dealers Association and Advanced Dealer Solutionsare teaming up to offer dealers F&I Training and Development
In the month of August, The GCADA announced ADS as the Preferred Provider for F&I Training and Development and awarded them the coveted GCADA approved badge!
Words from GCADA
‘We look forward to providing our members with a comprehensive resource for F&I training and development.’
Words from ADS
‘At ADS we are proud to offer dealers an unbiased approach to their F&I decision-making process.’ – stated Ryan Nelson, EVP of ADS ‘There are so many options for dealers today it sometimes becomes difficult to discern what is best for their specific and unique business. ADS enjoys the opportunity to present dealers with a variety of options which are all catered around exceeding the dealer’s goals and objectives.’ Nelson added.
‘We were impressed with the amount of due diligence the GCADA performed on our team, sales process, training platform, and the relationships we have with our dealers.’ – says Bob Mancuso President of ADS ‘To be awarded the Preferred Provided status for F&I Training & Development validates what we have been doing for our dealers over the last eight years.’ Mancuso went on to say.
About GCADA
The Greater Cleveland Automobile Dealers’ Association (GCADA), represents over 265 new motor vehicle dealerships in a 21-county region of Northern Ohio, including franchised new car and truck, motorcycle, and recreational vehicle (RV) dealers. GCADA provides products, programs, and services to its members and produces the Cleveland Auto Show.
About ADS
Advanced Dealer Solutions is a premier dealer development agency specializing in F&I training and development, product structure, and reinsurance management.
Gina Cocking is the CEO of Colonnade Advisors and represents the 2% of women who are CEOs at financial institutions. She brings 20+ years of experience in investment banking and executive leadership to the table including experience as a CFO in multiple companies.
When Gina was recently interviewed by Ryan Nelson of the Advanced Principles Podcast, Ryan asked Gina what advice she might have for other women looking to enter the competitive and male-dominated industries like automotive, technology, and investment banking.
Gina (23:00)
“I think 15 years from now, 20 years from now, the guys better watch out. Women are going to college at a higher rate than men. Something like 60 to 65 percent of the incoming college class is female.”
The pandemic was extremely challenging to the women’s leadership movement. With schools closed and much of the infrastructure for working women disrupted, many families had to make tough decisions and compromises. Homeschooling became the norm, and many women had to shift their schedules.
So what is Gina’s top advice for women that want to make it to the top echelon of the career ladder?
Gina: (28:00):
Marry well. And I don’t mean marry wealthy.
Find a partner who supports you, who gets that your career is just as important as his career.
Throughout your lives together, know that you’re going to have to make trade-offs. There are some things that are not going to be fun, but you do them together.
If your partner supports you, you can get through it. It’s important that your partner does not feel like their career path is more important. That is the number one key to success.
About the podcast episode featuring Gina Cocking
Advanced Dealer Solutions is a premier F&I development agency specializing in the automotive, RV, and powersports industries. Advanced Dealer Solutions works to maximize the purchasing experience as well as increase F&I sales and profits as well as increase service sales and retention.
Advanced Dealer Solutions has assembled one of the most sought-after F&I training platforms in the industry. We have a passion for increasing dealer profits by providing industry-leading technology and implementing an F&I selling system that is guaranteed to elevate performance. Advanced Dealer Solutions is driven to provide dealers with products and solutions that result in increased production, profitability, customer retention, and most importantly, customer satisfaction.
Advanced Principles Podcast was created to be an outlet for like-minded individuals to share in the broader conversations on leadership, retail market updates, and incredible success stories.
Colonnade Advisors has deep experience in the automotive dealership services industry. Please see the pre-event interview series here for more information about Colonnade in the industry, M&A drivers, and more.
Colonnade Securities is a leading investment banking firm that has completed over $9 billion in M&A transactions for clients in the business and financial services industries.
We are delighted to announce Advanced Dealer Solutions was presented the 2021 Agency Growth Award from Axiom Product Administration. We were able to spend some time working with part of the Axiom team learning about different product updates and going through processes. We also found ourselves taking some time to get to know each other a little better through friendly and competitive gaming.
It is hard to believe we are already in the month of August! The recent heat waves across the country surely reminded everyone we are in the dog days of summer! Hopefully, everyone was able to find some comfort near a pool, lake or in the comfort of their air-conditioned home.
ADS is excited to make a few big announcements…
View our newsletter to see all the exciting things happening soon!
This weekends celebration of America comes at a time when we may need to celebrate the birth of our independence and unity more so than in years past.
The courage our Founding Fathers showed 246 years ago by forging ahead for what they believed in, as a better and more equal way for Americans to live and prosper, leaves us awestruck and inspired still to this day. Their courage and resilience continues to pay dividends for all of us fortunate enough to live in this amazing country.
Although much has changed over the last quarter of a millennium in terms of technology, social norms, communication, etc., the core tenants and beliefs the Founding Fathers fought for are still relevant, alive and vibrant today.
God Bless America!
We hope you all have a safe and enjoyable weekend!
Ryan Nelson interviewed Colonnade Advisors CEO and Managing Director Gina Cocking on Advanced Principles Podcast. Colonnade Advisor’s provided a summary of the first episode together to hit the highlights of the conversation.
This interview highlights the important role that Colonnade Advisors plays for their clients when they embark on the process of selling their company, raising capital, or seeking to acquire another company.
Colonnade Advisors has deep experience in the automotive dealership services industry. They publish Quarterly Updates on the Auto F&I sector with information on dealer profitability and recent transactions.
In this most recent interview, Gina and Ryan cover the following questions:
What makes Colonnade unique as an Investment Bank/Advisor? (6:00)
How Colonnade Advisors brings specific value to the transaction process (13:00)
What is the difference between a Private Equity firm and an Investment Bank? (15:00)
How the pandemic created shifts in the auto industry and auto-related M&A (20:00)
What makes Colonnade unique as an Investment Bank/Advisor? (6:00)
Their focus is on industry dynamics, business models, valuation metrics, accounting issues, and participants. They maintain a dialogue within their extensive network of owners, investors, and buyers in their target sectors.
Gina:Our focus goes back over decades. In the early 2000s, we worked with Mepco on its sale to Independent Bank. Mepco had two lines of business: 1) insurance premium finance and 2) vehicle service contract (VSC) finance. We worked closely with Mepco on both lines of business to create a successful outcome for their owners and team.
We became experts in the insurance premium finance industry and the leading advisor on transactions in this space. We are the leading investment bank in the United States in insurance premium finance. We’ve done 28 transactions in the insurance premium finance industry.
Through our work with the team at Mepco, we also got to know the vehicle service contract (VSC) space. After a decade of working with our clients at Mepco and Independent Bank, we assisted with the sale of Mepco’spayment processing business to Seabury Capital Group.
We also work with finance companies in the automotive sector: subprime lenders, near-prime lenders. We closed a transaction last fall for OpenRoad Lending, a direct-to-consumer marketer of auto loan refinancing.
We’ve been doing a lot in auto finance. This has taken us into data analytics, especially on the direct-to-consumer side. Direct-to-consumer marketing is all about data and data analytics. We have now worked with a number of data analytics companies and marketing companies associated with the automotive space.
How Colonnade Advisors brings specific value to the transaction process (13:00)
Gina: We have pattern recognition, and we’re rarely surprised.
Every transaction’s different. There’s always something new. When things are new and different, we have the skill set to navigate the situation.
What differentiates us from our competitors in this space is the tenure, institutional knowledge, and experience of our senior bankers.
At other Investment Banks, team members float through the different groups. They don’t stay long enough to develop industry and institutional knowledge. Their junior teams turn over. More importantly, they don’t have anything but transactional experience.
What is the difference between a Private Equity firm and an Investment Bank? (15:00)
Gina: The Private Equity (PE) firms have a pool of capital to invest in one or more companies. Their goal is to become the owner of a company. They’ll negotiate and buy a company so that the company is then part of their portfolio, which they’ll eventually sell and hope to make two to three times their money.
Most private equity folks have gone through investment banking at some point in their careers. What’s different about what they do is that they’re managing other people’s money.
In investment banking, we are advisors on either the buy-side or the sell-side. Sometimes I’ve had people say, “Well, you’re kind of like a real estate agent.” My answer: “Not really.” There are business brokers that are more like real estate agents, however.
We are there to work with the (client) company side-by-side. If they’re selling, we help them prepare for the sale and go through the process. That includes getting to know the company so well that we can tell their story almost as well as they can. We help them to articulate their story: Where they have been, where they are today, and where they’re going.
We then prepare written documentation, called a Confidential Information Memorandum (CIM). We identify the potential buyer universe. We contact those buyers. We negotiate with buyers. We answer all their questions. We deal with thousands of documents in the data room.
We negotiate the terms of the transaction. We work closely with the attorneys on all the transaction documentation. We’ll provide our industry perspective and our business knowledge, but we’re not attorneys. We help get the deal to close. One of the important things is we keep the deal on task. It’s all about not letting people lose focus, keeping the deal going, and getting it to close.
In investment banking, we are paid a success fee upon the close of the transaction. Whereas a private equity firm is buying the company (and gets paid on the subsequent sale of the company after growing its value).
How the pandemic created shifts in the auto industry and auto-related M&A (20:00)
Gina: Everybody freaked out in the Spring of 2020. But we’ve worked with some visionary companies where we’ve been able to create some fantastic win-wins.
We had a deal that was supposed to close at the end of March 2020. The buyer put it on hold but worked with us to restructure the deal with an earnout. The transaction closed, the seller hit all their earnouts, and it was a fabulous deal for all.
Let’s talk specifically about the Auto F&I side: administrators and agencies. While everyone dipped in the spring of 2020, performance improved in the second half of the year, and then 2021 was a fantastic year. This was not as predicted, considering the supply chain issues. Fewer cars were being sold.
Why the fantastic year? The dealers are hyper-focused on making money when they can. The dealerships realized that F&I is uber important to the long-term profitability of the dealership. Dealers are selling more F&I products with every car. That has benefited the administrators.
Consumers have also had great experiences with these products. They’ve had claims paid out on their vehicle service contracts. They’re telling their family and neighbors, “It’s really a good product.” We have finally seen the maturity in the F&I industry that this is a peace of mind product. It’s not just a product that a dealership is trying to push onto a consumer; it’s a valuable product.
2022 has been a great year for Administrators. The dealerships are profitable, and they’re also getting better at selling products. We’ve started a new phase.
Colonnade Securities is a leading investment banking firm that has completed over $9 billion in M&A transactions for clients in the business and financial services industries.
Advanced Dealer Solutions is a full-service, dealer development agency focused on automotive, RV, and powersports dealers across the United States. Please contact 844-320-3722 or [email protected] for any inquiries.
We hope everyone had a safe and enjoyable Memorial Day Weekend and found time to honor and recognize all who have, and are serving this great country of ours!
The more things change, the more they stay the same…
Another month has come and gone and it feels like the story of the last year and a half just continues to repeat itself.
– Inventory concerns, check. – Staffing issues, check. – EV adoption rate questions, check. – Inflations concerns, check. – Industry consolidation, check – Global/social unrest, yep, check that one as well!
Dealers persevering and finding ways to win, CHECK, CHECK and CHECK!
The month of May brings us to the eve of summer, and later this month, many Americans will celebrate Memorial Day with friends and family around a lake, at a barbecue or watching a parade.
For a huge swath of the country that endured a long, cold, wet winter, summer cannot come soon enough and hopefully May brings us the sunshine and warmth we have been anxiously awaiting since late October 2021.
Typically the warmer weather and sunshine bring increased vehicle sales. Summer sales, new model introductions, etc. all lead to more customers purchasing new, or new to them, vehicles. Although most dealers are still dealing with little to no inventory, there have been some signs of improvement. Many questions remain about what the new normal will be, and when we will all settle into it. For now, dealers continue to enjoy demand outweighing supply.
With increased volume, specifically F&I production, means dealers are generating more F&I reserve dollars than ever before. And for many dealers, participation in their F&I underwriting profit, or reinsurance, is seen as a retirement plan, or a method to generate capital to help fund their business. We have worked with too many dealers through our careers who are placed into structures that are clearly not the best option for them and their goals. Please take a moment to read through the article on navigating the myriad of options available to dealers today.
And last, but not certainly not least, Happy Mothers Day to all the amazing and wonderful mothers in each of our lives.
To read our full newsletter follow the link https://mailchi.mp/advdealer.com/may-newsletter
