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Building Blocks to Compliance: Central Valley Autos All-Around Success in F&I

A drought has quietly crossed the path of front-end gross profits in recent years. According to J.D. Powers and Associates, new vehicle sales in 2008 are expected to decline to their lowest point since 1995, roughly 12 million fewer unit sales than in 2007.

For Central Valley Automotive of Modesto, Calif., that means cupping their hands under the wellspring of F&I. “With our current market conditions, we’ve become more reliant on our F&I department,” said John Gardner, president and CEO. “Finance has become a tremendous profit center for us.” And yet, instead of swimming leisurely in their discovery, Central Valley Automotive – a shoulder-to-shoulder campus of four stores with seven brands (Infiniti, Chrysler, Jeep, Dodge, Volkswagen, Nissan and Hyundai) – has constructed reservoirs of training, refresher courses and compliance “blocks” that start before the deals have cooled and the next finance candidates are even hired.

Casey Fouts of Central Valley Nissan knows firsthand. Prior to going live in finance (he is currently the new car manager), Fouts spent one week in an off-campus F&I legal and ethical standards program, administered through JM&A Group, learning a myriad of current regulations.

Fouts, like the managers before him, next studied the “canon” of Central Valley Auto (CVA) finance—a 54-page manual of policies and procedures. Fouts was drilled, and then quizzed two to three times until he reached mastery of the F&I bedrock. Only then was he allowed to emerge from the locker room as an educated lineman, ready to play.

The Process
Central Valley Automotive has a way of good-naturedly rushing the customer into handshakes with most of their staff. “Our entire sales staff—at all four stores—is very quick to introduce the customer to the manager at that store,” shared Fouts. “And if there is not a vehicle at the Nissan store that fits the customer’s needs, our staff is very quick to take that customer to the store next door.” The sales staff will willingly escort the customer through CVA’s line of continuous stores, until he or she finds the right unit. “Always,” Fouts recited the ingrained mantra, “the customer comes first.”

After a match is made and the deal secured, the customer, still warm from all the interaction with sales, is introduced to the finance manager in the neutral environs of the showroom floor. The manager informally interviews the buyer, mentally preparing the best menu for the occasion.

All the while, in-between the daily episodes of selling F&I products the finance team is training and re-training in three areas: 1) legal compliance, 2) compliance in written processes (the menu, greeting of the customer, the showroom floor pre-interview) and 3) F&I product knowledge (how to sense what the customer needs and how to effectively respond to customer objections). The weekly junctions shift through California’s laws and ethical practices, building up the weak knowledge points, while re-oiling the strong points.

“All of our finance managers are cross-trained,” said Gardner, “and all of our finance offices are set up the same, in case we need to rotate our managers from one store to the next.” Fouts added, “Cross-training is probably our strongest attribute. It is very easy for a manager to jump from one store to another, to pick up a deal where the last manager left off, and meet the customer’s needs in a timely manner.”

Gardner feels that JM&A Group, whose roots are in retail, is strongest as a weekly trainer. “Our company was growing, and I wanted continuity with all stores,” he said. “I needed assistance, and [JM&A] came in at the right time.” Fouts summarized their training agenda: “There’s never really an end to training. You have to continue to learn and grow. Once you stop doing that, then you stop becoming more profitable.”

Keep in mind, the group that is learning together has the camaraderie of a large neighborhood block. Many of the managers started together on the front lines of sales. Together, they moved from sales to sales management, then to finance and eventually to the sales desk. The rapport is strong, and that sparks integrity throughout the stores’ uniform process. Plus, “…it really makes for a nice, friendly environment,” shared Fouts, confirming their slogan: “The Feel-Good Automotive Place.”

After the customer and finance manager are introduced to each other, they proceed to the F&I office, where the now-recognizable manager shows a catalog of customized F&I ‘gear’ To the customer who drives sparingly, perhaps a seven-year/100,000 mile warranty would suffice. To the frequent driver, the five-year/100,000 mile warranty may have more value. “The idea,” explained Gardner, “is to not let the customer feel jammed by all the products. We’re not selling just to sell. It’s better use of the customer’s money.”

The rise in negative equity among car buyers, Gardner noted, has increased their sales of GAP insurance. “Under the current market conditions, a large portion of our customers are financing negative equity,” he shared. “The trade-ins are at a lesser value, which means the customer may owe a little more on their car.”

The average negative equity for 2008, according to, is $4,305.05. Only five years ago, the average was $2,200. “Our customers are now even asking about GAP insurance, because they understand its value.”

Fouts said maintenance contracts (CVA has three packages to choose from) are just as popular among their customers. “We have a huge repeat customer base,” said Fouts, “and I think a lot of that comes from maintenance. A customer with a maintenance contract will spend the next three to four years of his vehicle’s life interacting with our service department.” With the service contract, much of their repairs and tune-ups are paid for. “It’s creating income, of course, but it’s also creating a level of trust and friendship with the customer.” CVA sells an average of two F&I products per customer.

The product sales don’t mark the end of transaction. “The way the customer is handled after the sale is very important,” added Fouts. Every morning, the sales staff, instead of heading to the lot and wandering for a catch, is given a computer-generated schedule of which customers need to be called. They are not simply lining up fresh appointments; they are calling customers about specific car accessories they may enjoy, strengths and weaknesses of their vehicle, and other models they may want to test-drive down the road. “We feel we have a great procedure for keeping our dealership at the on top of our customers’ minds.”

Compliance, meanwhile, is carving a thick line around all sides of every deal generated. At the front end, the sales staff is giving full disclosure in print of taxes, license, APR, etc. At the finance desk, there is a pricing and rate cap on all menu products, including maintenance contracts. “Finance and sales managers are not at will to change the pricing,” Gardner said. If files are temporarily perched on the manager’s desk, the manager must lock the door before exiting, even during business hours. Only store managers have sanction to get into the general office, and only by pressing the right code on a touch keypad.

The “Pass Block”
Beyond the access codes and menus, CVA is running complex plays to block any attempts to steal the compliance ball. Let’s say that a dangerous, non-compliant slip – we’ll call it the defensive tackle – has crept into the deal. JM&A Group, as the team’s run blocker, tracks down the error through regular deal audits, detects the error and drives it away. Meanwhile, another outside firm, Automotive Systems Analysis (ASA) of Folsom, Calif., double-teams with the run blocker by making visits on a quarterly basis. ASA takes random sales out of CVA’s jackets and reviews them alongside the most recent civil and vehicle codes. They also review the dealership’s advertising for compliance with federal and state laws. “We’re excessive when it comes to this,” Gardner commented.

The “Power Block”
On top of this, CVA uses one of its own employees to review each deal. Don Baker, former finance manager (and now balancing several roles at CVA), receives new deals funneled in from all four stores throughout the day, and checks them against a list of 15 to 20 of the store’s own compliance questions. For example: Does the deal match the bank’s stipulations? Has the customer’s identity been verified? If the car is used, was the vehicle history fully disclosed?

If the deal is correct, it is transported to the general office, where deal and contract are worked and launched over to the bank, all within the same day. If any deal reveals even a touch of non-compliance, it is rejected and immediately delivered back into the hands of the finance person for correction. Set, hit, recoil. “We audit our auditors,” noted Fouts, and by a large margin, they have scraped errors entirely off the field.
The trench work is ongoing, given California’s chameleon-like regulatory changes.   However, “With the help of Mr. Gardner,” noted Fouts, “and the policies and procedures set in place by JM&A, I have never really found ‘compliance challenges’ to be too much of a challenge. We are very proactive, which gives us a heads-up on all the laws and procedures coming out. When you are compliant, the challenge is really minimal.”

“I like to sleep at night,” Gardner added with a sincere chuckle, “so we have compliance on the front end and compliance on the back end. I want to make sure we are doing everything 100 percent the way we’re supposed to be doing it.”

Vol 5, Issue 8





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