Safe-Guard Products International

How did you become involved in the Lease Return/Excess Wear & Tear category?

We recognize that products are sold three ways: cash, lease and finance. And there are different dynamics to leasing, such as shorter terms of ownership, and consumers who are looking for gas-and-go type options. We build products to help protect customers against cost of ownership, and for leases, that includes what happens at the end of the lease and what are they responsible for. It all started with asking ourselves, “What if we build a product that can protect consumers against excess wear and tear charges?”

What makes your product different from others on the market? How do you differentiate it?

The differences may be seemingly minor, but they are important. To start, our product covers lost items. We also cover up to $5,000 of excess wear and tear charges, where many others cover $2,500 or less, and we have a product that has zero deductible as an option, which most companies don’t offer.

Finally, we have a program that allows a customer to turn their vehicle in 12 months before or after the expiration date of lease. A lot of others are 90 days before or 90 days after; for some customers, it’s time to turn the car in, but they want to wait for next year model. A lot of finance companies will offer to extend the lease 6 months, so the customer does that, turns the car in, and discovers that excess wear and tear is not covered because it expired. These are options, but we make it available so customers can enhance their coverage.

For example, if I’m at a GM store, they have an aggressive pull-ahead program, to get people out of their leases earlier. They tell customers to come into the dealership and turn in the vehicle and they can put them in a new one for x-amount per month. If a dealer has this pull-ahead program, and sold a lease wear & tear product that only has a 90-day window, it won’t cover excess wear and tear charges so customers can’t take advantage of the offer. That dealer can choose to offer all lease customers the 12 month window, because they know in advance they want to get their customers out of the lease early.

The $5,000 benefit is also an advantage - if most dealers only have $2,500 max benefit, that’s a selling point for leasing with that dealer. And there are no piece-of-mind issues – we are owned by Goldman Sachs, and we have a process to help with claims, as well as a mobile technology solution. These are all benefits that add up to why choose Safe-Guard over someone else.

What is your primary sales channel? How do you market to that channel?

We have three sales channels, almost equal in size. One is the agent channel, which is very robust, and offers income development expertise others cannot. Second is direct to dealers, but only if they’re above a certain size - at least 20 rooftops in certain states. Third is our OEM channel. We provide the administrative services for lease wear and tear for a number of OEMs. And we have client services teams for each channel that support each of our partners on a day to day basis.

Safe-Guard has built our reputation and built our business on great customer service. When you deliver strong products with great service, people talk about it. And this is a small industry. The OEMs, agents and national dealers talk to each other. At the end of the day, our best source of referrals are our current customers - don’t ask Safe-Guard, ask our customers!

When I look at our ad budget, most of it goes to print or trade shows such as NADA, Agent Summit and Industry Summit . But when I think about how we market from a B to B perspective, a lot of it is just word of mouth. People in our industry talk to each other, ask about products, experiences and partners. I’m not bragging when I tell you we do 95 different OEM products for a dozen OEMs; if you take everyone else, it doesn’t add up to what we do. And we didn’t get that business with a fancy ad. It was really about our second OEM calling the first, and they said we were great, and then third called the first two, and so on – it was like a big snowball rolling down the hill. We will continue doing the things we’re doing to get these types of referrals and references.

How has technology impacted Lease Return/Excess Wear & Tear in the last year, if at all? Do you see it having an impact in the future? Why or why not?

There are differences in turn-in policy; for example, Mercedes-Benz has gone to an iPad turn in policy when you turn in your lease, but I don’t know that it’s affected the Lease Wear & Tear product. It does allow for a better customer experience at time of turn in, which is what we’re really striving for. Another benefit is that some product charges were integrated with OEM, so it’s a seamless transaction – customers don’t have to wait to get a bill and then we reimburse them – with some OEMs, it’s integrated, so they tell the customer that the charges would have been XYZ, but because you purchased the excess use program, those have been waived. No earth-shaking technology that’s changed our product though.

When you think through what’s in a car, and what you can get charged for, that has changed. Things like bi-xenon headlights or a radio and navigation system that could be $3,000-$5,000 to replace; if a customer turns in a car with a navigation system that’s not working and out of warranty, that’s a customer charge, and that’s expensive. So some of the tech embedded in cars today is very expensive, and on leases, dealers have to make sure everything is working and if not will charge the customer. Our program covers those items; it covers anything that’s an excess use charge with exception of mileage.

I definitely do think technology will impact us in the future, however. There are mobile apps we’re developing now that will allow for a lease excess wear and use claim to be submitted much faster. For example, sometimes inspection is required; we get a $4,000 claim, we want to send an inspector, and that can take days. But there can be a mobile app on an iPad or iPhone or Android device whereby which you can verify coverage, scan the VIN to populate the information, then say submit claim, take a few pictures of the damage and mileage, and submit it. In the remote instances that we ask for an inspector – which is less than 5% of the time – we can eliminate needing to have an inspector come out by use of a smart phone. We have those apps for tire and wheel and prepaid maintenance, and we are building them for other products, including excess wear and tear.

In your opinion, where is the greatest growth potential for the Lease Return/Excess Wear & Tear category?

We’ve doubled leasing in last few years; it’s up to 28% of transactions, and I don’t see that number doing anything except getting larger. When you think of some of the challenges of car sales in the future, one of them is that our youngest generations aren’t as excited about buying an automobile as past generations. They are either foregoing autos altogether, or keeping cars much longer. OEMs have the incentive to put more people in short-term leases to turn over customers into new vehicles in shorter timespans. So OEMs will continue to offer more incentives for customers to lease, and we as an F&I product company need to continue to build products specifically designed for leasing customers.

Is there anything you would like to add?

Most importantly, Safe-Guard has different products for different buyers. When we think about leasing from an F&I perspective, most leases are short term, and most autos come with 3-4 year factory warranties. So right away, it is extremely difficult for an F&I manager to sell extended vehicle service contracts (VSC) to lease customers. We see average penetration of VSCs on finance of more than 50%. That drops to under 10% on lease deals. So there is a significant amount of potential revenue now not available on lease customers. In addition, almost every captive finance company offers free GAP on a lease, which means the F&I manager doesn’t have ability to sell and profit from a GAP product, either. Take those two into question, and F&I manager is really at a disadvantage – they can’t sell their number one or two products. So we have to look at other products to offer to this lease customer to maintain same profit levels.

The concentration needs to be on other products like excess wear and tear, prepaid maintenance, tire and wheel and bundled products that have appearance protection, etc. in them. These are all products F&I managers can be focused on with lease customers sitting in front of them. There are certain perils of ownership, and F&I managers should offer products to help protect them. The perils aren’t the same for a lease customer, who won’t be out of warranty when they turn the car in so they don’t need a VSC, and the peril isn’t GAP, but they still have perils, such as if they hit a pothole, or when they turn it in and have $3,000 of excess wear, or get a door ding in the parking lot, or a rock hits the windshield, etc. These all apply to lease customers, and those are products a finance manager should be offering.

The dynamics of a lease customer are different, so F&I managers have got to be flexible and customize offerings to this customer. There are some manufacturers already at 50% or better lease penetration, and some parts of the country where penetrations are as high as 75-80%. So it is very possible it will be up to a 40% national average, I think as soon as in the next 2-3 years. I want Safe-Guard to be prepared it if happens, and be ahead of the curve.