Dual Purposes: Deconstructing the Modern Menu

At April’s Midwest Compliance Summit in Chicago, dealers, executives and attorneys gathered to discuss and debate best practices for front-end compliance and the regulatory pressures brought by federal regulators, including the Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB), as well as state attorneys general and consumer advocates.

Throughout the day-long slate of featured presentations, panel discussions and Q&A sessions, the F&I menu came up again and again. In the vast majority of cases, it was described as a compliance measure — one that preceded the current economic climate by more than a decade.

This comes as no surprise to Ken Tomaro, president and CEO of OptionSoft Technologies, who enjoyed a successful tenure on the retail side before founding his Clifton Park, N.Y.-based dealer software provider.

“When I started the business in 2003, we sold it as a compliance tool. We sold a lot of ‘fear’ back then,” Tomaro recalls. “Then we would say, ‘And as an added benefit, you’re going to sell more product.’ Now the emphasis is more on product sales and less on compliance. … In the end, it will do both, whether it’s my menu or someone else’s menu. You can be compliant and still sell.”

P&A magazine sat down with Tomaro, Jim Maxim Jr. of MaximTrak, Brian Reed of Intersection Technologies and F&I Express, and The Impact Group’s Mark Thorpe to discuss the evolution of the menu as a sales and compliance tool, advancements in the technology, including new and upcoming functionality, and how the segment will serve agents and dealers as the sales and F&I process adapts to a changing world.

Performance and Risk Management

Jim Maxim Jr., who serves as president and CEO of Wayne, Pa.-based MaximTrak, says that, although compliance may no longer be its main selling point, the menu’s utility as a dealership safeguard cannot be understated.

“Truth in Lending and Regulation Z are all covered, for the most part, and it also addresses selling products to consumers in a consistent manner, because all the customers get to see all the products on every deal,” Maxim says. “And for dealers who worry about the CFPB targeting F&I products, we offer the ability to control prices.”

With a compliant menu-driven process in place, he adds, production will follow. “A transparent process always leads to more selling. The issue with sales is getting F&I managers to offer every product to every customer. You increase the odds that every customer sees every product and will buy one. For that reason alone, you’re going to see an increase in performance.”

Brian Reed cautions, however, that a menu alone is not going to solve all compliance issues.

“One of the other benefits of a menu is compliance, but as with F&I production, a menu by itself will not solve a dealer’s issues from a compliance standpoint,” says the president and CEO of Southlake, Texas-based Intersection Technologies and F&I Express. “Dealers really need to have a comprehensive strategy for the management of the F&I office that takes into account the production, the profitability and compliance, as well as overall CSI. A dealer who does not see the long-term value of the customer by returning to the dealership for future purchases is missing out on a big opportunity.”

The menu, in fact, is a tool that can be used to bridge the gap between consumer and dealer, which closes both the sales and compliance gaps at the same time.

“I’ve frankly never liked the term ‘menu’ because [it] is just one element of an overall highly flexible and customizable sales process,” notes Mark Thorpe, president and CEO of The Impact Group in Washington, D.C. “The ‘Protection Options’ screen in our solution is used to create a more shared experience between the F&I manager and customer. It fundamentally changes the dynamic between the parties enabling the customer to view the F&I manager less as a sales threat and more of a guide or navigator through a very customer-centric process.”

Quality and Accountability

Our experts agree that getting F&I managers to present 100% of their products to 100% of customers 100% of the time — a key element to a compliant and productive process — remains a constant challenge for dealers and agents. The menu is specifically designed to reinforce that mandate, but few believe it is being followed with any great degree of consistency.

“I think the vast majority of dealerships use a menu 90% of the time for 90% of the customers,” says Reed. “That is where accountability tools in the menu that provide reporting are important.”

“I think the enforcement is going down,” agrees Tomaro. “Things are going well, dealers are making money, everyone’s busy. But I can tell you that the larger dealer groups are buttoned down. Same for the larger, better agencies. They’re going through their process and their flow.”

“I’d have to say the good dealers, yes, the bad dealers, no,” Maxim says. “It might be a 50/50 or a 60/40 split. I think it is improving. I think the level of F&I awareness, in the past 10 years, has improved. They know dealers cannot be profitable without production from the F&I department. Most dealers pay attention to F&I profits per vehicle sold.”

For Thorpe, the menu in and of itself was never the answer to this problem.

“If you’re using an old-school paper menu, it’s virtually impossible to accomplish,” he says. “Because the F&I manager is forced to do all the heavy lifting in their product presentations, either they or the customer will run out of steam by the end of the second presentation, and the effort and quality of the discussion on the remaining products will suffer. The solution is in having a shared, dynamic experience for the customer where they become open to getting more information on more coverage and can use that to make better informed decisions — without feeling like they are being pushed into a sale.”

Making the menu more flexible is, the experts agree, one of the better ways to improve the entire process. The first step to that is finding ways to make the menu itself fit the needs of the F&I manager, rather than trying to create a great piece of software that doesn’t necessarily address the real-world scenarios dealers face every day.

“Provider flexibility is the key,” Thorpe says. “The important element here is user adoption. You don’t get high rates of adoption without the ability to tailor the process to the individual user’s preferences. One-size-fits-all approaches are too limiting and have become outdated.”

That flexibility, however, has to come in how the products are presented and packaged, not in which products get offered, Tomaro says. “F&I managers have strengths and weaknesses. We all do. I think they should have some flexibility in the order in which they are presented, but, ultimately, the dealer is responsible for which products are sold.”

But flexibility in presentation isn’t the only way menus will continue to adapt. Maxim, for one, believes that tablet technologies and self-serve situations will both be important factors in the F&I presentation of the future.

“I think the idea of online F&I and self-service is going to be growing,” he says. “It’s not going to cannibalize the majority of F&I business. I don’t want to say F&I will be automated; I don’t think that’s going to happen anytime soon. I think you will see customers going through an online F&I process that’s more self-driven. And that could happen on a tablet, especially for small dealerships. … Internationally, a self-service model is almost imperative because many dealerships don’t have full-time business managers.”

“I would expect that the industry will figure out how to incorporate the tablet into the process, but I don’t believe it will be as a primary delivery device for F&I product presentations,” Thorpe notes. “I do believe that we will see a substantial consensus develop regarding electronic signatures and remittance capabilities, all through the F&I technology. Finally, I think that those providers who are holding onto their more static menu offerings will be forced to adopt a more interactive approach. Customers demand it.”

Reed agrees, stressing that the universal adoption of econtracting will drive the proper use of menus. His company has committed to building a platform through which dealers can econtract products of any kind, from any provider. Part of the reason he is driving his software in that direction, he notes, is that he has started to integrate more F&I offices into their dealer websites, offering products upfront, with real-time ratings, pricing and coverage levels.

“This is where the market is going,” Reed says.

Competitive Advantage

So what sets today’s menu providers apart? It’s clear that no two menu systems are the same, and agents and dealers have a wealth of options to choose from.

“We’ve been in the market for 12 years,” says Maxim. “Our system is a process-driven technology solution. Because it makes the F&I manger’s life easier — because it’s fast and efficient — performance is key. Our system is bulletproof, and most menu companies are not offering the training and support we offer. Another critical area is driving new technologies to market. FLITE is unlike anything else in the F&I office; we launched it at Agent Summit. That platform really changes the game. Makes it a highly interactive sales presentation. And we’re the only menu company that’s going into seven new countries this year.”

“Simply stated, we’ve built our solution through the eyes of the F&I manager and their customer; not through the eyes of a software developer who has never worked a day in retail,” Thorpe says. “Every design decision we make is with the user experience foremost in mind. As a result, the flow of the process is efficient and streamlined allowing for higher profits, more control of the customer interaction and shorter transaction times.

“Other elements or capabilities of our process put the power of specially designed risk exposure tools in the hands of the user, and enable every user to be their very best every day on every deal,” Thorpe adds. “We’ve created a tool that makes the F&I manager’s day-to-day life easier and leads to what we’re calling ‘Predictive F&I.’ By using the vast array of capabilities within the solution and by having the ability to analyze the use of the solution compared to the actual penetration and gross profit results, we can help the F&I manager determine their easiest and most reliable path to success on every product type they’re offering.”

“Ours is typically faster than everyone else’s,” notes Tomaro. “Some of that is because the program is PC-based, so the underlying calculations are PC-based. There’s no ‘refresh’ like you would see with an Internet-based product. If the dealership’s Internet goes down, the F&I manager can still create a menu for the next customer and print it. That speed is something we really hang our hats on.

“Also — and this might sound crazy — but our payments match. I did a presentation for a large group that is currently using a competitor. They said, ‘Our provider says a $4 or $5 variance is an acceptable range.’ I have heard that, and figured somebody didn’t want to figure out the taxes. I just assume they were telling me other providers don’t match the payments, maybe they’re too small to get the big guy to do something for them. But this was a big group. A $4 variance is just weird.”

“F&I Express is not a menu company, but powers various menu companies as well as providing dealers a tool for econtracting 100% of their F&I products,” Reed says. “Most menu companies only have the ability to econtract some products of some providers. If there is a provider that does not have certain technology, most menu companies cannot econtract those products. F&I Express provides econtracting for providers regardless of their technology platform and allows the dealer to go to one place to get access to econtract all their products. In fact, today, the majority of the business comes from dealerships where they are using a menu where they sell the products, and then come into F&I Express to contract and very often remit the contracts to either the agent or the provider.”

The Menu of Tomorrow

One interesting point that all our experts agreed upon is that the provider market has a very wide range of menu options available right now. And while dealers have been slow to fully embrace the ideals of the menu — and, in some cases, hold their F&I managers accountable for those ideals — the fact is that the vast majority of individual dealers and auto groups today are using some sort of menu presentation system. Providers are growing by conversions, not by opening up new markets.

For the menu, that means a shift from constant new players in the game to consolidation of some of the smaller companies into larger operations, continued improvements to the products on the market and fewer opportunities for new players with no established foothold in the dealer or agent market.

“The menu business is not profitable unless you have scale,” Maxim notes. “It’s a low-cost item for the dealer. I think some will go away, some will get bought out and some will get better.”

“You don’t have to be a rocket scientist to build a menu,” says Tomaro. “There are enough examples of that in the market — borrowing, copying, whatever you want to call it. But from a revenue standpoint, the start-up menu company would have a difficult time getting into the market. Certification is expensive. Plus you have to go and knock on all those doors. There are so many of us who are already embedded. It’s not like 40% of the market is untapped.”

“We change with the industry,” Tomaro says. “In the next few years, I think we’re going to see a major change in the buying process. Some dealers want to allow customers to start deals online. … How do we, as F&I providers, protect the process and protect customers’ personal, private data — especially when the customer isn’t present?”

Ultimately, Reed says, the focus will remain on helping dealers provide a better customer experience while at the same time increasing the bottom line. And the menu is just one aspect of that process, with options for every dealer’s individual idea of the right direction.

“All menu companies will evolve based on the needs of the market. Dealers will change as well. There will be menus that come and go, but there will always be various menu companies offering their products to dealers with a number of big menu companies and a larger number of small and medium-size companies in the market.”

“It’s a very competitive and relationship-driven space, just like everything else in our business,” Thorpe says. “But it’s also becoming dramatically more complicated, and it requires a high degree of technical skill to innovate and support a large user base. In the end, I think there will be tiered groups of providers, just like with the DMS companies, and the price/functionality balance will continue to be important.”