Among the highlights of the most recent P&A Leadership Summit was “Presenting F&I Products Online,” a panel discussion convened to discuss whether and how F&I products should be introduced and sold to car buyers on dealership or provider websites.

Kumar Kathinokkula, COO of F&I Administration Solutions, served as moderator. He was joined by Justin Gasman, finance director at McCaddon Cadillac Buick GMC in Boulder, Colo.; Daniel Lievrouw, vice president of operations and IT for American Guardian Warranty Services (AGWS); Matt Nowicki, IAS’s vice president of retail software; Brett Pomerantz, director of product for digital retailing at Cox Automotive; and Mark Thorpe, president of The Impact Group.

Statistics and Risks

Kathinokkula opened the discussion by quoting statistics from one of the many recent surveys that appear to show car buyers would respond positively to the opportunity to complete the entire sales and financing transaction online.

“Seventy-two percent of customers would consider going through the entire process online,” Kathinokkula said. “And yet 56% of them say they would miss the test-driving part, and nearly 88% would want to buy a car without test-driving it first. So they’re a conflicted bunch.”

Knowing those numbers, and acknowledging that companies such as Carvana, Vroom and Beepi are working toward a fully online transaction, Kathinokkula asked, are online F&I sales inevitable?

In response, Gasman drew a hard line between complementary technology, such as introductory web pages and videos, and replacement technology, which would likely significantly reduce his role at the dealership.

“We’re moving away from the belly-to-belly sales environment, and everybody thinks that having an iPad is going to suddenly change how we sell products,” Gasman said. “And while I’m not against technology, I don’t think that taking the process and moving it online is going to be good for our industry.”

Offering F&I products online or allowing customers to self-select at the dealership could drive up penetration rates for some stores, Gasman added, but he predicted dealers who already employ trained, productive F&I teams would see their gross profits plummet. He pointed out that F&I managers aren’t in the car business; they are in the people business. He believes trying to remove the human element is a recipe for reduced sales and reduced profits.

Pomerantz agreed, saying that “pushing an iPad across the desk and asking the customer to pick the products they want” should not replace the consultative approach taken in F&I offices today. But he does believe car buyers will be more likely to buy F&I products if they are introduced to them while they are researching vehicles online before they visit a dealership.

“There’s a segment of consumers that go into the business office right now and just say, flat out, ‘No,’ and they’re not even listening to the consultative approach that an F&I manager might give,” Pomerantz said.

Kathinokkula noted that a wide-ranging survey conducted by Pomerantz’s company found 71% of recent car buyers would be more likely to buy an F&I product if they had learned about it before entering the F&I office. Knowing that, he asked Lievrouw, should providers take the lead in posting more consumer-facing product information?

The answer is “Yes,” Lievrouw said, but he drew the line at pricing, saying the addition of that information would hurt smaller dealer groups, which represent most of his company’s clientele. “They can’t compete with the big dealers if you’re disclosing every single piece of the transaction.”

“You know, we’re trying to put customers into a box,” Nowicki said. “‘You’re either going to come to the store and buy or you’re going to buy online.’ And I think the smartest dealers are going to have to be able to approach both those scenarios.”

Nowicki brought up the example of Apple Care, a protection product iPhone and iPad buyers can self-select in the closing stages of an online or instore purchase. With a show of hands, Nowicki asked the crowd whether they owned an iPhone, whether they bought Apple Care, and whether they bought the coverage because an Apple representative aggressively sold them on it. At the end, few hands were raised.

“Exactly. So there are different ways warranties can be sold,” Nowicki said.

Referring to Kathinokkula’s initial premise, Thorpe said he does not believe online F&I is inevitable.

“I think what is inevitable is that retail customers, for generations, have told us the same thing, and that is that they hate the car-buying experience,” Thorpe said. “They hate the F&I experience. They even hate taking their cars in to be serviced. They don’t like anything about the automotive industry.” He wondered aloud whether the push toward digital F&I was solving a problem that has yet to be defined with a solution that might not improve the customer experience.

“Is there really a risk, though, if the consumers want to buy, and if there’s a fundamental value to the product?” Kathinokkula asked.

“If we game this out, if we’ve got a customer who goes online, who sees presentations on service contracts or GAP or tire-and-wheel, who may or may not have some disclosure with respect to pricing, and then they come into the F&I department, and the toothpaste is out of the tube,” Thorpe said, adding that, if the customer feels they have already made an informed decision, the F&I manager has nowhere to go. “If you never get an opportunity to even discuss it with the customer because they’ve already made their mind up, that’s what’s at risk.”

The panel agreed that, ideally, dealers and providers should offer enough information about F&I products to entice those who see value in the products without undercutting the efforts of F&I managers who are trained to demonstrate that value to customers.

“There’s nothing wrong with information, and in this day and age, the idea we’re going to hide this stuff is crazy,” Gasman said. “It’s how we delicately manage what we give them. ‘Tell me more, I want the price.’ Well, how are you going to do that when you’ve got 75 different service contract options, with terms and years and deductibles, disappearing deductibles and levels of coverage?”

“While there seem to be risks, and Justin pointed those out quite eloquently, is there a risk to not doing it?” Kathinokkula asked.

“I do think we have to continue to evolve toward a model where we have a customer environment in which the customer is comfortable and they’re being informed and educated and they’re given the opportunity to accept or decline,” Thorpe said. “I just don’t see the possibility that they’re going to self-close.”

Pomerantz disagreed. He brought up the Amazon model, noting that consumers frequently use that service to purchase products and accessories they hadn’t previously considered.

“Most people don’t always buy the product they’re looking for. They compare prices. They break down the features and benefits. And a lot of Amazon sales come through other things you might also like while you’re buying,” Pomerantz said. “And I think that’s a pretty good model for us to think about in the car-buying experience.”

Consumers are going to the dealership to buy a car, not a warranty, Pomerantz added, but if you have the right information, presented the right way — be it via a live person or with technology — many will opt to add coverage.

Pomerantz further argued that, as several panelists pointed out earlier in the session, the pool of talented F&I managers is steadily shrinking. Those who are left are being asked to handle more customers than ever before. Technology allows providers and dealers to close the gap, so that educated consumers will walk in the door already open to the products, making the F&I manager’s job much easier, and allowing them to more painlessly — and quickly — move through the process, while maintaining the same or better rates of penetration.

“But they won’t say ‘Yes’ if we don’t ask them to,” Gasman said. “We have to have a better selling plan than their buying plan.”

Lievrouw pointed out that digitizing processes is often discussed in terms of a generational shift, but he doesn’t believe that’s an accurate reflection of their appeal. “It’s situational,” he said, pointing out that, in 1999, he bought a Jeep online through Autobytel. At the time, with young kids, he did so to save time, and it remains his best car-buying experience.

“Was it the best F&I experience?” Pomerantz asked.

“It’s one of the best buying experiences I’ve had,” Lievrouw replied.

“Did you buy a service contract?”

“Absolutely not.”

The Human Factor

To whatever degree, if any, the F&I process moves online, the panel agreed, it should not be wedged into the spot currently occupied by the F&I office, where relationship selling remains the most effective method.

“When you’re in the showroom process, that relationship is one of the most important things you have for going through the steps of the sale,” Pomerantz said. “It’s not like technology has killed that. Social media is at an all-time high because people crave the relationships they have with other people that have like-minded interests.”

“It comes back to moving our industry to online, and to me, that’s not really the question,” stressed Nowicki. “It’s how you respond to the customers that want to buy that way. Because it’s two totally different things.” No one, he said, wants to completely get rid of F&I managers, but everyone should be interested in making useful information available to every customer, no matter where they choose to engage.

Lievrouw cited statistics he pulled from a dealer group he works with. They found their average customer spends 10 hours shopping online before they buy a car, and 46% of them would be willing to finance online.

“But of all their customers, only about 15% of them would actually be willing to do a purchase online.” That’s not a huge share of the market, Lievrouw said, but neither is it a group whose business you just want to toss away. “I think you do have to acknowledge there is that 15%, and next year, it’s going to be 18%, and the year after that, it will be 22%. It’s going to happen.”

Kathinokkula closed the session by noting that online sales has already happened with every other type of product, so dealers and providers would be wise to consider its appeal to car buyers.

“You can’t ignore it,” Kathinokkula said. “Either we’re going to look at the signs and address it, or we’re not. But it’s going to happen. And we can’t let fear stop us from doing that.”