The banks are tightening up, your near-prime and subprime sources have all but dried up. Interest rates are still high.

You were so proud of yourself last year when you knocked that deal out of the ballpark with $10,000 over MSRP with 84 months financing. Of course that wasn’t a sale, it was a wedding. I hope they don’t try to trade it in before 2029. The average transaction price of a vehicle purchase is now $45,106, that’s up from $33,118, up more than $8,000 in less than five years.

“Come on Ziegler,” the headline to this article said something about ‘How Dealers Can Be Profitable’, and all you’re giving us is bad news. Where’s the information on how to be profitable?”

Okay Impatient Reader! I’m getting to that but first, before I get to it, there’s more …

Coming out of the Pandemic, followed by the chip shortage that lead to an inventory shortage, the manufacturers didn’t learn a damn thing, did they?

The number one problem facing dealerships today is the Affordability Crisis. The manufacturers are adept at sidestepping the blame and shifting away from the blame but as Forrest Gump told Little Jenny on the school bus, “Stupid is as stupid does.”

The EV Issue

Even after the dust settled from post-pandemic, post-inventory shortage, the manufacturers continued to send to dealers vehicles with $70,000—$100,000+ MSRP that were loaded with expensive options.

They have collectively lost billions building expensive electric vehicles that nobody was buying. Now, dealerships have Cadillac Lyrics, Ford Lightnings, and Mercedes EQS, sitting on their lots with weeds growing under them.

In the meantime, the average car on the road is now more than 14 years old. Of course, the manufacturers will say that’s because the quality is better—I’ll say it’s because nobody is buying new ones, especially EVs.

They Still Don’t Learn

Even the poster boy of EV sales, Tesla, is having huge price cuts—the Tesla priced at $135,000 last year is not selling for $85,000. Now that Hertz is dumping all of it’s used Teslas, some used model 3s are listing on the Hertz Sale sheet for a 70% depreciation price after only one year.

So, If you bought and own a Tesla, you have no idea just how deep under water you might actually be. But believe me, it’s substantially more than you were anticipating back when you were smarter than the rest of us.

I’ll quote you just the headline that appeared on an article in one of the news magazines in automotive recently: “Farley: Small Affordable EVs a Must For Ford.”

In my personal opinion, I feel that mentality is epidemic amongst all of the manufacturers. I’d have been standing here in my underwear cheering out loud if that headline had read “Farley: Small Affordable Cars a Must for Ford.” They just don’t learn.

Affordability Crisis 

And now the Consumer Financial Protection Bureau (CFPB) is on the streets, fining lenders, credit bureaus and, of course, car dealers.

Tight credit, an overabundance of upside customers, high interest rates, lenders withdrawing from the market, and the affordability crisis raging; all of these factors make it harder and harder to put a deal together. Plus, you have a majority of your sales professionals and managers being inexperienced due to joining the business before the pandemic.

This is what the CFPB is looking for and your dealer is likely to attract a fine that could go into the hundreds of thousands. The harder it gets to put a deal together, the more pressure your employees are under, and the more likely the possibility they’re going to cheat to put the deals together—falsifying credit applications and ‘Power-Booking’ is off the charts.

The Importance of F&I Department

And, as usual, the manufacturers are shaking their heads with righteous indignation as if they had no fault or blame in creating this situation.

“SO, what’s the answer Ziegler? We’ve been waiting patiently as you showed us what the problems are?”

The only way you’re going to survive and prosper with multiple crisis’ storming is to call in the cavalry. That’s right, as they have done for more than 50 years, you’re going to have to call on the F&I Department to save you again.

They’ve done it before, and they can do it again, if … and I do mean ‘IF’… if the dealer does the right thing and dedicates the time, authority, and investment, to get it done.

Transforming Your Sales Force

I am about to itemize the checklist the dealer needs to religiously follow to turn your sales force into Seal Team 7. Now, you know there’s going to be a lot of armchair philosophers who are going to dispute what I am about to tell you.

At the head of the line are going to be the manufacturer’s executives. If you listen to any of them, you deserve whatever is about to happen to you in the next few years. Excuse me, they’re the ones that created the problems and the ones who are keeping it up. If you’re listening to the manufacturers I advise you to sell the store now.

Next, there’s going to be advice coming from the other trainers and industry experts. I have a substantial record for consulting dealerships to achieve the Big Numbers in an ethical and legally compliant way. There are some trainers out there today who are criminals that invented the same tactics you want to avoid, others with no more than Facebook credentials. Pick one and only one advisor, trainer, or consultant and follow their advice without interference from any others.

Thirdly, the F&I vendors that sell the service contracts and the GAP and other protection products you use, they had their shot right? Some of these people are extremely competent and they’re friends of mine. You can only listen to one of us. I respect their right to be wrong.

Ziegler’s Rules

If you’re going to follow my formula here, there are several rules:

• · Zero Deviation;
• · Zero Defects; and
• · Zero Tolerance for deviation or defects.

First of all, ‘Train you F&I Managers.’ That’s right, invest whatever is necessary to send them to school. If your vendor has a school, that’s great—I teach one and there are several other trainers out there.

Give the F&I Department the ‘authority’ to do their job. An F&I manager is a manager, not a clerk, and certainly not the sales manager’s secretary.

Being a manager is a title of dignity, authority and respect. When I draw up an organizational chart, the Finance Manager is equal to the Sales Manager. If your F&I Manager can’t handle that, then why did you hire somebody that doesn’t have management aptitude?

F&I is a ‘Sales Job’ for someone with a sales mindset. A great F&I Manager will stand down the Sales Manager when they’re right and the GSM will back them up.

Leasing Goals

Right now, about 25% of new vehicle sales are leases. That is disproportionately heavy in imports, and certain parts of the country have a lot more leases than others.

Your goal should be upwards of 50%. Even if you don’t hit it, that’s the number you’re shooting for. Make it an attractive part of their pay plan for sales representatives and managers. If they hit the number, then bonuses for everyone.

Remember, a pay plan is a job description and nobody else in the dealership works their pay plan as good as the F&I Managers.

Credit Interview

Perfect the consumer credit counseling interview. Now, I’m not talking about the “How Many Miles Do You Drive?” type of interview some vendor taught you. I’m talking about structuring deals the right way with the lenders.

Mr. or Mrs. Dealer, if I was you or your GM, nobody would call the credit supervisor to rehash a deal except the F&I Director. Never a desk manager. When you allow desk managers to call the lenders, that encourages bad behavior and perhaps even illegal activity.

I want the F&I Department trained to rehash a deal, and we should be using information from an interview to get the deal bought with the fewest restrictions and conditions. Unfortunately, almost nobody is trained, and the vendor schools aren’t teaching this.

Credit Challenges

So many managers just dump the deal into Route One or Dealertrack and accept whatever call back they get with rehashing or studying the application to get the best approval. Worse yet, the desk manager is submitting the deal before anybody does a credit interview.

Your first call back is usually your best callback. If the customer’s credit score is an automatic approval that’s one thing. But with delinquencies and repossessions climbing higher and higher, more customers today have ‘Credit Challenges’ than ever. We need to structure the deals before we submit it to the credit software.

Remember this too, the CFPB is looking for what might appear to be discriminatory practices or deceptive trade practices.

Where to Make a Profit

Right now, I’m going to stir up a hornets’ nest. In the past, many F&I Managers made all of their money with high interest rate spreads. Today, I’m going to tell you to limit rate profit and sell service contracts, maintenance packages and GAP protection (when it is justifiable).

My plan is for dealers to ‘private label’ service contracts and maintenance agreements. Never-ever, not in a billion-million years, would I ever private label GAP policies, nor would I ever private label a service contract on an EV Vehicle.

A few years ago I leased an Audi Q7, 2019 model. A year and one-half later, during the chip shortage, I found out that I had a profit opportunity to sell it back to the dealer.

So, when I sold it back to the dealership, I cancelled my Maintenance Agreement. I was shocked when the dealer informed me that the Audi Brand Maintenance Agreement was non-cancellable. I wouldn’t get any money back on the $1,700 or so I had paid for one oil change.

It wasn’t cancellable nor transferable, it was ‘poof’—gone. The vendor, or in this case the manufacturer, keeps all of the excess money.

Believe it or not, this happens a high percentage of the time because the customer trades in the car before the maintenance agreement expires, total wreck, or any number of unforeseen circumstances. If this were a private label Maintenance Agreement, then the dealer, with absolute zero liability or loss, keeps all of the money, a substantial amount.

Maintenance Agreements 

The other great thing about a private label Maintenance Agreement is that the dealer can stipulate that the customer must have the maintenance work done in your own shop if they continue to live in the area. When you sell the manufacturers, or even most vendor backed agreements, they can elect to have the work done anywhere there’s a dealership.

The other thing I mentioned is a ‘private label’ extended service contract. We can project costs, exposure, and liability accurately these days, so the service contract business is extremely profitable (not on EVs).

But there’s one other profitability similar to the Maintenance Agreement, even though the ESC is cancellable, even when the customer has traded in the car or sold it, there is a high number of customers that never go back to the original dealer to get the refund, and many lenders don’t compute it.

Theoretically, the dealer and the service contract company split the money excess. But once again, if that is a private label, guess who controls it (even though you never knew they no longer owned the car, you righteously assumed it went out to expiration).

Dealer 20 Advantages

Avoiding legal problems is a major part of your longer-term profitability strategy. You can go for years without a problem. You can be extremely profitable but then, yes, but all of a sudden you discover that one salesperson or one manager, or even several of them, gets criminally creative falsifying documents, signing customers’ signatures, or bribing a lender. You should have known. Maybe you can’t even prove that you didn’t know. Worse yet, maybe you did know but you assumed it wasn’t that bad.

My suggestion is that you make your policy known in writing and signed by everyone. The first time you have any incident involving anything even remotely resembling this, it’s immediate termination with a bad reference. No hedging, no second chance, even though it was a long-term employee and you genuinely liked them.

Part of my formula for surviving in trying times is for you to join a working Dealer 20-Group. I’m talking about a ‘working 20-group’ with serious dealers with similar like demographics—a working 20-Group is not an exotic destination vacation golf outing.

On Top of Technology

The next thing I’d do if I were in charge is I’d ask my managers what technology tools they need.

When was the last time you really audited you true ROI on every vendor you are using? Chances are that you have some vendors that are wheezing their last wheezy gasps, putting band-aids on their serious lack of updated technology. I know, you like the sales representative, they do favors for you and bring you gifts.

“BUT Wait a minute here Ziegler, do you realize how it upsets the entire dealership to totally change-over a major vendor?”

I’m completely aware of how changing major vendors can disrupt a dealership. They’re counting on that. But reluctance is what keeps you from expanding. I am telling you right now that there are some new high-performance vendors that can do things you haven’t even dreamed of. Crazy increased profitability that makes it all worth it.

Tough Decisions Ahead

These are just a few of the things I’d do if I was in charge of your dealership, or just consulting it. You have to suck it up, Bucky, and make some serious business decisions. There are some really tough times ahead, worse than you may have seen in the past. You need to get serious or disappear.

This article is some tough talk that I feel you needed to hear as we face those tough times.

What I’m describing in this article takes two qualities of ‘Intensity’ and ‘Dedication to the Mission.’ My successes in the car business goes back to the three ‘Zeroes’ I mentioned earlier.