What’s Your PPR? (Products Per Retail Delivery) And why should you care about it? Presented by: George Angus Team One Research and Training

The Challenge… Dealers are facing increasing limitations by lenders on the amount of finance reserve the dealer can retain. Many banks have voluntarily capped the points that dealers can mark up finance rates. More and more lenders are reverting to flat “processing fees”, severely limiting finance reserve. And this trend is going to continue….

…The Attack on Dealer Finance Reserve There is Currently a concerted effort by some very influential consumer groups to have the government take action to limit finance reserve to dealers. For example, The Center for Responsible Lending, a nonprofit organization and powerful lobbying group that fights predatory lending practices as a primary mission recently stated: “The Center for Responsible Lending believes that the ability of automobile dealers to add to a consumer’s interest rate for compensation when financing a vehicle for a consumer can and should be considered unfair and deceptive. The effects of competition in the market should benefit the consumer, and should be based on true competitive forces instead of perverse incentives. The only effective way to ensure effective competition is to prohibit dealer compensat ion that varies based on the interest rate or other material terms of the loan other than the principal balance of the loan”. Merriam Webster Definition of PERVERSE: a: turned away from what is right or good : corrupt b: improper, incorrect.

But that’s not all. In comments to the FTC’s information gathering process on February 1, 2012, six powerful consumer advocacy groups filed the following joint statement: “The FTC Should Prohibit Dealers from Receiving Compensation Based on Increasing the Interest Rate... The FTC should write regulations banning dealer interest rate markups in the same way that the Federal Reserve and Congress in the Dodd-Frank Act have dealt with a similar issue of compensation in mortgage lending. The findings and substance of the rule have a direct bearing on the issue of car dealer interest rate markups”. The bottom line is that we are very likely to see increasing pressure to limit or outright eliminate finance reserve as an income source. Many of you are already seeing your lenders trying to limit your reserve. They are doing this, voluntarily, to try to stave off restrictive regulation.

The Defense Of course, some dealer associations and others are trying to make the case against this action, but as we have seen in other areas, the consumer groups have tremendous influence with the current administration and regulatory bodies. And, of course, we can shake our fists at the sky and spend all day arguing that that the finance reserve we make is perfectly reasonable, that we get those buy rates because of the volume of business we do and should get the benefit of the huge investment it takes to operate, that consumers still get better rates from dealers than other lenders, and that we can’t run a Finance Department, meet all of the regulatory requirements already handed down, and then have to offer those low rates for no profit, etc., etc. But all of that is falling on deaf ears in the consumer protection world.

Finding Solutions First, what is PPR? It is simply the number of products sold in the F&I department divided by the number of retail deals delivered. For example, if a dealer delivers 100 retail units and the F&I department sells 150 products, their PPR is 1.5. This would include all products such as life, A&H, GAP, service contracts, chemicals, theft, tire and wheel, windshield, etc. It does not count finance reserve as a product.

PPR in Relationship To Performance Below is a representative sampling of 20 Group F&I departments that reported approximately $1200 total F&I income per retail unit delivered. However, there can be a significant difference in these dealers’ PPR. Dealer Group A: Income Per Retail Unit Delivered $1200 (approx.) Products Sold Per Retail Unit: 1.8 Dealer Group B: Income Per Retail Unit Delivered $1200 (approx.) Products Sold Per Retail Unit: 0.8 Both F&I departments can claim to be at $1200 per unit but the PPR clearly indicates that Dealer B is relying on finance reserve for a much larger percentage of the department income.

Dealer Group A: Income Per Retail Unit Delivered $1200 (approx.) Products Sold Per Retail Unit (PPR): 1.8 Dealer Group B: Income Per Retail Unit Delivered $1200 (approx.) Products Sold Per Retail Unit (PPR): 0.8 Performance Comparison

Dealer Group A: Total Chargebacks 13% Cancellations 2% Dealer Group B: Total Chargebacks 22% Cancellations 8% Chargeback Comparison

Dealer Group A: Sales Satisfaction 96 Dealer Group B: Sales Satisfaction 89 Sales Satisfaction Scoring Comparison

Dealer Group A 27% = $324 per Unit $150 Flat Imposed Dealers lose $174 PVR Dealer Group B 49% = $588 per Unit $150 Flat Imposed Dealers lose $438 PVR What will happen when an average $150 “flat fee” is applied?

Solutions: Process: One key to replacing the lost finance income is present all products equally. However, your process has to present every product, every time. And for any process to work, it must be: 1.Easy 2.Simple 3.Fast The First “Menu”

Trying to “Sell Past The Problem” “If you are strong enough in your presentation to create enough value in the customers mind, they will buy all of your products” Average Presentation Time (average as taught by three conventional F&I schools) Finance presentation 6 minutes Service Contract 8 minutes GAP 3 minutes Credit Life 2 minutes A&H or Disability 3 minutes Chemical, Theft, etc. 6 minutes Total28 minutes

The “Drifting Right” Phenomenon 1993

Which Presentation Media Is The Answer?

Presenting Every Product.. To Every Customer… Every Time. Can Pay Plans and Incentives Do It? The effect of focusing on one product over another: 90 Days Three domestic outlets 1043 Units PVR Decline $214

Pay Plans Traditional: F&I Gets Set % of Total Income from All Sources Simple Answer: Lower % of Reserve Higher % of Product Income The New Trend: (Dealers With Effective Sales Management) F&I Not Paid on Reserve- Sales Dept. Sets the Rate F&I Gets Much Higher % of Product Income

The Solution The answer may be found in the original “menu” concept. No matter what media is used, every product to every customer every time.

For more information on how your dealership can become a top F&I performer, or how your agency can help your clients become one, Contact: George Angus Team One Research and Training website: Toll-Free