Centering Pendulums and Establishing Industry Norms - AutoSuccessOnline
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Centering Pendulums and Establishing Industry Norms

There are two key factors for the imbalance, factors the industry has an obligation to address.

Dave Robertson is the executive director of AFIP - the Association of Finance & Insurance Professionals

The opening salvos fired by President Biden’s selectees to head the Federal Trade Commission and the Consumer Financial Protection Bureau — and the trend in auto ads touting car vending machines and other no-haggle venues — send a not-so-subliminal message that buying a vehicle at a franchised dealership should be avoided at all costs. Ironic, considering that buying a vehicle, as with other high-dollar purchases, provides the buyer the opportunity to negotiate the sale price. In our free enterprise system, a negotiated purchase gives the advantage to the buyer.

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With the playing field favoring the consumer, why aren’t we basking in vehicle marketing nirvana instead of contending with Carvana? Until the internet, the ability to negotiate on equal footing with the seller wasn’t possible. The essential information simply wasn’t available to consumers. 

Today, armed with an arsenal of information essential for deftly negotiating vehicle purchases and financing, the buyer is on equal footing with sales and F&I personnel. Internet-savvy Gen Xers and millennials are capitalizing on the opportunity. The negotiation equity pendulum has moved toward center, but some buyers still find themselves on an unlevel playing field.

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On a grander and more significant scale, the regulatory oversight pendulum is way off-center. In my view, there are two key factors for the imbalance — factors the industry has an obligation to address.

The first is a lack of knowledge of fundamental vehicle sales and finance processes among legislators and regulators who set fair dealing standards. Key federal agency nominees — and at least one vocal senator — have made published statements disparaging dealer-arranged financing. Ensuring that the rule makers and rule enforcers for our industry have a clear understanding of its vernacular and processes is our primary objective.

The second factor is perspective, particularly the absence of scale by which to judge consumer complaints. Customer satisfaction index (CSI) ratings have their place, but complaints registered with the state and federal regulatory agencies and their partisan research have a direct influence on the regulations governing how we conduct business.

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Nearly 57 million cars and light trucks changed hands across all sales venues in 2019.* Logic dictates that the sheer volume of transactions will result in a numerically significant number of disgruntled car buyers, large enough to catch the attention of legislators and regulators and a worthy headline for the press. Unfortunately, it’s the big numbers — not the percentage of complaints relative to the millions of satisfied buyers — that get the news.

As an analytical tool, it’s little more than a place to start. We exist in an imperfect world, and no matter how diligent our efforts to meet customer expectations, a certain number won’t be satisfied. By making that percentage dead center for the fair-dealing pendulum, we arrive at industry norms.

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The industry norms will vary by market segment — franchised, independent and buy here/pay here dealers, and private party sales — in both percentages and nature of complaints. A complaint percentage higher than the industry norm should trigger a remedial call-to-action on two levels. First, dealers should eliminate or modify the practice or activity that generated the excessive number of complaints. Second, if the errant activity is allowed to continue, it will trigger action on the part of regulators to address the issue. 

The process for establishing industry norms requires collaboration between the data generators — the vehicle sales and repair entities — and the data collectors, including the regulatory bodies and other data-gathering resources. A mutually acceptable list of complaint categories will be required — and a determination of what constitutes a baseline for a reasonable level of performance for each category.   

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As an industry, we have a very practical obligation to establish standards for acceptable customer satisfaction performance in all areas. Industry norms will be determined by consensus of the participating parties.  

If we’re able to bring to the table a full serving of empirically derived industry data on consumer satisfaction and the number and nature of complaints by market category, the dinner conversation with legislators and regulators will be more collaborative and less adversarial. Everyone will stay for dessert. And we will have moved the regulatory pendulum toward the center.

*Data compiled by Shaun Peterson, Esq. and David Robertson, MBA.

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