Profiles in auto finance…what you should know

August 8, 2016
In the News

By Sean Deasy

As appeared in The Ontario Dealer, Volume 4, Issue 3

Fast cash: how top finance companies take to the road

What’s on the auto-finance horizon for the rest of 2016 and beyond? In the last of a three-part series, Ontario Dealer asks two standout auto-finance companies to share some of the key insights and strategies that got them to this point. And where they’re going.

Auto finance continues to be a dynamic narrative in the used-auto business. And as 2016 reaches the halfway point, Ontario Dealer reached out to NextGear Capital and LGM Financial Services Inc. – to discuss strategy, philosophies and goals for the coming months. Along with asking about each firm’s defining characteristics, we wanted to know what responsiveness and efficiency means in this ever-changing, tech-driven world. We asked how crucial it is to build solid relationships with dealers. And ultimately, we want to know how they measure success today and for the future.

Mission Possible

NextGear Capital is effectively a rebranding of two entities: DSC, Dealer Services Corporation, which was formed in 2005, and MAFS (Manheim Financial Services), which was established in 1993. Parent company Cox Automotive, having had Manheim in their portfolio, decided to acquire DSC and they combined both companies in February. 2013.

NextGear Capital, with its U.S head office in Carmel, Indiana, and a Canadian HQ in Mississauga, has an estimated annual lending of $770 million for Canada, $22.3 billion in the U.S., and an additional $800 million for the UK and Ireland.

The company’s mission, according to Joe Carusella, National Vice-President, Canadian Operations, is simple: To create and encourage simple solutions to help their dealers grow and succeed.

LGM Financial Services Inc., which has been in business since 1998 and now has over 200 employees, is a leading provider of finance and insurance products to the automotive sector.

“We’re not a big company, but we’re a focused company. Our main focus is providing all of our products through our OEM partners,” says Jeff Fallowfield, President of Distribution and Marketing. And those brands make for an impressive roster: the likes of Audi, BMW, Mazda, Volkswagen and KIA, to name just a few.

Fallowfield says his company represents something very different in the market, “When we develop products or processes, even though the OEM is our main partner, and the dealers are our main partner, we look to consumers, and what the product does for them.”

“We believe that times are changing and really driven a lot by the Internet and the transparency that’s becoming real, certainly in the automotive space,” says Fallowfield, who believes it’s time that ancillary products stepped up and started to be more transparent, so that consumers truly understand the products they’re buying, and appreciate the value.

Success as Formula

At NextGear Capital, Carusella attributes the company’s success to a pragmatic approach to business.

“The most important aspect is to sit down, listen and create, and confront what the needs are as opposed to being on a high horse and saying, ‘this is what we think you need and we’re going to sell it because we’re the best’. That’s not going to fly anymore,” he says. “It gets tougher when you think you might own the market because everyone’s going to try and chip away at you and what you’ve built. You’ve got to continue listening and never get complacent and condescending.”

LGM is focused on educating not only the consumer, but also the dealer, trying to guide them towards a selling style that’s collaborative and focuses on the needs of their customer. “Obviously you need a profitable operation today, which we believe you can get, but ultimately you want those customers coming back because they really trust you as a partner, not only for the sale of the vehicle, but also providing them with the right coverage.”

“We’re in the “peace of mind” business because you want to have coverage,” he says. “Things happened, and you want to make sure that when those happen, you can afford them financially and there’s no big surprises. Mechanical Breakdown is if there’s some very expensive repair that comes up. Well, we cover these.”

And that’s a huge differentiator, says Fallowfield, from other players in the market. He believes LGM is effective because it leverages the great loyalty towards brands in Canada. “If you’re suggesting they purchase our Secure Drive extended warranty, what’s a Secure Drive? Who’s LGM? As opposed to: ‘I want you to consider an Audi After Care extended warranty.’ Okay, (the customer will say) I know who Audi is, I trust them, and that provides a lot more credibility towards the product, that you’ve got a tangible operation that’s willing to put their name and to stand behind the product. It’s about credibility,” he said.

Dealer Relationships

While LGM has no interaction with a third party consumer, what they have become is a very important and strategic profit centre (or profit producer) for dealerships. “(Dealerships) have their fixed ops and they’ve got their vehicle sales,” says Fallowfield. “but the Financial Services Office is critical to their overall profitability. We work very hard on our service, and we believe that service excellence is the key in differentiating and providing a great experience for the dealer.”

Their approach appears to be working. Last year LGM commissioned J.D. Power to gauge how they’re doing in the market from a sales support perspective, as well as from a claims-support perspective. The results were overwhelming, “it indicated that our model is resonating very well with our partners. We believe in our high-touch operation.”

LGM currently has 35 dealer development managers (DDMs) in the market whose job is to be in dealerships every say, coaching and training the FSMs on how to sell the products, and how to position the products.

Because they specialize in the ancillary products in the Financial Services Office, LGM offers high-touch training on how to maximize the benefits from the programs, which doesn’t necessarily mean profit on every vehicle, but overall profit on sales on average in the month. “We actually commit to our dealers by making sure we’re visiting them every month to see how they’re progressing with their sales strategies,” says Fallowfield.

For NextGear Capital’s Carusella, the benefit of building a solid partnership with dealers is like building a solid marriage. “When there are tough times, if you have a solid partnership, the dialogue is there to find the solutions,” he says. “If you don’t have a solid partnership they’re going to abandon you and they move on or you abandon them.

Responsiveness and Efficiency

Speed and efficiency rules in the automotive business – something LGM has duly noted and ingrained in its strategy. “From our internal customer service teams to our call centre, we’re required to respond to all calls within 60 seconds (or less) 90% of the time,” says Fallowfield. “That’s been very effective and that’s on the claims side as well. According to the J.D. Power survey we exceed their expectations from a claims resolution perspective, which is pretty phenomenal.

Responsiveness has become more and more important as NextGear Capital as well, with a focus not only on the business of technology but also on intel from the field. “If you’re at the forefront of new technology and you can deliver solutions that are responsive and meet the dealer’s needs on a day-to-day basis, then you’ve fulfilled part of your mission,” he said. “I’m also a field person. I like to go out with my people and find out directly from the dealers what is it that makes them tick, what do they need, what is it that p*sses them off that we’re doing that we need to change?”

Carusella believes the moment your leadership is no longer connected to the ground there’s a massive disconnection. “And that,” he says, “could be the beginning of the end of the road to failing apart.”

Professionalism = The Right People

The NextGear Capital, true professionalism means a comprehensive approach.

“With my experience in the automotive world and everything I think true professionalism is, you have to maintain a certain level of respect for your clients, your peers, and your competition also.”  He says the best technique is to always have an open dialogue with all your stakeholders.

For LGM, success starts with finding the right people to bring on board – and that starts on the front lines. “We generally try to recruit or hire people who are former Financial Services Managers because we believe that it’s so important to be able to say, ‘been there, done that’” says Fallowfield. “Then we insist that every one of our DDMs get certified through the Canadian Professional Sales Association. For every province where it makes sense, we make sure that they have their life insurance license.”

LGM ensures that claims administrators have some background in automotive and the technical side of the vehicle, so when they’re talking to the services manager about a part, for instance, they can speak intelligently. Staff are also encouraged to get their general insurance license. “That way they understand the rules and regulations, but then they can talk auto.”

And that 360 degree expertise, he says, is part of the resonant culture at LGM. “Our core values are very important to us,” says Fallowfield, who insists these values are woven into every aspect at LGM. “When we’re considering a product we go back to our core values, and ask, ‘Does this resonate with us? Does it meet the ethical standards of what we’re looking for? Is it really good for the consumer?’”

The Differentiators

NextGear Capital changed its approach its approach a few years ago away from bricks and mortar toward creating a sales force of account executives who visit clients. The benefits are numerous, says Carusella. “Clients, especially car dealers, are very proud to show what they’ve accomplished.

Central to their game plan is, quite simply, making the customer happy. And that is built on honesty, says Carusella, even in potentially awkward situations.

“A dealer is happy when you’re in communication with them,” he says. “But I’ve also had dealers, on the other side of the spectrum, where I’ve had to deliver negative news. Because it was done on a one-to-one basis as a true partnership it makes for better relations.”

Carusella says a dealer or a partner is very content when you show that they are very important – regardless of what kind of credit line they have. “A client who has a $2 million credit line and a client that has $50,000 are equally as important.”

Outlook for the Future

Carusella believes the industry outlook is going to get better. “Right now the smaller guys are getting hurt because the bigger guys are buying a lot of the vehicles here and shipping them to the US because of the exchange rate. We’ve seen this in the past, it will pass,” he says, adding that the exchange rates are not always going to stay at their current rate.

“Because the OEMs started leasing again a couple of years ago, we’re going to start getting a lot more metal coming through the auctions and the price points should come down,” he says.

He also believes dealers are rapidly adapting new technologies to make their business more efficient, but also for better exposure. “The old guard understands that and we’re seeing a lot more of it. Organizations like ours are putting together a lot of these technologies and we offer it to our clients to help make them more competitive.”

He says the future looks positive but there can be no sitting around waiting for it to happen. “We’ve got to become actors of changes and absorb and take change with positive attitude and think outside the box at all times, the opportunities are there.”

The folks at LGM are similarly optimistic.

“We’re always looking for trends. Emission systems are a big deal, airbags are a big deal – technology in the vehicle is a big deal,” says Fallowfield. “We’re really mindful of that and we’re looking at how we can provide coverage and new products. We constantly look ahead.

“Our strategy is all OEM, so we’re satisfied that our dealers know that we had these great results, and that our OEM partners have those great results,” he says. “That will improve their confidence in us, and their trust in us to do a good job on their behalf.”