CARY, N.C. -

Today’s dealer is often a business-savvy one, says CorePointe Insurance Co. president and chief executive officer Jim Haan.

And that sophisticated approach includes how they protect their businesses, property and inventory from whatever harm may come their way.

The leader of what was formerly known as Chrysler Insurance Co. shared with Auto Remarketing his thoughts on dealer’s demand for and approach to buying insurance for themselves, while also highlighting some key reminders for stores as they go about protecting their assets

“Insurance costs go up and down depending on the market. But I think dealers are obtaining better and better advice in terms of how to buy insurance,” Haan said. “Whether it’s through an agent that they trust or through a broker, or whether it’s through their direct sales representative of an insurance company that they rely on, I think they’re becoming more sophisticated buyers.”

Looking at “dealerships as a whole,” he noted that “since the washout of 2008 of many, many dealerships, those that remain are very good operators for the most part.

“They’re generally larger and they’re more sophisticated. They have professional management teams,” he continued.

And when it comes to buying insurance, they don’t just look at “getting the best price,” he said. They consider the entire equation, thoroughly examining the value and quality of the offering.

They want to ensure to that there is a “reputable company behind it,” and a strong claims service with a good reputation, ability of the provider, timeliness, fairness in settlements and the expertise of their sales representative.

“I think those (attributes) are what dealers are looking for now than they ever have in the past because they’re more sophisticated businessmen,” he suggested.

So when what do dealers need to protect their businesses against in today’s climate? Auto Remarketing talked with Haan — whose company offers dealer open lot inventory protection and surety bonds, as well as similar coverage offerings, according to its website —about a few key areas of which to be mindful.

Weather Damage

Perhaps the first thing that comes to mind for some is weather, especially given the wild, unusual and often unpredictable patters the U.S. has seen in recent years: hurricanes barreling up the Northeast coast, unforgiving tornadoes and intense, frequent hailstorms.

“The last couple of spring storm seasons have been very severe for most dealers in most parts of the country,” Haan said. “So, protecting the cars on your lot is very important. It’s very important that you have the right protection at the best terms.”

Haan took a special look at hailstorms, which he has found to be especially violent the past two years.

In fact, Bloomberg reported in June — citing the president of the Southwestern Insurance Information Service — that mid-month hailstorms in Dallas potentially racked auto and home claims totaling $2 billion.

“Hail has been very severe and very frequent in both 2012 and 2011. It has been hitting in some states which are not normally hail states,” Haan stressed. “So, if I was a dealer, I’d make darn sure I had an adequate insurance policy with a reputable company that I could depend on if hail should hit my dealership, because it can be very costly.”

The property and on-the-lot insurance market is becoming firmer, making prices rise because of the severe storms, Haan added. With that in mind, he advises dealers to get more than one quote for their insurance.

“He should check the market. He should ask his garage provider for a quote, he should ask his finance company for a quote and should probably get an independent quote from another source, also,” Haan emphasized.

While he stressed the importance of getting multiple quotes, Haan also added: “I’d have someone get the best possible coverage that he can get, given the fact that the severity and frequency of the hailstorms has been so great the past couple of years.”

And it’s not just the unusual patters of hailstorms that should be of concern to dealers. Along with thunderstorms, tornadoes and hurricanes, these “have been, in my view, more severe than we’ve had in the past.”

And he has been in the business 20 years.

It’s difficult to determine, Haan said, whether this is a climate-change-prompted ongoing trend or just a blip on the radar. At this point, it’s unclear if this is an abnormal weather pattern that will last 10 to 15 years or just a short-term cycle.

While the causes aren’t known, “we know the last couple of years have been very difficult in the United States for property and dealer open lot,” he added.

And because of this, dealers must be cognizant of what coverage they have, what the deductibles are and whether the store has an aggregate or no aggregate, Haan said. The dealer also has to consider whether he has the best terms available.

“That’s what he should be most concerned with: that he has adequate coverage for his investment,” Haan stressed.

Other Safeguards

But it’s not just the weather dealers need to protect themselves from, Haan emphasized.

“The next issue on my list would be white-collar theft or false-pretense losses where someone takes the car from the dealer under false pretenses,” he explained. “That is, that they trick the dealer out of a car.

“These losses are obviously not as severe as hail losses, but they do occur, and they’re completely preventable if the dealer has the right kind of controls in place,” Haan continued.

He emphasized that if a crook catches a dealer without the proper control, he or she can easily commit theft.

“With the right scheme and a dealership that does not have the controls in place, you can catch a dealer off-guard and drive away with a $40,000 automobile,” he noted.

Further emphasizing the need for such controls to prevent this from happing, Haan stressed: “Even if he has insurance, it still affects his bottom line because usually they have a deductible. And after a while, with too many of these claims, his insurance costs will go up.”

He went on to note that his company can help dealers with developing the right controls to prevent this from happening, or helping the store check the controls it already has in place.

Moving along, Haan also emphasized another weak spot dealers need to be mindful of: key control. He stressed that schemes exist where dealership insiders will conspire with outsiders to steal keys if they’re not secure.

“Controlling the keys of a larger dealership is very important. They have key control devices out there. If the dealer uses them right, he can keep them under control versus just putting them in a lockbox where you don’t know who has the keys out and where they are,” Haan emphasized.

“Key control is another area to prevent theft for a dealership, especially a large dealership. And we can certainly recommend them the right product for their key control,” he continued.

Another key area he emphasized was obtaining the right background check on new employees. He said there are many dealerships that don’t do enough in this regard. And it can hurt.

“You can have large criminal organizations put a sleeper employee in a dealership for a period of time … becoming the best employee they can possibly be for six months, getting the feel of a dealership,” he said.

The employee could figure out where the keys are and what the controls are, “Then all of sudden, they decide to strike, and they can get a car or two before it’s even discovered,” he explained.

As part of the background check, it’s obviously important to conduct a criminal background check.

However, beyond the criminal aspect, dealers may also want to conduct motor vehicle reports on new employees, as well, to check their driving records.

“Quite often, these employees, depending on their role, will get a demo vehicle to drive. Collision losses, auto liability losses can be controlled if you know the driving records of your employees,” Haan noted.

Summing it up, Haan drove home the point of how successful dealers are the ones that protect themselves.

“If you take away the weather losses, when you look at his losses, you can tell the culture of a dealership pretty readily. The good dealerships, the well-run dealerships will have a low loss ratio,” he suggested.

“Their culture starts at the top in terms of putting the right controls in place, respecting the property of the dealer, making sure that the keys are accounted for and respecting the procedures that are in place,” Haan concluded.

How Dealers Can Use Extended Warranties & Service Contracts to Boost Business

Another aspect of the F&I realm is the extended warranty and service contract piece.

And as Larry Dorfman — chairman and chief executive officer of EasyCare — can attest, the vehicle service contract/extended warranty is not just about pulling in another profit stream for the dealership.

(Editorial Disclosure: EasyCare is the administrator of the CarMark Certified Pre-Owned program, which is owned by Auto Remarketing parent company S&A Cherokee).

“VSC’s, or ‘extended warranties’ mean much more to the dealers than just profit. They create loyalty as we have proven over the years that customers with an EasyCare contract are more likely to return to the dealership for service,” he said.

Dorfman cited statistics from the company that indicate that “well over” three-quarters of the claims on its contracts are taken care of at the selling dealership.

“This is a significant improvement over typical service retention numbers that can run 18 percent to-30 percent after the factory warranty has run out,” he stressed.

Over at AUL Corp., Jason Garner — general sales manager for AUL Administrators — has found much of the same, emphasizing that service contracts push F&I profits and customer service while also leading to stronger customer retention and income in the service shop.

And when asked whom a dealer’s target audience for this offering would be, Garner replied: “All of his customers. If he’s selling a car, if he can sell a service contract, it’s added income. It provides better customer service in the event of a breakdown, and it keeps the customer coming back to his particular service department.”

Garner went on to emphasize the value that an extended warranty/service contract can bring to a used vehicle to distinguish it from other used rides.

“With used-car prices being what they are in the market this year, customers are stretched pretty thin. And having a service contract protects them against future repair costs,” he noted.

“Also, when they trade the car in, it instills value in the car, or they can sell it on the private-party market (and) most service contracts are transferrable; and it helps instill value in the vehicle, as well and peace of mind, for the customer in the event of a breakdown,” Garner continued.

What’s the Appetite?

New-vehicle sales are bouncing back this year, and the used-car market has been strong. But what about consumer demand for VSC/extended warranties?

Citing national statistics shared by Maritz Research, Dorfman said (in June) the national penetration rate was in the 30-percent ballpark.

“National statistics are showing around 30.4 percent, but the dealerships we work with are experiencing much higher penetrations: in the 40-percent-and-up range. We have specific training processes that take place in person and online for our dealers’ F&I managers that significantly increase the penetration numbers,” he continued.

Garner has found that the demand is there and noted that appetite for these products has remained relatively steady with historic levels; however, he argues that with used prices so high, these products have become more important.

“Customers are stretched thinner. Down payments aren’t what they used to be, and lenders are tightening up a little bit. And the importance of a VSC to a customer I think is greater than it’s ever been, along with consumer awareness in the marketplace,” Garner explained. “With all the manufacturers creating longer factory warranties on the new cars, demand for VSC and the demand for warranty on the used cars has just continued to climb.”

Best Practices

Moving along, Garner and Dorfman both offered a few pieces of advice for dealers for success at selling the VSC/extended warranty.

As Garner illustrates, it comes down to getting the right coverage for the specific customer vehicle, while making sure the deductibles are fully disclosed.

“The best practices for a dealer when it comes to selling VSC is to make sure they’re matching customers needs in terms of how many miles they drive each year and the type of car, the miles on the car and making sure that they’re matching the right product for the right vehicle and the right customer,” he emphasized.

“That’s only going to increase CSI down the road when the customer goes to use it,” Garner continued. “Fully disclose the deductibles in the coverage to the customer and make sure they’re matching the right coverage, right VSC with the right customer and the right car.”

Dorfman explained some of the techniques EasyCare teaches dealers. In addition to laying out some of the best practices for selling these products on the new-car side, he offered a few pointers for doing so on the used-car side, as well.

“On used vehicles we do several things as well: The Warranty Advantage process works well on pre-owned vehicles as well. Basically applying a limited powertrain or better coverage on the vehicle included with the sale and offering an upgraded and extended term more comprehensive coverage in F&I,” he said.

“This ties into the CarMark and Motor Trend Certified programs where we do exactly that: include a limited warranty with the vehicle and offer the upgrade from there. Penetration on these programs is usually well over 45 percent for the upgraded coverage,” Dorfman continued.

“The key to all of this is solid training and consistent support at the dealership. Having the right partner to work with is vitally important for the dealer to succeed,” he concluded

Editor’s note: Part I of this report can be found here. The complete 2012 F&I Report can be found in the July 15-31 print edition of Auto Remarketing.