When vetting vendors, ask the right questions

It's a weekly — sometimes even daily — occurrence for many dealers and dealership execs: fielding calls and emails from vendors.

With a growing number of vendors pitching F&I products from paperless processes and training to digital retailing, dealership lawyers, dealers and other experts say vetting vendors is more important than ever. And in an age when cybersecurity and protecting personal information are top concerns, those experts say doing your own homework and asking questions is key.

It's common for Dustin Walters, vice president of eight-rooftop Friendship Automotive Enterprises in Bristol, Tenn., to receive 15 calls a day from all kinds of vendors.

"It's just incredible how many there are out there," he said.

Walters said he has been taking a closer look at vendors that have access to the company's dealership management system and has cut off DMS access from a number of vendors to ensure customer information is protected.

Michael Benoit, chairman ofthe Hudson Cook law firm in Washington, D.C., which specializes in auto finance and financial services, said dealers he works with increasingly inquire about the privacy practices of their vendors and third parties, whom they share information with or whom they may sell information to.

Benoit recommends dealers first determine the value an F&I product could provide customers.

"Don't take the vendors' word for it," he said. "Look at the product, evaluate the product, use your head. That's what the finance companies do. There are some F&I products that finance companies simply won't finance."

Dealing with new companies can be tricky because they don't have a track record. Benoit suggests talking with various people at the company and getting a feel for them, plus asking for referrals and talking with them. And if it's a company whose products pay claims, ask about the claims-submission process and how difficult it is for a customer to receive the benefit, Benoit suggests.

The dealership should also identify the problem it is trying to solve through a vendor, such as generating higher F&I profit per vehicle, increasing views on the website or speeding up the sales process, said Bill Reidy, vice president of sales for KPA Services, an F&I compliance services company.

Red flags

When Reidy was a general manager at MileOne Autogroup many years ago, he was tasked with selecting a customer relationship management system.

He recalls the experience more than 15 years later because he nearly signed up with a business offering a product that he thought was fantastic — but the vendor didn't have enough money to continue operations.

He said a few phone calls saved what could have been a costly mistake. Reidy asked the vendor for references and called them.

"One of the questions I asked is 'How long have you been with them, and are you having any billing problems and what does their accounting process look like?,' " Reidy recalls. "And a red flag came up there."

Reidy said with the help of his dealership's controller, they dug deeper into looking at the vendor and learned of its financial woes. The vendor went out of business months later, he said.

"That was a learning experience for me," Reidy said. "I didn't do a lot of the due diligence."

In 2014 and 2015, New York dealer lawyer Leonard Bellavia's law firm was caught in the middle of a rogue vendor situation after Credit Forget It, an F&I vendor, misused a letter from Bellavia's former partner to bolster its credibility with dealers. But Credit Forget It, which has since been dissolved, didn't operate the way the firm's letter indicated would be lawful. Credit Forget It and the dealerships that sold its product to customers collected money for services upfront, violating state and federal statutes.

Bellavia, founding partner of the Bellavia Blatt firm, suggests dealers have their attorneys run a litigation search on the vendor. Bellavia said if he sees a series of lawsuits against a vendor, he will review the allegations and bring them to the dealer's attention.

Bellavia said he fields requests from dealers at least once a month to investigate vendors. Dealer complaints against vendors typically involve pricing, in which a dealer feels the vendor is gouging them or deceiving the public, Bellavia said. In most cases, the conduct is not illegal, just unpopular, he said.

Bellavia also works with vendors to vet their products, including researching their legality and ensuring products or services comply with federal and state laws. One company he is vetting plans to sell a product aimed at ensuring a buyer of a new car will receive true book value on a trade-in down the road. In many cases, if a vehicle is in a crash — even a minor one — and it shows up on CarFax or AutoCredit vehicle history report, dealers won't give the seller book value, Bellavia said.

"There are companies now that are selling commitments to consumers that'll make up the difference of what the dealer is offering and fair value," he said.

Walters said vendor pitches also come through targeted social media ads. That's where he found an interesting digital retailing company. He said the product looked really good, but the owner did not have any clients yet. Walters told him, "Let's see how you do and let's stay in touch."

Walters said he asked his advertising agency to look into the company a bit. They learned it had only one client.

"We actually just signed a trial with a different company, one that our ad agency was more familiar with and has used with other clients," Walters said.

And with any product or service, dealers simply should ask themselves if it is something they would buy, Benoit said.

"When you're talking about these products, just ask yourself would you sell it to your mother, assuming you like your mother," he said. "If you wouldn't sell it to your mama, you might want to think twice about selling it to somebody else."