Important Amendments to the GCOC:
FSPs & Motor Industry Representatives Take Note!
On the 26th of June 2020, the FSCA published the FSCA Communication 35 , thus bringing several amendments and provisions into effect in the South African Motor Industry’s General Code of Conduct (GCOC). These have, and will, significantly impact the climate in which FSPs & Motor Industry Representatives operate nationwide
Summary:
- Amendments to section 1
- Amendments to section 3
- Amendments to Section 3 (a) relates to extra fees
- Amendments to Section 3 (a) relates to F&I managers (representatives) remuneration packages.
- Amendment to Section 4 relates to ROA and Needs analysis
- Amendments to Section relates to Clients ability to meet the obligations and Negative option marketing
- Introduction to section 16, the Complaints management systems requirements.
Some of these important amendments took effect immediately and others from the 26th of December 2020. There are also a few that are still to take effect from the 26th of June 2021. Keeping up with exactly what will impact dealerships can be burdensome for F&I managers and other busy representatives. However, I’ve compiled some key highlights that all clients and partners are urged to take note of, it’s business critical that all relevant changes to documentation, objectives and training is deployed with urgency to ensure compliance
Amendments to Section 1(1)
• The rise of “related services” or as we know it “bundled product” (like the non-regulated portion of a warranty) and the introduction of “white labelling”.
• The necessity for “Plain Language” information and contracts, which must consider the established (or reasonably assumed) level of knowledge of the person targeted.
• The definition of “Comparative” now refers to a direct or indirect comparison between providers or between the financial products, financial services or related services – of one or more providers or suppliers.
i.e. be careful when comparing 2 warranties you may have on offer - stick to facts only, and if you benefit from one more than the other, you would need to point this out to the client.
Amendments to Section 3
This section sees the FSCA clarifying that we may not imply products that are not regulated by the FSCA e.g. in maintenance agreements. Dealerships and representatives may not refer to the FSCA or registration in any advertisement relating to products or services that are not currently regulated by the FSCA. This also means that a provider may not refer to itself or its services as “independent” if there is any benefit or interest from a product supplier. In short, if the warranty company pays you a “binder fee” or if you have an agreement to perform an inspection on behalf of the warranty company, this will render you as not independent.
Amendments to Section 3(A)
If you charge a fee over and above the commission for a service being rendered (e.g. the admin fee on a policy) then these fees must be reasonable for the service being rendered. In fact, they must disclose:
• The amount and frequency of the payments and methods.
• The specific details of the service to be provided.
That by agreeing to fees, the client understands they may stop these at their discretion.
Amendments to Section 4 (this refers to the Record Of Advise (ROA) and financial needs analysis.
Representatives, when dealing with a client may not compare different financial services, products, or product suppliers unless the different characteristics of each are made clear. This comparative information must be fair and substantiated i.e. state the unbiased facts only.
Subsection 4 amendments also say that a Provider may in determining the extent of information necessary to provide appropriate advice, consider:
• Any specific objectives or needs of the client that the client has explicitly requested the provider to focus on, or not to focus on, in the analysis.
• Applicable surrounding circumstances that make it clear that the analysis can reasonably be expected by the client to focus only on specific objectives and needs of the client, like buying a car.
• And whether the client has explicitly declined to provide any information requested by the F&I representative.
In these situations, the FSP must alert the client as soon as reasonably possible that:
• There may be limitations on the appropriateness of the advice provided and that the client should take particular care to consider whether the advice is appropriate.
• The FSP must also alert the client as soon as reasonably possible of the clear existence of any risk to the client.
Amendments to Section 8
An FSP or F&I manager (the Provider) must obtain the client’s needs and objectives, as well as their financial situation, risk profile and product knowledge in order to assess the client’s ability to financially bear any costs or risks associated with the proposed product. This affects dealerships in two key customer-centric areas:
1) Don’t sell the client a service, product or policy that they cannot afford.
2) Don’t sell the client a policy where they aren’t able to meet the “risks associated” with the product, e.g. exorbitantly high excesses.
If in doubt, always highlight the consequences to the client e.g. outline excess structures etc.
Section 8 & Negative Option Marketing
It’s important to also note that the Provider, or any person acting on its behalf, may not offer to enter into any agreement (in respect of a financial product or financial service) on the basis that the agreement will automatically come into existence, unless the client explicitly declines the provider’s offer to enter into such agreement.
This is going to bring "Payment Stacking" under scrutiny, (adding a lot of optional insurance products to the clients payments and if the client does not take them off it is assumed sold) See FSCA email in response to payment stacking query.
The Introduction of Section 16 & Complaints Management
This has been introduced as a whole section to the amendments, with its own definitions. By these definitions, a “Client Query” means a request to the Provider by a client for information regarding the provider’s products, services or related processes. This includes carrying out a transaction or action in relation to any such product or service. A “Complaint” means an expression of dissatisfaction by a person to the Provider or to the knowledge of the Provider.
FSPs and F&I Managers must establish and maintain an appropriate complaints management framework in order to ensure effective resolution of grievances. The complaints management system also has to be appropriate and proportionate to the nature of the business and should consider all relative laws e.g. CPA, NCR, POPi etc.
An FSP (the Provider) may not offer any financial interest to a representative of that provider (including F&I managers or the dealership) for:
• That which is determined with reference to the quantity of business, without also giving due regard to the delivery of fair outcomes for the client.
• Or giving preference to a specific product supplier – where a representative may recommend more than one product supplier to a client.
Similarly, an FSP (the Provider) must be able to demonstrate that the determination of, and entitlement to, the financial interest considers measurable indicators relating to:
• The achievement of minimum service level standards for clients.
• The delivery of fair outcomes for those clients.
• The quality of the representatives (F&I or dealership) compliance with this act.
At the end of the day, sufficient weight must be attached to such indicators to materially mitigate the risk of the representative (F&I manager or the dealership) giving preference to the quantity of business secured for a specific provider – especially over the fair treatment of clients and their best interests.
READ: Mapping your sales team's objectives
In conclusion, please familiarise yourself with our complaints management policy and systems. Any complaint you may need addressed must be emailed to: complaints@fsp34.co.za or logged on our website. It’s important that your team must always take the first step in ensuring each client complaint is recorded. Do not discourage a client from lodging a complaint or try to handle the complaint without informing DFS’s complaints department or your KI We are here to ensure both your enterprise and your client’s interests are protected and that your business remains compliant.
SA motor dealerships:
how to effectively map your team's objectives.The modern motor industry consumer is ever-demanding and increasingly sophisticated. This is why mapping your team’s objectives to ensure that your dealership is able to meet and exceed these expectations, at each step of the consumer’s buying process, is absolutely essential. Your competitive edge relies on developing new techniques and learning new technology to help your staff discover, learn, and validate your client’s purchasing decisions. Not just once, but throughout their consumer lifecycle with your dealership, as well as your referred representatives and partners.
In today’s customer-centric retail environment, connecting with buyers can be a major challenge for dealerships. How do car shoppers learn about your dealership? What motivates them to visit your showroom or start the buying process with you instead of turning to your competitors?
In order to continue growing a great dealership, your team needs to understand exactly how today’s consumer discovers, learns more about, and ultimately purchases vehicles. With this understanding, your staff can identify holes in your dealership’s marketing and sales processes. This goes a long way in plugging the vulnerabilities that might lead to missed opportunities, which lead to missed sales.
More importantly, each member of your sales team needs to also be aligned on achieving the same objectives your dealership needs in order to thrive. You need to create harmony in the team by having everyone sing from the same hymn book, so to speak. But first, let’s start at the beginning with one of the most important questions you can ask yourself…
No really, think about it. We recently reviewed a F&I manager’s commissions in order to assist a large new car franchise dealership with aligning to the amendments of the GCOC. This highlighted for us how the objectives of other providers and suppliers have influenced the F&I manager’s incentive structure within the dealerships they operate in, thereby mis-directing objectives.
For example, ultimately, the dealership’s objective is to maximise its profit. Many dealerships feel that this is achieved by maximising the sales of new vehicles to happy clients, and everything else will follow from that principle. In short, more new car sales = more profit on sales. This in turn means more trade inns; more used car sales; more workshop clients; more parts sales; more referrals etc.
However, the F&I managers commission structure we examined was centred around 2 major principles that were conflicting with these dealership objectives:
• Average number of products sold per deal (PPD)
• Average 2nd Gross Profit per deal (APU)
This resulted in the F&I manager pushing clients to take certain products and forcing the highest possible rate on them. In fact, even to the point where if it cost the dealership a deal, it still didn’t cost them money. In fact, it saved them money. Because, if a client doesn’t want any warranties or “extras” due to affordability, the F&I manager will push the rate and products to maintain the PPD and APU above the required level. Why? Because this is what it takes to ensure their commission percentage won’t drop, even if it costs the dealership the client. No deal means the APU and PPD won’t drop.
We actually investigated further, our team contacted a sample of clients that had enquired about a car at the dealership in recent months. We wanted to know why they had decided to buy elsewhere? We found 3 clients who had bought from a different dealership purely because the instalment quoted by this F&I manager (which included all the valuable products, and yes, they were listed and they had explicitly said they were optional) simply wasn’t favourable.
In an ever-increasing consumer-centric environment, if a client who sees an advert with a payment amount for the car, is quoted a higher amount by the F&I manager – they will simply move on to another dealership who quoted them what they wanted. So, by pushing the F&I manager to focus on APU and PPD in this manner, ended up costing the dealership 3 times new car sales, 3 times new workshop clients and 3 times possible used-car revenue etc.
Put simply, it’s important to ensure that your dealership isn’t letting your partners’ needs (e.g. their 2nd Gross and 3rd Gross Profits) influence the primary objectives of your enterprise, or by extension the actions of your sales team. Here are some steps to consider:
Step 1: Clearly Map & Set Out Your Objectives
How? Here is a simplified example. A company’s objective is to maximise the profitability of all departments to encourage the maximum growth in “share value.” Now consider a new car sales representative’s objective. Primarily, to maximise the sale of New cars while maximising the total profitability, when considering the total units available.
For example, if you have an unlimited pool of new cars to pull from for stock, it makes sense to sell as many as possible regardless of profit per deal i.e. it is better to sell 50 cars with R10 profit then 10 cars with R50 profit. This is due to the larger picture of the dealership’s objectives. Unless you only have 10 cars available.
Lastly, support maximising customer satisfaction by applying the Treat Customers Fairly (TCF) principle to support the overall CRM and growth strategy of your dealership.
Step 2: Align Your Dealership & F&I Manager’s Objectives
To start, your F&I manager needs to know that their objective and the updated incentive structure should highlight:
• Maximising new car sales
• Maximising the 2nd Gross Profit, not as an APU but as a total.
o For example, if a deal only has R1000 2nd Gross Profit then it should be a seen as a positive. This is because it moves you closer to your objective as opposed to a negative, as it drops your averages and commission.
• Maximising customer satisfaction by applying the Treat Customers Fairly (TCF) principles and selling as many products as possible, but only in terms of what the consumer actually indicates they want or need.
Based on the above steps, the following commission structures were considered by the dealership: (percentages and values are for illustrative purposes)
1. The total 2nd Gross Profit derived from DIC and Admin fees is put on a sliding scale from 1 to 5% (every deal done takes your commission higher). There is also an additional commission of a fixed rand value of R100 for every policy sold, except for warranties and motor plans which attracted R200, particularly as these supported the Workshop and encouraged overall customer satisfaction.
2. Pay the F&I manager no commission on 2nd Gross total, but rather R500 per car and then an additional R100 or R200 per policy sold.
3. Finally, consider introducing a penalty structure based on compliance scores that measured completed documentation, and client complaints or CSI scores if you get this data. This was on a negative 0 to 20% range of total commission earned.
I will not say which one they ultimately implemented, but both focus on the dealership’s objectives and both fit the requirements introduced by the FSCA in the GCOC amendments . Take control, do not let your partners in 2nd and 3rd Gross Profits influence the primary objectives of your dealerships or the actions of your sales team.
Many dealerships are also struggling with salesperson turnover and thinning new-car profit margins, as a result dealership compensation plans are changing dramatically. Ultimately, a salesperson’s pay plan is their job description. So, why not put the resource into the things that matter most? Also, bear in mind, that commission structures or pay plans and bonuses are important, but younger salespeople value consistent compensation and quality of life over working 60 hours a week – even with a huge paycheck.
But What About Moving Units & Making A Profit?
A salesperson’s pay plan should be based primarily upon productivity and performance in the areas they have an influence over, including:
• Units sold – to be a salesperson you have to sell something.
• Customer satisfaction – customers will not be coming back if the experience was unpleasant.
However, the secondary areas that a salesperson can influence in a deal are also important to the dealership’s overall profitability. Most dealership’s do not allow the salesperson to control the Gross Profit on a sale, this is usually the sales manager’s responsibility. However, consider that:
• Your salespeople can certainly impact front-end gross, so shouldn’t they be compensated on it?
• In most dealerships, the salespeople are not responsible for selling F&I products, but they can have a huge impact on the F&I departments ability to do so, shouldn’t they be compensated on it?
• If you want training to be important, it then also has to be part of your sales team’s job description or commissions?
• If you want good online reviews on search engines and social media platforms then these should also be part of your sales team’s commission considerations?
Obviously, the percentages you pay have to be based upon your dealership’s overall success and health i.e. the number of staff members you can support on duty and your expected performance levels. Hopefully, these thought starters will help as you formulate your new commission and/or pay plans for your team’s objectives though. Ultimately, this is how you will continue to move units and make a profit – growing from strength to strength as a successful dealership and keep clients rolling in the door.
To date, DFS provides FAIS compliance and representative services to more than 130 dealerships nationwide. For any advice regarding the important amendments to the motor industry GCOC, or any other questions or concerns you may have, including an objection or complaint you may need help with, contact us here .
