REST Primer for F&I

I have worked with more than a few APIs, both “F” and “I” – pretty much all of the product APIs, plus the original open standard for credit applications – and I write about them occasionally.  See here, here, and here.  Mostly these have been SOAP, but REST is the standard for a growing community of digital retail players.

The first thing you need to know about REST is that it’s not synonymous with JSON.  If you get this wrong, you can produce a really bad API.  I saw one once, where the developers had simply converted all their old XML payloads to JSON.  You could tell because every call was a POST, even the rate requests.

Why is JavaScript more successful on the Web than Java? It certainly isn’t because of its technical quality as a language – Roy Fielding

The key to REST, as you can read in Roy Fielding’s dissertation, is making appropriate use of the Web’s native HTTP environment.  Practically, this means knowing a little bit about HTTP and how to use its commands, URLs, parameters, and headers.  For a concise guide, see The REST API Design Handbook by George Reese.

Philosophically, it means thinking about your API in terms of resources and not services.  This is completely different from SOAP APIs, which are called web services.  For example:

  • GET rates from a product provider, but
  • POST a new contract, and then
  • PUT status codes on the contract to void or remit

Fielding’s achievement was not only to define the REST style, but to derive the style from a specific set of requirements: stateless, client-server, code on demand, etc.  If you have ever wondered why JavaScript has become so popular, it is because JavaScript satisfies the code on demand requirement.

When you build a RESTful API, you should never break existing client code. Really, never. You don’t deprecate – George Reese

The URL in a REST call looks like a path, so you can do groovy things like:

  • GET /rates/{dealer} – gets all applicable rates for this dealer
  • GET /rates/{dealer}/{product} – gets only one product
  • GET /rates/{dealer}/{product}/GOLD – gets only the Gold coverage
  • GET /text/{dealer}/{product}/GOLD – gets the rich text description for Gold

For some live examples you can run right now, check out the NHTSA Vehicle API.  It has many handy methods like:

  • /vehicles/DecodeVin/{VIN}
  • /vehicles/DecodeVinExtended/{VIN}
  • /vehicles/GetAllMakes
  • /vehicles/GetEquipmentPlantCodes/{Year}

Note that you are making the request with straight HTTP and a query string, and you can have the response as JSON, CSV, or XML.  The NHTSA site will also show you the headers, the raw data, and formatted data.  Your tax dollars at work.  You should also check out the Edmunds API, VinSolutions, and Fortellis.

  • //api.edmunds.com/api/vehicle/v2/vins/{VIN}
  • //api.vinsolutions.com/leads/id/{LeadId}
  • //api.fortellis.io/vehicles/reference/v4/vehicle-specifications/vins/{VIN}

These are all examples you can emulate if you’re just getting started.  In particular, I recommend studying how they handle authentication and versioning.  Note how they’re organized around resources and, if you have an OO mindset, think of your objects first.  You will also want to look at platform tools like Swagger and MuleSoft.

Tier One Digital Storefront

Today, we continue our discussion of digital retail, this time from an OEM perspective.  Suppose you work for Morris Motor Finance and you want to get in on the fun.  The most straightforward way is to subsidize your dealers’ use of a storefront.  Simply negotiate a discount with one of the leading vendors and supply it to dealers who meet their penetration goals.  You may already have programs like this, encouraging dealers’ use of a credit system or a menu.

In addition, you may want to add digital retail capabilities to your tier one website.  This is a bit of a balancing act.  The customer is here to see the full range of vehicles and accessories, along with your financing options and Morris branded protection products.  Once you make the turnover to a specific dealer, the selection will be limited.

So, either you drop downfunnel straightaway, like ShopClickDrive, and the customer is only looking at one dealer’s inventory, or you run the risk of promoting something that a specific dealer doesn’t have.

Another conundrum involves the display of pricing online.  Dealers have gotten used to the idea of disclosing MSRP for vehicles, and maybe finance rates, but there is still resistance to online MSRP for products.

I don’t need to tell you how to handle the Morris Motors dealer council, but you might want to assert a division of labor.  Your site is higher in the purchase funnel, where 22% of new car buyers will start their journey, and serving a different purpose.  Now let’s consider the six canonical tasks:

  • Choose a vehicle – The customer is not choosing a specific vehicle from inventory, but a generic new vehicle by model and trim, or a build vehicle. This is also the time to upsell accessories.
  • Price the vehicle – Using MSRP simplifies the design, but it also impairs accuracy. If the price changes, the dealer may recalculate the deal with his own desking system.
  • Price protection products – Show products before structuring the deal, because they will be financed, and you don’t want the customer fixed on a payment that doesn’t include products.
  • Value the trade – In this scenario, I would recommend a simple KBB lookup with the customer choosing “good” condition from a list, assuming that it will be revised in the dealership anyway.
  • Structure the deal – The goal here is basically to choose lease or retail and promote your offerings, plus any incentives. Unlike the dealer’s desking system, you don’t need to be penny perfect.
  • Organize financing – Obviously, you want first crack at the credit apps, and then you need an interface so you can feed the result into your dealer’s credit system. Send your declines, too.

Lastly, the customer will save the deal and transmit it to their chosen dealer.  It is really more of a “lead” than a deal, at this point, and you have a “lite” version of the digital storefronts we have been discussing.  I toss out the interface thing lightly, because this is my specialty, but you will have to choose whether to work with Route One, VinSolutions, Dealer Socket, etc.  Back to the dealer council…

Penetration Chart with Bokeh

I have been honing my charting skills lately, because Bokeh is so amazing, and looking for practical applications (outside my stock trading hobby).  Here’s one I found recently.  This chart explores the timeless question, “are product sales off because the dealer isn’t supportive, or are vehicle sales off, too?”

I am thinking of protection products, but the same question could be asked of finance contracts or, indeed, anywhere you need to consider “penetration.”  That is, the percentage of vehicle sales that are also sales of your product.

Are product sales off because the dealer isn’t supportive, or are vehicle sales off, too?

In this chart, we consider year over year change in contracts relative to the change in vehicle sales for a collection of dealers.  Bubble size indicates the size of each dealership in sales volume.  We’ll get to bubble color in a minute.  Also, note the horizontal and vertical zero lines.

The dealers in the lower left quadrant have an excuse.  Riverside, for example, is down 30% in product sales.  When you call them, though, they’ll counter that they’re having a bad year.  Volume is also down, albeit only 11%.

The dealers in the lower right quadrant have no such excuse.  Downtown, for example, is also off 30% but on much improved vehicle sales.  So, we can infer that penetration has declined, and color them a darker shade of red.  Similarly, although contracts are up at National, they should be up more considering the good year they’re having.  So, orange.

O’Malley is green because, while contracts are off a bit, vehicle sales are worse.  O’Malley is doing the right thing and ramping up products to compensate for weak sales.  What the chart shows on the X and Y axes is straightforward enough, but it shrewdly assigns colors according to the change in penetration.

Bokeh is the visualization library Python programmers use instead of R or Matplotlib.  The color scheme here comes from running its red, yellow, green “linear color mapper” diagonally across the chart from lower right to upper left.  Dealers where penetration is unchanged from last year are yellow, like College and Bellevue.

Moto Commerce Digital Retail

Moto Insight has uploaded a complete demo of their digital storefront, Moto Commerce.  This shows confidence that they’re not worried about being copied, or being anatomized by some smart-aleck software consultant.  Here’s how Moto handles the six key functions:

  • Choose a vehicle – Including accessories.  I write a lot about the importance of protection products, but accessories are important too, especially for certain brands like Honda and Subaru.  Everything is shown at MSRP but, because the site is customized for each dealer, I imagine there is some flexibility.
  • Price the vehicle – Including incentives.  No idea whose data service they’re using for this.  I usually recommend Market Scan, but it is possible to roll your own.  Rodo recently developed their own incentives engine.  I tried to coach one of my clients on this, but they wouldn’t do it.
  • Price protection products – Including digital content.  Not clear how finance term is linked to protection term.  Customer could choose, say, 36 months of GAP on a 72-month deal.
  • Value the trade – They use Trade Pending, which I mentioned here, but they also offer a condition quiz with the ability to upload photos.  This is very strong because it allows the Used Car manager to bid on the vehicle during the online experience.
  • Structure the deal – The calculator is always running and continuously updates the monthly payment.  This is one approach to the nonlinear workflow problem, but it also means the customer is looking at an inaccurate payment throughout most of the shopping tasks.
  • Organize financing – Here, again, it’s hard to have confidence in the payment until we’ve processed a credit app.  The demo shows the customer choosing term and rate, as if his credit tier is already known.  Moto pushes to Route One and Dealertrack, but it should also pull.

Overall, Moto is a solid online shopping experience.  It does not literally sell the car, in the sense of doing the paperwork, but it does produce a complete, deliverable deal.  Next, the customer can reserve the vehicle, save the deal, and make an appointment.

The in-store version of Moto uses the same pages, making a seamless “omnichannel” experience for the customer.  This means it’s a potential replacement for your desking and menu systems.  Customers can also begin the process in-store, and take the deal home.

I’ll close with Andrew’s hook from the video.  Imagine your dealership offers this experience, and the other guy has only a lead form.  Which do you think the customer would rather work with?

What is a Digital Storefront?

A digital storefront is a complete car buying experience that can be bolted onto the dealer’s existing web site, and integrated with the dealer’s instore process.  It must support all six of the canonical car-buying tasks:

  1. Choose a vehicle
  2. Price the vehicle
  3. Price protection products
  4. Value the trade
  5. Structure the deal
  6. Organize financing

This is not always a linear process, as I explained in Workflow for Online Car Buying, and not all customers will use the full process, as Andrew Tai explains in this video, but the storefront must support whichever tasks the customer chooses.  Details about the six tasks are given here and here.

… delivering an omnichannel experience that is unmatched and, we believe, will be the future of car buying – Bill Nash

When you think of a good online process, like the CarMax omnichannel sales experience, these tasks are a native part of the web site.  Dealers that don’t happen to be CarMax can offer an online process by bolting a storefront onto their existing web site.

As far as I can tell, this innovation is due to Roadster, but they are no longer alone.  Roadster’s Express Storefront went up at Longo Toyota two years ago.  TagRail, Modal, and Moto also compete in this space.  TagRail and Modal both brand their offerings as “digital checkout.”

By “bolted on,” I mean to include the various techniques used to move the customer from the dealer’s web site into the online buying process.  Modal is actually named for a programming technique, the modal window, and Roadster uses a link.

The transition, however, must not look like it’s bolted on.  Roadster shows a good example, here, of preserving the dealer’s original site design.  I can tell it’s Roadster by looking at it, and programmers will notice the “express” subdomain, but this is a seamless transition for the customer.

Also seamless should be the transition across platforms and into the dealership, an experience known as “omnichannel.”  Think of a credit plugin like Auto-Fi.  It allows the customer to apply for credit on the dealer’s web site, and also updates Route One in the dealership.  You never want to redo a task the customer has already done online.

For a storefront there are multiple potential integration points – inventory, CRM, desking, menu, and credit.  The customer may start a deal on the web and then walk in to finish it, or vice-versa.  They may engage the storefront on a tablet or kiosk in the dealership, and finish it at home.  The goal is to support all six tasks wherever the customer chooses to do them.

Clampdown Looms for F&I Markup

NADA recently published a policy guide for protection products and we should commend the association for being proactive.  Highlights are below but, if you’re a practitioner, you must read and heed the full document.

  • Consistent presentation, i.e. use a menu
  • Prominent disclosures like the AutoNation pledge
  • Consistent, non-discriminatory pricing
  • Detailed waiver explaining any variance from standard pricing

Why?  Because otherwise dealers and lenders may be prosecuted.  NADA cites the $11 million Santander GAP settlement and the U.S. Bank deceptive marketing settlement.  I can see this going the way of dealer reserve.  Regulators will force lenders to restrict dealers’ discretion in setting markups.

NADA and others have warned on F&I markup since 2013, when the CFPB issued its first subpoenas on the topic, and last year the National Consumer Law Center published their report, subtitled: How dealer discretion drives excessive, arbitrary, and discriminatory pricing.

The chart above is one of several alleging discriminatory pricing in F&I.  As for lender pressure, the NCLC paints a big target on Ally Financial, reminding their readers that “state and federal authorities should investigate … and bring enforcement actions.”

Good operators will not have much to change for the model policy.  The recommended new waiver is a bit cumbersome, but the rest of it is already best practice, like menu selling.  The AutoNation pledge has been around for fifteen years.  Frictionless cancellation is discussed here.

In addition to regulatory pressure, there is also competitive pressure on F&I markup.  I’ll cover that in a later post.  On the bright side, AutoNation is near $2,000 a copy and their compliance has always been excellent.  So, no excuses.

Spinoff Startups in F&I

The popular notion of a startup is two guys in a garage, like Hewlett and Packard, but this is not always the case.  Sometimes a mature company will give birth to a new business unit.  I did some foundational work for Dealertrack and, at that time, it was the eCommerce department of Chase Auto Finance.  In fact, a number of the startups I’ve worked with have been F&I spinoffs like Dealertrack.  Today we’ll explore these for common themes and lessons learned.

One common theme is the role of outsourcing.  You can begin with a core team, plus service providers, and then insource the functions systematically over time.  I was an early employee of BMW Financial Services, which began as a department of the sales company and all functions outsourced to GE Capital.  The head of this department, Kevin Westfall, had a plan to bring the operation under his control as a new entity with a new service provider.

I was recruited from Coopers & Lybrand, which was tasked with selection and contract administration for the service provider – outsourcing the outsourcing, so to speak.  After a few years at BMW, I followed Kevin to AutoNation and the same strategy.  We outsourced Funding, Customer Service, and Collections to World Omni, but kept staff functions and the Credit department in house.

You have a lot more autonomy managing a service provider than you do with permanent staff on the parent company’s org chart. 

Outsourcing isn’t magic, though.  If you can’t manage the function in house, then you probably can’t manage contracts and SLAs either.  On the other hand, this is a great way to get around the parent company’s hiring restrictions.  They may not be willing to hire the requisite staff for, say, a Collections department, but will sign a flexible contract with a service provider.  Also, to be frank, you have a lot more autonomy managing a service provider than you do with permanent staff on the parent company’s org chart.

McKinsey’s Meffert and Swaminathan write about “breaking the gravitational pull of the legacy organization,” and this is such an apt metaphor.  Many at BMW viewed the breakaway department with suspicion.  There was political pressure to keep Kevin under control of the Finance department, an obvious misalignment, and passive resistance from some of the others.  It was important in this case to set up our own HR department, and move it out of town.

It was the same story at AutoNation Financial Services.  We had our own IT, Finance, Ops, and Marketing plus dotted lines to the respective “real” departments of the parent company.  This gravitational pull is normal organizational behavior.  Managers are always starved for headcount and, since the new initiative is hiring, they want their piece of it.

When your army has crossed the border, you should burn your boats and bridges, in order to make it clear that you have no hankering after home.

When ANFS was shuttered in 2002, most of our crew was absorbed back into the parent company.  Obviously, having an escape route like this is not conducive to the kind of commitment required by a startup.  Insert Sun Tzu quote here.

There was no such option for two of my consulting accounts, Route One and Provider Exchange Network.  Route One, for example, was manned by senior managers from various captives.  There was not much chance of these guys going back to their old jobs if Route One were to fail.  I am thinking in particular of the founding CEO and CIO, Mike Jurecki and Joel Gruber.

Joel retained me as a subject matter expert in online credit systems, to work on the outsourced (there’s that word again) development of Route One’s core system.  I called on Joel a few years after the project and we talked about the career risk he had taken.  By that time, I was involved in a startup of my own, with no small amount of risk.

Paradoxical though it may sound, we believe companies need to take more risk, not less.

McKinsey cites the top ten ways to fail at digital transformation, and “excessive caution” tops the list.  It’s my personal belief that you can never achieve anything unless you’re willing to take a risk for it.  In any case, a big, risk-averse corporate parent is certainly going to impede the new unit.

Provider Exchange Network, likewise, was staffed by people hired for the purpose.  We had, from the outset, our own IT, Finance, and Marketing.  We did, however, run our hiring through the excellent HR department of Reynolds and Reynolds, and this is maybe the counterpoint to my arguments about autonomy.

The parent company is unlikely to have functional expertise useful to the new venture but, where it does, you should use it.  BMW had zero expertise in consumer finance, but they had a terrific Legal department.  At AutoNation Finance, we made good use of our parent’s FP&A capability.  Also, the spinoff may be designed specifically to exploit some asset of the parent company, like its dealer network or OEM relationships.

So, my takeaways on this topic are:

Group Cohesion – The new unit should be united around a common purpose, with people hired for the purpose or as a breakaway department.

Cutting the Cord – The spinoff will have to win some turf battles with parent company managers who refuse to let go.

Leverage Legacy Assets – On the other hand, take advantage of the parent’s core competencies, especially those that are hard to duplicate.

Outsourcing – Find partners.  Rent to own.  McKinsey and others have stressed the importance of thriving in an entrepreneurial ecosystem.

Take Risks – Fortune favors the bold.  No shortage of clichés here but, seriously, all of the literature talks about new initiatives that move too slowly and become roadkill.

I recognize that these points are open to some interpretation.  They’re based, as you see, on my firsthand experience.  That’s some good experience, though, so if you’re doing an F&I spinoff maybe you can profit from it.  Best of luck.