The payments nightmare hiding in dealerships... and costing millions

Welcome to another edition of expert insights from the Car Dealership Guy Podcast, an episode recap that breaks down the key takeaways from the conversation.

In this episode, Julie Douglas, President of Dealer Pay discusses the inefficiencies in payment processing that many dealers might not even be aware of, shocking trends in down payments for 2024, and more.

You can stream the full episode now on YouTube, Spotify, or Apple.

1. Entry into the car business.

Julie had an atypical start to her car business journey, although she joined the industry at a relatively young age. Her first job was selling copy machines, which taught her the skills needed to sell and serve customers. From there, she was recruited to Global Payments, where she ran the company’s auto dealer vertical for more than a decade. “That’s where I found my niche,” she recalls.

2. Why the payments sector is outdated.

While the road to founding Dealer Pay was challenging, Julie was deeply motivated to leave corporate life and become an entrepreneur for two reasons. The first was the technological stagnation that had occurred in the payments sector. “The problem in the industry is there were no actual solutions, no technology behind it,” she comments. “I was starting to lose business, to be honest with you.” The second was the lack of support that payment providers offered to dealers. “If there were issues with downtime, there wasn’t a phone number to call,” she remembers.

3. Embracing better technology.

Both of these issues can be resolved by adopting technology and strengthening relationships between dealers and payment vendors. On the tech side, virtual terminals, software platforms that replace the standalone terminal used by most retailers, are one of the best ways to drive efficiency in transaction processing. Switching to a digital solution provides better reporting and makes the delivery of payments to customers more efficient. It is also more convenient and saves more time than the traditional cashier’s office.

4. Constantly improving processes.

While payments might seem like a mundane aspect of auto retailer operations, they are also the last touch-point buyers have with the dealership. This makes it extremely important, from a customer service standpoint, to perfect the process. Unfortunately, the traditional system has plenty of flaws, many of which retailers might not even realize. Julie spent several years researching the problems each department in the dealership faces before using the knowledge she learned to design her point-of-sale system.

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You can register for CDK CONNECT at the link in our notes below or by visiting CDK.com/Connect.

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Dealer Pay – Designed to increase, productivity and customer retention, Dealer Pay is a "dealer-specific' payments acceptance solution with over 25 years of experience as a trusted payments partner for dealerships across the US. Contact Julie today - [email protected] or 636-442-4901.

5. Dealer expenses can range wildly.

Julie estimates clients can lower their payment processing costs by 10 to 25 basis points on average. With respect to time savings, one of her clients saved roughly 20 hours per week. But there are more hidden costs, like fraud attempts, that Julie also watches. “We’ve saved dealers $5 million in attempted fraud transactions,” she adds, “and…up to fifteen-and-a-half million dollars in processing fees saved.”

6. The “Shoe Strategy.”

One of the earliest lessons Julie learned in her field was that standing out makes a lasting impression and leads to more clients. She would implement this lesson into her sales career by creating the Shoe Strategy. “I came up with this strategy where I would send a dealership a shoe in the mail with a note that said, ‘I’m just trying to get my foot in the door,’” she explains. “I’ve had dealers call me back as soon as they open the package, and they’re like, ‘Can I hire you to sell for me?’”

7. Common mistakes with processing rates.

One of the biggest mistakes dealers make is failing to review their processing rates. “Fair to them,” Julie adds, “it’s like a jigsaw puzzle to look at, and the payment companies do that on purpose so that they don’t really understand what they’re paying.” By not checking what they’re being charged, retailers often don’t realize that their rates are being increased, sometimes as much as twice a year. Dealers are also often unfamiliar with the regulations covering payments: Julie recalls finding books in service departments filled with credit card numbers. “The breach fines and things that can come from that are just horrific,” she notes.

8. Current payments landscape.

The average dealership pays between 2% and 2.5% for payment processing. While many believe that American Express charges the highest processing fees, Julie notes that business and corporate cards are often worse. AmEx has also launched its OptBlue program for merchants, which combines its processing with other card brands to make statements easier to read and typically provides lower rates. But for dealers with average tickets in the $400 to $450 range, paying more than 2% generally means it’s time to look for a new provider.

9. Dealers don’t keep tabs on their payment processors.

While one would think higher-end dealers have a more refined process for evaluating expenses, Julie notes that this often isn’t the case. “I remember going into a Jaguar dealership and sitting down at the general manager’s desk,” she recalls. “He pulled out a statement, and I about fell out of my chair when he was paying close to 4%...and the sad thing is he had no idea.” Knowing and trusting your provider is crucial, as payment processors can easily take advantage of dealers without their knowledge.

10. The industry continues to change.

While down payments used to average $500, Julie estimates that most are putting down more than $5,000, although it depends on the car brand. Dealers are also allowing buyers to use credit cards for bigger and bigger down payments, which means evaluating payment processing costs is more vital than ever.

You can stream the full episode now on YouTube, Spotify, or Apple.

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