Credit card processing and chargebacks create a uniquely tough, dealer-unfriendly system—dealers are often “guilty until proven innocent” while costs and dispute handling move fast. Hosts break down why processing is “one of the most complex opaque challenges” (interchange fees, assessment fees, processor markups) and how dealership statements can hide true costs like “merchant services.” They also share practical tactics: measure an “effective rate,” respond quickly (email beats late mail), and focus on high-risk areas like service and vehicle purchases.
In this episode of the Industry Spotlight, joining host Sam D’Arc are Nathan Johns, CFO of Smith Auto Group, and Justin Feist, President of Auto Dealer Payments, to discuss how credit card processing is the "last frontier" of dealership expense management, yet most CFOs struggle to decipher their 20-page monthly statements.
This conversation pulls back the curtain on how processors use "price creep" to erode margins and why dealerships are structurally disadvantaged in the world of chargebacks.
We break down how to audit your effective rate and implement a defense strategy to reclaim lost profit without selling a single extra car.
This episode of the Car Dealership Guy Podcast is brought to you by Auto Dealer Payments.
Auto Dealer Payments - Auto Dealer Payments exclusively works with automotive dealerships, providing simple, transparent, and best-in-class support for payment processing. Visit @ here for more information and to schedule a meeting.
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Topics:
04:20 Why Credit Card Processing Never Gets Audited.
05:40 The 20-Page Statement Nobody Reads.
06:05 Why Your Processor Only Lowers Rates When You Leave.
07:10 The Line Item That Made Justin Investigate.
08:00 Why Dealerships End Up In 1-800 Support Hell.
09:30 The “Local Relationship” Costing You Thousands.
11:45 Why Chargebacks Hit Service Departments Hardest.
12:45 Guilty Until Proven Innocent.
14:40 The 20% Win Rate That Can Jump To 80%.
16:00 The $5,000 Monthly Chargeback Exposure.
18:40 Why Your Processor Raises Rates Twice A Year.
24:30 The $21,000 Per Million Hidden Cost.
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"if you ask most dealership CFOs what their effective credit card processing rate is you'll get a blank stare. Well, that's not a knock on them."
When a dealer takes payments by credit card, there are fees. The “credit card processing rate” is basically the overall percentage cost of those fees.
In auto retail, the credit card processing rate is the effective percentage cost dealers pay to accept card payments. It’s influenced by multiple fee layers, so two dealers can see very different “effective” rates even if they use similar payment setups.
"Credit card processing is one of the most complex opaque challenges in automotive retail between interchange fees, assessment fees and processor markups."
Interchange fees are part of what credit card companies charge every time someone swipes or taps a card. Dealers usually can’t control these fees, but they affect how expensive card payments are.
Interchange fees are the fees credit card networks charge for each card transaction. Dealers typically don’t set these rates; they’re a major component of the total cost of card acceptance and can vary by card type and transaction details.
"between interchange fees, assessment fees and processor markups."
Assessment fees are extra charges from the credit card networks for processing transactions. They’re another piece of the total fee dealers pay when customers use cards.
Assessment fees are additional charges credit card networks levy on top of interchange. They’re typically calculated per transaction and are another reason the dealer’s true “effective” processing cost can be higher than expected.
"between interchange fees, assessment fees and processor markups."
Processor markups are the extra fees the payment company adds on top of the credit card network’s fees. Different payment providers can charge different markups.
Processor markups are the additional fees payment processors add for handling and routing card transactions. Even when interchange and assessment fees are fixed by networks, markups can vary by processor and contract terms, changing the dealer’s effective cost.
"In this episode we discuss why expense management is the last real frontier where dealers can move the needle without selling a single extra car."
The hosts are saying dealers can make money improvements by controlling costs. They’re going to focus on credit card fees and related expenses as a big opportunity.
This is the episode’s core framing: dealers can improve profitability by tightening expense management rather than relying on selling more cars. It sets up the payment-fee and dispute-risk discussion as a practical cost-control target.
"and why in the world of credit card disputes dealerships are guilty until proven innocent."
Credit card disputes are chargebacks where a cardholder (or their bank) challenges a transaction and requests the payment be reversed. In dealership retail, disputes can create cash-flow and margin hits because the dealer may have to prove the sale and authorization details to win the case.
"Joining me today are Nathan Johns CFO Smith Auto Group and Justin Feist President at Auto Dealer Payments."
Smith Auto Group is the dealership company where the guest works. The episode uses their experience to talk about credit card fees and disputes.
Smith Auto Group is the dealership group where Nathan Johns is CFO, and it’s used as the real-world example for the episode’s discussion. The episode frames how dealer finance leadership manages payment costs and dispute risk.
"Props to Auto Dealer Payments for supporting today's content."
Auto Dealer Payments is the company sponsoring the episode. They’re connected to the payment side of dealership operations, which is what the hosts are discussing.
Auto Dealer Payments is presented as the sponsor/supporting company for the episode. It’s directly tied to the payment-processing ecosystem dealers rely on, which is central to the discussion about processing costs and disputes.
"And so having worked in the industry, both in dealerships and with an OEM, we have an understanding of the business."
OEM means the car maker itself—the company that builds the vehicles. The host is saying they’ve worked both at dealerships and with the car maker’s side of the business.
OEM stands for “original equipment manufacturer,” meaning the automaker that builds the vehicles and sets many of the rules for how dealers operate. The speaker says they’ve worked with an OEM, implying familiarity with dealer processes and customer transaction support.
"So let's talk about one pain point in automotive that is automotive specific chargebacks. I think all industries probably have it. Automotive, it's unique, right?"
A chargeback is when a customer tells their credit card company, “I don’t agree with this charge.” The card company pulls the money back, and the dealer has to show proof to fight it.
In auto retail and service, a chargeback is when a customer disputes a card transaction and the payment is reversed back from the dealer/merchant. Dealers then have to provide documentation to prove the work or transaction was handled correctly.
"Yeah, mostly at service, for sure. Customers that say we maybe didn't fix the car right, the first at the end of the repair."
Here, “service” refers to the dealership’s repair and maintenance department, where customers pay for work performed on their vehicles. The episode notes that this is where chargebacks most often recur, typically tied to disputes about whether the car was fixed correctly the first time.
"Then we'd have to try to recreate what the heck happened 10 days ago at our Chevy store or Honda store, seriously, try and find it."
“Chevy” refers to Chevrolet. The speaker is talking about how their dealership handles disputes for Chevrolet repairs.
“Chevy” is the consumer-facing brand name for Chevrolet, a major automaker whose vehicles are sold and serviced through dealerships. The speaker references a “Chevy store” to describe how they track and respond to chargebacks tied to specific repairs.
"Then we'd have to try to recreate what the heck happened 10 days ago at our Chevy store or Honda store, seriously, try and find it."
Honda is the car brand. The speaker is using “Honda store” as an example of the dealership’s repair work that might be disputed.
Honda is an automaker brand with dealerships that perform vehicle service and repairs. In the segment, “Honda store” is used as an example of where the dealer has to reconstruct prior work when a chargeback arrives.
"So with chargebacks, the dealership is guilty until proven innocent. So meaning that money comes out of the dealership bank account right away. And then it's up to the dealership to prove that this transaction was legitimate..."
It means the dealership gets hit first—money comes out right away—then they have to prove they did the right thing to try to get the funds back.
In the chargeback context, “guilty until proven innocent” describes the process where the dealership’s money is taken first, and the dealership must then prove the dispute is invalid. The episode frames this as a major disadvantage because the dealership has to respond quickly with documentation and evidence.
"And you have to address that within your response to get the best result."
A chargeback response is the dealership’s paperwork to explain why the customer’s dispute shouldn’t be approved. The better you address the exact reason for the dispute, the better your chances.
A chargeback response is the dealership’s formal submission to the bank/card network explaining why the dispute should be denied. The episode emphasizes that the response must address the specific reason the customer initiated the chargeback to improve the outcome.
"So we often are responses mentioned that the dealership has a, you know, at a minimum of 12 month, one year workmanship warranty, right? And then we go through the call logs..."
A workmanship warranty means the shop stands behind how they did the repair. If the work they did doesn’t fix the problem, they’re supposed to make it right.
A workmanship warranty is coverage for the quality of the repair work itself—if the job wasn’t done correctly, the shop is expected to fix it. In the segment, the host says dealerships can cite a workmanship warranty when responding to a chargeback dispute.
"And then we go through the call logs, if we need to and say, hey, this, this customer never notified us of the issue."
Call logs are the dealership’s record of when they were contacted. In a dispute, they can help show whether the customer reported the problem in time.
Call logs are records of customer contact attempts (phone calls, timestamps, and sometimes outcomes). Here, they’re used as evidence in a chargeback response to show whether the customer notified the dealership about the issue.
"Another thing, Justin brought some updated card machines. It's made us feel like we're in the real world a little bit more with our customers. Can you do Apple Pay now?"
Apple Pay lets people pay with their iPhone or watch by tapping at the register. If a dealership can take it, it can make buying faster and easier for customers.
Apple Pay is a mobile payment system that lets customers pay by tapping a phone or smartwatch at a contactless terminal. For dealerships, supporting Apple Pay can reduce friction at checkout because customers increasingly expect tap-to-pay options.
"Hey, Nathan, or Justin, what do you think about surcharging? That's a big trend in automotive today. Do you recommend it?"
Surcharging means charging extra money when someone pays with a particular method, like a credit card. Some businesses do it to cover fees, but it can be tricky because rules and customer reactions vary.
Surcharging is adding an extra fee to a customer’s payment when they use certain payment methods, typically credit cards. Dealerships discuss it because it can offset card processing costs, but it’s controversial and may be regulated depending on location and card network rules.
"What percent of auto groups across the country, in your opinion, based on your experience,
[1504.6s] do surcharging? Yeah, JD Power estimates that it's at 35% right now."
JD Power is a research company that tracks industry trends. In this segment, they’re being used as a source for how many dealerships use credit card surcharges.
JD Power is a market research company that publishes industry statistics, here used to estimate how common credit card surcharging is among auto groups. The key takeaway is that surcharging adoption is widespread enough to be a meaningful industry practice.
"If a dealer principal or GM is listening right now and has never
[1514.7s] audited their processing setup, what are the first three things they should do this week,"
An audit here means checking how the dealership’s credit card system is set up and what it’s costing them. The point is to spot problems or extra fees they can reduce.
Auditing a processing setup means reviewing how the dealership’s credit card payments are handled end-to-end, including fees and how transactions are routed. In practice, it’s a way to find hidden costs and inefficiencies in payment processing.
"I would say, yeah, the first thing is to know how much your pain in that
[1525.9s] effective rate model, or so, know how much per hundred your pain, that's key, right?"
This is a calculation of what credit card payments really cost the dealership, expressed as a percentage. It helps them see whether they’re paying too much and where savings might come from.
An effective rate model is a way to calculate the real, all-in cost of card processing as a percentage of each transaction. The segment frames it as “pain” per hundred dollars, so dealers can quantify savings from changes.
"The other thing I would do is walk around and talk with your staff and ask them how their
[1557.3s] credit card terminals are working."
These are the machines in the dealership where you pay with a card. If they’re not working right, payments can be delayed or handled inefficiently.
Credit card terminals are the in-store devices used to swipe, dip, or tap cards and communicate with the payment processor. If terminals aren’t working properly, transactions can fail or be processed in a less efficient way, increasing costs and friction.
"because dealerships run thousands of transactions a month, and so we need line item
[1578.0s] level detail."
It means seeing the individual pieces of information for each transaction, not just one big total. That helps dealers figure out exactly what’s costing them money.
Line item level detail means breaking down reporting so each transaction (and sometimes each fee component) is shown individually rather than only as totals. For dealerships handling thousands of transactions, this granularity is important for identifying where processing costs are coming from.
"And a lot of dealerships are stuck in the live and die by the batch report or the
[1590.7s] printed receipts."
A batch report is a grouped summary of many card payments processed together. The point here is that it’s not detailed enough for dealers to understand what’s happening transaction-by-transaction.
A batch report is a summary of transactions processed together in a group, typically produced at the end of a processing cycle. The segment criticizes relying on batch reports or printed receipts because they limit the level of detail needed to manage processing costs.
"you can go price shop and call Justin, call your merchant processor, call someone and get some quotes from him."
This is the payment company that processes the card transactions for the dealership. Dealers can compare quotes from processors to see who charges less.
A merchant processor is the company that handles credit-card payments on behalf of the dealer, including routing transactions and charging processing fees. The hosts recommend getting quotes from your processor to understand and benchmark your costs.
"A lot of times you get lost in the basis point conversation, but you really need to know, as a dealership operator, what, how much am I paying per hundred?"
Basis points are a way to talk about tiny changes in percentages. The point here is: don’t obsess over small “rate” changes—watch the total cost you’re actually paying.
A basis point is a unit used to describe small changes in rates—1 basis point equals 0.01%. The hosts caution that dealers can get distracted by basis-point rate talk instead of focusing on the actual effective rate they pay.
Why Credit Card Processing Never Gets Audited.
The 20-Page Statement Nobody Reads.
Why Your Processor Only Lowers Rates When You Leave.
The Line Item That Made Justin Investigate.
Why Dealerships End Up In 1-800 Support Hell.
The “Local Relationship” Costing You Thousands.
Why Chargebacks Hit Service Departments Hardest.
Guilty Until Proven Innocent.
The 20% Win Rate That Can Jump To 80%.
The $5,000 Monthly Chargeback Exposure.
Why Your Processor Raises Rates Twice A Year.
The $21,000 Per Million Hidden Cost.
Select text to request an explanation
Hey everybody, welcome back to the industry spotlight. I'm your host Sam Dark and today
if you ask most dealership CFOs what their effective credit card processing rate is you'll
get a blank stare. Well, that's not a knock on them. Credit card processing is one of
the most complex opaque challenges in automotive retail between interchange fees, assessment
fees and processor markups. Most dealers are paying more than they should and they have
no idea why. In this episode we discuss why expense management is the last real frontier
where dealers can move the needle without selling a single extra car. The biggest threat hiding
in the frontier and why in the world of credit card disputes dealerships are guilty until
proven innocent. Joining me today are Nathan Johns CFO Smith Auto Group and Justin Feist
President at Auto Dealer Payments. Props to Auto Dealer Payments for supporting today's
content. Now let's get into it. So Nathan, before we get into the issue that brought
us here today, tell us a little bit about who you are, where you are and what you do, Nathan.
Yeah, so I'm work here at Smith Auto Group. We have five rooftops total. We have an RV store
and a Chevrolet store, Honda store. I started out as a young college student, worked through
my degree at Idaho State University and just kind of grew up in the business, you know,
going from desk to desk within the office. Accounts receivable, accounts payable, taking
on more and more projects. And you know, here we are 20, G's 25, 26 years later.
And I'll tell you, it's a thrill for me to have you on the Cardinalship Guy podcast because you
and I have a relationship. I did business with Smith Auto Group in my prior life at Zurich.
We had an insurance relationship and I would meet with Stafford, who I think is not the current
presidency of Smith Auto Group. I think it's been passed down to his son, who I think is
taking the realms, but it's been fun to watch your success over the years, Nathan, and see
you start from the point you talk about to now being a CFO of a large group that has a huge impact
in that Eastern Idaho marketplace. So let's start here. There was a moment where you said, hey,
our credit card processing is not serving us well. What was that moment in time and what was
kind of the economic circumstance or what was the marketplace issue that brought that up to your
attention? Yeah, so we had gotten stronger, you know, with our team, our managerial team,
financially stronger as well. And we had been looking at opportunities to grow the business.
We found a Ford and a Ram store across the state, about 350 miles away.
And we had a non-disclosure. So that made it even tougher, right? So we couldn't even tell
anyone really until the day before the day we showed up. The acquisition. But as we were going
through this, I started questioning banking, flooring, credit card processing, credit
bureaus, you know, just started questioning everything, because I was kind of starting
from scratch, you know, I just decided that point in time after we got through this transition,
that took about 99 to 12 months, I'm going to start picking away at some of these things. So
nine months later, I we swapped our banking from a national bank to regional bank. And then that to
me, then Justin just walked in our door, he actually cold called the store and the operator,
the GM over there, he brought me his card, you know, a week later and said, hey, this guy might be
able to help us. So what is it about credit card processing and that whole process that,
why isn't it questioned more, right? So, you know, insurance is on an annual renewal, FNI,
you go through on a regular basis, even your forms, uniforms in the back, there's sort of a
competitive bidding process. Why did it take that new acquisition for you to kind of say, hey,
I need to look deeper at this and how much it's costing us? Yeah, I mean, and the thing is,
I get a phone call 456 times a month from credit card processors, right? My bank,
the new regional bank, they hit me up, right? We want your flooring and we want your banking,
we also want your merchant processing. So I actually, that's kind of what spurred it, like, okay,
we also aren't getting the service that the new bank provided. It was difficult to get these
new accounts set up with the new dealership. So we're gonna jump in through some hoops that I
thought were just silly. And so that was part of what made you say, hey, we need to look at a
different option. So walk us through what a processing statement actually looks like when
it hits your desk. I've heard it's over 20 pages, I don't look at it on a regular basis.
Yeah, I mean, it's got transaction, it's got card types, there's a million different types of card
types. It's got the fees on it at the back end as well as long as the details of the
daily transactions, if you will. What's the effective rate? What does that mean? Most
dealers I talked to genuinely don't know what their effective rate is. Did you before you
went looking? Yeah, I mean, and I had tracked that with our previous, I've got spreadsheets dating
back to like 06 when we started it. And so over time, every few years, I just talked to our,
you know, our client or friend, and he said, yeah, I'll take care of you. So he'd drop our price,
you know, here and there, and I'd get an occasional quote from that merchant or that bank or whatever,
then he'd just match it, right? Had you not caught it and brought it up, he wouldn't have matched it,
right? Exactly. Yeah, there's price creep, right? Justin, you spent seven years at GM
corporate analyzing dealership financial statements. When you looked at processing
line items across hundreds of stores, what did you see the other people were missing?
So when I was working with dealerships, one of the year-end metrics that we were graded on was
dealership profitability. And so one of the things that you can manipulate, obviously,
is revenue coming in. But the other thing you can do is expenses. And so we had a big meeting
kind of talking about this new thing we were working on or grade we were getting as a general
motors rep, and it was dealership profitability. And so one of the things they mentioned was
expenses, right? So shopping vendors. And so at that time, I had no idea what credit card
processing was whatsoever. Didn't know the dealership was billed for it. But I saw this
line item on their credit card process on their financial statement that said merchant services.
So I started asking questions and that eventually led us to shop with a bunch of different processors
and banks and kind of really exposed me to the industry and lack of transparency, lack of support.
So when you started to dig that apart, what is it about automotive that makes automotive
underserved by this processing world? And what makes a dealership different from like a restaurant
or a regular retailer when it comes to payments? Yeah, most credit card processors are kind of
generic. They focus on everything. But in reality, we know the dealership business is super unique.
There's so many different aspects, businesses within the business.
And so that was a gap not only on the like initial sales and quotes, but also in the support.
So generally, the dealership is kicked to a 1-800 number support after the initial sale.
So kind of think like the compared to the mortgage industry, right? You have a
the guy that you're a guy or gal you're talking to up front. And then once you actually sign the
paperwork, they kick you off to a loan processor. And the only reason that you would get a hold of
that original person if the deal is going to fall through. And so that was the the gap, right?
So 1-800 number supports different than you know, what was promised up front by the actual sales
person talking with the dealership? So, and this question is for both of you,
just being devil's advocate on here, a lot of dealers I think say, hey, you know, my credit
card processing, it's fine. My rates fine. There are bigger problems than there truly are today in
2026 than focusing on that, you know, multi-page statement that comes across once a month.
What do you say to that dealer? And Nathan, what do you what did you say before you dug into it
as a problem? Nathan? Yeah, I mean, I, you know, I feel like as a CFO, it's my responsibility to
check these line items, right? Yeah, I feel like consistently, I've done that over the years.
And it was just time to, you know, based off of some of the things I've learned as I've grown
and developed and learned things that just felt like maybe it's time to dive in a little bit.
The changing our bank was a huge deal for us. And I, and that was like, we had a relationship
there as well. And that was kind of hard to transition. So that kind of gave me the courage
to maybe next, take the next step with the local guy who, you know, who we've had
relationship with for 12 years or so. Yeah. And by the way, it's tough to break a local
relationship, but sometimes there can be a lot of money on the line if you do, right?
Yeah. And how big a deal Justin, do you see our local relationships? When you think about a
relationship, especially in the car business where we're serving local communities versus
something that makes more financial sense, it's a struggle sometimes for dealers to do the thing
that makes better financial sense and walk away from that relationship. Yeah.
Right. Yeah. The local, the local guy per se, you know, they have a relationship with them,
but they may not be specific to dealerships, right? So there's a lot of knowledge and support
that goes into it. It's not their fault. Yeah. Right. Yeah. They might be working with restaurants
and all sorts of stuff, but dealers are a different animal. And so having worked in the industry,
both in dealerships and with an OEM, we have an understanding of the business. And so when
we're consulting with a dealership, we're asking a whole bunch of questions to try to
make it easier for customers to transact with them, have better support, and then also save them
some money on their processing. So let's talk about one pain point in automotive that is automotive
specific chargebacks. I think all industries probably have it. Automotive, it's unique, right?
So Nathan, has the Smith Auto Group, have you taken hits on chargebacks? And where do you see
the biggest, most recurring chargebacks coming from? Service, FNI, deposits, where are you seeing
those? Yeah, mostly at service, for sure. Customers that say we maybe didn't fix the car right,
the first at the end of the repair. I can't even think if there's any deals that have come back.
I've heard of them in my 20 groups and such, but for us, it's been mostly service. Do you have one
person or role that handles the chargebacks and fights those when they land? Is there a play
bat book or is it just whoever opens the email on the chargeback? Yeah. Well, it used to be,
we'd get a letter in the mail that was dated on day one and we get it day 10 and we got like 15
days, right? So then my office manager had opened that up. Then we'd have to try to recreate what
the heck happened 10 days ago at our Chevy store or Honda store, seriously, try and find it. Now,
I mean, heck, I get an email the next morning. I get an email, we log in, there it is, right? We can
attack the issue right then. It's so much easier. So it has made our lives so much easier.
So Justin, that's a good adaptation on process. Walk us through the chargeback process from a
dealer's perspective and tell us where do most stores, where does the average store lose the
chargeback case before it even starts, Justin? Yeah, a lot of it is not knowing that it happened.
So as Nathan discussed, you'll get a letter in the mail, right? And so maybe the financial office
is not actually at that specific location. And so they don't know about the chargeback at all
happening. So with chargebacks, the dealership is guilty until proven innocent. So meaning that
money comes out of the dealership bank account right away. And then it's up to the dealership
to prove that this transaction was legitimate or we performed the work. And so that's kind
of the major gap. And so with us, this is kind of a passion project of mine. We notify the dealership
via text and email, and so that they're aware right up front. And then they can start attacking
and grabbing the paperwork. And we assist in that because there's specific reasons why the
customer decided to do a chargeback. And you have to address that within your response
to get the best result. Nathan identified a common or reasonable reason for a chargeback,
which is, hey, I brought my vehicle into the shop, it's got 80,000 miles on it,
they've repaired something, but it didn't fully fix the problem. That's not a legitimate cause
for a chargeback, is it? Well, to a customer and the customer's eyes, it is right. They said,
you know, we want to do the right thing. So if they ain't happy, we need an owner.
But Justin, how does a dealership defend themselves against that? They performed the repair,
they did the repair, they did a good job to the best of their ability. Maybe there was another
issue with the vehicle, and now we've got to continue dragging the problem. How do you defend
yourself financially from a claim of chargeback? Yeah, so the first is response and responding
to it. So we often are responses mentioned that the dealership has a, you know, at a minimum of 12
month, one year workmanship warranty, right? And then we go through the call logs, if we need to
and say, hey, this, this customer never notified us of the issue. And we have a warranty in place
where if that customer does have an issue with the work performed, then we take care of it.
But they didn't notify us, for example. And so we include that all in our responses back for
the chargeback. And we have a lot of good success. So the industry average for chargeback winning
for the dealership is 20%. When we get involved, it goes up to 80%. And the big thing is that
you're, you're guilty until proven innocent. So it's up to the dealership to respond. And in a lot
of cases, a response doesn't even happen. That's, it's interesting. Time kills deals in automotive
and time kills chargebacks, right? I would think because it makes it to Nathan's point too, tougher
to like uncover the full narrative if we're not finding out about it for two weeks after or three
weeks after the text that's props to you guys. What does the dollar exposure look like in automotive
versus other industries? I guess we in automotive are way more exposed just because of the ticket
sizes, I would think. Right, Justin. The average transaction now for dealerships is north of a
thousand dollars. And so that's your, that's your average chargeback exposure. So even if you don't
have like a process issue that, you know, gets identified in like CSI scores or you're seeing
stuff at your dealership, chargebacks can really hurt the dealership. And I call it like the
hitting costs of credit card processing. If you don't have something in place, if you're not notified
in a timely manner, it's just money going off the table. And typically dealership has anywhere
from a thousand to $5,000 of exposure in chargebacks. And so that's one of the things that we attack.
And again, it's a pet project of mine because the work was performed or the vehicle was delivered.
And so the dealership really has earned that money. And so we feel like it's theirs to keep.
And that's where we get involved. So as an expert in the field, talk to us a little bit about
prevention versus management. There are probably things, are there things that a dealer could do
up front to avoid that chargeback in the first place? Absolutely. So of the chargebacks we get
involved with about 80% of the ones the employee remembers, like they had a bad feeling about it.
And so the big thing is for that employee to pause, take a minute, consult their management if they
need to, and really look at what can we do on the front end before we actually check the customer
out to manage those chargebacks. Okay. Okay. Good tips. Well, Nathan, let's transition to what
good looks like in this space. When you started evaluating processors, what did, so you started
to kind of pick through this as part of the acquisition. When you were looking at, hey,
this is what I want, what were you looking for as an ideal partner and what were non-negotiables in
that as you were looking? I mean, because of our relationship, it comes down to price, right?
Like, I felt like if we were going to make a change, it had to financially help our position
just because of our relationship. So, and little did I know, to be honest, Justin brought convenience
too. And there was some convenience issue as well. It wasn't as high on my pecking order, if you will.
That is interesting in automotive house. Sometimes the things you don't know are the
things you end up appreciating the most, right? So, as an example, I would think that text message
with the chargeback, being able to reduce the time to attack that. Was there anything in the
contract terms, Nathan, as you were looking around that you found fine print on processing
agreements that surprised you? No. Justin walked me through it. So, I run them through the ringer.
I told them that this is what we're thinking. I need time to process it and talk to our other
provider. And then they hit me hard on the backside coming back as I told them we're going to leave
them. Justin just was patient with me and with us as we worked through that decision.
Which is interesting because prior, every time you got a rate increase with them,
they would match it and you'd stay. So, really, a strategy for some of the vendors out there is
to wait till they get hit, match it, and then everybody walks away. They were probably surprised
when you said, no, it's really happening. It's really happening. So, Justin, you built this
auto dealer payments. When you did this, you made some structural decisions that kind of
ran contrary to some of the best practices in the industry. So, month-to-month agreements,
no rate increases, flat rate pricing. Walk us through why you decided to adopt those different
strategies as it relates to, again, month-to-month, no rate increases, and flat rate pricing.
Yeah. So, I had the opportunity to sit through a bunch of meetings with credit card processors
while I was still at General Motors. And so, I had the dealership lens on things and identified a
whole bunch of weird trickery type contracts and situations. So, the first one was just the
complexity at all. It seemed like there wasn't a straightforward answer of how much we're going
to pay. It was all like basis points, talk, and it depends on this card, this card. And so, that's
where kind of the ideas started to trigger. So, we are month-to-month, right? We want to earn your
business on a monthly basis with our service as well as our pricing. And then, we don't have
contracts, obviously. And then, for flat rate pricing, one of the things that came up was
this evolved over the years is that you want to give a concrete answer to the dealership of
how much they're going to pay. And by flat rating all the different card types, all of the different
ways to accept, it gives you a concrete answer where you can say, dealership, you're going to pay
this amount per hundred that you accept in a card. And we're very confident in that because
there's no variation. So, Justin, let me ask you this. Those elements, month-to-month, no rate
hikes, free equipment in some cases, how does that math work for you as a processor? I mean,
there's got to be a reason most processors are doing the opposite for a reason.
Yeah, the average credit card processor will raise rates two to four times a year. And that's just
strictly them trying to capitalize on, you know, we call it shareholder value, right?
Okay. So, it's not tied to actual expenses they're incurring themselves. You would argue.
So, credit card processing fees are pretty stagnant. And if anything, with some of the
new legislation and talk, it's, you know, going down a little bit. So, there's no reason for a
credit card processor to raise rates unless they want to increase the profitability per account.
And that's what happens with a lot of these publicly traded or venture capitalists funded
credit card processors is that they're just trying to squeeze every penny out of
their current clients rather than kind of doing the hard work of acquiring more business.
So, the local guy and the people that many of us work with that is delivering that increase
once a year, twice a year or whatever, hoping it sticks, but then matching it on the way back down,
that's just an attempt to get better margin. Exactly. Yep. And then safety guard yourself,
the processor in a contract, right? And so, you don't have to deliver the support because they're
baked into a three-year, five-year contract. And it's just not dealer-friendly. It doesn't make
sense. Why would you go with a business that's going to lock you into a contract when their
service could fluctuate so much? All right. So, a little bit of a different approach, Nathan.
We appreciate you bringing this to us as a best practice, having solved the pain of, you know,
increases in credit card processing and just challenges trying to figure out exactly what is
that rate. You've lived with this model a little while. What surprised you, Nathan, good or bad,
versus what you expected? After we went through the no-contract thing again and again and again,
you know, before we agreed to move with them, and then I told them, okay, I want a one-month review.
So, we did that. The numbers came as stated, right? I'm like, there's got to be something.
So, we did a two-month review. Numbers came as stated, three-month review. So, we did back-to-back
to back. Then I told Justin, okay, I want a quarterly review. So, in that quarter, we reviewed
that, those numbers again, and they just continue to be right as where he quoted. There's nothing.
So, you don't have to micromanage it, which frees you up time.
Yeah, not anymore. Yeah. Yeah. And my team, they've called Justin, like, he'll call me and say, hey,
I talked to the RV store today, or a few days ago, I didn't even know there was a problem,
like, yes, you know, we're in the past, it'd be like, sometimes we'd call that 800 number,
never get a response. Then I'd get an email, and then I'd try to contact our guy, and then he'd go
contact them, you know, it's just a circle that doesn't have to happen. Yeah. So, Nathan,
since the change, has anything operationally changed at Smith because of how this program is
structured, not cost savings, but process, staff time, anything in that world? Yeah, for sure.
Another thing, Justin brought some updated card machines. It's made us feel like we're in the
real world a little bit more with our customers. Can you do Apple Pay now? Yeah. Everybody's asking
for that. Yeah, yeah, some places can, some places can't. Yeah. Yeah. Hey, Nathan, or Justin,
what do you think about surcharging? That's a big trend in automotive today. Do you recommend it?
Do you advocate for it? So, I take the approach of, like, there's two different options for you
to choose from a dealership. So, you can either do the traditional where the dealership pays all the
fees, or a credit card surcharging model. There's still a ton of savings that we can do in the
traditional. So, like, the Smith Auto Group we saved about 20% a month, but I leave it up to the
dealership. All right, there's not a single dealership that's probably not know about it or
considering doing a surcharge, but it's just up to them. Yeah, yeah, it's their dealership to run,
it's their customers to, you know, satisfy or handle. And so, it's really up to the dealership.
What percent of auto groups across the country, in your opinion, based on your experience,
do surcharging? Yeah, JD Power estimates that it's at 35% right now.
Okay, so back to both of you. If a dealer principal or GM is listening right now and has never
audited their processing setup, what are the first three things they should do this week,
April of 2026? I would say, yeah, the first thing is to know how much your pain in that
effective rate model, or so, know how much per hundred your pain, that's key, right? If you're
probably over 2%, there's a lot of room to improve or 2.5%, there's a lot of room to improve. So,
just to give you a perspective on the math, for every 0.1% a dealership saves, and say they do
a million dollars a month, that's an additional $1,000 in expense reduction. So, it can be massive.
The other thing I would do is walk around and talk with your staff and ask them how their
credit card terminals are working. Like, I am shocked all the time that I will walk into a
dealership and like, the staff is like, yeah, this thing hasn't been working for six months,
and they just kind of are figuring out. So, those are kind of the two high-level things,
and then also talk with the business office to see what could be easier about the reporting that
they're getting, because dealerships run thousands of transactions a month, and so we need line item
level detail. And a lot of dealerships are stuck in the live and die by the batch report or the
printed receipts. It doesn't have to be like that anymore. We digitize everything automatically,
and so it saves so much time. So, Nathan, CFO to CFO, those CFOs who are listening,
you know, as someone who's gone through this, you've looked at the statements, you've experienced
the savings, the process benefits, the reduced charge backs. What's advice for someone in your
seat who's never gone line by line yet? What would you say to that person? It comes down to
what's my fees and what's my volume? Fees divided by volume gives your effective rate,
and if, like Justin said, you know, and then you can go price shop and call Justin, call your
merchant processor, call someone and get some quotes from him. They come deluded, though,
that's the problem, you know, Justin. And 20 plus pages. Yeah, yeah. Just to give you one number for
Chevy and one number for Honda, and, you know, it's been, it's been great. What's the red flag,
Justin, in a processing statement that means a dealer's overpaying, even if everything in that
20 to 30 page doc looks normal? The big thing is just to focus on what you're actually paying.
A lot of times you get lost in the basis point conversation, but you really need to know,
as a dealership operator, what, how much am I paying per hundred? That's the, that's the gold
standard. That's how you should be looking at it. And so if you're over 2%, which I've seen dealerships,
you know, upwards of four or 5% just because of those constant rate increases. And it's one of
those things that often gets put on like the to do list, but things come before it. And so it
just continually creeps up and you don't really notice it until it's too late. Alright, so as we
get towards wrapping up, I want to go through just a little bit of a lightning round. So this is for
both of you. What is the effective rate every dealer should benchmark against Justin? Let's start
with you. I would say anything over 2.5%, they're leaving money on the table. Okay, okay. Agree with
that, Nathan? Yeah, yeah, for sure. And to me, where I have, I have four or five different locations,
you know, I was benchmarking against myself and I'd go to 20 groups, of course, and just tried to
glean off information wherever I could. But very cool. Alright, biggest single charge back risk
in a dealership in 2026 today? The biggest exposure would be a new vehicle sale, depending on how
much they're, they're putting on it. Fortunately, there's so much documentation that you can win
those back. But it's the day to day service stuff. So maybe there's a misunderstanding. The big one
that I see a lot is the manufacturer should have covered this under warranty, right? And so, but
now that it's a customer pay job, and the customer is dissatisfied with that. And so having those
conversations with the customer upfront is important. So you mentioned the vehicle purchase can be
the single biggest charge back risk. What do you see as being the most common limits to the amount
a customer can charge to a credit card for a down payment on a vehicle? Yeah, that's probably the
number one question I get is how much should we allow on a down payment? And there's really two
things to consider. One, you need to know how much you're paying in fees. And so that you don't blow
up the deal based on credit card processing fees. And then the second thing is the exposure, right?
So if that customer were to potentially do a charge back, that's debited out of your account
right away. And so what are you looking at for exposure? Like, how much are you willing to take?
And then Nathan, as we wrap up one question for you, what's one thing every dealer's accounting
office should be doing that 90% aren't as you think about this processing world credit cards?
Yeah, I mean, it's taken the time to investigate, right? Investigate those fees, that effective rate.
Like I said, you know, I've built a spreadsheet and I'd run them through every 24 months,
12 months, sometimes it's 36 months and I'd make that call. But it's just that. And to be honest,
the other thing that I had 68 logins, right, for two per store. Now I have one login,
and I can go between store to store with Justin's system. So that alone, just logging in took
time and now I just, I log in and I can go from store to store real quick as well. So that's made
it easier as well. Very cool. Well, you know, it's interesting because this is definitely an area
that's not top of mind for a lot of dealers because it kind of sits hidden away in the financial
statement. And it's interesting to me too, because unless it becomes a major pain point vis-a-vis
the things you talked about, Nathan, expense, creep, process, or terminal stop working, it's
just not something you think about, but there's so much potential revenue hiding in there either
by reducing friction in the process or even through, you know, surcharging. This is definitely
an area that is worthy of looking at. And both Nathan and Justin, we need to get you on Daily
Deal Live to come talk about this a couple of times, just kind of a quick hit. We'd love to
have you back on one of those shows. So Nathan, John, CFO, Smith Auto Group, Justin, Vice President
of Auto Dealer Payments. Thanks for being real about this topic that most dealers don't get until
it costs us. I'm Sam Dark and this has been the CDG Industry Spotlight.
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