Illinois bad credit auto loan

Byline: Mac Gordon

Confronted by the new wave of caps on loan income, dealers have shown this year how resilient they can be in overcoming hurdles and seizing opportunities in their F&I offices.

With finance income under pressure and regulatory attacks on F&I practices on the rise, dealers have been helped by their lenders to weather the profit-threatening storm. Both captive and non-auto maker lenders have stepped up their counseling and training programs, the result is rising returns in F&I this year for both Ward's Dealer 500 and 100 Megadealer surveys.

Paul Taylor, chief economist of the National Automobile Dealers Assn., reports F&I average gross per-vehicle rose to the $800 level this year, while the six publicly-owned megadealers all hoisted their first-quarter averages closer to the $1,000 threshold per-vehicle retailed.

AutoNation CEO Mike Jackson says his 287-dealer network, the nation's largest, boosted its per-vehicle gross by $51 from a year ago to a record $939 in the first quarter.

Reflecting a mood spreading across the U.S., Jackson says every AutoNation store has focused on training and retraining in the selling of all F&I products, as well as complying with full-disclosure regulations.

F&I providers are stepping up their dealer counseling and training programs to expedite the transition and contribute to the rise in dealer F&I revenues. Bill Stoothoof, F&I vice president of Universal Underwriters Group, says that the 82-year-old company's new "streamlined selling system" has introduced an 8-minute video presenting all items on the F&I menu.

"The video shortens the selling process and has dramatically increased our dealers' revenues and grosses per vehicle," says Stoothoof, a former F&I manager.

"In addition, we have stepped up our training courses at dealerships or in locations serving several dealers," he says. "We're averaging one training session around the county a week. F&I managers report it helps with F&I grosses and with disclosure issues, as well."

F&I's role in the dealer financial scene was underscored in June when Asbury Automotive Group, one of the six publicly owned megadealers, named its F&I vice president, Thomas G. McCollum, president and CEO of the 67-year-old McDavid auto group in Texas.

Asbury CEO Kenneth B. Gilman says F&I has been the "fastest growing part of our business" during McCollum's tenure. The McDavid group consists of 11 franchises in Austin, Dallas and Houston.

That dealers are scrambling to maximize F&I revenues and keeping from being overly investigated or pilloried while doing so is evident in the publicity given alleged misdeeds over the past year. "F&I scandals," as they've been called, have prompted three large states - California, Illinois and New York - to consider legislation that dealers fear could sully the F&I process even more.

In California, where AutoNation's Power Chevrolet (nee Gunderson) in El Monte was the site of a high-profile F&I packing raid in 2000, a bill would require disclosure of the lowest credit rates available from lenders; cash price and monthly cost of any F&I service or product; disclosure of a customer's credit score; and a ban on dealer commissions for arranging loans.

A New York bill would compel dealers to disclose actual dealer profits on F&I loans and products. The Illinois attorney general wants dealers to disclose the difference between buy rates and consumer prices.

NADA's Southern California director, John Symes, a Cadillac dealer in Pasadena, cautions against trying to retain 4%-5% markups now that the climate has brought about 2%-3% caps among megadealers and many lenders.

"It's too easy to shop for the best APR," says Symes. "Packing a higher rate, even if it's legal, will lose customers."

Former F&I consultant, Henry Primeaux, a Chrysler-Dodge-Jeep dealer in Bristow, OK, urges dealers to resist lawmaker proposals attacking loan reserve markups altogether.

"We cannot defend the differences in rates," he continues. "That is the lenders' job. We must defend the way we do business. The consistent 1%-2% profit we charge does just that. If dealers add four to five points to each deal, I hope they see where problems will arise."

In an effort to become closer to its dealers, DaimlerChrysler Services is introducing a "mind of the dealer" program designed to tune in DC field personnel with client needs and tastes on an ongoing basis. (See page 40.) JM&A Group is sponsoring more in-house training sessions than ever before, events that megadealer Tom Kelley of Fort Wayne, IN, says "have become vital to bolstering F&I revenues and penetration." Kelley's flagship store handles Buick, Pontiac and GMC.

Pressures to raise F&I penetration, revenues, profits per vehicles - while at the same time avoiding factory chargebacks - will remain in the auto retail game, F&I trainers tell their students. But F&I trainer Rebecca D. Chernek says: "You don't have to break laws to break records."

Chevrolet dealer John Seretti says Universal Underwriters programs helped him increase credit insurance penetration 25% and service contract penetration 10%. "PVR (Per Vehicle Retailed) has grown, too," he says.

Jim McDavid, vice president of North American sales for JM&A says that, in the current climate of some F&I practices coming under scrutiny and investigation, "Dealership F&I offices must finetune their legal compliance."

He adds, "Unfortunately, 98% of dealers are doing everything they can to do the right thing and take care of their customers. It's that 2% that's giving everyone a bad rap, and a lot of them aren't doing it on purpose; they're just not paying attention. "The credibility of the car business has come so far in 20 years. Can we do better as an industry? Yes. But dealers are so customer-focused and customer-driven today. Sometimes that's understated."

McDavid is confident the industry will "work its way through" the current woes. Meanwhile, JM&A is conducting legal seminars across the country.

"We just did one for the Virginia Auto Dealers Association, and it was a packed house," he says.

Steve Finlay contributed to this story.

What's First on the F&I Menu?

By Mac Gordon

Many publicly owned dealership chains, captive lenders and major dealers - in the wake of lawsuits and bad publicity - have begun capping loan reserve rates at 2%-3% levels.

This has solved one problem but created another. Income from F&I loans and leases is certain to be reduced. To offset that blow, dealers should re-focus their F&I offices on other profitable services and cost-reducing steps.

Megadealers already have realigned their F&I menus. Selling more extended service contracts, credit life and disability insurance, GAP and maintenance agreements have been pushed hard by lenders and F&I trainers.

Service contracts, however, face sales hurdles in the form of improved quality among Big Three vehicles and generous extended basic warranty coverage on Hyundai, Kia and Mitsubishi brands, as well as most top luxury brands. Opening an F&I sales pitch with an extended service contract presentation could invite "who needs it?" objections right off the bat.

That's where it behooves F&I managers, who have been drilled and re-drilled on the need to comply with full-disclosure practices and avoid "hidden packing" practices that can lead to legal troubles, to recast their menus and sales techniques.

At the Dealers Resources F&I school, based in Northville, MI, veteran trainer Jeannine L. Dailey advises students to present credit life and disability insurance as the first product on the menu.

"It's a peace-of-mind product that can be crucial if claims develop," says Dailey, a former F&I manager whose presentation is regarded as one of the most insightful and productive by alumni and other F&I trainers.

"Too often, credit insurance has been downplayed in the F&I sales process, or ignored entirely," Dailey says. "But claims are growing and families are often being stuck for payments when the breadwinner is disabled or deceased.

"Premiums can be added to loan payments, of course, and the cost of credit life and disability remains relatively low. Of all the insurance products on your menu, that's the one you should pursue right at the top, because even the youngest buyers can be shown examples of claims paid when accidents or serious illness occur."