Vendors, lenders and zero-sum game

Jim Henry is a special correspondent for Automotive News.
Some aftermarket F&I vendors have deals with lenders to add an extra amount to a vehicle loan to help finance their products.

Seems like a pretty solid strategy in the current climate.

Why? Because lenders aren't inclined to lend at the levels they did just a few years ago (take a look at the table below.)

Just to recap, the size of an average auto loan is shrinking when compared with the value of the vehicle. In 2006, lenders were willing to finance 94 percent of the cost of a vehicle. Today, that number is closer to 87 percent.

So unless lenders agree ahead of time to finance aftermarket products, buyers could be looking at a zero-sum game when adding an extended service contract, anti-theft device or a GAP policy means taking something else out.

Bigger down payments, tougher F&I sell

Lending institutions are less likely to offer generous loans now than in the four previous years, as declining loan-to-value percentages show. F&I managers are keenly aware of the figures. Smaller loan amounts mean buyers must provide a bigger down payment. That makes it harder to finance F&I products as part of the loan.
Percent of a new-vehicle's value lenders are willing to finance
May 2010 (preliminary)87%
April 201088%
2010 Q1 avg.89%
Source: Federal Reserve