More dealers offer trade-in protection after automakers shelve it
Some dealership groups are starting to offer trade-in protection to car buyers, a concept that until recently only had been offered by automakers, such as Hyundai and General Motors.
"Five years from now this is going to be just another F&I product, like GAP or service contracts," said Randy Hoffman, executive director of Ed Morse Automotive Group in Fort Lauderdale, Fla. "But for right now we seem to have the jump on it."
Family First Dealer Services in Ponte Vedra Beach, Fla., markets and distributes trade-in protection to dealerships. CEO Tony Wanderon said last week that 75 to 100 dealerships have signed up to sell it since the company introduced the product late last year.
In layman's terms, trade-in protection is guaranteed trade-in value. GM offered trade-in protection for one month, April 2009, as part of a bigger promotion called Total Confidence. Hyundai added trade-in protection as a feature to its Hyundai Assurance Program about a year ago. Hyundai later scaled back its use of the concept but still offers it on its most-upscale models, the Equus luxury sedan and Genesis Coupe and convertible.
Trade-in protection is not the same thing as "walkaway" coverage, which was another feature of both GM's Total Confidence program and the Hyundai Assurance Program. Starting in 2009, the Hyundai Assurance Program allowed customers to return their cars and walk away from their loans if they lost their jobs. Ford Motor Co. followed suit but ultimately dropped the coverage, as did GM and Hyundai.
Trade-in protection is purchased when a car is new. It covers negative equity on the same car at trade-in time, up to a stated limit -- for example, $2,500. Negative equity means the customer owes more on the car than it's worth.
There are other restrictions on trade-in protection besides a dollar limit. Depending on the contract, customers also have to pay off half to two-thirds of their auto loans before they use the offer on a trade-in.
The Morse Group's Hoffman said that for a dealership, there are two key advantages. First, customers have to return to the selling dealer to get the benefit. Second, customers are more likely to buy another car sooner if they know they can get out of their negative equity.
He said it's too soon to tell how many customers will take advantage of the program at trade-in because the retail group only started offering the program a few months ago. But he said new-car customers generally are receptive to the idea. "Everybody can relate to what it would be like to be upside down," he said.
Family First was not involved with the Hyundai Assurance Program.
Wanderon said when trade-in protection is sold separately, retail prices range from $600 or $700 to about $1,100, depending on coverage. He confirmed that, like other F&I products, dealer cost is roughly half that amount.
He said some dealerships sell trade-in protection separately. Others, like the Ron Tonkin Family of Dealerships in Portland, Ore., offer a base program, which covers up to $2,500, at no extra charge. Tonkin customers can buy an upgrade to a $5,000 limit, he said.
Hoffman said Ed Morse Automotive does it both ways. Some stores in the group sell trade-in protection separately, and some offer it as standard. He said those that sell it separately have a sales penetration rate of about 25 to 30 percent.
The Morse Group is No. 63 on Automotive News' list of the top 125 dealership groups with new-car retail sales of 9,297 in 2011; Tonkin is No. 96 with sales of 7,028.
You can reach Jim Henry at email@example.com.