3 trends that spell F&I opportunities

LAS VEGAS -- Dealerships can’t afford to overlook three industry trends in pursuing healthier F&I product sales, a panel of F&I executives said here last week.

They are:

1. Higher-mileage trade-ins. The average car on the road is more than 11 years old, according to the R.L. Polk Co. That means trade-ins are older, too.

“Average age is a big factor,” Joel McGlamry, vice president of finance operations for Hennessy Automobile Cos., said at the F&I Industry Summit hosted by Bobit Business Media.

The aging fleet cuts both ways, McGlamry said. It drives replacement demand, but it also means dealerships need affordable F&I products such as extended-service contracts to cover older, higher-mileage trade-ins.

Separately, some F&I administrators have said they are offering extended-service contracts for older cars or powertrain-only coverage for vehicles as much as 10 to 15 years old.

Limiting coverage is a way to keep products affordable, speakers said. They said the informal definition of “high mileage” has gotten higher because quality and durability have improved. But inevitably there’s a point where customers don’t want to pay for a high level of coverage on a lower-cost vehicle.

“I would define ‘high mileage’ as any car we would only want to provide coverage for for one to two years -- that is, 110,000 to 130,000 miles,” said Alan Bond, national sales vice president for Houston-based GSFSGroup, which administers and sells F&I products and training.

2. More leasing. All things considered, dealerships like the fact that leasing is making a comeback, since lease customers come back to replace their vehicles more often and on a predictable schedule.

However, lease customers typically don’t buy extended-service contracts because the new-car warranty usually is in force the whole time they have the vehicle. They also don’t typically buy GAP because it’s included in most leases.

On the other hand, lease customers are good candidates for lease-protection products, informally known as wear-and-tear coverage, and for tire-and-wheel policies, especially for luxury brands, speakers said.

McGlamry of Hennessey Automobile Cos., which has 11 stores in and around Atlanta, said dealerships should set realistic targets for their F&I departments, depending on whether a retail delivery is a loan or a lease. “You should have a different target for leases,” he said. “You do lose the service contract, which is something we focus on.”

3. Competition with independent, used-car stores. Dave Duncan, president of Safe-Guard Products International said independent, used-car dealers are becoming much more sophisticated. He cited the example of an independent dealer who buys a former Saturn store, or some other GM dealership that got terminated in GM’s 2009 bankruptcy reorganization. The Chrysler Group also terminated hundreds of dealerships.

“They’ve got service bays. They’ve got floorplan. They’ve got DealerTrack, so no more faxing credit apps,” Duncan said. “More importantly, they’ve got the Internet. ... They’ve got hi-res pictures of their inventory online. They’ve got a rate calculator online. It’s a level playing field, and they want to do F&I.”

DealerTrack routes credit applications online between dealers and lenders.

Meanwhile, franchised, new-car dealerships are taking older cars in trade. That puts franchised dealerships more directly in competition with independent dealerships, Duncan said. He told the audience of lenders, F&I administrators and franchised dealership employees, “You cannot ignore any longer the independent space.”