Banks hunt ways to set F&I products apart
For some big banks, financing is not enough.
They want a piece of the F&I product business, specifically with sales of vehicle service contracts. But it's not easy to break into that product segment, because most finance and insurance managers have long sold service contracts offered by the vehicle manufacturer or its captive finance arm, an outside vendor or even the dealership itself.
If a dealership is willing to look at a new player in the service-contract field, there's plenty of competition from other banks, credit unions and upstart third-party vendors.
Banks therefore need an angle, some way of distinguishing their offerings from rivals'.
Take Warranty Solutions, a Wells Fargo business. It has marketed vehicle service contracts to agents who then market those products to dealers since the bank bought the business from GE Capital in early 2008.
Wells Fargo declined to say how many dealers sell Warranty Solutions products, saying only that the company has "several thousand active franchise and independent dealer relationships across the United States." The company offers a variety of vehicle service contracts and guaranteed asset protection, or GAP.
In 2009, Warranty Solutions launched EcoMind to set itself apart.
EcoMind protects consumers and the environment, a statement on the company's Web site asserts. EcoMind provides additional mechanical breakdown coverage for parts that help vehicles run more efficiently, burn fuel more cleanly and cut emissions, the statement says.
For $75, the contract covers such components as vapor emissions canisters, catalytic converters, mufflers and exhaust pipes.
And with each EcoMind purchase, Warranty Solutions donates 25 trees to the Arbor Day Foundation. More than 450,000 trees have been planted in the United States since the program started in 2009.
While Wells Fargo tackles environmental concerns, Banco Santander aims to set itself apart with service to dealers in the form of customizable products.
About two years ago, Santander Consumer USA, the finance unit of Banco Santander, launched its vehicle service contract products. A year later, it added GAP, says Vince Meglio, national sales director of Santander Consumer USA in Dallas.
Meglio says about 10,000 dealers signed up to offer the products, vs. the 14,000 dealers that Santander works with on vehicle financing. The 2012 penetration rate was around 9 percent, but he says the program is in growth mode, with sales steadily increasing each year.
Santander offers three service contracts: Premium, platinum and bronze. The bronze is a basic powertrain coverage that retails for about $1,100. Platinum, a more bumper-to-bumper plan, costs consumers about $1,995.
But Meglio says Santander's products stand out because the lender allows dealers the ability to tailor contracts to customers.
"For a lot of dealers, even those who have a specific vehicle service-contract company they are used to working with or the owner has their own product, customers still want flexibility and choice," Meglio says. "That's a comfort to them."
Santander's dealer "Extranet" lets finance managers personalize service contracts, Meglio says.
The Extranet is a system that allows finance officers to communicate with Santander's finance department. The finance officer inputs the vehicle identification number and the various contracts Santander offers on the vehicle, and prices for each appears.
"It allows them to be more flexible in pricing," Meglio says. "We thought about that in the first stages: 'How can we tailor ourselves on a day-to-day basis to dealers?'"
Santander's next goal is to expand its products to a larger base of dealers, Meglio says.
"A lot of other companies sell the vehicle service-contract product and they're very good at it," Meglio says. "We're new to the game, but we are going to give you a very high level of service."
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