Fewer cash buyers, more F&I opportunity

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The number of vehicle buyers who pay cash continues to shrink, a favorable trend for F&I departments since cash buyers don’t generate dealer reserve; tend to be less loyal than lease or loan customers; and don’t qualify for a guaranteed asset protection plan, a mainstay F&I product.

Experian Automotive said last week that cash buyers -- defined as “no lender on title” -- made up 15.2 percent of new-vehicle purchasers in the third quarter, down from 16.9 percent in the 2012 period and down from 22.8 percent in the third quarter of 2011.

On the used-car side, cash buyers stayed about the same at 47.4 percent in the third quarter, down from 47.7 percent in the 2012 period. In the third quarter of 2011, cash buyers accounted for 50.3 percent of used-car sales, Experian said.

F&I trainers teach finance managers to try and talk customers out of paying cash.

Tony Dupaquier, director of F&I training for the American Financial & Automotive Services Inc. in The Woodlands, Texas, says F&I managers should regard a cash deal in the same way they view a customer’s F&I product refusal: as an objection to be overcome. “It’s an objection to me, and it should be an objection to you,” he said of cash transactions at an F&I conference recently.

For instance, Dupaquier suggests presenting the benefits of GAP to customers as an argument against paying cash. GAP pays the difference between what a customer owes on his or her car and what the car is actually worth if the car is totaled or stolen. If a cash buyer’s car were to be totaled or stolen, he or she could lose a lot of money.

“Instantaneously, if your car got totaled on your way home, are you comfortable losing $12,000 and turning it over to your insurance company? Most customers will ask what you’re talking about,” Dupaquier says.

Ray Borg, business manager at the Suburban Collection in Troy, Mich., says F&I managers shouldn’t give up on cash customers for other F&I products, either.

“Cash buyers still have all other products made available to them -- service contracts, wheel-and-tire, dent-guard, etc. -- and are usually pretty receptive to fixing the cost of ownership upfront for unexpected expenses and long-term resale value of their car,” Borg told Automotive News in an e-mail this week.

Ted Mixon, business manager at Ourisman Ford-Lincoln in Alexandria, Va., advocates pitching F&I products to cash customers, too.

The number of cash buyers increased during the recession as credit became harder to get, in particular for borrowers with subprime credit. Some auto lenders had trouble borrowing, especially the preferred lenders for General Motors and Chrysler, as the automakers went through bankruptcy in 2009. Most auto lenders pulled back in general.

Experian Automotive measures the number of auto buyers who paid cash by looking at vehicle titles. Strictly speaking Experian tracks titles with no lienholder -- that is, no lender -- on the title, which implies a cash transaction. Experian said the category could include some customers who get a direct loan from a credit union or some other direct lender. The customer pays with a check, which means it looks like a cash transaction, but the customer retitles the vehicle later, with the lender as lienholder.

“Nearly 85 percent of loans in the third quarter were titled with a lienholder,” Melinda Zabritski, Experian’s senior director for automotive credit, said during a Webinar on Dec. 12. “In today’s market, consumers rely very heavily on automotive lenders to purchase their vehicles.”

You can reach Jim Henry at autonews@crain.com.

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