Looking for a new F&I product? Mull this

Consider this a free idea -- the kind that hopefully somebody out there takes and develops and uses to make a lot of money.

Dealers need to offer new-vehicle customers a kind of “CarFax” protection plan that spares them from the inevitable dings to vehicle equity that are now commonplace in an age of nearly unlimited information.

Here’s how it should work:

“John” is buying a new car, and he’s sitting in the F&I office at the local dealership finishing up the deal.

Being a savvy customer, John knows that the value of his new car is going to drop significantly the second he drives it off the lot, and he’s fine with that. He wants that new-car smell, after all.

But what John doesn’t know is that, two years from now, a teenager with a cellphone in his hand will rear-end John’s car as he’s sitting at a stoplight. John won’t be at fault, of course, and John will have his car fixed, his damages likely paid for by the teen’s auto insurance company.

Yet because of reporting services such as CarFax, the trade-in value of John’s car has now dropped, regardless of the severity of the collision or the quality of the repair. The insurance company hasn’t compensated John for his misfortune -- it only fixed his car. His lost value is all coming out of his pocket.

But let’s go back to that original transaction in the F&I office.

What if the dealer had offered John a protection plan that covered the relative spread between what his car would be worth on trade at the same dealership with a clean CarFax report vs. a slightly blemished report that shows his vehicle was involved in an accident.

In pure monetary terms, it’s probably a few hundred dollars’ difference, depending on the vehicle and the extent of the damages. But from the dealer’s perspective, selling John such a plan would ensure that when John is ready to get a new car, he has a monetary incentive to return to the dealership where he purchased his current vehicle.

And because the dollar amounts should be relatively small, possibly the dealer would tell John he didn’t have to use his CarFax protection plan at all; he could apply a full refund to the purchase of a replacement vehicle.

Look, I’m not an F&I expert, nor an actuary, so I can’t say what the cost of such a policy would be or its terms and conditions. But what I do know is this: There are car buyers who benefit from the information provided by CarFax and other such reporting services, and car sellers who don’t.

This could be a way to turn what would be a negative experience into a positive one for far less than it would cost to incentivize John and people like him to come back in the dealership door again.

You can reach Larry P. Vellequette at lvellequette@crain.com -- Follow Larry P. on Twitter: @LarryVellequett

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