A few months ago, a dealer who discovered his F&I manager was selling a year's worth of prepaid car washes for $3,000, put this question to F&I trainer Ron Reahard: "Do I have a problem?"
"You have a huge problem," the president of Reahard & Associates, in Soddy Daisy, Tenn., said he told the dealer.
"I guarantee you that people who are paying $3,000 are being misinformed, or they're not being informed, or it's being hidden somewhere. Nobody in their right mind is going to pay $3,000 to run their car through a car wash."
The car washes were supposed to retail for $199 and the F&I manager was fired, Reahard said. "You have to have some checks and balances to make sure somebody isn't doing something stupid," he said.
Unsavory tactics in dealership F&I departments aren't as commonplace as they once were, industry insiders say, a response to regulators' tighter scrutiny of auto finance practices over the past several years. Still, wrongdoing happens. And when it comes to light, it often leads to class-action lawsuits, investigations by state attorneys general, heavy fines and tarnished reputations.
But make no mistake about it: Many dealerships strive to do the right things the right way.
F&I done right
Take Ken Garff Automotive Group in Salt Lake City, for example. The group works hard to maintain a culture of honesty and integrity, said Danny Cox, senior director of F&I. New F&I hires take Reahard's three-day training class and sign documents outlining the group's policies, procedures and what it expects of employees. F&I employees must complete weekly online training sessions covering things such as F&I menu presentation, compliance, how to handle objections and proper disclosures, in addition to other periodic compliance training, he said.
Ken Garff Automotive employees are taught to offer every F&I product to every customer, every time, Cox added.
The company holds employees accountable for their actions, and the penalty for violations such as forged documents and missing down payments is "one strike and you're out," Cox said. "We've had to let people go in the past per our policy."
Ken Garff Automotive is No. 8 on Automotive News' list of the top 150 dealership groups based in the U.S., as ranked by new-vehicle retail sales in 2016.
Unscrupulous dealership behavior "is not as prevalent as it was 20 years ago," said Terry Dortch, president of Automotive Compliance Consultants Inc. in suburban Chicago. But he urges dealers to be vigilant.
"If you look at your monthly financial statement and you see your gross profit at an abnormally high number, or your F&I dollars at a ridiculous off-the-chart number, then you've got to think that something is going on," he said.
Ian Lyngklip, senior attorney at Lyngklip & Associates Consumer Law Center in suburban Detroit, said most auto finance fraud cases he sees involve spot delivery — the practice of allowing a consumer to take possession of a vehicle before financing is complete — coupled with "yo-yo financing."
Yo-yo financing happens when a dealership notifies a customer days or weeks later that their original deal has fallen through and they must either surrender their vehicle or accept less-attractive financial terms.
Consumer credit applications that have been "enhanced" — in terms of income level or employment, say — sometimes by F&I managers, are often among those rejected by lenders, Lyngklip said. Dealers should be prepared to finance spot delivery deals in-house if they can't find a lender as required by law in Michigan and "most states," he said. They should also make it known to their employees that altered credit applications won't be tolerated.
"If [dealers] want to avoid being sued for engaging in yo-yo scams and spot deliveries, they have to be ready to take that paper if they can't get it funded," Lyngklip said.
Pay plans and pressure
Dortch and Dave Robertson, executive director of the Association of Finance & Insurance Professionals, said given the immense pressure on F&I professionals to either meet or exceed dealership F&I performance standards or risk losing income or their jobs, it's not surprising that bad behavior happens. Commission-based pay plans make things worse, they said.
"They are not salaried employees, so if they don't sell that car, or if the F&I manager doesn't get an automobile financed, he doesn't make any money, and he's got a mortgage and a car payment like everybody else," Dortch said. "So he will do whatever it takes to make sure there is a check at the end of the month."
Robertson said dealers can relieve some pressure by recognizing what constitutes "reasonable efforts" in F&I sales, and then raising the bar a little higher to encourage employees to try harder.
He added: "I've known F&I managers to be weeping, literally and figuratively weeping, because they have so much pressure to produce."