After years of haggling, dealerships are capping the amount of gross profit made on each product and adopting standard sales practices.
The system is known as menu selling. Dealerships that use the system set a no-haggle price or a price ceiling on every product and list all products on printed menus similar to those of restaurants.
The menus help customers know just what they've purchased and how much they're paying.
And if the system is handled properly, dealerships see higher customer satisfaction scores, more repeat business and broader sales of F&I products.
"We are averaging one extra product per customer," says Byron Brisby, president of Flemington Car and Truck Country in Flemington, N.J.
But while menu selling can be a boon to dealerships, it started as a self-policing measure.
Since a series of state crackdowns that began in 1997, dealerships have been forced to reconsider the way they price and promote F&I items.
The internal controls are designed to limit legal exposure. As part of the menu-selling system, the finance manager must disclose a monthly payment for the vehicle alone and make it clear that other F&I products are optional.
"The main purpose behind menu selling is consistency," says Paul Metrey, an attorney for the National Automobile Dealers Association. "Dealers want to offer the same products in the same manner to all their customers. If people know what it is they can purchase and the fact that these products are optional - not mandatory - and dealers make the disclosures required under the law, there could be a lot of advantages to it."
The Washington state authorities were the first to crack down, exacting more than $1 million in penalties and legal fees from four dealership groups and two of the industry's largest providers of service contracts and credit insurance. The state charged that they had inflated monthly loan payments to include products customers did not agree to buy.
Washington authorities coined this practice "payment packing."
"Years ago, we were taught payment packing in F&I schools," says Jim Ziegler, an Atlanta sales consultant who now trains dealership employees in menu selling. "It was called the assumptive sale. You get the highest possible payment and include products in the payment" without authorization. Sometimes customers were told the extras came with the vehicle.
In 2000, a California case against payment packing drew national media attention because it involved the state's largest Chevrolet dealership and the nation's largest dealership group.
Gunderson Chevrolet in El Monte, owned by AutoNation Inc. of Fort Lauderdale, Fla., paid $2.5 million in restitution to settle fraud charges and was shut down for six days. Seven former employees were prosecuted criminally.
Then in 2001, the National Association of Attorneys General issued a resolution against payment packing, inviting the Federal Trade Commission to join the crackdowns.