Used-car shortage creates F&I opportunities

Now is a perfect time for finance managers to mine dealership databases for sales opportunities, especially to customers coming off loans or leases.

The reason is the looming shortage of used cars, resulting from the drop in new-car sales in 2008 and '09.

The shortage is driving up used-car prices. In turn, that means fewer buyers are going to be "upside-down," the term for when the customer owes more on the car than it's worth. A "right-side-up" buyer with positive equity can put the money from their trade-in toward a new car.

The finance manager who can uncover positive-equity shoppers will have a leg up on the competition.

"From 2008 to 2010, total car sales will be around 35 million, new and used. From 2000 to 2002, it was 55 million," says Tom Webb, chief economist for Manheim Consulting in Atlanta. "The coming shortage will be in 3- and 4-year-old cars."

Raj Sundaram, senior vice president for the solutions & services group at DealerTrack, says new technology makes it easier for F&I managers to check whether a customer has positive equity in their trade-in vehicle.

Managers also can check current used-car values for a particular make and model in a given area, with an eye toward selling a potential trade-in, Sundaram said. Both can be done in the time it takes to scan the bar code version of the customer's Vehicle Identification Number, he said.

"For the first time, certainly for the first time in a long time, you may be talking about positive equity. That's another tool you can use. You can send an alert to the used-car manager, 'So-and-so's car has positive equity,' '' he said.

The shortage of used cars means that dealerships need to work harder to get used cars, said Larry Dorfman, CEO of Georgia-based Automobile Protection Corp., which markets extended service contracts, coverage for certified pre-owned programs, and other aftermarket F&I products.

Off-lease cars and trade-ins are an obvious source of used cars, but a lot of dealerships don't go out of their way to keep them for resale, Dorfman said.

Depending on the situation -- especially if an auto lender is offering incentives to help with early buy-outs -- the dealership may be able to pay off the rest of the loan or lease, get the customer in a new vehicle, and still make a profit on the trade-in, he said.

"The rebates are out there. You can usually convert customers who have got close to, or who have, an equity position," he said. "Right now, even though ideally we should be doing it all the time, it might be a really good time to get into your customer database."