Stakes are high
Rolling the cost of F&I products into the same monthly payment as the vehicle helps to sell those products. It's convenient for customers, and it takes the sting out of paying what would be a big lump sum. But critics complain that lumping everything together can blur how much the customer is spending on so-called extras.
The potential stakes are high for dealers. The dealer markup on F&I products can be as high as 100 percent. That means dealer gross profit for GAP could be around $300; for extended-service contracts, it could be as much as $1,000, vendors and dealers say.
“Products like service contracts and GAP are driving a lot of profits right now in the F&I office,” Rojc said. “If there is a threat to that, that's something that dealer associations will fight tooth and nail."
Where the threats are
Paul Metrey, NADA chief regulatory counsel, said in a phone interview that the dealer group is keeping an eye on several fronts with regard to financial reform. But he said it's still too early to know what specific regulations will look like.
“At this point, we really don't know,” Metrey said. “They're certainly looking at various areas. There are a couple of things in the statute [creating the bureau] that are specifically addressed.”
Add-on products aren't specifically addressed, but “clarity of disclosures” to the customer is, Metrey said. That could have an indirect effect on add-ons.
Lawyers representing dealerships and auto lenders are gauging the impact of the new Consumer Financial Protection Bureau, which was created in June. Even though NADA won an exemption for most dealers from the jurisdiction of the new bureau, the bureau has jurisdiction over auto lenders, and that bears heavily on dealerships.
Michael Benoit, a partner with the Washington law firm of Hudson Cook , said at the conference that one proposal could require creditors to provide a so-called fee and interest-rate calculation, which would provide more detail on how much F&I products cost.
He said there are also proposals to cap interest rates, which could make it more difficult to add other products into the vehicle loan.
Benoit said one certainty is that the new Consumer Financial Protection Bureau has a big budget -- and the clout to go with it.
He said that the new bureau has an annual budget of around $750 million. That's more than twice the size of the Federal Trade Commission's budget, he said, adding: “We're looking at a very, very well-funded agency.”