Older cars demand new F&I pitch

The competitive used-vehicle market is prompting some dealerships to change the way they sell F&I products to buyers of high-mileage cars.

Vehicles with more than 80,000 miles will account for at least 20 percent of monthly used-vehicle sales at many franchised dealerships, say some dealers and vendors of aftermarket products. That's a huge increase from four years ago, when sales of high-mileage vehicles were less than 5 percent of a typical dealership's mix.

Traditionally, many F&I managers have believed that buyers of high-mileage vehicles do not want or cannot afford aftermarket products. So some managers make little effort to pitch F&I products to those buyers.

But times have changed. The growing segment means dealers must get better at selling finance and insurance products on high-mileage vehicles. The alternative means forfeiting profit.

Dealers say those customers will buy products such as roadside assistance, tire-and-wheel protection, windshield treatments or other limited coverage. The trick is having the right processes, they say.

"Some F&I managers push off high-mileage customers onto their assistant. Those assistants only go after the finance reserve on it and no F&I product is sold," says Mark Krejci, president of Continental-National, a brokerage firm in Tampa, Fla. He works with about 100 dealers.

He adds: "They get lazy and it's too much of a challenge to deal with."

Buyers of high-mileage vehicles do present special challenges to F&I managers.

Those customers often pay cash or have limited loans. They typically cannot afford to tack on pricey aftermarket products.

"Some of those products are really hard to sell because of the mileage of those vehicles," says Danny Burns, special finance manager at Mac Haik Dodge-Chrysler-Jeep in Houston. "But theft protection is just as important to someone buying a high-mileage vehicle as a low-mileage one."

At Mac Haik about 20 percent of the 1,000 used vehicles sold annually are high-mileage vehicles that cost several thousand dollars, says Nancy Lambert, general manager at the dealership. The store sells about 1,000 new vehicles annually, too.

Lambert says it's typical for a 5-year-old diesel pickup with 100,000 miles to sell for $15,000. So many of her customers purchase vehicles with financing that enables them to roll aftermarket products into that loan, she says.

"The peace of mind to buy coverage for two years on a vehicle is not that hard to sell," Lambert says. "The customer wants to buy it, and the payments are low enough that it would fit into their budget."

But many service contracts are among the priciest of products. A 3-year/36,000-mile comprehensive warranty with a $100 deductible on a 2006 Chevrolet with 80,000 miles, for example, would cost around $2,900, Krejci says. That price includes a $1,000 profit for the dealer. Even a 12-month/12,000-mile warranty with a $100 deductible with more limited coverage on that same vehicle runs about $1,600, he says. That includes a $600 profit for the dealer.

"By the time the dealer puts a profit into it, that's $1,500 to $3,000," Krejci says. "It blows you away. That's more than what the lender is often going to advance."

But over the past several months, many lenders are loosening credit restrictions on the sale of service contracts and other aftermarket products, says Jimmy Atkinson, COO of AUL Corp., a service contract provider in Napa, Calif.

"Lenders are still limiting these products more than in the past," Atkinson says. But he adds that outside funding for service contracts through premium finance companies gives customers an option aside from financing with their loan.

But often buyers of high-mileage vehicles hesitate to take out a second loan, and F&I managers do not push it because it's added paperwork for them, Krejci says.

Dealership F&I veteran Gary Allgeier revamped his sales process.

"There are definitely some hurdles, but nothing that can't be overcome with the right focus and strategy," says Allgeier, director of finance for the Troy, Mich.-based Suburban Collection, which ranks No. 13 on the Automotive News list of largest dealership groups. Last year, Suburban's 28 dealerships sold 22,380 new vehicles and 12,182 used.

The group's sales of used vehicles with 80,000 miles or more has risen 25 percent this year vs. last year, Allgeier says.

He credits that rise in demand for high-mileage vehicles to a weak economy and more young people entering the market. Both prompt increased demand for cheap cars. Also, online shopping has made customers more price-conscious, he says. Finally, there are fewer used vehicles with low mileage in the marketplace right now.

Allgeier has set an ambitious goal to sell at least two F&I products per deal. So far, the stores are averaging one product per deal. But he has a process to change that.

First, Allgeier has customized his F&I menu options. To customers of high-mileage vehicles, he offers only the products that meet their needs, he says. That includes less costly and popular products such as wheel-and-tire protection, a windshield treatment and interior and exterior protection.

Allgeier also offers several yearlong service contracts that target high-mileage vehicles. Each contract costs less than $600. He offers a 0 percent financing plan on those contracts for up to 24 months.

"You can still generate $500 in finance product profit on each car assuming you have the right product, with the right lenders and the right 0 percent plan in place," Allgeier says.

Insurance product provider Safe-Guard Products International has a straightforward approach for selling products to high-mileage vehicle customers: "We've got to sell customers the products they want to buy, not the products we want to sell," says Luis Garcia, director of training and development at the Atlanta-based company.

That means F&I managers must look beyond service contracts, adds Safe-Guard President David Duncan. F&I managers should find one or two inexpensive, low profit products that the customers will say yes to because "it's better than a zero," Duncan says.

For example, he says F&I managers should pitch a three-year roadside assistance program, which would cost around $249 vs. a $1,000 for a typical service contract. "Everybody sees value in roadside assistance and will likely buy it," he says. "The dealer is probably making $145 with profit. But instead of assuming a zero, hey, that's $145 you didn't have."

That means F&I managers must tailor and tighten their product menu when pitching to customers of high-mileage vehicles, Duncan says. And raise lower priced insurance products to the top of the menu.

"Most F&I managers, sadly, make the same menu presentation with the same products in it to the guy who bought a $50,000 car as to the guy who bought the $5,000 car," Duncan says.

Products such as tire-and-wheel protection are easier to sell than an entire service contract because they're cheaper, says Bryon Houghton, Western division sales manager for EasyCare, a service contract company in Atlanta.

Houghton says the retail prices of tire-and-wheel plans range from $400 to $800, windshield treatments cost $300 to $400, and paint and fabric protection is $300 to $800. He says a customer paying cash can afford a few extra hundred dollars for one of these products.

"A customer paying cash is not poor," Houghton says. "If you don't ask, you're never going to sell it. You're guaranteed a no-sale. If it's simply a matter of finance, then say we can figure out a way."

And, Duncan advises dealers to keep one thing in mind: "What the customer wants is a warm fuzzy that they're getting extra protection, but it's not costing them a lot of money."