In January we identified five trends that experts said were likely to affect your finance and insurance business this year.
They held up well, especially the third item, pressure on dealer reserve from regulators such as the Consumer Financial Protection Bureau.
Just last week, Ally Financial Inc. became the first major auto lender to settle allegations by the CFPB that its method of compensating dealers had resulted in higher interest rates for minority vehicle buyers.
A look back at the five trends to watch in 2013 and how they fared:
1. More leasing.
What happened: Leases accounted for 27.2 percent of new-vehicle financing in the third quarter of 2013, up from 24.4 percent in the year-earlier period, Experian Automotive data show.
Across the industry, according to J.D. Power and Associates, lease maturities in 2013 were an estimated 1.7 million, up from 1.3 million in 2012. Ford Motor Credit Co., for instance, reported that through the first nine months this year, its lease returns were up 67 percent from the 2012 period to 80,000.
The industrywide uptick in lease customers this year echoes the early days of the leasing comeback, which picked up speed in 2010. Returning lease customers are much more loyal than loan or cash customers and much more likely than loan or cash customers to start another lease, analysts say.
2. Shorter menus.
What happened: Several public dealership groups reported this year they had limited the number of menu items. The biggest sellers -- extended service contracts, GAP and prepaid maintenance -- head most lists.
But those products aren’t for everyone. The increase in leasing has created a movement to tailor a specific menu for lease customers with items such as “lease protection” policies that guard against lease-end charges for excess wear and tear.
Of note: F&I administrators say tire-and-wheel policies have earned a permanent spot on many menus. That’s especially true for high-end brands that offer expensive alloy wheels and low-profile tires, which are vulnerable to damage from curbs and potholes.
3. Pressure on dealer reserve.
What happened: As expected, the Consumer Financial Protection Bureau turned up the heat on dealer reserve in 2013. The CFPB warned lenders in March it would hold them accountable if dealer pricing resulted in higher interest rates for legally protected borrowers, such as minorities or women.
In turn, many lenders ramped up programs in 2013 to analyze loans originated at dealerships to detect disparities in pricing on dealer reserve. If disparities were found, lenders sent letters to dealers warning them of possible termination in some cases.
On Dec. 20, the CFPB announced a consent order with Ally Financial in which Ally agreed to pay $80 million in consumer restitution and another $18 million in penalties for alleged discrimination against minority buyers. Lender policies resulted in a disparate impact against legally protected classes of borrowers, the CFPB said.
Ally agreed to the terms but said in a written statement: “Ally does not engage in or condone violations of law or discriminatory practices, and based on the company’s analysis of its business, it does not believe that there is measurable discrimination by auto dealers.”
4. Greater volume.
Going into 2013 there was room for concern that with sales going up for the third year in a row, F&I departments might not work so hard for every possible dollar in per-vehicle revenue the way they did during the recession. Judging by the public new-car dealership groups, that wasn’t a problem.
What happened: The public groups increased F&I revenues per unit this year as U.S. sales volume grew. Through November U.S. light-vehicle sales were about 14.2 million, up 8 percent from the year-ago period. In the third quarter of 2013, the average F&I revenue per vehicle for the six publicly traded new-car dealership groups was $1,214, up about 4 percent from 2012 quarter.
The public groups attribute their success to menu-selling, pitching every customer, constant F&I training and, in some cases, negotiating better prices with F&I vendors in return for greater volume.
5. Even sharper competition.
What happened: Almost as soon as auto sales started to recover, auto lenders started to worry about so-called irrational competition, in which new lenders would cut pricing and lower lending standards to chase market share. In turn, that would force established lenders either to follow suit or lose share.
Lenders do report competition is more aggressive. But not all are lowering standards to chase share.
For example, in the third quarter this year, GM Financial reported its loan originations in the United States and Canada combined were down 14 percent from the 2012 quarter to about $1.3 billion.
CEO Dan Berce said at the time: “We’ve chosen to maintain good discipline on both the credit and pricing front, so we’ve actually forgone a bit of volume to keep our profitability and credit standards where they have been.”