Executives for state dealer associations said dealers don't like being pressured on general principles. They also worry about offending a captive lender over F&I products when that same lender may also provide their floorplan financing, commercial lending and the bulk of their retail financing.
Third-party products can be more profitable for a dealership than captives' products, especially when the third-party products are backed by a reinsurance program, enabling the dealership to contribute to the reserves used to pay future claims. After all claims and administrative fees have been paid, the dealership can keep a portion of the money left in the reserves plus any additional investment income.
There are big tax advantages on the profits from reinsurance. Many dealer principals use reinsurance to make acquisitions or for their personal retirement fund.
Captive finance companies offer reinsurance, too. However, some dealerships want to maintain their long-term relationships with independent F&I administrators, dealer groups said.
Dealerships also want to offer a range of products to fit a range of customers. Depending on the features and benefits, the independent F&I products can also be more affordable than ones from the captives, the groups said.
The pressure to sell captive F&I products can be overt. For example, incentives could be paid or withheld based on product penetration with the captive, dealer groups said. Or the captives might not lend as much toward the purchase of third-party products.
If an automaker and its captive come up with a program that finances "$400 more on their product than if a dealer sells an aftermarket product, that's a big thing at the dealership F&I level," said Bob Corbin, CEO of Innovative Aftermarket Solutions in Austin, Texas, a dealership software provider which offers aftermarket F&I products.
"The factories are trying to sell their products because they have come to realize the benefits of maintaining brand loyalty," Corbin said. "If they get the loyalty with the car, they want the loyalty with the loan, and now the GAP and the tire-and-wheel."
There also can be indirect pressure. Dealer associations said some captives require customers to sign a waiver when they buy a product that's not backed by the factory if they want to finance the purchase on the same contract as the car.