Dealers see opportunity in used-vehicle F&I products

Auto dealerships see used vehicles as an opportunity for finance-and-insurance product sales and feel coverage designed specifically for such models would be valuable, Protective Asset Protection polling has found.

Forty-three percent of dealership decision-makers surveyed online called the shift from new-vehicle sales to used sales one of the biggest opportunities in selling F&I products in 2022 compared with 2021, according to the Protective Asset Protection F&I Trends Report.

Fifty-six percent of dealers felt coverages focused more on used vehicles than new ones would improve F&I product sales, and 49 percent said more F&I products designed specifically for the used-vehicle market would help grow sales.

Protective spokesman John Sternal said he believed the distinction between the two questions involved a desire to obtain dealers' views on two issues. Did dealers want their existing F&I products expanded to cover a broader pool of used vehicles, and did they also want coverages created specifically for used models?

"A lot of times, a dealer group will have the same program," Travis Wools, Protective vice president of marketing and communications, told Automotive News in September. But because of used vehicles' increasing share of dealers' sales mix, retailers felt they needed to look at F&I coverage specifically for used vehicles.

Wools said leaders of the F&I agencies that distribute products to dealerships described conversations with sales reps about pitching dealers coverage for used models separately and having a clearer division between new- and used-vehicle products.

"We were very encouraged by that," Rick Kurtz, Protective senior vice president and chief distribution officer, told Automotive News. Last year, Protective purchased F&I product provider AUL Corp., which Kurtz called the longtime "standard-bearer" for service contracts on higher-mileage vehicles.

"They've seen incredible growth in the last couple years," Kurtz said of AUL.

Paul McCarthy, Protective vice president of key accounts and AUL's former senior vice president of sales, explained ways F&I products could be tailored for a used-vehicle buyer.

McCarthy told Automotive News in December coverage on new vehicles tends to focus on the odometer and cut off a vehicle at a fixed point such as 100,000 miles. But if applied to a late-model vehicle already carrying 20,000 miles, the customer would only receive 80,000 miles of protection before bumping up against the policy's ceiling.

In contrast, used-vehicle coverage might be additive. A vehicle would be protected for three years or 36,000 miles beyond whatever its odometer read at the point of sale, McCarthy said.

McCarthy said customers also might have more options for covering their used vehicle, such as a contract that only protects its powertrain. Vehicle service contracts covering the full spectrum of vehicle components can get pricey on a used model.

A used vehicle might lack technology found on new vehicles, which changes the type of coverage that might be appropriate, McCarthy said. He also noted used-vehicle buyers often are trying to reach a certain price point, prompting more F&I product variety to keep coverage within a customer's budget.

McCarthy said used-vehicle buyers also tend to have an idea how long they'll hang on to a vehicle. "The new vehicle buyer says, 'I'm going to drive it, and I'll keep it forever,'" he said.

AUL offers shorter-term coverages reflecting the customer's anticipated time of ownership. A policy also might be tailored to the actual mileage the customer expects to drive; for example, 12,000 miles in a year versus 20,000, he said.

AUL also has in recent years introduced used-vehicle coverage with a target mileage but no time restriction to customers and discovered a "great reception to that," McCarthy said. A customer who plans to keep a vehicle bought with 100,000 miles on it until the 150,000-mile mark could purchase 50,000 miles of coverage and be guaranteed of protection regardless of how long it took them to put on those 50,000 miles, McCarthy said.

"As you know, people's driving habits change a lot and may well change again," he said.