Changes in technology, regulation and the lending landscape led much of the F&I chatter of 2018. Here are some of the major highlights from this year.
Affordability concerns: Affordability emerged as a headwind in auto retail this year, driven by a combination of factors, such as an increase in transaction prices, a pullback in automaker incentives and consistent interest rate rises.
Interest rate uptick: Consistent interest rate hikes contributed to affordability challenges for consumers applying for auto loans and for dealers confronting rising floorplanning costs. The additional costs came as a shock to customers and dealers who had grown accustomed to the low-interest rate environment of the last several years. The Federal Reserve raised interest rates four times in 2018, and 0 percent loan offers have almost disappeared.
Subprime volume boost: Subprime auto loan volume, on a consistent decline after banks started cracking down on lending standards, lifted unexpectedly for the first time in two years in the third quarter. Experts from credit bureaus Experian and TransUnion chalk it up to increased sophistication in underwriting standards where lenders are experimenting with artificial intelligence to approve more nontraditional borrowers. Still, volume increased across all credit tiers, Experian noted, and subprime market share hit an 11-year low in the third quarter.
Regulator tone-down: The Consumer Financial Protection Bureau lost teeth in auto lending after the 2013 auto lending guidance that intended to limit discriminatory lending practices was reversed. Kathy Kraninger, nominated by President Donald Trump, was confirmed as the bureau's director on Dec. 6. Kraninger was a White House official who worked under Interim Director Mick Mulvaney at the Office of Management and Budget.
Military Lending Act complications: At the end of 2017, the Department of Defense issued an updated interpretation of the Military Lending Act, which put restrictions on dealerships selling GAP to service members. The news came as a surprise to car dealers, who had thought that most auto loans and F&I products were exempt from the act. Many, in an effort to abide by the act, stopped selling GAP to military members. The American Financial Services Association and the National Automobile Dealers Association have lobbied to get the Defense Department to withdraw the interpretation. When, and if, the guidance will be overturned is to be determined.
Technology advancements: Several companies teased upcoming technology pilots this year to streamline and personalize the F&I process. Roadster and F&I software provider Darwin Automotive, for example, each premiered new products. Express Desking, by Roadster, allows sales managers to instant message desk managers, gain approvals on deal terms and customize payment menu options in front of their customers on a tablet; Darwin Direct allows customers to purchase, contract, e-sign and pay for a dealership's F&I products remotely. F&I training and product company JM&A launched virtual F&I pilots in two dealerships wherein product specialists video conference with customers about F&I product offerings.