February 2008 - Feature
The Ideal Product Mix for 2008
By Ron Martin
2. Guaranteed Automobile Protection: GAP makes the list at No. 2 because of its benefit to the customer, low cost per month, customers choosing longer terms for their auto loans, and high acceptance from lending companies.
Because of soaring repair costs from high-tech safety features, more vehicles today are being totaled than being repaired. Bottom line: It’s simply getting easier to total a vehicle than repair it. A side effect of today’s sophisticated vehicle designs is they are too expensive to fix even after minor collisions.
The price of GAP per month to a customer is around $10, and most of the time less. This makes it a very easy product for the customer to accept. Lenders are very receptive to GAP. Even secondary finance companies, which are prone to limiting a customer’s product choices by restricting advances, tend to give the dealer the room necessary to add a product like GAP.
3. Disability Insurance: Especially with today’s credit concerns, this is the one product that provides excellent means of protecting a consumer’s credit in the event they can’t work due to an injury or illness.
Ironically, most nonprime and subprime lenders are less likely to allow customers to add credit disability to their loans. They do this despite this customer segment being the most likely to need this product. Historically, losses to insurance companies are higher for credit-challenged customers than for prime customers. Additionally, these customers are more likely to have tighter budgets and won’t have the cash flow to make their payments if they are disabled.
4. Tire and Wheel Coverage: This is the first line-one add product that makes my list of products primed for that used-car customer. This is also a product that must be added to the sale price. The typical dealer cost for this product is about $100, so the product can be purchased for about $5 a month.
The cost of replacement for tires and wheels today can run from $300 to $500 per wheel. So it often takes only one claim for a customer to get back his or her money. Since most policies have unlimited occurrences for up to five years, it is easy for a customer to see $5 per month as a value to him or her.
The challenge with this product is that most lenders won’t allow tire and wheel coverage to be included as a soft add on a customer’s loan, which means the customer might have to come up with cash to pay for the product. One has to wonder when lenders are going to be more flexible about adding some of these mainstream, high-value products without prior approval.
5. Credit Life Insurance: Is it time to once again begin emphasizing the oldest F&I product? This product has taken many shots over the years, but still maintains its position as the longest-surviving product in the F&I office. We have seen three major providers of this product exit the market in the last two years. However, I’ll let them answer why they made that decision.
Credit life insurance is a group policy that has everyone pay the same rate, regardless of age (as long as they are within the policy age limits), sex or health history. Many people can purchase credit insurance for a more affordable price than any other form of life insurance.
Credit life insurance is also allowed as a soft add by most lenders, which makes it easy to add to a customer’s loan. The cost of the product is regulated by your state insurance commission, and can usually be added for about $8 to $15 per month. This makes it manageable for a customer to include in his or her monthly payment.
6. Maintenance Package: The key to making this an attractive product is keeping the cost in line with what the customer would pay for each individual service. If the retail price — including the F&I profit — exceeds what the customer would pay per visit, good luck making that sale. In most cases the cost per service visit is reduced to attract more customers to your service department. That difference can justify the markup for F&I profit. Some companies include other benefits, such as dent-and-ding or tire-and-wheel protection, to enhance the maintenance package in order to justify the cost.
7. Other Products to Consider: I know there were many products left off my list. I selected the products I have the most enthusiasm for, that provide the most benefit to the consumer and are reasonably priced. I also weighed heavily the products that can be added without lender approval.
There are indeed other variables that you should take into account in making your choice, such as the products that sell best in your state or products that work well with your customers. We can’t be certain that a product mix will always work for every used-car purchaser, but this uncertainty is at the heart of human creativity.
Ron Martin is the president of Vision of F&I. You can reach him at ron@thevisionoffandi.com or by calling (260) 338-0670.