Charlie Robinson, finance director for Asbury Automotive, said his company is focused on getting bigger down payments from customers. Marv Eleazer, finance manager for Langdale Ford in Georgia, said he approaches every customer with the thought of making sure he’s protecting the lender.

Gary Allgeier of the Troy, Mich.-based The Suburban Collection said today’s market conditions call for a more transparent process. “Now we sit down with lenders to discuss their needs,” he said. “They appreciate it and respond to it.”

It was clear dealers understood the challenges ahead. It was also clear lenders, product providers and technology companies understood the stakes. It was also apparent at this year’s F&I Conference and Expo the severity of the credit crisis has been a surprise to all.

“I thought we’d be talking about the recovery,” said keynote speaker George Borst, president and CEO of Toyota Financial Services (TFS), to open the show. “I think we’re in a cycle and we’re near the bottom of the cycle, and the bottom is always dreary.”

Attendees at the fifth annual event, held at the Paris Las Vegas hotel on Sept. 16-17, were greeted with news of Lehman Brothers’ bankruptcy filing and the Federal Reserve’s extension of a two-year loan to rescue AIG after it reportedly lost $18 billion over three quarters.

What all agreed on was today’s credit crunch was the result of a failure to manage risk. Borst warned that the next 12 to 15 months will be rough, with inflation reaching highs not seen since 1991 and consumer confidence hitting rock bottom.

Gone are the days of easy money, as lenders are on the move and will continue to be on the move while weathering the economic storm. Lenders also said the problem is impacting consumers across the board, especially with 1.7 million mortgages expected to reset this year.

As it turned out, September was the worst month for U.S. auto sales since February 1993, down 26.6 percent from September 2007, putting predictions for vehicle sales this year at below 14 million units.

“We’ve seen this before. The cause is different this time. It’s oil’s impact on trucks and SUVs,” said Borst. “But we’ve gotten out of this before … there’s no reason to believe we won’t do it again.”

Dealers and Lenders to Work Together

Borst’s opening keynote address set the stage for the first panel of the show, which focused on prime and nonprime financing. Moderated by Marguerite Watanabe, principal of Connections Insights, the panel included representatives from GMAC, Wells Fargo Auto Finance, Toyota Financial Services, and CitiFinancial Auto.

“We are in unprecedented times,” said GMAC’s Alex Sarafian. “And I agree with Borst that we’re at the bottom of the cycle.”

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Panelists described how many lenders in the auto finance industry moved away from their core business over the last few years, and that going back to basics will be the name of the game going forward. CitiFinancial Auto’s Mike Kane said part of the problem was lenders relying too much on science and not enough on what made sense.

“Our business was firmly rooted in nonprime and subprime,” said Kane. “During the good times, we moved away from our core business and went after near prime. Unfortunately, it was not as good as we thought it would be.”

Panelists acknowledged the need for their companies to remain active with dealers, and accepted blame for the loans they let through the last couple of years. However, they also said dealers need to recognize their role as well.

“The dealers that didn’t do a good job of ensuring lender profitability, they were disconnected,” said Wells Fargo Auto Finance’s Lou Loquasto. “The more dealers look at how they can enhance lender profitability, the more they’ll be rewarded.”

CitiFinancial Auto’s Kane added: “The lenders bought the paper, they did. So we allowed this to happen, and what we see today is a reaction to that.”

What’s crucial is dealers recognizing the changes ahead for automotive finance, as noted by keynote speaker Dr. Robert Phillips of Nomis

Solutions. “You don’t need me to tell you things are bad,” he said. “Things are going to have to change. Lenders are becoming increasingly interested in profits … they want to see that again.”

Phillips, whose company specializes in price optimization technology, said the days of working off of rate sheets are coming to an end. Quoting a statistic from the Tower Group, a banking technology research company, he said 85 percent of lenders will adopt price optimization by 2012. That means lenders will not only look at what the customer can handle, but how loans originated in a specific region or dealership are performing.

“Lenders in general have not focused on their pricing, and are 20 years behind what other industries are doing,” he said. “What this might bring is more consistency when it comes to pricing, which hopefully will be a good thing.”

Product and Technology Providers Looking to Help

The conference agenda was also packed with sessions focused on back-end product sales, and the importance of investing in technology. But it was clear the financial crisis was on the minds of all attendees.

Workshop instructors and panelists talked about the importance of keeping inventories in line, communicating with vendors, lenders and dealership staff, and how critical it is for dealers to stick to the processes that made them successful. Their message also included the need for dealers to continue investing in technology, especially at a time when they’ll need to do more with less.

“We’ve been hit by the perfect storm,” said Dave Duncan, an executive for Safe-Guard Products International. “I think the impact of gas prices has been overstated … the biggest challenge is the financial crisis. High loan-to-value ratios coupled with negative equity … those rollover deals aren’t getting done anymore.”

Duncan said dealers will have to adjust to asking for bigger down payments from their customers. Industry insiders added that those dealers who established the right processes during the good times will be the ones who survive.

“For far too long we said, ‘We want to keep the customer forever no matter how it happens,’” said Alan Miller, an executive with CNA National Warranty Corporation. “We lived by this for quite some time. Now it’s time to pay the piper.”

What’s also clear is the need for change.

“The financial markets and the economy are changing daily,” said Mark Mishler, president and CEO of Resource Automotive. “On Monday morning we woke up to Lehman Brothers filing for bankruptcy … the venerable company that’s been around for 158 years, survived two wars, survived a depression, and survived oil embargoes.

“So from that standpoint the changes that are happening haven’t stopped, we haven’t seen the end.”

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