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Terror at 84 Months

F&I pro says dealers need to consider the repercussions of longer term loans before making them their new normal.

May 2016, F&I and Showroom - Feature

by Diane Uzelac

Courtesy of iStock.
Courtesy of iStock.

There’s a lot of talk these days about stretching terms — Ford Motor Credit being the latest finance source to introduce 84-month terms. It’s one of the reasons monitoring and managing our databases and uncovering hidden opportunities for contract and trade-cycle interruptions is such a hot topic these days.

And there is a myriad of data-mining and equity tools available to help facilitate this process. Whether you invest in one of these tools to complement your CRM is up to you. However, if you aren’t leveraging the data you already have access to via your DMS and manufacturer portal, you are leaving money on the table.

As an F&I manager and a big believer in aftermarket ancillary sales and contract interruption, three very critical questions come to mind: By handing out 84-month auto loans, are we slitting our own throats? How is the trend toward extended terms going to impact our retention efforts going forward? Are we sacrificing repeat business for the satisfaction of a one-time transaction?

Of course we are! But if we don’t sell the buyer to begin with, we have nothing to retain, right? And if we don’t do it, someone else will.

Temporary Rewards

As you may know, 84 months is longer than the current average length of ownership, which, according to IHS Automotive, is 77.8 months for a new vehicle. What’s driving this trend toward longer loans are vehicle prices. In fact, the high price of today’s vehicle is what’s also driving up leasing, which accounted for 33.6% of all new-vehicle transactions in the fourth quarter of 2015. The most popular lease term is 36 months; however, 37- to 48-month leases are on the rise.

The problem with stretching terms is we further exasperate our shortage of used cars. We also take ourselves out of our future market. For today’s payment-conscience customer, however, we have no choice.

According to Experian Automotive, loans with terms between 73 and 84 months — the longest terms tracked by Experian — climbed 12% from a year earlier to account for 29% of all new vehicles financed in the fourth quarter 2015.

Herein lies the challenge, and forgive me for stating the obvious: Clients’ payments are lower, but they are paying more over the long term. Depending upon the APR, the customer could have $3,000 or more in negative equity than if we had simply contracted the customer at 72 months. Before 84 months becomes your new normal, think about the repercussions. Make sure you have exhausted all other options. More importantly, ask yourself whether the risk is worth the reward.

Pros and Cons

Let’s start with used cars. They’re more expensive, right? And while demand for quality used vehicles is high, there are fewer of them available. The reason is longer trade cycles, which is affecting quantity and how much we pay to stock our lots. Leases are also maturing less frequently as a result of longer terms, so opportunities to purchase off-lease cars are less frequent.

There is also a greater risk of delinquencies and repossessions. This affects the lender and your overall portfolio with that lender. Finally, there is a greater likelihood of mechanical breakdown, which could positively impact your service contract penetration.

The condition of the vehicle and resale value is greatly reduced by the time it reaches the seven-year mark. By the time an 84-month loan is paid off, the average driver will have 105,000 miles on the odometer. You know what those units typically look like, and they certainly are not the type of trades we want to keep for retail.

So what can we do to offset the impact of 84-month terms? The answer is pretty obvious: Promote leasing. Of course, this is contingent upon creditworthiness and driving habits. But when leasing works, it’s a win-win for everyone. Car buyers are allowed to lower their payment while getting more car for their buck. They’ll also be back for a new vehicle more often, which means they’ll be making good use of your dealership’s excellent service facilities. But that’s not the only way to beat the extended-term blues. Try these two strategies as well:

1. Convert More Cash Deals

It should be unacceptable for a customer to write a check or pay cash for a vehicle unless someone has presented the “keep-your-liquid-cash-close” and “one-pay-lease-close” cash conversions.

Reminding customers of the wisdom of staying liquid is very compelling and, in my experience, very effective. Numbers don’t lie. If you don’t show this presentation to your next cash customer, you are doing that person a huge disservice. The best time to execute this technique is after the figures have been agreed upon. It can even be part of the F&I introduction and interview process. Just make sure the customer is involved and engaged.

If your customer can’t be convinced to keep his or her hard-earned cash and has a two- or three-year trade cycle, offer the customer a one-pay lease. One benefit of a one-pay lease is that the client knows exactly what the total automotive expenses are for the length of the lease. With zero drive-off and a monthly lease payment of $350, the total cost over three years would be $12,600.

Another benefit is the guaranteed value. Rather than making a larger cash payment to own the car, suggest arranging a one-pay lease, then paying for the rest of the car at the end of the lease. This allows some flexibility and helps customers hold onto their money longer. It’s a great option to have should they decide they don’t really love the car or their needs change. But if they do love the car, great! They can buy it!

2. Convert More Service Customers

If you don’t have a designated retention/contract-interruption specialist, you can spread the love among your sales staff. Find out which service customers are nearing the end of their factory warranty and have your sales team ask them if they are interested in a vehicle exchange. Maybe you will sell a car, maybe you’ll sell a service contract.

You may also want to hang a large banner inside your service drive advertising your “Lease Return Center.” You may even attract a competitor’s client while they are servicing their lease! Many dealers are creating digital and print marketing campaigns just to promote their “vehicle exchange programs.” Have some signage made and display it prominently. After all, you are in the market for quality used units, aren’t you?

Diane Uzelac is an F&I manager, training and development specialist and recruiter. She’s also a 32-year veteran of the automotive industry. Contact her at


  1. 1. Lars Farnham [ June 10, 2016 @ 11:38AM ]

    Great article. As a lender we have maxed out at 75months on term and it does cause me a loss in business. I always appreciate it when I hear a dealer say they will not go more than 72months on deals and that is their policy. Some get the big picture though. Sometimes you have to do whats right for the customer so that you retain that customer

  2. 2. Diane Uzelac Contributor [ July 03, 2016 @ 04:27PM ]

    Thank you Lars! That is very refreshing to hear, especially coming from a lender! Feel free to reach out to me. I am in many dealerships and would love to learn more about your program! I appreciate your feedback!

  3. 3. Patrick White [ November 22, 2016 @ 10:30PM ]

    Great article!!! Thank you for doing what I call "TLT." (Thinking Long Term) and the concern for the customer.v to mean taking advantage of a customer's lack of knowledge of the industry is unethical and I applaud you for your stance. I believe in more education on how to buy and that this will lead to more sales, long-term customers and even higher gross.


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