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What’s My Buy Rate?

Rising to defend the industry in the pages of Newsweek, the editor learns that it’s not always easy to explain what goes on in the F&I office.

September 6, 2011

The e-mail arrived at 12:36 p.m. on Tuesday, July 26. It was from Gary Rivlin, staff writer for Newsweek. It read: “I’d love to talk with you about a piece that has me getting into the world of dealer-arranged auto financing.”

My first thought was that nothing good could come of my participation. But, as an F&I advocate, I felt compelled to defend our business if that’s what was needed. I asked Rivlin if he could tell me what his angle was.

“We’re doing a consumer-oriented package: things to watch out for,” he replied. He then quoted a stat from a report issued by the Center for Responsible Lending (CRL). The organization’s numbers appeared to show that, in 2009, dealers used rate markups to overcharge consumers to the tune of $26 billion.

And there it was: our old nemesis, the dealer hit piece. The same hit piece, in fact, that I wrote about in May. If that was the basis for Rivlin’s article, I couldn’t help myself. 

“Be careful of that $26 billion,” I wrote. “Although I’m supposed to be an industry advocate, the consumer in me questions some of the data coming out of the CRL recently.”

We agreed to talk the next day. I took the evening to work on some talking points. I started by checking a thread on our F&I Forum that we started last year in response to another dealers-are-at-it-again article. I asked forum members for tips they would provide consumers.

“Learn basic math,” one member wrote. “$300 per month x 60 months does not equal $35,000.”

Armed with that gem and a few others, I called Rivlin the next morning. We started our conversation with the CRL’s $26 billion claim. I told him that the problem with that stat — and the entire report — is that the CRL assumes that consumers have access to the same rates that indirect lenders provide to dealers, which, as we all know, is not the case.

I also told Rivlin that dealers work under a minimum of 15 state and federal regulations on every deal. In case he thought I was drinking directly from the industry’s Kool-Aid bowl, I added that consumers should shop their rate and make the F&I office fight for their business.

I also told him that, even in California, lawmakers didn’t ban markups when they passed the Car Buyer’s Bill of Rights last decade. Yes, they set limits on markups, but they also recognized why dealers charge for the services they provide consumers.

It was clear Rivlin had done his homework, too. He quoted an article published in this magazine back in 2006. It offered advice on how F&I managers can achieve an average $1,500 in profit per retail unit (PRU). Rivlin wanted to know how much of that would come from rate markup. I first explained that $1,500 was a lofty goal and that most dealerships are in the $600 to $800 PRU range. I added that $1,000 PRU was a more realistic goal.

Rivlin then asked about warranties, prompting me to clarify the difference between a warranty and a service contract. He asked about the product that put the “I” in F&I, then asked whether it was a good product. I told him credit insurance was, since most consumers are underinsured.

He then asked if paint protection was an insurance product. “Isn’t it just glorified Turtle wax?” he asked. Not only is that not a true statement, I explained, but what consumers are really getting is a service contract that says certain benefits kick in if the product fails. Turtle wax, I told him, makes no such offer.

We covered a lot of ground, and I felt like I had represented the industry well. … That is, until Rivlin said he wanted to quote me on that $1,000 goal. Oh, boy. I asked if I could break down how that number is achieved in an e-mail, and he agreed. Truthfully, I was stalling. I wanted to run my claim by my buddy, Mad Marv.

I called Marv the second I hung up with Rivlin and explained the situation. We talked for about 20 minutes, and his advice helped craft my response. I don’t have enough room on this page to share with you what I wrote, but that’s OK. My response is not the point of this editorial.

The point is to tell you that it is sometimes difficult to defend what we do. But I guess I’m tired of our industry having to live in the shadows. The day is coming when we’ll be forced out into the open, so let’s make sure we know our talking points.


  1. 1. Maurice [ September 06, 2011 @ 02:05PM ]

    Great article Greg. I'd be interested in hearing (either here or in a future article) how you crafted your response on how the $1000 PRU is broken down. It'll be good to get some real numbers to counter what CRL is putting out there.

  2. 2. Randal [ September 09, 2011 @ 08:00AM ]

    The consumer fails to consider that the "great rate" they are getting from their bank is often at or above those available thru the dealerships finance sources and that their friendly banker is margining those funds at or above the typical dealership markup. They're in it for a profit also, not just because their "nice guys".

  3. 3. Matt [ October 10, 2011 @ 12:43PM ]

    Good job, Greg. The mentality of that Newsweek writer seems to come from the notion that if you make money you're evil. As Randal stated, we offer competetive rates, and are allowed to charge for a cost of doing business, the same way any bank is allowed to markup their rate to a reasonalbe profit. You have the industries back, keep it up.

  4. 4. Jerry [ November 20, 2012 @ 08:14AM ]

    It is difficult for me to contemplate a $1000 PRU, when we are faced with manufacturers subvented programs that pay little or nothing in reserve for both retail and lease programs. Coupled with the fact that manufacturers warranties are getting stronger, many products are now included in the deal (see GAP and Lease programs), the ability to average extremely high PRU or PVR is clearly driven by product mix and your individual market. Many buy-rates to the dealer now include maximum markups, designed to discourage rate markup. To make broad statements that increases in F&I revenue is simply process or dealer directed is a misnomer. The market, manufacturers, banking and the Federal Government by regulation, restrictions and limits will dictate F&I profits and our futures within the auto industry. Should be interesting to say the least.

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