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Will Government Oversight Change the Way We Do Business?

November 2006, F&I and Showroom - Feature

by Ron Martin - Also by this author

Will the California Car Buyer’s Bill of Rights change the way California automobile dealers sell finance and insurance? The bigger question is whether the measure, which went into effect on July 1, will serve as a template for other states considering consumer-protection laws, and what that will mean for dealerships across the country.


The attention paid to finance and insurance by government regulators speaks to the tremendous relevance of the department. Banks have evolved to centralized lending, credit unions are gradually following suit and the mature automated lending process has created the need for a distribution point for automobile loans. The dealership is the only economical point to further this cause, and it is the most convenient place for mainstream consumers to finance their second biggest purchase.


This trend could only mean more compliance issues and more government oversight, as there are still enough bad apples out there to create a perception that the customer needs to be protected. However, this also creates an environment where an opportunity-driven attorney general, an income-seeking attorney, or a vote-needy politician can further their own cause.


The good news is that regulating the F&I department only serves to legitimize the service we offer to the customer, and further the trend toward financing and leasing. It also provides us with direction, as the penetration of finance and leasing continues to increase at the automobile dealership.


In the last four years, financing automobile loans increased 16 percent on new-vehicle purchases and 12 percent on used-vehicle purchases, according to F&I Management and Technology magazine’s Buyer’s Guide (2002 and 2006). This is a tremendous success story for the F&I community, as it demonstrates the tremendous opportunity to further our dominance in financing automobile loans. With new regulations, the key for dealerships is to make sure your sales and F&I operation are aware of the new rules, and understands how the new rules govern the way they do business.


Bottom line: Laws and regulations should never have an impact on aggressive selling. They should always be the standard. These laws are simply the rules that we work by, and should never be deviated from. With that said, how does the finance person keep their focus on what is necessary to aggressively sell the products they have?


The finance process is simply

an extension of the sales process


The payment is a significant part of a customer’s buying decision since more than 75 percent of customers choose to finance or lease their vehicles. Therefore, it is most effective if a payment is quoted on the sales floor during the sales process.

When I first broke into the finance business I used to do a lot of what we call box closes. “Box closing” occurs when the customer isn’t quoted a payment until they were turned over to me, the F&I manager. I found this to be a very ineffective way of managing a payment during the customer’s buying process. Since the customer wasn’t given a payment expectation prior to agreeing to purchase the automobile, the customer did not know whether the payment was within their budget. Therefore, many times I ended up negotiating the payment with the customer to sell the automobile when I should have been selling the value of my products.


Back then, which was 25 years ago, many dealers used this practice of not quoting payments until the customer was turned over to the F&I department. This is where “payment packing” originated. Finance managers resorted to closing payments with products packed in. Then when the sales floor wanted control of the payment negotiation, they packed in aftermarket products. This resulted in the finance manager building as much gross profit as they could by packing as much product into the payment quoted on the sales floor. Then they would smoothly lead the customer through the paperwork.


The scenario I described is what the California Car Buyer’s Bill of Rights addresses. It requires the dealer to itemize the payment quoted to the customer on the sales floor. The message is very clear: don’t mislead or manipulate the customer. However, the law doesn’t say, “Don’t sell your products aggressively.”

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