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Cycles, Slumps and Compliance

August 2008, F&I and Showroom - Feature

by Joe Bartolone - Also by this author

If you've been in the auto industry for any length of time you know the business is cyclical and subject to slumps. By definition, a business cycle is economic activity usually consisting of a recession, recovery, growth and decline. In that cycle, a slump is a marked or sustained decline in economic activity or prices. Being in a down cycle or slump means you're selling fewer cars and have fewer opportunities to sell F&I products.

Unless you have an unlimited supply of hybrid vehicles, most dealers would agree that we are in a slump. However, this one seems different than other slumps because it is the first one we've had since compliance took hold of the industry. You may think that the introduction of new laws, stepped up enforcement of older laws, and the ongoing attack of plaintiff's attorneys has forced dealers to a new level of compliance. While this might have been the case early on, many dealers soon realized compliance and profitability are not

mutually exclusive. Dealers have made significant strides over the last six or seven years, and developed varying levels of sales and F&I compliance programs in their dealerships. Those who have committed to full disclosure and have instituted formal compliance programs are realizing higher F&I revenue per retail.

With lower sales and fewer F&I opportunities, it's inevitable that some dealership employees will revert back to the old tricks of the trade in order to sell a few more cars and max out each F&I opportunity. That's why it's important for compliance to start at the top. Dealers and general managers need to monitor the sales and F&I practices at their dealerships and ensure employees don't step back into the "good old days."

Regulators have already indicted more than 400 real-estate professionals since March for mortgage fraud, so you can bet they'll keep a close eye on the auto industry as well. In one article about the arrests, FBI Director Robert Mueller warned: "To people who

have committed fraud or are contemplating to do so, we will find you, you will be investigated, and we will prosecute you."

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