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A More Transparent F&I

At this year’s Industry Summit, F&I product providers discussed everything from the CFPB to CPO. They also weighed in on the future of the F&I office.

November 2013, F&I and Showroom - Feature

by Editorial Staff

F&I and Showroom’s Gregory Arroyo (center) moderates a panel discussion between executives from five F&I product providers. Among the topics covered was how the Internet is testing current F&I processes.
F&I and Showroom’s Gregory Arroyo (center) moderates a panel discussion between executives from five F&I product providers. Among the topics covered was how the Internet is testing current F&I processes.
Executives from five F&I product providers and administrators convened at the 2013 F&I Conference and Expo to provide their perspective on a host of topics, from the Consumer Financial Protection Bureau (CFPB) to technologies equipping today’s vehicle models.

Moderated by F&I and Showroom Editorial Director Gregory Arroyo, the session, “From the Boardroom: Executive Outlook,” included Dave Duncan, president of SafeGuard Products International; Scott Karchunas, president of Protective Asset Protection; Tim Brugh, president of American Auto Guardian Inc. (AAGI); Jimmy Atkinson, COO of AUL Corp.; and Steve Amos, president of GSFSGroup. Below is an excerpt of the discussion.

Arroyo: The industry’s argument against eliminating rate participation is F&I managers will no longer be incentivized to secure the best rate for their customers. Instead, under a flat-fee system, they’ll direct buyers to the source offering the best compensation. What are your thoughts?

Brugh: The curious thing is, who’s going to pay for the flat? Lenders might increase the portfolio, but how are they going to do that? Today, they come in and they drop their rate, extend their term or try to buy market share. If they’re all operating on flats, where’s that going to go? Is it going to increase the flat? Who’s going to pay for that? Consumers?

Arroyo: How will the industry respond if and when the CFPB begins scrutinizing F&I products pricing?

Amos: We’ve got to have a real industry effort to pull this off with what’s going on right now. We have to educate these folks as to who we are and what are products are. I’ve met with them a couple of times on a trip to D.C. They don’t know. I also think there’s going to come a day when the best practice will be to have all of our products priced from a retail perspective. We work with several large dealer groups that retail price every F&I product, including a publicly traded group that’s been doing that for 15 years. And the code within these operations is the F&I department cannot discount any of the pricing, which eliminates pricing disparities. It’s worked well for them because their penetrations are very strong.

One of the things we’re in intense debates about within our company is how do we take retail pricing to the dealer and say, “We recommend that you use this pricing.” But there’s some very difficult areas in there in how you price it. Do you use percentages, a flat dollar amount? Do you use it for all your dealer customers? We’re leaning toward the dealer groups.

Steve Amos says F&I product providers need to come together to educate the CFPB on how the industry functions.
Steve Amos says F&I product providers need to come together to educate the CFPB on how the industry functions.

Duncan: Steve, your example, I think that works in a perfect world, but I think a majority of dealers will have a tough time adhering to that discipline. I think the most important thing is to have a max retail to eliminate price gouging. You’re in a position sometimes ... because of a condition or the customer can’t pay any more than $399.99, where you may need to discount the product.

Arroyo: Jimmy, can you update us on the used-vehicle market?

Atkinson: Half the people in the country can’t buy a new car even if they wanted to, so I think the used-car market is going to stay strong. Certified pre-owned has been terrific for most of us, because whether it’s a manufacturer CPO or some of our other programs, it really sets up the F&I department to have a conversation about protecting vehicles. It just automatically rolls into the sale of a vehicle service contract.

Arroyo: All statistics and reports indicate leasing has come back with a vengeance. How should F&I professionals be dealing with this news?

Brugh: Don’t look at leasing as if you can’t sell products, because there are bundled products with tire-and-wheel and prepaid maintenance that can keep profitability on these deals up. Remember, leasing is a retention product, and dealers are getting pressure from manufacturers to keep customers. But that allows us to tell customers why prepaid maintenance is so important when leasing.

Arroyo: We saw this year General Motors and Ford open their future infotainment systems to app builders. We also saw software makers demonstrate a working Facebook app for the Jeep Wrangler. Are these innovations and others changing the way you look at what’s possible in this market?

Karchunas: Yes, they are. What’s happening is the relationship between consumers and their cars is changing. First it was transportation, but now it’s infotainment. So car owners will have a different relationship with their vehicle.

General Motors said in 2015 that people will be influenced to buy based on that. And the vehicles will be driving around and extracting information from businesses. The relationship is continuing to evolve, and, as product developers, there will be new needs and new ways to think about the car ownership experience.

Comment

  1. 1. Kevin Ellis [ November 22, 2013 @ 04:21PM ]

    I'd like to make a commit about the flat fee system; First there's not a perfect solution to this debate. If the dealers change to a flat fee system vs shopping for the best terms and conditions for our client, the majority of the contracts are going to be sent to the 2 or 3 banks that payout the higgest fee's to the dealership..(why not?)...The finance manager will not be incentivised to service the consumer as they would be in our current free market, also the consumer will lose their competitive bargining power, and again the only winners will be big bank's who pay ot the highest fee's to buy the businees from the dealerships, and I think we already know who those banks are...

    I truly believe that our regulators in this country have no clue how hard the finance managers work to get our clients approved for the best possible rates, based on their credit scores. Also they have no idea how much time and effort goes into helping our clients that have credit challenges we must overcome with our lenders, again trying to get them the best terms and conditions for their individual situations.

    Our governemnt has a history of making regulation without doing their homework, lets not pass more meaningless regulation unless it truely can benefit the consumer...

    Our current system may not be perfect although a flat fee system is clearly not the answer.

  2. 2. Lee [ November 27, 2013 @ 08:19AM ]

    I love Huntington's flat pricing. But I can see the CFPB complaining when/if we offer a discounted rate (reducing the rate by 0.50% to only get paid a 3% flat... as opposed to their standard 5% flat), saying that we're discriminating by offering a lower rate to a consumer... when it was purely sales/negotiation driven to earn a consumer's business.

    So, I can definitely see the day coming that we're limited to maximum $500 warranty markups & one-size-fits-all rates.

  3. 3. JohnKTKim [ December 18, 2013 @ 11:47AM ]

    Well said Kevin

  4. 4. David Ruggles [ December 21, 2013 @ 07:45PM ]

    When will this level of transparency be imposed on other businesses, or does the CFPB think the auto industry is some kind of special case? What it is is unbridled discrimination against out industry.

    I wonder if they know that some people who might have been delivered a car won't be getting one under a flat fee system. Maybe they don't care.

  5. 5. David Ruggles [ December 21, 2013 @ 07:45PM ]

    When will this level of transparency be imposed on other businesses, or does the CFPB think the auto industry is some kind of special case? What it is is unbridled discrimination against our industry.

    I wonder if they know that some people who might have been delivered a car won't be getting one under a flat fee system. Maybe they don't care.

  6. 6. David Ruggles [ December 21, 2013 @ 07:45PM ]

    When will this level of transparency be imposed on other businesses, or does the CFPB think the auto industry is some kind of special case? What it is is unbridled discrimination against our industry.

    I wonder if they know that some people who might have been delivered a car won't be getting one under a flat fee system. Maybe they don't care.

  7. 7. David Ruggles [ December 21, 2013 @ 07:46PM ]

    When will this level of transparency be imposed on other businesses, or does the CFPB think the auto industry is some kind of special case? What it is is unbridled discrimination against our industry.

    I wonder if they know that some people who might have been delivered a car won't be getting one under a flat fee system. Maybe they don't care.

 

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