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The Ideal Product Mix for 2008

February 2008, F&I and Showroom - Feature

by Ron Martin - Also by this author

Consumers have a lot on their minds these days with the housing woes, credit concerns and rising gas prices. The biggest question floating out there is whether the subprime crisis has peaked or not. This uncertainty will obviously present some major challenges for the industry, but as Nobel Prize winning scientist Ilya Prigogine once said, “The future is uncertain, but this uncertainty is at the heart of human creativity.”

We in the car industry have certainly experienced our share of challenges over the last few years. The good thing is now we’re seeing major automotive manufacturers solving these problems from the past, with many well on their way to recovery. So, how has this change impacted the F&I department?

During those years when sales reached record levels, the industry went through a period of self regulation. Yes, government regulators played a role in pushing compliance to the forefront, but it was the industry that led the way. There was the Car Buyer’s Bill of Rights that emerged in California, and menu systems became a must-have tool to legally protect dealerships. As you can see, the period fostered a more professional F&I department.

Now, as we face these new challenges, the question becomes: How can we sell more vehicles so we can take advantage of what we learned?

The Year of the Used Car?

In the June 2007 issue of F&I Management & Technology, Melinda Zabritski, an analyst for Experian, made a bold prediction in an article about the pressure being felt by F&I departments to do everything in their power to get a deal bought. “There is a lot of speculation that 2008 is going to be the year of the used car,” she said. “I think dealers need to be more responsive to what’s happening in the used-car market. They also need to think about stocking the right cars … that’s going to be huge.”

If her prediction is true, the question you need to ask yourself is: How do you plan on taking advantage of this surge of pre-owned vehicles, especially in the F&I office? Before answering that question, you first need to take a look at what you know. Second, you need to know what products are most compatible with used-vehicle purchases.

So what do we know?

According to a Consumer Bankers Association study, 48 percent of used vehicles sold in 2006 were for loan terms longer than 60 months, a 40-percent increase from the previous year. The Power Information Network also told us in its 2007 study of the subprime auto market that more than a third of customers who finance or lease used vehicles through franchise dealers have credit problems (i.e., their credit scores were below 650).

Experian has also said that the credit distribution for used-vehicle sales in July 2007 was 48.49 percent prime, 27.10 percent nonprime, 18.03 percent subprime and 6.38 percent below subprime.

We can safely gather from this information that products which fit well with longer loan terms will be good choices for the consumer. We should also assume that the credit-challenged customer will highly affect our income.

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