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Pressure Cooker

June 2009, F&I and Showroom - Cover Story

by Justina Ly

In Youngstown, Ohio, where the unemployment rate stood at 9.7 percent in April, dealing with an economic downturn is nothing new to Davey Jones. In fact, it’s one of the reasons why his acceptance rate for service contracts at his Ford dealership is up three points from last year.

“We say we’ve been in a recession for 30 years, and everybody is just catching up,” said the 15-year F&I veteran, whose former steel town is still feeling the effects from the plant closures of the 1970s. “We’re used to selling under these circumstances.”

The biggest challenge for Mark Fedenis, a 20-year F&I veteran, isn’t securing back-end advances; it’s the front-end advances that are giving his Roseville, Mich.-based Jeffrey Automotive Group problems. “It’s been a struggle,” he said, adding that his lenders are requiring down payments of $1,000 down more for each used-car deal, even on customers with 740 credit scores.

Even the white-collar town of Boulder, Colo., isn’t immune to the economic downturn. “Volume continues to drop, but finance gross continues to increase, so we’re doing more with less,” said F&I Director Justin Gasman, whose Chevrolet and Honda dealerships have lost approximately 100 sales per month since the recession struck his town.

For Jim Melson, business manager at a Grand Haven, Mich.-based used-car dealership, the current credit crisis is a big bank problem, not a lending-wide problem. “Everything from GAP to life is significantly off,” he said. “The primary reason is the change with what the banks are allowing us to do.”

With penetration levels of vehicle service contracts falling to levels not seen since the 2002 NADA DATA report — dropping from 31 percent in 2007 to 28.4 percent for the first two months of the year — it’s clear the economic climate is challenging even the most seasoned F&I veteran. And while lender guidelines are in constant flux these days, much like consumer confidence, there is one commonality: The job of the F&I manager is more crucial than ever before.

“There’s actually more pressure on the F&I office to maximize profits on each deal because of the fact that front-end profits are falling due to competition, how slow the economy is, and how slow demand is,” said Jesse Toprak, executive director of industry analysis for Edmunds.com.

Survey Says

F&I magazine took its own peek into the current challenges by surveying F&I managers across the country in January, the same month vehicle sales hit a 26-year low. Four of the business managers surveyed were Jones, Fedenis, Gasman and Melson. And with the exception of Gasman, the three other F&I managers work in states touting some of the highest unemployment rates in the country.

Looking at acceptance rates for service contracts, the percentage range with the highest growth from the first quarter 2008 to the same period in 2009 was the less-than 30 percent range, which jumped from 16.7 percent of respondents to 31.3 percent. The only other range to grow during that measurement period was the 41 to 50 percent range, which increased from 22.6 percent of respondents to 25.3 percent.

As for what plans are selling, 86.7 percent of respondents said bumper-to-bumper, followed by wrap coverage at 73.5 percent and powertrain at 47 percent. As for terms, five-year, 100,000-mile plans were the most popular at 34.1 percent, followed by plans greater than six years and 72,000 miles at 31.7 percent. The average price paid by customers for a service contract was $1,790.

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