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EFG Companies: F&I Industry Faces Murky 2017

January 31, 2017

John Pappanastos, president and CEO of EFG Companies
John Pappanastos, president and CEO of EFG Companies

DALLAS — The expected regulatory rollback, plateauing sales, rising interest rates, and the push to change the in-dealership experience clouds the F&I industry’s future, EFG Companies said today.

The murky forecast was based on conversations the F&I product provider had with dealership principals and finance sources. However, EFG Companies believes there are plenty of options for retail automotive and powersports dealers, as well as finance source and F&I agents to successfully navigate an uncertain business climate.

“Consumers clearly want a new — and at least partially online — buying process,” said John Pappanastos, president and CEO of EFG Companies. “This trend has significant impact for the F&I industry across retail and lending channels. We also expect to see credit tightening on the consumer side and a foreshadowing of reduced auto manufacturer incentives for dealers, which will impact their margins.

“Finally, we don’t believe federal regulatory oversight will diminish to the level that is being hyped. So, we strongly believe compliance will continue to challenge dealers and lenders,” he added. “All that being said, we believe that the changes transforming the auto industry will create unique opportunities for dealers and lenders to leverage as they look to expand their business.”

And based on those discussions, four EFG executives offered the following 2017 predictions:

1. Flat volumes, Compliance, and Customer Retention

John Stephens, Executive Vice President of Dealer Services
John Stephens, Executive Vice President of Dealer Services

While the Consumer Financial Protection Bureau (CFPB)’s authority may be up in the air, dealers will need to stay the course on compliance for 2017. Remember, the Federal Trade Commission (FTC) has jurisdiction over dealers and its operations are not impacted by any potential changes within the CFPB.

Analysts are predicting flat unit sales volumes, pushing dealers to maximize their investment by squeezing more profitability out of their F&I operations. Customer retention efforts will increase, prompting dealers to shore up their service drive and fixed operations to deliver the ‘luxury car’ level of service. In addition, an influx of off-lease vehicles will increase used car inventory while putting pressure on pricing. Whether purchasing new or used, the customer will be king in 2017.

2. Return on Investment and Short Transaction Times Key for F&I Agents 

Adam Ouart, Vice President of Agency Services
Adam Ouart, Vice President of Agency Services
With retail automotive dealerships feeling increased pressure, F&I agents will also experience a trickle-down effect to clearly demonstrate a return on investment for the F&I products they place at a dealership. Agents will also feel pressure to help dealers shorten transaction time and pivot their operations to support online transactions. Agents will closely monitor their own businesses to keep production levels high and begin focusing more on acquiring new dealership business. 

3. Rising Interest Rates and Portfolio Evaluations Will Challenge Finance Sources 

Brien Joyce, vice president of specialty services
Brien Joyce, vice president of specialty services

Regardless of what happens with the CFPB, lenders will also need to stay the course. You don’t stop treating customers right on the off chance that the government might not see your good behavior.

Increasing interest rates will pressure lenders to tighten lending standards and evaluate other options to protect their loan portfolio outside of APR and loan terms. The same can be said for credit unions and other lenders that offer auto loans directly to consumers. I expect more lenders to evaluate how consumer protection products can benefit them from the standpoint of differentiating their institutions from the competition, protecting their loan portfolio, increasing loan volume, and controlling compliance.

In addition, dealers will re-evaluate their lender roster, confirming a broad spectrum of partners that specialize in different credit tiers, and help dealers meet their profitability goals. This will put pressure on lenders to evaluate their service model for dealerships and make adjustments to tackle mutual dealer and lender challenges.

4. Growth and Finance Challenges to Continue for Powersports Dealers

Glenice Wilder, vice president of powersports
Glenice Wilder, vice president of powersports

Although unit sales fell in the second half of 2016, we anticipate volume will pick up in February when early income tax refunds arrive. There will be a slight growth in the powersports market overall in 2017, with dealers putting greater emphasis on increasing aftermarket income through the sale of F&I products.

Lenders that remain in the powersports market will want to insulate their loans and may look to offering their own complimentary F&I products. As powersports dealers continue to be starved for finance sources, up-to-date technology resources, and committed employees, they will pressure their vendors and product administrators to provide outside the box solutions for these obstacles, such as digital F&I services.

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