The magazine goes one-on-one with Brent Griggs, president of Protective’s Asset Protection Division, to discuss a host of topics ― from the F&I product sales and the credit market, to the company’s recent purchase of Prizm. Find out why the company is feeling positive about the coming year.

F&I: There’s been a lot of debate as to whether we’re in a recovery or not. What are your thoughts?

Griggs: Most of the key indicators suggest the markets and overall U.S. economy are recovering. However, consumer spending remains weak. We expect modest growth in new-car sales during 2010 compared to the 10.4 million new cars sold in 2009.

F&I: Coming into the third quarter, there were signs that credit might be loosening up. But as we exited 2009, some of my sources said finance sources remained pessimistic about our recovery. Then, coming out of the annual dealer conference, there was talk that things were loosening up. What are you seeing?

Griggs: Early in the economic downturn, auto sales were significantly impacted by tight credit. Our dealer customers were actually seeing a fair amount of traffic, but only a fraction of those shopping were able to obtain financing. Today, we are seeing signs that lenders are relaxing their requirements, which is partially responsible for the slight upward trend we are seeing in new-car sales.

F&I: Looking at your third-quarter report, Protective, like many companies in our industry, benefited from the Cash for Clunkers program. I think you attributed the approximate $10 million quarter-to-quarter increase in sales to Cash for Clunkers. Can you talk about the program’s impact?

Griggs: It is estimated that an additional 690,000 cars were sold as a direct result of the Cash for Clunkers program. Despite some delays in implementation and reimbursement, I believe it was one of the most targeted and effective economic stimulus programs of 2009. It is true that our third-quarter sales were approximately $10 million higher than second quarter, which was primarily due to that program.

One thing to note is that December’s seasonally adjusted annual rate of sales (SAAR) was 11.25 million vehicles, the highest point of the year if you adjust for Cash for Clunkers. This is further evidence that some growth has returned to the market. Most economists expect 2010 new-car sales to average 11.5 million, although comments from Ford suggest they are even more bullish. Additionally, Ford, GM and Chrysler have all announced that they are beginning to rehire plant workers in the United States in anticipation of the need for production growth in 2010.


F&I: I know this year has been tough on F&I product sales, but have there been any surprises in terms of products lenders liked and consumers were willing to purchase?

Griggs: Unfortunately, the tighter lending requirements not only resulted in fewer cars being financed, but it significantly restricted the ability of dealers to include F&I products in the sale transaction. On a positive note, the economic downturn has forced thousands of consumers to hold on to their cars longer than they originally planned to, which has had a positive impact on consumers’ desire for extended vehicle protection. We expect this trend to continue as the economy slowly recovers.

F&I: How did your service contracts perform in 2009? Was there a specific plan that did well with both consumers and lenders?

Griggs: Our high mileage "Mileage Plus" product became a very popular plan during the downturn. This would be consistent with the evidence that consumers are planning to keep their cars longer and want to protect themselves from unexpected costly repairs as their cars age.

F&I: I also noticed that you package some of your service contract plans with things like paintless dent removal, tire-and-wheel, and windshield protection. I know packaging products isn’t a new concept, but it does seem like providers are really pushing that business model quite a bit these days. What are your thoughts?

Griggs: Through our continuous discussions with customers, we have learned that many consumers really appreciate being able to have all their needs met with a single product. However, by far, most of our service-contract sales did not include those ancillary benefits.

F&I: Speaking of ancillary products, is there any line-one product that could really be a difference maker when the economy emerges from this downturn?

Briggs: We are seeing growth in both our Lifetime Engine Warranty and Limited Warranty products. These products offer coverage similar to service contracts, but they act like warranties because they are offered by the selling dealer and are generally placed on every car sold. The value of this product is to provide peace of mind for the used-car buyer who wants some assurance that unforeseen problems will be covered.

F&I: What about credit and disability?

Griggs: Sales of auto-related credit insurance have been declining for years. State regulators have reduced the rates we are allowed to charge to the point where neither the dealer nor the insurer can offer them profitably. It is unfortunate because the product offers great value to those consumers who wish to have coverage for just the amount of debt on their car, RV or boat. Protective is still one of the larger providers in states where regulators have not made it untenable.


F&I: I’ve also noticed a renewed interest in reinsurance. I’m not sure if dealers are ready to pull the trigger on that yet, but I think a lot of dealers are aware of how those programs made a difference for dealers when things got really bad last year. What are you seeing?

Griggs: We believe that for many dealers, profit participation programs, including reinsurance, can enhance the profitability of their F&I products. We offer dealer customers their choice of many programs, including participation in non-controlled foreign corporations, controlled foreign corporations and, for those dealers who do not want to take any risk, retroactive commission and plain front-end commission programs. It is true that dealers with long-standing reinsurance companies were able to draw on surplus from those companies to cope with cash-flow challenges during the downturn.

F&I: At our F&I conference, I heard someone make a comment that there might be a new model for GAP rates, where Mercedes would be one price and a Toyota would be another. Is this something you’re seeing and what are your thoughts?

Griggs: We have been a leader in driving differentiation of GAP rates because it allows us to more closely match the cost of the GAP coverage to the individual customer. We expect GAP products to evolve just like service contracts have. If you can believe it, many of the first service contract providers charged one price for all makes and models. Obviously, with the variations in car quality, types, costs, etc., this model was very ineffective and made it difficult for providers to determine the ‘right’ price for the contracts. As we learn more about the variables that impact the frequency and severity of GAP claims, we will be able to differentiate better and charge less for those less risky cars.

F&I: With regard to GAP, where are we as an industry with regard to insurance and waiver states? I know that battle continues to be waged.

Griggs: Efforts to reclassify GAP have been successful in 47-plus states, with the last two major holdouts, Michigan and Texas, having adopted the waiver concept in the last three or four months. This is positive news, as this will lower the cost of GAP to the consumer.

F&I: My last question is in regards to your recent purchase of Prizm, which I understand you’ve had a relationship with for some time now. So, what are your plans with this acquisition and what should a Prizm dealer expect?

Griggs: As you said, Protective has been providing insurance and dealer support for Prizm dealer customers for more than 10 years now, so our goal is to continue that great service while administering the contracts from our Chicago administration office. While any integration comes with its share of challenges, we made the major changes in October 2009, and most of the operational issues have been worked out. We look forward to continuing our long-standing relationship with Prizm’s valued clients.