Call On ‘Line 5’

Last month, the magazine’s F&I Forum lit up after a certain, high-profile finance executive — I don’t think I need to name names here — told a competing publication that dealerships would get more deals approved if they focused on loan-to-value (LTV) limits rather than trying to load a deal with back-end products.

I get his message, but I feel compelled to at least make a case as to why F&I products are important to both dealers and car buyers. See, I believe in the products I sell. I wouldn’t carry them if I didn’t. I buy them on every vehicle I purchase, including service contracts and, yes, credit insurance. And that goes for Mrs. Marv as well.

For you newbies unfamiliar with the finer points of F&I jargon, "Line 5" refers to the total amount the lender will advance, including taxes, document fees, title charges and all back-end products. The term irritates F&I managers because a Line 5 call usually means the lender is excluding or limiting your back-end products. Now, to be fair, a Line 5 call is usually the result of the front-end hitting the lender’s LTV limits.

However, I want to make it clear to lenders that products like service contracts, GAP and credit insurance are where we earn most of our income. Finance sources who understand that are an F&I manager’s best friend. They value their relationships and will do all they can to make room for these products in the approval. At the very least, they’ll make an exception when the deal comes in for funding.

For those that don’t, I get it. If the loan goes bad, you’re on the hook. And the more products included in the loan, the more you stand to lose. I also realize that computer scoring models are playing a part in this as well. They were designed to help lenders make better decisions, but I think there are far too many lenders that rely on those models.

You lender reps reading this column may scoff at that, but just keep in mind that the dealer is your customer, not the car buyer. Yes, the buyer will eventually become your customer, but that relationship and your indirect lending arm wouldn’t exist without dealers. And what matters to the dealer is the opportunity to earn a profit from aftermarket product sales.

And let’s be clear: The products offered in the F&I office are aimed at protecting the customer’s investment. You also have to remember that we are, as F&I managers, legally responsible for offering all customers every product for which they qualify. Denying customers the opportunity to protect their investment because my products might put the loan at risk is, in my opinion, simply unethical.

And if your argument is that $40 a month for a service contract increases the monthly payment and the likelihood of default, then maybe the deal is too risky in the first place. And what happens if our customer suffers a mechanical breakdown and you’ve denied him or her the ability to finance that coverage? Doesn’t that also increase the chances of the customer missing a payment or two?

I just highly doubt that loans perform better without back-end product, but I do agree that we F&I managers need to be conscious of back-end percentages. I mean, trying to stuff a $3,000 VSC down a lender’s throat on a $5,000 vehicle is about as incredulous as a lender giving a Line 5 call on an 800 FICO consumer who is looking to finance at 90 percent LTV.

Strong-arming a lender isn’t the way to go, either. We F&I managers need to pick our battles when asking for back-end exceptions, and we must approach the customer with good reasons for buying the products.

Lenders are notorious for guarding their purses, so give them a good reason to fund the deal by showing courtesy and respect. We’ll talk a little bit more about this next month, but I wanted to leave you with some words of advice I picked up from my esteemed colleague, George Angus: "Stop whining, get proactive in solving the problem by soliciting the help of your GM or dealer and seek out more lenders."

What Angus is suggesting is that you track the impact (i.e., lost F&I income) of every Line 5 call you get. I’m sure your boss will be more than happy to go to bat for you the next time the lender rep comes in for a visit.

Marv Eleazer is the finance manager at Langdale Ford in Valdosta, Ga. E-mail him at [email protected].

Don’t miss your chance to see "Mad" Marv in person as he leads a panel of top F&I professionals at the Industry Summit in September! Visit www.IndustrySummit.com for details.