The Ties That Bind: Tightening Advances Choke Sales

OK, so I need to ditch the tie and suit. At least that’s what Deanne Kornacki told me after one of the workshops at our Powersports F&I Conference in September. Apparently, I looked too much like an auto guy for the F&I manager of the Ohio-based State 8 Motorcycles — stuffy.

There’s so much that binds automotive F&I and powersports F&I, but yet there’s so much that separates the two industries. Take today’s credit crunch. I’ve been writing about it quite a bit in our sister publication, F&I Management and Technology magazine. Yes, lending guidelines are tightening. However, an even bigger concern for auto F&I managers is that lenders aren’t advancing on F&I products like they once did, which means customers will have to pay upfront for those products. When I told one powersports F&I manager about the situation, his response was, “Welcome to our world.”

So what is our world? Well, the Motorcycle Industry Council reported an 11 percent drop in new-unit retail sales for the first three quarters of 2008. I’m sure the credit crisis had something to do with that, but I still don’t think the decline was the result of a frozen credit market.

Here’s the deal, if you think customers with 600 and 700 credit scores are going to breeze through, think again. Credit scores are no longer the single factor of credit worthiness. Today, everything is in play when it comes to lenders. They’re looking at how loans originated in your area are performing, and they are especially looking at how loans your store originated are performing. What’s happening is lenders are doing what they didn’t do the last couple of years — manage risk.

And I have to believe that was the thinking behind GE Money’s decision to cut off its FUNancing Card Program on Oct. 31 for dealers not affiliated with its OEM partners. It’s unfortunate, but this is what happens during a correction.

So what should you do? I’m hearing that local banks and credit unions are stepping up to the plate these days. The only negative about those two lending segments is they’re a little more reluctant to advance on F&I products. However, they do offer better rates than some of the major banks right now. The question then is, what interest rate can your customer bear?

Either way, it’s definitely a good idea to break bread with your lenders these days. And when you do, show them what products you offer, the stability of your product providers, and the checks and balances you have in place to ensure compliance. Lenders like that kind of stuff.

Now comes my big warning about compliance. It’s really the biggest link between auto and powersports. And I have to tell you that some of the things I heard at the magazine’s show really scared the heck out of me. In one circle I heard a dealer describe how his salespeople are taught to quote payments with the warranty included. Guys and gals, what this individual described is payment packing. And for those of you who are splitting deals between credit cards and creating fake “pick” tickets from the parts department to hide negative equity on a trade, your day is coming.

Sorry if I sound preachy. I’m just warning you that regulators are licking their chops right now because they know temptation is high when business is down. The good news is the Federal Trade Commission finally admitted that not every industry under its jurisdiction is up to speed with its newest consumer protection rule — the Red Flags Rule. That’s why it’s giving you until May 1, 2009, to get compliant. So what’s good about that? Well, it allowed me to finally get you a story on how to comply with the new rule. Check it out on page 16.