Dave Duncan isn't one to beat around the bush. The senior vice president for Safe-Guard Products International says the industry is definitely in a bind, but says there are several things dealers can do to weather the storm.

Gregory Arroyo: There were several media reports about the credit markets being frozen in October. Dealers I've talked to said the market was tighter, but not frozen. So what's the reality?

Dave Duncan: Basically, dealers have to get the moons to align. They've got to have customers with equity, a good credit score, the right income-to-debt ratio, and they have to be on the right unit. Lenders are also not willing to extend terms liked they once did.

There's been a writer at Business Week who's been picking on AutoNation's Mike Jackson. His stories have Mr. Jackson saying the problem is the frozen credit market, but this writer keeps saying it's consumer confidence. I agree 100 percent with Mr. Jackson, because consumer confidence is a broad term, and a customer who has the confidence to walk into last your dealership to get a loan approved is a part of consumer confidence. So I think whoever is trying to downplay the credit markets is fooling themselves.

GA: Do you think the Chicago Automobile Trade Association was right in launching a campaign to promote the availability of credit?

DD: I think it's something that needs to be done, but let me tell you something we've been telling our agents. See, dealer agents are supposed to help develop income in the F&I department, teach them menu selling, make sure they're compliant, help them overcome objections, and make sure they have the right products. Well, one of the jobs they haven't been required to perform in more than 10 years is teaching F&I managers how to hang paper. Dealers need to know what banks to use in certain situations, and how to develop lender relationships that endure.

So we've been advising our agents to sit down with the F&I managers to find out which banks are doing what, because you're right, the market isn't frozen. There are just fewer finance sources out there and dealers have no idea where to find them. We've actually started putting together a matrix here to help identify what lenders are doing, as it's clear lending today is becoming more regionalized.

GA: So who's active and where?

DD: The real question is who's not buying at all. I will tell you that Citibank, Chase and SunTrust are still buying. Credit unions have become increasingly aggressive and offer a great alternative. Aside from Toyota, which has remained steady with its buying habits, the captives are just not buying. And that's the biggest issue, because many dealers have been reliant on captives. So where do they go?

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GA: So how is the situation impacting F&I product sales?

DD: Our product count is actually up. It's hard to tell whether it's customer acceptance or just dealers needing to pick up profit in other areas. I will say this, your four core products are still service contracts, GAP, theft protection, and tire and wheel. I'd say key replacement, PDR and windshield protection programs are also gaining traction.

The biggest challenge is whether you can get the carry from the bank. Line-five adds, the cancellable products, are going to be easier to get advances on than any other product. That's why dealers need to concentrate on their core products and not sign up with 10 different products. I will also say that dealers really need to learn how to ask their customers for a down payment.

GA: Given the current situation, I'm sure evaluating product providers is going to be more important than ever before.

DD: Definitely. The first thing the dealer needs to do is request a copy of the contractual liability insurance policy, or what is known as a CLIP. It essentially tells you that there is first-dollar, last-dollar coverage. If a third-party administrator can't provide you with a CLIP, you need to move on.

Think about it, in the next year and a half we may lose about 15 to 20 percent of dealers, so don't think for a second we're not going to lose a number of product providers.

What dealers can also look for is whether the provider does business with a lot of OEMs or with national accounts, as you can bet companies that do went through a rigorous due diligence process. So if you get a provider that doesn’t have any OEM deals, you’ve got to be extra weary because no one has done any significant homework on that company.

GA: I know you and several other tire and wheel providers really went to bat to keep that product alive in California. Are there any other hot spots right now?

DD: Ohio. We have advised our clients right now to stop selling it there. What we're hoping is the state will adopt the same legislation passed in California, which said tire and wheel is a vehicle service contract and not insurance. The thing that's great about the California act is there are requirements on the size and capabilities of the underwriter and the third-party administrator. So we’re hopeful that happens.

GA: What else are you talking to dealers about these days?

DD: It is my estimation that 70 percent of all dealers have a menu available to them, but more than half of them don't know how to use it or are not using it at all. So my big initiative in 2009 is to educate every dealer about how to properly use a menu. It's unbelievable how many dealers think their people are properly using the menu, but in reality they’re not.

GA: What's your prediction for car sales in 2009?

DD: We're doing our budgets right now and I'm hoping this doesn't happen, but we're projecting new-vehicle sales being down in the 11-to-12-million range.