By Tim Blochowiak, Vice President of Dealer Sales, Protective Asset Protection
The expansion of F&I solutions, protection products and participation programs have been a key part of the overall economic impact for dealerships dating back to pre-pandemic. This expansion of opportunity and profit potential has room to continue, but it will only happen through the acceleration of F&I programs that help dealers navigate through a changing industry and economy.
Industry consolidation within F&I is about growth and acceleration of existing resources, and enhancing the overall pool of talent to help dealers in their efforts to expand their businesses. Many dealers that were operating 5-10 dealerships a few years ago now often operate 20 rooftops or more. They need more resources, human capital and an expansion of programs and offerings to continue growing.
For many dealers, F&I programs today include extended service contracts, guaranteed asset protection (GAP), and ancillary products to protect consumers’ investments in automobiles, RVs, watercraft and powersports vehicles. In addition, dealer participation programs, training and technology solutions are also vitally important to dealers’ success. Additionally, the right focus on used and higher-mileage vehicles is also a key component for dealership growth. To help dealers continue to succeed, having a complete and robust set of solutions as well as a network of industry professionals with the expertise to help navigate the changing environment is important.
While inventories have improved throughout 2022, there is still a large focus on used vehicles. The sale of used cars and trucks means more consumers are seeking vehicle protection plans to keep older-model and even gently-used vehicles in top shape after purchase – further driving up the need for expanded resources and profitability for F&I products.
One of the largest used-car retailers in America recently reported that the average used vehicle price was $28,657 at the end of August, an increase of 9.6% from a year earlier1.
Ultimately, the lowered sales volumes since the pandemic began means dealers are relying even more on F&I products to boost profit levels.
However, the winds of change throughout the economy in 2022 have set the stage for new areas of focus for dealers as we get set to enter 2023.
Inflation across the U.S. has had a sizable impact on the price of vehicles, and this has also resulted in changing dynamics as it relates to GAP coverage. In the past 20 years, used cars’ contribution to inflation averaged zero. It’s now more than 1% on a year-over-year basis, according to data from the U.S. Bureau of Labor Statistics.
GAP covers the difference between a vehicle’s market value and the amount a person owes on their car loan or lease. Factors such as higher MSRPs and longer loan terms add up to a greater chance of being “upside down” on a car loan or lease, owing more than a car’s value.
Shoppers may not worry about vehicles losing value while used-car prices are currently high, but as with any economic cycle the trend may change in the coming years. When a correction sets in, those who paid high car prices will be particularly at risk. As such, dealers today are taking a closer look at the type of GAP coverage they are making available for consumers. Nearly half of dealers are still offering GAP coverage at a normal pace, and nearly a third said the higher prices of used vehicles have resulted in selling GAP coverage at much higher penetration rates.
This means dealers and their F&I departments are making sure they are equipped with some of the most advanced GAP coverage, F&I products and online resources they’ve ever had to better serve their customers through increased availability of offerings, particularly in digital retailing settings. These options will provide car shoppers with the ability to conduct better research online of the many different F&I products and offerings that uniquely cater to their vehicle shopping habits. Even with the rapidly changing market, dealers and their partners are bolstering their F&I offerings to provide additional availability of vehicle protection plans, GAP and other F&I products that are beneficial to used cars and trucks.