Tag Archive | "F&I Products"

U.S. Bank Monitoring F&I Product Pricing


MINNEAPOLIS — Dealers signed up with U.S. Bank received a notice this week containing the bank’s policy in regards to fair and responsible lending. Also detailed was the bank’s dealer monitoring program, which, according to the notice, isn’t just focused on how dealers mark up interest rates on finance contracts.

Obtained by F&I and Showroom, the notice was similar to ones distributed by other finance sources, explaining that regulators like the Consumer Financial Protection Bureau (CFPB) have interpreted fair lending laws to prohibit not only intentional discrimination, but also “certain neutral practices that have an adverse discriminatory impact on a prohibited basis (i.e., disparate impact).” But in explaining its monitoring program, the bank didn’t focus on rate markups; it focused on how F&I products are priced and sold.

“If this monitoring program finds unexplained differences in pricing or excessive add-on product financing on a prohibited basis, then we will notify you,” the notice read, in part. “We will ask you to provide any additional information that you believe we should consider regarding the matter. If you are unable to provide an explanation for the identified differences, or if the unexplained differences persist, we will consider taking further action.”

Since the CFPB issued its March 2013 guidance on dealer participation — which warned finance sources that they’d be held liable for the way dealers mark up interest rates — finance sources have warned dealers that they are monitoring their rate markup practices. But the U.S. Bank notice could be the first to add F&I product sales to those efforts.

The question is: Does the CFPB have jurisdiction over the sale of F&I products? It’s a question that has been debated during F&I and Showroom’s annual conference for the past two years.

During a panel discussion at Industry Summit 2013, Nikki Munro, a partner with Hudson Cook LLP, said she didn’t believe the bureau had jurisdiction over the F&I industry. She noted that the CFPB-creating Dodd-Frank Act contains a catch-all provision that raises more questions than it answers.

“There’s a lot of gray area there,” she said at the time. “With aftermarket products that are financial in nature — and the easiest one to refer to is GAP — we think the CFPB can exercise jurisdiction over those types of products, because they are related to the extension of credit — they pay off the extension of credit if there’s a total loss.

“With nonfinancial products like vehicle service contracts, tire-and-wheel, paintless dent repair … we’re just not sure,” she added. “The CFPB will probably take the position that those types of products offered in connection with the loan gives them jurisdiction.”

At Industry Summit 2014, Rick Hackett, a former CFPB official who now serves as a partner at Hudson Cook LLP, confirmed the bureau’s interest in how F&I products are priced and sold, saying that the regulator can’t connect how dealers price F&I protections with the value they provide consumers.

“If I found out that Walmart set the price [of their products at different levels], and they were all the same products, and they were just hoping I would buy one for $20.95 because I was a particularly gullible consumer, I’d be grumpy,” he said. “That’s the bureau’s perspective of variable pricing of ancillary products.”

Hackett offered several scenarios as to how the bureau might proceed. One of them involved the data the bureau has collected from the tens of millions of transactions it reviewed during its investigation of dealer participation. If the bureau comes up with its own determination on how F&I protections should be priced, it could say that anything above that price is a finance charge. The bureau could then say a finance source provided “reckless substantial assistance” for financing a product with an artificially inflated price, Hackett noted.

“So there’s the question,” he said. “Will the bureau try to make finance companies a cop for dealers’ pricing of ancillary products?”

U.S. Bank’s dealer notice points to a “Yes,” although a spokesperson for the bank played down its significance. “We regularly distribute updated policy notifications to our dealers across our footprint,” read a statement the bank issued to F&I and Showroom. “We have and continue to work closely with our dealership partners on changing guidance and regulation in our industry to provide the best service for our clients.”

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AmTrust to Acquire Wells Fargo’s Warranty Solutions


NEW YORK — AmTrust Financial Services Inc. announced today that it has entered into a definitive agreement to acquire F&I product provider Warranty Solutions from Wells Fargo for $152 million in cash. Pending regulatory approval, the deal is expected to close in the third quarter 2015.

Warranty Solutions was part of Wachovia Dealers Services when Wells Fargo purchased the finance source in a $15.1 billion all-stock deal in October 2008. Prior to that, the Lakewood, Colo.-based F&I product provider operated as GE Money Warranty Services. Today, it administers and underwriters vehicle service contracts through a national network of more than 70 active agencies and 1,500 franchise and independent dealers.

“The acquisition of Warranty Solutions provides an outstanding opportunity for our company to expand our successful vehicle extended warranty operation while also adding to our differentiated service and fee business,” said Barry Zyskind, president and CEO of AmTrust Financial Services, in a company press release. “Warranty Solutions is an excellent fit for our organization and we look forward to welcoming the talented individuals that have built Warranty solutions into a successful business.”

Zyskind hinted that the multinational insurance holding company was closing in on an acquisition during AmTrust Financial’s first quarter earnings call on Tuesday, May 5, noting that AmTrust had raised capital during the quarter and that its balance sheet was on “very solid footing” to both grow through acquisitions and organically.

“We continue to excel, buying, looking for companies that fit within our niche, whether we are buying it below book value and gaining on the acquisitions and getting a book of business, or we’re looking for fee business that will ultimately increase our return and drive profitable premium to the organization.

“So that’s something that we continue to focus on; strengthen the team and grow our acquisition capability,” he said.

AmTrust has been active in the automotive space. In August 2010, the company completed its purchase of Warrentech. It also purchased Ally Insurance’s Car Care Plan, which provides insurance and administrative services to vehicle manufacturers for extended warranties, GAP, wholesale floorplan insurance and other F&I products, in February 2013.

A spokesperson for AmTrust said on Thursday that the company expects to retain Warranty Solutions’ management team and all of the firm’s employees. She added that there are no plans to change the name of company or move it from its Colorado offices.

Wells Fargo issued the following statement regarding the pending sale to F&I and Showroom: “As part of our normal processes, we evaluate our businesses and occasionally make decisions to expand or contract in a particular area. After an evaluation of Warranty Solutions, we determined that — under the ownership of a company like AmTrust that specializes in the aftermarket product business — Warranty Solutions would be better positioned to continue growing. We are happy that existing team members will transition to AmTrust.”

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Larry H. Miller Group to Offer F&I Products Nationwide


SANDY, Utah — Larry H. Miller Groups of Companies will now offer its in-house F&I products to dealerships across the U.S. through its new captive finance administrator, Total Care Auto (TCA).

Last week, the dealer group announced that Bryant Henrie, the president of its captive finance arm, Prestige Financial Services Inc., will step into the role of president of TCA, effective immediately.

“The network of customers and contacts we’ve built at Prestige will help open doors to new business opportunities for Total Care Auto,” Henrie said. Recently, the executive was honored by the Salt Lake Tribune for his Leadership of a large company in the news source’s Top Workplace awards.

Prestige, founded as an affiliate of Larry H. Miller Groups of Cos. in 1994, is a subprime auto finance source. The dealer group’s move to expand TCA’s footprint is similar to what the company did with Prestige, which now offers financing in 46 states

Prior to Henrie’s appointment as president, TCA was overseen by Steve Starks, executive vice president of Larry H. Miller Groups of Cos.

“I’ve truly enjoyed the opportunity to work with TCA and General Manager Robb Enger over the last few years,” Starks said. “With Prestige and TCA both servicing automotive customers, it is important to the growth of both companies that they work closely in providing their financial and insurance services to stores and customers across the country.”

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AutoNation Discusses CFPB, Digital Push


FORD LAUDERDALE, Fla. — In a quarter in which it posted record second-quarter earnings per share (EPS) from continuing operations, AutoNation’s F&I operations realized an 11.5% increase in revenue from a year ago and a $9 million, or 5%, increase in total gross profit.

Average gross profit per vehicle retailed for the nation’s largest auto group rose $23, or 2%, from a year ago to $1,398. For the first six months of 2014, PVR rose $45, or 3.3%, from a year ago to $1,395. The group achieved this during a quarter in which it installed in nine stores the National Automobile Dealers Association (NADA)’s Fair Credit Compliance Program in response to the Consumer Financial Protection Bureau (CFPB)’s scrutiny of rate markups.

“It’s been successfully implemented without much disruption and no impact on results,” Mike Jackson, Chairman and CEO, said of the NADA’s program, which calls on dealers to document variations in rate markups on retail finance contracts. “We will now take it to additional stores on a gradual basis.”

Jackson added that he believes banks, dealers and the CFPB will eventually come to some sort of agreement regarding how finances sources compensate dealers in the indirect financing channel.

“And that will unfold over the course of the year, but my expectation will be some sort of agreement and some sort of common ground,” said Jackson, who also responded to a question about reports that the CFPB is turning its attention to F&I product sales.

“We have seen zero real activity in that area,” he said. “All the focus is on the reserve amount.”

In the second quarter, AutoNation posted second quarter net income from continuing operations of $101 million, or a second-quarter record of $0.83 per share, compared to $90 million, or $0.73 per share, in the year-ago period.

The dealer group also reported revenue of $4.8 billion, up from $4.4 billion in the year-ago quarter. That 8% increase was driven by stronger performance in new vehicles, parts and service, and finance and insurance.

Total gross profit for variable operations on a same-store basis was $3,279 per vehicle, a $67, or 2%, increase. Same-store new-vehicle revenue increased $200 million, or 8%, from a year ago to $2.7 billion on the sale of 79,000 units, a 6% increase. The dealer group also posted new-vehicle gross profit of $159 million, up 10 million, or 7%, from a year ago. New-vehicle gross profit per vehicle retailed was $2,008.

Retail revenue for used-vehicle sale was $976 million, an increase of $23 million, or 2%, on 52,000 used vehicles retailed, which was flat with a year ago. Revenue per used vehicle retailed increased $527, or 3%, to $18,836. Retail used-vehicle gross profit was $87 million, up $4 million, or 5%, from a year ago, while gross profit per used-vehicle retailed was $1,687, an increase of $91 per vehicle, or 6%.

Parts and service recorded a posted record revenue and gross profit, with revenue increasing $41 million to $696 million. Total gross profit grew 6%, or $17 million, to $297 million.

Jackson also provided an update on the company’s digital retailing drive, saying the group is ahead of expectations in terms of acceptance of the brand and the amount of traffic being generated by the group’s digital sites. He also announced the group is moving into the next phase of its digital push.

“So we’ve decided to accelerate the new phase, which is increasing our marketing around the brand AutoNation to drive even more customers to our digital sites and, of course, a big investment in the capabilities of the site itself, which the next step would be that the site goes transactional at the end of the year …,” Jackson said, noting that customers will be able to select a vehicle, get a committed price and submit a deposit without ever entering one of the group’s stores.

Jackson said digital sites will be expanded next year to allow the group to appraise and purchase customer trade-ins. They will also be able to provide customers with quotes on financing. “This is our strategic vision, if you will, that we believe today’s customer and future customers want one experience, not an online experience and an in-store experience, but one seamless experience where they can interact and transact both digitally and in the store,” he said, noting that the AutoNation will invest an additional $100 million over the next two years to solidify the brands, increase site traffic and add transaction capabilities to its digital sites.

Jackson, however, stopped short of providing a timetable on how things will play out. “So it’s certainly not the end of the story over the next two years,” he said. “There will be more chapters, but we’re in a very ambitious and exciting phase. I call it an investment phase.”

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RouteOne to Cover Regulator Scrutiny of F&I Products in Upcoming Webinar


FARMINGTON HILLS, Mich. — RouteOne LLC will discuss the forthcoming scrutiny of F&I products by the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) during a complimentary webinar on July 23 at 12 p.m. ET.

During the webinar, entitled “CFPB and FTC Update: All About Add-Ons,” RouteOne Staff Attorney Joseph Karam and National Business Development Manager Jesse Pappas will discuss the cost of compliance, provide a brief introduction to the CFPB and FTC, and look closely into the forthcoming scrutiny of F&I products. Dealers may register for the free webinar by clicking here.

“As the regulatory environment grows increasingly complex, dealerships are contributing a significant amount of time, resources and money in the effort to stay compliant,” said Mike Jurecki, RouteOne CEO. “With separate federal agencies now dedicated to consumer finance and consumer protection, we encourage our dealer customers to take advantage of this opportunity to educate and prepare themselves for the future regulatory environment.”

Karam and Pappas will offer a Q&A session following the presentation. The webinar will be recorded and available for review after the live session on July 23.

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Insights From the Front Lines


At the 2012 Agent Summit, I had the opportunity to serve as moderator of a panel called “Five Ways to Take Your Agency From Provider Rep to Partner.” Our goal was to provide a discussion that would highlight effective ways to become a true partner with today’s dealer — and lead them to record profits.

I was joined by Tim Blochowiak of Protective Asset Protection, David Duncan of Safe-Guard Products International, Garrett Lacour of RoadVantage, John Luckett of First Extended Service Corp. and Ricky Wolfe of Interstate National Corp. These five strong voices in the agent arena shared how they are working through a changing market and providing innovative products and creative ways to maximize dealer profitability.

Let’s take a look at some of the many insights they provided:

Agents must offer new ways to present products.

In the F&I office, the presentation must match the changing behavior of customers. As an agent, bringing that kind of creative change will differentiate you from the competition.

The recent recession has made dramatic change in how consumers view their money. They are more resistant than ever to what they perceive as “extras.” Most customers who have bought a vehicle before have already experienced an F&I presentation. If the products and the way they are presented is the same as their last experience, they’re more likely to be resistant.

Great companies have used a changing environment as an opportunity to examine the way they do business and make creative changes that move more customers to buy.
Take Apple Computer, for example. In 1997, everyone was writing the company’s obituary. Then they re-launched their company with creative ideas and products and have since become a leader, and not just in home computing. Apple has become a new standard bearer for designing and marketing products that customers are motivated to buy.

On the flip side, companies like Kodak are going under because of their lack of urgency to change. Kodak introduced us to film photography and remained a market leader for decades. However when the market demanded digital photography, Kodak stalled. Now, they’re in bankruptcy. The message was clearly defined: Change and innovation today will lead to record profits tomorrow.

Adding underperforming dealerships to your roster will not lead to long-term and sustainable growth.

Successful agents have learned that it’s not about adding dealerships; it’s about selling products. Dealers need and demand income development. A well-trained and focused F&I team can change to meet the new perspective of customers and provide record profits in a challenging market. The bad news is that most dealerships cut or even eliminated their training budgets during the recent recession. The good news is that they’re turning to their agents to provide new training.

You have the opportunity to take a hands-on approach to growing the overall skill level of your dealers’ F&I teams. Your toolkit should include role-playing exercises, benchmarking and accountability. Certification through off-site training also will be valued and sought after by dealers.

The next step is establishing a new F&I process that utilizes the finer points of your training. Customers have already seen the high pressure, memorized sales pitch many F&I managers still swear by. Introduce your dealers to a customer-focused process that will provide an environment where customers feel someone is trying to help them make good decisions, rather than just trying to sell them something they don’t want or need.

Also, there is real opportunity to sell service contracts in the service drive. Many dealers have tried and failed in the past. But there are better approaches out there than there were 10 years ago, and it may be worth another shot. Providing your dealers with a new revenue stream will definitely help set you apart.

“How are you different than other agents? What can you provide that they don’t?”

Agents that are in a growth mode today have heard those questions from dealers more than once. Those who have the answer will see their stock soar.

Dealers are possibly the most sophisticated consumer in the market today. They have heard every sales pitch for just about every product on the market. What they really need is a true partner who can provide training, processes and the ability to bring the change needed to their organization to sell those products in today’s market.

There is a shift taking place in the dealerships that survived the downturn. Dealers can no longer afford to have an untrained and unfocused F&I team presenting the products at their stores. Why not take a leadership role? The gentlemen who provided the insights listed above know that the agent segement will see record growth in 2012 and beyond. In other words, our best days are still ahead of us. Let’s help our industry change to see unprecedented growth and profits!

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