Tag Archive | "high mileage"

F&I Products for the High-Mileage Market


New-vehicle sales are up, leasing is accounting for an ever-increasing share and there is a potential glut of used cars on the market. The shift toward leasing that began during the tail end of the Great Recession has begun to flood the market with gently used vehicles. But off-lease units are not the only source. The latest data from R.L. Polk puts the average age of a U.S. registered vehicle at 11.4 years, a figure inflated by Recession-era thriftiness and a nearly universal improvement in quality. Simply put, consumers are holding onto and investing in older vehicles longer, putting more wear-and-tear and more mileage on them before finally opting to trade up.

In the past, many of those vehicles would have gone to auction lanes (or the scrapyard). However, many dealers are finding that there is still profit to be made through the sale of used vehicles with up to 100,000 miles — and beyond — on the odometer. Young people looking to buy their first cars, families still struggling to recover from the downturn and price-conscious drivers are all more willing than ever to consider cars and trucks with higher mileage and lower price tags.

But where does that leave F&I?

Today, there are options out there from a wide range of providers that specifically target the high-mileage vehicle market. AE talked to five of them to get their take on this segment: Jason Garner, general sales manager, AUL Corp.; Mike Melby, vice president of strategy and business development, GWC Warranty; Kelly Price, president, National Automotive Experts (NAE)/NWAN; Mike Toms, vice president of business development, The Penn Warranty Corp.; and Glen Tuscan, president, Dealer Commitment Services.

Demand and Coverage Levels

One thing all our experts agreed on was that the high-mileage market is large and growing at a fairly quick pace. AUL’s Garner believes the next few years should be exciting for this market. He believes that the combination of longer ownership cycles and a growing number of used vehicles on the market, will help bring down the price of the vehicles themselves as demand continues to rise. This, in turn, will create new opportunities for dealers to boost their F&I production.

Mike Toms agrees, noting that lender buy-in is a key factor. He says banks and finance companies are increasingly asking for warranties on high-mileage vehicle loans as a means of mitigating future losses. Specifically, he says, his company is starting to see lenders require vehicle service contract (VSC) terms that cover at least half of the finance period, as well as minimum acceptable coverage levels.

“So many challenges in the subprime and high-mileage market revolve around price,” notes Melby, explaining that high-mileage car buyers are far more price- and budget-conscious than the average consumer, so F&I professionals may feel more than the usual resistance to their presentations — particularly if they fail to adequately explain the value proposition.

Tuscan adds that there is only so much wiggle room in the loan on an affordable, high-mileage vehicle. It is a tough sell, he notes, if the cost of and markup on the service contract adds thousands of dollars to the price of the car, which could represent as much as 30% of the entire vehicle value. As an example, he explains that one of these vehicles might retail in the $8,000 to $12,000 range, which is the “sweet spot” for the segment. To make it affordable for the customer and profitable for the dealer, he says he would offer a 30-month, 30,000-mile comprehensive VSC package in the $1,800 range. In that scenario, the dealer would make $900 in profit and be more likely to sell in volume.

The Product Mix

Our experts agreed that, when it comes to the high-mileage segment, GAP and service contracts reign supreme. They are the two F&I products that will make the most sense to budget-conscious customers and the finance companies that serve them. But that doesn’t mean agents shouldn’t push for sales of appearance protection or any other product sold to new-car buyers.

Another candidate is credit life and disability coverage, which Tuscan notes is of particular value to those who are underinsured.

“Sixty-three percent of Americans right now cannot afford a catastrophic financial event over $500. If they have a refrigerator go out today, they would struggle to replace it,” he says.

Dealers may find that GAP and VSCs offer a more tangible benefit, particularly for vehicles that have passed the 75,000-mile mark. At that point, Price notes, it is inevitable that parts will begin wearing out and breaking down. She advises agents and dealers to focus on those products with great coverage for a great value, priced fairly.

Not only will strategic pricing increase penetration levels, she adds, it will also lead to fewer chargebacks and higher CSI scores. Customers should drive away feeling satisfied that they got a great deal, and if anything does go wrong, they won’t suddenly find themselves either out of pocket for repairs they can’t afford or making payments on a car they can no longer drive.

Garner points out that part of the sale is discovering what is more important to the consumer: the terms or the price. Some consumers will prefer to have a VSC that focuses only on the powertrain but that will last for 60 months. Others might prefer more comprehensive coverage and are willing to accept a shorter contract term. By having products that are flexible — or having a range of options for dealers to choose from — it helps the F&I manager and the consumer find the one that will best fit their specific needs.

“Almost every customer wants and needs the peace of mind that comes with protecting their vehicle investment,” Toms stresses. He advises agents to offer a range of products that will fit nearly any need. Some service contracts should cover a vehicle up to as many as 200,000 miles, and others should have no mileage limits and should cover the consumer for the entire term of the contract, no matter how much they drive.

Melby agrees, describing the service contract as a “must-have.” He stresses that most buyers of high-mileage vehicles simply don’t have room in their budget for repair bills — and repairs are almost inevitable on those vehicles. It is just a matter of whether it is something minor that goes wrong and can be fixed easily, or whether it’s a major issue that could take the vehicle out of action completely until repairs are made.

Underwriting and Compliance

Of course, given we are talking about a segment that is focused on used cars and trucks that have more than 75,000 miles on them — some with more than 100,000 miles — the odds of a VSC paying out for repairs is quite a bit higher than it would be on a new vehicle.

Melby says that agents choosing a VSC to offer to dealers serving the high-mileage segment should ignore their gut instinct to choose based on price alone. As critical as that element is for consumers, it is more important to partner with a company with a history of underwriting service contracts for six-figure odometers, because the knowledge base that tells them what is likely to go wrong on each make, model and year of the vehicles they cover takes years of experience and the accumulation of adequate actuarial data.

While contracts that offer lower prices and the opportunity for higher penetration rates might look great on the bottom line in the short term, poorly designed products can lead to more rejected claims down the line. That, in turn, can lead to higher rates across the board, unhappy consumers and, eventually, an exit from the market — leaving the dealer and the agent to handle the fallout.

“Loss ratios are the biggest challenge, which plays into the challenge of pre-existing conditions,” says Price, noting that it is just as important for the agents and dealers to understand what goes into pricing a VSC aimed at this market as it is for the provider to provide it at a low cost. Working with providers who have taken the time to study the market and base their contracts and pricing around the most likely parts to break — and the costs associated with those parts — will help mitigate much of that particular risk factor.

Garner points out that compliance is another key concern, noting that, as of late, the Consumer Financial Protection Bureau (CFPB) and state agencies have become increasingly more active in looking at F&I products — including those aimed at the high-mileage space — and debating whether regulators should have a say in the way they are sold and priced. He believes agents should do everything they can to stay up-to-date with new rules and legislation in order to keep their dealers informed.

Looking Ahead

Despite the risks, our experts agree that offering F&I products designed for high-mileage used vehicles can create a competitive edge. Dealers who are properly equipped to serve that market will have a competitive advantage over those who continue to send high-mileage units to wholesale. Here are a few predictions our experts offered:

  • No more “as-is”: VSCs that fit into high-mileage car buyers’ budgets and offer reasonable coverage could make “as-is” sales much less common. Why ask customers to assume all the risk of buying an aging vehicle when a service contract can keep them on the road and keep them coming back to the dealership?
  • No more “I drive too much” objections: One major objection many F&I managers face is common among consumers who don’t believe they’ll get the full value of the VSC because they will exceed the mileage allowance long before the term of the agreement is up. In some cases, they are purchasing a high-mileage vehicle precisely because they want a car or truck they can run into the ground. Having a partner that offers coverage with no mileage restrictions will help agents and dealers diversify their product portfolios and get more customers covered.
  • More affordable and flexible options: The process has already started, but as more providers gain proficiency in this space, the contracts will become much more focused, with many more options designed to suit the budget-conscious consumer. And as the ability to accurately predict how the products will perform improves, costs should come down, allowing dealers to increase their profit margins in the long term.
  • Simplification: Technology is playing a bigger role throughout the F&I process, and products for high-mileage vehicles are no exception. Providers are offering online systems that make it faster and easier to get approvals. As the process becomes easier, the time in the F&I office gets shorter, which in turn makes consumers more open to hearing about their options. When someone has waited more than an hour to see their F&I manager, they aren’t going to be all that keen on hearing about why they should add an $1,800 service contract onto their $10,000 purchase. But if they’ve only been waiting 10 minutes, they will likely be much more open to hearing about the benefits and value.

The market for F&I products that specifically target high-mileage vehicles is not going to go away any time soon. For agents and dealers who are willing to adapt, those units could prove to be moneymakers.

As Garner notes, “Customers are keeping their vehicles longer than ever. The average mileage continues to climb in the industry and average life of a vehicle continues to lengthen. This segment will continue to grow in importance and size.”

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Throw-Away Deals or Missed Opportunities? Selling and Bundling F&I Products for Lease and High Mileage Vehicles


In today’s post-recession era, instituting products and processes that add value for high mileage and lease vehicles is something that needs to be re-evaluated industry-wide. The agent, dealer and F&I manager have long viewed these deals, much like cash sales, as throw-away deals. High mileage vehicles are not usually financeable, unless they are being sold at a buy-here-pay-here lot. But, we don’t have to wait for the finance deal to come in to make a profit. If you really look at all of the available opportunities, by offering applicable products for these vehicles, and implementing appropriate training, high mileage and lease deals should be as profitable as any other deal.

As an agency working with dealerships, we need to help dealers and F&I Managers understand that there are several different products that can be sold when it comes to leasing and high mileage vehicles. From prepaid maintenance, windshield protection, dent protection, tire and wheel and paint products, to high mileage VSCs – there are plenty of options to be offered that do not come with vehicle age restrictions.

It is really a matter of presenting the products, because in most cases today, nothing is being presented to these customers. I have seen F&I managers print all the paperwork and hand it to the salespeople on these types of deliveries and never present the customer anything – because they don’t have to! The dealer is not telling them that it is part of their pay plan – there is no focus on it. The vehicles are being treated as if they were wholesale vehicles and don’t even count into their pay plan!

Obviously, it is important for F&I managers to learn the features and benefits of all applicable products and how they apply to a high mileage buyer or lease customer. In addition, it is prudent to have some product knowledge, along with some practice in making these presentations with the agent. The presentation itself is not much different than any other deal – it boils down to whether you believe that customer can be sold. It is the same mindset that someone selling to a cash buyer needs to have. You can go into it with the approach that a cash buyer is not going to buy anything. But if they walked in with $25,000 cash, then they have money – that isn’t their last $25,000. You have to find a way to sell to that consumer and let them see the value of each product.

The dealer should demand that there is a focus, process and menu that works for all deliveries. The agent’s responsibility is to look at the product line-up, make sure that the dealership has appropriate products available, and make sure the menu is properly structured. They also need to ensure that the F&I department is being well trained on how to present the many available products that benefit the lease or high mileage customer.

While it depends on the customer and agent as to what products are best for lease or high mileage vehicle customers to be presented, I believe the most effective way to present the products is through a menu or some sort of formal visual process. It is very important to give the same presentation to every customer, every time. This way, you do not run the risk of being discriminatory. To maximize profits on these deals, like any other, you have to get to know your client by interviewing them and understanding their needs, therefore allowing for a confident and impactful presentation. This also allows for a consultative approach versus trying to figure out during the delivery what the customer may or may not want.

The Value of Prepaid Maintenance

The main thing to focus on with dealers is getting the customer back into the service department through prepaid maintenance. If they don’t service with the selling dealer, then the chance of them buying from the same dealer in the future is very low – only 14%. But if they do service with the selling dealer, the likelihood that they will buy from them again dramatically increases to 76%! We administer a tremendous amount of prepaid maintenance because dealers understand the benefit of tying the customers back into the store. Products that are going to keep them as part of that dealership’s family for a long time are key to future sales.

One of the things a dealer often doesn’t look at is how to capture their used car customers. They spend so much time marketing used car sales and then do nothing to get those customers back into their service departments. I once had a service manager in a Honda dealer tell me that they didn’t want to service anything except Hondas. I asked, “So you are going to spend all this money to advertise selling used cars – you are selling cars that aren’t Hondas – but you are not going to service those customers? So really, you cut your foot off for your next sale, and then you get to spend all that same money going out to get that same customer back again in three or four years, when you could have kept him in the service department all along.”

Prepaid maintenance on pre-owned cars is almost as critical as it is on new cars, because if you can keep that customer coming back to your dealership, then you don’t have to advertise for them again. If 76% of the time they are going to come back to you naturally, why wouldn’t you keep them there to begin with?

When you get into prepaid maintenance for high mileage cars or any used car, it is such a powerful tool because even if you are only breaking even by offering it, you need to look at how much you are ultimately saving. You can do anything you want to do with that customer, as long as you service their vehicle. If you do that, they are going to buy from you again. No matter what the value of the car is, the customer still needs to have maintenance done. Sometimes service managers will even tell us what they are not willing to do, instead of being willing to service every customer that the dealership sells a car to! Dealers allow a mindset that it is alright to choose to only take care of a “portion” of the customers that buy a car from the dealer. This is really a crazy notion – and to everyone’s detriment. Why would you push a brand new customer away from your dealership just because it is an off-brand vehicle?

As a dealer, you have to be adaptable and have a general technician on staff who can do general maintenance on each and every car. If you aren’t going to service all the vehicles you sell, then at least take the car through the service department and sublet the service. This way the customer is still coming back to the selling dealer.

The Dilemma: High Cost Service Contract – Low Cost Vehicle

Obviously, there are many different types of coverage available for pre-owned, high mileage vehicles. There are some coverages you can sell that provide basic, everyday coverage, and others that cover just about anything that could go wrong. Think about it like auto insurance – when you purchase auto insurance, you may not insure the full limits of the policy, but you need to protect yourself on the basic components. If I were an F&I manager, I might present three different types of coverage, rather than three different terms of coverage.

The customer needs to be informed that their vehicle can be protected in a number of ways. The most basic and least expensive coverage to keep the car running is powertrain protection. There are also products that can protect the engine, powertrain, transmission and most of the everyday equipment. Another option is selling them complete protection from one end of the car to the other with an exclusionary coverage product. The F&I manager should share with the customer that their main goal is making sure the car is running – for this, they need engine, transmission and drive train protection. They may be able to go without AC and power windows, but presented correctly, a customer will likely want coverage that will prevent them from having to put a new transmission in the car they just bought.

Cost is a part of the equation, but the most important part of the sale is getting the customer to understand the value of the products. If a solid presentation is made, it isn’t about cost, it is about how they can pay for it. A proper presentation should result in the customer seeing the value of keeping their vehicle on the road. If F&I managers present it as, “Hey I can get you a cheap service contract.” – the customer will not see any value, which will result in the F&I managers having low penetration levels. If they don’t present the features, values and benefits, they are only presenting cost. You have to start with values and benefits first – cost will take care of itself.

Bundling Products

Bundling products on a menu versus bundling products on a contract are two totally different things. We do a lot of bundling right on the menu, so the customer does not perceive there are four or five different products. They see one product. Bundling it on a menu and printing three different forms allows you to pull one product out if needed. If you have one contract with five different products on it, the gross profit to the dealership and the agency are both reduced because you are only getting one contract sold. We offer both the agency and dealership the option of bundling several products on one contract, or separate products each on their own contract, grouped as a single option on the menu. How this is done depends on how an agent may want it all bundled together – we have paint, dent, windshield and rim protection products bundled together and we have them all separated. The actual number of contracts that are going to print out at the end is not relevant to a customer making a buying decision. We bundle a lot on the menu because we don’t want to overwhelm the customer by having 15 different products available for sale. A protection-type product bundle might consist of paint and fabric, windshield, and dent and ding products all presented together as one menu item. But at the same time, if the customer says they don’t have an interest in one product, or perhaps they have windshield coverage through their auto insurance or roadside assistance through AAA, then we can respond by customizing the bundle with the removal of a product. Originally the presentation should be made as a group for the best penetration.

It is also imperative to make sure you are selling to the customer’s needs. If you only have that bundled product available, then sometimes you will lose a sale because the customer is so caught up on the fact that they don’t need roadside assistance, that you could lose the whole sale because they think they are paying for something they don’t need. Depending upon the interview, the menu and the F&I Manager’s presentation can be adjusted.

Appearance Products for Lease Customers

The most important thing for lease customers to consider is that at the end of a lease, they will be held responsible for any damage to the vehicle. If you spill coffee and stain the seat, you are going to get charged for that at the end of the lease. Interior repair and replacement can be very costly. The interior appearance protection product covers damage occurring during the term of the lease, so at the end, the customer isn’t held responsible for any damage such as stains, rips, tears or punctures in the fabric or leather. Obviously, that is a huge advantage. For exterior appearance products, unless there is major damage to the exterior caused by the environment, they will make the car easier to keep clean and looking nice. Being able to eliminate the need to wax or treat the car consistently throughout the term of the lease is a great advantage. Interior and exterior appearance protection can be offered separately – so if a dealer wants to sell only interior or only exterior, they are able to do that.

Ultimately, if we want to maximize profitability, we must take the type of unit or the type of financing out of our F&I approach. Every customer and type of unit must be presented with the same passion of a finance opportunity. What worked in yesterday’s market is not always the best approach for today. The industry as a whole has to rethink the way high mileage vehicle and lease customers are treated in the F&I office. If we don’t adjust our mindset, then not only are we failing to offer our best to those customers, but we will be missing out on profit opportunities.

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Higher Mileage Pre-owned Vehicles Play a Vital Role in Franchise Dealers


The trend is clear.  More and more franchise dealers are retailing higher mileage pre-owned vehicles that, in the past, would have been destined for the auction or a local wholesaler.  This trend has created several new opportunities for dealers and the agents that serve them.

One is increased F&I profitability:

High mileage vehicle sales offer a wide array of back-end profit opportunities for both dealers and agents alike.  Adding a quality vehicle service contract to the sale of a high mileage vehicle not only offers a significant F&I mark-up opportunity to the dealer and agent but there are also programs available that allow the dealer to share in any underwriting profit from the sale of VSCs sold on high mileage vehicles.  As we all know, most dealers are very careful not to do anything to jeopardize their primary reinsurance/retro positions and many of the vehicles being retailed these days are not ideal for reinsurance.  Therefore, it seems to make perfect sense to keep these higher mileage and inherently worse performing vehicles out of their primary reinsurance/retro pools while still maintaining the ability to share in underwriting profits. A program to participate in the upside of favorable performance, even on high-mileage vehicles through a dividend (or retro) program would provide each dealer a sliding scale portion of the excess reserves, even at very low monthly contract volumes.

Second is increased front-end gross profit:

Many more dealers are realizing the significant financial benefits of retailing rather than wholesaling these vehicles as they may have done in the past.  To help customers get over any concerns they may have about purchasing a higher mileage vehicle, many dealers are choosing to partner with service contract providers that specialize in higher mileage vehicles.  Providing customers with the right coverage options at a fair price gives them the confidence to purchase a vehicle that they may otherwise be hesitant to buy.  In most cases, the average customer who walks on to a franchise dealer’s lot is not expecting to purchase a vehicle with 80,000 plus miles on it.  Dealers continually tell us that offering a quality vehicle service contract on their high mileage inventory dramatically increases the customer’s confidence in those vehicles and ultimately turns car shoppers in to car buyers.

Last but certainly not least is customer satisfaction:

No dealer I know intentionally sells vehicles with existing mechanical issues.  However, we all know that vehicles, especially higher mileage vehicles, will likely have a mechanical issue at some point.  To ensure that these mechanical breakdowns are addressed in a timely manner and the customer’s financial impact and inconvenience is minimized, many dealers choose to sell a VSC provided by companies that specialize in handling claims on higher mileage vehicles.  Many of these companies have years and years of experience adjudicating claims on these higher mileage vehicles and know the best way to get the customer back on the road as quickly as possible thereby eliminating any post-sale dissatisfaction or CSI issues.

When choosing a higher mileage VSC provider, several factors should be considered.

The first is pretty obvious.  Find a financially sound provider that delivers on their promises.  Look for a strong history of paying claims as well as a solid financial profile.  You also want to choose a provider that is positioned well for the future.  They need to have the resources to invest and grow with you.

Next, you want to be sure that you’re going to get a partner, not just a provider.  Your business is unique so you want a partner that has the ability to offer personalized support and training.  You want someone that can tailor an agreement for your needs and that will help you as those needs change.

Finally, what does the financial opportunity look like?  Consider companies that offer competitively priced products and aggressive back-end profit sharing opportunities.

If you focus on these key areas, you should be able to find a great partner.

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