Tag Archive | "leasing"

FTC Approves Consent Order in Texas Dealer’s Deceptive Advertising Case


WASHINGTON, D.C. — Following a public comment period, the Federal Trade Commission (FTC) said this week it has approved the final consent order settling its deceptive advertising charges against Cowboy AG LLC, a Dallas-based company doing business as Cowboy Toyota and Cowboy Scion.

The announcement is related to a December 2017 compliant related to Cowboy Toyota’s Spanish-language newspaper ads. According to the FTC, the dealership violated the FTC Act by misrepresenting the cost of purchasing or leasing cars as well as the qualifications or restrictions for financing or leasing cars. It also mispresented the availability of vehicles for sale, according to the FTC’s complaint.

The regulator also charged the dealership with failing to disclose credit or lease terms required under the Truth in Lending Act (TILA) or Consumer Leasing Act when it touted certain “triggering” terms of credit or lease, such as the monthly payment. The complaint also alleged that favorable terms were prominently stated in the Spanish-language ads, with material limitations to those terms provided only in fine-print English at the bottom.

The final order settling the FTC’s charges prohibits Cowboy Toyota from misrepresenting the cost of financing, buying, or leasing a vehicle. The order also requires the dealership to accurately represent any qualifications or restrictions on a consumer’s ability to obtain offered financing or lease terms, including restrictions based on their credit history.

The order also prohibits the dealership from misrepresenting the number of vehicles, makes, or models available for purchase or lease. Cowboy Toyota is also required to clearly and conspicuously disclose all financing and lease terms in its ads, as well as all related qualifications or restrictions. And if Cowboy Toyota makes a representation in one language, it must state clearly and conspicuously any material limitations in the same language, the FTC said.

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Swapalease: Q2 Dominated by SUVs, CUVs, Sports Cars


CINCINNATI — Swapalease.com released its quarterly lease trends report for the second quarter of 2017. The report shows that only three brands increased in search traffic from the first quarter. Infiniti, Ram and Chrysler saw a rise in search traffic by 10%, 5% and 3%, respectively.

Among domestic brands, GMC saw the largest decrease in the quarter for search traffic (-12%). A year ago, GMC’s brand searches were up by 14%, showing that consumers may be turning their attention elsewhere for leases. For European brands, Volkswagen saw the biggest dip in search traffic, decreasing by 11% compared with the first quarter. Not a single brand in the European category increased in search traffic this quarter. Within the Asian category, Acura performed the worst, decreasing in traffic by 11%.

Infiniti claimed its position as the largest share of overall traffic (10%). A year ago, it was Ram that boasted the most search traffic out of all categories.

The average monthly payment on a lease was registered at $474.39, a slight change from the first quarter, when the average payment was $436.35. BMW is currently the most expensive brand to lease with an average monthly payment of $862. Conversely, Volkswagen is the most inexpensive brand to lease with an average monthly payment of $318.

The report also shows that higher-priced leases (monthly payments above $500) saw increases in the second quarter compared with the first, possibly indicating continued strength in the economy.

“Our second quarter lease trends report shows that leasing remains strong in the automotive marketplace today, with increases in value of payment and number of leases in the driveways,” said Scot Hall, the company’s executive vice president. “We’re also seeing growth in SUVs, crossovers, and sports cars interest, which mirrors much of what is taking place in the broader automotive market today.”

To read the full text of the report, click here.

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Fed Reserve, CFPB Leave TILA, CLA Dollar Thresholds the Same for 2017


WASHINGTON, D.C. — The dollar thresholds in the Truth in Lending Act (TILA)’s Reg. Z and the Consumer Leasing Act (CLA)’s Reg. M for exempt consumer credit transaction will remain at $54,600 for 2017, the Federal Reserve Board and the Consumer Financial Protection Bureau announced on Nov. 23.

The Dodd-Frank Wall Street Reform and Consumer Protection Act amended the TILA and the CLA by requiring that the dollar threshold for exempt consumer credit transactions be adjusted annually by the annual percentage increase in the “Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).” If there is no annual percentage increases, the board and bureau will not adjust the exemption threshold.

“Based on the CPI-W in effect as of June, 1, 2016, the exemption threshold will remain at $54,600 through 2017,” the two agencies stated in a joint notice.

The decision means consumer credit and lease transactions at or below $54,600 will continue to be subject to the protections and requirements of Reg. Z and M, according to the National Automobile Dealers Association (NADA)’s Regulatory Affairs Group.

“This announcement is consistent with the Dodd-Frank Act amendments to the Truth in Lending Act and the Consumer Leasing Act to adjust these thresholds each year by the annual percentage increase in the Consumer Price Index,” the NADA said.

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Don’t Let Leasing Put a Dent in Appearance Protection


As reported in a June 2016 Automotive News article, “Leasing made up an all-time high of 31.1% of new-vehicle transactions — including cash deals — in the quarter, compared with 26.7% a year earlier.” To put that in perspective, in 2009 it was about 12%. That’s great for the leasing office but not so great for the F&I office, as most lease agreements include maintenance coverage.

So how can independent agents and their dealer clients make up that lost revenue? One proven option is to sell appearance protection coverage.

Appearance protection plans have evolved considerably in the past 10 years. Mobilized, consolidated service providers, using specially trained technicians capable of performing multiple types of repairs, offer dealerships new levels of efficiency and capability that translate to more revenue and peace of mind for the dealership, and happier customers.

Today’s tiered appearance plans, including those offered by my company and others, give F&I managers the option to present choices to their customers, bundling different types of appearance repair services. Such plans include paintless dent repair (PDR) at the baseline but also include wheel repair, bumper repair, windshield repair and repairs of interior rips, tears and burns. The dings and dents acquired while parked in a parking lot is a fairly universal risk, so PDR is a starting point. But identifying customers who also, for example, often travel on highways and can benefit from a windshield repair plan coupled with PDR, presents an upselling opportunity that wasn’t available a few years ago.

The selling opportunities for appearance plans span all car sales, not just leasing. For new cars and pre-owned sales, consumers want their vehicles to look great. A great-looking vehicle brings better resale value — a factor critical to both the consumer and dealer. Most plans provide warranty coverage where the factory does not. Kelly Blue Book and NADA guides both address the importance of appearance to resale value. Plus, for pre-owned, some plans feature no age or mileage restrictions.

Yet with all of these great improvements and opportunities for selling appearance plans in the F&I office, penetration rates are only slowly improving year to year. The following tips for selling appearance plans may help you change that:

1. The 100% Rule

The customer often doesn’t see a benefit with many programs, so making a personal connection by communicating typical risk scenarios is important. “Have you ever had a major mechanical breakdown? Had a car stolen? Had a ding, windshield chip or scraped wheel? Lost a set of keys?” By going through the list, you’ll find that 100% of customers will acknowledge a need based on their individual experiences with car ownership, and will know they’ll get a benefit from the plan.

2. Planting the Seed

By using a few good interview questions that target specific coverages of an appearance protection plan, customers will envision scenarios that make a plan favorable. “Isn’t it nice to drive a vehicle that feels showroom-new?” “Do you know what the manufacturer’s warranty is on minor cosmetic damage?” “Have you noticed how parking spaces everywhere seem to be getting smaller?” “Have you ever had a shopping cart or car door ding your vehicle?” “Have you ever caught the curb with your wheel while parallel parking?”

3. Thought Tracks

“Thought tracks,” or visuals and analogies, provide a perspective that may awaken desire in customers. One of the more successful props I use is a light metal water bottle. I hit it against the desk to illustrate how cars today dent more easily because they’re made of thinner steel or aluminum. When discussing vehicle trade-in, reference the KBB/ NADA guide, or use a unique picture of trade-in vehicle with damage. Use a cellphone as an example: Most car buyers have a case to protect their expensive phone from damage.

4. Package Presentation and Increasing Product Penetration

The same customer you’re selling paint and fabric protection to is also likely to buy ding and dent coverage, and maybe more. And the opposite applies — if they buy ding and dent, they’ll likely buy paint and fabric. I’ve seen many examples of an F&I manager having paint and fabric on all five levels of the menu, but they have ding and dent on only two levels. This is a missed opportunity. They should always be offered together because it’s the same customer for each program. It’s in their buying DNA, so to speak.

The current leasing market presents one great opportunity for selling appearance protection. Should that market plateau, new and pre-owned will continue to offer revenue opportunities. Appearance protection can keep your clients’ and your revenue numbers looking flawless.

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Dealertrack: Millennial Stereotypes Aren’t Entirely True


LAKE SUCCESS, N.Y. — The perception that millennials — consumers ages 18-34 — are content with a carless, ride-hailing life may not be true after all, at least according to new data from Dealertrack.

In 2015, a record-setting sales year, millennials accounted for 34.6% of all auto loans originated through the Dealertrack platform, according to the software firm. Through the first eight months of 2016, that segment’s share of auto loan originations has grown to 36%.

“What we found was that millennials were kind of pigeon-holed into this category as lazy, young and entitled, and I think there were questions as to how they would transition when they became adults and had jobs,” said Jason Barrie, Dealertrack’s vice president of market performance, lender, sales, and F&I solutions. “I think the auto market is an important variable to show if millennials are in the market to buy larger assets, and I think, from the data that we’re seeing, they are in the market for cars.”

In the past five years, Dealertrack has seen millennial loan originations grow at a significant pace. In 2011, the age group accounted for 24.8% of all auto loan originations. They now account for more than a third of all loan originations.

Barrie attributes some of this growth to natural generational shifts. In 2011, consumers over 64 accounted for 13% of all loan originations. Now they account for 8.6%. Generation X represented 44.3% of all loan originations in 2011, but now account for 41%. However, there are also other factors contributing to the rise of millennial loan originations, including the growth of incentives targeting the demographic.

“Many of those incentives were pointed at recent college grads, and many of them were designed to drive upstream customers that weren’t necessarily in the market. And it did help drive sales in 2015 as well as in 2016,” Barrie said. “So you’re seeing some demographic shifts here, you’re seeing some activities that are showing the largest demographic group in the history of the United States, this millennial group, they’re players in the market and they’re going to move cars and influence how and what is actually purchased and leased.”

Another factor that has helped the growth of millennial loan originations, Barrie noted, is the rise in finance sources targeting the subprime market. Many sources, Barrie added, are buying deeper in the subprime segment and are looking at millennials as a key growth opportunity.

Many millennials are still working to establish credit, are at the beginning of their careers, and are living on limited budgets. That makes the monthly payment a major consideration for this car-buying demographic. For the older, more established millennials, stretching terms or leasing is a great option.

According to Barrie, the average new-vehicle loan term for a millennial was 70.4 months, up from 70.2 months last year. The average new-vehicle loan term for Generation X was 70.1 months, while the average term for baby boomers was 68.8 months.

Because of their credit standing, leasing doesn’t account for a lot of transactions from this age group. Barrie noted that millennials take out 19 auto loans for every one lease transaction. However, from 2012 to 2016, millennial lease transactions have grown by 49%.

“As millennials gain better credit, you’re going to see leasing continue to be a solution for that younger demographic looking to get into the car of their choice to match their budgets,” Barrie said.

Barrie also addressed a perception that millennials want to exclusively buy their cars online. He said Dealertrack has found that that’s only partly true.

Millennials do, in fact, want a digital retailing experience, but they still want to be able to test drive their car at the dealership. They want to go to a dealer’s website to pick a car, configure it, get finance options, get a trade-in offer, and fill out a credit application so their deal is structured by the time they reach the showroom. This online-to-showroom experience is part of why Barrie believes in the effectiveness of Dealertrack’s iPad menu.

“To be able to present F&I products with video and graphics and descriptions, it’s more in line with the interactive experience that consumers are looking for online. So when they come into the physical dealership, they’re engaged with tablet technology to continue that experience, so it’s not disjointed,” Barrie said. “Think about the experience, that you’re online, you structure a deal. You got all these great tools, you got financing options, fill out a credit app, you can research F&I products online and then you come into the dealership and they hand you a photo copy brochure of a vehicle service contract.

“And that’s where we see the use of dealer-controlled technology in the showroom, that enables the sales process, enables the F&I manager to do a more effective job of telling the story,” Barrie added. “This isn’t to replace the F&I manager. We do not see the technology replacing the individual who’s educating the consumer. F&I departments add so much value to the car-buying experience to educate a consumer.”

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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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