At least once a year, a news outlet does a story about how car dealers “cheat” customers. It is generally a cheap and easy ratings grabber. And because of their past reputations, dealers can be easy targets.
Usually the investigative work of these local reporters focuses on why paint protection and undercoating may not be worth the $995 charged by the dealer, or shows the customer how to learn the invoice price of a vehicle before shopping.
However, the recent Dateline NBC news feature on a Sonic Automotive Inc. dealership in North Carolina raises additional questions. Is the pressure to get to the magical $1,000 per deal finance revenue causing some of these problems, or is it just unskilled salespeople who take illegal shortcuts to get deals done?
As we know, there are a wide variety of tricks and non-disclosures that can take place in the finance department during the sales process. There is also a significant difference between the gray area and outright fraud.
Having been in hundreds of different dealerships in my career, I have seen an incredible range of finance office talent. I have seen exceptional F&I managers. Then I've seen others who wouldn't be able to get Bill Gates approved for a loan.
To be at $1,000 by selling product, converting cash and credit union deals, and holding reasonable rate participation represents real talent and should be well rewarded. To get to $1,000 per contract by fraud is not skill; it is the refuge of losers.
The F&I manager needs to be the gatekeeper in the sales process to protect the dealership from potential problem and legal situations, not an abettor to getting bad deals done or doing whatever is necessary to increase penetration levels in order to score bonuses.
Here are steps that can be taken to help support and protect the F&I department:
- Make sure all sales managers have F&I training. Much of the pressure to get “creative” is due to unrealistic deals being sent back for delivery. Whether that is an absurd $275 monthly payment for a customer earning $1,000 a month or a ridiculous 3.9% rate for a 487 FICO score, the sales desk has to know what is a reasonable deal structure. To put F&I people in those situations is a sales management issue, not the finance department's fault.
- Ensure that your F&I managers understand and have been briefed regarding all Department of Motor Vehicle laws and lending regulations. Be certain that they are updated regularly or as changes in personnel and the laws occur. Check that finance procedures, sales menus and sales pitches are acceptable and in compliance.
- Establish a set of professional guidelines and expectations that all personnel are expected to respect and follow.
- Conduct regular audits on booked deals to guarantee that established rules are followed.
- Consider placing price caps on products sold in F&I. Despite the fact that a customer is of legal age and sound mind to sign a contract, you will never be able to justify a $2,495 etch package to a jury. Banks have taken the lead on capping reserve payments, but a consistent policy of its own probably makes sense for most dealerships.
The F&I position is not easy. It carries significant responsibilities. That can never be an excuse for committing fraud. Unfortunately, the type of actions that Dateline caught happen more often than we'd like to admit, even though it is confined to a small minority of rogue F&I and sales personnel.
Regardless, dealers should institute changes and monitor practices to prevent their dealerships from possibly being next in the news.
Bryan Dorfler is an F&I consultant. E-mail: [email protected]