Confessions of an Auto Finance Manager
Edmunds.com Member, Administrator, Moderator Posts: 10,315
edited November 2014 in General
Confessions of an Auto Finance Manager
This four-part series by a veteran auto finance manager reveals the insider tricks used by dealerships to take extra profit when you sign your car contract.
but, as he said, do not take the first offer for the warranty. make an offer for the warranty, it shows the f&i guy that you would consider buying it but not at retail.
a fixed budget at $420 a month car payment with a warranty than a invariable budget of $410 a month car payment with no warranty. : )
Some of the points raised by the author of this article imply his employers were unfortunately those in the minority.
Case in point:
• employing convicted felons
• allowing finance departments to operate with no internal profit caps
• improper disclosures
As for his 10 items of advice on things not to do:
• #3 Don't buy the service contract - I disagree. For some customers a service contract can and often is a life saver. Factory coverage will expire based on which ever occurs first; the years or the mileage. The average customer in our market drives 18,000 to 20,000 miles per year which means their 3 year 36,000 mile factory warranty expires in two years or less. In addition, the longer term power train warranties while good are limited in coverage.
• I agree customers should do their homework regarding financing however there is nothing unethical about charging a fee in the form of a rate markup for securing and processing loan arrangements for a consumer. In fact in our market, it is rare that a customer can obtain a lower rate than we are able to offer them even after a rate is marked up. And rate markups cannot be excessive as they are regulated by the individual lender.
• GAP insurance is just as valuable on a retail contract as it is a lease contract based on the amount of equity going into the deal
In conclusion, I agree completely with the statement, "When the F&I process is done right, and the customer is informed, it works."
This is a short term philosophy that means that long term business managers are few and far between - but those that stay the course, and don't "do the expose for cheap returns" - are a valuable member of a successful sales team, and close more deals than the whole team combined - I despise your synopsis and your weak analysis, and find it unsurprising that you post under a pseudonym - sad sad sad
Every price quote must in writing email or fax, NO VERBAL quote since those crook dealers can change their deals or words once you bite the BAIT.
Don't ever fall in their traps, just say NO for everything they try to sell unless it really needed that's why I did on my first NEW CAR purchased in 2001. Didn't buy a thing of they trying to sell beside the car. After nearly 12 years my car Honda Accord still running strong without any problem since then.
NO or NEVER NEVER TRADE in your car, otherwise you would loose a lot of money.
One important thing, never believed in online reviews 100% if you see all good reviews. It's too good to be TRUE, YES it is.
Just beware of those crook dealers out there!
Are you going to pay for the repairs once their bumper to bumper is done with? What about used cars? What do you know about peoples driving habits, maybe they will put 36k miles a year in 2 years like I do.
Sounds to me like you my friend and the place you worked at where scumbags, not every place is like this.
$8,000 in back end? I almost peed myself from lughing when I saw this..what bank is going to buy 8k in back end. Hell I can sell every product I have and not make 8k in back end. You were just a rookie and it probably wasn't costed out.
My warranty company paid out over 140k in claims last month to my dealer alone.
What about GAP insurance? Are you going to suggest not to purchase that as well?
Everything in this article is a misrepresentation and gives buyers a worse impression of my industry. With all the information out there, the majority of my customers are well informed.
If you are buying a 30k car, why wouldn't you spend an extra 2k to protect it...be kinda stupid not to.
Even if you buy these products, you don't want to use them...that means something bad happened. Do you have life insurance? Do you wish to use it? Didn't think so...What about medical insurance? Want to use that? NO! Means you got sick or hurt.
Same thing with an extended warranty and GAP protection. You don't want to use the product because that means something bad happened...its called peace of mind.
I'm done ranting...this article is awful, and shame on edmunds.com for posting it when this guy specifically says do not buy extended warranties because its a reflection of your site.
There are exceptions, and they should be recognized for what they are: non-typical events that most car buyers will not experience.
A risk factor not discussed is that extended warranties work only when the promised services are delivered in reality. A Google search reveals that extended warranty buyers sometimes have problems collecting on the extended services promised.
Consider also that money has time value. You pay early for the extended warranty, thus losing interest on your money, but collect later, after the warranting company has already made a profit on your payment.
If you finance payment for the extended warranty, you are also paying interest on your purchase.
An alternative approach is simply to buy a new car that is known for reliability and a strong factory warranty. Most new cars have excellent warranties and you can check these out before you buy.
For god's sake, when you go talk to anybody who sells cars anymore, they want to talk about the Internet. NOBODY sells cars anymore. [non-permissible content removed] you clowns.
Odd to me that F&I departments never have any data on the one thing that would make me buy - to prevent expensive work that is marginally unnecessary. Insurance companies will not tolerate this. Example: A house I bought had a warranty. The AC went out during a heat wave. I was skeptical, but the insurance company had a competent repair done the same day. Total cost was less than the deductible. Had I been on my own, I would have had no idea which of the dozens of repair companies was reliable. The least busy company on that day would likely have been the worst option. I could have received an honest repair, but for all I knew it could have been $2000 and it was too damn hot for second opinions. The guy did not dare rip off the insurance because they were making him send photos of parts and they were his bread and butter during the slower times. Another example is a $250,000 hospital bill that magically became less than $30,000 when paid by Blue Cross.
So the service department has incentives to recommend a $3000 tranny replacement, knowing it is a $200 solenoid, knowing that the tranny is unlikely to fail before the customer retires the car. This is not necessarily a rip-off - even if it is a coincidence the customer is going to scream to high heaven and expect free service if anything happens to that tranny in the next 5 years, so the service department is buying their own 'insurance' from the low-information customer.
Some poor F&I person might finally make a sale from me if they could ever make that case...
Customer pays for value and if they see value in something, they should buy it. Service contracts and insurance products are not meant for everyone especially if their driving trend is low miles or just leasing rather than buying.
These days, there is no such thing as what the writer is talking about. He, himself. was probably one of the biggest crooks of his time and may be worked for a dealer who did ton of subprime business and saw and did what he's confessing about. As an Finance Manager, we have to offer every product to everyone and there's no such thing as pressure sales. Ethics is a key in every business. We as consumers get sold on products and services in every walk of life but don't consider that as a waste of money!?!? Examples of those coverages/warranties are, Furnace, TV, Fridge, House, Cable box, electric/gas lines and much more. For some people, car is their livelihood and do not have the liquid resources to pay for mechanical repairs as they come so that's why it's the situation every one is in.
This article is very misleading and Edmunds.com, being such a known site, funded by ads from many auto dealers/associations, should not publish such garbage based on one incompetent person who didn't know how to do his job so he's out to take jabs on the whole industry.
I'll end with couple of true examples so we all can chew on that and hope this unethical writer can too. I worked for an auto group in 2006 where we sold a Chevy Trailblazer SS to our detail shop manager. We offered him Life & Disability policy. He had one new born and one 4 years old at the time and wife was a stay home mom. He saw value in that product on a $40k loan and bough it. During summer of 2008, while playing basketball with friends, he had a cardiac arrest and passed away on the spot. He was 32 at the time. Now you all can guess what happened with that loan... Paid in full for the family who otherwise had to let it go back to the lender. I saw their faces and know the feeling to this date. If I wouldn't have offered that product to them, I wouldn't have done justice. Less than 5% of clients in my market but this product but if I don't offer this to everyone, then I am being unethical. Choice is up to the client and should be.
Another quick one, client purchased Tire & Wheel coverage and had over $1200 worth claims in less than three months. He saw value, bought it and came out as a winner. I've some who bought it and never had a claim and some who didn't buy and wished they had. We don't plan on getting sick and go on for months without seeing a doctor, but when we do, we sure do appreciate health insurance.
Bottom line is that you are misguiding consumers by publishing such garbage and remove this. This is not a true representation of the industry. Hope your editorial staff is more knowledgeable in the future before putting such stuff out there for public to read.
The one sure thing is all products sold in the F&I office are grossly overpricd making the value dubious at best, For example, the extended service contract is sold by the insurer for $800 or so. The freindly F&I person will gladly sell that product to the buyer for $2,000. No sane person would attempt to defend a profit of $1,200 on an $800 product.
There are reasons virtually every consumer advisor recommends against F&I products. Presenting a couple of examples proves nothing. The fact is the vast majority of people who purchase an extended service contract will lose money.
The smart buyer will take that $2,000 and place it in an interest bearing account. Should a covered repair occur, that money is available. Should a covered repair not occur, that money remains with the buyer rather than the F&I person.
I agree that there is a profit built into the cost of these add-ons - unlike invoice prices on cars, which are relatively easy to determine on-line, the "true" cost of these items is very difficult to discern.
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2015 Subaru Outback 3.6R / 2014 MINI Countryman S ALL4
This bit from one of the offended finance guy was priceless:
"Here's some better advice, buyers are liers. You can do yourself a favor and treat your salesman with respect cause in the end I have the ultimate power and if you show respect you will get it in return. Treat me like I'm beneath you and ill be the one laughing in the end just to spite you by ripping your face off cause you are an [non-permissible content removed]. "