Pressures on margins have led many dealerships to renew focus on Finance and Insurance (F&I) sales as a way to add incremental gross profit to new and used vehicle transactions. Many find the temptation to adopt sales tactics of yesteryear alluring and now are reviving techniques like bundling and packing to increase F&I gross. While using these methods may increase F&I gross in the short term, using both can expose the dealership to costly liability. For the purpose of this article, F&I sales include anything from traditional F&I products such as extended service contracts, insurance and so on to aftermarket products like paint sealant and accessories.
A quick refresher on what constitutes bundling and packing is in order. First, packing occurs when your staff fails to itemize the payment for a vehicle absent any additional products and instead combines the base payment with payment for F&I products into a single payment. Bundling, a derivative of packing, happens when all F&I products are combined into one price or payment quote when the consumer perhaps only wished to purchase one or two products.
Here’s an example of each:
Car payment without products: $200/month,
Additional F&I products (etch, service contract,etc): $100/month
Packing = Quoting customer $300/month without disclosing that $100/month represented products other than the vehicle itself
Bundling = Quoting customer $100/month for F&I products without disclosing the price of each product separately
Plaintiffs’ claims arising from bundling and packing will center on the dealership’s failure to disclose, the price or payment of the vehicle and the ancillary F&I products sold at the time of sale. Without proper disclosure, Plaintiffs can initiate a multitude of claims alleging fraud. First, Plaintiffs may allege that they were unaware they purchased anything other than the vehicle itself. Or they may allege that the dealership staff predicated their loan approval and purchase of the vehicle on purchasing additional F&I products. Yet another allegation could be that they intended to buy only one of the products but were told they could not purchase them independently.
Since these allegations center on lack of disclosure, the amount of disclosure you provide to the consumer will blunt claims of packing and bundling. Your processes should center on providing consumers relevant information sufficient to make an informed purchase decision. Here that means clear disclosure of the base price of the vehicle absent any F&I products and an itemization of the cost of each F&I product offered. Unlike other compliance matters that may seem like a ‘sunk cost,’ improving your F&I processes in this manner may lead to increased gross. Here are some best practices dealerships have adopted to disclose price and payment options to consumers:
Training: Your staff should understand that either packing or bundling exposes the dealership to tremendous liability both from private plaintiffs (consumers) and state and federal regulatory agencies. Federal agencies have shown a renewed interest in pursing claims of deceptive and unfair practices against dealerships. Bad habits could lead to your dealership being the next subject of a press release of a regulatory agency. Besides educating your staff on the dangers of bundling and packing, give your staff the training necessary to present payment options to consumers that will lead to incremental gross. Many F&I consultants and trainers can help your staff develop skills to properly interview consumers to determine their individual needs, and tailor an F&I product presentation accordingly.
Disclose Products Fully on Deal Paperwork: Some F&I products and hard accessories, like running boards, leather seats, etc, that are physically installed on the vehicle by the dealership can be included in the sale price of the vehicle on the buyer’s order and retail installment sales contract. However, other products should be fully disclosed on these documents and not aggregated into the vehicle’s sale price. Disclosure requirements vary by state, so if you have a question of what can be aggregated into the price of the vehicle, please contact us.
Use Forms Besides the Deal Paperwork to Further Disclose F&I Products: Don’t rely only on the buyer’s order or retail installment sales contract for disclosure of F&I products purchased. These documents have limited space to properly disclose the type of products sold and do not offer protection against consumers’ claims that they were never offered products that they later needed, such as GAP or Credit Life. Instead, draft forms for each product sold or use the disclosure forms provided by the company your dealership uses for its F&I products. Make sure that these forms have places where the consumer can acknowledge the price of the product, purchase of the product, and, in cases where the consumer has declined to purchase a particular product, a similar acknowledgement.
Use a Menu to Present F&I Products: If you aren’t doing so already, consider using a menu that itemizes products, their price, and provides base payment information for the purchase of the vehicle only along with payment options tailored to the customer’s choice. This menu should have sections where customers can acknowledge that your staff presented the F&I products and their agreement to purchase particular products or their acknowledgement that they declined certain products. Present menus to every customer who purchases a vehicle and retain the menu in the deal file. Many DMS providers and F&I providers have menus that integrate with your DMS and offer compliance tracking too.
Review Deals for Compliance: Your managers should review deals for signs of packing or bundling and address issues before they become problems. Make sure deal forms are completely filled out, disclosure of F&I products are proper, and all of your customers are presented F&I products in a consistent manner.
Please feel free to post any tips or best practices you may have in the in the comment section.