Maximum F & I Profits with Maximum Disclosure

by: Mike Boolos

The latest data on F&I production nationally proves that income produced in F&I is critical to the dealership's total profitability. New car departments would have lost money in each of the last ten years without F&I profit. F&I income represents over 43% of the dealerships total income. This creates a lot of pressure to produce in the F&I department and sometimes that causes people to shortcut processes and outright deceive in the pursuit of profits.

If you saw the recent Dateline episode where they placed a hidden camera on a customer and followed her through the sales and F&I process, you saw many examples of our industry at its worst. The F&I manager asked the customer to lie about her income, misled her in disclosure and put products in the contract that were never told to the customer.

So how do you maximize profits in F&I without deceptive acts? By learning how to effectively manage your department and sell the value on your products.

The Benefits of a “Menu”

At Assurant Group we have been teaching a menu selling process for six years. We know that it produces results when it is utilized correctly and along with the other financing documents ensures proper disclosure for our customers. People like to have choices and the menu gives them that. Early cancellations are greatly reduced because people don't cancel products they have selected themselves and by presenting the products in a consistent and balanced way, overall profitability improves.

Simply using a menu isn't enough though. F&I managers must learn how to sell their products and create value for the customer. This begins by discovering the customer's wants and needs through questions and helping the customer make the best choice for his or her needs. Each product you sell in F&I must be able to stand on it's own merits and satisfy a customer's needs, if it doesn't or if you don't believe in it, stop selling it. The reality is that you probably aren't selling it anyway.

The old school of F&I taught that every product should be sold to every customer in every situation. In other words our products were a “one size fits all” solution. That thinking is outdated and when you begin to put together packages and products that are tailored for every customer's individual situation, you'll see sales and profits soar. It is true that you should present all of your products to every customer. Then as they select products or show interest, sell those products and find out why they are not interested in the others. The bottom line is that menu selling produces results. F&I profit increases every time a menu process is implemented correctly.

The Benefits of Disclosure

Proper disclosure of all aspects of the vehicle purchase is not an option. No matter what production looks like or if it's the last day of a tough month, never sacrifice disclosure for ill-gotten profits. This benefits everyone involved: the customer, the dealership and the F&I manager. The customer leaves feeling comfortable with their purchase, the dealership receives higher CSI scores and reduced exposure for future liability and the F&I manager knows that they earned the respect of the customer and sold the benefits of the products the customer purchased. You can attain high F&I income with proper disclosure and there is no other acceptable result for today's dealerships.

To truly be a professional you must understand what is required in the form of disclosure. The Association of F&I Professionals is a terrific source for the proper disclosure requirements and information on the laws that affect the F&I Transaction. Becoming certified by AFIP is not an easy undertaking but is a terrific way to ensure you are meeting the legal requirements of your office. We have been an industry member for over ten years and mentor people through the AFIP Certification Process.

Accountability

Creating a system to ensure accountability is critical to make sure that your dealership is meeting the customers needs. First, every transaction should have a signed menu form in it to make sure that products were presented and designating which products were selected and signed for by the customer. Second, the Dealer or General Manager should check the F&I managers selling disclosure skills. Have the F&I manager role-play these critical steps with you to determine their abilities and take corrective action if they are not acceptable. Third, closely monitor customer cancellations and complaints to watch for trends developing.

Creating a profitable and customer friendly F&I department has always been a goal. Today it is a mandate for doing business. Accepting anything less leaves you open for liabilities. If you still doubt the wisdom of this article, take your total gross F&I income for the last twelve months, subtract charge-backs and get your net F&I income. Now take out $5,000,000 that was the penalty one Florida dealership was hit with for misleading customers. How does your bottom line look now?

Giant outdoor TV screen draws customers to Illinois dealership

The giant screen sits 25 feet above the ground outside the Buick-Pontiac-GMC store

It might not be the biggest one available, the giant television at Wagner Buick Pontiac GMC in Belleville, Illinois, still gets plenty of notice, reports the Belleville-News Democrat.

It's not actually a television but the large video display outside the dealership can show video footage and it probably has startled a few drivers on the road when they looked up and saw cars coming at them.

The sign has been up for almost two weeks and Wagner Buick owner Rusty Wagner said it has taken him about that long to learn how to operate it. He uses his computer and the software that came with the video display to program and run the sign.

The double-sided video display is about 7 feet tall by 12 feet wide. It sits 25 feet above the ground. Mr. Wagner wouldn't reveal the purchase price but he did say that it was ridiculously expensive.

Mr. Wagner said the key for him was getting a screen that would show action. "Cars move. I wanted running footage," he said.

Messages are brief since cars driving by don't have a lot of time to look. The default setting for messages is two seconds.

Mr. Wagner is still experimenting with various things he can do with the sign. The time and temperature readings rotate in and out of the messages. He can pull video off a GM advertising Web site. He said he has made a lot of progress.

Big 3 economists: Industry outlook is dicey

This year will be the worst automotive market in a decade, economists from Detroit's Big Three automakers say, but they add that they do not believe the bottom is about to drop out, The Detroit News reports. A moribund housing market, continued fuel-price concerns and worrisome consumer sentiment are expected to lead to declining auto sales this year. But economists representing GM, Ford and Chrysler who spoke Tuesday at a Society of Automotive Analysts conference said monetary and fiscal policy adjustments, a stabilizing overall economy and consumers buying more fuel-efficient models should mitigate the sales decline. General Motors Corp. expects annual sales to hold flat at last year's 16.1 million unit level, while Chrysler LLC projects 15.5 million to 16 million units sold, and Ford Motor Co. 15.7 million.

from: the Detroit Press
Continue reading article

The Dealer Made Me Do It

By Steve Finlay
WardsAuto.com

First off, I’m not excusing auto dealers. Or lenders.

They have a moral and business responsibility to try to stop their customers from doing something stupid, such as buying a vehicle with a sticker price that will stick them with an oppressive debt.

But customers have responsibilities, too. It is their purchase, their money and their car payments. It is up to them, more than anyone else, to know their financial limitations and not cross them.

Yet, so many consumers today buy too much vehicle. Then, when the financial squeeze becomes eye-popping, they look for someone to blame. The dealership and lender make nice targets. Seldom do the debt-ridden blame themselves.

I pondered that while reading a Los Angeles Times article headlined, “New Cars That Are Fully Loaded – With Debt.”

The story tells how some Americans of average means roll over an existing loan on an expensive vehicle in order to get another expensive vehicle. They end up with two loans in one, when they couldn’t afford one.

That is childish behavior, like wanting a pony, no matter what. Only back then, at least you had your parents telling you “no.”

Also infantile is the finger pointing that ensues when consumers without self-control fall deep into debt.

“Not one dealership ever said this was a problem,” a vehicle buyer told the Times. “Ever.”

She owes $43,000 on two trucks. Combined, they are worth $28,000. She got in deep because she rolled over debt after debt during three car purchases in five years.
Fooled once, shame on you. Fooled twice, shame on me. What about the third time?

Did she need to be told that might be a problem? My office is on the 27th floor of a high rise. Do I have to be told that if I jump out of my window, I might encounter a problem 27 stories later?

The article is accompanied by a photo of the woman and her husband looking sad while standing beside one of their two vehicles. It is a Ford Expedition. She is a secretary. Should a secretary have bought a $46,000 SUV as a second vehicle?
Perhaps she is the one to answer that.

As noted, I’m not holding dealerships harmless. Dealers should help people find vehicles priced within their means, not aid and abet them in reckless purchases.
“It is up to us to explain options to customers,” says Kelly Mankin, a vice president at Chrysler Financial.

Frank Bennett, business manager of S&L Motors, a Chrysler-Dodge-Jeep store in Pulaski, WI, prides himself on trying to keep over-eager customers out of trouble by recommending financing alternatives, such as leasing.

That way, a secretary can drive a Ford Expedition without being driven into debt.

But another dealer, Marshall Friedman of Dartmouth Motor Sales in Newport, NH, tells me if you stand too firmly between what customers can afford and what they want, you can counsel them right out the door and to a competitor.

Whatever happened to personal responsibility in car financing? Did it disappear, along with the quaint practice of putting a big down payment on an affordable vehicle and paying it off in a few years?

This is the age of the so-called “empowered” consumer. Car shoppers supposedly use the Internet for research, then march into the dealership knowing more about the product than the salesperson does.

That knowledge should include understanding the pitfalls of assuming an 84-month loan on a high-priced product with a rapid depreciation rate.

The extent of consumer financial ignorance is so bad, even the National Automobile Dealers Assn. is trying to help. An important NADA initiative is AWARE (Americans Well-Informed on Automobile Retailing Economics).

“Our goal is to help educate consumers, so they are as aware about their financing as they are about the vehicles they are buying,” an AWARE spokesman says.
They have work to do.

Original post link

How Much is Eddie worth?

A fantastic article worth a read
from: Doug Manly
www.DumbDealer.com

HOW MUCH IS EDDIE WORTH?

It is always a challenge to determine what the right amount is to pay management. Too much pay and the comfort zone sets-in, too little pay and the manager takes a hike. There has to be the right mix where the dealership is maximizing profits and the managers are given an opportunity to earn mega-bucks. The monetary worth of a manager to the store is usually determined by departmental profit. The catalyst that determines departmental profit is the pay plan. A properly structured pay plan will bring out the worth of the manager. It’s the bucks that motivate.

I recall three instances where the dealer realized the worth of the managers, two positive and one too late.

THAT’S A LOT OF MONEY

The dealer decided it was time to review and revise all managers pay plans. The current pay plans had been if effect for years and were outdated. New pay plans were developed and implemented. The new pay plans provided the managers an opportunity to increase their earnings 25% to 50% without substantially increasing sales. Good pay plans can do that.

When it was time for monthly bonuses and commissions, it was the dealer’s practice to go to the Controller’s office to sign the checks. If there were any questions, the dealer didn’t have to chase down the Controller. After the new pay plans were implemented and it was check signing time, true to form, the dealer went to the Controller’s office to sign bonus and commission checks. As the dealer was about to sign the first check, he dropped his pen on the desk looked the Controller in the eye, pushed his chair away from the desk and said, “That’s a lot of money.” The Controller answered, “Yeah, but look at the bottom line.” The dealer looked at the bottom line, smiled and signed the check. Well, guess what happened when the dealer went to sign the next check. You got it, he dropped his pen pushed his chair away from the desk and said, “That’s a lot of money.” Again, the Controller told the dealer to look at the bottom line.

After the dealer finished signing the checks, he shook his head and went back to his office. The dealer was not accustomed to paying the kind of money the managers were earning from their new pay plans. Nothing more was said until the next month, when it was check signing time. Yep, “That’s a lot of money.” Yep, “Look at the bottom line.” That was the last time the dealer questioned the amount of the bonuses and commissions. One look at the bottom line explained it all. Bottom line profits in a year’s time went from $282,000 to $897,000 annually. And the following year the bottom line was $1,300,000 annually.

The dealer realized what his managers were worth and was more than happy to pay, “A LOT OF MONEY”. The annual profit increases year over year more than justified what the managers earned.

RIGHT PERSON

Two dealers were linked by a partnership to one store. Between them there were seven stores and thirteen franchises. The partnership store was a new acquisition and the dealers were looking for “Right Person” to bring the store up to speed. “Right Person” was found and in a short period of time the partnership store was firing on all cylinders. Over the next 18 months the dealers acquired more stores and franchises. After acquisitions there were a total of nine stores and nineteen franchises. Guess who was chosen to oversee the dealerships? You got it, “Right Person.” Now “Right Person” told the dealers that more compensation should be forthcoming because of the additional responsibilities and workload. Well, you know how dealers are. “We’ll talk about it.” Two months later and still nobody was talking. “Right Person” gave notice that he was leaving. Then and only then did the dealers want to talk. Too late, “Right Person” took a hike to a single point store for less money, less grief and less headaches. Talks cheap, it takes money to buy whiskey. Evidently, “single point store” recognized the worth of “Right Person” to his organization. I have often wondered why the worth of a person increases when termination notice is given. If one is worth $5,000 a month at 9:59AM and gives notice, how’s comes the dealer counters at 10:00AM? Why is that?

So Mr./Ms. dealer when was the last time you looked at the humans you employ and reviewed their earnings and worth to your company? My best guess would be NEVER. In my years in dealerships, I have yet to see a dealer call one his humans into his/her office, tell the human he appreciates them, and give them a raise. Usually the human has to ask or beg for a compensation increase. Why is that? One word can sum that up but we will get into that in a future article on pay plans.

SLEEP TIGHT

The dealer decided that it was time to slow down and start smelling the roses. He had worked hard and had a nice store that was running smoothly. Not having a junior in his clan, it was necessary for the dealer to go outside the gene pool and find someone to run the store. The chosen one was a guy named Eddie. Eddie was in his late sixties, not ready to give it up, and still going strong. Kind of. Eddie wasn’t there for the money. He was there because of his passion for the business. In his day Eddie was one of the best.

Time, however, had taken its toll on Eddie. Time does that. Eddie was old school and had paid his dues. Eddie just kind of hung out and piddled with numbers in his office most of the day. On occasion Eddie and the dealer would sit around and swap lies.

The dealer was paying Eddie $80,000 a year. At times Eddie was more like a security guard. Eddie was there at 6:00AM every morning and stayed until close every night. Sometime during the day you usually could find Eddie in a conversion van taking an afternoon nappy nap for about a half-hour to recharge his battery.

One day while in the dealer’s office, I asked the dealer why he was paying Eddie $80,000 when it was obvious his best days were behind him? The dealer leaned back in his chair, took a puff on his cigar, smiled and said, “Because I know he is there.”

I told the dealer that I didn’t quite understand. The dealer explained that he slept better knowing that someone was watching the store. You see, Eddie was always there. Even on weekends, he would cruise the lot at odd hours, like midnight on Sunday, to make sure everything was all right. Eddie was one of a kind.

Even today I ask myself was $80,000 overkill? Maybe. But not in the dealer’s eyes. So the next time somebody asks why you pay “your” Eddie $80,000, lean back in your chair, light up your cigar, and smile. There aren’t a lot of Eddie’s around anymore.

“We do not see things as they are, we see things as we are.”
Talmud

Red-Flag Rules Worry Dealers

By Steve Finlay
Ward's Dealer Business

Auto dealers want to fight identity fraud as much as any upstanding citizen, but they're reluctant to become quasi-investigators for the federal government.

So say lawyers trying to limit dealer involvement in proposed “red-flag” regulations mandated by Congress and being developed by various agencies, including the Federal Trade Commission.

The regulations would require creditors to report identity-fraud suspicions from customer-loan information. Dealers are considered creditors because of their auto-financing activities.

“It has caused an uproar,” says Michael Benoit, a Washington-based attorney and partner in Hudson, Cook LLP, a law firm that represents dealers.

Some requirements would be fairly simple, such as making sure a would-be borrower looks like the photo on his or her driver's license. But others are beyond the detection talents of typical dealership personnel, Benoit says.

“I don't know many dealers or (dealership) F&I (finance and insurance) offices that can look at credit reports and identify unusual activity,” he tells the 2007 Auto Finance Summit. “I'm hoping for more flexible standards.”

Benoit says lending institutions already have processes in place to detect identity theft and other frauds. It is superfluous to expect dealers to do the same thing, he says.

Andrew Koblenz, the National Automobile Dealers Assn.'s general counsel, agrees.

If General Motors Acceptance Corp. uses an anti-fraud system to check social security numbers, death lists and the like, a dealer handling a GMAC loan application shouldn't be legally required to duplicate such efforts, Koblenz tells Ward's.

“We want to fight identity theft, and dealers have a tremendous self-interest in not selling a car to an identity thief,” he says. “But the real-world impact is that it would burden dealers. One estimate is that it would add five hours to the credit-application process.”

Only dealers who run “buy here, pay here” financing operations — in which dealers are direct lenders — should be expected to take active roles in the red-flag activities, Koblenz says.

Red-flag proposals that NADA considers egregious are “beyond the scope of the statutory mandate, unlikely to achieve the anti-theft goals of the statute, ambiguous and exceedingly burdensome,” Paul Metrey, NADA's regulatory affairs director, says in a letter to the FTC.

One of the proposed 31 red flags that would trigger government-mandated action is incomplete information on a credit application. But Metrey says that's common and not indicative of identity theft.

“Identifying such attenuated occurrences as a trigger for additional compliance activity only serves to elevate an already high regulatory burden without producing a corresponding benefit in identity-theft prevention,” he tells the FTC.

“To avoid this unintended result, the agencies should narrow the delineated red flags to those that indicate a reasonable likelihood of identity theft,” he adds.
Metrey says a “more prudent approach” and one more in line with the congressional intent would be for regulated entities to demonstrate how their existing policies and procedures can combat ID theft.

Benoit says that makes more sense than imposing strict government regulations.
“We're looking to find out if creditors will be allowed to adopt their own processes,” he says.

The red-flag effort is part of a trend that since 2000 has resulted in dozens of government regulations affecting dealers, says NADA Chairman Dale Willey, a Kansas dealer.

“The new regulations come at a steep price,” he says. “Dealers must devote more time to compliance.”

But some regulations offer dealers certain opportunities, he says, citing the adverse-action notification requirements of the Fair Credit Reporting Act and the Equal Credit Opportunity Act.

Those acts require dealers to send formal letters to people who have been denied auto financing.

“An adverse-action notice is an opportunity to educate people about credit awareness 101,” Willey says. “We hope some of our customers will come back to us when their credit is better.”

As for the red-flag proposals, Willey says it is up to trade organizations such as NADA “to help regulators understand the real-world results of their actions.”

The regulators acknowledge dealers have raised legitimate concerns, Willey tells the 2007 F&I Management and Technology conference. “The better information we can provide to people who regulate us, the better they can adopt rules that Congress intends and that we can comply with.”

Participate in designing your dealership's 'Red Flag Rule' policy and procedure manual by going to: http://www.AutoFinanceInsider.blogspot.com

‘Dude, Where’s My Car?’

By Steve Finlay
WardsAuto.com

A sound outside awakens a man in the middle of the night. He looks out in time to see his car being towed away.

At first he thinks it’s an auto theft in progress. Then, half awake, he recalls how far behind he is on his car payments. Could it be…?

It could. About 1.5 million cars a year in the U.S. are repossessed from owners seriously in arrears.

That’s expected to increase, as the auto-financing industry anticipates more loan delinquencies in 2008, according to a survey of lenders.

“Better than 50% of respondents project that,” says JJ Hornblass, chairman of the Auto Finance Summit, an annual industry conference. “It is consistent with a poor credit-performance environment. More lease delinquencies also are expected.”
It will be “a tricky environment,” he says.

The forecasted rise in repos would continue an upward trend that started in 2006 when 1.4 million vehicles were confiscated, a 5% increase, according to Manheim Consulting.

Tom Webb, chief economist for Manheim, estimates delinquency rates increased repossessions by 10% in 2007.

There are assorted reasons car owners default on their loans to the point that a lender sends out agents to get the vehicle back. Reasons range from falling on hard times to irresponsible behavior with finances.

Auto-recovery specialist repossesses car in New Jersey.

Another cause is that some dealership customers pay less attention to the price of a costly car and more attention to the monthly payments, without grasping how long those financial obligations can last.

“It’s sad,” says Mark King, general manager of Roy Robinson Chevrolet Subaru in Marysville, WA. “They lose sight of the effect of 6- to 7-year payments. All they’re looking at is the monthly payment.”

Protracted payments can lead to loan defaults, especially as vehicles age and depreciate, and owners risk becoming “upside down,” or owing more on a car than it is worth.

“Dealers don’t advocate 84-month loan payments,” King says. “It’s really a last resort. The problem is that a new SUV on the high-end side is $40,000 to $50,000.”

Some financially unsavvy customers need to be educated on the downsides of long-term loans and of buying a vehicle beyond their means, say experts.

“We need to make sure that the loan you are buying is the loan you think you are buying,” says Alexander J. Keechle, senior vice president of Drive Financial Services in Dallas.

“Also, get more money down,” he advises dealers. “That’s not an industry secret, but yesterday’s exception is today’s expectation.”

Lenders differ on when to pull the trigger on someone who is delinquent on a car loan. Some lenders are more patient, trying to right-size the situation in hopes of getting the money due. Others are quicker to repossess the car.

“I’d rather take the money than the car, even at the risk of the delinquency going up,” says Joseph Pendergast, group vice president-operations manager for Chevy Chase Bank.

Keechle disagrees.

“We wouldn’t adapt that policy,” he says. “If the customer can bring the payment up to date, and if there are indications of that, it is best for everyone. If not, it is best to collect the car ASAP. Waiting means the car is that much more devalued.”

People depending on a car to get to work “will do everything they can to pay their car loans,” Keechle says. “But when they can’t pay, they won’t. When they make that decision, it’s best to get the car without delay.”

It’s not that clear cut, says Jonathon Levin, president and CEO of auto-lender Turner Acceptance Corp.

“There always will be some customers who will stop paying on their loans,” he says. “But if you give the tools to others to pay, they will – or will try to. It is not wise to just yank the car from them.”

Levin says his firm is “reaching out to borrowers more than ever” in efforts to make sure customers don’t default and risk vehicle repossession.

There’s a chance for success “as long as there’s a voice on the other end of the line,” he says. “We make it clear that we want them to succeed. And they want to, as well.”

Contributing to the expected rise in car-loan defaults is the ripple effect of the subprime mortgage crisis, some lenders say.

“There was a shock in the mortgage market, and liquidity dried up,” says.

Keechle. “Clearly there were some missteps in doing loans without proven income.”
But the shock to the system “allows a return to a more rational way to underwrite,” he says. “It’s good for all of us.”

Some financially strapped consumers, facing a choice of defaulting on their car loan or home mortgage, will choose the latter.

“You can always sleep in your car, but you can’t drive your house to work,” Pendergast says.

Adds Keechle: “If you default on your car, the options are much fewer. In the U.S., people need cars to get around. If you default on your home, you have the option of renting an apartment.”

The No.1 reason for auto loan defaults is the vehicle owner can’t afford it, and No.2 is the car breaks down, he says.

Avoiding loan defaults includes making sure dealers are acting properly, Levin says. “It’s a matter of putting customers in the right car with the right payment plan.”

Lenders that proceed with vehicle repossessions should make sure they are following the letter of the law lest, they be sued by an irked consumer, says lawyer Mark Edelman, who represents financial institutions.

“We’re seeing litigation involving repo notices,” he says. “You can’t use the same form in all 50 states. Eighteen states require a notice before repossession. Eight more states have a requirement that you must say, ‘I’m not taking late payments; you must come up to date or we’ll repo your car.’

“It requires a high level of specificity or you risk court action,” he says. “And in the court of public opinion, you don’t want to look like someone who is abusing customers.”

The legal term for a repo is “loss recovery.” In effect, it is a “dispossession of property,” Edelman says. “My legal advice: take care.”
As an auto-auction owner, Lynn Weaver can easily spot the repossessed vehicles in the bidding lanes.

Compared to “a bunch of program vehicles of the same model and color, the repo cars are different colors and have different variations,” says Weaver of Harrisburg Auto Auction in Mechanicburg, PA.

He says lenders selling such repossessed cars are up front about their origins when putting the vehicles on the wholesale market.
With good reason.

“It doesn’t do us any good to sneak anything by anyone,” Neil Boardman of the Regional Acceptance Corp. says at a recent National Remarketing Conference in Las Vegas.

Adds Steve Norbut, vice president of dealer sales for Universal Special Auto Finance: “A national lender is not going to slide something by.”

Most repossessed cars are in pretty good shape, although “a few are tagged with a golf club or every window is broken out,” evidence of a former owner’s anger at the prospect of losing the vehicle, Boardman says. “On average, our vehicles are three years old and with 45,000 to 50,000 miles.”

Repossessed vehicles at auction include a broad mix of models, mileage and conditions because they come from an array of lenders financing various products and customers, says Manheim’s Webb.

Weaver says, “There is no stigma at all towards repo cars.”
Still, some wholesale buyers steer clear of them.

That includes Mike Cunningham, owner of Payless Cars and Trucks in Tucson, AZ. Almost always, he personally buys cars in his inventory.
That doesn’t include repossessed vehicles.

“I almost never buy repos,” says Cunningham. “People quit maintaining those cars longer before they quit making payments. I’m skeptical of any repo.”

Man indicted on charges alleging car sales scheme

By DON LEHMAN
FORT EDWARD — The former special finance manager of a Greenwich car dealership has been indicted on 23 felony charges in connection with an alleged scheme in which he defrauded numerous lenders by creating false documents to get financing for car buyers.

Raymond Marvelas Ray, 44, of Stillwater was charged in connection with 11 different car purchases made at Whalen Chevrolet Oldsmobile that prosecutors claim were made after Ray created fake financial documents to get loans for the buyers.

He faces 11 counts each of forgery and criminal possession of a forged instrument and a count of grand larceny in an indictment handed up Thursday in Washington County Court.

State Police arrested Ray in late November, after an investigation that began when the Social Security Administration was contacted by financing company Capital One about inconsistencies in documents used in car loan applications.

Investigators said Ray created false Social Security benefit letters, tax returns and employee W-2 forms to make it seem that prospective car buyers had higher incomes than they really had.

He benefited because finance managers are typically paid commission for each loan they bring to a lender, said Washington County Assistant District Attorney Christian Morris. Falsely inflating someone’s income would increase the likelihood they are approved for financing.

Ray told police he nearly tripled his salary annually through the scheme, which he had also used while working at at least two other car dealerships in the Albany area, officials said.

Morris said the financing companies lost money because the loans were not paid off, but the car buyers and dealership were also affected.

"Everyone all around lost money," he said. "The banks lost money. Whalen had to buy back some of the cars."

Those who purchased the cars also lost because they wound up paying for cars that were ultimately re-possessed, and their credit was also hurt, officials said.

The charges relate to car purchases dating back to June 2006.

Morris said 80 other car purchases that Ray was involved with are also being scrutinized by police and may result in additional charges. Police said charges were likely in Albany County as well.

Ray, who was fired by the Greenwich dealership the day of his arrest, was jailed without bail at the time of his arrest because he has at least two prior felony convictions. No arraignment date in Washington County Court has been set on the new charges.

He could face up to 4 years in state prison for each transaction, and as a prior felon, he faces a mandatory prison sentence if convicted of a felony.

Ray is being represented by Washington County Public Defender Patrick Barber, who could not be reached for comment Thursday.

Be Careful What You Wish For

By Peter Brandow
Ward's Dealer Business

Be careful what you wish for. The domestics Big Three (General Motors, Chrysler and Ford) are hoping for new dealers, new plants, new workers and new vendors. They want to replace what they have with what their competition has. They're sure those guys would be better.

The Import Big Four (Toyota, Hyundai, Nissan and Honda) want to conquest all of what the domestics are giving up in an effort to grow to the next level. They predict those dealers and customers will become raving fans.

It just doesn't seem that simple to me. Conquested customers and dealers will not be a bunch of raving import fans; many have had all the loyalty and trust beaten out of them. They feel abandoned.

As importantly, the domestic holdouts are not going to be examples of survival of the fittest. Domestic survivors may just be desperate hangers on, very lean, and mean (angry at the least), but not necessarily fit. The domestic three are not becoming stronger through combat.

The domestics may not yet realize that the dealers they are shedding have the right coping skills for the opportunity they offer.

These are dealers who accept margin squeeze, and customers who want products for cost and service for free.

These dealers brim over with inventory that sells to the public at the same price dealers pay the manufacturer in the first place.

They're dealers who do not get depressed over the knowledge that that they need the next customer more than that customer wants their vehicles. They faithfully contribute to manufacturer advertising cooperatives after years of false promises and poor results.

Moreover, domestic dealers manage massive red ink and hold on with devotion.
Given the selfless support of such dealers, I am confused why the likes of Cerberus, excuse me, Chrysler, are so hell bent on dumping so many of them.

The Big Three see their declining dealer wherewithal as a good thing.

It seems to be their wish that weak dealers will give up and that wealthier import dealers will buy in. I get it that old franchises wallow in the self-pity of having old dealers and that they long to conquest new dealers rather than create new opportunity.

I don't understand why the next group would support them as well as the replaced dealers have.

The old dealers had a reason to hang on to the hope that their sacrifices would be rewarded in the future. Many of the new dealers are the living proof that there is no reason for trust. Domestic manufacturers should be careful what they wish for.
Looking past this domestic quagmire, I wonder what the triumphant import manufacturers think they are inheriting by conquesting the domestic cast offs?
Do the Big Four understand the consequence of replacing the Big Three? Without the domestics to kick around, our national attention will be undistracted from a riveted focus on those imports.

That spotlight will signal the end of the import's American honeymoon. Gone may be cherry picking for states that will give them tax relief; workers that will give them union relief; dealers that will give them new facilities; and customers that will pay more.

Hanging in the balance is whether the Import Big Four are ready to consent to what Americans want from home industries. Will they employ our huddled masses, give them healthcare and retirement, educate their children, provide for their homes and give cheerful Christmas bonuses?

As the domestics and imports pursue their wishes, will the newly downsized domestics become fit or simply learn that the dealers they abandoned were the ones they needed? Will the imports like the responsibilities of industry dominance or will they yearn for the autonomy they enjoyed before they crushed their competition?
And for American consumers, will their interests be better served with the Big Four or the Big Seven? Be careful what you wish for.

Peter Brandow is a veteran dealer in Pennsylvania and New Jersey.

Car loans stretching

Experts warn such financing risky for buyers
By Jack Mazurak

Toyota Financial Services is offering 84-month loans for vehicles, but financial and industry professionals warn stretching out payments that far puts the buyer in a bad place.

"I was floored when they started doing 72-month loans," financial adviser Chris McAlpin said. "A rule of thumb that I like is pay for it outright. But I understand that not everybody can."

As 2007 closes with about 16.1 million new-vehicle sales in the U.S., the lowest in nine years, the auto industry is grappling to push sales higher for 2008 and long-term loans can play a part.

Toyota cut back on incentive offers in late 2007 and began offering 84-month loans. Other automakers, including the Detroit 3, also offer long-term loans. But those loans, including Toyota's, are reserved for customers with sparkling credit.

The idea behind long-term loans is buyers can afford vehicles through lower payments. But such loans, over time, can trap consumers into paying significantly more than sticker price.

For instance, a person financing $25,000 at 7 percent interest would pay $377 a month on a 84-year loan, compared to $599 for a 48-month-loan. However, the person with the extra payments ends up paying about $31,700 because of the added interest. A person with a 48-month loan would pay about $3,000 less.

Buyers who want a new car after three or four years can end up owing more than the car is worth, a situation known as being upside down.

In a summary of trends for the new year, analysts at automotive Web site Edmunds.com predicted consumers increasingly will find themselves upside down on their car loans.

Edmunds.com found, of those who bought new cars in 2007 and traded in a used vehicle, 25.6 percent had negative equity in their trade-in. The average amount upside down was $4,059, the highest negative equity average on record.

Buyers often fold the negative equity into a new-car loan, and can end up owing Lexus-level money on a Toyota or Lincoln dollars on a Ford.

"Most people spend their entire life with a car note. That's not how to get ahead," McAlpin said.

"I'd say 36 months max. Put money down, buy a car you can afford. Don't get all the bells and whistles, get something that's a good value, something that's going to run a while."

He suggested people let go of cars as status symbols and drive something practical and affordable.

Terry Jackson, automotive writer for Bankrate.com, observed long-term loans are double-edged swords for automakers.

"As car prices rise and buyers want vehicles with luxury appointments, the only way to make the deal attractive is to offer lower monthly payments. This is especially true in today's marketplace, where new vehicles sales are spiraling downward. But lenders also know that the default rate on these longer loans is higher than on loans of 60 months or less," he wrote in a Dec. 21 column.

Consumers, including those with great credit, can see their situations drastically change in seven years.

"Buyers can lose their jobs, get sick, get divorced or experience another life event that prevents them from making the loan payment," Jackson said. "My advice? If you have to extend your car loan beyond five years and can't afford to put at least 20 percent down, scale back your car desires to something you can afford."

Several metro-Jackson dealers said they haven't seen much demand for 72- and 84-month loans. Rather, their customers pay cash, lease or take incentive options.

Larry Cruise, president of Fowler Buick Pontiac GMC in Brandon, said 10 percent of customers lease, 60 to 70 percent cut a check, particularly for Buicks and GMCs.

"The other 20 to 30 percent are financing. But we're really not seeing that (long-term financing.) When you can get zero percent at 60 months, it makes sense to go with that because you're getting free money," he said.

Shanehan Westphal, sales manager at Herrin-Gear Infiniti, said 40 percent of his customers lease, a good alternative to long-term loans when the buyer isn't going to keep the car more than five years anyway.

"If you're going to... finance it for five or six years and keep it for three, you're going to be in debt. You put yourself in a difficult situation. If you lease for three years, you come back in three and toss us back the keys. Who's the smarter person?" he asked.

He recalled a regular customer who sells high-end homes in Madison County. She puts on a lot of miles but gets a tailored lease allowing 45,000 miles a year for two years.

"She needs a higher-end vehicle when she's selling homes at $350,000 and up. Had she financed the vehicle for 60 months it would be worth little with 225,000 miles. Yes, she'll pay more on the lease payments but in two years, it's not her responsibility," he said.

"(Longer-term loans) are becoming more accepted than in the past. Probably 15 years ago, 48 months was a long time. The price of cars has gone up. But if you're buying and keeping it for three years, you're basically leasing anyway."


In your voice
Read reactions to this story

Hookadawgup wrote:

At some point prices of vehicles are either going to have to come down or stay stagnant. Even the so called 'cheap cars' are running 28-36K. When buying a new car most people cannot afford large down payments, much less to pay the entire amount out -right. The only other option is to go with special financing offers. 1.9% over 72 months. 0% in 60. Which honestly, really makes sense. I'd rather take that lump sum check that I'd pay on a new car and put it into a mutual fund earning 8-28% (or greater) interest, and buy a car at 0-1.9% interest over a longer period of time. Really the bottom line is, the auto industry is going to be in a major, major bind over the next 10 years. A car is only worth so much. For most, there is a cut off point where the buyer simply won't pay that amount. That's why I believe Smart Car types will cut into the traditional manufacturers sales over the next several years. You can get a Smart Car for 12K.
1/2/2008 12:22:10 PM

AESmom wrote:

If some people in Jackson would let go of the status symbols and buy cars that they can afford, this would not be an issue. I see so many high end vehicles parked in front of low end apartments. It all goes to show that some people don't have their priorities in the right place. If you have to stretch a loan for 84 months, chances are you can't afford it anyway. Drive a Honda...buy a house.
1/2/2008 10:51:41 AM

TechSuperGirl wrote:

Now, this is just great! On top of the fact that these cars are WAY over priced, who needs a car loan for almost 10 years! People need to realize, they will be paying top dollar for a car, that after the first couple of months out of the dealership, won't be worth the monthly note! Not to mention, Toyota will price the car at a sticker amount, when you factor in the interest, it will skyrocket the overall payments for the vehicle. This is just a testament to how bad things have gotten in this country. Obviously, if you need to stretch payments out that far, you can't afford the vehicle. People, find a reputable used car lot, do your homework, and purchase a great used car. Also, people who have vehicles that are paid for, take care of them, this is getting out of hand.
1/2/2008 9:43:30 AM


PaulWBrown wrote:

No dobut there will be a market for these extended time car loans. It is a sad commentary on the American public's spending / buying habits. It is not how much will it cost me in the long run or how much interest I have to pay, but what is the monthly payment?
1/2/2008 6:08:58 AM

original post found here.

Late Payments on Consumer Loans Rise

By JEANNINE AVERSA

WASHINGTON (AP) — Late payments on a cluster of consumer loans, including those for autos, home improvement and certain home equity loans, climbed in the summer to their highest point since the country's last recession in 2001.

The American Bankers Association reported Thursday that the delinquency rate on a composite of consumer loans increased to 2.44 percent in the July-to-September quarter. That was up sharply from 2.27 percent in the previous quarter and was the highest late-payment rate since the second quarter of 2001, when the economy was suffering through a recession.

Payments are considered delinquent if they are 30 or more days past due. The survey is based on information supplied by more than 300 banks nationwide.

Late payments on credit cards, meanwhile, dipped during summer.

The delinquency rate on credit cards dropped to 4.18 percent in the third quarter, down from 4.39 percent in the second quarter.

The association's quarterly survey of consumer loans painted a mixed picture of how people are managing their debt. It suggested that some people feel more squeezed than others.

A severe housing slump and weaker home values have clobbered some homeowners — making it difficult, or even impossible for some to pay their monthly mortgages. Foreclosures surged to record highs and more homeowners fell behind on their payments during the third quarter of last year, the Mortgage Bankers Association reported last month.

A drop in home prices left some people stuck with balances on their home mortgages that eclipsed the worth of their home. Others got burned when low introductory rates on their mortgages jumped to much higher rates, which they couldn't afford.

"Consumer loans directly related to the housing market were hit the hardest," said James Chessen, chief economist at the American Bankers Association. "We anticipate delinquency rates will continue to rise on these types of loans in the fourth quarter of 2007, reflecting continued weakness in the housing sector."

Late payments on home equity lines of credit jumped to 0.84 percent in the third quarter. That was up from 0.77 percent in the second quarter and was the highest since the final quarter of 1997. The delinquency rate on home-equity loans in the third quarter rose to 2.28 percent, a two-year high.

Meanwhile, the delinquency rate on "indirect" auto loans — which are arranged through dealerships — jumped in the third quarter to 2.86 percent, a 16-year high.

Kbb.com: Car shoppers cut spending due to gas prices

Kbb.com: Car shoppers cut spending due to gas prices

New-vehicle shoppers plan to adjust their shopping habits due to high gas prices, spending less money on themselves so they can still give to others during this holiday season, according to the latest Kelley Blue Book Marketing Research study (www.kbb.com). The December 2007 results reveal that 44 percent of in-market new-vehicle shoppers are looking at cars they normally would not have considered due to the pain at the pump. An example of this is a notable shift in vehicle segment consideration from just two months ago, with increased interest in less expensive and more fuel-efficient transportation including crossovers, sedans and hatchbacks, and declines in SUV interest.

With a gallon of unleaded gasoline currently hovering at more than $3 in most parts of the country, 67 percent of those in the market for a new vehicle indicate they will not spend less on holiday gifts this year due to the rising cost of gas. However, more than 40 percent of consumers do say they are eating out less often and nearly 50 percent of consumers say they are doing less shopping of non-essential retail items such as clothes and shoes; further examples of consumers cutting back on self-spending. According to new-car shoppers, the largest shift in personal spending includes delaying the purchase of a new home, which more than doubled from October to December.

“While gas prices are clearly influencing the way consumers plan to spend money on themselves, such as going out to eat and delaying the purchase of a new home, it appears most people will not let the price of gas affect their holiday spirit and giving to others,” said Jack R. Nerad, executive editorial director and executive market analyst for Kelley Blue Book and kbb.com. “Based on our monthly study, shoppers are willing to sacrifice in order to still give to others, and it even extends to their next new-vehicle purchase. We are seeing more and more new-vehicle shoppers looking at smaller and more fuel-efficient cars than in the past. ”

When asked how gas prices have affected which vehicles they are considering, more than half of consumers say they would seriously consider a vehicle with higher fuel efficiency if gas prices were to increase as little as 50 cents per gallon. Among those looking to buy a new hybrid vehicle, shoppers say they are most interested in the Toyota Camry hybrid and the Honda Civic hybrid.

“Determining how gas prices affect consumer shopping provides tremendous insight into shifts in the economy, and tracking their opinions of alternative fuel solutions sheds light on the possible adoption and acceptance rates of alternate fuel systems in the future,” said Rick Wainschel, vice president of marketing research and brand communications for Kelley Blue Book. “Timely, in-market vehicle shopper feedback can provide invaluable information to automotive manufacturers and marketers, allowing them to tailor their messages and strategies more toward what car shoppers actually think and how they plan to spend their money.”

The latest Kelley Blue Book Marketing Research study was conducted on Kelley Blue Book’s kbb.com among in-market new-vehicle shoppers during the first week of December 2007.

GMAC Targeting 30% Increase to Dealer F&I Revenue

GMAC Insurance Unveils Innovative Solution

GMAC Insurance Unveils Innovative Solution Targeting 30% Increase to Dealer F&I Revenue

GMAC Insurance Group

SOUTHFIELD, Mich., Jan. 3 — GMAC Insurance today introduced the latest additions to its innovative suite of technology-based solutions for automotive dealers. Combined with ongoing training and support, IntelliMenu(SM) and IntelliTracker(SM) provide a state of the art, custom- designed, menu-selling process with the potential to increase dealership F&I revenue by 30 percent on average.

"During the last several years, dealers' profit margins on new vehicle sales have become increasingly slimmer," said Tom Callahan, executive vice president of GMAC Insurance's Dealer Products & Services group. "Our integrated menu-selling process will help dealers remedy that trend. First, it will provide dealers with unprecedented and complete access to all of the tools and training necessary. And second, by enhancing customer awareness of F&I product offerings, we expect the solution will ultimately result in significantly improved penetration and revenue."

GMAC Insurance is providing this service through a partnership with menu- selling technology leader MenuVantage.

"We are proud to be working with GMAC Insurance on this unique, integrated dealer solution," said Phil Battista, co-chief executive officer of MenuVantage LLC. "On average, dealerships with our system have seen a 30 percent increase in F&I revenue. By combining our technology expertise with GMAC Insurance's complete support package, dealers can expect unparalleled service and results."

By capitalizing on MenuVantage's proven platform, IntelliMenu also will provide dealers with an interface approved for ADP's dealer management system (DMS) and certified for Reynolds and Reynolds' DMS. These interfaces allow MenuVantage access to a dealer's DMS using standard data interfaces and help ensure dealer information security, privacy, confidentiality, integrity and supportability.

The company will also supply GMAC Insurance with technology support and development expertise for future upgrades and improvements.

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IntelliMenu and IntelliTracker are big departures from the industry norm. While the majority of competitors traditionally focus solely on products, GMAC Insurance is redesigning its entire portfolio of offerings around dealer- focused solutions - integrating F&I products with on-going dealership training and best-in-class tools to provide a complete, packaged solution.

"Our business model is built around developing products, services and training that address specific issues raised by our dealer-customers. IntelliMenu and IntelliTracker were both born out of our ongoing conversations with dealers," said Callahan.

By integrating with major DMS providers, web-based IntelliMenu provides a seamless sales transaction, giving dealerships an easy, affordable way to structure multiple deals in the F&I office. IntelliMenu further assists dealerships with disclosure needs, allowing dealers to show every customer a complete listing of product offerings, while providing a record of acceptance or decline.

IntelliTracker integrates with IntelliMenu providing dealers and their GMAC Insurance account executives with up-to-the-minute information on F&I sales results. An individually tailored approach to maximizing sales is then jointly developed based on the needs of the dealer, and any necessary training is immediately set-up.

The entire process will be made available to dealers in mid- to late- January. Dealers interested in more information can contact their GMAC Insurance representative. Additionally, reps will be available to demonstrate these new solutions in GMAC Insurance's booth at the National Automotive Dealers Association (NADA) Annual Convention on Feb. 9-12 in San Francisco.

"I encourage every interested dealer to stop by the GMAC Insurance booth," said Callahan. "While there is no silver bullet to address dealer needs, we believe GMAC Insurance can offer real solutions with the depth and breadth of our products and proven F&I capabilities."

About MenuVantage

MenuVantage, based in Orlando, Fla., provides automotive dealers with best in class F&I tools to ensure compliance and increased per unit profit. The MenuVantage system offers F&I departments the most advanced technology available on the market today to increase F&I sales. It is also capable of the electronic submission of warranty and F&I products to providers, real time service contract rating, and the dynamic printing of documents on regular paper. Founded in 2003, MenuVantage has enjoyed tremendous growth and currently services more than 2,500 users at automotive dealerships in over 42 states nationwide, processing more than 70,000 deals per month. MenuVantage can be reached on the web at http://www.menuvantage.com.

About GMAC Insurance

The GMAC Insurance Group is part of GMAC Financial Services, a global, diversified financial services company that operates in approximately 40 countries in automotive finance, real estate finance, insurance and other commercial businesses. GMAC's insurance operations were first established in 1925, and now offer a wide range of products to meet the needs of retail consumers, dealers and business partners. For more information, please visit www.gmacfs.com.

SOURCE GMAC Insurance Group

California Sues EPA over greenhouse gas emissions.

State sues EPA to force waiver over greenhouse gas emissions
Bob Egelko, Chronicle Staff Writer

Thursday, January 3, 2008

California led 15 other states and five environmental groups into federal court Wednesday to challenge the Bush administration's refusal to let the state limit vehicle emissions of gases that contribute to global warming.

In a lawsuit filed in San Francisco, the state accused the Environmental Protection Agency of exceeding its authority when it barred California last month from enforcing limits on cars and trucks starting with the 2009 model year, the first law of its kind in the nation. The state needed the EPA's approval to implement clean-air standards that are stricter than federal rules.

"The EPA has done nothing at the national level to curb greenhouse gases, and now it has wrongfully and illegally blocked California's landmark tailpipe emissions standards," state Attorney General Jerry Brown said at a news conference in San Francisco.

He said EPA Administrator Stephen Johnson had offered no coherent legal explanation for his Dec. 19 refusal to let California act and accused President Bush's appointee of merely "doing the bidding of the auto industry."

The lawsuit was endorsed by Gov. Arnold Schwarzenegger, who said federal regulators were "ignoring the will of millions of people who want their government to take action in the fight against global warming."

The federal veto affected as many as 19 other states that have adopted California's standards or indicated their intention to do so, including the 15 that joined the lawsuit filed Wednesday with the Ninth Circuit Court of Appeals in San Francisco.

Other California political leaders chimed in, including Democratic Sen. Dianne Feinstein, who chairs a Senate subcommittee on the environment. She cited reports in The Chronicle and other news outlets that Johnson had ignored his legal staff's recommendation to grant California the waiver and asked the EPA's inspector general to investigate the decision.

"The thought has occurred that this was a political decision rather than an environmental decision," Feinstein said.

In response, EPA spokesman Jonathan Shradar cited Johnson's position that a national approach to the problem is better than state-by-state regulation. He noted that Bush had just signed legislation that requires makers of cars and trucks to increase fuel economy to an average of 35 miles per gallon by 2020.

"We now have a more beneficial national approach to a national problem, which establishes an aggressive standard for all 50 states as opposed to a lower standard in California and a patchwork of other states," Shradar said.

California's law, passed in 2002, established limits on auto emissions of carbon dioxide and other gases that scientists consider to be among the major causes of global warming. The law was scheduled to take effect with the 2009 models and would require automakers to reduce their 2016 fleets' emissions by 30 percent.

A federal judge in Fresno upheld the law last month, rejecting automakers' arguments that the law would interfere with exclusive federal regulation of fuel economy and would make new cars dangerous and unaffordable. But the state still needed EPA approval to enforce the law.

The federal Clean Air Act allows California, because of its smog problems, to enact air-quality rules more stringent than the national standard if the state gets a waiver from the EPA. The agency had approved about 50 waiver applications without a denial since the law took effect more than 30 years ago.

The greenhouse gas case was different, because California and the states that followed its lead were implicitly challenging Bush's policy of relying on voluntary industry action, rather than mandatory limits, to reduce greenhouse gas emissions.

After considering California's request for two years - finally prompting California to file another lawsuit seeking a prompt ruling - Johnson denied a waiver last month. He cited the newly signed federal fuel-economy law and also said the state didn't qualify for a waiver because greenhouse gases are not unique to California.

But the state and environmental groups said the EPA has regularly granted waivers to California to address air pollution problems that were not unique to the state.

In addition, "no other state can claim the same wide range of severe impacts that California faces: melting of the state's snowpack ... increases in catastrophic wildfires, worsening of dangerous smog levels and other harms," said attorney David Doniger of the Natural Resources Defense Council, one of the five advocacy organizations that went to court along with California and the other states.

California and its allies also disputed the EPA's assertion that the state law is weaker than the new national fuel-economy standards.

The EPA's Shradar said the federal agency estimates that manufacturers could comply with the California law by achieving an average of 33.8 mpg in their new cars and trucks by 2016.

But Mary Nichols, chairwoman of the state Air Resources Board, said studies by board staffers concluded that the California law would require a fleet average of 44 mpg by 2020 and would reduce greenhouse gas emissions in the state by about twice as much as the federal law.

"Frankly, this is not very surprising because California standards start earlier, go faster ... and the end points are more stringent," Nichols said.

Brown's office had said earlier that federal law required the lawsuit to be brought in the U.S. Court of Appeals in Washington, D.C., a more conservative court than the Ninth Circuit. Brown said Wednesday that Johnson's letter rejecting California's waiver did not refer to the controversy as a nationwide issue - which would have sent the suit to Washington - and instead referred only to conditions in California.

Brown said he prefers the Ninth Circuit because its record in environmental cases "has been more closely aligned with how we interpret the law." That may not matter in the long run, he added, because the case could wind up in the U.S. Supreme Court.

Chronicle staff writers Matthew Yi and Zachary Coile contributed to this report.
This article appeared on page A - 1 of the San Francisco Chronicle