Step into the near future with 22 leading agents and executives, all offering their predictions for a new year that promises sweeping change for a rapidly evolving F&I industry. 
 - Photo via iStock

Step into the near future with 22 leading agents and executives, all offering their predictions for a new year that promises sweeping change for a rapidly evolving F&I industry. 

Photo via iStock

Agents enter 2019 with new concerns about the economy, the automotive industry, and those who regulate it. Agent Entrepreneur reached out to 22 leading industry members to ask their predictions for the year ahead and what agents can do to prepare. 

The Economy 

Against all odds (and most forecasts), heading into December, 2018 U.S. new-vehicle sales were expected to reach the 17 million-unit mark for the fourth consecutive year. Dealers and agents have benefited from a long, slow, steady recovery since 2009, when Americans bought 10.4 million new vehicles, a 26-year low. 

“The scary thing is that, even as we are experiencing one of the longest recoveries in history right now, many indicators are still very positive for 2019,” said Jimmy Atkinson, president and CEO of AUL Corp. “We all know there is a downturn coming; we just don’t know when. My guess is that 2019 will be a relatively flat year for the industry, similar to 2018 results.”

John Pappanastos doesn’t anticipate the U.S. economy slipping into a recession in 2019, but did note there are some “cautionary components” agents should be aware of. 

“Our economy is operating at full employment and has been for a few years. Tariffs will be inflationary, interest rates will continue to rise, and credit is tightening,” said Pappanastos, the president and CEO of EFG Companies. “From an automotive standpoint, there’s no catalyst for higher auto sales on the horizon. I do believe the U.S. will sell fewer light vehicles during 2019. Of course, the pressures working against new-car sales bode well for used-car demand, so used pricing should be firm.”

Doug Frey, EasyCare’s executive vice president of new agency development, mergers, and acquisitions, anticipates a slowdown that will lead to a 2% to 3% decline in sales. 

“It was nice having a strong economy in 2018 with high GDP growth and low inflation. However, businesses cut capital spending in Q3, so the economy will start to slow down. The Federal Reserve has indicated they will increase the fed funds rate at some point in 2019. All of that will negatively impact vehicle sales,” Frey said. “On a positive note, oil prices should remain relatively low. The impact will be a moderate decline in vehicle sales, although the lower gas prices and consumer preference will continue the shift to SUVs and trucks and away from cars.”

“I think 2019 is going to be another good year economically here in the U.S.,” said Ron Reahard, president of Reahard & Associates. “Much of the uncertainty caused by a potential trade war will be resolved with new agreements being reached. With a divided government, it is in the best interests of both political parties to not reverse the economic gains achieved over the past couple of years.”

Reahard anticipates flat or slightly increased new-vehicle sales in 2019, citing low gas prices and unemployment as driving factors, but cautioned that demand will be negatively impacted by higher interest rates. Tim Blochowiak, vice president of dealer sales for Protective Asset Protection, pointed to margin compression, record numbers of off-lease units, and continued dealer consolidation as pressure points. 

“As we enter the end of 2018, it appears as though most economists believe the job market will remain strong and the overall health of the economy is quite solid,” Blochowiak noted. “However, the U.S. economic growth rate is likely to slow throughout 2019 as tends to happen with a sustained upward trend like one we’ve now seen over the past several years.”

Cindy Allen, CEO of StoneEagle, predicted the U.S. economy will “remain strong, but flatten out a bit. I believe the biggest impact to automotive will be driven more by the evolving consumer buying habits rather than the economy itself.”

“At the moment, most economic indicators and economists are predicting a slightly better year. Regardless of what occurs, as an industry, we’ve been through good and bad times. We have learned to adapt to the changing environment in order to be successful regardless of what occurs,” said ECP Inc. Director Brian Feldman. 

Brian Crisorio, vice president of United Development Systems, said the automotive industry will continue to thrive for as long as the fundamentals of the U.S. economy remain strong. He expressed cautious optimism in the face of industry disruptors and other headwinds. 

“We will continue to see interest rates tick up while technology-rich new-vehicle cost continues to rise yielding an increase in average monthly payments causing an affordability issue. We hear stories routinely of customers getting approved for loans that are too long at budget-busting payment levels,” Crisorio said. “I believe there are elements of digital that make sense and will stick, yet the fundamentals of the car deal remain in dealership showrooms with heavy human interaction.”

A “flourishing” economy has been propelled further under the watch of President Donald Trump, noted Jeremy Lindsey, president of Alpha Warranty Services, including the “slashing” of corporate and personal income taxes. 

“In fact, we’ve seen the second-longest stretch of economic expansion in U.S. history — one that should become the longest stretch of economic expansion if it continues through 2019,” Lindsey said. “The unemployment rate is sitting around 4% and could fall to as low as 3.4% in 2019 or 2020. The inflation rate is holding pretty steady around 2.1%. I do anticipate interest rate hikes continuing through 2019 and possibly 2020.”

Lindsey believes a recession is possible but not probable in 2019, and the next downturn won’t be as painful as the last. He predicted that market saturation would drive new-vehicle sales below the 17 million-unit mark and noted that record-high vehicle prices would put even more pressure on sales. Finally, Lindsey noted, “While new-vehicle sales have declined, used-vehicle sales are trending up. Used sales were around 39.3 million units in 2017 and projected to be slightly higher at 39.5 million units in 2018. I would expect this trend to continue into 2019 due to the strong supply of used vehicles and the soaring cost of new vehicles.”

Thomas Hackett, Allstate Dealer Services’ national sales and training director, said that, “Barring any shocks, I anticipate continued growth, albeit at a slower pace than the past few quarters. The stimulating impact of tax reform will begin to wear off, oil prices may move higher and inflationary pressures from growing wages could start to negatively impact corporate earnings. 

“These create headwinds that, while probably not enough to tip the economy into a recession, could limit growth,” Hackett added. 

“There are many positive fundamentals in the U.S. economy right now, and we feel those strong fundamentals will outweigh some of the geopolitical concerns which have caused the recent spikes in volatilities,” said Ryan Nelson, national sales manager for National Automotive Experts (NAE)/NWAN. “The auto industry will most likely have a repeat performance of 2018, if not a slight retraction. With vehicles lasting longer, and owners holding on to their vehicles for a record-long period of time, the trade cycle will continue to elongate.”

Brent Griggs, president and CEO of Portfolio, said he expects the fundamentals of the U.S. economy to remain strong throughout 2019, including near-zero unemployment, low borrowing costs relative to historic levels, and inflation held in check by the Fed’s moderate interest rate hikes. 

“However, despite the overall strength of the economy, I expect automotive industry sales to decline in 2019 in the face of higher interest rates, higher new-car prices driven by increasing commodity costs — partially attributable to new tariffs — and the addition of expensive technology to new cars,” Griggs warned. 

“I believe we will see a slight dip in the automotive economy due to rising interest rates and a lack of political confidence,” said Michael LaMotta, founder of Dealer Owned Warranty Company. “The industry will be in a battle with the economy because consumers will be drawn to showrooms by new models, alternative fuel and overall advancing technology which will undoubtably drag customers in.”

 “The economy is going well by most measures, but we continue to forecast flat auto sales year-over-year,” concluded Dave Duncan, president of Safe-Guard Products International. “The key driver that we’re watching is the credit markets. If credit tightens, even slightly, auto sales will be challenged.”

The Industry

Kate Eltringham noted that negative economic indicators tend to be immediately felt among automotive industry members. “The economy is likely to continue to perform moderately well in 2019, but growth may see more headwinds than the last few years,” said Eltringham, who serves as vice president of marketing for GWC Warranty. “While rising interest rates and tariffs will impact the overall economy, those factors will certainly have a more direct impact on the automotive industry which could create more economic uncertainty in our space than in others.”

“The mix between cars and trucks is a trend we should watch. I think gas prices will remain stable or slightly decrease in 2019, which will increase the number of truck sales and continue to decrease the number of car sales,” said John Lutman, vice president and head of the agency channel at IAS. Lutman predicted dealers will redouble their efforts to improve finance and service revenue as sales taper off. 

Matt Croak, president of Wise F&I, agreed. “Overall, we expect to see an additional focus by dealers to sell more automotive ancillary protection products to boost profit margins as well as increase dealer income in what potentially could be a decreasing sales volume market.”

“We will be keeping a keen eye on sales volume, manufacturer incentives, market consolidation and leasing percentages on new-vehicle purchases,” noted NAE/NWAN’s Nelson. “There are many signs of continued F&I income growth despite the overall number of vehicles sold being relatively flat.”

Eltringham noted that available credit will be a critical metric in 2019. “Lender consolidation and the pullback from subprime over the last 12 to 18 months has had a direct impact on the independent dealers with whom GWC partners. Rising interest rates and longer loan terms have been the trend over the past year — how much higher and longer they can go is yet to be seen.”

Robert Steenbergh, founder and CEO of US Equity Advantage/AutoPayPlus, predicted a decrease in new-vehicle sales as rising interest rates push more car buyers toward the used-car lot. 

“Also, industry disruptors such as Vroom and Carvana will continue to compete for a larger share of the used-car market, especially now that AutoNation’s investment in Vroom will give more credence to that business model,” he said. “In response, franchised dealers will need to be more efficient in the F&I department to offset profits lost to lower volume and also become more adept online to compete with these disruptors who are offering the equivalent of a dealership-free experience.”

To be successful in 2019, Steenbergh added, dealers will have to invest in the instore experience while moving some portion of the transaction online, a transition he described as a “monumental effort.”

“From my days as the co-founder of MenuVantage, I am acutely aware of the intricacies involved in accurately quoting prices for multiple products — some rated, some not — from multiple providers with multiple coverage options that are taxed at different local and state levels and rates nationwide.”

ECP’s Feldman predicted further consolidation among F&I administrators, agencies, and dealerships in 2019. His sentiment was echoed by Mackie Hughes, a division president at Simoniz USA, and AUL’s Atkinson. 

“We continue to monitor agent consolidation and large agent formation,” said Hughes. 

“Consolidation across all aspects of the industry continues to gain momentum. Dealers, agencies, administrators, and insurance underwriters continue to have a frothy acquisition market with extremely high valuations,” said Atkinson. One component of a dealership or agency’s value is its reinsurance program, and Atkinson said the Trump administration’s sweeping tax reform package will necessarily affect selection. 

“The dealer-owned warranty company structure is a growing trend, especially for larger volume producers for whom a [controlled foreign corporation] is not attractive. With the tax law changes potentially impacting NCFC structures, we are seeing more dealers inquire about DOWCs.”

Atkinson also raised the specter of new and unsettling moves made at the factory level. This year, General Motors launched a factory extended warranty program that unnerved dealers within and outside the GM family. 

“GM’s attempt to circumvent the Magnuson-Moss Act, with their ‘selling’ of a longer -term factory warranty by increasing the price of a car, is interesting. I think it will go away either by dealer resistance or the FTC,” Atkinson said. 

“A couple of the trends I’m interested in seeing is if the online retailers like Carvana and Shift Technologies are able to gain significant market share,” said Reahard. “While there are certainly some people willing to buy a car online without ever physically seeing the car, it will be interesting to see how large that percentage really is. With a vehicle being the second largest purchase for most consumers, I still believe most people will want to see the vehicle, sit in the vehicle, and drive the vehicle before making a commitment to buy that vehicle.”

Max Zanan, president of Total Dealer Compliance, took it a step further. “I will be watching the number of cars sold by Carvana. That’s a true indicator of digital retail acceptance in automotive retail.”

Specific to F&I, said UDS’s Crisorio, “I think the time has come for retailers to embrace showcasing protection products. At a minimum, every dealer should have F&I product information available on their website. We know that consumers today research and then research some more. Consumers want to be informed and understand the big picture with regards to their purchase and F&I products are an important piece of that for them and dealers alike.”

Allen of StoneEagle concurred, predicting that enhanced F&I product education could improve production. 

“I expect to see creative design and adoption of direct-to-consumer tools, such as ‘microvideos’ that deliver relevant and educational content to online consumers about F&I products and the apps and sites that leverage them in smart and transparent ways to create consumer trust and lead to product sales,” she said. “I think we will also see tech improvements that bring more of the buying experience to the consumer on their couch rather than dealership waiting rooms.” 

“Convenience continues to shape how we consume products and services,” said Alpha Warranty’s Lindsey. “When was the last time you visited your local insurance agent’s office? Most don’t. Local retailers have been replaced by convenience shopping on Amazon that delivers products in one or two days, grocery shopping is delivered or ordered online and packed into the trunk of our cars without ever stepping foot in the store. Even up to 10% of mattress purchases are now made online and delivered to our homes. We expect convenience which usually involves a digital customer experience.”

Virtual F&I will be in “full beta swing” in 2019, said LaMotta of Dealer Owned Warranty Co. “Whether it’s an add on to make the process smoother or because consumers will be conducting a larger percentage of the purchase online, either way, virtual F&I is coming ready or not. Consumers expect a more convenient auto purchase experience as well. The largest dealership groups in the nation are taking note of these consumer expectations. AutoNation announced a $50 million investment in online retailer Vroom and Lithia has invested $54 million into Shift.”

Widespread adoption of a fully online transaction won’t happen overnight, LaMotta added, “but neither did the shift from Blockbuster Video to Netflix or Redbox. How did that work out for Blockbuster, though? If dealers do not embrace the evolution of the digital customer experience, many will find themselves a relic of times that once were. The same goes for providers.”

“Digital retailing” is no longer a buzzword, said Protective’s Blochowiak, and as dealers continue to rely on F&I as a profit center and F&I products as customer retention drivers, the value of the partnerships agents strike on their behalf will face greater scrutiny. 

“As dealer operations become increasingly complex and more innovative, ownership will be in need of greater transparency as well as customization from F&I providers. Agents are going to need F&I providers who can work with them in a consultative fashion to help develop customized programs for changing and unique dealer needs,” Blochowiak said. “How these products are sold will continue to evolve as digital retailing takes hold in the industry. Providing the customer with simplicity and transparency will force this change and be an ongoing trend in F&I.”

F&I Products 

Asked which F&I products will dominate in 2019, Jennifer Holcomb said the power of a service contract can never be discounted. 

“It isn’t the No. 2 seller in most dealerships year-over-year without being a proven product that consumers rely upon,” said Holcomb, vice president of operations at Norman & Company. “I think that the leasing market is going to stay strong and finally some products are going to break through that barrier, as the leasing side ofF&I has traditionally been a weak point at any dealership. 

“The potential for leasing products that bundle several beneficial aspects such as wear-and-tear, maintenance, and appearance protection that don’t necessarily stand strong on their own but have more synergy in a bundle,” Holcomb added. “Leasing bundles appeal to payment-sensitive customers by reducing out-of-pocket costs during the lease and at turn-in time.”

“We will continue to see vehicle service contracts trending upward as vehicles became increasingly expensive to repair, thanks in large part to technology,” Crisorio said. “The other two products that seem to be gaining steam are maintenance programs and limited warranty offerings. While not new, it is clear that dealers today are searching for ways to both gain an edge in the showroom, which a well-structured limited warranty can do, and increase customer loyalty, which a planned maintenance program can do. 

“We have all been riding the wave of a hot market for many years, but as the beach gets closer and the wave begins to break, dealers will have to get creative to maintain sales momentum, and those F&I products can play an important role,” Crisorio added. 

Atkinson said the combination of F&I income and customer-retention benefits they generate will maintain the service contract’s position as the department leader. 

“GAP, although volatile from a risk perspective, is probably No. 2. Then tire-and-wheel, key, and other ancillary products round out the top sellers,” Atkinson said, noting that “Bundling products, combined with a strong menu presentation, brings the best results.”

“Vehicle service contracts will continue to be a big focus within dealerships because of the profit that can be earned on a per-contract basis. Bundles will also be big sellers in 2019 because of the flexibility and opportunities they provide. Not only can you sell multiple products on one contract, you can also hold a higher margin on a bundle versus an individual product contract,” said Lutman of IAS. “Also, look to see some new products enter the marketplace. More products need to replace GAP insurance because of high losses within GAP programs.”

Jon A. Anderson said service contracts will continue to be widely used and accepted, as they have been for decades. However, “Appearance protection standalone products and bundled versions will continue their growth as their value continues to receive more recognition,” said Anderson, who serves as president and COO of American Guardian Warranty Services. “A customer buys a car for transportation, but also as a part of their personal image. They want its appearance and image to be like the day they bought it. Appearance protection helps to provide the means, a manageable value and cost, along with a solution to restore that vehicle’s image just like the day the consumer first bought it.”

“With all of the new technology on today’s vehicles — turbos, hybrids, cylinder deactivation, start-stop technology, 10-speed transmissions, etcetera — and computers controlling everything from your dome light to the volume of your radio, we are entering the heyday of service contract sales,” Reahard said. “And with component parts, technicians can no longer fix anything. They’re component replacement experts.”

Reahard said he also keeps a close eye on diminished value protection, a relatively new F&I product type that is catching on among many dealers and agents. 

“There is no doubt that, if a vehicle has been in an accident, it greatly diminishes its value. Dealers, customers, and insurance companies all know this. This may become a big seller in the F&I office as a standalone product or part of an enhanced GAP coverage. Or it may just become optional coverage available in connection with the customer’s insurance policy,” Reahard said. 

“We feel diminished value protection will be the next F&I big seller,” said Wise F&I’s Croak. “There are a number of reasons a diminished value protection product is timely for the market. First, with the Military Lending Act interpretation impacting GAP sales, dealers are looking for another product to offer that will protect the consumer. Second, diminished value provides a benefit for a loss in value that the consumer may not be expecting.” 

When a vehicle is involved in a collision and then repaired, Croak explained, multiple reporting systems will expose the previous damage and repair to the dealer at the time of trade-in, resulting in a lower offer. 

“Diminished value protection covers that loss for the consumer and enables the dealer to provide a better value on the sale of a new vehicle. Third, although we see an increase in lender acceptance of the diminished value protection product, there are similar hurdles that we experienced with GAP at its inception. Just like GAP, however, we believe the diminished value protection product will be a staple on the F&I menu,” Croak said. 

GAP coverage is a “natural choice” as an F&I product sales leader — or “whatever iteration comes along to replace or augment it,” said Steenbergh of US Equity Advantage. “Necessity being the mother of invention, I’m confident that one or more of the top-rated insurers will find a solution to address the recent rise in GAP losses associated with the growing frequency and cost per loss.”

Finally, Steenbergh noted, “I think the industry will see the introduction of some interesting new products in 2019 revolving around the connected nature of new cars. In particular, coverage against information breaches — yes, cars will be hacked — and limited service contracts that cover only electronics are examples of products that may start to see some initial traction this year.”

“Low-cost and high-perceived-value products that can be preloaded to separate the dealership from competition and increase customer retention” will find a home in F&I professionals’ lineups in 2019, said Zanan of Total Dealer Compliance. Simoniz USA’s Hughes said that “Non-chargeback ancillary products will continue to surge, as will dealer/agent reinsurance, as margins continue to be stressed.”

“Products that protect the consumer from expensive end-of-lease charges will become even more important as auto leasing continues to increase,” said Portfolio’s Griggs. “Auto maintenance products will also continue their high growth trend because of the consumer value and value to dealers, because of improved customer satisfaction and retention.”

Feldman anticipates dealers will push for higher penetration rates on all F&I products in 2019. 

“With front-end margins almost nonexistent, I believe we will see continued growth in high-margin products that generate profits such as paint and interior programs and other products that are not subject to chargeback,” Feldman added. 

“I’m not sure that we’ll see much of a swing in terms of F&I product preference or popularity. There were several new F&I provider entrants in 2018 due in part to a strong economy and reduced barriers to entry. The initial result of increased competition is greater industry fragmentation,” Lindsey noted. “With that said, I believe that as vehicle sales level off or slow a bit, dealerships and agents will realize a greater need to align themselves with providers that offer industry-leading service.”

“While it’s not a new theme, we look for increasing emphasis and focus on maximizing service-drive performance, and the development of a ‘sales culture’ in the service drive,” said Pappanastos, who predicted more dealers will look for new ways to keep customers coming back for service in 2019. “In conjunction, I think you’ll see dealers assign a greater priority to service-drive training and expect compensation plans in service to change.” 

That push could lead to improved sales of prepaid maintenance as well, Pappanastos added. But he cautioned that low, at- or near-cost pricing would be critical to protecting more customers and realizing greater long-term gains. He also noted that the same trends affecting dealers and agents are coming to the fore in the P&A segment. 

“I believe that the industry will see increasing consolidation of F&I product administrators. The overall pie is shrinking from a supplier standpoint. Margin pressures are trickling down, forcing dealers to put pressure on F&I admin rates,” Pappanastos said. “The adoption of electric vehicles will impact the sale of mechanical breakdown coverage. At day’s end, F&I administrators win by putting more and more volume on top of their high fixed-cost platforms.”

F&I Technology 

The rapidly evolving F&I office was top-of-mind for our experts heading into the new year. The consensus is that, in an industry that runs on a number of disparate systems trading an infinite number of datasets, change is not only inevitable but welcome. 

“Through automation and digital retailing, the process for aftermarket sales will change,” Croak said. “This goes beyond econtracting, which will continue to grow in adoption but will move to include the consumer buying experience and how digital solutions are developed through new technology and made available online. Additional technology solutions will include ways to better inform the consumer on all processes, including claims and cancelations.” 

Nelson noted that, in the dealer retail transaction, technology can be viewed as both a disruptor and a sales enabler. “We feel technology and systems integration can and will provide a better purchase experience for the consumer as well as a stickier relationship from dealer to customer.” 

AGWS’s Anderson said evolving technology will touch every part of the transaction and cautioned agents and dealers not to downplay the role of social media and other information-sharing platforms in determining where consumers buy and service their vehicles. 

“More customers will select and purchase vehicles through online means and F&I products sales will grow through the same channels,” Anderson said. “Electronic rating and service of F&I products is no longer new, but with many products, it’s becoming the only means to offer products. … What was acceptable or innovative previously will be challenged with requests for new functionality and feature sets.” 

Hughes noted that econtracting — particularly solutions designed to streamline the F&I paperwork process — will continue to be a “hot topic” in 2019. Hackett of Allstate Dealer Services said time and efficiency would be the focus of new F&I technology. 

“The time that the consumer is waiting to get into F&I is one of the biggest negative impacts on profitability. As tablet-based F&I presentations become more consistent, menu providers will be able to track and monitor the timing aspect of F&I closer and on a larger scale. Being able to complete a time study and generate an analysis of the profit impact caused by time could significantly impact the industry as a whole,” Hackett said. 

“We’re working on providing improved tools for the finance office and making sure that our platforms and tools are better connected to other systems,” said Safe-Guard’s Duncan. “These changes are a result of better technology, dealers and contract holders asking for more convenience, transparency, and speed, and the need for a more data-driven, digitally connected automotive ecosystem.”

“Technology and processes continue to evolve along with the providers of these solutions,” said Feldman. “There are so many good ideas and offerings out there. It’s just a matter of time to see which stick and which do not.”

In the meantime, Blochowiak advised agents to steer the technology conversation toward its intended benefits — including an earlier introduction to F&I products, which dealers can do themselves. 

“Agencies can really help their dealers improve penetration rates in the near term by advising them not to get hung up on what type of technology to utilize for F&I presentations but instead make sure they are educating their customers earlier in the process,” Blochowiak said. “An informed consumer is a much more receptive customer. Using easily understood formats like online video to build the benefits of F&I programs is increasingly important.”

Eltringham agreed, noting that “Dealers continue to embrace technology in many aspects of their daily operations. Econtracting and erating continue to be adopted by more and more dealers in the independent space. Adding educational information about F&I products is a trend that I anticipate will continue to gain traction.”

Holcomb noted that Norman & Co. is one of many companies to add online claims processing in recent years, a trend she expects to continue in 2019. 

“We realized that a claims portal helps to expedite the claim process so the customer can upload their documents directly to our portal and we are notified when new documents arrive. It can immensely speed up the claims process as customers are getting up-to-the-minute updates on what is still needed and how their claim is progressing,” Holcomb said. 

Frey warned that falling penetration rates could result if technology is allowed to take over the F&I process completely. Without an F&I professional to guide them, few customers will spend the same amount of time researching protection products as they do the vehicle itself. 

“There are some people in our industry, especially those at technology companies, that are trying to eliminate the dealership salespeople as we know them today and make a self-serve customer option for buying a vehicle online. They are also trying to do that for the F&I products,” Frey said. “Over the last 30 years, our industry has been built by helping dealers add value to their customers by explaining F&I products and providing valuable coverages. By putting that process online, in the hands of the consumer, we are doing a disservice to our dealers and their customers.”

Rules and Regulations 

Frey predicted no “major” regulatory changes pertaining to the F&I trade, but does anticipate a greater emphasis on workplace compliance, including sexual harassment. 

“As far as sales compliance, we still need stronger regulation with the direct marketing companies that illegally obtain customer lists,” Frey said, adding that, in 2019, “most” direct marketers will utilize deceptive practices.

“The Service Contract Industry Council has done a good job educating consumers of the issues related to these companies. The agents and dealers need to educate their customers at the time of vehicle purchase that, unless the customer is contacted by the dealer, to be wary of these companies,” Frey said. 

Like Frey, Hackett sees no “significant, broad-based” regulatory changes hitting F&I in 2019, owing partly to the nature of the business. 

“The fact that each state establishes its own set of rules makes the potential for uniform, nationwide changes very improbable,” Hackett said. “It is more likely that we will continue to experience the intermittent tweaking of statutes by various state regulators. This has been the pattern for the last five years, and there is no signal that things will be different next year.”

Hughes suggested higher interest rates would the only major change at the federal level this year. Duncan noted that, “In 2019, the major industry trade associations have a heavy slate of lobbying efforts. These efforts are generally designed to add laws that make it clear that our products are not considered insurance, which is a positive for the industry.”

“With a split Congress, I don’t expect to see much change in regulation, with the exception of continuing evolution in regulations surrounding military lending,” noted Pappanastos. “There will be some interesting court cases next year, but I honestly believe the focus on federal regulations will be on mortgage or payday loan abuses.”

Holcomb believes the “era of overcompliance” will continue, whether by federal agencies or state-level regulators. 

“The attorneys general in several states took over from where the CFPB left off once President Trump took over the White House,” Holcomb said. “With the shift of the House to the Democrats’ control, an attempt to regenerate the CFPB regulatory arm seems to be looming. If there is one thing the Democrats love, it’s to regulate anything and everything that they can reach, and the automobile industry is one of their favorite punching bags.”

LaMotta anticipates no high-impact changes in the short term; however, “I think everyone is watching to see what changes will emerge in a post-CFPB environment. We have seen a few, but I believe more are coming.”

“With the current administration in office, the CFPB is not as aggressively looking at changing the rules and regulations within the auto industry, but state regulators and other agencies will continue to look into our industry,” Lutman said. “Additionally, everyone is becoming increasingly focused on customer privacy and data, not just in the auto industry, but in any market. I think we’ll see a strong focus in the United States about who owns the customer’s data, and how is that data being used to target consumers, which will affect the auto industry.”

Expressing the sentiments of many of our experts, Lindsey noted, “I don’t foresee any major changes to the regulatory landscape this year with the current administration, and quite frankly, I’m OK with that.”

The Subscription Economy

Vehicle subscription programs offered by factories and third-party services offer an attractive alternative to ownership: Every expense but fuel is covered by a flat monthly fee, and if you don’t like the car you picked, you can swap it for another one. 

A year ago, the sub model was the next big thing. Since then, The Book by Cadillac has been canceled (or suspended, depending on the source) and Care by Volvo has been labeled a payment-packing scheme, among other charges, by the California New Car Dealers Association. Will subscriptions ever outpace or replace purchases and traditional leases, and if so, how will they affect F&I production? 

“As consumers are buying other items like theme park tickets through subscriptions, they will begin to purchase more vehicle protection in similar ways. A monthly subscription or fee for all things related to your vehicle — like maintenance, appearance, mechanical protection, or roadside assistance — would receive more offerings and evaluation outside of the dealership’s F&I office channel,” Anderson said. “The dealership channel is already facilitating product cost within the vehicle monthly payment, like a subscription. Non-dealership protection providers will continue to look to expand their subscription membership numbers, product offerings, and distribution in 2019.”

Steenbergh pointed out that month-to-month service contracts have already come to market and predicted they will proliferate in 2019. He described the subscription model as portending a “sea change” for F&I, not too mention “incredibly difficult” actuarial analyses of coverage and pricing for product providers. 

“That said, the desires of the car-buying public will ultimately drive demand, and the industry will need to get creative to figure out how to effectively and profitably deliver products and services under that model,” Steenbergh said. “I don’t see this happening overnight, but if the F&I establishment doesn’t deliver, expect to see the rise of the next disruptor eager to fill the void.”

Croak pointed out that the subscription concept is “still finding its way” and remains in search of a “workable structure.” Lutman said subscriptions are likely to become more popular in 2019 and pointed out that every vehicle needs protection against mechanical breakdowns and cosmetic damage, no matter who holds the title. 

“Consumers will end up paying for that cost to their subscription provider,” Lutman said. “It will just be on a lower monthly scale than it would be traditionally.”

Among the skeptics is Griggs, who predicted the impact of the subscription economy on the sale of F&I products will be “close to zero” in 2019. 

“Even in the most optimistic forecasts, subscription selling will make a very small dent in traditional sale of automobiles. The misguided notion that consumers are becoming disinterested in owning their vehicles will be exposed as fiction and further slow the adoption of subscription selling,” Griggs said. 

“In 2019? Not much,” said Lindsey. “In years to come, that could change. I have yet to see subscription services with a price point affordable for the masses. The subscription services I’ve seen are mainly from luxury brand OEMs with a price point between $1,000 and $2,000 per month. In fact, Cadillac recently announced that they are shuttering their subscription service altogether.”

Lindsey suggested that third-party providers, rather than factories, could prove to be more capable of offering and maintaining a profitable sub program, and they may have to narrow their focus to succeed. “The service may appeal to consumers in large metropolitan areas who value convenience and flexibility — especially for those that feel ridesharing services don’t provide enough control over their mobility needs.”

Zanan suggested agents work with dealers to create in-house programs. 

“OEM subscription is a clear violation of franchise laws,” Zanan said. “I would encourage dealers to partake in their own subscription model since they can offer better vehicle selection and be in control of the transaction.”

“At this point, we are not too worried about subscription services impacting F&I. It is just too soon to tell what will end up happening as we see manufacturers and dealer groups testing the services and some ending their trials rather quickly,” Crisorio said. “We are of the opinion that subscription services will represent a very small piece of the automotive economy and have very little impact on business as we know it.”

“As long as products can show value to the customer, deliver profits to the dealers, and can be financed in with the transaction or subscription, F&I will continue to produce product sales regardless of the ownership or vehicle operational structure,” said Nelson. 

Hackett said the appeal of sub programs to “defined population segments,” including millennials, can’t be discounted. If their popularity does grow, the model will have a “noticeable” impact on the F&I process. 

“Add in the fact that these subscriptions are for shorter terms — some allowing multiple vehicle swaps per year — the consumer may expect their transaction to include products such as excess wear-and-tear, tire road hazard, and maintenance plans,” Hackett said. “Any F&I offerings added to a subscription must be seamless for the consumer on all fronts.”

“I believe product providers will come out with product packages that will align with the subscription trend,” said Allen. “I also believe we will see an uptake in post-subscription vehicles sold as certified vehicles with tailored products due to the known level of care and maintenance they receive during their subscription period.”

“To the extent it is successful, I think you can build a protection package that consumers will see value in,” said Atkinson, noting that sub programs appeal to consumers thinking in terms of total cost of ownership. “Building in protection from potential loss is in synch with that. However, the concept isn’t yet proven, and as I am answering this question, Cadillac announced that they are ending their plan. Just as in mobile phones and other consumer products, peace of mind through the protection F&I products bring can make a lot of sense to that consumer.”

LaMotta described the trend toward subscriptions as “something to watch” and “definitely a threat” to F&I. 

“However, like every other threat to F&I in the past, the industry somehow finds a way,” LaMotta added. “We are all keeping a close eye on subscription market share to determine at what point the ratios are high enough to start being concerned. For now, it’s business as usual!”

Bold Predictions

Asked to offer a bold prediction for 2019, Allen pivoted to autonomous vehicle technology, which took a leap forward with the December launch of Waymo’s self-driving taxi service in the Phoenix metro area. As Allen pointed out, mass-market driverless cars are essentially already upon us. 

“We will continue to be lulled into autonomous driving experiences by increased tech that’s integrated into mainstream vehicles. Especially for highway driving, lane assist will improve to lane keep and cruise control will become managed speed and distance,” Allen said. “Then one day we’ll wake up and our car will have taken us to the office while we work! … Not in 2019, but I believe it’s coming. Service will be the new F&I, meaning we will begin to see new technology and a renewed focus on our level of service, products offered, profitability, and customer experience in the service drive.”

Frey suggested the F&I industry will have to get more innovative in 2019 as automotive technology continues to advance. 

“Many of the companies in our industry are just harvesting profits and are not doing anything innovative for their agents and dealers,” he said. “Investment back in the business is key to keep up with the changes and deliver for agents and dealers.”

Successful agents and dealers turn adversity into opportunities, Reahard said, and there will be no shortage of adversity in the new year. 

“Further consolidation of dealers, manufacturers, and F&I product providers will continue. Companies and dealers that are focused on adding real customer value and helping improve the customer experience will prosper. Those who do not, will not,” Reahard said. 

Griggs concurred. “F&I agents and providers that are not able to deliver quality income development to their dealer clients will become irrelevant,” he said. “Significant consolidation of F&I agencies will become the norm as dealer clients demand more help to grow their profitability.”

Holcomb predicted that compliance concerns will convince more administrators to put pressure on dealers to speed the adoption of econtracting, be it through admin portals, the DMS, or the menu. 

“It is too difficult to keep up with all the contract changes via print. A good percentage of dealers have gone to the online model but there are still some that prefer to print and remit but the compliance landscape is going to force that issue online so contract changes can be seamless,” Holcomb said. 

Duncan predicted that off-lease volume and value-conscious car buyers will benefit certified pre-owned sales. Zanan suggested that, if that is the case, dealers need to secure and enhance their used-car operations. 

“Dealers need to wake up to the danger that Carvana poses to their business,” Zanan said. “We live in the environment of compressed margins. It is basically impossible to make money selling new cars and therefore dealers often rely on the used-car department. If Carvana starts chipping away at this profit center it will be progressively harder for dealers to stay in business. And what if there is a Phase Two to Carvana’s expansion — Carvana Service Centers?”

Anderson expects “strategic partnerships, mergers, recapitalizations, and alliances” will continue to expand while acquisitions of retail operations and vendors will slow. “The economy will remain stable, but the anticipation of the end of the car sales cycle will cause some hesitation and rethinking for the perfect deal, rather than just a deal. It’s less risky to keep your capital and leverage someone else’s strengths and core competencies to mutually benefit through partnering than acquisitions.”

Pappanastos predicted that, with so many factors outside the agent’s and dealer’s control — including national politics and global trade — 2019 should be spent focusing on the dealership itself. His checklist includes more training, enhanced customer-retention measures, and breaking down the barriers between sales, F&I, and service. 

“Each day in our industry brings a fresh, new adventure: new models, new products, new technology, new trade-ins to recondition and resell,” Pappanastos said. “It means finding financing for that first-time buyer, building new relationships, strengthening existing ones, and developing a winning team. It means facing new challenges, seizing new opportunities, and the possibility of even greater rewards. 

“Each day offers another opportunity to help a customer, provide a good livelihood for our employees, and build something great. God, I love this business!”

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