From 2011 to 2015, the retail automotive industry has experienced a 5-year high with an average 8.3% year-over-year increase in unit sales, according to WardsAuto data.

We’ve seen loosened lending requirements, and longer-term loans have become the norm. In addition, more customers who had been holding off on purchasing a vehicle returned to dealerships.

But as with any economic cycle, after a period of expansion it’s a sure bet that eventually we will face another period of economic reduction. And, there is plenty of speculation on when the pendulum will start to swing.

Consider Experian’s latest “State of Automotive Finance Market Report,” which lists an increase in average new-vehicle loan terms to 67 months in 2015, while used-vehicle loan terms increased to 63 months. This has resulted in a significant growth of negative equity on car notes.

In addition, the “NADA Used Car Guide” reports the percent of originations, including trades that carried negative equity, increased year-over-year by 2%.

Data from J.D. Power’s PIN Network shows that of the cars with an equity position in 2015 and 2016, the trade-in value decreased 50%.

While we’ve seen trade-in values fall, so too have used-car prices. In fact, NADA predicted used-car prices would fall between 5% and 6% this year as more off-lease vehicles entered the market. These are changes pointing to a possible economic shift. Dealers need to start evaluating how to keep their margins from shrinking as lenders consider when and by how much to tighten lending requirements.

Dealers have a built-in opportunity to do just that through F&I. Retail automotive professionals know the benefits of selling a vehicle service contract, for instance. But have you put on your lending hat recently to determine how those benefits could affect lender partners?

Consider, for example, the inevitable event of a consumer preparing to make his or her monthly car loan payment but suddenly experiences a vehicle breakdown. It’s possible they may have to choose between paying for costly mechanical repairs and making their loan payment. If you were that consumer, which of those needs would you prioritize? You’d most likely prioritize fixing the car so you can continue commuting to work. As a result, the car becomes delinquent.

However, this can be avoided by providing consumers with vehicle-service contracts, helping lenders reduce delinquency rates.

Your team has the task of selling these products to lenders as well as customers. They must demonstrate the value F&I products to lender partners, including increased business and a proactive risk strategy. Helping lenders understand this can further your partnerships, and you will have the lender’s ear when it comes to negotiating loan terms on behalf of a customer.

This, of course, cannot be accomplished if ongoing relationships with your lenders are not maintained. If an F&I manager calls a lender to discuss the benefits of F&I products, but doesn’t  even know the lender’s current lending requirements, how likely do you think it will be for that lender to listen to the presentation?

Consider the following questions as you assess your dealership’s relationships with its lending partners:

  • Do you know all the lending requirements for all the lenders you work with?
  • Do you work with lenders to send enough business their way to justify taking on subprime paper?
  • Do you schedule regular meetings to discuss the amount of loans being sent their way and what could be addressed to increase that amount?
  • Do your lenders understand the benefits of F&I products to their loan portfolio?
  • Do your practices comply with all lending requirements?

Provide ongoing training and follow-up to ensure your team is set up for success in essentially selling your dealership to lenders. Leverage weekly team meetings to evaluate the strides taken in cultivating lender relationships.

With the anxiety in the air over when and how quickly the economic pendulum will shift, now is the time to ensure you have solid lending relationships in place.

John Stephens is executive vice president of Dealer Services at EFG Companies. He can be reached at 972-445-8910 and