Matt Phelan of Roseville Toyota, read the scathing letter from a customer accusing one of his F&I managers of improper practices after his daughter's credit application was refused.

Before responding, Phelan pulled the customer file and watched a videotape of the deal at the Roseville, CA, dealership.

What he saw surprised him and indicated a professional scam artist trying to rip off a vehicle. The father had worked in dealerships and knew the ins and outs of financing.

“After seeing the tape, I had the highest praise for our F&I manager and saw that he was trying to protect us,” Phelan says.

Phelan says surveillance cameras can deter and identify the bad guys — people engaging in identity theft or fraud in the F&I office, or trying to steal vehicles off the lot in the dead of night.

Roseville Toyota, part of the 6-store John L. Sullivan group that includes Saturn, Chevrolet and Dodge franchises, has videotaped customers in F&I for three years. The overhead cameras are unobtrusive, but customers are told about them, and can refuse to have the transactions recorded if they prefer.

General Manager Dave Rodgers, who oversees the Sullivan operation, has introduced the cameras in all Roseville-area stores.

With increased regulations and the specter of lawsuits haunting dealerships, more dealers are getting behind the camera idea.

Still, the videotaping process is not without controversy. Some dealers feel it impinges on the trust relationship between management and staffers — and customers.

In regulation-happy states like California, dealerships like Roseville Toyota are especially watchful.

Rarely does a customer object to being taped, Phelan notes. In fact, he says, most like it.

Some dealers say it enhances professionalism. But Phelan says, “We already had that in place. It makes our F&I managers look like IBM professionals.”

“Don't Beat People Over the Head”

Bill Minsker, dealer at Buckhannon Automotive Group, Buckhannon, WV, says his 6-brand dealerships have videotaped customer transactions for almost four years.

“We want to stay on top of what's happening in the marketplace, and we use it as a training tool. We don't beat people over the head with it,” says Minsker, who sells Toyota, Scion, Chrysler, Dodge, Jeep and Subaru brands.

Besides protecting dealerships against lawsuits, it also assures that customers get full and accurate disclosure of products and services available to them. That's the law in most states.

Videos also act as a training tool for staff, new and old, Minsker says. “I've been pretty proactive on full disclosure and helping customers understand everything about the process and contracts. It was a natural for me to tape all loan closings.”

He adds, “People make more of an issue of it than it is. It adds to the assets of your transactions. It ties in with full disclosure and meeting and exceeding customer expectations. We're very committed and use it in everything we sell — new and used.”

Dealer Paul Lokey of Lokey Automotive Group, can't complain about the sales picture at his dealerships. His Nissan, Volkswagen, Kia, Mitsubishi and three Saturn franchises in the Florida Tampa Bay-Clearwater area all are performing well.

“F&I is a bright spot in our operations,” he says. “We've had the best year in history — up $150 per car last year, which was a record for us.” Used cars have been especially profitable for the dealer chain.

Lokey credits videotaping for adding to F&I profits, which stand at 50% across the entire auto complex. It has raised profits about $300 per car, with two thirds of that in F&I. That's enough proof for him.

He started the practice three years ago for compliance reasons. “I wanted to be bulletproof with 21 F&I managers in seven stores. It allows us to be up front, professional — and act in an honest way. And I know the group is performing in the way I want it to.”

Sometimes customers might balk. “But once we tell them the tape is for their protection as well as ours, you can see their guard come down,” says Lokey.

Attorneys zealously pursue unethical dealers, particularly in the Tampa Bay area, Lokey says. “But I'm not on their radar screen; they know we operate honestly and professionally,” with the tapes as backups.

“Personally,” he says, “I'd like to see the entire industry tape. It could stop the black eye we get in the media.”

“Customers Are 99.9% OK with It”

After mulling over the issue for nearly a year, Bill Hayden, general manager at Carl Fischer Buick, Pontiac, GMC in Stuart, FL, is prepared to try video recording in his F&I offices.

The dealership is completing facility rehabilitation and renovations following storm damage. After that, Hayden will charge F&I managers with the F&I surveillance project.

“Of the dealers I have spoken with who use it, customers are 99.9% okay with it,” he says. “With those customers who are reluctant and throw up a red flag, there could be issues such as identity theft or other issues at hand.”

The camera gives managers a chance to weed out bad customers and employees.

“F&I managers are nervous about the process initially because they know they're going to be scrutinized,” says Hayden. But they will need to comply. If they don't, he will want to know why.

Lack of Trust

Some dealers think video surveillance is akin to snooping on employee e-mails. They say it signals a lack of trust.

In Michigan, Ed Levy, dealer at Golling Pontiac GMC, decries the videotaping practice. He says it can be perceived as “punitive.” He doesn't buy the argument about regulations and pouncing lawyers.

His Lake Orion dealership has a 65% repeat customer business and does healthy lease business with many General Motors Corp. employees as steady customers.

All states have some degree of regulation, Levy notes. But the video practice could backfire internally. He calls it ridiculous.

“Dealerships that normally do it have gotten into hot water somewhere or fear future trouble. If you have and enforce good solid practices in F&I, you don't have to do it,” he says. “Why spy on the F&I operation? It tells me management is not reading the inputs to realize they had a problem on hand.”

Another Michigan dealer, Robert Thibodeau of Bob Thibodeau Ford in Centerline, says he is not ready to install cameras at his store. But he adds that dealers in other states who use the cameras indicate to him that they are effective.

“If they help the F&I operation and customers don't mind them — and are told about them — I don't see the harm of the cameras,” says Thibodeau.

Pam Cox, F&I director at Russell Chevrolet in North Little Rock, AR, has worked in automotive for 35 years, and has never seen a deal go wrong due to lack of videotaping.

The store churns about 175 monthly deals and discloses everything on customer purchase and finance contracts.

“We believe in 100% full disclosure. But if my boss walked in and said we're videotaping everything, it wouldn't bother me,” says Cox. Still, she'd have to ask why. “I know what we're doing is right and by the letter of the law,” she says.

If You Do It, Do It Right — Or Else

Lenders say videotaping F&I transactions must be done correctly or it could backfire. If carried out poorly, it could help a plaintiff's attorney or alienate customers.

“If improper activity is captured, it must be recognized and corrected quickly by the dealership,” says Jim McDavid, group vice president of North America sales, for JM&A Enterprises, an F&I provider and trainer.

Videotaping can provide legal protection. McDavid recalls a dealer accused of not disclosing all F&I products to a customer. After receiving a letter from the customer's attorney, the dealer invited the attorney to watch the video.

“After that, the attorney acknowledged the dealership acted professionally.”