F&I and Showroom, June 2019

www fi magazine com 6 F I and Showroom June 2019 DONE DEAL G Guaranteed asset protection is a no brainer The value to the customer is clear as is the benefit to the dealer who offers it and the F I professional who sells it And if you wish to improve your GAP penetration rate now is a great time because the numbers are on your side At last months Agent Summit Tony Wanderon CEO of National Auto Care and Family First Dealer Services teamed up with Allstate Dealer Services Ben Woods to present The GAP Crisis Would You Underwrite It Among F I product providers Wanderon is widely regarded as the godfather of GAP having been a tireless advocate since its inception Woods is no slouch himself Together they broke down the history and performance of a product whose market is valued somewhere north of 7 billion and is almost entirely dealer controlled GAP was introduced in the 1980s and first found its footing as a lease product As Wanderon explained many dealers initially feared sales customers would be scared off once they realized they owed more than their new vehicle was worth It gained ground as a product offered on retail installment loans as down payments grew smaller and terms grew longer Never in my career have I seen a product take off like that Wanderon said of GAPs explosive growth starting in the late 90s But underwriting and regulatory difficulties began to arise in the 2000s a trend that has reemerged of late The most recent serious legal challenge was a December 2017 reinterpretation of the federal Military Lending Act that effectively ended sales of GAP to servicemembers This remarkably shortsighted guidance has put countless soldiers and sailors at risk of financial devastation In January the American Financial Services Associations Bill Himpler told AFSA conference attendees that the U S Department of Defenses decision could soon be reversed with the help of the Trump administration Financially plummeting retained values particularly among sedans have conspired with increased frequency of collisions up nearly 10 since 2012 and total losses up 30 since 2011 In flood prone Texas loss ratios that once varied between 30 and 40 have ballooned to 140 Repricing and tiered pricing have alleviated but not eliminated the strain Many underwriters have fled the business But GAPs supporters remain fervent There have been some good years for GAP from an underwriting side Wanderon said But they tend to come with some really challenging years as well And were in some challenging years now Nevertheless Its not really a crisis The risk is changing and adjustments need to continue to be made The GAP market today is bigger and better than ever Asked whether F I managers can capitalize by sharing these numbers with indecisive customers Wanderon was not opposed But he suggested starting with an example of a past customer who benefited from the product And he stressed the fact the value is maximized if the customer buys now at the dealership rather than later from their insurance company Dealer waiver GAP coverage can cover up to 150 of MSRP carry over coverage for negative equity trade ins and deductible reimbursement up to 1000 The alternative is auto insurers who control about 1 of the market only offer GAP for new vehicles only cover up to 125 of MSRP offer no deductible reimbursement and want nothing to do with the customers trade in And if they switch providers they cant renew So good luck with your next negative equity deal Despite its troubles GAP remains a win win win for your customers your dealership and your numbers How to Sell GAP in a Crisis Mounting losses have compelled many underwriters to jump ship on guaranteed asset protection but it remains a cornerstone product that continues to perform for customers dealers and F I managers BY TARIQ KAMAL PHOTO COURTESY NATIONAL AUTO CARE Severe weather including the widespread flooding in Houston in April of 2016 have contributed to mounting losses for GAP providers