Inflation remains high despite prices cooling in July and August. In addition, rising interest rates indirectly increase the cost of borrowing, making it more expensive to buy a vehicle. As per Kelly Blue Book data, the average price of new vehicle prices increased by 12% from July last year, and used vehicle prices have gone up by 40%, as per data released by the U.S. Bureau of Labor Statistics. Inflation and high prices have caused issues of vehicle affordability for consumers and impacted dealers’ profitability. However, there is light at the end of the tunnel for both consumers and dealers. F&I products provide relief to consumer and dealers in inflation.
F&I products such as vehicle service contracts (VSC) could help shield customers in inflation and provide financial security from costly repair and replacement expenses in the future. Customers most likely would be using their service contract after a couple of years when a part breaks down or in the event of a malfunction. With prices rising rapidly and the cost of parts and labor going up, customers are locking in the current rate and saving in the future. A VSC creates peace of mind that the expense of owning a vehicle is more fixed than variable.
Increased age of cars in the U.S.
Chart source: S&P Global Mobility
The average age of light vehicles in the U.S. reached an all-time high in 2022 as consumers continue to hold onto vehicles. A study by IHS Markit shows that the average age of light vehicles is now 12.2 years. The global chip shortage influencing the supply chain and inventory and rising prices are the primary factors pushing the U.S. vehicle age higher.
F&I products provide relief to consumers in inflation
With the rise in vehicle ownership, consumers look for options to safeguard themselves against expensive and inconvenient repairs and replacements. Therefore, F&I products purchased now could provide relief for customers later. Let’s look at the examples below to see how F&I products help protect customers.
Guaranteed Asset Protection (GAP)
GAP helps pay the difference between the vehicle’s market value at the time of the incident and the outstanding loan balance. With limited inventory, rising car prices, and higher interest rates on loans, GAP protects customers against financial burdens.
Exterior and interior appearance coverage
Every day, drivers encounter things that are out of their control — the elements, the weather, and the playful toddler. But these encounters don’t have to devalue the car. Now more than ever, when the prices of new and used vehicles are skyrocketing, it makes sense to maintain the condition and appearance of the cars. Therefore, offering industry-leading appearance coverage, such as Cilajet, would add value to the customers’ purchases. In addition to the coverage, PRO offers comprehensive training to support sales goals and the growth of your F&I department.
Tire and wheel coverage
As per AAA data, drivers Paid $26.5 Billion in Pothole-Related Repairs in 2021. “In many parts of the country, winter roads will likely give way to pothole-laden obstacle courses,” said Mary Maguire, Director of Public/Government Affairs for AAA Northeast. “When a vehicle hits a pothole with any kind of force, the tires, wheels, and suspension get the brunt of the impact, and fixing any of those items is pricey.” Thus, considering tire and wheel coverages for vehicles would ensure additional security and savings for customers.
Anti-theft product backed by warranty
With vehicle theft up by almost 12% since 2019 and high prices of new and used vehicles, anti-theft products can offer relief to today’s buyers in the event of a theft. The immediate benefit for your customers is, in general, a lower insurance premium for theft. In other words, the insurance settlement may be far less than the cost of replacing a vehicle.
Serving the needs of customers
With more used vehicles sold amidst inflation and inventory issues, dealers and F&I managers should ensure their product portfolio aligns well with the needs of today’s consumers. In uncertain times, consumers tend to look for low-risk purchases and time-stamped guarantees. Certified pre-owned programs, appearance protection, and vehicle service contracts provide buyers with an extended piece of mind that can be tied to your dealership. Highlighting the limitations of CPO coverage may be in their best interest and yours.
We can be your resource
Over the years, PRO has helped dealerships turbocharge their profitability. With a dedicated team and strategies to support your success, you could successfully navigate the uncertainties of the market while growing your bottom line. Reach out to us today.