2021 Industry Trends: The State of Automotive F&I

Trends to Watch

Alexi Venneri thinks a trend that consumers are going to want, specific to the industry, but also within F&I, is to be able to purchase more things related to their vehicle while online, immediately after their purchase. 

“We’ve got to give them more ways to buy F&I online, and there will be some new F&I products that will be available to purchase online, such as regular full sanitation of your vehicle,” said the co-founder and CEO of Digital Air Strike. “There’s also going to be more ways to automate and expedite the F&I process, certainly with solutions like credit prequalification technology.” 

Another trend Venneri expects we’re going to see is centralized F&I offices across the dealer groups to centralize F&I job functions. 

“It doesn’t have to be an individual sitting in the dealership, especially if consumers aren’t even coming into the dealership,” she said. “A centralized F&I process with more technology to support it, as well as shortening the deal time for F&I as well, is a trend we’ll be seeing more of in 2021.”

According to Mark Nagelvoort, president and CEO of PCMI Corp., the continued shift to consumers shopping and buying vehicles online, will be a trend to watch. “We are currently working on assisting in the transfer of selected products during the shopping experience, to the menus in the F&I office, so there is no need to rekey information.”

“Transparency in financing will continue to be a focus, and the marketing and sales of optional products and services will be more closely examined. Fair lending and disparate impact, as previously mentioned, will be a trend to monitor,” predicts ARMD Resource Group’s General Counsel, Robert Wilson, Esq. “Complete and accurate disclosure of optional product’s limitations and exclusions, as well as procedures for cancellation, will continue to be reviewed.”

Terrence J. O’Loughlin, J.D., M.B.A., director of compliance for The Reynolds and Reynolds Company, expects federal and state agencies to focus on the following F&I issues, possibly taking draconian steps as a result: Elimination of arbitration in consumer contracts; requiring disclosures of the buy rate, invoice, and complete vehicle histories; allowing for a three- to 30-day right of return of the vehicle; elimination of dealer preparation fees; interest rate caps; elimination of spot delivery; an emphasis on racial equity to legitimatize the disparate impact theory through legislation; and extensive disclosures of voluntary protection products and price regulation.

“Unifying, simplifying, and intelligently inspiring the dealer-customer experience is the missing link that is being solved by industry leaders today,” according to Steven Apicella, CEO of Strategic DX Inc. “The gold standard of an Amazon-like experience has nothing to do with selling something digitally one-time. The real currency is delivering the whole digital experience — before and after the sale — that keeps the customers coming back again and again.” 

Apicella knows digital retailing is a part of that solution, but not the entire solution. 

“The auto ‘retailing’ industry is brilliant at selling a car but missing the high currency opportunity of earning a customer with the vehicle sale,” he said, recommending F&I providers and administrator take a sobering look at how they are contributing  — or not — to delivering a unified, simple, and frictionless dealer-customer experience.

Jeff Jacobs expects the lessons learned from the lockdown will continue once the economy opens up. 

“Those dealers who learned how to sell F&I products to service drive customers and lost opportunities will not want to give up these incremental revenues,” said the CEO and founder of ZERO Plan by Universal Lenders LLC. 

“Look for sales mining to continue with digital F&I solicitations and targeted marketing,” Jacobs added. “Premium financing will drive this marketing as America remains a 'payment buyer’ country. The result will be robust gains in F&I Income.”

Ron Greer at Provider Exchange Network is all about “digital, digital, digital.” With the platforms in place for shopping, the company’s vice president of PEN Services is seeing OEM and dealer groups push towards virtual shopping experiences.  

“Online buying and delivery is certainly possible today but has yet to take root, except for channels that minimize the variables like Carvana and certain dealer groups. The intelligence of insurance product selling has a long way to go to before getting on par with a competent F&I human,” said Greer. “The model we see making real progress is where the digital platform employs a hybrid of digital storefront, backed by a human salesperson. Selling a car online is easy compared to selling an insurance product; AI is not yet able to read a customer like a human.”

Within the automotive industry, trends to watch are electrification, a lineup of electric vehicles to compete with Tesla, and vehicle technology advancements including infotainment systems and exit warning sensors, according to CalTex’s President and COO Rande Hawkinson. 

“There will also be a lot of attention on used cars and that market will play a pivotal role in 2021. Within the F&I industry, the expansion of technology protection programs and digital retailing are the ones to watch,” Hawkinson added. “More dealers will put all their F&I products online while tailoring the products to the vehicle that the consumer is interested in buying.”

While he doesn’t think it will fully manifest until 2022, as taxes go up and employment and consumer spending inevitably go down, James Ganther, Esq., believes F&I will suffer. 

“When people only have enough money for the car, they are not able to buy much in the F&I box,” said the president of Mosaic Compliance Services.

“Since COVID, the used car market has been on fire, with substantial increases in the prices of used cars,” said John Kerper and Lee Bowron, partners of Kerper and Bowron LLC. For the industry, they expect this may mean more new vehicles sold as the value proposition between used and new diminishes. For F&I, they predict it may mean much less pressure on GAP products, which should see lower losses thanks to higher valuations from primary carriers.

“The obvious trend in the automotive industry is online vehicle sales, which has really moved to the forefront of everyone’s consideration set over the past year, and this poses a bit of a challenge for F&I,” said Kashif Faridi, GSFS Group’s Vice President of Sales. “The industry is working through how to provide enough information to consumers that they will self-select insurance products during their online vehicle purchase.”

“If we look at the most aggressive dealers in our portfolio, they’re doing packs on 100% of vehicles from a used car perspective — where they’re creating this sort of package of ancillary products that they just tack on every vehicle,” said StoneEagle’s CEO Cindy Allen. “If they’ve got their own reinsurance program, this could be a great year for them. I think on the reinsurance side, that increase in vehicle service contracts should be really good for everybody’s reinsurance portfolio as the mix moves from new to used.” 

Allen added that the opportunity there is picking up those extra products and empowering the belief systems of F&I managers, that an appearance package is just as important on a certified Camry as it is on a new Camry.    

Stan Starnes, chief operating officer at Nobilis Group, sees the continued presence of venture capital and market aggregation reinforcing the strength and health of the automotive sector. 

“If the desire for investment in our industry stalls or subsides, it will be an indicator of potential economic issues,” he added.

F&I on the Move

“Selling a customer a vehicle is not the end of the dealer-customer journey, it’s the beginning — or should be — and the same is true for F&I products,” according to Strategic DX’s Apicella. “Ask yourself, should F&I product sales be limited to only the ultra-time-constrained vehicle purchase moment, or the dealer brand diminishing post-sales archaic tactics of phone solicitation and junk mail?” 

If you give a customer intuitive access to easily digest and engage F&I products before and after the point of vehicle sale, in the same digital engagement platform where they are serviced, then Apicella believes you have a solution to propel your dealer experience revenue and customer engagement to the next level. “How many of the current F&I products missed at the point of vehicle sale would a customer otherwise have purchased if they simply had time to understand and engage them, even post vehicle sale?” 

Apicella predicts the F&I providers and administrators that capture this massive industry revenue loss, will be the most popular in 2021 and beyond.

Kerper and Bowron’s Kerper and Bowron expect to see additional products, which may be embedded or just given away by the dealership, that encourage consumers to the return to the dealership for the purchase of their next vehicle.

“We’re seeing growth in F&I product sales across the board right now and certified pre-owned programs with the included Limited Warranty are especially resonating with customers,” according to Faridi with GSFS Group. “Certainly, products that support some shifts in the industry would include those focused on things such as EV technology and sanitation/chemical products.” 

But Faridi also recognizes the increasing need for product customization to fit individual needs rather than trying to fit all customers into one of a few VSC-banded buckets, for instance. 

“Any new products and services that will enable dealers to control costs, increase sales, and provide legal defenses will be welcomed by the industry,” said Reynolds and Reynolds Group’s O’Loughlin. “Voluntary protection products will be in the forefront, and identity theft protection tools and products may grow in significance.” 

CalTex’s Chief Revenue Officer Tim Akard predicts technology, used cars, and unlimited mileage programs will be popular due to the increased focus on technology and used car sales. “Also, something to look out for is fleet programs. Even though fleet sales are projected to be down in 2021, F&I providers have been adding fleet programs to their product offerings as they expect business to pick up in coming years.”

“I think we’ll see additional cleanliness products consumers can buy that will certainly be more popular,” said Venneri of Digital Air Strike. “We’ll see more accessories, such as if you’re buying a truck and offering a small camper that matches,” adding the with an increase in travel and road trips, the available accessories will follow. 

Venneri thinks there should be more F&I products that you can finance, including accessories as part of the deal. “Most consumers want to spend less time in the dealership, or if they do go into the dealership, they want to just pick up the car and fill out the least amount of paperwork. So, we need to find more automated ways to sell them F&I products leveraging technology.”

Due to financial uncertainties caused by the pandemic, ARMD Resource Group’s Wilson expects payment protection products will be popular. On the other hand, Nagelvoort with PCMI foresees an increased popularity of GAP and anti-microbial protection products.

“Product bundles will certainly see growth as they have become a staple of many dealer F&I menu presentations, and we believe the sale of appearance products will continue to rise in the F&I office,” said Nobilis Group’s Starnes. “We are seeing a trend toward more providers who are either looking to expand into or grow their ancillary offerings to complement their traditional VSC business.”  

Starnes views both perceived and real value in leveraging the expertise of others who specialize in claims management, repair services fulfillment, and private label program development to gain efficiencies in the launch of new programs, as well as enhance CSI and the consumers’ experience with the provider’s brand.

“I think that the F&I products that will become popular are things that add value on used cars, like lifetime warranties on used cars and some of those preloaded programs that deliver incremental value,” said StoneEagle’s Allen. “Dealers are going to be looking for ways to differentiate and drive revenue on their used car sales.” 

Allen also thinks, with new cars, that you’re going to see a movement towards leasing, so there will be an increased focus on the lease “wear-and-tear” programs. 

The Rise of Digital Retail

“Digital Retailing will become the new norm going forward, and what dealers and their venders need to realize is that the lessons learned from menu selling and payment closing for in-store F&I sales are even more important in the digital realm,” said Jacobs with Universal Lenders. “Every F&I product offering will require a payment option with guaranteed credit approval and zero percent interest charge.” 

Jacobs believes the difference between a “delete” and a sale is the first glance. “The initial view will determine your success, so every dealer needs to make sure their offering provides premium financing and a low monthly payment option.”

“Recently, there has been record investments from private equity firms to allow technology companies in our space to further expand their offerings, and this means administrators will no longer need to allocate their own capital for the development of administration systems since the current market solutions today are so strong,” according to PCMI’s Nagelvoort.

Due to the virtualization of the sales process, Robert Wilson expects more dealerships to embrace remote selling, financing and closing — perhaps taking a page from some of the online players in the automotive marketplace. 

“Consumers will continue to demand reduced time to close, so technology will continue to evolve to meet this need,” he added.

As many dealers have engaged some form of digital retailing in the last year, the next growth horizon is clearly delivering a digital lifecycle, beyond digital retailing. 

“The current digital experience associated with digital retailing abruptly ends at the point-of-vehicle-sale, where it should continue throughout the dealer-customer ownership journey together,” said Strategic DX’s Apicella. 

“Should a customer be able to intuitively engage all F&I products’ claim service, purchase missed F&I products after the point of vehicle sale, enable dealer-customer communication with push notifications and deliver an enhanced loyalty rewards program in one, unified digital engagement platform in 2021?” Apicella asked. He views this as an opportunity where providers and administrators can fill the post-sales digital vacancy that currently exists to enhance the customer’s experience and capture all the currently missed post-sales revenue touch points. 

At Provider Exchange Network, Greer is seeing more front end “funnel” consolidation. “Keeping the customer experience, as the deal travels from digital to CRM to desking to menu, has been underway for a while. We are seeing some systems designed for this, as well as traditional systems building tighter integration.” 

Greer believes this is important for providers, as products may be quoted by the same dealer to the same customer through the sales cycle, because if there is no consistency you lose integrity and potentially face compliance issues. 

“We continually encourage providers to allocate some time to evaluate the dealer’s use of tools and integration. B2B is not simply a reaction to a dealer’s demand for integration. If your dealers are not operating at peak efficiency, it can lead to lost profits and risk for dealer and provider alike,” he said, suggesting that dealers should take time to factor this into agency training and service levels.

“We believe digital retailing will realize some incremental growth and the two primary drivers of this change will be a genuine consumer demand for this change, as well as the dealer’s willingness to accept this new model,” according to Starnes. “The pandemic forced many dealers to look to alternate methods to present and close deals, including online F&I presentations, and some made real progress in delivering a more socially distanced buying experience.” 

Starnes see this as great news, as there is recognition of the need to give customers earlier visibility to available protection programs, so buyers have more awareness of their options before getting to the F&I presentation. Overall, he added, digital retailing has a long way to go before it comes an essential step in the road-to-the-sale.

“The dynamic of digital retailing has been evolving for some time, but there has been a confluence of societal, marketing, technological, and legal disruptions in how the public buys products,” said O’Loughlin. “The concept of cocooning began almost two decades ago with the aftershock of 9/11 and the exuberant adoption of the internet and cellphones. The coronavirus greatly furthered this lifestyle as people were forced to function digitally in almost all respects — the car business has not been exempted.”

However, O’Loughlin sees the sequence of history as having engendered deep changes in consuming behavior. “Today’s consumers drive the market, forcing dealers to reexamine their marketing strategies. This is where the term ‘disruptive marketing’ enters the calculus and may portend long-term remote purchasing behaviors.”  

For dealers, car transactions include garnering the prospect, presenting the car, agreeing on the trade-in, getting credit approved, consummating the transaction at the signing ceremony, and, ultimately, delivering the vehicle. 

“All these factors in the transaction can now be done remotely without the customer leaving his residence, and technology tracks each step along this continuum,” added O’Loughlin. “Dealers have already been utilizing websites, webpages, social media, webots, and artificial intelligence to interact with the public.” 

According to CalTex’s Hawkinson, there is an increase of technology companies releasing one-stop-shop platforms into the marketplace with built-out solutions for CRM, wholesale and inventory management, and digital retailing. These platforms are looking to answer the age-old question: How complete is the process of buying a vehicle online from end-to-end?

“Prior to 2020, the bottleneck for a truly end-to-end online buying experience was getting all the forms, technology, and signatures together in an intuitive & sequential process that made sense to the consumer,” Hawkinson said. “Fast-forward to 2021, everything is online. Today, technology developers and large dealer groups have released their end-to-end platforms that encompasses the entire car selling and buying process, but the jury is still out on which platform will be considered standard for consumers.”

Hawkinson believes the key in 2021 for dealers will be to choose a platform partner that makes sense for back-office processes, is intuitive for the consumer on the front-end for car buying, and can quickly adapt with the changing landscape of the industry.

“Dealers need to offer more tools and technology for consumers – But ultimately, with subprime, dealers need to reduce the time it takes for F&I,” stated Venneri. “Dealers need to leverage tools like credit prequalification technologies to allow more subprime consumers to still get the deals based on less than perfect credit scores.” 

Venneri believes it’s all about simplifying the buying process for consumers, because then they actually buy more, and this is the new way of doing business.

Allen expects there will be a continued shift of the menu and a shift of digital retailing towards one another, to give a more connected experience. 

“I think that the main trend that you will see is that the F&I experience will continue to speed up. The number of F&I managers that are running really good numbers — doing 15–20-minute turns — will be looking for simple solutions to help them be faster,” she said. 

With a constant pull towards more and more complex features, she believes we’re about to see it swing the other way. 

“You’re going to see the time in F&I continue to shrink, and I think what digital retail is really going to do, is reduce the time before the F&I office. That makes it easier for a F&I manager to have a conversation, because the customer isn’t super resistant and arguing for three hours over $10 on a payment. Digital retail customers will be showing up for an appointment at ten o’clock on a Tuesday, versus thirty people waiting in line on a Saturday evening.”