Every member of the F&I industry can help protect its reputation by sticking to the terms that elevate, rather than denigrate, this important part of the car buying and ownership process. - Image by Serhii Brovko via Getty Images

Every member of the F&I industry can help protect its reputation by sticking to the terms that elevate, rather than denigrate, this important part of the car buying and ownership process.

Image by Serhii Brovko via Getty Images

So sayeth gentle Juliet to Romeo: “What’s in a name? That which we call a rose / By any other name would smell as sweet.”

People who earn their livings laboring in vehicle retail should be cognizant of the terms they utilize on a routine basis.

Obviously, Juliet didn’t understand marketing and never worked in the car business. Words matter. The terms employed by dealers can evoke respect or derision. They can distinguish a professional from a crass sales agent. In advertising, an image of a product or a service can be enhanced, or minimized, depending upon the language used in the advertisement. 

People who earn their livings laboring in vehicle retail should be cognizant of the terms they utilize on a routine basis. The terms should be technically accurate, represent the most favorable status of the product or service, and provide legal defenses if possible. 

Diction or phrasing can elevate the terms of the dealer offerings. On the other hand, using pejorative terms can sully what should be a respected product or service. 

Providers, agents, and dealers should make a conscious choice to use the following preferred terms — and insist that those that work with them do the same. 

Voluntary Protection Products vs. Ancillary Products

This recent example comes directly from NADA. For many years, most dealers referred to additional products sold in the finance and insurance department as “ancillary products.” Dealers may sometimes refer to them as “soft adds.” Worst of all, however, is using the term “add-on products.” 

This writer attended a conference recently and an FTC representative kept using the term add-on products and not providing the respect these products deserve. Dealers need to use the preferred term and educate government regulators, and those in the media, as to which terms are preferred. 

The NADA’s new term, “voluntary protection products” encapsulates, in an extremely positive way, what these products represent. Consumers voluntarily choose to buy a product that will protect their extremely valuable new acquisition, an automobile. No one has ever complained about the value of a service contract or a GAP product when its benefits have been provided. These products are, indeed, voluntary protection products. 

Spot Delivery vs. Yo-Yo Deals

There is no better example of this matter than contrasting a spot delivery and a yo-yo transaction. Even major industry publications have adopted the term “yo-yo deals,” which is damaging to the industry’s reputation. Consumer advocates generally avoid using the term “spot delivery” and prefer the term “yo-yo deals.” 

This writer recalls meeting with a prominent consumer attorney who alleged that all spot deliveries were deceptive and were yo-yo deals. He failed to recognize that thousands of vehicles are retailed daily as spot deliveries, an entirely legitimate manner to deliver a vehicle. 

The use of the term “spot” simply means originating, or done on the spot, or for a particular purpose such as “on-the-spot news coverage.” Alternatively, it means “available for immediate delivery.” There is nothing derogatory concerning this word or the practice at dealerships.  

Average Cash Value vs. Actual Cash Value

Regulatory audits of deal jackets often note the possible disparity of the “actual cash value” as opposed to the value accorded to the consumer for his trade-in. It’s not the government’s role to question these details but it may encourage further examination of that transaction by a regulator, which is never a good development. 

An NADA attorney expressed concern about this matter several years ago and asserted that dealers should use “ACV” to represent “average cash value,” not “actual cash value.” It may help to use this definition for legal defense purposes. 

Kickback vs. Retail Margin

Several years ago, a consumer advocacy organization, which addressed financial matters, issued a study that asserted that billions of dollars were being kicked back to dealers for arranging financing for vehicle sales. The study was quite flawed and the use of the word “kickback” implied the alleged deceptive practice this consumer advocacy organization meant to convey. 

There is, indeed, a buy rate and a sell rate in these transactions. But the correct term should be “yield spread premium” or, even better, “retail margin.” There is nothing unwarranted about profiting from the retail margin when selling retail installment sales contracts. Dealers should object to regulators, or the media, if they employ the term kickback when they should be describing retail margin. 

As an aside, banks have a cost of capital, which is synonymous with a buy rate. Banks grant loans, based upon the sell rate, just as dealers do. There is no true difference.  

Car Loan vs. Retail Installment Sale Contract

The CFPB uses the term “car loan,” so why shouldn’t every dealer? Many dealers use this term as well. If a dealer wants to be licensed as a bank and undertake all the regulations that accompany banks, then a dealer should use the term car loan. Nevertheless, it is simply wrong. 

Dealers transact with consumers by agreeing with them to enter a retail installment sale contract that is not a car loan. A retail installment sale contract is addressed in the Truth-in-Lending Act and Regulation Z and state retail installment sales acts. When consumers borrow money from a bank and promise to repay the amount borrowed, with interest, it is called a loan. If consumers use this money and buy a car, it remains a loan, albeit a car loan. 

When consumers sign a retail installment sale contract, they are agreeing to buy a car and pay for the car over time in installments that include interest. Dealers can keep the retail installment sale contract in-house or they can sell the retail installment sale contract to a financing source. Dealers should call them what they are: retail installment sale contracts.

Bird Dog vs. Business Referral 

In some states, it is legal to refer someone to a dealer and receive a finder’s fee if the referral leads to a sale. The common term for this referral fee is a “bird dog fee,” with the referring party being a bird dog. It is an analogy derived from hunting dogs. 

The preferred term should be a “business referral” with a paid commission because of the referral. The term bird dog is uncomplimentary, and somewhat crass, whereas the alternative accurately describes the transaction without sounding akin to a scheme.  

Deal vs. Transaction 

It is a sad observation, but an accurate one, that consumers generally do not enjoy the vehicle selling process. The term describing this process is “car deal,” which conveys some of this unpleasantness. 

The preferred term should be “vehicle transaction.” Engaging in a business transaction is devoid of any deprecating sales baggage. Acquiring a vehicle through a vehicle sales transaction provides a degree of professionalism. Certainly, sales transactions of $30,000 demand nothing less. 

Doing the Paperwork vs. Closing 

Neither the consumer nor the dealer likes “doing the paperwork.” The only people who like paperwork are attorneys and accountants. However, these humble documents can provide great legal support for dealer transactions. They should be thoroughly understood and treated as valued dealer tools. 

In order to take title and possession of an automobile, a consumer must undergo a signing ceremony. As in the real estate business, it is a “closing.” It should not be denigrated by disparaging terms and should be elevated.  

Used vs. Pre-owned 

“Pre-owned” simply sounds better than “used.” The word “used” implies old, weathered, secondhand, or worn. Conversely, the term “pre-owned” suggests that the vehicle was merely previously owned. It is a mild difference but as part of a marketing strategy characterizes the transaction more favorably. 

When taken together the choice of words can have a strong effect. Consider the difference in these two paragraphs based upon the choice of traditional modes of expression as opposed to utilizing the recommended preferred ones:

  • Traditional: A dealer worked with a bird dog and paid a bird dog fee for the referral of a new customer. The customer agreed to the car deal terms for the used vehicle and financed the vehicle by signing a loan. The dealer received a kickback as part of this process. Since it was on a Sunday, the dealer could not finalize the deal but allowed the consumer to take custody of the vehicle as a yo-yo deal. The consumer agreed to add-on products, as well, while doing the paperwork. There was a trade-in and the dealer credited the customer with less than the actual cash value (ACV). 
  • Preferred: A dealer received a referral for a new customer and paid a finder’s fee to the referring party. The consumer agreed to the transaction’s terms for the preowned vehicle and financed the vehicle by signing a retail installment sales contract. The dealer received a retail margin as part of this process. Since it was on a Sunday, the dealer could not finalize the transaction but allowed the consumer to take custody of the vehicle as a spot delivery. The customer agreed to purchase voluntary protection products, as well, at the closing. There was a trade-in and the dealer credited the customer with less than the average cash value (ACV).

The two paragraphs are markedly different in tone but, essentially, state the same facts. However, in a news report, the “preferred” paragraph would portray a dealer far more favorably, and that’s the whole point: Words matter.

For many years, the Gallup Survey has ranked professions based upon trustworthiness. Nurses are consistently at the top of the rankings and car salesmen are unfailingly at the bottom. Professionalizing the language could help change this result and help advance the profession in numerous ways. 

Govern yourselves accordingly.   

Terrence J. O’Loughlin is director of compliancefor The Reynolds and Reynolds Company.

Read: Should Dealers Self-Report Legal Violations?

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