By Ray Birch
CHESTERFIELD, Mo.—It’s time credit unions revisit how extended warranty and gap products being marketed to members, with one analyst stressing, “consumers are becoming much more savvy about what they want from the F&I department.
“There is a fundamental shift occurring,” said Rick Kurtz, SVP of distribution for Protective Asset Protection, which provides F&I solutions to the automotive industry. “There is a great deal of emphasis now from consumers on shopping and researching and learning more about these products. Specifically, they are really wanting to learn more about the value proposition of the F&I product prior to finalizing the paperwork associated with the transaction.”
Kurtz said what’s also changing is the process over the years of addressing products such as gap insurance or extended warranties at the very close of the paperwork on the auto loan deal.
“I think consumers to do things a little differently here,” noted Kurtz, who said data from his company’s latest survey among auto dealers nationally show demand for more information on auto loan add-on products is rising. “Consumers are becoming much more savvy about what they want from the F&I department.”
And that means, as well, from credit unions that sell these products, noted Kurtz.
“Members are really asking for more information pre-transaction,” said Kurtz.
And they’re doing that online, he added.
The Larger Trend
“The larger trend has been moving towards digital retailing in general, whether it's the big box home improvement stores or automotive retailing, or consumer credit from the credit union,” said Kurtz. “The shift towards digital retailing by the consumer is undeniable. This trend was in place pre-pandemic, but we have seen what has happened during the health crisis to speed this up.”
As other retailers have improved in providing consumer education, Kurtz noted that lenders have fallen behind when it comes to digitally providing automobile shoppers with information about F&I products. The reason: auto dealers had been slow to move away from in-person sales and in-person communication, he said.
“But the pandemic forced them to change their approach,” said Kurtz, noting the absence of shoppers on showroom has led many dealers to make a quick turn to selling and connecting with consumers digitally.
“Automotive retailing was definitely lagging here,” said Kurtz.
Beefing Up
What all this means for lenders is they must beef up their online education for the gap and extended warranty products they offer members, according to Kurtz, who has some advice.
“We work with hundreds of credit unions across the country and we are advising them to make more digital marketing materials—such as videos—available to members who might consider purchasing additional products, such as an extended warranty or gap, at the close of their loan,” said Kurtz. “Make digital marketing materials available, make educational videos…Help your members make an informed decision, rather than just signing a piece of paper at the end of the deal. They are wanting this knowledge.”
Kurtz further advised credit unions to engage with their members via the platform they prefer.
“If they are wanting to do the loan transaction digitally, then of course, your educational and marketing materials should be digital as well,” noted Kurtz. “But if they want to do a face-to-face transaction, then maybe provide them with education on F&I products via a hybrid approach, some online and some in person.”
‘Can’t Turn Our Heads’
Another thing to consider, added Kurtz, is that with the shift to digital, consumers now expect to get answers around the clock.
“We can’t turn our heads away from this need,” said Kurtz. “Or you may risk losing a loan or even a member. We're seeing our credit unions really taking more time with their members to make sure members understand all the options, because there's fewer auto loan transactions taking place now and therefore a greater emphasis on the quality of the interaction. (They are) really explaining and really making certain the member understands all the options available.”
Kurtz noted, too, that sales of vehicle service contracts have markedly risen as the average age of cars on the road now tops 12 years. Another reason gap insurance is receiving more consideration from buyers? Prices have been rising quickly on both new and used vehicles.
Pandemic’s Effects on Sales
The company’s latest study also shows the number of F&I products being sold has been affected by the pandemic.
Protective Asset Protection commissioned an online survey during March 2021 that sought to take the pulse of nearly 500 F&I and dealership executives across the U.S. According to the feedback, approximately a quarter of respondents said the sale of F&I products to customers has increased between 5%-10% so far in 2021 compared with 2020.