THE ENCYCLOPEDIA OF
FINANCE AND INSURANCE
MANAGEMENT®
Automotive DealershipI N S T I T U T E
6613 N. Scottsdale Rd., Suite 100 • Scottsdale, AZ 85250Tel 480.998.7200 • 877.998.7200 • Fax 480.998.7220
autodealerinstitute.com
THE AUTOMOTIVE DEALERSHIP INSTITUTE, INC.Arzu Algan, CFO/Dean of Education • Alan Algan, CEO/Executive Director
Keith Tuber, President/Director of Corporate Affairs
THE ENCYCLOPEDIA OF
FINANCE AND INSURANCE
MANAGEMENT®
First Edition
The Encyclopedia of Finance and Insurance Management is designed to provide authoritativeinformation about the subject covered. Information contained herein has been carefully compiledfrom the sources believed to be reliable, but the accuracy of the information cannot be guaranteed.The authors are not engaged in rendering legal, accounting and/or other professional services; ifsuch expert service is required the services of an appropriate professional should be sought.
The Automotive Dealership Institute, its staff and all the contributors to this work specificallydisclaim any corporate or personal liability, loss or risk incurred as a consequence of the use eitherdirectly or indirectly, of any information or advice given in this publication.
The regulations presented in The Encyclopedia of Finance and Insurance Management representthe current information available at the time of publication.The authors have made a good faitheffort to compile federal and some state regulations applicable to automotive dealership Finance andInsurance departments.
The Automotive Dealership Institute, the authors and contributing authors of this publicationmake no representation or warranty that the regulations excerpted or summarized herein constitute all of the state and federal regulationsapplicable to the in-dealership finance and insurance process. Reference should always be made tothe full text of all applicable regulations. Please visit www.gpoaccess.gov/index.html and click on Code of Federal Regulations under Executive Resources for the most up-to-date version.
Actual resolution of legal issues depends upon many factors, including variations of facts andapplicable laws.
It should be duly noted that some federal and state regulations may change and such changes mayrender a prior practice unacceptable, or may require ongoing alterations in methods of conducting business or in the forms required to documentthe transaction.
THE ENCYCLOPEDIA OF
FINANCE AND INSURANCE
MANAGEMENT®
CO
NT
RIB
UT
OR
STHE AUTOMOTIVE DEALERSHIP INSTITUTEGlobal leader in educating the next generation of Finance and Insurance Managers.
The Encyclopedia of Finance and Insurance Management is published with the editorial advice of the faculty and the administration of the Automotive Dealership Institute.
Educational content: Arzu Algan, CFO/Dean of EducationContent co-ordination: Alan Algan, CEO/Executive DirectorExecutive Editor: Keith Tuber, President/Director of Corporate AffairsCopy Editor: Kristen ForceResearch Supervisor: Amber Grunwald,Vice President/Director of Operations
Additional advice is given by distinguished members of Northwood University, AFIP,Institute for Ethical Behavior, professional trade organizations, associations and other professionals.
Special thanks to the following people for their editorial contribution to this publication:
Prof. Robert W. Serum, Ph.D.Vice President, Academics and International ProgramsNorthwood University
David N. RobertsonExecutive DirectorThe Association of Finance & Insurance Professionals
John WalshPresident/CEOInstitute for Ethical Behavior
Gary Thomas Fagg, FSA, MAAAPresidentCreditRe Corporation
Thomas B. HudsonSenior PartnerHudson Cook, LLP
Timothy J. GillCFO/Director of OperationsAdvent Resources, Inc.
Bob ConnersPresident/CEO Saturn Auto Consultants Ltd., Canada
Patrick ColbertSenior Vice PresidentFirst Advantage CREDCO
Marguerite WatanabeAuto Finance Practice ManagerBenchmark Consulting International
Terrence J. O’LoughlinDirector of Compliance The Reynolds and Reynolds Company
Corporate contributors:
Reynolds & ReynoldsDealer TrackF&I Management & Technology MagazineCARLAW ®– Counselor Library.com, LLCNorthwood UniversityInstitute for Ethical BehaviorAssociation of Finance & Insurance ProfessionalsCreditRe CorporationAdvent Resources, Inc.First Advantage CREDCOBenchmark Consulting InternationalArizona Independent Auto Dealers Association
TABLE OF CONTENTS
AUTOMOTIVE RETAIL OPERATING SYSTEM
DEALERSHIP ORGANIZATION AND DEVELOPMENTRunning a Dealership ................................................................................................................................................36Facilities and Services..................................................................................................................................................36Dealership Products ....................................................................................................................................................36
DEALERSHIP TRENDS Straight Sales System ..................................................................................................................................................36The T.O. Sales System ................................................................................................................................................36One-Price Sales System..............................................................................................................................................37
DEALERSHIP MANAGEMENT STRUCTUREDealer Principal..........................................................................................................................................................37General Manager ........................................................................................................................................................37General Sales Manager................................................................................................................................................37Business Manager ......................................................................................................................................................38Finance Director ........................................................................................................................................................38Finance and Insurance Manager..................................................................................................................................38Special Finance Manager ............................................................................................................................................39Sales Manager ............................................................................................................................................................39Desk Manager ............................................................................................................................................................39Internet Sales Consultant ............................................................................................................................................39Closer ........................................................................................................................................................................39Salesperson..................................................................................................................................................................40Greeter ......................................................................................................................................................................40
DEALERSHIP TERMINOLOGYDefinitions..................................................................................................................................................................41
DEALERSHIP SALES METHODOLOGYIntroduction to Sales ..................................................................................................................................................43Setting the Proper Sales Image....................................................................................................................................44Attitude in Sales..........................................................................................................................................................45Customer Interaction..................................................................................................................................................46Organization/Self Discipline ......................................................................................................................................47Who is the Boss? – The Customer..............................................................................................................................47
VEHICLE SALES TRANSACTION
SALES PROCESSThe Greeting/Welcome..............................................................................................................................................49Understanding Customer Needs ................................................................................................................................50Vehicle Presentation....................................................................................................................................................52Vehicle Demonstration/Trial Close ............................................................................................................................54Vehicle Appraisal ........................................................................................................................................................56Purchase Consultation/Negotiations ..........................................................................................................................57
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Finance and Insurance Department/Proper Introduction ............................................................................................59Delivery......................................................................................................................................................................60Follow-Up..................................................................................................................................................................63
NEW BUSINESS DEVELOPMENT Prospecting ................................................................................................................................................................64
LEASING
INTRODUCTION TO LEASINGIntroduction................................................................................................................................................................65Benefits of Leasing......................................................................................................................................................65
LEASING GLOSSARYLease Terminology ......................................................................................................................................................66
HOW LEASING WORKSLease Breakdown........................................................................................................................................................67Basic Lease Calculations..............................................................................................................................................68Dealer Installed Options ............................................................................................................................................69Mileage ......................................................................................................................................................................70Drive Offs ..................................................................................................................................................................70Advance Guidelines ....................................................................................................................................................70Lessee’s Obligations ....................................................................................................................................................71
FINANCE PRODUCTS
VEHICLE SERVICE CONTRACTBackground................................................................................................................................................................71Warranties ..................................................................................................................................................................72Factory Warranties ......................................................................................................................................................72Mechanical Breakdown Insurance ..............................................................................................................................72Vehicle Service Contracts (VSCs) ..............................................................................................................................73Vehicle Service Contract Coverage ............................................................................................................................77Common Vehicle Service Contract Provisions ............................................................................................................79Transferability..............................................................................................................................................................81Owner Responsibilities and Requirements..................................................................................................................81Vehicle Service Contract Cancellation ........................................................................................................................81Loss Management – Field Underwriting ....................................................................................................................82Extended Service Contract Benefits............................................................................................................................82
VEHICLE MAINTENANCE CAREOverview....................................................................................................................................................................83Vehicle Maintenance Care Benefits ............................................................................................................................83
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CREDIT INSURANCE & RELATED PRODUCTS
AN INTRODUCTION TO CREDIT-RELATED INSURANCEOverview....................................................................................................................................................................83A Brief History ..........................................................................................................................................................85
SINGLE PREMIUM CREDIT LIFE INSURANCE ON INSTALLMENT CREDITImportant Definitions..................................................................................................................................................89Installment Credit ......................................................................................................................................................89Insurance Coverage on Installment Credit ..................................................................................................................90Group or Individual Policies ......................................................................................................................................91Single and Joint Coverage............................................................................................................................................91Conditions of Eligibility..............................................................................................................................................91Exclusions ..................................................................................................................................................................92Contributory and Noncontributory Premiums ..........................................................................................................92Premium Calculations ................................................................................................................................................92Prima Facie Rates ......................................................................................................................................................92
SINGLE PREMIUM CREDIT DISABILITY INSURANCE ON INSTALLMENT CREDITImportant Definition ..................................................................................................................................................92Insurance Coverage on Installment Credit ..................................................................................................................92Conditions of Eligibility ............................................................................................................................................93Determination of Disability ........................................................................................................................................93Benefits Provided........................................................................................................................................................93Elimination Period ....................................................................................................................................................94Pre-Existing Condition Exclusion ..............................................................................................................................94Premium Rates ..........................................................................................................................................................95Claim Filing................................................................................................................................................................95
INVOLUNTARY UNEMPLOYMENT INSURANCE ON INSTALLMENT CREDITDefinition ..................................................................................................................................................................95Overview....................................................................................................................................................................96Policy Structure ..........................................................................................................................................................96Eligibility for Insurance ..............................................................................................................................................96The Insured Event......................................................................................................................................................96The Underlying Credit ..............................................................................................................................................97Markets and Marketing ..............................................................................................................................................97The Insurers................................................................................................................................................................98Underwriting Criteria ................................................................................................................................................98Term of Insurance ......................................................................................................................................................98Benefit Conditions ....................................................................................................................................................98Premium Rates ..........................................................................................................................................................99Premium Refunds ....................................................................................................................................................100Agent Licensing........................................................................................................................................................101Available States ........................................................................................................................................................101Advantages to the Producer ......................................................................................................................................101Reserves ..................................................................................................................................................................101
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GAPDefinitions................................................................................................................................................................102Overview..................................................................................................................................................................102Policy/Contractual Structure ....................................................................................................................................102Eligibility for Gap Waiver and Gap Waiver Insurance ..................................................................................................103The Insured Event ....................................................................................................................................................104The Underlying Credit ............................................................................................................................................104Markets and Marketing..............................................................................................................................................104The Insurers ..............................................................................................................................................................104Underwriting Criteria ..............................................................................................................................................104Term of Coverage......................................................................................................................................................105Benefit Conditions of Gap Waiver and Gap Waiver Insurance ....................................................................................105Rates ........................................................................................................................................................................105Financing of the Cost and Regulation Z ..................................................................................................................106Refunds....................................................................................................................................................................106Licensing ..................................................................................................................................................................106Available States ........................................................................................................................................................107Advantages to the Producer ......................................................................................................................................107Reserves....................................................................................................................................................................107
PRODUCERS OF CREDIT-RELATED INSURANCEBanks........................................................................................................................................................................107Credit Unions ..........................................................................................................................................................108Finance Companies ..................................................................................................................................................108Acceptance Corporations..........................................................................................................................................108Automobile, Mobile Home, and Recreational Vehicle Dealers....................................................................................109The Insurer-Producer Relationship............................................................................................................................109Abbreviations............................................................................................................................................................110
THE CASE FOR CREDIT-RELATED INSURANCEThe Need for Credit-Related Insurance....................................................................................................................110The Convenience of Credit-Related Insurance ........................................................................................................111The Cost of Credit-Related Insurance......................................................................................................................111Advantages to the Producer ......................................................................................................................................112Consumer Attitudes ..................................................................................................................................................112
OTHER CREDIT-RELATED INSURANCE PRODUCTS FOR INSTALLMENT CREDIT Net Payoff Life Insurance ..........................................................................................................................................113Level Life Gross and Net Payoff Coverage ................................................................................................................113Combination Products..............................................................................................................................................113Truncated Life and Disability Insurance ....................................................................................................................114Critical Period Disability Insurance ..........................................................................................................................114Creditor-Placed Programs ........................................................................................................................................114
PREMIUM RATESPrima Facie Rates ....................................................................................................................................................115Life Insurance Premium Formulas ............................................................................................................................116
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Disability Insurance Premium Formulas ....................................................................................................................116Involuntary Unemployment Insurance Premium Formulas ........................................................................................116Premium Refunds ....................................................................................................................................................116
OPERATIONSHome Office Operations ..........................................................................................................................................117Sales..........................................................................................................................................................................117Sales Administration..................................................................................................................................................118Agent Licensing........................................................................................................................................................119Premium Processing..................................................................................................................................................120Claim Administration................................................................................................................................................121Investments..............................................................................................................................................................124Policy Form Filing....................................................................................................................................................124
AUTOMOBILE INSURANCEThe Insurance Policy ................................................................................................................................................125Insurance Terminology..............................................................................................................................................125Types of Insurance ....................................................................................................................................................125Lender’s Insurance Interest ........................................................................................................................................126Summary..................................................................................................................................................................127
GPS SECURITY AND TRACKING SYSTEMSatellite Tracking/Location........................................................................................................................................127Benefits ....................................................................................................................................................................127
VEHICLE TRACKING/RECOVERY SYSTEM – LOJACKLojack ......................................................................................................................................................................127Company History......................................................................................................................................................128The Stolen Vehicle Recovery System........................................................................................................................128Lojack Full-Featured Alarm System ..........................................................................................................................128Lojack Security Enhancement System ......................................................................................................................128Lojack Guarantee......................................................................................................................................................129Lojack Guarantee Plus $5,000 ..................................................................................................................................129Lojack Benefits..........................................................................................................................................................129Frequently Asked Questions......................................................................................................................................129
SECURITY CODE MARKING SYSTEMGeneral Information..................................................................................................................................................130Benefits ....................................................................................................................................................................130
INTERIOR AND EXTERIOR PROTECTIONOverview..................................................................................................................................................................130Paint Sealent ............................................................................................................................................................130Fabric Sealent ..........................................................................................................................................................131Leather/Vinyl Sealent ..............................................................................................................................................131Interior and Exterior Protection Benefits..................................................................................................................131
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FINANCE SOFTWARE
THE REYNOLDS AND REYNOLDS COMPANY Company Profile ......................................................................................................................................................131Reynoldsystem..........................................................................................................................................................132
ADVENT RESOURCES, INC Company Profile ......................................................................................................................................................132Advent System..........................................................................................................................................................133Transactions Menu....................................................................................................................................................134Creating a Retail Deal ..............................................................................................................................................134Creating a Lease Deal ..............................................................................................................................................146Profit Builder Menu System......................................................................................................................................150
FINANCE AND INSURANCE – PRIME
THE F&I DEPARTMENT: A DEALERSHIP PROFIT CENTERThe F&I Department as a Profit Center ....................................................................................................................168
BASIC FINANCE DEFINITIONSFinance Definitions ..................................................................................................................................................168
F&I DEPARTMENT / F&I MANAGERF&I Department ......................................................................................................................................................169The Profit Center ....................................................................................................................................................170F&I Manager ............................................................................................................................................................171Finance Office Protocol............................................................................................................................................171F&I Manager and the Sales Department ....................................................................................................................172Business Office..........................................................................................................................................................173
FINANCE AND DEALERSHIP TERMS Finance Terms and Dealer Policies ............................................................................................................................173
INTEREST AND FINANCE CHARGE CALCULATIONSInterest......................................................................................................................................................................174Types of Finance Charges on Contracts ....................................................................................................................178Simple Interest..........................................................................................................................................................178Rule of 78’s ..............................................................................................................................................................179Finance Reserve ......................................................................................................................................................180
CREDIT AND PRIME LENDING
CREDIT APPLICATIONSThe Credit Application ............................................................................................................................................181
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CREDIT BUREAUSOverview..................................................................................................................................................................182Credit Report ..........................................................................................................................................................182
PRIME LENDING AND THE LOAN PROCESSPrime Lending..........................................................................................................................................................184Lending Guidelines and Criteria ..............................................................................................................................184The Loan Process......................................................................................................................................................185Funding....................................................................................................................................................................185Documentation Checklist ........................................................................................................................................186Getting Deals Approved ............................................................................................................................................186Dealing with Lenders................................................................................................................................................186
CREDIT UNIONSOverview..................................................................................................................................................................187Credit Union Direct Lending – CUDL....................................................................................................................187
LOAN STRUCTURINGFour C’s of Credit ....................................................................................................................................................189Structuring and Placing the Loan ..............................................................................................................................189
FINANCE AND INSURANCE – NON-PRIME
INTRODUCTION AND BENEFITS OF NON-PRIME FINANCEIntroduction..............................................................................................................................................................192Benefits of Non-prime Finance ................................................................................................................................192
NON-PRIME FINANCE TERMINOLOGYDefinitions................................................................................................................................................................193
NON-PRIME FINANCE GUIDELINESNon-Prime Deal Structure ........................................................................................................................................194Advance....................................................................................................................................................................194Amount Financed ....................................................................................................................................................195Loan to Value Ratio (LTV)........................................................................................................................................195Down Payment ........................................................................................................................................................195Interest Rate and Dealer Participation ......................................................................................................................196Acquisition Fee/Discount ........................................................................................................................................196Vehicle Requirements ..............................................................................................................................................196Loan Term and Mileage ............................................................................................................................................196Income ....................................................................................................................................................................196Budget......................................................................................................................................................................196Stability ....................................................................................................................................................................197Credit ......................................................................................................................................................................197Vehicle Insurance......................................................................................................................................................197Ineligible Applications ..............................................................................................................................................198Borrower ..................................................................................................................................................................198
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LOAN PROCESS AND FUNDINGLoan Process ............................................................................................................................................................199Required Documents................................................................................................................................................199Funding....................................................................................................................................................................199Documentation Checklist ..........................................................................................................................................200
SPECIAL FINANCESpecial Finance Department......................................................................................................................................200How to Set-Up A Successful Special Finance Department ........................................................................................201
CREDIT BUREAUS
OVERVIEWExperian, Equifax,Trans Union and First Advantage CREDCO ................................................................................204
EXPERIANCredit Profile Report................................................................................................................................................205
EQUIFAXCredit Profile Report................................................................................................................................................221
TRANS UNIONCredit Profile Report................................................................................................................................................224
FIRST ADVANTAGE CREDCOCredit Profile Report................................................................................................................................................230
F&I MENU SELLING PROCESS
F&I INTRODUCTIONCustody of the Customer..........................................................................................................................................239
CUSTOMER INTERVIEW PROCESSThe Interview Process ..............................................................................................................................................239Meet & Greet ..........................................................................................................................................................240Review and Confirm the Figures ..............................................................................................................................240Review Purchaser’s Statement and Credit Report ....................................................................................................240
F&I MENU PRESENTATIONThe Menu ................................................................................................................................................................241F&I Menu Presentation Steps ..................................................................................................................................241
CONTRACT DISCLOSURESDisclosures................................................................................................................................................................245Retail Installment Sales Contract Disclosures ............................................................................................................245
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OVERCOMING CUSTOMERS OBJECTIONS
HANDLING OBJECTIONS“I’m Not Interested in Hearing About any Products”................................................................................................246“I Can’t Afford Additional Protection” ......................................................................................................................247Putting the Cost in Perspective ................................................................................................................................247ESC vs. Manufacturer’s Warranty ..............................................................................................................................247ESC Value vs. Insurance Coverage ............................................................................................................................247ESC vs. My Personal Mechanic ................................................................................................................................24799.9% Close..............................................................................................................................................................248ESC:A No-Lose Option ..........................................................................................................................................248ESC: Cost vs. Coverage ............................................................................................................................................248“I Already Have Life Insurance.” ................................................................................................................................248“I am Not Interested in Disability Insurance”............................................................................................................249GAP vs.Vehicle Replacement Costs..........................................................................................................................249GPS Security Systems vs.Alarms ..............................................................................................................................249Anti-Theft System vs.Vehicle Replacement Costs ....................................................................................................249Appearance Package vs.Vehicle Trade-In Value ..........................................................................................................249
CREDIT UNION CONVERSIONSConvenience and Confidentiality..............................................................................................................................250Keep Your Line of Credit Available ..........................................................................................................................250Rate Difference ........................................................................................................................................................250Right to Offset ........................................................................................................................................................250ESC vs. Mechanical Breakdown Insurance................................................................................................................251
LAWS, RULES, REGULATIONS AND ETHICS
AN OVERVIEW OF TRUTH IN LENDING ACTRegulation Z............................................................................................................................................................252Advertising ..............................................................................................................................................................254Truth in Lending - Regulation Z – Published by the Board of Governors of the Federal Reserve System............................255Official Staff Commentary on Regulation Z ............................................................................................................256How to Advertise Consumer Credit & Lease Terms ..................................................................................................301
FINANCE CONTRACTRetail Installment Sales Contract ..............................................................................................................................306
CONSUMER LEASING ACTRegulation M ..........................................................................................................................................................317 Advertising Consumer Leases ....................................................................................................................................318Truth in Lending - Regulation M – Published by the Board of Governors of the Federal Reserve System................319Official Staff Commentary on Regulation M ............................................................................................................319FTC Manual – Advertising Consumer Leases ............................................................................................................339FRB Manual – Keys to Vehicle Leasing ....................................................................................................................341
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LEASE CONTRACTClosed-End Motor Vehicle Lease Contract................................................................................................................342
EQUAL CREDIT OPPORTUNITY ACTRegulation B............................................................................................................................................................352Equal Credit Opportunity Act - Regulation B – Published by the Board of Governors of the Federal Reserve System..........354Official Staff Commentary on Regulation B............................................................................................................354
FAIR CREDIT REPORTING ACTThe Fair Credit Reporting Act ..................................................................................................................................380Rules for Running Credit Reports ..........................................................................................................................413
THE CREDIT PRACTICES RULEFTC Manual – Complying with the Credit Practices Rule ......................................................................................414FTC Manual – Cosigning a Loan ..............................................................................................................................419
HOLDER IN DUE COURSE RULEPreservation of Consumers' Claims and Defenses......................................................................................................420
MAGNUSON-MOSS WARRANTY ACTOverview of the Magnuson-Moss Warranty Act ........................................................................................................422FTC Manual – A Businessperson’s Guide to Federal Warranty Law ..........................................................................425
USED CAR RULE / BUYERS GUIDEFTC Manual – A Dealer’s Guide to the Used Car Rule ............................................................................................438
CASH PURCHASESReporting Cash Payments of Over $10,000 - IRS FinCen 8300 ..............................................................................450
USA PATRIOT ACTWhat is the USA Patriot Act? ..................................................................................................................................458OFAC – The Office of Foreign Assets Control ..........................................................................................................458Patriot Act - Summary..............................................................................................................................................458
GRAMM–LEACH–BLILEY ACT Disclosure of Nonpublic Personal Information ........................................................................................................459The Privacy Rule ....................................................................................................................................................459The Safeguards Rule ................................................................................................................................................478
PAYMENT PACKINGQuoting Monthly Payments ......................................................................................................................................481
UNFAIR AND DECEPTIVE ACTS, PRACTICES AND FRAUD Sample Cases from CARLAW ®................................................................................................................................482
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THE CALIFORNIA CAR BUYER'S BILL OF RIGHTSThe Car Buyer's Bill of Rights ..................................................................................................................................493Association of Finance & Insurance Professionals Supplement to California Car Buyers Bill of Rights......................507
STATE LEMON LAWSAlabama State Lemon Law........................................................................................................................................512Alaska State Lemon Law ..........................................................................................................................................514Arizona State Lemon Law ........................................................................................................................................516Arkansas State Lemon Law ......................................................................................................................................517California State Lemon Law ....................................................................................................................................523Colorado State Lemon Law ......................................................................................................................................527Connecticut State Lemon Law..................................................................................................................................528Delaware State Lemon Laws......................................................................................................................................530Florida State Lemon Law ..........................................................................................................................................533Georgia State Lemon Law ........................................................................................................................................544Hawaii State Lemon Law..........................................................................................................................................551Idaho State Lemon Law............................................................................................................................................554Illinois State Lemon Law ..........................................................................................................................................559Indiana State Lemon Law..........................................................................................................................................561Iowa State Lemon Law..............................................................................................................................................565Kansas State Lemon Law ..........................................................................................................................................572Kentucky State Lemon Law......................................................................................................................................573Louisiana State Lemon Law ......................................................................................................................................574Maine State Lemon Law ..........................................................................................................................................577Maryland State Lemon Law......................................................................................................................................581Massachusetts State Lemon Law................................................................................................................................584Michigan State Lemon Law......................................................................................................................................592Minnesota State Lemon Law ....................................................................................................................................595Mississippi State Lemon Law ....................................................................................................................................600Missouri State Lemon Law ........................................................................................................................................602Montana State Lemon Law ......................................................................................................................................604Nebraska State Lemon Law......................................................................................................................................607Nevada State Lemon Law..........................................................................................................................................608New Hampshire State Lemon Law............................................................................................................................610New Jersey State Lemon Law....................................................................................................................................614New Mexico State Lemon Law................................................................................................................................619New York State Lemon Law......................................................................................................................................621North Carolina State Lemon Law..............................................................................................................................630North Dakota State Lemon Law................................................................................................................................633Ohio State Lemon Law ............................................................................................................................................634Oklahoma State Lemon Law ....................................................................................................................................637Oregon State Lemon Law ........................................................................................................................................638Pennsylvania State Lemon Law..................................................................................................................................639Rhode Island State Lemon Law................................................................................................................................641South Carolina State Lemon Law..............................................................................................................................644South Dakota State Lemon Law................................................................................................................................647Tennessee State Lemon Law......................................................................................................................................649
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Texas State Lemon Law ............................................................................................................................................652Utah State Lemon Law..............................................................................................................................................661Vermont State Lemon Law........................................................................................................................................662Virginia State Lemon Law ........................................................................................................................................667Washington State Lemon Law ..................................................................................................................................670Washington D.C. State Lemon Law ..........................................................................................................................680West Virginia State Lemon Law ................................................................................................................................685Wisconsin State Lemon Law......................................................................................................................................687Wyoming State Lemon Law......................................................................................................................................693
ETHICS Protect your Dealership ............................................................................................................................................694Disclosure is Critically Important ..............................................................................................................................700Deception in the F&I office ......................................................................................................................................703Ethical Leasing..........................................................................................................................................................707
INTRODUCTION TO INTERNET AUTOMOTIVE COMMERCE
INTERNET AUTO BUYING PROCESSAutomotive Internet Sites ........................................................................................................................................712Effective Selling and Closing ....................................................................................................................................712
INTERNET SALES AND ELECTRONIC COMMERCE Sample Cases from CARLAW® ................................................................................................................................714
eCONTRACTINGApproaches to Quantifying eContracting Benefits ....................................................................................................723eContracting’s Mass Appeal: Not a Matter of If, Only When ....................................................................................726
AUTOMOTIVE FINANCIAL SERVICES INDUSTRY
Auto Finance – The Competitive Landscape and Opportunities for Adaptation ........................................................729Partnerships in Auto Finance Originations: The Options, Opportunities and Outlook ..............................................735Indirect Auto Financing Source’s Value Proposition:The Foundation of Strategy ......................................................738Indirect Auto Lenders Need Equal Focus on Dual Client Groups – Dealers and Customers ....................................743Impact of Auto Financing Incentives on Financial Services ......................................................................................745Aligning New Technologies with Operational Improvement Goals ..........................................................................748Auto Finance – Perspectives on Fraud in Indirect Auto Finance ................................................................................752Auto Finance – Collection Strategies ........................................................................................................................755
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MISCELLANEOUS ARTICLES
The Safeguards Rule: It’s the Law, Are you in Compliance?......................................................................................759 What Does the Safeguards Rule Mean to your Dealership ........................................................................................761 OFAC – Do you Know Who you are Dealing With?................................................................................................762 Going Beyond the Norm to Capture the “Beyond Prime” Market ............................................................................763 The Special Finance Divide ......................................................................................................................................765Professional F&I Training – The Proof is in the Profits ..............................................................................................766Consumer Fraud – Don’t Get Burned ......................................................................................................................768 Women in F&I – Women Make their Mark..............................................................................................................771
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F & I Menu Selling Process
239Encyclopedia of Finance and Insurance Management
F & I MENU SELLING PROCESS
F&I INTRODUCTION
CUSTODY OF THE CUSTOMER The chain of custody as it refers to thecustomer is essential in all aspects ofthe automotive sales process.The cus-tomer must be controlled at all times,beginning with the salesperson. Oneaspect of that control is maintaining aconsistent turnover strategy, from salesto Finance.
The best time to introduce the cus-tomer to the F&I manager is at thepoint of sale.That can be accommodat-ed in several ways: having the salesper-son serve as an ambassador of the deal-ership by taking the customer to theFinance Office and introducing him tothe F&I manager, explaining brieflyalong the way what will occur in thatoffice to help put the customer at ease.Or, having the F&I manager meet thecustomer on the showroom floor or atthe salesperson’s workstation, and let-ting the F&I manager mention brieflywhat will soon transpire.
Both methods are effective, and serveto de-mystify the overall vehicle salestransaction process. If the customerhas knowledge of the process, he canmentally prepare for it.That means hewon’t be surprised, or upset, when heis asked to spend another 30 minutesat the dealership in the Finance Officeafter he already has spent hours mak-ing his deal.
For either chain of custody transitionto work properly, the salesperson andthe F&I manager need to worktogether. Educating the Sales staff onthe importance of F&I products andprocesses accomplishes that. It enablesthe salesperson to have insight, whichtranslates into trust, when the transi-tion occurs. This, in turn, allows forhigher backend sales as the customer
is better prepared for the F&I portionof the sales transaction. If there is goodcommunication between the F&I andSales departments – the F&I managerskeeping the salespeople updated onthe progress of their deals, and thesalespeople prepping their customersfor the F&I experience – then every-one wins, including a more relaxedcustomer.
CUSTOMER INTERVIEWPROCESS
THE INTERVIEW PROCESSConsider the F&I manager as the deal-ership’s equivalent to a bank manager.
Sensitive financial information will bediscussed, and for many who haveexperienced financial setbacks – that’sa majority of the population – it is atopic that’s not always easy to talkabout. Consequently, the F&I manag-er must establish a personal relation-ship with the customer in a very shortamount of time.This is called buildingrapport, which really means getting toknow your customer quickly andeffectively.
The finance manager needs to do thisfor another purpose as well, and thathas to do with the recommendationof aftermarket products. Only byknowing the customer’s situation –what area he lives in, the distancebetween his home and work, howlong he expects to keep his vehicle –can the finance manager help protecthis customer and the large investmenthe is making.
To set the proper stage, the F&I Officemust be neat and clean. It should con-tain family pictures or other itemswith which the customer can identify.The F&I manager should look like abank manager – professional to a tee.That includes proper grooming, being
dressed appropriately, and carrying thedemeanor of authority.
BUILDING RAPPORT /DETERMINING NEEDSThe process includes getting to knowthe customer by asking questionsdesigned to reveal his situation by get-ting him to talk about himself.Expansive questions – those that can’tbe answered by a simple yes or no –help speed the process. If the F&Imanager was able to review the cus-tomer’s purchaser’s statement prior tothe consultation, it is an advantage.
By learning about the customer’sthought process, the F&I manager candetermine what is most suitable forhim. For instance, if the customer hasa sizable commute and will be puttinga substantial amount of miles on thevehicle, an Extended Service Contractis in order. The purpose here is tolearn of the customer’s distinct needs,even if the customer himself isn’taware of them. The F&I manager isthe expert, and as such will providesolutions to future problems the cus-tomer may encounter.
The three objectives of the interviewprocess include establishing a mutualrespect with the customer, reviewingthe purchaser’s statement and creditreport, and verifying the terms of thepurchase order. If these objectives areaccomplished, the F&I manager willhave enough facts to determine, andsatisfy, the customer’s needs.
A BREAKDOWN OF THEINTERVIEW PROCESSThe three steps in the interviewprocess, as mentioned above, are:
• Meet and Greet
• Review and Confirm the Figures
• Review Purchaser’s Statement andCredit Report
MEET & GREETPurpose of the Meet & Greet
• Customer Custody Transition
• Building Trust and Credibility
The customer has probably spent severalhours with a salesperson, and now isintroduced to a new individual who hasthe power to make,or break, the transac-tion.The fear of the unknown is alwaysscary, so there is bound to be some trep-idation on the customer’s behalf.
To help put the customer at ease, theF&I manager needs to let him knowhe is in his corner. He can do this bycongratulating the customer on hispurchase, and talking about the excel-lent decision he made by talking up thevehicle’s attributes. Once the customeris comfortable – the finance managerobviously sharing the customer’senthusiasm for the vehicle – the F&Imanager should brief the customer onthe next step in the sales transaction.
Use your own words to relate to thecustomer, but convey the followinginformation:
“Congratulations, Mr. and Mrs.Smith. I’m sure you’re going to loveyour new Ford Escape, which getsgreat gas mileage for an SUV. May Icall you John and Jane?
“My name is Jeff Myers, and I’m thefinance manager. I’m going to prepareall the legal and registration paper-work, so you’ll be able to drive homein your new car. I’ll also assist youwith financing, if you need it, and dis-cuss how you can protect your newinvestment.The whole process shouldtake about 20 minutes, and whilewe’re doing the paperwork, your newcar is being prepared for delivery.”
“Before we begin, can I offer you asoft drink or a cup of coffee?”
REVIEW AND CONFIRM THE FIGURESPurpose of Reviewing andConfirming the Figures
• Verification of Purchase
The finance manager was not party tothe sales negotiation, so it’s incumbentupon him to confirm the deal on hisdesk. If there are any problems regard-ing the agreement, the finance man-ager should immediately contact thesales manager.
The verification process can start likethis:
“Let’s review the purchase order.Youpurchased a 2007 Ford Escape four-door in black and these are the figuresyou’ve agreed to…”
Verify the following: selling price,trade allowance, trade payoff, cashdown, and the monthly payment.
For the registration paperwork, verifythe proper name, current address andfor delivery purposes, confirm thecurrent insurance information.
REVIEW PURCHASER’SSTATEMENT AND CREDITREPORTPurpose of Reviewing thePurchaser’s Statement and CreditReport
• Verify Personal Information
• Determine the Customer’s Needs
• Structure the Deal for CreditApproval
The purchaser’s statement containspersonal information that enables thefinance manager to learn more aboutthe customer. By questioning or high-lighting some of this information, the
finance manager can build the rapportnecessary to make this a successfulconsultation. Reviewing the purchas-er’s statement also allows the customerto verify work history, job title,income sources and the length of timeat current and previous residences.Lenders require this information forloan approval and funding.
For example:
“Next, I’d like to review your person-al information that is required by thelender, and to make sure I registeryour car and process your legal paper-work correctly.”
Reviewing the credit report with thecustomer allows the F&I manager tostructure the deal for the appropriatefinancial institution. Since the cus-tomer at this point will expound onhis credit situation – explaining anycredit problems that appear on thereport – the finance manager can bet-ter match the customer to the lender.
“Let’s go over your credit informationto make sure we get the most suitablerate and terms for you.”
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F&I MENU PRESENTATION
THE MENUThe advent of the menu system hasrevolutionized the methodology ofproduct presentation. It’s still neces-sary for the customer to provide aninsight into his habits and routines, sothe finance manager can determinethe customer’s needs. However, as anexpert on vehicle investment protec-tion, the finance manager must pro-vide details on all the availableoptions. Otherwise, the customer willnot be able to make an intelligentdecision.
By using a menu system, a financemanager can offer his product optionsto all his customers, counseling themon the basis of what he has learnedabout them. By having his customerssign the menu, the finance managercan protect himself and the dealershipby proving all the products wereoffered and explained to each andevery customer. This efficient andeffective process also builds strong CSI,as customers appreciate knowing aboutthe wide range of protection productsavailable to them. It allows the financemanager to utilize the 300% rule.Offer100% of your products to 100% ofyour customers 100% of the time.
F&I MENU PRESENTATIONSTEPSThe following is an example of howto transition to a menu presentation.
“Your new vehicle represents a sub-stantial investment, and as yourfinance manager it is my responsibili-ty to share with you the available pro-tection options, so you can make aninformed decision.”
Step 1: Verify the Information
Start at the top of the menu.Make surethe customer and vehicle information,
purchase price, cash down, trade value,trade payoff, balance financed, term,APR, base payment, etc. are accurate.
Step 2: Product Presentation
Explain the options presented in themenu. Discuss the features, but stressthe benefits. If the customer agrees thebenefits are worthwhile, he will buythem. Benefits sell themselves, as theyrepresent value. The customer shouldperceive the finance manager as anexpert who is looking out for the cus-tomer’s best interests. Consequently,what should follow is a logical, inform-ative discourse on the productsdesigned to protect the customer.
Step 3: Qualify the Customer
Qualify the customer for a specific option.
“Which one of these options wouldbest fit your needs?”
Step 4: Closing on a Specific Option
When the customer decides on anoption, ask him if he would like tokeep the payment term the same, orextend the term to reduce his month-ly payment. Have the customer signthe option.
“Would you like me to extend yourterm for a lower monthly payment?”
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