Peter Lloyd

Company: Levi's Auto Sales

Peter Lloyd Blog
Total Posts: 4    

Peter Lloyd

Levi's Auto Sales

Sep 9, 2018

The Military Lending Act Shouldn't Hinder Gap Insurance

Ever since the US Department of Defense (DoD) issued clarifications to their interpretive rule of the Military Lending Act (MLA) regarding allowable automobile financing arrangements for members of the military in 2016 and 2017, automobile dealer trade groups have been vociferously lobbying for a reversal of the rulings. At issue is the fact that under the new interpretation of the MLA, dealers cannot roll the costs of gap insurance into the financing arrangements made available to members of the military.

In issuing the new guidelines, the DoD appeared to have decided that add-on financing products like gap insurance represented a form of predatory lending designed to extract maximum profits from servicemembers without regard to their ability to service the resulting loan. Although there are always examples of unscrupulous dealers taking advantage of lax regulations, that prohibition is almost certain to cause far more harm than it prevents. Here's a look at the MLA and how the revised interpretive rule is undermining the intent of the law in today's auto finance market.

The Goals of the MLA

The MLA, at its core, is a law that's all about making sure that members of the military enjoy protection against dubious and predatory financial products. Part of that is just a reflection of the respect and reverence that they're owed as the protectors of our nation, but there's also quite a bit of motivated self-interest involved on the part of the DoD. By acting to shield members of the military from undue financial risks, the DoD also prevents those members from becoming vulnerable to extortion attempts based on their financial condition.

That's mission critical in an environment that deals heavily in national security secrets where the risk of information theft is so high. It's also why members of the military that fail to live up to financial obligations often face disciplinary action or expulsion from the armed services. The prohibition on financing add-on products like gap insurance stands in direct opposition to the law's intent, as it exposes members of the military to greater financial risk, with negligible benefit – at a time when those risks are only growing.

Lengthy Loans More Commonplace

In recent years, there has been a steady increase in the average loan term for new vehicles purchased in the US. At present, that average has reached an eye-popping 69.03 months, with a full three-quarters of loans clocking in at 61 months or longer. For dealers, that represents an industry that's adapting to the changing financial needs of consumers, but for the consumers themselves, it means something very different: a greater risk of being underwater on their auto loan for longer than ever before.

That's significant because it means that add-on products like gap insurance are actually more important than they've ever been, as a means of mitigating consumers' risk of loss in the event of an accident or theft of their vehicle. It's difficult to understate the level of risk, but for illustrative purposes, consider that negative-equity trade-ins have set new records in recent years. That means that a big chunk of borrowers remain underwater for the life of their loan.

Restoring the Balance

The average car buyer doesn't stop to consider the cost of things like gap insurance when they calculate car payment amounts in the search for a new vehicle. That's why it's important that dealers have the flexibility to help buyers attain such coverage by including it into the financing of the vehicle at the time of purchase. Preventing military members from having that option almost guarantees that they'll be exposed to unnecessary financial risk, which is certainly not consistent with the intent of the MLA. There have been some signs recently that the DoD may be moving to undo this unnecessary and unwise prohibition, and that should be welcome news to both dealers and servicemembers. If it happens, it will restore some much-needed balance to what otherwise is a laudable effort to protect the men and women of our military from undue financial burdens.

Peter Lloyd

Levi's Auto Sales

Finance manager/Sales

2761

No Comments

Peter Lloyd

Levi's Auto Sales

Aug 8, 2018

Tips to Ride Out Slumping New Car Sales

It's been a difficult few months for car dealerships in much of the US. Almost all of the major automakers reported a decline in sales in July, and there's little reason to believe that it's a trend that's going to reverse itself anytime soon. That's because the underlying factors that are causing the drop-off aren't easing, and in fact, may be worsening.

The nationwide sales figures from July represent the product of a perfect storm in and around the market. Interest rates have been climbing, cutting into the buying power of those looking to purchase a new car. To make matters worse, an oversupply of nearly-new pre-owned vehicles has reduced the value of the trade-ins that many buyers use to finance a new vehicle. Combine those factors with the decision of the major automakers to cease some critical cost supports and reorganizations in anticipation of a looming trade war, and you have a recipe for continuing declines.

Any way you look at it, US auto dealers are going to need to run a tight ship to continue to thrive over the next few quarters. Fortunately, there are some things they can do to cut costs and drive more sales in this challenging environment. Here are the best tactics to employ.

Control Costs

Rising interest rates aren't only affecting prospective buyers by sapping their purchasing power, they're also causing difficulties for dealers that over-aggressively expanded while access to capital remained inexpensive. In some cases, that means that outstanding loans used to upgrade facilities when sales were booming may come back to haunt dealerships now. Before the rates rise any further (and they will), now is the time to refinance debts with a fixed-rate business loan to lock down ongoing expenses. Also, if there were plans for costly new expansions, reevaluate them to make sure there's an unassailable business need to complete them immediately. If not, put them on hold.

Reduce Friction

In a market where buyers will need more encouragement than ever to complete a purchase of a new vehicle, the best thing that dealerships can do now is get out of the way. That means working to remove anything in the purchasing experience that might be a turn-off to a prospective buyer. One of the best ways to do this is to cross-train employees to fill multiple roles in the dealership. That way, an interested buyer can complete a purchase without any delays, like waiting for a finance representative. When a purchase might be touch-and-go, every moment they buyer has to consider it further might be all it takes to change their mind.

Focus On The Buyer's Situation

One of the best ways to increase sales in a market where purchasing power is hard to come by is to lean into the customer's individual situation. For example, a monthly vehicle payment that is fifty dollars higher today than it was last year might be a stretch for some buyers. To combat that, be ready with the kinds of information that could help them to justify the cost. For example, know the differential in mileage between the car you're selling and the customer's current vehicle. Translate that into actual savings based on their regular driving habits, to demonstrate that they could actually be saving money, despite the higher monthly payments. If the customer has an older vehicle, make sure to account for the difference in expected maintenance costs, too.

Hang In There

Once you've cut costs, increased efficiency, and realigned your sales tactics, all you can do is keep on working and try to ride out the current slump in auto sales. The good news is that while the slowdown probably won't end in the very near term, it's unlikely to persist for more than a year or two while the economy readjusts to higher interest rates and recent changes to the tax code. At that point, wages should start to rise, and that should usher in higher demand for new vehicles. Until then, hang in there.

Peter Lloyd

Levi's Auto Sales

Finance manager/Sales

1588

3 Comments

Kelly Kleinman

Dealership News

Aug 8, 2018  

I can see exactly what calendar month sales for the majority of dealerships are and this July sales were generally better than July of 2017.  Although some cities are down in sales such as San Fran and San Jose (which overlap), cities like LA, NY, Miami, Dallas, Houston, Denver, SD, Chicago, Beantown, Philly, even the Motor City are up over July of last year. Somehow, high interest rates, off-lease inventory, and other factors have had little effect on the market in July.  The reverse was true for May and June when sales were definitely in the tank. I have noticed that automotive sales numbers vary from source to source, and depending on which article you base your research on, perceptions can be skewed. Hopefully, August sales will add some clarity to the overall health of the industry.  Personally, I expect new car sales to decrease but this economy is cranking so...who knows.

Ashley Hicks

Asay Auto

Aug 8, 2018  

Love this

 

Aug 8, 2018  

Kelly thanks for the stats. I am beyond interested in seeing where the new car market is headed 2, 5, 10 years from now.

  Per Page: