EFG Predicts Tighter Credit, Continued Focus on Compliance for F&I in 2017

With 40 years of experience serving as an industry innovator of consumer and vehicle protection programs, we’ve seen our share of trends and cycles. This historical perspective – coupled with thousands of conversations with our clients and partners – provides us with some unique insights. We have gathered some of the brightest minds at EFG Companies to share their predictions for the first half of 2017.

John Pappanastos Headshot John Stephens Headshot Glenice Wilder, Vice President Adam Ouart Headshot Web Brien Joyce Headshot
John Pappanastos, President & CEO John Stephens, Executive Vice President Glenice Wilder, Vice President Adam Ouart, Vice President Brien Joyce, Vice President

The Economy,
the Automotive
Industry and the
F&I Market

Compliance
and Customer
Retention

Powersports: Growth
and Lending

Agents Focus
on Faster
Turnaround,
Better Service

Raising Interest,
Tighter Credit and
Smaller Dealer Margins

Q.  Where do you see the economy going in 2017, and the automotive industry in particular?

Q.  What is the “State of Compliance” and how will it impact retail automotive dealers?

Q.  Do you foresee any growth in the powersports market?

Q.  How will the compliance climate impact agents?

Q.  How will the lender/dealer relationship evolve in 2017?

A.  I think the U.S. economy is on solid footing. Interest rates remain low.  Gas prices remain low.  Unemployment is below five percent. And, there’s no over-supply of housing.

However, I believe that the increase in bond yields that we’ve seen since the presidential election reflects increasing inflation expectations and interest rates, which will slow economic growth a bit. This makes sense given President Trump’s proposed policies.

A.  At the beginning of 2017, everything about the CFPB is up in the air. Two of the new rules the CFPB has in the works are on ice for the foreseeable future. President Trump could fire Director Richard Cordray, who could then sue the United States to keep his job. The Senate could pass H.R. 5983, the Financial CHOICE Act, which would put the CFPB under congressional oversight with a five-member board. Regardless of what happens with the CFPB, dealers will need to stay the course. A.  In 2016, unit sales fell off sooner than anticipated due to the uncertainty that surrounded the presidential primaries. We’ll see unit sales pick up again in February, when the first round of income tax refunds arrive. As the business market stabilizes, I would expect the powersports market to see slight growth in 2017, with specificity in numbers by the start of the third quarter. Powersports dealers looking to recoup some of the lost profit from 2016 will put a greater emphasis on increasing aftermarket income through the sale of F&I products and powersports gear, in addition to motorcycle purchases. A.   Even with everything about the CFPB up in the air, smart dealers will continue focusing on their compliance efforts. After all, the Federal Trade Commission and Journal of Commerce are the real regulators in the dealership space. And, they aren’t under scrutiny. For this reason, agents will need to continue to make compliance a priority in their ongoing dealership engagement. Dealerships will still rely on their agents to provide ongoing compliance audits and training services. A.  With a flat sales volume outlook for 2017 and the expectation that the Federal Reserve will raise interest rates throughout the year, dealers will look to gain greater profitability from their F&I operations. As part of that effort, I would expect dealers to re-evaluate their lender roster to ensure they are partnering with a broad spectrum of lenders that specialize in the different credit tiers of a given dealership’s customer base, and that will help dealers meet their profitability goals. Lenders will feel the pressure to differentiate themselves beyond traditional services, such as APR and finance reserve.
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