Automotive News Canada - May 2021 - 15

As customers roll the
amount owing on a
vehicle into their next
vehicle, their exposure
can increase, which also
increases the significance
of GAP insurance
By STEPHANIE WALLCRAFT
TORONTO CORRESPONDENT

DEALERSHIP F&I DEPARTMENTS
are missing out on sales opportunities
related to the negative equity held by
Canadian auto consumers, industry
experts say.
Negative equity occurs when the
amount owed on a vehicle exceeds its
value.
According to data by J.D. Power's
Power Information Network, quarterly
averages for negative equity fluctuated between
$6,830 and $8,354
per new-vehicle
transaction in
2020. In the first
quarter of 2021,
the average was
$7,328, a 12-percent year-overyear decrease.
Robert
Bosotti: Many
Karwel, head
F&I managers
of the J.D.
don't even offer
Power automoguaranteed
tive practice in
asset protection
Canada, said
insurance.
that negative
FILE PHOTO
equity fluctuates
through the calendar year and is typically highest in the first quarter.
Because of the global microchip
shortage hampering new-vehicle
inventories and putting more pressure
on used sales, " We're expecting negative equity to trend down this year
because people's trade-ins are worth
substantially more, " Karwel said.
Negative equity paves the way
toward selling such products as
extended warranties and guaranteed
asset protection insurance - GAP

TRANS-CANADA NEWS
CONTINUED FROM PA GE 3

Jeep stores, two MercedesBenz, two Nissan, two Kia,
one Hyundai, one Toyota
and a BMW-Mini outlet.
Marlborough opened in
1975 and McManes, whose
first dealership, Eastside
Chrysler-Dodge-Jeep-Ram,
is right next door, said he
has been trying to buy that
dealership " for 25 years. "
No purchase price was
announced. Brent Walker,
the current general manager of Eastside, is taking
over as managing partner
at Marlborough.
- Harry Pegg

With more batteries
comes more recycling
MISSISSAUGA, Ont. -
Li-Cycle Corp. has been
granted two U.S. patents
that it said in April further
strengthen its intellectual-property position in the
United States and as a leader in lithium-ion battery-recycling technology.
" At its core, Li-Cycle is

F&I
GAP
insurance - said Hector Bosotti,
national trainer for dealer training at
Toronto-based Wye Management.
" A lot of F&I managers don't even
offer it, " Bosotti said. " Business managers just pick the low-hanging fruit.
... They're making enough money just
selling one or two items and not offering a full a menu of the protection
plans that are available. "
In general terms, GAP insurance
covers the difference between the
amount owing on a vehicle and its valuation in the event of write-off, such as
from a collision or theft. Without GAP
insurance, the vehicle owner or lessee
is on the hook for the difference, and
negative equity can increase the exposure.

DEALERS MISSING OUT

The product offers high margins
for dealers, Bosotti said, with profits
per sale ranging on average between
$500 and $2,000. Automakers' leasing
arms are also reducing the amount of
GAP insurance being included in leasing arrangements, he said, meaning
that consumers might not be aware
that a loss greater than the list value
of the vehicle might not be covered.
However, few dealers are educating
consumers on when they should consider GAP insurance and what it cov-

5,000 KILOMETRES OF STORIES
a technology company, and
we will continue to innovate as the leader in sustainable processing and
recovery of critical, finite
materials from lithium-ion
batteries to reintroduce
them back into the economy and close the supply
chain loop, " Tim Johnston,
co-founder and executive
chairman, said in a release.
Battery production is
growing and along with it
the pressure for economically and environmentally
sustainable resource recovery, Johnston said.
Legacy recycling technologies have largely relied
on thermal operations,
which can emit toxic emissions and result in lower
recovery rates. Li-Cycle's
trade marked Spoke &
Hub Technologies achieve
up to 95 per cent resource
mass recovery in a more
environmentally friendly approach, the company
said.
- Steve Mertl
- ANC

15

* M AY 2 0 2 1

ers, an approach that could help make
sales, he said.
" I can count on my right hand the
number of F&I managers that actually produce any type of video vignettes
on the need for [service contracts] and
GAP coverage, " Bosotti said.
Service contracts form another key
piece of the puzzle when setting up a
long-term financing arrangement for
a customer in a negative-equity position, Bosotti said. If the customer sees
that a standard warranty doesn't cover
the period under which the amount
owed on the loan is greater than the
value of the vehicle, then that customer
could be more inclined to purchase an
extended service contract for a sense of
security in keeping the vehicle longer.
Fewer than 15 per cent of customers
return to the selling dealership for service once a warranty expires, Bosotti
said. Extended service contracts play a
role in retaining service
business for a longer
period, he said.
As an alternative to
GAP insurance, some
dealers offer a vehicle
loss privilege program
(VLPP). In the event of
a total vehicle loss, the
Banwait:
customer receives a
" The
similar payout to that
challenge
offered through GAP
with the
insurance.
GAP
However, VLPP is
insurance
not an insurance prodproduct
uct. Instead, it is billed
nationally
as a loyalty program in is that each
which the payout is a
province
credit that can only be
has different
used toward the purrules
chase of a new vehicle
on how
from the selling dealer- [dealers]
ship. The customer can can sell the
also choose to purchase product. "
additional protection
SUPPLIED
PHOTO
for total loss, partial
loss or theft in addition
to negative-equity coverage.
" The challenge with the GAP insurance product nationally is that each
province has different rules on how
[dealers] can sell the product, " said
Gurpreet Banwait, product manager for LGM Financial Services, which
includes VLPP in its product portfolio.

" Whereas traditional GAP insurance would only cover that [equity]
gap, this product can add additional benefits [and] the customer would
come back to the dealership to replace
their vehicle at that dealership. "

'PEOPLE CAN HANDLE IT'

Negative equity peaked in Canada
in the first quarter of 2020 when the
average crossed $8,000 for the first
time, Karwel said. The figures returned
to a typical cycle for the rest of the
year, with averages of $7,887 in the second quarter, $7,113 in the third and
$6,830 in the fourth quarter, before rising again slightly in the first quarter of
2021 to an average of $7,328. Negative
equity was a factor in about 30 per
cent of transactions, which was slowly
trending upward, Karwel said.
" It's due to longer-term loans, and
lower down payments, while customer trade-in cycles remain on relatively
short time frames.
" To put it into perspective, five
years ago, negative equity was 27 per
cent. "
COVID-19 has had an impact, however.
" We are noticing trade-in values
increasing, and down payments on new
vehicles increasing, which both are
good news to helping reduce negative
equity now and in the future. "
While negative equity is persistent,
" people can handle it, " Karwel said.
Consumers understand that reversing
negative equity simply means keeping their vehicles until the loans are no
longer upside-down, he said.
With front-end profits climbing as
transaction prices increase, dealers
are currently heavily focused on those
gains and could be missing out on F&I
profit opportunities that go hand in
hand with long-term financing, Karwel
said.
The average transaction price in
Canada crossed the $40,000 mark for
the first time in December 2020, according to J.D. Power.
" A sharp dealer is going to still keep
on attacking [their F&I office profitability] with the same vigour, " Karwel
said, " even though they're making
more this year from the front end. "
- ANC
http://kumhotire.ca http://www.kumhotirerebates.ca
Automotive News Canada - May 2021

Table of Contents for the Digital Edition of Automotive News Canada - May 2021
