Page 3 - MIADA-Q2 2021

Pricing for

Fun & Profit

By Gil Van Over, Executive Director of Automotive Compliance Education (ACE)

I wrote on this topic more than a decade REASONS REGULATORS WANT TO NOT A FLORIDA DEALER?
ago, and although my thoughts now remain REGULATE If you are in one of the other 49 states,
consistent from the earlier piece, I am There are a few reasons I believe the and are not subject to filed rates, you can
putting myself out there by adding some regulators want to review VPP pricing. and probably should establish your own
pricing guidelines. First, I don’t believe they understand the VPP filed rate schedule. I cannot provide a
value of the VPP for the consumer and view customized rate schedule for every dealer in
WHAT CAN I EXPECT FROM THE CFPB? it as just an opportunity for dealer to take one article, but I can provide what I would
The topic has resurfaced as the questions are advantage of consumers. be willing to testify what I consider to be
flowing surrounding the potential changes industry standard.
in the regulatory and compliance landscape I suspect, as the regulators suspect, that there
since the recent election. The good news is may be some potentially discriminatory INDUSTRY STANDARD
that if a dealer is acting as a good citizen, pricing in place when dealers have the This concept is considered important when
there may be occasional transactional flexibility to negotiate on VPP prices by defending business practices. The following
mistakes, but nothing approaching the transaction. After all, they seem to be very standards range from conservative to
“bad actor” status like some of the dealers suspicious of our industry. aggressive, depending upon how much
the Department of Justice (DOJ) and the business risk a dealer wishes to take.
Federal Trade Commission (FTC) took out Finally, if I were a regulator and did not 1. Vehicle Service Contracts: Mark-
under the Trump administration. trust the automotive industry, and knew up limited to 100% of cost to F&I
that VPP prices are not regulated, I would department (may include dealer pack)
The bad news for the bad actors is that the likely think the dealers are charging way too or $1,500-2,000, whichever is greater.
expected regulatory reboot may indeed much money vis-a-vis the potential value of 2. GAP: Finance source or state limit,
take them out. The one question I am asked the VPP itself. whichever is less.
most frequently recently, is some variant of 3. Maintenance: Mark-up limited to
“What can I expect from the CFPB?” SELF-REGULATE AND/OR ONE-
PRICE 100% of cost to F&I department.
My response — the big elephant in the room Self-regulating your VPP product pricing 4. Ancillary: $500-600 above F&I
— is to expect a deep dive into voluntary caps is probably the best approach to department cost.
protection product (VPP) pricing and a establish a potential defense against
resurrection of attacks on dealer reserve. I excessive profits claims a regulator could One particularly important key to
believe this to be the case since I’ve heard bring. One-pricing your VPP product implementing pricing guidelines designed
the same rumors you have, and because pricing ensure that everyone pays the to generate a fair profit and developing
these are the last pieces of the vehicle sales same price regardless of Equal Credit a defense against potentially deceptive
and financing experience that does not have Opportunity Status. practices is to require and ensure
readily available pricing available to the consistency. Do not let one rogue F&I
consumer. FLORIDA IS A CASE STUDY manager think her or his name is on the
Most of the VPPs sold in Florida are subject building and set their own rate schedules.
The MSRP is required to be posted on new to filed rates. The state does not impose
vehicles, with the price point visible. Retail pricing for the products with the exception Implementing pricing guidelines is not a
values of used vehicles are available on the of Credit Life and A&H like every state does. guarantee that the regulators will stay away,
internet, with the price point available. You Instead, the product provider is required to but properly implemented and managed, it
cannot find the buy rate or the F&I cost of submit rate schedules with the state, who in should provide a plausible defense of your
VPP anywhere. turn approves the rates. Once the filed rates F&I pricing practices.
are approved, the F&I manager must sell
Dealer reserve is a topic unto itself, as I will the VPP for the filed rate, no discounts or As always — stay safe, good luck, and good
focus on the VPP pricing issue. increases allowed. selling. n

MIADA MISSISSIPPI DEALER Q2 2021 | 3