As originally appeared in Autosphere on July 31, 2024
Author: Huw Evans
Understanding the importance of GAP Insurance for your customers and your business.
In today’s automotive retail marketplace, dealers such as Brent Ravelle, President of the Ravelle Group of Companies, who owns and operates Listowel Ford and Listowel Chrysler in Listowel, Ont., are seeing an ever-greater need for solid F&I products such as Guaranteed Asset Protection (GAP) Insurance. “We’ve seen a big spike in new vehicle prices over the last few years,” says Ravelle, “and we need to be able to protect our customers, so that should something happen, they aren’t going to be hurting financially down the road.”
Longer terms
According to Lindsay Duffield, Chief Operating Officer at Sym-Tech Dealer Services, increased vehicle sticker prices and higher interest rates are pushing more consumers to look at longer and longer terms in order to keep monthly payments affordable. In fact, Duffield says that in Canada today, nearly 60% of auto finance loans now last for 84 months or more.
Furthermore, while we are seeing vehicle leasing staging a comeback post COVID-19 pandemic, with higher vehicle inventories, declining resale values and fewer consumers with significant equity buying out their leases, over 50% of new vehicles today are still being financed, which means products like GAP, which covers the difference between what the consumer owes on their vehicle and the amount paid out in a total loss settlement are critically important—particularly in a higher cost, longer-borrowing environment.
Growing awareness
Additionally, as Jeff Schulz, Executive Vice President, Marketing, at LGM Financial Services explains, as vehicle loan terms increase so are insurance coverages such as GAP. Furthermore, says Schulz, awareness surrounding GAP is increasing among consumers, meaning more are looking at how it works and how it can protect them.
This greater awareness and need for protection is also resulting in more options for consumers when it comes to coverage. At Sym-Tech, Lindsay Duffield explains that as vehicle sticker prices have climbed, financing limits on GAP products have also been increasing. “Covering a deductible up to a certain limit (ie: $1000) is a common benefit,” he says, plus he notes that another popular benefit of Sym-Tech’s GAP product is a customer loyalty program. “It works by having a specific amount, such as $500 or $1000 that is accrued to the customer if they purchase their replacement vehicle from their original selling dealer,” says Duffield.
Core F&I product
He notes that with more than 50% of new vehicles being financed today, GAP is now a core F&I product that not only provides reliable protection and coverage for consumers, but also creates a steady and reliable profit stream for dealers, since it allows them to not only ensure their customers are properly protected in the event of a total loss, but facilitates greater long term retention and trust between the customer and the dealer via built-in loyalty solutions.
Jeff Schulz notes that another trend that’s seen a major increase since the pandemic, is more and more people using their personal vehicles for commercial purposes, such as driving for a rideshare service or delivering meals to customers. Doing such work entails more driving, which means racking up higher mileage on your personal vehicle, which in turn impacts its value, which tends to depreciate faster. “We are introducing an option for these types of customers, with coverage that can be customized to meet their needs, so they have protection in case something happens.”
Staying informed
Given how fast the automotive retail landscape is changing, Lindsay Duffield notes that it is essential for dealers to stay informed about market trends and working with a GAP provider that offers comprehensive and consistent training. “Understanding customer needs is the key to selling all F&I products, not just GAP Insurance,” says Duffield. Presenting all relevant products in a low-pressure approach with multiple payment options [plus leveraging technology tools such as Sym-Tech’s daveplus], allows the customer “to choose the best alternative for their needs and be in and out of the Business Office in no time.”
