The Car Dealer's Paint Sealants

The Car Dealer's Paint Sealants
Sealants have become the golden paycheck for many “F&I” departments across the country. Sealants are paint and interior protection that is applied to a vehicle to prevent wear. The paint sealant is applied like a wax to the exterior of the vehicle and will keep the paint from fading and give the car that “freshly waxed” appearance. The interior sealants are meant to protect the upholstery from being discolored or stained. 
Most products offered by car dealers will perform as described and will have a warranty that will back their claims. It is important for a buyer to read the warranty to discover what is actually covered.
However, it is not the effectiveness of these products that should be questioned; it is the excessive price that dealer charges for them. A dealer will pay their detail department to apply the sealants.  On the exterior it is applied like a wax and the interior it is sprayed on the cloth interior and wiped on to the dash and leather portions. Total cost of the product and application should be no more than $200 to $300 but dealers will often sell them in "F&I" for $1000 to $1400. 
Normally, this is achieved by a “Leg” in the payment that the “F&I” manger will transfer the profit from the "Finance-Reserve' into non-cancelable products (like sealants).
For example, a customer believes their payment on a $20,000 loan to be $406 per month. But actually, the because of the dealer’s “Buy-Rate” the payment is really only $390. This gives the Dealer $16 per month of extra profit. 

...most dealers will attempt to absorb the hidden profit into something that can not be cancelled or refunded, like paint sealants.

The “F&I” manager can keep this $16 per month “hidden” in the interest rate, or they can used it to sell extras onto the contract. On a loan, if they were to keep it in the interest rate, the dealer will receive between 60% or more of that $16 per month. However, if the customer decides to pay the loan off early, the dealer will have to refund the profit back to the bank. Therefore, most dealers will attempt to absorb the hidden profit into something that can not be cancelled or refunded, like paint sealants.
Because they have a $16 leg in the payment they can quote a favorable monthly payment and the customer my see it as small expense. For instance, if the dealer charges $1000 for paint sealants normally that would change the payment by $20 but because there is a $16 “leg” they can sell the sealants for only a $4 increase.

Example: A twenty thousand dollar loan is quoted to a customer at eight percent interest resulting in four hundred six dollars per month.

However, the Dealers buy-rate is 6.5% which actually results in a $390 monthly payment.
            Quoted rate:    8.0% = $406 per month
            Buy-rate:         6.5% = $390
            “Leg”:                          $16
If the dealer were to charge $1000 for the paint sealants the payment would be $20 more.  Because of the $16 hidden in the payment, the “F&I” manager can charge only $4 more.
            Sealants $1000 =         $20 per month
            “Leg”=                        $16
            Increase in payment= $4
If buyers properly calculated the “Back-End” profit in the Car Price Calculations Chapter of this guide book, they will already be aware of this “leg” in the payment.  If the dealer does not sell you loan at the "Buy-Rate", customers should make a decision to absorb the “leg” into products or leave it in the interest rate. If the customer believes that they may pay the balance of the loan early. They should not move the “back-end” profit into any products, especially for $1000 Paint sealants.
However, if the “F&I” manager offers a product at a reasonable price that the buyer would like to have added to their contract; they should absorb that “back-end” dealer  "leg" into that product.  

Remember, if the customer pays off their loan early, their balance would not include the interest on future payments. In the above example, the customer would not be responsible for that extra sixteen dollars per month for payment.

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