Sealants have become the golden paycheck for many “F&I” departments across the country. Sealants are paint and interior protection that are 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 becoming discolored or stained.
Most products offered by car dealers will perform as described and will have a warranty to 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 exorbitant price that the dealer charges for them. A dealer will pay its detail department to apply the sealants. It is applied like a wax to the exterior and is sprayed on the cloth interior and wiped onto the dash and leather portions. The 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 $1,000 to $1,400.
Normally, this is achieved by a “Leg” in the payment in which the “F&I” manager will transfer the profit from the “Finance-Reserve” into products such as sealants that cannot be canceled.
For example, a customer believes that his payment on a $20,000 loan is $406 per month. Actually, however, because of the dealer’s “Buy-Rate,” the payment is really only $390. This gives the Dealer $16 per month in extra profit.
The “F&I” manager can keep this $16 per month “hidden” in the interest rate, or he can used it in the contract to sell extras. On a loan, if the manager keeps 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 off the loan 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 cannot 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 may see it as a small expense. For instance, if the dealer charges $1,000 for paint sealants, normally that would change the payment by $20; however, because there is a $16 “leg,” they can sell the sealants for only a $4 increase.
Example: A $20,000 loan is quoted to a customer at 8% interest, resulting in a $406 per month payment.
However, the Dealer’s 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
If the dealer were to charge $1,000 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: $1,000 = $20 per month
“Leg” = $16
Increase in payment = $4
If you calculated the “Back-End” profit in the Calculations section of this guidebook properly, you will already be aware of this “leg” in the payment. If the dealer does not sell your loan at the “Buy-Rate,” you should make a decision to absorb the “leg” into products or leave it in the interest rate if you believe that you may pay the balance of the loan early. You should not move the “back-end” profit into any products, especially $1,000 paint sealants.
However, if the “F&I” manager offers a product that you would like to have added to you contract at a reasonable price, you should absorb the “back-end” dealer “leg” into that product. Remember, if the customer pays off the loan early, his balance would not include the interest on future payments. In the example above, the customer would not be responsible for that extra $16 per month for the payment.