Gitty Up on Gap

With the price of cars continuing to hit new heights, the average sold in the U.S. transacting around $50,000 for nearly a year, many automotive consumers are stretched, and dealers are working behind the scenes to help them buy.

Guaranteed asset protection insurance coverage is an obvious solution for the majority of auto loans now totaling more than the vehicles are worth. But as nearly a third of the loans are being stretched across more than 72 months at elevated interest rates, is gap covering the gap?

For dealers, often not.

As Tony Wanderon, CEO of EasyCare, said after being inducted to the F&I Hall of Fame this spring, GAP is a winning product for both the dealer and the consumer. Its pricing, though, needs some tinkering.

Asked by Jim Ganther of Mosaic Compliance Services, moderator of a Hall of Fame inductees panel discussion at Agent Summit, when GAP might be priced more appropriately to a transaction’s risk, Wanderon said it won’t happen overnight.

“The godfather of gap,” as Ganther called Wanderon, has witnessed the evolution of the popular product firsthand. He first heard about it in the 1980s through a news item on GAP sales in Europe, immediately seeing its potential.

“It might be the first time I see a product that’s good for the customer, good for the lender, good for the dealer,” Wanderon said.

Dealers initially balked at the idea, saying they couldn’t sell cars while bluntly telling buyers they were upside down on their loans. So it took a while to take hold in the industry.

Now that GAP is old hat, it’s time to price it realistically, especially in light of today’s complex, expensive vehicles, Wanderon said, though he acknowledged that process will also likely be gradual.

“We have dealers still today say, ‘We only want one price, one term.’ You can’t sell an Escalade and have the same amount of negative equity risk as you do a Honda Accord,” Wanderon said. “… we need to get dynamic in our pricing structures. We need to get more realistic in what that provides for the customers.”

The average gap claim is gaining on $6,000, he said, and the average frequency of total losses has eclipsed 4%, up from $2,000 and under 2%, respectively, in the early GAP years.

“It needs to change tomorrow,” Wanderon said, “but it’s probably going to take us a couple of years to get there and a lot of pain.”