Negative equity is rising, loan terms are stretching, and F&I managers are being asked to do more than ever. Paul Brown, Vice President and partner at Ascent Dealer Services and the host of F&I Today, joins us on today’s episode of CBT Now to break down what dealers need to know heading into the second half of 2026.
The negative equity crisis
The bill from pandemic-era vehicle pricing is coming due, Brown says. Customers who bought at peak prices are now trading in, and many are underwater.
“In Q1 of this year, 31% of vehicles that were traded in had negative equity, with the average being $7,200,” Brown said.
25% of those customers carried $10,000 or more in negative equity. 12% carried $15,000 or more.
Banks are also approving higher loan amounts to cover negative equity and extending terms to make payments work. That pushes buyers into more expensive vehicles to reach a loan-to-value ratio the bank will approve.
"If a customer comes in, they want to buy a $30,000 car and they've got $8,000 in negative equity, they can't buy that $30,000 car. They've got to go to a $40,000 or $45,000 car so that the car can actually carry that negative equity over."
That results in a higher payment for the customer, and less room for F&I to work.
Protection products and the F&I manager’s new role
Longer loans and negative equity create another problem. Customers that actually need protection products are the ones least able to afford them. It’s especially important when it comes to GAP insurance.
"If we're not selling customers GAP at a high rate, we're doing a disservice to them."
A customer who drives off with $10,000 in negative equity and gets into a total loss is in serious trouble without it. It also applies to service contracts. A customer locked into a 78-month loan is less likely to be able to pay for a $4,000 repair out of pocket.
“If they can’t afford to give us four or five thousand dollars to cover the negative equity, they certainly can’t afford a four or five thousand dollar repair,” Brown said.
That shifts F&I managers from a sales role to more of a financial advisor role. Brown says managers need to show customers what their financial picture looks like several years down the road.
The value of repeatable processes
Every store has their top performers, Brown says, but relying on that one person to meet your goals is not sustainable. When that person leaves, the numbers leave with them. Brown says the solution is to create repeatable processes that any team member can duplicate.
“The quickest way is to have a repeatable process that’s robust. What you don’t want is a really high personality in your store that’s driving your PVR, because that’s not repeatable at some level and it’s not something that you can duplicate,” Brown said.
Daily coaching, not quarterly training, makes the difference, Brown says.
Early product exposure can also drive up F&I sales. A Cox Automotive survey found that 67% of buyers said they were much more likely, not just more likely, to purchase F&I products with earlier exposure.
“Customers do want these products. They don’t want risk. They’re risk averse. They want the products. They just don’t want to be sold the products,” he said.
Why padding payments doesn’t work
Desk managers sometimes leave cushion in the payment to give F&I room to work. Brown says that’s the wrong approach.
F&I managers should work from a rate matrix tied to term and credit tier. The matrix sets a starting rate based on what the bank will likely approve before credit is even pulled. That gives F&I legitimate flexibility without deception. It also keeps the process consistent across every customer.
“If this customer comes in and they’re looking at this term and we haven’t pulled credit, this is the rate we’re going to use. And that rate should have whatever is the allowable reserve participation that you can have, because it’s not wrong to do that, but you’ve got to do it for everybody,” Brown said.
Once credit is pulled and a real rate comes back, the F&I manager can adjust from there and show the customer exactly where they landed.
“The more transparent we are, the more customers just go along with the conversation,” he said.
Honest pricing levels the playing field
In March the FTC sent letters to 97 dealers and dealer groups warning them that they had been flagged for potential violations to the FTC’s fair pricing policy. The FTC says advertised prices need to be prices customers can actually get. Brown says more transparency in pricing will level the playing field, if everyone follows the rules.
“The stores that are doing it the right way and that are transparent have higher grosses than everybody else. They’re leading their 20 groups,” he said.
Transparency also matters beyond the FTC. Franchise dealers are competing against direct-to-consumer manufacturer models. Doing business the right way is part of the argument for why the franchise model still works, Brown said.
Auto Leadership Summit: Fair Pricing & Compliance
To address the FTC’s pricing policy CBT News is gathering leaders from the automotive industry, along with compliance experts and lawmakers for a one-day conference.
The Auto Leadership Summit: Fair Pricing & Compliance will be held on June 16 at the Salamander Hotel in Washington, D.C.
Attendees will gain critical insights on how to navigate the evolving regulatory landscape while protecting profitability and consumer trust. The event will provide actionable strategies for building compliant advertising processes, improving operational transparency, reducing legal risk and preparing dealerships for the future of FTC oversight and enforcement.
Seating is limited. You can reserve your spot at cbtnews.com/auto-leadership-summit
