Matt Phelan, service director at Roseville (CA) Toyota, received a scathing letter from a customer accusing one of his F&I managers of improper practices after his daughter’s credit application was refused.

Before responding, Phelan pulled the customer file and watched a videotape of the deal. What he saw indicated a professional scam artist trying to rip off a vehicle. The father had worked in dealerships and knew the ins and outs of financing.

“After seeing the tape, I had the highest praise for our F&I manager and saw that he was trying to protect us,” Phelan says.

Phelan says videotaping can deter and identify the bad guys – people engaging in identity theft or fraud, or even stealing vehicles in the dead of night.

Roseville Toyota, part of the 6-store John L. Sullivan group that includes Saturn, Chevrolet and Dodge franchises, has been videotaping customers in F&I for three years. The monitors are hidden in overhead cameras. All customers are duly notified about the taping practice and can refuse if they like.

General Manager Dave Rodgers, who oversees the Sullivan operation, has introduced the surveillance system in all Roseville-area stores.

With increased regulations and the specter of lawsuits haunting dealerships, more dealers are getting behind the camera. Still, the videotaping process is not without controversy. Some dealers feel it impinges on the trust relationship between management and staffers – and customers.

In regulation-happy states such as California, dealers like Roseville Toyota are especially watchful.

Rarely does a customer object to being taped, Phelan notes. Most like it.

Some dealers say it enhances professionalism. But Phelan says, “We already had that in place. It makes our F&I managers look like IBM professionals.”

Bill Minsker, dealer at Buckhannon Automotive Group, Buckhannon, WV, says his 6-brand dealerships have videotaped customer transactions for nearly four years.

“We want to stay on top of what’s happening in the marketplace, and we use it as a training tool. We don’t beat people over the head with it,” says Minsker, who sells Toyota, Scion, Chrysler, Dodge, Jeep and Subaru brands.

Besides protecting dealerships against lawsuits, it also assures customers get full and accurate disclosure of products and services available to them. That’s the law in most states.

Videos also act as a training tool for staff, new and old, Minsker says. “I’ve been pretty proactive on full disclosure and helping customers understand everything about the process and contracts. It was a natural for me to tape all loan closings.”

He adds, “People make more of an issue of videotaping than it is. It adds to the assets of your transactions. It ties in with full disclosure and meeting and exceeding customer expectations. We’re very committed and use it in everything we sell – new and used.”

Dealer Paul Lokey of Lokey Automotive Group, can’t complain about the robust sales picture at his dealerships. His Nissan, Volkswagen, Kia, Mitsubishi and three Saturn franchises in the Florida Tampa Bay-Clearwater area all are performing well.

“F&I is a bright spot in our operations,” he says. “We’ve had the best year in history– up $150 per car last year, which was a record for us.” Used cars have been especially profitable for the dealer chain.

Lokey credits videotaping for adding to F&I profits, which stand at 50% across the entire auto complex. The practice has raised profits about $300 per car, with two-thirds of that in F&I. That’s enough proof for him.

Lokey started the practice three years ago for compliance reasons. “I wanted to be bulletproof with 21 F&I managers in seven stores. It allows us to be upfront, professional – and act in an honest way. And I know the group is performing in the way I want it to.”

Sometimes customers balk. “But once we tell them the tape is for their protection as well as ours, you can see their guard come down,” he says.

Attorneys zealously pursue unethical dealers, particularly in the Tampa Bay area, Lokey says. “But I’m not on their radar screen; they know we operate honestly and professionally,” with the tapes as backups.

“Personally, I’d like to see the entire industry tape. It could stop the black eye we get in the media.”

After mulling over the issue for nearly a year, Bill Hayden, general manager at Carl Fischer Buick, Pontiac, GMC in Stuart, FL, is prepared to try video recording in the F&I offices.

The dealership is completing facility rehabilitation due to storm damage. After that, Hayden will charge F&I managers with the task.

“Of the dealers I have spoken with who use videotaping, customers are 99.9% OK with doing so,” he says. “With those customers who are reluctant and throw up a red flag, there could be issues such as identity theft or other issues at hand.”

The camera gives managers a chance to weed out bad customers from the good as well as spot bad employees.

“F&I managers are nervous about the process initially because they know they’re going to be scrutinized,” says Hayden. But managers will need to comply or Hayden will want to know why.

Some dealers think videoing is akin to snooping on employee e-mails and signals a lack of trust.

In Michigan, Ed Levy, dealer at Golling Pontiac GMC, decries the videotaping practice, saying it can be perceived as “punitive.” He doesn’t buy the argument about regulations and pouncing lawyers.

The Lake Orion dealership has a 65% repeat-customer business and does healthy lease business with many General Motors Corp. employees.

All states have some degree of regulation, Levy notes. But the videoing practice could backfire internally. He calls it ridiculous.

“Dealerships that normally do it have gotten into hot water somewhere or fear future trouble,” he says. “If you have and enforce good solid practices in F&I you don’t have to do it. Why spy on the F&I operation? It tells me management is not reading the inputs to realize they had a problem on hand.”

Another Michigan dealer, Robert Thibodeau of Bob Thibodeau Ford in Centerline, says he is not ready to install cameras at his store. But he adds dealers in other states who use the cameras indicate they are effective.

“If they help the F&I operation and customers don’t mind them – and are told about them – I don’t see the harm,” he says.

Pam Cox, F&I director at Russell Chevrolet in North Little Rock, AR, has worked in the automotive industry for 35 years and never seen a deal go wrong due to lack of videotaping.

The high-volume (2,100 units a year) store churns about 175 monthly deals and discloses everything on customer purchase and finance contracts.

“We believe in 100% full disclosure,” she says. “But if my boss walked in tomorrow and said we’re videotaping everything, it wouldn’t bother me.”

But she’d still have to ask: “Why do it? I know what we’re doing is right and by the letter of the law.”

Lenders make a key point that videotaping F&I transactions must be done correctly, or it could backfire. If carried out poorly, it could help a plaintiff’s attorney and alienate customers.

“If improper activity is captured, it must be recognized and corrected quickly by the dealership,” says Jim McDavid, group vice president of North America sales, for JM&A Enterprises, a major provider of F&I products and serving 1,900 dealerships nationwide with loan services.

Videotaping can provide legal ammunition. McDavid recalls a dealer accused of not disclosing all F&I products to a customer. After receiving a letter from the customer’s attorney, the dealer invited the attorney to watch the videotape.

“After that, the attorney acknowledged the dealership acted professionally.”

For the most part, the JM&A encourages videotaping on the premise that the camera doesn’t blink.

Dealership managers, however, should randomly review tapes for violations – and do it faithfully.

“This can be a powerful tool for those dealers committed, at all times, to manage and maintain this process,” says McDavid.

If a dealer is unable to locate a specific tape, that could support claims of inappropriate business practices by a dealership, he notes.

A number of dealers say they keep the tapes on file for about three years before purging them.

Here is a JM&A list of benefits and drawbacks of videotaping customer transactions:

  • Serves as a staff coaching and teaching tool.
  • Provides ability to audit F&I processes – and staff performance.
  • Deters improper F&I activity; protects against identity theft, possible fraud.
  • Documents F&I staffers making solid presentations – and those who don’t.
  • Allows dealership to review customer agreements in their exact words.
  • Documents customers who refuse to be taped; and possibly why.
  • Allows for excess discovery should a lawsuit arise – an attorney benefit.
  • Gives attorneys the power to review all tapes, not just one client tape.
  • Refusing customers may decide to leave the dealership, shop elsewhere.
  • Could lead to negative staff perceptions – and reactions.