Sunday, June 01, 2008

Powerbooking: A Dangerous Game


Some of you may have heard the term powerbooking and wonder what it was. Others may have engaged in powerbooking without realizing the risks. For both, I will attempt to explain the practice and its implications.

For every loan, the lender agrees to loan low book or invoice plus hard add-on equipment that appears in the guidebook as an enhancement to the vehicle. Powerbooking is the practice of boosting a vehicle’s book valued by adding fictitious equipment or disguising the trim level. For example, the Lightning Force Performance edition of the Ford F-150 pickup books out at a higher value than the base model. An unscrupulous dealer might intentionally misidentify a base-model F-150 as a Lightning to obtain a higher loan value.

Each lender agreement contains certain guarantees by the dealership to the lender. One such warrant is that the dealership guarantees the vehicle to be as represented. Simply put, the vehicle has to be the same on paper as it is on the lot. The reasons are obvious, but when an F&I manager or sales manager is pressured to get a deal approved, this rule is sometimes ignored. Such behavior is entirely unethical, and it places the contract into an unconditional guarantee environment due to a breach in the dealer/lender agreement.

Dire consequences

Misrepresentation of any sort places dealerships in legal peril. It also damages dealership/lender relationships by destroying the kind of trust that takes years to build. Once the trust between F&I personnel and their lenders is broken, the relationships that dealers rely on to sell loans are irreparably damaged. Even if a lender is still willing to do business with a dealer who has engaged in powerbooking, the process will be slowed because the lender will feel compelled to double-check all the information on the application before approving any more loans.

When funding is delayed, cash flow is affected, and the dealership’s very survival could be jeopardized. I often ask myself how any deal could be worth that amount of grief. One explanation could be that the F&I or sales manager may feel incredible pressure to make a certain level of income.
So what’s the solution?

Checks and balances

Dealerships should implement a process that has the used-car manager verifying or certifying the equipment on every piece of inventory. This would ensure that someone other than the person seeking approval for the loan is physically inspecting the vehicles and verifying the trim level and ass-ons. With the manager in charge of establishing book value (using the most current price guide, of course) and the F&I professional in charge of securing funding, a system of checks and balances can be established.

I can only hope that if and when powerbooking is discovered, senior management takes immediate action to halt this practice. In short, nothing good can ever come out of misrepresentations of any kind.

As always, this article is not meant as legal advice. Please consult your own counsel regarding this or any other legal issue.

As always, this article is not meant as legal advice. Please consult your own legal counsel regarding this or any legal issue.

World of Special Finance Magazine, June 2008, P. 30 & 32