How Dealership Technology Can Reduce Risk and Improve Customer Retention

By Solange Velazquez, Managing Director

While all businesses work to maximize profits and minimize losses, auto dealerships operate on exceedingly tight margins, which means business owners must go to great lengths to protect and grow their bottom lines.

In the first part of this series, we explored how advanced technology helps improve the customer experience at the start of the car-buying journey. But these tools are also critical to the finance and insurance (F&I) process, specifically helping owners avoid risks associated with fraud, employee wrongdoing, and regulatory missteps.

For auto dealerships, F&I—which is one of the biggest profit centers of a dealership—is not only complex and time-consuming, it creates the potential for significant financial liability. To mitigate risk, auto dealerships must address three critical areas: fraud prevention, compliance, and recordkeeping.

Fraud is on the Rise in the Digital Era

According to a recent study by Point Predictive, auto-lending fraud increased to $9.2 billion in 2024—a 16.5% year-over-year increase. Today, dealerships must identify and curb a growing array of fraudulent practices, including straw purchases, credit manipulation, and credit washing, among others.

Filling out fraudulent loan applications is costly for lenders, but it also puts a significant financial strain on dealerships, forcing them into buybacks and creating greater lender scrutiny that can delay future loans.

Employee Error Can Be Costly

Beyond fraud, employee wrongdoing is also a growing problem for auto dealerships. Last year, major auto groups paid seven– and eight– figure settlements to resolve consumer lawsuits over bait-and-switch tactics, junk fees, charging for unwanted add-ons, and discriminatory practices, along with other tactics.

Though individual salespeople may not intend to break the law, they aren’t on the hook for fines and legal fees—owners are—so it’s incumbent on dealerships to ensure that employees are following all applicable rules and regulations.

Protecting Sensitive Customer Information

In addition to proactively identifying fraud and employee misconduct, dealerships are required to closely safeguard sensitive customer data, which means that old-school practices such as relying on pen-and-paper transactions can also run afoul of compliance and regulations.  

As cybersecurity threats grow, recent changes to the Federal Trade Commission’s Safeguards Rule require auto dealerships to develop comprehensive security programs to comply with consumer data privacy and security laws. Additionally, auto dealerships must further follow a patchwork of varying regulations that differ by state and region. 

Tools to Make the Finance & Insurance Process Safe and Efficient

How are dealerships implementing technology as customers move deeper into the sales funnel?

Advanced technology simplifies the process of loan qualification, allowing dealerships to collect and analyze data efficiently—in keeping with all laws, regulations, and security requirements, and to ensure that employees aren’t engaging in unfair, deceptive, or abusive practices, whether knowingly or unknowingly. 

Additionally, these tools are collaborative, bringing auto dealerships together with lenders, regulators, and information providers to make buying a car faster. By investing in technology, dealerships reap the many benefits of efficiency, as AI tools allow them to further streamline their fraud-detection departments and operate on a leaner scale.

Beyond risk prevention, F&I solutions are also ideal for boosting customer satisfaction. Studies show that high net-promoter scores are directly tied to the length of time it takes for customers to complete their purchase. Since these tools allow salespeople to complete the financing process in a fraction of the time as traditional applications, dealerships can provide improved customer service, which makes it more likely that car buyers will return for future purchases.  

An Integrated Experience

For the past decade, dealership productivity has plateaued. Technology—with a focus on deep holistic integration that allows customers to research and buy when and how they want to—can boost productivity by as much as 25%, according to a recent study by McKinsey & Company. 

With the use of modern tools, dealerships can create a seamless, omnichannel experience, with buyers verifying their insurance and securing pre-qualification online and then completing the process in person, safely and securely.

To compete in this difficult economic environment, auto dealerships must win customers without undercutting their bottom line. Auto dealerships that make healthy investments in technology can reduce the risk of fraud, employee wrongdoing, and mishandling of customer information while simultaneously boosting productivity and offering improved customer service.   

This is part two in a three-part series. Next up: technology to support fixed operations.