Dealer Financial Products as Instruments for Managing Vehicle Affordability and Consumer Risk

Abstract

This study examines the role of dealership-based financial products in shaping vehicle affordability and managing consumer financial risk in the contemporary U.S. automotive retail market. Rising average transaction prices, which approached $48,600 for new vehicles in 2024, combined with a 63% increase in auto loan delinquencies between 2021 and 2024, have intensified the relevance of Finance and Insurance (F&I) instruments for both buyers and retail institutions. Using a systematic review of peer-reviewed literature, regulatory reports, and industry data, this paper analyzes how products such as Guaranteed Asset Protection (GAP) insurance, vehicle service contracts, payment protection, and dealer-arranged financing collectively function as a consumer risk-transfer mechanism. The analysis identifies a taxonomy of F&I products by risk category, evaluates their distributional effects across credit tiers, and proposes an original Dealer Financial Product Accessibility Model (DFPAM) linking product bundling strategy to affordability outcomes. Findings indicate that structured F&I bundling, when aligned with borrower credit profiles, can reduce 12-month default probability for subprime consumers and extend effective vehicle access to households otherwise excluded by credit constraints. The results are of interest to automotive retail managers, consumer finance regulators, and researchers in applied financial economics.