The National Automobile Dealers Association (NADA) is the trade group for new auto dealerships in the U.S. NADA provides many valuable services for their members, including training programs, weeklong seminars, an academy, and setting up “Twenty Groups,” where a dealer will meet regularly with 19 other dealers in their area to get advice and guidance from their peers on current developments in their store. Another valuable service is developing research reports on the retail automotive industry.
A recent research report shows that as a percentage of dealer’s new and used vehicle profits, the Finance and Insurance department (aka F&I) increased from 45% in 2015 to 53% in 2018. This is a major shift in a short period of time, and it is an important one!
A recent survey by the publication Automotive News of the 150 top dealer groups showed that in 2016, customers paid an average of $1,367 for F&I products. The average dealership in the survey saw $2.4 million in revenue in 2016.
First, here is a brief explanation for readers who do not work for a car dealer.
About F&I Departments at Auto Dealerships
The F&I office is where the dealer creates the contract of sale, and where the buyer will arrange how to pay or get a loan. The F&I manager will arrange the financing if the buyer has not already been pre-approved by a bank or their credit union, and will take the down payment which is typically needed for most consumers who do not have a high credit score. The F&I manager has special training in properly filling out the dealer, city or state-mandated legal forms and legal contracts; the salesperson will not have had this training.
How Does the F&I Department Increase Profits?
One of the ways that the F&I department makes money is to sell additional products that the manufacturer does not offer. These typically include the following:
- Extended warranties
- Scheduled maintenance plans
- Gap insurance
- Credit insurance/payment protection
- Car insurance
- Anti-theft devices
- Road hazard and wheel warranties
- Paint and fabric protection.
With the profit contribution as high as it is now, you might wonder if there is any room to increase it.
Here are a few ideas on that score.
How to Make Even Greater Profits in F&I
Ironically, a recent survey by Automotive News found that most dealers make lower profits selling these products to used car buyers than to new car buyers, which seems illogical. If you have a used car, you are more likely to need these products!
One way to fix this is to have a better transition for the customer from the salesperson to the F&I department. The sales team must understand what goes on at F&I, explain it to the customer, qualify them, and identify their needs. Explain early on that the dealership is the best place to get financing because you have multiple lenders that you work with and you can match the right lender to the customer.
The salespeople will be more effective when they really understand the products that they are selling. The customer can tell when the salesperson really believes in the product. Part of this is making an effective presentation. We all know that the consumer wants a faster car-buying experience, not the typical four hours in the store that it has taken historically. One way to do this is a mobile, fully electronic presentation, which will keep everyone focused.
Automotive News also reports that the average F&I revenue per new and used vehicle is $1,482.
The sales percentage is called the “penetration rate.” For extended warranty and service contracts, it is on average 40%. For GAP insurance, it is 28%. For prepaid maintenance it is 12%.
Tracking Is the First Step in Increasing F&I Profits
A good management technique here is to keep track of how your salespeople are doing every month. To do this effectively, track how many customers came into the store, how many prospects were converted to buyers, which products were bought and which were declined, and the gross profit percentage from each component. Then, management can establish monthly benchmarks and review them with the salespeople to see what can be done to bring the numbers up.
Try to understand what is really important to the consumer, rather than just reading them a laundry list of all the available products. Today, consumers are searching for products that match their needs and their interests. To register with them, you have to pay attention and listen to what they say. As is often said in sales, “two ears and one mouth.”
A constant sales pitch that spends time talking about things that are irrelevant to the buyer might create an unpleasant customer experience, and cause the customer to feel that they are being harassed. You don’t want to do that.
But conversely, just because the customer said “No” the first time, doesn’t mean that you should give up. You can put the customer on a follow-up list and follow up after the sale. Of course, you don’t want to be a nuisance, but you want to be polite and persistent.
Here’s something important to keep in mind. Initially, buying a new car can cause the consumer to worry if they are going to have a hard time making the new monthly payment, but after they have done this for a few months, they might be more comfortable about buying an extended warranty for example.
These suggestions apply to used car sales as well.
How CrossCheck Can Help Increase Profits in the F&I Department
Most consumers are definitely concerned about their monthly payment amount. Outside of what they are paying for rent or for a mortgage, it is probably their biggest monthly expense. Applying for a loan is stressful for most people. In many cases, they will be surprised to find that, having found the exact car they want on your lot, it is going to cost a few thousand dollars more than they budgeted because of the F&I products that they bought, or that the bank requires a down payment.
You want to reduce the stress level as much as possible, and one way to do that is to tell the consumer about the CrossCheck Multiple Check program.
With Multiple Check in place, the consumer gets an extra 30 days to come up with the money for the down payment, and they don’t pay any interest to do that. They can write 2 – 4 checks (each bearing the same transaction date), and choose the amount and date of deposit for each one.
The F&I department runs the checks through our imager for authorization, and when approved, they are franked and given back to the consumer. Those checks are now guaranteed by CrossCheck.
CrossCheck even does the banking for dealers who pair Multiple Check with Remote Deposit Capture (a fast form of Electronic Check Processing).
This is truly a win-win for the dealer, the consumer, and the F&I department.
Download our free guide to learn how Multiple Check can help increase profits at your F&I department.