Has F&I Profit Per Vehicle Reached its Peak?
With the auto industry enjoying year-over-year growth for the last several years the big question for many dealers is, how long will the good times continue to roll? More specifically, will F&I departments continue as significant profit centers in the future? We got an expert take on the future of F&I from Dave Robertson, Co-Founder & Executive Director for the Association of Finance & Insurance Professionals and Rick Kurtz, Senior Vice President of Protective Asset Protection. Turns out the short answer to this all-important question is, “yes, with some work.”
Regarding the future viability of F&I products, Dave Robertson explains that if buyers didn’t find value in the products and services provided by F&I departments they wouldn’t agree to purchase them. As long as those unfulfilled needs continue to exist – and F&I departments continue to meet them – F&I will continue as a profit center. However, what constitutes “consumer need” continues to evolve and changes in the buying experience, differences in generational expectations and vehicles themselves are in a constant state of flux. Dealers will need to stay on top of these changing dynamics.
Robertson points out that increased F&I product penetration is key to future success. With markup thresholds for aftermarket products being established and aggressively enforced along with the loss of many peripheral and gingerbread products, emphasis will shift from revenue generated per-item-sold to higher levels of penetration across a smaller array of available products.
Brisk sales ensure a steady supply of customers to the F&I box. As sales decline more time is spent working each customer and typically F&I product penetration increases when things slow down. As a result, a moderate reduction in sales may not produce a corresponding reduction in F&I revenue. In fact, it could inch upward. But if sales continue to decline, every aspect of your F&I operation will need to be reviewed. Questions that Robertson suggests you ask yourself include; Are products with similar benefits available for lower wholesale prices? Is additional product knowledge and conversion technique training required? Can the F&I department function with fewer people?
So, what should dealers do to maintain a productive and hassle free F&I operation? Robertson suggests the following steps.
- Establish realistic penetration and profitability expectations that encompass all aspects of the F&I department’s activities. Catch 22 performance standards – expectations that can only be achieved by bending the truth or the law are a recipe for disaster. Where applicable, CSI performance should be a factor.
- Recognize the correlation between F&I performance and the actions of sales and desk managers. All parties to the transaction must work in unison toward a common objective.
- All parties should be fully conversant with conversion techniques, product knowledge and the governing state and federal consumer regulations.
- With FTC, CFPB and state AG oversight becoming more prevalent, dealers should establish reasonable profit & retail pricing thresholds, monitor activity to ensure compliance and take documented remedial action if needed. Implementing the NADA Fair Credit Compliance Policy & Program is a good place to start.
- Conduct periodic assessments of your F&I offerings with an emphasis on realistically realized consumer benefits and profitability. Subjecting current and potential products to review by a qualified attorney and fully executing the documents will dramatically reduce future hassles.
- Promote the benefits and services provided by your F&I department as an integral part of your store’s overall marketing agenda.
- If you’re charged with consummating the transaction, a review of you well you handled it should be conducted the moment the customer walks out the door. The equitable practices test is: how many of the parties to the deal I just processed came away as winners? Parties include the customer, the funding or leasing source, the aftermarket product vendors, the selling dealer, the retail auto automobile industry and, of course, you. The goal is to make sure all parties have been well served otherwise your actions will be of detriment to one or more of the parties involved – including you.