Control Is the Key to Successful Profit Participation

A dealership can share income from the sale of F&I products with a range of participation models aligned with the dealership’s business needs, strategy and risk tolerance.

Jeff Strickland, Senior Vice President

July 5, 2024

4 Min Read
Dealers’ profit participation programs being enhanced by new technology, systems.Getty Images

In today’s retail automotive landscape, it would be easy for dealers to focus on issues they can’t control, including lingering inflation, stubbornly high interest rates and ongoing pre-owned inventory challenges. Since many of those key factors can negatively impact sales and revenue, it’s time to flip the script and focus on something they can control: their profit participation.

Profit participation, including reinsurance, allows dealers to share in the profits on the finance and insurance (F&I) products they sell. When a product is sold, the F&I product provider keeps the reserve to pay claims. Dealers can participate in that income with a range of participation models aligned with a dealership’s business needs, strategy and risk tolerance. Participation positions can generally be built for F&I products that include vehicle service contracts, limited warranties, GAP insurance, tire and wheel protection, appearance protection and other F&I products that make sense for a dealer’s market and business needs. 

How does that affect a dealer’s control? That control begins with choosing the right participation partner. It continues when dealers can control the frequency with which they review the performance of the model against the dealership’s goals and challenges; what do they want out of it – short-term profit? Long-term gains? Simply building significant cash flow? And now, increasingly, dealers can control their surplus and cash flow by taking advantage of new technology and systems that are transforming how dealers can manage their profit participation programs.

Control the Partnership

Central to optimizing profit participation is the selection of the right partner. Dealerships must conduct thorough due diligence to identify a partner capable of offering a comprehensive suite of participation models. With trust as a focal point, dealers should ask the hard question: Is their current partner working for their own benefit, or that of the dealership? Are they steering the dealer toward a model that works best for the dealer’s situation, or one that drives provider revenue first? By choosing a partner with a robust understanding of the industry and a track record of success – combined with the latest technology to get the best out of every model – dealerships can establish a collaborative relationship built on trust and mutual benefit.

Control the Cadence of Model Audits

Dealerships must also have the flexibility to seamlessly transition between participation models without incurring additional fees or productivity losses. But how do dealers know it’s time to switch? By regularly assessing the performance of their participation strategy – ideally, quarterly – dealerships can fine-tune their approach to align with business objectives. This iterative process of evaluation and adjustment enables dealerships to stay ahead of the curve and maximize their profitability in a competitive market.

Control the Cash Flow

With cash flow so important, dealers can seek a participation solution that enables them to easily access and quickly move surplus funds digitally – much like online banking. Leveraging these advancements, dealerships can manage cash flow to sustain operations and fuel growth during a buyer’s market. All while saving time and increasing store-level efficiency.

Look for secure, self-service tools that will not only boost overall efficiency but also provide better visibility and faster delivery of surplus. Ideally, this comes in the form of a portal that provides deep knowledge and up-to-the-minute insights into the health of current participation performance. Dealers should seek a solution that enables them to access statements, analyze trends and monitor performance with the following kinds of capabilities:  

  • Quarterly reinsurance reviews

  • Cession statements

  • Dealer experience reports

  • Dealer loss control report

  • Monthly claim detail reports

  • Loyalty reports

When it comes to accessing surplus funds, there’s no longer any need to slog through an outdated system of emails, inquiries and responses, which lengthen processing time and tax dealer staff. With maximum dealer control in mind, today’s systems should offer the following:

  • Self-managed money transfers

  • Faster access to funds

  • On-demand transaction history

  • Transfer request tracking

  • Modern data security measures

  • Automatic statement collection

  • Batch downloading

  • Audit support

Select the Right Participation Model

Choosing the best participation model requires a nuanced understanding of dealership goals, risk tolerance and financial objectives. Dealers must conduct comprehensive assessments of their short- and long-term needs, considering factors such as cash flow requirements, wealth-building goals and risk appetite. Partnering with a knowledgeable and transparent provider is crucial, ensuring access to all available participation models and tailored guidance to maximize profitability. By aligning their participation strategy with their business objectives, dealers can optimize financial performance and bolster sustainable growth in a rapidly evolving industry.

Bringing It All Together

Control is key to optimizing profit participation for today’s auto dealerships. By selecting the right partner, with the flexibility to move seamlessly between models with no fees, and leveraging innovative cash flow solutions, dealerships can navigate market uncertainties and capitalize on lucrative opportunities. With a strategic and committed approach to profit participation, dealers can enhance their sustainable profitability and long-term success.

About the Author(s)

Jeff Strickland

Senior Vice President, Assurant Dealer Services

Jeff Strickland is Senior Vice President of Assurant Dealer Services and Strategic Accounts at Assurant Global Automotive. Strickland is a 25-year industry executive with extensive dealer operations, marketing, digital and F&I experience.

Subscribe to a WardsAuto newsletter today!
Get the latest automotive news delivered daily or weekly. With 5 newsletters to choose from, each curated by our Editors, you can decide what matters to you most.

You May Also Like